Fitch Ratings has downgraded the Issuer Default Rating (IDR) of Fidelity National Financial, Inc. (NYSE: FNF) two notches to 'B+' from 'BB'. Fitch also has downgraded the Insurer Financial Strength (IFS) ratings of FNF's title insurance subsidiaries one notch to 'BBB-' from 'BBB', with the exception of the former LandAmerica title subsidiaries, which Fitch has affirmed at 'BBB-' (please see complete list of underwriter IFS ratings below). The Rating Outlook for all ratings is Negative.
The IFS rating downgrade reflects continuation of what Fitch considers to be an aggressive capital management strategy where the operating leverage of the underwriting subsidiaries has increased to a level beyond peer companies. On a consolidated basis, Fitch's Risk Adjusted Capital (RAC) ratio for the title group was 73% at year end 2008 and deteriorated slightly to an estimated 71% on June 30, 2009. FNF continues to reduce statutory surplus at the underwriters through dividends to the parent to support shareholder dividends and share buybacks at the holding company level.
At a RAC ratio well under 100%, Fitch views statutory capital as being at a level generally below expectations for an investment grade IFS rating. However, despite this weak capitalization, Fitch maintains an investment grade IFS rating on FNF's subsidiaries in recognition that operating results both historically and through the first half of 2009 were better than peers. Favorably as well for the rating, FNF holds approximately 46% market share in the title insurance industry following the acquisition of LandAmerica Financial Group's underwriters at year end 2008.
The two-notch downgrade of FNF's IDR reflects both the downgrade of the IFS rating, as well as greater weight given the substantial amount of goodwill at the holding company under our operating company-holding company notching methodology within the title insurance industry. The resulting debt-to-tangible capital ratio of 44% as of June 30, 2009 is outside of Fitch's expectations. Fitch notes, however, that FNF favorably reduced financial leverage by paying down debt following an equity offering in April 2009.
The Negative Outlook reflects the challenges faced by the title insurance industry in general as mortgage originations and house values remain pressured. The Negative Outlook also considers Fitch's concerns regarding the modest statutory capital levels at key underwriters as well as general integration risk of the former LandAmerica underwriters during an extraordinarily difficult operating environment.
Fitch has taken the following rating actions:
Fidelity National Financial, Inc.
--Issuer Default Rating (IDR) downgraded to 'B+' from 'BB';
--$250 million 7.3% senior note maturing Aug. 15, 2011 downgraded to 'B' from 'BB-';
--$250 million 5.25% senior note maturing March 15, 2013 downgraded to 'B' from 'BB-';
--Unsecured bank line of credit downgraded to 'B' from 'BB-'.
Fidelity National Title Ins. Co.
Ticor Title Ins. Co. of FL
Alamo Title Insurance Co. of TX
Nations Title Insurance of NY
Chicago Title Ins. Co.
Chicago Title Ins. Co. of OR
Security Union Title Ins. Co.
Ticor Title Ins. Co.
--Insurer Financial Strength (IFS) downgraded to 'BBB-' from 'BBB'.
Lawyers Title Insurance Corp.
Commonwealth Land Title Insurance Co.
LandAmerica NJ Title Insurance Co.
--IFS affirmed at 'BBB-'.
National Title Ins. Co. of NY
--IFS rating withdrawn.
The Rating Outlook for all ratings is Negative.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site. The issuer did not participate in the rating process other than through the medium of its public disclosure.
Contacts:
Fitch Ratings, Chicago
Douglas M. Pawlowski, CFA, 312-368-2054
Gerald
B. Glombicki, 312-606-2354
or
Media Relations:
Brian
Bertsch, 212-908-0549, New York
Email: brian.bertsch@fitchratings.com