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First American (FAF) to Gain From Solid Segmental Performance

First American Financial Corporation’s FAF improved agent premiums, higher direct premiums and escrow fees, effective capital deployment and favorable growth estimates make it worth retaining in one’s portfolio.

The Title Insurance and Services business of First American is expected to gain momentum from improved agent premiums, higher direct premiums and escrow fees, and increased domestic residential purchase and commercial transactions.

Higher operating revenues in the home warranty business and higher net realized investment gains in both the home warranty and property and casualty businesses should drive the Specialty Insurance business.

A higher number of closed orders, coupled with an increase in the average revenue per order, solid performance of the commercial market, and improved direct premium and escrow fees from favorable refinance are likely to drive top-line growth.

In line with its strategic initiatives, the title insurer actively pursues acquisitions to boost and expand its core business. The acquisitions are likely to expand the insurer’s title insurance business and settlement and escrow services, enhance its capabilities to better serve customers as well as strengthen its international presence. These initiatives will contribute to the revenue growth of First American.

Investment income within the Title Insurance and Services segment will continue to gain from higher average invested balances. Based on the improving interest rate environment, FAF anticipates annualized investment income to increase by $200 million by 2022 end, up from $150 million expected earlier.

First American boasts a healthy balance sheet along with an impressive solvency level, which implies that its cash reserves are sufficient to meet debt obligations.

First American has increased dividends at an eight-year CAGR (2015-2022) of 9.3%. With the increase in authorization, the insurer has $400 million remaining under the share repurchase authorization. The dividend hike and increase in repurchase authorization reflect the insurer’s strong financial condition, liquidity, and long-standing commitment to return capital to stockholders.

Other Players

Other key players in the property and casualty insurance industry include W.R. Berkley Corporation WRB, American Financial Group, Inc. AFG and Arch Capital Group Ltd. ACGL.

W.R. Berkley’s earnings surpassed estimates in each of the last four quarters, the average earnings surprise being 29.95%.

W.R. Berkley stands to gain from higher premiums at other liability, professional liability, short-tail lines, benefits derived from market dislocations and high retention. The underwriting profitability is likely to benefit from growth in premium rates and exposure as well as reductions in loss ratio. Continued growth in premiums and expansion in underwriting profits are likely to boost the operations of the insurer.

American Financial’s earnings surpassed estimates in each of the last four quarters, the average beat being 37.09%.

American Financial’s business opportunities, growth in the surplus lines and excess liability businesses, rate increases, and higher retentions in renewal business boost premium growth. AFG is actively involved in start-ups, small-to-medium-sized acquisitions, and product launches.

The bottom line of Arch Capital surpassed earnings estimates in three of the last four quarters and missed in one, the average being 33.64%.

Arch Capital remains poised to gain from solid growth within professional liability and travel business units in both North America and internationally. The P&C insurer boasts an impressive solvency level. Cash flow from operations is likely to gain from higher premiums.


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W.R. Berkley Corporation (WRB): Free Stock Analysis Report
 
First American Financial Corporation (FAF): Free Stock Analysis Report
 
American Financial Group, Inc. (AFG): Free Stock Analysis Report
 
Arch Capital Group Ltd. (ACGL): Free Stock Analysis Report
 
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