First American (FAF) Q2 Earnings & Revenues Beat Estimates
First American Financial Corporation FAF reported second-quarter 2023 operating income per share of $1.35, which beat the Zacks Consensus Estimate by 40.6%. The bottom line decreased 31.4% year over year.
The insurer’s residential purchase business continues to be constrained by affordability issues, primarily due to high mortgage rates, along with low inventory that has kept home prices elevated. However, solid business, strong growth in net investment income and expense management helped it generate a 12.1% pretax margin.
First American Financial Corporation Price, Consensus and EPS Surprise
First American Financial Corporation price-consensus-eps-surprise-chart | First American Financial Corporation Quote
Behind the Headlines
Operating revenues of $1.6 billion decreased 20% year over year due to lower direct premiums and escrow fees, agent premiums, and information and other. The top line however beat the Zacks Consensus Estimate by 9.5%.
Investment income was $150.3 million in the second quarter, up nearly three-fold year over year. The increase was primarily due to rising interest rates, partly offset by lower average balances. Our estimate was $152.9 million. The Zacks Consensus Estimate was pegged at $147 million.
Expenses declined 23.5% to $1.5 billion. Our estimate was $1.4 billion.
Segment Results
Title Insurance and Services: Total revenues, excluding net investment gains and losses, decreased 25% year over year to $1.5 billion. The downside was due to lower direct premiums and escrow fees, agent premiums and information and other. Our estimate was $1.4 billion.
Adjusted pretax margin contracted 180 basis points (bps) year over year to 12.6%.
Title open orders per day decreased 25.3%. Title closed orders per day decreased 37.4%. The average revenue per direct title order increased 3.3%, primarily attributable to a shift in the mix to higher premium commercial transactions from lower premium refinance transactions.
Home Warranty: Total revenues increased slightly to $106.5 million, up 4% year over year. Our estimate was $104.5 million.
Pretax income of $14.3 million surged 60.7% year over year. The claim loss rate was 49.2% in the second quarter, contracting 330 bps, primarily due to lower claim frequency severity, partly offset by higher claim severity. Adjusted pretax margin was 12.9%, up 110 bps year over year.
Corporate
Beginning first-quarter 2023, all current and prior year results for the company’s property and casualty business have been reclassified to Corporate.
Net investment income was $7 million this quarter against a loss of $18 million in the second quarter of 2022.
The segment posted a net loss of $22 million in the second quarter.
Financial Update
First American exited the quarter with cash and cash equivalents of $2.2 billion, up 83.6% from 2022 end.
Notes and contracts payable were $1.4 billion, down 15.3%.
Stockholders’ equity was $4.8 billion, up 2.3% from 2022 end. The debt-to-capital ratio was 29.2%.
Share Repurchase Update
FAF bought back shares worth $15 million in the second quarter of 2023.
Zacks Rank
FAF currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Insurers
The Travelers Companies TRV reported second-quarter 2023 core income of 6 cents per share, which missed the Zacks Consensus Estimate of $2.27. The bottom line decreased 97.7% year over year, primarily attributable to higher-than-expected catastrophe loss.
Travelers’ total revenues increased 9.8% from the year-ago quarter to $10.1 billion, primarily driven by higher premiums. The top-line figure was almost in line with the Zacks Consensus Estimate.
Net written premiums increased 14% year over year to a record $10.3 billion, driven by strong growth across all three segments. The figure was higher than our estimate of $9.1 billion.
Travelers witnessed an underwriting gain of $781 million, up 38% year over year, driven by record net earned premiums of $9.2 billion and a consolidated underlying combined ratio, which improved 170 basis points. The combined ratio deteriorated 820 basis points year over year to 106.5 due to higher catastrophe losses and lower net favorable prior-year reserve development, partially offset by a lower underlying combined ratio.
The Progressive Corporation’s PGR second-quarter 2023 earnings per share of 50 cents missed the Zacks Consensus Estimate of 88 cents. The bottom line declined 47.4% year over year.
Net premiums earned grew 19% to $14.5 billion and beat our estimate of $12.9 billion as well as the Zacks Consensus Estimate of $14.3 billion. The combined ratio deteriorated 480 bps from the prior-year quarter’s level to 104.
Policies in force were solid in the Personal Auto segment, increasing 17% from the year-ago month’s figure to 19.7 million. Special Lines improved 7% to 5.8 million.
W.R. Berkley Corporation’s WRB second-quarter 2023 operating income of $1.14 per share beat the Zacks Consensus Estimate by 6.5%. The bottom line increased 1.8% year over year.
Operating revenues came in at $2.9 billion, down 57.4% year over year, on the back of higher net premiums earned as well as higher net investment income. The top line missed the consensus estimate by 1.2%.
W.R. Berkley’s net premiums written were a record $2.8 billion, up 8.7% year over year, as market conditions remained favorable for most lines of business. Our estimate for the same was $2.7 billion.
Catastrophe losses totaled $53.5 million in the quarter. The consolidated combined ratio (a measure of underwriting profitability) deteriorated 100 basis points to 89.6, in line with the Zacks Consensus Estimate. Our estimate for the combined ratio was 91.3.
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