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First American (FAF) Q3 Earnings Beat Estimates, Decline Y/Y

First American Financial Corporation FAF reported third-quarter 2022 operating income per share of $1.62, which beat the Zacks Consensus Estimate by 8%. The bottom line declined 24.6% year over year.

The quarterly earnings reflect lower expenses and higher net investment income, partly offset by soft performance at both Title Insurance and Services segment and the Specialty Insurance segment.

First American Financial Corporation Price, Consensus and EPS Surprise

First American Financial Corporation Price, Consensus and EPS Surprise
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

Revenues of $1.8 billion declined 28.6% year over year due to lower direct premiums and escrow fees, agent premiums and information and other. The top line missed the Zacks Consensus Estimate by 8.3%.

Net investment income surged 96.1% to $100 million.

The total expense of $1.8 billion decreased 6.4% year over year due to lower personnel costs, premiums retained by agents, other operating expenses, provision for policy losses and other claims and premium taxes.

Segment Results

Title Insurance and Services: Total revenues, excluding net investment gains, decreased 9.2% year over year to $1.9 billion. Direct premiums and escrow fees decreased 17% year over year, driven by a 36% decline in the number of direct title orders closed. It was partly offset by a 29% increase in the average revenue per direct title order closed.

Pretax margin contracted 650 basis points (bps) year over year to 9.9%. Title open orders decreased 35.3% to 206,200, while Title closed orders decreased 36.5% to 160,500. The average revenue per direct title order increased to $3,734. The increase was due to shift in the mix to higher premium commercial transactions from lower premium refinance transactions and the revenue benefit related to recent escrow company acquisitions.

Specialty Insurance: Total revenues, excluding net investment gains, decreased 19.5% year over year to $107 million. The pretax margin was negative 5.7%, compared to negative pretax margin of 0.8% in the year ago quarter.

Financial Update

First American exited the third quarter with cash and cash equivalents of $2.4 billion, up 92.3% from 2021 end. Notes and contracts payable were $1.6 billion, down 0.06%.

Stockholders’ equity was $4.5 billion, down 21.8% from 2021 end.

The debt-to-capital ratio was 30.5 at quarter end.

Cash flow from operations of $302 million dropped 24.3% year over year.

Share Repurchase Update

FAF bought back 1.3 million shares for $72 million in the third quarter and another 0.339 million shares for $16 million in October. First American increased common stock dividend by 2% to an annual rate of $2.08 per share.

Zacks Rank

First American currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Some Other P&C Insurers

Of the insurance industry players that have reported third-quarter results so far, W.R. Berkley Corporation WRB and Arch Capital Group Ltd. ACGL beat the respective Zacks Consensus Estimate for earnings, while AXIS Capital Holdings Limited AXS missed the mark.

W.R. Berkley’s third-quarter 2022 operating income of $1.01 per share beat the Zacks Consensus Estimate of 82 cents by 23.2%. The bottom line improved 14.8% year over year. W.R. Berkley’s net premiums written were a record $2.6 billion, up 10.8% year over year.

Operating revenues came in at $2.8 billion, up 16.7% year over year, on the back of higher net premiums earned as well as higher net investment income. The top line beat the consensus estimate by 2.7%. Core net investment income increased 51% year over year, benefiting from higher yields.

Arch Capital Group reported third-quarter 2022 operating income per share of 28 cents per share, which beat the Zacks Consensus Estimate by 16.7%. The bottom line, however, decreased 62.2% year over year. Gross premiums written improved 20.4% year over year to $3.9 billion.

Net premiums written climbed 31.2% year over year to $2.7 billion on higher premiums written across its Insurance and Reinsurance segments. Net investment income increased 45.9% year over year to $128.6 million and beat our estimate of $94.2 million.

AXIS Capital Holdings posted third-quarter 2022 operating income of 3 cents per share, which missed the Zacks Consensus Estimate by about 25% but beat our estimate of a loss of 38 cents. The bottom line increased two-fold year over year.

Total operating revenues of $1.4 billion increased 3.6% year over year on higher net premiums earned. Net investment income decreased 17.8% year over year to $88.2 million, primarily attributable to losses from other investments compared to gains from these investments in the prior year.


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