First American (FAF) Tops Q3 Earnings Estimates, Raises Dividend
First American Financial Corporation FAF reported third-quarter 2023 operating income per share of $1.22, which beat the Zacks Consensus Estimate by 11.9%. Shares gained 1.7% in the aftermarket trading session to reflect the outperformance.
The bottom line however decreased 24.7% 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, a solid business, strong growth in net investment income and expense management helped it generate a 12% pretax margin.
Behind the Headlines
Operating revenues of $1.5 billion decreased 18.7% 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 6%.
Investment income was $139.1 million, up 38.2% year over year. The increase was primarily due to rising interest rates. Our estimate was $148.9 million. The Zacks Consensus Estimate was pegged at $147 million.
Expenses declined 18.8% 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 19% 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. The Zacks Consensus Estimate was pegged at $1.5 billion.
Adjusted pretax margin contracted 130 basis points (bps) year over year to 12%.
Title open orders per day decreased 23.7%. Title closed orders per day decreased 25%. Average revenue per direct title order decreased to $3,653, primarily attributable to the impact of lower average revenue per order for commercial transactions.
Home Warranty: Total revenues increased slightly to $108.2 million, up 3% year over year. Our estimate was $100 million. The Zacks Consensus Estimate was pegged at $100 million.
Pretax income of $160 million declined 13.5% year over year. The claim loss rate was 55% in the third quarter, contracting 390 bps, primarily due to lower claim frequency severity and higher claim severity. Adjusted pretax margin was 9.3%, up 390 bps year over year.
Corporate
Beginning first-quarter 2023, all current and prior-year results of the company’s property and casualty business have been reclassified to Corporate.
Net investment income was ($4 million) this quarter, primarily attributable to changes in the value of investments associated with the company’s deferred compensation program
The segment posted a net loss of $171 million in the third quarter.
Financial Update
First American exited the quarter with cash and cash equivalents of $1.8 billion, up 29.1% from 2022 end.
Notes and contracts payable were $1.4 billion, down 15.4%.
Stockholders’ equity was $4.5 billion, down 2.9% from 2022 end. The debt-to-capital ratio was 29.7%.
Share Repurchase Update
The board of directors increased dividend by 2% to an annual rate of $2.12 per share. FAF bought back shares worth $9 million in the third quarter of 2023 and another $9 million in October.
Zacks Rank
FAF 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
The Travelers Companies TRV reported third-quarter 2023 core income of $1.95 per share, which missed the Zacks Consensus Estimate by 33.4%. The bottom line decreased 11.4% year over year, primarily attributable to higher catastrophe losses and net unfavorable prior-year reserve development. Travelers’ total revenues increased 14% from the year-ago quarter to $10.6 billion, primarily driven by higher premiums. The top-line figure beat the Zacks Consensus Estimate by 1.3%.
Net written premiums increased 14% year over year to a record $10.4 billion, driven by strong growth across all three segments. The figure was higher than our estimate of $9.4 billion. Travelers witnessed an underwriting gain of $868 million, up 43% year over year, driven by record net earned premiums of $9.7 billion and a consolidated underlying combined ratio, which improved by 90.6%.
The Progressive Corporation’s PGR third-quarter 2023 earnings per share of $2.09 beat the Zacks Consensus Estimate of $1.71. The bottom line improved more than fourfold year over year. Net premiums written were $15.6 billion in the quarter, which grew 20% from $13 billion a year ago and beat our estimate of $14.2 billion.
Net premiums earned grew 20% to $14.9 billion, beating our estimate of $13.6 billion and the Zacks Consensus Estimate of $14.8 billion. Net realized losses on securities were $149 million, narrower than a loss of $216.4 million in the year-ago quarter. The combined ratio — the percentage of premiums paid out as claims and expenses — improved 680 bps from the prior-year quarter’s level to 92.4.
RLI Corp. RLI reported third-quarter 2023 operating earnings of 61 cents per share, beating the Zacks Consensus Estimate by 510%. The bottom line improved 22% from the prior-year quarter. Operating revenues for the reported quarter were $350.4 million, up 12.1% year over year, driven by 9.2% higher net premiums earned and 50.3% higher net investment income. The top line, however, missed the Zacks Consensus Estimate by 7.2%.
Gross premiums written increased 11.3% year over year to $449.3 million. Underwriting income of $4.2 million decreased 52.3%, primarily due to Hawaiian wildfire losses. The combined ratio deteriorated 170 bps year over year to 98.7. Our estimate was 90.8.
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