First American Financial Stock

First American Financial Corporation, through its subsidiaries, provides title insurance, settlement services and other financial services and risk solutions.

Strategy

The company’s strategy is to grow its core title insurance and settlement services business, expand its data advantage to strengthen its core business and pursue growth opportunities, and manage and actively invest in complementary businesses where the company has a strategic advantage. The company focuses on continued improvement of its customers’ experience with its products, services and solutions, including through the digital transformation of its offerings, and on enhancing its services offered to its customers.

Segments

The company operates through Title Insurance and Services; and Home Warranty segments.

Title Insurance and Services

This segment issues title insurance policies on residential and commercial property in the United States and offers similar or related products and services internationally. This segment also provides closing and/or escrow services; accommodates tax-deferred exchanges of real estate; provides products, services and solutions designed to mitigate risk or otherwise facilitate real estate transactions; maintains, manages and provides access to title plant data and records; provides appraisals and other valuation-related products and services; provides lien release, document custodial and default-related products and services; provides document generation services; provides warehouse lending services; subservices mortgage loans; and provides banking, trust and wealth management services. In 2023, the company derived 95.4% of its consolidated revenues from this segment.

The Title Insurance and Services segment provides title insurance, closing and/or escrow services and similar or related services domestically and internationally in connection with residential and commercial real estate transactions. The segment also provides products, services and solutions that are designed to mitigate risk in, or otherwise facilitate, real estate transactions. Many of these products, services and solutions involve the use of real property-related data, including data derived from the company’s proprietary databases.

Title Insurance Operations

The company conducts its title insurance and closing business through a network of direct operations and agents. Through this network, the company issues policies in the 49 states that permit the issuance of title insurance policies, the District of Columbia and certain United States territories. The company also offers title insurance, closing services and similar or related products and services, either directly or through third parties in other countries, including Canada, the United Kingdom, Australia, New Zealand, South Korea and various other established and emerging markets.

The substantial majority of the company’s title insurance and closing business is dependent upon activity in the real estate and mortgage markets, which are cyclical and seasonal. Residential purchase activity is typically slower in the winter months with increased volumes in the spring and summer months and is sensitive to interest rates. Residential refinance activity is not seasonal, but is generally correlated with changes in interest rates. Commercial real estate volumes are less sensitive to changes in interest rates, but fluctuate based on local supply and demand conditions and financing availability and the company typically sees elevated activity towards the end of the year. However, changes in general economic conditions in the United States and abroad can cause fluctuations in these traditional patterns of real estate activity, and changes in the general economic conditions in a particular geography can cause fluctuations in these traditional patterns of real estate activity in that geography.

Distribution, Sales and Marketing: The company distributes its title insurance policies and related products and services through its direct and agent channels. In its direct channel, the distribution of the company’s policies and related products and services occurs through sales representatives located throughout the United States. Title insurance policies issued, and other products and services delivered through, this channel are primarily delivered in connection with sales and refinances of residential and commercial real property.

Within the direct channel, the company’s sales and marketing efforts are focused on the primary sources of business referrals. For residential business, the company generally markets to real estate agents and brokers, mortgage brokers, real estate attorneys, mortgage originators, homebuilders and escrow service providers. The company also markets directly to firms that purchase and sell residential real estate on a large-scale basis. For refinance and default-related business, the company markets directly to mortgage originators and servicers with centrally managed platforms and government-sponsored enterprises. For the commercial business, the company markets primarily to principals, developers, and investors; real estate investment trusts; law firms; commercial lenders; life insurance companies; commercial brokers and mortgage brokers. The company’s marketing efforts emphasize its product and service offerings, the quality and timeliness of its services, its financial strength, process and product innovation and its national presence. The company also provides educational information on its website and through other means to help consumers and others better understand its products, services, the title and settlement process in general, and real estate market economic trends.

In its agency channel, the company issues policies in accordance with agreements with authorized agents. These agreements typically state the conditions under which the agent is authorized to issue the company’s title insurance policies. The agency agreement also typically prescribes the circumstances under which the agent may be liable to the company if a policy loss occurs, as well as the services it provides to the agent and the price for those services. Those services vary by geography and from agent to agent. The company is continuing to seek to provide additional services to its agents, including banking services and closing-related services, in an effort to reduce risk and enhance relationships with its agents. As is standard in its industry, the company’s agents typically operate with a substantial degree of independence from it and typically act as agents for other title insurers.

Within the agency channel, the company’s sales and marketing efforts are directed at the agents themselves and emphasize the quality and timeliness of its underwriting support, its financial strength and its agency-based product and service offerings, including product innovations. Premium splits also are of importance in attracting and retaining agents.

International Operations: The company provides products and services in a number of countries outside of the United States, and its international operations accounted for approximately 6.5% of its title insurance and services segment revenues in 2023. The company has direct operations and a physical presence in several countries, including Canada, the United Kingdom, South Korea, Australia and New Zealand. In certain established markets, primarily British Commonwealth countries, the company has combined title insurance with customized processing offerings to enhance the speed and efficiency of the mortgage and conveyancing processes. In these markets, the company also offers products designed to mitigate risk and otherwise facilitate real estate transactions.

Data and Title Plants: The company’s title insurance business is heavily dependent on data. Underwriting decisions require comprehensive and accurate data. In an attempt to enhance efficiency and reduce risk, certain underwriting functions are increasingly being automated.

The company’s title plants constitute one of its principal assets. A title search is typically conducted by searching the abstracted information from public records or utilizing a title plant holding information abstracted from public records. While public title records generally are indexed by reference to the names of the parties to a given recorded document, the company’s title plants primarily arrange their records on a geographic basis. Because of this difference, title plant data and records generally may be searched more efficiently. Many of the company’s title plants also index prior title insurance policies, adding to searching efficiency.

Reserves for Claims and Losses: The company provides for losses associated with title insurance policies, closing protection letters and other risk-based products based upon its historical experience and other factors by a charge to expense when the related premium revenue is recognized.

Competition: The company’s major nationwide competitors in its principal markets include Fidelity National Financial, Inc., Old Republic International Corporation, Stewart Title Guaranty Company, and their affiliates.

Data and Analytics: The company’s data and analytics business offers property information and analytic solutions for title underwriting automation, fraud risk management, identity verification, compliance and valuation that are powered by its extensive collection of real estate property data, ownership data and recorded documents. These solutions enable the company’s title insurance operations, lenders, other title companies and other real estate industry participants to make informed, and increasingly automated, decisions to manage workflow and auditing and compliance operations.

Trust, Wealth Management and Banking Services: The company’s federal savings bank subsidiary offers trust, wealth management and deposit products and related services, including fund transfer services. The bank’s deposits consist primarily of funds deposited by its affiliates and, in some instances, by non-affiliated title agents. The majority of such deposits are from third parties to be held in trust pending the closing of real estate transactions, but there is also a portion of which are custodial funds held on behalf of clients of the company’s residential mortgage subservicer subsidiary. The bank also maintains other deposits, including operating funds deposited by its affiliates.

Home Warranty segment

This segment provides residential service contracts that cover residential systems, such as heating and air conditioning systems, and certain appliances against failures that occur as the result of normal usage during the coverage period. Coverage is typically for one year and is renewable annually at the option of the contract holder and upon the company’s approval. Coverage and pricing typically vary by geographic region. Fees for the warranties generally are paid at the closing of the home purchase or directly by the consumer. In addition, under the contract, the holder is responsible for a service fee for each trade call. First year warranties are marketed through real estate brokers and agents, and the company also markets directly to consumers. The company generally sells renewals directly to consumers. Revenues associated with home warranties sold at the time of a home purchase are dependent upon activity in the residential purchase market, which is cyclical and seasonal. Residential purchase activity is typically slower in the winter months with increased volumes in the spring and summer months and is sensitive to interest rate fluctuations. The company’s home warranty business operates in 36 states and the District of Columbia. The Home Warranty segment sells home warranty products.

Regulation

The company’s primary title insurance underwriter, First American Title Insurance Company, is a Nebraska corporation and, accordingly, is primarily regulated by the Nebraska Department of Insurance. Insurance regulations typically place limits on, among other matters, the ability of the insurer to pay dividends to its parent company or to enter into transactions with affiliates.

The company’s foreign insurance subsidiaries and branches of First American Title Insurance Company that operate in Canada, Australia, New Zealand, the United Kingdom, Malta, South Korea and Hong Kong are regulated primarily by regulatory authorities in the regions, provinces and/or countries in which they operate and may secondarily be regulated by the domestic regulator of First American Title Insurance Company as a part of the First American insurance holding company system. Each of these regions, provinces and countries has established a regulatory framework with respect to the oversight of compliance with its laws and regulations.

In addition to state-level regulation, the company’s domestic subsidiaries that operate in the insurance business, as well as its home warranty, banking and certain other subsidiaries, are subject to regulation by federal agencies, including the Consumer Financial Protection Bureau (CFPB). The CFPB has broad authority to regulate, among other areas, the mortgage and real estate markets, including the company’s domestic subsidiaries, in matters which impact consumers. This authority includes the enforcement of federal consumer financial laws, including the Real Estate Settlement Procedures Act and the Truth in Lending Act. Regulations issued by the CFPB, or the manner in which it interprets and enforces existing consumer protection laws, have impacted and could continue to impact the way in which the company conducts its businesses and the profitability of those businesses.

The company’s federal savings bank is regulated and supervised by the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation. The Board of Governors of the Federal Reserve System (the Federal Reserve Board) regulates and supervises the company, as a savings and loan holding company, including its non-banking subsidiaries that are part of the holding company system.

History

First American Financial Corporation was founded in 1889. The company was incorporated in 2008.