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First American (NYSE: FAF) is the largest provider of title insurance. First American provides a range of financial services, including title insurance and closing/settlement services; property data and automated title plant records and images; home warranty products; property and casualty insurance, and banking, trust and investment advisory services.[1] The company segements its operations into two segments: Title Insurance and Services and Specialty Insurance.[2] These services are sold to homebuyers and sellers, real estate professionals, loan originators and servicers, commercial property professionals, homebuilders and others involved in residential and commercial property transactions with products and services specific to their needs.[3] While First American primarily operates in the U.S., it has international operations as well. The prolonged housing recession in the US has constricted transactional volume and limited First American’s revenues.[4]

Business Growth

First American earned $128 million in net income on $3.9 billion in 2010 revenues, versus $122 million in net income on $4 billion in 2009 revenues.[5] As a result of the U.S. housing recession, demand for most of First American’s core services has declined as less American purchase or refinance their homes.[6] In addition, the company has a high level of fixed costs, which have contributed to declines in profitability.[7]

Trends and Forces

Housing downturns have led to fewer transactions and less business for First American

Title insurance is issued one time during the purchase or refinance of real estate. As a result of the housing downturn, there have been fewer purchases or refinances, which has translated to less revenues for First American.[8] While many analysts expect purchases and refinances to increase in 2011 and 2012, management of First American has indicated that the level of mortgage originations in 2011 and 2012 has a high level of uncertainty.[9]

While future sales growth will depend on increases in mortgage originations, the company has taken measures to reduce costs.[10] These initiatives include the closing of offices, reducing staff, cancelling nonperforming agents and other measures. Despite this, the company operates with a high level of fixed costs, which have continued to squeeze profits.[11]

Amid tight market conditions, industry undergoes consolidation

Due to the downturn in the housing market, 2008 marked the worst year in terms of losses for the title insurance industry. Several title insurance companies experienced losses that left them in a financial distressed situation.[12] As a result, several companies merged with or were acquired by other underwriters in order to increase market share and improve efficiency. Notable mergers include Fidelity National’s acquisition of Land America and Alliant Nationals merger with Mason Title Insurance. First American acquired NAZCA solutions in 2010.[13] While acquisitions have improved First American’s market share in the title insurance business, an industry-wide consolidation has the potential of leading to more price and margin pressure. In addition, mergers and acquisitions have led First American to pursue more debt or other financing..[14] High debt levels have potential of putting significant pressure on margins in the event that revenues do not rebound.[15]


Declines in real estate purchase and refinances has led to declines in revenue across the industry. As a result, several companies are engaging in cost-saving initiatives. The industry has also undergone significant consolidation. The following are First American's largest competitors in these industries:


  1. Retuers.com: Profile for FAF
  2. Retuers.com: Profile for FAF
  3. Retuers.com: Profile for FAF
  4. Retuers.com: Profile for FAF
  5. Morningstar: Income statement for First American
  6. Investor’s Page for FAF: 4Q 2010 Earnings Release
  7. Investor’s Page for FAF: 4Q 2010 Earnings Release
  8. Housingwire.com: Title Industry Titans Feel the Pain of Housing, Mortgage Downturn
  9. Housingwire.com: Title Industry Titans Feel the Pain of Housing, Mortgage Downturn
  10. Investor’s Page for FAF: 4Q 2010 Earnings Release
  11. Investor’s Page for FAF: 4Q 2010 Earnings Release
  12. http://www.demotech.com/01_pages/resources/releases/dt/ptic_20090527_2008_release.aspx Demotech.com: Significant Consolidation in Title Industry]
  13. http://www.demotech.com/01_pages/resources/releases/dt/ptic_20090527_2008_release.aspx Demotech.com: Significant Consolidation in Title Industry]
  14. http://www.demotech.com/01_pages/resources/releases/dt/ptic_20090527_2008_release.aspx Demotech.com: Significant Consolidation in Title Industry]
  15. Investor’s Page for FAF: 4Q 2010 Earnings Release
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