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First American (FAF) Q1 Earnings, Revenues Top, Decline Y/Y
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First American Financial Corporation (FAF - Free Report) reported first-quarter 2023 operating income per share of 49 cents, which beat the Zacks Consensus Estimate by a cent. The bottom line decreased 58.1% year over year.
The insurer witnessed existing home sales fall to levels not seen since the 2008 financial crisis and a significant decline in the commercial real estate market. Amid the adverse market environment, the insurer managed to deliver growth in net investment income. It also continued with its expense management efforts.
First American Financial Corporation Price, Consensus and EPS Surprise
Operating revenues of $1.4 billion decreased 29% year over year due to lower direct premiums and escrow fees, agent premiums and information and other. The top line beat the Zacks Consensus Estimate by 1.5%. The figure was in line with our estimate.
Investment income was $125 million in the first quarter, more than double year over year. The increase was primarily due to rising interest rates, which drove higher interest income from the cash and investment portfolio, escrow balances and tax-deferred property exchange balances. The impact of higher interest rates was partly offset by lower average balances, primarily in the company’s escrow and tax-deferred exchange balances. The figure was lower than our estimate of $144 million.
Expenses declined 27.1% to $1.3 billion. Our estimate was $1.4 billion.
Segment Results
Title Insurance and Services: Total revenues, excluding net investment gains and losses, decreased 32% year over year to $1.3 billion. The downside was due to lower direct premiums and escrow fees, agent premiums and information and other. The figure was in line with our estimate.
Pretax margin, excluding net investment gains and losses, contracted 450 basis points (bps) year over year to 6.5%. Title open orders decreased 38.1% to 172,600. Title closed orders decreased 48% to 106,600.
The average revenue per direct title order decreased 25% to $9,900, 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 $103.7 million. Pretax income of $16 million was flat year over year. The claim loss rate was 47.3% in the first quarter, expanding 90 bps, primarily due to higher claim severity partly offset by lower frequency. Pretax margin was 15.3%, down 10 bps year over year.
Corporate
Beginning this quarter, all current and prior year results for the company’s property and casualty business have been reclassified to Corporate.
Net investment income was $8 million this quarter against a loss of $8 million in the first quarter of 2022.
Interest expense was $13 million in the first quarter, a decline of $1.9 million year over year due to the repayment of $250 million in senior unsecured notes upon maturity in February. Overall, the Corporate segment posted a net loss of $45 million in the first quarter.
Financial Update
First American exited the quarter with cash and cash equivalents of $2 billion, down 62.1% from 2022 end. Notes and contracts payable were $1.4 billion, down 15.3%.
Stockholders’ equity was $4.8 billion, up 2% from 2022 end. The debt-to-capital ratio was 28.4.
Share Repurchase Update
FAF bought back shares worth $30 million in the first quarter of 2023.
The Travelers Companies (TRV - Free Report) reported first-quarter 2023 core income of $4.11 per share, which beat the Zacks Consensus Estimate of $3.64 and our estimate of $3.41. However, the bottom line decreased 2.6% year over year. Travelers’ total revenues increased 10% from the year-ago quarter to $9.7 billion, primarily driven by higher premiums. The top-line figure however missed the Zacks Consensus Estimate of $9.8 billion.
Net written premiums increased 12% year over year to a record $9.4 billion, driven by strong growth across all three segments. The figure was higher than our estimate of $8.9 billion.
Catastrophe losses totaled $422 million, wider than $36 million pre-tax in the prior-year quarter. Catastrophe losses primarily resulted from severe wind and hail storms in multiple states. Travelers witnessed an underwriting gain of $501 million, down 12.9% year over year. Combined ratio deteriorated 410 bps year over year to 95.4.
The Progressive Corporation’s (PGR - Free Report) first-quarter 2023 earnings per share of 65 cents missed the Zacks Consensus Estimate of $1.44 as well as our estimate of $1.50. The bottom line declined 20.7% year over year.
Operating revenues were about $14.2 billion, up 15.8% year over year. This improvement was driven by a 15% increase in premiums, 18.5% higher fees and other revenues, a 7.1% increase in service revenues and 73.2% higher investment income. The top line exceeded the Zacks Consensus Estimate of $14.1 billion and our estimate of $13.1 billion.
Net premiums earned grew 15% to $13.5 billion and beat our estimate of $12.6 billion. The combined ratio — the percentage of premiums paid out as claims and expenses — deteriorated 450 bps from the prior-year quarter’s level to 99.
RLI Corp. (RLI - Free Report) reported first-quarter 2023 operating earnings of $1.63 per share, beating the Zacks Consensus Estimate by 34.7%. The bottom line improved 14% from the prior-year quarter. Operating revenues for the reported quarter were $335 million, up 19.4% year over year, driven by 14.3% higher net premiums earned and 51.5% higher net investment income. The top line however missed the Zacks Consensus Estimate by 2.2%.
Gross premiums written increased 15.6% year over year to $415 million. This uptick can be attributed to the solid performance of the Casualty (up 1%), Property (up 45%) and Surety segments (up 13.6%). Underwriting income of $67.9 million increased 14.1%, primarily due to higher profitability in its Property and Casualty segment. Combined ratio remained flat year over year at 77.9.
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First American (FAF) Q1 Earnings, Revenues Top, Decline Y/Y
First American Financial Corporation (FAF - Free Report) reported first-quarter 2023 operating income per share of 49 cents, which beat the Zacks Consensus Estimate by a cent. The bottom line decreased 58.1% year over year.
The insurer witnessed existing home sales fall to levels not seen since the 2008 financial crisis and a significant decline in the commercial real estate market. Amid the adverse market environment, the insurer managed to deliver growth in net investment income. It also continued with its expense management efforts.
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 $1.4 billion decreased 29% year over year due to lower direct premiums and escrow fees, agent premiums and information and other. The top line beat the Zacks Consensus Estimate by 1.5%. The figure was in line with our estimate.
Investment income was $125 million in the first quarter, more than double year over year. The increase was primarily due to rising interest rates, which drove higher interest income from the cash and investment portfolio, escrow balances and tax-deferred property exchange balances. The impact of higher interest rates was partly offset by lower average balances, primarily in the company’s escrow and tax-deferred exchange balances. The figure was lower than our estimate of $144 million.
Expenses declined 27.1% to $1.3 billion. Our estimate was $1.4 billion.
Segment Results
Title Insurance and Services: Total revenues, excluding net investment gains and losses, decreased 32% year over year to $1.3 billion. The downside was due to lower direct premiums and escrow fees, agent premiums and information and other. The figure was in line with our estimate.
Pretax margin, excluding net investment gains and losses, contracted 450 basis points (bps) year over year to 6.5%. Title open orders decreased 38.1% to 172,600. Title closed orders decreased 48% to 106,600.
The average revenue per direct title order decreased 25% to $9,900, 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 $103.7 million. Pretax income of $16 million was flat year over year. The claim loss rate was 47.3% in the first quarter, expanding 90 bps, primarily due to higher claim severity partly offset by lower frequency. Pretax margin was 15.3%, down 10 bps year over year.
Corporate
Beginning this quarter, all current and prior year results for the company’s property and casualty business have been reclassified to Corporate.
Net investment income was $8 million this quarter against a loss of $8 million in the first quarter of 2022.
Interest expense was $13 million in the first quarter, a decline of $1.9 million year over year due to the repayment of $250 million in senior unsecured notes upon maturity in February. Overall, the Corporate segment posted a net loss of $45 million in the first quarter.
Financial Update
First American exited the quarter with cash and cash equivalents of $2 billion, down 62.1% from 2022 end. Notes and contracts payable were $1.4 billion, down 15.3%.
Stockholders’ equity was $4.8 billion, up 2% from 2022 end. The debt-to-capital ratio was 28.4.
Share Repurchase Update
FAF bought back shares worth $30 million in the first quarter of 2023.
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 Other Insurers
The Travelers Companies (TRV - Free Report) reported first-quarter 2023 core income of $4.11 per share, which beat the Zacks Consensus Estimate of $3.64 and our estimate of $3.41. However, the bottom line decreased 2.6% year over year. Travelers’ total revenues increased 10% from the year-ago quarter to $9.7 billion, primarily driven by higher premiums. The top-line figure however missed the Zacks Consensus Estimate of $9.8 billion.
Net written premiums increased 12% year over year to a record $9.4 billion, driven by strong growth across all three segments. The figure was higher than our estimate of $8.9 billion.
Catastrophe losses totaled $422 million, wider than $36 million pre-tax in the prior-year quarter. Catastrophe losses primarily resulted from severe wind and hail storms in multiple states. Travelers witnessed an underwriting gain of $501 million, down 12.9% year over year. Combined ratio deteriorated 410 bps year over year to 95.4.
The Progressive Corporation’s (PGR - Free Report) first-quarter 2023 earnings per share of 65 cents missed the Zacks Consensus Estimate of $1.44 as well as our estimate of $1.50. The bottom line declined 20.7% year over year.
Operating revenues were about $14.2 billion, up 15.8% year over year. This improvement was driven by a 15% increase in premiums, 18.5% higher fees and other revenues, a 7.1% increase in service revenues and 73.2% higher investment income. The top line exceeded the Zacks Consensus Estimate of $14.1 billion and our estimate of $13.1 billion.
Net premiums earned grew 15% to $13.5 billion and beat our estimate of $12.6 billion. The combined ratio — the percentage of premiums paid out as claims and expenses — deteriorated 450 bps from the prior-year quarter’s level to 99.
RLI Corp. (RLI - Free Report) reported first-quarter 2023 operating earnings of $1.63 per share, beating the Zacks Consensus Estimate by 34.7%. The bottom line improved 14% from the prior-year quarter. Operating revenues for the reported quarter were $335 million, up 19.4% year over year, driven by 14.3% higher net premiums earned and 51.5% higher net investment income. The top line however missed the Zacks Consensus Estimate by 2.2%.
Gross premiums written increased 15.6% year over year to $415 million. This uptick can be attributed to the solid performance of the Casualty (up 1%), Property (up 45%) and Surety segments (up 13.6%). Underwriting income of $67.9 million increased 14.1%, primarily due to higher profitability in its Property and Casualty segment. Combined ratio remained flat year over year at 77.9.