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First American (FAF) Q4 Earnings Miss, Revenues Decline Y/Y
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First American Financial Corporation (FAF - Free Report) reported fourth-quarter 2023 operating income per share of 69 cents, which missed the Zacks Consensus Estimate by 8%. The bottom line declined 48.9% year over year.
Operating revenues of $1.4 billion decreased 15.2% year over year due to lower direct premiums and escrow fees, agent premiums, and information and other. However, the top line beat the Zacks Consensus Estimate by 2.8%.
The insurer’s mixed results reflect soft performances in the Title Insurance and Services segment, partially offset by improved net investment income and its expense management strategy.
First American Financial Corporation Price, Consensus and EPS Surprise
Investment income was $146.6 million, up 4% year over year. The increase was primarily due to rising interest rates.The metric beat the Zacks Consensus Estimate by a whisker.
Expenses declined 14.5% to $1.4 billion. It came in lower than our estimate of $1.6 billion.
Segment Results
Title Insurance and Services: Total revenues, excluding net investment gains and losses, decreased 19.1% year over year to $1.4 billion. The downside was due to lower direct premiums and escrow fees, agent premiums and information and other. Our estimate was $1.6 billion.
Adjusted pretax margin contracted 330 basis points (bps) year over year to 7.5%.
Title open orders per day decreased 18.6%. Title closed orders per day decreased 19.7%. Average revenue per direct title order decreased to $3,899, primarily attributable to the impact of lower average revenue per order for commercial transactions.
Home Warranty: Total revenues declined 8.8% to $98.8 million in the fourth quarter. Our estimate was $104.9 million. The Zacks Consensus Estimate was pegged at $105 million.
Pretax income of $14.7 million declined 5.8% year over year. The claim loss rate was 43.6% in the fourth quarter, contracting 380 bps, primarily due to lower claim severity and fewer claims. Adjusted pretax margin was 19.9%, up 110 bps year over year.
Corporate: At the beginning of the first quarter of 2023, all current and prior-year results of the company’s property and casualty business have been reclassified to Corporate.
Net investment income was $13 million in the fourth quarter due to a change in value in investments related to FAF’s deferred compensation program.
The segment reported a net loss of $36.1 million in the fourth quarter.
Full-Year Highlights
Full-year 2023 adjusted income of $3.80 per share decreased 40.2% year over year.
Total revenues decreased 21.1% year over year in 2023 to $6 billion.
Financial Update
First American exited the fourth quarter with cash and cash equivalents of $3.6 billion, up from $1.2 billion at 2022-end.
Notes and contracts payable were $1.4 billion, down from $1.6 billion at 2022-end.
Stockholders’ equity was $4.8 billion, up from $4.7 billion at 2022-end. The debt-to-capital ratio was 28.6%.
Capital Deployment
The board of directors increased dividend by 2% to an annual rate of $2.12 per share. FAF bought back shares worth $17.7 million in the fourth quarter of 2023.
The Travelers Companies (TRV - Free Report) reported fourth-quarter 2023 core income of $7.01 per share, which beat the Zacks Consensus Estimate of $5.04. The bottom line more than doubled year over year, driven by higher underlying underwriting gain, lower catastrophe losses and higher net investment income. Travelers’ total revenues increased 13.5% from the year-ago quarter to $10.9 billion, primarily driven by higher premiums. The top-line figure beat the Zacks Consensus Estimate by 0.2%.
Net written premiums increased 13% year over year to about $10 billion, driven by strong growth across all three segments. The figure was higher than our estimate of $9.7 billion. TRV witnessed an underwriting gain of $1.4 billion, up more than three-fold year over year, driven by higher business volumes. The combined ratio improved 870 bps year over year to 85.8, driven by a lower underlying combined ratio and catastrophe losses.
The Progressive Corporation’s (PGR - Free Report) fourth-quarter 2023 earnings per share of $2.96 beat the Zacks Consensus Estimate of $2.38. The bottom line improved 97.3% year over year. Operating revenues of $16.6 billion beat the Zacks Consensus Estimate by 3% and increased 23.2% year over year.
Net premiums written were $15.1 billion in the quarter, up 21% from $12.5 billion a year ago. PGR’s premiums beat our estimate of $14 billion. Net premiums earned grew 22% to $15.8 billion and beat our estimate of $14.8 billion.
Progressive’s combined ratio improved 520 bps from the prior-year quarter’s level to 88.7.
W.R. Berkley Corporation’s (WRB - Free Report) fourth-quarter 2023 operating income of $1.45 per share beat the Zacks Consensus Estimate of $1.35 by 7.4%. The bottom line improved 25% year over year. Operating revenues came in at $3.2 billion, up 9.3% year over year, on the back of higher net premiums earned, as well as improved net investment income. The top line beat the consensus estimate by 1.3%.
W.R. Berkley’s net premiums written were $2.7 billion, up 12% year over year. The figure was lower than our estimate of $2.8 billion. Pre-tax underwriting income increased 8.2% to $315.9 million. The consolidated combined ratio remained flat year over year at 88.4.
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First American (FAF) Q4 Earnings Miss, Revenues Decline Y/Y
First American Financial Corporation (FAF - Free Report) reported fourth-quarter 2023 operating income per share of 69 cents, which missed the Zacks Consensus Estimate by 8%. The bottom line declined 48.9% year over year.
Operating revenues of $1.4 billion decreased 15.2% year over year due to lower direct premiums and escrow fees, agent premiums, and information and other. However, the top line beat the Zacks Consensus Estimate by 2.8%.
The insurer’s mixed results reflect soft performances in the Title Insurance and Services segment, partially offset by improved net investment income and its expense management strategy.
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
Investment income was $146.6 million, up 4% year over year. The increase was primarily due to rising interest rates.The metric beat the Zacks Consensus Estimate by a whisker.
Expenses declined 14.5% to $1.4 billion. It came in lower than our estimate of $1.6 billion.
Segment Results
Title Insurance and Services: Total revenues, excluding net investment gains and losses, decreased 19.1% year over year to $1.4 billion. The downside was due to lower direct premiums and escrow fees, agent premiums and information and other. Our estimate was $1.6 billion.
Adjusted pretax margin contracted 330 basis points (bps) year over year to 7.5%.
Title open orders per day decreased 18.6%. Title closed orders per day decreased 19.7%. Average revenue per direct title order decreased to $3,899, primarily attributable to the impact of lower average revenue per order for commercial transactions.
Home Warranty: Total revenues declined 8.8% to $98.8 million in the fourth quarter. Our estimate was $104.9 million. The Zacks Consensus Estimate was pegged at $105 million.
Pretax income of $14.7 million declined 5.8% year over year. The claim loss rate was 43.6% in the fourth quarter, contracting 380 bps, primarily due to lower claim severity and fewer claims. Adjusted pretax margin was 19.9%, up 110 bps year over year.
Corporate: At the beginning of the first quarter of 2023, all current and prior-year results of the company’s property and casualty business have been reclassified to Corporate.
Net investment income was $13 million in the fourth quarter due to a change in value in investments related to FAF’s deferred compensation program.
The segment reported a net loss of $36.1 million in the fourth quarter.
Full-Year Highlights
Full-year 2023 adjusted income of $3.80 per share decreased 40.2% year over year.
Total revenues decreased 21.1% year over year in 2023 to $6 billion.
Financial Update
First American exited the fourth quarter with cash and cash equivalents of $3.6 billion, up from $1.2 billion at 2022-end.
Notes and contracts payable were $1.4 billion, down from $1.6 billion at 2022-end.
Stockholders’ equity was $4.8 billion, up from $4.7 billion at 2022-end. The debt-to-capital ratio was 28.6%.
Capital Deployment
The board of directors increased dividend by 2% to an annual rate of $2.12 per share. FAF bought back shares worth $17.7 million in the fourth quarter of 2023.
Zacks Rank
FAF currently carries a Zacks Rank #4 (Sell).
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 fourth-quarter 2023 core income of $7.01 per share, which beat the Zacks Consensus Estimate of $5.04. The bottom line more than doubled year over year, driven by higher underlying underwriting gain, lower catastrophe losses and higher net investment income. Travelers’ total revenues increased 13.5% from the year-ago quarter to $10.9 billion, primarily driven by higher premiums. The top-line figure beat the Zacks Consensus Estimate by 0.2%.
Net written premiums increased 13% year over year to about $10 billion, driven by strong growth across all three segments. The figure was higher than our estimate of $9.7 billion. TRV witnessed an underwriting gain of $1.4 billion, up more than three-fold year over year, driven by higher business volumes. The combined ratio improved 870 bps year over year to 85.8, driven by a lower underlying combined ratio and catastrophe losses.
The Progressive Corporation’s (PGR - Free Report) fourth-quarter 2023 earnings per share of $2.96 beat the Zacks Consensus Estimate of $2.38. The bottom line improved 97.3% year over year. Operating revenues of $16.6 billion beat the Zacks Consensus Estimate by 3% and increased 23.2% year over year.
Net premiums written were $15.1 billion in the quarter, up 21% from $12.5 billion a year ago. PGR’s premiums beat our estimate of $14 billion. Net premiums earned grew 22% to $15.8 billion and beat our estimate of $14.8 billion.
Progressive’s combined ratio improved 520 bps from the prior-year quarter’s level to 88.7.
W.R. Berkley Corporation’s (WRB - Free Report) fourth-quarter 2023 operating income of $1.45 per share beat the Zacks Consensus Estimate of $1.35 by 7.4%. The bottom line improved 25% year over year. Operating revenues came in at $3.2 billion, up 9.3% year over year, on the back of higher net premiums earned, as well as improved net investment income. The top line beat the consensus estimate by 1.3%.
W.R. Berkley’s net premiums written were $2.7 billion, up 12% year over year. The figure was lower than our estimate of $2.8 billion. Pre-tax underwriting income increased 8.2% to $315.9 million. The consolidated combined ratio remained flat year over year at 88.4.