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First American Financial (FAF) Q2 Earnings Beat Estimates

First American Financial Corporation FAF reported second-quarter 2017 adjusted net income of 98 cents per share, which surpassed the Zacks Consensus Estimate of 91 cents by 7.7%. The bottom line also improved 18% year over year due to higher premiums and net investment income.

First American Financial’s results were driven by better performance at its Title segment. The specialty insurance segment also improved on the back of higher premiums earned in the home warranty business lines.  Not only did the purchase and commercial business lines perform well, the decline in the refinance business was also checked in the quarter.

Operational Performance

First American Financial generated total revenue of $1.5 billion, up 7% year over year. The upside was driven by a rise in direct premiums and escrow fees, agent premiums, information and other revenues and net investment income. The top line also outperformed the Zacks Consensus Estimate of $1.4 billion.

Total expenses of First American Financial increased 5% year over year to $1.2 billion. Increase in personnel costs, premium retained by agents and other operating expenses resulted in the overall rise in expenses.

The company’s average revenue per direct order improved 8% in the reported quarter while closed orders per day improved 3%.

Segment Details

Title Insurance and Services: Total revenue inched up 6.4% year over year to $1.3 billion due to a 2% rise in direct premiums and escrow fees. Average revenue per order increased 2.4%, primarily owing to higher residential real estate values. Agent premiums were up 7%. Information and other revenues grew 9% year over year to $199.2 million on the back of recent acquisitions. This was, however, partly offset by lower direct open and closed orders.

Pre-tax income for the Title Insurance and Services segment jumped 6% to $197.3 million, while pre-tax margin expanded 110 basis points (bps) to 14.8%, both on a year-over-year basis.

Specialty Insurance: Total revenue increased 10% from the year-ago quarter to $115.2 million. Higher premiums earned in the home warranty business lines drove the upside.

The loss ratio in the Specialty Insurance segment was 62% in the reported quarter against 64.5% in the prior year due to higher claim losses. Pre-tax margin expanded to 8.3% from 4.5% in the year-ago quarter.

Financial Update

First American Financial exited the second quarter with cash and cash equivalents of $1.2 billion, up 16% from Dec 31, 2016.

Total assets of First American Financial of $9.3 billion at the end of the second quarter increased 5% from the 2016-end level.

Total shareholders’ equity came in at nearly $3.2billion as of Jun 30, 2017, up 6% from the 2016-end level.

Zacks Rank

Currently, First American Financial holds a Zacks Rank #1 (Strong Buy).You can see https://www.zacks.com/stocks/buy-list/?ADID=zp_1link&ICI... _1link">the complete list of today’s Zacks #1 Rank stocks here.

Performance of Other Insurers

Among other players from the insurance industry that have reported their second-quarter earnings so far, the bottom line at Brown & Brown, Inc. BRO and Fidelity National Financial, Inc. FNF beat their respective Zacks Consensus Estimate, while The Progressive Corporation PGR missed the same.

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Brown & Brown, Inc. (BRO): Free Stock Analysis Report
 
Progressive Corporation (The) (PGR): Free Stock Analysis Report
 
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Fidelity National Financial, Inc. (FNF): Free Stock Analysis Report
 
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