Following through on a warning issued last month, analysts at Fitch Ratings today lowered First American Corp.’s insurer financial strength and debt ratings by a notch, and said they remain subject to further downgrade.

The ratings moves were a response to First American’s announcement of an expected $50 million fourth-quarter loss, a reorganization of the company, and expected weakness in title insurance, Fitch analysts said.

Downgraded from “A+” to “A” were the insurer financial strength ratings of a dozen title insurance companies under the First American umbrella, including First American Ttitle Insurance, Land Title Insurance Co. of St. Louis, Mortgage Guaranty & Title Co. and United General Title Insurance Co..

Fitch said it also initiated coverage of four other First American title insurance companies with an initial insurer financial strength rating of “A.” The IFS ratings, of Pacific Northwest Title Insurance Co., Censtar Title Insurance Co., T.A. Title Insurance Co., and First American Title Insurance Co. of Kansas, were placed on “Outlook Negative” for potential downgrades.

Fitch downgraded First American Corp.’s issuer default rating from “A-” to “BBB+” and its senior unsecured debt from “BBB+” to “BBB,” which will raise the company’s cost of borrowing.

Fitch said the downgrades were also related to last month’s announcement by First American that it would spin off its title insurance and related business into a separate company (see Inman News story).

The new company will be known as First American Financial Corp. and include First American’s residential and commercial title operations, its home warranty and homeowners insurance businesses, and its trust and banking services.

First American’s property and mortgage information segments will remain under the umbrella of the existing holding company, which will be renamed as part of the reorganization to be completed in the third quarter.

After the spin-off, First American Financial will no longer have access to unregulated cash flows to service its debt, Fitch analysts said.

“While Fitch believes that management is actively taking initiatives to address concerns about profitability, reserve quality and long-term strategic direction, Fitch remains cautious about the company’s performance over the next year given the current operating environment,” analysts said.

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