UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-34580
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
26-1911571
(I.R.S. Employer
Identification No.)
1 First American Way, Santa Ana, California 92707-5913
(Address of principal executive offices) (Zip Code)
(714) 250-3000
Registrant’s telephone number, including area code
Title of each class
Common stock, $0.00001 par value
Securities registered pursuant to Section 12(b) of the Act:
Trading Symbol(s)
FAF
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☒
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm
that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included
in the filing reflect the correction of an error to previously issued financial statements. ☒
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant's executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2023 was
$5,676,971,916.
On February 14, 2024, there were 103.1 million shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement with respect to the 2024 annual meeting of the stockholders are incorporated by reference
in Part III of this report. The definitive proxy statement or an amendment to this Form 10-K will be filed no later than 120 days after the close of
registrant’s fiscal year.
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
INFORMATION INCLUDED IN REPORT
PART I
Item 1. Business ..........................................................................................................................................................
Item 1A. Risk Factors ....................................................................................................................................................
Item 1B. Unresolved Staff Comments...........................................................................................................................
Item 1C. Cybersecurity..................................................................................................................................................
Item 2. Properties ........................................................................................................................................................
Item 3. Legal Proceedings...........................................................................................................................................
Item 4. Mine Safety Disclosures.................................................................................................................................
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities....................................................................................................................................................
Item 6.
[Reserved].......................................................................................................................................................
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ........................
Item 7A. Quantitative and Qualitative Disclosures About Market Risk .......................................................................
Item 8. Financial Statements and Supplementary Data ..............................................................................................
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ........................
Item 9A. Controls and Procedures.................................................................................................................................
Item 9B. Other Information ...........................................................................................................................................
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections ...........................................................
PART III
Item 10. Directors, Executive Officers and Corporate Governance .............................................................................
Item 11. Executive Compensation ................................................................................................................................
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ......
Item 13. Certain Relationships and Related Transactions, and Director Independence ...............................................
Item 14. Principal Accountant Fees and Services.........................................................................................................
PART IV
Item 15. Exhibits and Financial Statement Schedules ..................................................................................................
Item 16. Form 10-K Summary......................................................................................................................................
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THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING
OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. THESE FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY THE
FACT THAT THEY DO NOT RELATE STRICTLY TO HISTORICAL OR CURRENT FACTS AND MAY CONTAIN THE
WORDS “BELIEVE,” “ANTICIPATE,” “EXPECT,” “INTEND,” “PLAN,” “PREDICT,” “ESTIMATE,” “PROJECT,”
“WILL BE,” “WILL CONTINUE,” “WILL LIKELY RESULT,” OR OTHER SIMILAR WORDS AND PHRASES OR FUTURE
OR CONDITIONAL VERBS SUCH AS “WILL,” “MAY,” “MIGHT,” “SHOULD,” “WOULD,” OR “COULD.” THESE
FORWARD-LOOKING STATEMENTS INCLUDE, WITHOUT LIMITATION, STATEMENTS REGARDING FUTURE
OPERATIONS, PERFORMANCE, FINANCIAL CONDITION, PROSPECTS, PLANS AND STRATEGIES. THESE
FORWARD-LOOKING STATEMENTS ARE BASED ON CURRENT EXPECTATIONS AND ASSUMPTIONS THAT MAY
PROVE TO BE INCORRECT.
RISKS AND UNCERTAINTIES EXIST THAT MAY CAUSE RESULTS TO DIFFER MATERIALLY FROM THOSE SET
FORTH IN THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE THE ANTICIPATED
RESULTS TO DIFFER FROM THOSE DESCRIBED IN THE FORWARD-LOOKING STATEMENTS INCLUDE, WITHOUT
LIMITATION:
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INTEREST RATE FLUCTUATIONS;
CHANGES IN CONDITIONS OF THE REAL ESTATE MARKETS;
VOLATILITY IN THE CAPITAL MARKETS;
UNFAVORABLE ECONOMIC CONDITIONS;
IMPAIRMENTS IN THE COMPANY’S GOODWILL OR OTHER INTANGIBLE ASSETS;
FAILURES AT FINANCIAL INSTITUTIONS WHERE THE COMPANY DEPOSITS FUNDS;
REGULATORY OVERSIGHT AND CHANGES IN APPLICABLE LAWS AND GOVERNMENT REGULATIONS,
INCLUDING PRIVACY AND DATA PROTECTION LAWS;
HEIGHTENED SCRUTINY BY LEGISLATORS AND REGULATORS OF THE COMPANY’S TITLE INSURANCE
AND SERVICES SEGMENT AND CERTAIN OTHER OF THE COMPANY’S BUSINESSES;
REGULATION OF TITLE INSURANCE RATES;
LIMITATIONS ON ACCESS TO PUBLIC RECORDS AND OTHER DATA;
CLIMATE CHANGE, HEALTH CRISES, TERRORIST ATTACKS, SEVERE WEATHER CONDITIONS AND
OTHER CATASTROPHE EVENTS;
CHANGES IN RELATIONSHIPS WITH LARGE MORTGAGE LENDERS AND GOVERNMENT-SPONSORED
ENTERPRISES;
CHANGES IN MEASURES OF THE STRENGTH OF THE COMPANY’S TITLE INSURANCE UNDERWRITERS,
INCLUDING RATINGS AND STATUTORY CAPITAL AND SURPLUS;
LOSSES IN THE COMPANY’S INVESTMENT PORTFOLIO OR VENTURE INVESTMENT PORTFOLIO;
MATERIAL VARIANCE BETWEEN ACTUAL AND EXPECTED CLAIMS EXPERIENCE;
DEFALCATIONS, INCREASED CLAIMS OR OTHER COSTS AND EXPENSES ATTRIBUTABLE TO THE
COMPANY’S USE OF TITLE AGENTS;
ANY INADEQUACY IN THE COMPANY’S RISK MANAGEMENT FRAMEWORK OR USE OF MODELS;
SYSTEMS DAMAGE, FAILURES,
UNAUTHORIZED DATA DISCLOSURES;
INTERRUPTIONS, CYBERATTACKS AND
INTRUSIONS, OR
INNOVATION EFFORTS OF THE COMPANY AND OTHER INDUSTRY PARTICIPANTS AND ANY RELATED
MARKET DISRUPTION;
ERRORS AND FRAUD INVOLVING THE TRANSFER OF FUNDS;
FAILURES TO RECRUIT AND RETAIN QUALIFIED EMPLOYEES;
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THE COMPANY’S USE OF A GLOBAL WORKFORCE;
INABILITY OF THE COMPANY TO FULFILL PARENT COMPANY OBLIGATIONS AND/OR PAY DIVIDENDS;
INABILITY TO REALIZE ANTICIPATED SYNERGIES OR PRODUCE RETURNS THAT JUSTIFY INVESTMENT
IN ACQUIRED BUSINESSES;
A REDUCTION IN THE DEPOSITS AT THE COMPANY’S FEDERAL SAVINGS BANK SUBSIDIARY;
CLAIMS OF
INTELLECTUAL PROPERTY; AND
INFRINGEMENT OR
INABILITY TO ADEQUATELY PROTECT THE COMPANY’S
OTHER FACTORS DESCRIBED IN THIS ANNUAL REPORT ON FORM 10-K, INCLUDING UNDER THE
CAPTION RISK FACTORS IN ITEM 1A OF PART I.
THE FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE THEY ARE MADE. THE COMPANY DOES
NOT UNDERTAKE TO UPDATE FORWARD-LOOKING STATEMENTS TO REFLECT CIRCUMSTANCES OR EVENTS
THAT OCCUR AFTER THE DATE THE FORWARD-LOOKING STATEMENTS ARE MADE.
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PART I
Item 1. Business
The Company
First American Financial Corporation traces its heritage back to 1889. On June 1, 2010, its common stock was listed on
the New York Stock Exchange under the ticker symbol “FAF.” First American’s executive offices are located at 1 First
American Way, Santa Ana, California 92707-5913 and its telephone number is (714) 250-3000.
Unless otherwise indicated or otherwise required by the context, the terms “we,” “our,” “it,” “its,” “Company” and “First
American” refer to First American Financial Corporation and its subsidiaries.
General
The Company, through its subsidiaries, is engaged in the business of providing title insurance, settlement services and
other financial services and risk solutions through its title insurance and services segment and its home warranty segment. The
title insurance and services segment provides title insurance, closing and/or escrow services and similar or related services
domestically and internationally in connection with residential and commercial real estate transactions. The segment also
provides products, services and solutions that are designed to mitigate risk in, or otherwise facilitate, real estate transactions.
Many of these products, services and solutions involve the use of real property-related data, including data derived from the
Company’s proprietary databases. In addition, the segment provides banking, trust, warehouse lending, mortgage subservicing
and wealth management services. The home warranty segment sells home warranty products. Our corporate segment consists
of certain financing facilities, our venture investment portfolio, operating results related to our property and casualty insurance
business, which no longer sells policies or has policies in force, and certain corporate services that support our business
operations. The substantial majority of our business is dependent upon activity in the real estate and mortgage markets.
Our strategy is to profitably grow our core title insurance and settlement services business, expand our data advantage to
strengthen our core business and pursue growth opportunities, and manage and actively invest in complementary businesses
where the Company has a strategic advantage. We are focused on continued improvement of our customers’ experience with
our products, services and solutions, including through the digital transformation of our offerings, and on enhancing our
services offered to our customers. In an effort to speed the delivery of our products, increase efficiency, improve quality,
improve the customer experience and decrease risk, we are utilizing innovative technologies, processes and techniques in the
production and delivery of our products and services. These efforts include streamlining the title and closing processes by
converting certain manual processes into automated ones. Part of our growth strategy involves acquiring companies that expand
our market share, enhance our data capabilities, provide us with technological capabilities or complement our businesses. We
remain committed to efficiently managing our business to market conditions throughout business cycles and to deploying our
capital to maximize stockholder returns.
Title Insurance and Services Segment
Our title insurance and services segment issues title insurance policies on residential and commercial property in the
United States and offers similar or related products and services internationally. This segment also provides closing and/or
escrow services; accommodates tax-deferred exchanges of real estate; provides products, services and solutions designed to
mitigate risk or otherwise facilitate real estate transactions; maintains, manages and provides access to title plant data and
records; provides appraisals and other valuation-related products and services; provides lien release, document custodial and
default-related products and services; provides document generation services; provides warehouse lending services; subservices
mortgage loans; and provides banking, trust and wealth management services. In 2023, 2022 and 2021, the Company derived
95.4%, 99.2% and 90.2%, of its consolidated revenues, respectively, from this segment.
Overview of Title Insurance Industry
In most instances in the United States, and in certain instances internationally, mortgage lenders and purchasers of real
estate desire to be protected from loss or damage in the event of defects in the title of the subject property. Title insurance is a
means of providing such protection.
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Title Policies. Title insurance policies insure the interests of owners or lenders against defects in the title to real property,
and the policies typically include the duty to defend against claimed title defects. These defects include adverse ownership
claims, liens, encumbrances or other matters affecting title. Title insurance policies generally are issued on the basis of a
preliminary title report or commitment, which is typically prepared after a search of one or more of public records, maps,
documents and prior title policies to ascertain the existence of easements, restrictions, rights of way, conditions, encumbrances
or other matters affecting the title to, or use of, real property. In certain limited instances, a visual inspection of the property is
also made. To facilitate the preparation of preliminary title reports and commitments, copies and/or abstracts of public records,
maps, documents and prior title policies may be compiled and indexed to specific properties in an area. This compilation is
known as a “title plant.”
The beneficiaries of title insurance policies generally are real estate owners and mortgage lenders. A title insurance
policy indemnifies the named insured and certain successors in interest against certain title defects, liens and encumbrances
existing as of the date of the policy and not specifically excepted from its provisions. The policy typically provides coverage
for the real property mortgage lender in the amount of its outstanding mortgage loan balance and for the owner in the amount
of the purchase price of the property. In some cases, the policy might provide insurance in a greater amount, or for automatic
increases in coverage over time. The potential for claims under a title insurance policy issued to a mortgage lender generally
ceases upon repayment of the mortgage loan. The potential for claims under a title insurance policy issued to an owner generally
ceases upon the sale or transfer of the insured property.
Before issuing title policies, title insurers typically seek to limit their risk of loss by accurately performing title searches
and examinations and, in many instances, curing identified title defects. Increasingly, title insurance policies are being
underwritten utilizing automated decisioning tools based, in whole or in part, on alternative information sources. These
searches, examinations and curative efforts distinguish title insurers from other insurers, such as property and casualty insurers.
Whereas title insurers generally insure against losses arising out of circumstances existing as of the date of the policy, property
and casualty insurers generally insure against losses arising out of events that occur subsequent to policy issuance. As a result
of these differences, title insurers typically experience relatively low claims, as a percentage of premiums, when compared to
property and casualty insurers, but have relatively high expenses. The primary expenses incurred by a title insurer pertain to
sales, underwriting (including the costs associated with searching and examining title and with the curative process),
information technology and administrative costs. Where the policy is issued by an agent, the premium retained by the agent is
the primary expense for the insurer.
The Closing Process. In the United States, title insurance is essential to the real estate closing process in most transactions
involving real property mortgage lenders. In a typical residential real estate sale transaction where title insurance is issued, a
third party, such as a real estate broker or agent, lawyer or closer, orders the title insurance on behalf of an insured or in certain
instances, such as with respect to a lender, the insured orders on its own behalf. Once the order has been placed and a title
insurance company or an agent has determined the current status of the title to the property to its satisfaction, the title insurer
or agent prepares, issues and circulates a commitment or preliminary report. The commitment or preliminary report identifies
the conditions, exceptions and/or limitations that the title insurer intends to attach to the policy and identifies items appearing
on the title that, in certain circumstances, must be eliminated prior to closing.
In the United States, the closing or settlement function, sometimes called an escrow in the western states, is, depending
on the local custom in the region, performed by a lawyer, an escrow company or a title insurance company or agent, generally
referred to as a “closer.” Once documentation has been prepared and signed, and any required mortgage lender payoff demands
are obtained, the transaction closes. The closer typically records the appropriate title documents and arranges the transfer of
funds to pay off prior loans and extinguish the liens securing such loans. Title policies are then issued, typically insuring the
priority of the mortgage of the real property mortgage lender in the amount of its mortgage loan and the owner in the amount
of the purchase price. Before a closing takes place, however, the title insurer or agent typically provides an update to the
commitment to discover any adverse matters affecting title and, if any are found, works to eliminate them so that the title
insurer or agent issues the title policy subject only to those exceptions to coverage which are acceptable to the title insurer, the
owner and the owner’s lender.
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Issuing the Policy: Direct vs. Agency. A title insurance policy can be issued directly by a title insurer or indirectly on
behalf of a title insurer through agents, which usually operate independently of the title insurer and typically issue policies for
more than one insurer. Where the policy is issued by a title insurer, the search is performed by or on behalf of the title insurer,
and the premium is collected and retained by the title insurer. Where the policy is issued by an agent, the search is typically
performed by or on behalf of the agent, and the agent collects, and retains a portion of, the premium. The agent remits the
remainder of the premium to the title insurer as compensation for the insurer bearing the risk of loss in the event a claim is
made under the policy and for other services the insurer may provide. The percentage of the premium retained by an agent
varies by geography and from agent to agent. Generally, a title insurer is obligated to pay title claims in accordance with the
terms of its policies, regardless of whether it issues its policy directly or indirectly through an agent. In addition, when a title
insurer has issued a commitment to insure a particular transaction, it may be requested to issue a closing protection letter that
protects a lender or borrower, or in some states also a seller, from a loss of funds, under certain conditions, caused by the actions
of the title insurer or its agent. When a loss to the title insurer occurs under a policy issued through an agent or a closing
protection letter, under certain circumstances the title insurer may seek recovery of all or a portion of the loss from the agent
or the agent’s errors and omissions insurance carrier.
Premiums. The premium for title insurance is typically due and earned in full when the real estate transaction is closed.
Premiums generally are calculated with reference to the policy amount. The premium charged by a title insurer or an agent is
subject to regulation in most areas. Such regulations vary from jurisdiction to jurisdiction.
Our Title Insurance Operations
Overview. We conduct our title insurance and closing business through a network of direct operations and agents.
Through this network, we issue policies in the 49 states that permit the issuance of title insurance policies, the District of
Columbia and certain United States territories. We also offer title insurance, closing services and similar or related products
and services, either directly or through third parties in other countries, including Canada, the United Kingdom, Australia, New
Zealand, South Korea and various other established and emerging markets as described in the “International Operations” section
below.
The substantial majority of our title insurance and closing business is dependent upon activity in the real estate and
mortgage markets, which are cyclical and seasonal. Residential purchase activity is typically slower in the winter months with
increased volumes in the spring and summer months and is sensitive to interest rates. Residential refinance activity is not
seasonal, but is generally correlated with changes in interest rates. Commercial real estate volumes are less sensitive to changes
in interest rates, but fluctuate based on local supply and demand conditions and financing availability and we typically see
elevated activity towards the end of the year. However, changes in general economic conditions in the United States and abroad
can cause fluctuations in these traditional patterns of real estate activity, and changes in the general economic conditions in a
particular geography can cause fluctuations in these traditional patterns of real estate activity in that geography.
Distribution, Sales and Marketing. We distribute our title insurance policies and related products and services through
our direct and agent channels. In our direct channel, the distribution of our policies and related products and services occurs
through sales representatives located throughout the United States. Title insurance policies issued, and other products and
services delivered through, this channel are primarily delivered in connection with sales and refinances of residential and
commercial real property.
Within the direct channel, our sales and marketing efforts are focused on the primary sources of business referrals. For
residential business, we generally market to real estate agents and brokers, mortgage brokers, real estate attorneys, mortgage
originators, homebuilders and escrow service providers. We also market directly to firms that purchase and sell residential real
estate on a large-scale basis. For refinance and default-related business, we market directly to mortgage originators and
servicers with centrally managed platforms and government-sponsored enterprises. For the commercial business, we market
primarily to principals, developers, and investors; real estate investment trusts; law firms; commercial lenders; life insurance
companies; commercial brokers and mortgage brokers. Our marketing efforts emphasize our product and service offerings,
the quality and timeliness of our services, our financial strength, process and product innovation and our national presence.
We also provide educational information on our website and through other means to help consumers and others better
understand our products, services, the title and settlement process in general, and real estate market economic trends.
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In our agency channel, we issue policies in accordance with agreements with authorized agents. These agreements
typically state the conditions under which the agent is authorized to issue our title insurance policies. The agency agreement
also typically prescribes the circumstances under which the agent may be liable to us if a policy loss occurs, as well as the
services we provide to the agent and the price for those services. Those services vary by geography and from agent to agent.
We are continuing to seek to provide additional services to our agents, including banking services and closing-related services,
in an effort to reduce risk and enhance relationships with our agents. As is standard in our industry, our agents typically operate
with a substantial degree of independence from us and typically act as agents for other title insurers.
Within the agency channel, our sales and marketing efforts are directed at the agents themselves and emphasize the
quality and timeliness of our underwriting support, our financial strength and our agency-based product and service offerings,
including product innovations. Premium splits also are of importance in attracting and retaining agents.
International Operations. We provide products and services in a number of countries outside of the United States, and
our international operations accounted for approximately 6.5% of our title insurance and services segment revenues in
2023. Today we have direct operations and a physical presence in several countries, including Canada, the United Kingdom,
South Korea, Australia and New Zealand. While reliable data are not available, we believe that we have the largest market
share for title insurance outside of the United States. Our range of international products and services is designed to lower our
clients’ risk profiles and reduce their operating costs through enhanced operational efficiencies. In certain established markets,
primarily British Commonwealth countries, we have combined title insurance with customized processing offerings to enhance
the speed and efficiency of the mortgage and conveyancing processes. In these markets we also offer products designed to
mitigate risk and otherwise facilitate real estate transactions.
Our international operations present risks that may not exist to the same extent in our domestic operations, including
those associated with differences in the nature of the products provided, the scope of coverage provided by those products and
the manner in which risk is underwritten.
Data and Title Plants. Our title insurance business is heavily dependent on data. Underwriting decisions require
comprehensive and accurate data. In an attempt to enhance efficiency and reduce risk, certain underwriting functions are
increasingly being automated. As discussed further in the Innovation and Intellectual Property section below, our ability to
automate underwriting decisions has accelerated as we have improved the breadth and quality of our data assets and our analytic
tools.
Our title plants constitute one of our principal assets. A title search is typically conducted by searching the abstracted
information from public records or utilizing a title plant holding information abstracted from public records. While public title
records generally are indexed by reference to the names of the parties to a given recorded document, our title plants primarily
arrange their records on a geographic basis. Because of this difference, title plant data and records generally may be searched
more efficiently. Many of our title plants also index prior title insurance policies, adding to searching efficiency. These title
plants support not only our title insurance operations, but we also license this data to third parties, including competing title
companies and agents.
Reserves for Claims and Losses. We provide for losses associated with title insurance policies, closing protection letters
and other risk-based products based upon our historical experience and other factors by a charge to expense when the related
premium revenue is recognized. The resulting reserve for incurred but not reported claims, together with the reserve for known
claims, reflects management’s best estimate of the total costs required to settle all claims reported to us and claims incurred but
not reported, and are considered to be adequate for such purpose. Each period the reasonableness of the estimated reserves is
assessed; if the estimate requires adjustment, such an adjustment is recorded.
Reinsurance and Coinsurance. In certain circumstances we assume and cede title insurance risks through reinsurance.
In reinsurance arrangements, the primary insurer retains a certain amount of risk under a policy and cedes the remainder of the
risk under the policy to the reinsurer. The primary insurer pays the reinsurer a premium in exchange for accepting this risk of
loss. The primary insurer generally remains liable to its insured for the total risk, but is reinsured for a portion of the total risk
under the terms of the reinsurance agreement. In addition to reinsurance arrangements involving other industry participants,
we maintain a global treaty reinsurance program provided by a syndicate of highly rated reinsurers. Subject to the treaty limits
and certain other limitations, the program generally covers claims that arose while the program is in effect.
We also serve as a coinsurer in connection with certain commercial transactions. In a coinsurance scenario, two or more
insurers are selected by the insured and each coinsurer is liable for its specified percentage share of the total liability.
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Competition. The business of providing title insurance and related products and services is highly competitive. The
number of competing companies and the size of such companies vary in the different areas in which we conduct business.
Generally, in areas of major real estate activity, such as metropolitan and suburban localities, we compete with many other title
insurers and agents. Our major nationwide competitors in our principal markets include Fidelity National Financial, Inc., Old
Republic International Corporation, Stewart Title Guaranty Company, and their affiliates. In addition to these national
competitors, other nationwide, regional and local competitors aggressively compete. Numerous agency operations throughout
the country also provide aggressive competition. We are currently the second largest provider of title insurance in the United
States, based on the most recent American Land Title Association market share data.
We believe that competition for title insurance, closing services and related products and services is based primarily on
service, quality, price, relationships and the ease of access and use of our products. Customer service is an important competitive
factor because parties to real estate transactions are usually concerned with time schedules and costs associated with delays in
closing transactions. In certain transactions, such as those involving commercial properties, financial strength and scope of
coverage are also important. In addition, we regularly evaluate our pricing and agent splits, and based on competitive, market
and regulatory conditions and claims history, among other factors, adjust our prices and agent splits as and where appropriate.
Data and Analytics. Our data and analytics business offers property information and analytic solutions for title
underwriting automation, fraud risk management, identity verification, compliance and valuation that are powered by our
extensive collection of real estate property data, ownership data and recorded documents. These solutions enable our title
insurance operations, lenders, other title companies and other real estate industry participants to make informed, and
increasingly automated, decisions to manage workflow and auditing and compliance operations.
Trust, Wealth Management and Banking Services. Our federal savings bank subsidiary offers trust, wealth management
and deposit products and related services, including fund transfer services. The bank does not originate loans. As of December
31, 2023, the bank administered fiduciary and custody assets having a market value of $4.4 billion, which includes managed
assets of $2.2 billion. The bank’s balance sheet had assets of $8.1 billion, with deposits of $7.9 billion and stockholder’s equity
of $196.5 million. The bank’s deposits consist primarily of funds deposited by its affiliates and, in some instances, by non-
affiliated title agents. The majority of such deposits are from third parties to be held in trust pending the closing of real estate
transactions, but there is also a portion of which are custodial funds held on behalf of clients of our residential mortgage
subservicer subsidiary. The bank also maintains other deposits, including operating funds deposited by its affiliates.
Home Warranty Segment
Our home warranty segment provides residential service contracts that cover residential systems, such as heating and air
conditioning systems, and certain appliances against failures that occur as the result of normal usage during the coverage period.
Coverage is typically for one year and is renewable annually at the option of the contract holder and upon our approval.
Coverage and pricing typically vary by geographic region. Fees for the warranties generally are paid at the closing of the home
purchase or directly by the consumer. In addition, under the contract, the holder is responsible for a service fee for each trade
call. First year warranties are marketed through real estate brokers and agents, and we also market directly to consumers. We
generally sell renewals directly to consumers. Revenues associated with home warranties sold at the time of a home purchase
are dependent upon activity in the residential purchase market, which is cyclical and seasonal. Residential purchase activity is
typically slower in the winter months with increased volumes in the spring and summer months and is sensitive to interest rate
fluctuations. However, changes in general economic conditions in the United States and abroad, can cause fluctuations in this
traditional pattern of activity, and changes in the general economic conditions in a geography can cause fluctuations in the
traditional patterns of activity in that geography. Our home warranty business currently operates in 36 states and the District
of Columbia.
Corporate Segment
Our corporate segment consists primarily of certain financing facilities, our venture investment portfolio, operating
results related to our property and casualty insurance business, which no longer sells policies or has policies in force, and the
corporate services that support our business operations. Our venture investment portfolio consists primarily of investments in
the equity of private venture-stage companies that operate in the real-estate industry and related industries (many of which offer
technology-enabled products and services), investments in funds that typically invest in these same types of companies, and a
similar investment that is trading publicly. While we hope to realize financial benefits from these venture investments, we make
and hold these investments primarily for strategic reasons.
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Innovation and Intellectual Property
In an effort to speed the delivery of our products, increase efficiency, improve quality, improve the customer experience
and decrease risk, we are utilizing innovative technologies, processes and techniques, including artificial intelligence, in the
production and delivery of our products and services. These efforts include streamlining and enhancing the closing process,
which we believe improves the customer experience by simplifying and reducing the time it takes to close a transaction,
reducing risk and improving communication. We are also deploying innovation solutions leveraging our bank to make the
closing process more flexible. We increasingly are employing advanced technologies to automate various internal processes,
including processes related to the building and maintaining of title plants and other data assets, as well as the search and
examination of information in connection with the issuance of title insurance policies.
We strive to align our intellectual property strategy with our business strategy and our technology development efforts.
We rely on a combination of patents, trademarks, copyright and trade secret laws, non-disclosure agreements, contractual
provisions and a system of internal safeguards to protect our intellectual property rights and proprietary information. We have
a number of issued patents and additional patent applications pending in the United States and internationally, including patents
for title automation, loan risk assessment, online platforms, optical character recognition and data extraction. We also believe
that many of our brands have accumulated substantial goodwill in the marketplace. In addition, we have developed a number
of proprietary trade secrets that we believe provide us with a competitive advantage.
Human Capital Resources
As of December 31, 2023, the Company employed 19,210 employees, with 12,244 of them located in the United States
and 6,966 outside of the U.S. We strive to have a positive, collaborative culture that engages employees, as we believe engaged
employees serve our customers well. We believe this combination, along with the efficient operation of our business, ultimately
benefits our stockholders. As part of this effort, we participate in competitions that recognize the quality of our workplace,
which competitions we believe provide a framework for improving, and insights for evaluating, our employee engagement
efforts. Moreover, receipt of awards in connection with those competitions facilitates our efforts to attract and retain desired
talent. The success of our efforts is demonstrated through our inclusion on the Fortune 100 Best Companies to Work For® list
in the United States for the last eight years, the Best Workplaces™ in Canada list for the last nine years, as well as a number
of similar lists in local or specialized areas. In addition, we have been recognized on the Fortune® Best Workplaces for
Women™ (United States) and Great Place to Work® list for Best Workplaces for Women (Canada) for the eighth year in a
row and we earned a top score of 100 on the Human Rights Campaign Foundation’s 2024 Corporate Equality Index for the
fifth consecutive year. We have implemented many professional development programs to build and strengthen the skill sets
of our employees. Reflecting our perspective on the benefits of a diverse workforce, we have a Diversity, Equity and Inclusion
(DE&I) Council, which is focused on the development of employee-centered actions to enhance the recruitment, engagement,
development, and retention of diverse employees. The DE&I Council has also formed and continues to form employee resource
groups that are organized around particular interests, affiliations or affinities.
Regulation
Many of our subsidiaries are subject to extensive regulation by applicable domestic or foreign regulatory agencies. The
extent of such regulation varies based on the industry involved, the nature of the business conducted by the subsidiary (for
example, licensed title insurers are subject to a heightened level of regulation compared to underwritten title companies or
agencies), the subsidiary’s jurisdiction of organization and the jurisdictions in which it operates. In addition, the Company is
subject to regulation as an insurance holding company, a savings and loan holding company, a publicly-traded company, a
Delaware corporation and a corporation that has its principal executive offices in California.
Our domestic subsidiaries that operate in the title insurance industry or the property and casualty insurance industry are
subject to regulation by state insurance regulators. Each of our underwriters, or insurers, is regulated primarily by the insurance
department or equivalent governmental body within the jurisdiction of its organization, which oversees compliance with the
laws and regulations pertaining to such insurer. For example, our primary title insurance underwriter, First American Title
Insurance Company, is a Nebraska corporation and, accordingly, is primarily regulated by the Nebraska Department of
Insurance. Insurance regulations typically place limits on, among other matters, the ability of the insurer to pay dividends to
its parent company or to enter into transactions with affiliates. They also may require approval of the insurance commissioner
prior to a third party directly or indirectly acquiring control of the insurer, which may make it difficult or prohibitive for a third
party to acquire our Company.
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In addition, our insurers are subject to the laws of other jurisdictions in which they transact business, which laws typically
establish supervisory agencies with broad administrative powers relating to issuing and revoking licenses to transact business;
regulating trade practices; licensing agents; approving policy forms, accounting practices and financial practices; establishing
requirements pertaining to reserves and capital and surplus as regards policyholders; requiring the deferral of a portion of all
premiums in a reserve for the protection of policyholders and the segregation of investments in a corresponding amount;
establishing parameters regarding suitable investments for reserves, capital and surplus; and approving rate schedules. The
manner in which rates are established or changed ranges from states that promulgate rates, to states in which individual
companies or associations of companies prepare rate filings that are submitted for approval, to a few states in which rate changes
do not need to be filed for approval. Each of our insurers is also subject to periodic examination by regulatory authorities both
within such insurer’s jurisdiction of organization as well as by the other jurisdictions where it is licensed to conduct business.
Our foreign insurance subsidiaries and branches of First American Title Insurance Company that operate in Canada,
Australia, New Zealand, the United Kingdom, Malta, South Korea and Hong Kong are regulated primarily by regulatory
authorities in the regions, provinces and/or countries in which they operate and may secondarily be regulated by the domestic
regulator of First American Title Insurance Company as a part of the First American insurance holding company system. Each
of these regions, provinces and countries has established a regulatory framework with respect to the oversight of compliance
with its laws and regulations. Therefore, our foreign insurance subsidiaries generally are subject to regulatory review,
examination, investigation and enforcement in a similar manner as our domestic insurance subsidiaries, subject to local
variations.
Our underwritten title companies and agencies are also subject to certain regulation by insurance regulatory or banking
authorities, including, but not limited to, minimum net worth requirements, licensing requirements, statistical reporting
requirements, rate filing requirements and marketing restrictions.
Certain laws and regulations require the Company to maintain certain information security standards and practices. Other
laws and regulations regulate the manner in which the Company collects, uses, retains, protects, discloses, transfers, and
processes personal data.
In addition to state-level regulation, our domestic subsidiaries that operate in the insurance business, as well as our home
warranty, mortgage servicing and subservicing, banking and certain other subsidiaries, are subject to regulation by federal
agencies, including the Consumer Financial Protection Bureau (“CFPB”). The CFPB has broad authority to regulate, among
other areas, the mortgage and real estate markets, including our domestic subsidiaries, in matters which impact consumers.
This authority includes the enforcement of federal consumer financial laws, including the Real Estate Settlement Procedures
Act and the Truth in Lending Act. Regulations issued by the CFPB, or the manner in which it interprets and enforces existing
consumer protection laws, have impacted and could continue to impact the way in which we conduct our businesses and the
profitability of those businesses.
Our home warranty and settlement services businesses are also subject to regulation in some states by insurance
authorities or other applicable regulatory entities.
Our federal savings bank is regulated and supervised by the Office of the Comptroller of the Currency and the Federal
Deposit Insurance Corporation. The Board of Governors of the Federal Reserve System regulates and supervises the Company,
as a savings and loan holding company, including its non-banking subsidiaries that are part of the holding company system.
Federal banking laws and regulations require third parties to obtain prior approval to acquire control of our federal savings
bank or our Company, which may make such an acquisition of our Company by a third party more difficult or prohibitive.
Cybersecurity and Data Protection
The Company dedicates significant resources to securing its systems and to protecting non-public personal information
and other confidential information. These include resources dedicated to intrusion prevention such as firewalls, endpoint
protection and behavior analysis tools, among others. They also include resources dedicated toward vulnerability identification
through the performance of vulnerability scans and penetration tests, among other methods. See Item 1C. Cybersecurity for
additional details regarding cybersecurity and data protection.
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Investment Policies
The vast majority of our investments are held within a debt securities and marketable equity securities portfolio overseen
by our investment department and an investment committee made up of certain senior executives. Members of that investment
committee sometimes function in a dual capacity to also provide oversight for certain of our regulated subsidiaries that have
their own designated investment committees for their investments within this investment portfolio. The investment committee
oversees investment portfolio activities, such as policy setting, compliance reporting, portfolio reviews, and strategy. The
Company’s investment portfolio policies are designed to comply with regulatory requirements and to align the investment
portfolio asset allocation with strategic objectives. For example, our federal savings bank is required to maintain at least 65%
of its asset portfolio in loans or securities that are secured by real estate. Our federal savings bank currently does not make real
estate loans, and therefore fulfills this regulatory requirement through investments in mortgage-backed securities. In addition,
applicable law imposes certain restrictions upon the types and amounts of investments that may be made by our regulated
insurance subsidiaries. The Company’s investment portfolio policies further provide that these investments are to be managed
to maximize long-term returns consistent with liquidity, regulatory and risk objectives, and that these investments should not
expose the Company to excessive levels of credit, liquidity, and interest rate risks.
As of December 31, 2023, our debt and marketable equity securities portfolio consisted of approximately 94% of debt
securities. As of that date, over 65% of our debt securities were held in securities that are United States government-backed or
rated AAA/Aaa and approximately 97% of the debt securities portfolio was rated or classified as investment grade or
better. Percentages are based on the estimated fair values of the securities. Credit ratings reflect published ratings obtained
from globally recognized securities rating agencies. If a security was rated differently among the rating agencies, the lowest
rating was selected.
Independent of this investment portfolio and its management, we maintain our venture capital portfolio, certain money-
market and other short-term investments, and other strategic equity investments in companies engaged in our businesses or
similar or related businesses.
Available Information
The Company maintains a website, www.firstam.com, which includes financial information and other information for
investors, including open and closed title insurance orders (which typically are posted approximately 10 to 12 days after the
end of each calendar month). The Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 are available free of charge through the “Investors” page of the website as soon as reasonably practicable
after the Company electronically files such material with, or furnishes it to, the Securities and Exchange Commission. The
Company’s website and the information contained therein or connected thereto are not intended to be incorporated into this
Annual Report on Form 10-K, or any other filing with the Securities and Exchange Commission unless the Company expressly
incorporates such materials.
Item 1A. Risk Factors
The following “risk factors” could materially and adversely affect the Company’s business, operations, reputation,
financial position or future financial performance. You should carefully consider each of the following risk factors and the
other information contained in this Annual Report on Form 10-K. The Company faces risks other than those listed here,
including those that are unknown to the Company and others of which the Company may be aware but, at present, considers
immaterial. Because of the following factors, as well as other variables affecting the Company’s operating results, past financial
performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results
or trends in future periods.
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STRATEGIC RISK FACTORS
1. The Company’s risk management framework could prove inadequate, which could adversely affect the Company
The Company’s risk management framework is designed to identify, monitor and mitigate risks that could have a negative
impact on the Company’s financial condition or reputation. This framework includes departments or groups dedicated to
enterprise risk management, treasury management, information security, disaster recovery and other information technology-
related risks, business continuity, legal and compliance, compensation structures and other human resources matters, vendor
management and internal audit, among others. Many of the processes overseen by these departments function at the enterprise
level, but many also function through, or rely to a certain degree upon, risk mitigation efforts in local operating groups. This
is especially the case with respect to the Company’s operations outside of the United States and recently acquired businesses,
which may not be fully integrated into the Company’s risk management framework. Similarly, with respect to the risks the
Company assumes in the ordinary course of its business through the issuance of title insurance policies and the provision of
related products and services, the Company employs localized, as well as centralized risk mitigation efforts. These efforts
include the implementation of underwriting policies and procedures, automated underwriting and other risk-decisioning tools
and other mechanisms for assessing and managing risk. Underwriting title insurance policies and making other risk-assumption
decisions frequently involves a substantial degree of individual judgment and, accordingly, underwriters are maintained at the
state, regional, divisional, and corporate levels with varying degrees of underwriting authority. These individuals may be
encouraged by customers or others to assume risks or to expeditiously make risk determinations. If the Company’s risk
mitigation efforts prove inadequate, the Company could be adversely affected.
2. The Company is pursuing various innovative initiatives, which could result in increased title claims or otherwise
adversely affect the Company
In an effort to speed the delivery of its products, increase efficiency, improve quality, improve the customer experience
and decrease risk, the Company is utilizing innovative technologies, processes and techniques, including artificial intelligence,
in the production and delivery of its products and services. These efforts include converting certain manual processes into
automated ones to streamline searches, examinations and other underwriting functions in connection with the issuance of title
insurance policies, building and maintaining title plants and other data assets, and digitizing and automating components of the
settlement process. The Company believes these innovations will improve the customer experience by simplifying and
reducing the time it takes to close a transaction, reducing risk and improving communication, and expects to continue expanding
its use of these technologies. Risks from these and other innovative initiatives include those associated with potential defects
in the design and development of the technologies used to automate processes; misapplication of technologies; the reliance on
data, rules or assumptions that may prove inadequate; information security vulnerabilities; and failure to meet customer
expectations, among others. As a result of these risks, the Company could experience increased claims, reputational damage
or other adverse effects, which could be material to the Company.
3. Potentially disruptive innovation in the real estate industry and/or the Company’s participation in these efforts
could adversely affect the Company
In addition to the Company’s innovative activities, other participants in the real estate industry are seeking to innovate
in ways that could adversely impact the Company’s businesses. These participants include certain of the Company’s sources
of business, competitors, investments and ultimate customers. Innovations by these participants may change the demand for
the Company’s products and services, the manner in which the Company’s products and services are ordered or fulfilled and
the revenue or profitability derived from the Company’s products and services. The Company’s investments in some of these
participants could also facilitate efforts that ultimately disrupt the Company’s business or enable competitors. Accordingly,
the Company’s efforts to anticipate and participate in these transformations could require significant additional investment and
management attention and may not succeed. These innovative efforts by third parties, and the manner in which the Company,
its agents and other industry participants respond to them, could therefore have an adverse effect on the Company.
OPERATIONAL RISK FACTORS
4. Conditions in the real estate market generally impact the demand for a substantial portion of the Company’s
products and services
Demand for a substantial portion of the Company’s products and services generally decreases as the number of real estate
transactions in which its products and services are purchased decreases. The number of real estate transactions in which the
Company’s products and services are purchased typically decreases in the following situations, among others:
• when mortgage interest rates are high or rising;
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• when the availability of credit, including commercial and residential mortgage funding, is limited;
• when real estate affordability is declining;
• when real estate inventory levels are insufficient or declining; and
• when economic conditions are unfavorable, including during periods of high unemployment.
Certain of these circumstances, particularly when combined with declining real estate values and the increase in
foreclosures that often results therefrom, also tend to adversely impact the Company’s title claims experience. National
inventory levels for residential homes for sale have been declining over the past several years and remain below historical
average levels. Combined with the rapidly rising mortgage interest rates, beginning in 2022, that decreased demand, the number
of residential purchase transactions declined year over year. Residential refinance activity is also strongly correlated with
changes in mortgage interest rates and rising mortgage rates, beginning in 2022, expectedly, had an adverse impact on the
Company’s refinance business that is expected to continue for so long as mortgage rates continue to rise or if they subsequently
remain high relative to the interest rates of outstanding mortgages. Higher interest rates also negatively impacted commercial
transactions beginning in the latter half of 2022 and will likely continue to impact our volumes.
5. Unfavorable economic conditions adversely affect the Company
Historically, uncertainty and negative trends in general economic conditions in the United States and abroad, including
significant tightening of credit markets and a general decline in the value of real property, have created a difficult operating
environment for the Company. These conditions also tend to negatively impact, and recently have impacted, the amount of
funds the Company receives from third parties held in trust pending the closing of commercial and residential real estate
transactions. The Company deposits a substantial portion of these funds, as well as its own funds, with the federal savings
bank it owns. The Company’s bank invests those funds and any realized and unrealized losses on those investments will be
reflected in the Company’s consolidated financial statements. The likelihood of such losses, which generally would not occur
if the Company were to deposit these funds in an unaffiliated entity, increases when economic conditions are
unfavorable. Moreover, during periods of unfavorable economic conditions, the return on these funds deposited at the
Company’s bank, as well as funds the Company deposits with third party financial institutions, tends to decline. In addition,
the Company holds investments in entities, such as title agencies, settlement service providers and venture-stage companies,
some of which have been negatively impacted by these conditions, as well as other securities in its investment portfolio, which
also may be, and recently have been, negatively impacted by these conditions.
Depending upon the ultimate severity and duration of any economic downturn and other negative economic conditions,
the resulting effects on the Company could be materially adverse, including a significant reduction in revenues, earnings and
cash flows, higher claims, challenges to the Company’s ability to satisfy covenants or otherwise meet its obligations under debt
facilities and other contracts, difficulties in obtaining access to capital, challenges to the Company’s ability to pay dividends at
currently anticipated levels, deterioration in the value of or return on its investments and increased credit risk from customers
and others with obligations to the Company.
6. The Company’s use of models involves risks and uncertainties that could adversely affect the Company
The Company utilizes models to support decisions related to risk management, capital and liquidity planning, financial
accounting, data extraction and other business purposes. Models are, by their nature, inherently limited due to their reliance
on statistical, economic, financial or mathematical theories, techniques, including artificial intelligence, data and assumptions
that may be erroneous or inappropriate for the intended or actual use. Flawed models or uses of models may result in, among
other consequences, erroneous, biased or misleading outputs, inappropriate business decisions, inadequate risk management or
enhanced regulatory supervision, which could have a material adverse effect on the Company’s results of operations, financial
condition and reputation.
7. Climate change, severe weather conditions, health crises, terrorist attacks and other catastrophe events could
adversely affect the Company
Climate change, global or extensive health crises, severe weather, terrorist attacks and other catastrophe events and
responses to these events could adversely affect the Company. The extent to which these catastrophe events and responses to
them impact the Company’s business, operations and financial results will depend on numerous factors that the Company may
not be able to accurately predict, including: the duration and scope of the catastrophe event and restrictions and responses to it;
the impact of the catastrophe event on economic activity and actions taken in response, including the efficacy of governmental
and other relief efforts or countermeasures; the effect on participants in real estate transactions and the demand for the
Company’s products and services.
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The Company’s home warranty business has been and may be impacted by increases in the frequency and severity of
weather events. Home warranty claims, including those pertaining to HVAC systems, tend to rise as temperatures become
extreme, especially in geographies where extreme temperatures are infrequent.
In addition, the Company manages its financial exposure for losses in its title insurance business with third-party
reinsurance. Catastrophe events could adversely affect the cost and availability of that reinsurance. Moreover, to the extent
climate change, health crises, terrorist attacks, severe weather conditions and other catastrophe events impact companies or
municipalities whose securities the Company invests in, the value of its investments may also decrease due to these factors.
The frequency, severity, duration, and geographic location and scope of such health crises, catastrophe and severe
weather events are inherently unpredictable, and, therefore, the Company is unable to predict the ultimate impact climate
change, catastrophe events and responses to them will have on its businesses. The impacts of catastrophe events and responses
to them may also exacerbate the risks discussed elsewhere in Part I, Item 1A of this Annual Report.
8. The Company may find it difficult to acquire necessary data
Certain data used and supplied by the Company are subject to regulation by various federal, state and local regulatory
authorities. Compliance with existing federal, state and local laws and regulations with respect to such data has not had a
material adverse effect on the Company’s results of operations to date. Nonetheless, federal, state and local laws and
regulations in the United States designed to protect the public from the misuse of personal information in the marketplace and
adverse publicity or potential litigation concerning the commercial use of such information may affect the Company’s
operations and could result in substantial regulatory compliance expense, litigation expense and a loss of revenue. The suppliers
of data to the Company face similar burdens. As a result of these and other factors, the Company may find it financially
burdensome to acquire necessary data.
9. Changes in the Company’s relationships with large mortgage lenders or government–sponsored enterprises could
adversely affect the Company
Large mortgage lenders and government-sponsored enterprises, because of their significant role in the mortgage process,
have significant influence over the Company and other service providers. Changes in the Company’s relationship with any of
these lenders or government-sponsored enterprises, the loss of all or a portion of the business the Company derives from these
parties, any refusal of these parties to accept the Company’s products and services, the modification of the government-
sponsored enterprises’ requirements for title insurance or mortgage servicing in connection with mortgages they purchase or
the use of alternatives to the Company’s products and services, could have a material adverse effect on the Company.
10.
A downgrade by ratings agencies, reductions in statutory capital and surplus maintained by the
Company’s title insurance underwriters or a deterioration in other measures of financial strength could adversely affect the
Company
Certain of the Company’s customers use measurements of the financial strength of the Company’s title insurance
underwriters, including, among others, ratings provided by ratings agencies and levels of statutory capital and surplus
maintained by those underwriters, in determining the amount of a policy they will accept and the amount of reinsurance
required. Each of the major ratings agencies currently rates the Company’s title insurance operations. These ratings provide
the agencies’ perspectives on the financial strength, operating performance and cash generating ability of those operations.
These agencies continually review these ratings and the ratings are subject to change. Statutory capital and surplus, or the
amount by which statutory assets exceed statutory liabilities, is also a measure of financial strength. Accordingly, if the ratings
or statutory capital and surplus of these title insurance underwriters are reduced from their current levels, or if there is a
deterioration in other measures of financial strength, the Company’s results of operations, competitive position and liquidity
could be adversely affected. In addition, a downgrade in the ratings or rankings for the Company’s federal savings bank
subsidiary or its mortgage servicing business could have an adverse effect on that particular business.
16
11.
The issuance of the Company’s title insurance policies and related activities by independent title agents
could adversely affect the Company
The Company’s title insurance subsidiaries issue a significant portion of their policies through title agents that usually
operate with substantial independence from the Company. There is no guarantee that these title agents will fulfill their
contractual obligations to the Company, which contracts include limitations that are designed to limit the Company’s risk with
respect to their activities. In addition, regulators are increasingly seeking to hold the Company responsible for the actions of
these title agents and, under certain circumstances, the Company may be held liable directly to third parties for actions
(including defalcations) or omissions of these agents. Case law in certain states also suggests that the Company is liable for
the actions or omissions of its agents in those states, regardless of contractual limitations. As a result, the Company’s use of
title agents could result in increased claims on the Company’s policies issued through agents and an increase in other costs and
expenses.
12.
Systems damage, failures, interruptions, cyberattacks and intrusions, and unauthorized data disclosures
by the Company or its service providers may disrupt the Company’s business, harm the Company’s reputation, result in
material claims for damages or otherwise adversely affect the Company
The Company uses computer software applications, systems and other technologies (collectively referred to as
“systems”), some of which it owns and manages and some of which are owned and/or managed by third parties, including
providers of distributed computing infrastructure platforms commonly known as the “cloud.” The Company and its agents,
suppliers, service providers, and customers use systems to receive, process, store and transmit business information, including
non-public personal information as well as data from suppliers and other information upon which the Company’s business
relies. The Company also uses these systems to manage substantial cash, investment assets, bank deposits, trust assets, escrow
account balances and custodial balances on behalf of itself and its customers, among other activities. Many of the Company’s
products, services and solutions involving the use of real property related data are fully reliant on these systems and are only
available electronically. Accordingly, for a variety of reasons, the integrity of these systems and the protection of the
information that resides thereon are critically important to the Company’s successful operation.
These systems have been subject to, and are likely to continue to be the target of, malware, cyberattacks and
cyberterrorism, ransomware attacks, phishing attacks, unauthorized access, online and offline fraud and other malicious
activity. These attacks are prevalent, continue to increase in frequency and sophistication, and are increasingly difficult to
detect. These systems also have known and unknown vulnerabilities. Once identified, the Company’s information technology
and information security personnel seek to remediate these vulnerabilities based on the level of risk presented. For a number
of reasons, including the introduction of new vulnerabilities, resource constraints, competing business demands and dependence
on third parties, a number of unremediated vulnerabilities will always exist. Remediation of some vulnerabilities are outside of
the control of the Company and third-party remediation efforts may not be timely provided or implemented or otherwise
adequate, even when the level of risk is critical or high. Further, certain other potential causes of system damage or other
negative system-related events are wholly or partially beyond the Company’s control, such as natural disasters, vendor failures
to satisfy service level requirements, third party negligence or intentional acts, and power or telecommunications failures.
These circumstances could expose the Company to system-related damages, failures, interruptions, cyberattacks, as the
Company experienced in December 2023 (as described further in Item 1C. Cybersecurity), and other negative events or could
otherwise disrupt the Company’s business and could also result in the loss or unauthorized release, gathering, monitoring or
destruction of confidential, proprietary and other information pertaining to the Company, its customers, employees, agents or
suppliers.
In conducting its business and delivering its products and services, the Company also utilizes service providers. These
service providers and the systems they utilize are typically subject to similar types of system- and information security-related
risks that the Company faces. The Company provides certain of these service providers with data, including nonpublic personal
information. There is no guarantee that the Company’s due diligence or ongoing vendor oversight will be sufficient to ensure
the integrity and security of the systems utilized by these service providers or the protection of the information that resides
thereon.
Certain laws and contracts the Company has entered into require it to comply with certain information security
requirements and to notify various parties, including consumers or customers, in the event of certain actual or potential data
breaches or systems failures, including those of the Company’s service providers. Further, the Company’s financial institution
customers have obligations to safeguard their systems and sensitive information and the Company may be bound contractually
and/or by regulation to comply with the same requirements. If the Company or its service providers fail to comply with
applicable regulations and contractual requirements, the Company could be exposed to lawsuits, governmental proceedings or
the imposition of fines, among other consequences.
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Any inability of the Company or its service providers to prevent or adequately respond to the issues described above
could disrupt the Company’s business, delay the delivery of its products and services, inhibit its ability to retain existing
customers or attract new customers, divert management’s time and energy, otherwise harm its reputation and/or result in
financial losses, litigation, regulatory inquiries, increased costs or other adverse consequences that could be material to the
Company.
13.
Errors and fraud involving the transfer of funds may adversely affect the Company
The Company relies on its systems, employees and domestic and international banks to transfer its own funds and the
funds of third parties. In addition to relying on third-party banks to transfer these funds, the Company’s federal savings bank
subsidiary transfers funds on behalf of the Company as well as title agents that are not affiliates of the Company. These transfers
are susceptible to user input error, fraud, system interruptions, incorrect processing and similar errors that from time to time
result in lost funds or delayed transactions. The Company’s email and computer systems and systems used by its agents,
customers and other parties involved in a transaction have been subject to, and are likely to continue to be the target of,
fraudulent attacks, including attempts to cause the Company or its agents to improperly transfer funds. These attacks continue
to increase in frequency and sophistication. Funds transferred to a fraudulent recipient may not be recoverable. In certain
instances the Company may be liable for those unrecovered funds. The controls and procedures used by the Company to
prevent transfer errors and fraud may prove inadequate, resulting in financial losses, reputational harm, loss of customers or
other adverse consequences which could be material to the Company.
14. The Company’s failure to recruit and retain qualified employees may adversely affect the business
The Company’s continued success depends, in large part, on its ability to hire and retain qualified people. Competition
for highly qualified people is significant, and there is no assurance that the Company will be successful in attracting, training
or retaining people. If the Company is unable to attract and retain qualified people, its business and operations may be impaired
or disrupted.
15.
The Company’s use of a global workforce involves risks that could adversely affect the Company
The Company utilizes lower cost labor in countries such as India and the Philippines, among others. These countries are
subject to relatively high degrees of political and social instability and may lack the infrastructure to withstand natural disasters,
health crises and other catastrophe events. Such disruptions could decrease efficiency and increase the Company’s costs.
Weakness of the United States dollar in relation to the currencies used in these countries may also reduce the savings achievable
through this strategy. Laws, regulations, business requirements or social or political pressures may require the Company to
use labor based in the United States or may otherwise effectively increase the Company’s labor costs abroad. The Company
may not be able to pass on these increased costs to its customers.
16.
Acquisitions may have an adverse effect on our business
The Company has in the past acquired, and is expected to acquire in the future, other businesses. When businesses are
acquired, the Company may not be able to integrate or manage these businesses in such a manner as to realize the anticipated
synergies or otherwise produce returns that justify the investment. Acquired businesses may subject the Company to increased
regulatory or compliance requirements. The Company’s acquisitions have involved, and are likely to continue to involve, the
entry into businesses in which the Company’s management has limited prior experience, making the Company reliant on the
management team of the acquired business. The Company may not be able to successfully retain employees of acquired
businesses or integrate them, and could lose customers, suppliers or other partners as a result of the acquisitions. For these and
other reasons, including changes in market conditions, the projections used to value the acquired businesses may prove
inaccurate. In addition, the Company might incur unanticipated liabilities from acquisitions. These and other factors related to
acquisitions could have a material adverse effect on the Company’s results of operations, financial condition and liquidity. The
Company’s management also will continue to be required to dedicate substantial time and effort to the integration of its
acquisitions. These efforts could divert management’s focus and resources from other strategic opportunities and operational
matters.
18
LEGAL AND COMPLIANCE RISK FACTORS
17.
Regulatory oversight and changes in government regulation could require the Company to raise capital,
make it more difficult to deploy capital, including dividends to stockholders and repurchases of the Company’s shares,
prohibit or limit the Company’s operations, make it more costly or burdensome to conduct such operations, result in
decreased demand for the Company’s products and services or otherwise adversely affect the Company
Many of the Company’s businesses, including its title insurance, property and casualty insurance, home warranty,
mortgage servicing and subservicing, banking, trust and wealth management businesses, are regulated by various federal, state,
local and foreign governmental agencies. These and other of the Company’s businesses also operate within statutory guidelines,
which can include requirements to maintain certain licenses at the federal, state and/or local levels. The industry in which the
Company operates and the markets into which it sells its products are also regulated and subject to statutory guidelines. In
general, in recent years, the Company experienced increasing regulatory oversight and became subject to increasingly complex
statutory guidelines.
Regulatory oversight could require the Company to raise capital, and/or make it more difficult to deploy capital, including
dividends to stockholders and repurchases of the Company’s shares. It is possible that the group capital calculations,
particularly in an economic downturn, could have the effect of requiring the Company to raise capital and/or making it more
difficult to otherwise deploy capital, including dividends to stockholders and repurchases of the Company’s shares.
An increasing number of federal, state, and international laws and regulations apply to the collection, use, retention,
protection, disclosure, transfer, and other processing of personal data. The effects of these privacy and data protection laws,
including the cost of compliance and required changes in the manner in which the Company conducts its business, are not fully
known and are potentially significant, and the failure to comply could adversely affect the Company. The Company has incurred
costs to comply with these laws and to respond to inquiries about its compliance with them.
In addition, changes in the applicable regulatory environment, statutory guidelines or interpretations of existing
regulations or statutes; reform of government-sponsored enterprises such as the Federal National Mortgage Association (Fannie
Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac); enhanced governmental oversight or efforts by
governmental agencies to cause customers to refrain from using the Company’s products or services could prohibit or limit its
future operations or make it more costly or burdensome to conduct such operations or result in decreased demand for the
Company’s products and services or a change in its competitive position. The impact of these changes would be more
significant if they involve jurisdictions in which the Company generates a greater portion of its title premiums, such as the
states of Arizona, California, Florida, New York, and Texas. These changes may compel the Company to reduce its prices,
may restrict its ability to implement price increases or acquire assets or businesses, may limit the manner in which the Company
conducts its business or otherwise may have a negative impact on its ability to generate revenues, earnings and cash flows.
18.
Scrutiny of the Company’s businesses and the industries in which it operates by governmental entities and
others could adversely affect the Company
The real estate settlement services industry, an industry in which the Company generates a substantial portion of its
revenue and earnings, and the mortgage servicing and subservicing industry are subject to continuous scrutiny by regulators,
legislators, the media and plaintiffs’ attorneys. Though often directed at these industries generally, these groups also focus
their attention directly on the Company’s businesses from time to time. In either case, this scrutiny may result in changes
which could adversely affect the Company’s operations and, therefore, its financial condition and liquidity.
Governmental entities have routinely inquired into certain practices in the real estate settlement services industry and the
mortgage servicing and subservicing industry to determine whether certain of the Company’s businesses or its competitors
have violated applicable laws, which include, among others, the insurance codes of the various jurisdictions, the Real Estate
Settlement Procedures Act, the Truth in Lending Act and similar state, federal and foreign laws. The Consumer Financial
Protection Bureau (“CFPB”), for example, has actively utilized its regulatory authority over the mortgage and real estate
markets by bringing enforcement actions against various participants in the mortgage and settlement industries and we expect
that such enforcement activity will intensify. Departments of insurance in the various states, the CFPB and other federal
regulators and applicable regulators in international jurisdictions, either separately or together, also periodically conduct
targeted inquiries into the practices of title insurance companies, other settlement services providers and mortgage servicers in
their respective jurisdictions. Currently, the Company is the subject of regulatory inquiries.
19
Further, from time to time plaintiffs’ lawyers have targeted, and are expected to continue to target, the Company and
other members of the Company’s industry with lawsuits claiming legal violations or other wrongful conduct. These lawsuits
often involve large groups of plaintiffs and claims for substantial damages. These types of inquiries or proceedings have from
time to time resulted, and may in the future result, in findings of a violation of the law or other wrongful conduct and the
payment of fines or damages or the imposition of restrictions on the Company’s conduct. This could impact the Company’s
operations and financial condition. Moreover, these laws and standards of conduct often are ambiguous and, thus, it may be
difficult to ensure compliance. This ambiguity may force the Company to mitigate its risk by settling claims or by ending
practices that generate revenues, earnings and cash flows. Currently the Company is a party to class action lawsuits.
19.
Regulation of title insurance rates could adversely affect the Company
Title insurance rates are subject to extensive regulation, which varies from state to state. In many states the approval of
the applicable state insurance regulator is required prior to implementing a rate change. These regulations could hinder the
Company’s ability to promptly adapt to changing market dynamics through price adjustments, which could adversely affect its
results of operations, particularly in a rapidly declining market.
FINANCIAL RISK FACTORS
20.
Failures at financial institutions at which the Company deposits funds could adversely affect the Company
The Company deposits substantial funds in financial institutions. These funds include amounts owned by third parties,
such as escrow deposits, like-kind exchange deposits and investor, mortgagor and subservicer deposits. Should one or more of
the financial institutions at which deposits are maintained fail, there is no guarantee that the Company would recover the funds
deposited, whether through Federal Deposit Insurance Corporation coverage or otherwise. In the event of any such failure, the
Company also could be held liable for the funds owned by third parties. Unfavorable economic conditions, like those
experienced in 2023, may lead to a heightened risk of failures of financial institutions at which the Company maintains
deposits. Such failures may be difficult to predict and the Company may not be able to react in a sufficiently timely manner to
avoid adverse effects on the Company.
21.
Unfavorable economic or other conditions could cause the Company to write off a portion of its goodwill
and other intangible assets
The Company performs an impairment test of the carrying value of goodwill and other indefinite-lived intangible assets
annually in the fourth quarter, or sooner if circumstances indicate a possible impairment. Finite-lived intangible assets are
subject to impairment tests on a periodic basis. Factors that may be considered in connection with this review include, without
limitation, underperformance relative to historical or projected future operating results, reductions in the Company’s stock price
and market capitalization, increased cost of capital and negative macroeconomic, industry and company-specific trends. These
and other factors could lead to a conclusion that goodwill or other intangible assets are impaired, in which case the Company
would be required to write off the portion believed to be impaired. Any substantial goodwill and other intangible asset
impairments that may be required could have a material adverse effect on the Company’s results of operations and financial
condition.
22.
The Company’s investment portfolio is subject to certain risks and could experience losses
The Company maintains a substantial investment portfolio, primarily consisting of fixed income debt securities. The
investment portfolio also includes adjustable-rate debt securities, common and preferred stock, as well as money-market and
other short-term investments. Securities in the Company’s investment portfolio are subject to certain economic and financial
market risks, such as credit risk, interest rate (including call, prepayment and extension) risk and/or liquidity risk. The risk of
loss associated with the portfolio is increased during periods of instability in credit markets and economic conditions, such as
during the current environment precipitated by rapidly rising interest rates. Debt and equity securities are carried at fair value
on the Company’s balance sheet. Changes in the fair values of debt securities are recorded as a component of accumulated
other comprehensive income/loss on the balance sheet. For debt securities in an unrealized loss position, where the loss is
determined to be due to credit-related factors, the Company records the loss in earnings. Changes in the fair values of
marketable equity securities are recognized in earnings. Changes in the fair values of securities in the Company’s investment
portfolio have had an adverse impact on the Company and could have a material adverse effect on the Company’s results of
operations, statutory surplus, financial condition and cash flow.
20
23.
The Company’s venture investment portfolio is volatile and subject to certain risks and could experience
losses
The Company’s venture investment portfolio is primarily comprised of investments in the equity of private venture-stage
companies that operate in the real-estate industry and related industries (many of which offer technology-enabled products and
services), investments in funds that typically invest in these same types of companies, and a similar investment that is trading
publicly. The venture investment portfolio is managed independent of the Company’s portfolio of debt securities and
marketable equity securities, which is overseen by the Company’s investment department and an investment committee. The
Company may continue to make similar venture investments. These positions are concentrated in a limited number of holdings
and are high-risk, illiquid investments. In certain circumstances, such as when one of these companies raises capital, merges
with another company or sells itself at a valuation that is less than the valuation at which the Company made its investment or
when one of these companies fails and/or liquidates itself, the Company has been and could be required to impair all or part of
its investment in that company or write down the value of an investment if future growth prospects deteriorate. The prospects
of these companies depend on a number of factors, including the condition of the general economy, the general availability of
capital, the performance of and volatility in the public markets, the regulatory and political environments, the condition of the
real estate industry, the competitive environment for such companies and the operational and financial performance of such
companies. Even if one of these companies is successful, the Company’s ability to realize the value of its investment may take
a significant amount of time and may be dependent on the occurrence of a liquidity event, such as an initial public offering or
the sale of the company. Even when a liquidity event occurs, the Company may be subject to restrictions on resale or may
choose to continue to hold the investment for strategic or other reasons and, as a result, the Company may not monetize the
value of its investment during periods in which it could be financially advantageous to sell the investment. These investments
may cause material fluctuations in the Company’s quarterly results of operations due to the recognition of gains or losses in
connection with observable price changes, such as from liquidity events, impairments, subsequent equity sales, or price changes
in investments that begin trading publicly, which changes can be volatile.
24.
Actual claims experience could materially vary from the expected claims experience reflected in the
Company’s reserve for incurred but not reported claims
The Company maintains a reserve for incurred but not reported (“IBNR”) claims pertaining to its title, escrow and other
insurance and guarantee products. The majority of this reserve pertains to title insurance policies, which are long-duration
contracts with the majority of the claims reported within the first few years following the issuance of the policy. Generally,
65% to 75% of claim amounts become known in the first six years of the policy life, and the majority of IBNR reserves relate
to the six most recent policy years. Changes in expected ultimate losses and corresponding loss rates for recent policy years
are considered likely and could result in a material adjustment to the IBNR reserves. In uncertain economic times, an even
larger change is more likely. A material change in expected ultimate losses and corresponding loss rates for older policy years
is also possible, particularly for policy years with loss ratios exceeding historical norms. The estimates made by management
in determining the appropriate level of IBNR reserves could ultimately prove to be materially different from actual claims
experience.
Changes in laws or regulations impacting real estate, particularly when applied retroactively, may cause a material change
in expected ultimate losses and corresponding loss rates for recent and/or older policy years. For example, the 2020 United
States Supreme Court decision in McGirt v. Oklahoma calls into question the governing authority for certain real estate-related
matters in Native American reservations once thought to have been disestablished. To the extent the Company, in those areas,
underwrote title insurance policies or closed real estate transactions in conformity with authority that ultimately proves
inapplicable, expected ultimate losses arising from those policies and transactions could change materially and could result in
a material change to loss rates.
25.
The Company's ability to fulfill parent company obligations and/or pay dividends may be limited
The Company is a holding company whose primary assets are investments in its operating subsidiaries. The Company’s
ability to fulfill parent company obligations and/or declare and pay dividends is dependent on the ability of its subsidiaries to
pay dividends or repay funds. If the Company’s operating subsidiaries are not able to pay dividends or repay funds, the
Company may not be able to fulfill parent company obligations and/or declare and pay dividends. Moreover, pursuant to
insurance and other regulations under which the Company’s insurance subsidiaries operate, the amount of dividends, loans and
advances available is limited. See Item 2 – MD&A – Liquidity and Capital Resources for details on dividend restrictions. The
Company may also be required to invest capital in its subsidiaries which could further limit its ability to fulfill parent company
obligations and/or declare and pay dividends.
21
26.
A reduction in the deposits at the Company’s federal savings bank subsidiary could require the Company
to borrow funds to maintain liquidity
The deposits of the Company’s federal savings bank subsidiary consist almost entirely of funds deposited by its affiliates,
the majority of which are from third parties to be held in trust pending the closing of real estate transactions. When real estate
transactions decline, aggregate deposits held in trust at the Company’s bank tend to decline. There is also a portion of the
bank’s deposits that are custodial funds held on behalf of clients of the Company’s residential mortgage subservicer
subsidiary. Such clients may cause their custodial funds to be moved out of the Company’s bank subsidiary in connection with
the transfer of ownership of mortgage servicing rights or loans, termination of subservicing contracts or otherwise. The
likelihood of these clients causing funds to be moved increases as interest rates rise, which could result in a marked decline in
the bank’s deposits. When there is a reduction in the bank’s deposits, the Company could be required to borrow funds to
maintain the bank’s liquidity.
GENERAL RISK FACTORS
27.
Certain provisions of the Company’s bylaws and certificate of incorporation, as well as regulatory hurdles,
may reduce the likelihood of any unsolicited acquisition proposal or potential change of control that the Company’s
stockholders might consider favorable
The Company’s bylaws and certificate of incorporation contain provisions that could be considered “anti-takeover”
provisions because they make it harder for a third-party to acquire the Company without the consent of the Company’s
incumbent board of directors. Under these provisions:
•
•
•
•
•
election of the Company’s board of directors is staggered such that only one-third of the directors are elected by the
stockholders each year and the directors serve three year terms prior to reelection;
stockholders may not remove directors without cause, change the size of the board of directors or, except as may be
provided for in the terms of preferred stock the Company issues in the future, fill vacancies on the board of directors;
stockholders may act only at stockholder meetings and not by written consent;
stockholders must comply with advance notice provisions for nominating directors or presenting other proposals at
stockholder meetings; and
the Company’s board of directors may without stockholder approval issue preferred shares and determine their rights
and terms, including voting rights, or adopt a stockholder rights plan.
While the Company believes that they are appropriate, these provisions may only be amended by the affirmative vote of
the holders of approximately 67% of the Company’s issued voting shares. In addition, federal banking laws and regulations
and state insurance laws and regulations require third parties to obtain prior approval to acquire control of the Company due to
its status as a savings and loan holding company and an insurance holding company. These provisions and regulatory
requirements could have the effect of discouraging an unsolicited acquisition proposal or delaying, deferring or preventing a
change of control transaction that might involve a premium price or otherwise be considered favorably by the Company’s
stockholders.
22
28.
The Company may be susceptible to claims of infringement and may not be able to adequately protect its
intellectual property
The Company relies on a combination of patents, trademarks, copyrights, trade secret laws, non-disclosure agreements,
contractual provisions and systems of internal safeguards to protect its intellectual property. As the Company expands its
utilization of innovative technologies, processes and techniques in the production and delivery of its products and services, the
Company may increasingly have to litigate to enforce and protect its intellectual property rights, which may divert Company
resources, cause reputational harm to the Company or result in other adverse consequences, including a loss of competitive
advantage, and there is no guarantee that such protection and enforcement efforts would be successful. In addition, third parties
may allege that the Company’s operations or activities infringe on their intellectual property rights, including through the
Company’s use of software containing open source code, which may expose the Company to third-party claims of ownership
of, or demands for the release of, the source code, the open source software and/or derivative works that were developed using
such software, or otherwise seeking to enforce the terms of the applicable open source license. Many of the risks associated
with usage of open source cannot be eliminated, and could, if not properly addressed, adversely affect the Company’s
business. Infringement claims may give rise to litigation, which could result in damages, injunctions prohibiting the Company
from providing certain products or services, entry into costly licensing arrangements or other adverse consequences.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 1C. Cybersecurity
We recognize the critical importance of maintaining the safety and security of our systems and data and take a holistic
approach to overseeing and managing cybersecurity, which is supported by both management and our Board of Directors. The
Company’s Board, the Audit Committee of the Board and management devote significant resources to cybersecurity and risk
management processes to adapt to the changing cybersecurity landscape and respond to emerging threats in a timely and
effective manner. Our approach to cybersecurity risk management is multi-layered and includes governance and risk,
monitoring and incidence response, data security, application security, endpoint security, network security and perimeter
security.
The Company’s Chief Information Security Officer (“CISO”) is responsible for developing and implementing our
information security program and manages a team of cybersecurity professionals with broad experience and expertise, including
in cybersecurity threat assessments and detection, mitigation technologies, cybersecurity training, incident response, cyber
forensics, insider threats and regulatory compliance. Our CISO has been with the Company for 13 years in various information
security roles and has over 20 years of experience in the cybersecurity field.
The Company’s Board of Directors has delegated the primary responsibility to oversee cybersecurity matters to the Audit
Committee of the Board. The Audit Committee receives quarterly reports from our CISO regarding cybersecurity matters. The
CISO also briefs the full Board of Directors on cybersecurity matters semi-annually.
The Company maintains an extensive and structured enterprise risk management (ERM) program encompassing senior
executive leaders from all facets of its business, including operations, human resources, finance, accounting, treasury,
information security, information technology, legal/regulatory, internal audit, compliance, underwriting, and real estate. As
part of our ERM program, the Company maintains an Information Security Oversight Committee (“ISO Committee”) that
oversees the Company’s cybersecurity program from a management perspective. The ISO Committee meets quarterly and is
chaired by the Company’s Chief Risk Officer and is comprised of the Company’s Chief Executive Officer, Chief Financial
Officer, Chief Legal Officer, Chief Privacy Officer and top leaders of each of the Company’s operating units. The Company’s
CISO, Chief Information Officer and Chief Technology Officer are also participants on the ISO Committee and the Chief Audit
Executive, who reports to the Company’s Audit Committee, is an observer. The CISO provides regular reports to the ISO
Committee which are shared with the Company’s Board of Directors.
23
As part of our risk management process, the Company maintains an overall risk management program that encompasses
cybersecurity, conducts security audits, annual System and Organization Controls (SOC 2) testing, and ongoing risk
assessments using a company-wide risk framework. We also require employees with access to information systems to
undertake data protection and cybersecurity training and compliance programs. Compliance with cybersecurity training is
tracked and reported to the Company’s Compliance Executive Steering Committee and the Audit Committee of the Board. In
addition, the Company conducts quarterly employee phishing tests and our CISO provides those results to the Company’s
executives. The Company has processes in place for assessing, identifying, and managing material risks from potential
cybersecurity incidents, including vulnerability identification, intrusion prevention, encryption, endpoint protection, behavior
analysis, mitigation and the processes and protocols set forth in the Company’s incident response plans. Certain of our
subsidiaries manage their own cybersecurity functions and coordinate with the Company’s CISO. The Company also employs
systems and processes designed to oversee and identify cybersecurity threats associated with third-party vendors, including a
risk assessment and rigorous evaluation of each vendor that may access, process or store highly sensitive or proprietary data or
that is systematically integrated with the Company’s systems or network. In addition to our in-house cybersecurity capabilities,
we engage assessors, consultants, auditors, and other third parties to assist with assessing, identifying, mitigating and managing
cybersecurity risks, including the maintenance of a Security Operations Center that is co-managed between the Company and
a managed security service provider (MSSP), which continuously reviews the Company’s network using threat intelligence
from a variety of sources and reports potential incidents from users.
While the Company has experienced cybersecurity threats to its data and systems, such threats have not materially
affected the Company, including our business strategy, results of operations or financial condition, with the exception of an
incident in the fourth quarter of 2023, as disclosed in a Current Report filed by the Company on Form 8-K on December 22, as
amended on December 29, 2023 and January 12, 2024. Prior to the Company’s systems being taken offline in connection with
this incident, we produced an internal forecast estimating our adjusted earnings per share to be $1.00. Our actual adjusted
earnings per share was 69 cents, including a 5 cent tax benefit, implying a 36 cent shortfall relative to our internal estimate.
Although the Company believes that most of this difference is related to the incident, the exact impact the incident had on our
fourth quarter results is unknowable. Included in this 36 cent shortfall was $11 million of direct expenses related to the incident
in our corporate segment including our $5 million insurance retention. We do not believe the incident will have a material
impact on the Company’s overall financial condition or its ongoing results of operations. For additional information on
cybersecurity risks we face, see Item 1A. Risk Factors of this Annual Report, which should be read in conjunction with the
foregoing information.
Item 2. Properties
Each of our business segments uses our executive offices in Santa Ana, California. This office campus consists of five
office buildings, a technology center and a two-story parking structure, totaling approximately 490,000 square feet. The office
facilities we occupy are, in all material respects, in good condition and adequate for their intended use.
Item 3. Legal Proceedings
See Note 21 Litigation and Regulatory Contingencies to the consolidated financial statements included in Item 8.
Financial Statements and Supplementary Data of Part II of this report, which is incorporated by reference into this Item 3 of
Part I.
Item 4. Mine Safety Disclosures
Not applicable.
24
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Common Stock Market Prices and Dividends
The Company’s common stock trades on the New York Stock Exchange (ticker symbol FAF). The approximate number
of record holders of common stock on February 14, 2024, was 1,842.
In January 2024, the Company’s board of directors declared a cash dividend of $0.53 per share. We expect that the
Company will continue to pay quarterly cash dividends at or above the current level. The timing, declaration and payment of
future dividends, however, falls within the discretion of the Company’s board of directors and will depend upon many factors,
including the Company’s financial condition and earnings, the capital requirements of our businesses, restrictions imposed by
applicable law and any other factors the board of directors deems relevant from time to time. In addition, the ability to pay
dividends also is potentially affected by the restrictions described in Note 2 Statutory Restrictions on Investments and
Stockholders’ Equity to the consolidated financial statements included in Item 8. Financial Statements and Supplementary
Data of Part II of this report.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Pursuant to the share repurchase program approved by the Company’s board of directors in June 2022, which program
has no expiration date, the Company may repurchase up to $400.0 million of the Company’s issued and outstanding common
stock. The following table describes purchases by the Company under the share repurchase program that settled during each
period set forth in the table. Prices in column (b) include commissions. Cumulatively, as of December 31, 2023, the Company
had repurchased $186.2 million (including commissions) of its shares authorized under the share repurchase program and had
the authority to repurchase an additional $213.8 million (including commissions) under that program.
(a)
Total
Number of
Shares
Purchased
(b)
Average
Price Paid
per Share
168,406
151,657
8,800
328,863
$
$
52.90
54.59
59.45
53.85
(c)
Total Number of
Shares
Purchased as
Part
of Publicly
Announced Plans
or Programs
168,406
151,657
8,800
328,863
(d)
Maximum
Approximate Dollar
Value of Shares
that May Yet Be
Purchased Under
the Plans or
Programs
222,636,293
214,357,955
213,834,761
213,834,761
$
Period
October 1, 2023 to October 31, 2023
November 1, 2023 to November 30, 2023
December 1, 2023 to December 31, 2023
Total
Unregistered Sales of Equity Securities
During the year ended December 31, 2023, the Company did not issue any unregistered common stock.
25
Stock Performance Graph
The following performance graph and related information shall not be deemed “soliciting material” or “filed” with the
SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or the
Securities Exchange Act of 1934, each as amended, except to the extent that it is specifically incorporated by reference into
such filing.
The following graph compares the cumulative total stockholder return on the Company’s common stock with the
corresponding cumulative total returns of the S&P 400 Mid Cap Index and an industry peer group for the period from
December 31, 2018 through December 31, 2023. The comparison assumes an investment of $100 on December 31, 2018 and
reinvestment of dividends. This historical performance is not indicative of future performance.
Comparison of Cumulative Total Returns
Among First American Financial Corporation, Custom Peer Group,
and S&P 400 MidCap Index
$210
$200
$190
$180
$170
$160
$150
$140
$130
$120
$110
$100
$90
$80
Dec-18
Dec-19
Dec-20
Dec-21
Dec-22
Dec-23
First American Financial Corp (FAF)
Custom Peer Group
S&P 400 MidCap Index (MID)
Comparison of Cumulative Total Return
First American
Financial Corporation
(FAF) (1)
Custom Peer
Group (1)(2)
S&P 400 Mid Cap
Index (1)
December 31, 2018
December 31, 2019
December 31, 2020
December 31, 2021
December 31, 2022
December 31, 2023
$
$
$
$
$
$
100
135
123
192
133
170
$
$
$
$
$
$
100
132
120
156
160
176
$
$
$
$
$
$
100
126
143
179
155
181
(1) As calculated by Bloomberg Financial Services including reinvestment of dividends.
(2)
The custom peer group consists of the following companies: American Financial Group, Inc.; Assurant, Inc.; Axis
Capital Holdings Limited; Cincinnati Financial Corporation; Everest Re Group, Ltd.; Fidelity National Financial, Inc.;
Genworth Financial, Inc.; The Hanover Insurance Group, Inc.; Kemper Corporation; Mercury General Corporation; Old
Republic International Corp.; and W.R. Berkley Corporation, each of which are in the insurance industry. The
compensation committee of the Company utilizes the compensation practices of these companies as benchmarks in
setting the compensation of its executive officers.
26
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
CERTAIN STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-K ARE FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THESE FORWARD-LOOKING STATEMENTS MAY
CONTAIN THE WORDS “BELIEVE,” “ANTICIPATE,” “EXPECT,” “PLAN,” “PREDICT,” “ESTIMATE,” “PROJECT,”
“WILL BE,” “WILL CONTINUE,” “WILL LIKELY RESULT,” OR OTHER SIMILAR WORDS AND PHRASES.
RISKS AND UNCERTAINTIES EXIST THAT MAY CAUSE RESULTS TO DIFFER MATERIALLY FROM THOSE SET
FORTH IN THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE THE ANTICIPATED
RESULTS TO DIFFER FROM THOSE DESCRIBED IN THE FORWARD-LOOKING STATEMENTS INCLUDE THE
FACTORS SET FORTH ON PAGES 4-5 OF THIS ANNUAL REPORT. THE FORWARD-LOOKING STATEMENTS SPEAK
ONLY AS OF THE DATE THEY ARE MADE. THE COMPANY DOES NOT UNDERTAKE TO UPDATE FORWARD-
LOOKING STATEMENTS TO REFLECT CIRCUMSTANCES OR EVENTS THAT OCCUR AFTER THE DATE THE
FORWARD-LOOKING STATEMENTS ARE MADE.
This Management’s Discussion and Analysis contains certain financial measures that are not presented in accordance
with generally accepted accounting principles (“GAAP”), including adjusted information and other revenues, adjusted
personnel costs and adjusted other operating expenses, in each case excluding the effects of recent acquisitions, and adjusted
debt to capitalization ratio as it excludes the effects of secured financings payable and accumulated other comprehensive loss.
The Company is presenting these non-GAAP financial measures because they provide the Company’s management and readers
of this Annual Report on Form 10-K with additional insight into the operational performance of the Company relative to earlier
periods and additional insight into the financial leverage of the Company. The Company does not intend for these non-GAAP
financial measures to be a substitute for any GAAP financial information. In this Annual Report on Form 10-K, these non-
GAAP financial measures have been presented with, and reconciled to, the most directly comparable GAAP financial measures.
Readers of this Annual Report on Form 10-K should use these non-GAAP financial measures only in conjunction with the
comparable GAAP financial measures. Because not all companies use identical calculations, the presentation of adjusted debt
to capitalization ratio may not be comparable to other similarly titled measures of other companies.
Principles of Consolidation
The consolidated financial statements have been prepared in accordance with GAAP and reflect the consolidated
operations of the Company. The consolidated financial statements include the accounts of First American Financial
Corporation and all controlled subsidiaries. All significant intercompany transactions and balances have been eliminated.
Equity investments in which the Company exercises significant influence but does not control and is not the primary
beneficiary, are accounted for using the equity method of accounting. Equity investments in which the Company does not
exercise significant influence over the investee and without readily determinable fair values, or non-marketable equity
securities, are accounted for at cost, less impairment, and are adjusted up or down for any observable price changes.
27
Reportable Segments
The Company consists of the following reportable segments:
•
•
•
The title insurance and services segment issues title insurance policies on residential and commercial property in
the United States and offers similar or related products and services internationally. This segment also provides
closing and/or escrow services; accommodates tax-deferred exchanges of real estate; provides products, services
and solutions designed to mitigate risk or otherwise facilitate real estate transactions; maintains, manages and
provides access to title plant data and records; provides appraisals and other valuation-related products and
services; provides lien release, document custodial and default-related products and services; provides document
generation services; provides warehouse lending services; subservices mortgage loans; and provides banking, trust
and wealth management services. The Company, through its principal title insurance subsidiary and such
subsidiary’s affiliates, transacts its title insurance business through a network of direct operations and agents.
Through this network, the Company issues policies in the 49 states that permit the issuance of title insurance
policies, the District of Columbia and certain United States territories. The Company also offers title insurance,
closing services and similar or related products and services, either directly or through third parties in other
countries, including Canada, the United Kingdom, Australia, New Zealand, South Korea and various other
established and emerging markets.
During 2023, the Company changed the name of its specialty insurance segment to the home warranty segment. In
connection with this change, the Company reclassified all current year and prior year operating results related to
the Company’s property and casualty insurance business, which no longer has policies in force, to the corporate
segment. The home warranty segment sells products including residential service contracts that cover residential
systems, such as heating and air conditioning systems, and certain appliances against failures that occur as the
result of normal usage during the coverage period. This business currently operates in 36 states and the District of
Columbia.
The corporate segment includes investments in venture-stage companies, operating results of the property and
casualty insurance business (as noted above), certain financing facilities and corporate services that support the
Company’s business operations.
Critical Accounting Estimates
The preparation of financial statements in accordance with GAAP requires the application of accounting policies that
often involve a significant degree of judgment. The Company’s management considers the accounting policies described below
to be the most dependent on the application of estimates and assumptions in preparing the Company’s consolidated financial
statements. See Note 1 Basis of Presentation and Significant Accounting Policies to the consolidated financial statements for
a more detailed description of the Company’s significant accounting policies.
Provision for policy losses
The Company provides for title insurance losses through a charge to expense when the related premium revenue is
recognized. The amount charged to expense is generally determined by applying a rate (the loss provision rate) to total title
insurance premiums and escrow fees. The Company’s management estimates the loss provision rate at the beginning of each
year and reassesses the rate quarterly to ensure that the resulting incurred but not reported (“IBNR”) loss reserve and known
claims reserve included in the Company’s consolidated balance sheets together reflect management’s best estimate of the total
costs required to settle all IBNR and known claims. If the ending IBNR reserve is not considered adequate, an adjustment is
recorded.
The process of assessing the loss provision rate and the resulting IBNR reserve involves an evaluation of the results of
an in-house actuarial review. The Company’s in-house actuary performs a reserve analysis utilizing generally accepted
actuarial methods that incorporate cumulative historical claims experience and information provided by in-house claims and
operations personnel. Current economic and business trends are also contemplated as part of the reserve analysis. These
include conditions in the real estate and mortgage markets, changes in residential and commercial real estate values, and
changes in the levels of defaults and foreclosures that may affect claims levels and patterns of emergence, as well as any
company-specific factors that may be relevant to past and future claims experience. Results from the analysis include, but are
not limited to, a range of IBNR reserve estimates and a single point estimate for IBNR as of the balance sheet date.
28
For recent policy years at early stages of development (generally the last three years), IBNR is generally estimated using
a combination of expected loss rate and multiplicative loss development factor calculations. For more mature policy years,
IBNR generally is estimated using multiplicative loss development factor calculations. The expected loss rate method estimates
IBNR by applying an expected loss rate to total title insurance premiums and escrow fees and by adjusting for policy year
maturity using estimated loss development patterns. Multiplicative loss development factor calculations estimate IBNR by
applying factors derived from loss development patterns to losses realized to date. The expected loss rate and loss development
patterns are based on historical experience and the relationship of the history to the applicable policy years.
The Company’s management uses the IBNR point estimate from the in-house actuary’s analysis and other relevant
information concerning claims to determine what it considers to be the best estimate of the total amount required for the IBNR
reserve.
The volume and timing of title insurance claims are subject to cyclical influences from both the real estate and mortgage
markets. Title policies issued to lenders constitute a large portion of the Company’s title insurance volume. These policies
insure lenders against losses on mortgage loans due to title defects in the collateral property. Even if an underlying title defect
exists that could result in a claim, often the lender must realize an actual loss, or at least be likely to realize an actual loss, for
a title insurance liability to exist. As a result, title insurance claims exposure is sensitive to lenders’ losses on mortgage loans
and is affected in turn by external factors that affect mortgage loan losses, particularly macroeconomic factors.
A general decline in real estate prices can expose lenders to greater risk of losses on mortgage loans, as loan-to-value
ratios increase and defaults and foreclosures increase. Title insurance claims exposure for a given policy year is also affected
by the quality of mortgage loan underwriting during the corresponding origination year. The Company believes that the
sensitivity of claims to external conditions in the real estate and mortgage markets is an inherent feature of title insurance’s
business economics that applies broadly to the title insurance industry.
Title insurance policies are long-duration contracts with the majority of the claims reported to the Company within the
first few years following the issuance of the policy. Generally, 65% to 75% of claim amounts become known in the first six
years of the policy life, and the majority of IBNR reserves relate to the six most recent policy years. Changes in expected
ultimate losses and corresponding loss rates for recent policy years are considered likely and could result in a material
adjustment to the IBNR reserves. Based on historical experience, management believes a 50 basis point change to the loss
rates for recent policy years, positive or negative, is reasonably likely given the long duration nature of a title insurance policy.
In uncertain economic times an even larger change is more likely. As examples, if the expected ultimate losses for each of the
last six policy years increased or decreased by 50 basis points, the resulting impact on the Company’s IBNR reserve would be
an increase or decrease, as the case may be, of $157.6 million, and if expected ultimate losses for those same years were to
fluctuate by 100 basis points, the resulting impact would be $315.2 million. A material change in expected ultimate losses and
corresponding loss rates for older policy years is also possible, particularly for policy years with loss ratios exceeding historical
norms. The estimates made by management in determining the appropriate level of IBNR reserves could ultimately prove to
be materially different from actual claims experience.
The Company provides for claims losses relating to its home warranty business based on the average cost per claim and
historical loss experience as applied to the total of current claims incurred. The average cost per home warranty claim is
calculated using the average of the most recent 12 months of claims experience adjusted for estimated future increases in costs.
A summary of the Company’s loss reserves is as follows:
Known title claims
IBNR title claims
Total title claims
Non-title claims
Total loss reserves
December 31,
2023
2022
$
55.5
1,186.5
1,242.0
40.4
$ 1,282.4
(dollars in millions)
4.3% $
62.1
92.5% 1,207.2
96.8% 1,269.3
56.0
3.2%
100.0% $ 1,325.3
4.7%
91.1%
95.8%
4.2%
100.0%
29
Activity in the reserve for known title claims is summarized as follows:
Balance at beginning of year
Provision transferred from IBNR title claims related to:
Current year
Prior years
Payments, net of recoveries, related to:
Current year
Prior years
Other
Balance at end of year
2023
December 31,
2022
(in millions)
2021
$
62.1 $
66.3 $
64.6
24.6
138.9
163.5
21.9
147.6
169.5
(0.6)
55.5 $
28.4
144.0
172.4
25.0
152.0
177.0
0.4
62.1 $
30.6
126.0
156.6
28.4
126.1
154.5
(0.4)
66.3
$
Activity in the reserve for IBNR title claims is summarized as follows:
Balance at beginning of year
Provision related to:
Current year
Prior years
Provision transferred to known title claims related to:
Current year
Prior years
Other
Balance at end of year
2023
December 31,
2022
(in millions)
2021
$
1,207.2 $
1,143.5 $
1,025.8
161.5
(21.6)
139.9
248.4
—
248.4
274.4
—
274.4
24.6
138.9
163.5
2.9
1,186.5 $
28.4
144.0
172.4
(12.3)
1,207.2 $
30.6
126.0
156.6
(0.1)
1,143.5
$
The provision for title insurance losses, expressed as a percentage of title insurance premiums and escrow fees, was
3.25% for 2023, and 4.0% for 2022 and 2021. The 3.25% loss rate in the current year reflects an ultimate loss rate of 3.75%
for the current policy year and a reserve release of 0.5%, or $21.6 million for prior policy years, all based on current year title
insurance premiums and escrow fees for the year ended December 31, 2023.
The provision in 2023 related to current year decreased by $86.9 million, or 35.0%, from 2022 as a result of decreases in
title premiums and escrow fees in 2023 from 2022. The provision in 2022 related to current year decreased by $26.0 million,
or 9.5%, from 2021 as a result of decreases in title premiums and escrow fees in 2022 from 2021.
For further discussion of title provision recorded in 2023, 2022 and 2021, see Results of Operations, page 37.
30
Fair value of debt securities
The Company categorizes the fair values of its debt securities using a three-level hierarchy for fair value measurements
that distinguishes between market participant assumptions developed based on market data obtained from sources independent
of the Company (observable inputs) and the Company’s own assumptions about market participant assumptions developed
based on the best information available in the circumstances (unobservable inputs). The hierarchy for inputs used in
determining fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that
observable inputs be used when available. The hierarchy level assigned to each security was based on management’s
assessment of the transparency and reliability of the inputs used to estimate the fair values at the measurement date. See Note
17 Fair Value Measurements to the consolidated financial statements for a more detailed description of the three-level hierarchy
and a description for each level.
The fair values of debt securities were based on the market values obtained from independent pricing services that were
evaluated using pricing models that vary by asset class and incorporate available trade, bid and other market information and
price quotes from well-established, independent broker-dealers. The independent pricing services monitor market indicators,
industry and economic events, and for broker-quoted only securities, obtain quotes from market makers or broker-dealers that
they recognize to be market participants. The pricing services utilize the market approach in determining the fair values of the
debt securities held by the Company. The Company obtains an understanding of the valuation models and assumptions utilized
by the services and has controls in place to determine that the values provided represent fair values. The Company’s validation
procedures include comparing prices received from the pricing services to quotes received from other third-party sources for
certain securities with market prices that are readily verifiable. If the price comparison results in differences over a predefined
threshold, the Company will assess the reasonableness of the changes relative to prior periods given the prevailing market
conditions and assess changes in the issuers’ credit worthiness, performance of any underlying collateral and prices of the
instrument relative to similar issuances. To date, the Company has not made any material adjustments to the fair value
measurements provided by the pricing services.
Typical inputs and assumptions to pricing models used to value the Company’s debt securities include, but are not limited
to, benchmark yields, reported trades, broker-dealer quotes, credit spreads, credit ratings, bond insurance (if applicable),
benchmark securities, bids, offers, reference data and industry and economic events. For mortgage-backed securities, inputs
and assumptions may also include the structure of issuance, characteristics of the issuer, collateral attributes and prepayment
speeds.
Credit losses on debt securities
When the fair value of an available-for-sale debt security falls below its amortized cost, the Company must determine
whether the decline in fair value is due to credit-related factors or noncredit-related factors. Declines in fair value that are
credit-related are recorded on the balance sheet through an allowance for credit losses with a corresponding adjustment to
earnings and declines that are noncredit-related are recognized through other comprehensive income/loss.
If the Company intends to sell a debt security in an unrealized loss position or determines that it is more likely than not
that the Company will be required to sell a debt security before it recovers its amortized cost basis, the debt security is impaired
and it is written down to fair value with all losses recognized in earnings. As of December 31, 2023, the Company did not
intend to sell any debt securities in an unrealized loss position and it is not more likely than not that the Company will be
required to sell any debt securities before recovery of their amortized cost basis.
For debt securities in an unrealized loss position for which the Company does not intend to sell the debt security and it
is not more likely than not that the Company will be required to sell the debt security, the Company determines whether the
loss is due to credit-related factors or noncredit-related factors. For debt securities in an unrealized loss position for which the
losses are primarily due to credit-related factors, the Company’s policy is to recognize the entire loss in earnings. For debt
securities in an unrealized loss position for which the losses are determined to be the result of both credit-related and noncredit-
related factors, the credit loss is determined as the difference between the present value of the cash flows expected to be
collected and the amortized cost basis of the debt security. The cash flows expected to be collected are discounted using the
effective interest rate (i.e., purchase yield) and for variable rate securities the interest rate is fixed at the rate in effect at the
credit loss measurement date.
Expected future cash flows for debt securities are based on qualitative and quantitative factors specific to each security,
including the probability of default and the estimated timing and amount of recovery. The detailed inputs used to project
expected future cash flows may be different depending on the nature of the individual debt security.
31
Impairment assessment for goodwill
The Company is required to perform an annual goodwill impairment assessment for each reporting unit for which
goodwill has been allocated. The reporting units that have been allocated goodwill include title insurance and home warranty.
The Company’s trust and other services reporting unit has no allocated goodwill and is, therefore, not assessed for impairment.
The Company has elected to perform this annual assessment in the fourth quarter of each fiscal year or sooner if circumstances
indicate possible impairment. Based on accounting guidance, the Company has the option to perform a qualitative assessment
to determine if the fair value is more likely than not (i.e., a likelihood of greater than 50%) less than the carrying amount as a
basis for determining whether it is necessary to perform a quantitative impairment test, or may choose to forego a qualitative
assessment and perform a quantitative impairment test. The qualitative factors considered in this assessment may include
macroeconomic conditions, industry and market considerations, overall financial performance as well as other relevant events
and circumstances as determined by the Company. The Company evaluates the weight of each factor to determine whether it
is more likely than not that impairment may exist. If the results of a qualitative assessment indicate the more likely than not
threshold was not met, the Company may choose not to perform a quantitative impairment test. If, however, the more likely
than not threshold is met, the Company will perform a quantitative test as required and discussed below.
Management’s quantitative impairment testing compares the fair value of each reporting unit to its carrying amount. The
fair value of each reporting unit is determined by using discounted cash flow analysis and, where appropriate, market approach
valuations. If the fair value of the reporting unit exceeds its carrying amount, the goodwill is not considered impaired and no
additional analysis is required. However, if the carrying amount is greater than the fair value, an impairment charge is
recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, with the loss recognized limited
to the total amount of goodwill allocated to that reporting unit.
The quantitative impairment test for goodwill utilizes a variety of valuation techniques, all of which require the Company
to make estimates and judgments. Fair value is determined by employing an expected present value technique, which utilizes
expected cash flows and an appropriate discount rate. The use of comparative market multiples (the “market approach”)
compares the reporting unit to other comparable companies (if such comparables are present in the marketplace) based on
valuation multiples to arrive at a fair value. In assessing the fair value, the Company utilizes the results of the valuations
(including the market approach to the extent comparables are available) and considers the range of fair values determined under
all methods and the extent to which the fair value exceeds the carrying amount of the reporting unit.
The valuation of each reporting unit includes the use of assumptions and estimates of many critical factors, including
revenue growth rates and operating margins, discount rates and future market conditions, determination of market multiples
and the establishment of a control premium, among others. Forecasts of future operations are based, in part, on operating
results and the Company’s expectations as to future market conditions. These types of analyses contain uncertainties because
they require the Company to make assumptions and to apply judgments to estimate industry economic factors and the
profitability of future business strategies. However, if actual results are not consistent with the Company’s estimates and
assumptions, the Company may be exposed to future impairment losses that could be material.
In 2023, the Company chose to perform a quantitative impairment test for its title insurance reporting unit and a
qualitative assessment for its home warranty reporting unit. The Company performed qualitative assessments for both reporting
units in 2022 and 2021. Based on the results of the quantitative test in 2023, the Company determined that the fair value for
the title insurance reporting unit exceeded its carrying amount and no additional analysis was required. The results of the
Company’s qualitative assessment in 2023 for the home warranty reporting unit and the results of the qualitative assessments
in 2022 and 2021 for both reporting units supported the conclusion that the reporting unit fair values were not more likely than
not less than their carrying amounts and, therefore, a quantitative impairment test was not considered necessary. As a result of
the Company’s annual goodwill impairment assessments, the Company did not record any goodwill impairment losses for
2023, 2022 or 2021.
32
Income taxes
The Company accounts for income taxes under the asset and liability method, whereby deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply in the years in which those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date. The Company evaluates the need to establish a valuation allowance for deferred tax assets based upon the amount of
existing temporary differences, the period in which they are expected to be recovered and expected levels of taxable income.
A valuation allowance is established when it is considered more likely than not that some or all of the deferred tax assets will
not be realized.
The Company recognizes the effect of income tax positions only if sustaining those positions is considered more likely
than not. Changes in recognition or measurement of uncertain tax positions are reflected in the period in which a change in
judgment occurs. The Company recognizes interest and penalties, related to uncertain tax positions in income tax expense.
Pending Accounting Pronouncements
See Note 1 Basis of Presentation and Significant Accounting Policies to the consolidated financial statements included
in Item 8. Financial Statements and Supplementary Data of Part II of this report.
33
Results of Operations
Overview
Revenues by Segment
Title insurance and services
Home warranty
Corporate and eliminations
2023
2022
2021
2023 vs. 2022
2022 vs. 2021
$ Change
(dollars in millions)
% Change
$ Change
% Change
$ 5,724.8
417.2
(138.5)
$ 6,003.5
$ 7,546.9
419.0
(360.7)
$ 7,605.2
$ 8,321.0
421.9
477.9
$ 9,220.8
$(1,822.1)
(1.8)
222.2
$(1,601.7)
(24.1) $ (774.1)
(2.9)
(0.4)
61.6
(838.6)
(21.1) $(1,615.6)
(9.3)
(0.7)
(175.5)
(17.5)
A substantial portion of the revenues for the Company’s title insurance and services segment result from sales of, and
refinancings of loans on, residential and commercial real estate. In the home warranty segment, revenues associated with the
initial year of coverage are impacted by volatility in residential purchase transactions. Traditionally, the greatest volume of real
estate activity, particularly residential purchase activity, has occurred in the spring and summer months. However, changes in
interest rates, as well as other changes in general economic conditions in the United States and abroad, can cause fluctuations
in the traditional pattern of real estate activity.
The Company’s total revenues for 2023 were $6.0 billion, which reflected a decrease of $1.6 billion, or 21.1%, when
compared with $7.6 billion for 2022. This decrease was primarily attributable to decreases in direct premiums and escrow fees
of $832.7 million, or 27.0%, agent premiums of $1.1 billion, or 31.0%, and information and other revenue of $210.0 million,
or 18.3%. The Company’s total revenues for 2023 also included $206.4 million of net investment losses compared to $515.8
million of net investment losses for the prior year. The decrease in direct premiums and escrow fees attributable to the title
insurance and services segment was $806.5 million, or 30.3%. Direct premiums and escrow fees in the title insurance and
services segment from domestic residential refinance transactions and from residential purchase transactions decreased $113.2
million, or 58.1% and $264.7 million, or 22.8%, respectively, in 2023 when compared to 2022. Direct premiums and escrow
fees from domestic commercial transactions in the title insurance and services segment decreased $384.7 million, or 36.9%, in
2023 when compared to 2022.
According to the Mortgage Bankers Association’s January 19, 2024 Mortgage Finance Forecast (the “MBA Forecast”),
residential mortgage originations in the United States (based on the total dollar value of the transactions) decreased 28.9% in
2023 when compared with 2022. According to the MBA Forecast, the dollar amount of purchase originations decreased 18.2%
and refinance originations decreased 54.2%. This volume of domestic residential mortgage origination activity contributed to
a decrease in direct premiums and escrow fees for the Company’s direct title operations of 22.8% from domestic residential
purchase transactions and a decrease of 58.1% from domestic refinance transactions in 2023 when compared to 2022.
During 2023, the level of domestic title orders opened per day by the Company’s direct title operations decreased by
29.5% when compared to 2022. Also, during 2023, residential refinance opened orders per day, residential purchase opened
orders per day and commercial opened orders per day decreased by 46.7%, 20.4%, and 22.0%, respectively, when compared
to 2022.
The Company recorded net investment losses of $206.4 million in 2023, which included net unrealized losses and
impairment charges of $155.0 million related to the Company’s venture investment portfolio. Investments within the
Company’s venture portfolio are expected from time to time to cause material fluctuations in the Company’s results of
operations due to the recognition of gains or losses in connection with observable price changes resulting from liquidity events,
subsequent equity sales, price fluctuations for investments that trade publicly, or from impairment charges, which changes can
be volatile.
During 2023, the Company changed the name of its specialty insurance segment to the home warranty segment. In
connection with this change, the Company reclassified all current year and prior year operating results related to the Company’s
property and casualty insurance business, which no longer has policies in force, to the corporate segment.
34
Title Insurance and Services
Revenues
Direct premiums and escrow
fees
Agent premiums
Information and other
Net investment income
Net investment (losses) gains
Expenses
Personnel costs
Premiums retained by agents
Other operating expenses
Provision for policy losses and
other claims
Depreciation and amortization
Premium taxes
Interest
Income before income taxes
Pretax margin
2023
2022
2021
2023 vs. 2022
2022 vs. 2021
$ Change
(dollars in millions)
% Change
$ Change
% Change
$ 1,856.4
2,449.3
917.1
540.2
(38.2)
5,724.8
$ 2,662.9
3,547.6
1,127.1
359.1
(149.8)
7,546.9
1,876.0
1,952.2
937.7
139.9
183.6
59.1
82.3
5,230.8
494.0
$
8.6%
2,272.9
2,829.7
1,155.4
248.4
162.3
86.6
34.2
6,789.5
757.4
10.0%
$
$ 3,100.9
3,757.1
1,203.1
188.3
71.6
8,321.0
2,235.1
2,986.6
1,197.7
274.4
152.5
94.2
21.8
6,962.3
$ 1,358.7
$
$
(806.5)
(1,098.3)
(210.0)
181.1
111.6
(1,822.1)
(396.9)
(877.5)
(217.7)
(108.5)
21.3
(27.5)
48.1
(1,558.7)
(263.4)
16.3%
(1.4)%
(30.3)
(31.0)
(18.6)
50.4
74.5
(24.1)
(17.5)
(31.0)
(18.8)
(43.7)
13.1
(31.8)
140.6
(23.0)
(34.8)
(14.0)
$ (438.0)
(209.5)
(76.0)
170.8
(221.4)
(774.1)
37.8
(156.9)
(42.3)
(26.0)
9.8
(7.6)
12.4
(172.8)
$ (601.3)
(6.3)%
(14.1)
(5.6)
(6.3)
90.7
(309.2)
(9.3)
1.7
(5.3)
(3.5)
(9.5)
6.4
(8.1)
56.9
(2.5)
(44.3)
(38.7)
Direct premiums and escrow fees decreased $806.5 million, or 30.3%, in 2023 from 2022 and $438.0 million, or 14.1%,
in 2022 from 2021. The decreases in direct premiums and escrow fees in 2023 from 2022 and 2022 from 2021 were primarily
due to reductions in the number of domestic title orders closed by the Company’s direct title operations, partially offset by
increases in domestic average revenues per order. The domestic average revenues per order closed were $3,651, $3,498 and
$2,718 for 2023, 2022 and 2021, respectively. The 4.4% increase in average revenues per order closed in 2023 from 2022 was
due to a shift in mix from lower premium residential refinance and default transactions to higher premium commercial
transactions, partially offset by a decrease in the average revenues per order from commercial transactions. The 28.7% increase
in average revenues per order closed in 2022 from 2021 was primarily due to a shift in mix from lower premium residential
refinance transactions to higher premium commercial transactions, home price appreciation and, to a lesser extent, higher
average revenues per order from residential purchase transactions due primarily to recent acquisitions of escrow companies,
which contributed escrow revenue to the numerator when determining average revenues per order without a corresponding title
order included in the denominator. The Company’s direct title operations closed 455,500, 695,900 and 1,050,700 domestic title
orders during 2023, 2022 and 2021, respectively. The 34.5% decrease in orders closed in 2023 from 2022 and the 33.8%
decrease in orders closed in 2022 from 2021 were generally consistent with the changes in residential mortgage origination
activity in the United States as reported in the MBA Forecast.
Agent premiums decreased $1.1 billion, or 31.0%, in 2023 from 2022 and $209.5 million, or 5.6%, in 2022 from
2021. Agent premiums are recorded when notice of issuance is received from the agent, which is generally when cash payment
is received by the Company. As a result, there is generally a delay between the agent’s issuance of a title policy and the
Company’s recognition of agent premiums. Therefore, full year agent premiums typically reflect mortgage origination activity
from the fourth quarter of the prior year through the third quarter of the current year. The decrease in agent premiums in 2023
from 2022 was generally consistent with the 34.0% decrease in the Company’s direct premiums and escrow fees in the twelve
months ended September 30, 2023 as compared with the twelve months ended September 30, 2022. The decrease in agent
premiums in 2022 from 2021 was generally consistent with the 1.3% decrease in the Company’s direct premiums and escrow
fees in the twelve months ended September 30, 2022 as compared with the twelve months ended September 30, 2021.
Information and other revenues primarily consist of revenues generated from fees associated with title search and related
reports, title and other real property records and images, other non-insured settlement services and risk mitigation products and
services. These revenues generally trend with direct premiums and escrow fees but are typically less volatile since a portion
of the revenues are subscription based and do not fluctuate with transaction volumes.
35
Information and other revenues decreased $210.0 million, or 18.6%, in 2023 from 2022 and $76.0 million, or 6.3%, in
2022 from 2021. The decrease in information and other revenues in 2023 from 2022 was primarily attributable to decreases in
the demand for the Company’s information products, post-close services and document generation services. Excluding the
$142.4 million impact from recent acquisitions for the year ended December 31, 2022, information and other revenues
decreased $218.4 million, or 18.2% in 2022 compared to 2021. The decrease in information and other revenues in 2022 from
2021, adjusted for the impact of acquisitions, was primarily due to decreased demand for the Company’s information products,
post-close services and document generation services.
Net investment income increased $181.1 million, or 50.4%, in 2023 from 2022 and $170.8 million, or 90.7%, in 2022
from 2021. The increase in 2023 from 2022 was primarily attributable to the positive impact of higher interest rates on the
Company’s cash balances, tax-deferred property exchange and escrow balances and investment portfolio. The increase was
also driven by an increase in interest income from the company’s warehouse lending business. The increase in 2022 from 2021
was primarily attributable to higher short-term interest rates in the Company’s investment portfolio and escrow, like-kind
exchange and subservicing deposits.
Net investment gains/losses totaled losses of $38.2 million for 2023 and were primarily attributable to losses recognized
on sales of debt securities, partially offset by changes in the fair values of marketable equity securities. Net investment losses
of $149.8 million for 2022 were primarily attributable to losses recognized on sales of debt securities and changes in the fair
values of marketable equity securities, partially offset by a $51.1 million gain realized on the sale of an investment in a title
insurance business. Net investment gains of $71.6 million for 2021 and were primarily from increases in the fair values of
marketable equity securities and from sales of debt securities.
Direct operations in the title insurance and services segment are labor intensive; accordingly, a major expense component
is personnel costs. Labor costs are driven by two primary considerations: the need to optimize staffing levels to match the level
of corresponding or anticipated new orders and the need to provide quality service. The Company continues to closely monitor
order volumes and related staffing levels and adjusts staffing levels as considered necessary. The Company’s direct title
operations opened 629,100, 895,500 and 1,275,000 domestic title orders in 2023, 2022 and 2021, respectively, representing
decreases of 29.7% in 2023 from 2022 and 29.8% in 2022 from 2021.
Personnel costs decreased $396.9 million, or 17.5%, in 2023 from 2022 and increased $37.8 million, or 1.7%, in 2022
from 2021. The decrease in personnel costs in 2023 from 2022 was primarily attributable to lower incentive compensation as
a result of lower revenue and profitability, declines in salary, payroll tax and employee benefit expense driven by lower
headcount, lower overtime and temporary labor expense on lower volumes and lower severance expense. Excluding the $205.2
million impact from recent acquisitions for the year ended December 31, 2022, personnel expenses decreased $167.4 million,
or 7.5% in 2022 compared to 2021. The decrease in 2022, adjusted for the impact of recent acquisitions, was due to lower
incentive compensation resulting from lower revenue and profitability, lower expense related to the Company’s 401(k) savings
plan match and lower overtime expense, partially offset by higher severance expense. Personnel costs included severance
expenses of $12.6 million, $34.7 million, and $4.6 million for 2023, 2022, and 2021, respectively.
A summary of premiums retained by agents and agent premiums is as follows:
2023
Premiums retained by agents
Agent premiums
% retained by agents
$
$
1,952.2
2,449.3
79.7%
2022
(dollars in millions)
2,829.7
$
3,547.6
$
$
$
79.8%
2021
2,986.6
3,757.1
79.5%
The premium split between underwriter and agents is in accordance with the respective agency contracts and can vary
from region to region due to divergences in real estate closing practices and state regulations. As a result, the percentage of
title premiums retained by agents can vary due to the geographic mix of revenues from agency operations. The changes in the
percentage of title premiums retained by agents in 2023 from 2022 and in 2022 from 2021 were primarily due to changes in
the geographic mix of agency revenues.
36
Other operating expenses decreased $217.7 million, or 18.8%, in 2023 from 2022 and $42.3 million, or 3.5%, in 2022
from 2021. The decrease in 2023 from 2022 was primarily attributable to lower production expense due to lower transaction
volumes, a decline in professional services expense and an increase in bank credits, partially offset by an increase in software
expense. Excluding the $80.7 million impact from recent acquisitions for the year ended December 31, 2022, other operating
expenses decreased $123.0 million, or 10.3% in 2022 compared to 2021. The decrease in 2022, adjusted for the impact of
recent acquisitions, was due to lower production expense due to lower transaction volumes, partially offset by higher software
expense.
The provision for policy losses and other claims, expressed as a percentage of title insurance premiums and escrow fees,
was 3.25% for 2023, and 4.0% for 2022 and 2021.
The 3.25% loss provision rate in the current year reflects an ultimate loss rate of 3.75% for the current policy year and a
reserve release of 0.5%, or $21.6 million and for prior policy years, all based on current year title insurance premiums and
escrow fees for 2023.
As of December 31, 2023, the IBNR claims reserve for the title insurance and services segment was $1.2 billion, which
reflected management’s best estimate. The Company’s internal actuary determined a range of reasonable estimates of
$926.5 million to $1.2 billion. The range limits are $260.0 million below and $43.2 million above management’s best estimate,
respectively, and represent an estimate of the range of variation among reasonable estimates of the IBNR reserve. Actuarial
estimates are sensitive to assumptions used in models, as well as the structures of the models themselves, and to changes in
claims payment and incurral patterns, which can vary materially due to economic conditions, among other factors.
The 2022 and 2021 loss provision rates of 4.0% reflected the ultimate loss rates for policy years 2022 and 2021 and no
change in loss reserve estimates for prior policy years.
Depreciation and amortization expense increased $21.3 million, or 13.1%, in 2023 from 2022 and $9.8 million, or 6.4%,
in 2022 from 2021. The increase in depreciation and amortization expense in 2023 from 2022 was primarily attributable to
higher amortization of capitalized software. The increase in depreciation and amortization expense in 2022 from 2021 was
primarily attributable to higher amortization of capitalized software and intangible assets related to recent acquisitions.
Insurers generally are not subject to state income or franchise taxes. However, in lieu thereof, a premium tax is imposed
on certain operating revenues, as defined by statute. Tax rates and bases vary from state to state; accordingly, the total premium
tax burden is dependent upon the geographical mix of operating revenues. The Company’s noninsurance subsidiaries are
subject to state income tax and do not pay premium tax. Accordingly, the Company’s total tax burden at the state level for the
title insurance and services segment is composed of a combination of premium taxes and state income taxes. Premium taxes
as a percentage of title insurance premiums and escrow fees were 1.4% for 2023, 2022 and 2021.
Interest expense increased $48.1 million, or 140.6%, in 2023 from 2022 and $12.4 million, or 56.9%, in 2022 from
2021. The increases in 2023 from 2022 and 2022 from 2021 were primarily attributable to higher deposit balances at the
Company's banking operations. The increase in 2023 from 2022 was also attributable to higher interest expense in the
company’s warehouse lending business.
Pretax margins for the title insurance business reflect the high cost of performing the essential services required before
insuring title, whereas the corresponding revenues are subject to regulatory and competitive pricing restraints. Due to the
relatively high proportion of fixed costs in the title insurance business, pretax margins generally improve as closed order
volumes increase. Pretax margins for the segment are also impacted by (1) net investment income and net investment gains or
losses, which may not move in the same direction as closed order volumes, (2) the composition (residential or commercial) and
type (resale, refinancing or new construction) of real estate activity and (3) the percentage of title insurance premiums generated
by agency operations as margins from direct operations are generally higher than from agency operations due primarily to the
large portion of the premium that is retained by the agent. The title insurance and services segment recorded pretax margins of
8.6%, 10.0% and 16.3% for 2023, 2022 and 2021, respectively.
37
Home Warranty
Revenues
Direct premiums
Information and other
Net investment income
Net investment (losses) gains
Expenses
Personnel costs
Other operating expenses
Provision for policy losses and other
claims
Depreciation and amortization
Premium taxes
Income before income taxes
Pretax margin
2023
2022
2021
2023 vs. 2022
2022 vs. 2021
$ Change
% Change
$ Change
% Change
(dollars in millions)
$ 395.6
21.7
5.9
(6.0)
417.2
$ 413.1
13.3
5.1
(12.5)
419.0
$ 399.8
10.9
4.1
7.1
421.9
$
77.8
82.8
77.3
75.7
79.1
61.5
(17.5)
8.4
0.8
6.5
(1.8)
0.5
7.1
193.1
4.8
4.4
362.9
54.3
13.0%
$
211.8
5.1
4.5
374.4
44.6
10.6%
$
218.2
5.8
4.7
369.3
52.6
12.5%
$
(18.7)
(0.3)
(0.1)
(11.5)
9.7
2.4%
$
(4.2) $
63.2
15.7
52.0
(0.4)
0.6
9.4
(8.8)
(5.9)
(2.2)
(3.1)
21.7
22.6
$
13.3
2.4
1.0
(19.6)
(2.9)
(1.8)
14.2
(6.4)
(0.7)
(0.2)
5.1
(8.0)
(1.9)%
3.3
22.0
24.4
(276.1)
(0.7)
(2.3)
23.1
(2.9)
(12.1)
(4.3)
1.4
(15.2)
(15.2)
Direct premiums decreased $17.5 million, or 4.2% in 2023 from 2022 and increased $13.3 million, or 3.3% in 2022
from 2021. The decrease in direct premiums in 2023 from 2022 was primarily attributable to a decline in real estate
transactions. The increase in direct premiums in 2022 from 2021 was primarily attributable to an increase in the average price
charged per contract, increases in renewals and from a shift in expected claims experience resulting from a return to pre-
pandemic levels.
Information and other revenues increased of $8.4 million, or 63.2% in 2023 from 2022, and $2.4 million, or 22.0% in
2022 from 2021. The increases were primarily attributable to the addition of current year revenues from the Company’s real
estate disclosure business previously reported in the title insurance and services segment.
Net investment gains/losses totaled losses of $6.0 million for 2023 and were primarily due to losses recognized on sales
of debt securities. Net investment gains/losses totaled losses of $12.5 million for 2022 and were primarily due to losses
recognized on sales of debt securities and from decreases in the fair values of marketable equity securities. Net investment
gains were $7.1 million for 2021 and were primarily from sales of debt securities and increases in the fair values of marketable
equity securities.
Personnel costs and other operating expenses increased $7.6 million, or 5.0%, in 2023 from 2022 and $12.4 million, or
8.8%, in 2022 from 2021. The increase in 2023 from 2022 was primarily attributable to higher advertising expense. The
increase in 2022 from 2021 was primarily attributable to higher deferred policy acquisition expense, advertising expense,
professional services and salary expense, partially offset by lower incentive compensation.
The provision for home warranty claims, expressed as a percentage of home warranty premiums, was 48.8% in 2023,
51.3% in 2022 and 54.6% in 2021. The decreases in the claims rate in 2023 from 2022 and 2022 from 2021 were primarily
attributable to lower claims volume, partially offset by higher claims severity.
A large part of the revenues for the home warranty segment are generated by renewals and are not dependent on the
level of real estate activity in the year of renewal. With the exception of loss expense, the majority of the expenses for this
segment are variable in nature and, therefore, generally fluctuate with revenue. Accordingly, pretax margins (before loss
expense) are relatively constant, although, as a result of some fixed expenses, profit margins (before loss expense) should
nominally improve as premium revenues increase. Pretax margins are also impacted by net investment income and net
investment gains or losses, which may not move in the same direction as premium revenues. The home warranty segment
recorded pretax margins of 13.0%, 10.6% and 12.5% for 2023, 2022 and 2021, respectively.
38
Corporate
Revenues
Direct premiums and escrow fees
Information and other
Net investment income (loss)
Net investment (losses) gains
Expenses
Personnel costs
Other operating expenses
Provision for policy losses and other
claims
Depreciation and amortization
Premium taxes
Interest
2023
2022
2021
2023 vs. 2022
$ Change % Change
2022 vs. 2021
$ Change % Change
(dollars in millions)
$
$
— $
—
25.1
(162.3)
(137.2)
8.8
8.1
(21.7)
(353.4)
(358.2)
35.3
46.5
3.3
0.1
—
51.4
136.6
(10.6)
41.2
26.1
0.1
—
61.2
118.0
97.7
2.0
23.5
356.9
480.1
36.0
64.8
96.0
0.1
1.3
51.8
250.0
230.1
$
(8.8)
(8.1)
46.8
191.1
221.0
45.9
5.3
(22.8)
—
—
(9.8)
18.6
$ 202.4
(100.0) $
(100.0)
215.7
54.1
61.7
(88.9)
6.1
(45.2)
(710.3)
(838.3)
433.0
12.9
(87.4)
—
—
(16.0)
15.8
42.5
(46.6)
(23.6)
(69.9)
—
(1.3)
9.4
(132.0)
$ (706.3)
(91.0)
305.0
(192.3)
(199.0)
(174.6)
(129.4)
(36.4)
(72.8)
—
(100.0)
18.1
(52.8)
(307.0)
(Loss) income before income taxes
$ (273.8) $ (476.2) $
As previously disclosed, all current year and prior year operating results for the Company’s property and casualty
insurance business, which no longer has policies in force, are now included in the corporate segment. As a result, direct
premiums and escrow fees decreased $8.8 million and $88.9 million, information and other revenues decreased $8.1 million
and increased $6.1 million, and provision for policy losses and other claims decreased $22.8 million and $69.9 million in 2023
from 2022 and 2022 from 2021, respectively.
Net investment income/loss totaled income of $25.1 million in 2023, loss of $21.7 million in 2022, and income of $23.5
million in 2021, respectively. The changes in net investment income/loss for all years were primarily attributable to fluctuations
in earnings and losses on investments associated with the Company’s deferred compensation plan.
Net investment gains/losses totaled losses of $162.3 million and $353.4 million for 2023 and 2022, respectively,
resulting from impairment charges and observable pricing changes on non-marketable equity investments within the
Company’s venture investment portfolio and, for 2022, also included unrealized losses totaling $190.9 million resulting from
fluctuations in the fair value of the Company’s investment in Offerpad Solutions Inc. (“Offerpad”). Net investment gains of
$356.9 million for 2021, which related to venture portfolio investments also included unrealized gains of $120.7 million
resulting from an increase in the fair value of the company’s investment in Offerpad.
Personnel costs and other operating expenses totaled $81.8 million, $30.6 million and $100.8 million in 2023, 2022 and
2021, respectively. The increase in 2023 when compared to 2022 was primarily attributable to higher returns on participant
investments within the Company’s deferred compensation plan. The decrease in 2022 when compared to 2021 was primarily
attributable to lower returns on participant investments within the Company’s deferred compensation plan.
Interest expense decreased $9.8 million, or 16.0%, in 2022 from 2021 and increased $9.4 million, or 18.1%, in 2022
from 2021. The decrease in 2023 from 2022 was primarily attributable to the repayment of the Company's $250 million 4.30%
senior unsecured notes, upon maturity, in February 2023. The increases in 2022 and 2021 were due to the additional interest
accrued on the $650 million of 2.4% senior unsecured notes issued by the Company in August 2021.
Eliminations
The Company’s inter-segment eliminations were not material for 2023, 2022 and 2021.
39
Income Taxes
The Company's actual income tax expense differs from the expense computed by applying the federal income tax rate of
21% for 2023, 2022 and 2021. A reconciliation of these differences is as follows:
Taxes calculated at federal rate
State taxes, net of federal benefit
Change in liability for tax positions
Foreign income taxed at different rates
Unremitted foreign earnings
Federal tax credits
Valuation allowance
Other items, net
2023
Year ended December 31,
2022
(dollars in millions)
2021
$
$
57.6
(6.4)
10.7
9.5
1.2
(17.3)
7.7
(4.1)
58.9
21.0% $
(2.3)
3.9
3.5
0.4
(6.3)
2.8
(1.5)
21.5% $
68.4
(5.3)
(0.8)
2.1
—
—
—
(4.0)
60.4
21.0% $
(1.5)
(0.3)
0.6
—
—
—
(1.1)
18.7% $
344.7
48.0
—
1.8
1.0
—
—
(3.3)
392.2
21.0%
2.9
—
0.1
0.1
—
—
(0.2)
23.9%
The Company’s effective income tax rates (income tax expense as a percentage of income before income taxes) were
21.5% for 2023, 18.7% for 2022 and 23.9% for 2021. The differences in the effective tax rates year over year are typically due
to changes in state and foreign income taxes resulting from fluctuations in the Company’s noninsurance and foreign
subsidiaries’ contributions to pretax income and changes in the ratio of permanent differences to income before income
taxes. In addition, the 2023 rate reflects tax credits claimed in current and prior years and a valuation allowance recorded
against losses on certain equity investments. The effective tax rate for 2022 also reflects the recognition of losses and
impairments on certain equity investments and benefits from the resolution of state tax matters from prior years. The effective
tax rate for 2021 also reflects benefits related to foreign tax law changes.
Net Income and Net Income Attributable to the Company
Net income and per share information are summarized as follows:
2023
Year ended December 31,
2022
(in millions, except per share amounts)
2021
Net income attributable to the Company
Net income per share attributable to the Company’s
stockholders:
Basic
Diluted
Weighted-average common shares outstanding:
Basic
Diluted
$
$
$
216.8
$
263.0
$
1,241.1
2.08
2.07
$
$
2.46
2.45
$
$
104.3
104.6
107.0
107.3
11.18
11.14
111.0
111.4
See Note 15 Earnings Per Share to the consolidated financial statements for further discussion of earnings per share.
40
Liquidity and Capital Resources
Cash requirements. The Company generates cash primarily from sales of its products and services and from investment
income. The Company’s current cash requirements include operating expenses, taxes, payments of principal and interest on
its debt, capital expenditures, dividends on its common stock, and may include business acquisitions, investments in private
companies (primarily those in the venture-stage) and repurchases of its common stock. Management forecasts the cash needs
of the holding company and its primary subsidiaries and regularly reviews their short-term and long-term projected sources
and uses of funds, as well as the asset, liability, investment and cash flow assumptions underlying such forecasts. Based on the
Company’s ability to generate cash flows from operations, its liquid-asset position and amounts available on its revolving credit
facility, management believes that its resources are sufficient to satisfy its anticipated operational cash requirements and
obligations for at least the next twelve months.
The substantial majority of the Company’s business is dependent upon activity in the real estate and mortgage markets,
which are cyclical and seasonal. Periods of increasing interest rates and reduced affordability, supply and mortgage financing
availability generally have an adverse effect on residential real estate activity and, therefore, typically decrease the Company’s
revenues. In contrast, periods of declining interest rates and increased affordability, supply and mortgage financing availability
generally have a positive effect on residential real estate activity, which typically increases the Company’s revenues.
Residential purchase activity is typically slower in the winter months with increased volumes in the spring and summer months.
Residential refinance activity is typically more volatile than purchase activity and is highly impacted by changes in interest
rates. Commercial real estate volumes are less sensitive to changes in interest rates but fluctuate based on local supply and
demand conditions for space and financing availability.
Cash provided by operating activities totaled $354.3 million, $777.6 million and $1.2 billion for 2023, 2022 and 2021,
respectively, after claim payments, net of recoveries, of $381.8 million, $434.3 million and $482.3 million, respectively. The
principal nonoperating uses of cash and cash equivalents for 2023, 2022 and 2021 were advances and repayments under secured
financing agreements, purchases of debt and equity securities, capital expenditures, dividends to common stockholders and
repurchases of company shares. Principal nonoperating uses of cash and cash equivalents also included repayment of senior
unsecured notes for 2023, and acquisitions for 2022 and 2021. The most significant nonoperating sources of cash and cash
equivalents for 2023, 2022 and 2021 were borrowings and collections under secured financing agreements, proceeds from the
sales and maturities of debt and equity securities, increases in deposits at the Company’s banking operations, and for 2021,
proceeds from issuance of unsecured senior notes. The net effect of all activities on total cash and cash equivalents was an
increase of $2.4 billion for 2023, and decreases of $4.5 million and $47.5 million for 2022 and 2021, respectively. The increases
to cash and cash equivalents and deposits in 2023 related to the cybersecurity incident are further discussed below.
As disclosed in Item 1C. Cybersecurity, the Company experienced a cybersecurity incident in late December 2023. The
Company’s actions to contain and remediate the incident, which included, among others, isolating certain systems from the
internet, resulted in delaying numerous customer transactions from closing until January 2024. Also, as discussed below, the
Company manages escrow deposits at both its federal savings bank subsidiary and at third-party financial institutions. Because
of the incident, the Company maintained a higher proportion of total escrow deposits at its federal savings bank than would
have happened had the Company followed its normal allocation process. The delay in closing transactions and the maintenance
of a higher proportion of escrow balances at the Company’s federal savings bank, resulted in higher cash and deposit liability
balances remaining at the Company’s federal savings bank subsidiary at December 31, 2023.
The Company continually assesses its capital allocation strategy, including decisions relating to dividends, stock
repurchases, capital expenditures, acquisitions and investments. In August 2023, the quarterly cash dividend was increased to
53 cents per common share, representing a 2% increase. The dividend increase was effective beginning with the September
2023 dividend. In January 2024, the Company's board of directors approved a first quarter cash dividend of 53 cents per
common share. Management expects that the Company will continue to pay quarterly cash dividends at or above the current
level. The timing, declaration and payment of future dividends, however, falls within the discretion of the Company’s board
of directors and will depend upon many factors, including the Company’s financial condition and earnings, the capital
requirements of the Company’s businesses, restrictions imposed by applicable law and any other factors the board of directors
deems relevant from time to time.
The Company maintains a stock repurchase plan with authorization up to $400.0 million, of which $213.8 million
remained as of December 31, 2023. Purchases may be made from time to time by the Company in the open market at prevailing
market prices or in privately negotiated transactions. During the year ended December 31, 2023, the Company repurchased
and retired 1.3 million shares of its common stock for a total purchase price of $72.7 million and, as of December 31, 2023,
had cumulatively repurchased and retired 3.5 million shares of its common stock for a total purchase price of $186.2 million.
41
Holding company. First American Financial Corporation is a holding company that conducts all of its operations
through its subsidiaries. The holding company’s current cash requirements include payments of principal and interest on its
debt, taxes, payments in connection with employee benefit plans, dividends on its common stock and other expenses. The
holding company is dependent upon dividends and other payments from its operating subsidiaries to meet its cash requirements.
The Company’s target is to maintain a cash balance at the holding company equal to at least twelve months of estimated cash
requirements. At certain points in time, the actual cash balance at the holding company may vary from this target due to, among
other factors, the timing and amount of cash payments made and dividend payments received. Pursuant to insurance and other
regulations under which the Company’s insurance subsidiaries operate, the amount of dividends, loans and advances available
to the holding company is limited, principally for the protection of policyholders. As of December 31, 2023, under such
regulations, the maximum amount available to the holding company from its insurance subsidiaries for 2024, without prior
approval from applicable regulators, was dividends of $614.7 million and loans and advances of $108.3 million. However, the
timing and amount of dividends paid by the Company’s insurance subsidiaries to the holding company falls within the
discretion of each insurance subsidiary’s board of directors and will depend upon many factors, including the level of total
statutory capital and surplus required to support minimum financial strength ratings by certain rating agencies. Such restrictions
have not had, nor are they expected to have, an impact on the holding company’s ability to meet its cash obligations.
As of December 31, 2023, the holding company’s sources of liquidity included $179.3 million of cash and cash
equivalents and $900.0 million available on the Company’s revolving credit facility. Management believes that liquidity at the
holding company is sufficient to satisfy anticipated cash requirements and obligations for at least the next twelve months.
On February 1, 2023, the Company repaid its $250 million 4.30% senior unsecured notes, upon maturity, through
available cash at the holding company.
The Company expects to repay its $300.0 million 4.60% senior unsecured notes due November 15, 2024, upon maturity,
through available cash at the holding company or through borrowings under its credit facility.
Financing. In May 2023, the Company entered into a senior unsecured credit agreement with JPMorgan Chase Bank,
N.A., in its capacity as administrative agent, and the lenders party thereto that provides for a $900.0 million revolving credit
facility. The credit agreement includes an expansion option that permits the Company, subject to satisfaction of certain
conditions, to increase the revolving commitments and/or add term loan tranches in an aggregate amount not to exceed $450.0
million. The obligations of the Company under the credit agreement are neither secured nor guaranteed. Proceeds from
borrowings made from time to time under the credit agreement may be used for general corporate purposes. Unless terminated
earlier, the credit agreement will terminate on May 17, 2028. Upon entry into the credit agreement, the previous $700.0 million
senior unsecured credit agreement was terminated. At December 31, 2023, the Company had no outstanding borrowings under
the facility.
At the Company’s election, borrowings of revolving loans under the credit agreement bear interest at (a) the Alternate
Base Rate plus the applicable spread, (b) the Adjusted Term SOFR Rate plus the applicable spread, or (c) the Adjusted Daily
Simple SOFR plus the applicable spread (in each case as defined in the credit agreement). The Company may select interest
periods of one, three or six months for Adjusted Term SOFR Rate borrowings of loans. The applicable spread varies depending
upon the Debt Rating assigned by Moody’s Investor Service, Inc., Standard & Poor's Rating Services and/or Fitch Ratings Inc.
The minimum applicable spread for Alternate Base Rate borrowings is 0.125% and the maximum is 0.75%. The minimum
applicable spread for Adjusted Term SOFR Rate and Adjusted Daily Simple SOFR borrowings is 1.125% and the maximum
is 1.75%. The Alternate Base Rate is subject to a floor of 1.00% and the Adjusted Term SOFR Rate and the Adjusted Daily
Simple SOFR are each subject to a floor of 0.00%. The rate of interest on any term loans incurred in connection with the
expansion option will be established at or about the time such loans are made and may differ from the rate of interest on
revolving loans.
The credit agreement includes representations and warranties, reporting covenants, affirmative covenants, negative
covenants, financial covenants and events of default customary for financings of this type. Upon the occurrence of an event of
default the lenders may accelerate the loans. Upon the occurrence of certain insolvency and bankruptcy events of default the
loans will automatically accelerate. As of December 31, 2023, the Company was in compliance with the financial covenants
under the credit agreement.
42
In addition to amounts available under its credit facility, certain subsidiaries of the Company maintain separate financing
arrangements. The primary financing arrangements maintained by subsidiaries of the Company are as follows:
•
•
•
FirstFunding, Inc., a specialized warehouse lender to correspondent mortgage lenders, maintains secured warehouse
lending facilities with several banking institutions. At December 31, 2023, outstanding borrowings under these
facilities totaled $553.3 million.
First American Trust, FSB (“FA Trust”), a federal savings bank, maintains a secured line of credit with the Federal
Home Loan Bank and maintains access to the Federal Reserve's Discount Window and Bank Term Funding Program.
At December 31, 2023, no amounts were outstanding under any of these facilities.
First Canadian Title Company Limited, a Canadian title insurance and services company, maintains credit facilities
with certain Canadian banking institutions. At December 31, 2023, no amounts were outstanding under these
facilities.
The Company’s debt to capitalization ratios were 28.6% and 30.0% at December 31, 2023 and 2022, respectively. The
Company’s adjusted debt to capitalization ratios, excluding secured financings payable of $553.3 million and $366.3 million
and accumulated other comprehensive loss of $655.8 million and $868.9 million at December 31, 2023 and 2022, were 20.2%
and 22.9%, respectively.
Investment portfolio. The Company maintains a high quality, liquid portfolio of debt and marketable equity securities
that is primarily held at its insurance and banking subsidiaries. As of December 31, 2023, 94% of the Company’s investment
portfolio consisted of debt securities, of which 65% were either United States government-backed or rated AAA/Aaa and 97%
were either rated or classified as investment grade or better. Percentages are based on the estimated fair values of the securities.
Credit ratings reflect published ratings obtained from globally recognized securities rating agencies. If a security was rated
differently among the rating agencies, the lowest rating was selected. For further information on the credit quality of the
Company’s debt securities portfolio at December 31, 2023, see Note 3 Debt Securities to the consolidated financial statements.
In addition to its debt and marketable equity securities portfolio, the Company maintains investments in non-marketable
equity securities and securities accounted for under the equity method. For further information on the Company’s equity
securities, see Note 4 Equity Securities to the consolidated financial statements.
Capital expenditures. Capital expenditures, which are primarily related to software development costs and purchases
of property and equipment and software licenses, totaled $278.7 million, $274.9 million and $172.1 million for 2023, 2022 and
2021, respectively.
Off-balance sheet arrangements. The Company administers escrow deposits and trust assets as a service to customers
in its direct title operations. Escrow deposits totaled $10.6 billion and $10.0 billion at December 31, 2023 and 2022,
respectively, of which $6.3 billion and $4.6 billion, respectively, were held at FA Trust. The remaining deposits were held at
third-party financial institutions.
Trust assets held or managed by FA Trust totaled $4.4 billion and $4.1 billion at December 31, 2023 and 2022,
respectively. Escrow deposits held at third-party financial institutions and trust assets are not considered assets of the Company
and, therefore, are not included in the accompanying consolidated balance sheets. All such amounts are placed in deposit
accounts insured, up to applicable limits, by the Federal Deposit Insurance Corporation. The Company could be held
contingently liable for the disposition of these assets.
In conducting its operations, the Company often holds customers’ assets in escrow, pending completion of real estate
transactions and, as a result, the Company has ongoing programs for realizing economic benefits with various financial
institutions. The results from these programs are included as income or a reduction in expense, as appropriate, in the
consolidated statements of income based on the nature of the arrangement and benefit received.
43
The Company facilitates tax-deferred property exchanges for customers pursuant to Section 1031 of the Internal Revenue
Code and tax-deferred reverse exchanges pursuant to Revenue Procedure 2000-37. As a facilitator and intermediary, the
Company holds the proceeds from sales transactions and takes temporary title to property identified by the customer to be
acquired with such proceeds. Upon the completion of each such exchange, the identified property is transferred to the customer
or, if the exchange does not take place, an amount equal to the sales proceeds or, in the case of a reverse exchange, title to the
property held by the Company is transferred to the customer. Like-kind exchange funds administered by the Company totaled
$1.8 billion and $2.8 billion at December 31, 2023 and 2022, respectively. The like-kind exchange deposits are held at third-
party financial institutions and, due to the structure utilized to facilitate these transactions, the proceeds and property are not
considered assets of the Company and, therefore, are not included in the accompanying consolidated balance sheets. All such
amounts are placed in deposit accounts insured, up to applicable limits, by the Federal Deposit Insurance Corporation. The
Company could be held contingently liable to the customer for the transfers of property, disbursements of proceeds and the
returns on such proceeds.
In conducting its residential mortgage loan subservicing operations, the Company administers cash deposits on behalf of
its clients. Cash deposits totaled $0.8 billion and $1.1 billion at December 31, 2023 and 2022, respectively, of which $0.5
billion and $0.7 billion, respectively, were held at FA Trust. The remaining deposits were held at third-party financial
institutions. Cash deposits held at third-party financial institutions are not considered assets of the Company and, therefore,
are not included in the accompanying consolidated balance sheets. All such amounts are placed in deposit accounts insured,
up to applicable limits, by the Federal Deposit Insurance Corporation. The Company could be held contingently liable for the
disposition of these assets. In connection with certain accounts, the Company has ongoing programs for realizing economic
benefits with various financial institutions whereby it earns economic benefits either as income or as a reduction in expense.
Deposit balances held at FA Trust are temporarily invested in cash and cash equivalents and debt securities, with
offsetting liabilities included in deposits in the accompanying consolidated balance sheets.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
The Company’s assets and liabilities include financial instruments subject to the risk of loss from adverse changes in
market rates and prices. The Company’s primary market risk exposures relate to interest rate risk, equity price risk, foreign
currency risk and credit risk.
The Company manages its primary market risk exposures through an investment committee made up of certain senior
executives which is advised by an experienced investment management staff.
While the hypothetical scenarios below are considered to be near-term reasonably possible changes demonstrating
potential risk, they are for illustrative purposes only and do not reflect the Company’s expectations about future market changes.
Interest Rate Risk
The Company monitors its risk associated with fluctuations in interest rates and makes investment decisions to manage
accordingly. The Company does not currently use derivative financial instruments in any material amount to hedge these risks.
The Company’s exposure to interest rate changes primarily results from the Company’s significant portfolio of debt
securities, which includes a high proportion of fixed-income securities, and from its financing activities. In general, the fair
value of a fixed-income security increases or decreases inversely with a change in market interest rates. The Company also
considers its investments in preferred stock to be exposed to interest rate risk. The fair values of the Company’s debt securities
portfolio at December 31, 2023 and 2022 were $7.2 billion and $8.2 billion, respectively. One means of assessing the exposure
of the Company’s debt securities portfolio to interest rate changes is a duration-based analysis that measures the potential
changes in fair value resulting from a hypothetical parallel and instantaneous shift in interest rates across all maturities. Under
this model, with all other factors held constant, the Company estimates that increases in interest rates of 100 and 200 basis
points could cause the fair value of its debt securities portfolio (including investments in preferred stock) at December 31, 2023
to decrease by approximately $337.1 million, or 4.7%, and $675.0 million, or 9.4%, respectively, and at December 31, 2022 to
decrease by approximately $391.9 million, or 4.8%, and $782.1 million, or 9.6%, respectively.
44
With respect to adjustable-rate debt, the Company is primarily exposed to the effects of changes in prevailing interest
rates through its variable-rate credit facility and its interest bearing escrow deposit liabilities. As of December 31, 2023 and
2022, the Company had no outstanding borrowings under its credit facility. Assuming the full utilization of available funds
under the facility of $900.0 million and $700.0 million at December 31, 2023 and 2022, respectively, and assuming that the
borrowings were outstanding for the entire year, increases of 50 and 100 basis points in the prevailing interest rate on the
Company’s credit facility would result in increases in interest expense of $4.5 million and $9.0 million, respectively, for 2023
and increases of $3.5 million and $7.0 million, respectively, for 2022.
The Company’s interest bearing escrow and mortgage loan subservicing deposit liabilities totaled $2.5 billion and
$3.3 billion at December 31, 2023 and 2022, respectively. These variable-rate customer savings accounts are subject to market
rate fluctuations. The weighted-average interest rates were 2.08% and 0.50% for 2023 and 2022, respectively. Assuming
increases in interest rates of 25 and 50 basis points and that the deposit amounts at December 31, 2023 and 2022 were held
constant for the entire year, interest expense for 2023 would be higher by $6.4 million and $12.7 million, respectively, and
2022 would be higher by $8.1 million and $16.3 million, respectively.
Equity Price Risk
The Company is also subject to equity price risk related to its marketable equity securities portfolio. The fair value of
the Company’s marketable equity securities portfolio (excluding preferred stock of $12.4 million and $11.4 million) was
$424.5 million and $268.1 million as of December 31, 2023 and 2022, respectively. Assuming broad-based declines in equity
market prices of 10% and 20%, with all other factors held constant, the fair value of the Company’s marketable equity securities
portfolio at December 31, 2023 could decrease by $42.5 million and $84.9 million, respectively, and at December 31, 2022
could decrease by $26.8 million and $53.6 million, respectively.
Foreign Currency Risk
Although the Company has exchange rate risk for its operations in certain foreign countries, this risk is not material to
the Company’s financial condition or results of operations. The Company does not currently use derivative financial
instruments in any material amount to hedge its foreign exchange risk.
Credit Risk
The Company’s debt securities portfolio is subject to credit risk. The Company manages its credit risk through actively
monitoring issuer financial reports, credit spreads, security pricing and credit rating migration. Further, diversification and
concentration limits by asset type and credit rating are established and monitored by the Company’s investment committee.
The Company holds a large concentration in U.S. government agency securities, including agency mortgage-backed
securities. In the event of discontinued U.S. government support of its federal agencies, material credit risk could be observed
in the portfolio. The Company views that scenario as unlikely but possible.
The Company’s debt securities portfolio maintains an average credit quality rating of AA. For further information on
the credit quality of the Company’s debt securities portfolio at December 31, 2023, see Note 3 Debt Securities to the
consolidated financial statements.
45
Item 8.
Financial Statements and Supplementary Data
INDEX
Report of Independent Registered Public Accounting Firm (PCAOB ID 238)................................................................
Financial Statements:
Consolidated Balance Sheets as of December 31, 2023 and 2022..........................................................................
Consolidated Statements of Income for the years ended December 31, 2023, 2022 and 2021 ..............................
Consolidated Statements of Comprehensive Income for the years ended December 31, 2023, 2022 and 2021 ....
Consolidated Statements of Equity for the years ended December 31, 2023, 2022 and 2021................................
Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021........................
Notes to Consolidated Financial Statements ...........................................................................................................
Financial Statement Schedules:
I. Summary of Investments—Other than Investments in Related Parties as of December 31, 2023 ................
II. Condensed Financial Information of Registrant as of December 31, 2023 and 2022 and for the years
ended December 31, 2023, 2022 and 2021 ....................................................................................................
III. Supplementary Insurance Information as of December 31, 2023 and 2022 and for the years ended
Page No.
47
49
50
51
52
53
94
95
December 31, 2023, 2022 and 2021 ..............................................................................................................
IV. Reinsurance for the years ended December 31, 2023, 2022 and 2021 ..........................................................
V. Valuation and Qualifying Accounts for the years ended December 31, 2023, 2022 and 2021 .....................
100
102
103
Financial statement schedules not listed are either omitted because they are not applicable or the required information is
shown in the consolidated financial statements or in the notes thereto.
46
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of First American Financial Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of First American Financial Corporation and its subsidiaries
(the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of income, of comprehensive
income, of equity and of cash flows for each of the three years in the period ended December 31, 2023, including the related
notes and financial statement schedules listed in the accompanying index (collectively referred to as the “consolidated financial
statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2023, based on
criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2023 in conformity with accounting principles generally accepted in the United
States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included
in Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is
to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial
reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control
over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that
a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
47
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or
disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of the Incurred But Not Reported Loss Reserve - Title Claims
As described in Notes 1 and 11 to the consolidated financial statements, as of December 31, 2023, approximately $1.187 billion
of the Company’s reserve for known and incurred but not reported claims represented the incurred but not reported (“IBNR”)
loss reserve balance for the title insurance and services segment. Management provides for title insurance losses through a
charge to expense when the related premium revenue is recognized. The amount charged to expense is generally determined
by applying a loss provision rate to total title insurance premiums and escrow fees. Management estimates the loss provision
rate at the beginning of each year and reassesses the rate quarterly, which involves an evaluation of the results of an in-house
actuarial review.
The Company’s in-house actuary performs a reserve analysis utilizing generally accepted actuarial methods that incorporate
cumulative historical claims experience and loss development factors. For recent policy years at early stages of development
(generally the last three years), IBNR is generally estimated using a combination of expected loss rate and multiplicative loss
development factor calculations. For more mature policy years, IBNR generally is estimated using multiplicative loss
development factor calculations. Current economic and business trends are also reviewed and used in the reserve analysis.
These include conditions in the real estate and mortgage markets, changes in residential and commercial real estate values, and
changes in the levels of defaults and foreclosures that may affect claims levels and patterns of emergence, as well as any
company-specific factors that may be relevant to past and future claims experience.
The principal considerations for our determination that performing procedures relating to the valuation of the IBNR loss reserve
- title claims is a critical audit matter are the significant judgment by management when developing their estimate of the IBNR
loss reserve, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and
evaluating audit evidence relating to the actuarial methods, which included significant assumptions related to loss development
factors and expected loss rate. Also, the audit effort involved the use of professionals with specialized skill and knowledge to
assist in performing these procedures and evaluating the audit evidence obtained.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to
management’s valuation of the IBNR loss reserve - title claims, including controls over the selection of actuarial methods and
development of significant assumptions related to loss development factors and expected loss rate. For certain product lines,
these procedures also included, among others, the involvement of professionals with specialized skill and knowledge to assist
in developing an independent estimate of the IBNR loss reserve for title claims, on a test basis, and comparison of this
independent estimate to management’s actuarially determined reserve. Developing the independent estimate involved testing
the completeness and accuracy of data provided by management. For other product lines, procedures also included, among
others, testing the completeness and accuracy of data provided by management and the involvement of professionals with
specialized skill and knowledge to assist in evaluating the appropriateness of management’s actuarial methods and evaluating
the reasonableness of assumptions related to loss development factors and expected loss rate used in those methods.
/s/ PricewaterhouseCoopers LLP
Los Angeles, California
February 20, 2024
We have served as the Company’s auditor since 2009.
48
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(in millions, except for par values)
ASSETS
Cash and cash equivalents
Accounts and accrued income receivable, less allowances for credit losses of $21.8 and $21.3
Income taxes receivable
Investments:
Deposits with banks
Debt securities (amortized cost of $7,895.2 and $9,169.6; pledged of $107.0 and $86.0)
Equity securities
Secured financings receivable
Property and equipment, net
Operating lease assets
Title plants and other indexes
Deferred income taxes
Goodwill
Other intangible assets, net
Other assets
LIABILITIES AND EQUITY
Deposits
Accounts payable and accrued liabilities:
Accounts payable
Personnel costs
Pension costs and other retirement plans
Other
Deferred revenue
Reserve for known and incurred but not reported claims
Income taxes payable
Deferred income taxes
Operating lease liabilities
Secured financings payable
Notes and contracts payable
Commitments and contingencies (Note 21)
Stockholders’ equity:
Preferred stock, $0.00001 par value; Authorized—0.5 shares;
Outstanding—none
Common stock, $0.00001 par value; Authorized—300.0 shares;
Outstanding—103.1 shares and 103.2 shares
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total stockholders’ equity
Noncontrolling interests
Total equity
December 31,
2023
2022
$
3,605.3
509.4
75.7
$
$
55.8
7,157.5
735.6
7,948.9
636.5
749.6
229.3
652.4
50.1
1,807.5
153.8
384.3
16,802.8
7,308.0
63.3
256.6
399.2
160.4
879.5
196.8
1,282.4
15.9
63.6
246.6
553.3
1,393.9
11,940.0
1,223.5
367.1
22.0
63.4
8,169.6
754.2
8,987.2
422.7
636.9
248.0
639.8
54.5
1,798.2
193.8
361.6
14,955.3
5,519.7
51.0
298.8
390.8
183.9
924.5
196.9
1,325.3
10.0
16.3
269.3
366.3
1,645.8
10,274.1
—
—
—
1,793.3
3,710.6
(655.8)
4,848.1
14.7
4,862.8
16,802.8
$
—
1,812.4
3,714.3
(868.9)
4,657.8
23.4
4,681.2
14,955.3
$
$
$
$
See Notes to Consolidated Financial Statements
49
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share amounts)
Revenues:
Direct premiums and escrow fees
Agent premiums
Information and other
Net investment income
Net investment (losses) gains (realized of $(80.9), $(85.4), $20.3)
$
Expenses:
Personnel costs
Premiums retained by agents
Other operating expenses
Provision for policy losses and other claims
Depreciation and amortization
Premium taxes
Interest
Income before income taxes
Income taxes
Net income
Less: Net (loss) income attributable to noncontrolling interests
Net income attributable to the Company
Net income per share attributable to the Company’s stockholders:
Basic
Diluted
Cash dividends per share
Weighted-average common shares outstanding:
Basic
Diluted
$
$
$
$
2023
Year Ended December 31,
2022
2021
$
$
$
$
$
2,252.1
2,449.3
938.5
570.0
(206.4)
6,003.5
1,989.1
1,952.2
1,067.0
336.3
188.5
63.5
132.5
5,729.1
274.4
58.9
215.5
(1.3)
216.8
2.08
2.07
2.10
104.3
104.6
$
3,084.8
3,547.6
1,148.5
340.1
(515.8)
7,605.2
2,339.6
2,829.7
1,272.3
486.3
167.5
91.1
93.0
7,279.5
325.7
60.4
265.3
2.3
263.0
2.46
2.45
2.06
107.0
107.3
$
$
$
$
3,598.4
3,757.1
1,214.9
214.8
435.6
9,220.8
2,350.3
2,986.6
1,322.9
588.7
158.4
100.2
72.4
7,579.5
1,641.3
392.2
1,249.1
8.0
1,241.1
11.18
11.14
1.94
111.0
111.4
See Notes to Consolidated Financial Statements
50
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
Net income
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities
Unrealized losses on debt securities for which credit-related
portion was recognized in earnings
Foreign currency translation adjustment
Pension benefit adjustment
Total other comprehensive income (loss), net of tax
Comprehensive income (loss)
Less: Comprehensive (loss) income attributable to noncontrolling
interests
Comprehensive income (loss) attributable to the Company
2023
Year Ended December 31,
2022
2021
$
215.5
$
265.3
$
1,249.1
198.0
—
17.2
(2.1)
213.1
428.6
(780.9)
—
(42.2)
46.6
(776.5)
(511.2)
$
(1.3)
429.9
$
2.3
(513.5) $
(142.1)
(0.4)
(1.9)
12.4
(132.0)
1,117.1
8.0
1,109.1
See Notes to Consolidated Financial Statements
51
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF EQUITY
(in millions)
First American Financial Corporation Stockholders
Shares
Common
stock
Additional
paid-in
capital
Retained
earnings
Accumulated
other
comprehensive
income (loss)
Balance at December 31, 2020
Net income
Dividends on common shares
Repurchases of Company shares
Shares issued in connection with
share-based compensation
Share-based compensation
Net activity related to
noncontrolling interests
Other comprehensive loss
Balance at December 31, 2021
Net income
Dividends on common shares
Repurchases of Company shares
Shares issued in connection with
share-based compensation
Share-based compensation
Net activity related to
noncontrolling interests
Other comprehensive loss
Balance at December 31, 2022
Net income
Dividends on common shares
Repurchases of Company shares
Shares issued in connection with
share-based compensation
Share-based compensation
Net activity related to
noncontrolling interests
Other comprehensive income
Balance at December 31, 2023
110.4 $ — $ 2,214.9 $2,648.5 $
—
—
(1.7)
1.0
—
—
—
109.7
—
—
(7.5)
1.0
—
—
—
103.2
—
—
(1.3)
1.2
—
—
—
—
—
—
—
—
— 1,241.1
— (213.0)
—
(99.2)
10.0
53.6
(3.7)
—
(0.1)
—
—
—
—
—
— 2,179.2
3,672.9
263.0
—
—
— (217.5)
—
—
—
(440.7)
—
—
6.6
67.3
(4.1)
—
—
—
—
—
—
—
3,714.3
— 1,812.4
216.8
—
—
— (216.6)
—
—
—
(72.8)
—
—
—
—
4.3
49.1
0.3
—
(3.9)
—
—
—
103.1 $ — $ 1,793.3 $3,710.6 $
Total
stockholders’
equity
4,903.0 $
1,241.1
(213.0)
(99.2)
39.6 $
—
—
—
—
—
—
(132.0)
(92.4)
—
—
—
—
—
—
(776.5)
(868.9)
—
—
—
—
—
6.3
53.6
(0.1)
(132.0)
5,759.7
263.0
(217.5)
(440.7)
2.5
67.3
—
(776.5)
4,657.8
216.8
(216.6)
(72.8)
0.4
49.1
Noncontrolling
interests
Total
11.6 $4,914.6
1,249.1
8.0
— (213.0)
(99.2)
—
—
—
6.3
53.6
(3.5)
(3.6)
— (132.0)
16.1
5,775.8
265.3
2.3
— (217.5)
— (440.7)
—
—
2.5
67.3
23.4
(1.3)
5.0
5.0
— (776.5)
4,681.2
215.5
— (216.6)
(72.8)
—
—
—
0.4
49.1
—
213.1
(655.8) $
0.3
213.1
4,848.1 $
(7.4)
—
(7.1)
213.1
14.7 $4,862.8
See Notes to Consolidated Financial Statements
52
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to cash provided by operating activities:
Provision for policy losses and other claims
Depreciation and amortization
Amortization of premiums and accretion of discounts on debt securities, net
Net investment losses (gains)
Share-based compensation
Equity in earnings of affiliates, net
Dividends from equity method investments
Changes in assets and liabilities excluding effects of acquisitions and noncash
transactions:
Claims paid, including assets acquired, net of recoveries
Net change in income tax accounts
(Increase) decrease in accounts and accrued income receivable
(Decrease) increase in accounts payable and accrued liabilities
Decrease in deferred revenue
Other, net
Cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions/dispositions, net of cash acquired/divested
Net decrease (increase) in deposits with banks
Purchases of debt securities
Proceeds from sales of debt securities
Proceeds from maturities of debt securities
Purchases of equity securities
Proceeds from sales of equity securities
Net change in other investments
Advances under secured financing agreements
Collections of secured financings receivable
Capital expenditures
Proceeds from sales of property and equipment
Proceeds from insurance settlement
Cash provided by (used for) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits
Borrowings under secured financing agreements
Repayments of secured financings payable
Net proceeds from issuance of unsecured senior notes
Repayment of senior unsecured notes
Repayments of other notes and contracts payable
Net activity related to noncontrolling interests
Net proceeds in connection with share-based compensation
Repurchases of Company shares
Payments of cash dividends
Cash provided by (used for) financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents—Beginning of year
Cash and cash equivalents—End of year
SUPPLEMENTAL INFORMATION:
Cash paid during the year for:
Interest
Premium taxes
Income taxes
2023
Year Ended December 31,
2022
2021
$
215.5
$
265.3
$
1,249.1
336.3
188.5
8.6
206.4
49.1
(5.4)
6.5
(381.8)
(60.8)
(159.1)
(51.9)
(0.1)
2.5
354.3
(24.7)
7.9
(1,287.8)
1,676.9
812.3
(170.7)
71.0
(11.6)
(13,309.9)
13,097.2
(263.4)
0.1
2.2
599.5
1,788.3
13,383.7
(13,196.7)
—
(250.0)
(6.2)
(7.1)
0.4
(72.7)
(216.6)
1,423.1
4.9
2,381.8
1,223.5
3,605.3
124.2
84.2
121.0
$
$
$
$
486.3
167.5
18.8
515.8
67.3
(11.0)
11.2
(434.3)
(130.0)
82.7
(265.9)
(27.9)
31.8
777.6
(277.5)
(7.7)
(2,980.0)
1,753.3
1,171.0
(157.1)
241.4
(6.8)
(15,657.8)
15,778.2
(259.8)
6.8
3.0
(393.0)
451.1
15,532.6
(15,695.3)
—
—
(6.9)
(2.2)
2.5
(440.7)
(217.5)
(376.4)
(12.7)
(4.5)
1,228.0
1,223.5
86.5
112.6
191.1
$
$
$
$
588.7
158.4
46.7
(435.6)
53.6
(6.9)
12.2
(482.3)
53.0
(48.2)
115.0
(47.1)
(36.7)
1,219.9
(186.8)
(15.0)
(6,138.2)
1,070.7
1,864.0
(198.4)
171.8
(11.7)
(25,926.2)
26,109.4
(160.5)
17.8
10.0
(3,393.1)
1,791.7
24,602.1
(24,593.0)
641.9
—
(6.4)
(4.3)
6.3
(99.2)
(213.0)
2,126.1
(0.4)
(47.5)
1,275.5
1,228.0
63.5
86.1
339.7
$
$
$
$
See Notes to Consolidated Financial Statements
53
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1.
Basis of Presentation and Significant Accounting Policies:
First American Financial Corporation (the “Company”), through its subsidiaries, is engaged in the business of providing
financial services. The Company consists of the following reportable segments:
•
•
•
The title insurance and services segment issues title insurance policies on residential and commercial property in
the United States and offers similar or related products and services internationally. This segment also provides
closing and/or escrow services; accommodates tax-deferred exchanges of real estate; provides products, services
and solutions designed to mitigate risk or otherwise facilitate real estate transactions; maintains, manages and
provides access to title plant data and records; provides appraisals and other valuation-related products and
services; provides lien release, document custodial and default-related products and services; provides document
generation services; provides warehouse lending services; subservices mortgage loans; and provides banking, trust
and wealth management services. The Company, through its principal title insurance subsidiary and such
subsidiary’s affiliates, transacts its title insurance business through a network of direct operations and agents.
Through this network, the Company issues policies in the 49 states that permit the issuance of title insurance
policies, the District of Columbia and certain United States territories. The Company also offers title insurance,
closing services and similar or related products and services, either directly or through third parties in other
countries, including Canada, the United Kingdom, Australia, New Zealand, South Korea and various other
established and emerging markets.
During 2023, the Company changed the name of its specialty insurance segment to the home warranty segment. In
connection with this change, the Company reclassified all current year and prior year operating results related to
the Company’s property and casualty insurance business, which no longer has policies in force, to the corporate
segment. The home warranty segment sells products including residential service contracts that cover residential
systems, such as heating and air conditioning systems, and certain appliances against failures that occur as the
result of normal usage during the coverage period. This business currently operates in 36 states and the District of
Columbia.
The corporate segment includes investments in venture-stage companies, operating results of the property and
casualty insurance business (as noted above), certain financing facilities and corporate services that support the
Company’s business operations.
Principles of Consolidation
The consolidated financial statements have been prepared in accordance with generally accepted accounting principles
(“GAAP”) and reflect the consolidated operations of the Company. The consolidated financial statements include the accounts
of First American Financial Corporation and all controlled subsidiaries. All significant intercompany transactions and balances
have been eliminated. Equity investments in which the Company exercises significant influence, but does not control and is
not the primary beneficiary, are accounted for using the equity method of accounting. Equity investments in which the
Company does not exercise significant influence over the investee and without readily determinable fair values, or non-
marketable equity securities, are accounted for at cost, less impairment, and are adjusted up or down for any observable price
changes.
Revisions and out-of-period adjustments
During the fourth quarter of 2023, the Company identified deferred compensation agreements with certain former
employees who have been receiving benefit payments from the Company for which it has understated its obligation to make
future benefit payments. As this error primarily related to reporting periods prior to 2020, the Company corrected for this error
by revising retained earnings at December 31, 2020, 2021 and 2022 in the consolidated statements of equity, and by revising
pension costs and other retirement plans liability, deferred income tax liabilities and retained earnings in the consolidated
balance sheet at December 31, 2022. The impact of this revision, which has been consistently applied to all periods presented,
included decreases to retained earnings and deferred income tax liabilities of $7.0 million and $2.5 million, respectively, and
an increase to pension costs and other retirement plans liability of $9.5 million.
The Company does not consider this adjustment to be material to any previously issued consolidated financial statements.
54
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Use of estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and
assumptions that affect the statements. Actual results could differ from the estimates and assumptions used.
Cash equivalents
The Company considers cash equivalents to include all unrestricted short-term investments that have an initial maturity
of 90 days or less.
Accounts and accrued income receivable
Accounts receivable are generally due within thirty days and are recorded net of an allowance for credit losses. The
Company considers accounts outstanding longer than the contractual payment terms as past due. The Company determines the
allowance by considering a number of factors, including the length of time trade accounts receivable are past due, previous loss
history, a specific customer’s ability to pay its obligations to the Company and the current condition, and future expectations,
of the general economy and industry as a whole. Amounts are written off in the period in which they are deemed to be
uncollectible.
The Company’s policy is to present accrued interest receivable on financial assets measured at amortized cost within
accounts and accrued income receivable on the balance sheet. Accrued interest receivable at December 31, 2023 and 2022
totaled $24.5 million and $17.1 million, respectively. The Company has elected to not measure an allowance for credit losses
for accrued interest receivable and maintains a policy that all receivables ninety days past due are written off to credit loss
expense. Accounts are placed on non-accrual status, and accrual of interest is discontinued, when management determines that
collectibility of contractual amounts is not reasonably assured. Payments of interest for accounts in non-accrual status are
applied under the cost recovery method.
Deposits with banks
Deposits with banks are short-term investments with initial maturities of generally more than 90 days.
Debt securities
Debt securities are carried at fair value and consist primarily of investments in obligations of the United States Treasury,
foreign governments, various U.S. and foreign corporations, certain state and political subdivisions and mortgage-backed
securities. The Company classifies its debt securities as available-for-sale with unrealized gains or losses recorded as a
component of accumulated other comprehensive income/loss.
Interest income, as well as the related amortization of premium and accretion of discount, on debt securities are
recognized under the effective yield method and are included in the accompanying consolidated statements of income in net
investment income. Realized gains and losses on sales of debt securities are determined on a first-in, first-out basis.
When the fair value of an available-for-sale debt security falls below its amortized cost, entities must determine whether
the decline in fair value is due to credit-related factors or noncredit-related factors. Declines in fair value that are credit-related
are recorded on the balance sheet through an allowance for credit losses with a corresponding adjustment to earnings and
declines that are noncredit-related are recognized through other comprehensive income/loss.
55
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
If the Company intends to sell a debt security in an unrealized loss position or determines that it is more likely than not
that the Company will be required to sell a debt security before it recovers its amortized cost basis, the debt security is impaired
and it is written down to fair value with all losses recognized in earnings. As of December 31, 2023, the Company did not
intend to sell any debt securities in an unrealized loss position and it is not more likely than not that the Company will be
required to sell any debt securities before recovery of their amortized cost basis.
For debt securities in an unrealized loss position for which the Company does not intend to sell the debt security and it
is not more likely than not that the Company will be required to sell the debt security, the Company determines whether the
loss is due to credit-related factors or noncredit-related factors. For debt securities in an unrealized loss position for which the
losses are primarily due to credit-related factors, the Company’s policy is to recognize the entire loss in earnings. For debt
securities in an unrealized loss position for which the losses are determined to be the result of both credit-related and noncredit-
related factors, the credit loss is determined as the difference between the present value of the cash flows expected to be
collected and the amortized cost basis of the debt security. The cash flows expected to be collected are discounted using the
effective interest rate (i.e., purchase yield) and for variable rate securities the interest rate is fixed at the rate in effect at the
credit loss measurement date.
Expected future cash flows for debt securities are based on qualitative and quantitative factors specific to each security,
including the probability of default and the estimated timing and amount of recovery. The detailed inputs used to project
expected future cash flows may be different depending on the nature of the individual debt security.
The Company’s policy is to present accrued interest receivable on debt securities within accounts and accrued income
receivable on the balance sheet. Accrued interest receivable on debt securities at December 31, 2023 and 2022 totaled $35.1
million and $37.9 million, respectively. The Company has elected to not measure an allowance for accrued interest receivable
on debt securities and maintains a policy that all receivables ninety days past due are written off to credit loss expense. Debt
securities are placed on non-accrual status, and accrual of interest is discontinued, when management determines that
collectibility of contractual amounts is not reasonably assured. Interest income is recognized on a cash basis for interest
payments received on debt securities in non-accrual status.
The Company maintains investments in debt securities in accordance with certain statutory requirements for the funding
of statutory premium reserves and state deposits. At December 31, 2023 and 2022, the fair values of such investments totaled
$107.0 million and $86.0 million, respectively. See Note 2 Statutory Restrictions on Investments and Stockholders’ Equity for
additional discussion of the Company’s statutory restrictions.
Equity securities
Marketable equity securities are carried at fair value and consist primarily of investments in exchange traded funds,
mutual funds and preferred stocks of corporate entities. Changes in the fair values of the Company’s equity securities are
recognized in net investment gains/losses on the consolidated statements of income.
Equity investments in which the Company exercises significant influence but does not control, and is not the primary
beneficiary, are accounted for under the equity method of accounting. These investments are initially measured at cost and are
generally adjusted by the Company’s share of equity in the income or losses of the investee. The carrying values of these
investments are written down, or impaired, to fair value when a decline in value is considered to be other-than-temporary. In
making the determination as to whether an individual investment is impaired, the Company assesses the current and expected
financial condition of each relevant entity, including, but not limited to, the results of valuation work performed with respect
to the entity, the entity’s anticipated ability to generate sufficient cash flows and the market conditions in the industry in which
the entity is operating.
The Company has elected to measure its non-marketable equity securities in which it does not exercise significant
influence over the investee and without readily determinable fair values at cost, less impairment, adjusted up or down for any
observable price changes from orderly transactions for the identical or a similar investment of the same issuer. The carrying
values of these investments are written down, or impaired, to fair value when a qualitative assessment indicates that the fair
value is less than the carrying value. In making the determination as to whether an individual investment is impaired, the
Company assesses such qualitative factors as the current and expected financial condition of each relevant entity, the market
conditions in the industry in which the entity operates and the entity’s anticipated ability to generate sufficient cash flows.
56
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Notes Receivable
Notes receivable are carried at cost, less allowance for credit losses. An allowance for credit losses is established on an
individual note based on the Company’s estimate of the net amount expected to be collected. The allowance for credit losses
is based upon the Company’s assessment of the borrower’s overall financial condition, resources and payment record; and, if
appropriate, the realizable value of any collateral. These estimates consider all available evidence including the expected future
cash flows, estimated fair value of collateral on secured notes, general economic conditions and trends, and other relevant
factors, as appropriate. Notes are placed on non-accrual status when management determines that the collectibility of
contractual amounts is not reasonably assured. Notes receivable at December 31, 2023 and 2022 totaled $22.4 million and
$10.7 million, respectively. For the year ended December 31, 2022, the Company recorded $27.7 million in credit losses on
notes receivable related to its venture investment portfolio. Notes receivable are included in other assets on the consolidated
balance sheets.
Secured financings receivable and payable
Secured financings receivable, which are generated through the Company’s warehouse lending operations, are
collateralized by mortgage loans on residential real estate. The receivable balance at December 31, 2023, included two notes
receivable from an investment company, further discussed below, and included amounts due to the Company from various
mortgage loan originators. Collections of amounts due from mortgage loan originators occur upon sale of the underlying
mortgage loans to investors in the secondary market, generally within 30 days and more typically in less than 10 days. No
allowance for credit losses has been recorded on these receivables due to, among other factors, the Company typically
identifying investors in the underlying mortgage loans prior to making advances, the short-term nature of these receivables and
the lack of significant historical credit losses experienced by the Company. Interest income is recorded on an accrual basis
during the period the principal balance remains outstanding.
As noted above, secured financings receivable includes is a promissory note receivable with an original principal balance
of $202.6 million, dated September 30, 2022, and a promissory note receivable with an original principal balance of $153.1
million, dated February 28, 2023, both of which notes were received in exchange for the sale or transfer of mortgage loans to
an investment company. The notes, which are collateralized by the underlying mortgage loans, have maturity dates of March
29, 2024 and August 31, 2024, respectively, and have extended maturity dates, at the option of the borrower, of September 30,
2024 and February 28, 2025, respectively. Interest accrues on the notes at the one month SOFR rate plus 1.90% per annum or,
plus 2.10% per annum, during the extension period. At December 31, 2023, the net carrying amounts of each note totaled
$170.3 million and $148.8 million, respectively, and, at December 31, 2022, totaled $186.9 million. Principal repayments on
the notes are due as payments or prepayments on the underlying mortgage loans are collected by the borrower, upon meeting
certain other terms as specified in the agreements, or upon maturity. No allowance for credit losses has been recorded on these
notes as management does not expect to incur future credit losses.
Secured financings payable reflect borrowings under secured warehouse lending facilities with several banking
institutions. Repayment of the warehouse borrowing occurs upon sale of the mortgage loan to investors as noted above. Interest
expense is recorded during the period the borrowing remains outstanding.
Property and equipment
Buildings and furniture and equipment are initially recorded at cost and are generally depreciated using the straight-line
method over estimated useful lives ranging from 3 to 40 years and from 3 to 15 years, respectively. Leasehold improvements
are initially recorded at cost and are amortized over the lesser of the remaining term of the respective lease or the estimated
useful life, using the straight-line method. Computer software developed for internal use and for use with the Company’s
products is amortized over estimated useful lives ranging from 2 to 15 years using the straight-line method. Software
development and implementation costs, which include certain payroll-related costs of employees directly associated with
developing or implementing software and payments to third parties directly associated with developing or implementing
software are capitalized during the application development or implementation stage until the software is ready for its intended
use.
57
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Management uses estimated future cash flows (undiscounted and excluding interest) to measure the recoverability of
property and equipment whenever events or changes in circumstances indicate that the carrying value may not be fully
recoverable. If the undiscounted cash flow analysis indicates that the carrying amount is not recoverable, an impairment loss is
recorded for the excess of the carrying amount over its fair value.
Impairment losses on property and equipment for the years ended December 31, 2023, 2022 and 2021 were $1.1 million,
$0.6 million and $4.8 million, respectively.
Leases
The Company is, generally, a lessee in leases of commercial real estate, including office buildings and office space, and
also certain equipment. Most of the Company’s leases of commercial real estate include one or more options to renew, with
renewal terms that can extend the lease term from one to five years, and some leases include options to terminate the lease
within the first year.
In connection with its lease commitments, the Company recognizes a lease liability equal to the present value of future
lease payments discounted using its incremental borrowing rate and recognizes a lease asset equal to the lease liability, adjusted
for any prepaid or accrued lease payments, lease incentives and initial direct costs.
As most of the Company’s leases do not provide an implicit discount rate, the Company applies its incremental borrowing
rate, which is based on the information available as of the commencement date, in determining the present value of its lease
payments.
The Company does not separately account for nonlease components (e.g., common-area maintenance costs) from the
associated lease components (e.g., fixed payments including rent, real estate taxes and insurance costs) on leases of commercial
real estate and instead accounts for both components as a single lease component for purposes of recognizing lease assets and
liabilities. Variable lease costs, which include any variable lease and nonlease components and rents that vary based on changes
to an index or rate, are expensed as incurred.
The Company excludes any leases with an initial term of 12 months or less from recognition on the balance sheet and for
which lease expense is recognized on a straight-line basis over the lease term.
Management recognizes an impairment loss when the carrying amount of a lease asset is not recoverable and exceeds its
fair value. The carrying amount is considered not recoverable if it exceeds the sum of the undiscounted future cash flows that
are directly associated with, and that are expected to arise as a result of, the use and eventual disposition of the lease asset. An
impairment loss is measured as the amount by which the carrying amount of a lease asset exceeds its fair value. Impairment
losses related to the Company’s commercial real estate may occur if the Company ceased use of all, or a portion, of a leased
property while a contractual obligation remains. Impairment losses related to commercial real estate leases were immaterial
for the years ended December 31, 2023 and 2021, and totaled $2.6 million for the year ended December 31, 2022.
For further information on the Company’s leasing arrangements see Note 7 Leases.
Title plants and other indexes
Title plants are carried at cost, with the costs of daily maintenance (updating) charged to expense as incurred. Because
properly maintained title plants have indefinite lives and do not diminish in value with the passage of time, no provision has
been made for depreciation or amortization. The Company analyzes its title plants at least annually for impairment. This
analysis includes, but is not limited to, the effects of obsolescence, duplication, demand and other economic factors. Capitalized
real estate data is initially recorded at cost and is amortized using the straight-line method over a 15 year estimated useful life.
Management uses estimated future cash flows (undiscounted and excluding interest) to measure the recoverability of title
plants whenever events or changes in circumstances indicate that the carrying value may not be fully recoverable. If the
undiscounted cash flow analysis indicates that the carrying amount is not recoverable, an impairment loss is recorded for the
excess of the carrying amount over its fair value.
58
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Business Combinations
Amounts paid for acquisitions are allocated to the tangible and intangible assets acquired and liabilities assumed and are
based on their estimated fair values at the date of acquisition. The excess of the fair value of purchase consideration over the
fair values of the identifiable assets and liabilities is recorded as goodwill. Acquisition-related costs are expensed in the periods
in which the costs are incurred. The results of operations of acquired businesses are included in the consolidated financial
statements from the date of acquisition.
Goodwill Impairment
The Company is required to perform an annual goodwill impairment assessment for each reporting unit for which
goodwill has been allocated. The reporting units that have been allocated goodwill include title insurance and home warranty.
The Company’s trust and other services reporting unit has no allocated goodwill and is, therefore, not assessed for impairment.
The Company has elected to perform this annual assessment in the fourth quarter of each fiscal year or sooner if circumstances
indicate possible impairment. Based on accounting guidance, the Company has the option to perform a qualitative assessment
to determine if the fair value is more likely than not (i.e., a likelihood of greater than 50%) less than the carrying amount as a
basis for determining whether it is necessary to perform a quantitative impairment test, or may choose to forego a qualitative
assessment and perform a quantitative impairment test. The qualitative factors considered in this assessment may include
macroeconomic conditions, industry and market considerations, overall financial performance as well as other relevant events
and circumstances as determined by the Company. The Company evaluates the weight of each factor to determine whether it
is more likely than not that impairment may exist. If the results of a qualitative assessment indicate the more likely than not
threshold was not met, the Company may choose not to perform a quantitative impairment test. If, however, the more likely
than not threshold is met, the Company will perform a quantitative test as required and discussed below.
Management’s quantitative impairment testing compares the fair value of each reporting unit to its carrying amount. The
fair value of each reporting unit is determined by using discounted cash flow analysis and, where appropriate, market approach
valuations. If the fair value of the reporting unit exceeds its carrying amount, the goodwill is not considered impaired and no
additional analysis is required. However, if the carrying amount is greater than the fair value, an impairment charge is
recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, with the loss recognized limited
to the total amount of goodwill allocated to that reporting unit.
The quantitative impairment test for goodwill utilizes a variety of valuation techniques, all of which require the Company
to make estimates and judgments. Fair value is determined by employing an expected present value technique, which utilizes
expected cash flows and an appropriate discount rate. The use of comparative market multiples (the “market approach”)
compares the reporting unit to other comparable companies (if such comparables are present in the marketplace) based on
valuation multiples to arrive at a fair value. In assessing the fair value, the Company utilizes the results of the valuations
(including the market approach to the extent comparables are available) and considers the range of fair values determined under
all methods and the extent to which the fair value exceeds the carrying amount of the reporting unit.
The valuation of each reporting unit includes the use of assumptions and estimates of many critical factors, including
revenue growth rates and operating margins, discount rates and future market conditions, determination of market multiples
and the establishment of a control premium, among others. Forecasts of future operations are based, in part, on operating
results and the Company’s expectations as to future market conditions. These types of analyses contain uncertainties because
they require the Company to make assumptions and to apply judgments to estimate industry economic factors and the
profitability of future business strategies. However, if actual results are not consistent with the Company’s estimates and
assumptions, the Company may be exposed to future impairment losses that could be material.
In 2023, the Company chose to perform a quantitative impairment test for its title insurance reporting unit and a
qualitative assessment for its home warranty reporting unit. The Company performed qualitative assessments for both reporting
units in 2022 and 2021. Based on the results of the quantitative test in 2023, the Company determined that the fair value for
the title insurance reporting unit exceeded its carrying amount and no additional analysis was required. The results of the
Company’s qualitative assessment in 2023 for the home warranty reporting unit and the results of the qualitative assessments
in 2022 and 2021 for both reporting units supported the conclusion that the reporting unit fair values were not more likely than
not less than their carrying amounts and, therefore, a quantitative impairment test was not considered necessary. As a result of
the Company’s annual goodwill impairment assessments, the Company did not record any goodwill impairment losses for
2023, 2022 or 2021.
59
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Other intangible assets
The Company’s finite-lived intangible assets consist of customer relationships, noncompete agreements, trademarks,
internal-use software licenses and patents. These assets are amortized on a straight-line basis over their useful lives ranging
from 1 to 20 years and are subject to impairment assessments when there is an indication of a triggering event or abandonment.
The Company’s indefinite-lived other intangible assets consist of licenses which are not amortized but rather assessed for
impairment by comparing the fair values to carrying amounts at least annually, and when an indicator of potential impairment
has occurred.
Management uses estimated future cash flows (undiscounted and excluding interest) to measure the recoverability of
intangible assets with finite lives, whenever events or changes in circumstances indicate that the carrying amount may not be
fully recoverable. If the undiscounted cash flow analysis indicates that the carrying amount is not recoverable, an impairment
loss is recorded for the excess of the carrying amount over its fair value. Management’s impairment assessment for indefinite-
lived other intangible assets include a valuation using a discounted cash flow analysis or through a market approach. If the fair
value exceeds its carrying amount, the asset is not considered impaired and no additional analysis is required. However, if the
carrying amount is greater than the fair value, an impairment loss is recorded equal to the excess.
Reserve for known and incurred but not reported claims
The Company provides for title insurance losses through a charge to expense when the related premium revenue is
recognized. The amount charged to expense is generally determined by applying a rate (the loss provision rate) to total title
insurance premiums and escrow fees. The Company’s management estimates the loss provision rate at the beginning of each
year and reassesses the rate quarterly to ensure that the resulting incurred but not reported (“IBNR”) loss reserve and known
claims reserve included in the Company’s consolidated balance sheets together reflect management’s best estimate of the total
costs required to settle all IBNR and known claims. If the ending IBNR reserve is not considered adequate, an adjustment is
recorded.
The process of assessing the loss provision rate and the resulting IBNR reserve involves an evaluation of the results of
an in-house actuarial review. The Company’s in-house actuary performs a reserve analysis utilizing generally accepted
actuarial methods that incorporate cumulative historical claims experience and information provided by in-house claims and
operations personnel. Current economic and business trends are also contemplated as part of the reserve analysis. These
include conditions in the real estate and mortgage markets, changes in residential and commercial real estate values, and
changes in the levels of defaults and foreclosures that may affect claims levels and patterns of emergence, as well as any
company-specific factors that may be relevant to past and future claims experience. Results from the analysis include, but are
not limited to, a range of IBNR reserve estimates and a single point estimate for IBNR as of the balance sheet date.
For recent policy years at early stages of development (generally the last three years), IBNR is generally estimated using
a combination of expected loss rate and multiplicative loss development factor calculations. For more mature policy years,
IBNR generally is estimated using multiplicative loss development factor calculations. The expected loss rate method estimates
IBNR by applying an expected loss rate to total title insurance premiums and escrow fees and by adjusting for policy year
maturity using estimated loss development patterns. Multiplicative loss development factor calculations estimate IBNR by
applying factors derived from loss development patterns to losses realized to date. The expected loss rate and loss development
patterns are based on historical experience and the relationship of the history to the applicable policy years.
The Company’s management uses the IBNR point estimate from the in-house actuary’s analysis and other relevant
information concerning claims to determine what it considers to be the best estimate of the total amount required for the IBNR
reserve.
60
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The volume and timing of title insurance claims are subject to cyclical influences from both the real estate and mortgage
markets. Title policies issued to lenders constitute a large portion of the Company’s title insurance volume. These policies
insure lenders against losses on mortgage loans due to title defects in the collateral property. Even if an underlying title defect
exists that could result in a claim, often the lender must realize an actual loss, or at least be likely to realize an actual loss, for
a title insurance liability to exist. As a result, title insurance claims exposure is sensitive to lenders’ losses on mortgage loans
and is affected in turn by external factors that affect mortgage loan losses, particularly macroeconomic factors.
A general decline in real estate prices can expose lenders to greater risk of losses on mortgage loans, as loan-to-value
ratios increase and defaults and foreclosures increase. Title insurance claims exposure for a given policy year is also affected
by the quality of mortgage loan underwriting during the corresponding origination year. The Company believes that the
sensitivity of claims to external conditions in the real estate and mortgage markets is an inherent feature of title insurance’s
business economics that applies broadly to the title insurance industry.
Title insurance policies are long-duration contracts with the majority of the claims reported to the Company within the
first few years following the issuance of the policy. Generally, 65% to 75% of claim amounts become known in the first six
years of the policy life, and the majority of IBNR reserves relate to the six most recent policy years. Changes in expected
ultimate losses and corresponding loss rates for recent policy years are considered likely and could result in a material
adjustment to the IBNR reserves. A material change in expected ultimate losses and corresponding loss rates for older policy
years is also possible, particularly for policy years with loss rates exceeding historical norms. The estimates made by
management in determining the appropriate level of IBNR reserves could ultimately prove to be materially different from actual
claims experience.
The Company provides for claims losses relating to its home warranty business based on the average cost per claim and
historical loss experience as applied to the total of new claims incurred. The average cost per home warranty claim is calculated
using the average of the most recent 12 months of claims experience adjusted for estimated future increases in costs.
Contingent litigation and regulatory liabilities
Amounts related to contingent litigation and regulatory liabilities are accrued if it is probable that a liability has been
incurred and an amount is reasonably estimable. The Company records legal fees in other operating expenses in the period
incurred.
Revenues
Premiums on title policies issued directly by the Company are recognized on the effective date of the title policy and
escrow fees are recorded upon close of the escrow.
Revenues from title policies issued by agents are recorded when notice of issuance is received from the agent, which is
generally when cash payment is received by the Company.
Premiums on home warranty contracts are generally recognized ratably in proportion to expected claims experience over
the duration of the policy or contract, which is typically 12 months.
Information and other revenues are recognized when control of the promised goods or services is transferred to the
customer and in an amount that reflects the consideration the Company expects to be entitled to in exchange for these goods or
services.
For those products and services where the Company’s performance obligation is satisfied at a point in time and for which
there is no ongoing obligation, revenue is recognized upon delivery. For those products and services where the Company
satisfies its performance obligation over time as the product or service is being transferred to the customer, revenue is generally
recognized using the output method as the products or services are delivered.
61
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company applies the optional exemptions allowed under accounting guidance whereby the Company is not required
to disclose either the transaction price allocated to performance obligations that are unsatisfied as of the end of the period or an
explanation as to when the Company expects to recognize the related revenue. Such contracts generally include performance
obligations that are contingent upon the closing of a real estate transaction or include variable consideration based on order
volumes and have remaining contract terms of generally less than three years. The Company is allowed to apply the optional
exemptions to its remaining performance obligations due to (1) the performance obligation is part of a contract that has an
original duration of one year or less, (2) the associated revenue is based on the Company’s right to invoice for the value of the
product or service delivered, (3) the associated variable consideration is allocated entirely to wholly unsatisfied performance
obligations or (4) immateriality.
The Company also applies the practical expedient allowed under accounting guidance whereby it can disregard the impact
to the transaction price of the effects of a significant financing component for arrangements where the Company expects the
period between delivery of the product or service and customer payment to be one year or less. In addition, the Company
applies the practical expedient whereby it recognizes the incremental costs of obtaining a contract as an expense when incurred
if the amortization period for the asset that the Company otherwise would have recognized is one year or less.
The Company records a contract asset, and recognizes revenue, upon delivery of certain products related to the closing
of a real estate transaction where the Company’s right to payment is subject to the closing of the transaction. The Company
records a contract liability for payments received in advance of revenue recognition for certain products or services. Contract
assets and liabilities were not material at December 31, 2023 and 2022. Revenues recognized during the years ended
December 31, 2023, 2022 and 2021 that were included in contract liabilities at the beginning of the respective period were not
material.
For information about the Company’s revenues disaggregated by reportable segment see Note 22 Segment Financial
Information.
Premium taxes
Title insurance and home warranty companies, like other types of insurers, are generally not subject to state income or
franchise taxes. However, in lieu thereof, most states impose a tax based primarily on insurance premiums written. This
premium tax is reported as a separate line item in the consolidated statements of income in order to provide a more meaningful
disclosure of the taxation of the Company.
Income taxes
The Company accounts for income taxes under the asset and liability method, whereby deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply in the years in which those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date. The Company evaluates the need to establish a valuation allowance for deferred tax assets based upon the amount of
existing temporary differences, the period in which they are expected to be recovered and expected levels of taxable income.
A valuation allowance is established when it is considered more likely than not that some or all of the deferred tax assets will
not be realized.
The Company recognizes the effect of income tax positions only if sustaining those positions is considered more likely
than not. Changes in recognition or measurement of uncertain tax positions are reflected in the period in which a change in
judgment occurs. The Company recognizes interest and penalties, if any, related to uncertain tax positions in income tax
expense.
62
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Share-based compensation
The Company measures the cost of employee services received in exchange for an award of equity instruments based on
the grant-date fair value of the award. The cost is recognized in the Company’s financial statements over the requisite service
period of the award using the straight-line method for awards that contain only a service condition and the graded vesting
method for awards that contain a performance or market condition. For awards with retirement eligibility provisions, the cost
is recognized through the date the employee becomes eligible to retire and is no longer required to provide service to earn the
award. The Company accounts for forfeitures as they occur. The Company utilizes a Monte Carlo valuation model to estimate
the fair value of its market-based equity-settled performance awards.
The Company’s primary means of providing share-based compensation is through the granting of restricted stock units
(“RSUs”). RSUs granted generally have graded vesting features and include a service condition; and, for certain employees
and executives, may also include either a performance or market condition. In 2022, the Company began granting performance
restricted stock units (“PRSUs”) to certain employees and executives, which generally contain service and either performance
or market conditions. RSUs and PRSUs receive dividend equivalents in the form of RSUs/PRSUs having the same vesting
requirements as the initial grant.
The Company also offers an employee stock purchase plan that allows eligible employees the option to purchase common
stock of the Company at 85% of the lower of the closing price on either the first or last day of each offering period. The
offering periods are three-month periods beginning on January 1, April 1, July 1 and October 1 of each fiscal year. The
Company recognizes an expense in the amount equal to the value of the 15% discount and look-back feature over the three-
month offering period.
Earnings per share
Basic earnings per share is computed by dividing net income available to the Company’s stockholders by the weighted-
average number of common shares outstanding. The computation of diluted earnings per share is similar to the computation
of basic earnings per share, except that the weighted-average number of common shares outstanding is increased to include the
effect of dilutive potential common shares outstanding during the period using the treasury stock method. Potential dilutive
common shares include RSUs and PRSUs.
Employee benefit plans
The Company recognizes the underfunded status of its unfunded supplemental benefit plans as a liability on its
consolidated balance sheets. Actuarial gains and losses and prior service costs and credits that have not been previously
recognized as a component of net periodic benefit cost are recorded as a component of accumulated other comprehensive
income/loss. Plan obligations are measured annually as of December 31.
The Company informally funds its nonqualified deferred compensation plan through tax-advantaged investments known
as variable universal life insurance. The Company’s deferred compensation plan assets are included as a component of other
assets and the Company’s deferred compensation plan liability is included as a component of pension costs and other retirement
plans on the consolidated balance sheets. The income or loss earned on the Company’s plan assets is included as a component
of net investment income and the income or loss earned by the plan participants is included as a component of personnel costs
on the consolidated statements of income.
63
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Foreign currency
The Company operates in other countries, including Canada, the United Kingdom, South Korea, Australia and New
Zealand. The functional currencies of the Company’s foreign subsidiaries are generally their respective local currencies. The
financial statements of foreign subsidiaries with local currencies that were determined to be the functional currency are
translated into U.S. dollars as follows: assets and liabilities at the exchange rate as of the balance sheet date, equity at the
historical rates of exchange, and income and expense amounts at average rates prevailing during the period. Translation
adjustments resulting from the translation of the subsidiaries’ accounts are included in accumulated other comprehensive
income/loss as a separate component of stockholders’ equity. For those foreign subsidiaries where the U.S. dollar has been
determined to be the functional currency, non-monetary assets and liabilities are translated using historical rates, while
monetary assets and liabilities are translated at current rates, with remeasurement gains and losses included in other operating
expenses. Gains and losses resulting from foreign currency transactions are included within other operating expenses.
Reinsurance
The Company’s title insurance business assumes and cedes large title insurance risks through reinsurance. Additionally,
the Company has limited reinsurance arrangements related to certain products offered through its international operations. In
reinsurance arrangements, the primary insurer retains a certain amount of risk under a policy and cedes the remainder of the
risk under the policy to the reinsurer. The primary insurer pays the reinsurer a premium in exchange for accepting this risk of
loss. The primary insurer generally remains liable to its insured for the total risk but is reinsured under the terms of the
reinsurance agreement. The amount of premiums assumed and ceded is recorded as a component of direct premiums and
escrow fees on the Company’s consolidated statements of income. The total amount of premiums assumed and ceded in
connection with reinsurance was less than 1.0% of consolidated premium and escrow fees for the years ended December 31,
2023, 2022 and 2021. Payments and recoveries on reinsured losses for the Company’s title insurance business were immaterial
during the years ended December 31, 2023, 2022 and 2021.
Escrow deposits and trust assets
The Company administers escrow deposits and trust assets as a service to customers in its direct title operations. Escrow
deposits totaled $10.6 billion and $10.0 billion at December 31, 2023 and 2022, respectively, of which $6.3 billion and $4.6
billion, respectively, were held at First American Trust, FSB (“FA Trust”). The remaining deposits were held at third-party
financial institutions.
Trust assets held or managed by FA Trust totaled $4.4 billion and $4.1 billion at December 31, 2023 and 2022,
respectively. Escrow deposits held at third-party financial institutions and trust assets are not considered assets of the Company
and, therefore, are not included in the accompanying consolidated balance sheets. All such amounts are placed in deposit
accounts insured, up to applicable limits, by the Federal Deposit Insurance Corporation. The Company could be held
contingently liable for the disposition of these assets.
In conducting its operations, the Company often holds customers’ assets in escrow, pending completion of real estate
transactions and, as a result, the Company has ongoing programs for realizing economic benefits with various financial
institutions. The results from these programs are included as income or a reduction in expense, as appropriate, in the
consolidated statements of income based on the nature of the arrangement and benefit received.
64
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Like-kind exchanges
The Company facilitates tax-deferred property exchanges for customers pursuant to Section 1031 of the Internal Revenue
Code and tax-deferred reverse exchanges pursuant to Revenue Procedure 2000-37. As a facilitator and intermediary, the
Company holds the proceeds from sales transactions and takes temporary title to property identified by the customer to be
acquired with such proceeds. Upon the completion of each such exchange, the identified property is transferred to the customer
or, if the exchange does not take place, an amount equal to the sales proceeds or, in the case of a reverse exchange, title to the
property held by the Company is transferred to the customer. Like-kind exchange funds administered by the Company totaled
$1.8 billion and $2.8 billion at December 31, 2023 and 2022, respectively. The like-kind exchange deposits are held at third-
party financial institutions and, due to the structure utilized to facilitate these transactions, the proceeds and property are not
considered assets of the Company and, therefore, are not included in the accompanying consolidated balance sheets. All such
amounts are placed in deposit accounts insured, up to applicable limits, by the Federal Deposit Insurance Corporation. The
Company could be held contingently liable to the customer for the transfers of property, disbursements of proceeds and the
returns on such proceeds.
Subservicing deposits
In conducting its residential mortgage loan subservicing operations, the Company administers cash deposits on behalf of
its clients. Cash deposits totaled $0.8 billion and $1.1 billion at December 31, 2023 and 2022, respectively, of which $0.5
billion and $0.7 billion, respectively, were held at FA Trust. The remaining deposits were held at third-party financial
institutions. Cash deposits held at third-party financial institutions are not considered assets of the Company and, therefore,
are not included in the accompanying consolidated balance sheets. All such amounts are placed in deposit accounts insured,
up to applicable limits, by the Federal Deposit Insurance Corporation. The Company could be held contingently liable for the
disposition of these assets. In connection with certain accounts, the Company has ongoing programs for realizing economic
benefits with various financial institutions whereby it earns economic benefits either as income or as a reduction in expense.
Deposit balances held at FA Trust are temporarily invested in cash and cash equivalents and debt securities, with
offsetting liabilities included in deposits in the accompanying consolidated balance sheets.
The Company regularly reviews the financial strength of third-party financial institutions where deposits are held and,
based on this review and the fact that all amounts are placed in deposit accounts insured, up to applicable limits, by the Federal
Deposit Insurance Corporation, does not expect any credit losses; therefore the Company has not recorded a liability for credit
losses.
Pending Accounting Pronouncements
In December 2023, the Financial Accounting Standards Board (“FASB”) issued updated guidance intended to enhance
the transparency and decision usefulness of income tax disclosures. The updated guidance requires disclosure of specific
categories and greater disaggregation of information included in the rate reconciliation and related to income taxes paid. The
updated guidance is effective for annual reporting periods beginning after December 15, 2024. Except for the disclosure
requirements, the Company does not expect the adoption of this guidance to have a material impact its consolidated financial
statements.
In August 2023, the FASB issued updated guidance that is intended to provide decision-useful information to investors
and reduce diversity in practice in accounting for contributions made to a joint venture, upon formation, in a joint venture’s
separate financial statements. The updated guidance will require joint ventures to recognize and initially measure their assets
and liabilities at fair value, with certain exceptions to fair value measurement consistent with business combination guidance.
The updated guidance is effective prospectively for all joint venture formations with a formation date on or after January 1,
2025, with early adoption permitted. The Company does not expect the adoption of this guidance to have a material impact on
its consolidated financial statements.
65
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In September 2022, the FASB issued updated guidance intended to increase the comparability of financial information
across reporting entities that have investments in equity securities measured at fair value that are subject to contractual
restrictions preventing the sale of those securities. The updated guidance clarifies that a contractual restriction on the sale of
an equity security is not considered part of the unit of account of the equity security and, as a result, should not be considered
in measuring fair value. In addition, new disclosures are required about the nature of the restrictions and their remaining
duration. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2023. The
Company does not expect the adoption of this guidance to impact its consolidated financial statements.
NOTE 2. Statutory Restrictions on Investments and Stockholders’ Equity:
Investments totaling $124.1 million and $101.6 million were on deposit with state treasurers in accordance with statutory
requirements for the protection of policyholders at December 31, 2023 and 2022, respectively.
Pursuant to insurance and other regulations under which the Company’s insurance subsidiaries operate, the amount of
dividends, loans and advances available to the Company is limited, principally for the protection of policyholders. As of
December 31, 2023, under such regulations, the maximum amount available to the Company from its insurance subsidiaries in
2024, without prior approval from applicable regulators, was dividends of $614.7 million and loans and advances of $108.3
million.
The Company’s principal title insurance subsidiary, First American Title Insurance Company (“FATICO”), maintained
total statutory capital and surplus of $1.5 billion as of December 31, 2023 and 2022. Statutory net income for the years ended
December 31, 2023, 2022 and 2021 was $198.3 million, $436.3 million and $654.9 million, respectively. FATICO was in
compliance with the minimum statutory capital and surplus requirements as of December 31, 2023.
FATICO is domiciled in Nebraska and its statutory-based financial statements are prepared in accordance with
accounting practices prescribed or permitted by the Nebraska Department of Insurance. The National Association of Insurance
Commissioners’ (“NAIC”) Accounting Practices and Procedures Manual (“NAIC SAP”) has been adopted as a component of
prescribed or permitted practices by the state of Nebraska. The state of Nebraska has adopted certain prescribed accounting
practices that differ from those found in the NAIC SAP. Specifically, the timing of amounts released from the statutory
premium reserve under Nebraska’s required practice differs from NAIC SAP resulting in total statutory capital and surplus that
was lower than if reported in accordance with NAIC SAP by $347.1 million and $325.2 million at December 31, 2023 and
2022, respectively.
Statutory accounting principles differ in some respects from GAAP, and these differences include, but are not limited to,
non-admission of certain assets (principally limitations on deferred tax assets, goodwill, capitalized furniture and equipment,
investment in subsidiaries and affiliates, real estate, capitalized software, and premiums and other receivables 90 days past
due), reporting of bonds at amortized cost, recognition of credit losses, the lack of recognition of operating lease assets and
liabilities on the balance sheet for lease commitments in which the Company is a lessee, changes in the fair values of marketable
equity securities, amortization of goodwill, deferral of premiums received as statutory premium reserve, supplemental reserve
(if applicable) and exclusion of the incurred but not reported claims reserve.
66
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE 3. Debt Securities:
Investments in debt securities, classified as available-for-sale, are as follows:
(in millions)
December 31, 2023
U.S. Treasury bonds
Municipal bonds
Foreign government bonds
Governmental agency bonds
Governmental agency mortgage-backed securities
U.S. corporate debt securities
Foreign corporate debt securities
December 31, 2022
U.S. Treasury bonds
Municipal bonds
Foreign government bonds
Governmental agency bonds
Governmental agency mortgage-backed securities
U.S. corporate debt securities
Foreign corporate debt securities
Amortized
cost
Gross unrealized
gains
losses
Estimated
fair value
$
$
$
$
203.3
1,373.7
228.4
207.7
4,396.2
1,007.0
478.9
7,895.2
308.5
1,670.6
208.0
247.9
5,253.4
1,004.4
476.8
9,169.6
$
$
$
$
0.5
8.8
1.4
0.2
6.3
6.6
5.8
29.6
1.4
3.2
0.1
—
1.7
1.5
1.6
9.5
$
$
$
$
(4.5) $
(136.7)
(10.5)
(12.5)
(526.8)
(55.2)
(21.1)
(767.3) $
(7.1) $
(195.1)
(14.4)
(19.3)
(652.7)
(84.5)
(36.4)
(1,009.5) $
199.3
1,245.8
219.3
195.4
3,875.7
958.4
463.6
7,157.5
302.8
1,478.7
193.7
228.6
4,602.4
921.4
442.0
8,169.6
Sales of debt securities resulted in realized gains of $7.2 million, $4.9 million and $29.0 million, realized losses of $88.1
million, $141.4 million and $8.7 million, and proceeds of $1.7 billion, $1.8 billion and $1.1 billion for the years ended
December 31, 2023, 2022 and 2021, respectively.
Investments in debt securities in an unrealized loss position, and their respective length of time in such position, are as
follows:
(in millions)
December 31, 2023
U.S. Treasury bonds
Municipal bonds
Foreign government bonds
Governmental agency bonds
Governmental agency mortgage-backed
securities
U.S. corporate debt securities
Foreign corporate debt securities
December 31, 2022
U.S. Treasury bonds
Municipal bonds
Foreign government bonds
Governmental agency bonds
Governmental agency mortgage-backed
securities
U.S. corporate debt securities
Foreign corporate debt securities
Less than 12 months
12 months or longer
Total
Estimated
fair value
Unrealized
losses
Estimated
fair value
Unrealized
losses
Estimated
fair value
Unrealized
losses
$
$
$
$
8.2
107.4
33.3
0.4
338.3
45.1
19.3
552.0
108.0
813.4
142.1
172.7
1,859.6
528.3
241.6
3,865.7
$
$
$
$
(0.1) $
(0.9)
(0.1)
—
(6.6)
(0.4)
(0.1)
(8.2) $
(1.4) $
(55.8)
(5.9)
(8.2)
55.4
956.8
101.4
118.9
3,225.3
602.5
267.3
5,327.6
49.5
540.0
45.7
55.8
(141.4)
(38.2)
(17.5)
(268.4) $
2,626.8
325.2
137.1
3,780.1
67
$
$
$
$
(4.4) $
(135.8)
(10.4)
(12.5)
63.6
1,064.2
134.7
119.3
3,563.6
(520.2)
647.6
(54.8)
(21.0)
286.6
(759.1) $ 5,879.6
(5.7) $
(139.3)
(8.5)
(11.1)
157.5
1,353.4
187.8
228.5
$
$
$
(4.5)
(136.7)
(10.5)
(12.5)
(526.8)
(55.2)
(21.1)
(767.3)
(7.1)
(195.1)
(14.4)
(19.3)
4,486.4
(511.3)
853.5
(46.3)
(18.9)
378.7
(741.1) $ 7,645.8
(652.7)
(84.5)
(36.4)
$ (1,009.5)
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Based on the Company’s review of its debt securities in an unrealized loss position it determined that the losses were due
to non-credit factors and, therefore, it does not consider these securities to be credit impaired at December 31, 2023. As of
December 31, 2023, the Company did not intend to sell any debt securities in an unrealized loss position and it is not more
likely than not that the Company will be required to sell any debt securities before recovery of their amortized cost basis.
In determining credit losses on its debt securities in an unrealized loss position, the Company considers certain factors
that may include, among others, severity of the unrealized loss, security type, industry sector, credit rating, yield to maturity,
profitability and stock performance.
Investments in debt securities at December 31, 2023, by contractual maturities, are as follows:
(in millions)
U.S. Treasury bonds
Amortized cost
Estimated fair value
Municipal bonds
Amortized cost
Estimated fair value
Foreign government bonds
Amortized cost
Estimated fair value
Governmental agency bonds
Amortized cost
Estimated fair value
U.S. corporate debt securities
Amortized cost
Estimated fair value
Foreign corporate debt securities
Amortized cost
Estimated fair value
Total debt securities, excluding mortgage-backed
securities
Amortized cost
Estimated fair value
Total mortgage-backed securities
Amortized cost
Estimated fair value
Total debt securities
Amortized cost
Estimated fair value
Due in one
year or less
Due after
one
through
five years
Due after
five
through
ten years
Due after
ten years
Total
$
$
39.1
39.1
$
$
147.0
143.3
$
$
0.4
0.4
$
$
16.8
16.5
$
$
203.3
199.3
9.8
9.7
51.5
51.3
—
—
10.5
10.4
21.7
21.3
361.8
333.5
97.8
98.1
154.4
150.8
696.3
659.5
302.3
291.7
509.9
444.2
70.5
62.4
6.6
6.1
224.7
220.6
117.8
116.4
492.2
458.4
1,373.7
1,245.8
8.6
7.5
46.7
38.5
75.5
67.9
37.1
34.2
228.4
219.3
207.7
195.4
1,007.0
958.4
478.9
463.6
$
$
132.6
131.8
$
$
1,759.6
1,676.9
$
$
929.9
850.1
$
$
676.9
623.0
$
$
3,499.0
3,281.8
4,396.2
3,875.7
$
$
7,895.2
7,157.5
Mortgage-backed securities, which include contractual terms to maturity, are not categorized by contractual maturity as
borrowers may have the right to call or prepay obligations with, or without, call or prepayment penalties.
68
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The composition of the debt securities portfolio at December 31, 2023, by credit rating, is as follows:
A- or higher
BBB+ to BBB-
Non-Investment Grade
(dollars in millions)
U.S. Treasury bonds
Municipal bonds
Foreign government bonds
Governmental agency bonds
Governmental agency
mortgage-backed securities
U.S. corporate debt securities
Foreign corporate debt securities
$
Estimated
fair value
199.3
1,218.3
213.7
195.4
3,875.7
467.3
242.9
$ 6,412.6
Percentage
Estimated
fair value
Percentage
Estimated
fair value
Percentage
Total
Estimated
fair value
100.0% $
97.8
97.4
100.0
100.0
48.7
52.4
89.6% $
—
25.8
4.8
—
—
347.6
187.5
565.7
—% $
2.1
2.2
—
—
1.7
0.8
—
—
36.3
40.4
7.9% $
—
143.5
33.2
179.2
—% $
0.1
0.4
—
199.3
1,245.8
219.3
195.4
3,875.7
—
958.4
15.0
463.6
7.2
2.5% $ 7,157.5
Included in debt securities at December 31, 2023, were bank loans totaling $130.5 million, of which $120.3 million were
non-investment grade; high yield corporate debt securities totaling $53.6 million, all of which were non-investment grade; and
emerging market debt securities totaling $38.8 million, of which $3.6 million were non-investment grade.
The composition of the debt securities portfolio in an unrealized loss position at December 31, 2023, by credit rating, is
as follows:
(dollars in millions)
U.S. Treasury bonds
Municipal bonds
Foreign government bonds
Governmental agency bonds
Governmental agency
mortgage-backed securities
U.S. corporate debt securities
Foreign corporate debt securities
$
Estimated
fair value
63.6
1,046.8
132.6
119.3
3,563.6
364.4
168.0
$ 5,458.3
A- or higher
BBB+ to BBB-
Non-Investment Grade
Percentage
Estimated
fair value
Percentage
Estimated
fair value
Percentage
Total
Estimated
fair value
100.0% $
98.4
98.4
100.0
100.0
56.3
58.7
92.8% $
—
17.1
1.3
—
—
229.4
104.7
352.5
—% $
1.6
1.0
—
—
35.4
36.5
6.0% $
—
0.3
0.8
—
—
53.8
13.9
68.8
—% $
—
0.6
—
63.6
1,064.2
134.7
119.3
3,563.6
—
647.6
8.3
4.8
286.6
1.2% $ 5,879.6
Debt securities in an unrealized loss position at December 31, 2023, included bank loans totaling $24.6 million, of which
$24.2 million were non-investment grade; high yield corporate debt securities totaling $41.1 million, all of which were non-
investment grade; and emerging market debt securities totaling $34.0 million, of which $3.2 million were non-investment
grade.
The credit ratings in the above tables reflect published ratings obtained from globally recognized securities rating
agencies. If a security was rated differently among the rating agencies, the lowest rating was selected. Governmental agency
mortgage-backed securities are not rated by any of the ratings agencies; however, these securities have been included in the
above table in the “A- or higher” rating category because the payments of principal and interest are guaranteed by the
governmental agency that issued the security.
69
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE 4. Equity Securities:
Investments in equity securities, by accounting classification, are summarized as follows:
(in millions)
Marketable equity securities
Non-marketable equity securities
Equity method investments
December 31,
2023
2022
436.9 $
224.1
74.6
735.6 $
279.5
395.8
78.9
754.2
$
$
Investments in marketable equity securities are summarized as follows:
(in millions)
December 31, 2023
Common stocks
Preferred stocks
December 31, 2022
Common stocks
Preferred stocks
Cost
Unrealized
losses
Estimated
fair value
$
$
$
$
429.4 $
15.7
445.1 $
323.7 $
15.3
339.0 $
(4.9) $
(3.3)
(8.2) $
(55.6) $
(3.9)
(59.5) $
424.5
12.4
436.9
268.1
11.4
279.5
Net gains of $54.9 million and net losses of $262.5 million resulting from changes in the fair values of marketable equity
securities were recognized for the years ended December 31, 2023 and 2022, respectively, which included net unrealized gains
of $51.2 million and net unrealized losses of $237.2 million on securities still held at December 31, 2023 and 2022, respectively.
Included in net losses/gains during the years ended December 31, 2023 and 2022 were unrealized gains of $12.7 million and
unrealized losses of $190.9 million, respectively, related to the Company's investment in Offerpad Solutions Inc. ("Offerpad"),
a tech-enabled real estate company.
During the year ended December 31, 2023, the Company paid $25.0 million to purchase additional shares of Offerpad
common stock. The cost and fair values of the Company’s investment in Offerpad at December 31, 2023 totaled $110.0 million
and $52.5 million, respectively, and, at December 31, 2022, totaled $85.0 million and $14.8 million, respectively.
A summary of the changes in the carrying amount of non-marketable equity securities for the years ended December 31,
2023 and 2022, is as follows:
(in millions)
Carrying amount, beginning of period
Net (sales) additions
Gross unrealized gains
Gross unrealized losses and impairments
Carrying amount, end of period
Year ended December 31,
2022
2023
$
$
395.8 $
(4.0)
1.5
(169.2)
224.1 $
441.3
91.8
16.1
(153.4)
395.8
Cumulative unrealized losses and impairment charges and cumulative unrealized gains related to the Company's non-
marketable equity securities totaled $322.4 million and $243.3 million, respectively, at December 31, 2023, and $153.2 million
and $241.8 million, respectively, at December 31, 2022.
Also, during the year ended December 31, 2022, the Company realized a gain of $51.1 million and cash proceeds of
$63.0 million related to the sale of an investment in a title insurance business.
70
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE 5. Allowance for Credit Losses – Accounts Receivable:
Activity in the allowance for credit losses on accounts receivable is summarized as follows:
(in millions)
Balance at beginning of period
Provision for expected credit losses
Write-offs/recoveries
Balance at end of period
NOTE 6. Property and Equipment:
Property and equipment is summarized as follows:
(in millions)
Land
Buildings
Leasehold improvements
Furniture and equipment
Capitalized software
Accumulated depreciation and amortization
Year Ended December 31,
2023
2022
21.3 $
8.1
(7.6)
21.8 $
14.0
11.4
(4.1)
21.3
December 31,
2023
2022
26.6 $
193.4
71.3
184.8
1,268.8
1,744.9
(995.3)
749.6 $
26.6
189.1
72.3
230.0
1,059.1
1,577.1
(940.2)
636.9
$
$
$
$
NOTE 7. Leases:
Lease assets and liabilities are summarized as follows:
(in millions)
Assets
Operating lease assets
Finance lease assets
Total lease assets
Liabilities
Operating lease liabilities
Finance lease liabilities
Total lease liabilities
December 31,
2023
2022
Classification
$
$
$
$
229.3
3.2
232.5
246.6
3.1
249.7
$
$
$
$
248.0 Operating lease assets
3.4 Other assets
251.4
269.3 Operating lease liabilities
3.3 Notes and contracts payable
272.6
71
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The components of lease expense are summarized as follows:
(in millions)
Operating lease cost
Finance lease cost:
Amortization of lease assets
Interest of lease liabilities
Variable lease cost
Short-term lease cost
Sublease income
Net lease cost
Year ended December 31,
2022
2023
2021
Classification
$
89.0
$
93.1
$
86.4 Other operating expenses
1.7
0.1
31.8
2.1
(2.7)
122.0
$
1.7
0.1
34.2
2.6
(1.2)
130.5
$
Interest
1.6 Depreciation and amortization
0.1
30.6 Other operating expenses
1.6 Other operating expenses
(2.9)
Information and other
117.4
$
Future minimum lease payments under operating and finance leases with noncancelable lease terms, as of December 31,
2023, are summarized as follows:
(in millions)
2024
2025
2026
2027
2028
Thereafter
Total lease payments
Interest
Present value of lease liabilities
Operating
Leases
Finance
Leases
Total
$
$
83.9 $
68.0
50.4
32.3
16.8
17.3
268.7
(22.1)
246.6 $
1.6 $
1.0
0.5
0.1
—
—
3.2
(0.1)
3.1 $
85.5
69.0
50.9
32.4
16.8
17.3
271.9
(22.2)
249.7
Information related to lease terms and discount rates is summarized as follows:
Weighted-average remaining lease terms (years):
Operating leases
Finance leases
Weighted-average discount rates:
Operating leases
Finance leases
December 31,
2023
2022
4.0
2.6
4.06%
3.01%
4.1
2.4
3.34%
3.23%
Cash flow information related to lease liabilities is summarized as follows:
(in millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
Operating lease assets obtained in exchange for new operating lease liabilities
Finance lease assets obtained in exchange for new finance lease liabilities
Year ended December 31,
2022
2021
2023
$
$
$
$
$
91.5
0.1
1.8
58.9
1.5
$
$
$
$
$
95.9
0.1
1.9
66.2
2.8
$
$
$
$
$
90.3
0.1
1.6
59.2
—
72
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE 8. Goodwill:
A summary of the changes in the carrying amount of goodwill, by reportable segment, for the years ended December 31,
2023 and 2022, is as follows:
(in millions)
Balance as of December 31, 2021
Acquisitions
Transfers
Foreign currency translation
Balance as of December 31, 2022
Acquisitions
Dispositions
Foreign currency translation
Balance as of December 31, 2023
Title
Insurance
and Services
Home
Warranty
Total
$
$
$
1,575.0
217.3
(28.3)
(6.7)
1,757.3
7.5
(0.9)
2.7
1,766.6
$
$
$
12.6
—
28.3
—
40.9
—
—
—
40.9
$
$
$
1,587.6
217.3
—
(6.7)
1,798.2
7.5
(0.9)
2.7
1,807.5
NOTE 9. Other Intangible Assets:
Other intangible assets are summarized as follows:
(in millions)
Finite-lived intangible assets:
Customer relationships
Noncompete agreements
Trademarks
Internal-use software licenses
Patents
Accumulated amortization
Indefinite-lived intangible assets:
Licenses
December 31,
2023
2022
$
191.4
28.2
70.6
16.5
2.8
309.5
(172.6)
136.9
16.9
153.8
$
191.0
33.8
70.6
24.0
2.8
322.2
(145.3)
176.9
16.9
193.8
$
$
Amortization expense for finite-lived intangible assets was $51.5 million, $53.2 million and $50.7 million for the years
ended December 31, 2023, 2022 and 2021, respectively.
Estimated amortization expense for finite-lived intangible assets for the next five years is as follows:
Year
2024
2025
2026
2027
2028
(in millions)
38.2
$
27.3
$
26.1
$
11.6
$
7.2
$
73
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE 10. Deposits:
Deposit accounts are summarized as follows:
(dollars in millions)
Escrow deposits:
Interest bearing
Non-interest bearing
Mortgage subservicing deposits:
Interest bearing
Other deposits
Weighted-average interest rate:
Interest bearing deposit accounts
December 31,
2023
2022
$
$
2,063.0
4,531.3
6,594.3
485.7
228.0
7,308.0
$
$
2,542.1
2,077.3
4,619.4
712.9
187.4
5,519.7
1.52%
0.50%
NOTE 11. Reserve for Known and Incurred But Not Reported Claims:
Activity in the reserve for known and incurred but not reported claims is summarized as follows:
(in millions)
Balance at beginning of year
Provision related to:
Current year
Prior years
Payments, net of recoveries, related to:
Current year
Prior years
Other
Balance at end of year
2023
1,325.3 $
December 31,
2022
1,283.8 $
$
2021
1,178.0
354.6
(18.3)
336.3
468.3
18.0
486.3
199.6
182.2
381.8
2.6
1,282.4 $
225.8
208.5
434.3
(10.5)
1,325.3 $
$
569.3
19.4
588.7
292.5
189.8
482.3
(0.6)
1,283.8
The provision for title insurance losses, expressed as a percentage of title insurance premiums and escrow fees, was
3.25% for the year ended December 31, 2023 and 4.0% for the years ended December 31, 2022 and 2021.
The 3.25% loss provision rate in the current year reflects an ultimate loss rate of 3.75% for the current policy year and a
reserve release of 0.5%, or $21.6 million and for prior policy years, all based on current year title insurance premiums and
escrow fees for the year ended December 31, 2023.
The 2022 and 2021 loss provision rates of 4.0% reflected the ultimate loss rates for policy years 2022 and 2021 and no
change in loss reserve estimates for prior policy years.
74
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
A summary of the Company’s loss reserves is as follows:
(dollars in millions)
Known title claims
IBNR title claims
Total title claims
Non-title claims
Total loss reserves
December 31,
2023
2022
$
$
55.5
1,186.5
1,242.0
40.4
1,282.4
4.3% $
92.5%
96.8%
3.2%
100.0% $
62.1
1,207.2
1,269.3
56.0
1,325.3
4.7%
91.1%
95.8%
4.2%
100.0%
Short-Duration Insurance Contracts
Home Warranty
The following reflects information as of December 31, 2023 about incurred and paid claims development as well as
cumulative claims frequency by claims event, and the total of incurred but not reported claims plus expected development on
reported claims included with the net incurred claims amounts.
The information below about incurred and paid claims development for the years ended December 31, 2014 to 2022, is
presented as supplementary information.
Incurred claims and allocated claim adjustment expenses
Years ended December 31,
2014*
2015*
2016*
2017*
2018*
123.8
123.8
143.7
123.8
143.7
172.7
123.8
143.7
172.7
167.2
123.8
143.7
172.7
167.2
179.8
2019*
(in millions)
123.8
143.7
172.7
167.2
179.8
174.1
Accident
Year
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2020*
2021*
2022*
2023
123.8
143.7
172.7
167.2
179.8
174.1
197.4
123.8
143.7
172.7
167.2
179.8
174.1
197.4
218.2
123.8
143.7
172.7
167.2
179.8
174.1
197.4
218.2
211.8
Total
$ 123.8
143.7
172.7
167.2
179.8
174.1
197.4
218.2
211.8
193.2
$ 1,781.9
*Amounts unaudited.
December
31, 2023
Cumulative
number of
reported
claims
0.8
0.9
1.0
1.0
1.1
1.1
1.2
1.2
1.1
1.0
Accident
Year
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2014*
2015*
2016*
2017*
2018*
2019*
2020*
2021*
2022*
2023
Cumulative paid claims and allocated claim adjustment expenses
Years ended December 31,
111.2
123.8
129.5
123.8
143.7
155.4
123.8
143.7
172.7
151.1
(in millions)
123.8
143.7
172.7
167.2
163.0
123.8
143.7
172.7
167.2
179.8
159.2
123.8
143.7
172.7
167.2
179.8
174.1
177.8
123.8
143.7
172.7
167.2
179.8
174.1
197.4
198.7
123.8
143.7
172.7
167.2
179.8
174.1
197.4
218.2
192.3
Total
All outstanding liabilities before 2014
Liabilities for claims and claims adjustment expenses
$
123.8
143.7
172.7
167.2
179.8
174.1
197.4
218.2
211.8
177.5
$ 1,766.2
—
15.7
$
*Amounts unaudited.
75
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
A reconciliation of the net incurred and paid claims development tables to the liability for claims and claim adjustment
expense at December 31, 2023, is as follows:
Liability for unpaid claims and claim adjustment
expenses — short-duration:
Home warranty
Property and casualty insurance
Insurance lines other than short-duration:
Title insurance
Total liability for unpaid claims and claims adjustment
expenses
December 31,
2023
(in millions)
$
15.7
24.7
40.4
1,242.0
$
1,282.4
Supplementary information about average historical claims duration for the Company’s home warranty business as of
December 31, 2023, is as follows:
Average annual percentage payout of incurred claims by age (unaudited)
Years
Annual payout
1
90.5%
2
9.5%
NOTE 12. Notes and Contracts Payable:
2.40% senior unsecured notes due August 15, 2031, effective interest rate of 2.44%
4.00% senior unsecured notes due May 15, 2030, effective interest rate of 4.05%
4.60% senior unsecured notes due November 15, 2024, effective interest rate of
4.60%
4.30% senior unsecured notes due February 1, 2023, effective interest rate of 4.35%
Trust deed note due November 1, 2023, interest rate of 5.26%
Other notes and contracts payable with maturities through 2028, weighted
-average interest rates of 3.41% and 3.30% at December 31, 2023 and 2022,
respectively
Unamortized discounts and debt issuance costs
December 31,
2023
2022
(dollars in millions)
650.0
450.0
$
300.0
—
—
650.0
450.0
300.0
250.0
4.0
4.2
1,404.2
(10.3)
1,393.9
$
3.8
1,657.8
(12.0)
1,645.8
$
$
In May 2023, the Company entered into a senior unsecured credit agreement with JPMorgan Chase Bank, N.A., in its
capacity as administrative agent, and the lenders party thereto that provides for a $900.0 million revolving credit facility. The
credit agreement includes an expansion option that permits the Company, subject to satisfaction of certain conditions, to
increase the revolving commitments and/or add term loan tranches in an aggregate amount not to exceed $450.0 million. The
obligations of the Company under the credit agreement are neither secured nor guaranteed. Proceeds from borrowings made
from time to time under the credit agreement may be used for general corporate purposes. Unless terminated earlier, the credit
agreement will terminate on May 17, 2028. Upon entry into the credit agreement, the previous $700.0 million senior unsecured
credit agreement was terminated. At December 31, 2023, the Company had no outstanding borrowings under the facility.
76
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
At the Company’s election, borrowings of revolving loans under the credit agreement bear interest at (a) the Alternate
Base Rate plus the applicable spread, (b) the Adjusted Term SOFR Rate plus the applicable spread, or (c) the Adjusted Daily
Simple SOFR plus the applicable spread (in each case as defined in the credit agreement). The Company may select interest
periods of one, three or six months for Adjusted Term SOFR Rate borrowings of loans. The applicable spread varies depending
upon the Debt Rating assigned by Moody’s Investor Service, Inc., Standard & Poor's Rating Services and/or Fitch Ratings Inc.
The minimum applicable spread for Alternate Base Rate borrowings is 0.125% and the maximum is 0.75%. The minimum
applicable spread for Adjusted Term SOFR Rate and Adjusted Daily Simple SOFR borrowings is 1.125% and the maximum
is 1.75%. The Alternate Base Rate is subject to a floor of 1.00% and the Adjusted Term SOFR Rate and the Adjusted Daily
Simple SOFR are each subject to a floor of 0.00%. The rate of interest on any term loans incurred in connection with the
expansion option will be established at or about the time such loans are made and may differ from the rate of interest on
revolving loans.
The credit agreement includes representations and warranties, reporting covenants, affirmative covenants, negative
covenants, financial covenants and events of default customary for financings of this type. Upon the occurrence of an event of
default the lenders may accelerate the loans. Upon the occurrence of certain insolvency and bankruptcy events of default the
loans will automatically accelerate. As of December 31, 2023, the Company was in compliance with the financial covenants
under the credit agreement.
The aggregate annual maturities for notes and contracts payable for the next five years and thereafter are summarized as
follows:
Year
2024
2025
2026
2027
2028
Thereafter
Annual
maturities
(in millions)
301.7
1.3
0.8
0.3
0.1
1,100.0
1,404.2
$
$
On February 1, 2023, the Company repaid its $250 million 4.30% senior unsecured notes, upon maturity, through
available cash. Also, on November 1, 2023, the fully amortizing trust deed note, which is secured by the Company's office
campus in Santa Ana, California, matured.
NOTE 13. Net Investment Income:
The components of net investment income are summarized as follows:
Interest on:
Debt securities
Deposits and other investments
$
Dividends on equity securities
Deferred compensation plan assets
Equity in earnings of affiliates, net
Other
Total investment income
Investment expenses
Net investment income
$
2023
Year ended December 31,
2022
(in millions)
2021
206.1 $
135.1
9.0
(25.3)
11.0
7.2
343.1
(3.0)
340.1 $
133.0
47.4
10.9
18.7
6.9
0.8
217.7
(2.9)
214.8
231.7 $
303.3
10.5
21.9
5.4
0.2
573.0
(3.0)
570.0 $
77
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE 14. Income Taxes:
For the years ended December 31, 2023, 2022 and 2021, domestic and foreign pretax income, before noncontrolling
interests, were $193.4 million and $81.0 million, $268.0 million and $57.7 million, and $1.5 billion and $93.1 million,
respectively.
Income taxes are summarized as follows:
Current:
Federal
State
Foreign
Deferred:
Federal
State
Foreign
2023
Year ended December 31,
2022
(in millions)
2021
$
$
55.4 $
2.8
11.6
69.8
(8.6)
(10.9)
8.6
(10.9)
58.9 $
132.3 $
18.5
18.3
169.1
(80.3)
(25.2)
(3.2)
(108.7)
60.4 $
244.3
36.8
19.6
300.7
64.8
24.0
2.7
91.5
392.2
The Company’s actual income tax expense differs from the expense computed by applying the federal income tax rate
of 21% for the years ended December 31, 2023, 2022 and 2021. A reconciliation of these differences is as follows:
Taxes calculated at federal rate
State taxes, net of federal benefit
Change in liability for tax positions
Foreign income taxed at different rates
Unremitted foreign earnings
Federal tax credits
Valuation allowance
Other items, net
2023
Year ended December 31,
2022
(dollars in millions)
2021
$
$
57.6
(6.4)
10.7
9.5
1.2
(17.3)
7.7
(4.1)
58.9
21.0% $
(2.3)
3.9
3.5
0.4
(6.3)
2.8
(1.5)
21.5% $
68.4
(5.3)
(0.8)
2.1
—
—
—
(4.0)
60.4
21.0% $
(1.5)
(0.3)
0.6
—
—
—
(1.1)
18.7% $
344.7
48.0
—
1.8
1.0
—
—
(3.3)
392.2
21.0%
2.9
—
0.1
0.1
—
—
(0.2)
23.9%
The Company’s effective income tax rates (income tax expense as a percentage of income before income taxes) were
21.5%, 18.7%, and 23.9% for the years ended December 31, 2023, 2022, and 2021, respectively. The effective income tax
rates differ from the federal statutory rate as a result of state and foreign income taxes for which the Company is liable, as well
as permanent differences between amounts reported for financial statement purposes and amounts reported for income tax
purposes, including the recognition of excess tax benefits or tax deficiencies associated with share-based payment transactions
through income tax expense. In addition, the 2023 rate reflects tax credits claimed in current and prior years and a valuation
allowance recorded against losses on certain equity investments. The effective income tax rate for 2022 also reflects the impact
on pretax earnings from losses and impairments on certain equity investments and benefits from the resolution of state tax
matters from prior years. The effective tax rate for 2021 also reflects benefits related to foreign tax law changes.
78
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The primary components of temporary differences that give rise to the Company’s net deferred tax liability are as follows:
December 31,
2023
2022
(in millions)
Deferred tax assets:
Deferred revenue
Employee benefits
Bad debt reserves
Pension
Net operating loss carryforward
Foreign tax credit
Operating lease liabilities
Investments in affiliates
Securities
Other
Valuation allowance
Deferred tax liabilities:
Depreciable and amortizable assets
Claims and related salvage
Investments in affiliates
Operating lease assets
Unremitted foreign earnings
Net deferred tax (liability) asset
$
$
8.6 $
101.1
8.7
13.3
21.8
3.8
52.3
13.9
189.7
12.2
425.4
(13.7)
411.7
275.8
88.5
—
47.7
13.2
425.2
(13.5) $
8.3
99.8
11.8
12.6
28.6
4.7
58.6
—
264.1
11.2
499.7
(7.4)
492.3
282.2
81.6
25.8
52.8
11.7
454.1
38.2
The Inflation Reduction Act, which was signed into law in 2022, included various tax provisions that were effective for
tax years beginning on or after January 1, 2023, including a 15% minimum income tax on certain large corporations and a 1%
excise tax on corporate stock repurchases. These tax law changes did not have a material impact on the Company’s consolidated
financial statements as of December 31, 2023.
The vesting of RSUs represents a tax benefit that has been reflected as a reduction to income taxes payable and income
tax expense for the years ended December 31, 2023, 2022 and 2021. The benefits recorded were $0.7 million, $2.4 million
and $1.8 million for the years ended December 31, 2023, 2022 and 2021, respectively.
At December 31, 2023, the Company had available a $2.8 million foreign tax credit carryover, net of a valuation
allowance, and expects to utilize this credit within the carryover period.
At December 31, 2023, the Company had available net operating loss carryforwards for income tax purposes totaling
$180.5 million, consisting of federal, state and foreign losses of $69.5 million, $100.6 million and $10.4 million, respectively.
Of the aggregate net operating losses, $95.5 million has an indefinite expiration and $85.0 million will begin to expire in various
years starting in 2028.
79
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company evaluates the realizability of its deferred tax assets by assessing the valuation allowance and makes
adjustments to the allowance as necessary. The factors used by the Company in assessing the likelihood of realization of its
deferred tax assets include forecasts of future taxable income and available tax planning strategies that could be
implemented. The Company’s ability to achieve forecasted taxable income in the applicable taxing jurisdictions could affect
the ultimate realization of its deferred tax assets At December 31, 2023 and 2022, the Company carried a valuation allowance
of $13.7 million and $7.4 million, respectively. The balance for 2023 includes $9.6 million related to capital losses, $3.0
million related to net operating losses, and $1.1 million related to other deferred tax assets. The balance for 2022 includes $5.7
million related to net operating losses and $1.7 million related to other deferred tax assets. The increase in the overall valuation
allowance during 2023 was primarily due to the Company’s assessment of its ability to realize tax benefits related to capital
losses on certain equity investments. Based on future operating results in certain jurisdictions, it is possible that the current
valuation allowance positions of those jurisdictions could be adjusted during the next 12 months.
As of December 31, 2023, 2022 and 2021, the liability for income taxes associated with uncertain tax positions was $12.4
million, $3.2 million and $7.9 million, respectively. The net increase in the liability during 2023 from 2022 was primarily
attributable to positions taken on the Company’s tax returns for current and prior years and the settlement of a foreign tax
matter for prior years. The net decrease in the liability in 2022 from 2021 was primarily attributable to the resolution of state
tax matters from prior years. The liabilities could be reduced by $0.8 million, $2.2 million and $2.9 million as of December
31, 2023, 2022 and 2021, respectively, due to offsetting tax benefits associated with the correlative effects of potential
adjustments, including timing adjustments, and state income taxes. The net liability, if recognized, would favorably affect the
Company’s effective income tax rate.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits for the years ended December 31,
2023, 2022 and 2021 is as follows:
Unrecognized tax benefits—beginning balance
Gross increases (decreases)—prior period tax
positions
Gross increases—current period tax positions
Settlements with taxing authorities
Unrecognized tax benefits—ending balance
$
$
2023
Year ended December 31,
2022
(in millions)
3.2 $
7.9 $
2021
8.4
5.2
(4.4)
12.4 $
(0.2)
0.8
(5.3)
3.2 $
7.2
—
0.7
—
7.9
The Company’s continuing practice is to recognize interest and penalties related to uncertain tax positions in income tax
expense. Accrued interest and penalties, net of tax benefits, related to uncertain tax positions totaled $0.8 million as of
December 31, 2023 and, as of December 31, 2022 and 2021, were not material.
The Company, or one of its subsidiaries, files income tax returns in the U.S. federal jurisdiction, various state jurisdictions
and in various non-U.S. jurisdictions. The primary non-federal jurisdictions are California, Canada, India and the United
Kingdom. As of December 31, 2023, the Company is generally no longer subject to income tax examinations for U.S. federal,
state and non-U.S. jurisdictions for years prior to 2020, 2019 and 2014, respectively.
It is reasonably possible that the unrecognized benefit with respect to certain of the Company’s unrecognized tax
positions may increase or decrease within the next 12 months. Any such change may be the result of either ongoing audits or
the expiration of federal and state statutes of limitations for the assessment of taxes.
The Company records a liability for potential tax assessments based on its estimate of the potential exposure. New tax
laws and new interpretations of laws and rulings by taxing authorities may affect the liability for potential tax assessments.
Due to the subjectivity and complex nature of the underlying issues, actual payments or assessments may differ from estimates.
To the extent that the Company’s estimates differ from actual payments or assessments, income tax expense is adjusted. The
Company’s income tax returns in several jurisdictions are being examined by various taxing authorities. The Company believes
that adequate amounts of tax and related interest from any adjustments that may result from these examinations have been
provided for.
80
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE 15. Earnings Per Share:
The computation of basic and diluted earnings per share is as follows:
2023
Year ended December 31,
2022
(in millions, except per share data)
2021
Numerator
Net income attributable to the Company
$
216.8
$
263.0
$
1,241.1
Denominator
Basic weighted-average shares
Effect of dilutive RSUs (1)
Diluted weighted-average shares
Net income per share attributable to the Company’s
stockholders
Basic
Diluted
104.3
0.3
104.6
107.0
0.3
107.3
111.0
0.4
111.4
$
$
2.08
2.07
$
$
2.46
2.45
$
$
11.18
11.14
(1)
Includes 32 thousand dilutive PRSUs for the year ended December 31, 2023.
For the years ended December 31, 2023 and 2022, 8 thousand and 19 thousand RSUs, respectively, and for the year
ended December 31, 2023, 13 thousand PRSUs were excluded from the weighted-average diluted common shares outstanding
due to their antidilutive effect. For the year ended December 31, 2021, RSUs excluded from diluted weighted-average common
shares outstanding due to their antidilutive effect were not material.
NOTE 16. Employee Benefit Plans:
The First American Financial Corporation 401(k) Savings Plan (the “Savings Plan”) allows for employee-elective
contributions up to the maximum amount as determined by the Internal Revenue Code. The Company makes discretionary
contributions to the Savings Plan based on profitability as well as on the contributions of participants. The Savings Plan held
1.4 million shares and 1.6 million shares of the Company’s common stock, representing 1.4% and 1.5% of the Company’s total
common shares outstanding at December 31, 2023 and 2022, respectively. Effective July 1, 2015, additional investments in
common stock of the Company are no longer allowed.
The Company maintains a deferred compensation plan for certain employees that allows participants to defer up to 100%
of their salary, commissions and certain bonuses. Participants can allocate their deferrals among a variety of investment
crediting options (known as “deemed investments”). The term deemed investments means that the participant has no ownership
interest in the funds they select; the funds are only used to measure the gains or losses that will be attributed to each participant’s
deferral account over time. Participants can elect to have their deferral balance paid out while they are still employed or after
their employment ends. The deferred compensation plan is exempt from most provisions of the Employee Retirement Income
Security Act because it is only available to a select group of management and highly compensated employees and is not a
qualified employee benefit plan. To preserve the tax-deferred savings advantages of a nonqualified deferred compensation
plan, federal law requires that it be unfunded or informally funded. Participant deferrals, and any earnings on those deferrals,
are general unsecured obligations of the Company. The Company informally funds the deferred compensation plan through a
tax-advantaged investment known as variable universal life insurance. Deferred compensation plan assets are held as an asset
of the Company within a special trust, known as a “Rabbi Trust.” At December 31, 2023 and 2022, the value of the assets held
in the Rabbi Trust of $130.9 million and $109.7 million, respectively, and the unfunded liabilities of $151.6 million and $136.3
million, respectively, were included in the consolidated balance sheets in other assets and pension costs and other retirement
plans, respectively.
81
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
During the fourth quarter of 2023, the Company identified additional unfunded deferred compensation agreements with
certain former employees who have been receiving benefit payments from the Company for which it has understated its
obligation to make future benefit payments. As a result, the Company recorded a liability at December 31, 2023 of $7.5 million
and revised the consolidated balance sheet at December 31, 2022 to record a liability $9.5 million. See revisions and out-of-
period adjustments in Note 1 Basis of Presentation and Significant Accounting Policies for further information on this
correction.
The Company also has nonqualified, unfunded supplemental benefit plans covering certain management personnel,
which are comprised primarily of the Executive and Management Supplemental Benefit Plans and the smaller Pension
Restoration Plan (collectively, the “unfunded supplemental benefit plans”). The Executive and Management Supplemental
Benefit Plans, subject to certain limitations, provide participants with maximum annual benefits of 30% and 15%, respectively,
of average annual compensation over a fixed five-year period. Effective January 1, 2011, the plans were closed to new
participants.
Certain of the Company’s subsidiaries have separate savings and employee benefit plans. Expenses related to these plans
and the Company’s deferred compensation plans are included below under “other plans, net.”
The principal components of employee benefit costs are summarized as follows:
2023
Year ended December 31,
2022
(in millions)
2021
Expense:
Savings plan
Unfunded supplemental benefit plans
Other plans, net (1)
$
$
34.5 $
12.3
26.8
73.6 $
37.3 $
12.2
(14.7)
34.8 $
73.7
10.6
24.4
108.7
(1)
For the year ended December 31, 2022, participant investments included in the deferred compensation plan realized losses in excess of expenses
recorded by the Company.
The following table summarizes the benefit obligations and funded status associated with the Company’s unfunded
supplemental benefit plans:
Change in projected benefit obligation:
Benefit obligation at beginning of year
Service costs
Interest costs
Actuarial loss (gain)
Benefits paid
Projected benefit obligation at end of year
Change in plan assets:
Contributions
Benefits paid
Fair value of plan assets at end of year
Reconciliation of funded status:
Unfunded status of the plans
Amounts recognized in the consolidated balance sheet:
Accrued benefit liability
Amounts recognized in accumulated other
comprehensive income/loss:
Unrecognized net actuarial loss
Accumulated benefit obligation at end of year
82
December 31,
2023
2022
(in millions)
196.4 $
0.1
10.2
4.8
(15.5)
196.0
15.5
(15.5)
—
262.1
0.2
6.0
(57.4)
(14.5)
196.4
14.5
(14.5)
—
196.0 $
196.4
196.0 $
196.4
50.9 $
50.9 $
196.0 $
48.1
48.1
196.4
$
$
$
$
$
$
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Net periodic benefit costs related to the Company’s unfunded supplemental benefit pension plans are summarized as
follows:
Expense:
Service costs
Interest costs
Amortization of net actuarial loss
Amortization of prior service cost (credit)
2023
Year ended December 31,
2022
(in millions)
2021
$
$
0.1 $
10.2
2.0
—
12.3 $
0.2 $
6.0
5.8
0.2
12.2 $
0.2
4.9
6.8
(1.3)
10.6
Net actuarial loss for the unfunded supplemental benefit plans expected to be amortized from accumulated other
comprehensive income/loss into net periodic benefit cost during 2024 is $2.3 million.
The weighted-average discount rate assumptions used to determine net periodic benefit costs for the Executive and
Management Supplemental Benefit Plans for the years ended December 31, 2023, 2022 and 2021, are as follows:
Discount rates:
Projected benefit obligation
Service cost
Interest cost
Year ended December 31,
2022
2023
2021
5.56%
5.75%
5.45%
2.89%
3.29%
2.37%
2.49%
3.14%
1.83%
The weighted-average discount rate assumptions used to determine the projected benefit obligations for the Executive
and Management Supplemental Benefit Plans at December 31, 2023 and 2022, are as follows:
Discount rate
December 31,
2023
2022
5.21%
5.56%
The discount rate assumptions used reflect the yield available on high-quality, fixed-income debt securities that match
the expected timing of the benefit obligation payments.
The Company expects to make cash contributions of $16.2 million to its unfunded supplemental benefit plans during
2024.
Benefit payments, which reflect expected future service, as appropriate, are expected to be made as follows:
Year
2024
2025
2026
2027
2028
Five years thereafter
(in millions)
16.2
$
17.0
$
16.7
$
16.5
$
16.2
$
74.8
$
83
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE 17. Fair Value Measurements:
Certain of the Company’s assets and liabilities are carried at fair value. Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date.
The Company categorizes its assets and liabilities carried at fair value using a three-level hierarchy for fair value
measurements that distinguishes between market participant assumptions developed based on market data obtained from
sources independent of the Company (observable inputs) and the Company’s own assumptions about market participant
assumptions developed based on the best information available in the circumstances (unobservable inputs). The hierarchy for
inputs used in determining fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by
requiring that observable inputs be used when available. The hierarchy level assigned to the assets and liabilities is based on
management’s assessment of the transparency and reliability of the inputs used to estimate the fair values at the measurement
date. The three hierarchy levels are defined as follows:
Level 1—Valuations based on unadjusted quoted market prices in active markets for identical assets or liabilities.
Level 2—Valuations based on observable inputs (other than Level 1 prices), such as quoted prices for similar assets or
liabilities at the measurement date; quoted prices in markets that are not active; or other inputs that are observable, either
directly or indirectly.
Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement, and
involve management judgment.
If the inputs used to measure fair value fall into different levels of the fair value hierarchy, the hierarchy level assigned
is based upon the lowest level of input that is significant to the fair value measurement.
Assets measured at fair value on a recurring basis
The valuation techniques and inputs used by the Company to estimate the fair value of assets measured on a recurring
basis are summarized as follows:
Debt securities
The fair values of debt securities were based on the market values obtained from independent pricing services that were
evaluated using pricing models that vary by asset class and incorporate available trade, bid and other market information and
price quotes from well-established, independent broker-dealers. The independent pricing services monitor market indicators,
industry and economic events, and for broker-quoted only securities, obtain quotes from market makers or broker-dealers that
they recognize to be market participants. The pricing services utilize the market approach in determining the fair values of the
debt securities held by the Company. The Company obtains an understanding of the valuation models and assumptions utilized
by the services and has controls in place to determine that the values provided represent fair values. The Company’s validation
procedures include comparing prices received from the pricing services to quotes received from other third-party sources for
certain securities with market prices that are readily verifiable. If the price comparison results in differences over a predefined
threshold, the Company will assess the reasonableness of the changes relative to prior periods given the prevailing market
conditions and assess changes in the issuers’ credit worthiness, performance of any underlying collateral and prices of the
instrument relative to similar issuances. To date, the Company has not made any material adjustments to the fair value
measurements provided by the pricing services.
Typical inputs and assumptions to pricing models used to value the Company’s debt securities include, but are not limited
to, benchmark yields, reported trades, broker-dealer quotes, credit spreads, credit ratings, bond insurance (if applicable),
benchmark securities, bids, offers, reference data and industry and economic events. For mortgage-backed securities, inputs
and assumptions may also include the structure of issuance, characteristics of the issuer, collateral attributes and prepayment
speeds.
Marketable equity securities
The fair values of marketable equity securities, including preferred and common stocks, were based on quoted market
prices for identical assets that are readily and regularly available in an active market.
84
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following tables present the fair values of the Company’s assets, measured on a recurring basis, as of December 31,
2023 and 2022:
(in millions)
December 31, 2023
Debt securities:
U.S. Treasury bonds
Municipal bonds
Foreign government bonds
Governmental agency bonds
Governmental agency mortgage-backed securities
U.S. corporate debt securities
Foreign corporate debt securities
Equity securities:
Common stocks
Preferred stocks
Mortgage loans held for sale
Total
(in millions)
December 31, 2022
Debt securities:
U.S. Treasury bonds
Municipal bonds
Foreign government bonds
Governmental agency bonds
Governmental agency mortgage-backed securities
U.S. corporate debt securities
Foreign corporate debt securities
Equity securities:
Common stocks
Preferred stocks
Mortgage loans held for sale
Total
Total
Level 1
Level 2
Level 3
$
$
$
$
199.3
1,245.8
219.3
195.4
3,875.7
958.4
463.6
7,157.5
424.5
12.4
436.9
13.1
7,607.5
Total
302.8
1,478.7
193.7
228.6
4,602.4
921.4
442.0
8,169.6
268.1
11.4
279.5
15.9
8,465.0
$
$
$
$
— $
—
—
—
—
—
—
—
424.5
12.4
436.9
—
436.9
$
199.3
1,245.8
219.3
195.4
3,875.7
958.4
463.6
7,157.5
—
—
—
11.8
7,169.3
Level 1
Level 2
— $
—
—
—
—
—
—
—
268.1
11.4
279.5
—
279.5
$
302.8
1,478.7
193.7
228.6
4,602.4
921.4
442.0
8,169.6
—
—
—
13.9
8,183.5
$
$
$
$
Level 3
—
—
—
—
—
—
—
—
—
—
—
1.3
1.3
—
—
—
—
—
—
—
—
—
—
—
2.0
2.0
There were no transfers between Levels 1, 2 and 3 during the years ended December 31, 2023 and 2022. Transfers into
or out of the Level 3 category occur when unobservable inputs become either more, or less, significant to the fair value
measurement. The Company’s policy is to recognize transfers between levels in the fair value hierarchy at the end of the
reporting period.
85
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Financial instruments not measured at fair value
In estimating the fair values of its financial instruments not measured at fair value, the Company used the following
methods and assumptions:
Cash and cash equivalents
The carrying amount for cash and cash equivalents approximates fair value due to the short-term maturity of these
investments.
Deposits with banks
The fair value of deposits with banks is estimated based on rates currently offered for deposits of similar remaining
maturities, where applicable.
Notes receivable, net
The fair value of notes receivable, net is estimated based on current market rates offered for notes with similar maturities
and credit quality.
Secured financings receivable
The carrying amount of secured financings receivable includes receivables from various mortgage originators,
which approximate fair value due to the short-term nature of these assets and also includes two variable-rate notes receivable
from a mortgage investor, which approximate fair value due to their variable interest rates and near term maturities ranging
from 3 to 14 months.
Secured financings payable
The carrying amount of secured financings payable approximates fair value due to the short-term nature of these
liabilities.
Notes and contracts payable
The fair value of notes and contracts payable is estimated based on current rates offered for debt of similar remaining
maturities.
The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments not
measured at fair value as of December 31, 2023 and 2022:
(in millions)
December 31, 2023
Assets:
Cash and cash equivalents
Deposits with banks
Notes receivable, net
Secured financings receivable
Liabilities:
Secured financings payable
Notes and contracts payable
Carrying
Amount
Total
Level 1
Level 2
Level 3
Estimated fair value
$
3,605.3
4.0
$
— $
— $
51.6
— $
$
— $
$
636.5
— $
— $
553.3
1,215.4
$
$
—
—
23.2
—
—
4.2
$
$
$
$
$
$
3,605.3
55.8
22.4
636.5
553.3
1,393.9
$
$
$
$
$
$
3,605.3
55.6
23.2
636.5
553.3
1,219.6
$
$
$
$
$
$
86
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in millions)
December 31, 2022
Assets:
Cash and cash equivalents
Deposits with banks
Notes receivable, net
Secured financings receivable
Liabilities:
Secured financings payable
Notes and contracts payable
Carrying
Amount
Total
Estimated fair value
Level 1
Level 2
Level 3
$
$
$
$
$
$
1,223.5
63.4
10.7
422.7
366.3
1,645.8
$
$
$
$
$
$
1,223.5
62.7
10.6
422.7
366.3
1,404.4
$
$
$
$
$
$
$
1,223.5
8.5
$
— $
— $
54.2
— $
$
— $
$
422.7
— $
— $
366.3
1,400.6
$
$
—
—
10.6
—
—
3.8
Assets measured at fair value on a non-recurring basis
(in millions)
December 31, 2023
Non-marketable equity securities (1)
December 31, 2022
Non-marketable equity securities (2)
Total
Estimated fair value (3)
Level 2
Level 1
Level 3
$
$
95.1
117.3
$
$
— $
56.5
— $
107.3
$
$
38.6
10.0
(1)
(2)
(3)
Excludes $129.0 million of non-marketable equity securities for which no observable price changes or impairment charges occurred during the
year ended December 31, 2023.
Excludes $278.5 million of non-marketable equity securities for which no observable price changes or impairment charges occurred during the
year ended December 31, 2022.
Estimated fair values were determined during the year as of the dates that either an observable transaction occurred or an impairment assessment
was made.
Non-marketable equity securities that have been remeasured during the period based on observable price changes are classified within
Level 2 in the fair value hierarchy because the fair value is determined based only on significant inputs that are observable, such as
observable transactions at the transaction date.
The following table presents the valuation techniques and significant unobservable inputs used in measuring the fair value of non-
marketable equity securities classified within Level 3 of the fair value hierarchy as of December 31, 2023:
(in millions)
Non-marketable equity securities
Fair Value
$
38.6
Approach
Market
Input
Revenue Multiple
Range
10.2-12.5
Weighted Average (1)
11.7
(1)
Weighted average is calculated based on the fair values of the non-marketable equity securities.
87
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE 18. Share-Based Compensation Plans:
The First American Financial Corporation 2020 Incentive Compensation Plan (the “Incentive Compensation Plan”),
permits the granting of stock options, stock appreciation rights, restricted stock, RSUs, PRSUs, performance shares and other
stock-based awards. Eligible participants, which include the Company’s directors and officers, as well as other employees,
may elect to defer the distribution of their RSUs to a future date beyond the scheduled vesting date. In March 2023, the
Company’s board of directors approved an amendment and restatement of the Incentive Compensation Plan, which increases
the maximum number of shares of Company common stock available for grant from 4.3 million to 6.5 million. At
December 31, 2023, 3.0 million shares of common stock remain available to be issued by the Company, subject to certain
annual limits based on the type of award granted. The Company settles its equity awards with authorized but unissued shares
of its common stock. The Incentive Compensation Plan terminates 10 years from its effective date unless canceled earlier by
the Company’s board of directors.
The First American Financial Corporation 2010 Employee Stock Purchase Plan (the “ESPP”), as amended and restated,
allows eligible employees the option to purchase common stock of the Company at 85% of the lower of the closing price on
either the first or last day of each quarterly offering period. There were 0.5 million, 0.6 million, and 0.5 million shares issued
in connection with this plan for the years ended December 31, 2023, 2022 and 2021, respectively. The plan terminates on
July 1, 2032. At December 31, 2023, there were 8.5 million shares reserved for future issuances.
The following table summarizes the costs associated with the Company’s share-based compensation plans:
Expense:
RSUs
PRSUs
Employee stock purchase plan
2023
Year ended December 31,
2022
(in millions)
2021
$
$
38.4
4.5
6.2
49.1
$
$
57.9
2.8
6.6
67.3
$
$
47.7
—
5.9
53.6
The following table summarizes RSU and PRSU activity for the year ended December 31, 2023:
(in millions, except weighted-average grant-date fair value)
Unvested at December 31, 2022
Granted during 2023
Vested during 2023
Unvested at December 31, 2023
Weighted-average
grant-date
fair value
Shares
0.9 $
0.8
(0.7)
1.0 $
63.01
63.73
62.30
64.19
As of December 31, 2023, there was $33.2 million of total unrecognized compensation cost related to unvested RSUs
and PRSUs that is expected to be recognized over a weighted-average period of 1.9 years. The weighted-average grant-date
fair values of RSUs and PRSUs for the years ended December 31, 2023 and 2022 was $63.73 and $67.65, respectively, and for
the year ended December 31, 2021, the weighted-average grant-date fair value of RSUs was $56.65. The total fair values of
shares distributed for the years ended December 31, 2023, 2022 and 2021 were $62.7 million, $57.2 million and $49.1 million,
respectively. At December 31, 2023, 0.9 million shares were vested but not distributed.
NOTE 19. Stockholders’ Equity:
The Company maintains a stock repurchase plan with authorization up to $400.0 million, of which $213.8 million
remained as of December 31, 2023. Purchases may be made from time to time by the Company in the open market at prevailing
market prices or in privately negotiated transactions. During the year ended December 31, 2023, the Company repurchased
and retired 1.3 million shares of its common stock for a total purchase price of $72.7 million and, as of December 31, 2023,
had cumulatively repurchased and retired 3.5 million shares of its common stock for a total purchase price of $186.2 million.
88
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE 20. Accumulated Other Comprehensive Income (Loss) (“AOCI”):
The following table presents a summary of the changes in each component of AOCI for the years ended
December 31, 2023, 2022 and 2021:
Unrealized
gains (losses)
on debt
securities
Foreign
currency
translation
adjustment
$
171.8
(188.6)
$
(38.0) $
—
Pension
benefit
adjustment
Accumulated
other
comprehensive
income (loss)
39.6
(188.6)
(94.2) $
—
(0.4)
—
—
—
—
46.5
29.3
(1,044.9)
—
—
—
—
264.0
(751.6)
262.3
—
—
—
(64.3)
(553.6) $
—
(1.9)
—
—
—
—
(39.9)
—
(43.3)
—
—
—
1.1
(82.1)
—
17.7
—
—
(0.5)
(64.9) $
—
—
11.4
6.8
(1.3)
(4.5)
(81.8)
—
—
57.4
5.8
0.2
(16.8)
(35.2)
—
—
(4.8)
2.0
0.7
(37.3) $
(0.4)
(1.9)
11.4
6.8
(1.3)
42.0
(92.4)
(1,044.9)
(43.3)
57.4
5.8
0.2
248.3
(868.9)
262.3
17.7
(4.8)
2.0
(64.1)
(655.8)
(in millions)
Balance at December 31, 2020
Change in unrealized gains (losses) on debt securities
Change in unrealized gains (losses) on debt securities
for which credit-related portion was recognized
in earnings
Change in foreign currency translation adjustment
Net actuarial gain
Amortization of net actuarial loss
Amortization of prior service credit
Tax effect
Balance at December 31, 2021
Change in unrealized gains (losses) on debt securities
Change in foreign currency translation adjustment
Net actuarial gain
Amortization of net actuarial loss
Amortization of prior service cost
Tax effect
Balance at December 31, 2022
Change in unrealized gains (losses) on debt securities
Change in foreign currency translation adjustment
Net actuarial loss
Amortization of net actuarial loss
Tax effect
Balance at December 31, 2023
$
89
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table presents the other comprehensive income (loss) reclassification adjustments for the years ended
December 31, 2023, 2022 and 2021:
Year ended December 31, 2023
Pretax change before reclassifications
Reclassifications out of AOCI
Tax effect
Total other comprehensive income (loss), net of tax
Year ended December 31, 2022
Pretax change before reclassifications
Reclassifications out of AOCI
Tax effect
Total other comprehensive income (loss), net of tax
Year ended December 31, 2021
Pretax change before reclassifications
Reclassifications out of AOCI
Tax effect
Total other comprehensive income (loss), net of tax
Unrealized
gains (losses)
on debt
securities
Foreign
currency
translation
adjustment
Pension
benefit
adjustment
Total
other
comprehensive
income (loss)
(in millions)
$
$
$
$
$
$
181.4
80.9
(64.3)
198.0
$
$
(1,181.4) $
136.5
264.0
(780.9) $
(168.8) $
(20.2)
46.5
(142.5) $
17.7
—
(0.5)
17.2
$
$
(43.3) $
—
1.1
(42.2) $
(1.9) $
—
—
(1.9) $
(4.8) $
2.0
0.7
(2.1) $
57.4
6.0
(16.8)
46.6
11.4
5.5
(4.5)
12.4
$
$
$
$
194.3
82.9
(64.1)
213.1
(1,167.3)
142.5
248.3
(776.5)
(159.3)
(14.7)
42.0
(132.0)
The following table presents the effects of the reclassifications out of AOCI on the respective line items in the
consolidated statements of income:
(in millions)
Unrealized gains (losses) on debt
securities:
Net realized (losses) gains on sales of debt
securities
Credit losses recognized on debt securities
Pretax total
Tax effect
Pension benefit adjustment (1):
Amortization of net actuarial loss
Amortization of prior service (cost) credit
Pretax total
Tax effect
$
$
$
$
$
$
2023
Year ended December 31,
2022
2021
Affected line items
(80.9) $
—
(80.9) $
$
19.8
(2.0) $
—
(2.0) $
$
0.5
(136.5) $
—
(136.5) $
$
36.2
(5.8) $
(0.2)
(6.0) $
$
1.6
20.3 Net investment (losses) gains
(0.1) Net investment (losses) gains
20.2
(5.0)
(6.8) Other operating expenses
1.3 Other operating expenses
(5.5)
1.5
(1) Amounts are components of net periodic cost. See Note 16 Employee Benefit Plans for additional details.
90
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE 21. Litigation and Regulatory Contingencies:
The Company and its subsidiaries are parties to lawsuits and are also involved in ongoing routine legal and regulatory
proceedings related to their operations. These lawsuits and proceedings frequently are similar in nature to other lawsuits and
proceedings pending against the Company’s competitors. When the Company has determined that a loss is both probable and
reasonably estimable, a liability representing the best estimate of the Company’s financial exposure based on known facts has
been recorded. Actual losses may materially differ from the amounts recorded.
With respect to the Company’s outstanding ordinary course lawsuits and proceedings, the Company has determined
either that a loss is not reasonably possible or that the estimated loss or range of loss, if any, will not have a material adverse
effect on the Company’s financial condition, results of operations or cash flows. The Company’s ordinary course lawsuits
include putative or purported class action lawsuits, which challenge practices in the Company’s title insurance and services and
home warranty businesses.
The Company’s title insurance, property and casualty insurance, home warranty, mortgage servicing and subservicing,
banking, thrift, trust and wealth management businesses are regulated by various federal, state and local governmental
agencies. Many of the Company’s other businesses operate within statutory guidelines. Consequently, the Company may from
time to time be subject to examination or investigation by such governmental agencies. Currently, governmental agencies are
examining or investigating certain of the Company’s operations. The Company settled a matter with the New York Department
of Financial Services for an immaterial sum.
The Company does not believe that any pending examinations or investigations will have a material adverse effect on
the Company’s financial condition, results of operations or cash flows. Some of these exams or investigations could, however,
result in changes to the Company’s business practices which could ultimately have a material adverse impact on the Company’s
financial condition, results of operations or cash flows.
91
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE 22. Segment Financial Information:
Selected financial information about the Company’s operations, by segment, for the years ended December 31, 2023,
2022 and 2021, is as follows:
2023
Title Insurance and Services
Home Warranty
Corporate and Eliminations
2022
Title Insurance and Services
Home Warranty
Corporate and Eliminations
2021
Title Insurance and Services
Home Warranty
Corporate and Eliminations
Revenues
Depreciation
and
amortization
Income (loss)
before
income taxes
(in millions)
Assets
Capital
expenditures
$
$
$
$
$
$
5,724.8
417.2
(138.5)
6,003.5
7,546.9
419.0
(360.7)
7,605.2
8,321.0
421.9
477.9
9,220.8
$
$
$
$
$
$
183.6
4.8
0.1
188.5
162.3
5.1
0.1
167.5
152.5
5.8
0.1
158.4
$
$
$
$
$
$
494.0
54.3
(273.9)
274.4
757.4
44.6
(476.3)
325.7
1,358.7
52.6
230.0
1,641.3
$
$
$
$
$
$
15,768.2
351.9
682.7
16,802.8
13,911.2
389.7
654.4
14,955.3
15,058.8
436.4
956.1
16,451.3
$
$
$
$
$
$
271.1
7.6
—
278.7
271.3
3.6
—
274.9
168.5
3.6
—
172.1
Direct
premiums and
escrow fees
Agent
premiums
Information
and other
Net investment
income
Net investment
gains (losses)
Total
Revenues
(in millions)
2023
Title Insurance and Services $
Home Warranty
Corporate and Eliminations
$
2022
Title Insurance and Services $
Home Warranty
Corporate and Eliminations
$
2021
Title Insurance and Services $
Home Warranty
Corporate and Eliminations
$
1,856.4
395.6
0.1
2,252.1
2,662.9
413.1
8.8
3,084.8
3,100.9
399.8
97.7
3,598.4
$
$
$
$
$
$
2,449.3
—
—
2,449.3
3,547.6
—
—
3,547.6
3,757.1
—
—
3,757.1
$
$
$
$
$
$
917.1
21.7
(0.3)
938.5
1,127.1
13.3
8.1
1,148.5
1,203.1
10.9
0.9
1,214.9
$
$
$
$
$
$
540.2
5.9
23.9
570.0
359.1
5.1
(24.1)
340.1
188.3
4.1
22.4
214.8
$
$
$
$
$
$
(38.2) $
(6.0)
(162.2)
(206.4) $
(149.8) $
(12.5)
(353.5)
(515.8) $
71.6
7.1
356.9
435.6
$
$
5,724.8
417.2
(138.5)
6,003.5
7,546.9
419.0
(360.7)
7,605.2
8,321.0
421.9
477.9
9,220.8
The Company’s title insurance and services segment offers title insurance, closing services and similar or related products
and services both domestically and internationally. The operations of the Company’s home warranty and corporate segments
are entirely domestic.
92
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Domestic and foreign revenues from external customers for the title insurance and services segment are as follows:
2023
Domestic
Foreign
Year Ended December 31,
2022
Domestic
Foreign
(in millions)
2021
Domestic
Foreign
Revenues
$
5,351.6
$
372.2
$
7,128.4
$
416.2
$
7,871.7
$
448.1
Domestic and foreign long-lived assets for the title insurance and services segment are as follows:
2023
December 31,
2022
2021
Domestic
Foreign
Domestic
Foreign
Domestic
Foreign
(in millions)
Long-lived assets
$
977.2
$
53.0
$
1,000.9
$
51.0
$
944.9
$
51.1
93
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
SUMMARY OF INVESTMENTS—OTHER THAN INVESTMENTS IN RELATED PARTIES
(in millions)
December 31, 2023
SCHEDULE I
1 OF 1
Column A
Column B
Column C
Type of investment
Deposits with banks:
Consolidated
Debt securities:
U.S. Treasury bonds
Consolidated
Municipal bonds
Consolidated
Foreign government bonds
Consolidated
Governmental agency bonds
Consolidated
Governmental agency mortgage-backed securities
Consolidated
U.S. corporate debt securities
Consolidated
Foreign corporate debt securities
Consolidated
Total debt securities:
Consolidated
Equity securities:
Consolidated (1)
Notes receivable, net:
Consolidated
Total investments:
Consolidated
Column D
Amount at
which shown in
the balance
sheet
Cost
Market value
$
$
$
$
$
$
$
$
$
$
$
$
55.8
203.3
1,373.7
228.4
207.7
4,396.2
1,007.0
478.9
7,895.2
743.8
22.4
8,717.2
$
$
$
$
$
$
$
$
$
$
$
$
55.6
199.3
1,245.8
219.3
195.4
3,875.7
958.4
463.6
7,157.5
735.6
23.2
7,971.9
$
$
$
$
$
$
$
$
$
$
$
$
55.8
199.3
1,245.8
219.3
195.4
3,875.7
958.4
463.6
7,157.5
735.6
22.4
7,971.3
(1)
Included in equity securities are non-marketable equity securities and equity method investments, at carrying amount.
Estimates of fair value for these investments could not be made without incurring excessive costs.
94
FIRST AMERICAN FINANCIAL CORPORATION
(Parent Company)
CONDENSED BALANCE SHEETS
(in millions, except par values)
SCHEDULE II
1 OF 5
Assets
Cash and cash equivalents
Dividends receivable
Due from subsidiaries, net
Income taxes receivable
Investment in subsidiaries
Equity securities
Deferred income taxes
Other assets
Liabilities and Equity
Accounts payable and other accrued liabilities
Pension costs and other retirement plans
Income taxes payable
Deferred income taxes
Notes and contracts payable
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.00001 par value; Authorized—0.5 shares;
Outstanding—none
Common stock, $0.00001 par value; Authorized—300.0 shares;
Outstanding—103.1 shares and 103.2 shares
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total stockholders’ equity
Noncontrolling interests
Total equity
December 31,
2023
2022
$
$
$
$
179.3
10.0
58.2
75.7
6,152.6
52.5
50.1
144.0
6,722.4
35.3
355.1
15.9
63.6
1,389.7
1,859.6
—
—
1,793.3
3,710.6
(655.8)
4,848.1
14.7
4,862.8
6,722.4
$
$
$
$
597.2
—
10.3
22.0
5,908.3
14.8
54.5
116.6
6,723.7
35.9
342.3
10.0
16.3
1,638.0
2,042.5
—
—
1,812.4
3,714.3
(868.9)
4,657.8
23.4
4,681.2
6,723.7
See Notes to Condensed Financial Statements
95
FIRST AMERICAN FINANCIAL CORPORATION
(Parent Company)
CONDENSED STATEMENTS OF INCOME
(in millions)
SCHEDULE II
2 OF 5
Revenues:
Dividends from subsidiaries
Other income (loss)
Net investment gains (losses)
Expenses:
Other expenses
Income before income taxes and equity in undistributed earnings of
subsidiaries
Income taxes
Equity in undistributed (losses) earnings of subsidiaries
Net income
Less: Net (loss) income attributable to noncontrolling interests
Net income attributable to the Company
2023
Year Ended December 31,
2022
2021
$
$
411.3
22.5
12.5
446.3
97.8
348.5
74.8
(58.2)
215.5
(1.3)
216.8
$
$
732.7
(22.2)
(192.4)
518.1
55.1
463.0
86.0
(111.7)
265.3
2.3
263.0
$
$
621.6
19.5
120.7
761.8
83.7
678.1
162.1
733.1
1,249.1
8.0
1,241.1
See Notes to Condensed Financial Statements
96
FIRST AMERICAN FINANCIAL CORPORATION
(Parent Company)
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
SCHEDULE II
3 OF 5
Net income
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities
Unrealized losses on debt securities for which credit-related
portion was recognized in earnings
Foreign currency translation adjustment
Pension benefit adjustment
Total other comprehensive income (loss), net of tax
Comprehensive income (loss)
Less: Comprehensive (loss) income attributable to noncontrolling
interests
Comprehensive income (loss) attributable to the Company
2023
Year Ended December 31,
2022
2021
$
215.5
$
265.3
$
1,249.1
198.0
—
17.2
(2.1)
213.1
428.6
(780.9)
—
(42.2)
46.6
(776.5)
(511.2)
$
(1.3)
429.9
$
2.3
(513.5) $
(142.1)
(0.4)
(1.9)
12.4
(132.0)
1,117.1
8.0
1,109.1
See Notes to Condensed Financial Statements
97
FIRST AMERICAN FINANCIAL CORPORATION
(Parent Company)
CONDENSED STATEMENTS OF CASH FLOWS
(in millions)
SCHEDULE II
4 OF 5
Cash flows from operating activities:
Cash provided by operating activities
Cash flows from investing activities:
Acquisitions/dispositions, net of cash acquired/divested
Net payments to subsidiaries
Purchases of equity securities
Cash used for investing activities
Cash flows from financing activities:
Net proceeds from issuance of unsecured senior notes
Repayment of senior unsecured notes
Net activity related to noncontrolling interests
Net proceeds in connection with share-based
compensation
Repurchases of Company shares
Payments of cash dividends
Cash (used for) provided by financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents—Beginning of period
Cash and cash equivalents—End of period
$
2023
Year Ended December 31,
2022
2021
$
309.0
$
778.7
$
641.4
(2.5)
(160.8)
(25.0)
(188.3)
—
(250.0)
0.3
0.4
(72.7)
(216.6)
(538.6)
(417.9)
597.2
179.3
$
(296.0)
(154.6)
—
(450.6)
—
—
—
2.5
(440.7)
(217.5)
(655.7)
(327.6)
924.8
597.2
$
—
(259.5)
—
(259.5)
641.9
—
—
6.3
(99.2)
(213.0)
336.0
717.9
206.9
924.8
See Notes to Condensed Financial Statements
98
FIRST AMERICAN FINANCIAL CORPORATION
(Parent Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SCHEDULE II
5 OF 5
NOTE 1. Description of the Company:
First American Financial Corporation is a holding company that conducts all of its operations through its subsidiaries.
The Parent Company financial statements should be read in connection with the consolidated financial statements and notes
thereto included elsewhere in this Form 10-K.
NOTE 2. Dividends Received:
The holding company received cash dividends from subsidiaries of $355.6 million, $731.0 million and $624.4 million
for the years ended December 31, 2023, 2022 and 2021, respectively.
99
SCHEDULE III
1 OF 2
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
SUPPLEMENTARY INSURANCE INFORMATION
(in millions)
BALANCE SHEET CAPTIONS
Column A
Segment
2023
Title Insurance and Services
Home Warranty
Corporate and Eliminations
Total
2022
Title Insurance and Services
Home Warranty
Corporate and Eliminations
Total
Column B
Deferred policy
acquisition costs
Column C
Claims
reserves
Column D
Deferred
revenues
$
$
$
$
— $
20.2
—
20.2
$
— $
20.0
—
20.0
$
1,242.0
15.7
24.7
1,282.4
1,269.3
19.5
36.5
1,325.3
$
$
$
$
3.9
192.9
—
196.8
6.8
190.1
—
196.9
100
SCHEDULE III
2 OF 2
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
SUPPLEMENTARY INSURANCE INFORMATION
(in millions)
INCOME STATEMENT CAPTIONS
Column A
Column F
Column G
Column H
Premiums
and escrow
fees
Net
investment
income (1)
Loss
provision
Column I
Amortization
of deferred
policy
acquisition
costs (credits)
Column J
Column K
Other
operating
expenses
Premiums
written
Segment
2023
Title Insurance and Services
Home Warranty
Corporate and Eliminations
Total
2022
Title Insurance and Services
Home Warranty
Corporate and Eliminations
Total
2021
Title Insurance and Services
Home Warranty
Corporate and Eliminations
Total
$
$
$
$
$
$
4,305.7
395.6
0.1
4,701.4
6,210.5
413.1
8.8
6,632.4
6,858.0
399.8
97.7
7,355.5
$
$
$
$
$
$
502.0
(0.1)
(138.3)
363.6
$
$
$
209.3
(7.4)
(377.6)
(175.7) $
259.9
11.2
379.3
650.4
$
$
139.9
193.1
3.3
336.3
248.4
211.8
26.1
486.3
274.4
218.2
96.1
588.7
$
$
$
$
$
$
— $
(0.2)
—
(0.2)
$
— $
1.9
2.4
4.3
$
— $
(5.3)
16.1
10.8
$
937.7
82.8
46.5
1,067.0
1,155.4
75.7
41.2
1,272.3
1,197.7
61.5
63.7
1,322.9
$
$
$
$
$
$
—
398.4
—
398.4
—
394.9
(1.0)
393.9
—
412.6
37.3
449.9
(1) Includes net investment income and net investment gains (losses).
101
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
REINSURANCE
(dollars in millions)
Segment
Title Insurance and Services
2023
2022
2021
Home Warranty
2023
2022
2021
Corporate and Eliminations
2023
2022
2021
Premiums
and escrow
fees before
reinsurance
Ceded to
other
companies
Assumed
from
other
companies
Premiums
and escrow
fees
$
$
$
$
$
$
$
$
$
4,321.2
6,228.2
6,880.0
395.6
413.1
399.8
0.1
9.4
103.5
$
$
$
$
$
$
$
$
$
17.6
18.9
22.0
$
$
$
— $
— $
— $
— $
$
0.6
$
5.8
$
2.1
1.2
$
— $
— $
— $
— $
— $
— $
— $
4,305.7
6,210.5
6,858.0
395.6
413.1
399.8
0.1
8.8
97.7
SCHEDULE IV
1 OF 1
Percentage of
amount
assumed to
premiums
and escrow
fees
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
102
SCHEDULE V
1 OF 3
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
VALUATION AND QUALIFYING ACCOUNTS
(in millions)
Year Ended December 31, 2023
Column A
Description
Reserve deducted from accounts receivable:
Consolidated
Reserve for known and incurred but not reported
claims:
Consolidated
Reserve deducted from notes receivable:
Consolidated
Reserve deducted from deferred income taxes:
Consolidated
$
$
$
$
Column B
Balance at
beginning
of period
Column C
Additions
Column D
Column E
Charged to
costs and
expenses
Charged
to other
accounts
Deductions
from
reserve
Balance
at end
of period
21.3
$
8.1
$
— $
7.6 (1) $
21.8
1,325.3
6.8
7.4
$
$
$
336.3
$
2.6
$
381.8 (2) $
1,282.4
— $
— $
7.6
$
— $
6.5
1.3
$
$
0.3
13.7
(1) Amount represents accounts written off, net of recoveries.
(2) Amount represents claim payments, net of recoveries.
103
SCHEDULE V
2 OF 3
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
VALUATION AND QUALIFYING ACCOUNTS
(in millions)
Year Ended December 31, 2022
Column A
Description
Reserve deducted from accounts receivable:
Consolidated
Reserve for known and incurred but not reported
claims:
Consolidated
Reserve deducted from notes receivable:
Consolidated
Reserve deducted from deferred income taxes:
Consolidated
$
$
$
$
Column B
Balance at
beginning
of period
Column C
Additions
Column D
Column E
Charged to
costs and
expenses
Charged
to other
accounts
Deductions
from
reserve
Balance
at end
of period
14.0
$
11.4
$
— $
4.1 (1) $
21.3
(10.5) $
434.3 (2) $
1,325.3
486.3
27.7
$
$
1,283.8
0.3
8.1
$
$
$
— $
21.2
$
$
6.8
7.4
— $
— $
0.7
(1) Amount represents accounts written off, net of recoveries.
(2) Amount represents claim payments, net of recoveries.
104
SCHEDULE V
3 OF 3
FIRST AMERICAN FINANCIAL CORPORATION
AND SUBSIDIARY COMPANIES
VALUATION AND QUALIFYING ACCOUNTS
(in millions)
Year Ended December 31, 2021
Column A
Description
Reserve deducted from accounts receivable:
Consolidated
Reserve for known and incurred but not reported
claims:
Consolidated
Reserve deducted from notes receivable:
Consolidated
Reserve deducted from deferred income taxes:
Consolidated
$
$
$
$
Column B
Balance at
beginning
of period
Column C
Additions
Column D
Column E
Charged to
costs and
expenses
Charged
to other
accounts
Deductions
from
reserve
Balance
at end
of period
14.0
$
4.5
$
— $
4.5 (1) $
14.0
1,178.0
0.3
9.4
$
$
$
588.7
$
(0.6) $
482.3 (2) $
1,283.8
— $
— $
— $
— $
—
1.3
$
$
0.3
8.1
(1) Amount represents accounts written off, net of recoveries.
(2) Amount represents claim payments, net of recoveries.
105
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
The Company’s chief executive officer and chief financial officer have concluded that, as of December 31, 2023, the end
of the fiscal year covered by this Annual Report on Form 10-K, the Company’s disclosure controls and procedures, as defined
in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, were effective, based on the evaluation of these controls
and procedures required by Rule 13a-15(b) thereunder.
Management’s Annual Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial
reporting. The Company’s internal control over financial reporting has been designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles (“GAAP”).
The Company’s internal control over financial reporting includes policies and procedures that pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets of the Company; provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with GAAP, and that receipts and expenditures are being made only in accordance with authorization of management and
directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s consolidated
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31,
2023. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”) in Internal Control—Integrated Framework (2013). Based on that assessment under the
framework in Internal Control—Integrated Framework (2013), management determined that, as of December 31, 2023, the
Company’s internal control over financial reporting was effective.
PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited the Company’s
consolidated financial statements provided in Item 8, above, has issued a report on the Company’s internal control over financial
reporting.
Changes in Internal Control Over Financial Reporting
There was no change in the Company’s internal control over financial reporting during the quarter ended December 31,
2023, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial
reporting.
Item 9B. Other Information
(a)
On February 20, 2024, the Company entered into amended and restated employment agreements with Kenneth D.
DeGiorgio, Mark E. Seaton and Lisa W. Cornehl. Pursuant to the amendments, the term of each of the revised agreements was
extended by one year and now expires on December 31, 2026. Each of the revised agreements incorporates the executive’s
base salary at the time of the approval of the extension. The description of the amended and restated employment agreements
106
provided herein is qualified in its entirety by reference to the employment agreements, which are attached hereto as Exhibits
10.6 to 10.8.
(b)
During the quarter ended December 31, 2023, no director or Section 16 officer informed the Company of the adoption
or termination of any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements (in each case, as defined in
Item 408(a) of Regulation S-K).
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
107
PART III
The information required by Items 10 through 14 of this report is expected to be set forth in the definitive proxy statement
to be filed with the Securities and Exchange Commission within 120 days after the fiscal year ended December 31, 2023 for
the Company’s upcoming 2024 meeting of stockholders (the “2024 Proxy Statement”). If the 2024 Proxy Statement is not
filed within 120 days after the fiscal year ended December 31, 2023, the Company will file an amendment to this Annual Report
on Form 10-K to include the information required by Items 10 through 14.
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item will be set forth under the captions “Information Regarding the Nominees for
Election,” “Information Regarding the Other Incumbent Directors,” “Executive Officers,” “Delinquent Section 16(a) Reports,”
if any, “Code of Ethics” and “Board and Committee Meetings” in the 2024 Proxy Statement and is incorporated herein by
reference.
Item 11. Executive Compensation
The information required by this Item will be set forth under the captions “Executive Compensation,” “Compensation
Discussion and Analysis,” “Executive Compensation Tables,” “Pay Versus Performance,” “Clawback Policy Actions,”
“Director Compensation,” “Compensation Committee Report” and “Compensation Committee Interlocks and Insider
Participation” in the 2024 Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item will be set forth under the captions “Securities Authorized for Issuance under
Equity Compensation Plans,” “Who are the largest principal stockholders outside of management?” and “Security Ownership
of Management” in the 2024 Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item will be set forth under the captions “Independence of Directors” and “Transactions
and Litigation with Management and Others” in the 2024 Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information required by this Item will be set forth under the captions “Principal Accountant Fees and Services” and
“Policy on Audit Committee Pre-approval of Audit and Permissible Nonaudit Services of Independent Auditor” in the 2024
Proxy Statement and is incorporated herein by reference.
108
Item 15. Exhibits and Financial Statement Schedules
(a ) 1. & 2. Financial Statements and Financial Statement Schedules
PART IV
The Financial Statements and Financial Statement Schedules filed as part of this report are listed in the
accompanying index at page 46 in Item 8 of Part II of this report.
3.
Exhibits. Each management contract or compensatory plan or arrangement in which any director or named
executive officer of First American Financial Corporation, as defined by Item 402(a)(3) of Regulation S-K (17
C.F.R. §229.402(a)(3)), participates that is included among the exhibits listed on the Exhibit Index is identified
on the Exhibit Index by an asterisk (*).
Exhibit No.
Description
Location
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
Amended and Restated Certificate of Incorporation of
First American Financial Corporation dated May 28,
2010.
Incorporated by reference herein to Exhibit 3.1 to
the Current Report on Form 8-K filed June 1,
2010.
Bylaws of First American Financial Corporation,
amended and restated effective as of November 7,
2023.
Incorporated by reference herein to Exhibit 3.1 to
the Current Report on Form 8-K filed November
9, 2023.
Description of the Registrant's Securities.
Indenture, dated as of January 24, 2013, between First
American Financial Corporation and U.S. Bank
National Association, as Trustee.
Incorporated by reference herein to Exhibit 4.1 to
the Annual Report on Form 10-K for the year
ended December 31, 2022.
Incorporated by reference herein to Exhibit 4.1 to
the Form S-3ASR filed January 24, 2013.
First Supplemental Indenture, dated as of January 29,
2013, between First American Financial Corporation
and U.S. Bank National Association, as Trustee.
Incorporated by reference herein to Exhibit 4.2 to
the Current Report on Form 8-K filed January 29,
2013.
Second Supplemental Indenture, dated as of November
10, 2014, between First American Financial
Corporation and U.S. Bank National Association, as
Trustee.
Incorporated by reference herein to Exhibit 4.2 to
the Current Report on Form 8-K filed November
10, 2014.
Third Supplemental Indenture, dated as of May 15,
2020, between First American Financial Corporation
and U.S. Bank National Association, as Trustee.
Incorporated by reference herein to Exhibit 4.2 to
the Current Report on Form 8-K filed May 15,
2020.
Fourth Supplemental Indenture, dated as of August 3,
2020, between First American Financial Corporation
and U.S. Bank National Association, as Trustee.
Incorporated by reference herein to Exhibit 4.2 to
the Current Report on Form 8-K filed August 3,
2021.
Form of 4.60% Senior Notes due 2024.
Form of 4.00% Senior Notes due 2030.
Form of 2.40% Senior Notes due 2031.
10.1
Credit Agreement dated as of May 17, 2023, among
First American Financial Corporation, the Lenders
109
Incorporated by reference herein to Exhibit A of
Exhibit 4.2 to the Current Report on Form 8-K
filed November 10, 2014.
Incorporated by reference herein to Exhibit A to
Exhibit 4.2 to the Current Report on Form 8-K
filed May 15, 2020.
Incorporated by reference herein to Exhibit A to
Exhibit 4.2 to the Current Report on Form 8-K
filed August 3, 2021.
Incorporated by reference herein to Exhibit 10.1 to
the Quarterly Report on Form 10-Q for the quarter
ended June 30, 2023.
Exhibit No.
Description
Location
party thereto and JPMorgan Chase Bank, N.A., as
Administrative Agent.
*10.2
*10.2.1
*10.3
*10.3.1
*10.3.2
*10.4
*10.4.1
*10.5
*10.5.1
*10.5.2
*10.5.3
*10.5.4
*10.5.5
*10.5.6
First American Financial Corporation Executive
Supplemental Benefit Plan, amended and restated
effective as of January 1, 2011.
Incorporated by reference herein to Exhibit 10.12
to the Annual Report on Form 10-K for the year
ended December 31, 2010.
Amendment No. 1, dated January 21, 2015, to First
American Financial Corporation Executive
Supplemental Benefit Plan.
Incorporated by reference herein to Exhibit 10.5.1
to the Annual Report on Form 10-K for the fiscal
year ended December 31, 2014.
First American Financial Corporation Deferred
Compensation Plan, amended and restated effective as
of January 1, 2012.
Incorporated by reference herein to Exhibit 10.13
to the Annual Report on Form 10-K for the year
ended December 31, 2011.
First Amendment, effective July 1, 2015, to the First
American Financial Corporation Deferred
Compensation Plan.
Incorporated by reference herein to Exhibit 10.1 to
the Quarterly Report on Form 10-Q for the quarter
ended June 30, 2015.
Second Amendment, effective July 1, 2017, to the First
American Financial Corporation Deferred
Compensation Plan.
Incorporated by reference herein to Exhibit 10.2 to
the Quarterly Report on Form 10-Q for the quarter
ended June 30, 2017.
First American Financial Corporation 2010 Incentive
Compensation Plan, amended and restated effective as
of February 4, 2019.
Incorporated by reference herein to Exhibit 10.6 to
the 10-K for the fiscal year ended December 31,
2018.
Form of Notice of Restricted Stock Unit Grant
(Employee) and Restricted Stock Unit Award
Agreement (Employee), approved January 21, 2020.
Incorporated by reference herein to Exhibit 10.6.7
to the Annual Report on Form 10-K for the fiscal
year ended December 31, 2019.
First American Financial Corporation 2020 Incentive
Compensation Plan, as amended and restated effective
May 9, 2023.
Incorporated by reference herein to Appendix B to
the Proxy Statement on Schedule 14A filed April
6, 2023.
Form of Notice of Restricted Stock Unit Grant (Non-
Employee Director) and Restricted Stock Unit Award
Agreement (Non-Employee Director) for Non-
Employee Director Restricted Stock Unit Award
approved February 2, 2022.
Incorporated by reference herein to Exhibit 10.6.2
to the Annual Report on Form 10-K for the fiscal
year ended December 31, 2021.
Form of Notice of Restricted Stock Unit Grant
(Employee) and Restricted Stock Unit Award
Agreement (Employee), approved February 2, 2022.
Incorporated by reference herein to Exhibit 10.6.4
to the Annual Report on Form 10-K for the fiscal
year ended December 31, 2021.
Form of Performance Restricted Stock Unit Grant
(Employee) and Performance Restricted Stock Unit
Award Agreement (Employee), approved February 2,
2022.
Form of Notice of Restricted Stock Unit Grant (Non-
Employee Director) and Restricted Stock Unit Award
Agreement (Non-Employee Director) for Non-
Employee Director Restricted Stock Unit Award
approved January 17, 2023.
Incorporated by reference herein to Exhibit 10.6.5
to the Annual Report on Form 10-K for the fiscal
year ended December 31, 2021.
Incorporated by reference herein to Exhibit 10.5.6
to the Annual Report on Form 10-K for the fiscal
year ended December 31, 2022.
Form of Notice of Restricted Stock Unit Grant
(Employee) and Restricted Stock Unit Award
Agreement (Employee), approved January 17, 2023.
Incorporated by reference herein to Exhibit 10.5.7
to the Annual Report on Form 10-K for the fiscal
year ended December 31, 2022.
Form of Performance Restricted Stock Unit Grant
(Employee) and Performance Restricted Stock Unit
Award Agreement (Employee), approved January 17,
2023.
Incorporated by reference herein to Exhibit 10.5.8
to the Annual Report on Form 10-K for the fiscal
year ended December 31, 2022.
110
Exhibit No.
*10.5.7
*10.5.8
*10.5.9
*10.6
*10.7
*10.8
*10.9
21
23
31(a)
31(b)
32(a)
32(b)
97
Description
Location
Form of Notice of Restricted Stock Unit Grant (Non-
Employee Director) and Restricted Stock Unit Award
Agreement (Non-Employee Director) for Non-
Employee Director Restricted Stock Unit Award
approved January 16, 2024.
Form of Notice of Restricted Stock Unit Grant
(Employee) and Restricted Stock Unit Award
Agreement (Employee), approved January 16, 2024.
Form of Performance Restricted Stock Unit Grant
(Employee) and Performance Restricted Stock Unit
Award Agreement (Employee), approved January 16,
2024.
Employment Agreement, dated February 20, 2024,
between First American Financial Corporation and
Kenneth D. DeGiorgio.
Employment Agreement, dated February 20, 2024,
between First American Financial Corporation and
Mark E. Seaton.
Employment Agreement, dated February 20, 2024,
between First American Financial Corporation and
Lisa W. Cornehl.
Attached.
Attached.
Attached.
Attached.
Attached.
Attached.
First American Financial Corporation Form of
Amended and Restated Change in Control Agreement
as of December 31, 2010.
Incorporated by reference herein to Exhibit 10(c)
to the Quarterly Report on Form 10-Q for the
quarter ended September 30, 2010.
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting
Firm.
Certification by Chief Executive Officer Pursuant to
Rule 13a-14(a) under the Securities Exchange Act of
1934.
Certification by Chief Financial Officer Pursuant to
Rule 13a-14(a) under the Securities Exchange Act of
1934.
Certification by Chief Executive Officer Pursuant to
18 U.S.C. Section 1350.
Certification by Chief Financial Officer Pursuant to 18
U.S.C. Section 1350.
Policy Governing the Recovery of Certain Incentive
Compensation.
Attached.
Attached.
Attached.
Attached.
Attached.
Attached.
Attached.
N/A.
101.INS
Inline XBRL Instance Document. The instance
document does not appear in the Interactive Data File
because its XBRL tags are embedded within the Inline
XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema with
Embedded Linkbases Document.
Attached.
104
Cover Page Interactive Data File (formatted as Inline
XBRL and contained in Exhibit 101).
N/A.
111
Item 16. Form 10-K Summary
None.
112
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
FIRST AMERICAN FINANCIAL CORPORATION
(Registrant)
By
By
/S/ KENNETH D. DEGIORGIO
Kenneth D. DeGiorgio
Chief Executive Officer
(Principal Executive Officer)
Date: February 20, 2024
/S/ MARK E. SEATON
Mark E. Seaton
Executive Vice President,
Chief Financial Officer
(Principal Financial Officer)
Date: February 20, 2024
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/S/ KENNETH D. DEGIORGIO
Kenneth D. DeGiorgio
/S/ MARK E. SEATON
Mark E. Seaton
/S/ STEVEN A. ADAMS
Steven A. Adams
Chief Executive Officer and Director
(Principal Executive Officer)
February 20, 2024
Executive Vice President, Chief Financial
Officer (Principal Financial Officer)
February 20, 2024
Chief Accounting Officer
(Principal Accounting Officer)
February 20, 2024
/S/ DENNIS J. GILMORE
Chairman of the Board of Directors
February 20, 2024
Dennis J. Gilmore
/S/ JAMES L. DOTI
Director
February 20, 2024
James L. Doti
/S/ REGINALD H. GILYARD
Director
February 20, 2024
Reginald H. Gilyard
/S/ PARKER S. KENNEDY
Director
February 20, 2024
Parker S. Kennedy
/S/ MARGARET M. MCCARTHY
Director
February 20, 2024
Margaret M. McCarthy
/S/ MICHAEL D. MCKEE
Director
February 20, 2024
Michael D. McKee
/S/ MARK C. OMAN
Director
February 20, 2024
Mark C. Oman
113
Signature
Title
/S/ MARSHA A. SPENCE
Director
Date
February 20, 2024
Marsha A Spence
/S/ MARTHA B. WYRSCH
Director
February 20, 2024
Martha B. Wyrsch
114