Separation. The technology center referred to above is primarily utilized and maintained by the Company but also houses physically segregated servers belonging to CoreLogic which are maintained by CoreLogic.
For recent policy years at early stages of development (generally the last three years), IBNR is estimated by applying an expected loss rate to total title insurance premiums and escrow fees and adjusting for policy year maturity using the estimated loss development patterns. The expected loss rate and patterns are based on historical experience and the relationship of the history to the applicable policy years. This is a generally accepted actuarial method of determining IBNR for policy years at early development ages. IBNR calculated in this way differs from the IBNR that a multiplicative loss development factor calculation would produce. Factor-based development effectively extrapolates results to date forward through the lifetime of the policy year’s development.
Agent premiums decreased 1.7% in 2011 from 2010 and 0.4% in 2010 from 2009. 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 one quarter delay between the agent’s issuance of a title policy and the Company’s recognition of agent premiums. Therefore, full year agent premiums primarily reflect mortgage origination activity from the fourth quarter of the prior year through the third quarter of the current year. The decreases were primarily due to the same factors impacting direct title operations offset in part by increases in market share. According to the American Land Title Association’s most recent available market share data, the Company’s agency market share was 15.6%, 15.2% and 15.0% for the nine months ended September 30, 2011 and for the years ended December 31, 2010 and 2009, respectively. The Company analyzes the terms and profitability of its title agency relationships and works to amend agent agreements where appropriate. Amendments that are sought include, among others, changing the percentage of premiums retained by the agent and the deductible paid by the agent on claims; if appropriate changes to the agreements cannot be made, the Company may elect to terminate certain agreements.
contribution to pretax profits, and changes in the liability related to tax positions reported on the Company’s tax returns. In addition, the effective tax rate for 2010 reflects the release of a valuation allowance recorded against capital losses.
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, 2011 and 2010, the fair value of such investments totaled $149.9 million and $134.6 million, respectively. See Note 2 Statutory Restrictions on Investments and Stockholders’ Equity to the consolidated financial statements for additional discussion of the Company’s statutory restrictions.
In addition, the Company carries long-lived assets held for sale at the lower of cost or market as of the date that certain criteria have been met. As of December 31, 2011 and 2010 no long-lived assets were classified as held for sale.
The Company assumes and cedes large title insurance risks through the mechanism of reinsurance. Additionally, the Company’s property and casualty insurance business uses reinsurance to limit risk associated
Real estate loans are collateralized by properties located primarily in Southern California. The average yield on the loan portfolio was 6.51% and 6.69% for the years ended December 31, 2011 and 2010, respectively. Average yields are affected by prepayment penalties recorded as income, prepayment speeds, loan fees amortized to income and the market interest rates.
Aging analysis of loans and notes receivables at December 31, 2010, is as follows:
At December 31, 2011 and 2010, the Company had a net payable to CoreLogic of $35.4 million and $61.5 million, respectively, related to tax matters prior to the Separation. This amount is included in the Company’s consolidated balance sheet in due to CoreLogic, net. During 2011, the Company recorded a $5.2 million increase
The Company’s potential dilutive securities are stock options and RSUs. Stock options and RSUs are reflected in diluted net income per share attributable to the Company’s stockholders by application of the treasury-stock method. There are no reconciling items for net income attributable to the Company for the three years ended December 31, 2011 necessary for the diluted net income per share attributable to the Company’s stockholders calculation. A reconciliation of weighted-average shares outstanding is as follows:
CoreLogic who had previously participated in TFAC’s 401(k) Savings Plan were transferred to the CoreLogic, Inc. 401(k) Savings Plan.
The Company assumed TFAC’s defined benefit pension plan, which was closed to new entrants effective December 31, 2001 and amended to “freeze” all benefit accruals as of April 30, 2008. The Company assumed the entire benefit obligation and all the plan assets associated with the defined benefit pension plan, including the portion attributable to participants who were employees of the businesses retained by CoreLogic in connection with the Separation, and CoreLogic issued a $19.9 million note payable to the Company which approximated the unfunded portion of the benefit obligation attributable to those participants. In September 2011, the Company received $17.3 million from CoreLogic in satisfaction of the remaining balance of the note. See Note 19 Transactions with CoreLogic/TFAC to the consolidated financial statements for further discussion of this note receivable from CoreLogic.
Prior to the Separation, the Company participated in TFAC’s share-based compensation plans and the Company’s employees were issued TFAC equity awards. The equity awards consisted of RSUs and stock options. At the date of the Separation, TFAC’s outstanding equity awards for employees of the Company and former employees of its businesses were converted into equity awards of the Company with adjustments to the number of shares underlying each such award and, with respect to options, adjustments to the per share exercise price of each such award, to maintain the pre-separation value of such awards. No material changes were made to the vesting terms or other terms and conditions of the awards. As the post-separation value of the equity awards
Separation, and $57.0 million for the year ended December 31, 2009, which are included within the investment income, net realized investment losses, personnel costs, other operating expenses, depreciation and amortization and interest expense line items in the accompanying consolidated statements of income.
The change in net unrealized gains on securities includes reclassification adjustments of $11.0 million, $12.5 million and $16.0 million of net realized gains on debt and equity securities for the years ended December 31, 2011, 2010 and 2009, respectively.
Raffone v. First American Title Insurance Company, filed on February 14, 2004 and pending in the Circuit Court, Nassau County, Florida,
Edwards v. First American Financial Corporation, filed on June 12, 2007 and pending in the United States District Court for the Central District of California, and
McCray v. First American Title Insurance Company, et al., filed October 15, 2008 and pending in the United States District Court for the District of Delaware and
Carrera v. First American Home Buyers Protection Corporation, filed on September 23, 2009 and pending in the Superior Court of the State of California, County of Los Angeles,
During the year ended December 31, 2011, the Company completed three acquisitions for an aggregate purchase price of $2.1 million in cash and contingent consideration of $2.5 million. The purchase price of each acquisition was allocated to the assets acquired and liabilities assumed using a variety of valuation techniques including discounted cash flow analysis. These three acquisitions have been included in the Company’s title insurance and services segment.
The corporate function consists primarily of certain financing facilities as well as the corporate services that support the Company’s business operations. Eliminations consist of inter-segment revenues and related expenses included in the results of the operating segments. The Company did not record inter-segment eliminations for the year ended December 31, 2009, as there was no inter-segment income or expense.