First American Financial Corp Q4 FY2025 earnings call

• Commercial market: Revenue grew 35% in the fourth quarter with improvement in 9 of 11 tracked asset classes; price stability, increased sales volumes, commercial lending, and refinance activity (refinance premiums reaching ~40% of commercial premiums) were driving factors. • Residential market: Challenging with low existing home sales; launched Endpoint, an AI-powered escrow, with 153 orders opened and 47 closed in one office, planning national rollout over the next two years. • Technology initiatives: Launched enhanced AI-powered Sequoia title production engine for refinance, with 40% automation rates in Phoenix and Southern California markets, planning to roll out purchase capabilities by Q2 and national rollout by 2027; Owner’s Portal has 53,000 users, growing 580% over the last quarter; First American Trust launched 1031 exchange product with $300 million in deposits and expected growth to $1 billion by year-end.

In the Title segment, adjusted revenue was $1.99 billion, up 14% compared to the fourth quarter of 2024. Commercial revenue was $339 million, a 35% increase over the prior year, with closed orders up 10% and average revenue per order up 22% to $18,600 per closing. Purchase revenue was down 4% during the quarter, driven by a 7% decline in closed orders, partially offset by a 4% improvement in the average revenue per order. Refinance revenue was up 47% compared with the prior year, driven by a 44% increase in closed orders and a 2% increase in the average revenue per order. The Home Warranty segment had total revenue of $110 million this quarter, up 7% compared with the previous year, with a loss ratio of 40%, down from 44% in 2024.

• Expect growth across major revenue drivers in 2026; commercial is expected to be a record year, exceeding the 2022 peak. • Purchase is expected to grow 7%-8% as the rate lock-in effect fades and affordability improves. • Refinance open orders were up 72% in January, with optimism due to recent mortgage rate drop; plan to roll out Endpoint nationally over the next two years and Sequoia AI purchase capabilities by Q2, with broader national rollout by 2027.

• Risks and uncertainties exist that may cause results to differ materially from forward-looking statements, including factors discussed in the Form 10-K and subsequent SEC filings; potential impact of interest rate changes, market uncertainties, and regulatory changes.

Q: Bose Thomas George asked about commercial growth potential in 2026 and the contribution of data centers to commercial premiums.

A: Mark Edward Seaton said commercial has broad-based strength with momentum, data centers contributed approximately 10% of premiums last year, and the first six weeks of 2026 look good for commercial but no specific number was given.

Q: Terry Ma asked about the impact of Sequoia and Endpoint on margin.

A: Mark Edward Seaton said the margin drag from legacy platforms will gradually alleviate as investing in modern platforms, with the success ratio improvement showing some effect.

Q: Mark Hughes asked about the drivers of the 90 basis points organic market share gain.

A: Mark Edward Seaton said the gain came from growth in the agency division and commercial market share.

Q: Geoffrey Dunn asked about the outlook for refi ARPU and purchase ARPU.

A: Matthew Feivish Wajner said refi ARPU was up, and purchase ARPU was expected to moderate in 2026.

Q: Oscar Nieves asked about the drivers of the Title segment's adjusted pre-tax margin and the impact of tech investments.

A: Mark Edward Seaton said commercial tailwinds, expense control, and mix contributed to the margin, with tech investments having long-term margin improvement potential.

Q: Geoffrey Dunn asked about balance sheet strength and capital return in relation to commercial deals.

A: Mark Edward Seaton said big commercial deals don't prevent maximizing dividends, with a robust reinsurance program.

Q: Geoffrey Dunn asked about margin improvement from the tech rollout.

A: Mark Edward Seaton said the improvement will be gradual.

Q: John Campbell asked about the expectation for the loss provision.

A: Matthew Feivish Wajner said the loss provision was expected to remain steady near the normalized rate.

Q: Maxwell Fritscher asked about the commercial refi tailwind.

A: Mark Edward Seaton said shorter loan durations due to rates created a refi tailwind for commercial.

Q: Geoffrey Dunn asked about the impact of the Texas title insurance rate reduction.

A: Matthew Feivish Wajner said the rate reduction would lower the Title segment's revenue and net operating revenue by approximately 50 basis points if volumes stayed similar to 2025.

Q: Craig J. Barberio asked about potential changes to title insurance from D.C.

A: Mark Edward Seaton said no new noteworthy changes to title insurance directly known were heard.