First American Financial Corp

Previous wording

This Management’s Discussion and Analysis contains the financial measure adjusted debt to capitalization ratio that is not presented in accordance with generally accepted accounting principles (“GAAP”) as it excludes the effects of secured financings payable and accumulated other comprehensive loss. The Company is presenting this non-GAAP financial measure because it provides the Company’s management and readers of this Annual Report on Form 10-K with additional insight into the financial leverage of the Company. The Company does not intend for this non-GAAP financial measure to be a substitute for any GAAP financial information. In this Annual Report on Form 10-K, this non-GAAP financial measure has been presented with, and reconciled to, the most directly comparable GAAP financial measure. Readers of this Annual Report on Form 10-K should use this non-GAAP financial measure only in conjunction with the comparable GAAP financial measure. 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.

Current wording

This Management’s Discussion and Analysis contains the financial measure adjusted debt to capitalization ratio that is not presented in accordance with generally accepted accounting principles (“GAAP”) as it excludes the effects of secured financings payable. The Company is presenting this non-GAAP financial measure because it provides the Company’s management and readers of this Annual Report on Form 10-K with additional insight into the financial leverage of the Company. The Company does not intend for this non-GAAP financial measure to be a substitute for any GAAP financial information. In this Annual Report on Form 10-K, this non-GAAP financial measure has been presented with, and reconciled to, the most directly comparable GAAP financial measure. Readers of this Annual Report on Form 10-K should use this non-GAAP financial measure only in conjunction with the comparable GAAP financial measure. 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.

Previous wording

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, South Korea, Australia, New Zealand and various other established and emerging markets.

Current wording

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, various countries in Europe, South Korea, Australia and New Zealand.

Previous wording

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.

Current wording

For recent policy years at early stages of development (generally the last four to five 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.

Previous wording

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.

Current wording

The Company’s management uses the IBNR point estimate from the in-house actuary’s analysis and other relevant information concerning claims, including a range of IBNR reserve estimates, to determine what it considers to be the best estimate of the total amount required for the IBNR reserve.

Previous wording

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 $159.0 million, and if expected ultimate losses for those same years were to fluctuate by 100 basis points, the resulting impact would be $318.0 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.

Current wording

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 $162.7 million, and if expected ultimate losses for those same years were to fluctuate by 100 basis points, the resulting impact would be $325.4 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.

Previous wording

The provisions for title insurance losses, expressed as a percentage of title insurance premiums and escrow fees, were 3.0%, 3.25% and 4.0% for the years ended December 31, 2024, 2023 and 2022, respectively. The 3.0% 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 0.75%, or $34.6 million and for prior policy years, all of which are based on title insurance premiums and escrow fees for the year ended December 31, 2024.

Current wording

The provisions for title insurance losses, expressed as a percentage of title insurance premiums and escrow fees, were 3.0% for the years ended December 31, 2025 and 2024 and 3.25% for the year ended December 31, 2023. The 3.0% 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 0.75%, or $39.8 million, for prior policy years, all of which are based on title insurance premiums and escrow fees for the year ended December 31, 2025.

Previous wording

The provision in 2024 related to current year increased by $11.4 million, or 7.1%, from 2023 as a result of increases in title premiums and escrow fees in 2024 from 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.

Current wording

The provision in 2025 related to current year increased by $26.1 million, or 15.1%, from 2024 as a result of increases in title premiums and escrow fees in 2025 from 2024. The provision in 2024 related to current year increased by $11.4 million, or 7.1%, from 2023 as a result of increases in title premiums and escrow fees in 2024 from 2023.

Previous wording

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.

Current wording

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 and corporate reporting units have no allocated goodwill and are, 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.

Previous wording

The Company’s total revenues for 2024 were $6.1 billion, which reflected an increase of $124.6 million, or 2.1%, when compared with $6.0 billion for 2023. This increase was primarily attributable to increases in direct premiums and escrow fees of $193.9 million, or 8.6%, agent premiums of $112.6 million, or 4.6%, and information and other revenue of $22.3 million, or 2.4%. The Company’s total revenues for 2024 also included $401.6 million of net investment losses compared to $206.4 million of net investment losses for the prior year. The increase in direct premiums and escrow fees attributable to the title insurance and services segment for 2024 totaled $191.9 million, or 10.3%, which included increases from domestic residential refinance transactions, residential purchase transactions and domestic commercial transactions of $13.0 million, or 15.9%, $56.6 million, or 6.3% and $103.8 million, or 15.8%, respectively, in 2024, when compared to 2023.

Current wording

The Company’s total revenues for 2025 were $7.5 billion, which reflected an increase of $1.3 billion, or 21.6%, when compared with $6.1 billion for 2024. This increase was primarily attributable to increases in direct premiums and escrow fees of $316.7 million, or 12.9%, agent premiums of $397.5 million, or 15.5%, and information and other revenue of $127.4 million, or 13.3%. The Company’s total revenues for 2025 also included $20.9 million of net investment gains compared to $401.6 million of net investment losses for the prior year. The increase in direct premiums and escrow fees attributable to the title insurance and services segment for 2025 totaled $299.2 million, or 14.6%, which included increases from domestic commercial and residential refinance transactions of $241.4 million, or 31.7%, and $39.7 million, or 42.1%, respectively, in 2025 when compared to 2024. Direct premiums and escrow fees from domestic residential purchase transactions decreased $21.5 million, or 2.2%, in 2025 when compared to 2024.

Previous wording

According to the Mortgage Bankers Association’s January 19, 2025 Mortgage Finance Forecast (the “MBA Forecast”), based on the total dollar value of the transactions, residential mortgage originations in the United States increased 22.0%, purchase originations increased 4.0% and refinance originations increased 124.2% in 2024, when compared to 2023. This volume of domestic residential mortgage origination activity contributed to an increase in direct premiums and escrow fees for the Company’s direct title operations of 6.3% from domestic residential purchase transactions and a decrease of 15.9% from domestic refinance transactions in 2024, when compared to 2023.

Current wording

According to the Mortgage Bankers Association’s January 21, 2026 Mortgage Finance Forecast (the “MBA Forecast”), based on the total dollar value of the transactions, residential mortgage originations in the United States increased 21.6%, purchase originations increased 1.3% and refinance originations increased 99.4% in 2025, when compared to 2024. This volume of domestic residential mortgage origination activity contributed to an increase in direct premiums and escrow fees for the Company’s direct title operations of 42.1% from domestic residential refinance transactions and a decrease of 2.2% from domestic residential purchase transactions in 2025, when compared to 2024.

Previous wording

During 2024, the level of domestic title orders opened per day by the Company’s direct title operations were flat when compared to 2023. Also, during 2024, residential refinance opened orders per day, residential purchase opened orders per day and commercial opened orders per day increased by 20.2%, 1.4%, and 2.7%, respectively, when compared to 2023.

Current wording

During 2025, the level of domestic title orders opened per day by the Company’s direct title operations increased 11.0% when compared to 2024. Also, during 2025, residential refinance opened orders per day and commercial opened orders per day increased by 47.1% and 9.5%, respectively, while residential purchase opened orders per day decreased 3.1% when compared to 2024.

Previous wording

Direct premiums and escrow fees increased $191.9 million, or 10.3%, in 2024 from 2023 and decreased $806.5 million, or 30.3%, in 2023 from 2022. The increase in direct premiums and escrow fees in 2024 from 2023 was primarily due to increases in both domestic average revenue per order and the number of domestic title orders closed by the Company’s direct title operations. The decrease in 2023 from 2022 was primarily due to a reduction in the number of domestic title orders closed by the Company’s direct title operations, partially offset by an increase in domestic average revenue per order. The domestic average revenues per order closed were $3,914, $3,651 and $3,498 for 2024, 2023 and 2022, respectively. The 7.2% increase in average revenues per order closed in 2024 from 2023 was primarily due to increases in average revenues per order on commercial and purchase transactions, partially offset by a shift in the mix from higher premium commercial transactions to lower premium refinance transactions. The 4.4% increase in average revenues per order closed in 2023 from 2022 was due to a shift in the 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 Company’s direct title operations closed 468,800, 455,500 and 695,900 domestic title orders during 2024, 2023 and 2022, respectively. The 2.9% increase in orders closed in 2024 from 2023 and the 34.5% decrease in orders closed in 2023 from 2022 were generally consistent with the changes in residential mortgage origination activity in the United States as reported in the MBA Forecast.

Current wording

Direct premiums and escrow fees increased $299.2 million, or 14.6%, in 2025 from 2024 and $191.9 million, or 10.3%, in 2024 from 2023. The increases in 2025 from 2024 and 2024 from 2023 were primarily due to increases in the number of domestic title orders closed and the domestic average revenues per order. The domestic average revenues per order closed were $3,961, $3,817 and $3,502 for 2025, 2024 and 2023, respectively. The 3.8% increase in average revenues per order closed in 2025 from 2024 was due to an increase in average revenues per order on commercial and purchase transactions, partially offset by a shift in the mix from higher premium commercial transactions to lower premium refinance and default transactions. The 9.0% increase in average revenues per order closed in 2024 from 2023 was primarily due to increases in average revenues per order on commercial and purchase transactions, partially offset by a shift in the mix from higher premium commercial transactions to lower premium refinance transactions. The Company’s direct title operations closed 531,900, 480,700 and 474,900 domestic title orders during 2025, 2024 and 2023, respectively. The 10.7% increase in orders closed in 2025 from 2024 and the 1.2% increase in orders closed in 2024 from 2023 were generally consistent with the changes in residential mortgage origination activity in the United States as reported in the MBA Forecast.

Previous wording

Agent premiums increased $112.6 million, or 4.6%, in 2024 from 2023 and decreased $1.1 billion, or 31.0%, in 2023 from 2022. 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 increase in agent premiums in 2024 from 2023 was generally consistent with the 2.6% decrease in the Company’s direct premiums and escrow fees in the twelve months ended September 30, 2024 as compared with the twelve months ended September 30, 2023. 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.

Current wording

Agent premiums increased $397.5 million, or 15.5%, in 2025 from 2024 and $112.6 million, or 4.6%, in 2024 from 2023. 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 increase in agent premiums in 2025 from 2024 was generally consistent with the 17.0% increase in the Company’s direct premiums and escrow fees in the twelve months ended September 30, 2025 as compared with the twelve months ended September 30, 2024. The increase in agent premiums in 2024 from 2023 was generally consistent with the 2.6% decrease in the Company’s direct premiums and escrow fees in the twelve months ended September 30, 2024 as compared with the twelve months ended September 30, 2023.

Previous wording

Information and other revenues increased $21.1 million, or 2.3%, in 2024 from 2023 and decreased $210.0 million, or 18.6%, in 2023 from 2022. The increase in information and other revenues in 2024 from 2023 was primarily attributable to increased volume in the Company's commercial and international businesses. 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.

Current wording

Information and other revenues increased $112.3 million, or 12.0%, in 2025 from 2024 and $21.1 million, or 2.3%, in 2024 from 2023. The increase in information and other revenues in 2025 from 2024 was primarily attributable to an increase in refinance activity in the Company's Canadian operations, revenue growth in the Company's mortgage loan subservicing business and an increase in demand for the Company’s non-insured information products and services. The increase in information and other revenues in 2024 from 2023 was primarily attributable to increased volume in the Company's commercial and international businesses.

Previous wording

Net investment income decreased $5.9 million, or 1.1%, in 2024 from 2023 and increased $181.1 million, or 50.4%, in 2023 from 2022. The decrease in 2024 from 2023 was primarily attributable to declines in the Company’s escrow and tax-deferred property exchange balances, partially offset by an increase in interest income from the Company’s warehouse lending business and investment portfolio. 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.

Current wording

Net investment income increased $60.5 million, or 11.3%, in 2025 from 2024 and decreased $5.9 million, or 1.1%, in 2024 from 2023. The increase in 2025 from 2024 was primarily attributable to increases in interest income from the Company’s investment portfolio, partially offset by lower interest income from operating cash due to lower balances and the impact of lower short-term interest rates. The decrease in 2024 from 2023 was primarily attributable to declines in the Company’s escrow and tax-deferred property exchange balances, partially offset by an increase in interest income from the Company’s warehouse lending business and investment portfolio.

Previous wording

Net investment gains/losses totaled losses of $345.4 million for 2024 and were primarily attributable to losses realized from the Company’s investment portfolio rebalancing project discussed above and asset impairments, partially offset by an increase in the fair values of marketable equity securities. Net investment losses of $38.2 million for 2023 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.

Current wording

Net investment gains of $25.5 million in 2025 were primarily attributable to changes in the fair values of marketable equity securities and an unrealized gain on a non-marketable equity investment within the Company’s venture investment portfolio, partially offset by impairments on capitalized internal-use software and losses recognized on sales of debt securities. Net investment gains/losses totaled losses of $345.4 million in 2024 and were primarily attributable to losses realized from the Company’s investment portfolio rebalancing project and asset impairments, partially offset by an increase in the fair values of marketable equity securities. Net investment losses of $38.2 million in 2023 were primarily attributable to losses recognized on sales of debt securities, partially offset by changes in the fair values of marketable equity securities.

Previous wording

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 634,300, 629,100 and 895,500 domestic title orders in 2024, 2023 and 2022, respectively, representing an increase of 0.8% in 2024 from 2023 and a decrease of 29.7% in 2023 from 2022.

Current wording

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 714,500, 646,400 and 648,900 domestic title orders in 2025, 2024 and 2023, respectively, representing an increase of 10.5% in 2025 from 2024 and a decrease of 0.4% in 2024 from 2023.

Previous wording

Personnel costs increased $77.2 million, or 4.1%, in 2024 from 2023 and decreased $396.9 million, or 17.5%, in 2023 from 2022. The increase in personnel costs in 2024 from 2023 was primarily attributable to higher salary expense, incentive compensation due to higher revenue and profitability, employee benefits and payroll tax expense. 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. Personnel costs included severance expenses of $8.3 million, $12.6 million, and $34.7 million for 2024, 2023, and 2022, respectively.

Current wording

Personnel costs increased $178.2 million, or 9.1%, in 2025 from 2024 and $77.2 million, or 4.1%, in 2024 from 2023. The increase in personnel costs in 2025 from 2024 was primarily attributable to higher incentive compensation expense due to higher revenue and profitability and higher salaries, employee benefits, payroll taxes and share-based compensation expenses. The increase in personnel costs in 2024 from 2023 was primarily attributable to higher salaries and incentive compensation expense due to higher revenue and profitability, employee benefits and payroll tax expense. Personnel costs also included severance expenses of $11.7 million, $8.3 million, and $12.6 million for 2025, 2024, and 2023, respectively.

Previous wording

The provisions for policy losses and other claims, expressed as a percentage of title insurance premiums and escrow fees, were 3.0%, 3.25%, and 4.0% for 2024, 2023, and 2022, respectively.

Current wording

The provisions for policy losses and other claims, expressed as a percentage of title insurance premiums and escrow fees, were 3.0% for 2025 and 2024 and 3.25% for 2023.

Previous wording

The 3.0% 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 0.75%, or $34.6 million and for prior policy years, all of which are based on title insurance premiums and escrow fees for 2024.

Current wording

The 3.0% 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 0.75%, or $39.8 million, for prior policy years, all of which are based on title insurance premiums and escrow fees for 2025.

Previous wording

As of December 31, 2024, the IBNR claims reserve for the title insurance and services segment was $1.1 billion, which reflected management’s best estimate. The Company’s internal actuary determined a range of reasonable estimates of $965.8 million to $1.2 billion. The range limits are $143.6 million below and $135.7 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.

Current wording

As of December 31, 2025, the IBNR claims reserve for the title insurance and services segment was $1.1 billion, which reflected management’s best estimate. The Company’s internal actuary determined a range of reasonable estimates of $948.0 million to $1.3 billion. The range limits are $147.9 million below and $185.5 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.

Previous wording

The 2023 loss provision rate of 3.25% reflected the ultimate loss rate for policy year 2023 of 3.75% and a reserve release of 0.5%, or $21.6 million for prior policy years, all of which are based on title insurance premiums and escrow fees for 2023. The 2022 loss provision rate of 4.0% reflected the ultimate loss rate for policy year 2022 and no change in loss reserve estimates for prior policy years.

Current wording

The 2024 loss provision rate of 3.0% reflected an ultimate loss rate of 3.75% for the 2024 policy year and a reserve release of 0.75%, or $34.6 million, for prior policy years, all of which are based on title insurance premiums and escrow fees for 2024. The 2023 loss provision rate of 3.25% reflected an ultimate loss rate of 3.75% for the 2023 policy year and a reserve release of 0.5%, or $21.6 million, for prior policy years, all of which are based on title insurance premiums and escrow fees for 2023.

Previous wording

Depreciation and amortization expense increased $18.6 million, or 10.1%, in 2024 from 2023 and $21.3 million, or 13.1%, in 2023 from 2022. The increase in depreciation and amortization expense in 2024 from 2023 was primarily attributable to higher amortization of capitalized software from recently deployed digital settlement products, partially offset by lower purchase-related amortization. The increase in depreciation and amortization expense in 2023 from 2022 was primarily attributable to higher amortization of capitalized software.

Current wording

Depreciation and amortization expense increased $8.6 million, or 4.3%, in 2025 from 2024 and $18.6 million, or 10.1%, in 2024 from 2023. The increases in depreciation and amortization expense in 2025 from 2024 and in 2024 from 2023 were primarily attributable to higher amortization of capitalized internal-use software from recently deployed digital settlement products, partially offset by lower amortization of purchase-related intangible assets.

Previous wording

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 2024, 2023 and 2022.

Current wording

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 1.5% for 2025 and 1.4% for 2024 and 2023.

Previous wording

Interest expense increased $14.3 million, or 17.4%, in 2024 from 2023 and $48.1 million, or 140.6%, in 2023 from 2022. The increases in 2024 from 2023 and 2023 from 2022 were primarily attributable to higher interest expense in the Company’s warehouse lending business. The increase in 2023 from 2022 was also attributable to higher deposit balances at the Company's banking operations.

Current wording

Interest expense decreased $0.4 million, or 0.4%, in 2025 from 2024 and increased $14.3 million, or 17.4%, in 2024 from 2023. The decrease in 2025 from 2024 was primarily attributable to lower interest expense in the Company’s warehouse lending business due to a decline in interest rates. The increase in 2024 from 2023 was primarily attributable to higher interest expense in the Company’s warehouse lending business.

Previous wording

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 4.3%, 8.6% and 10.0% for 2024, 2023 and 2022, respectively.

Current wording

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 12.1%, 4.3% and 8.6% for 2025, 2024 and 2023, respectively.

Previous wording

Direct premiums increased $2.2 million, or 0.6%, in 2024 from 2023 and decreased $17.5 million, or 4.2% in 2023 from 2022. The increase in direct premiums in 2024 from 2023 was primarily attributable to an increase in the average price per policy. The decrease in direct premiums in 2023 from 2022 was primarily attributable to a decline in real estate transactions.

Current wording

Direct premiums increased $17.4 million, or 4.4%, in 2025 from 2024 and $2.2 million, or 0.6% in 2024 from 2023. The increases in direct premiums in 2025 from 2024 and 2024 from 2023 were primarily attributable to increases in the average price per policy.

Previous wording

Personnel costs and other operating expenses increased $6.6 million, or 4.1%, in 2024 from 2023 and $7.6 million, or 5.0%, in 2023 from 2022. The increase in 2024 from 2023 was primarily attributable to higher advertising, postage, salary and employee benefits expense, partially offset by lower sales tax, technology, and deferred policy acquisition expense. The increase in 2023 from 2022 was primarily attributable to higher advertising expense.

Current wording

Personnel costs and other operating expenses increased $7.3 million, or 4.4%, in 2025 from 2024 and $6.6 million, or 4.1%, in 2024 from 2023. The increase in 2025 from 2024 was primarily attributable to higher marketing, salaries and incentive compensation expenses, partially offset by lower deferred policy acquisition expense. The increase in 2024 from 2023 was primarily attributable to higher advertising, postage, salary and employee benefits expense, partially offset by lower sales tax, technology and deferred policy acquisition expense.

Previous wording

The provision for home warranty claims, expressed as a percentage of home warranty premiums, was 46.4% in 2024, 48.8% in 2023 and 51.3% in 2022. The decrease in the claims rate in 2024 from 2023 was primarily attributable to lower severity, partially offset by higher frequency. The decrease in the claims rate in 2023 from 2022 was primarily attributable to lower claims severity, partially offset by higher claims volume.

Current wording

The provision for home warranty claims, expressed as a percentage of home warranty premiums, was 41.4% in 2025, 46.4% in 2024 and 48.8% in 2023. The decrease in the claims rate in 2025 from 2024 was primarily attributable to lower claims frequency. The decrease in the claims rate in 2024 from 2023 was primarily attributable to lower severity, partially offset by higher frequency.

Previous wording

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 the provision for losses, the majority of the expenses for this segment are variable in nature and, therefore, generally fluctuate with revenue. Accordingly, pretax margins (before provision for losses) are relatively constant, although, as a result of some fixed expenses, profit margins (before provision for losses) 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 15.1%, 13.0% and 10.6% for 2024, 2023 and 2022, respectively.

Current wording

A large portion 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 the provision for losses, the majority of the expenses for this segment are variable in nature and, therefore, generally fluctuate with revenue. Accordingly, pretax margins (before provision for losses) are relatively constant, although, as a result of some fixed expenses, profit margins (before provision for losses) 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 19.5%, 15.1% and 13.0% for 2025, 2024 and 2023, respectively.

Previous wording

Net investment losses totaled $57.5 million, $162.3 million and $353.4 million for 2024, 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 included unrealized losses and gains resulting from fluctuations in the fair value of the Company’s investment in Offerpad Solutions Inc.

Current wording

Net investment losses totaling $4.3 million, $57.5 million and $162.3 million for 2025, 2024, and 2023, respectively, primarily resulted from unrealized losses and impairment charges on non-marketable equity investments within the Company’s venture investment portfolio and included unrealized losses and gains resulting from fluctuations in the fair value of the Company’s investment in Offerpad Solutions Inc.

Previous wording

Personnel costs and other operating expenses totaled $60.1 million, $81.8 million and $30.6 million in 2024, 2023 and 2022, respectively. The decrease in 2024 when compared to 2023 and the increase in 2023 when compared to 2022 were primarily attributable to fluctuations in returns on participant investments within the Company’s deferred compensation plan. The decrease in 2024 also included a reinsurance credit related to the wind down of the property and casualty insurance business and lower legal and incentive compensation expense related to the cybersecurity incident in 2023.

Current wording

Personnel costs and other operating expenses totaled $82.9 million, $60.1 million and $81.8 million in 2025, 2024 and 2023, respectively. The increase in 2025 when compared to 2024 was primarily attributable to higher severance and share-based compensation expenses, fluctuations in returns on participant investments within the Company’s deferred compensation plan and the lack of a reinsurance credit received in 2024. The decrease in 2024 when compared to 2023 was primarily attributable to fluctuations in returns on participant investments within the Company’s deferred compensation plan, receipt of a reinsurance credit in 2024 and lower legal and incentive compensation expenses, which were recorded in 2023 related to the cybersecurity event.

Previous wording

Interest expense increased $2.9 million, or 5.6%, in 2024 from 2023 and decreased $9.8 million, or 16.0%, in 2023 from 2022. The increase in 2024 from 2023 was primarily due to the issuance of $450 million 5.45% senior unsecured notes in September 2024, partially offset by the repayment of the Company's $300 million 4.60% senior unsecured notes, upon maturity, in November 2024. 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.

Current wording

Interest expense increased $6.5 million, or 12.0%, in 2025 from 2024 and $2.9 million, or 5.6%, in 2024 from 2023. The increases in 2025 from 2024 and 2024 from 2023 were primarily due to the issuance of $450 million 5.45% senior unsecured notes in September 2024, partially offset by the repayment of the Company's $300 million 4.60% senior unsecured notes, upon maturity, in November 2024.

Previous wording

The Company's actual income tax expense differs from the expense computed by applying the federal income tax rate of 21% for 2024, 2023 and 2022. A reconciliation of these differences is as follows:

Current wording

The Company's actual income tax expense differs from the expense computed by applying the federal income tax rate of 21% for 2025, 2024 and 2023. A reconciliation of these differences is summarized as follows:

Previous wording

The Company’s effective income tax rates (income tax expense as a percentage of income before income taxes) were 19.8% for 2024, 21.5% for 2023 and 18.7% for 2022. 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. The effective income tax rates also reflect the impact on pretax earnings from impairment losses on the Company’s venture investment portfolio and, for 2024, realized losses from sales of debt securities in an unrealized loss position in connection with the Company’s portfolio rebalancing project. In addition, the effective tax rates for 2024 and 2023 reflect 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 benefits from the resolution of state tax matters from prior years.

Current wording

The Company’s effective income tax rates (income tax expense as a percentage of income before income taxes) were 24.3% for 2025, 19.8% for 2024 and 21.5% for 2023. The differences in the year over year effective tax rates 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 permanent differences between amounts reported for financial statement purposes and amounts reported for income tax purposes. In addition, the effective tax rates reflect tax credits claimed in current and prior years. The effective income tax rates for 2024 and 2023 also reflect the impact on pretax earnings from impairment losses on the Company’s venture investment portfolio and adjustments to the valuation allowance resulting from losses on certain equity investments and, for 2024, realized losses from sales of debt securities in an unrealized loss position in connection with the Company’s portfolio rebalancing project. See Note 14 Incomes Taxes to the consolidated financial statements for a detailed reconciliation.

Previous wording

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 and loans in private companies 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.

Current wording

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 and loans to private companies 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.

Previous wording

Cash provided by operating activities totaled $897.5 million, $354.3 million and 777.6 million for 2024, 2023 and 2022, respectively, after claim payments, net of recoveries, of $397.8 million, $381.8 million and $434.3 million, respectively. The principal nonoperating uses of cash and cash equivalents for 2024, 2023 and 2022 were advances and repayments under secured financing agreements, purchases of debt and equity securities, dividends to common stockholders, capital expenditures and repurchases of company shares. Principal nonoperating uses of cash and cash equivalents also included decreases in deposits at the Company’s banking operations for 2024, repayment of senior unsecured notes for 2024 and 2023, and acquisitions for 2022. The most significant nonoperating sources of cash and cash equivalents for 2024, 2023 and 2022 were borrowings and collections under secured financing agreements, and proceeds from the sales and maturities of debt and equity securities. Principal nonoperating sources of cash and cash equivalents also included proceeds from issuance of unsecured senior notes in 2024 and increases in deposits at the Company’s banking operations for 2023 and 2022. The net effect of all activities on total cash and cash equivalents were decreases of $1.9 billion and $4.5 million for 2024 and 2022, respectively, and an increase of $2.4 billion for 2023. The increases to cash and cash equivalents and deposits in 2023 related to the cybersecurity incident are further discussed below.

Current wording

Cash provided by operating activities totaled $950.8 million, $897.5 million and $354.3 million for 2025, 2024 and 2023, respectively, after claim payments, net of recoveries, of $358.4 million, $397.8 million and $381.8 million, respectively. The principal nonoperating uses of cash and cash equivalents for 2025, 2024 and 2023 were advances and repayments under secured financing agreements, purchases of debt and equity securities, dividends to common stockholders, capital expenditures and repurchases of company common shares. Principal nonoperating uses of cash and cash equivalents also included decreases in deposits at the Company’s banking operations for 2024 and repayments of senior unsecured notes for 2024 and 2023. The most significant nonoperating sources of cash and cash equivalents for 2025, 2024 and 2023 were borrowings and collections under secured financing agreements, and proceeds from the sales and maturities of debt and equity securities. Principal nonoperating sources of cash and cash equivalents also included increases in deposits at the Company’s banking operations for 2025 and 2023 and proceeds from issuance of unsecured senior notes in 2024. The net effect of all activities on total cash and cash equivalents were decreases of $330.8 million and $1.9 billion for 2025 and 2024, respectively, and an increase of $2.4 billion for 2023.

Previous wording

The Company continually assesses its capital allocation strategy, including decisions relating to dividends, stock repurchases, capital expenditures, acquisitions and investments. In September 2024, the quarterly cash dividend was increased to 54 cents per common share, representing a 2% increase. The dividend increase was effective beginning with the September 2024 dividend. In January 2025, the Company's board of directors approved a first quarter cash dividend of 54 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.

Current wording

The Company continually assesses its capital allocation strategy, including decisions relating to dividends, stock repurchases, capital expenditures, acquisitions and investments. In September 2025, the quarterly cash dividend was increased to 55 cents per common share, representing a 2% increase. The dividend increase was effective beginning with the September 2025 dividend. In January 2026, the Company's board of directors approved a first quarter cash dividend of 55 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.

Previous wording

The Company maintains a stock repurchase plan with authorization up to $400.0 million, of which $145.4 million remained as of December 31, 2024. 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, 2024, the Company repurchased and retired 1.2 million shares of its common stock for a total purchase price of $68.5 million and, as of December 31, 2024, the Company has repurchased and retired 4.7 million shares of its common stock under the current authorization for a total purchase price of $254.6 million.

Current wording

In July 2025, the Company’s board of directors approved a new share repurchase plan which authorizes the repurchase of up to $300 million of the Company’s common stock and terminated its prior share repurchase plan. 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 2025, the Company repurchased and retired 2.1 million shares of its common stock for a total purchase price of $122.3 million and, as of December 31, 2025, the Company has repurchased and retired 6.8 million shares of its common stock under the previous authorization for a total purchase price of $377.0 million.

Previous wording

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, 2024, under such regulations, the maximum amount available to the holding company from its insurance subsidiaries for 2025, without prior approval from applicable regulators, was dividends of $535.0 million and loans and advances of $114.2 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.

Current wording

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, 2025, under such regulations, the maximum amount available to the holding company from its insurance subsidiaries for 2026, without prior approval from applicable regulators, was dividends of $382.0 million and loans and advances of $113.6 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.