Industry continues to benefit as home inventories and distressed sales decline and prices stabilize.

Insurance Networking News, November 27, 2012

Chris McMahon

Amidst some impressive financial numbers, the U.S. title insurance industry remains stable, according to a report titled “2013 Outlook: U.S. Title Insurance Industry,” from Fitch Ratings. The outlook reflects the belief that rating actions will balance approximate current levels over the next 12 to 18 months as financial performance has improved and capital levels remain adequate.

Fitch said the industry is adequately capitalized, although capital strength varies considerably from company to company. Fitch’s view is based on a non-risk adjusted approach, such as net written premiums to surplus and a risk adjusted approach via Fitch’s Risk Adjusted Capital model.

On a GAAP basis, operating profit margins rose to 10.3 percent in the first nine months of 2012, vs. 6.1 percent last year. Earnings improved for all underwriters and First American Financial and Fidelity National Title posted the highest margins. For the first nine months of the year, title revenues increased by more than 15 percent, as refinancing activity exceeded expectations and housing markets stabilized. The underwriting combined ratio reached 90.7 percent, a level unmatched since 2006, as growth reduced expense ratios and claims experience improved.

The title insurance industry continues to benefit from a recuperating housing market, which shows less inventory and higher home prices. According to the National Association of Realtors, U.S. housing prices rose this year, and many markets demonstrated year-over-year price increases for the first time since the housing crisis began in 2007. Economists attribute the price increase to declining inventory and fewer distressed sales.

The Mortgage Bankers Association of America forecasts mortgage originations to decline to $1.3 billion in 2013 and $1 billion in 2014, from $1.7 billion in 2012. The decline is driven by a projected decline in refinance activity over the next two years, which is expected to be somewhat offset by greater purchase activity.

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