Improved 1Q13 at Three Major Title Underwriters

It was a good first quarter at the nation’s second, third and fourth largest title insurance underwriters as all three—First American, Old Republic and Stewart—reported improved earnings over the same period in 2012.

First American Financial Corp. had net income of $36 million in 1Q13, up from $31 million one year prior, as business is beginning to shift back towards home sale business, which earns a higher premium than refinancings do.

Open orders per day related to home sale transactions are up 13%, while refi open orders per day are down 7%. Revenue in the commercial division of $87 million showed a 7% increase over 1Q12.

"Market conditions were good in the first quarter with an increase in closed orders that drove our 19% revenue growth," said Dennis J. Gilmore, chief executive for First American. "And we're pleased that a solid increase in our higher-premium resale and commercial open orders fully offset the decline we experienced in refinance volume.

"Our financial results for the first quarter were negatively impacted by a $29 million reserve strengthening in the title segment, primarily driven by a few large commercial claims from policy years 2006 and 2007. Although it's unusual to have this level of large commercial claim activity in a single quarter, we continue to see a general decline in paid title claims as legacy policy years become more seasoned and recent policy years demonstrate lower claims activity.”

Old Republic International Corp. net income of $53 million, up from a loss of $1.4 million one year prior. However, its mortgage insurance and consumer credit indemnity lines, now both in run-off, reduced ORI’s earnings by $13 million for 1Q13 and $59 million in 1Q12.

The title insurance business had 1Q13 pretax operating income of $22 million, up from $9 million one year prior. The company has benefitted the most from the market share shift in the title business following the acquisition of LandAmerica by Fidelity National Financial, which has made that company the No. 1 underwriter, according to American Land Title Association data.

The ALTA data show that ORI (along with the regional title players as a group) has gained market share, while Fidelity, First American and Stewart all lost share in the revamped environment.

Republic Financial Indemnity Group, the subsidiary where Republic Mortgage Insurance Co. is now housed, had an operating loss for the quarter of $13 million, down from $82 million one year prior.

Stewart Information Services Corp. had net income of $3 million, an improvement over the 1Q12 loss of $12 million. The company did take a non-cash charge of $5.4 million related to the early retirement of debt and a gain of $1.7 million on non-title-related insurance policy proceeds.

Matthew W. Morris, chief executive, commented, "While our revenues benefited from continued improvement in housing market conditions, our focus on cost effective, scalable operations and claims management resulted in our pretax results improving from a loss of $7.9 million in 2012's first quarter to a profit of $10.8 million (excluding the charges) in this year's first quarter.

“We remain mindful of the 2013 outlook for real estate, and therefore are maintaining our focus on simplifying and aligning our operations to adapt our costs quickly to transaction volumes and market conditions. As our restructured operations deliver more consistent results, we are concentrating on smart growth, particularly in our direct title and mortgage services operations."

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