Title insurers report mixed 4Q earnings as competition grows

February 24, 2022 5:36 PM

While the four largest publicly-traded title insurers reported strong fourth-quarter financials, the outlook for 2022 is a bit more mixed for a business highly dependent on mortgage origination trends.

Title companies have more competitors compared with the private mortgage-insurance business, where the secondary-market capital requirements serve as a limiting factor to entry.

"We expect the addressable market, as measured by mortgage origination volume, to shrink in 2022 and 2023 and expect competition to heat up in a subsegment of the market, centralized refinance. This should lead to declining revenue and earnings per share in 2022," wrote BTIG analyst Ryan Gilbert, in a report announcing his coverage of the sector. Centralized refinance refers to a central internal unit at the underwriter that handles those applications.

In particular, Gilbert cited Doma as competition for that segment, along with Radian's title subsidiary and American Digital Title, which he said are offering rates between 20% and 30% lower than the established players.

"While a small piece of the refi market now, share could grow quickly in 2022 if order count increases while refi volume contracts 60%," Gilbert continued. "Deeper share gains may require a competitive response from incumbents, which could potentially pressure revenue and margin."

Here are the results for the publicly-traded title insurance underwriters, which shows how the different competitors’ result measure up so far: (First American's results were previously covered at the time of its leadership change)

At Fidelity, purchase and commercial revenue rose

Fidelity National Financial, the largest underwriter, had net income for the fourth quarter of $533 million, compared with $732 million in the third quarter and $801 million for the fourth quarter of 2020. The most recent results included a net of $65 million in unfavorable mark-to-market effects and $18 million of other unfavorable items.

But full-year net income increased by $1 billion to $2.4 billion.

When it comes to its main business line, "We delivered record adjusted pretax title earnings of $717 million and an adjusted pretax title margin of 22.4% in the fourth quarter," said CEO Mike Nolan in a press release. "Momentum in our residential purchase and commercial revenue more than offset the ongoing and expected contraction in refinance volumes, which hold a significantly lower fee per file."

Open orders fell to 536,000 from 688,000 in the third quarter and 728,000 in the fourth quarter 2020, while over the same time frame, closed orders fell to 477,000 from 529,000 and 617,000.

But Fidelity's total fee per file rose to $3,023, up from $2,581 in the third quarter and $2,116 one year prior. While for residential policies, the fee increased to $2,158 from $2,097 and $1,661 respectively, the commercial policy fee per file soared to $11,800 in the fourth quarter compared with $9,100 on a quarter-to-quarter basis and $8,200 year-over-year.

Old Republic's pretax title income drifted up slightly

Old Republic International's title insurance business reported pretax income of $137.3 million, compared with $135.7 million in the third quarter and $132.1 million for the fourth quarter of 2020.

But on an annual basis, pretax income grew nearly 50%, to $515.7 million for 2021 from $344 million in 2020.

Direct orders opened totaled 120,251 for the fourth quarter, compared with 141,250 in the third quarter and 149,626 in the fourth quarter of 2020. Over the same period, closed orders fell to 113,577 versus 123,124 and 139,010.

Meanwhile, Old Republic's mortgage insurance business, which has been in run-off since September 2011, had pretax earnings of $11.9 million in the fourth quarter, compared with $1.8 million in the fourth quarter of 2020. For the full year, pretax earnings of $32.8 million was 232% higher than the $9.8 million reported for 2020.

While lower premium income was recorded as MI policies exited its book of business and were not replaced, claims costs also declined for the comparative periods.

Sequential income fell at Stewart

Stewart Information Services reported net income of $85.5 million, lower than the $88.7 million recorded in the third quarter but higher compared with $59.7 million for the fourth quarter 2020.

"While we believe that this past quarter reflects the start of a broader market shift away from some of the interest rate-driven order activity of the past couple of years, we see opportunity in a market that is more heavily weighted to residential home buying and improving commercial activity," said CEO Fred Eppinger in a press release.

Net income for full-year 2021 totaled $323.2 million, compared with $154.9 million in 2020.

Open orders ended the quarter at 119,135, compared with 143,624 and 152,622 one year prior. In the fourth quarter, closed orders totaled 108,438, down from 109,113 in the prior quarter and 126,027 in the previous year period.

Doma's losses continue to grow

While Doma bucked the trend from its established competitors and increased its new business on a year-over-year basis, its financials went in the opposite direction.

The company reported a fourth-quarter net loss of $43.7 million, compared with a loss of $34.3 million in the third quarter and an $8.6 million loss in the fourth quarter of 2020. The quarterly loss was $11 million more than Gilbert's expectations for the period. "Higher than expected personnel expenses drove the miss to our estimate," he continued, pointing to the expansion of the Doma Intelligence platform.

In 2021, the company lost $113.1 million, compared to a $35.1 million loss in 2020.

Opened orders ended the quarter at 43,247. While this was down from 52,867 in the third quarter, it was up from 35,712 in the fourth quarter of 2020.

Meanwhile, closed orders of 37,042 in the fourth quarter were higher than the third quarter's 35,300 and 27,363 one year prior.

Investors Title reports record annual earnings

The smallest of the publicly-traded title companies, Investors Title, had net income of $18.9 million, compared with $14.5 million in the third quarter and $16.6 million in the fourth quarter of 2020.

The company does not release order data. However, it reported net premiums written of $72.5 million, down from $74.3 million in the third quarter but higher than the $65.1 million for the fourth quarter of 2020.

Net income of $67 million for full-year 2021 was significantly higher than the $39.4 million recorded for 2020.

"For both the quarter and the year, the company set all-time records for revenues and premiums, in addition to an annual record for earnings," Chairman J. Allen Fine said in a press release. "As the country grappled with the ongoing pandemic for the second year, we continued to see strong demand for housing as well as record growth in real estate values in our operating markets during 2021."