Demotech: Title Underwriters Adequately Capitalized

The nation’s title insurance underwriters, dominated by four national players but also including approximately 30 regional companies, as a whole are appropriately capitalized, said a report from Demotech based on fourth-quarter financial statements.

Only eight underwriters had a net underwriting loss last year, said Douglas Powell, senior financial analyst.

He added that the underwriters have a sufficient level of policy surplus, having increased 32% during 2012.

“Title underwriters wrote more than $11 billion direct premiums in 2012, an increase of over 22% from the previous year. In addition to the $3.8 billion of policyholders' surplus, policyholders should also take comfort in the knowledge that title underwriters earmarked over $4.4 billion in reserves to pay future claims as of yearend. Based on a review of these results, as well as other performance indicators, aggregately title underwriters appear to be appropriately capitalized,” Powell declared.

Meanwhile, Fitch Ratings had its own report on the title industry results for 2012 concentrating on fiscal results from the five publicly traded entities (Fidelity National Financial, First American, Old Republic, Stewart and Investors Title Co.).

Gerry Glombicki, title insurance sector head, noted that those five companies last achieved the same level of profitability as they did in 2012 back in 2005 when their operating revenue was nearly 17% higher than today.

As for this year for the title underwriters, “Fitch expects relatively flat premium growth in 2013, with a continued trend of business to shift towards purchases and away from refinance originations. Fourth-quarter 2012 open orders were up 24% over the prior year quarter and Fitch expects modestly favorable growth in first-quarter 2013 order counts. This order flow should lead to higher premiums during the first half of 2013, but will likely be offset by lower premiums in the second half.”

There are macroeconomic issues that could impact title companies this year, it added, such as rising interest rates, falling employment levels and increased inflation, all of which will cut into refinance and purchase business.