Refis drive — and restrict — title insurer premium gains year over year
During the second quarter, title insurers generated 8% more in new premiums on a year-over-year basis, as lower revenue refinancings dominated a period of record mortgage originations.
As a whole, the industry generated $4.18 billion in premiums during the second quarter, according to the American Land Title Association. This was up over 6% from the first quarter, before the brunt of the impact of the pandemic, when title insurers underwrote $3.92 billion. At this pace, the industry will match thenear $16 billion in premiumswritten last year.
Meanwhile, the group of independent companies made more inroads in taking market share from the four dominant title insurers. For the second quarter, these underwriters as a group had a 19.5% share, up from 17.8% in the first quarter. In all of 2019, this group wrote nearly 15% of new business.
This is the highest group share for the independent companies since consolidation brought the title insurance business into its current state in the mid-2000s.
The pandemic was and remains a major factor in the low interest rate environment and that helped mortgage volume reach over $1.1 trillion in the second quarter, double the $581 billion in originations one year prior, according to Fannie Mae.
However, $872 billion of this year's second-quarter volume was from refinancings, which earn lower premiums than policies written on home purchases. The purchase share one year ago was 65%. In the second quarter of this year, the purchase share was 28%.
For example, at First American, even as the direct open order count in the second quarter increased to 351,300 from 296,200 the previous year, the average revenue per order fell to $1,950 from $2,315.
At Fidelity National Financial, second-quarter direct title premiums reached $575 million, while premiums from policies generated by agencies was $784 million.
For the same period last year, direct premiums were $625 million and agency were $754 million.
By market share for the second quarter, FNF led the way with 32.7%, followed by First American at 23%, Old Republic at 14.8% and Stewart at 10.8%.
The top independent company was Westcor Land Title Insurance at 5.9%, a record for an independent company and up from 5.2% in the first quarter, followed by WFG at 3% (compared with 2.8%).
These companies might be flourishing by getting business from unaffiliated agents. That source controls 60% of the title insurance business, noted Bose George, an analyst with Keefe, Bruyette & Woods. The independent companies have seen a big increase in the share of business sourced from agencies as their overall market share has grown over the last decade.
He pointed out that Westcor, which is a 100% agency underwriter, grew its market share by over 2% in the past decade through the end of last year, "which would support that view. I don't know the mix of some of the other independents but that trend could be happening at other independents that have grown as well."
But George also pointed out that the larger underwriters have acquired agencies to build their market share. For example, in January, First American bought the remaining stake in Title Security Agency, of which it had been a minority investor.
But expected mortgage origination trends for the rest of 2020 should benefit title company revenue.
Even as Fannie Mae predicts total volume slipping to $862 billion in the third quarter and $615 billion in the fourth, a larger share should come from purchases, 48% and 52% respectively, driving more revenue to title insurers.
"The question left outstanding is how the commercial market will rebound," Diane Tomb, ALTA's CEO said in a press release. "Depending on how the commercial market performs during the rest of the year, 2020 could prove to be one of the stron