Title insurer 1Q results reflect coronavirus' impact
The first quarter was a mixed bag for earnings at the four largest title insurance underwriters. Low mortgage rates led to increased business, but the impact of the coronavirus affected investment income and hurt bottom lines.
The fallout from the virus is likely to affect their second-quarter results as well. In late March, even as it was touting the sector's strength, Fitch downgraded the industry's outlook to negative.
In the first quarter of 2020, Fidelity National Financial, the largest title underwriter, had a $61 million net loss in the first quarter, compared with net earnings of $206 million one year prior.
The first-quarter loss included realized losses on investments of $320 million.
However, opened title orders, driven by March's spike in refinancings, grew to 682,000 from 438,000 one year earlier.
The outlook going forward is not as bright. "We have seen a decline in refinance and purchase orders thus far in the second quarter and expect orders to continue declining as we work together as a country to control the spread of COVID-19," Fidelity Chairman William Foley said in a press release.
First American Financial had net earnings of $63.2 million, down from $109.6 million in the first quarter of 2019.
"We entered 2020 with a strong capital position, ample liquidity and significant financial flexibility," CEO Dennis Gilmore said in a press release. "This financial strength will enable us to make opportunistic investments in this market. As an example, we repurchased 1.7 million shares of stock at an average price of $38.64 during the quarter."
Opened title orders grew to 354,000 from 227,800 for the first quarter of 2019.
Pretax operating income for Old Republic's title insurance segment more than doubled year-over-year in the first quarter as its net premiums and fees earned increased by nearly 24% in the low interest rate environment.
The company earned $43.3 million in the first quarter, compared with $20.5 million one year prior.
Meanwhile, Old Republic's mortgage insurance business, which remains in run-off status, had pretax operating income of $8.4 million, up 19.5% over the $7 million earned in the first quarter of 2019.
While net premiums earned have declined by over 21% as loans exit the book of business and are not replaced, the claims ratio fell to 37.6% from 59.7% from the prior year. That's because there were fewer new mortgage defaults during the period along with stable-to-improving cure rates for outstanding delinquencies.
At the holding company level, Old Republic (which also writes other insurance lines) lost $604.8 million in the first quarter, compared with net income of $412.2 million for the same period last year.
However, the entirety of that loss was from its investment portfolio; remove those and Old Republic had net income of $140.8 million in the first quarter.
Direct orders opened grew to 145,815 in the first quarter, from 106,462 in the prior year period.
Because of the impact of the coronavirus on residential and commercial real estate markets, "future revenues from title premiums and fees in the title insurance segment could decline, and conversely operating expense ratios could rise," the Old Republic press release said.
Stewart Information Services reported first-quarter net income of $5.2 million, reversing a $6.8 million net loss one year prior. Stewart's year ago results were impacted by the failed attempt by Fidelity to acquire the company; the deal began unraveling in that period when the New York Department of Financial Services rejected it.
"While I am pleased with our performance this quarter, as Stewart delivered one of its strongest first quarter performances in its history, the greater measure of our accomplishment is what has been done since the middle of March to support our customers, employees and the real estate markets," CEO Fred Eppinger said in a press release.
Opened title orders were up by more than 40,000 compared with the first quarter of 2019, to 122,708. In March alone, Stewart had 51,288 orders opened compared with 30,168 one year prior.