Link to Fitch Ratings' Report: 2013 Outlook: U.S. Title Insurance IndustryNov 27 - Fitch Ratings maintains its stable rating outlook on the U.S. Title
Insurance industry. The outlook reflects a belief that rating actions for the
industry will on balance approximate current levels over the next 12 - 18 months
as financial performance has improved recently and capital levels remain
adequate based on several measures.
A new special report '2013 Outlook: U.S. Title Insurance Industry.' published
today highlights key factors affecting title insurer ratings, reviews financial
performance in 2012, and assesses industry prospects for 2013.
Operating profit margins on a GAAP basis for Fitch's title universe rose to
10.3% in the first nine months of 2012 versus 6.1% in the prior year. Earnings
improved for all underwriters, but larger players First American Financial (FAF)
and Fidelity National Title (FNF) posted the highest margins. Title revenues
through nine months 2012 increased by over 15% as refinancing activity exceeded
expectations and housing markets stabilized. The period's 90.7% underwriting
combined ratio reached levels unseen since 2006, as growth reduced expense
ratios and claims experience improved as well.
The title insurance industry is benefitting from an improving housing market
that is showing less home inventory and increasing home prices nationally.
According to the National Association of Realtors (NAR), US housing prices rose
in 2012 with many markets showing year-over-year home price growth for the first
time since the beginning of the housing crisis. Economists attribute the price
increase primarily to reduced housing inventory and, to a lesser extent, fewer
homes sold in distress.
The Mortgage Bankers Association of America (MBA) forecasts mortgage
originations to decline to $1.3 billion in 2013 and just over $1 billion in
2014, compared with $1.7 billion in 2012. The drop is driven by a projected
material decline in refinance activity over the next two years, which is
expected to be somewhat offset by greater purchase activity.
Fitch continues to view the industry as adequately capitalized, although
individual company capital strength varies considerably. Fitch's view is based
on both a non-risk adjusted approach such as net written premiums to surplus and
a risk adjusted approach via Fitch's Risk Adjusted Capital (RAC) model.
The report '2013 Outlook: U.S. Title Insurance Industry' dated Nov. 26, 2012, is
available at 'www.fitchratings.com' under 'Insurance' and 'Special Reports'.