The title industry's 2007 combined ratio, at 100.6, became unprofitable for the first time in 17 years, with the industry experiencing an $84.5 million underwriting loss, A.M. Best Co. said in a report.

And the Oldwick, N.J.-based insurance rating firm said the deterioration in the title industry's revenues and profitability in 2007 and the first half of 2008 is likely to be accelerating in the second half of 2008.

Best said title insurers are struggling with the significant slowdown in the housing market and increased claims activity from higher home foreclosures.

According to the firm, any improvement in profitability will depend largely on the length and depth of the housing downturn, the availability of credit and the ability of title insurers to aggressively reduce expenses in alignment with the decreased revenue levels.

Among other points the report on the title sector makes:

o Due to inadequate loss reserving practices earlier in the decade, incurred claims are rising. Higher claims activity also is coming from agent-related fraud activity, generally involving embezzlement of funds held in escrow.

o The industry's expense ratio increased modestly as premium revenues and transactions declined. Commissions and general expenses incurred as part of the title search process typically make up 85 percent or more of premium volume.

o As of August 2008, there were 4.91 million existing homes for sale, or 10.4 months of supply at current sales rates. While sales and prices may rebound sooner, housing starts and permits are expected to continue declining through 2009 because of the level of inventory.

o With shrinking demand and excess inventory, U.S. privately owned housing starts on an annual basis in August dropped to a preliminary 895,000 units, 33.1 percent lower than in August 2007.

The special report, "Title Insurers Feel The Pain As Housing Market Ills Continue," is available for $15 by contacting Best customer service at (908) 439-2200, ext. 5742. BestWeek subscribers can download it free from the publication Web site.

Special Reports /

Title Insurance Loses Profitability, Says Best

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