NU Online News Service, Oct. 12, 3:24 p.m.EDT

Fitch Ratings said the outlook for the U.S. title insuranceindustry remains negative, following deterioration in marketfundamentals and material reductions in capital.

The New York-based rating firm said the sharp downturn in realestate and mortgage market activity has created tremendouschallenges for title insurers, and for the rest of this year andpart of the next revenue and earnings recovery will hinge onstabilization in these markets.

A return to a stable outlook for the sector is unlikely untilthere are signs of a sustainable return to profitability in linewith historical norms and improvement in risk-adjusted capitallevels, said Fitch.

After a big fall in revenues, title issuers are entering thefourth quarter "'right-sized' as declines in underwriters' expensesmatch the lower level of revenue," said Doug Pawlowski, seniordirector and head, U.S. Title Insurance Sector, Fitch Ratings.

Fitch said many recent negative rating actions for titleinsurance issuers reflect both weakened capital positions and insome cases a willingness to maintain lower capitalization at theunderwriter level.

The firm noted that the title insurance industry lost $1.4billion or greater than 40 percent of its surplus during 2007 and2008. Risk-adjusted capital ratios for Fitch's title insurancerating universe decreased substantially from 186 percent atyear-end 2006 to 140 percent at year-end 2007 and 104 percent atyear-end 2008.

Fitch said this year it expects the title insurance industrywill see an 8-to-9 percent decline in direct written premium to$9.5 billion with modest growth in 2010. That level of premiumwould put the industry back to 2001 levels, it said.

A copy of the report "Review and Outlook 2009-2010: TitleInsurance Industry" is available at Fitch Ratings' Web site(www.fitchratings.com) under the tab "Financial Institutions,""Insurance" and "Special Reports."