NU Online News Service, March 25, 2:26 p.m. EDT

Title Insurance Underwriting Ratios While title insurers’ profitability improved in 2010 compared to 2009, Fitch Ratings says it will not change the industry outlook to stable until evidence points to sustainable profitability for the sector.

“Despite the year-over-year improvement, operating performance remains considerably weaker than the strong profits reported from 2004 to 2007,” according to Fitch’s “Title Insurance U.S. Special Report.”

Fitch’s report tracks the five publicly traded title insurance underwriter families, which make up 90 percent of industry revenue. While operating revenue fell to $11.5 million in 2010 compared to $11.8 million in 2009, “continued expense reductions and stable loss costs led to improved profit margins,” Fitch says. The five companies reported $574,571 in operating earnings for 2010 compared to $503,625 in 2009.

The combined ratio for the companies improved to 95.9 compared to 96.6 in 2009. However, three of the five companies—Stewart Information Services Corp., Old Republic International Corp. and Investors Title Co.—reported combined ratios over 100. The average was helped by combined ratios of 93.2 and 93.4 for Fidelity National Financial Inc. and First American Corp., respectively.

Fitch says 2010 revenues were helped by the federal government’s new home-tax credit, which expired in April 2010, and a low-interest-rate environment.

“However,” Fitch notes, “these factors were not enough to offset recessionary economic conditions and pessimistic housing sentiment as mortgage originations slid during 2010, resulting in a 2 percent reduction in title operating revenue for the five largest national title insurers.”

Fitch adds that current macroeconomic and political factors may lead to a rise in interest rates, which would further pressure originations and home sales.

“The Mortgage Bankers Association of America is forecasting an approximate $1 trillion mortgage origination market for 2011, which is an almost 40 percent decline from 2010,” Fitch says. “In particular, the MBAA forecast is showing a sharp reduction in refinance transactions, which is in stark contrast to recent years where refinance transactions outpaced purchases almost two-to-one.”

Special Reports /

Fitch: Title Insurers&rsquo; Profitability Up, But Likely Not Sustainable

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Fitch: Title Insurers’ Profitability Up, But Likely Not Sustainable