Fitch Says Outlook Still Negative For Title Insurers

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

Fitch Ratings said the outlook for the U.S. title insurance industry remains negative, following deterioration in market fundamentals and material reductions in capital.

The New York-based rating firm said the sharp downturn in real estate and mortgage market activity has created tremendous challenges for title insurers, and for the rest of this year and part of the next revenue and earnings recovery will hinge on stabilization in these markets.

A return to a stable outlook for the sector is unlikely until there are signs of a sustainable return to profitability in line with historical norms and improvement in risk-adjusted capital levels, said Fitch.

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

Fitch said many recent negative rating actions for title insurance issuers reflect both weakened capital positions and in some cases a willingness to maintain lower capitalization at the underwriter level.

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

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

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