Fitch: Title Insurance Outlook Remains Negative

Title insurers remain affected by the economy and housing struggles, and there is no clear catalyst for change in the near term, according to a Fitch Ratings outlook on the title insurance industry.

Fitch said its outlook for title insurers remains negative, and added it is unlikely to return the title sector to a stable rating "until market fundamentals improve and the risk of further property value declines diminish."

Fitch added, "The cost structure of the title industry remains problematic given that in a market downturn, insurers cannot cut expenses fast enough and deep enough to get ahead of falling revenue."

The rating agency added that technology has not improved the industry's fixed cost structure and efforts by larger title insurers to diversify have not been effective. Staff reductions remain the primary method of reducing expenses, Fitch said.

Fitch explained that the sector will not return to a stable outlook "until market fundamentals improve and the risk of further property value declines diminish. This will lead to a return of sustainable profitability and improvement in [risk-adjusted capital] levels through organic earnings retention."

Fitch noted that the recent controversy surrounding flawed foreclosure practices by some lenders is expected to have a minimal impact on title insurers. "Fitch believes title insurance claims associated with these policies will not be significant.

"However, it could lead to an increase in the adjudication of claims, which would increase title insurers' loss adjustment expense."