Title Underwriters Are Down, but Not Beaten
|November 8, 2007|
COLUMBUS, OH -- Each day we hear more in the news about the cascading effects of the current real estate market on the economy. Acknowledging these concerns and despite inflation fears, the Federal Reserve Board has lowered rates twice in an effort to mitigate further losses and bolster confidence. Throughout these recent market challenges, Title underwriters have taken steps to build their resilience in order to better deal with these declining real estate factors.
Real estate market challenges directly correlate to Title insurance industry performance. Declining home prices translate into lower premiums. Tighter lending standards impact demand which leads to fewer policies. Rising foreclosures typically precede increased Title loss activity. The latest data published in the second quarter 2007 'Demotech Performance of Title Insurance Companies - Quarterly Update' demonstrates the reality of this correlation. The Title industry's second quarter Net Operating Gain (Loss), which measures performance of core business activities, is down 77% from the same period in 2006. Through the first half of 2007, nearly two-thirds of Title underwriters reported a Net Operating Loss.
Despite these challenging results, Title underwriters are not beaten. They have responded by controlling expenses (down 7%) and have also benefited from increased investment income (up 21%) and decreased tax payments (down 51%) over the same 2006 period. This has eased the Title industry's decline in Net Income, which measures performance beyond core business activities, including investment, other income and taxes. At the end of March 2007, the Title Industry reported that Net Income was down 24% from 2006. Three months later, despite continued market pressures, Net Income is down only 16% from the same 2006 period.
Although optimism is still rare and some underwriters are struggling more than others, the Title industry is demonstrating fortitude by aggressively responding to the challenges of the current market. While 2007 is unlikely to exceed 2006 results and difficult efforts are often the reality, the industry may still avoid double-digit declines that have historically accompanied market downturns. However, to ensure this, the industry will need to address escalating losses, which have increased more than 24% since 2006 and more than 72% since 2003. Broadly diversified underwriters and those with limited exposure to the most affected markets (Florida, Nevada and Arizona) should fare better. Second Quarter - 'Quarterly Update'
Released October 31st, the second quarter 2007 'Quarterly Update' includes quarterly marketshare reports and Underwriter GAAP Dashboard Reports, which offer full-page, graphical summaries of corporate financial information. These dashboards present five years of GAAP financial statement data, along with 2007 quarterly results for those Title underwriters associated with publicly traded parent companies. Underwriter GAAP Dashboard Reports facilitate competitive comparisons and are a single reference point to assess the current position as well as the historic performance of publicly traded Title insurers.
Title Industry Information and Analysis
The 2007 edition of 'Demotech Performance of Title Insurance Companies', which includes the associated 'Quarterly Updates', was distributed in June 2007 and introduced more than 100 pages of new content and publication enhancements, including Underwriter Dashboards, Five-Year Trend Reports and the expansion of Financial Ratios.