Fitch Affirms Connecticut Attorneys Title Insurance Company At 'A-'
September 25, 2002
CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the 'A-' insurer financial strength (IFS) rating of Connecticut Attorneys Title Insurance Company (CATIC). The rating reflects CATIC's strong franchise in the Connecticut title insurance market, the company's efforts to expand into additional markets, a conservative investment policy, strong capital position, and favorable operating performance. The Rating Outlook is Stable.
The rating also reflects CATIC's limited geographic diversification, limited access to outside capital funds due to its ownership structure, and the inherently cyclical nature of the title insurance business.
CATIC's strong balance sheet fundamentals are reflected by the company's high-quality, very liquid investment portfolio, adequate reserve position on both a statutory and GAAP basis, above-average Fitch risk adjusted capital (RAC) ratio of 280% at year-end 2001, consistent surplus growth, and low financial leverage (total debt-to-capital of 3.7% at Dec. 31, 2001).
In 2000, CATIC discovered a discrepancy of approximately $2.9 million in its escrow account due to theft of assets that occurred prior to 2000 by a former employee. The company has recovered approximately $685,000 of this amount, and the balance is secured by a mortgage on commercial real estate. The mortgage is carried as a note receivable on CATIC's balance sheet. After assessing the uncertainty of recovering the full amount due on the note, CATIC posted a $440,000 allowance for bad debts. As of September 30, 2002 the outstanding balance on the note was $1.8 million (including the reserve).
While CATIC has various remedies available to recover this escrow discrepancy, Fitch has some concerns with the uncertainty of the ultimate repayment of the note receivable, and the potential for further writeoffs related to this matter. Still, Fitch does not expect that any additional writedowns will be large enough to warrant a change in CATIC's rating given CATIC's current risk adjusted capital position. However, we will continue to monitor this situation closely.
CATIC posted strong operating results in 2001 and the first half of 2002 due to a favorable residential real estate market climate, and continued declining interest rates. Statutory pretax operating income in 2001 was $3.8 million on operating revenue of $41.6 million compared with pretax operating income of $1.8 million on revenue of $31.5 million in 2000. In the first half of 2002, CATIC reported a 35.1% increase in statutory operating revenues to $23.5 million, and pretax operating income was $2.2 million, compared with $1.4 million for the same period in 2001. Fitch expects future revenue growth and operating profits to track industry trends, which are linked to the real estate cycle.
CATIC reported statutory admitted assets of $39.7 million and policyholders' surplus of $28.8 million at June 30, 2002. As an attorney-owned title insurance company CATIC's primary purpose is to preserve and promote the use of independent legal counsel in real estate transactions.
CATIC has a long history of success in the Connecticut title insurance market with the state's largest market share (33% based on 2001 written premiums) and a competitive advantage derived from its relationships with local attorney-agents. In recent years, the company has entered other New England markets and currently holds the second largest market share in Vermont (29% based on written premiums at year-end 2001).
|Connecticut Attorneys Title Insurance Company
|Insurer financial strength
Source: Fitch Ratings
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