Fitch Affirms Connecticut Attorneys Title Insurance Company At 'A-'

May 26, 2004

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 balance sheet fundamentals and favorable five-year operating performance that has been driven by advantageous market conditions and a strong franchise in the Connecticut title insurance market. The Rating Outlook is Stable.

The rating also reflects CATIC's lack of geographic and product diversification, an ownership structure that limits access to outside capital funds, a modest decrease in market share in the company's primary market, and the inherently cyclical nature of the title insurance business.

CATIC's strong balance sheet fundamentals include an above-average Fitch risk adjusted capital (RAC) ratio of 286% at year-end (YE) 2003 (compared to 271% at YE 2002), consistent surplus growth, an adequate reserve position on both a statutory and GAAP basis, a conservative investment policy, below average operating leverage, and low albeit increasing financial leverage at CATIC's parent -- CATIC Financial, Inc. (total GAAP debt-to-capital of 9.2% at Dec. 31, 2003).

Operating results were very strong in 2003 primarily due to the continued low interest rate environment that prompted favorable residential real estate market conditions. Statutory pretax operating income in 2003 was $9.5 million on operating revenue of $64.7 million compared with pretax operating income of $2.7 million on revenue of $52.9 million in 2002.

During first-quarter 2004, interest rates increased and refinancing activity slowed. Thus, Fitch believes it is unlikely that CATIC will be able to maintain in 2004 the record high levels of profitability experienced over the past few years. Fitch expects future revenue growth to track industry trends, which are linked to the real estate cycle and operating profits to be impacted by costs incurred from expansion initiatives as well as cyclical factors.

CATIC reported statutory admitted assets of $51.9 million and policyholders' surplus of $34.4 million at March 31, 2004. 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 (27% based on 2003 written premiums) and a competitive advantage derived from its relationships with local attorney-agents. In recent years, CATIC has entered other New England markets and currently holds the largest market share in Vermont (37% based on written premiums at YE 2003).

Entity/Issue/Type Action Rating/Outlook
Connecticut Attorneys Title Insurance Company    

Insurer financial strength.

Affirm 'A-'/Stable

Source: Fitch Ratings

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