Fitch: Title Insurer Revenue Per Order Increases as Profits Decline

August 26, 2014

The U.S. title insurance industry reported declines in title operating revenues and profits for first-half 2014 as the industry continued to deal with lower mortgage refinancing volumes. Harsh winter weather and higher interest rates in the first quarter also contributed to lower mortgage and real estate market activity over the first six months of 2014, according to Fitch Ratings.

The four largest U.S. title insurers reported a combined 12 percent decline in title operating revenues in first-half 2014 versus the same six-month period one year prior. While title orders opened during second-quarter 2014 declined 19 percent year over year, revenue per order expanded due to strength in purchase and commercial activity, as well as rising home values.

One positive trend in first-half 2014 was an improved loss ratio for all four major title insurers, due primarily to continued underwriting improvement and reduced strain on operating capacity. Loss development from prior underwriting periods has also diminished considerably but remains a focus point.

The deterioration in underwriting performance drove the group's reported GAAP pre-tax title operating margin to 6.1 percent for first-half 2014, compared to 10.3 percent for the same period in 2013.

Fitch reported that weaker market fundamentals will continue to restrict the potential for future revenue growth and profit margin expansion. Mortgage originations continue to fall due to reduced refinancing activity. While commercial activity remains robust, it is unlikely to fully offset other unfavorable trends. Disciplined expense management and continued favorable commercial market activity will be important contributors to industry profitability in second-half 2014, according to Fitch.

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