Fitch Releases U.S. Title Industry 2010 Review & 2011 Outlook

December 2, 2010

Fitch Ratings released its annual analysis of the U.S. Title Insurance Industry in a special report entitled “2011 Outlook: U.S. Title Insurance Industry.”

“Aside from the magnitude of the economic recession and property market downturn, the issues currently plaguing the title insurance industry are similar to those of past cyclical downturns,' said Gerry Glombicki, director and Title Sector Head for Fitch. “Specifically, the title insurance industry remains extremely vulnerable to the real estate cycle and macroeconomic changes.”

Despite continued low mortgage interest rates, real estate and mortgage market activity remains anemic, pressuring title insurer revenues.

“The main challenge facing title insurer's management is how to align their operating structures with the further anticipated declines in mortgage originations for 2011 while simultaneously maintaining customer service and a flexible infrastructure to take advantage of any market opportunity,” Glombicki added.

Fitch's recent negative rating actions for title insurers have typically reflected both weakened capital positions and sustained operating losses. Fitch's 2009 U.S. title insurance industry's risk-adjusted capital (RAC) ratio was 133 percent, a significant improvement over the 2008 RAC ratio of 105 percent. However, from a historical perspective, 2009's ratio is the second lowest since Fitch began calculating the ratio in 1997.

Fitch's industry RAC ratio is greatly influenced by market leaders Fidelity National Financial, Inc. (FNF) and First American Financial Corp. (FAF), whose market shares are 42% and 27%, respectively. FNF and FAF have recently returned to profitability in their title operations, which differentiates them from other peers, and should promote modest improvement in the industry capital position at yearend 2010.