AM Best Calls Title Industry Outlook ‘Stable’

November 5, 2019

U.S. title insurance companies saw considerable growth in pre-tax and net operating profits in 2018, reflecting success for national companies as well as smaller companies operating in a single state or specific region of the country, according to a new AM Best report.

The report, “U.S. Title Insurers: Rising Profitability, Declining Premium Growth,” states that pre-tax operating income for AM Best’s composite of title insurance companies rose by 24% in 2018, to nearly $1.4 billion from $1.1 billion. In addition, the industry’s $160.3 million income tax burden in 2018 was less than half the 2017 total of almost $360.0 million, due to U.S. tax reform, contributing to a 28 percent increase in net income to more than $1.1 billion. The report noted that steady growth in the housing markets, along with strong employment and growing consumer confidence, has helped the industry’s direct premiums written (DPW) rise to $14.4 billion in 2018 from low of $8.9 billion in 2011. However, premium growth has slowed in the last two years, with DPW for the composite up just 3.6 percent in 2017 and 0.7 percent in 2018, according to AM Best.

The title insurance composite’s underwriting performance over the last five years has been very consistent, with an average annual combined ratio of 93.6 during the period, generating underwriting income annually. The composite’s 2018 combined ratio of 93.1 represented the seventh consecutive year that the industry’s combined ratio was below 100.

AM Best’s stable market segment outlook on the title segment is based on the expectation of strong operating results; housing appreciation; mortgage rates below historical averages; the ongoing decline in unemployment; record-low foreclosure rates; and positive consumer sentiment about the economy and home ownership.

The report concludes however, that “a number of negative factors counter these positives, including a slowdown in economic growth; signs of a weakening housing market; limited housing inventory; the rising costs of materials; and land and labor shortages. Any combination of these factors could drive up home prices and hurt affordability, particularly for first-time homebuyers, many of whom are burdened with household and student debts.

“The ability of title insurers to maintain favorable operating results at or near the levels of recent years will depend largely on the health of the housing market, the recovery of which has been somewhat uneven,” AM Best reported. “Home prices in some parts of the country have risen above earlier peaks, but other areas remain below those peaks. Still, a number of title insurers have demonstrated the ability to operate profitably, even when market forces are less than ideal, and revenues are depressed to some degree.”


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