Fitch Says Title Insurers Well Capitalized Against Coronavirus Fallout

June 18, 2020

U.S. title insurer revenues will likely decrease in 2020 from pressure on both the residential and commercial real estate markets as they continue to grapple with the fallout from the ongoing Coronavirus pandemic, according to Fitch Ratings.

However, after a strong 2019, capitalization levels will likely be adequate, according to a new report released by Fitch. The ratings firm expects industry operating revenues to be down in the high single-digit range for 2020 as first-quarter 2020 was one of the strongest on record, but will be pressured by second-half 2020. Industry capitalization is expected to be flat to in 2020, as statutory surplus for companies in Fitch's Universe is expected to moderate.

Fitch's title insurance industry aggregate risk-adjusted capital (RAC) ratio increased to its highest score in nine years to 217 percent for 2019 from 193 percent in the prior year. Statutory surplus was up by 17 percent in 2019, and was aided by a continued redundancy in reserves, which contributed to a 22 percent increase in adjusted policy holder surplus (APS) for the year.

"Year-end 2019 set a high-water mark for title industry capital adequacy as measured by Fitch's RAC model," said Gerry Glombicki, director at Fitch. "This balance sheet strength boosts insurers' ability to meet operating challenges in 2020 from the coronavirus pandemic and ensuing economic volatility."

Revenues in 2020 will be pressured from reduced volume of real estate and mortgage financing transactions coupled with a recessionary environment. Title insurer revenues will be most pressured in the commercial real estate market from reduced economic growth. The lower interest rate environment and sustained declines in 30-year fixed rate mortgage rates should support refinance originations and possibly purchase originations albeit at reduced levels. With lower revenues, title insurers started reducing operating costs in Q1 and Fitch expects this trend to continue throughout the remained of 2020 to appropriately match expenses and revenues.

Fitch revised its sector outlook for U.S. title insurers to negative in March, reflecting the industry's exposure to weakening macroeconomic conditions from the coronavirus pandemic. Fitch maintains a Stable Ratings Outlook for the U.S. title insurance sector based on an expectation that few individual company ratings in the sector will change in the next 12-18 months.


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