Ratings Firm: Encouraging Signs Predicted for Underwriters Through 2012

October 16, 2012

In 2011, title insurers continued to navigate through a difficult operating environment as premiums fell to their lowest level in the past 10 years. Despite low mortgage rates, revenues remained under pressure due to soft economic conditions characterized by sluggish growth, high unemployment and tight credit standards.

An underwriting loss of about $29 million was reported for the year, which was much less than what had been reported in any of the prior five years, which painted a somewhat optimistic picture for the title industry going forward. While net premiums written (NPW) declined by less than 5 percent, underwriting income improved by more than 86 percent. As a result, the industry reported an improved composite ratio—similar to the combined ratio in the property/casualty industry—of 101 percent, which is the lowest it has been in the past four years and the third consecutive yearly improvement.

Another potentially positive sign is that title premiums have increased 10 percent in the second quarter of 2012, compared with the same period in 2011. In addition, underwriting performance has significantly improved through the second quarter of 2012, as losses from prior years have begun to moderate.

A.M. Best Co. has maintained its stable rating outlook for the title sector with the view that the majority of ratings will not change over the near-to-medium term. (A stable outlook indicates that A.M. Best expects that rating actions within the market segment will not show a general trend and will be driven primarily by individual company operations.) The outlook indicates the industry's relatively strong financial condition—as reflected in the balance sheet strength of the major title insurers—as well as positive developments occurring in the housing market through the first half of 2012, such as:

  • An increase in national property values of more than 1 percent;
  • An increase in construction activity; and
  • A decrease in foreclosure rates.
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