Fitch Affirms Connecticut Attorneys Title Insurance Co. on Planned NJ Title Insurance Acquisition
|July 17, 2006|
CHICAGO -- Fitch Ratings has affirmed the 'A-' insurer financial strength (IFS) rating of Connecticut Attorneys Title Insurance Company (CATIC) after the company announced its plan to acquire New Jersey Title Insurance Company (NJ Title). The acquisition is expected to close in the fourth quarter and cost CATIC Financial, the parent holding company of CATIC, approximately $5.2 million.
The transaction will be accomplished at CATIC Financial using available cash, a dividend from CATIC and a floating-rate note from CATIC. NJ Title had $21 million in net written premiums and surplus of $5 million at year-end 2005. The acquisition gives CATIC a New Jersey presence and market share of approximately 4% in the state. NJ Title has recently been licensed in PA and may seek licenture in other Middle Atlantic States in future.
The rating reflects CATIC's solid franchise in the Connecticut title insurance market, a conservative investment policy and strong capital position. These strengths are balanced against CATIC's lack of geographic diversification, an ownership structure that limits access to outside capital funds, below average profitability and a decline in market share in the company's primary market.
As an attorney-owned title insurance company, CATIC's primary purpose is to preserve and promote the use of independent legal counsel in real estate transactions. CATIC has a long history of success in the Connecticut title insurance market with the state's third largest market share of 23% based on 2005 written premiums and a competitive advantage derived from its relationships with local attorney-agents. CATIC's market share has fallen significantly from a recent high of 34% in 2000. In recent years, the company has entered other New England markets and currently holds the largest market share in Vermont.
CATIC's return on average surplus was 9.2% in 2005, but net income included a nearly $1 million realized capital gain from the sale of a private equity holding. Given the fact that the average return on surplus for the title insurance industry was nearly 29% in 2005, CATIC's profitability remains challenged. CATIC's rating could face downward pressure if profitability and market share continue to deteriorate relative to its peers.
The company's strong balance sheet fundamentals include an above-average Fitch risk adjusted capital (RAC) ratio of 322% at year-end 2005, up from 300% at year-end 2004. On an absolute basis, surplus growth was positive but lagged peer companies over the industry's record-setting period between 2001 and 2005. Operating leverage, measured by the ratio between net written premiums and policyholders' surplus was 1.45x, which is considerably better then the 4x ratio for Fitch's title insurance rating universe.
Fitch affirms the following rating with a Stable Outlook:
Connecticut Attorneys Title Insurance Company
-- Insurer financial strength at 'A-'.
Source: Fitch Rtings