Monday, August 11, 2008

Insurance commissioner monitoring Mercury Cos. deal

The Colorado Division of Insurance is monitoring the sale of Mercury Cos.’ Colorado businesses to ensure that consumers are protected, state officials said Friday.

On Aug. 5, Denver-based Mercury Cos. announced that it had sold four local title insurance agencies — Security Title Guaranty Co., United Title Co., First American Heritage Title and Title America Inc. — to Fidelity National Title Insurance Co. of Jacksonville, Fla., a major nationwide underwriter.

The sale occurred just days after Mercury closed operations in California, Arizona and Texas.

“Our goal is to work with the new owners and the title agencies to ensure consumers’ rights are protected,” Marcy Morrison, the state insurance commissioner, said in a statement. “Purchasing a home, and securing the title to that home, is an important step for anyone, and the Division of Insurance is committed to making sure that the consumers’ interests remain intact during the transition. In the best-case scenario — a smooth transfer of files and accounts — consumers may not realize any effects of the sale behind the scenes.”

There have been issues involving Mercury companies in other states. California’s labor commissioner is suing Mercury over money that the state alleges is owed to former workers of Alliance Title Co., a Mercury subsidiary that shut down at the end of 2007.
Source

Real Estate and Credit Woes Take Toll on Title Insurers: Report

In some ways, the title insurance business isn’t really all that complex. Revenues depend primarily on just two inter-related factors: the level of house prices, and the demand for housing. And, of course, both are suffering in one of the worst housing corrections in U.S. history thus far — lower prices and shrinking demand have helped push transaction volumes down dramatically for anyone in the business of underwriting title insurance policies.

All of which leads to the obvious conclusion: the ability of title insurers to control expenses in a declining revenue environment is critical to maintaining profitability. And those companies that possess a flexible cost structure, are more proactive in expense management and have access to capital can expect to weather the current down cycle better than others, according to an assessment released Monday by A.M. Best Company.

Title insurance isn’t a highly-fragmented industry, either: five national writers control nearly 95 percent of industry premium volume.

The credit rating organization said its outlook for the title insurance industry for the balance of 2008 and for 2009 remains negative, and that “any improvement will depend largely on the length and depth of the housing downturn.”

The reasons for such pessimism are plenty. Direct premiums written for the title insurance industry were down 14.3 percent in 2007, A.M. Best said, driven by sharp reductions in premium volume for California and Florida. Further, title industry policyholder surplus declined by nearly 22 percent, largely the result of national writers; regional companies posted a modest gain in surplus, according to the report.

Pretax operating income and net income were down 64.7 percent and 69.9 percent, respectively, driven by net underwriting losses of $80 million last year. Investment income was flat, too, at $508 million vs. $509 million in 2006.

Add in mounting incurred losses, along with a loss of policy underwriting inflow, and it’s not surprising that the fortunes of the large title players are strapped directly to the deck of the U.S. housing market’s bow — the fate of the ship will essentially determine the fortune of those that ride on the ship. For more information, visit http://www.bestweek.com.

A.M. Best Special Report: Real Estate and Credit Woes Take Toll on Title Insurers

Title insurance revenues depend on both the level of house prices and the demand for housing. Thus, the ongoing slowdown in real estate activity combined with tightening mortgage market conditions and the worsening U.S. economy have been a significant drag on the title industry's revenues.

The ability of title insurers to control expenses in a declining revenue environment is critical to maintaining profitability. Thus, those companies that possess a flexible cost structure, are more proactive in expense management and have access to capital can expect to weather the current down cycle better than others. This dynamic will influence the course of A.M. Best's future rating actions as the industry works its way through the current challenging environment.

The outlook for the title insurance industry for the balance of 2008 and for 2009 remains negative, and any improvement will depend largely on the length and depth of the housing downturn.

-- Direct premiums written for the title insurance industry were down 14.3% in 2007, driven by sharp reductions in premium volume for California and Florida. Five national writers control nearly 95% of industry premium volume.

-- Title industry policyholder surplus declined by nearly 22%, largely a phenomenon among national writers. Regional companies posted a modest gain in surplus.

-- Pretax operating income and net income were down 64.7% and 69.9%, respectively, driven by net underwriting losses of $80 million.

-- Investment income was flat, at $508 million vs. $509 million in 2006.

-- Incurred losses have been rising during the recent period of declining revenue and profitability. The industry's combined ratio (known as composite ratio) increased by approximately 4.5 points.

BestWeek subscribers can download a PDF copy of all full special reports at no additional cost or a combination of the PDF copies plus all related spreadsheet files of the report data at no additional cost from our Web site at www.bestweek.com.

Nonsubscribers can download a PDF copy of the full special report (8 pages) for $55 or a combination of the PDF copy plus the spreadsheet file of the report data for $140 from our Website at www.bestweek.com. Call customer service for more information, (908) 439-2200, ext. 5742.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.