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.


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