The title insurance industry remains ‘extremely vulnerable to the real estate cycle and macroeconomic changes,’ says Gerry Glombicki, director of Fitch Ratings' title sector unit. Fitch released its annual analysis of the U.S. title insurance industry this week.
Despite continued low mortgage interest rates, real estate and mortgage market activity remains anemic, pressuring title insurer revenues, Fitch says.
‘The main challenge facing title insurers' management is how to align their operating structures with the further anticipated declines in mortgage originations for 2011 while simultaneously maintaining customer service and a flexible infrastructure to take advantage of any market opportunity,’ Glombicki adds.
Fitch's recent negative rating actions for title insurers have typically reflected both weakened capital positions and sustained operating losses. Fitch's 2009 U.S. title insurance industry's risk-adjusted capital (RAC) ratio was 133% – a significant improvement over the 2008 RAC ratio of 105%. However, from a historical perspective, 2009's ratio is the second lowest since Fitch began calculating the ratio in 1997.
Fitch notes that its industry RAC ratio is greatly influenced by market leaders Fidelity National Financial, Inc. (FNF) and First American Financial Corp. (FAF), whose market shares are 42% and 27%, respectively. FNF and FAF have recently returned to profitability in their title operations, which differentiates them from other peers, Fitch says.
SOURCE: Fitch Ratings