A.M. Best Revises Rating Outlook to Stable From Negative for U.S. Title Sector
October 26, 2010
Title operating results rebounded in 2009 following the freefall in the real estate market in 2008, when title insurance revenues — dependent on housing demand and price levels — fell sharply compared to prior years, and most of the major title insurance underwriters had posted net losses, according to A.M. Best.
Most of the major underwriters posted operating gains, while industry capitalization also improved significantly. Moreover, during the first six months of 2010, most of the major title insurers, helped partly by federal policy and tax incentives as well as a continued decline in long-term interest rates, spurred higher refinancing activity and continued to post positive operating margins. This resulted in positive rating actions, which included the revision of the rating outlook to stable from negative, for Fidelity National Financial Group and First American Title Insurance Group, the two principal title insurance underwriters groups.
However, the environment for the housing market remains challenging as witnessed by recent housing market data, A.M. Best reported. This data shows a somewhat softer real estate sales and pricing environment following the recent expiration of the aforementioned public incentive programs, as well as ongoing macroeconomic uncertainties that may impact future industry revenues and earnings, including the slow pace of the economic recovery and persisting high unemployment. Questions also have been raised recently regarding the processing of foreclosure properties by leading banks and financial institutions.
Nevertheless, A.M. Best Co. has revised its rating outlook for the title sector to stable from negative, principally due to the improvement in operating performance over the past year, as well as the significantly improved balance sheet strength of the major title insurers, which A.M. Best believes will help these title insurers weather the economic uncertainties facing the industry. The stable outlook reflects A.M. Best’s view that the majority of the ratings for title insurance companies are not likely to change over the near to medium term.