Moody’s Issues Report on Title Insurance Industry
|April 12, 2011|
In a new report, Moody’s Investors Service predicted title insurance underwriters will remain challenged over the next year and a half.
"Over the medium term, we expect title insurers to be pressured by a shrinking revenue base and lower income due to a drop in mortgage refinancings," says Paul Bauer, Moody's VP and author of the report, "accompanied by only a mild, if any, uptick in home sales."
Moody's believes that the credit profile of the industry will be driven by interest rates, total number of home sales, legal or political developments, and potential consolidation.
Moody’s economic forecast calls for the 30-year fixed rate to rise to about 6 percent this year, prompting a significant drop in mortgage refinancing. The agency expects home sales to remain sluggish this year, resulting in reduced title revenue from policies issued on purchases.
Uncertain regulatory and political changes also pose a threat. Though the rating agency doesn't see any immediate risk for title insurers, the contentious real estate environment and murky future of mortgage finance could lead to adverse developments.
Additionally, given declining revenues, the industry could see further consolidation, with a potential for distressed sales or even failures among smaller companies, according to Moody’s. Consolidation could also add operational risks and reduce financial flexibility for companies that acquire others.
Moody’s indicated it will not downgrade any ratings of the underwriters.
"We believe our ratings are correctly positioned to reflect the cyclicality of the industry, including periods of decline," Bauer said. “Our rated companies have the operational flexibility to shrink if needed, and the capital adequacy to meet some volatility on the loss side."