Fitch Releases U.S. Title Industry 2016 Outlook
December 1, 2015
Fitch Ratings maintains a stable rating outlook on the U.S. title insurance industry, according to a new report. The outlook reflects a belief that rating actions for the industry will on balance approximate current levels over the next 12 to 24 months, as financial performance has improved and capital levels remain strong based on several measures.
Fitch also has a stable fundamental sector outlook for 2016. Operating margins are anticipated to stay flat to modestly improve in 2016.
“Title insurers have sufficient operating capacity to manage current transaction volume,” according to Fitch. “The likelihood of large adverse reserve movements has declined as losses from troublesome policy years 2005-2008 settle. Macro-economic growth prospects and the potential for higher interest rates are areas of uncertainty that may unfavorably affect title insurers' revenue and earnings going forward.”
The Mortgage Bankers Association (MBA) forecasts mortgage originations to decrease to $1.3 trillion in 2016, compared with $1.5 trillion in 2015. Importantly purchase originations are forecast to grow by 10% and refinances are anticipated to decline by 34%. Title insurers generate approximately twice the revenue from a purchase transaction compared with a refinance transaction.
Title revenues increased 15.4% through the first nine months of 2015, driven primarily by higher closed orders and increased commercial activity. Closed and open orders increased 8% and 5%, respectively, in third quarter 2015 over the prior year quarter, which should benefit year-end results. However, the forecasted decrease in mortgage originations for 2016 is expected to temper prospects for further revenue growth, according to Fitch.
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