Fitch Report: Title Insurance Industry's Risk Adjusted Capital Position Declines in 2005
|August 14, 2006|
|Title Insurers' Risk-Adjusted Capital Adequacy at Year-End 2005 [pdf]|
CHICAGO--(BUSINESS WIRE) -- Fitch Ratings has completed its study on the U.S. title insurance industry's risk-adjusted capital (RAC) position at year-end 2005, which showed a modest decline in the RAC ratio for Fitch's aggregate title insurer universe.
The decrease in the RAC ratio reflects growth in several of the risk components of Fitch's model, particularly related to expense leverage, potential adverse claims development and large policy loss exposures. The record-setting operating revenue generated by the title insurance industry in 2005 increased the expense leverage charge in Fitch's RAC ratio, reflecting the risk of higher fixed costs in a historically cyclical industry. Surplus growth in 2005 was solid, but did not fully compensate for the greater risk factors.
The study's results reveal that the title industry remains well capitalized overall, though there remain significant disparities in capital strength among individual companies. Based on developments to date in 2006, namely declining operating revenue, Fitch believes that the RAC ratio is likely to improve. Specifically, even though operating results are expected to trend downward, surplus is forecast to increase during 2006. Further, declining revenue will reduce the charge for expense leverage, meaning a higher RAC ratio.
For a copy of the report 'Title Insurers' Risk-Adjusted Capital Adequacy at Year-End 2005', dated August 11, 2006, please see the Fitch Ratings web site www.fitchratings.com under the tab 'Financial Institutions', 'Insurance' and 'Special Reports'.
Source Fitch Ratings