Fitch Affirms Old Republic Title Group's 'AA-' IFS Ratings
|August 11, 2006|
CHICAGO--(BUSINESS WIRE) Fitch Ratings affirms the 'AA-' insurer financial strength ratings of the Old Republic Title Group (ORT), which consists of the following title insurance companies: Old Republic National Title Insurance Co., Old Republic General Title Insurance Corp., Mississippi Valley Title Insurance Co., and American Guaranty Title Insurance Co. The Rating Outlook is Stable.
ORT is considered a strategic subsidiary of Old Republic International Corp. (NYSE:ORI), and consequently, ORT's ratings benefit from the support of its parent. ORI's revenue is generated from three primary lines of business: property/casualty, title, and mortgage guaranty. The title operations represented 27% of consolidated operating revenue at ORI during the first six months of 2006, which was down somewhat from recent highs given the general deterioration in the real estate and mortgage markets.
ORT's ratings also reflect a competitive position as one of the five U.S. title underwriters with a national presence, solid profitability, and a conservative management strategy anchored by a strong balance sheet.
ORT is the smallest among the five national title insurers with a slightly less than 6% share of the market measured by premium volume. Importantly, ORT's market share has been relatively stable over the recent past, pointing to the company's ability to defend its competitive position in a competitive market.
The company's distribution favors agents over owned distribution, which is different than most national peers. Consequently, ORT's cost structure is more variable and should help preserve profits as the market for title insurance slows. ORT's profitability measured by return on surplus was in line with national peers in 2005 at nearly 27%. Expectations for the entire title insurance industry are down as the real estate and mortgage market slow.
The conservative management strategy at ORT mirrors that of ORI and includes modest use of financial leverage, an investment portfolio with a strong allocation of investment grade bonds, and strong capitalization. Fitch uses its own risk-adjusted capital (RAC) ratio to measure the capital adequacy of title insurance companies. ORT's RAC ratio was 206% in 2005, remaining comfortably above the industry average and three out of four national peers. ORT receives benefit from a statutory reserve redundancy relative to the actuarial midpoint for loss reserves.
Fitch affirms the following:
Source: Fitch Ratings