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A.M. Best Special Report: Real Estate Slowdown Dampens Title Industry Revenues for 2006 and 2007

October 8, 2007

OLDWICK, N.J.-- Premium revenues slipped modestly for the title industry in 2006 from the levels of 2005 and 2004, continuing the flat or declining trend seen after a record setting 2003. Operating performance remained favorable, with another year of solid operating profit despite slight deterioration in the combined ratio, according to a special report by A.M. Best Co.

  • The expense ratio increased moderately, primarily due to reduced premium volume as the real estate market cooled.
  • Claim activity has increased in the current year due to home foreclosures resulting from increases in short-term interest rates.
  • The industry's 2006 combined ratio was less than 100 for the sixth consecutive year, but the deteriorating real estate market has hurt underwriting profitability in 2007.
  • Net income in 2006 was approximately $1.01 billion, up slightly from 2005's $973 million.
  • The pretax underwriting gain, including income from fees and services, was approximately $715 million, a small decline from $727 million in 2005.
  • Somewhat weaker equity markets drove realized capital gains down by nearly $105 million from 2005, but net investment income rose by more than $90 million and income taxes incurred fell by $60 million, producing a boost to net income.
  • The slowdown in real estate activity in 2006 has been exacerbated in 2007 by tightening credit conditions in parts of the residential mortgage market, an effect of the so-called "subprime crisis."
  • Weaker trends in housing can hurt housing-dependent sectors such as title insurance but also could improve affordability and generate new demand from those who did not participate in the "bubble" market of 2000-2005.
  • The severity of the correction in the housing market and uncertainty surrounding the effects of the subprime crisis will be factors influencing the title industry's volume, profitability and future trajectory.


BestWeek subscribers can download a PDF copy of all full special reports at no additional cost or a combination of the PDF copies plus all related spreadsheet files of the report data at no additional cost from our Web site at www.bestweek.com.



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