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.
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