AM Best Reports Title Insurers Continue to Post Solid Results Despite Lower Premium Volume
October 17, 2023
The U.S. title insurance industry saw its volume of net premium written decline by 16.1% in 2022, to approximately $20.9 billion, following a decade of growth during which this level had more than doubled, according to a new AM Best report.
The Best’s Market Segment Report, "Title Insurers’ Underwriting and Operating Performance Solid Despite Lower Premium Volume," noted that the premium volume for this segment continued to drop in 2023, owing to higher mortgage interest rates and low housing inventory.
"During the first half of 2023, the title industry continued to experience a slowdown in title orders, as headwinds signaled last year," said Kourtnie Beckwith, senior financial analyst at AM Best. "The reduction in transactions was expected as interest rates began increasing in March 2022 to levels not seen in decades."
The decrease in premiums is being driven in part by homeowners who are reluctant to sell or refinance and trade low mortgage interest rates loans for those with interest rates that have more than doubled, all while home values remain elevated. The combination of these two factors are major headwinds for the title industry, as new homebuyers cannot afford to purchase starter homes given the rise in home values and higher interest rates. AM Best revised its outlook for the U.S. title industry to negative from stable in February 2023 as a result of the prospective headwinds with strong indications that these will remain in early 2024.
Despite the drop in top-line premium, underwriting and operating performance of title insurers have remained solid, although operating margins are more compressed due to external market pressures. In 2022, the title segment’s underwriting income declined by one-third to slightly over $1.7 billion, down from slightly more than $2.5 billion in 2021. The segment’s combined ratio increased by more than three points to 91.8, driven by increases in both its loss and loss adjustment expense and underwriting expense ratios.
Improved underwriting and strong operating performance in 2021 helped title insurers strengthen capital heading into 2022 despite inflationary pressures, the near certainty of interest rate hikes, and a reduction in monetary support from the government, according to the report.
"The changing economic factors and the impact on the title market took center stage in 2022," said Ann Modica, director at AM Best. "Industry observers had expected home value appreciation to taper with rising interest rates, but inflationary pressure from rising labor and material costs worsened."
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