Fitch: U.S. Title Insurers Brace for Macroeconomic Pressures

June 30, 2022

Statutory capital will remain very strong for U.S. title insurers even as macroeconomic pressures mount in the coming months, according to a new report from Fitch Ratings.

The U.S. title insurance industry’s risk-adjusted industry capital declined, though remained broadly supportive of ratings at the end of 2021, according to Fitch Senior Director Gerry Glombicki.

“Title insurers are well positioned to absorb near-term volatility associated with an evolving macroeconomic environment with higher inflation and interest rates,” he added.

Revenue growth so far this year has been positive, with first quarter results benefitting from lower mortgage rates and strong housing demand. That said, revenue growth will come under pressure in the second half of 2022 and beyond as interest rates move higher to combat higher inflation. Commercial real estate continues to be a wildcard in predicting industry revenues.

“One large deal can swing the industry from loss to a profit for the year and large commercial deals tend to be geographically concentrated in larger urban markets,” Glombicki said.

While reduced mortgage origination volumes will negatively impact total revenues the impact on capital adequacy could be positive as the capital strain from new business is reduced. Additionally, title insurer operating structures are lean and can quickly reduce operating costs if needed.

“The ability to efficiently manage expenses will also help reduce the impact to both earnings and capital,” according to Glombicki.

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