Fitch Releases U.S. Title Industry 2007 Review & 2008 Outlook

Year-to-date Sept. 30, 2007 pretax earnings for all 6 publicly traded title underwriters fell by two-thirds relative to 2006 to $295 million or a very modest 2.3% of operating revenue. Expense initiatives are expected to gain traction during 2008, resulting in a slight improvement in operating margins. For the foreseeable future, however, margins will not approach levels seen in the favorable market of 2003-2005.

The fortunes of the title insurance industry remain tied to mortgage and real estate markets, both of with will continue to deteriorate in 2008. Mortgage originations fell by 15% in 2007 with both purchases and refinancings declining roughly in proportion. Refinancing activity still represents nearly one-half of all originations and is not likely to fall below 40% of originations during the next two years.

Although the median price of homes reported only a slight decline, sales of new and existing homes fell precipitously and the housing market has a greater than 10 month inventory glut. Consequently, the housing market will continue to suffer in 2008 and the concern is whether the entire US economy will follow the real estate sector into recession.

Title underwriters have taken reserve charges during the year as current estimates of losses for previous policy years are exceeding originally reported loss ratios. Average combined ratios for the six publicly traded underwriters worsened by 350 basis points to 101.8% as of September 30, 2007. Only one underwriter out of the six reported improvement in expense ratios, and consequently, a better combined ratio relative to 2006.

Fitch does not expect prospects for the title insurance industry to show significant improvement until 2009 at the earliest. Fortunately, industry participants took advantage of prosperous years between 2002 and 2005 to strengthen balance sheets and should weather the current down cycle.

For a copy of the report 'Review and Outlook 2007-2008: Title Insurance Industry' dated Nov. 20, 2007, please see the Fitch Ratings web site under the tab 'Financial Institutions, 'Insurance' and 'Special Reports'.

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