Fitch: U.S. Title Insurers Strongly Capitalized
Tuesday, September 20, 2016
The U.S. title insurance industry is well-capitalized with a risk-adjusted capital (RAC) score of 178 percent, according to a report from Fitch Ratings issued in August. This is down slightly from a score of 181 percent for Fitch's title insurance universe.
“Title Insurers are strongly capitalized, and Fitch expects industry operating revenues to be flat to slightly down as the threat of sharp increases in interest rates has become more remote,” said Gerald Glombicki, director of Fitch Ratings. “Along with sustained low rates, modestly improving employment figures and U.S. economic growth will offset what once looked like a softening housing market.”
Fitch calculates the industry RAC score on a weighted average basis, meaning Fidelity National Financial, Inc. and First American Financial Corp., greatly influence results with a combined market share of 60 percent.
According to Fitch, the primary risk facing most title insurers is the inability to quickly cut expenses in the face of declining revenue due to unforeseen changes in macroeconomic or property market conditions. Fitch views flexible cost structures as critical for long-term success and strong capitalization.
“Expense management will be critical for profitability in 2016, given flat to lower premium volume and Fitch anticipates that operational restructuring undertaken by the industry will help insurers withstand a future cyclical downturn,” added Glombicki.