Fitch Ratings Voices Concern Over Outlook for Title Insurance

Fitch Ratings said Wednesday that its outlook on the title industry had turned negative, amid a sharp decline in revenue and profits and expectations for further deterioration in 2008 and 2009.

Driving the agency’s concern were rare net losses among the largest U.S. title insurers last year; four out of five publicly-traded, national title underwriters rated by Fitch reported net losses in 2007.

“As title insurance is a cyclical business, ratings are assigned at a level that can withstand a normal industry cycle,” said Doug Pawlowski, who leads title insurance ratings at Fitch. “However, the current downtrend may be unusually severe and longer in duration than past cycles, and create significant pressure on some company ratings.”

Leading indicators of future title insurance revenues, including mortgage origination and title insurance order flow, reveal that further challenges lie ahead, Pawlowski said.

Poor results in 2007 were also attributable to increasing loss reserves. Loss ratios higher than the agency had been expecting for the peak housing years of 2003-2006 indicate that underwriting quality “diminished greatly,” according to a press statement released by Fitch.

“There is some concern that these reserve deficiencies coupled with operating losses will affect capital adequacy within the title industry,” said Gerald Glombicki, director of Fitch’s insurance rating group.

The rating agency said it expects to complete a loss reserve adequacy and risk-based capital analysis for U.S. title insurers this spring.

For more information, visit http://www.fitchratings.com.