Despite the economic headwinds, the title industry remains strong, according to Fitch Ratings’ title industry September 2023 Peer Review.
According to Fitch, the Big Four title companies, Stewart, First American, Fidelity and Old Republic, accounted for approximately 82% of all the title premiums written during the first quarter of the year. Fidelity recorded the largest market share at 29%, followed by First American at 26%, Old Republic at 16% and Stewart at 11%.
However, Fitch noted on Tuesday that premiums were down 37% year-over-year for the first half of 2023. Fitch attributed this decrease to macroeconomic headwinds, including rising mortgage rates and housing affordability challenges brought about by low inventory, which have greatly diminished origination volumes. The firm said it expects these headwinds to persist for the next 12 to 18 months, with refinance volumes remaining depressed. But, Fitch noted that it anticipates purchase order volumes will rebound slightly in 2024 thanks to the persistent high levels of housing demand.
In addition, Fitch said it “expects profitability to remain somewhat depressed as rates should remain elevated,” but it noted that the strength of home prices and a potential uptick in commercial order flow could result in better than anticipated results.
With premium volume down, title companies have cut expenses, resulting in the aggregate title operating margin for the Big Four rising 3% quarter-over-quarter in the second quarter of 2023. Fitch said it expects margins to continue to improve through the end of the year.
Overall, the industry’s aggregate 2022 risk-adjusted capital ratio (RAC) dropped to 168%, due to declines in statutory surplus and Fitch’s estimated statutory reserve redundancy. The 168% RAC score meets Fitch’s guidelines for the “A” rating category and the organization said it remains in support of the outstanding ratings. Fitch also noted that it does not anticipate further material declines this year.
Of the three national title underwriters Fitch rates, Stewart has the lowest company profile rating at an “A-,” while both Fidelity and First American hold “A” ratings.