Fitch: Macroeconomic Pressures Continue for Title Insurers

Broad macroeconomic headwinds continue to pressure title insurers’ revenue as mortgage rates and housing affordability depress origination volumes, reported Fitch Ratings, New York.

In a new report, Macroeconomic Pressures Continue for Title Insurers, Fitch noted it expects these pressures will persist over the next 12 to 18 months and said refinance volumes will likely remain severely depressed. Purchase order volumes will remain pressured but will likely rebound somewhat in 2024 as underlying housing demand remains strong.

Title insurers’ earnings will also experience pressure, Fitch said. “The dramatic rise, followed by sustained higher mortgage rates over the last 18 months has materially affected origination volumes, and premiums for the four national underwriters [Fidelity National Financial, Inc.; First American Financial Corporation; Stewart Information Services Corporation; and Old Republic International Corp.] were down 37% in 1H23 relative to the prior year,” the report said. “Fitch expects profitability to remain somewhat depressed as rates should remain elevated. However, home price resilience and volatility in commercial order flow could lead to stronger than expected results.”

The report noted insurers’ capital ratios have declined, but remains strong. “The title insurance aggregate 2022 risk-adjusted capital ratio decreased to 168%, largely driven by declines in statutory surplus and Fitch’s estimated statutory reserve redundancy,” Fitch said. “The 168% RAC score calculated at year end is consistent with Fitch’s guidelines for the ‘a’ category and remains broadly supportive of outstanding ratings. Further material declines are not expected, given expected modest growth in surplus in 2023.”

Finally, insurers’ margins are beginning to improve. “Title operating margins have begun to improve as companies continued to aggressively manage expenses, despite continued pressure on top-line growth,” the report said. “The aggregate title operating margin for the four underwriters improved 3% sequentially in 2Q23, and Fitch expects margins will continue to improve modestly through the end of the year.”