Fitch Ratings: Title Insurers Brace for Macroeconomic Pressures

U.S. title insurance companies’ statutory capital should remain very strong even as macroeconomic pressures mount in the coming months, Fitch Ratings said in a new report.

“The U.S. title insurance industry’s risk-adjusted industry capital declined but remained broadly supportive of ratings at the end of 2021,” Fitch Senior Director Gerry Glombicki said in U.S. Title Insurers’ 2021 Risk-Adjusted Capital Adequacy. “Title insurers are well positioned to absorb near-term volatility associated with an evolving macroeconomic environment with higher inflation and interest rates”.

The report noted revenue growth for title insurers has been positive so far this year, with first quarter results benefitting from lower mortgage rates and strong housing demand. “That said, revenue growth will come under pressure in the second half of 2022 and beyond as interest rates move higher to combat higher inflation,” Fitch said.

In addition, commercial real estate remains a “wildcard” in predicting industry revenues, Glombicki said. “One large deal can swing the industry from loss to a profit for the year and large commercial deals tend to be geographically concentrated in larger urban markets,” he said.

While reduced mortgage origination volume will negatively impact title insurers’ total revenue, the impact on capital adequacy could be positive as the capital strain from new business is reduced, Fitch said. Additionally, title insurer operating structures are lean and they can quickly reduce operating costs if needed. “The ability to efficiently manage expenses will also help reduce the impact to both earnings and capital,” Glombicki said.

U.S. Title Insurers’ 2021 Risk-Adjusted Capital Adequacy is available at www.fitchratings.com.