An Open Letter Regarding Financial Stability Ratings® of Title Underwriters
Columbus, Ohio – January 22, 2010
Demotech, Inc. has become aware that some third parties have instituted internal minimum asset or net worth requirements in excess of statutory requirements in addition to the verification of acceptable independent, third-party ratings. Although we acknowledge there may be anxiety related to the verification of the financial condition of some Title underwriters, establishing a minimum asset or net worth requirement that is significantly above the statutory requirement of a state of domicile does not specifically address the financial stability of a Title underwriter. Moreover, such a requirement may exclude a duly licensed, financially stable regional or state specialist from assisting consumers and lenders.
Since Demotech has reviewed and rated Title underwriters longer than any other third party, we offer this brief summary of our review and analysis process in the hope that minimum asset or net worth requirements that exceed the statutory requirements imposed by regulators are eliminated. The following summary should provide perspective on the interpretation and utilization of our Financial Stability Ratings®.
Demotech has been reviewing and rating Title underwriters since 1992. We were the first company to review and rate the entire industry. We did so two years prior to the secondary mortgage marketplace requirement to have an independent third-party review. In 1994, Financial Stability Ratings® of S or better were specifically accepted for Title underwriters, when Fannie Mae issued announcement 94-13.
We review Financial Stability Ratings® every quarter. This schedule coincides with the availability of quarterly financial information. We review each company as a stand-alone entity. Although we may reflect the existence of a well-defined corporate relationship within a group, each and every Title underwriter, regardless of size, is reviewed, analyzed and, when applicable, affirmed every 90 days.
In addition to a command of the structure, financial reporting requirements and composition of the Title insurance industry, our personnel have nearly 125 years of experience with insurance accounting and financial reporting. I have 40 years of that experience and expertise. In addition to experience, I am one of the few credentialed actuaries familiar with Title insurance as well as P&C insurance.
Along with the quarterly analysis and dialogue related to the financial analysis of each Title underwriter, we have frequent discussions related to critical Title industry issues, such as reinsurance, defalcations, alternative distribution methods and trends in losses. As evidence of our diligence and effectiveness from 1992 to date, no Title underwriter has ever failed while rated A or better.
In sum, we encourage lenders and other third parties to utilize financially stable Title underwriters regardless of the absolute dollar amount of their reported assets or net worth. The balance sheet inter-relationships and financial stress tests that measured the ability to honor meritorious claims have been reviewed and analyzed prior to the assignment or affirmation of our Financial Stability Rating®.