Title Underwriters Profitability at Highest Level Since 2007
By Douglas A Powell and Paul D Osborne
If the reality is that any business is only as good as its bottom line, then business is back to being good for Title underwriters. The year-to-date results indicate that many of the economic factors of 2012 have once again become favorable to Title underwriters and the Title insurance industry. The profitability of Title underwriter operations is encouraging. For the third consecutive quarter, aggregate underwriting results on a year-to-date basis were positive for the Title industry and nearly three-quarters of Title underwriters reported a net underwriting gain individually through the third quarter 2012.
The Title industry reported an aggregate operating gain of nearly $317 million through the third quarter 2012, ending operating losses reported through the third quarter in the previous two years. Industry net income of nearly $493 million was reported through the third quarter, a 205 percent year over year improvement. This also marks the highest level of net income for the Title industry through the third quarter since 2007.
While Title underwriters are again reporting net operating gains and net profits, they have also continued to maintain adequate levels of policyholders’ surplus while increasing direct premiums written period over period. Title underwriters, in aggregate, increased policyholders’ surplus over 20 percent since year-end 2011 to $3.5 billion. The Title industry reported a leverage ratio (liabilities to policyholders’ surplus) of 1.57. Demotech prefers underwriters report leverage of less than 3:1 and a ratio greater than that will subject an underwriter to additional review and analysis.
Title underwriters reported approximately $8 billion in direct premium written through the third quarter, representing a 15.3 percent increase period over period. Most of the premium growth experienced by Title underwriters was derived from refinance activity based on historically low interest rates. The effect those interest rates would normally have in generating premium has been partially offset by high credit qualifications and loan to value ratio barriers.
The Title industry has reason to hope that the direct premium gains seen over the past few periods are more than a brief respite and instead the start of sustained growth. Moreover, the rapid consolidation in the industry means the potential new revenue is distributed among a smaller pool of companies, giving each a larger, more profitable
share. As the industry begins to string together quarters of positive growth, new investments in Title underwriters may potentially emerge.
As mentioned previously, in the first quarter 2012 the Title industry reported improved results. Through the second quarter of 2012, the Title industry reported solid results. The third quarter Title industry results leave little question that the industry is on the mend. Moreover, year-end results will showcase bottom line results of good business.