Title Underwriters Continue to Report Improving Results Through Third Quarter 2016

Demotech, Inc. has upgraded one Financial Stability Rating® (FSR) and affirmed all other FSRs assigned to Title underwriters based on the review of third quarter 2016 statutory financial information.  Demotech upgraded the FSR assigned to AmTrust Title Insurance Company to A, Exceptional.  As there were no other upgrades or downgrades, all other FSRs were affirmed.

An FSR summarizes Demotech’s opinion as to an insurer’s ability to insulate itself from the business cycle that exists in the general economy as well as the underwriting cycle that exists in the insurance industry. Thus, an FSR represents Demotech’s belief as to the relative ability of an insurer to honor meritorious claims during a downturn in general economic conditions as well as a downturn in the underwriting cycle.

A major determinant of the financial stability of a Title underwriter is an evaluation of critical financial stability ratios benchmarked against financial stability tests and the representative historical operating results of the insurer.  Based upon a review of these key metrics and rating indicators, Title underwriters collectively improved their overall financial stability through third quarter 2016.  The underwriting and overall profitability of Title underwriters has improved when comparing year-to-date 2016 to the most recent reported year-to-date results.  Equally as important to note, Title underwriters have continued to maintain a sufficient level of policyholders’ surplus and are adequately capitalized as a whole.

While it is important to acknowledge and recognize the importance of profitability, Demotech’s philosophy is that balance sheet strength and financial integrity are the ultimate determinants of the long term financial stability required to honor legitimate claims.  Accordingly, while operating profit remains an important element in evaluating the financial stability of an underwriter, the ability of an underwriter to remain financially stable under a variety of economic stress tests requires a focus on balance sheet integrity.

Title underwriters have remained vigilant in achieving overall profitability.  Some of the factors that comprise overall profitability are premium, operating expenses, loss and loss adjustment expenses, investment income and income taxes paid.  Title underwriters reported nearly $10.3 billion in direct premium written through third quarter 2016, representing a 7.3 percent increase over third quarter 2015.

The profitability of Title underwriter operations remains encouraging.  Through third quarter 2016, aggregate underwriting results on a year-to-date basis were positive for the Title industry, as four in five Title underwriters reported a net underwriting gain.  The Title industry reported an aggregate operating gain of over $666 million through third quarter 2016, a 21 percent increase from third quarter 2015.

Although Demotech does not expect individual underwriters to report an underwriting gain at each filing, a component of our review process is the evaluation of underwriting results.  Any Title underwriter recording an underwriting loss greater than 10 percent of prior year surplus will be subject to a detailed review of current operating results.

While Title underwriters wrote nearly $10.3 billion of direct premiums through third quarter 2016, they did so while continuing to increase policyholders’ surplus.  Title underwriters, in aggregate, increased policyholders’ surplus nearly 10.4 percent from third quarter 2015 to nearly $4.8 billion.  The Title industry aggregately appears to be more than adequately capitalized, as Title underwriters reported an adjusted direct premium written to policyholders’ surplus ratio of approximately 2.9 through third quarter 2016.

In summary, Demotech has reviewed third quarter 2016 statutory financial data reported by Title underwriters and concluded that the aggregate industry results are favorable.  Also, the financial ratios calculated based on these financial results appear to be reasonable.  It is typical for Title underwriters’ reported financial ratios to have a certain degree of fluctuation and increase or decrease year over year.  Further, based on these results as well as other performance indicators, Title underwriters aggregately appear to be appropriately capitalized.


3rd Quarter 2016 (YTD)

3rd Quarter 2015 (YTD)


Direct Premium Written




Policyholders’ Surplus




Adjusted DPW/PHS Ratio




Net Operating Gain




Net Income