Will title insurers face financial stress going forward?

Title insurance premiums written increased on a sequential period basis in the second quarter, but they were down 37% from one year ago as mortgage originations continued to decline, the American Land Title Association found.

High mortgage interest rates, combined with high home prices have contributed to what some housing economists feel is a sector-specific recession.

In the second quarter, originators produced $463 billion, the latest data from the Mortgage Bankers Association estimated. This was up from $333 billion in the first quarter, but down from $696 billion in the second quarter of 2022.

As a result, title insurance premium volume ended the period at $3.91 billion, compared with $3.37 billion three months prior and $6.21 billion a year ago, ALTA said.

Because of the lower volume, operating income was down 48.5% from the prior year period. Meanwhile, in the first six months of 2023, title insurers paid $331.8 million in claims, up from $277.2 million for the same time frame last year.

However, ALTA said title companies are still working from a strong financial position, with total assets of $11.6 billion, a statutory surplus at $5.2 billion and statutory reserves of $5.9 billion.

The analysts at Fitch Ratings had a slightly different view regarding the financial end of the business.

"Broader macroeconomic headwinds continue to pressure top-line revenues for the title insurance industry," said the report from Gerald Glombicki and Douglas Baker. Those include the aforementioned higher rates and elevated home prices.

"Fitch Ratings expects these pressures will persist over the next 12 to 18 months, and refinance volumes are expected to remain severely depressed," the report issued Sept. 5 said. "Purchase order volumes are expected to remain pressured, but will likely rebound somewhat in 2024 as underlying housing demand remains strong."

The aggregate operating margin at the four largest holding companies (which control 82% of the market) increased 3% quarter-to-quarter and should continue to improve throughout the rest of the year, Fitch said.

By individual underwriter, the five most prolific companies and six of the top seven belong to those four holding companies.

First American Title Insurance had a 22.3% market share in the second quarter, compared with 23% in the first quarter and 21.4% for the same period last year.

Second was Old Republic National Title Insurance at 14.8%, down from 15.5% in the prior quarter and 14.9% one year ago.

Fidelity National Financial owns the next two underwriters on the list. Fidelity National Title Insurance had a 14.1% share, with Chicago Title Insurance at 13.7%. Both were higher than the first quarter at 12.7% and 12.4% respectively.

Another FNF subsidiary, Commonwealth Land Title Insurance, had a 3.5% share in the second quarter, up from 3.3% three months prior.

Ranked fifth was Stewart Title Guaranty, whose 8.4% share was down from 9.6% in the first quarter and 8.8% for the second quarter of 2022.

Westcor Land Title Insurance, whose share at one time approached that of the large underwriters, continued to shrink, down to 3.6% for the second quarter. In the first quarter it was 3.6% and one year ago it was 4.2%.

Doma ended the second quarter with a 2% market share, ranked 10th. But during the period, and into the third quarter, the company began selling its retail production offices as it shifts its business model in an effort to become profitable.