As the rest of the housing market struggled in the year's first half, so too did the title insurance industry, Fitch Ratings [1] reported in a new analysis [2].
Isolating business at the nation's four largest title insurers—Fidelity National Financial [3], First American [4], Old Republic National Title [5], and Stewart Title Guaranty [6]—analysts at Fitch calculated a combined 12 percent decline in operating revenues through the first six months of 2014 compared to the same period last year.
A large portion of the decline came from lower mortgage refinancing volumes as interest rates increased, Fitch reported, though harsh weather also played a role in stifling real estate activity overall.
Title orders were similarly weak in the second quarter, with opened orders falling 19 percent year-on-year. However, revenue per order expanded "due to strength in purchase and commercial activity, as well as rising home values," Fitch said.
Profits also took a hit from rising expense ratios, with First American being the only company to post a lower combined ratio. Overall, the group's combined ratio rose 4.5 percentage points to 98.1 percent during the first half of 2014, stemming in part from weak underwriting.
"Besides the deterioration in revenues and underwriting profits, recent results for the market in aggregate were negatively affected by one-time acquisition-related expenses incurred by industry leader Fidelity National Financial, Inc.," Fitch added.
News wasn't all bad for the title industry, however: The ratings agency also observed an improved loss ratio for all for major insurers due to reduced strain on operating capacity. Loss development from prior underwriting periods also shrank "but remains a focus point."
For the future, Fitch predicts ongoing weakness as market fundamentals continue to flounder, reducing potential for future revenue growth.
"While commercial activity remains robust, it is unlikely to fully offset other unfavorable trends," the agency said. "Disciplined expense management and continued favorable commercial market activity will be important contributors to industry profitability in second-half 2014."