A.M. Best Sees ‘Encouraging Signs’ for Title Insurers

Citing ""positive developments occurring in the housing market,"" ratings agency ""A.M. Best"":http://www.ambest.com/ announced it is maintaining a stable ratings outlook for the title insurance industry.

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While insurers may have struggled a bit in 2011 as premiums fell to their lowest level in a decade, A.M. Best noted premiums increased 10 percent in the second quarter of 2012 compared to the same period in 2011. In addition, ""underwriting performance has significantly improved through the second quarter of 2012, as losses from prior years have begun to moderate,"" the agency said.

According to A.M. Best, 2011 saw net underwriting of $29 million, compared to $210 million in 2010. Additionally, investment income increased from $170 million to $336 million in the same period, leading to a positive operating income of $308 million in 2011.

The agency said a slowdown in the housing market after the crash may have actually been helpful in getting the title industry back on steadier legs.

""The majority of the losses in 2010 were driven by policies written at much higher policy limits during the housing boom in the mid 2000s,"" wrote analysts Michael Russo and Neil DasGupta. ""During that time, real estate prices and transaction volume was much higher, resulting in a higher likelihood of errors and fraud.""

The ongoing housing recovery also contributed to the agency's stable outlook. A.M. Best pointed to increases in housing prices and sales as foreclosure rates fall. In addition, refinances spurred by low mortgage rates have led to a pickup in title orders. However, the slow rate of economic growth and the shaky global economic picture have made the agency cautious.

By Russo and DasGupta's estimation, the title industry has managed to endure the last few years by cutting expenses, a strategy the analysts say insurers will have to continue using in the near term.

""Sustaining the improved operating trends of recent months and the overall improved capitalization trends of the past few years depends largely on how long the ongoing weakness in the housing cycle exists,"" they wrote. ""Title insurers have proved over the past three years that they can operate somewhat profitably, even in times of severely depressed revenues.

""Thus, title insurers will continue to be pressured to find ways to reduce expenses until there is some sustained improvement in the housing market.""