Fitch Ratings has published its Dashboard Report for the U.S. Title Insurance sector discussing the outlook for title insurance. The report highlights how moderate declines in the industry’s operating revenue and earnings led to variability in operating margins for 2014 across the four largest title underwriters. Fitch rated the industry stable with few ratings changes anticipated for title insurers in the next 12-18 months.
The title industry continues to be dominated by four national underwriters that account for 87 percent of total industry premiums: Fidelity National Financial, Inc. (FNF) and First American Financial Corp. (FAF) are clear industry leaders. Old Republic International Corp. (ORI) and Stewart Information Services Corp. (STC) have a smaller, but still sizeable market presence, according to the report.
Three of the four underwriters increased open order count in fourth-quarter 2014 over the prior year, leading to a 12 percent increase for the group. Continued strength in purchase and commercial activity, higher average revenue per order and a greater percentage of closed orders quarter-over-quarter should provide positive benefits to profitability through first-half 2015, the report stated.
The title insurance industry’s operating revenue declined approximately 1 percent at year-end 2014 over 2013 primarily because of a decrease in refinance activity as interest rates increased, which partially were offset by increased revenues from residential purchase transaction and commercial business.
Title insurance operating margins, in aggregate, declined in 2014 compared with 2013 as earnings declined by more than operating revenues. Favorably, from a consolidated perspective, FAF’s and FNF’s earnings increased over the prior year. Fitch noted that STC’s sizeable difference in segment and consolidated margins suggested a liberal allocation of corporate expenses to the holding company relative to FAF.
Mortgage originations are estimated to increase to $1.2 trillion in 2015, up from $1.1 trillion in 2014. Purchase originations are forecast to grow 15 percent, while refinances are anticipated to decline by 3 percent. Title insurers generate approximately twice the revenue from a purchase transaction compared with a refinance transaction, although margins are comparable.