In a new 2018 Outlook entitled "Fitch 2018 Outlook: U.S. Title Insurance Industry (Market Fundamentals Point to Continued Strong Performance)," Fitch Ratings predicts a stable outlook for 2018, predicting that “ratings for the industry, on balance, will remain at current levels over the next 12-24 months.” Title profit margins have been strong for the third consecutive year, with title segment pretax operating margins increasing to 11 percent in the first nine months of 2017, as compared to 10.5 percent in the prior year. Fitch predicts margins will be flat to slightly down in 2018.
Increased housing prices helped drive title revenues up 3 percent during the first nine months of 2017. Home prices, including distressed sales, jumped 7.0 percent in September 2017, maintaining their steady annual growth between 5 percent and 7 percent for the past three years.
Closed and open orders decreased 17 percent and 20 percent, respectively, during Q3 2017 over the prior year. A predicted slow in mortgage originations for 2018 may hamper revenue growth, however.
Fitch Director Gerry Glombicki said, "Profit margins remain favorable while title insurers' expense structures are at levels that can withstand near-term revenue volatility. The large adverse reserve movements seen during the troublesome policy years of 2005-2008 are also an increasingly distant memory."
Other takeaways from Fitch’s report include:
- “Fitch’s title universe loss ratio was below 4.3 percent for 2016, below longer term historical averages, and 4.2 percent in the first nine months 2017. While this figure may fluctuate, signs of a sharp uptick in loss ratios are not evident.”
- “From a RAC perspective, the capital position of the largest four publicly traded title insurance companies improved to 189 percent in 2016 up 9 percentage points (pp) from the prior year.”
- Operating leverage, for the four largest publicly traded title insurers increased modestly to 3.4x in 2016, versus 3.2x in 2015.
You can read more about Fitch’s full 2018 Outlook here.