Statistical ratings firm Fitch Ratings continues to report that the title insurance industry is experiencing a healthy year, announcing last week that the industry’s risk-adjusted capital position improved in 2014 and will remain in that position in 2015.
In March, Fitch said that although title insurance revenues declined in 2014, this year holds the promise of a solid pipeline of refinance activity.
Now, the ratings firm says the nation’s top four title insurers — Fidelity National Title Insurance Co., First American Title Insurance Co., Stewart Title Guaranty Co. and Old Republic National Title Insurance Group, which together comprise nearly 90 percent of the industry — are experiencing their sixth straight year of risk-adjusted capital position ratio improvement, largely thanks to surplus growth and continued reduction in balance-sheet risk exposures.
According to Fitch’s report, “Title Insurers’ 2014 Risk-Adjusted Capital Adequacy,” the aggregate risk-adjusted capital score for Fitch’s universe improved to 183 percent in 2014, compared with 168 percent in 2013.
Risk-adjusted capital ratios compare a financial institution’s total adjusted capital to its risk-weighted assets and assess a company’s ability to withstand a risk or recession. In other words, the larger the capital of a business, the higher its capital ratio, and the more stable the business will be in the event of a recession.
Leading the improved scores was a 6 percent increase in stated policyholders’ surplus in 2014, which was offset by a reduction in Fitch’s estimate of statutory reserve adequacy, causing adjusted policyholder surplus to increase by 3 percent over the last year.
Fitch said it expects the industry to maintain these levels throughout the year, and surplus will likely remain flat.
“While shareholder dividends could vary by company, Fitch anticipates that distributions will be supported by earnings and not capital,” the firm said.