CHICAGO--(BUSINESS WIRE)--Fitch Ratings maintains its stable rating outlook on the U.S. title insurance industry, according to a new report published today. The outlook reflects a belief that rating actions for the industry will on balance approximate current levels over the next 12-18 months, as financial performance has improved and capital levels remain adequate based on several measures.
Fitch has also initiated a stable sector outlook for 2014 due to a less favorable view of the impact of interest rates and declining mortgage originations on title insurer operating revenues, which are slightly offset by increasing home prices, modestly improving employment rates, and economic growth.
The special report, titled '2014 Outlook: U.S. Title Insurance Industry,' highlights key factors affecting title insurer ratings, assesses industry prospects for 2014, and reviews financial performance in 2013.
The Mortgage Bankers Association of America (MBA) forecasts mortgage originations to decline to $1.2 trillion in 2014, compared with $1.8 trillion in 2013. The projected drop is driven by a material decline in refinance activity over the next two years, which is expected to be somewhat offset by greater purchase activity. The exact effects of changes to the mortgage process by the Consumer Finance Protection Bureau (CFPB) are unknown, but could adversely affect originations.
Title revenues through the first nine months of 2013 increased by more than 14% as refinancing activity exceeded initial expectations, purchase orders increased, and home values rose. However, open title policy order counts for title underwriters are 29% lower at third-quarter 2013 compared with the prior year period. This order flow provides a weaker pipeline of activity for first-half 2014 compared with first-half 2013. Fitch expects declining title orders to lead to a modest decline in title industry 2014 operating revenues.
Fitch's title insurance universe reported a GAAP combined ratio of 92.1% for the first nine months of 2013, its best result in the last five full year-end figures. Consolidated GAAP operating profit margin for the group rose to 7.7% in the first nine months of 2013 versus 5.1% in the prior year. Operating margins are anticipated to remain stable in 2014.
Fitch continues to view the industry as adequately capitalized, although capitalization among individual companies varies considerably. Fitch's view is based on both a non-risk-adjusted approach such as net written premiums-to-surplus and a risk-adjusted approach derived from Fitch's risk-adjusted capital (RAC) model.
The report '2014 Outlook: U.S. Title Insurance Industry' dated Dec. 4, 2013, is available at 'www.fitchratings.com' under 'Insurance' and 'Special Reports'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: 2014 Outlook: U.S. Title Insurance Industry (Rising Rates Offset Favorable Housing Trends)