CHICAGO--(BUSINESS WIRE)--Fitch Ratings maintains a 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 12-24 months, as financial performance has improved and capital levels remain strong based on several measures.
Fitch has also maintained a stable sector outlook for 2015 due to a potential increase in purchase originations and maturation of troubled policy years 2005-2008 that promote earnings stability. Offsetting these favorable aspects is uncertainty of the economic recovery's sustainability and the potential for higher future interest rates.
The Mortgage Bankers Association of America (MBA) forecasts mortgage originations to increase to $1.2 trillion in 2015, compared with $1.1 trillion in 2014. Importantly, purchase originations are forecast to grow by 15% and refinances are anticipated to decline by 3%.
Title insurance revenues through the first nine months of 2014 decreased by 11% driven primarily by lower order volume particularly from reduced refinancing activity. Similarly, open title policy orders for title underwriters declined 2% at third-quarter 2014 compared with prior year. Fitch expects declining title orders to lead to a modest decline in title industry 2015 operating revenues.
Fitch's title insurance universe reported a GAAP combined ratio of 96% for the first nine months of 2014 almost 4 percentage points worse than the prior year. Consolidated GAAP operating profit margin for the group declined to 3.7% in the first nine months of 2014 versus 7.7% in the prior year. Operating margins are anticipated to modestly improve in 2015.
Fitch calculates industry figures in aggregate therefore Fidelity National Financial, Inc. (FNF) and First American Financial Corp. (FAF), with a combined market share is approximately 65% significantly influence the results.
Fitch continues to view the industry as strongly 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 '2015 Outlook: U.S. Title Insurance Industry' dated Dec. 5, 2014, is available at 'www.fitchratings.com' under 'Insurance' and 'Special Reports'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: 2015 Outlook: U.S. Title Insurance Industry (Economic Trends Improving; Stability Uncertain)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=823228
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.