OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has affirmed the financial strength rating of A (Excellent) and the issuer credit ratings (ICR) of “a” of the two subsidiaries of Investors Title Company, Inc. (ITIC) [NASDAQ: ITIC], collectively referred to as the Investors Title Company Group (ITC Group). The two subsidiaries are Investors Title Insurance Company and National Investors Title Insurance Company (Austin, TX). A.M. Best also has affirmed the ICR of “bbb” of ITIC. The outlook for each rating is stable. All companies are domiciled in Chapel Hill, NC, unless otherwise specified.
The rating affirmations reflect ITC Group’s excellent risk-adjusted capitalization as evidenced by its conservative underwriting leverage ratios, which are relatively modest compared with the title industry as a whole. In 2015, the group’s statutory surplus level increased for the fifth straight year. The group’s operating results have been consistently favorable in recent years, posting an underwriting profit in each of the past five years, and pre-tax operating results have been solid throughout this period. ITC Group’s favorable results are partly due to its efforts to carefully manage its expense structure while limiting losses, including those from agency defalcations, through comprehensive reinsurance protection and instituting extensive safeguards in the selecting, monitoring and auditing of its title agency force and other providers. Partly as a result of these initiatives, the group has incurred no material defalcation losses in the past five years. Additionally, the group has taken initiatives to diversify its book of business by reducing its concentration in North Carolina, its largest state, which previously represented nearly half of its book, to approximately 32.5% as of year-end 2015. ITC Group also has expanded its geographic footprint in recent years into more than 20 states, including Texas, which is currently its second-largest state. Furthermore, while its North Carolina business continues to be conducted primarily through directly owned branches, the group distributes its business in Texas and other states primarily through independent agents, which has resulted in greater diversification of its distribution channels.
The current economic environment and housing market conditions — both of which determine the future revenue and earnings potential of title insurers — have somewhat improved in recent years. However, uncertainties remain as to the future direction of U.S. monetary policy and its effect on long-term interest rates, which drive title insurance activity and the effect on the macroeconomic environment of potential geo-political events. Nevertheless, combined with ITC Group’s expense and risk management efforts, these generally improving conditions have produced steadily increasing operating earnings in the past five years, with particularly robust results in 2012, 2013, 2014 and continued favorable operating results as of year-end 2015.
The current ratings and outlooks are not expected to change in the near term. However, further upward movement in the ratings and/or outlooks will depend on the ITC Group sustaining the positive operating performance trend along with maintenance of favorable risk-adjusted capitalization. Conversely, significant deterioration in operating performance and/or significant erosion in risk-adjusted capitalization levels in the operating companies may result in downward movement in the ratings and/or outlooks.
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