|[June 10, 2014]
Fitch: U.S. Title Insurance Industry Capital Position Improves
CHICAGO --(Business Wire)--
Fitch Ratings views the U.S. title insurance industry as strongly
capitalized with a risk-adjusted capital (RAC) score of 168% in 2013
compared with 166% in 2012 for its rated universe marking the fifth
straight year of improvement.
The industry RAC score is calculated on a weighted average basis. As
such, Fidelity National Financial, Inc. (Fidelity) and First American
Financial Corp (First American), whose combined market share is 60%,
greatly influence results.
Leading the improved RAC scores was a 6% increase in aggregate stated
policyholders' surplus in 2013 mainly due to earnings and unrealized
Augmenting this increase was a $78 million increase in Fitch's view of
statutory reserve redundancy. This reserve adjustment is driven by a
view that the industry's statutory balance sheet loss reserves, which
are formula-based, are overstated. However, Fitch also believes that
actuarially estimated reserves as shown in Schedule P of statutory
financial statements are understated and will continue to develop
adversely in the near term, albeit at a lower magnitude than prior years.
Continued lean expense structures contributed to solid RAC scores in
2013. Expense leverage and agency risk (R11), the largest risk charge in
the RAC score at 34% of total charges before covariance adjustments,
increased in concert with title operating revenues in 2013.
An offsetting factor to the RAC improvement was the industry's large
loss and ceded reinsurance charge (R10), which represents 21% of total
charges before covariance adjustments, increased significantly in 2013.
This charge measures an underwriter's exposure to a large, et single
risk, though full limit losses are rare.
Fitch anticipates that title insurance industry capitalization, as
measured by the RAC ratio, will remain near current levels in 2014.
Surplus will likely remain relatively flat in the near term. While
shareholder dividends could vary by company, Fitch anticipates that
distributions will be supported by earnings and not capital.
The full report 'Title Insurers' 2013 Risk-Adjusted Capital Adequacy' is
available at 'www.fitchratings.com.'
Analysis of company-specific variances in capital adequacy is included
in the report.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research: North American Title Insurers'
2013 Risk-Adjusted Capital Adequacy
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