The abrupt halt of title commitments from New Jersey Title Insurance Co. has put the company’s future in doubt, left its agents in the lurch and brought about many big-picture questions about the industry’s current checks and balances for fraud prevention.
What exactly happened to force this move from the New Jersey Department of Banking and Insurance (DOBI) and New Jersey Title? The obvious answer is that this is all related to the defalcation of TitleServ, which came to light in April, and which still seems to be growing, as damages from that defalcation are in the $40 million to $50 million range at this point. However, Carl Samson, president of New Jersey Title, told The Title Report that the company could have handled just the TitleServ defalcation, but a second defalcation popped up — Affinity Title — which was the straw that broke the camel’s back.
“I expect that [if the Affinity defalcation hadn’t happened], this would have been avoided,” he said.
The company has been directed as of close of business on July 27 not to issue a new commitment or write any new business, but the company has not been placed into receivership. We asked the DOBI whether the company was under supervision or in rehabilitation, but Marshall McKnight, a spokesman for the DOBI, would only say that the department asked New Jersey Title to longer issue commitments going forward.
“All previous commitments issued are going to be allowed to be closed and current policy holders are going to have policies that are in effect,” McKnight said. “The company will continue to handle claims and resolve claims and the company will operate normally, it just won’t be securing new business going forward for the time being.”
Samson stressed that point as well, saying the company will continue to maintain operations in order to handle claims during the next several years.
“The company has a good deal of money in statutory premium reserves,” he said. “The claims currently outstanding will continue to be handled, and I anticipate we’ll have adequate resources to pay claims over the next several years.”
Joseph Petrelli, president of Demotech, which has been following the progression of talks between New Jersey Title and the DOBI, told The Title Report that he also expects the company will meet all of its current obligations and has the resources to pay its current claims.
“From our perspective, even though this is a surprising turn of events, the good news is there is enough money to pay the claims,” he said. “That’s a good thing, but looking three or four years down the road, that’s not on our radar screen anymore.”
But other than functioning to payout claims, Samson said he doesn’t expect much more.
“Frankly, in my view, the chances of the company ever operating again as a going concern is very minimal given the fact that the agent base of the company will have to find new homes, and presumably there would be resistance on the part of lenders if the company came back into business,” he said. “It would depend on circumstances, but I find it unlikely, in my view, that the company would operate again as a going concern.”
According to Samson, the abrupt decision to stop issuing commitments came as a directive from the DOBI, which he said would not accept alternative solutions that the company was putting forth.
“We had some other suggestions for the DOBI on how this might be handled, that perhaps it might be appropriate to wait for some recovery matters that we have pending to resolve this and add money to the company surplus, but the DOBI, with the reasonable concern for future claims and policy holders, decided that they wanted to take this route,” Samson said.
One possible scenario that may have affected the DOBI’s decision would have been an infusion of capital from CATIC Financial Inc., which purchased New Jersey Title in 2006. However, that option never materialized. CATIC Financial is also the parent holding company of the Connecticut Attorneys Title Insurance Co. (CATIC), and Petrelli said this situation with New Jersey Title shouldn’t affect CATIC, given its current resources.
Richard Patterson, president of CATIC Financial, said the New Jersey Title situation does not affect CATIC because they are completely separate companies.
“CATIC does not have any significant claims pending and is not the subject of any regulatory scrutiny that is beyond the normal regulatory oversight,” Patterson stated. “In fact, CATIC continues to be among the most strongly capitalized companies, relative to the size of liabilities assumed, in the title insurance industry.”
When asked whether CATIC Financial is able to help support New Jersey Title at this time, Patterson stated:
“The NJTIC Board of Directors is exploring a number of options with regard to the future of the company; it is premature to comment on what the future course of NJTIC might be. … The only thing that has occurred is that the company has stopped writing new business. As of June 30, 2011, it continues to have total assets in excess of $10 million. The Board of Directors is considering a number of options and is moving as quickly as possible to chart the future course of the company. We recognize the need for expeditious action and we will keep NJTIC agents advised of developments.”
The 2010 edition of the “Demotech Performance of Title Insurance Companies” showed that New Jersey Title brought in $26,856,414 in premiums, which accounted for 37 percent of the CATIC group’s total premiums written.
Further coverage
Robert Martyn, senior vice president of Sutton Riverside Alliance, which was one of New Jersey Title’s agents, summed up the entire situation:
“It’s not good when you have a small regional that was so pro-agency going out of business,” he said. “It’s not good for the banks, the regulators, the agencies — it’s bad all around.”
Martyn provided The Title Report with more commentary from an agent’s perspective, including which underwriters he expects will pick up agents left in the cold as a result of this situation. His thoughts, as well as more commentary from Samson and Petrelli and a few more agents, will be available in the Friday edition of The Title Report e-newsletter. If you have comments you’d like to add, email them to [email protected] or join the discussion in our LinkedIn group.