The title industry is “financially healthy” and possesses the means to address time gaps in insurance coverage associated with the closing or limited hours of county recorder offices nationwide, according to one ratings agency.
Another agency has revised its outlook for the industry to negative from stable, speculating that the economic damage caused by the coronavirus (COVID-19) could adversely impact companies through 2021. It said smaller regional companies with less geographic diversity appear most vulnerable.
Demotech, Inc. said public health restrictions designed to slow the spread of COVID-19 have created an operating environment in which few businesses are operating at full capacity.
But Demotech notes that the title insurance industry for decades has had in place procedures and practices to mitigate purchaser and lender exposure associated with unknown title matters emerging in the period subsequent to examination of title. Demotech has affirmed the financial stability of the industry.
“Gaps in protection are unavoidable. Backlogs at recorder offices and intervening matters subsequent to a search include the time commitment to process, record or index information,” Demotech co-founder and President Joseph Petrelli said in a release. “The effort to mitigate the spread of COVID-19 and the resultant closings or limited hours at recorder offices has exacerbated the situation; however, this industry is well-positioned and possesses the capability to address gaps.”
Demotech said industry participants will use gap coverage at the transaction level to compensate.
“Given that the professionals focused on finding and addressing matters impacting title to real property may be unable to discover all matters of record, there may be an additional premium associated with gap coverage,” Demotech Senior Financial Analyst Douglas Powell said.
Meanwhile, Fitch Ratings is maintaining a “stable” ratings outlook for the title industry, based its expectation that few individual company ratings will change in the next 12-18 months.
Fitch, however, revised its sector outlook to negative from stable, reflecting what it called the industry’s exposure to weakening macroeconomic conditions.
“Fitch’s negative fundamental sector outlook reflects the view that changes in the economic environment, particularly relating to a reduced volume of real estate and mortgage financing transactions coupled with a recessionary environment, could significantly dampen premium revenues in the second half of 2020 and the full year 2021,” Fitch stated.
“While deteriorating macroeconomic conditions is expected to impact the industry as a whole, the effect is expected to be concentrated outside of Fitch’s rating universe at smaller regional underwriters that lack scale and geographic diversity.”
Fitch said its stable ratings outlook is based on its belief that the ratings of title insurers will be less impacted by the coronavirus than life and health insurers.
“The title insurance industry reported very strong earning over the past several years, and January and February of 2020 are also expected to produce very strong earnings based on elevated refinance volumes,” Fitch stated. “Economic effects from the ongoing coronavirus epidemic are likely to have a modest negative impact on the near-term operating performance, but title insurers’ vulnerability will offset by stable claims experience, robust capital buffers, and the ability to aggressively manage expenses.”