Profitability for title insurers in the first half of the year is expected to continue to exceed rating expectations over the near term, supported by a robust housing market, continued home price appreciation from elevated market demand and a constrained housing supply amid persistently low interest rates, according to Fitch Ratings.
Title operating margins at Fidelity National Financial, First American Financial, Old Republic International and Stewart Information Services remained above historical averages, while title-related claims hovered near historical lows.
Pretax operating margins are expected to remain above long-term industry averages, according to Fitch Ratings. Aggregate pretax operating margins were 17 percent for the first half of 2021, with aggregate combined ratio of 85 percent as of June 30, improving from 87 percent in 2020 and 89 percent in 2019.
Thirty-year mortgage rates remain near historical lows, which Fitch Ratings said continues to favorably impact pricing for title underwriters and is expected to limit title-related losses. However, rising 30-year mortgage rates and normalizing refinance volumes are expected to cut total loan originations by 26 percent this year and a further 27 percent in 2022.
Refis are expected to fall from 65 percent of originations in 2020 amid the height of the pandemic to 24 percent by 2023, according to Mortgage Bankers’ Association.
Commercial activity has buoyed title insurer revenues for the last several years and continue to make a material impact for large underwriters, accounting for approximately 9 percent of total revenues at both year-end 2020 and through the first six months of 2021. Commercial open orders increased 31 percent relative to the first six months of 2020.
Results are expected to be well within ratings expectations for title insurers, according to Fitch Ratings. However, downside risk to the broader economy remains, especially considering the most recent surge in pandemic-related disruptions. Title insurers are better capitalized than in 2008, but a prolonged economic downturn would be negative for the industry, Fitch said.