Best’s News & Research Service - October 04, 2018 11:10 AM (EDT)
Best’s Market Segment Report: U.S. Title Insurance Segment’s Results Remain Strong, But Fed Rate Hikes Weigh on Housing Mkt
- October 04, 2018 11:10 AM (EDT)
Oldwick //BestWire// - U.S. title insurance companies continue to reap the benefits of a burgeoning U.S. economy and in 2017 posted a seventh consecutive year of net operating profits; however, the sustainability of the economic growth is uncertain and potentially threatens the sector’s future results, according to a new A.M. Best report.
The Best’s Market Segment Report, “Title Segment Operating Results Remain Strong Amid Winds of Change,” states that A.M. Best’s composite of title insurance companies generated an combined ratio of 93.9 in 2017, matching the sector’s 2013-2017 average. The segment also recorded more than $1.1 billion in pretax operating income for 2017, and $890.2 million in net income. Despite the favorable 2017 results, net income declined 1.3% from 2016, and was the sector’s first year-over-year decrease since 2011. Direct premiums written increased for a third straight year, but by just 1.9% to $14.1 billion, following two years of sizable growth. Still, this period of profitability is in sharp contrast to results reported at the tail end of the last housing boom that ended with the financial crisis, evidenced by an average annual combined ratio of 102.2 from 2008-2012.
The title insurance market traditionally ebbs and flows in lockstep with the U.S. economy, which grew 4.2% in second-quarter 2018, the strongest it has been in nearly four years. According to the report, whether the recent GDP growth can continue is debatable, especially in light of the Trump Administration’s trade fight with China. The impact of the administration’s tariffs on goods from China involved with housing construction may result in more modest second-half 2018 GDP growth. Hurricane Florence also could affect economic expansion in the Carolinas, and the U.S. South accounts for the largest number of new and existing homes sold. Consequently, title insurance premium growth in the near to midterm could be hampered.
A.M. Best is maintaining a stable outlook on the title insurance industry, with the prospects of stable economic and real estate market conditions, countered in part by rising interest rates, representing key drivers. Despite signs indicating a slowdown in the real estate market, A.M. Best anticipates that segment results will be robust, driven by the prospects for profitability amid a stable market over the next 12 months. Other potential offsetting factors include rising debt from college and car loans, which is keeping many millennial homeowners out of the housing market. Additionally, benefits gained by recent tax cuts in several key markets have been offset by the loss of state and local tax deductions. Ultimately, A.M. Best’s stable outlook for the title segment reflects cautious optimism.
To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=278787 .
A.M. Best is a global rating agency and information provider with a unique focus on the insurance industry.