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FOR IMMEDIATE RELEASE
OLDWICK - NOVEMBER 22, 2016 01:42 PM (EST)
A.M. Best has upgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb+” from “bbb” and affirmed the Financial Strength Rating (FSR) of B++ (Good) of North American Title Insurance Company (NATIC) (Concord, CA). The outlook of the FSR has been revised to positive from stable, while the Long-Term ICR outlook remains positive.
The Long-Term ICR upgrade and positive outlooks reflect NATIC’s solid risk-adjusted capitalization, favorable operating experience, expanding geographical footprint, and benefits received from its parent, Lennar Corporation, which is in the home construction market and acts as a pipeline for new business.
NATIC has meaningful market presence as the one of the largest regional title insurance writers in the United States, with business in nearly 30 states nationwide and a concentration in California, Texas and Florida. Over the past five years, the company posted an increase in surplus, primarily driven by favorable operating results. However, surplus appreciation has been somewhat tepid over the most recent five-year period due to dividends paid to its holding company. Nonetheless, the outlooks are based on NATIC’s continued favorable operating performance and solid risk-adjusted capitalization, as well as the company’s controlled growth over the intermediate time period.
The company’s positive rating factors are derived from its underwriting leverage measures, which remain comparable with its peers through third-quarter 2016. Although the company’s reported premium-to-surplus measure increased slightly during 2012-2014, this was due to a significant increase in premium volume over the period, as a rebound in the housing market translated into greater demand for title policies and planned growth. Despite this high growth, the company has posted positive operating earnings in each of the past five years, including an underwriting profit that trended higher in the same period.
The company also has taken steps to reduce future losses from defalcations through increased agency monitoring and further safeguards in agency auditing procedures. Despite the company largely using an agency distribution channel that brings a higher expense ratio due to agency commissions, it continues to successfully manage its cost structure to process and service business more efficiently, which is reflected in its declining expense ratios over the most recent five-year period.
Positive rating actions could occur if there is continued improvement in underwriting and operating performance that is sustainable in the medium to long term. In addition, positive rating actions could occur if there is an appreciable gain in risk-adjusted capitalization.
Negative rating actions could occur if a lack of underwriting discipline results in a trend of deteriorating underwriting operating performance to a level below peers. In addition, negative rating action could occur if there is an erosion of surplus to an extent that it causes a significant rise in the company’s underwriting leverage measures. Furthermore, increased leverage at the holding company level that results in a downgrade in the holding company’s ratings may result in a negative rating action at the operating company.
This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings.
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