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Title insurers sufficiently capitalised to weather COVID-19: Fitch

19th June 2020 - Author: Matt Sheehan

Although revenues in the US title insurance space will inevitably suffer due to the COVID-19 pandemic and its resulting fallout, capitalisation levels will likely be adequate to weather to storm.

This is according to analysts at Fitch Ratings, which recently analysed the impact of the coronavirus crisis on the title insurance industry.

Fitch expects industry operating revenues to be down in the high single-digit range for 2020 as Q1 was one of the strongest on record, but will be pressured in the second half of the year.

The rating agency’s title insurance industry aggregate risk-adjusted capital (RAC) ratio increased to its highest score in nine years to 217% for 2019 from 193% in the prior year.

Statutory surplus was similarly up by 17% in 2019, and was aided by a continued redundancy in reserves, which contributed to a 22% increase in adjusted policy holder surplus (APS) for the year.

“Year-end 2019 set a high water mark for title industry capital adequacy as measured by Fitch’s RAC model,” said Gerry Glombicki, Director at Fitch Ratings.

“This balance sheet strength boosts insurers’ ability to meet operating challenges in 2020 from the coronavirus pandemic and ensuing economic volatility.”

Fitch believes revenues in 2020 will be pressured from reduced volume of real estate and mortgage financing transactions combined with an economic recession.

That said, the lower interest rate environment and sustained declines in 30-year fixed rate mortgage rates should support refinance originations and possibly purchase originations, albeit at reduced levels.

With lower revenues, title insurers started reducing operating costs in Q1 and Fitch expects this trend to continue throughout the remained of 2020 to appropriately match expenses and revenues.

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