A recent report from AM Best suggests that the US title insurance industry saw its net income jump 46% in 2021 to $2.3bn, however, macroeconomic pressures in 2022, specifically those affecting mortgage rates, have created a volatile landscape for title insurers.
AM Best note that the title segment’s top-line premium growth, improved underwriting, and strong operating performance all helped bolster its capital strength heading into 2022, despite inflationary pressures, interest rate hikes, and a reduction in monetary support from the government.
The title industry recorded net premiums written growth of 33% in 2021 to $24.8bn, representing the largest year-over-year increase of the last decade.
David Blades, associate director, AM Best, commented, “In 2020 and 2021, surges in the economy and the housing market, and hence, the title industry, were supported by extraordinary monetary policy through lower interest rates and the Fed’s purchase of mortgage securities, but stubbornly high inflation has forced the Fed to pivot its policy response in 2022.”
“The tightening cycle will likely continue throughout the remainder of 2022, with additional rate increases forecast later this year and in 2023.”
With the tightening financial conditions, the housing market is showing signs of softening, says the report, owing to the higher mortgage rates, a lack of affordability and a slowing economy. Rising interest rates have also prompted a decline in refinancings.
Kourtnie Beckwith, financial analyst, AM Best, added, “As has historically been the case, macroeconomic factors are likely to play a large part in determining the health of the title market throughout the latter portion of 2022 and into 2023.”
AM Best expects the title segment’s growth to slow substantially in the latter part of 2022 and into 2023, though it adds that the title segment should remain profitable.
It also expects title companies to continue to seize opportunities to grow, such as forming partnerships or acquiring tech companies that complement their operations.
As a result, AM Best is holding its outlook for the title industry at stable, unless first-quarter 2023 data suggests something widely different than anticipated.
