SOURCE: Demotech, Inc.

March 27, 2008 06:33 ET

Title Underwriters Ability to Honor Claims Remains Exceptional

COLUMBUS, OH--(Marketwire - March 27, 2008) - The depth of the real estate market's downturn has exceeded most predictions and expectations. Given the Title insurance industry's dependence on real estate transactions to drive top line growth, this becomes painfully evident during the down years and transitional period of the larger cycles. During these periods, it is important to discern between the ability of Title underwriters to respond to meritorious claims versus cyclical market challenges impacting publicly traded Title underwriters.

Although the severity and duration of the downturn in the real estate marketplace will likely challenge smaller, privately held, regional Title underwriters, the overwhelming majority of the Title underwriters, including the publicly traded underwriters, will sustain exceptional financial stability. They have the financial resources to respond and settle meritorious claims as payments come due. Similarly, the majority will continue to possess sufficient financial strength to withstand agency defalcations that tend to accompany periods of declining Title insurance production.

Our opinion is based upon our analysis of GAAP financial statements. The balance sheet strength and liquidity of invested assets that Title underwriters hold for meeting meritorious claims in conjunction with significant stockholders' equity as a safety margin remains impressive. We acknowledge that top line revenue, operating profits and price/earnings ratios will continue to decline until mortgage originations stabilize and improve. However, despite severe declines in top line title insurance revenues, profitability was sustained in 2007.

The year-end 2007 GAAP balance sheets of the publicly traded Title underwriters are summarized in the attached table. The comparison of liquid assets to reserve for claims demonstrates that the financial stability of these Title underwriters remains intact despite the expectation of lower earnings over the duration of the housing slump and the subsequent recovery. Similarly, the ratio of stockholder equity divided by reserve for claims provides another measure of safety.

Admittedly, investors are hard hit by the downturn; however, lenders, owners and others with an interest in real estate should take some solace. The ability of Title underwriters to investigate, examine and settle meritorious claims remains exceptional.

Demotech, Inc. will continue to monitor the adequacy of the reserves for claims by monitoring loss and loss and adjustment expense reserve development reported in Schedule P of the statutory Form 9s. Interested parties can obtain summaries and analyses of statutory financial statements in the 2008 edition of Demotech Performance of Title Insurance Companies.

  Excerpts from Title Industry Year-End 2007 GAAP Financial Statements
                              (000's omitted)

                                        ITIC        STC          ORI
                                     =========  ===========  ============
Assets
      Total investments              $ 129,026  $   696,877  $  8,761,200
      Cash and cash equivalents      $   3,001  $   109,239  $     54,000

                                     =========  ===========  ============
      Total cash and invested assets $ 132,027  $   806,116  $  8,815,200

      Other Assets                   $  17,615  $   635,858  $  4,475,400

Total Assets                         $ 149,642  $ 1,441,974  $ 13,290,600
                                     =========  ===========  ============

Liabilities & Stockholders' Equity
  Liabilities
    Reserves for claims              $  36,975  $   441,324  $  6,231,100
    Other                               13,392      246,591     2,517,900
                                     =========  ===========  ============
      Total liabilities              $  50,367  $   687,915  $  8,749,000
                                     =========  ===========  ============

    Minority interests in
     consolidated subsidiaries       $       0  $         0  $          0

  Stockholders’ Equity
      Total stockholders’ equity     $  99,276  $   754,059  $  4,541,600
                                     =========  ===========  ============

Total Liabilities & Stockholders’
 Equity                              $ 149,642  $ 1,441,974  $ 13,290,600
                                     =========  ===========  ============

Liquid Assets divided by
 Reserve for Claims                      357.1%       182.7%        141.5%
Total Stockholders’ Equity divided
 by Reserve for Claims                   268.5%       170.9%         72.9%



                                         LFG          FAF          FNF
                                     ===========  ===========  ===========
Assets
      Total investments              $ 1,444,600  $ 2,171,133  $ 4,101,821
      Cash and cash equivalents      $    98,200  $ 1,162,569  $   569,562

                                     ===========  ===========  ===========
      Total cash and invested assets $ 1,542,800  $ 3,333,702  $ 4,671,383

      Other Assets                   $ 2,310,900  $ 5,314,219  $ 2,885,031

Total Assets                         $ 3,853,700  $ 8,647,921  $ 7,556,414
                                     ===========  ===========  ===========

Liabilities & Stockholders' Equity
  Liabilities
    Reserves for claims              $   876,500  $ 1,357,632  $ 1,388,471
    Other                              1,776,500    3,629,557    2,869,987
                                     ===========  ===========  ===========
      Total liabilities              $ 2,653,000  $ 4,987,189  $ 4,258,458
                                     ===========  ===========  ===========

    Minority interests in
     consolidated subsidiaries       $         0  $   675,907  $    53,868

 Stockholders’ Equity
      Total stockholders’ equity     $ 1,200,700  $ 2,984,825  $ 3,244,088
                                     ===========  ===========  ===========

Total Liabilities & Stockholders’
 Equity                              $ 3,853,700  $ 8,647,921  $ 7,556,414
                                     ===========  ===========  ===========

Liquid Assets divided by
 Reserve for Claims                        176.0%       245.6%       336.4%
Total Stockholders’ Equity divided
 by Reserve for Claims                     137.0%       219.9%       233.6%

*ORI - Although FAF and FNF have some Property and Casualty insurance
operations, they are predominantly Title insurance orientated.  In
contrast, ORI has some Title insurance and is predominantly Property and
Casualty oriented.

Data Source: Based on filed GAAP financial statements.  Edgars Online.

Disclaimer: The presented information was compiled from publicly available
financial statements and data.  Demotech, Inc. makes no representations or
warranties as to the completeness or accuracy of the information.  Data and
citations are current at time of publication but subject to change.

Title Industry Information and Analysis

For 20 years, Performance of Title Insurance Companies has assisted in analyzing the Title insurance industry and its competitive landscape with industry-wide benchmarks, along with underwriters and group level analysis for competitive assessment. Representing more than 99% of the Title industry, Demotech Performance of Title Insurance Companies is the most complete and thorough industry analysis available.

The 2008 edition of Demotech Performance of Title Insurance Companies will present year-end 2007 Title industry results with extensive supporting detail and reports. The 2008 publication will continue our efforts to deliver expanding content. The upcoming edition's release will be accelerated for distribution in May 2008.

Contact Demotech at (800) 354-7207 or visit http://www.demotech.com/ptic to preorder the 2008 edition and for more information regarding Demotech Performance of Title Insurance Companies and the availability of customized research and analysis of Title industry data from our Form 9 database. Sample industry analysis reports and publication excerpts are available online.

About Demotech, Inc.

Since 1985, Demotech, Inc., a Columbus, Ohio based financial analysis and actuarial services firm, has provided responsive services to address actuarial and financial analysis issues, whether the issues have been for a particular insurer or prevalent throughout the insurance industry. As the first company to have its rating process formally reviewed and accepted by Fannie Mae, Freddie Mac and HUD, Demotech has been leveling the playing field by offering Financial Stability Ratings® (FSRs) to insurers of all sizes.

Visit http://www.demotech.com for more information.

Contact Information

  • Contact:
    Joseph L. Petrelli, Jr.
    Chief Operating Officer
    Tel: (800) 354-7207
    Email: Email Contact