Best’s Market Segment Report: Slowing US Housing Market a Key Challenge for Title Insurers

The U.S. title insurance industry saw its volume of direct premium written decline for a second-straight year, by 32% to $14.3 billion in 2023, reflecting housing and macroeconomic trends, according to a new AM Best report.

The Best’s Market Segment Report, “Slowing Housing Market a Key Challenge for Title Insurers,” notes that real estate market and mortgage interest rates typically set the tone for revenues produced by title agents and insurers. As mortgage interest rates began to fall in 2020, housing became more affordable and title insurance premiums reached record levels with premiums from 2020-2022 growing nearly 40%. However, as rates moved up in late 2022, title premiums began to drop; the decline in 2023 follows a 16% decline in 2022. Not only have commercial and home purchasing transactions fallen precipitously, according to the report, but refinance transactions have become nearly non-existent.

“Higher mortgage rates have dampened refinancing activity, as homeowners have little incentive to refinance,” said Ann Modica, director, Credit Rating Criteria Research and Analytics, AM Best. “At the end of the second quarter of 2024, the volume of refinancing activity was $62 billion, the lowest in almost 30 years.”

Although the composite has generated an underwriting gain in the last two years, the 2023 gain fell below $1.0 billion for the first time since 2017, dropping year over year by more than 60% to $682 million, following a 33% decline in 2022. AM Best’s title insurance composite posted a combined ratio of 97.5 in 2023, which was several points higher than the 10-year average, and was driven predominantly by a 4.1-percentage-point increase in the expense ratio.

“Title insurance is a cost-intensive insurance product with heavy up-front costs borne by title insurers,” said Kourtnie Beckwith, senior financial analyst, AM Best. “These costs are generally stable, but given the considerable decline in premiums, the benefit of the extensive expense management initiatives adopted by title industry carriers has become less apparent, as evidenced by the increased underwriting expense ratio.”

AM Best’s outlook for the title industry remains negative; however, the September 2024 Fed rate cut and the potential for additional rate cuts through 2025 could stimulate the housing market and be grounds for reconsideration of the segment’s outlook.

“Mortgage rates remain elevated compared with where they were in 2021, which means several more rate cuts may be needed to get potential buyers off the sidelines. However, inflation and persistently high housing prices could still stymie the segment’s growth,” said David Blades, associate director, Industry Research and Analytics, AM Best.

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=347655.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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