ALTA says insurers, which partner with title agents to ensure upfront lien searches get done and covered, are sounder counterparties than providers of attorney opinion letters. Insurers are held to certain financial standards by state regulators.
The
downturn in originations has been a challenge for
title insurers and providers of alternatives. This is important to consider because if there's a title problem, it could be tougher to get assistance from a distressed counterparty.
Title insurance revenues for Fitch-rated companies were down 19% at year-end 2022 and the aggregate operating margin fell to 12% from 17% in 2021, according to a March 2 report.
However, 2022 still turned out to be title insurers' fourth-best year in the past decade.
The title insurance industry's
combined ratio has been below 100% since late 2020 through at least the third quarter of 2022, according to the National Association of Insurance Commissioners and CEIC Data. That indicates that it's been profitable on average, although one of the six public companies within its ranks, Doma, is a newer company that has not yet been profitable. The combined ratio for the industry as a whole did rise a little early last year, leveling out between 98% and 99%.
Voxtur Analytics's corporate parent is a publicly traded Canadian-owned company that has
multiple real estate and technology business lines, but generally title insurance alternative firms and the lawyers who provide the opinions are private companies.
Like title insurers, Voxtur experienced some financial challenges linked to the mortgage industry's distress, but the latest quarterly numbers available at deadline (Q3 2022) showed more than 40% year-over-year revenue growth based on growth in software as a service revenue from valuation technology, and cuts to operating expenses. The expanded E&O for its title insurance alternatives hasn't been around long enough to have a claims-paying track record.
When under stress during periods like the Great Recession, title-related companies have undergone consolidation with acquirers absorbing distressed firms' customers, Hosack said.
A counterparty's status with secondary market buyers is important to watch because they may need to be on "approved" lists, and government-sponsored enterprises Fannie Mae and Freddie Mac can levy expensive mortgage repurchase demands for any breach of loan agreements they have with lenders.