Financial and Comercial Articles

Success for Title Holders?

Although there seems to be some semblance of recovery in most industries, real estate continues to lag. Despite the unusually long downturn in both residential and commercial markets, we expect that the upturn will eventually come, though we think it will be gradual. One way for long-view investors to capitalize on the turnaround is with stocks in the title insurance industry. Title insurers earn premium revenue from all real estate transactions, sales, or refinances, and any material pickup in volume builds its revenue base, adding to profits. We think that stocks in the title industry are poised to outperform the market.

Margin expansion will drive title industry profits higher. It's not unusual for the title insurance industry to experience expanding underwriting margins after a downturn in real estate; in fact, it's been a common theme in the past. As depicted in the chart below, the industry's combined ratio--underwriting expense divided by premiums--has recovered strongly after a period of losses brought about by normal cyclical real estate patterns. For example, after a housing downturn in the early 1990s, the industry's combined ratio stayed below 100% in all but one year from 1992 through 2007. We think the bottom of this cycle was reached in 2008.

Title insurers may have been slow to adapt to the recent real estate debacle, but cost reductions have been made and the results are positive. Beginning in 2008, title insurers slashed costs to meet the needs of a vastly reduced market for real estate transactions, the lifeblood of the industry. Offices were closed or merged, staff reduced dramatically, unprofitable agents canceled, and a variety of other measures taken to bring the costs in line with the reduced size of the available market. What's more, most companies within the industry raised prices in as many states as possible for the first time in years. As a result, the two largest title insurers,   Fidelity National Financial and   First American Financial , returned to underwriting profitability in 2009 and 2010, a remarkable achievement given market conditions in those years.

We don't think there is going to be a meaningful upturn this year, but certain catalysts are in place to set in motion a gradual recovery:

Avail Enterprise Start up Loans for A Effective Commercial Venture ...

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Avail Enterprise Start up Loans for A Effective Commercial Venture

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