Slowing US housing market remains a major challenge for title insurers, AM Best

For the second-straight year, the US title insurance sector witnessed its volume of direct premium written decline, falling 32% to $14.3 billion in 2023, which according to AM Best, reflects housing and macroeconomic trends.

It’s important to highlight that as mortgage interest rates began to fall in 2020, housing started to become more affordable and title insurance premiums reached record levels with premiums from 2020-2022 growing to nearly 40%.

But, AM Best notes, that as rates began to move up in late 2022, title premiums would start to drop; with the decline in 2023 following on from a 16% decline in 2022.

AM Best highlights that not only have commercial and home purchasing transactions fallen steeply, but refinance transactions have also become practically non-existent too.

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

In spite of the composite generating an underwriting gain over 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.

Additionally, AM Best’s title insurance composite posted a combined ratio of 97.5 in 2023, several points higher than the 10-year average, primarily driven by a 4.1-percentage-point increase in the expense ratio.

AM Best revealed that it’s outlook for the title industry remains negative. But, the agency did note, that the September 2024 Fed rate cut and the potential for additional rate cuts in 2025 could stimulate the housing market and ground the work for reconsideration of the segment’s outlook.

Kourtnie Beckwith, senior financial analyst, AM Best, said: “Title insurance is a cost-intensive insurance product with heavy up-front costs borne by title insurers. 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.”

David Blades, associate director, Industry Research and Analytics, AM Best, added: “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.”

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