2013 Title Insurance Financial Report
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2013 Title Insurance Financial Report As the quarterly financial reports rolled in throughout the year, and as the overall industry data was compiled, it was evident that 2012 was a quality year in terms of premium and profitability for many of the nation’s top underwriters. The 2013 first quarter numbers are just about to start their own roll out as well, but before starting to dive into 2013 performance, let’s put the year that was in perspective and see what we can glean. This year’s report features a couple exclusives. We start off with an
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in-depth, exhaustive feature from the team at Demotech, taking a look at the financial stability of the title insurance underwriting world as a
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whole. This information is an excerpt from the company’s upcoming 2013 Edition of Demotech Performance of Title Insurance Companies. After that is a snapshot of the rated title universe from Fitch Ratings, which includes its updated ratings, underwriting margins and GAAP operating margins. Beyond that we have all of the year-end numbers from the largest underwriters as well as title premium data from the American Land Title Association.
Table of Contents 3
Title underwriters report improved profitability and capitalization in 2012
Fitch breaks down the Big Four, business ahead
Fidelity reports record commercial revenue in Q4
10 First American revenue up 19 percent in 2012 11 Old Republic releases earnings report for 2012 12 Stewart shows improved financial performance 13 Investors Title reports record earnings, in 2012 14 Realogy: Title segment outperforms previous year 15
Title premium up 21 percent in 2012, slight market share moves
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Title underwriters report improved profitability and capitalization in 2012 By Douglas A. Powell, Senior Financial Analyst, Demotech, Inc. and Paul D. Osborne, Senior Financial Analyst, Demotech, Inc. Exclusive excerpt from the 2013 Edition of Demotech Performance of Title Insurance Companies www.demotech.com/PTIC
ince 2006, the title insurance industry has experienced significant underwriter consolidation. At its peak in 2006, 96 underwriters reported statutory financial data. In 2012, the number of underwriters reporting decreased to 44. A majority of the decrease in count resulted from larger groups assimilating acquisitions made from earlier years in an effort to improve operational efficiencies and eliminate redundancies. Other companies voluntarily ceased their underwriting operations due to the challenging economic conditions over the last few years. As market conditions improve, total count in underwriters may increase but should remain far below the market peak of 2006. While it is important to acknowledge and recognize the importance of profitability, Demotech’s philosophy is that balance sheet strength and financial integrity are the ultimate determinants of the long-term financial stability required to honor legitimate claims. Accordingly, while operating profit remains an important element in evaluating the
financial stability of an underwriter, the ability of an underwriter to remain financially stable under a variety of economic stress tests requires a focus on balance sheet integrity. A major determinant of the financial stability of a title underwriter is an evaluation of critical financial stability ratios benchmarked against financial stability tests and the representative historical operating results of the insurer. Based upon a review of these key metrics and rating indicators, title underwriters collectively improved their overall financial stability in 2012. The underwriting and overall profitability of title underwriters has improved when comparing 2012 to the most recent reported years. Equally as important to note, title underwriters have continued to maintain a sufficient level of policyholders’ surplus and are adequately capitalized as a whole.
Premiums written Title underwriters reported approximately $11.3 billion in direct
premium written in 2012, representing a 21.6 percent increase over 2011 as well as a five-year high. According to statistics reported by the Mortgage Bankers Association of America, a majority of the premium growth experienced by title underwriters in 2012 was derived from refinance activity. While it can be argued that the refinance activity in recent years is based on historically low interest rates, it is important to note that the effect those interest rates would normally have in generating premium has been partially offset by high credit qualifications and loan-to-value ratio barriers. In other words, there is no reason to be less optimistic about the macroeconomic drivers of premium growth in 2013. The title industry has reason to expect that the direct premium gains seen over the past few years are more than a brief respite and instead the start of sustained growth. Moreover, the rapid consolidation in the industry means that any new revenue is distributed among a smaller pool of companies, giving each a larger, potentially more profitable share. As the industry begins to string
Demotech, Inc. has been serving the insurance industry by providing accurate and proven Financial Stability Ratings (FSRs) for the insurance industry, including rating title underwriters since 1992. FSRs are a leading indicator of the financial stability of title underwriters and property and casualty insurers. Demotech’s rating process provides an objective baseline for assessing solvency based upon changes in financial stability, as manifested in an insurer’s balance sheet and income statement. FSRs are based upon a series of quantitative ratios and considerations which comprise its Financial Stability Analysis Model. An FSR summarizes Demotech’s opinion as to an insurer’s ability to insulate itself from the business cycle that exists in the general economy as well as the underwriting cycle that exists in the insurance industry. Thus, an FSR summarizes Demotech’s opinion as to the relative ability of an insurer to honor meritorious claims during a downturn in general economic conditions as well as a downturn in the underwriting cycle. To order the 2013 Edition of Demotech Performance of Title Insurance Companies, visit www.demotech.com/PTIC.
together quarters of positive growth, new investments in title underwriters may potentially emerge.
Underwriting results and overall profitability
2012 operating expenses incurred increased nearly 17 percent over the previous year. This may seem to be a significant increase but is largely a function of the increase in premium volume. For the last several years, title underwriters have aggregately reported operating expenses to net premium written over 100 percent at year-end. In 2012, operating expenses accounted for 97 percent of net premium written for title underwriters. Lower expenses to net premium written indicate operational profitability for title underwriters.
an increase of 167 percent over 2011.
Title underwriters have remained vigilant in achieving overall profitability. Over the last 10 years, title underwriters have aggregately reported a net income for nine of those years. Some of the factors that comprise overall profitability are premium, operating expenses, loss and loss adjustment Billions DIRECT PREMIUMS WRITTEN FOR LARGEST 10 JURISDICTIONS Direct Premiums Written for Largest 10 Jurisdictions expenses, investment Billions $3.5 $3.5 California income and income Texas Florida taxes paid. New York $3.0 $3.0
Pennsylvania Arizona Illinois New Jersey Ohio Virginia
The profitability of $2.5 $2.5 title underwriter operations has $2.0 $2.0 been encouraging throughout the year. $1.5 For the year-end $1.5 2012, aggregate underwriting results $0.0 $1.0 on a year-to-year basis were positive $0.5 $0.5 for the title industry and over three$0.0 $0.0 quarters of title 1990 1992 1990 1992 underwriters reported a net underwriting gain. The title industry reported an aggregate operating gain of nearly $505 million at year-end 2012, ending a string of operating losses reported at the previous five year-ends. As interest rates for many long-term and short-term investments are at or near historic lows, title underwriters have aggregately posted modest investment gains for the last five years. In 2012, title underwriters reported a 10-year low for net investment gain of $354 million, a decrease of 6 percent from the previous year. Although title underwriters have aggregately reduced their operating expenses over the past several years,
Although Demotech does not expect individual underwriters to report an underwriting gain at each year-end, a component of our review process is the evaluation of underwriting results. Any title underwriter recording an underwriting loss greater than 10 percent of prior-year surplus will be subject to a detailed review of current operating results. As deferred tax assets must be used by title underwriters or expire, the amount of taxes paid increases in direct correlation with an increasing profit margin. Title underwriters aggregately paid taxes of nearly $129 million for 2012,
In 2012, title underwriters aggregately reported net income reminiscent of the pre-economic crisis years. The industry reported net income of nearly $722 million at year-end 2012, a 134 percent year-over-year improvement. This also marks the highest level of reported year-end net income for the title industry since 2007.
Assets, liabilities and policyholders’ surplus
While title underwriters increased direct premiums written and ended the streak of reporting net operating losses in 2012, they did so while continuing to increase policyholders’ surplus. Title underwriters, in aggregate, increased policyholders’ surplus over 30 percent from 2011 to $3.8 billion. Despite policyholders’ 2008 2010 2012 2008 2010 2012 surplus improving in 2012, it remains below the historic high reported in 2006. Regardless, this in no way indicates the industry is under-capitalized, as title underwriters reported a net premium written to policyholders’ surplus ratio of 2.94 for year-end 2012. A net premium written to policyholders’ surplus ratio greater than 3:1 would also subject a company to greater scrutiny. Title underwriters also strengthened their position in terms of short-term net admitted assets and total net admitted assets in 2012 over the previous year. For 2012, title underwriters aggregately increased short-term assets 7.8 percent and total assets 7.5 percent over the previous year while decreasing
total liabilities 4.8 percent. This in turn improved aggregate leverage and liquidity ratios reported by title underwriters. The title industry reported a leverage ratio (total liabilities to policyholders’ surplus) of 1.39 for 2012. Demotech prefers underwriters report leverage of less than 3:1 and a ratio greater than that will subject an underwriter to additional review and analysis. The title industry also reported a liquidity ratio (total liabilities to liquid assets)of 0.65. A value less than one is considered favorable because it indicates that the title underwriter has more than a dollar of liquid assets for each dollar of total liabilities.
Loss reserve development Demotech views adverse loss reserve development as an impediment to the acceptance of the reported value of current and future surplus. From our perspective, any amount of adverse loss reserve development on a consistent basis is unacceptable, as it may be indicative of management’s inability or unwillingness to properly estimate ultimate incurred losses. The title industry reported one-year loss development to policyholders’ surplus of 9.1 percent and two-year loss development to policyholders’ surplus of 8.5 percent at year-end 2012. Both of these percentages, while indicating unfavorable loss development for 2012 for title underwriters aggregately, do not appear to part of a continuing trend.
Jurisdictional analysis Each jurisdiction offers a unique environment, which tends to make direct comparisons somewhat misleading, as premiums in one jurisdiction can include fees and charges that might be billed separately in another. Nonetheless, certain comparisons are worth examining.
For 2012, the national average premium for a title insurance policy was $823 in the U.S. Within this national average are jurisdictions that can produce significantly different premiums. The average premium for a title policy in New York was $2,246. The average premium for a title policy in Missouri was $146. Coverage costs differ by jurisdiction as well. In examining the United States only for 2012, Missouri offered the most coverage per dollar of premium with $1,211. For Texas, coverage per dollar of premium was $190. Alternatively, jurisdictions can also be evaluated by average amount insured. The national average for amount of coverage in 2012 was $285,540. The District of Columbia was highest in this category, as the average title policy was written for $807,519. This average was easily ahead of New York, which was next in this category at $684,543. Title underwriters did not see significant changes in policy limits and costs from 2011 to 2012. However, since 2010, the average amount of insurance per policy increased 9.2 percent, while the average premium per policy increased 6.9 percent. This indicates that underwriters have been able to increase pricing while controlling exposure. On a premium per policy basis, 17 jurisdictions reported lower results for 2012 than 2010. In terms of overall premium volume, the largest jurisdictions have grown from 2011 to 2012. Four of the top five jurisdictions increased their share of countrywide premiums written. Only New York saw a dip in its market share, dropping slightly from 7.68 percent to 7.31 percent of the total premium. Illinois had the greatest relative single year increase of any jurisdiction, with premiums increasing by more than 43 percent and moving up three spots nationally from 2011. Only three jurisdictions experienced a decrease in premiums from 2011: Alaska, Nevada and the Virgin Islands.
Home price and sale forecasts The National Association of Realtors has projected that home prices will continue to rise in 2013. The projected median price for an existing home is projected to increase 7.1 percent. The Mortgage Bankers Association (MBA) projects sales of existing homes to increase 7.3 percent and new home sales to increase, nearly 48 percent over 2012. If the MBA’s projection for 2013 is accurate, the real estate industry can expect a 17 percent overall increase in mortgage originations. Offsetting these projected gains, while refinance interest rates remain at historic lows, it is projected that they will begin a slow incremental rise in 2013. A drop in refinance revenue has the potential to stall premium gains of the title industry until a more sustained economic recovery takes hold. Further risks to economic recovery from government cut-backs also limit the potential for sustained growth. Although the title industry has experienced significant revenue growth in the last two years, it may not continue to grow as rapidly, instead leveling off or growing moderately.
Conclusion Demotech Inc. has reviewed year-end 2012 statutory financial data reported by title underwriters and concluded that the aggregate industry results are favorable. Also, the financial ratios calculated based on the year-end results appear to be reasonable. It is typical for title underwriters’ reported financial ratios to have a certain degree of fluctuation and increase or decrease year over year. Further, based on these results as well as other performance indicators, title underwriters aggregately appear to be appropriately capitalized and should not be materially impacted by the forecasted economic conditions in 2013.
www.thetitlereport.com About the authors Douglas A. Powell has nearly 10 years of progressively responsible experience involving property and casualty insurers, title underwriters, financial analysis and business consulting. He has previous work experience as an accountant and auditor in the not-for-profit and government sectors. Since joining Demotech, Powell has been actively engaged in the property and casualty and title insurance industries. Demotech produces many articles and studies throughout the year. Powell is instrumental in providing research, analysis and insight for these endeavors. Powell also acts as a liaison on behalf of Demotech and its clients in correspondence with various government agencies, insurance industry associations, insureds and the media. Email Powell at email@example.com or follow him on Twitter @powdoug. Paul D. Osborne has more than 20 years of progressively responsible experience involving Property and Casualty insurers, Title underwriters, financial analysis and business consulting. Since joining Demotech, Osborne has been actively engaged in the Title insurance industry as the editor of Demotech Performance of Title Insurance Companies, assisting the American Land Title Association in special studies and supporting the activities of various title rating bureaus. Email Osborne at posborne@demotech. com or follow him on Twitter @pdosborne.
SELECTED STATUTORY FINANCIAL INFORMATION OF TITLE UNDERWRITERS Number of Title Underwriters Reporting Data Direct Premium Written Net Premium Written Operating Expenses Incurred Losses and Loss Adjustment Expenses Incurred Net Operating Gain or (Loss) Net Investment Gain or (Loss) Federal and Foreign Income Taxes Incurred Net Income or (Loss) One Year Loss Development (000’s omitted) Two Year Loss Development (000’s omitted) Short-term Assets Total Net Admitted Assets Total Liabilities Policyholders’ Surplus Liquidity (Total Libailities/Short-term Assets) Leverage (Total Liabilities/Policyholders’ Surplus) Net Premium Written/Policyholders’ Surplus Operating Expenses Incurred/New Premium Written One Year Loss Development/Prior Year Policyholders’ Surplus Two Year Loss Development/Second Prior Year Policyholders’ Surplus Number of Title Underwriters Reporting Data Direct Premium Written Net Premium Written Operating Expenses Incurred Losses and Loss Adjustment Expenses Incurred Net Operating Gain or (Loss) Net Investment Gain or (Loss) Federal and Foreign Income Taxes Incurred Net Income or (Loss) One Year Loss Development (000’s omitted) Two Year Loss Development (000’s omitted) Short-term Assets Total Net Admitted Assets Total Liabilities Policyholders’ Surplus Liquidity (Total Libailities/Short-term Assets) Leverage (Total Liabilities/Policyholders’ Surplus) Net Premium Written/Policyholders’ Surplus Operating Expenses Incurred/New Premium Written One Year Loss Development/Prior Year Policyholders’ Surplus Two Year Loss Development/Second Prior Year Policyholders’ Surplus
90 15,628,587,747 15,687,309,894 14,866,040,514 661,083,147 1,026,556,594 663,736,058 491,847,378 1,201,319,962 76,830
89 15,534,862,896 15,519,724,584 14,917,566,255 699,008,508 756,449,145 1,019,274,953 385,165,915 1,387,970,670 60,053 104,562 9,137,209,139 10,470,958,506 6,322,581,114 4,148,377,599 0.69 1.52 3.74 0.96 1.45%
94 16,836,306,938 16,842,190,753 16,130,504,187 916,027,098 727,097,346 865,967,089 373,088,031 1,221,183,042 (7,475) (10,431) 10,700,511,924 12,150,083,887 7,394,765,069 4,654,622,366 0.69 1.52 3.62 0.96 -0.18% -0.25%
96 16,435,170,390 16,444,578,692 15,988,123,413 870,535,194 715,278,011 930,424,909 311,373,669 1,337,945,456 112,028 73,014 10,700,511,924 12,150,083,887 7,406,703,389 4,743,380,504 0.69 1.56 3.47 0.97 2.41% 1.76%
95 14,072,960,085 14,069,871,984 14,069,600,151 1,297,862,360 (86,731,797) 819,814,604 133,872,385 602,564,290 568,476 525,056 9,844,712,874 11,285,666,697 7,495,794,525 3,791,381,884 0.76 1.98 3.71 1.00 11.98% 11.30%
90 9,883,880,862 9,890,415,140 10,731,573,196 1,315,496,516 (710,871,727) 426,431,416 (67,894,311) (217,598,095) 631,283 977,244 8,686,465,587 10,092,399,276 6,747,413,315 3,344,982,485 0.78 2.02 2.96 1.09 16.65% 20.60%
70 9,192,612,534 9,197,891,775 9,601,108,318 997,571,946 (92,211,072) 613,692,904 (34,189,325) 516,000,657 (325,163) 331,938 8,911,430,312 10,177,398,353 6,164,488,254 4,012,926,395 0.69 1.54 2.29 1.04 -9.72% 8.76%
54 9,455,149,616 9,444,470,921 9,638,276,685 1,105,144,277 (206,448,252) 427,668,558 15,202,162 226,319,279 70,608 (225,956) 8,785,244,757 9,938,510,002 6,039,441,990 3,899,067,923 0.69 1.55 2.42 1.02 1.76% -6.76%
48 9,263,143,455 9,255,666,936 9,306,474,468 1,101,968,682 (22,088,512) 377,830,546 48,288,902 308,828,762 74,204 217,100 7,570,300,710 8,511,831,650 5,582,729,941 2,929,101,716 0.74 1.91 3.16 1.01 1.90% 5.41%
44 11,287,330,570 11.252,998,362 10,879,289,425 849,231,683 504,875,439 354,032,137 128,974,652 721,666,377 267,542 331,750 8,157,684,816 9,146,820,219 5,316,212,212 3,830,608,012 0.65 1.39 2.94 0.97 9.13% 8.51%
8,642,584,124 9,882,706,507 5,742,142,983 4,140,895,066 0.66 1.39 3.79 0.95
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Fitch breaks down the Big Four, business ahead By Gerry Glombicki, director, Fitch Ratings
of higher tax rates in 2013.
ollowing several years of unfavorable results tied to repercussions of the economic crisis on mortgage and real estate markets, title insurers returned to a more profitable footing in 2012. The five publicly traded title insurance underwriter families, which account for approximately 90 percent of total industry revenue, reported aggregate profit margin improvement to 10.3 percent from 6.6 percent a year ago, largely due to continued operating efficiencies and stable loss provisioning rates on higher revenue levels. GAAP underwriting profits were reported for the fourth consecutive year in 2012,
Company performance reaches multiyear highs Fidelity National Title Group, the largest underwriter in the title insurance industry, continues to lead the industry in profitability. The company’s scale gives it a cost advantage, along with its willingness to quickly reduce costs to match the cyclicality of the industry. Favorably, Fidelity improved its agent split to 76 percent during 2012, which is superior to its peers. Fidelity also reported solid results in its two nontitle businesses: its restaurant group and its majority ownership interest in an
GAAP TITLE OPERATING MARGINS
Title Operating Revenue
incentive-based compensation rather than increasing staffing levels to match higher revenues. First American’s agent split remains unchanged at 80 percent. Old Republic Title Group reported an improved, yet below industry average, operating profit margin. The company’s potentially higher than industry average loss ratio could be attributable to weaker underwriting via competitive pricing and/or business selection associated with the rapid growth experienced over the past four years. Old Republic more than doubled its title insurance premiums since 2008 and is currently 50 percent larger than its peak in 2003, a portion of which can be attributed to its joint underwriting venture formed with Attorneys’ Title Insurance Fund, Inc.
Title Operating Earnings
Title Operating Margins (%)
Fidelity National Title Group
First American Corporation
Stewart Information Services Corp. 1,632,604
Old Republic International Corp.
Investors Title Company
Note: Excludes realized gains or losses on investments. Source: Company financial statements.
with the combined ratio at 91.6 percent. This group’s operating revenues increased by 18 percent to approximately $13.5 billion in 2012. Refinance activity remained robust while purchase activity and housing prices began to rebound during the year. The industry also benefited from commercial market activity, which accelerated during fourth-quarter 2012 in anticipation
equipment electrical components company. First American Financial Corp. reported an improved operating profit margin for full-year 2012 and noted that the results for 2011 included charges related to its guaranteed valuation product in Canada and a legal settlement with Bank of America. The company also rationalized its cost structure to increase its focus on
in 2009. Stewart Information Services Corp. reported significantly improved operating results in 2012, and its first meaningful profit since 2006. This compares with 2011’s slightly better than break-even results. While these results continue to lag the industry average, it shows a marked improvement over the prior five years. Stewart benefited from strategic
initiatives including greater operating efficiencies. The company’s favorable 2012 results also included the release of $36.6 million of a tax asset valuation allowance established in 2008.
However, significant economic uncertainty remains around several major macroeconomic factors such as inflation, employment, taxes, sovereign debt levels, and U.S. monetary and
Investors Title Co. is significantly smaller than the four largest national
fiscal policies. The path that these macroeconomic factors take over the
The MBA’s 19 percent projected decline in mortgage originations is driven by a 34 percent decline in refinance activity, somewhat offset by an 18 percent increase in purchase activity. Notably, title insurers generate almost twice as much premium on purchases than they do on refinance originations, yet margins
Pretax Operation Margin (%)
Title Premiums/ Total premiums (x)
Return on Equity (%)
Fidelity National Title Group
First American Corporation
Stewart Information Services Corp. 1.0
Old Republic International Corp.
Note: Excludes realized gains or losses on investments. Source: Company financial statements. underwriters making up less than 1 percent of the group’s title operating revenue in 2012. Along with higher levels of refinance and purchase activity, the company benefited from the ongoing expansion of its agent base and targeted entry into new markets, which will remain a focus in 2013.
Economic uncertainty remains, despite a housing recovery Several market trends indicate a brighter future for the housing market that extends to title insurance, including higher home prices in most, but not all, metropolitan statistical areas, decreased housing inventory and fewer new foreclosures.
next 12-24 months could significantly alter the broader housing markets.
Growth expected to slow in 2013, margins remain stable
FITCH TITLE INSURANCE RATINGS National Groups
Fidelity National Title Group
First American Title Group
Old Republic Title Group
Stewart Title Group
IFS-Insurer Financial Strength. Relatively flat premium growth Source: Fitch Ratings. could materialize in 2013, with a continued trend of business shifting toward purchases and away from are roughly similar. Forecasts are subject refinance originations. Fourth quarter to change as demonstrated by the MBA’s 2012 open orders were up 24 percent over initial forecast having been on average the prior-year quarter and Fitch expects 17 percent lower than actual mortgage modestly favorable growth in first quarter originations for the last eight years. 2013 order counts. This order flow should lead to higher premiums during the first half of 2013, but will likely be offset by lower premiums in the second half.
About Fitch Ratings Dual-headquartered in New York and London, Fitch Ratings is a global rating agency dedicated to providing value beyond the rating through independent and prospective credit opinions, research and data. Offering a world of knowledge and experience behind every opinion, we transform information to deliver meaning and utility to investors, issuers and other market participants. Fitch Ratings’ global expertise draws on local market knowledge and spans the fixed-income universe. The additional context, perspective and insights we provide help investors make important credit judgments with confidence. Visit the company’s website at www.fitchratings.com
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Joe Powell Area Counsel Fidelity National Title
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Earnings report wrap: A look at year-end financial data from top industry players The ledgers are closed. The calls have concluded. So how did the country’s largest title insurers and other prominent industry players fare in 2012? We’ve culled together the relevant information for this earnings report wrap.
Fidelity reports record commercial revenue in Q4 Fidelity National Financial Inc. reported operating results for the three-month and 12-month periods ended Dec. 31, 2012. Here are some of the highlights of this profitable quarter for the title insurance giant.
came in at $142.6 million. The increase is attributable to a 28 percent improvement in commercial fee per file and an 8 percent increase in closed orders. For the full year 2012, commercial title revenue was nearly $412 million, an increase of 13 percent versus 2011. The company noted that there was a flurry of activity due to the uncertainty over tax policy, which allowed them to get some larger deals done that otherwise might have slipped into the
Pre-tax title margin had a huge jump to 16 percent for the fourth quarter versus 11.7 percent in the fourth quarter of 2011. That’s a 37 percent increase over the prior-year period. To put that margin in further perspective, it is nearly equal to the peak title FIDELITY NATIONAL FINANCIAL margin Fidelity earned in 2003, Full-year 2012 a year that saw total mortgage Total revenue $7.2 billion originations of $3.8 trillion, more Cash flow from operations $620 million than double the projection of FIDELITY NATIONAL TITLE GROUP total mortgage originations for Total revenue $5.6 billion Pre-tax earnings $783 million 2012. For the full-year, Fidelity’s Claims recoupment impairment $11 million pre-tax title margin was Adjusted pre-tax margin 14.1 percent 14.1 percent. Total title premium Title claim loss expense Actual title claims paid
Open title orders for Q4 had a 25 percent increase year over year, moving to 677,400. Open orders per day hit 10,750 for the fourth quarter versus 8,740 open orders per day for the fourth quarter of 2011. The refinance share was 68 percent. Open resale orders were up 11 percent in the quarter.
On the earnings call, Chief Executive Officer George Scanlon noted similar order numbers continuing in January, which averaged 10,400 open orders per day with the last two weeks of the month averaging 11,100 open orders per day. The refi percentage was closer to 65 percent during this period. Fourth quarter commercial title revenue was the biggest story. It experienced a 37 percent increase from the prior year. For the quarter, commercial title revenue
$3.8 billion $279 million $433 million
“Our commercial title business had a tremendous quarter, generating nearly $143 million in revenue, by far the strongest commercial quarter in the history of our company,” he continued. “Overall, open title order counts remained robust during the quarter, despite the normal seasonal slowdown in the second half of December and we enter 2013 confident that we can continue to generate strong, industryleading profitability in our title insurance business.”
Full-year 2011 $4.3 billion $110 million $4.8 billion $530 million 10.9 percent $3.2 billion $222 million $520 million
first quarter. Scanlon said he views that increase in fee per file as aberrational. The overall fourth quarter average fee per file of $1,565 was a 6 percent increase over the fourth quarter of 2011, despite a larger percentage of refinance orders. “The fourth quarter was a great finish to a very strong year for our company,” Scanlon said. “We are encouraged as we look to 2013. We are proud of the 16 percent pre-tax margin our title business generated this quarter. In what remains a sluggish residential real estate market, this is an accomplishment that all of our employees can truly be proud to have achieved.
FNF generated more than $2.2 billion in revenue in the fourth quarter compared to $1.3 billion in the fourth quarter of 2011 as title revenue grew by $328 million or 26 percent. Decreased title claims paid resulted in improved cash flow. Cash flow from operations was $243 million for the fourth quarter and $620 million for the full year 2012.
Total title claims paid were $131 million during the fourth quarter and $433 million for the full year 2012, a full year decline of $87 million. “We will continue to provide for future claims at a 7 percent provision level as we enter 2013, and we expect claims paid to continue to decline in 2013. We also continue to see encouraging results from the 2009 through 2012 policy years,” said Anthony Park, chief financial officer for FNF.
Non-title businesses Chairman William Foley also called 2012 a milestone year for two of the company’s major non-title businesses.
www.thetitlereport.com “Our restaurant group expanded significantly with the acquisitions of O’Charley’s and J. Alexander’s, growing from a revenue base of approximately $400 million entering 2012 to more than $1.4 billion entering 2013,” Foley said. “We began consolidating the restaurant group’s results in May 2012 and as we enter 2013, we remain focused on integrating the headquarters in Nashville,
improving the financial performance of the O’Charley’s concept and building our restaurant group into an asset that can provide significant value for FNF shareholders. Remy International also had several significant events occur in 2012. In August, FNF acquired 1.5 million additional shares of Remy common stock and became the majority owner of the company, causing the consolidation of
Remy’s financials into FNF. Additionally, Remy successfully became listed on the NASDAQ Stock Market, creating additional liquidity for its common stock. We are excited about the new leadership and future for Remy and look forward to continued future operational and financial success that will benefit all Remy shareholders.”
First American revenue up 19 percent in 2012 First American Financial Corp. announced financial results for the fourth quarter and year ended Dec. 31, 2012, results that beat analyst expectations and further demonstrated the strength of the Big Four title insurance underwriters right now. “2012 was a successful year for the company,” said Dennis Gilmore, chief executive officer at First American. “We grew total revenue by 19 percent and, due to strong operating leverage, we significantly improved our profitability.” FAF’s pretax title margin of 11.3 percent and return on equity of 13.7 percent both exceeded the goals the company established back in 2010 prior to the spinoff.
increase in the number of direct title orders closed in the quarter and a small increase in average revenue per order.
market, we believe the company is well positioned going into 2013,” Gilmore stated.
Average revenue per direct title order was $1,547, an increase of 3 percent compared with the fourth quarter of 2011, as the shift in the mix of revenues to lower-premium refinance transactions was more than offset by an increase in the average revenue per closed order for commercial and purchase transactions. Agent premiums were up by 30 percent in the current quarter, reflecting the
The provision for policy losses and other claims was $70.7 million in the fourth quarter, or 7 percent of title premiums and escrow fees, up $6.2 million compared with the same quarter of the prior year. The current quarter rate of 7 percent reflects an ultimate loss rate of 5.1 percent for the current policy year and a net increase in the loss reserve estimates for prior policy years. Some of the broader FAF figures:
FIRST AMERICAN FINANCIAL
Full-year 2012 Full-year 2011
• Total revenues for the fourth quarter were $1.3 billion, an increase of 28 percent compared to the TITLE INSURANCE AND SERVICES During the fourth quarter, closed prior-year period. Net income Q4 2012 Q4 2011 orders in FAF’s title business in the current quarter was $93.3 Total revenue $1.2 billion $923 million were the strongest of the million, or 85 cents per diluted Pretax margin 12.7 percent 8.2 percent year, driven by refinance and share, compared with net $146 million $107 million Commercial revenue commercial activity. Revenues income of $40.2 million, or 38 in the commercial division cents per diluted share, in the were $146 million for the quarter, up 36 normal reporting lag of approximately fourth quarter of 2011. percent compared to the prior year. The one quarter. company delivered a strong title segment • The current quarter results pretax margin of 12.7 percent. “With new and existing home purchases include net realized investment gains in the early stages of recovery, we are of $6.2 million, or 4 cents per Total revenues for the title insurance and optimistic that the housing market will diluted share, compared with services segment were $1.2 billion in the continue to improve. We also expect net realized losses of $2.2 million, or 1 fourth quarter of 2012, an increase of 30 continued strength in the commercial cent per diluted share,in the prior year. percent from the same quarter of 2011. market. While there is uncertainty The fourth quarter results for 2011 also Direct premiums and escrow fees were concerning the impact and timing of the include a $19.2 million charge for a legal up 38 percent compared to the fourth expected decline in refinance activity and settlement, or 11 cents per quarter of 2011, due to a 34 percent the magnitude of growth in the purchase diluted share. Total revenue Income before taxes Net income Paid title claims
$4.5 billion $467 million $301 million $285 million
$3.8 billion $130 million $78 million $348 million
• Total revenues for the full year of 2012 were $4.5 billion, an increase of 19 percent relative to the prior year. Net income was $301million, or $2.77 per diluted share, compared with $78.3 million, or 73 cents per diluted share, in 2011. • The results for the full year 2012 include $57 million of net realized investment gains, or 34 cents per diluted share, compared with net realized investment losses of $9.2 million, or 5 cents per diluted share, in 2011. This is primarily
due to the sale of CoreLogic common stock. • In addition, the prior year results for 2011 include charges of $77.5 million, or 43 cents per diluted share, which incorporate a $45.3 million reserve addition for the guaranteed valuation product offered in Canada and $32.2 million for a legal settlement. • Personnel costs were $339.1 million in the fourth quarter, an increase of $56.1 million, or 20 percent, compared with the fourth quarter of 2011. This
increase was primarily due to higher incentive-based compensation driven by improved revenues and profitability and, to a lesser extent, higher staffing levels required to support the increased order volume compared to the prior year.
In late January 2013, FAF completed a $250 million offering of 10-year, 4.3 percent senior notes to provide the company with long-term financing and increases its financial flexibility going forward.
Old Republic title segment boosts overall results Old Republic International Corp. (ORI) reported financial results for the fourth quarter and full year 2012, and news from the title insurance segment remains positive.
The claim ratios for 2012 were moderately lower in relation to 2011 Claims costs in the fourth quarter of 2012 as frequency and severity trends abated moved up 13.7 percent, from $29 million somewhat. Year-over-year expense ratio to $33 million. The claims ratio for the comparisons benefited from continued quarter was 7 percent, a decrease from rationalization of an expense structure For the fourth quarter 2012, net 7.8 percent in Q4 2011. The expense ratio more accommodative of current and premiums and fees earned came in at was 89.8 percent, up from 88.8 percent future growth prospects. Chicago-based $471 million, an improvement of 27 in the prior-year period. The composite ORI is one of the nation’s 50 largest percent when comparing Q4 2011 with Q4 ratio was essentially unchanged at 96.8, publicly held insurance organizations. 2012. The company’s inching up 0.2 from the prior-year period. Its most recent financial statements pre-tax operating income came in at reflect consolidated assets of $20 million, a 9.9 percent approximately $16.22 billion OLD REPUBLIC INTERNATIONAL improvement from $18 million and common shareholders’ Full-year 2012 Full-year 2011 over the prior-year period. equity of $3.59 billion, or Total operating revenue $4.9 billion $4.5 billion $14.03 per share. Its current Net operating income $(100 million) $(219 million) At year-end 2012, Old Republic’s stock market valuation is Net operating income $231 million $257 million excluding RFIG run-0ff title insurance segment approximately $3.0 billion, or Title insurance operating $1.7 billion $1.4 billion generated $1.7 billion in net $11.66 per share. revenue premium and fees, up 23 percent Claim costs $121 million $106 million year over year. The pretax In late March 2012, ORI Claim ratio 7.2 percent 7.8 percent 96.8 percent 99 percent Composite ratio operating income came in at $74 announced that its General million, a jump of 104 percent Insurance Group’s Consumer year over year ($36 million in 2011). Credit Indemnity (CCI) division Claims costs at year-end 2012 totaled would be combined with its Mortgage Growth in title insurance premiums $121 million, an increase of 14.3 percent Guaranty (MI) business in a renamed and fees benefited from a combination year over year ($106 million in 2011). Republic Financial Indemnity Group of factors, according to the company. The yearly claims ratio, however, moved Inc. (RFIG) run-off segment. The two Key among these were market share down to 7.2 percent from 7.8, year over operations, which offer similar insurance gains emanating from title industry year, the expense ratio moved down to coverages, have been in run-off operating dislocations and consolidation during the 89.6 percent from 91.2 percent and the mode since 2008 (CCI) and August 2011 past four years or so, and greater levels composite ratio moved down to 96.8 (MI), and are inactive from new business of mortgage refinancing activity in more percent from 99 percent production standpoints.
www.thetitlereport.com Mortgage guaranty earned premiums continued to decline throughout 2012. The gradual depletion of a book of business in run-off operating mode, together with premium refunds related to claim
rescission activity and the termination of new business production since August 2011 were major factors leading to the decline. Net investment income fell as a consequence of a lower invested asset
base eroded by declining premium volumes and ongoing claim disbursements, and a pervasively low yield environment for the investment portfolio.
Stewart shows improved financial performance Stewart Information Services Corp reported its year-end and fourth quarter 2012 earnings. The results are positive and according to several financial analysts the company exceeded expectations. “2012 was a turnaround year for Stewart on many fronts. Not only did we see many of our strategic initiatives delivering profits, but our streamlined management team was able to capitalize on an improving market,” said Matthew Morris, chief executive officer.
Title insurance segment stats
year as a result of a higher proportion of refinance transactions, somewhat offset by more commercial orders. Although industry-wide order counts continue to be influenced by refinancing activity driven by historically low interest rates, Stewart’s overall proportion of orders in the fourth quarter from refinancing transactions continued to be lower than industry averages, which should result in less volatility in future revenues as refinancing transactions retract.
title losses as a percentage of title revenues were 7.6 percent, 7.3 percent and 9.9 percent in the fourth quarter 2012, third quarter 2012 and fourth quarter 2011, respectively. Title losses, including adjustments to certain large claims in both periods, decreased 11.6 percent on the 14.9 percent increase in title operating revenues when compared to the fourth quarter 2011.
“Our overall loss experience continued to improve relative to prior-year periods and was in line with our actuarial expectations, which STEWART INFORMATION SERVICES CORP. allowed us to maintain the lower Full-year 2012 Full-year 2011 loss provisioning rate adopted Total revenues $1.9 billion $1.6 billion effective with policies issued Net earnings $109 million $2.3 million in the third quarter 2012,” the Title losses and related claims $140 million $142 million company noted. Mortgage service revenue $178 million $124 million
Revenue from Stewart direct operations increased 15.5 percent year over year in Q4 2012. Revenue from commercial transactions, which are included in direct operations, increased 38.3 percent year over year to $35.4 million in the fourth quarter 2012. The company said commercial title revenues industry-wide were strongly influenced in the fourth quarter by the anticipated increase in capital gain tax rates in 2013. International operating revenues, which are also included in direct operations, increased 4.1 percent in the fourth quarter year over year.
Opened title orders in direct operations improved significantly over the prior-year period, increasing 14.9 percent year over year. Title orders closed per workday in direct operations increased 14.3 percent and 4.3 percent from the fourth quarter 2011 and the third quarter 2012, respectively. Title revenue per closed order in direct operations decreased 4.5 percent for the fourth quarter year over
Independent agency revenues increased 14.4 percent year over year for the fourth quarter. Stewart noted in its release that it “began the process of vetting our network of independent agencies several years ago with the emphasis on managing for quality and profitability. Since fourth quarter 2008, our average annual premium revenue received per independent agency has increased more than 95 percent and we have reduced the number of independent agencies in our network by approximately 40 percent. Further, the policy loss ratio of our current independent agency network for the year ended Dec. 31, 2012, is less than one-third of its level in the comparable 2008 period.” 2012 title losses as a percentage of title revenues declined to 8.1 percent from 9.4 percent in 2011. Quarterly
Cash claim payments increased 7.8 percent from the fourth quarter 2011 and decreased 7.7 percent compared to the year 2011. Losses incurred on known claims decreased 3.3 percent compared to the fourth quarter 2011 and 12.2 percent compared to the year 2011. The decline in cash claim payments and losses incurred on known claims continues a trend noted for several quarters. Here are some of the corporation-wide numbers: •For the fourth quarter 2012, Stewart saw a $59.6 million increase in net earnings to $61.8 million, or $2.56 per diluted share. This compared to net earnings of $2.2 million, or $0.11 per diluted share, year over year. • For full-year 2012, Stewart had
www.octoberstore.com net earnings of $109.2 million, or $4.61 per diluted share, which is an improvement of $106.8 million over the prior-year period. • Total revenues for the fourth quarter were $521 million, an increase of 17.1 percent year over year from $445.1 million. The title segment operations specifically increased revenues $58.6 million, or 14.3 percent, year over year to $468.2 million in the fourth quarter. Mortgage services revenues increased 69 percent to $47.8 million in the quarter. “Our pretax earnings of $89.3 million represent the best year for us since 2006, a year in which revenues were 29.4 percent greater than in 2012,” Morris stated. “The momentum we experienced in the second and third quarters carried into the fourth quarter, as demonstrated by the solid results of operations for that quarter. We continued our emphasis on profitable growth, cost effectiveness and prudent risk management. These focused
efforts, and the dedicated commitment of our associates worldwide, enabled us to achieve a 25.9 percent pretax margin on the increase in full year revenues over 2011.” On average, three analysts polled by Thomson Reuters estimated earnings per share of $1.08 for the quarter. Employee costs in the fourth quarter 2012 increased 19.9 percent year over year and 4.8 percent sequentially from the third quarter 2012. As a percentage of total operating revenues, employee costs were 28.1 percent, 27.7 percent, and 26.9 percent in the fourth quarter 2012, fourth quarter 2011, and third quarter 2012, respectively.
Investor news Subsequent to year-end, Stewart exchanged an aggregate of $20.7 million of its 6.0 percent Convertible Senior Notes due in 2014 for an aggregate of 1,691,074 shares of
common stock plus cash for accrued and unpaid interest. By entering into these exchange agreements, the company avoided future interest expense and cash outlay, converted approximately one-third of the outstanding convertible senior note balance into equity, thereby strengthening its balance sheet, and eliminating an equivalent amount of future repayment risk. Following these transactions, an aggregate of $44.3 million of convertible debt remains outstanding. The company also reported that the strong operating results in 2012 allowed it to release $36.6 million of a tax asset valuation allowance, originally established in 2008, representing the portion of the allowance that had not been previously utilized to offset taxable income. The remaining valuation allowance of $12.1 million relates primarily to foreign tax credit carryforwards.
Investors Title reports record earnings in 2012 Investors Title Co. announced its results for the fourth quarter and year-end 2012. For the quarter, net income increased 68 percent to $3.2 million, or $1.51 per diluted share, compared with $1.9 million or $0.88 per diluted share, for the prior-year period. For the year, net income increased 60 percent to $11 million, or $5.24 per diluted share, compared with $6.9 million, or $3.20 per diluted share, for INVESTORS TITLE the prior year period. Commissions to agents:
The company said the increase in net income Provision for claims: for the quarter and TOTAL EXPENSES: the year was driven primarily by increases in premium volumes, which reflect widespread increases in overall mortgage lending activity. The company benefitted from ongoing expansion of its agent base and targeted
entry into new markets. New premium charges and rate increases in a number of markets also contributed to the increase. For the quarter, year over year: • Premium volumes increased 67 percent; and • Operating expenses increased 62 percent.
BUSINESS BY THE NUMBERS Q42012
Those are primarily due to increases in commissions to agents, claims and payroll expense. Commissions to agents increased commensurate with the
increase in agency premiums. The claims provision rate as a percentage of net premiums written tracked favorably to the long-term trend, and was virtually flat for the quarter compared with the prior year quarter. The increase in payroll expense was primarily driven by an increase in staffing levels in software development. For the year, revenues increased FY2011 27 percent over the $49.6M prior year to $115 million due to $3.3M high levels of overall $81.2M mortgage activity, and new premium charges and rate increases. Operating expenses followed the trend for the quarter, increasing 21.9 percent.
www.thetitlereport.com “We are pleased to report record levels of revenue and earnings per share for 2012,” said J. Allen Fine, chairman for Investors Title. “A favorable interest rate environment led to high levels of mortgage lending across the industry, with increases
in both purchase and refinance activity versus the prior year. Our balance sheet and financial condition remain strong, as total assets reached an all-time high of $171.9 million as of year-end. In the coming year, we will continue to emphasize
the expansion of our agency base and operational efficiency.” Reserve for claims moved up from $38 million to $39.1 million.
Realogy: Title segment outperforms previous year Realogy Holdings Corp., a residential real estate franchisor and provider of real estate brokerage, relocation, title and settlement services, reported financial results for the fourth quarter and full year ended Dec. 31, 2012. Realogy’s net revenue for fourth quarter 2012 was $1.2 billion, a 30 percent increase compared to the same period in 2011. The company attributes earnings increases to a 35 percent increase in sales volume (homesale transaction sides times average sale price) at the franchised and company-owned real estate services segments combined year-over-year for the quarter. Net loss attributable to the company in the fourth quarter was $292 million, which was after $400 million of primarily non-cash IPO-related costs, $18 million of debt extinguishment charges and $42 million of depreciation and amortization. Realogy’s net revenue for full year 2012 was $4.7 billion, an increase of 14 percent compared to 2011. “The strength of the year, and in particular our strong fourth quarter results, supports the growing consensus of a housing recovery,” said Richard Smith, Realogy’s chairman, chief executive officer and president. “The favorable housing trends we experienced early in 2012 were evident in the fourth quarter, and our first quarter 2013 closed sales volume and open contracts indicate the continuation of the housing recovery.” Realogy’s title and settlement services segment in particular, Title Resource
Group (TRG), experienced a 13 percent increase in purchase title and closing units compared to 2011 and a 42 percent increase in refinance title and closing units. In 2011, total revenue for the title and settlement segment was $359 million. In 2012, the revenue for the title and settlement segment broke down like this: • Q1: $88 million; • Q2: $106 million; • Q3: $114 million; • Q4: $113 million; • Year-end: $421 million.
“Based on the visibility we have into the coming months from our January
approximately 7 percent. The earnings report listed average price per closing unit in the title and settlement services segment at $1,362, with 105,156 purchase closings and 89,220 refinance closings for the year. In both purchases and refinances, Realogy saw an increase each quarter when compared to the prior-year periods. That type of performance was seen throughout the rest of the company’s segments as well. “Our closed homesale transaction volume drivers outperformed our expectations in the fourth quarter, especially with respect to average sales price,” said Anthony Hull, Realogy’s executive vice president, chief financial officer and treasurer. “ We believe that the fourth quarter volume increase was partially aided by tax-related selling, particularly at the high end of the market.
closed sales data and open contracts in January and early February, we expect to see an approximately 4 percent to 5 percent increase in transaction sides in the first quarter of 2013 with one less business day than we had in the first quarter of 2012.”
Anthony Hull, Realogy
TRG’s underwriter reported a 22 percent increase in 2012 net premiums year over year. TRG’s underwriting claims experience for the year was approximately 1.3 percent, which continues to substantially outperform the industry average loss ratio of
“Based on the visibility we have into the coming months from our January closed sales data and open contracts in January and early February, we expect to see an approximately 4 percent to 5 percent increase in transaction sides in the first quarter of 2013 with one less business day than we had in the first quarter of 2012. Likewise, we anticipate a combined Realogy Franchise Group and NRT [the operator of its company-owned brokerage offices] average sale price increase of approximately 8 percent to 9 percent year-over-year, which would equate to a 14 percent to 16 percent volume increase in the first quarter after adjusting out the additional business day in the first quarter of 2012.”
Title premium up 21 percent in 2012, slight market share moves According to ALTA’s preliminary 2012 Year-end and Fourth-Quarter Market Share Analysis, the title insurance industry generated $11.4 billion in title insurance premiums in 2012, up nearly 21 percent from 2011. During the fourth quarter of 2012, the industry reported $3.3 billion in title insurance premiums, up more than 30 percent from the fourth quarter of 2011.
non-affiliated went up $206 million. Total premiums written for the company went up $472 million, but the company’s market share decreased 0.48 percent compared to the previous year. Old Republic: The Old Republic family wrote more than $1.5 billion in premium in 2012. This was good for 13.5 percent of the market. The breakdown of direct,
$191 million, $376 million, and $913 million, respectively. Those totals all increased — direct by $26 million, affiliated by $52 million and non-affiliated by $106 million — when compared to 2011. The company’s market share dropped by 0.7 percent compared to 2011.
Independent companies: All told, even though each of the Big Four increased its premiums written year over year, the Premium by State only one that gained market share was The states generating the most title insurance premiums during 2012 were: Old Republic, and overall, the Big • California ($1.7 billion, up 25 percent compared to 2011), Four’s market share dropped 1.5 percent •Texas ($1.4 billion, up 24 percent), (86.68 percent). The market share leaders • Florida ($893 million, up 24 percent), among the regionals / growing nationals • New York ($825 million, up 15 percent), and include:
Fidelity: In all, the Fidelity family of companies wrote more than $3.8 billion in premium. This was good for 33.9 percent market share, 15.9 percent of which was Chicago Title. Direct business contributed $484 million, affiliated businesses • Pennsylvania ($505 million, up 23 percent). contributed $1.4 •National Title billion and nonInsurance of New Overall, 48 states and the District of Columbia reported increases in title insurance affiliated agencies York: $334 million premiums written during 2012 when compared to 2011. States reporting the contributed $1.96 ….2.9 percent largest percent increase from 2011 to 2012 were Illinois (43 percent), North Dakota billion. Compared market share (42 percent) and Georgia (30 percent). to last year, direct (+0.02 percent). business was down $200 million, •Westcor Land Title affiliated was up $573 Insurance Co.: $240 million and non-affiliated was up $217 affiliated and non-affiliated business million….2.1 percent market share million. Fidelity’s total premium was up was $76.7 million, $177 million, $1.3 (+0.44 percent). $589 million, but its market share dipped billion, respectively. Compared to 2011, 0.8 percent from 2011. direct premiums increased $18.7 million, •Title Resources Guaranty: $231 affiliated increased $34.6 million and million….2 percent market share First American: The First American family non-affiliated increased $261 million. Old (+0.01 percent). of companies wrote more than $3 billion Republic’s market share increased 0.5 premium in 2012. This was good for 26.3 percent compared to the prior year. •WFG National Title Insurance Co.: $111 percent of the market. The breakdown million….0.97 percent market share among direct, affiliated and non-affiliated Stewart: The Stewart family of companies (+0.48 percent) business was $648 million, $720 million, wrote more than $1.4 billion in premium $1.6 billion, respectively. Compared to in 2012. That was good for nearly 13 •North American Title Insurance Co.: 2011, direct premiums written went up $85 million, affiliated went up $181 million and
percent market share. The direct, affiliated, non-affiliated business breakdown was
$100 million…..0.87 percent market share (+0.06 percent)