Four of the nation’s five biggest title insurers reported they were in the red during the third quarter, and the fifth — LandAmerica Financial Inc. — is also expected to have bad news when it releases results next week.
LandAmerica, which surprised analysts in July by announcing a bigger-than-expected $50 million second-quarter loss, was scheduled to release third-quarter numbers Wednesday.
Saying it needed additional time to complete and review its financial statements, LandAmerica now says it will release results on Nov. 10.
Three months ago, the nation’s biggest title insurer, First American Corp., managed to cut expenses faster than revenue declined during the second quarter, and was alone among the big five in reporting a profit (see story).
Now, continued weakness in housing markets has caught up with First American, with the company reporting an $8.3 million third-quarter loss despite further cost cutting that included layoffs of 1,250 employees. Since the end of the first quarter of 2007, First American has laid off 5,800 employees.
Fidelity National Financial Inc., the second-biggest title insurer in 2007, reported a $198 million third-quarter loss after reevaluating recent trends in paid claims and strengthening reserves by $261.6 million. Fidelity said it closed 115 title and escrow offices during the quarter, laid off 1,000 workers, and instituted a 10 percent companywide pay cut on Oct. 1.
Fourth-ranked Stewart Information Services Corp. reported $30 million in losses for the quarter, despite having closed 40 branches and cut 470 jobs. The company said it’s laid off 2,900 employees since the end of 2006, or close to 30 percent of its workforce.
Fifth-ranked title insurer Old Republic International Corp. did not announce layoffs, but reported a $48 million third-quarter loss, driven largely by rising claims in its mortgage insurance business.
LandAmerica said in July that it had laid off 3,600 employees in the past 12 months, and could report further layoffs next week. The 2,720 third-quarter layoffs announced by FirstAmerican, Fidelity and Stewart bring the total number of jobs slashed at the four companies since the downturn began to more than 18,000.
Although title insurers also generate revenue selling property information to real estate brokerages, lenders and investors, they’ve seen revenue plummet during the downturn because fewer home purchases and refinancings mean fewer title insurance policies written.
First American noted a forecast by the Mortgage Bankers Association that estimated the dollar volume of refinance originations during the quarter fell 31 percent from a year ago, while purchase originations fell 15 percent. The MBA forecasts that total residential mortgage production for 2009 will total $1.67 trillion, down 10 percent from an expected $1.86 trillion in 2008 and down 27 percent from the $2.3 trillion seen in 2007 (see story).
"Clearly, it’s going to get tough over the next two quarters with what the MBA is predicting," said First American Chief Operating Officer Dennis Gilmore in a conference call with investors. Asked to compare the downturn to a nine-inning baseball game, Gilmore said, "I’m not going to give you an exact inning because it’s a long game, let’s put it that way."
Old Republic Chairman and CEO Aldo Zucaro said that national home prices probably need to fall by 30 percent from their peak before a recovery can take hold, and still have about 10 percent to go. Prices should bottom in the early spring of 2009, Zucaro said, with a recovery getting underway in late 2009 or spring of 2010.
Gilmore said First American’s strategy for getting through the downturn includes increasing employee productivity. The company has achieved sequential gains in productivity that it’s looking to match in the last three months of the year, he said.
First American Chairman and CEO Parker Kennedy said the company believes it will be able to work out differences with tax authorities in India and has reduced its reserves for tax exposures there by $10 million. First American subsidiary First Indian Corp. employs about 6,000 people in Bangalore, Hyderabad and Mangalore, many of whom process documents, transactions and claims for U.S. finance, mortgage and insurance companies.
While the number of title insurance policies is falling, claims on title insurance policies written during the housing boom have increased.
Malcolm Morris, Stewart’s co-chief executive officer, said the company continues to "aggressively cut operations that show continuing losses and unacceptable risk exposure."
Stewart has canceled 1,750 independent agencies since June 1, he said. The agencies represent a "relatively minor" contribution to revenue but "a sizeable portion of our claims and management-related expenses," Morris said.
When asked about the potential for an across-the-board increase in title insurance premiums, First American’s Gilmore said premiums are analyzed on a quarterly basis. In situations where premiums may be too low, Gilmore said, "We will deal with individual insurance agency or department on a one-off basis, and that’ll be more of a private discussion, not a public discussion."
Gilmore said rates are "a state-by-state evaluation and … we’ll work with the insurance commissioners where appropriate."
According to the American Land Title Association, the top five title insurers in 2007 controlled 93 percent of the $14 billion U.S. title insurance market. The leading companies were First American (30 percent), Fidelity (26 percent), LandAmerica Financial Group (19 percent), Stewart Information Services Corp. (12 percent) and Old Republic International Corp. (5 percent).
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