As a ready reference for real estate industry professionals utilizing title insurance, below is a comparison and limited analysis of certain aspects of the annual financial statements of a cross section of active title insurance companies. The discussion focusses on one factor which parties may consider when determining if, and to what extent, measures such coinsurance and reinsurance may be appropriate for a given transaction.
For reference, herewith is an updated schedule of "Suggested Maximum Risk" amounts for a cross section of US title insurance companies. We welcome any title insurance company not listed that wishes to be included in future updates of this memorandum to provide us with their uniform statutory annual financial statements. The schedule is based on the insurers' financial reports to State regulatory agencies for the year ending December 31, 2022. The "Suggested Maximum Risk" is just that, a suggestion as to the most title insurance risk a particular insurance company may be allowed to retain on a given project or financing. In most instances, the title insurance companies can legally accept more risk (and would be happy to do so) and this schedule is intended only as one possible guideline for when it may be appropriate in larger transactions to consider diversifying the title insurance risk (by requiring coinsurance and/or reinsurance) based on the financial size of the companies involved. [*] The determination of when to require that such risk be diversified rests ultimately with the insured procuring title insurance and can appropriately take into account a number of factors beyond the scope of this memorandum, as further described below. The schedule indicates which insurers are affiliated companies, identifying the parent company under the heading "Corporate Group" where applicable. Particularly in larger transactions, real estate investors and lenders may prefer to treat one "Corporate Group" as a single insurer and require that risk be shared with unaffiliated companies through reinsurance and/or or co-insurance.
The "Suggested Maximum Risk" herein is simply one-third of a company's reported "Surplus as Regards Policyholders" and reflects a rule of thumb used by certain financial institutions in the past. The underlying data from which the figures herein were derived is from the December 31, 2022 financial statements filed with state regulators by the title insurance companies listed or their affiliates (copies furnished by the insurers). ArentFox Schiff LLP makes no representation or warranty regarding the accuracy of that data or the relative merits of using the calculation of "Suggested Maximum Risk" contained herein versus other indicia of the relative financial characteristics of title insurance companies. In particular, we note that a number of title insurance companies, including companies in this survey, may be parties to reinsurance treaties with other entities (which may or may not be affiliates) which provide for ceding a portion of the covered risk, on a comprehensive basis as to all policies issued, and thereby allow the insurer to issue policies in higher amounts than such insurer's own individual financial characteristics would otherwise justify. Reliance on such reinsurance treaties may be an appropriate factor in deciding to exceed the "Suggested Maximum Risk" suggested herein, based on an evaluation and analysis of the terms of the actual contract, and the financial strength of the counterparty to the contract, both of which are beyond the scope of this memorandum. Information about any reinsurance treaties may be obtained directly from the title insurance companies themselves. The financial condition of the companies listed may have changed since the date of those financial statements, and persons concerned as to the current condition of any company should contact that company, state insurance regulators, and/or independent rating agencies that may evaluate their financial condition (rating agencies which cover title insurers include Demotech, Inc., A.M. Best Company, Inc., Fitch Ratings Ltd., Moody's Investors Services and Standard & Poor's, Inc.). ArentFox Schiff LLP expressly disclaims any obligation to update this information for any reason. ArentFox Schiff LLP does not provide financial advice and has compiled the information contained herein solely as a courtesy to its clients and other interested parties.
Regarding changes affecting the title insurance industry, the American Land Title Association, the national trade association for the industry, reported that for the entire industry premium revenue for 2022 decreased by 16% compared with 2020 and claims paid in 2022 (more than $596.1 million) increased over those paid in 2021 ($474.4 million), an approximately 25.6% increase. [†] The challenging environment these numbers suggest may have contributed to somewhat greater year-to-year variations in the Surplus as Regards Shareholders of some title insurance companies than in recent prior years.
If you have questions regarding use of the suggested Maximum Risk schedule or other considerations in developing requirements for title coinsurance and/or reinsurance to diversify title insurance risk in transactions in which you are involved, please contact the undersigned or any member of the Real Estate practice group of ArentFox Schiff LLP.
TITLE INSURANCE COMPANIES
Suggested Maximum Single Risk Amounts *
[*] In New York, for example, the statute containing the legal limit on the amount a title insurance company can hold on any one policy takes into account statutory premium and voluntary reserves as well as reinsurance in place (see NY Insurance Law § 6403(c) ("(c) No title insurance corporation doing business in this state shall expose itself to any loss on any one risk in an amount exceeding the sum of its capital, surplus, statutory premium and any voluntary reserves, all as shown in its most recent quarterly or annual statement filed with the superintendent. Any risk or portion thereof which shall have been reinsured with an assuming insurer authorized to do such business in this state shall be deducted in determining the limitation of risk prescribed in this subsection. Credit to the ceding insurer for reinsurance with an unauthorized insurer shall be allowed to the extent permitted by a regulation of the superintendent.")
* The "Suggested Maximum Risk" amount is one-third of each company's "Surplus as Regards Policy Holders" from the financial statements for the year ending December 31, 2022 which each insurer is required to file with the insurance regulators of the States where they do business, as provided by the companies. The "Suggested Maximum Risk" amounts are rounded to the nearest increment of $100,000. Although many insurance companies are publicly traded corporations or subsidiaries of a publicly traded corporation, the state filings allow for comparison of the insurance companies themselves under generally consistent accounting methods. As with any large corporation, the financial statements of title insurance companies contain extensive and detailed information regarding the company's finances and there are any number of methods of evaluating a company's financial strength.
[1] AmTrust Title Insurance Company had advised that they object to the methodology for the 'rule of thumb' in this memorandum because it does not take into account reinsurance treaties that AmTrust Title has in place. Pursuant to NY Insurance Law § 6403(c) as noted above, reinsurance is a factor in determining the amount of risk a title insurance company is permitted to hold in the State of New York (as it is in a number of other states). More information regarding such reinsurance can be obtained directly from the company.
[2] Formerly known as North American Title Insurance Company. Name changed in 2021.
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