OREANDA-NEWS. The U. S. Title insurance industry is well-capitalized with a risk-adjusted capital (RAC) score of 178%, according to a new report from Fitch Ratings. This is down slightly from a score of 181% in 2016 for Fitch's title insurance universe.

'Title Insurers are strongly capitalized, and Fitch expects industry operating revenues to be flat to slightly down as the threat of sharp increases in interest rates has become more remote. Along with sustained low rates, modestly improving employment figures and U. S. economic growth will offset what once looked like a softening housing market,' said Gerald Glombicki, Director, Fitch Ratings.

Fitch calculates the industry RAC score on a weighted average basis. As such, Fidelity National Financial, Inc. and First American Financial Corp., greatly influence results with a combined market share of 60%. Fitch's 2015 title insurance industry RAC ratio declined modestly over the prior year. This decline marks the first decline in the RAC ratio in seven years. However, as the decline was modest and the RAC score is more of a blunt tool than a precision tool, Fitch views the result as relatively flat.

First American's RAC ratio showed the greatest increase in 2015 after reporting a decrease in 2014. Fidelity's 2015 RAC score decreased just 1%, while Stewart Information Services Corp.'s RAC score declined 15% year over year. Old Republic's RAC score decreased the most at 19%.

The primary risk facing most title insurers is the inability to quickly cut expenses in the face of declining revenue due to unforeseen changes in macroeconomic or property market conditions. Fitch views flexible cost structures as critical for long-term success and strong capitalization.

'Expense management will be critical for profitability in 2016, given flat to lower premium volume and Fitch anticipates that operational restructuring undertaken by the industry will help insurers withstand a future cyclical downturn,' added Glombicki.