|[September 06, 2013]
A.M. Best Assigns Ratings to North American Title Insurance Company
OLDWICK, N.J. --(Business Wire)--
A.M. Best Co. has assigned a financial strength rating of B++
(Good) and an issuer credit rating of "bbb" to North American Title
Insurance Company (NATIC). (Concord, CA (News - Alert)). The outlook assigned to
both ratings is stable.
The assigned ratings reflect NATIC's favorable capitalization as
evidenced by its underwriting leverage ratios, which are relatively
moderate compared to the title industry as a whole. In 2012, the
company's statutory surplus level increased for the third straight year
and has continued this positive trend through the first six months of
2013, based on the latest available data. NATIC's operating results have
been generally favorable in recent years, with it posting an
underwriting profit in four of the past five years, while net pre-tax
operating results have been positive throughout this period. NATIC's
favorable results are partly due to its efforts to carefully manage its
expense structure while limiting losses, including those from agency
defalcations, through instituting greater safeguards.
NATIC has developed and expanded use of its agency review and monitoring
systems in recent years and has availed itself of additional protections
against such losses through the use of escrow security bonds as well as
fidelity coverage provided by other high quality reinsurers.
Additionally, the company has taken initiatives to diversify its book of
business by reducing its concentration in California through the
expansion of its gegraphic footprint into nearly 35 states. Although
previously NATIC conducted the vast majority of its business through
affiliated or wholly owned agents, the company has sought to balance its
distribution network by appointing a greater number of independent
agents, as well as expanding its product offerings beyond residential
title insurance to smaller commercial title policies.
The current economic environment and housing market conditions-both of
which determine the future revenue and earnings potential of title
insurers-have somewhat improved in recent quarters. However,
uncertainties remain as to the future direction of U.S. monetary policy
and its effect on long-term interest rates, which drive title insurance
activity, as well as the effect on the macroeconomic environment of
recent geo-political events. Nevertheless, combined with NATIC's expense
and risk management efforts, these generally improving conditions have
produced increased favorable operating earnings in 2011-2012 and
year-to-date 2013, following a narrow operating profit in 2010, whose
results were impacted by a single large mechanics lien claim in
California. NATIC's reserves have historically tended to develop
favorably with moderate unfavorable developments in 2010 and 2011 partly
due to the above mentioned claim.
While NATIC is well positioned in the near term to maintain its current
rating level, any future upward movement on its ratings and/or a
positive outlook will require sustained improvement in its operating
results over the medium term, while maintaining favorable risk-adjusted
capitalization. Conversely, any significant volatility in NATIC's
operating performance and/or erosion of its risk-adjusted capitalization
may result in greater pressure on its ratings and/or outlook.
The methodology used in determining these ratings is Best's Credit
Rating Methodology, which provides a comprehensive explanation of A.M.
Best's rating process and contains the different rating criteria
employed in the rating process. Best's Credit Rating Methodology can be
found at www.ambest.com/ratings/methodology.
A.M. Best Company is the world's oldest and most authoritative
insurance rating and information source. For more information, visit www.ambest.com.
Copyright © 2013 by A.M. Best Company, Inc. ALL RIGHTS
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