A.M. Best has assigned a financial strength rating of A
(Excellent) and issuer credit ratings (ICR) of “a” to the two
subsidiaries of Investors Title Company, Inc. (ITIC)
[Nasdaq:ITIC]: Investors Title Insurance Company and National
Investors Title Insurance Company (Columbia, SC). The companies are
collectively referred to as the Investors Title Company Group
(ITC Group). A.M. Best also has assigned an ICR of “bbb” to ITIC. The
outlook assigned to all ratings is stable. All companies are domiciled
in Chapel Hill, NC, unless otherwise specified.
The assigned ratings reflect ITC Group’s excellent capitalization as
evidenced by its conservative underwriting leverage ratios, which are
relatively modest compared to the title industry as a whole. In 2013,
the group’s statutory surplus level increased for the fifth straight
year. The group’s operating results have been consistently favorable in
recent years, posting an underwriting profit in each of the past five
years, and net pre-tax operating results have been solid throughout this
period. ITC Group’s favorable results are partly due to its efforts to
carefully manage its expense structure while limiting losses, including
those from agency defalcations, through comprehensive reinsurance
protection and instituting extensive safeguards in the selecting,
monitoring and auditing of its title agency force and other providers.
Partly as a result of these initiatives, the group has incurred no
material defalcation losses in the last five years. ITC Group also has
availed itself of additional protections against such losses through the
use of escrow security bonds as well as fidelity coverage provided by
high quality reinsurers. Additionally, the group has taken initiatives
to diversify its book of business by reducing its concentration in North
Carolina, its largest state, which previously represented nearly half of
its book, to approximately 25% as of year-end 2013. ITC Group also has
expanded its geographic footprint in recent years into more than 20
states, including Texas, which is currently its second-largest state.
Furthermore, while its North Carolina business continues to be conducted
primarily through directly owned branches, the group distributes its
business in Texas and other states primarily through independent agents,
which has resulted in greater diversification of its distribution
channels.
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
potential geo-political events. Nevertheless, combined with ITC Group’s
expense and risk management efforts, these generally improving
conditions have produced steadily increasing operating earnings in the
past five years, with particularly robust results in 2012 and 2013,
along with continued favorable operating results in the first quarter of
2014.
While the group is well positioned to maintain its current rating level
in the near term, any significant volatility in operating performance
and/or erosion of its risk-adjusted capitalization may result in
negative pressure on its current ratings and/or stable 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.
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