[September 06, 2013]

A.M. Best Assigns Ratings to North American Title Insurance Company

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.

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