[*]
As a reference for professionals in the real estate industry using title insurance, below is a comparison and limited analysis of certain aspects of the annual financial statements of a representative sample of active title insurance companies. The discussion focuses on one factor that parties may consider in determining whether, and to what extent, measures of such coinsurance and reinsurance may be appropriate for a given transaction.
For your reference, attached is an updated schedule of “suggested maximum risk” amounts for a representative sample of US title insurance companies. We invite any unlisted title insurance company that wishes to be included in future updates to this memorandum to provide us with their Uniform Statutory Annual Financial Statements. The timeline is based on insurers’ financial reports to state regulatory agencies for the year ending December 31, 2021. The “maximum suggested risk” is just that, a suggestion as to title insurance risk. the highest that a particular insurance company may be allowed to retain on a given project or financing. In most cases, title insurance companies can legally accept more risk (and would be happy to do so) and this appendix is intended only as a possible guideline as to when it may be appropriate, within the framework larger transactions, consider diversifying title insurance risk (requiring co-insurance and/or reinsurance) based on the financial size of the companies involved. [*] The determination of when to require such risk to be diversified is ultimately the responsibility of the insured purchasing the title insurance and may appropriately take into account a number of factors beyond the scope of this memorandum, such as described in more detail below. The appendix indicates which insurers are affiliated companies, identifying the parent company under the heading “Group of companies” where applicable. Particularly in larger transactions, real estate investors and lenders may prefer to treat a “group of companies” as a single insurer and require the risk to be shared with unaffiliated companies through reinsurance and/or coinsurance.
The fact that all title insurers are not equal was highlighted in 2020 with the liquidation of OneTitle National Guaranty Company, Inc. (“OneTitle”). OneTitle began operations in New York in 2014 and emphasized in its marketing that its premiums were lower than other title insurers, based on a fee structure for which OneTitle had obtained Department of Financial Services approval. of the State of New York (“DFS”). OneTitle struggled to gain market acceptance. In 2020, DFS sought to wind up OneTitle and on October 6, 2020 an order was issued in the Supreme Court of New York, County of New York, ordering such winding up and terminating all existing title insurance policies issued by OneTitle (In re: OneTitle National Guaranty Company, Inc. (NYS Supreme Court, New York County INDEX NO. 451834/2020)).
The “maximum suggested risk” herein is simply one-third of the “policyholder excess” declared by a company and reflects a rule of thumb used by some financial institutions in the past. The underlying data from which the numbers presented here are derived are from December 31, 2021 financial statements filed with state regulators by listed title insurance companies or their affiliates (copies provided by insurers). ArentFox Schiff LLP makes no representations or warranties regarding the accuracy of this data or the relative merits of using the “maximum suggested risk” calculation contained herein versus other indices of the relative financial characteristics of companies. title insurance. In particular, we note that a number of title insurance companies, including the companies in this survey, may be parties to reinsurance treaties with other entities (which may or may not be affiliated) that provide for the ceding of a portion of the risk covered, on a full basis for all policies issued, and thus enable the insurer to issue policies for higher amounts than would otherwise be warranted by its own individual financial characteristics. The use of such reinsurance treaties may be an appropriate factor in deciding to exceed the “maximum suggested risk” suggested here, 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 on reinsurance treaties can be obtained directly from the title insurance companies themselves. The financial condition of listed companies may have changed since the date of these financial statements, and persons concerned about the current condition of any company should contact that company, state insurance regulators and/or independent rating agencies who can assess their financial situation. (rating agencies that cover title insurers include Demotech, Inc., AM 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.
TITLE INSURANCE COMPANIES
Suggested Maximum Single Risk Amounts *
NOTES
[*] In New York, for example, the law containing the legal limit on the amount a title insurance company can hold on a policy takes into account statutory premiums and voluntary reserves as well as reinsurance in place (see NY Insurance Law § 6403(c) (“(c) No title insurance company carrying on business in this State shall incur a loss on any risk in an amount greater than the sum of its capital, surplus, statutory premium and any voluntary reserve, all as set forth in its most recent quarterly or annual return filed with the Superintendent Any risk or part thereof that has been reinsured with a ceding insurer authorized to exercise such activity in that State shall be deducted in determining the risk limit prescribed in this paragraph Credit to the ceding insurer of reinsurance with an unlicensed insurer is permitted to the extent permitted by regulation of the Superintendent ant. »
* The “suggested maximum risk” amount is one-third of each company’s “excess with respect to policyholders” from the financial statements for the year ending December 31, 2021 that each insurer is required to file with the insurance regulatory authorities of the states where it does business, as provided by the companies. “Maximum Suggested Risk” amounts are rounded to the nearest $100,000 increment. Although many insurance companies are publicly traded companies or subsidiaries of a publicly traded company, state filings allow the insurance companies themselves to be compared using generally consistent accounting methods. As with any large business, the financial statements of title insurance companies contain complete and detailed information about the finances of the business and there are a number of methods for assessing the financial strength of a business.
[1] AmTrust Title Insurance Company had indicated that it objects to the “rule of thumb” methodology in this memorandum because it does not take into account the reinsurance treaties that AmTrust Title has in place. Pursuant to New York 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 is the case in a number of other states). Further information regarding this reinsurance can be obtained directly from the company.
[2] Formerly known as North American Title Insurance Company. Name changed in 2021.
[3] Formerly known as North American Title Insurance Company. Name changed in 2021.
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