The Jekyll and Hyde of the Specialty Insurance Sector
Investing in the wrong industry could alter the complexion of your portfolio.
While both the title and mortgage insurance industries are tied to decimated real estate markets, we think their prospects are as different as Dr. Jekyll and Mr. Hyde. Title insurers have remained profitable, a direct result of their ability to adjust to an ever-weakening market, while mortgage insurers continue to drop like flies. We think the major title insurers can continue to profit while waiting for a real estate recovery, but it's an entirely different story for the mortgage insurers.
First American (FAF) and Fidelity National (FNF), the two leaders in the title insurance industry, have kept a lid on costs, increased prices, and benefited from a shift to more-profitable lines of business. The combined ratios (title insurance expense divided by title insurance premiums) of the two firms have remained relatively stable, producing underwriting margins that have averaged about 96% since the beginning of 2009.
Jim Ryan does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.