Despite the title insurance industry experiencing a record year in 1998 under favorable real estate market conditions, industry RAC ratios fell as required surplus growth outpaced growth in adjusted surplus. The largest factor contributing to higher required surplus levels was the ratio between expense and agency risks. This ratio highlights the primary risk facing most title insurers, which is the impact of a down real estate cycle and the inability to quickly adjust fixed costs.

Based on early estimates that indicate expense leverage growing at a faster rate than adjusted surplus, DCR expects title insurance RAC levels to decline further at yearend 1999, but still remain at an adequate level. "It is difficult to complete the RAC calculation at midyear or other interim periods due to information constraints. However, factors that may lead to a lower industry risk-adjusted capital position are continued strong growth in operating revenues, slower growth in policyholders' surplus, and a reduction in favorable loss reserve development," said James B. Auden, a vice president in DCR's insurance rating group.

Duff & Phelps Credit Rating Co. (DCR) is a leading global rating agency with 33 local market offices providing ratings and research on debt issues and insurance claims paying ability in more than 50 countries. For a full copy of the report, Title Insurers' Risk-Adjusted Capital Adequacy at Yearend 1998, visit DCR's web site at http://www.dcrco.com/ (Quick Search: Risk-adjusted capital). DCR's research is also available on Bloomberg at DCR<GO> and FirstCall's BondCall Direct/Research Direct at http://www.firstcall.com/, as well as through other third-party providers.

SOURCE: Duff & Phelps Credit Rating Co.