Demotech, Inc. will become the leading provider of innovative solutions to
financial analysis issues by focusing our resources on niches presenting
opportunity for corporate growth.
How We Review and Rate Title underwriters
Value Proposition of Title Insurance
Since 1992 Demotech has been reviewing and rating Title underwriters.
We were the first company to review and rate the entire industry.
Demotech did so two years prior to the secondary mortgage
marketplace requirement to have an independent third-party review.
In 1994, Financial Stability Ratings® of S or better became acceptable,
upon the issuance by Fannie Mae of its Announcement 94-13.
Financial Stability Ratings® are reviewed every quarter. This schedule
coincides with the availability of quarterly financial information.
Each company is reviewed as a stand-alone entity. Although we may
reflect the existence of a well-defined corporate relationship within a
group, each and every Title underwriter, regardless of size, is reviewed,
analyzed and, when applicable, affirmed every 90 days.
Along with the quarterly analysis and dialogue related to the financial
analysis of each Title underwriter, we have frequent discussions related
to critical Title industry issues, such as reinsurance, defalcations,
alternative distribution methods and loss trends.
Evidence of the effectiveness of our review and analysis process,
consider the following: from 1992 to date, no Title underwriter rated A
or better has failed.
Each quarter’s financial statement is analyzed to ensure that:
The investment portfolio remains liquid and of a high quality,
Loss and loss adjustment expense reserves remain consistent with the
estimate underlying the opinion of the Company’s actuary,
Financial leverage remains within reasonable tolerance,
And other financial criteria continue to meet Demotech’s standards for an
FSR of A, Exceptional or higher.
Annually we review:
The latest available financial information,
Statement of actuarial opinion as regards loss and loss adjustment expense
The year-end audit,
The composition of the investment portfolio,
Changes in personnel (if any),
Anticipated changes in the business plan,
Reinsurance treaties or marketing philosophy,
As well as changes in pricing, rate levels or claim philosophy.
Annually we review and/or discuss with the professional who
authored the document(s):
The independent audit
Statement of actuarial opinion
Other regulatory requirements
Executive summary, page 1: Comparisons of Demotech ratings to other
agencies show relative consistency in the factors that drive Demotech
ratings compared to agencies such as A.M. Best, Moody’s, Standard and
Poor’s, and Fitch.
Executive summary, page 5: These results have important public policy
implications for insurers, regulators and consumers as they work to better
understand the ratings process. Of particular importance to most is the
comparability of Demotech ratings to other agencies.
Executive summary, page 5: Given that lenders often have requirements
related to the use of rated insurers and some states require ratings to
operate in a state, the results suggest that Demotech serves an important
service within the ratings community and plays a very important role in the
Company DPW Share
1 Lawyers Title Insurance Corporation $ 156,323,542 16.3%
2 Stewart Title Guaranty Company $ 154,506,539 16.1%
3 Chicago Title Insurance Company $ 132,464,680 13.8%
4 Alamo Title Insurance $ 94,220,282 9.8%
5 Commonwealth Land Title Insurance Company $ 91,137,464 9.5%
6 First American Title Insurance Company TX $ 83,433,089 8.7%
7 Fidelity National Title Insurance Company $ 72,791,761 7.6%
8 First American Title Insurance Company $ 41,919,971 4.4%
9 Title Resources Guaranty Company $ 39,825,177 4.2%
10 Old Republic National Title Insurance Company $ 32,024,273 3.3%
11 Ticor Title Insurance Company $ 16,924,977 1.8%
12 United General Title Insurance Company $ 12,382,736 1.3%
13 Title America Insurance Company $ 10,796,993 1.1%
14 Title Insurance Company of America $ 8,993,272 0.9%
15 Security Union Title Insurance Company $ 5,338,405 0.6%
16 Transnation Title Insurance Company $ 3,249,585 0.3%
17 Benefit Land Title Insurance Company (Commerce TIC) $ 2,393,952 0.2%
Texas Total: $ 958,726,698
Company DPW Share
1 First American Title Insurance Company $ 1,413,493,587 19.4%
2 Chicago Title Insurance Company $ 1,019,054,601 14.0%
3 Lawyers Title Insurance Corporation $ 670,324,023 9.2%
4 Stewart Title Guaranty Company $ 655,790,481 9.0%
5 Commonwealth Land Title Insurance Company $ 634,562,585 8.7%
6 Fidelity National Title Insurance Company $ 426,824,265 5.9%
7 Old Republic National Title Insurance Company $ 418,269,346 5.7%
8 Fidelity National Title Insurance Company (NY) $ 314,529,969 4.3%
9 Ticor Title Insurance Company $ 191,295,334 2.6%
10 Attorneys' Title Insurance Fund (FL) $ 190,052,660 2.6%
11 Transnation Title Insurance Company $ 161,432,208 2.2%
12 United General Title Insurance Company $ 111,803,693 1.5%
13 American Pioneer Title Insurance Company $ 97,738,582 1.3%
14 Alamo Title Insurance $ 94,747,282 1.3%
15 First American Title Insurance Company NY $ 93,436,287 1.3%
All Other Underwriters $ 787,356,473 10.8%
Countrywide Total: $ 7,280,711,376
Company DPW Market Share
1 Stewart Title Guaranty Company $ 210,600,722 19.8%
2 First American Title Insurance Company $ 203,663,526 19.1%
3 Fidelity National Title Insurance Company $ 175,649,119 16.5%
4 Chicago Title Insurance Company $ 138,958,345 13.1%
5 Title Resources Guaranty Company $ 80,125,605 7.5%
6 Old Republic National Title Insurance Company $ 74,110,631 7.0%
7 Alamo Title Insurance $ 50,297,008 4.7%
8 Commonwealth Land Title Insurance Company $ 45,792,386 4.3%
9 Alliant National Title Insurance Company $ 33,981,028 3.2%
10 National Title Insurance of New York, Inc. $ 17,889,569 1.7%
11 North American Title Insurance Company $ 11,670,320 1.1%
12 Westcor Land Title Insurance Company $ 9,107,066 0.9%
13 Commerce Title Insurance Company $ 4,847,352 0.5%
14 WFG National Title Insurance Company $ 2,784,123 0.3%
15 Sierra Title Insurance Guaranty Company $ 2,496,129 0.2%
16 National Investors Title Insurance Company $ 2,144,908 0.2%
17 Southern Title Insurance Corporation $ 197,320 0.0%
Texas Total: $ 1,064,315,157
10 years plus 11%
Company DPW Share
1 First American Title Insurance Company $ 2,369,361,728 25.1%
2 Chicago Title Insurance Company $ 1,641,750,584 17.4%
3 Fidelity National Title Insurance Company $ 1,403,221,265 14.8%
4 Stewart Title Guaranty Company $ 1,177,860,022 12.5%
5 Old Republic National Title Insurance Company $ 1,026,516,851 10.9%
6 Commonwealth Land Title Insurance Company $ 535,986,147 5.7%
7 National Title Insurance of New York, Inc. $ 295,497,797 3.1%
8 Title Resources Guaranty Company $ 134,064,289 1.4%
9 Westcor Land Title Insurance Company $ 127,489,016 1.3%
10 Stewart Title Insurance Company $ 124,694,025 1.3%
11 North American Title Insurance Company $ 74,415,425 0.8%
12 Investors Title Insurance Company $ 56,665,339 0.6%
13 Connecticut Attorneys Title Insurance Company $ 52,391,004 0.6%
14 Alamo Title Insurance $ 50,297,008 0.5%
15 Alliant National Title Insurance Company $ 49,970,662 0.5%
All Other Underwriters $ 334,968,207 3.5%
Countrywide Total: $ 9,455,149,369
1994 1996 1998 2000 2002 2004 2006 2008 2010
1994 1996 1998 2000 2002 2004 2006 2008 2010
While Title insurance coverage looks backward from a
certain date, P&C insurance coverage looks forward,
utilizing a finite future period, to provide coverage. The
timeframe of coverage provided and cost containment
activities are fundamental differences between Title and
The distinctions have not been properly reflected in
financial reporting nor statistical reporting requirements.
A focus on the number of matters identified, addressed or
otherwise resolved is necessary to put the Title insurance
loss and loss adjustment expense ratio and operating ratio
in perspective prior to a comparison to P&C insurance.
Subject to the exclusions from coverage, the exceptions
from coverage contained in Schedule B and the conditions
and stipulations, the Title insurance company, as of the
Date of Policy shown in Schedule A, against loss or
Coverage is Retrospective.
We reviewed the available information, made corrections
and revisions, as well as summarized our major findings in
Schedules A and B.
In Consideration of the Provisions and Stipulations herein,
the Property and Casualty Insurance Company, for the
term of this date at 12:01 a.m. to one year later at 12:01
a.m., does insure…
Coverage is Prospective.
We won’t pay for anything that happened before or after
the policy period.
Title is Retrospective P & C is Prospective
Date of Policy
Date of Policy
Incident must have occurred Incident must occur within
prior to policy effective date policy period to be
to be considered covered considered covered
Loss adjustment expenses include allocated loss adjustment expenses
and unallocated loss adjustment expenses, also called defense and cost
containment or other adjusting expense.
Allocated loss adjustment expenses are those expenses, such as
attorneys’ fees and other legal costs, that are incurred in connection
with specific claims.
Unallocated loss adjustment expenses are all other claim adjustment
expenses, such as salaries, utilities and rent apportioned to support the
claim adjustment function, although not readily assignable to a specific
claim. Postage, cost of claims checks, envelops claim checks are mailed
For a P&C insurer: an expense directly allocated to a
particular claim or incident.
Addressing specific defects and everything in Schedules A
For a P&C insurer: an expense pertaining to handling
claims that cannot be specifically attributable to a specific
Your entire preliminary investigation? Looking for
situations that need to be cured is unallocated loss
adjustment expense. Once found, the time and effort
should be allocated loss adjustment expense.
◦ Rent and utilities
◦ Postage and envelopes
◦ Benefits and salaries
◦ Allocation of executive time
◦ Verify property address
◦ Verify owner(s)
◦ Legal Description
Run the Chain
◦ Run names and nicknames
◦ Determining encumbrances or possible encumbrances
◦ Back ground – determining and indication of legal incompetence –
conservator, bankruptcy, etc.
◦ Impairments in chain of Title
◦ Determine adverse claims
◦ Interest which affects tenancy
◦ Property tax
◦ Legal Description
◦ Evidence of fraud, forgery, competence, etc.
◦ Covenants and restrictions
◦ Rights of first refusal
◦ Judgment of lien
◦ Market requirement to cure
◦ Review prior transaction
◦ Application of statute of limitations
Matters Affecting (cont.)
◦ Update for last minute items
◦ Review tax certificate
◦ Reconcile difference with tax discrepancies
◦ Check for outstanding tax sales
◦ Review survey for adverse matters
◦ Verify legal access
◦ Mineral reservations
◦ Geographic posting
File Work Up
◦ Verify sellers names on contract match vesting
◦ In a refinance, verify borrowers names match vesting
◦ Ensure all Title requirements are addressed on the settlement
◦ Comply with terms of real estate contract
◦ Comply with requirements in lender’s closing instructions
◦ Verify borrowers names on loan document match contract
◦ Ensure all documents are executed properly
◦ Correctly notarize all appropriate documents
◦ Comply with lender’s funding requirements
◦ Ensure no disbursements are made without all funds being received
◦ Disburse all funds per HUD-1
◦ Return lender’s package
◦ Record documents in correct order
Once you found a situation that needed to be resolved, no matter how
simple or routine, the time and effort on that specific situation would
be allocated loss adjustment expense.
Property tax allocation between buyer and seller.
Determining payoffs of liens, each separately.
Alimony, child support.
Verification of address, metes and bounds.
“Allocated loss adjustment expense” or “ALAE” means
expenses paid to defend and litigate a claim. These
expenses may be internal or external, and include:
◦ Attorney’s fees paid to defend claims;
◦ The cost of engaging experts;
◦ Litigation management expenses;
◦ Fees or salaries for private investigators, hearing representatives or
◦ Surveillance expenses;
◦ Court costs;
◦ Stenographic expenses;
◦ Fees associated with witnesses and summonses;
◦ The costs to obtain copies of documents.
Missed lien by a Title professional.
Taxi driver in a fender bender.
No police report, no photos, no witnesses.
Demotech reviewed and analyzed a sample of 114 Title insurance files.
The source of data was HUD-1s, commitments and the observations of a
licensed Title insurance agent who is also a real estate attorney.
Based upon a random sample of 114 files, the Title agents discovery,
review and analysis process uncovered 585 matters that needed to be
addressed or cured prior to being able to transfer a marketable title.
Left unresolved, any of these 585 matters could have resulted in the
transfer of a defective title to real property and, therefore, could have
resulted in a claim under the Title insurance policy.
Based upon our review of the sample, we concluded that 70% of the Title
insurance cost on HUD-1s would meet the P&C definitions of allocated or
unallocated loss adjustment expense.
The estimated loss adjustment expense of 70% does NOT include the
losses expected to be paid by the Title underwriter. In Louisiana, the Title
insurance loss ratio would represent an additional 8% of Title insurance
To estimate the expenses that were considered loss adjustment expenses,
we apportioned the costs associated with Section 1100 of the HUD-1, Title
insurance expenses, according to the following allocation process:
Allocation to Loss
Adjustment Expense Service Costs
Settlement or closing fee: 100%
Abstract or title search: 100%
Title examination: 100%
Title insurance binder: 100%
Document preparation: 100%
Notary fees: 100%
Attorney’s fees: 100%
Title insurance premium: 80%
Title insurance endorsements: 80%
Mortgage certificates: 100%
Closing protection coverage: 100%
Courier fees: 100%
Bank wire fees: 100%
Instrument filing: 113
Grantor-Mortgagor matters: 113
Tax reconciliations: 113
Materialmen matters: 111
Multiple indebtedness mortgage matters: 26
Tax and lien matters: 2
Cancellation of collateral mortgage: 16
Release of judgment: 3
Release of second judgment: 1
Cancellation of mortgages: 63
Chain of title matters: 14
Release of mortgage, UCC filing or judgment: 4
Act of distinction of judgment: 3
State Policies in Sample Incidents Discovered
Colorado 83 888
Florida 43 248
Louisiana 114 585
North Carolina 270 3,323
All Samples 510 5,044
Lieutenant Governor’s Task Force in Florida
Given the retrospective nature of a Title insurance policy,
appreciable loss adjustment expense – unallocated and
allocated – must be expended PRIOR to policy issuance.
This effort identifies and resolves claims that would
otherwise occur absent the analysis.
Unfortunately, current financial reporting requirements
are based upon the prospective nature of P&C policies,
thereby overstating the Title expense ratio and
understating the Title loss adjustment expense ratio
applicable to Title insurance.
Title insurance coverage is retrospective from the policy’s effective
date and remains in force throughout the term of a loan or the
ownership of real property. Policies are issued when the Title
insurance professional has addressed the issues associated with the
marketability of title, i.e. matters have been identified, addressed or
In contrast, P&C insurance coverage is prospective, utilizing a finite
future period with a definitive expiration date, to provide coverage for
covered incidents that arise during the term of the policy. Events
occurring prior to the effective date or subsequent to that date are
The coverage timeframe differential in conjunction with a
misunderstanding of Title insurance cost containment activities are
not reflected in reporting requirements – financial or statistical. As a
result, the value proposition of Title insurance is not properly
presented or captured by regulatory authorities.