2006 saw another steep decline in business for Orange County’s largest title insurers.
Last year, the 15 largest title insurers here saw business fall 20% from a year earlier to $54.5 billion, according to this week’s Business Journal list. In 2005, title companies did $68.3 billion in OC title insurance.
Another decline: the volume of transactions last year. The number of transactions done by title insurers, which write policies protecting buyers of homes and other real estate from claims contesting ownership, fell 20% to 164,259 in 2006.
It’s the third straight year of declines,both in dollar amount and number of transactions,for the industry.
Chalk up the continuing downward trend to a nearly 20% decrease in resales of properties in the county, as well as far fewer refinancing deals on existing properties. Title insurers thrived early in the decade as low interest rates prompted a wave of home mortgage refinancing.
In 2003, the top 15 largest title insurers here handled a record $95 billion in transactions, buoyed largely by mortgage refinancing. Business since has fallen 43%.
In addition to less business, title insurers are facing more competition than ever, causing a squeeze in profits.
The largest insurers are “in a declining revenue market,” said Gary Kermott, vice chairman for First American Title Insurance Co., a unit of Santa Ana’s First American Corp., in a recent conference call. In all of California, the company’s revenue was down 27% in the third quarter from a year earlier.
Profit margins for the title operations of the three largest companies in this year’s list are expected to run in the 5% to 8% range, according to analysts.
“It will be tough in this environment to get back to double-digit (profit) margins,” said Kermott, who also serves as executive vice president of First American. “But we’ll continue to pursue efficiencies.”
The company has pushed hard in recent years to expand business outside core title operations, to include mortgage information and other technology-intensive services.
The companies on this year’s list employed roughly 5,200 people here last year, up about 4%. That figure is likely skewed due to the inclusion of some non-title operations of First American, which saw a 12% increase in local workers.
Excluding First American, employee counts in OC declined 3% last year, as companies have been looking to reduce jobs nationally.
Despite the advances in technology, title searches still are a complicated process that require a large employee base. Nearly one in three title searches finds at least one error.
Jacksonville, Fla.-based Fidelity National Financial Inc. and First American again led this year’s list, with a combined 48% of the market. That’s up from about 42% a year ago, and even with 2004’s level.
The list ranks title insurers by the dollar value of transactions done by its local operations in the past year. Anaheim-based First American Real Estate Solutions LP, a unit of First American, provided data for the annual ranking.
Title companies were ranked by their parent companies, some of which have combined entries for their operations here.
Transactions for No. 1 Fidelity were off 11% here compared to a year ago, while the dollar value of those deals declined 13% to $18.7 billion.
First American saw the number of local transactions it worked on increase 14%. The dollar amount of those deals only increased 2% to $11 billion.
The two companies also are the biggest title insurers nationally. First American said it has about 29% of the market nationally.
Along with No. 3 LandAmerica Financial Group Inc. of Richmond, Va., which saw transactions fall 41% to $8.3 billion in 2006, the top three companies on the list have more than 60% of the county’s business.
No. 4 Denver-based Mercury Cos. Saw transactions fall 17% to 12,011. In 2006 it had 7.2 % of the county’s business.
Excluding the top four, no other company on the list this year has more than a 6.2% market share in OC, which means additional acquisitions aren’t likely to impact future lists any time soon.
Title insurers have turned to acquisitions to fuel growth in recent years.
LandAmerica bought Irvine’s Southland Title Corp. in 2004. Fidelity’s Chicago Title Land Trust Co. bought the land trust business of LaSalle Bank National Association in 2005. And First American bought privately held United General Financial Services Inc., which had a Newport Beach office, early last year.
First American Vice Chairman and Chief Financial Officer Frank McMahon said his company doesn’t expect to make many more buys on the title side of its business.
Expect instead more deals along the lines of last month’s $100 million-plus buy of CoreLogic Systems Inc., a Sacramento company that helps mortgage lenders and investors vet loans, he said.
