Fitch: Lower NY Title Insurance Fees Could Press Insurer Returns

Proposed New York (NY) legislation could be a catalyst for reduced prices in the NY market that would pressure profit margins for title insurance agents and insurance companies that operate in the NY market, according to Fitch Ratings. Governor Andrew Cuomo is proposing legislation allowing the NY Department of Financial Services (DFS) to reduce title insurance fees by 20% for new home purchases and by more than 60% for refinancing transactions.

Fitch believes that the proposed legislation could lead title insurers to contemplate voluntary rate reductions, although perhaps not to the level suggested in the proposed legislation. NY is a file-and-use state in terms of rate-making which means that the DFS has the ability to reject new rates but not set rates. In the event rates were rejected, the previous rate that was accepted by the DFS would be effective. Fitch will continue to closely monitor the situation, but as of now does not anticipate any credit ratings impact.

NY is an agent-based state so the impact of any change in title rates would be shared by title insurance companies and NY title insurance agents that would face reduced commission revenues. Fitch believes that the level of market disruption will be minimal while uncertainty remains around the level of future title insurance rates. Ultimately, we believe the proposed legislation will make NY a less attractive business environment for insurers, but given its size, the industry is likely to adapt to any changes.

NY is the fourth largest state for title insurance based on September 2013 direct written premiums for the industry, following Texas, California, and Florida.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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