Best’s News & Research Service - November 18, 2015 11:49 AM (EST)
A.M. Best Revises Issuer Credit Rating Outlook to Positive for North American Title Insurance Company
Oldwick //BestWire// - A.M. Best has revised the outlook for the issuer credit rating (ICR) to positive from stable and affirmed the financial strength rating (FSR) of B++ (Good) and the ICR of “bbb” of North American Title Insurance Company (NATIC) (Concord, CA). The outlook for the FSR is stable.
The revised outlook reflects NATIC’s solid though declining capitalization due to planned growth, favorable operating experience, an expanding geographical footprint and the benefits derived from its parent, Lennar Corporation, which is in the home construction market. Growth concerns are somewhat mitigated due to NATIC’s tightening of internal controls, including safeguards in agency review, selection and monitoring. The rating is also based on the company’s consistent solid operating performance. NATIC’s five-year composite ratio tracks favorably versus the industry composite (96.6% vs 99%). While the company’s pre-tax operating return on revenue slightly lags behind the industry composite on a five-year basis (3.4% vs 4.3%), it has been positive in each of the past five years.
NATIC has developed and expanded use of its agency review and monitoring systems in recent years and has availed itself of additional protections against such losses as defalcations. Additionally, the company has taken initiatives to diversify its book of business by reducing its concentration in California through the continued expansion of its geographic footprint. Although previously NATIC conducted the vast majority of its business through affiliated or wholly owned agents, the company has sought to balance its distribution network by appointing a greater number of independent agents, as well as expanding its product offerings beyond residential title insurance to smaller commercial title policies.
Any future upward movement on NATIC’s ratings outlook will require sustained improvement in its operating results over the medium term while maintaining favorable risk-adjusted capitalization. Conversely, any significant volatility in NATIC’s operating performance or erosion of its risk-adjusted capitalization may result in greater pressure on its ratings or outlook.
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