The assigned ratings reflect ITC Groupís excellent capitalization as evidenced by its conservative underwriting leverage ratios, which are relatively modest compared to the title industry as a whole. In 2013, the groupís statutory surplus level increased for the fifth straight year. The groupís operating results have been consistently favorable in recent years, posting an underwriting profit in each of the past five years, and net pre-tax operating results have been solid throughout this period. ITC Groupís favorable results are partly due to its efforts to carefully manage its expense structure while limiting losses, including those from agency defalcations, through comprehensive reinsurance protection and instituting extensive safeguards in the selecting, monitoring and auditing of its title agency force and other providers. Partly as a result of these initiatives, the group has incurred no material defalcation losses in the last five years.
The current economic environment and housing market conditionsóboth of which determine the future revenue and earnings potential of title insurersóhave somewhat improved in recent quarters. However, uncertainties remain as to the future direction of U.S. monetary policy and its effect on long-term interest rates, which drive title insurance activity, as well as the effect on the macroeconomic environment of potential geo-political events. Nevertheless, combined with ITC Groupís expense and risk management efforts, these generally improving conditions have produced steadily increasing operating earnings in the past five years, with particularly robust results in 2012 and 2013, along with continued favorable operating results in the first quarter of 2014.
While the group is well positioned to maintain its current rating level in the near term, any significant volatility in operating performance and/or erosion of its risk-adjusted capitalization may result in negative pressure on its current ratings and/or stable outlook.
The methodology used in determining these ratings is Bestís Credit Rating Methodology, which provides a comprehensive explanation of A.M. Bestís rating process and contains the different rating criteria employed in the rating process. Bestís Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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