The Marianas title insurance industry will see a major player withdraw from the market leaving one title insurance broker without an underwriter.
The June 1 announcement of a coming withdrawal of First American Title Insurance Co. at the beginning of August had the immediate effect of closing one of Guam’s long-standing title insurance brokers.
But the ramifications for the real estate industry in the Mariana Islands are more threatening.
First American’s withdrawal as title insurance underwriter from the market leaves Title Guaranty of Guam a Calvo Enterprises Inc. company without an underwriter. This is the second time in a year Title Guaranty has lost its underwriter.
The real estate industry in Guam and the Northern Mariana Islands is also now left with only one title insurance underwriter.
Bertha C. Evangelista is general manager of Title Guaranty of Guam. She said of First American’s pull out “There wasn’t enough to keep them here. We’re miles away and to them it’s not worth it. The way I look at it there’s not enough profit to support business. The rates that we have we never really increased. The market has been really bad the value of real estate has gone down. We’re trying to convince them to be here. One way of trying to bring them back is to present to them there will be an increase in rates.”
The contract expired March 1 she said. “But our underwriter assured us that we were able to issue title insurance for all those in the pipeline.
Title Guaranty was not closing doors she said. “We have no intention of closing at this time. We are still in business and still issuing title reports and still handling escrow with the exception at this time that we can’t insure property.”
A lot of lenders would require title insurance Evangelista said. “Last December with the sale of GTA [the Guam Telephone Authority] we did the closing on that and it was very complex; the U.S. Attorney was involved. The opinion was that it was important to have title insurance on that transaction.
There was uncertainty she said.
“I don’t know what’s going to happen. We are trying to secure a new company.” Evangelista said the company was talking to Ticor its previous underwriter about doing business again in the region. “We’re hoping that they will. We’re trying to convince them. They left on good terms with us and the market has gone up. There’s a lot more activity going on. I see a lot more transactions on a cash basis also – that may convince them. I think it would be better for the market if there are two underwriters.”
Manu P. Melwani president of Pacific American Title Co. told the Journal “This is the most significant news that’s happened in my 17 years of being in the title insurance industry.
“First American informed us yesterday [June 1] they are going to pull out of Guam after being here for 40 years.”
Despite losing underwriting by First American Pacific American remains underwritten by Stewart Title Guaranty Co. of Houston. Previously Melwani said “We always had two underwriters underwrite Pacific American Title.”
Withdrawals are due to no rise in rates in 40 years and a lack of profit Melwani said.
“Claims are much higher than revenues received. It’s basically a business decision title companies make when they see revenues are not enough to keep them existing in Guam and Saipan. The title insurance premium we receive is miniscule compared to the amount of risk the title insurer takes in Guam compared to elsewhere.
“Title insurance rates in Texas for example are three times higher than in Guam.”
The title insurance industry like the insurance industry generally is regulated by the office of the insurance commissioner at the Department of Revenue and Taxation and must receive approval for any tariff increase. The office of the insurance commissioner is due to consider the increase in the third week of June followed by a public hearing on the rates.
Melwani said “One of the reasons why we cannot get a rate increase is because it’s so regulated. We have just not had a rate increase although we’ve been trying for a rate increase. Even though it’s on the horizon we have companies that have decided to leave.”
The proposed rate increase Melwani said would be “significant.”
“What is fair is that we have enough comfort level so the only underwriter on-island won’t leave. What is not fair is that these insurance companies have been on this island so long and are taking it on chin – paying out more in claims than they receive in premiums ” he said.
Were Stewart to leave Melwani said it would inevitably affect the real estate market. “I don’t think the real estate industry in Guam can flourish without title insurance. It’s a business but it’s not a question of pressuring the insurance commissioner. We need to get a rate increase if Stewart is to stay on-island. We’ve needed it for a long time.”
Melwani said the volume of title insurance business varies but the number of industry transactions could be described in the thousands. “It depends whether we are in a boom market or a slow real estate market; it depends whether active refinancing is going on when interest rates are low. Title insurance is provided on two occasions – when a buyer buys a piece of property to insure the title of the property is free from all liens and encumbrances as well as when a banker lends money – a lender’s title insurance policy as oppose to a buyer’s.
Title insurance is calculated at a rate of insurance per thousand dollars coverage.
Still Melwani said “The amount we are asking is not good enough for the company that’s given notification to leave.”
Kim A. Young president of Security Title Inc. said “The immediate problem is that it means less options. If there’s a risk that’s out there in the past we’ve been able to go to two underwriters. In this particular situation you’ve only got one underwriter and what they say is law. We’re fortunate that we still have one underwriter that believes in our market. The downside of having one underwriter is that all of the claims that come through are going to them. None of the underwriters like to be the only one in the market because they have to shoulder all of the losses.”
Young said First American Title was withdrawing because of the company had sustained losses in the Marianas market. “The Guam market last year according to The Captain Co. reported every recorded real estate transaction did not reach $500 million. Let me compare Guam to the island of Kawai with a population of 60 000 people. Kawai’s mortgage recordings only for March 2005 were $435 million – mortgages only not sales. The rates in Hawaii are three times what they are here; the rates in Saipan and the CNMI are six times what they are here.
First American had previously been here. They pulled out of Saipan years ago in 1991 because they weren’t making money and came back with me in 2000 because of our relationship.
Stewart has been here with Pacific American since 1991 and in Saipan since 1990. I think they are banking on rates rising after the June hearing and if rates don’t rise I don’t expect them to stay in this market any more than I expected First American to stay. These are companies that have to be answerable to their board of directors and if they lose money year in year out they lose their jobs.
“If Stewart leaves there is no way of issuing title insurance and if there is no title insurance underwriter and no title insurance issued people can’t get a mortgage mainly because the FDIC requires that a lender have a title insurance policy on their loans. Basically the real estate market dies – people can’t finance their loans or sell their properties or refinance.”
Young said she did not think a local company would step into the market. “I don’t think its possible – you’re talking about insuring $500 million – these companies are in the billions of dollars. They’d have to have ready cash for $500 million to replace those claims. It’s a highly specialized business – other insurance writers don’t get involved because it’s highly specialized.”
Young said Security Title had reestablished its relationship with Stewart Title so that service to its clients would be seamless in the event First American decided to pull out of the region.
“They were knights in shining armor in the past they look like Guam’s knight in shining armor now.”
She said “The rate increase that has been requested – and the rate has not ever been raised – was a request put in by First American and Security Title. It’s two-and-a-half to three times the current rate. Title insurance is a one time shot. It’s not something you have to pay every year.
Young described the situation as “very unnerving.”
Stewart provides title insurance and related services through more than 7 800 policy-issuing offices and agencies in the United States and several international markets. In 2004 Stewart for the fourth year made Forbes magazine’s Platinum 400 list posting a five-year average return on capital of 12.5%. Stewart is also on Standard & Poor’s SmallCap 600 Index.
Alan Wasserman representative at Stewart for Region E told the Journal “We’ve been in that market for many years and expanded with the acquisition of Security Title. We’ve been underwriting for years for Pacific American Title as well.”
He said a rate increase would be welcome but the prospect of an increase was not what had encouraged Stewart to broaden its base in Micronesia. “Our prim focus is to make money. We think with the addition of Security Title as our independent agent we will have more market share.”
However Wasserman said “It’s important that the product be priced according to acceptable risk standards in Guam.” He said title insurance and underwriting in the Mariana Islands had similarities to the market in the U.S. “But there are some unique laws that heave to be dealt with particularly related to probate and succession. Some issues have to be analyzed pretty carefully. Guam and Saipan have been in an economic freefall in the last several years. Any time that happens it produces a climate of more claims as people scramble to get out of bad situations. Foreclosures and bankruptcies also mean more claims.”
Now he said “We look to see an improving economy. We want to see a vibrant healthy economy and we want to see growth in that area if growth which leads to real estate transaction that it is starting to grow slowly but is starting to grow been such a down market for so long starting to see more US mil input interest in G which is a good thing K and Jap markets want to be part of that growth. We’re excited about the poss of growth. Wasserman complimented the title insurance brokers. “In Guam you’ve got really dedicated title agents ” he said.
Title Guaranty was established in 1963 and has 19 employees. Pacific American Title Co. opened in Guam in 1989. The company has 18 employees in Guam and six in Saipan. The company took on board in 2004 as vice president and general manager long time financing expert Aileen S. Kier generally regarded as a significant asset to the company. Security Title opened in 2000 and has 17 employees in Guam and three in Saipan.
In the title insurance heyday Melwani said in the late 1980s there were several title insurance brokers in Guam.
Companies in the market have included First American Title Insurance Co. Island Title Takagi Security Title Inc. underwritten by Old Republic National Title Insurance Co. which left the market in 2003 (See “Title company closes after failed search ” in the Nov. 3 2003 issue of the Journal.) Pacific American Title Co. Title Guaranty and U.S. Title. MBJ