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the TITLE INSURANCE pool gets a bit smaller

There are five major title insurance "families" in the United States. Together, they account for roughly 93% of all title insurance here. Last week, two of the five announced a merger. Subject to regulatory and shareholder approvals, Fidelity National Financial and Land America will combine forces, becoming the nation's largest title insurance provider. If so, they will control nearly half of the overall market.

This is not really so much of a merger as it is an acquisition: One of Fidelity's subsidiaries, Chicago Title, is going to bail out Land America with a $30 million in stand-by secured credit to provide liquidity and to help Land America's subsidiaries Commonwealth Title and Lawyers Title pay down other debts.

Conventional wisdom, and historical indications suggest that the title insurance industry is usually a hugely profitable one. In 2003, according to ALTA, the industry paid out about $662 million in claims, about 4.3% percent of the $15.7 billion taken in as premiums. By comparison, the boiler insurance industry, which like title insurance requires an emphasis on inspections and risk analysis, pays 25% of its premiums in claims. Auto and homeowner insurers are said to return about 70% of their premiums to customers in claims.

Times, however, have changed. Title companies have been battered along with most every other player in the real estate transaction process. Corporate dividends have been slashed. Share prices have tumbled. Employee rosters have been slashed and branch offices closed. The remaining offices are, by and large, quite. The days of overflowing reception areas and parties signing loan documents in the break room or on top of the photocopier are distant memories. Gone with them it seems are all those title company profits.

I am an agent and write title with Fidelity subsidiaries Chicago Title and Ticor Title, and Land America's Lawyers Title. I like working with all of them. The good news for my clients as there all three provide excellent service, competitive pricing and have really very nice (and knowledgeable) staff here. There will no doubt be some more pain for them all internally as the merger moves towards completion, but I do not foresee any problems or ill effects for my clients. In the near term, anyway.

In the same way that savvy buyers, particularly investors, are returning to the market, the Fidelities seem poised to gain market share and overall proftability by seizing on opportunities to buy assets while prices are low. The real estate market is cyclical and the turning point may come up on us sooner than many realize. This deal will no doubt pay big dividends to Fidelity in the long term.

Anyone else out there ready to make a similar play?

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