The Company, through its subsidiaries, is engaged in the business of providing
financial services through its title insurance and services segment and its
specialty insurance segment. The title insurance and services segment provides
title insurance, closing and/or escrow services and similar or related services
domestically and internationally in connection with residential and commercial
real estate transactions. It also provides products, services and solutions
involving the use of real property related data, including data derived from
its proprietary database, which are designed to mitigate risk or otherwise facilitate
real estate transactions. It maintains, manages and provides access to title
plant records and images and, in addition, provides banking, trust and investment
advisory services. The specialty insurance segment issues property and casualty
insurance policies and sells home warranty products. In addition, our corporate
function consists of certain financing facilities as well as the corporate services
that support our business operations.
The substantial majority of our business is dependent upon activity in the
real estate and mortgage markets, which are cyclical and seasonal. In the current
market environment, we are focused on growing our core title insurance and closing
services business, building and expanding our data assets to strengthen our
core business and offer additional solutions for our customers, and managing
complementary businesses in ways that support our core business. We are also
focused on continued improvement of our customers’ experiences with our
products, services and solutions, and we remain committed to efficiently managing
our business to market conditions throughout business cycles.
Our title insurance and services segment issues title insurance policies on
residential and commercial property in the United States and offers similar
or related products and services internationally. This segment also provides
closing and/or escrow services; accommodates tax-deferred exchanges of real
estate; provides products, services and solutions involving the use of real
property related data designed to mitigate risk or otherwise facilitate real
estate transactions; maintains, manages and provides access to title plant records
and images; and provides banking, trust and investment advisory services.
In most instances mortgage lenders and purchasers of real estate desire to
be protected from loss or damage in the event of defects in the title they acquire.
Title insurance is a means of providing such protection.
Title Policies. Title insurance policies insure the interests of owners or lenders
against defects in the title to real property. These defects include adverse
ownership claims, liens, encumbrances or other matters affecting title. Title
insurance policies generally are issued on the basis of a title report, which
is typically prepared after a search of one or more of public records, maps,
documents and prior title policies to ascertain the existence of easements,
restrictions, rights of way, conditions, encumbrances or other matters affecting
the title to, or use of, real property. In certain limited instances, a visual
inspection of the property is also made. To facilitate the preparation of title
reports, copies and/or abstracts of public records, maps, documents and prior
title policies may be compiled and indexed to specific properties in an area.
This compilation is known as a “title plant.”
The beneficiaries of title insurance policies usually are real estate buyers
and mortgage lenders. A title insurance policy indemnifies the named insured
and certain successors in interest against title defects, liens and encumbrances
existing as of the date of the policy and not specifically excepted from its
provisions. The policy typically provides coverage for the real property mortgage
lender in the amount of its outstanding mortgage loan balance and for the buyer
in the amount of the purchase price of the property. In some cases the policy
might provide insurance in a greater amount, such as where the buyer anticipates
constructing improvements on the property. The potential for claims under a
title insurance policy issued to a mortgage lender generally ceases upon repayment
of the mortgage loan. The potential for claims under a title insurance policy
issued to a buyer generally ceases upon the sale or transfer of the insured
property.
Before issuing title policies, title insurers typically seek to limit their
risk of loss by accurately performing title searches and examinations and, in
many instances, curing title defects identified therein. These searches, examinations
and curative efforts distinguish title insurers from other insurers, such as
property and casualty insurers. Whereas title insurers generally insure against
losses arising out of circumstances existing as of the date of the policy, property
and casualty insurers generally insure against losses arising out of events
that occur subsequent to policy issuance. As a result of these differences,
title insurers typically experience relatively low claims, as a percentage of
premiums, when compared to property and casualty insurers, but have relatively
high expenses. The primary costs of a title insurer pertain to personnel and
other costs associated with the search and examination process, the curative
process, the preparation of preliminary reports or commitments, title plant
maintenance, and sales, as well as technology and other administrative expenses.
The Closing Process. Title insurance is essential to the real estate closing
process in most transactions involving real property mortgage lenders. In a
typical residential real estate sale transaction where title insurance is issued,
a real estate broker, lawyer, developer, lender, closer or other participant
involved in the transaction orders the title insurance on behalf of an insured.
Once the order has been placed, a title insurance company or an agent typically
conducts a title search to determine the current status of the title to the
property. When the search is complete, the title insurer or agent prepares,
issues and circulates a commitment or preliminary report to the parties to the
transaction. The commitment or preliminary report identifies the conditions,
exceptions and/or limitations that the title insurer intends to attach to the
policy and identifies items appearing on the title that must be eliminated prior
to closing.
The closing or settlement function, sometimes called an escrow in the western
United States, is, depending on the local custom in the region, performed by
a lawyer, an escrow company or a title insurance company or agent, generally
referred to as a “closer.” Once documentation has been prepared
and signed, and any required mortgage lender payoff demands are obtained, the
transaction closes. The closer typically records the appropriate title documents
and arranges the transfer of funds to pay off prior loans and extinguish the
liens securing such loans. Title policies are then issued, typically insuring
the priority of the mortgage of the real property mortgage lender in the amount
of its mortgage loan and the buyer in the amount of the purchase price. The
time between the opening of the title order and the issuance of the title policy
is usually between 30 and 90 days. Before a closing takes place, however, the
closer typically requests that the title insurer or agent provide an update
to the commitment to discover any adverse matters affecting title and, if any
are found, works with the seller to eliminate them so that the title insurer
or agent issues the title policy subject only to those exceptions to coverage
which are acceptable to the title insurer, the buyer and the buyer’s lender.
Property and Casualty Insurance. Our property and casualty insurance business
provides insurance coverage to residential homeowners and renters for liability
losses and typical hazards such as fire, theft, vandalism and other types of
property damage. We are licensed to issue policies in all 50 states and the
District of Columbia and actively issue policies in 46 states. The majority
of policy liability is in the western United States, including approximately
63% in California. In certain markets we also offer preferred risk auto insurance
to better compete with other carriers offering bundled home and auto insurance.
We market our property and casualty insurance business using both direct distribution
channels, including cross-selling through our existing closing-service activities,
and through a network of independent brokers. We purchase reinsurance to limit
risk associated with large losses from single events.
Home Warranties. Our home warranty business provides residential service contracts
that cover residential systems, such as heating and air conditioning systems,
and certain appliances against failures that occur as the result of normal usage
during the coverage period. Coverage is typically for one year and is renewable
annually at the option of the contract holder and upon our approval. Coverage
and pricing typically vary by geographic region. Fees for the warranties generally
are paid at the closing of the home purchase or directly by the consumer. Renewal
premiums may be paid by a number of different options. In addition, under the
contract, the holder is responsible for a service fee for each trade call. First
year warranties primarily are marketed through real estate brokers and agents,
and we also increasingly market directly to consumers. We generally sell renewals
directly to consumers. Our home warranty business currently operates in 39 states
and the District of Columbia.