Fitch Ratings said today that it has set a negative outlook forthe nation's title insurers based on a sharp decline in theirrevenues and profits.

The New York-based rating firm said in addition to the profitslump in 2007 it expects further deterioration in 2008 and2009.

Fitch in a report reviewed 2007 full-year GAAP results for thefive national title insurers and the market's profitabilityprospects in 2008.

The company noted continued unfavorable credit and propertymarket conditions, spurred by the subprime mortgage crisis, supportthe revised forecast for the industry.

Fitch said that Friday it will hold a conference call to discussits findings.

According to the rating firm, it is historically rare for U.S.title insurers to produce net losses, but four out of fivepublicly-traded, national title underwriters in Fitch's ratinguniverse reported losses in 2007 due to declining revenues andunexpected growth in incurred claims losses.

Fitch said it assigns ratings for title insurers at a level thatcan withstand a normal industry cycle. But “the current downtrendmay be unusually severe and longer in duration than past cycles,and create significant pressure on some company ratings,” accordingto Doug Pawlowski, sector head for title insurance ratings atFitch.

Leading indicators of future title insurance revenues, includingmortgage origination and title insurance order flow, reveal thatfurther challenges lie ahead, Fitch said.

The firm advised that “reducing expenses remains the key elementto profitability in a down market and title insurers with a greaterproportion of fixed costs will be at a disadvantage and willrequire significant expense restructuring to restoreprofitability.”

Poor title insurers' results in 2007 are also attributable tounfavorable loss reserve development from the policy years in theprevious cyclical earnings peak years of 2003-2006, Fitchfound.

The company said higher than anticipated loss ratios in theseperiods indicate that underwriting quality diminished greatly whenindustry participants were operating at full capacity.

Gerald Glombicki, director in Fitch's Insurance Rating Group,said, “There is some concern that these reserve deficienciescoupled with operating losses will affect capital adequacy withinthe title industry.”

The rating firm said more information on the impact of theseevents will be available as Fitch completes its loss reserveadequacy and risk-based capital analysis for U.S. title insurersbased on 2007 statutory financial statements this spring.

Fitch's full report, titled “Title Insurance Outlook TurnsNegative in Midst of Unusually Sharp Market Downturn,” is availableonline at www.fitchratings.com.