Essent buying title insurance companies for $100M

Essent Group agreed to purchase the title insurance subsidiaries of Finance of America’s Incenter business for $100 million, the latest company looking to find synergies between the two businesses.

“Title insurance is a natural complement to our MI business with relatively low and stable loss ratios historically,” said Mark Casale, Essent’s chairman and CEO, in a press release. “The acquisitions add a team of seasoned title professionals to Essent and provide a platform to leverage our capital position, lender network and operational expertise across an adjacent real estate sector as we continue to expand our franchise.”

But Essent could have spent the money in a different fashion rather than move into a new vertical.

“We would note that smaller title companies often sell for between 6-8 times EBITDA, so we expect any accretion [for Essent] from the deal to be modest,” said Bose George, an analyst with Keefe, Bruyette & Woods, in a research note. “We also would note that this capital could also have been used for buybacks, which likely would have been just as accretive.”

Agents National Title Holding Co. is an underwriter that can do business in 44 states. Incenter acquired the company in 2017 at an undisclosed price.

The prior year, Incenter purchased title and settlement services provider Boston National Title, also for an undisclosed price. At that time, Incenter management said it was looking to be an end-to-end services provider.

But Finance of America has been revamping its operations, exiting the forward mortgage origination business, while concentrating on home equity lending and the reverse mortgage sector, including the pending purchase of American Advisors Group.

“FOA’s strategic direction and long-term growth initiatives are centered on providing an innovative suite of solutions to help Americans achieve their retirement goals through the use of their home equity,” Graham Fleming, interim CEO, said in a press release. “Today’s transaction is part of our continued execution of this strategy which is supported by some of the industry’s most powerful macro themes.”

Currently only Radian Group actively has its hands in both pies, upping its presence in title following its 2018 purchase of what was then called Entitle Direct, now Radian Title Insurance. That purchase came 15 years after Radian tried to introduce a title insurance alternative product called Radian Lien Protection but ran into regulatory objections in California.

Neither Agents nor Radian hold significant market share among title insurers. Through the first nine months of this year, Agents wrote $75.8 million in premiums for a 0.43% share, ranking it 13th among all underwriters, according to the American Land Title Association (for this purpose, holding companies with multiple underwriters are reported as a single business). Radian did $21.4 million for a 0.12% share, putting it at No. 19.

But other times, the combination of these two lines has been unsuccessful. For example, Old Republic International, the third largest title underwriter with a 15.54% share, currently operates a mortgage insurance business that has been in run-off status since 2011. Several times, former chairman CEO Aldo Zacaro looked to bring the unit back to operating status but those plans never came to fruition.

In 2003, the now-defunct mortgage insurer PMI Group sold its American Pioneer Title Insurance Co. to Fidelity National Financial.

Goldman Sachs is Essent’s financial advisor, while Credit Suisse Securities (USA) did the same for FOA. The transaction is subject to regulatory approvals.