consolidation among companies.
Last week's announcement by Fidelity National Financial Inc. that it plans to acquire Chicago Title Corp. for $3.4 billion would create the largest title insurer in the country, with 30% of the market.
But the deal, which is expected to close by early next year, comes at a time when title insurers are seeing reduced returns, said Robert Hartwig, chief economist at the Insurance Information Institute.
As a group, publicly held title insurers posted stock losses of 37.8% during the first half of 1999, he said. That's down significantly from last year's sharp gain of 49%, when they outpaced other insurance segments.
"It's fairly volatile, sometimes extremely volatile," Mr. Hartwig said of the sector.
The industry is dependent on the health of the real estate market. As interest rates rise and property transactions slow, title insurance revenues dip.
Companies have been driven to join forces by the perception of overcapacity and by the anticipation of financial services reform that might let banks buy title insurers, Mr. Hartwig said.
He attributed last year's gains largely to an active real estate market and industry consolidation. One out of six property and casualty deals, out of 500 last year worth $165 billion, involved title insurers, he said.
And once the legislative issues surrounding financial services reform are ironed out, there will probably be further consolidation as banks look to enter the business in a bigger way, predicted Mr. Hartwig.
"There's great affinity between lenders and title insurers," he said.
Fidelity CEO William P. Foley 2d said in a conference call concerning last week's deal that the purchase of Chicago Title would achieve economies of scale. "Our motivation is to create a premier powerhouse in the title insurance industry," he said.
The consolidation trend evi-denced by Fidelity's announcement is being watched closely by smaller title insurance agencies, said William Cotter, president and chief executive of T.A. Title Insurance Co. in Media, Pa.
"To a regional company like us," he said, "that kind of thing is kind of a threat, but it gives us some opportunities as well."
Agents can often be recruited in the wake of a merger or acquisition.
And in today's tight labor market, that could be a big help to T.A. Title, which had 1998 revenues of $15 million. The company has one bank agency partner and is about to sign up four more, he said.
The flip side of that sort of opportunity is having to compete against increased service capabilities created in large-scale title mergers, Mr. Cotter said.
"Frankly, that's going to force competitors like us to be that much better," he said.
At the same time, Mr. Cotter said, he does not expect smaller players to be driven from the playing field. Real estate will remain a local business influenced by state laws, he said.
Similarly, said Mr. Hartwig of the insurance institute, the title insurance business would continue to be most influenced by the health of the real estate market.
Both Mr. Cotter and Mr. Hartwig said that, based on recent title industry history, it's unlikely any cost savings achieved through mergers will be passed along to consumers.?