Tuesday, January 27, 2009

Single Risk Limits of Title Insurance

Statutory single risk limitations also vary, but frequently are approximately one-half of surplus and reserves, a large amount in comparison to other lines of insurance. The justification for this approach lies in the small amount of capital invested in the industry and the sparse "likelihood" of a complete loss. The likelihood that loss and defense costs will equal or exceed policy limits is considered very small, since claims on policies probably occur between one in 500 to 1000 policies issued (typically closer to the latter) and loss and expense equal or exceeding policy limits probably occurs in about 1-3% of those claims.

Given the additional review by various counsel on commercial transactions, this likelihood should be lower on those transactions. The aggregate capacity of the title insurance industry to insure a single risk frequently is less than $1,000,000,000, although both the industry surplus and the industry statutory premium reserves exceed this amount. Net liquid assets available to pay claims do not always justify the large title policy retention limits by title insurers.

Because of the disparity between available net liquid assets and statutory limits on risk retention, some insureds will impose their own formulas or checklists to determine the allowable risk retention by a title insurer.

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