CATIC's assigned ratings reflect its favorable capitalization as evidenced by its moderate underwriting leverage ratios. Although statutory surplus on a reported basis declined nearly 20% over the past five years, causing a moderate increase in the group's net premium to surplus ratio, this measure still remains relatively low compared to that of the title insurance industry as a whole. The drop in surplus in recent years was in part due to a $4 million dividend that was paid to CATIC's, parent holding company, CATIC Financial, Inc. to assist in the parent's previous acquisition of another title insurer in New Jersey. Surplus also was impacted by accounting charges taken in 2011 against CATIC's deferred tax asset resulting from unfavorable 2011 taxable operating earnings in the parent holding company's consolidated federal income tax return. The company's operating performance has been variable, due in part to agency defalcation losses suffered in recent years. However, CATIC has instituted greater safeguards through expanded monitoring systems and has availed greater reinsurance protection against such losses in the future through a recent formation of a captive insurer in Vermont. Additionally, the company increased its profile in the potentially more lucrative commercial title space through a recently concluded reinsurance agreement with Lloyd's in partnership with several other regional title insurers.

As a bar-related title insurer utilizing independent attorney agents, CATIC retains a market niche as the sixth-largest regional title insurer in the United States with a long-standing presence in the New England states. While the current economic environment and housing market conditions--both of which determine future revenue and earnings potential of title insurers--remains challenging, the company has initiated additional expense and risk management efforts, which have, to some extent, mitigated this impact as evidenced by favorable operating earnings in 2011 and year-to-date in 2012 following a significant operating loss in 2010 caused by a single material agent defalcation.

The assigned outlook is based on CATIC's favorable risk-adjusted capitalization, as well as its niche as a significant writer in the New England market, where it has a long standing presence.

While CATIC's current ratings and outlook are not expected to change in the near term, any future upward movement in its ratings and/or a positive outlook will require sustained improvement in operating results over the medium term, while maintaining favorable risk-adjusted capitalization. Conversely, further volatility in CATIC's operating performance and/or risk-adjusted capitalization may result in greater pressure on its current ratings and/or outlook.