Ticor: venerable title insurer is a likely takeover as losses mount; market share falls; suitors include Chicago Title Co.

Ticor: Venerable title insurer is a likely takeover as losses mount

Market share falls; suitors include Chicago Title Co.

One of Los Angeles County's oldest and largest companies, until recently known as Ticor, is reeling after being pummeled by a gang of aggresive new competitors, a sack-load of debt, a stalled real estate market and the savings and loan crisis, the Business Journal has learned.

After nearly a century in business, its days as an independent company may be numbered.

Officials at Ticor, which a few weeks ago changed its name to Westwood Equities Corp., were said to be in buyout negotiations last week with Chicago Title Co., the nation's largest title insurance company.

Such a merger, if consummated, would mean the death of Los Angeles-based Ticor, which dates back to 1893.

"We've had expressions of interest from many sources, including competitors of our title insurance companies," said Erich Everbach, general counsel for Ticor's ultimate parent, New TC Holding Corp. (See accompanying organizational chart.)

"But I will not confirm or deny the existence of present discussions with any particular party; the process is ongoing," he said.

Officials at Chicago Title were noncommittal last week.

"We're always looking at opportunities; and if one materializes, we'll make an announcement at the time of agreement," said Michael Nolan, a Chicago Title spokesman.

The investment banking firm of Shearson Lehman Hutton has been trying for two years to find an investor willing to buy or sink additional capital into the troubled New TC Holding Corp.

"There have been several times in the past two years when I thought we might be getting close to having something to announce," Everbach said. "But each time, events have conspired to prevent that. So I'm not going to speculate anymore on when that announcement might be made."

One thing is certain, the financial hotshots who bought Ticor from Southern Pacific Corp. in 1984 for $271 million, in a highly leveraged deal, have been less than thrilled with Ticor's subsequent performance.

"That transaction (the 1984 buyout) has been disappointing for all the investors," Everbach conceded.

The "investors" are mainly comprised of former ITT chairman Harold S. Geneen, former Avis rental car chieftain Winston V. "Bud" Morrow, and two other major investors.

Geneen now serves as the company's chairman. Morrow is president. And both would just as soon cash out, industry sources said last week.

The title insurance subsidiaries of newly named Westwood Equities have been suffering serious losses in recent years. Operating losses for the two Los Angeles-based title companies have amounted to nearly $50 million in each of the past two years. And the flow of red ink is continuing this year. (See accompanying charts.)

The tailspin is being caused by a combination of insurance claims pouring in from the high-volume days of 1985-87, and a dearth of new business in recent years.

Performance of the title insurance industry tends to mirror that of the real estate industry because the two are so closely allied.

Title companies make their money by insuring title transfers or refinancings of property. So, when real estate sales grind to a halt, so does the title insurance business.

Ticor, as well as many other title companies, have been hit with dramatic slowdowns in new-policy business in recent months. Add to that a flood of claims Ticor has been hit with from the high volume of new policies it underwrote during the heady days of 1985-87.

For the past two years, Ticor has been paying out an average of more than $4 million in claims each month. The result has been a plunging capital surplus.

With the exception of 1986, Ticor Title Insurance Co. has seen its capital surplus depleted by millions of dollars every year since the 1984 buyout. And its parent company, Ticor Title Insurance Company of California, has seen its capital surplus plummet from $144.7 million in 1985 to $92.4 million as of March 31 this year. That computes to a 36 percent decline in the cushion used to pay off policyholders' claims.

Everbach insisted last week that the company's surplus levels are still among the highest in the country, and that the flood of claims has slowed to about $2 million a month.

"We think we're over that aneurysm of claims," he said. "But, frankly, this year is more disappointing than we had anticipated."

The nation's stalled real estate industry has forced Ticor to shut down a number of offices and lay off thousands of workers across the country.

Just last week, Ticor shut down its Santa Cruz operations.

"We've diligently been trying to cut expenses to compensate for disappointing results," Everbach said. Results from eastern New York and Southern California have been particularly disappointing, he said.

One area where the company has not cut expenses considerably is salaries.

A high percentage of the more than 2,200 workers cut loose since 1985 were from the title insurance operations. But the salary expense at those subsidiaries has remained relatively flat, which means fewer workers are getting more money.

"This is a very personnel-intensive business, and it's not our intention to drive good people away by cutting their salaries," Everbach explained. "Ticor employees aren't totally happy with the size and frequency of their salary increases. But we've tried to make them content."

That effort has not been totally successful, as Ticor has been losing some of its top performers in recent years.

Worse, for Ticor, many of those defectors have opened title companies of their own. And the new, aggressive, entrepreneurial ventures have been stealing away huge chunks of Ticor's business.

"Ticor had a 60 percent market share in Los Angeles County when I started with them in 1964," said Spike Burlingame, now president of Burbank-based Gateway Title Co. "I started this company (Gateway) in 1981, and now we have as big a share as Ticor."

Westside real estate broker Fred Sands is also a major owner of Gateway, and his agents often funnel the title work from their transactions along to Gateway.

Broker Jon Douglas has a similar investment in, and arrangement with, Equity Title Co.

One top official at Equity Title, however, denied that his company got a disproportionate amount of title work from Jon Douglas-related transactions.

"We do (title work for) about 30 percent of his (Douglas') business," said the official, who wished to remain unnamed. "We get some business because of the relationship (with Douglas), and lose some business because of it."

Figures show, however, that the giant national title companies, like Ticor, have been losing ground to aggressive new entrants into the Los Angeles market.

"In many cases, we've lost our best salespeople to the smaller, entrepreneurial companies," Ticor's Everbach admitted. "We're just not willing, in some cases, to pay the price needed to keep people who can get a piece of the action at a small and growing company."

As if all this weren't enough, Ticor's parent company, New TC Holding, is still on the hook for about $20 million due to a disastrous venture into the risky mortgage insurance business in the mid-1980s.

A subsidiary known as Ticor Mortgage Insurance Co., later renamed TMIC, was formed and began issuing insurance on about 20,000 rental home mortgages held by a series of real estate partnerships operating under the name Equity Programs Investment Corp., or EPIC.

Most of the EPIC homes were in Texas, and when that real estate market went bust, so did EPIC. The result was one of the worst real estate failures ever.

EPIC partnerships defaulted on $1.4 billion of mortgage debt in 1985, and TMIC reportedly had coverage on about $16 billion in loans.

California insurance regulators put TMIC into conservatorship in 1986, and began a liquidation in 1988.

Ticor's parent, New TC Holding, lost its entire investment in TMIC. That translated to a loss of $450 million in assets.

The asset liquidation is still proceeding in Los Angeles under the direction of the California Insurance Commission.

State regulators distributed close to $81 million to TMIC claimants in April of this year. Sources involved with the liquidation said last week that another significant distribution will be made to claimants in November.

"So far, we've distributed to claimants about 32.5 cents on each dollar of their investments," explained one source involved with the liquidation. "By the time the liquidation is completed, they'll have about 76.5 cents."

While increasing the cash distribution from 32.5 cents to 67.5 cents may sound innocuous on the surface, it translates to another $20 million expense for Geneen, Morrow and the other owners of New TC Holding Corp., and Ticor.

PHOTO : Morrow: Former Avis chieftain

Table : [Tabular data omitted]