TEXT-Fitch affirms Stewart Information Services ratings

Wed Aug 8, 2012 3:06pm EDT

Aug 8 - Fitch Ratings has affirmed the 'BBB-' Issuer Default Rating (IDR)
and 'BB+' senior unsecured debt rating of Stewart Information Services Corp.
 (Stewart). Fitch has also affirmed the 'BBB+' Insurer Financial Strength
(IFS) ratings of Stewart's insurance subsidiaries and the 'BBB' IFS rating of
Stewart Title Limited (STL). The Rating Outlook is Stable. A complete list of
ratings follows at the end of this release.

Stewart's ratings reflect improved operating results, solid capitalization, a
conservative investment portfolio and modest financial leverage. However,
performance continues to trail its rated peer group, as defined as Fidelity
National Financial, Inc., First American Financial Corp., and Old Republic Title
Group.

Stewart reported net earnings of $12.8 million through June 30, 2012, compared
with a net loss of $4.4 million in the prior year period. The improvement was
driven by significantly better results in its title insurance operations and
continued solid earnings in its growing real estate information (REI)
operations.

Through June 30, 2012, Stewart's pretax profit margins lagged the title
operations of Fitch's rated universe by approximately five percentage points,
when adjusted for segment reporting differences. Specifically, 'Corporate and
Other' expenses were included with title operations for peer companies to be
consistent with Stewart.

Stewart reported a modest operating profit in its title insurance segment
through the first half of 2012, which can be attributed to rate increases,
expense efficiencies through back-office centralization, and the cancellation of
unprofitable agents.

The company's higher-margin REI segment provides support to the title operations
with continued solid earnings. Profit margins declined (31% through six months
2012 compared with 50% in prior year period) due to a shift in business mix to
mortgage servicing and real estate owned (REO)-related services from
higher-margin loan modification services. Management anticipates pretax margins
in the REI segment to stabilize to a sustainable level of 25%-30%, which Fitch
views as a favorable offset to title margins (4% for second quarter 2012).
Stewart's REI segment currently makes up 8% of total revenues but is expected to
become a larger contributor over the next several years.

Fitch believes reserve adequacy remains uncertain, although recent policy years
are showing signs of stability.

Stewart's capitalization remains adequate with a risk-adjusted capital (RAC)
ratio of 157% at year-end 2011, flat with the prior year. On a non-risk-adjusted
basis (measured as net written premiums to surplus) the company's capitalization
is also reasonable at 3.4x.

Stewart's debt to capital remains modest at 12.9%, excluding unrealized
investment gains, as of June 30, 2012. When goodwill is excluded, financial
leverage is 21.7%.

The affirmation of STL's rating and its Stable Outlook reflect the company's
continued improving performance with significant premium and earnings growth.

Key rating drivers that could lead to a downgrade include:

--Failure to sustain operating profitability;
--Capital deterioration whereby Stewart's RAC ratio drops below 140% and/or net
written premiums to surplus increases significantly above current levels;
--A large reserve charge that exceeds 5% of prior year surplus;
--Debt to tangible capital, excluding FAS 115, above 30%.

Key rating drivers that could lead to an upgrade include:

--Sustained profitability, as measured by combined ratio with consideration for
business mix, in line with higher rated peers;
--Consistently stronger risk-based capital levels, such as a RAC ratio above
175%.

Fitch has affirmed the following ratings with a Stable Outlook:

Stewart Information Services Corp.
--IDR at 'BBB-';
--$65 million 6% senior convertible notes due 2014 at 'BB+'.

Stewart Title Guaranty
--IFS at 'BBB+'.

Stewart Title Insurance Company
--IFS at 'BBB+'.

Stewart Title Limited
--IFS at 'BBB'.

Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable Criteria & Related Research:
--'Insurance Rating Methodology' (Sept. 22, 2011).

Applicable Criteria and Related Research:
Insurance Rating Methodology