(The following statement was released by the rating agency)
CHICAGO, June 03 (Fitch) Fitch Ratings has affirmed Stewart
Corp.'s (Stewart) Issuer Default Rating (IDR) at 'BBB' and its
debt rating at 'BBB-'. Fitch has also affirmed the Insurer
(IFS) ratings of Stewart's insurance subsidiaries at 'A-'. The
Rating Outlook is
Stable. A complete list of ratings follows at the end of this
KEY RATING DRIVERS
Stewart's ratings reflect sustained solid capitalization
financial leverage and sustained operating results through 2013.
also consider lower mortgage origination volume, as refinance
retrenches and mortgage rates climb.
Stewart's capitalization remains within Fitch's rating
guidelines with a
risk-adjusted capital (RAC) ratio of 149% at year-end 2013. On a
non-risk-adjusted basis (measured as net written premiums to
company's capitalization is also solid at 3.3x. Stewart's
ratio declined to 4.8% as of March 31, 2014 but will increase to
following the closing of the LandSafe Title acquisition and the
remaining senior convertible notes to equity.
Stewart reported net earnings of $63 million in 2013, compared
with $109 million
in 2012, which benefited from a $37 million tax asset valuation
reduction. The company reported a $12 million loss for
compared with a $3 million profit in the prior-year quarter.
origination volumes declined sharply in the fourth quarter and
continued into the first quarter.
Stewart's title insurance segment revenues declined 6% in
due to market pressures. Segment earnings declined 42% and
margins dropped to
4.9% from 7.9% in the prior-year period. During first-quarter
2014, the company
reduced headcount by 260 employees, or 4% of total headcount,
insufficient given the level of volume reduction. Stewart
intends to further
reduce costs and streamline operations.
Favorably, title revenue per closed order in direct operations
from the prior year, which is primarily due to home price
appreciation and a
shift in orders towards purchase transactions and commercial
orders and away
from refinancings. Commercial revenue increased 23% during
Fitch expects a continued decline in title revenue for the
remainder of 2014,
demonstrated by the sustained drop in year-over-year opened
title orders during
the first quarter. The closing ratio is expected to return to
in the second quarter after falling during the first quarter,
which is partially
due to timing issues around weather-related office closures and
implementation of new mortgage rules.
Stewart's mortgage services segment, which makes up 7% of total
reported a 35% reduction in revenue for first-quarter 2014. The
distressed and default-related services continued to drop as the
improved. Stewart's shift in focus to mortgage servicing and
services has not generated sufficient revenue to offset this
The Mortgage Services segment reported a nearly $2 million loss
2014 compared with a $10 million profit in the prior-year
maintained much of its existing operational infrastructure to
it acquired in 2013. However, these contracts took longer than
become fully operational, which contributed to margin
contracts are expected to ramp up over the next several months.
In an effort to expand service offerings to lenders, Stewart
Trott, Inc. and the title and collateral valuation business
lines of DataQuick
Lending Solutions, as well as signed an agreement to acquire
Fitch views the increased servicing capabilities provided by
favorably, given the rising trend of outsourcing by lenders.
have an aggregate purchase price of approximately $40 million
and are expected
to add approximately $150 million of annualized revenues in
acquisitions were funded by the company's line of credit.
Key rating triggers that could lead to an upgrade include:
--Profitability in line with rated peers particularly in
industry down cycles;
--Sustained favorable profitability indicated by an operating
profit margin of
8% or better;
--A strengthening of capital metrics, including a RAC ratio
above 175% and
operating leverage below 4.0x;
--Financial leverage ratio maintained below 15%.
Key rating triggers that could lead to a downgrade include:
--Operating profit margin below 3%;
--Capital deterioration whereby Stewart's RAC ratio drops below
125% and/or net
written premiums to surplus increases above 4.5;
--Financial leverage ratio above 20%;
--A large reserve charge that exceeds 5% of prior year surplus.
Fitch has affirmed the following ratings with a Stable Outlook:
Stewart Information Services Corp.
--IDR at 'BBB';
--$28 million 6% senior convertible notes due 2014 at 'BBB-'.
Stewart Title Guaranty
Stewart Title Insurance Company
--IFS at 'A-'.
Dafina Dunmore, CFA
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
Gerald Glombicki, CPA
Martha M. Butler CFA
Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549,
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria & Related Research:
--'Insurance Rating Methodology' (November 2013).
Applicable Criteria and Related Research:
Insurance Rating Methodology
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