A.M. Best Co. has affirmed the financial strength rating of B++ (Good) and issuer credit ratings (ICR) of “bbb+” of the member companies of Stewart Title Group (Stewart). A.M. Best also has affirmed the ICR of “bb+” of the parent holding company, Stewart Information Services Corporation (Houston, TX) [NYSE: STC]. The outlook for all ratings is stable. (See below for a complete list of the companies and ratings.) Stewart’s ratings reflect its adequate risk-adjusted capitalization as evidenced by its fairly reasonable underwriting and premium leverage ratios. Statutory surplus on a reported basis rose slightly in 2011 compared with 2010, while the group’s premium leverage, as represented by net premium to surplus ratio did not markedly change. Stewart’s slight improvement in surplus levels was partly due to its posting a modest operating profit in 2011, its first since 2006. Additionally, operating performance has been on an improving trend over the past two years, as witnessed by the fact that while operating performance for the group was moderately negative in 2010, it was a significant improvement over 2008 and 2009, when earnings were sharply impacted by unfavorable operating results, including significant strengthening of claim reserves for past policy years, large title claims (including agency defalcations) and a significant slowdown in real estate market transactions. The positive operating performance in 2011 also was despite a modest decrease in revenues compared to 2010, which saw a drop in premium volume compared to 2009. This was partly due to the introduction of new real estate settlement regulations and questions surrounding the processing of foreclosure properties. Together with the slowdown in refinancing volumes in 2011 due to little change in interest rates in recent quarters this has caused a drop in order volumes, both in 2010 and 2011. However, operating performance trends in 2010, and more markedly in 2011, have shown an improving trend partly due to an improvement in Stewart’s loss experience from active agents, as losses incurred from agents cancelled in recent years had been quite poor. Stewart also made significant progress in achieving a lower volume of defalcations in 2010 and 2011, a significant source of claims in recent years. Additionally, Stewart has shown an improvement in its expense ratio as a result of several expense initiatives undertaken over the past three years.
However, Stewart’s revenues and earnings in 2012 will be closely tied to the real estate market in the United States, which continues to remain weak, given slow output growth and continued high unemployment and foreclosure activity. As such, Stewart is challenged to show consistently profitable and sustainable operating performance in the near to medium term.While Stewart’s current ratings and outlook are not expected to change in the near term, future upward movement on the ratings or a positive outlook are possible, if the company sustains its improved operating trend over the medium term, while maintaining favorable risk-adjusted capitalization. Conversely, further volatility in operating performance and/or risk-adjusted capitalization may put renewed pressure on the current ratings and/or outlook. The FSR of B++ (Good) and ICRs of “bbb+” have been affirmed for the following members of Stewart Title Group:
- Stewart Title Guaranty Company
- Stewart Title Insurance Company
- Stewart Title Limited