Fitch Downgrades Stewart Title Group's IFS to 'A'; Outlook Stable
August 28, 2008
CHICAGO -- Fitch Ratings has downgraded the insurer financial strength (IFS) ratings of Stewart Title Guaranty Company (STG) and its wholly owned subsidiary Stewart Title Insurance Company (STIC), collectively referred to as Stewart to 'A' from 'A+'. The Rating Outlook for both companies is Stable. The companies are ultimately owned by Stewart Information Services Corporation (STC), a publicly traded holding company.
Fitch's rating action was driven by deterioration in STC's profitability both relative to peers and on an absolute basis. Fitch's prior 'A+' IFS rating of STC, which was the highest stand-alone rating Fitch had amongst title insurer, considered not only STC's ongoing strong balance sheet and capital position, but also a belief that STC would perform better than peers from a profitability perspective in a down market.
Through the first six months of 2008, STC's GAAP pretax margins were a negative 10.4% compared to the national peer average, excluding STC, of negative 1.8%. Similarly, STC's year-to-date GAAP combined ratio of 111.7% was above the national peer average, excluding STC, of 103%. Part of the difference is driven by STC's ongoing investments in technology. The prior rating level, in part, was based on an assumption that STC's historic technology-related investments may have allowed STC's to show better margins than peers in a down market, which has not been the case.
Fitch believes that the current downturn in the real estate cycle will continue at least through the near-to-intermediate term, further pressuring STC's margins.
STC is currently the only company in Fitch's universe of rated title insurers to have a Stable Rating Outlook. All other companies have a Negative Outlook or are on Rating Watch Negative, due to market pressures.
Factor supporting the rating and Stable Outlook are the company's strong balance sheet fundamentals including a solid risk-adjusted and absolute capital position, conservative reserving practices, minimal debt leverage, high quality and very liquid investment portfolio, and moderate operating leverage. At year-end 2007, Stewart's 231% risk-adjusted capital (RAC) as measured by Fitch's ratio was the highest of the five national title groups. Fitch notes that STC contributed $21.2 million into the title operating subsidiaries in 2007 to strengthen statutory surplus.
Stewart is one of the nation's largest title insurance groups with a national market share of 11.7% as of March 31, 2008 according to the American Land Title Association. Over half of Stewart's premiums come from its four largest states: Texas; California; New York; and Florida. Stewart distributes its products through more than 9,500 locations on properties located in all 50 states and foreign countries.
Fitch has downgraded the following IFS ratings with a Stable Outlook:
- Stewart Title Guaranty
- --IFS to 'A' from 'A+'.
- Stewart Title Insurance Company
- --IFS to 'A' from 'A+'.
Source: Fitch Ratings
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