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NYSE: STC) is the fourth largest Title Insurer by revenue. Title insurance protects buyers and lenders in real estate transactions from defects in a real estate title, such as unknown claims to the property or unknown restrictions on what the owner of the property can and cannot do with the property. Stewart Information Services is one of the top five Title Insurers in the U.S. by revenue, earning 11.73% of the Title Revenues in 2007. The company focuses nearly entirely on Title Insurance, earning 94% of its 2007 revenue from Title Insurance Premiums.
Stewart Information Services depends on forces that affect the volume and profitability of its Title Insurance Business. The amount that the company can charge for a premium on its policies is often set by government regulations. With high fixed costs, Stewart benefits from having a larger volume of policies. Title Insurance policies are issued at real estate transactions and with mortgage originations and refinancings. The decreased volume in mortgage originations has decreased the volume of policies Stewart Information Services has issued.
Compared to the five largest Title Insurers, Stewart Information Services earns the largest proportion of its revenue from Title Insurance operations. First American (FAF) and Fidelity National Financial (FNF), the largest two Title Insurers in 2007, each earned 70% of their 2007 revenues from Title Operations,  compared to 94% for Stewart. LandAmerica Financial Group (LFG) earned 88% of its 2007 revenue from Title Operations, but filed for bankruptcy in November of 2008. 
In 2007, Stewart Information Services reported a net loss of $40.2 million and a decline in revenues from $2.5 billion in 2006 to $2.1 billion in 2007. Management cites the Subprime lending collapse, declining home sales, and falling home prices as reasons for the net loss. The company plans to cut a lot of costs to adjust to the changing economic conditions, but they note that many of their costs, such as rent, are fixed costs.
Stewart Information Services reported a pre-tax gain of $8.8 million from the sale of property and two of its subsidiaries.
Cash provided by operations decreased from $105.1 million in 2006 to $4.6 million in 2006, a 95.6% decrease. Management claims that this decrease occurred because of decreased Title revenues and increased loss payments.
Together, Title Insurance Operations ran an operating loss of $57.2 million in 2007, making up 110% of the $51.9 million overall operating loss in 2007.
|Average Premium per Direct Title Order||$1,600||$1,909||$2,178|
|Number of Direct Title Orders Closed (thousands)||651||539||435|
|Claims loss provision (millions)||$128.1||$141.6||$168.5|
|Title Premiums (millions)||$2,314||$2,350||$1,988|
|Loss Ratio||5.5%||6.0%||8.5% |
The following are operating metrics that describe measurements of performance specific to Stewart Information Services's industry:
Title Insurance policies are typically required for any mortgage and refinancing to assure the lender clear title to the collateral backing their loan. Therefore, the more mortgages issued and refinanced, the more potential revenue for Stewart Information Services. Mortgage originations decreased 16.6% from 2005 to 2007. Over this same time period, the number of Direct Title Orders Closed by Stewart Information Services decreased from 651,000 to 435,000.
Title Insurance rates are heavily regulated in the United States. Rates are usually set by the state or county in which the corresponding real estate title is located. For example, the Texas Department of Insurance lowered Title Insurance Premium Rates by 3.2%. Management claims that this decrease reduced premiums retained by Stewart Information Services by $6.2 million in 2007.
The Federal Funds Rate remained low during 2003, moving between 1.00% and 1.25%. When interest rates are low, mortgage refinance volumes grow because property owners can pay off their old mortgage and get a new, cheaper one. More refinances mean more Title Insurance policies, because a new policy is issued along with each refinance. When rates rise, the number of refinances decreases. The Fed rose rates from 2003 until September of 2007. As rates rose from 2005 to 2007, Direct Title Orders Closed decreased from 651,000 to 435,000.
Stewart Information Services competes with other Title Insurers and with companies offering real estate information and closing services. The following are Stewart Information Services's four largest competitors in these industries:
|Competition||Stewart Information Services||First American||Fidelity National Financial|
|Total Title Insurance Premiums (millions)||$1,988||$5,516 ||$3,800 |
|Claims loss provision (millions)||$168.5||$893.9 ||$502.3 |
|Total Revenue (millions)||$2,107 ||$8,196 ||$5,524 |
|Claims loss provision/Premiums||8.5% ||12.9% ||13.2% |
|1||First American (FAF)||30.04%|
|2||Fidelity National Financial (FNF)||26.4%|
|3||LandAmerica Financial Group (LFG)||19.34%|
|4||Stewart Information Services||11.73%|
|5||Old Republic International (ORI)||5.48%|
Stewart Information Services is small relative to its two main competitors, First American (FAF) and Fidelity National Financial (FNF). As of December, 2008, STC had a market capitalization of $268.9 million, compared to $2.31 billion for FAF and $2.53 billion for FNF. STC has only 8,500 employees, compared to 14,278 for FNF and 37,354 for FAF. Competitor LandAmerica Financial Group (LFG) filed for bankruptcy in November of 2008 and sold two of its subsidiary Title underwriting companies to Fidelity National Financial (FNF).