Stewart(US:STC)2021-03-01 14:23Company Overview - Stewart Information Services Corporation operates primarily in the United States and has regional offices in Australia, Canada, Europe, Mexico, and the UK, providing title insurance and related services[12]. - As of December 31, 2020, approximately 92% of the company's combined debt and equity securities investment portfolios consisted of fixed income securities, with 91% rated A or higher[39]. - As of December 31, 2020, the company employed approximately 5,800 people, with about 5,200 in the U.S. and 600 internationally[41]. Financial Performance - For the year ended December 31, 2020, net income attributable to the company was $154.9 million, or $6.22 per diluted share, compared to $78.6 million, or $3.31 per diluted share, for the year ended December 31, 2019[85]. - Total revenues increased 18% to $2.3 billion in 2020, from $1.9 billion in 2019, primarily due to increased revenues from title operations and acquisitions[85]. - The company acquired several title offices and two appraisal management services companies in 2020, contributing $109.2 million to total revenues and $17.3 million to pretax income[86]. - For the fourth quarter 2020, net income attributable to the company was $59.7 million ($2.22 per diluted share), compared to break-even results for the fourth quarter 2019[87]. - Title segment operating revenues for the fourth quarter 2020 were $690.2 million, a 36% increase from $506.0 million in the fourth quarter 2019[90]. - Total operating expenses increased 14% in 2020 compared to 2019, in line with improved revenues[85]. Title Insurance Segment - The title insurance segment includes home and personal insurance services and tax-deferred exchanges, with revenues closely tied to real estate market activity and financing costs[13][26]. - Title insurance revenues are affected by factors such as consumer confidence, foreign currency exchange rates, and interest rates, with the first quarter typically being the least active[26]. - The demand for title insurance-related and mortgage services offerings is primarily dependent on the volume of residential and commercial real estate transactions[53]. - Title losses increased by $30.8 million, or 36%, in 2020 compared to 2019, driven by higher title premiums and increased loss provisioning due to COVID-19 uncertainties[137]. - The total estimated title losses reserve increased to $496.3 million in 2020 from $459.1 million in 2019, with known claims at $68.9 million and IBNR at $427.4 million[140]. Ancillary Services Segment - The ancillary services segment supports the mortgage industry with appraisal management and online notarization services, bolstered by acquisitions in 2020[35]. - Total operating revenues for ancillary services and corporate segment surged by 464% to $38.0 million in Q4 2020 from $6.7 million in Q4 2019[95]. - Ancillary services revenues increased 121% to $83.5 million in 2020, driven by $65.8 million from acquisitions[124]. Investments and Financial Position - Total cash and investments as of December 31, 2020, amounted to $1.1 billion, with $814.8 million held in the U.S.[143]. - Total debt was $101.8 million, while stockholders' equity stood at $1.0 billion as of December 31, 2020, resulting in a debt-to-equity ratio of approximately 10.0%[156]. - The company generated net proceeds of approximately $109.0 million from the issuance of new shares of Common Stock in 2020, primarily for acquisitions[155]. - Investment income declined 6% to $18.8 million in 2020 due to lower interest income from investments[125]. Regulatory and Compliance - The company’s insurance subsidiaries must comply with extensive government regulations, which could affect revenue growth[61]. - A downgrade of the company’s underwriters by rating agencies may reduce revenues and impact customer relationships[60]. - Management assessed the effectiveness of internal control over financial reporting as of December 31, 2020, and concluded that it is effective[174]. Employee and Workplace - The company is committed to an inclusive workplace, ensuring equal treatment of all employees regardless of demographics[42]. - Employee costs increased by $46.0 million, or 8%, in 2020 compared to 2019, primarily due to acquisitions and higher incentive compensation[129]. - Employee costs as a percentage of total operating revenues decreased to 27.0% in 2020 from 30.2% in 2019[130]. Economic Factors - The company’s revenues and results of operations are affected by changes in economic conditions, particularly mortgage interest rates and real estate prices[52]. - The company’s financial performance could be adversely impacted by climate change and extreme weather events[59]. - The average 30-year mortgage interest rate for 2021 is expected to remain at 3.11%, with total lending estimated to decline 21% compared to 2020[117]. Future Outlook - The company anticipates that the 2021 loss ratio will be comparable to the full year 2020 loss ratio of 5.3%[91]. - New and existing home sales in 2021 are expected to grow 10% and 7%, respectively, compared to 2020[117].