Stewart(US:STC)2022-02-28 14:55Business Segments - Stewart Information Services Corporation operates in two segments: title insurance and related services, and ancillary services and corporate[13]. - The title segment includes services such as searching, examining, closing, and insuring real property titles, as well as home and personal insurance services[14]. - The ancillary services segment supports the mortgage industry with services such as appraisal management and online notarization, enhancing the real estate transaction lifecycle[34]. Financial Performance - In 2021, net income attributable to Stewart was $323.2 million, or $11.90 per diluted share, a 109% increase from $154.9 million, or $6.22 per diluted share, in 2020[97]. - Total revenues for 2021 increased by 45% to $3.3 billion, up from $2.3 billion in 2020, driven by increased transaction volumes and acquisitions[97]. - Total operating expenses rose by 39% to $2.9 billion in 2021, compared to $2.1 billion in 2020, consistent with revenue growth[97]. - For Q4 2021, net income attributable to Stewart was $85.5 million ($3.12 per diluted share), compared to $59.7 million ($2.22 per diluted share) in Q4 2020[98]. - Q4 2021 pretax income before noncontrolling interests was $114.1 million, an increase from $83.9 million in Q4 2020[98]. - The company paid dividends of $293.9 million in 2021, including an extraordinary dividend of $135.0 million, compared to $30.0 million in 2020[153]. Market Conditions - Title insurance revenues are closely related to real estate market activity, interest rates, and consumer confidence, with the first quarter typically being the least active[26]. - The demand for title insurance-related and mortgage services is primarily dependent on the volume of real estate transactions, which is influenced by mortgage interest rates and overall economic conditions[59]. - The company’s revenues and results of operations are affected by changes in economic conditions, particularly mortgage interest rates and real estate prices[58]. - The average 30-year mortgage interest fixed rate is anticipated to climb to 3.6% in 2022, which may further reduce refinancing lending and limit home affordability[124]. Employee and Operational Metrics - As of December 31, 2021, the company employed approximately 7,300 people, with about 6,400 located in the U.S.[40]. - Employee costs increased by 27% to $777.0 million in 2021, while other operating expenses rose by 67% to $626.8 million[134]. - Total employee counts rose to approximately 7,300 in 2021 from 5,800 in 2020 and 5,300 in 2019, with average cost per employee increasing by 5% in 2021 and 7% in 2020[136]. Cybersecurity and Compliance - The company has experienced no known material cyber breaches during the three-year period ended December 31, 2021, and has a comprehensive cybersecurity framework in place[48]. - The company regularly assesses its cybersecurity against the National Institute of Standards and Technology (NIST CSF) and SSAE-18 standards[49]. - Regulatory compliance is crucial, as downgrades by rating agencies could negatively impact revenue and customer retention[69]. Investment and Financial Risks - As of December 31, 2021, approximately 87% of the company's combined debt and equity securities investment portfolios consisted of fixed income securities, with 93% of these rated A or higher[38]. - The investment portfolio is exposed to interest rate and credit risks, which could lead to material adverse effects on financial condition[78]. - A 100 basis-point increase in interest rates would result in a decrease of approximately $19.8 million, or 3.4%, in the fair value of the debt securities portfolio[176]. Acquisitions and Growth - The company acquired Cloudvirga, a digital customer engagement platform, and several title offices in various states to enhance its competitive position[31]. - The company invested $600.0 million in acquisitions of title and ancillary services businesses in 2021, significantly higher than $200.0 million in 2020[159]. - Ancillary services revenues improved by $177.1 million, or 214%, in 2021 compared to 2020, primarily due to revenues from new acquisitions[132]. Financial Position and Cash Flow - The company held total cash and investments of $1.2 billion as of December 31, 2021, with $798.3 million held in the U.S.[149]. - Net cash provided by operating activities was $390.3 million in 2021, an increase of $114.5 million compared to 2020, attributed to higher net income and lower claims payments[156]. - Total debt as of December 31, 2021, was $483.5 million, with stockholders' equity at $1.3 billion, resulting in a debt-to-equity ratio of approximately 34%[160]. Title Insurance Metrics - Total provisions for title losses as a percentage of title operating revenues were 4.2% in 2021, down from 5.3% in 2020[108]. - Title loss expense decreased by $13.1 million, or 28%, in Q4 2021, with a title loss ratio of 3.9% compared to 6.8% in the prior year quarter[101]. - Total estimated title losses as of December 31, 2021, were $549.6 million, up from $496.3 million in 2020, with known claims reserves at $75.9 million and IBNR at $473.7 million[146]. Audit and Internal Controls - The audit of the company's internal control over financial reporting as of December 31, 2021, was found to be effective[208]. - The company has implemented safeguards to reduce the risk of material misstatements in financial reporting, acknowledging inherent limitations in internal control systems[182]. - The financial statements and schedules filed as part of the report are listed in the Index to Consolidated Financial Statements[194].