OREANDA-NEWS. Fitch Ratings has affirmed Stewart Information Services Corp.'s (Stewart) Issuer Default Rating (IDR) at 'BBB' and the Insurer Financial Strength (IFS) ratings of Stewart's insurance subsidiaries at 'A-'. The Rating Outlook is Stable. A complete list of ratings follows at the end of this press release.

KEY RATING DRIVERS
The affirmation reflects Stewart's solid capitalization, modest financial leverage and the company's position as the fourth largest title insurer in the U.S. market.

Offsetting these favorable factors are concerns about the company's financial performance particularly as measured by the consolidated GAAP pretax operating margin. Stewart continues to lag peer results, reporting a 0.3% consolidated pretax margin through the first nine months of 2015. Fitch would likely consider downgrading the rating if sustained financial underperformance were to negatively impact Stewart's strong capital position.

Stewart reported a $35.9 million goodwill impairment charge for third quarter 2015 attributable to the mortgage services segment. A large majority of the write down was in relation to Stewart's delinquent loan servicing operations, which the company plans to exit by first quarter 2016. Capitalization metrics remain solid despite the write down, with net premiums written/surplus at 2.7x at year-end 2014 and financial leverage at 11.5% as of nine months ended 2015.

Fitch believes Stewart will post break-even results at best for full-year 2015 as it is the company's expectation that the mortgage services segment will produce further pretax losses in fourth-quarter 2015. Results through the first nine months of 2015 have been negatively affected by a number of non-recurring items, such as the goodwill impairment and an additional $7.8 million of non-operating charges taken in the third quarter. This is in addition to jumbo losses and shareholder settlements reported in the first quarter.

Favorably, Fitch expects financial performance to improve in 2016 as Stewart shuts down their unprofitable delinquent loan servicing operations and fully realizes the benefits of their $30 million cost reduction program. Delayed closings from implementation of the CFPB's integrated disclosure rules are also expected to flow through into first quarter 2016. However, it is unlikely that Stewart will match peer results in the near term.

The title segment has benefited from increased housing market activity in 2015 despite Stewart's struggles within the mortgage services segment. Title and mortgage services segment revenue increased 14.3% year over year, to $1.523 billion at nine months ended 2015 from $1.333 billion at nine months ended 2014. Stewart's title operating margin was 8.2% through the first nine months of 2015, down 2 percentage points from the prior-year margin due mainly to higher 2015 revenues and a large loss reversal that occurred in the third quarter of 2014.

RATING SENSITIVITIES
Key rating triggers that could lead to an upgrade include:

--Operating performance in line with rated peers particularly in industry down-cycles;
--Sustained favorable profitability indicated by an operating profit margin of 8% or better;
--A strengthening of capital metrics, including a sustained RAC ratio above 175% and operating leverage below 4.0x.

Key rating triggers that could lead to a downgrade include:

--Sustained operating profit margin below 3%;
--Capital deterioration whereby Stewart's RAC ratio drops below 125% and/or net written premiums-to-surplus increases above 4.5x;
--Financial leverage ratio above 20%;
--A large reserve charge that exceeds 10% of prior year reserves.

FULL LIST OF RATING ACTIONS

Fitch has affirmed the following ratings with a Stable Outlook:

Stewart Information Services Corp.
--IDR at 'BBB'.

Stewart Title Guaranty
Stewart Title Insurance Company
--IFS at 'A-'.