Stewart Reports Financial Results for the Third Quarter 2009

HOUSTON, Oct. 29, 2009 -- Stewart Information Services Corporation (NYSE: STC) reported the results of its operations for the quarter and nine months ended September 30, 2009 (dollar amounts are in millions, except per share figures):

                                   Third Quarter             Nine Months
                               2009(a)       2008(b)     2009(a)       2008(b)

    Total revenues             $460.0        $396.7    $1,204.2      $1,219.3
    Pretax loss before
     noncontrolling interests   (21.6)        (39.7)      (72.0)       (124.7)
    Income tax expense
     (benefit)(c)                 0.2         (11.3)        3.8         (45.6)
    Net loss attributable to
     Stewart                    (23.7)        (30.0)      (81.9)        (83.9)
    Net loss per share
     attributable to Stewart    (1.30)        (1.66)      (4.51)        (4.64)

    (a) The third quarter of 2009 includes pretax charges of $12.5 million
        relating to title loss reserve strengthening adjustments for prior
        policy years, $3.8 million relating to an increase in the 2009
        title loss provision rate, $8.6 million relating to large title
        losses and $2.2 million relating to the impairment of other assets.
        In addition to amounts noted above, the first nine months of 2009
        also include pretax charges of $19.2 million relating to title loss
        reserve strengthening adjustments for prior policy years and $22.4
        million relating to several agency defalcations and large title
        losses offset by $9.2 million relating to recoveries of previously
        recognized title losses.  In addition to the amounts above recorded
        in the third quarter of 2009, the first nine months of 2009 include
        credits of $5.9 million for the settlements of legal matters in the
        Company's favor and a pretax charge of $8.9 million relating to the
        impairment of investment securities and other assets.

    (b) The third quarter of 2008 includes a pretax charge of $10.5 million
        relating to a reserve for large title losses offset by $10.0
        million relating to recoveries of previously recognized title
        losses. The third quarter of 2008 also includes pretax charges of
        $2.6 million and $2.5 million relating to the impairment of
        investment securities and office closure costs, respectively.  In
        addition to the amounts noted above, the first nine months of 2008
        include a title loss reserve strengthening adjustment of $14.0
        million relating to prior policy years, $17.7 million relating to
        large title losses and agency defalcations and a software
        impairment charge of $6.1 million.

    (c) Income tax expense in 2009 is related to certain goodwill book/tax
        differences and taxes in foreign jurisdictions for our
        international operations, as well as taxes for subsidiaries not
        included in our consolidated federal tax return.  The Company
        did not recognize an income tax benefit during the first nine
        months of 2009 relating to its pretax loss due to the recording of
        a valuation allowance against deferred tax assets at year-end 2008.

As previously announced on October 15, 2009, Stewart successfully closed its issuance of $65 million of Convertible Senior Notes due 2014. The approximately $62.2 million in net proceeds were used to replace bank debt on which repayment could have been demanded at any time, thereby extending Stewart's maturities for this debt to October 2014 if not converted into shares of common stock before or at maturity. The notes pay interest semiannually at a rate of 6 percent per annum beginning on April 15, 2010. The notes are, subject to certain limitations, convertible into shares of Stewart's common stock at a conversion rate of 77.6398 shares per $1,000 principal amount of notes (equal to a conversion price of $12.88 per share), which will be adjusted in certain circumstances. The conversion price represents a 25 percent premium above the $10.30 per share closing price of Stewart's common stock on the New York Stock Exchange on October 8, 2009.

Total revenues for the third quarter of 2009 increased 16.0 percent from the same period a year ago and decreased 1.2 percent in the first nine months of 2009 compared to the first nine months of 2008. Title revenues were up 14.4 percent for the third quarter of 2009 compared to the third quarter of 2008 and lower by 1.7 percent for the year-to-date period of 2009 compared with the same period in the prior year. Title revenues from our agency operations increased for both the third quarter and first nine months of 2009 compared with the same periods in 2008 as a result of new revenues from the addition of lower-risk agencies as well as significant increases in revenues from existing agencies. We have enhanced our new agency qualification process to reduce our risk and increase remittances, in addition to canceling more than 3,200 underperforming agencies since the beginning of 2007. As a result of these efforts to enhance our agency network, revenues from agency operations have increased in most states during 2009.

Revenues from direct operations decreased in the first nine months of 2009 compared with 2008 due to the impact of closing 217 unprofitable branch offices since the beginning of 2008. Revenues from direct operations were also impacted by declines in our international and commercial revenues. Revenues in our real estate information services business (REI) increased 50.8 percent and 22.9 percent for the quarter and year-to-date periods of 2009 compared to the comparable periods in 2008, respectively. The increase in REI revenues is predominantly due to loan modification services begun in the second quarter of 2009.

For the most recent two quarters, our quarterly pretax operating results improved significantly compared to the same quarters in the prior year. Extensive, ongoing expense reduction efforts undertaken since 2008 have made our core operations profitable. Our reported pretax losses are primarily a result of the negative impacts of reserve strengthening charges attributable to prior policy years and large title losses in both the second and third quarters of 2009, which also relate to prior policy years. The third quarter of 2009 includes an additional $12.5 million of title loss reserve strengthening expenses relating to prior policy years and $8.6 million reserve for large title losses. Adjusting for these items, our provisions for title losses for the third quarter of 2009 were 8.0 percent of title revenues compared with 7.0 percent for the same period of 2008. In the previous 30 years, total reserve strengthening adjustments have aggregated only $71.2 million out of $1.5 billion in total loss provision reserves. In addition, during the third quarter we revised our title loss accrual rate for the year-to-date 2009 period, resulting in a $3.8 million catch-up adjustment to title losses.

Employee costs were 10.7 percent less in the third quarter of 2009 compared with the third quarter of 2008. As a percentage of operating revenues, employee costs fell to 27.2 percent in the third quarter of 2009 from 35.3 percent in the third quarter of 2008. Overall, headcount has continued to decline from year end 2008 even while revenues have increased for the third quarter of 2009 compared with the third quarter of 2008 as we focus on improving productivity in our title production and back-office while delivering high-quality customer service in the front office. In addition, other operating costs declined 12.5 percent in the third quarter of 2009 compared with the same period in 2008.

We continue to achieve gains in productivity, cost reductions and improved accuracy in our regional production centers which perform title searches, examinations and commitments for multiple offices. By leveraging economies of scale while developing local experts in search and examination, we are already achieving reduced costs per order, and anticipate measurable reductions in future claims arising from search and exam errors.

Our back-office shared-services initiatives remain on target and continue to generate expense reductions in 2009 in the areas of human resources, finance and accounting, procurement and information technology through reduced salary and overhead costs and leverage of buying power. We anticipate additional savings once we substantially complete implementation of our enterprise systems in late 2010.

Title orders opened for the current quarter and year-to-date periods were comparable to the same periods of 2008. Orders opened for the first three weeks of October 2009 have increased on a per workday basis compared to the same period in 2008 and over September month-to-date.

Existing home sales were up 9.2 percent in September compared to the same month a year ago on a seasonally-adjusted annualized basis. Offsetting these increases in the number of sales, however, was a decline in prices. Existing home median prices averaged $177,900 in the third quarter of 2009, down 11.7 percent from the same period in 2008. New home sales, at a seasonally-adjusted annualized rate of 402,000, were down 12 percent in September 2009 when compared to September 2008. The average median new home sales price in the third quarter of 2009 of $203,367 was down 9.1 percent from the same period in 2008. Generally, a 5 percent decline in home selling prices reduces title revenues by 3 to 4 percent (however, this varies significantly from state-to-state and within price levels).

Freddie Mac reported on October 1, 2009, that interest rates for 30-year, fixed-rate loans averaged 4.94 percent nationwide. To place this low rate in perspective, in the more than 500 weeks since January 2000, rates have been lower just 10 times.

"We are profitable for 2009 year-to-date in our affiliated title operations as well as in the REI segment in what remains a challenging real estate market," said Stewart Morris, Jr., president and co-chief executive officer. "Our focus is to continue to adjust staffing and expenses for profitable results in changing market conditions and improving productivity while providing exceptional customer service, leading to gains in market share and revenues. Stewart's national market share rose from 12.5 to 13.1 percent from the second quarter of 2008 to the second quarter of 2009. We remain focused on increasing the productivity of our associates and operations while advancing the cost reduction measures ongoing since 2008."

"We are seeing positive developments and improved performance in almost all facets of our operations as well as in the residential real estate market," said Malcolm S. Morris, chairman and co-chief executive officer. "We are extremely pleased to have successfully replaced callable bank debt with the 6 percent Convertible Senior Notes due 2014 held by non-bank institutional investors. Although we had already repaid more than $50 million of this debt year-to-date, this note issuance removed the short-term repayment requirements of our former bank debt. Progress continues to be made in increasing title premium rates charged or modifying agency splits, and we remain committed to pursuing pricing improvements in our underwriter operations where possible. We are aggressively working at reducing title loss expense with a target of less than 5 percent of title revenues by 2012. Since our claims expenses are taken at the time of recognition without regard to potential future recovery, we anticipate reduced claims expense as recoveries are realized in the future."

Stewart Information Services Corporation (NYSE-STC) is a customer-driven, technology-enabled, strategically competitive real estate information, title insurance and transaction management company. Stewart provides title insurance and related information services required for settlement by the real estate and mortgage industries throughout the United States and in international markets. Stewart also provides post-closing lender services, automated county clerk land records, property ownership mapping, geographic information systems, property information reports, flood certificates, document preparation, background checks and expertise in tax-deferred exchanges. More information can be found at

Forward-looking statements. Certain statements in this news release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to future, not past, events and often address our expected future business and financial performance. These statements often contain words such as "expect," "anticipate," "intend," "plan," "believe," "seek," "will" or other similar words. Forward-looking statements by their nature are subject to various risks and uncertainties that could cause our actual results to be materially different than those expressed in the forward-looking statements. These risks and uncertainties include, among other things, the severity and duration of current financial and economic conditions; continued weakness or further adverse changes in the level of real estate activity; changes in mortgage interest rates and availability of mortgage financing; our ability to respond to and implement technology changes, including the completion of the implementation of our enterprise systems; the impact of unanticipated title losses on the need to further strengthen our policy loss reserves; any effect of title losses on our cash flows and financial condition; the impact of our increased diligence and inspections in our agency operations; changes to the participants in the secondary mortgage market and the rate of refinancings that affect the demand for title insurance products; regulatory non-compliance, fraud or defalcations by our title insurance agents or employees; our ability to timely and cost-effectively respond to significant industry changes and introduce new products and services; the impact of changes in governmental and insurance regulations, including any future reductions in the pricing of title insurance products and services; our dependence on our operating subsidiaries as a source of cash flow; the continued realization of expected expense savings resulting from our expense reduction steps taken since 2008; our ability to access the equity and debt financing markets; our ability to grow our international operations; and our ability to respond to the actions of our competitors. These risks and uncertainties, as well as others, are discussed in more detail in our documents filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2008 and our Current Reports on Form 8-K. We expressly disclaim any obligation to update any forward-looking statements contained in this news release to reflect events or circumstances that may arise after the date hereof, except as may be required by applicable law.

    (In thousands of dollars, except per share amounts and except where noted)

                                  Three months ended         Nine months ended
                                     September 30              September 30
                                     ------------              ------------
                                      2009    2008           2009       2008
                                      ----    ----           ----       ----
     Title insurance:
       Direct operations            176,795   176,713      502,915    557,988
       Agency operations            263,822   208,558      648,015    613,124
     Real estate information         15,394    10,210       44,532     36,228
     Investment income                4,952     7,016       15,763     22,550
     Investment and other
      losses-net                       (972)   (5,832)      (7,013)   (10,541)
                                    -------   -------    ---------  ---------
                                    459,991   396,665    1,204,212  1,219,349

      Amounts retained by
       agencies                     216,798   169,333      534,254    499,457
      Employee costs                124,968   140,006      362,108    438,045
      Other operating expenses       76,616    87,541      213,889    260,787
      Title losses and related
       claims                        55,462    29,644      141,325    108,961
      Depreciation and
       amortization                   6,962     8,360       21,823     32,413
      Interest                          756     1,433        2,847      4,369
                                        ---     -----        -----      -----
                                    481,562   436,317    1,276,246  1,344,032
     Loss before taxes and
      non-controlling interests     (21,571)  (39,652)     (72,034)  (124,683)
     Income tax expense
      (benefit)                         249   (11,269)       3,786    (45,557)
                                        ---   -------        -----    -------
     Net loss                       (21,820)  (28,383)     (75,820)   (79,126)
      Less net earnings
       attributable to
       noncontrolling interests       1,876     1,592        6,121      4,730
                                      -----     -----        -----      -----
      Net loss attributable to
       Stewart                      (23,696)  (29,975)     (81,941)   (83,856)
                                    =======   =======      =======    =======

    Net loss per share
     attributable to Stewart          (1.30)    (1.66)       (4.51)     (4.64)
                                      -----     -----        -----      -----
    Average number of basic
     shares (000)                    18,196    18,109       18,177     18,082
                                     ------    ------       ------     ------

    Segment information:

     Title revenues                 444,597   386,455    1,159,680  1,183,121
     Title pretax loss before
      noncontrolling interests      (27,199)  (35,118)     (82,517)  (112,425)

     REI revenues                    15,394    10,210       44,532     36,228
     REI pretax earnings
      (loss) before noncontrolling
      interests                       5,628    (4,534)      10,483    (12,257)

    Selected financial information:

      Cash provided (used) by
       operations                     4,151   (25,066)     (10,714)   (71,706)
      Title loss payments - net
       of recoveries                 38,732    30,809      110,190    100,272
      Other comprehensive
       earnings (loss)               10,291   (10,331)      19,450    (17,827)

    Number of title orders
     opened (000):
      July                             38.1      39.6
      August                           35.0      35.3
      September                        36.6      34.9
                                       ----      ----
        Quarter                       109.7     109.8
                                      =====     =====

    Number of title orders
     closed (000):
        Quarter                        88.5      78.4
                                       ====      ====

                                            September 30    Dec 31
                                               2009          2008
                                               ----          ----

    Stockholders' equity                      440,198      501,186
    Number of shares outstanding (000)         18,239       18,142
    Book value per share                        24.14        27.63

    BALANCE SHEETS (condensed)
    (In thousands of dollars)

                                             September 30   Dec 31
                                                2009         2008
                                                ----         ----
    Cash and cash equivalents                  96,445       76,558
     Cash and cash equivalents-statutory
      reserve funds                            12,276        9,688
                                               ------        -----
       Total cash and cash equivalents        108,721       86,246

     Short-term investments                    30,519       37,120
     Investments - statutory reserve funds    391,530      374,508
     Investments - other                       78,717      156,267
     Receivables - premiums from agencies      31,778       35,707
     Receivables - other                       81,394       87,895
     Allowance for uncollectible amounts      (19,675)     (17,504)
     Property and equipment                    71,134       83,633
     Title plants                              78,428       78,363
     Goodwill                                 212,763      210,901
     Intangible assets                          6,711        8,448
     Other assets                              66,933       84,105
     Investments - pledged, at fair value     221,405      222,684
                                              -------      -------
                                            1,360,358    1,448,373
                                            =========    =========


      Notes payable                            82,475      135,276
      Line of credit, secured by pledged
       investments                            221,405      222,684
      Accounts payable and accrued
       liabilities                             96,394      112,306
      Estimated title losses                  499,274      463,084
      Deferred income taxes                    20,612       13,837
                                               ------       ------

                                              920,160      947,187

    Contingent liabilities and commitments

    Stockholders' equity
      Common and Class B Common Stock and
       additional paid-in capital             145,439      143,811
      Retained earnings                       266,011      347,952
      Accumulated other comprehensive
       earnings                                19,743          293
      Treasury stock                           (4,330)      (4,097)
        Stockholders' equity attributable to   ------       ------
                                              426,863      487,959
      Noncontrolling interests                 13,335       13,227
                                               ------       ------
         Total stockholders' equity           440,198      501,186
                                              -------      -------

                                            1,360,358    1,448,373
                                            =========    =========