Fitch Downgrades Stewart Title

Fitch Ratings, Chicago, has downgraded the insurer financial strength rating of Stewart Title Guaranty Co., Houston, from "A-" to "BBB+" and the issuer default rating of Stewart Information Services Corp., from "BBB" to "BBB-" citing a below average profitability relative to peers and declines in statutory surplus. Through the first half of 2009, Stewart's GAAP pretax operating margin was -7.7% compared to a peer average of 2.8%. Similarly, Stewart's statutory capital levels were down 13% since year-end compared to a dollar weighted peer average of positive 4%. In the past Stewart's ratings benefited from the assumption that the company's technology-related investments would allow it to show better margins than the competition during a down market, but Fitch said this has not been the case. Separately, Fitch downgraded the IDR of First American Corp., Santa Ana, Calif., from "BBB" to "BBB-" and the senior unsecured debt rating from "BBB-" to "BB+". The change in ratings "reflects a heightened scrutiny of the company's 47% debt to tangible capital ratio as of June 30, 2009 given the current stressful environment," Fitch said. FAF has long planned to spin-off its title and specialty insurance business from the information services business. The rating agency said an unfavorable result of the spin-off is that FAF would lose the benefits of the unregulated cash flows of the information solutions business.