Due to rising mortgage rates, soaring home prices and low inventory, the title insurance industry is falling precipitously from the record highs achieved during the pandemic.
But Stewart Information Services Corporation, the smallest of the nation’s “Big Four” title insurers, has planned for this inevitability.
On its first quarter earnings call on Thursday, CEO Fred Eppinger highlighted the firm’s growth in Colorado as a prime example of how expanding in strategic markets has helped the company juice revenue and improve performance, even in a choppy market.
“In Colorado Springs we were a small operation,” he said. “We probably had only a marginal contribution and what would happen is we would get crushed during the first quarter because seasonally we didn’t have enough volume and we couldn’t adjust any of the resources there. Plus, we would be just one option in town and people would pick from a challenger because we didn’t have the breadth of operation. Now we are probably the leader on the purchase market in Colorado Springs, and the stability that comes with that is tremendous.”
According to Eppinger, Stewart’s recent merger and acquisition spree has helped the firm improve its scale in what it called “priority markets.” And its investment in technology support and innovation have helped the title insurer deliver consistent service to its customers, he said. In the first few weeks of 2022, Stewart acquired Nashville-based Homeland Title, as well as a majority interest in Houston-based Great American Title Company.
“The backdrop of rising interest rates, normal seasonality and uncertainty about the spring selling season is weighing on the start of 2022, but this is the market environment we have been preparing for,” Eppinger said on the call.
During the first quarter of 2022, Stewart saw the total number of title orders opened drop to 116,755 from 157,918 a year ago. Although the purchase category saw a small decrease – dropping by 2,300 orders – falling refinance volume was most responsible for reduced title volume.
Refinance title orders dropped by nearly 50% from Q1 2021 to Q1 2022, falling from 81,750 orders to 40,574 orders. Commercial was the only sector that saw an increase, rising from 3,569 opened orders during the first quarter of 2021 to 6,042 opened orders during the first quarter of 2022.
Despite these dips in volume, Stewart notched yet another strong quarter financially. In Q1 2022, the firm generated a total revenue of $853.9 million, up from $688.6 million a year ago, and saw net income rise to $57.9 million from $51.7 million during Q1 2021.
“The goal has always been to create a sustainable business that would succeed through all types of cycles and economic conditions,” Eppinger said. “We focused on improving margins, growth and our resiliency. During this time we have focused on enhancing the customer experience through technology investments that have meaningfully change our ease of use in our agency, lender and direct businesses. It wasn’t that long ago that Stewart routinely lost money during the first quarter.”
Stewart’s title segment saw a pretax income of $82.8 million during the first quarter of 2022, up from $77.1 million a year ago. Total direct title revenue came in as $317.8 million during Q1 up from $279.5 million a year ago. Revenue from non-commercial domestic title transactions rose slightly to $220.2 million from $216.0 million a year ago, while commercial domestic title revenue saw a sizable increase from $29.2 million during Q1 of 2021 to $56.4 million during the first quarter of 2022.
As the company has grown, however, so have its expenses. During Q1, the firm’s title segment loss expenses came in at $29.2 million, just above the $28.8 million in title loss expenses recorded a year ago. While Stewart’s real estate solutions segments generated a pretax income of $6.8 million up from $2.7 million a year ago, operating expenses rose 55% to $29.3 million. Corporate operating expenses also increased, rising to $8.9 million compared to $5.8 million a year prior.
Consolidated employee costs also saw a year-over-year increase during the first quarter, rising 21% to $35.6 million, attributable to increased salaries and employee benefits.
Despite the challenges the real estate and mortgage markets are facing, as a title firm, Stewart’s executives said they had taken the necessary measures to ride out what they called “a transitional period” in the market.
“We are confident in our ability to manage in this transitional period and we remain bullish in the long term prospects for the markets we operate in,” Eppinger said. “It is important to understand that even though the market has transitioned, our journey continues.”
Chief Financial Officer David Hisey added: “Our view is that [it’s] choppy right now — look at demographics and look at all the trends. But the next two years are still going to be very good years for title. So we still believe that there is still a relatively strong market position. We usually manage ourselves effectively and we will continue to do so.”
