10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-02658

STEWART INFORMATION SERVICES CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		74-1677330
(State or other jurisdiction of<br><br>incorporation or organization)		(I.R.S. Employer<br><br>Identification No.)
1360 Post Oak Blvd.,	Suite 100
Houston,	Texas	77056
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (713) 625-8100

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $1 par value per share	STC	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

☑	Large accelerated filer	☐	Non-accelerated filer	☐	Emerging growth company
☐	Accelerated filer	☐	Smaller reporting company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

On April 27, 2021, there were 26,811,242 outstanding shares of the issuer's Common Stock.

FORM 10-Q QUARTERLY REPORT

QUARTER ENDED MARCH 31, 2021

Item		Page
	PART I – FINANCIAL INFORMATION
1.	Financial Statements	3
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
3.	Quantitative and Qualitative Disclosures About Market Risk	27
4.	Controls and Procedures	28
	PART II – OTHER INFORMATION
1.	Legal Proceedings	29
1A.	Risk Factors	29
2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
5.	Other Information	29
6.	Exhibits	29
	Signature	31

As used in this report, “we,” “us,” “our,” "Registrant," the “Company” and “Stewart” mean Stewart Information Services Corporation and our subsidiaries, unless the context indicates otherwise.

Item 1. Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)


		2020
	(000 omitted, except per share)
Revenues
Title revenues:
Direct operations		198,283
Agency operations		242,030
Ancillary services		5,461
Operating revenues		445,774
Investment income		5,218
Net realized and unrealized gains (losses)		(11,091)
		439,901
Expenses
Amounts retained by agencies		199,366
Employee costs		135,652
Other operating expenses		71,858
Title losses and related claims		18,632
Depreciation and amortization		4,231
Interest		892
		430,631
Income before taxes and noncontrolling interests		9,270
Income tax expense		(1,896)
Net income		7,374
Less net income attributable to noncontrolling interests		2,197
Net income attributable to Stewart		5,177
Net income		7,374
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments		(11,442)
Change in net unrealized gains and losses on investments		(2,580)
Reclassification adjustment for realized gains and losses on investments		(80)
Other comprehensive loss, net of taxes:		(14,102)
Comprehensive income (loss)		(6,728)
Less net income attributable to noncontrolling interests		2,197
Comprehensive income (loss) attributable to Stewart		(8,925)
Basic average shares outstanding (000)		23,638
Basic earnings per share attributable to Stewart		0.22
Diluted average shares outstanding (000)		23,749
Diluted earnings per share attributable to Stewart		0.22

All values are in US Dollars.

See notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED BALANCE SHEETS

	As of March 31, 2021 (Unaudited)
	(000 omitted)
Assets
Cash and cash equivalents	412,763
Short-term investments	17,855
Investments in debt and equity securities, at fair value	682,799
Receivables:
Premiums from agencies	37,713
Trade and other	63,106
Income taxes	172
Notes	1,531
Allowance for uncollectible amounts	(5,393)
	97,129
Property and equipment:
Land	2,964
Buildings	22,617
Furniture and equipment	172,874
Accumulated depreciation	(144,723)
	53,732
Operating lease assets	110,586
Title plants, at cost	73,113
Investments on equity method basis	20,537
Goodwill	480,159
Intangible assets, net of amortization	38,912
Deferred tax assets	4,359
Other assets	50,862
	2,042,806
Liabilities
Notes payable	125,572
Accounts payable and accrued liabilities	212,774
Operating lease liabilities	123,121
Estimated title losses	509,541
Deferred tax liabilities	23,900
	994,908
Contingent liabilities and commitments
Stockholders’ equity
Common Stock ($1 par value) and additional paid-in capital	300,978
Retained earnings	733,973
Accumulated other comprehensive income (loss):
Foreign currency translation adjustments	(6,371)
Net unrealized gains on debt securities investments	15,959
Treasury stock – 352,161 common shares, at cost	(2,666)
Stockholders’ equity attributable to Stewart	1,041,873
Noncontrolling interests	6,025
Total stockholders’ equity (26,806,025 and 26,728,242 shares outstanding)	1,047,898
	2,042,806

All values are in US Dollars.

See notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Three Months Ended March 31,
	2021
	(000 omitted)
Reconciliation of net income to cash provided by operating activities:
Net income	57,122
Add (deduct):
Depreciation and amortization	6,430
Provision for bad debt	708
Net realized and unrealized (gains) losses	(3,274)
Amortization of net premium on debt securities investments	938
Payments for title losses less than (in excess of) provisions	12,234
Adjustments for insurance recoveries of title losses	(205)
(Increase) decrease in receivables – net	(3,513)
Increase in other assets – net	(7,869)
Decrease in accounts payable and other liabilities – net	(20,116)
Change in net deferred income taxes	2,007
Net income from equity method investments	(924)
Dividends received from equity method investments	764
Stock-based compensation expense	3,174
Other – net	(34)
Cash provided (used) by operating activities	47,442
Investing activities:
Proceeds from sales of investments in securities	3,051
Proceeds from matured investments in debt securities	42,836
Purchases of investments in securities	(47,881)
Net sales (purchases) of short-term investments	2,648
Purchases of property and equipment, and real estate – net	(5,721)
Cash paid for acquisition of businesses	(52,575)
Cash paid for acquisition of equity method investment	(16,080)
Other – net	131
Cash used by investing activities	(73,591)
Financing activities:
Proceeds from notes payable	178,975
Payments on notes payable	(154,910)
Distributions to noncontrolling interests	(3,844)
Repurchases of Common Stock	(1,935)
Proceeds from stock option exercises	61
Cash dividends paid	(8,840)
Purchase of remaining interest in consolidated subsidiary	(2,570)
Other - net	(777)
Cash provided (used) by financing activities	6,160
Effects of changes in foreign currency exchange rates	69
Change in cash and cash equivalents	(19,920)
Cash and cash equivalents at beginning of period	432,683
Cash and cash equivalents at end of period	412,763

All values are in US Dollars.

See notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

	Common Stock	Retained earnings	Accumulated other comprehensive income (loss)	Treasury stock	Noncontrolling interests	Total
	(000 omitted)
Three Months Ended March 31, 2021
Balance at December 31, 2020	27,080	688,819	17,022	(2,666)	7,294	1,012,406
Net income attributable to Stewart	—	54,236	—	—	—	54,236
Dividends on Common Stock ($0.33 per share)	—	(9,082)	—	—	—	(9,082)
Stock-based compensation	113	—	—	—	—	3,174
Stock repurchases	(37)	—	—	—	—	(1,935)
Stock option exercises	2	—	—	—	—	61
Purchase of remaining interest in consolidated subsidiary	—	—	—	—	(311)	(2,570)
Change in net unrealized gains and losses on investments, net of taxes	—	—	(9,156)	—	—	(9,156)
Reclassification adjustment for realized gains and losses on investments, net of taxes	—	—	(145)	—	—	(145)
Foreign currency translation adjustments, net of taxes	—	—	1,867	—	—	1,867
Net income attributable to noncontrolling interests	—	—	—	—	2,886	2,886
Distributions to noncontrolling interests	—	—	—	—	(3,844)	(3,844)
Balance at March 31, 2021	27,158	733,973	9,588	(2,666)	6,025	1,047,898
Three Months Ended March 31, 2020
Balance at December 31, 2019	24,062	564,392	(2,699)	(2,666)	6,453	753,759
Net income attributable to Stewart	—	5,177	—	—	—	5,177
Dividends on Common Stock ($0.30 per share)	—	(7,124)	—	—	—	(7,124)
Stock-based compensation	(20)	—	—	—	—	887
Stock repurchases	(10)	—	—	—	—	(393)
Change in net unrealized gains and losses on investments, net of taxes	—	—	(2,580)	—	—	(2,580)
Reclassification adjustment for realized gains and losses on investments, net of taxes, net of taxes	—	—	(80)	—	—	(80)
Foreign currency translation adjustments, net of taxes	—	—	(11,442)	—	—	(11,442)
Net income attributable to noncontrolling interests	—	—	—	—	2,197	2,197
Distributions to noncontrolling interests	—	—	—	—	(3,326)	(3,326)
Balance at March 31, 2020	24,032	562,445	(16,801)	(2,666)	5,324	737,075

All values are in US Dollars.

See notes to condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1

Interim financial statements. The financial information contained in this report for the three months ended March 31, 2021 and 2020, and as of March 31, 2021, is unaudited. This report should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission on March 1, 2021 (2020 Form 10-K).

A. Management’s responsibility. The accompanying interim financial statements were prepared by management, who is responsible for their integrity and objectivity. These financial statements have been prepared in conformity with the United States (U.S.) generally accepted accounting principles (GAAP), including management’s best judgments and estimates. In the opinion of management, all adjustments necessary for a fair presentation of this information for all interim periods, consisting only of normal recurring accruals, have been made. The Company’s results of operations for interim periods are not necessarily indicative of results for a full year and actual results could differ.

B. Consolidation. The condensed consolidated financial statements include all subsidiaries in which the Company owns more than 50% voting rights in electing directors. All significant intercompany amounts and transactions have been eliminated and provisions have been made for noncontrolling interests. Unconsolidated investees, in which the Company typically owns from 20% to 50% of the voting stock, are accounted for using the equity method.

C. Restrictions on cash and investments. The Company maintains investments in accordance with certain statutory requirements for the funding of statutory premium reserves. Statutory reserve funds are required to be fully funded and invested in high-quality securities and short-term investments. Statutory reserve funds are not available for current claim payments, which must be funded from current operating cash flow. Included in investments in debt and equity securities are statutory reserve funds of approximately $491.3 million and $496.6 million at March 31, 2021 and December 31, 2020, respectively. In addition, included within cash and cash equivalents are statutory reserve funds of approximately $25.6 million and $20.0 million at March 31, 2021 and December 31, 2020, respectively. Although these cash statutory reserve funds are not restricted or segregated in depository accounts, they are required to be held pursuant to state statutes. If the Company fails to maintain minimum investments or cash and cash equivalents sufficient to meet statutory requirements, the Company may be subject to fines or other penalties, including potential revocation of its business license. These funds are not available for any other purpose. In the event that insurance regulators adjust the determination of the statutory premium reserves of the Company’s title insurers, these restricted funds as well as statutory surplus would correspondingly increase or decrease.

D. Amendment to line of credit agreement. On March 23, 2021, in relation to its line of credit facility (as disclosed in Note 10 of the 2020 Form 10-K), the Company entered into a second amendment and restated credit agreement (Second Amendment), which increased the available unsecured line of credit commitment from $200 million to $350 million, and extended the maturity of the line of credit to March 2026. Other changes that the Second Amendment made effective were: the addition of new lender banks to the lenders group, the increase of the restricted payment limitation from $40 million to $100 million, the increase of the additional unsecured indebtedness provision from $100 million to $250 million, the removal of the annual capital expenditures limit, and the new definitions of EBITDA and fixed charge coverage ratio. The additional $50 million that the Company can request in addition to the line of credit commitment was not changed.

NOTE 2

Revenues. The Company's operating revenues, summarized by type, are as follows:


		2020
	(000 omitted)
Title insurance premiums:
Direct		138,283
Agency		242,030
Escrow fees		33,086
Appraisal management, abstract and other ancillary services		16,077
Other revenues		16,298
		445,774

All values are in US Dollars.

NOTE 3

Investments in debt and equity securities. The total fair values of the Company's investments in debt and equity securities are as follows:

	March 31, 2021
	(000 omitted)
Investments in:
Debt securities	615,445
Equity securities	67,354
	682,799

All values are in US Dollars.

As of March 31, 2021 and December 31, 2020, the net unrealized investment gains relating to investments in equity securities held were $9.9 million and $4.4 million, respectively (refer to Note 5).

The amortized costs and fair values of investments in debt securities are as follows:

	March 31, 2021	December 31, 2020
	Amortizedcosts	Amortized<br><br>costs	Fair<br><br>values
	(000 omitted)
Municipal	42,015	45,138	47,603
Corporate	276,870	285,962	305,450
Foreign	269,792	261,748	271,711
U.S. Treasury Bonds	6,567	6,564	6,622
	595,244	599,412	631,386

All values are in US Dollars.

Foreign debt securities consist of Canadian government and corporate bonds, United Kingdom treasury and corporate bonds, and Mexican government bonds.

Gross unrealized gains and losses on investments in debt securities are as follows:

	March 31, 2021	December 31, 2020
	Gains	Gains	Losses
	(000 omitted)
Municipal	2,077	2,465	—
Corporate	13,124	19,594	106
Foreign	6,572	10,024	61
U.S. Treasury Bonds	70	82	24
	21,843	32,165	191

All values are in US Dollars.

Debt securities as of March 31, 2021 mature, according to their contractual terms, as follows (actual maturities may differ due to call or prepayment rights):

	Amortizedcosts
	(000 omitted)
In one year or less	58,344
After one year through five years	311,487
After five years through ten years	194,553
After ten years	30,860
	595,244

All values are in US Dollars.

Gross unrealized losses on investments in debt securities and the fair values of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2021, were:

	Less than 12 months	More than 12 months		Total
	Losses	Losses	Fair values	Losses	Fair values
	(000 omitted)
Municipal	3	—	—	3	130
Corporate	835	—	—	835	27,208
Foreign	756	23	254	779	65,822
U.S. Treasury Bonds	1	24	1,022	25	1,131
	1,595	47	1,276	1,642	94,291

All values are in US Dollars.

The number of specific debt investment holdings held in an unrealized loss position as of March 31, 2021 was 47. Of these securities, 3 were in unrealized loss positions for more than 12 months. Since the Company does not intend to sell and will more likely than not maintain each investment security until its maturity or anticipated recovery, and no significant credit risk is deemed to exist, these investments are not considered as other-than-temporarily impaired. The Company believes its investment portfolio is diversified and expects no material loss to result from the failure to perform by issuers of the debt securities it holds. Investments made by the Company are not collateralized.

	Less than 12 months	More than 12 months		Total
	Losses	Losses	Fair values	Losses	Fair values
	(000 omitted)
Municipal	—	—	—	—	—
Corporate	106	—	—	106	13,518
Foreign	40	21	254	61	3,166
U.S. Treasury Bonds	—	24	1,022	24	1,022
	146	45	1,276	191	17,706

All values are in US Dollars.

NOTE 4

Fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal, or most advantageous, market for the asset or liability in an orderly transaction between market participants at the measurement date. Under U.S. GAAP, there is a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs when possible.

The three levels of inputs used to measure fair value are as follows:

•Level 1 – quoted prices in active markets for identical assets or liabilities;

•Level 2 – observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data; and

•Level 3 – unobservable inputs that are supported by little or no market activity and that are significant to the fair values of the assets or liabilities, including certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

As of March 31, 2021, financial instruments measured at fair value on a recurring basis are summarized below:

	Level 1	Fair value<br><br>measurements
	(000 omitted)
Investments in securities:
Debt securities:
Municipal	—	44,089
Corporate	—	289,159
Foreign	—	275,585
U.S. Treasury Bonds	—	6,612
Equity securities	67,354	67,354
	67,354	682,799

All values are in US Dollars.

As of December 31, 2020, financial instruments measured at fair value on a recurring basis are summarized below:

	Level 1	Fair value<br><br>measurements
	(000 omitted)
Investments in securities:
Debt securities:
Municipal	—	47,603
Corporate	—	305,450
Foreign	—	271,711
U.S. Treasury Bonds	—	6,622
Equity securities	53,001	53,001
	53,001	684,387

All values are in US Dollars.

As of March 31, 2021 and December 31, 2020, Level 1 financial instruments consist of equity securities. Level 2 financial instruments consist of municipal, governmental, and corporate bonds, both U.S. and foreign. In accordance with the Company’s policies and guidelines which incorporate relevant statutory requirements, the Company’s third-party registered investment manager invests only in securities rated as investment grade or higher by the major rating services, where observable valuation inputs are significant. The fair value of the Company's investments in debt and equity securities is primarily determined using a third-party pricing service provider. The third-party pricing service provider calculates the fair values using both market approach and model valuation methods, as well as pricing information obtained from brokers, dealers and custodians. Management ensures the reasonableness of the third-party service valuations by comparing them with pricing information from the Company's investment manager.

NOTE 5

Net realized and unrealized (losses) gains. Realized and unrealized gains and losses are detailed as follows:


		2020
	(000 omitted)
Realized gains		153
Realized losses		(690)
Net unrealized investment (losses) gains recognized on equity securities still held at end of period		(10,554)
		(11,091)

All values are in US Dollars.

Net realized losses for the first quarter 2021 included a $2.5 million loss related to a disposal of an equity method investment.

Investment gains and losses recognized related to investments in equity securities are as follows:


		2020
	(000 omitted)
Net investment gains (losses) recognized on equity securities during the period		(11,061)
Less: Net realized gains (losses) on equity securities sold during the period		(507)
Net unrealized investment gains (losses) recognized on equity securities still held at end of period		(10,554)

All values are in US Dollars.

Proceeds from sales of investments in securities are as follows:


		2020
	(000 omitted)
Proceeds from sales of debt securities		11,503
Proceeds from sales of equity securities		293
Total proceeds from sales of investments in securities		11,796

All values are in US Dollars.

NOTE 6

Goodwill and other intangibles. The summary of changes in goodwill is as follows.

	Title	Ancillary Services and Corporate
		(000 omitted)
Balances at December 31, 2020	361,433	70,044
Acquisitions	32,619	20,202
Purchase accounting adjustments	(4,397)	258
Balances at March 31, 2021	389,655	90,504

All values are in US Dollars.

During the first quarter 2021, goodwill acquired in the title segment was related to an acquisition of a title search and support services provider, while goodwill acquired in the ancillary services and corporate segment was related to an acquisition of an online notarization and closing solutions provider. The goodwill balances for both acquisitions were based on the Company's preliminary purchase accounting, which is expected to be finalized in the second half of 2021.

NOTE 7

Estimated title losses. A summary of estimated title losses for the three months ended March 31 is as follows:

	2021	2020
	(000 omitted)
Balances at January 1	496,275	459,053
Provisions:
Current year	28,407	18,521
Previous policy years	366	111
Total provisions	28,773	18,632
Payments, net of recoveries:
Current year	(3,606)	(2,214)
Previous policy years	(12,933)	(19,227)
Total payments, net of recoveries	(16,539)	(21,441)
Effects of changes in foreign currency exchange rates	1,032	(8,662)
Balances at March 31	509,541	447,582
Loss ratios as a percentage of title operating revenues:
Current year provisions	4.5	4.2	%
Total provisions	4.6	4.2	%

All values are in US Dollars.

Provisions in the first quarter 2021 increased compared to the first quarter 2020, primarily as a result of increased title revenues. Claim payments in the first quarter 2021 decreased compared to the same period in 2020, primarily due to lower payments on large and non-large claims relating to prior policy years; while the effect of changes in foreign currency exchange rates for the first quarters 2021 and 2020 were primarily influenced by the appreciation and depreciation, respectively, of the Canadian dollar against the U.S. dollar during those periods.

NOTE 8

Share-based payments. As part of its incentive compensation program for executives and senior management employees, the Company provides share-based awards, which include time-based restricted units, performance-based restricted stock units, and stock options. Each restricted stock unit represents a contractual right to receive a share of the Company's common stock. The time-based units vest on each of the first three anniversaries of the grant date, while the performance-based units vest upon achievement of certain financial objectives and employee service requirement over a period of approximately three years. The stock options vest on each of the first three anniversaries of the grant date at a rate of 20%, 30% and 50%, chronologically, and expire 10 years after the grant date. Each vested stock option can be exercised to purchase a share of the Company's common stock at the strike price set by the Company at the grant date. The compensation expense associated with the share-based awards is calculated based on the fair value of the related award and recognized over the corresponding vesting period.

During the first quarter 2021, the aggregate grant-date fair values of restricted stock unit and stock option awards were $8.3 million (155,000 units with an average grant price per unit of $53.24) and $1.3 million (139,000 options with an average grant price per option of $9.24 and exercise strike price of $53.24). During the first quarter 2020, the aggregate grant-date fair values of restricted stock unit and stock option awards were $2.4 million (60,000 units with an average grant price per unit of $39.76) and $3.4 million (650,000 options with an average grant price per option of $5.32 and exercise strike price of $39.76), respectively.

NOTE 9

Earnings per share. Basic earnings per share (EPS) attributable to Stewart is calculated by dividing net income attributable to Stewart by the weighted-average number of shares of Common Stock outstanding during the reporting periods. Outstanding shares of Common Stock granted to employees that are not yet vested (restricted shares) are excluded from the calculation of the weighted-average number of shares outstanding for calculating basic EPS. To calculate diluted EPS, the number of shares is adjusted to include the number of additional shares that would have been outstanding if restricted shares and units were vested and stock options were exercised. In periods of loss, dilutive shares are excluded from the calculation of the diluted EPS and diluted EPS is computed in the same manner as basic EPS.

The calculation of the basic and diluted EPS is as follows:


		2020
	(000 omitted, except per share)
Numerator:
Net income attributable to Stewart		5,177
Denominator (000):
Basic average shares outstanding		23,638
Average number of dilutive shares relating to options		—
Average number of dilutive shares relating to grants of restricted units and shares		111
Diluted average shares outstanding		23,749
Basic earnings per share attributable to Stewart		0.22
Diluted earnings per share attributable to Stewart		0.22

All values are in US Dollars.

NOTE 10

Contingent liabilities and commitments. In the ordinary course of business, the Company guarantees the third-party indebtedness of certain of its consolidated subsidiaries. As of March 31, 2021, the maximum potential future payments on the guarantees are not more than the related notes payable recorded in the condensed consolidated balance sheets. The Company also guarantees the indebtedness related to lease obligations of certain of its consolidated subsidiaries. The maximum future obligations arising from these lease-related guarantees are not more than the Company’s future lease obligations, as presented on the condensed consolidated balance sheets, plus lease operating expenses. As of March 31, 2021, the Company also had unused letters of credit aggregating $4.9 million related to workers’ compensation and other insurance. The Company does not expect to make any payments on these guarantees.

NOTE 11

Regulatory and legal developments. The Company is subject to claims and lawsuits arising in the ordinary course of its business, most of which involve disputed policy claims. In some of these lawsuits, the plaintiffs seek exemplary or treble damages in excess of policy limits. The Company does not expect that any of these ordinary course proceedings will have a material adverse effect on its consolidated financial condition or results of operations. The Company believes that it has adequate reserves for the various litigation matters and contingencies referred to in this paragraph and that the likely resolution of these matters will not materially affect its consolidated financial condition or results of operations.

The Company is subject to non-ordinary course of business claims or lawsuits from time to time. To the extent the Company is currently the subject of these types of lawsuits, the Company has determined either that a loss is not reasonably possible or that the estimated loss or range of loss, if any, will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

Additionally, the Company occasionally receives various inquiries from governmental regulators concerning practices in the insurance industry. Many of these practices do not concern title insurance. To the extent the Company is in receipt of such inquiries, it believes that, where appropriate, it has adequately reserved for these matters and does not anticipate that the outcome of these inquiries will materially affect its consolidated financial condition or results of operations.

The Company is subject to various other administrative actions and inquiries into its business conduct in certain of the states in which it operates. While the Company cannot predict the outcome of the various regulatory and administrative matters, it believes that it has adequately reserved for these matters and does not anticipate that the outcome of any of these matters will materially affect its consolidated financial condition or results of operations.

NOTE 12

Segment information. The Company reports two operating segments: title and ancillary services and corporate. The title segment provides services needed to transfer title to property in a real estate transaction and includes services such as searching, examining, closing and insuring the condition of the title to the property. In addition, the title segment includes home and personal insurance services and Internal Revenue Code Section 1031 tax-deferred exchanges. The ancillary services and corporate segment includes appraisal management services, search and valuation services, and online notarization and closing solutions, which are the principal offerings of ancillary services, expenses of the parent holding company, and certain other enterprise-wide overhead costs (net of centralized administrative services costs allocated to respective operating businesses).

Selected statement of income information related to these segments is as follows:


		2020
	(000 omitted)
Title segment:
Revenues		434,440
Depreciation and amortization		3,821
Income before taxes and noncontrolling interest		14,836
Ancillary services and corporate segment:
Revenues		5,461
Depreciation and amortization		410
Loss before taxes and noncontrolling interest		(5,566)
Consolidated Stewart:
Revenues		439,901
Depreciation and amortization		4,231
Income before taxes and noncontrolling interest		9,270

All values are in US Dollars.

The Company does not provide asset information by reportable operating segment as it does not routinely evaluate the asset position by segment.

Revenues generated in the United States and all international operations are as follows:


		2020
	(000 omitted)
United States		414,128
International		25,773
		439,901

All values are in US Dollars.

NOTE 13

Other comprehensive loss. Changes in the balances of each component of other comprehensive loss and the related tax effects are as follows:

	Three Months Ended March 31, 2021		Three Months Ended <br> March 31, 2020
	Before-Tax Amount	Net-of-Tax Amount	Before-Tax Amount	Tax Expense (Benefit)	Net-of-Tax Amount
	(000 omitted)
Net unrealized gains and losses on investments:
Change in net unrealized gains and losses on investments	(11,589)	(9,156)	(3,267)	(687)	(2,580)
Reclassification adjustment for realized gains and losses on investments	(184)	(145)	(101)	(21)	(80)
	(11,773)	(9,301)	(3,368)	(708)	(2,660)
Foreign currency translation adjustments	2,351	1,867	(13,659)	(2,217)	(11,442)
Other comprehensive loss	(9,422)	(7,434)	(17,027)	(2,925)	(14,102)

All values are in US Dollars.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

MANAGEMENT’S OVERVIEW

First quarter 2021 overview. We reported net income attributable to Stewart for the first quarter 2021 of $54.2 million ($2.01 per diluted share), compared to net income attributable to Stewart of $5.2 million ($0.22 per diluted share) for the first quarter 2020. Excluding net realized and unrealized gains and losses, Stewart’s first quarter 2021 net income of $51.7 million ($1.92 per diluted share) increased $38.4 million, or 289%, from $13.3 million ($0.56 per diluted share) in the first quarter 2020. First quarter 2021 pretax income before noncontrolling interests was $74.0 million compared to pretax income before noncontrolling interests of $9.3 million for the first quarter 2020.

First quarter 2021 results included $3.3 million of pretax net realized and unrealized gains, primarily related to net unrealized gains on fair value changes of equity securities investments recorded in the title segment. First quarter 2020 results included $11.1 million of pretax net realized and unrealized losses, which included $10.6 million of net unrealized losses on fair value changes of equity securities investments recorded in the title segment.

Summary results of the title segment are as follows ($ in millions, except pretax margin):

	For the Three Months<br>Ended March 31,
	2021		2020		% Change
Operating revenues	625.4		440.3		42	%
Investment income	3.9		5.2		(24)	%
Net realized and unrealized gains (losses)	3.2		(11.1)		129	%
Pretax income	77.1		14.8		420	%
Pretax margin	12.2	%	3.4	%

Title segment pretax income improved by $62.3 million, or 420%, while pretax margin increased 880 basis points to 12.2% in the first quarter 2021 compared to the prior year quarter. Title operating revenues grew $185.1 million, or 42%, as a result of improvements in direct title revenues of $81.2 million, or 41%, and gross independent agency revenues of $103.9 million, or 43%. Consistent with the increased title revenues, overall segment operating expenses increased $135.9 million, or 32%, in the first quarter 2021, with agency retention expenses and combined title employee costs and other operating expenses increasing 42% and 21%, respectively, from the first quarter 2020. Average independent agency remittance rate improved to 17.9% in the first quarter 2021, compared to 17.6% in the prior year quarter, while combined title employee costs and other operating expenses, as a percentage of title revenues, improved to 38.1% in the first quarter 2021, from 44.9% in the first quarter 2020.

Title loss expense increased $10.1 million, or 54%, in the first quarter 2021 compared to the prior year quarter, primarily as a result of increased title revenues. As a percentage of title revenues, the title loss expense in the first quarter 2021 was 4.6% compared to 4.2% from the prior year quarter.

The segment’s investment income decreased $1.3 million, or 24%, primarily as a result of lower interest rates applicable to our short-term and securities investments during the first quarter 2021 compared to the first quarter 2020. Net realized and unrealized gains and losses for the first quarters 2021 and 2020 consisted primarily of net unrealized gains and losses related to fair value changes of equity securities investments, as mentioned above.

Direct title revenues (refer to schedule in Results of Operations - Title Revenues section) increased in the first quarter 2021, primarily driven by the $92.9 million, or 61%, growth in non-commercial revenues resulting from increased transactions from both existing and recently-acquired title offices. Total residential purchase and refinancing closed orders in the first quarter 2021 increased 35% and 107%, respectively, compared to the prior year quarter. However, the non-commercial revenue increase was partially offset by lower commercial revenues in the first quarter 2021, resulting from lower commercial transaction size and volume compared to the first quarter 2020. Domestic commercial fee per file in the first quarter 2021 was approximately $8,700, compared to $11,400 from the first quarter 2020; while domestic residential fee per file was approximately $1,900, which is 5% lower than the prior year quarter’s average fee per file, primarily due to the higher mix of refinancing compared to purchase transactions in the first quarter 2021. Total international revenues increased $10.2 million, or 42%, primarily due to higher volumes in our Canadian operations.

Summary results of the ancillary services and corporate segment are as follows ($ in millions):

	For the Three Months<br>Ended March 31,
	2021	2020	% Change
Operating revenues	55.9	5.5	924	%
Pretax loss	(3.1)	(5.6)	45	%

The segment’s operating revenues increased $50.5 million in the first quarter 2021, compared to the prior year quarter, primarily due to revenues generated by recent acquisitions. The ancillary services operations generated pretax income of $2.7 million (which included $1.7 million of purchased intangibles amortization) in the first quarter 2021, compared to a pretax loss of $0.5 million in the prior year quarter. Net expenses attributable to parent company and corporate operations for the first quarters 2021 and 2020 were approximately $5.7 million and $5.1 million, respectively.

We continue to implement our strategy of improving operational performance through targeted growth, focused management, and broader technology and services offerings. During the first quarter 2021, we acquired A.S.K. Services, Inc., a title search and support services provider, consistent with our plan to strengthen and expand title production resources for our independent agency partners; while our acquisition of Signature Closers, LLC, an online notarization and closing solutions provider, further advances our digital strategy and vision of streamlining closings, while providing a best-in-class customer experience. We expect these acquisitions to further leverage our position in the evolving real estate closing experience and improve scale and synergies within our title and ancillary services businesses. We believe our solid operating results and liquidity position will allow us to continue investing and growing to maximize our operational potential.

COVID-19 pandemic. We continue to operate under our business continuity plan that we deployed in March 2020 when the pandemic started. While the distribution of vaccines is ramping up and states and certain businesses have reopened, our employees have not fully transitioned back to the workplace. We continue to take appropriate measures to protect the safety of all our employees and customers in carrying out our business operations, which is generally considered as essential business in the U.S. We are proactively taking advantage of digital tools and innovative solutions in facilitating real estate transactions when possible during this challenging environment. Currently, we are gathering information and insight from our associates, monitoring the evolving effects of the COVID-19 pandemic and guidance from health and governmental bodies, and evaluating the next phase of our return to workplace approach.

CRITICAL ACCOUNTING ESTIMATES

The preparation of the Company’s condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of certain assets, liabilities, revenues, expenses and related disclosures surrounding contingencies and commitments.

Actual results can differ from our accounting estimates. While we do not anticipate significant changes in our estimates, there is a risk that such changes could have a material impact on our consolidated financial condition or results of operations for future periods. During the three months ended March 31, 2021, we made no material changes to our critical accounting estimates as previously disclosed in Management’s Discussion and Analysis in the 2020 Form 10-K.

Operations. Our primary business is title insurance and settlement-related services. We close transactions and issue title policies on homes, commercial and other real properties located in all 50 states, the District of Columbia and international markets through policy-issuing offices, agencies and centralized title services centers. Our ancillary services and corporate segment includes our parent holding company expenses and certain enterprise-wide overhead costs, along with our ancillary services operations, which are principally appraisal management services, online notarization and closing services, and search and valuation services.

Factors affecting revenues. The principal factors that contribute to changes in operating revenues for our title and ancillary services and corporate segments include:

•mortgage interest rates;

•availability of mortgage loans;

•number and average value of mortgage loan originations;

•ability of potential purchasers to qualify for loans;

•inventory of existing homes available for sale;

•ratio of purchase transactions compared with refinance transactions;

•ratio of closed orders to open orders;

•home prices;

•consumer confidence, including employment trends;

•demand by buyers;

•premium rates;

•foreign currency exchange rates;

•market share;

•ability to attract and retain highly productive sales associates;

•departure of revenue-attached employees;

•independent agency remittance rates;

•opening of new offices and acquisitions;

•office closures;

•number and value of commercial transactions, which typically yield higher premiums;

•government or regulatory initiatives, including tax incentives and the implementation of the new integrated disclosure requirements;

•acquisitions or divestitures of businesses;

•volume of distressed property transactions;

•seasonality and/or weather; and

•outbreaks of diseases and related quarantine orders and restrictions on travel, trade and business operations.

Premiums are determined in part by the values of the transactions we handle. To the extent inflation or market conditions cause increases in the prices of homes and other real estate, premium revenues are also increased. Conversely, falling home prices cause premium revenues to decline. As an overall guideline, a 5% change in median home prices results in an approximately 3.7% change in title premiums. Home price changes may override the seasonal nature of the title insurance business. Historically, our first quarter is the least active in terms of title insurance revenues as home buying is generally depressed during winter months. Our second and third quarters are the most active as the summer is the traditional home buying season, and while commercial transaction closings are skewed to the end of the year, individually large commercial transactions can occur any time of year. On average, refinance title premium rates are 60% of the premium rates for a similarly priced sale transaction.

RESULTS OF OPERATIONS

Comparisons of our results of operations for the three months ended March 31, 2021 with the three months ended March 31, 2020 are set forth below. Factors contributing to fluctuations in the results of operations are presented in the order of their monetary significance, and we have quantified, when necessary, significant changes. Segment results are included in the discussions and, when relevant, are discussed separately.

Our statements on home sales and loan activity are based on published U.S. industry data from sources including Fannie Mae, the Mortgage Bankers Association (MBA), the National Association of Realtors® (NAR) and the U.S. Census Bureau. We also use information from our direct operations.

Operating environment. Existing home sales (seasonally-adjusted basis) in March 2021 fell 4% from February 2021, marking two months of consecutive declines, but grew 12% compared to March 2020. According to NAR, consumers are facing much higher homes prices, rising mortgage rates, and falling affordability and inventory, which all contributed to the lower existing homes sales in March 2021 versus earlier months. On non-seasonally-adjusted basis, existing home sales in the first quarter 2021 improved 14% from the same quarter last year. March 2021 median and average home prices increased approximately 17% and 12%, respectively, compared to March 2020 prices, with March 2021 being the 109th consecutive month of year-over-year median home price increase. In regard to new residential construction, U.S. housing starts in March 2021 improved 37% from March 2020 and 19% sequentially from February 2021, while newly issued building permits in March 2021 also improved 30% and 3% from March 2020 and February 2021, respectively.

According to Fannie Mae and MBA (averaged), one-to-four family mortgage originations improved 77% to approximately $1.2 trillion in the first quarter 2021 from $658 billion in the first quarter 2020, primarily driven by a 115% increase in refinancing originations resulting from the current lower mortgage interest rate environment. Purchase originations increased 24% in the first quarter 2021 compared to the first quarter 2020 as the real estate market continues to recover from the effects of the COVID-19 pandemic.

For the second quarter 2021, Fannie Mae and MBA are forecasting that existing and new home sales will improve 43% and 28%, respectively, compared to last year's second quarter. Total mortgage originations for the second quarter 2021 are expected to decline 3% compared to the second quarter 2020, primarily due to last year's surge in refinancing transactions resulting from lower interest rates and expectations of lower refinancing transactions in 2021 as interest rates are beginning to gradually increase. However, purchase lending transactions are predicted to improve 41% in the second quarter 2021 compared to last year's second quarter, partially offsetting the impact of reduced refinancing lending volumes. Compared to 2.95% in 2020, the average 30-year fixed mortgage interest rate is expected to increase to 3.35% in 2021.

Title revenues. Direct title revenue information is presented below:


		2020	Change	% Change
	( in millions)
Non-commercial
Domestic		132.8	83.2	63	%
International		19.1	9.7	51	%
		151.9	92.9	61	%
Commercial:
Domestic		41.4	(12.2)	(29)	%
International		5.0	0.5	10	%
		46.4	(11.7)	(25)	%
Total direct title revenues		198.3	81.2	41	%

All values are in US Dollars.

Direct title revenues improved in the first quarter 2021, compared to last year's first quarter, primarily driven by the $92.9 million, or 61%, increase in non-commercial revenues resulting from increased transactions from both existing and recently-acquired title offices. Total residential purchase and refinancing closed orders in the first quarter 2021 increased 35% and 107%, respectively, compared to the prior year quarter. However, the non-commercial revenue increase was partially offset by lower commercial revenues in the first quarter 2021, resulting from lower commercial transaction size and volume compared to the first quarter 2020. Domestic commercial fee per file in the first quarter 2021 was approximately $8,700, compared to $11,400 from the first quarter 2020; while domestic residential fee per file was approximately $1,900, which is 5 percent lower than the prior year quarter’s average fee per file, primarily due to the higher mix of refinancing compared to purchase transactions in the first quarter 2021. Total international revenues increased $10.2 million, or 42%, primarily due to higher volumes in our Canadian operations.

Orders information for the three months ended March 31 is as follows:


	2021	2020	Change	% Change
Opened Orders:
Commercial	3,569	4,153	(584)	(14)	%
Purchase	70,789	53,636	17,153	32	%
Refinance	81,750	64,189	17,561	27	%
Other	1,810	730	1,080	148	%
Total	157,918	122,708	35,210	29	%
Closed Orders:
Commercial	3,377	3,628	(251)	(7)	%
Purchase	45,483	33,715	11,768	35	%
Refinance	65,666	31,746	33,920	107	%
Other	1,175	444	731	165	%
Total	115,701	69,533	46,168	66	%

Gross revenues from independent agency operations increased $103.9 million, or 43%, in the first quarter 2021 compared to last year's first quarter, which was consistent with the improved real estate market trends in the first quarter 2021 and the continued return of agents after the termination of the proposed merger in the third quarter 2019. Agency revenues, net of retention, increased $19.3 million, or 45%, in the first quarter 2021 compared to the same period in 2020, generally in line with the gross agency revenue change. Refer further to the "Retention by agencies" discussion under Expenses below.

Ancillary services revenues. Ancillary services operating revenues increased to $55.9 million in the first quarter 2021, compared to $5.5 million in the first quarter 2020. The revenue growth was primarily due to revenues generated by recent acquisitions of appraisal management and online notarization and closing services companies, partially offset by lower valuation services revenues due to reduced capital market customer orders.

Investment income. Investment income for the first quarter 2021 decreased $1.3 million, or 24%, primarily as a result of lower interest rates applicable to our short-term and securities investments during the first quarter 2021 compared to the first quarter 2020.

Net realized and unrealized gains (losses). Refer to Note 5 to the condensed consolidated financial statements.

Expenses. An analysis of expenses is shown below:


			2020		Change	% Change
	( in millions)
Amounts retained by agencies			199.4		84.6	42	%
As a % of agency revenues		%	82.4	%
Employee costs			135.7		33.7	25	%
As a % of operating revenues		%	30.4	%
Other operating expenses			71.9		53.6	75	%
As a % of operating revenues		%	16.1	%
Title losses and related claims			18.6		10.1	54	%
As a % of title revenues		%	4.2	%

All values are in US Dollars.

Retention by agencies. Amounts retained by title agencies are based on agreements between agencies and our title underwriters. Amounts retained by independent agencies, as a percentage of revenues generated by them, averaged 82.1% for the first quarter 2021, as compared to 82.4% in the first quarter 2020. The average retention percentage may vary from period to period due to the geographical mix of agency operations, the volume of title revenues and, in some states, laws or regulations. Due to the variety of such laws or regulations, as well as competitive factors, the average retention rate can differ significantly from state to state. In addition, a high proportion of our independent agencies are in states with retention rates greater than 80%. We continue to focus on increasing profit margins in every state, increasing premium revenue in states where remittance rates are above 20%, and maintaining the quality of our agency network, which we believe to be the industry’s best, in order to mitigate claims risk and drive consistent future performance. While market share is important in our agency operations channel, it is not as important as margins, risk mitigation and profitability.

Employee costs. Consolidated employee costs increased $33.7 million, or 25%, in the first quarter 2021, compared to the same period in 2020, primarily due to higher salaries expense driven by a 12% higher average employee count, increased incentive compensation on improved overall operating results, and additional employee costs related to higher order volumes. As a percentage of total operating revenues, consolidated employee costs improved to 24.9% in the first quarter 2021 from 30.4% in the prior year quarter, which was primarily influenced by our continued focus on managing operating costs.

Employee costs in the title segment increased $28.8 million, or 22%, the first quarter 2021 compared to the first quarter 2020, primarily due to increased salaries expense driven by a higher average employee count, mostly from recent title office acquisitions, increased incentive compensation on improved title operating results, and additional employee costs related to higher order volumes. Employee costs in the ancillary services and corporate segment increased $4.9 million, or 98%, in the first quarter 2021 compared to the first quarter 2020, primarily due to increased average employee count driven by recent acquisitions in the ancillary services operations.

Other operating expenses. Other operating expenses include costs that are fixed in nature, costs that follow, to varying degrees, changes in transaction volumes and revenues (variable costs) and costs that fluctuate independently of revenues (independent costs). Costs that are fixed in nature include attorney and professional fees, third-party outsourcing provider fees, equipment rental, insurance, rent and other occupancy expenses, repairs and maintenance, technology costs, telecommunications and title plant expenses. Variable costs include appraiser and notary expenses, outside search and valuation fees, attorney fee splits, bad debt expenses, copy supplies, delivery fees, postage, premium taxes and title plant maintenance expenses. Independent costs include general supplies, litigation defense, business promotion and marketing and travel.

Consolidated other operating expenses increased $53.6 million, or 75%, in the first quarter 2021 compared to last year's first quarter. This increase was primarily due to increased appraisal and notary expenses by recently-acquired ancillary services businesses, higher outside title search and premium tax expenses on higher title revenues, and increased professional fees and rent expenses, partially offset by lower travel and marketing expenses. As a percentage of total operating revenues, consolidated other operating expenses for the first quarter 2021 increased to 18.4% compared to 16.1% in the first quarter 2020, primarily due to appraisal and notary costs related to our recently acquired ancillary services businesses.

Total variable costs increased $45.3 million, or 142%, in the first quarter 2021 compared to the same period in 2020, mainly due to higher appraisal and notary expenses by recently-acquired ancillary services businesses and increased outside search and premium taxes, consistent with higher operating revenues. Total costs that are fixed in nature increased $6.3 million, or 20%, in the first quarter 2021 compared to the same period in 2020, primarily due to increased professional fees, rent expense and technology costs. Independent costs increased $2.0 million, or 25%, in the first quarter 2021 compared to the same period in 2020, primarily due to higher office closures expenses, litigation-related accruals and bank fees, partially offset by lower travel and marketing expenses.

Title losses. Provisions for title losses, as a percentage of title operating revenues, were 4.6% in the first quarter 2021, compared to 4.2% in the first quarter 2020. Title loss expense increased $10.1 million, or 54%, in the first quarter 2021 compared to the prior year quarter, primarily as a result of increased title revenues. The title loss ratio in any given quarter can be significantly influenced by changes in new large claims incurred, escrow losses and adjustments to reserves for existing large claims.

The composition of title policy loss expense is as follows:


		2020	Change	% Change
	( in millions)
Provisions – known claims:
Current year		1.3	0.9	69	%
Prior policy years		12.6	0.7	6	%
		13.9	1.6	12	%
Provisions – IBNR
Current year		17.2	9.0	52	%
Prior policy years		0.1	0.3	300	%
		17.3	9.3	54	%
Transferred from IBNR to known claims		(12.6)	(0.7)	6	%
Total provisions		18.6	10.2	55	%

All values are in US Dollars.

Provisions for known claims arise primarily from prior policy years as claims are not typically reported until several years after policies are issued. Provisions - Incurred But Not Reported (IBNR) are estimates of claims expected to be incurred over the next 20 years; therefore, it is not unusual or unexpected to experience changes to those estimated provisions in both current and prior policy years as additional loss experience on policy years is obtained. This loss experience may result in changes to our estimate of total ultimate losses expected (i.e., the IBNR policy loss reserve). Current year provisions - IBNR are recorded on policies issued in the current year as a percentage of premiums earned (provisioning rate). As claims become known, provisions are reclassified from IBNR to known claims. Adjustments relating to large losses (those individually in excess of $1.0 million) may impact provisions either for known claims or for IBNR.

Total known claims provisions increased $1.6 million, or 12%, in the first quarter 2021 compared to the same period last year, primarily as a result of higher reported claims relating to current and prior year policies. Current year IBNR provisions in the first quarter 2021 increased $9.0 million, or 52%, compared to the first quarter 2020, primarily due to increased title premiums in 2021. As a percentage of title operating revenues, provisions - IBNR for the current policy year were 4.2% in the first quarter 2021, compared to with 3.9% in the first quarter 2020.

Cash claim payments decreased $4.9 million, or 23%, in the first quarter 2021 compared to the last year's first quarter, primarily due to lower payments on large and non-large claims relating to prior policy years. We continue to manage and resolve large claims prudently and in keeping with our commitments to our policyholders.

In addition to title policy claims, we incur losses in our direct operations from escrow, closing and disbursement functions. These escrow losses typically relate to errors or other miscalculations of amounts to be paid at closing, including timing or amount of a mortgage payoff, payment of property or other taxes and payment of homeowners’ association fees. Escrow losses also arise in cases of fraud, and in those cases, the title insurer incurs the loss under its obligation to ensure that an unencumbered title is conveyed. Escrow losses are recognized as expenses when discovered or when contingencies associated with them (such as litigation) are resolved and are typically paid less than 12 months after the loss is recognized.

Total title policy loss reserve balances are as follows:

	March 31, 2021
	( in millions)
Known claims	67.8
IBNR	441.7
Total estimated title losses	509.5

All values are in US Dollars.

The actual timing of estimated title loss payments may vary since claims, by their nature, are complex and paid over long periods of time. Based on historical payment patterns, the outstanding loss reserves are paid out within six years. As a result, the estimate of the ultimate amount to be paid on any claim may be modified over that time period. Due to the inherent uncertainty in predicting future title policy losses, significant judgment is required by both our management and our third party actuaries in estimating reserves. As a consequence, our ultimate liability may be materially greater or less than current reserves and/or our third party actuary’s calculated estimates.

Depreciation and amortization. Depreciation and amortization expenses increased $2.2 million, or 52%, in the first quarter 2021 compared to the first quarter 2020, primarily due to incremental intangible asset amortization and fixed asset depreciation expenses related to recent acquisitions.

Income taxes. Our effective tax rate, based on income before taxes and after deducting income attributable to noncontrolling interests, for the first quarter 2021 was 24% compared to 27% for the first quarter 2020. The lower effective tax rate in the first quarter 2021 was primarily due to increased year over year annualized pretax income and reductions in expected nondeductible expenses relative to pretax income in 2021.

LIQUIDITY AND CAPITAL RESOURCES

Our liquidity and capital resources reflect our ability to generate cash flow to meet our obligations to stockholders, customers (payments to satisfy claims on title policies), vendors, employees, lenders and others. As of March 31, 2021, our cash and investments, including amounts reserved pursuant to statutory requirements, aggregated $1.1 billion ($596.5 million, net of statutory reserves on cash and investments). Of our total cash and investments at March 31, 2021, $782.2 million ($518.7 million, net of statutory reserves) was held in the United States and the rest internationally, principally in Canada.

Cash held at the parent company totaled $32.5 million at March 31, 2021. As a holding company, the parent company is funded principally by cash from its subsidiaries in the form of dividends, operating and other administrative expense reimbursements and pursuant to intercompany tax sharing agreements. The expense reimbursements are paid in accordance with management agreements, approved by the Texas Department of Insurance (TDI), among us and our subsidiaries. In addition to funding operating expenses, cash held at the parent company is used for dividend payments to common stockholders and for stock repurchases, if any. To the extent such uses exceed cash available, the parent company is dependent on distributions from its regulated title insurance underwriter, Stewart Title Guaranty Company (Guaranty).

A substantial majority of our consolidated cash and investments as of March 31, 2021 was held by Guaranty and its subsidiaries. The use and investment of these funds, dividends to the parent company, and cash transfers between Guaranty and its subsidiaries and the parent company are subject to certain legal and regulatory restrictions. In general, Guaranty may use its cash and investments in excess of its legally-mandated statutory premium reserve (established in accordance with requirements under Texas law) to fund its insurance operations, including claim payments. Guaranty may also, subject to certain limitations, provide funds to its subsidiaries (whose operations consist principally of field title offices and ancillary services operations) for their operating and debt service needs.

We maintain investments in accordance with certain statutory requirements for the funding of statutory premium reserves. Statutory reserve funds are required to be fully funded and invested in high-quality securities and short-term investments. Statutory reserve funds are not available for current claim payments, which must be funded from current operating cash flow. Included in investments in debt and equity securities are statutory reserve funds of approximately $491.3 million and $496.6 million at March 31, 2021 and December 31, 2020, respectively. In addition, included within cash and cash equivalents are statutory reserve funds of approximately $25.6 million and $20.0 million at March 31, 2021 and December 31, 2020, respectively. As of March 31, 2021, our known claims reserve totaled $67.8 million and our estimate of claims that may be reported in the future, under generally accepted accounting principles, totaled $441.7 million. In addition to this, we had cash and investments (excluding equity method investments) of $421.3 million, which are available for underwriter operations, including claims payments, and acquisitions.

The ability of Guaranty to pay dividends to its parent is governed by Texas insurance law. The TDI must be notified of any dividend declared, and any dividend in excess of the statutory maximum of 20% of surplus (approximately $158.9 million as of December 31, 2020) would be, by regulation, considered extraordinary and subject to pre-approval by the TDI. Also, the Texas Insurance Commissioner may raise an objection to a planned distribution during the notification period. Guaranty’s actual ability or intent to pay dividends to its parent may be constrained by business and regulatory considerations, such as the impact of dividends on surplus and liquidity, which could affect its ratings and competitive position, the amount of insurance it can write and its ability to pay future dividends. During the three months ended March 31, 2021 and 2020, Guaranty paid dividends of $40.0 million and $30.0 million, respectively, to its parent.

As the parent company conducts no operations apart from its wholly-owned subsidiaries, the discussion below focuses on consolidated cash flows.

	Three Months Ended March 31,
	2021
	( in millions)
Net cash provided (used) by operating activities	47.4
Net cash used by investing activities	(73.6)
Net cash provided (used) by financing activities	6.2

All values are in US Dollars.

Operating activities. Our principal sources of cash from operations are premiums on title policies and revenue from title service-related transactions, ancillary services and other operations. Our independent agencies remit cash to us net of their contractual retention. Our principal cash expenditures for operations are employee costs, operating costs and title claims payments.

Net cash provided by operations in the first quarter 2021 was $47.4 million, compared to net cash used by operations of $11.4 million in the prior year quarter. The improvement in cash from operations was primarily driven by the higher net income and lower payments of claims and accounts payables. Although our business is labor intensive, we are focused on a cost-effective, scalable business model which includes utilization of technology, centralized back and middle office functions and business process outsourcing. We are continuing our emphasis on cost management, especially in light of the current economic environment due to the COVID-19 pandemic, specifically focusing on lowering unit costs of production and improving operating margins in our direct title and ancillary services businesses. Our plans to improve margins include additional automation of manual processes, and further consolidation of our various systems and production operations. We continue to invest in the technology necessary to accomplish these goals.

Investing activities. Net cash used by investing activities is primarily driven by proceeds from matured and sold investments, purchases of investments, capital expenditures and acquisition of title offices and other businesses. During the first quarter 2021, total proceeds from securities investments sold and matured were $45.9 million, compared to $30.6 million during the same period in 2020. Cash used for purchases of securities investments was $47.9 million during the first quarter 2021, compared to $30.7 million during the first quarter 2020.

We used $52.6 million and $1.4 million of cash for several acquisitions of businesses during the first quarter 2021 and 2020, respectively, and also used $16.0 million of cash during the first quarter 2021 in acquiring an equity method investment in a title company. During the first quarters 2021 and 2020, we used $5.7 million and $4.8 million, respectively, of cash for purchases of property and equipment. We maintain investment in capital expenditures at a level that enables us to implement technologies for increasing our operational and back-office efficiencies and to pursue growth in key markets.

Financing activities and capital resources. Total debt and stockholders’ equity were $125.6 million and $1,047.9 million, respectively, as of March 31, 2021. Payments on notes payable during the first quarters 2021 and 2020 of $154.7 million and $7.7 million, respectively, and notes payable additions of $154.0 million and $0.2 million, respectively, were related to short-term loan agreements in connection with our Section 1031 tax-deferred property exchange (Section 1031) business. During the first quarter 2021, we amended our line of credit agreement, resulting in an increase in the total line of credit commitment from our lenders from $200 million to $350 million (refer to Note 1-D for additional details on the amendment). At March 31, 2021, the outstanding balance of our line of credit facility was $125.6 million, which included the $25.0 million we drew from the facility during the first quarter 2021; while the available balance of the line of credit was $223.6 million, net of an unused $2.5 million letter of credit. At March 31, 2021, our debt-to-equity ratio, excluding our Section 1031 notes, was approximately 12.0%.

During the first quarter 2021, we paid total dividends of $8.8 million ($0.33 per common share), compared to the total dividends paid in the first quarter 2020 of $7.1 million ($0.30 per common share).

Effect of changes in foreign currency exchange rates. The effect of changes in foreign currency exchange rates on our cash and cash equivalents on the consolidated statements of cash flows was minimal during the first quarter 2021, compared to a net decrease of $3.5 million during the first quarter 2020. Our principal foreign operating unit is in Canada, and, on average, the value of the Canadian dollar relative to the U.S. dollar did not significantly change in 2021, while it depreciated in 2020.

***********

We believe we have sufficient liquidity and capital resources to meet the cash needs of our ongoing operations, including in the current economic and real estate environment created by the COVID-19 pandemic. However, we may determine that additional debt or equity funding is warranted to provide liquidity for achievement of strategic goals or acquisitions or for unforeseen circumstances. Other than scheduled maturities of debt, operating lease payments and anticipated claims payments, we have no material contractual commitments. We expect that cash flows from operations and cash available from our underwriters, subject to regulatory restrictions, will be sufficient to fund our operations, including claims payments. However, to the extent that these funds are not sufficient, we may be required to borrow funds on terms less favorable than we currently have or seek funding from the equity market, which may not be successful or may be on terms that are dilutive to existing stockholders.

Contingent liabilities and commitments. See discussion of contingent liabilities and commitments in Note 10 to the condensed consolidated financial statements.

Other comprehensive income (loss). Unrealized gains and losses on available-for-sale debt securities investments and changes in foreign currency exchange rates are reported net of deferred taxes in accumulated other comprehensive income (loss), a component of stockholders’ equity, until they are realized. During the first quarter 2021, net unrealized investment losses of $9.3 million, net of taxes, which increased our other comprehensive loss, were primarily related to a net decrease in the fair values of our overall bond securities investment portfolio mainly driven by the effect of rising interest rates. During the first quarter 2020, net unrealized investment losses of $2.7 million, net of taxes, which increased our other comprehensive loss, were primarily related to a net decrease in the fair values of our overall bond securities investment portfolio mainly driven by increased credit spreads.

Changes in foreign currency exchange rates, primarily related to our Canadian and United Kingdom operations, reduced our other comprehensive loss, net of taxes, by $1.9 million in the first quarter 2021; while they increased our other comprehensive loss, net of taxes, by $11.4 million for the same period in 2020.

Off-balance sheet arrangements. We do not have any material source of liquidity or financing that involves off-balance sheet arrangements, other than our contractual obligations under operating leases. We also routinely hold funds in segregated escrow accounts pending the closing of real estate transactions and have qualified intermediaries in tax-deferred property exchanges for customers pursuant to Section 1031 of the Internal Revenue Code. The Company holds the proceeds from these transactions until a qualifying exchange can occur. In accordance with industry practice, these segregated accounts are not included on the balance sheet. See Note 16 in our 2020 Form 10-K.

Forward-looking statements. Certain statements in this report 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 “may,” "expect," "anticipate," "intend," "plan," "believe," "seek," "will," "foresee" 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 volatility of economic conditions, including the duration and effects of the COVID-19 pandemic; adverse changes in the level of real estate activity; changes in mortgage interest rates, existing and new home sales, 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 or the need to strengthen our policy loss reserves; any effect of title losses on our cash flows and financial condition; the ability to attract and retain highly productive sales associates; the impact of vetting our agency operations for quality and profitability; independent agency remittance rates; changes to the participants in the secondary mortgage market and the rate of refinancing that affects the demand for title insurance products; regulatory non-compliance, fraud or defalcations by our title insurance agencies or employees; our ability to timely and cost-effectively respond to significant industry changes and introduce new products and services; the outcome of pending litigation; 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; our ability to access the equity and debt financing markets when and if needed; our ability to grow our international operations; seasonality and weather; 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 in Part I, Item 1A "Risk Factors" in our 2020 Form 10-K, and as maybe further updated and supplemented from time to time in our future Quarterly Reports on Form 10-Q, and our Current Reports on Form 8-K filed subsequently. All forward-looking statements included in this report are expressly qualified in their entirety by such cautionary statements. We expressly disclaim any obligation to update, amend or clarify any forward-looking statements contained in this report to reflect events or circumstances that may arise after the date hereof, except as may be required by applicable law.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes during the quarter ended March 31, 2021 in our investment strategies, types of financial instruments held or the risks associated with such instruments that would materially alter the market risk disclosures made in our 2020 Form 10-K.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures. Our principal executive officer and principal financial officer are responsible for establishing and maintaining disclosure controls and procedures. They evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2021, and have concluded that, as of such date, our disclosure controls and procedures are adequate and effective to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting. There was no change in our internal control over financial reporting during the quarter ended March 31, 2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 1. Legal Proceedings

See discussion of legal proceedings in Note 11 to the condensed consolidated financial statements included in Item 1 of Part I of this Report, which is incorporated by reference into this Part II, Item 1, as well as Item 3. Legal Proceedings, in our Annual Report on Form 10-K for the year ended December 31, 2020.

Item 1A. Risk Factors

Our operations and financial results are subject to various risks and uncertainties, including those described in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020. There have been no material changes to our risk factors during the three months ended March 31, 2021 since our Annual Report on Form 10-K for the year ended December 31, 2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no repurchases of our Common Stock during the three months ended March 31, 2021, except for repurchases of approximately 37,300 shares (aggregate purchase price of approximately $1.9 million) related to the statutory income tax withholding on the vesting of restricted share and unit grants to executives and senior management.

Item 5. Other Information

Book value per share. Our book value per share was $38.87 and $37.60 as of March 31, 2021 and December 31, 2020, respectively. As of March 31, 2021, our book value per share was based on approximately $1,041.9 million of stockholders’ equity attributable to Stewart and 26,806,025 shares of Common Stock outstanding. As of December 31, 2020, our book value per share was based on approximately $1,005.1 million of stockholders’ equity attributable to Stewart and 26,728,242 shares of Common Stock outstanding.

Item 6. Exhibits

Exhibit
3.1	—	Restated Certificate of Incorporation of the Registrant, dated April 28, 2016 (incorporated by reference in this report from Exhibit 3.1 of the Current Report on Form 8-K filed April 29, 2016)
3.2	—	Third Amended and Restated By-Laws of the Registrant, as of April 27, 2016 (incorporated by reference in this report from Exhibit 3.2 of the Current Report on Form 8-K filed April 28, 2016)
10.1†*	—	Restricted Stock Unit Award Agreement, effective March 10, 2021, by and between the Registrant and Frederick H. Eppinger
10.2†*	—	Restricted Performance Stock Unit Award Agreement, effective March 10, 2021, by and between the Registrant and Frederick H. Eppinger
10.3†*	—	Stock Option Agreement, effective March 10, 2021, by and between the Registrant and Frederick H. Eppinger
10.4†*	—	Restricted Stock Unit Award Agreement, effective March 10, 2021, by and between the Registrant and David C. Hisey
10.5†*	—	Restricted Performance Stock Unit Award Agreement, effective March 10, 2021, by and between the Registrant and David C. Hisey
10.6†*	—	Stock Option Agreement, effective March 10, 2021, by and between the Registrant and David C. Hisey
Exhibit
---	---	---
10.7†*	—	Restricted Stock Unit Award Agreement, effective March 10, 2021, by and between the Registrant and John L. Killea
10.8†*	—	Restricted Performance Stock Unit Award Agreement, effective March 10, 2021, by and between the Registrant and John L. Killea
10.9†*	—	Stock Option Agreement, effective March 10, 2021, by and between the Registrant and John L. Killea
10.10†*	—	Restricted Stock Unit Award Agreement, effective March 10, 2021, by and between the Registrant and Steven M. Lessack
10.11†*		Restricted Stock Unit Cliff Vest Award Agreement, effective March 10, 2021, by and between the Registrant and Steven M. Lessack
10.12†*	—	Restricted Performance Stock Unit Award Agreement, effective March 10, 2021, by and between the Registrant and Steven M. Lessack
10.13†*	—	Stock Option Agreement, effective March 10, 2021, by and between the Registrant and Steven M. Lessack
10.14†*	—	Restricted Stock Unit Award Agreement, effective March 10, 2021, by and between the Registrant and Tara S. Smith
10.15†*	—	Restricted Performance Stock Unit Award Agreement, effective March 10, 2021, by and between the Registrant and Tara S. Smith
10.16†*	—	Stock Option Agreement, effective March 10, 2021, by and between the Registrant and Tara S. Smith
31.1*	—	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	—	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	—	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*	—	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*	—	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*	—	XBRL Taxonomy Extension Schema Document
101.CAL*	—	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	—	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	—	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	—	XBRL Taxonomy Extension Presentation Linkbase Document	* Filed herewith
---
† Management contract or compensatory plan

SIGNATURE

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

May 4, 2021
Date		Stewart Information Services Corporation
---	---
	Registrant
By:	/s/ David C. Hisey
	David C. Hisey, Chief Financial Officer, Secretary and Treasurer

Document

STEWART INFORMATION SERVICES CORPORATION

STOCK UNIT AWARD AGREEMENT

THIS STOCK UNIT AWARD AGREEMENT (the “Award Agreement”) is hereby granted as of March 10, 2021 (the “Grant Date”) by Stewart Information Services Corporation, a Delaware corporation (the “Company”), to Frederick Eppinger (the “Participant”) pursuant to the Stewart Information Services Corporation 2020 Incentive Plan (the “Plan”), subject to the terms and conditions set forth therein and as set out in this Award Agreement. Capitalized terms used herein shall, unless otherwise required by the context, have the meaning ascribed to such terms in the Plan.

By action of the Committee, and subject to the terms of the Plan, the Participant is hereby granted Stock Units (the “Units”), each of which represent a contractual right that entitles the Participant potentially to receive a share of the Company’s Common Stock (each, a “Share”), provided all of the conditions for settlement of the Units have been satisfied, subject to the Plan and to the restrictions and risks of forfeiture as set forth in this Award Agreement.

NOW, THEREFORE, in consideration of the promises and the mutual covenants contained in this Award Agreement, the Company and the Participant agree as follows:

1.Grant. The Company grants to the Participant, upon the terms and conditions set forth in this Award Agreement and as set forth in the Plan 14,871 Units.

2.Vesting and Forfeiture.

a.Any Units that are not vested as of the date of the Participant’s termination of employment for any reason shall be automatically forfeited without any further action required to be taken by the Participant or the Company.

b.In general, the Units shall become vested on the dates set forth below (each, a “Vesting Date”), as to the specified percentage of the Units indicated:

Vesting Date	Incremental Vesting Percentage	Cumulative Vesting Percentage
First anniversary of the Grant Date	33⅓%	33⅓%
Second anniversary of the Grant Date	33⅓%	66⅔%
Third Anniversary of the Grant Date	33⅓%	100%

The vesting of the Participant’s Units, as set forth above, shall only occur if the Participant has remained continuously employed through the relevant Vesting Date.

c.Notwithstanding any other provision of this Award Agreement, in the event the Participant is terminated in connection with a Change in Control, the Participant shall be vested in the number of Units set forth in Section 1 as of the date of the Participant’s termination of employment.

d.Special Pro-Rata Vesting. The Units (if not already vested under any other provision of this Award Agreement) shall be vested pursuant to this Section 2(d)

immediately prior to the Participant’s termination of employment under any of the following circumstances (“Special Vesting Termination Events”):

i.Termination of the Participant’s employment due to Executive’s death;

ii.Termination of the Participant’s employment due to Executive’s Disability;

iii.Termination of the Participant’s employment by the Company without Cause;

iv.Termination of the Participant’s employment by the Participant for Good Reason (if the Participant’s employment agreement has provisions for severance pay benefits in such circumstances).

In order for the Participant to be eligible for special pro-rata vesting under this Section 2(d), the Participant must have been continuously employed for at least twenty-five percent (25%) of the period covered by the vesting schedule set forth in Section 2(a), unless stated otherwise under the terms of the Participant’s Employment Agreement, and the Participant must execute and not, thereafter, revoke, a full release of all claims that Executive may have against the Company, its Subsidiaries and affiliates, and all of their respective officers, employees, directors, and agents, and that shall include the Participant’s agreement not to disparage the Company and not to divulge any of the Company’s confidential information, in a form acceptable to the Company in a form satisfactory to the Committee (the “Release”).

e.Calculation of Special Pro-Rata Vesting. If the Participant is eligible for special pro-rata vesting under Section 2(d), vesting shall be calculated as follows:

i.Special Pro-rata Vesting shall be based on semi-annual time increments (e.g. 6, 12, 18, 24, 30 or 36 months) with time worked during the applicable incentive period rounded up to the nearest semi-annual time increment. For example, if Executive worked (6) months and four (4) days during the applicable incentive period, the semi-annual time increment will be 12 months. The calculation of Special Pro-Rata Vesting shall be determined by dividing the semi-annual time increment by the total months in the performance period.

ii.By way of hypothetical example only: (1) if Executive shall experience a Special Vesting Termination Event after having worked exactly 24 months of a 36-month incentive program, Executive would receive 66.67% of the applicable LTI Award. Alternatively, (2) if Executive shall experience a Special Vesting Termination Event after having worked 24 months and 1 day of a 36-month incentive program, Executive would receive 83.33% of the applicable LTI Award. The formula for calculating Special Pro-Rata Vesting based on the foregoing hypothetical examples is as follows:

Example 1: (24 / 36) = 66.67%

Example 2: (30 / 36) = 83.33%

i.The time of payment of LTI Awards subject to Special Pro-Rata Vesting shall occur as provided in the applicable LTI Awards.

f.Voluntary Retirement. Notwithstanding anything in this Section 2 to the contrary, the Participant’s Units shall be fully vested if the Participant is eligible to resign from employment with the Company and have that resignation treated as a Voluntary Retirement (as that term is defined in the Stewart Information Services Corporation Executive Voluntary Retirement Plan, or “EVRP”), provided the Participant satisfies all of the requirements of the EVRP to receive benefits under that plan.

3.Settlement of Vested Units. Vested Units shall generally be settled on or as soon as practicable following the Vesting Dates set forth in Section 2(b), and shall be settled by the delivery of Shares corresponding to the portion of the Units that are indicated as being vested on each of the Vesting Dates. Notwithstanding anything herein to the contrary, the accelerated vesting of Units that may occur based on the circumstances of the Participant’s termination of employment, or eligibility for Voluntary Retirement, shall not have any impact on the settlement date for the Units, so that no acceleration of settlement or payment occurs as a result of any such change in vesting. Settlement of Units shall be contingent on the Participant making appropriate arrangements for payment of amounts required to be withheld for federal, state and local income and wage taxes, and the Company shall also have the right to withhold or cancel Units or Shares that are otherwise to be delivered on settlement of Units so as to enable the Company to comply with its withholding obligations (and any such cancellation of withholding of Units or Shares shall be deemed to be a taxable distribution of Shares and a repurchase of such Shares for federal income tax purposes at the time that occurs). In addition, in the event any dividends are paid to shareholders during the period following the Grant Date and up to the delivery of any Shares, the Participant shall be entitled to a payment, at the same time the Shares are delivered to the Participant, equal to the amount that would have been paid as dividends to the Participant had the Participant held the Shares during that period (“Dividend Equivalents”). The Committee shall have the right to determine whether the Dividend Equivalents shall be paid in cash or in the form of a distribution of additional shares of Common Stock having the same value and to determine whether to deem such dividends to have been reinvested in shares at the time the dividends were paid.

Social Security and Medicare) at the time of vesting and the Company shall be entitled to cancel vested Units as a means to cover the Company’s wage withholding obligations that arise on vesting. Vesting is not, however, intended generally to be a taxable event for purposes of federal income taxation or Code Section 409A. Because the time of settlement or payment is, in all cases, fixed by reference to a specified schedule of payments that is not subject to acceleration, except for the cancellation of Units for withholding purposes, which is permissible under Code Section 409A, all requirements of Code Section 409A are intended to be met, and this Award Agreement shall be interpreted in a manner consistent with the Company’s intent to satisfy all applicable requirements of Code Section 409A.

5.Employment. Nothing in the Plan or in this Award Agreement shall confer upon the Participant any right to be continued as an employee of the Company or interfere in any way with the right of the Company to remove the Grantee as an employee at any time for any cause.

6.Binding Effect. This Award Agreement shall be binding upon and shall inure to the benefit of any successor of the Company, but except as provided above, the Shares subject to this Award Agreement shall not be assigned or otherwise disposed of by the Participant.

7.The Plan. This Award Agreement is subject to the terms and conditions of the Plan. In the event of a conflict between the Plan and this Agreement, the terms of the Plan shall control.

IN WITNESS WHEREOF, this Award Agreement, effective March 10, 2021, has been entered into and executed on this day of March 16, 2021.

STEWART INFORMATION SERVICES CORPORATION

By: /s/ Thomas G. Apel

Its Chairman of the Board

ACKNOWLEDGED

/s/ Frederick H. Eppinger

PARTICIPANT

Document

STEWART INFORMATION SERVICES CORPORATION

RESTRICTED STOCK UNIT AGREEMENT

THIS RESTRICTED PERFORMANCE UNIT AGREEMENT (the “Award Agreement”) is hereby granted as of March 10, 2021 (the “Grant Date”) by Stewart Information Services Corporation, a Delaware corporation (the “Company”), to Frederick Eppinger (the “Participant”) pursuant to the Stewart Information Services Corporation 2020 Incentive Plan (the “Plan”), and subject to the terms and conditions set forth therein and as set out in this Award Agreement. Capitalized terms used herein shall, unless otherwise required by the context, have the meaning ascribed to such terms in the Plan or as set forth herein.

By action of the Committee, and subject to the terms of the Plan, the Participant is hereby granted Restricted Stock Units as described in Article VII of the Plan, subject to the terms of the Plan and to the provisions set forth in this Award Agreement.

NOW, THEREFORE, in consideration of the promises and the mutual covenants contained in this Award Agreement, the Company and the Participant agree as follows:

1.Grant. The Company hereby grants to the Participant, upon the termsa and conditions set forth in this Award Agreement and as set forth in the Plan, 14,871 Restricted Stock Units (the “Units”), representing a contractual right of the Participant potentially to receive shares of Common Stock (“Shares”). The number of Shares to be delivered at settlement, if any, shall be determined by reference to the number of Units that are deemed vested and to be settled, provided all of the conditions for settlement of the Units have been satisfied and subject to the terms and conditions of the Plan and this Award Agreement.

2.Performance Criteria. The Units subject to this Award Agreement shall be earned and vested based on the satisfaction of the Performance Restriction and the Time-Based Restriction, each of which is described below.

a.Performance Restriction

The Performance Restriction shall be satisfied based on three separate Performance Periods, as provided in the table below. Each “Performance Period” shall be a designated calendar year and, taken together, the three Performance Periods make up a three-year period known as the “Measurement Period”, which starts on January 1, 2021 and ends on December 31, 2023.

In order for the Units scheduled to vest during a Performance Period to satisfy the Performance Restriction, the Committee must determine that the Company has achieved 6.75% or greater Pre-Tax Margin (defined below) in at least two calendar quarters during such Performance Period. This determination shall occur during the ninety (90) day period following the end of each Performance Period.

Performance Period	% of Restricted Stock Units
January 1, 2021 to December 31, 2021	33.33%
January 1, 2022 to December 31, 2022	33.33%
January 1, 2023 to December 31, 2023	33.34%

For purposes of this Agreement, the following definitions shall apply:

i.“Pre-Tax Margin” is the amount calculated by dividing (i) Modified Pre-Tax Profits, by (ii) Modified Gross Revenues.

ii.“Modified Pre-Tax Profits” is “Income before taxes and non controlling interests”, as reported in the 10-Q/10-K, as modified by the Committee in its sole discretion, as necessary to remove the effect of investment and other gains (losses), as well as the effects of non-recurring, unusual and/or extraordinary items (in each event as determined by the Committee).

iii.“Modified Gross Revenues” is Total Revenues as reported in the 10-Q/10-K, as modified by the Committee in its sole discretion, as necessary to remove the effect of investment and other gains (losses), as well as the effects of non-recurring, unusual and/or extraordinary items (in each event as determined by the Committee).

b.Time-Based Restriction

Except as provided in Section 3 below, the Time-Based Restriction will be satisfied if the Participant remains continuously employed by the Company or one of its Affiliates between (i) the Grant Date, and (ii) December 31, 2023.

3.Vesting and Forfeiture.

a.A Participant shall be vested in a Unit on the date that both the Performance Restriction and the Time-Based Restriction have been satisfied. The number of Units that are treated as vested under this Agreement shall be determined after the end of the Measurement Period, based on the achievement of the performance criteria described in Section 2, and subject in all regards to such other discretion by action of the Committee as permitted under the Plan’s terms.

i.Notwithstanding any provision of this Agreement or the Plan, if the Company does not satisfy the Performance Requirement for a Performance Period, any Units scheduled to become vested for such Performance Period shall be forfeited effective as of the last day of the Performance Period.

ii.Except as expressly provided in Section 3(c) below, any Units that are not vested as of the date of the Participant’s termination of employment for any reason shall be automatically forfeited without any further action required to be taken by the Participant or the Company.

iii.Except as otherwise provided herein or at the discretion of the Committee, the Units are not deemed vested until after the Measurement Period has ended and settlement of the Units by the delivery of Shares has occurred.

b.Notwithstanding any other provision of this Award Agreement, and except as provided in Section 2(a)(i) above, in the event the Participant is terminated in connection with a Change in Control, the Participant shall be vested in the number of Units set forth in Section 1 as of the date of the Participant’s termination of employment.

c.Waiver of Continued Employment Requirement. The general requirement that the Participant be satisfying the Time-Based Restriction by being continuously employed through the date the Units are settled (the “Employment Requirement”) shall be waived to the extent provided in this Section 2(c), subject, however, in all regards, to the Committee’s discretionary authority as provided under the Plan. Specifically, the Employment Requirement shall not be applicable in the following circumstances (“Special Circumstances”):

i.The Participant’s termination of employment under circumstances where the Participant is eligible for benefits under the Company’s Executive Voluntary Retirement Plan;

ii.Termination of the Participant’s employment due to Executive’s death;

iii.Termination of the Participant’s employment due to Executive’s Disability;

iv.Termination of the Participant’s employment by the Company without Cause; or

v.Termination of the Participant’s employment by the Participant by Executive for Good Reason (but only in circumstances where the Participant’s employment agreement provides for severance pay benefits on a resignation for Good Reason.

In order for the Participant to receive any Shares with respect to Unit following the occurrence of any of the above Special Circumstances, the Participant must execute and not, thereafter, revoke, a full release of all claims that Executive may have against the Company, its Subsidiaries and affiliates, and all of their respective officers, employees, directors, and agents, and that shall include the Participant’s agreement not to disparage the Company and not to divulge any of the Company’s confidential information, in a form acceptable to the Company in a form satisfactory to the Committee (the “Release”)

d.Calculation of Special Pro-Rata Vesting. If the Participant is eligible for special pro-rata vesting under Section 2(c), vesting shall be calculated as follows:

i.Special Pro-rata Vesting shall be based on semi-annual time increments (e.g. 6, 12, 18, 24, 30 or 36 months) with time worked during the

applicable incentive period rounded up to the nearest semi-annual time increment. For example, if Executive worked (6) months and four (4) days during the applicable incentive period, the semi-annual time increment will be 12 months. The calculation of Special Pro-Rata Vesting shall be determined by dividing the semi-annual time increment by the total months in the performance period.

Example 1: (24 / 36) = 66.67%

Example 2: (30 / 36) = 83.33%

i.The time of payment of LTI Awards subject to Special Pro-Rata Vesting shall occur as provided in the applicable LTI Awards.

e.Notwithstanding anything herein to the contrary, in the event the Participant is terminated for Cause, the Participant’s rights to any payments otherwise due under this Award Agreement are forfeited in their entirety.

4.Status of Units. The Units subject to this Award Agreement are not intended to constitute property for purposes of Section 83 of the Code. The Units represent a right to receive a payment, in the form Shares, at the time the Units are settled.

5.Time of Payment/Settlement. In all cases, Units that are vested and settled under the terms of this Award Agreement shall be settled during the calendar year following the end of the Measurement Period, with such payment occurring as soon as practicable following the determination of the extent to which the performance criteria have been attained for the final Performance Period of the Measurement Period. In addition, in the event any dividends are paid to shareholders during the Measurement Period or thereafter prior to the settlement of the Units, the Participant shall be entitled to a payment equal to the amount that would have been paid as dividends to the Participant had the Participant held the Shares actually delivered to the Participant throughout that period (“Dividend Equivalents”). The Committee shall have the right to determine whether the Dividend Equivalents shall be paid in cash or in the form of a distribution of additional shares of Common Stock having the same value and to determine whether to deem such dividends to have been reinvested in shares at the time the dividends were paid.

6.Employment. Nothing in the Plan or in this Award Agreement shall confer upon the Participant any right to be continued as an employee of the Company or interfere in any

way with the right of the Company to remove the Grantee as an employee at any time for any cause.

7.Binding Effect. This Award Agreement shall be binding upon and shall inure to the benefit of any successor of the Company, but except as provided above, the Units subject to this Award Agreement shall not be assigned or otherwise disposed of by the Participant.

8.The Plan. This Award Agreement is subject to the terms and conditions of the Plan. In the event of a conflict between the Plan and this Agreement, the terms of the Plan shall control.

IN WITNESS WHEREOF, this Award Agreement, effective March 10, 2021, has been entered into and executed on this day of March 16, 2021.

STEWART INFORMATION SERVICES CORPORATION

By: /s/ Thomas G. Apel

Its Chairman of the Board

ACKNOWLEDGED

/s/ Frederick H. Eppinger

PARTICIPANT

Document

STEWART INFORMATION SERVICES CORPORATION

STOCK OPTION AGREEMENT

Grant Date: March 10, 2021

Name of Optionee: Frederick Eppinger

Number of Options: 43,987

Type of Option: Nonqualified Option

Exercise Price: $53.24, which is equal to the Fair Market Value of a share of common stock of Stewart Information Services Corporation, as of the Grant Date (a “Common Share”), as determined in accordance with the Stewart Information Services Corporation 2020 Incentive Plan (the “Plan”), as the same may be amended from time to time, and herein.

Expiration Date: March 10, 2031

THIS STOCK OPTION AGREEMENT (the “Award Agreement”) is hereby granted as of March 10, 2021 (the “Grant Date”) by Stewart Information Services Corporation, a Delaware corporation (the “Company”), to Optionee pursuant to the Plan’s terms, and subject to the terms and conditions set forth therein and as set out in this Award Agreement. Capitalized terms used herein shall, unless otherwise required by the context, have the meaning ascribed to such terms in the Plan.

NOW, THEREFORE, in consideration of the promises and the mutual covenants contained in this Award Agreement, the Company and the Optionee agree as follows:

1.Grant. The Company grants the Options to the Optionee, upon the terms and conditions set forth in this Award Agreement and as set forth in the Plan.

2.Exercise Period; Vesting.

a.Vesting Schedule. On each vesting date set forth below, the Optionee’s rights with respect to the number of Common Shares that corresponds to such vesting date, as specified in the chart below, shall become vested and may be exercised, provided that the Optionee remains in continuous service through the relevant vesting date, and except as otherwise determined by the Committee in its sole discretion or as otherwise provided in this Agreement or the Plan.

Vesting Date	Percentage of Common Shares Vested	Number of Common Shares Vested
First anniversary of the Grant Date	20%	8,797
Second anniversary of the Grant Date	30%	13,196
Third anniversary of the Grant Date	50%	21,994

a.Notwithstanding any other provision of this Award Agreement, in the event the Optionee is terminated without Cause during the twenty-four (24) month period immediately following a Change in Control, the Optionee shall be fully vested in the Common Shares subject to this Option as of the Optionee’s termination date.

b.Expiration. The Option shall vest and become exercisable on the vesting dates set forth above and shall expire as of the Expiration Date.

3.Termination of Employment/Service. Unless stated otherwise under the terms of the Optionee’s Employment Agreement, upon any termination of the Optionee’s employment or service, the Option shall be treated as provided in this Section 3.

a.Termination due to Death or Disability. If the Optionee’s employment or service is terminated as a result of such Participant’s death or disability (as determined by the Committee), the unvested portion of the Option shall expire upon such termination of employment or service, and the Optionee may exercise the vested portion of the Option, but only within such period of time ending on the earlier of (i) one year following such termination of employment or service, or (ii) the Expiration Date.

b.Termination for Reasons Other Than Death, Disability or Cause. If the Optionee’s employment or service is terminated for any reason other than such Optionee’s death or disability, and other than such Optionee’s termination of employment or service for Cause, the unvested portion of the Option shall expire upon such termination of employment or service, and the Optionee may exercise the vested portion of the Option, but only within such period of time ending on the earlier of (i) 60 days following such termination of employment or service, or (ii) the Expiration Date.

c.Termination for Cause. If the Optionee’s employment or service is terminated for Cause, the Option (whether vested or unvested) shall immediately terminate and cease to be exercisable.

d.Extension of Termination Date. If following the Optionee’s termination of employment or service for any reason the exercise of the Option is prohibited because the exercise of the Option would violate applicable securities laws, then the expiration of the Option shall be extended to a date that is thirty (30) calendar days following the date such exercise would no longer violate applicable securities laws (so long as such extension shall not violate Section 409A of the Code);

provided, that, in no event shall such expiration date be extended beyond the Expiration Date.

4.Manner of Exercise.

a.Method of Exercise. To exercise the Option, the Optionee (or in the case of exercise after the Optionee’s death or incapacity, the Optionee’s executor, administrator, heir or legatee, as the case may be) must deliver to the Company a written or electronic notice of exercise in the manner designated by the Committee for such purpose. Any such notice of exercise shall be accompanied by payment of the Exercise Price.

b.Payment of Exercise Price. The Exercise Price shall be payable (i) in cash, check, cash equivalent and/or Common Shares valued at the Fair Market Value at the time the Option is exercised (including, pursuant to procedures approved by the Committee, by means of attestation of ownership of a sufficient number of Common Shares in lieu of actual delivery of such shares to the Company), provided that such Common Shares are not subject to any pledge or other security interest and are Mature Shares; or (ii) by one of the following methods: (A) if the Committee has adopted a formal procedure allowing any participant to deliver other property having a Fair Market Value on the date of exercise equal to the Exercise Price, through the delivery of such property, (B) if there is a public market for the Common Shares at such time, by means of a broker-assisted “cashless exercise” pursuant to which the Company is delivered a copy of irrevocable instructions to a stockbroker to sell the Common Shares otherwise deliverable upon the exercise of the Option and to deliver promptly to the Company an amount equal to the Exercise Price, or (C) by a “net exercise” method whereby the Company withholds from the delivery of the Common Shares for which the Option was exercised that number of Common Shares having a Fair Market Value equal to the aggregate Exercise Price for the Common Shares for which the Option was exercised.

c.Withholding. Prior to the issuance of shares upon the exercise of the Option, the Optionee must make arrangements satisfactory to the Company to pay or provide for any applicable federal, state and local withholding obligations of the Company. The Company or an Affiliate has the right to withhold from any compensation paid to the Optionee the amount of any required withholding taxes and to take any other such actions as may be necessary in the opinion of the Company or the Committee to satisfy all obligations for the payment of such withholding taxes. The Optionee may satisfy any federal, state or local tax withholding obligation by any of the following means, or by a combination of such means, (i) tendering a cash payment, (ii) if the Committee has adopted a formal procedure allowing any participant to authorize the Company to withhold Common Shares from the Common Shares otherwise issuable or deliverable to the Optionee as a result of the vesting of the Option (provided, however, that no Common Shares shall be withheld with a value exceeding the maximum amount of tax required to be withheld by law), issuing such authorization, or (iii) delivering to the Company previously owned and

unencumbered Common Shares. Notwithstanding the foregoing, in the event the Optionee fails to provide timely payment of all sums required to satisfy any applicable federal, state and local withholding obligations in respect of the Option, the Company shall treat such failure as an election by the Optionee to satisfy all or any portion of the Optionee’s required payment obligation pursuant to Section 4.3(b) above.

d.Issuance of Shares. Provided that the exercise notice and payment are in form and substance satisfactory to the Company, the Company shall issue the Common Shares registered in the name of the Optionee, the Optionee’s authorized assignee, or the Optionee’s legal representative, and shall deliver certificates representing the shares with the appropriate legends affixed thereto.

5.Status of Options. The Options subject to this Award Agreement are only a contractual right of the Optionee potentially to receive Common Shares corresponding to the number of Options granted to the Optionee.

6.No Rights to Continued Employment/Service; No Rights as Shareholder. Nothing in the Plan or in this Award Agreement shall confer upon the Optionee any right to be continued as an employee of the Company or interfere in any way with the right of the Company to remove the Optionee as an employee at any time for any cause. The Optionee shall not have any rights as a shareholder with respect to any Common Shares subject to the Option prior to the date of exercise of the Option.

Tax Liability and Withholding. Notwithstanding any action the Company takes with respect to any or all income tax, social insurance, payroll tax, or other tax-related withholding (“Tax-Related Items”), the ultimate liability for all Tax-Related Items is and remains the Optionee’s responsibility and the Company (i) makes no representation or undertakings regarding the treatment of any Tax-Related Items in connection with the grant, vesting, or exercise of the Option or the subsequent sale of any shares acquired on exercise; and (ii) does not commit to structure the Option to reduce or eliminate the Optionee’s liability for Tax-Related Items.

7.Binding Effect. This Award Agreement shall be binding upon and shall inure to the benefit of any successor of the Company, but except as provided above, the Options subject to this Award Agreement shall not be assigned or otherwise disposed of by the Optionee.

8.The Plan. This Award Agreement is subject to the terms and conditions of the Plan. In the event of a conflict between the Plan and this Agreement, the terms of the Plan shall control.

9.Severability. The invalidity or unenforceability of any provision of the Plan or this Agreement shall not affect the validity or enforceability of any other provision of the Plan or this Agreement, and each provision of the Plan and this Agreement shall be severable and enforceable to the extent permitted by law.

10.Discretionary Nature of Plan. The Plan is discretionary and may be amended, cancelled or terminated by the Company at any time, in its discretion. The grant of the Option in this Agreement does not create any contractual right or other right to receive any Options or other Awards in the future. Future Awards, if any, will be at the sole discretion of the Company. Any amendment, modification, or termination of the Plan shall not constitute a change or impairment of the terms and conditions of the Optionee’s employment with the Company.

11.Amendment. The Committee has the right to amend, alter, suspend, discontinue or cancel the Option, prospectively or retroactively; provided, that, no such amendment shall adversely affect the Optionee’s material rights under this Agreement without the Optionee’s consent.

12.No Impact on Other Benefits. The value of the Optionee’s Option is not part of his or her normal or expected compensation for purposes of calculating any severance, retirement, welfare, insurance or similar employee benefit.

13.Compliance with Law. The exercise of the Option and the issuance and transfer of Common Shares shall be subject to compliance by the Company and the Optionee with all applicable requirements of federal and state securities laws and with all applicable requirements of any stock exchange on which the Common Shares may be listed. No Common Shares shall be issued pursuant to the Option unless and until any then applicable requirements of state or federal laws and regulatory agencies have been fully complied with to the satisfaction of the Company and its counsel. The Optionee understands that the Company is under no obligation to register the Common Shares with the Securities and Exchange Commission, any state securities commission or any stock exchange to effect such compliance.

14.Governing Law. This Agreement will be construed and interpreted in accordance with the laws of the State of Texas without regard to conflict of law principles.

15.No Impact on Other Benefits. The value of the Optionee’s Option is not part of his or her normal or expected compensation for purposes of calculating any severance, retirement, welfare, insurance or similar employee benefit.

16.Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. Counterpart signature pages to this Agreement transmitted by facsimile transmission, by electronic mail in portable document format (.pdf), or by any other electronic means intended to preserve the original graphic and pictorial appearance of a document, will have the same effect as physical delivery of the paper document bearing an original signature.

17.Acceptance. The Optionee hereby acknowledges receipt of a copy of the Plan and this Agreement. The Optionee has read and understands the terms and provisions thereof, and accepts the Option subject to all of the terms and conditions of the Plan and this Agreement. The Optionee acknowledges that there may be adverse tax consequences upon exercise of the Option or disposition of the underlying shares and that the Optionee should consult a tax advisor prior to such exercise or disposition.

IN WITNESS WHEREOF, this Award Agreement, effective March 10, 2021, has been entered into and executed on this day of March 16, 2021.

STEWART INFORMATION SERVICES CORPORATION

By: /s/ Thomas G. Apel

Its Chairman of the Board

ACKNOWLEDGED

/s/ Frederick H. Eppinger

OPTIONEE

Document

STEWART INFORMATION SERVICES CORPORATION

STOCK UNIT AWARD AGREEMENT

THIS STOCK UNIT AWARD AGREEMENT (the “Award Agreement”) is hereby granted as of March 10, 2021 (the “Grant Date”) by Stewart Information Services Corporation, a Delaware corporation (the “Company”), to David C. Hisey (the “Participant”) pursuant to the Stewart Information Services Corporation 2020 Incentive Plan (the “Plan”), subject to the terms and conditions set forth therein and as set out in this Award Agreement. Capitalized terms used herein shall, unless otherwise required by the context, have the meaning ascribed to such terms in the Plan.

NOW, THEREFORE, in consideration of the promises and the mutual covenants contained in this Award Agreement, the Company and the Participant agree as follows:

1.Grant. The Company grants to the Participant, upon the terms and conditions set forth in this Award Agreement and as set forth in the Plan 7,419 Units.

2.Vesting and Forfeiture.

b.In general, the Units shall become vested on the dates set forth below (each, a “Vesting Date”), as to the specified percentage of the Units indicated:

Vesting Date	Incremental Vesting Percentage	Cumulative Vesting Percentage
First anniversary of the Grant Date	33⅓%	33⅓%
Second anniversary of the Grant Date	33⅓%	66⅔%
Third Anniversary of the Grant Date	33⅓%	100%