Post on 21-Mar-2018
KENTUCKY
DEPARTMENT OF INSURANCE
FINAL REPORT
TARGET
MARKET CONDUCT EXAMINATION
Stewart Title Guaranty
Company
1980 Post Oak Boulevard
Houston, Texas 77056
As Of
December 31, 2009
June 27, 2012
Sharon P. Clark
Commissioner
Kentucky Department of Insurance
215 West Main Street
Frankfort, Kentucky 40601
RE: Market Conduct Examination #2010-02
Dear Commissioner Clark:
Pursuant to appointment #2010-02 by the Department of Insurance, and in accordance with
the provisions of KRS 304.2-100, KRS 304.2-210, KRS 304.2-230, Kentucky Administrative
Regulations Title 806, other applicable laws, and the procedures established by the National
Association of Insurance Commissioners, an examination of the market conduct activities
has been conducted regarding:
Stewart Title Guaranty Company
1980 Post Oak Boulevard
Houston, Texas 77056
The report, based on the activities of the Company as of December 31, 2009, is hereby
respectfully submitted.
Sincerely,
James Axman, CIE
Market Regulation Data Analyst/Examiner
PUBLIC PROTECTION CABINET
Steven L. Beshear Governor
Department of Insurance
P.O. Box 517 Frankfort, KY 40602-0517
800-595-6053 http://insurance.ky.gov
Robert D. Vance
Secretary
Sharon P. Clark Commissioner
STEWART TITLE GUARANTY COMPANY MARKET CONDUCT EXAMINATION #2010-02
KENTUCKY DEPARTMENT OF INSURANCE
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TITLE PAGE
TARGET MARKET CONDUCT EXAMINATION
NAME OF COMPANY: Stewart Title Guaranty Company
NAIC COMPANY CODE: 50121
NAIC GROUP CODE: 340
NAIC EXAM TRACKING SYSTEM NO.: KY 215-M19
DEPARTMENT OF INSURANCE NUMBER: 301442
DATE INCORPORATED: 02/20/1908
STATE OF DOMICILE: Texas
DATE BUSINESS COMMENCED: 03/11/1913
DATE ADMITTED IN KENTUCKY: 09/27/1973
HOME OFFICE: 1980 Post Oak Boulevard
Houston, Texas 77056
DESK EXAMINATION: Kentucky Department of Insurance
215 West Main Street
Frankfort, KY 40601
TIME FRAME OF COMPANY January 1, 2009 through
OPERATIONS EXAMINED: December 31, 2009
LENGTH OF TIME FOR EXAMINATION: December 1, 2011 through
June 13, 2012
EXAMINATION COORDINATOR: Mary P. Thomas, Vice President
Regulatory Counsel
PARTICIPATING JURISDICTION: Department of Insurance
Commonwealth of Kentucky
Phone: (502) 564-1936
Fax: (502) 564-6090
STEWART TITLE GUARANTY COMPANY MARKET CONDUCT EXAMINATION #2010-02
KENTUCKY DEPARTMENT OF INSURANCE
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TABLE OF CONTENTS
PAGE
FOREWORD 5
ABBREVIATIONS 5
SCOPE OF EXAMINATION 6
COMPANY PROFILE
• HISTORY OF COMPANY 7
• PREMIUM LOSSES AND RATIOS 7
COMPANY OPERATIONS AND MANAGEMENT 8
UNDERWRITING AND RATING PRACTICES 11
KENTUCKY LOCAL GOVERNMENT PREMIUM TAXES 12
SUMMARY OF FINDINGS 13
SUBMISSION 14
STEWART TITLE GUARANTY COMPANY MARKET CONDUCT EXAMINATION #2010-02
KENTUCKY DEPARTMENT OF INSURANCE
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FOREWORD
The findings of this Report are based on an examination of the business practices of Stewart
Title Guaranty Company (Company) in the Commonwealth of Kentucky. The examination
process is governed by, and performed in accordance with, the standards and procedures of
the National Association of Insurance Commissioners (NAIC) and the Kentucky Department
of Insurance (Department). This target market regulation examination report is one by test
wherein each test applied during the examination is stated and the results are reported.
The Company was first notified of this examination on April 13, 2010. On May 27, 2010,
the Company was notified that the examination would be suspended due to scheduling
conflicts with current ongoing examinations.
On November 12, 2011, the examination began as a desk audit at the Kentucky Department
of Insurance, 215 West Main Street, Frankfort, Kentucky 40601. The operations of the
Company from January 1, 2009 through December 31, 2009 were reviewed; premium tax
data was obtained for the Fourth Quarter 2010 to reconcile with the requirements of
Chapter 91A, of the Kentucky Insurance Code.
ABBREVIATIONS
Stewart Title Guaranty Company STG or Company
National Association of Insurance Commissioners NAIC
Kentucky Department of Insurance Department
Local Government Premium Tax LGPT
STEWART TITLE GUARANTY COMPANY MARKET CONDUCT EXAMINATION #2010-02
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SCOPE OF EXAMINATION
EXAMINATION AUTHORITY
Pursuant to the directive of the Kentucky Department of Insurance, and in accordance with
the provisions of KRS 304.2-100, KRS 304.2-210, KRS 304.2-230, Kentucky’s
Administrative Regulations Title 806, other applicable laws, and the procedures established
by the National Association of Insurance Commissioners (NAIC), a target examination of the
market conduct activities has been conducted regarding:
Stewart Title Guaranty Company
1980 Post Oak Boulevard
Houston, Texas 77056
The Company’s activities for the period beginning January 1, 2009 and ending December
31, 2009, were examined.
PURPOSE
The purpose of the target examination was to determine the Company’s compliance with
Kentucky insurance statutes and Department regulations. The examiner may not have
discovered every unacceptable or non-compliant activity in which the Company may be
engaged. The failure to identify, comment on, or criticize specific Company practices does
not constitute an acceptance of the practices by the Department.
ERROR TOLERANCE
The Department utilizes error tolerance guidelines established by the NAIC, except in
certain instances as defined by state statute/regulation, or within established Department
business practice. Defined error tolerances are shown below:
FILE SAMPLING
Unless otherwise noted, file sampling was based on a review of files that were randomly
selected by applying Audit Command Language (ACL™) software to the computer data files
provided by the Company. Sample sizes were chosen based on guidelines developed by the
NAIC.
Area
Error Tolerance
Percentage
Applied
LGPT – Risk Allocation 10%
Records Retention 5%
STEWART TITLE GUARANTY COMPANY MARKET CONDUCT EXAMINATION #2010-02
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COMPANY PROFILE
HISTORY OF COMPANY
Stewart Title Guaranty Company (STG or Company) is a subsidiary of the Stewart
Information Services Corporation (SISC). SISC is a stock company and is listed on the New
York Stock Exchange (STC). The Company is domiciled in Texas, and is headquartered in
Houston, Texas. The Company was established in Galveston, Texas in 1893.
Per the Company’s Web site, STG is the third largest title company, and delivers global title
insurance policies and escrow services in more than 80 countries. STG commenced
business on March 11, 1913, and was admitted in the Commonwealth of Kentucky on
September 27, 1973.
PREMIUMS, LOSSES AND LOSS RATIOS
The following chart is derived from data reported to the NAIC, and summarizes Company
results for 2005 through 2009 for premiums, losses and loss ratios for Kentucky. The title
insurance industry is unique among insurers in that the instances of claims paid are typically
low. This is reflected in the following chart showing the Company’s loss ratio in Kentucky
from 2005 through 2009.
Kentucky Data
YEAR 2008 2009 2010
Direct
Premiums
Earned
10,174,729 9,606,774 7,237,393
Direct Losses
Paid 1,085,005 818,067 268,536
1Loss Ratio 10.6% 8.5% 3.7%
CERTIFICATE OF AUTHORITY
During the period under review, the Company had a valid Certificate of Authority to transact
title insurance business in the State of Kentucky. The Company was acting within the scope
of its Certificate of Authority.
1 Loss ratio is the ratio of total losses paid out in claims divided by the total earned premiums
STEWART TITLE GUARANTY COMPANY MARKET CONDUCT EXAMINATION #2010-02
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COMPANY OPERATIONS AND MANAGEMENT
FILING REQUIREMENTS
The examiner reviewed Company rate, rule, and form filings in effect during the scope of
the examination.
No violations noted.
RECORD RETENTION
The examiner requested a listing of all policies and supporting documents written during the
period under review; January 1, 2009 through December 31, 2009. A data listing of 32,363
policies was provided, and the examiner selected a random sample of 116 policies.
The Company was unable to provide supporting documents for two transactions in the
sample on the basis that the Agency contract was cancelled.
This finding resulted in an error ratio within the error tolerance guidelines
applied.
INTERNAL AUDITS
The Company (Underwriter as defined in the Agreement) provided 65 internal Kentucky
agency (Company as defined in the Agreement) audits for the scope of the examination.
These periodic audits are performed by the state district office auditor as a matter of routine
procedure.
The Company has a non-exclusive Title Insurance Agreement with each of its Kentucky
agencies. The agreement, which includes a provision entitled “DUTIES OF THE COMPANY”
states in part:
(d) No later than the fifteenth (15th) day of each month, Company shall send to the
Underwriter:
(1) A register that includes a numerical list of all title policies issued during
the previous calendar month;
(2) A copy of each Title Policy issued during the previous calendar month;
(3) Payment for the gross premiums charged for the previous calendar
month;
(e) Company agrees to issue and report all Title Policies in a timely manner, but in
no event later than thirty (30) days from the end of the calendar month in which
the closing was consummated or all conditions of the policy satisfied.
(f) The Company agrees to keep safely in its escrow accounts all funds received
from any source in connection with transactions in which UNDERWRITER’S Title
Policies will be issued, and to disburse said funds only for the purpose for which
they were entrusted.
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The examiner randomly selected a sample of 15 Agency audits; the review of these audits
revealed the following deficiencies:
Thirteen (13 out of 15 or 87%) audits concluded that the agency (Company) failed to
timely report policies/transactions to the Company;
Eleven (11 out of 15, or 73%) audits concluded that the agency (Company) failed to
timely remit premiums to the Company;
KRS 304.9-035, states in part:
“Any insurer shall be liable for the acts of its agents when the agents are acting in
their capacity as representatives of the insurer and acting within the scope of their
authority.”
Failure to enforce the defined business process to ensure policy
transactions are remitted and reported timely is a violation of KRS
304.9-035.
Examiner Note:
The Company is taking corrective action by implementing an IT process to timely
report/remit policy transactions.
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AGENT LICENSING AND APPOINTMENTS
There is no licensing or appointment requirement for title producers/agents in the
Commonwealth of Kentucky.
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UNDERWRITING AND RATING PRACTICES
The underwriting and rating review included an analysis of the Company’s practices related
to underwriting requirements, proper use of rules, rates, policy forms and endorsements
according to the requirements of KRS 304.14-120 and KRS 304.22-020(3).
No violations noted.
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KENTUCKY LOCAL GOVERNMENT PREMIUM TAXES
The Company submitted Fourth Quarter 2010 local government premium tax (LGPT) data
for review, to determine the Company’s business process to properly place the risk in the
correct taxing jurisdiction, and to verify compliance with KRS 91A.080 and 806 KAR 2:095.
The Company submitted 1,038 title policies for review.
No violations noted.
A review was also conducted to determine if the Company clearly demonstrated the correct
amount of LGPT and the proper taxing jurisdiction on billing instruments and/or declaration
pages. KRS 91A.0810 and 806 KAR 2:092 specifies minimum standards for the disclosure
of local government premium taxes to policyholders.
In 17 instances (out of a sample of 116), the declaration page of the
title policy produced at the closing did not contain the proper tax
information disclosure. Failure to clearly disclose the LGPT amount
and proper taxing jurisdiction on the declarations page is a violation
of KRS 91A.0810 and 806 KAR 2:092.
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SUMMARY OF FINDINGS
INTERNAL AUDITS
The Company failed to enforce the defined business process to ensure policy transactions
are remitted and reported timely, which is a violation of KRS 304.9-035. (See Page 9)
LOCAL GOVERNMENT PREMIUM TAX
The Company failed to clearly disclose the LGPT amount and proper taxing jurisdiction,
which is a violation of KRS 91A.0810 and 806 KAR 2:092. (See Page 12)
STEWART TITLE GUARANTY COMPANY MARKET CONDUCT EXAMINATION #2010-02
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SUBMISSION
The examiner would like to express appreciation to Stewart Title Guaranty Company for the
cooperation extended during this examination.
The examiner respectfully submits this examination report to the Commissioner,
Department of Insurance, Commonwealth of Kentucky, for further action.
_____________________________________
James Axman, CIE
Market Regulation
Data Analyst/Examiner