Industry News

LandAmerica Financial Group Inc.'s Operating Companies Outlook Revised to Stable

February 5, 2004

NEW YORK--(BUSINESS WIRE)-- On Feb. 4, 2004, Standard& Poor's Ratings Services revised its outlook on LandAmerica Financial Group Inc.'s (NYSE:LFG) title insurance operations (collectively referred to as LandAmerica) to stable from negative. At the same time, Standard& Poor's affirmed its 'A-' counterparty credit and financial strength ratings on these companies.

Outlook

Standard& Poor's revised its outlook on LandAmerica to stable because the company's market position has stabilized, with the company currently the third largest domestic title insurer. Standard& Poor's expects that LandAmerica should be well positioned to manage any downturn or moderation in the real estate sector given the variable cost structure of its predominant agency distribution channel, which accounted for 54% of total title revenues as of Sept. 30, 2003. Standard& Poor's further expects that in 2004, LandAmerica will maintain an expense ratio of less than 92% and an ROR of at least 7%.

Major Rating Factors

-- Strong and stabilizing market position. LandAmerica has been continually ceding market share to its competitors, partially because of earlier industry consolidation and the company's lower concentration of revenue in California. In 2002, California accounted for 13% of LandAmerica's top line, whereas the state constituted more than 25% of title revenue for LandAmerica's main competitors. California has been the bedrock of the refinancing boom that has led to record mortgage originations in each of the past three years, during which refinancing volume has outpaced the purchase market. Standard& Poor's expects that LandAmerica's market position as the third-largest domestic title insurer has stabilized and that the company has a strong market position buffeted by good geographic diversification.

• Very good operating performance. LandAmerica has continued to benefit from the record refinancing levels of the past three years. LandAmerica's 10.2% ROR as of Sept. 30, 2003, though lower than that of its peers, was the highest it has been in 10 years. Furthermore, the company's expense ratio of 90.8% as of Sept. 30, 2003, and combined ratio of 85.2% were the lowest in the past 10 years.
• Strong reserve adequacy. LandAmerica's reserves are at the high end of the industry, as demonstrated by a five-year average reserves to paid losses of 8x as of year-end 2002 versus the industry's 4.6x. Standard& Poor's expects that this ratio will continue to remain at the high end of the industry range and more than 7.5x in the near term.
• Good correlated additional earnings stream. In September 2003, LandAmerica acquired Lereta (a provider of tax services and flood warrants) and INFO1 (a provider of mortgage credit reporting services) for the combined purchase price of $257 million. Though not a diversification outside of the real estate sector, Standard& Poor's believes that the acquired companies create a profile more in line with that of LandAmerica's key competitors within the title insurance industry. In addition, they have the potential to add significant alternate nonregulated income streams with margins typically in excess of traditional title insurance that dovetail with the real estate transaction process. Furthermore, the addition of Lereta and INFO1 enhances the package of real estate products that LandAmerica is able to bring to the closing process.

Soure: Standard& Poor's

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