UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)


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

For the fiscal year ended December 31, ~~2005~~2006

ORor


o		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 (State or other jurisdiction of incorporation or organization)		74-1677330 (I.R.S. Employer Identification No.)


1980 Post Oak Blvd., Houston, Texas (Address of principal executive offices)		77056 (Zip Code)

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

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


Common Stock, $1 par value (Title of each class of ~~stock~~stock)		New York Stock Exchange (Name of each exchange on which ~~registered~~
~~Common Stock, $1 par value~~		~~New York Stock Exchange~~registered)

Securities registered pursuant to Section 12(g) of the Act:~~NONE~~None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yesþ No¨o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes¨o Noþ

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. Yesþ No¨o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.þ

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

Large Accelerated Filerþ Accelerated Filer¨o Non-Accelerated Filer¨o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes¨o Noþ

The aggregate market value of the Common Stock (based upon the closing sales price of the Common Stock of Stewart Information Services Corporation, as reported by the NYSE on June 30, ~~2005)~~2006) held by non-affiliates of the Registrant was approximately ~~$717,556,602.~~$623,565,718.

~~As of March 2, 2006,~~At February 20, 2007, the following shares of each of the registrant’s classes of stock were outstanding:


Common, $1 par value			~~17,146,697~~17,181,258
Class B Common, $1 par value			1,050,012

Documents Incorporated by Reference

Portions of the definitive proxy statement (the Proxy Statement), relating to the annual meeting of the registrant’s stockholders to be held April ~~28, 2006,~~27, 2007, are incorporated by reference in ~~Parts~~Part III ~~and IV~~ of this document.

PART I

Item 1. Business

We are a Delaware corporation formed in 1970. We and our predecessors have been engaged in the title business since 1893.

Stewart is a customer-oriented, technology-driven, strategically competitive, real estate information and transaction management ~~company providing~~company. Stewart provides title insurance and related information ~~services. Stewart delivers via e-commerce the~~ services required for settlement of residential and commercial transactions by the real estate and mortgage industries ~~– including title reports, flood certificates, credit reports, appraisals~~through more than 9,500 policy-issuing offices and ~~automated valuation models, document preparation, property information reports~~agencies in the United States and ~~background checks.~~international markets. Stewart also provides post-closing lender services, ~~mortgage default management solutions,~~ automated county clerk land records, property ownership mapping, geographic information systems, property information reports, flood certificates, document preparation, background checks and expertise in tax-deferred exchanges.

Our international division delivers products and services protecting and promoting private land ownership worldwide. Currently, our primary international operations are in Canada, the United Kingdom, Mexico and Australia. Our international operations are immaterial with respect to our consolidated financial results.

Our two main segments of business are title insurance-related services and real estate information (REI). The segments significantly influence business to each other because of the nature of their operations and their common customers. The segments provide services through a network of offices, including more than 8,500 policy-issuing offices and agencies in the United States and several international markets. Our current levels of international operations are immaterial with respect to our consolidated financial results.

~~The~~ financial information related to these segments is discussed in Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations.~~Operations and Note 20 to our audited consolidated financial statements.

Title

The title segment includes the functions of searching, examining, closing and insuring the condition of the title to real property.

Examination and closing. The purpose of a title examination is to ascertain the ownership of the property being transferred, debts that are owed on it and the scope of the title policy coverage. This involves searching for and examining documents such as deeds, mortgages, wills, divorce decrees, court judgments, liens, paving assessments and tax records.

At the closing or “settlement” of a sale transaction, the seller executes and delivers a deed to the new owner. The buyer typically signs new mortgage documents. Closing funds are then disbursed to the seller, the prior mortgage company, real estate brokers, the title company and others. The documents are then recorded in the public records. A title policy is generally issued to both the lender and the new owner.

Title policies. Lenders in the United States generally require title insurance as a condition to making a loan on real estate, including securitized lending. This is to assure lenders of the priority of their lien position. The purchasers of the property want insurance to protect against claims that may arise against the ownership of the property. The face amount of the policy is normally the purchase price or the amount of the related loan.

Title insurance is substantially different from other types of insurance. Fire, auto, health and life insurance protect against future losses and events. In contrast, title insurance insures against losses from past events and seeks to eliminate most risks through the examination and settlement process.

-1-

Investments. Our title insurance underwriters maintain investments in accordance with certain statutory requirements for the funding of statutory premium reserves and state deposits. We have established policies and procedures to minimize our exposure to changes in the fair values of our investments. These policies include retaining an investment advisory firm, emphasizing credit quality, managing portfolio duration, maintaining or increasing investment income through high coupon rates, and actively managing profile and security mix based upon market conditions. All of our investments are classified as available-for-sale.

Losses. Losses on policies occur when a title defect is not discovered during the examination and settlement process. Reasons for losses include forgeries, misrepresentations, unrecorded liens, the failure to pay off existing liens, mortgage lending fraud, mishandling or defalcation of settlement funds, issuance by title agencies of unauthorized ~~coverages~~coverage and other legal issues.

Some claimants seek damages in excess of policy limits. Those claims are based on various legal theories usually alleging misrepresentation by an agency. Although we vigorously defend against spurious claims, we have from time to time incurred losses in excess of policy limits.

~~- 1 -~~

Experience shows that most policy claims ~~against policies~~ and claim payments are made in the first six years after the policy has been issued, although claims are also incurred and paid many years later. By their nature, claims are often complex, vary greatly in dollar amounts and are affected by economic and market conditions and the legal environment existing at the time of settlement of the claims. Estimating future title loss payments is difficult because of the complex nature of title claims, the length of time over which claims are paid, the significantly varying dollar amounts of individual claims and other factors.

Provisions for policy losses are charged to income in the same year the related premium revenues are recognized. The amounts provided are based on reported claims, historical loss experience, title industry averages, current legal environment and types of policies written.

Our liability for estimated title losses comprises both known claims and claims expected to be reported in the future. The amount of our loss reserve represents the aggregate future payments, net of recoveries, that we expect to incur on policy and escrow losses and in costs to settle claims.

Amounts shown as our estimated liability for future loss payments are continually reviewed by us for reasonableness and adjusted as appropriate. Independent actuaries also reviewed the adequacy of the liability amounts on an annual basis and found our reserves adequate at each year end. In accordance with industry practice, ~~the~~these amounts have not been discounted to their present values.

Factors affecting revenues. Title revenues are closely related to the level of activity in the real estate markets we serve and the prices at which real estate sales are made. Real estate sales are directly affected by the availability and cost of money to finance purchases. Other factors include consumer confidence and demand by buyers. These factors may override the seasonal nature of the title business. Generally, our first quarter is the least active and ~~the~~our fourth quarter is the most active in terms of title revenues.

Selected information for the national real estate industry follows ~~(2005~~(2006 figures are preliminary and subject to revision):



							2006		2005		2004
	2005		2004		2003

New home sales — in millions		1.28		1.20		1.09		1.06		1.28		1.20
Existing home sales — in millions		7.07		6.78		6.18		6.48		7.08		6.78
Existing home sales — median sales price in $ thousands		207.6		184.0		168.5		222.0		219.6		195.4

Customers. The primary sources of title business are attorneys, builders, developers, home buyers, lenders and real estate brokers. No one customer was responsible for as much as ~~ten percent~~10% of our title operating revenues in any of the last three years. Titles insured include residential and commercial properties, undeveloped acreage, farms, ranches and water rights.

Service, location, financial strength, size and related factors affect customer acceptance. Increasing market share is accomplished primarily by providing superior service. The parties to a closing are concerned with personal schedules and the interest and other costs associated with any delays in the settlement. The rates charged to customers are regulated, to varying degrees, in many states.

Financial strength and stability of the title underwriter are important factors in maintaining and increasing our agency network. Among the nation’s leading title insurers, we earned one of the highest ratings awarded by the title industry’s leading rating companies. Our principal underwriter, Stewart Title Guaranty Company (Guaranty) is currently rated A” by Demotech, Inc., A+ by Fitch and A by Lace Financial.

Market share. Title insurance statistics are compiled quarterly by the title industry’s national trade association. Based on 2006 unconsolidated statutory net premiums written through September 30, ~~2005,~~2006, Guaranty is one of the leading title insurers in the United States.

Our principal competitors include Fidelity National Financial, Inc., The First American Corporation and LandAmerica Financial Group, Inc. Like most title insurers, we also compete with abstractors, attorneys who issue title opinions and attorney-owned title insurance funds. A number of homebuilders, financial institutions, real estate brokers and others own or control title insurance agencies, some of which issue policies underwritten by Guaranty. This controlled business also provides competition for our offices. We also compete with issuers of alternatives to title insurance products, which typically provide more limited coverage and less service for a smaller fee.

~~- 2 -~~

Real Estate Information

The real estate information segment primarily provides electronic delivery of data, products and services related to real estate. Stewart Lender Services (SLS), formerly Stewart Mortgage Information Company, is one of the companies in the REI segment that offers origination and post-closing services ~~related~~ to ~~the~~residential mortgage ~~origination process~~lenders. These services include providing flood certificates, credit reports, traditional and automated property valuations, initial loan disclosures and electronic mortgage documents, property information reports and tax services. ~~Stewart Mortgage Information Company (SMI), one of the segment companies, provides~~SLS also offers post-closing outsourcing services for ~~residential mortgage~~ lenders, including document review, investor delivery, FHA/VA insuring, document retrieval, preparation and national recordation of assignments, lien releases and security interests, collateral reviews and loan pool certifications. ~~Stewart Default Solutions, Inc. provides mortgage default management solutions to lenders.~~ In addition, other companies within the real estate information segment provide diverse products and services related to automated mapping projects and geodetic positioning; real estate database conversion, construction, maintenance and access; automation for government recording and registration; criminal, credit and motor vehicle background checks and pre-employment screening services; and ~~I.R.C.~~Internal Revenue Code Section 1031 (Section 1031) tax-deferred property exchanges.

The introduction of automation tools for title agencies is an important part of the future growth of the REI companies. ~~Automated~~Web-based search and examination tools developed by Ultima Corporation and ~~REIData, Inc.~~PropertyInfo^® Corp. are designed to increase the processing speed of title examinations by connecting all aspects of the title examination process to ~~the~~proprietary title plant databases and directly to public ~~records.~~record data sources. Accessible throughwww.PropertyInfo.com^TM, a title examiner can utilize Advanced Search Analysis and ~~SearchManager~~TitleSearch^TM® ~~to automate work flows~~Pro (formerly SearchManager) for the search, examination and production of title reports, thus eliminating the steps and inefficiencies associated with traditional courthouse searches. ~~Also~~As a result of our purchase of certain assets of CST Title Abstract, LLC, Advanced Title Search (ATS) is now offered via www.PropertyInfo.com. ATS provides broader access to data available ~~through real estate portals owned~~directly from public records in a growing number of counties nationwide. In January 2007, Stewart REI Group sold its aerial photography and ~~developed by Stewart’s REI companies are aerial photographs and maps offered by~~mapping businesses, GlobeXplorer^{^®} and ~~AIRPHOTOUSA~~^{AirPhotoUSA^® to DigitalGlobe^® and entered into agreements with these companies to continue to provide spatial and digital imagery through www.PropertyInfo.com.}

Factors affecting revenues. As in the title segment, REI revenues, particularly those generated by ~~mortgage information~~lender services and tax-deferred exchanges, are closely related to the level of activity in the real estate market. Revenues related to many services are generated on a project basis. Contracts for automating government recording and registration systems and mapping projects are often awarded following competitive bidding processes or after responding to formal requests for proposals.

Companies that compete with Stewart’s REI companies vary across a wide range of industries. In the mortgage-related products and services area, competitors include the major title insurance underwriters mentioned under “Title –— Market share”, as well as entities known as vendor management companies. In some cases the competitor may be the customer itself. For example, certain services offered by ~~SMI~~SLS can be, or historically have been, performed by internal departments of large mortgage lenders.

Another important factor affecting revenues is the advancement of technology, which permits customers to order and receive timely status reports and final products and services through dedicated interfaces with the customer’s production systems or over the Internet. The use of websites, includingwww.stewart.com andwww.PropertyInfo.com, allows customers easy access to solutions designed for their specific industry.

~~- 3 -~~

Many of the services and products offered by ~~the~~our REI segment are used by professionals and intermediaries who have been retained to assist consumers with the sale, purchase, mortgage, transfer, recording and servicing of real ~~estate related~~estate-related transactions. To that end, timely and accurate services are critical to our customers since these factors directly affect the service they provide to their customers. Financial strength, marketplace presence and reputation as a technology innovator are important factors in attracting new business.

General

Technology. Our automation products and services are increasing productivity in the title office and speeding the real estate closing process for lenders, real estate professionals and consumers. Before automation, an order typically required several individuals to manually search the title, retrieve and review documents and create the title policy commitment. Today, on a normal subdivision file, and in some locations where our systems are optimally deployed, one person can receive the order electronically, view the prior file, examine the indexed documents, prepare the commitment and deliver the finished title insurance product.

We ~~are deploying~~have deployed SureClose^{^®}, ~~an electronic document handler that~~our transaction management platform, which gives consumers online access to their closing file ~~during the closing process,~~ for more transparency of the ~~transaction.~~transaction during the closing process. SureClose also gives lenders, real estate professionals and settlement service providers the ability to monitor the progress of the transaction; view, print, exchange and download documents and information; and post and receive messages and receive automatic event notifications. Enhancing the seamless flow of the title order, SureClose is also integrated with Stewart’s AIM^® title production system. The final commitment, as well as all other closing documents, is archived on SureClose to create a paperless office.

Our platform for electronic real estate closings, eClosingRoom^TM, was the industry’s first e-closing system and is integrated with our SureClose production system. In addition, we are implementing systems that further automate the title searches through rules-based processes.

Trademarks. We have developed numerous automation products and processes that are crucial to both our title and REI segments. These systems automate most facets of the real estate transaction. Among these trademarked products and processes are AIM^{^®}, ~~AIRPHOTOUSA~~^{eMortgageDocs^®}, E-Title^®, FileStor^®, PropertyInfo^®, ~~GlobeXplorer~~^{Re-Source^®}~~, Landata Title Office~~^{^®}~~, REIMall~~^{^®}, SureClose^{^®}, TitleLogix^{^®} and Virtual Underwriter^{^®}. We consider these trademarks, which are perpetual in duration, to be important to our business.

Employees. As of December 31, ~~2005,~~2006, we and our subsidiaries employed approximately ~~9,865~~9,900 people. We consider our relationship with our employees to be good.

Available information. We file annual, quarterly and other reports and information with the Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934 ~~(the Exchange~~(Exchange Act). You may read and copy any material that we file with the SEC at the SEC’s Public Reference Room at ~~450 5~~^th100 F Street, ~~N.W., Room 1200,~~NE, Washington, DC 20549. You may obtain additional information about the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (www.sec.gov) that contains reports, ~~proxies,~~proxy and other information statements, and other information regarding issuers that file electronically with the SEC, including us.

We also make available, free of charge on or through our Internet site (www.stewart.com) our ~~Annual Reports~~annual reports on Form 10-K, ~~Quarterly Reports~~quarterly reports on Form 10-Q, ~~Current Reports~~current reports on Form 8-K, Code of Ethics ~~and other information statements~~ and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

-5-

If adverse changes in the levels of real estate activity occur, our revenues will decline.

Our results of operations and financial condition are affected by changes in economic conditions, particularly mortgage interest rates. Our revenues and earnings have fluctuated in the past and we expect them to fluctuate in the future.

The demand for our title insurance and real estate information services depends in large part on the volume of residential and commercial real estate transactions. The volume of these transactions historically has been influenced by factors such as mortgage interest rates and the overall state of the ~~overall~~ economy. Typically, when interest rates are increasing or when the economy is experiencing a downturn, real estate activity declines. As a result, the title insurance industry tends to experience decreased revenues and earnings. Increases in interest rates also may have an adverse impact on our bond portfolio and interest on our bank debt.

We have benefited from a low mortgage interest rate environment and an increase in home prices in recent years. A reversal of these trends could adversely affect our revenues and earnings absent increases in market share, which cannot be assured.

Competition in the title insurance industry affects our revenues.

Competition in the title insurance industry is strong, particularly with respect to price, service and expertise. Larger commercial customers and mortgage originators also look to the size and financial strength of the title insurer. Although we are one of the leading title insurance underwriters based on market share, Fidelity National Financial, Inc., The First American Corporation and LandAmerica Financial Group, Inc. are each substantially larger than we are. Their holding companies have significantly greater capital than we do. Although we are not aware of any current initiatives to reduce regulatory barriers to entering our industry, any such reduction could result in new competitors, including financial institutions, entering the title insurance business. Competition among the major title insurance companies and any new entrants could lower our premium and fee revenues. From time to time, new entrants enter the marketplace with alternative products to traditional title insurance, although many of these alternative products have been disallowed by title insurance regulators. These alternative products, if permitted by regulators, could adversely affect our revenues and earnings.

Rapid technological changes in our industry require timely and cost-effective responses. Our earnings may be adversely affected if we are unable to effectively use technology to increase productivity.

Technological advances occur rapidly in the title insurance industry as industry standards evolve and title insurers frequently introduce new products and services. We believe that our future success depends on our ability to anticipate technological changes and to offer products and services that meet evolving standards on a timely and cost-effective basis. Successful implementation and customer acceptance of our technology-based services, such as SureClose, will be crucial to our future profitability, as will increasing our productivity to recover our costs of developing ~~our technology-based~~these services. There is a risk that products and services introduced by our competitors, or advances in technology, could reduce the usefulness of our products and render them obsolete.

-6-

Our claims experience may require us to increase our provision for title losses or to record additional reserves, either of which ~~would~~could adversely affect our earnings.

Estimating future loss payments is difficult, and our assumptions about future losses may prove inaccurate. Claims are often complex and involve uncertainties as to the dollar amount and timing of individual payments. Claims are often paid many years after a policy is issued. From time to time, we experience large losses from title policies that have been issued, which require us to increase our title loss reserves. These events are unpredictable and adversely affect our earnings.

Our growth strategy will depend in part on our ability to acquire and integrate complementary businesses.

As part of our overall growth strategy, we selectively acquire businesses and technologies that will allow us to enter new markets, provide services that we currently do not offer or advance our existing technology. Our ability to continue this acquisition strategy will depend on our success in identifying and consummating acquisitions of businesses on favorable economic terms. The success of this strategy will also depend on our ability to integrate the operations, products and personnel of any acquired business, retain key personnel, introduce new products and services on a timely basis and increase the strength of our existing management team. Although we actively seek acquisition candidates, we may be unsuccessful in these efforts. If we are unable to acquire appropriate businesses on favorable economic terms, or at all, or are unable to introduce new products and services successfully, our business, results of operations and financial condition could be adversely affected.

~~- 5 -~~

We rely on dividends from our insurance underwriting subsidiaries. Significant restrictions on dividends from our subsidiaries could adversely affect our ability to make acquisitions.

We are a holding company and our principal assets are the securities of our insurance underwriting subsidiaries. Because of this structure, we depend primarily on receiving sufficient dividends from our insurance subsidiaries to meet our debt service obligations, to pay our operating expenses and to pay dividends. The insurance statutes and regulations of some states require us to maintain a minimum amount of statutory capital and restrict the amount of dividends that our insurance subsidiaries may pay to us. Guaranty is a wholly owned subsidiary of Stewart and the principal source of our cash flow. In this regard, the ability of Guaranty to pay dividends to us is dependent on the acknowledgement of the Texas Insurance Commissioner. AtAs of December 31, ~~2005,~~2006, under Texas insurance law, Guaranty could pay dividends or make distributions of up to ~~$97.6~~$101.7 million in ~~2006~~2007 without approval of the Texas Insurance Commissioner. However, Guaranty voluntarily restricts dividends to us so that it can grow its statutory surplus and maintain liquidity at competitive levels. A title insurer’s ability to pay claims can significantly affect the decision of lenders and other customers when buying a policy from a particular insurer. These restrictions could limit our ability to fund our acquisition program with cash and to fulfill other cash needs.

-7-

Our insurance subsidiaries must comply with extensive government regulations. These regulations could adversely affect our ability to increase our revenues and operating results.

~~State authorities~~Authorities regulate our insurance subsidiaries in the various states and international jurisdictions in which ~~they~~we do business. These regulations generally are intended for the protection of policyholders rather than ~~shareholders.~~stockholders. The nature and extent of these regulations vary from jurisdiction to jurisdiction, but typically involve:

	•		approval or setting of insurance premium rates;

	•		standards of solvency and minimum amounts of statutory capital and surplus that must be maintained;

	•		limitations on types and amounts of investments;

	•		establishing reserves, including statutory premium reserves, for losses and loss adjustment expenses;

	•		regulation of dividend payments and other transactions among affiliates;

	•		prior approval offor the acquisition and control of an insurance company or of any company controlling an insurance company;

	•		licensing of insurers and agencies;

	•		regulation of reinsurance;

	•		restrictions on the size of risks that may be insured by a single company;

	•		regulation of underwriting and marketing practices;

	•		deposits of securities for the benefit of policyholders;

	•		approval of policy forms;

	•		methods of accounting; and

	•		filing of annual and other reports with respect to financial condition and other matters.

These regulations may impede or impose burdensome conditions on rate increases or other actions that we might want to take to enhance our operating results. Changes in these regulations may also adversely affect us. In addition, state regulatory examiners perform periodic examinations of insurance companies, which could result in increased compliance or litigation expenses.

Litigation risks include claims by large classes of claimants.

We are periodically involved in litigation arising in the ordinary course of business. In addition, we are currently, and have been in the past, subject to claims and litigation from large classes of claimants seeking substantial damages not arising in the ordinary course of business. Material pending legal proceedings, if any, not in the ordinary course of business, are disclosed in Item 3 — Legal Proceedings included elsewhere in this report. To date, the impact of the outcome of these proceedings has not been material to our consolidated financial condition or results of ~~operations or financial position.~~operations. However, an unfavorable outcome in any litigation, claim or investigation against us could have an adverse effect on our consolidated financial condition or results of ~~operations or financial position.~~operations.

Anti-takeover provisions in our certificate of incorporation and by-laws may make a takeover of us difficult. This may reduce the opportunity for our stockholders to obtain a takeover premium for their shares of our Common Stock.

Our certificate of incorporation and by-laws, as well as Delaware corporation law and the insurance laws of various states, all contain provisions that could have the effect of discouraging a prospective acquirer from making a tender offer for our shares, or that may otherwise delay, defer or prevent a change in control of Stewart.

~~- 6 -~~

The voting rights of the holders of our Class B Common Stock may have the effect of rendering more difficult or discouraging unsolicited tender offers, merger proposals, proxy contests or other takeover proposals to acquire control of Stewart.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

We lease approximately ~~253,000~~271,000 square feet, under a non-cancelable lease expiring in 2016, in an office building in Houston, Texas, which is used for our corporate offices and for offices of several of our subsidiaries. In addition, we lease offices at approximately ~~750~~800 additional locations that are used for branch offices, regional headquarters and technology centers. These additional locations include significant leased facilities in Dallas, Los Angeles, ~~Dallas,~~New York City, San ~~Diego,~~Jose, Seattle and ~~Las Vegas.~~Toronto.

Our leases expire from ~~2006~~2007 to 2016 and have an average term of four years, although our typical lease term ranges from three to five years. We believe we will not have any difficulty obtaining renewals of leases as they expire or, alternatively, leasing comparable properties. The aggregate annual rent expense under all leases was approximately ~~$64,698,000~~$66.1 million in ~~2005.~~2006.

We also own ~~six~~seven office buildings located in Texas, Arizona, Colorado and ~~Colorado.~~New York. These owned properties are not material to our financial ~~position.~~condition. We consider all buildings and equipment that we own or lease to be well maintained, adequately insured and generally sufficient for our purposes.

Item 3. Legal Proceedings

~~As first reported in~~In September 2006, the ~~Company’s Annual Report on Form 10-K~~California Commissioner of Insurance alleged that some of our captive reinsurance programs may have constituted improper payments for the ~~year ended December 31, 2003,~~placement or referral of title business and is seeking approximately $47 million in fines and penalties from us. Stewart ~~Title Insurance Company (STIC), an underwriter subsidiary~~believes that its reinsurance is traditional reinsurance applied to residential business, which was authorized by the Department of Housing and Urban Development in its August 1997 and 2004 letters on permissible captive reinsurance in residential transactions covered by the ~~Company, was~~Real Estate Settlement and Procedures Act (RESPA). We have filed a ~~defendant in a New York state class action lawsuit in the Supreme Court State~~notice of New York. The lawsuit alleged that STIC directly and through its agencies routinely collected excess premiums in connection with refinance transactions. Similar actions were brought against seven other unrelated underwriters. STIC denied culpability on a number of grounds. In February 2005, STIC reached a settlementdefense with the ~~plaintiffs, which was approved by the court and which fully and finally resolved all purposed claims~~California Department of ~~the plaintiffs. At December 31, 2004, the Company had a reserve of $5.3 million~~Insurance requesting an administrative hearing in response to its allegations. We believe that we have adequately reserved for this ~~claim, which was sufficient to cover~~allegation and that the ~~payment~~likely resolution will not materially affect our consolidated financial condition or results of ~~the final settlement in the third quarter of 2005 and other expenses associated with this lawsuit.~~operations.

We are ~~a party~~also subject to routine lawsuits incidental to our business, most of which involve disputed policy claims. In many of these ~~suits,~~lawsuits, the ~~plaintiffs seek~~plaintiff seeks exemplary or treble damages in excess of policy limits based on the alleged malfeasance of an issuing agent. We do not expect that any of these proceedings will have a material adverse effect on our consolidated financial ~~condition.~~condition or results of operations. Additionally, we have received various other inquiries from governmental regulators concerning practices in the insurance industry. Many of these practices do not concern title insurance and we do not anticipate that the outcome of these inquiries will materially affect ~~the~~our consolidated financial condition or results of ~~the Company.~~operations. We, along with the other major title insurance companies, are party to a number of class actions concerning the title insurance industry. We believe that we have adequate reserves for these contingencies and that the likely resolution of these matters will not materially affect ~~the~~our consolidated financial condition or results of operations.

-9-

Regulators periodically review title insurance premium rates and may seek reductions in the ~~Company.~~premium rates charged. In late 2006, the Texas Department of Insurance reduced rates by 3.2% effective February 1, 2007. The effect of this rate change is not expected to have a material impact on our consolidated financial condition or results of operations.

The rates charged by title insurance underwriters in Florida, from which we derive a significant portion of our revenues, are currently under review with proposals to enact premium rate decreases. The California Insurance Commissioner filed a rate reduction order that would have reduced title insurance rates in California by 26% commencing in 2009. On February 21, 2007, this rate reduction order was rejected by the California Office of Administrative Law. California’s Insurance Commissioner has announced plans to submit a revised rate reduction proposal in the future. We believe that California law requires rates to be established competitively and not by administrative order. We cannot predict the outcome of these proposals and, to the extent that rate decreases are enacted in the future, our financial condition and results of operations could be materially adversely affected.

Item 4. Submission of Matters to a Vote of Security Holders

None.

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Item 6. Selected Financial Data

~~(Ten year summary)~~

The following table sets forth ~~for the periods and at the dates indicated,~~ our selected consolidated financial ~~data. The financial~~ data, which were derived from our consolidated financial statements and should be read in conjunction with our audited consolidated financial statements, including the Notes thereto, beginning on page F-1 of this Report. See also Item 7 –— Management’s Discussion and Analysis of Financial Condition and Results of Operations.

2005 2004 2003 2002 2001 2000 1999 1998 1997 1996

(In millions of dollars)

Total revenues 2,430.6 2,176.3 2,239.0 1,777.9 1,271.6 935.5 1,071.3 968.8 708.9 656.0

Title segment:
Operating revenues 2,314.0 2,081.8 2,138.2 1,683.1 1,187.5 865.6 993.7 899.7 657.3 609.4
Investment income 29.1 22.5 19.8 20.7 19.9 19.1 18.2 18.5 15.9 14.5
Investment gains 5.0 3.1 2.3 3.0 .4 0 .3 .2 .4 .1
Total revenues 2,348.1 2,107.4 2,160.3 1,706.8 1,207.8 884.7 1,012.2 918.4 673.6 624.0
Pretax earnings⁽¹⁾
154.4 143.1 200.7 153.8 82.5 10.7 48.3 78.2 31.6 23.9

REI segment:
Revenues 82.5 68.9 78.7 71.1 63.8 50.8 59.0 50.4 35.3 32.0
Pretax earnings (losses)⁽¹⁾
10.6 3.6 12.3 9.0 5.5 (4.5 ) 3.1 3.2 (5.3 ) .5

Title loss provisions 128.1 100.8 94.8 75.9 51.5 39.0 44.2 39.2 29.8 33.8
% title operating revenues 5.5 4.8 4.4 4.5 4.3 4.5 4.4 4.4 4.5 5.6

Pretax earnings⁽¹⁾
165.0 146.7 213.0 162.8 88.0 6.2 51.4 81.4 26.3 24.4
Net earnings 88.8 82.5 123.8 94.5 48.7 .6 28.4 47.0 15.3 14.4
Cash flow from operations 173.5 170.4 190.1 162.6 108.2 31.9 57.9 86.5 36.0 38.3

Total assets 1,361.2 1,193.4 1,031.9 844.0 677.9 563.4 535.7 498.5 417.7 383.4
Long-term debt 70.4 39.9 17.3 7.4 7.0 15.4 6.0 8.9 11.4 7.9
Stockholders’ equity 766.3 697.3 621.4 493.6 394.5 295.1 284.9 260.4 209.5 191.0

Per share data⁽²⁾

Average shares – diluted (in millions) 18.2 18.2 18.0 17.8 16.3 15.0 14.6 14.2 13.8 13.5
Net earnings – basic 4.89 4.56 6.93 5.33 3.01 .04 1.96 3.37 1.12 1.08
Net earnings – diluted 4.86 4.53 6.88 5.30 2.98 .04 1.95 3.32 1.11 1.07

Cash dividends .75 .46 .46 — — — .16 .14 .13 .12
Stockholders’ equity 42.21 38.48 34.47 27.84 22.16 19.61 19.39 18.43 15.17 14.17
Market price:
High 53.01 47.60 41.45 22.50 22.25 22.31 31.38 33.88 14.63 11.31
Low 34.70 31.14 20.76 15.05 15.80 12.25 10.25 14.25 9.38 9.81
Year end 48.67 41.65 40.55 21.39 19.75 22.19 13.31 29.00 14.50 10.38



	2006		2005		2004		2003		2002		2001		2000			1999		1998		1997


(In millions of dollars)

Total revenues		2,471.5		2,430.6		2,176.3		2,239.0		1,777.9		1,271.6		935.5			1,071.3		968.8		708.9

Title segment:
Operating revenues		2,350.7		2,314.0		2,081.8		2,138.2		1,683.1		1,187.5		865.6			993.7		899.7		657.3
Investment income		34.9		29.1		22.5		19.8		20.7		19.9		19.1			18.2		18.5		15.9
Investment gains		4.7		5.0		3.1		2.3		3.0		.4		0			.3		.2		.4
Total revenues		2,390.3		2,348.1		2,107.4		2,160.3		1,706.8		1,207.8		884.7			1,012.2		918.4		673.6
Pretax earnings⁽¹⁾		83.2		154.4		143.1		200.7		153.8		82.5		10.7			48.3		78.2		31.6

REI segment:
Revenues		81.2		82.5		68.9		78.7		71.1		63.8		50.8			59.0		50.4		35.3
Pretax earnings (losses)⁽¹⁾		1.3		10.6		3.6		12.3		9.0		5.5		(4.5	)		3.1		3.2		(5.3	)

Title loss provisions		141.6		128.1		100.8		94.8		75.9		51.5		39.0			44.2		39.2		29.8
% title operating revenues		6.0		5.5		4.8		4.4		4.5		4.3		4.5			4.4		4.4		4.5

Pretax earnings⁽¹⁾		84.5		165.0		146.7		213.0		162.8		88.0		6.2			51.4		81.4		26.3
Net earnings		43.3		88.8		82.5		123.8		94.5		48.7		.6			28.4		47.0		15.3
Cash provided by operations		99.7		173.5		170.4		190.1		162.6		108.2		31.9			57.9		86.5		36.0

Total assets		1,458.2		1,361.2		1,193.4		1,031.9		844.0		677.9		563.4			535.7		498.5		417.7
Long-term debt		92.5		70.4		39.9		17.3		7.4		7.0		15.4			6.0		8.9		11.4
Stockholders’ equity		802.3		766.3		697.3		621.4		493.6		394.5		295.1			284.9		260.4		209.5

Per share data⁽²⁾

Average shares – diluted (millions)		18.3		18.2		18.2		18.0		17.8		16.3		15.0			14.6		14.2		13.8

Net earnings – basic		2.37		4.89		4.56		6.93		5.33		3.01		.04			1.96		3.37		1.12
Net earnings – diluted		2.36		4.86		4.53		6.88		5.30		2.98		.04			1.95		3.32		1.11

Cash dividends		.75		.75		.46		.46		—		—		—			.16		.14		.13

Stockholders’ equity		44.00		42.21		38.48		34.47		27.84		22.16		19.61			19.39		18.43		15.17

Market price:
High		54.85		53.01		47.60		41.45		22.50		22.25		22.31			31.38		33.88		14.63
Low		32.87		34.70		31.14		20.76		15.05		15.80		12.25			10.25		14.25		9.38
Year end		43.36		48.67		41.65		40.55		21.39		19.75		22.19			13.31		29.00		14.50


⁽¹⁾		Pretax earnings before minority interests.

⁽²⁾		Restated for a two-for-one stock split in May 1999, effected as a stock dividend.

~~- 9 -~~-13-

~~Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~


Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s overview. We reported net earnings of ~~$88.8~~$43.3 million for the year ended December 31, ~~2005~~2006 compared with net earnings of ~~$82.5~~$88.8 million for the ~~same period in 2004.~~year 2005. On a diluted per share basis, net earnings were ~~$4.86~~$2.36 for the year ~~2005~~2006 compared with net earnings of ~~$4.53~~$4.86 for the year ~~2004.~~2005. Revenues for the year increased ~~11.7%~~1.7% to ~~$2,430.6 million~~$2.47 billion from ~~$2,176.3 million last year.~~$2.43 billion in 2005.

~~In comparing~~Our increase in revenues for the year 2006 compared with the year 2005 ~~with 2004, pretax earnings (which is calculated before minority interests) were increased by a higher level of~~was primarily due to acquisitions, revenues from new agencies, continued growth in revenues from commercial transactions and an increase in international operations. The increase in revenues was substantially offset by a decline in transaction volume handled by our direct operations in certain major markets of the country. The decline was due to a softening real estate market resulting primarily from a higher mix of revenues from direct operations compared with lower-margin agency business. Acquisitions increased revenues by $37.3 million and pretax earnings by $8.0 million in 2005. Earnings for 2005 were impacted by higher employee costs andinterest rate environment.

We continue to incur significant other operating expenses primarily because the Company continues to incur the costs of investment in technology advancements. The Company’s goal is to increase productivity, gain market share and provide superior service to its customers. Profits in 2005 were also impacted by an addition to title loss reserves of $10.5 million in the fourth quarter of 2005 relating to a mortgage fraud and a defalcation. The fourth quarter of 2005 also includes charges relating to corrections of the Company’s accounting for leases and employee ~~vacations~~costs related to our technology advancements and compliance with both privacy laws and Sarbanes-Oxley. Although our employee costs increased in 2006 compared with 2005 primarily due to acquisitions and costs associated with developing technology initiatives, we reduced employee costs in markets where direct operations experienced revenue declines. In response to overall decreases in transaction volumes, our workforce in our title offices was reduced by approximately 920 employees, or 11.6%, during 2006. Giving effect to the increase in staff primarily for advancing technology, we reduced our total workforce by approximately 720 employees, or 7.1%. Right-sizing extended into January 2007 with the reduction of $2.8 million and $2.1 million, respectively. The combined after tax-effect of these two items was $3.2 million, which is immaterial for the year to net earnings, cash flow and stockholders’ equity.an additional 180 employees. These amounts exclude increases from new offices.

Critical accounting ~~estimates~~estimates.. Actual results can differ from the accounting estimates we report. However, we believe there is no material risk of a change in our estimates that is likely to have a material impact on our reported financial condition orand results of operations for the three years ended December 31, ~~2005.~~2006.

Title loss reserves

Our most critical accounting estimate is providing for title loss reserves. Our liability for estimated title losses at December 31, ~~2005~~2006 comprises both known claims ($~~79.2~~80.3 million) and claims expected to be reported in the future ($~~267.5~~304.1 million). The amount of the reserve represents the aggregate future payments ~~net~~(net of ~~recoveries,~~recoveries) that we expect to incur on policy and escrow losses and in costs to settle claims.

We base our estimates on reported claims, historical loss payment experience, title industry averages and the current legal and economic environment. In making estimates, we use moving-average ratios of recent actual policy loss payment experience (net of recoveries) to premium revenues.

Provisions for title losses, as a percentage of title operating revenues, were ~~5.5%~~6.0%, ~~4.8%~~5.5% and ~~4.4%~~4.8% for the years ended December 31, 2006, 2005 ~~2004~~ and ~~2003,~~2004, respectively. Actual loss payment experience, including the impact of large losses, is the primary reason for increases or decreases in our loss provision. A change of 0.5% in this percentage, a reasonably likely scenario based on our historical loss experience, would have changed ~~the~~our provision for title losses and pretax earnings by approximately ~~$11.6~~$11.8 million for the year ended December 31, ~~2005.~~2006.

Estimating future loss payments is difficult and our assumptions are subject to ~~the risk of~~ change. Claims, by their very nature, are complex and involve uncertainties as to the dollar amount and timing of individual payments. Our experience has been that most policy claims ~~against policies~~ and claim payments are made in the first six years after the policy has been issued, although claims are incurred and paid many years later.

We have consistently followed the same basic method of estimating loss payments for more than ~~ten~~10 years. Independent consulting actuaries have reviewed our title loss reserves and found them to be adequate at each year end for more than ~~ten~~10 years.

-14-

Goodwill and other long-lived assets

Based on our ~~annual June 30~~^thevaluation of goodwill as of June 30, which is completed annually in the third quarter, and events that may indicate impairment of the value of title plants and other long-lived assets, we estimate and expense to current operations any loss in ~~value to our current operations.~~value. The process of determining impairment relies on projections of future cash flows, operating results and market conditions. Uncertainties exist in these projections and bear the risk of change related to factors such as interest rates and overall real estate markets. Actual market conditions and operating results may vary materially from our projections. There were no impairment write-offs of goodwill during the three years ended December 31, ~~2005 and 2004. During 2003, $2.0 million of goodwill attributed to a subsidiary held for sale was written off and is included in other operating expenses in the consolidated financial statements.~~2006. We use independent appraisers to assist us in determining the fair value of our reporting units and assessing whether an impairment of goodwill exists.

~~- 10 -~~

Agency revenues

We recognize revenues on title insurance policies written by independent ~~title~~ agencies (agencies) when the policies are reported to us. In addition, where reasonable estimates can be made, we also accrue for revenues on policies issued but not reported until after period end. We believe that reasonable estimates can be made when recent and consistent policy issuance information is available. Our estimates are based on historical reporting patterns and other information about our agencies. We also consider current trends in our direct operations and in the title industry. In this accrual, we are not estimating future transactions. We are estimating revenues on policies that have already been issued by agencies but not yet reported to or received by us. We have consistently followed the same basic method of estimating unreported policy revenues for more than ~~ten~~10 years.

Our accruals for unreported policies from agencies were not material to our total assets or stockholders’ equity for any of the three years ended December 31, ~~2005.~~2006. The differences between the amounts our agencies have subsequently reported to us as compared to our estimated accruals are substantially offset by any ~~difference~~differences arising from the prior year’s accrual and have been immaterial to stockholders’ equity during each of the three prior years. We believe our process provides the most reliable estimation of the unreported revenues on policies and appropriately reflects the trends in agency policy activity.

Operations.Our business has two main segments: title insurance-related services and real estate information (REI). These segments are closely related due to the nature of their operations and common customers.

Our primary business is title insurance and settlement-related services. We close transactions and issue title policies on homes, commercial properties and other real ~~property~~properties located in all 50 states, the District of Columbia and ~~a number of~~ international markets through more than ~~8,500~~9,500 policy-issuing offices and agencies. We also provide post-closing lender ~~services, mortgage default management~~ services, automated county clerk land records, property ownership mapping, geographic information systems, property information reports, flood certificates, document preparation, background checks and expertise in Section 1031 tax-deferred exchanges. Our current ~~levels~~level of international operations ~~are~~is immaterial with respect to our consolidated financial results.

Factors affecting ~~revenues~~revenues.. The principal factors that contribute to increases in ~~our~~ operating revenues for our title and REI segments include:

	•		declining mortgage interest rates, which usually increase home sales and refinancing transactions;

	•		rising home prices;

	•		increasing consumer confidence;

	•		increasing demand by buyers;

	•		increasing number of households;

	•		higher premium rates;

	•		increasing market share;

	•		opening of new offices and acquisitions; and

	•		increasing number of commercial transactions, ~~that~~which typically yield higher premiums.

-15-

Industry data.A table of published mortgage interest rates and other selected residential data for the years ended December 31, 2006, 2005 ~~2004~~ and ~~2003~~2004 follows (amounts shown for ~~2005~~2006 are preliminary and subject to revision). The amounts below may not relate directly to or provide accurate data for forecasting our operating revenues or order counts.

2005 2004 2003

Mortgage rates (30-year, fixed-rate) – %
Average for the year 5.87 5.84 5.82
First quarter 5.76 5.61 5.84
Second quarter 5.72 6.13 5.51
Third quarter 5.76 5.90 6.01
Fourth quarter 6.22 5.73 5.92

Mortgage originations – in $ billions 2,821 2,727 3,760
Refinancings share – % 47.7 52.2 69.1

New home sales – in thousands 1,282 1,203 1,086
Existing home sales – in thousands 7,072 6,784 6,183
Existing home sales – median sales price in $ thousands 207.6 184.0 168.5



	2006		2005		2004

Mortgage interest rates (30-year, fixed-rate) — %
Averages for the year		6.41		5.87		5.84
First quarter		6.24		5.76		5.61
Second quarter		6.60		5.72		6.13
Third quarter		6.56		5.76		5.90
Fourth quarter		6.25		6.22		5.73

Mortgage originations — in $ billions		2,507		2,980		2,792
Refinancings share — %		41.5		49.3		52.2

New home sales — in thousands		1,061		1,283		1,203
Existing home sales — in thousands		6,480		7,075		6,779
Existing home sales — median sales price in $ thousands		222.0		219.6		195.4

Most industry experts project mortgage interest rates to ~~rise modestly~~remain stable in ~~2006.~~2007 or to decline slightly. Due to the large number of ~~refinancings~~refinancing transactions completed in ~~2003,~~ 2004 and 2005 and rising interest rates in 2006, significantly fewer refinancing transactions occurred in 2006. Refinancing transactions are ~~being forecast for 2006.~~expected to remain relatively unchanged in 2007 compared with 2006 as interest rates stabilize.

Trends and order counts.InMortgage interest rates (30-year, fixed-rate) have fluctuated from a monthly low of 5.45% in the first quarter of 2004 to a high of 6.76% in the third quarter of ~~2003~~2006 and were 6.14% in December 2006. Mortgage originations increased during 2005 compared with 2004 as a result of the favorable interest rate environment, but decreased during 2006 due to a significant increase in average mortgage interest rates increased significantly by 50 basis points to 6.01%. Since that time, mortgage interest rates have fluctuated from 5.45% to a high of 6.33% in the fourth quarter of 2005. Mortgage originations fell to lower levels beginning in the fourth quarter of 2003 primarily because refinancing transactions fell dramatically. Mortgage originations continued to fall substantially during 2004, although there was a slight increase in 2005.rates. Sales of new and existing homes ~~continued an upward trend throughout~~for 2004 through 2006 have generally followed the trends of mortgage interest rates and ~~2005.~~originations.

As a result of the above trends, ~~the Company’s~~our order levels ~~began~~increased overall from 2004 to ~~decline in the third quarter of 2003. They remained below prior year levels through August 2004. For the rest of 2004, orders exceeded the number of orders received in 2003. Order levels for~~ 2005, ~~remained relatively comparable to 2004,~~ although orders for the fourth quarter of 2005 were lower than the comparable period in 2004. Some of the increases in 2005 and 2004 were due to acquisitions. Our order levels for 2006 compared with 2005 decreased significantly as a result of a softening real estate market resulting primarily from the higher interest rate environment noted above. The decline in order counts for 2006 was partially offset by acquisitions.

Our order counts follow (in thousands):



							2006		2005		2004
	2005		2004		2003

First quarter		212		223		263		193		212		223
Second quarter		245		222		315		202		245		222
Third quarter		238		204		238		183		238		204
Fourth quarter		187		191		171		162		187		191

		882		840		987		740		882		840

Regulatory developments.In September 2006, the California Commissioner of Insurance alleged that some of our captive reinsurance programs may have constituted improper payments for the placement or referral of title business and is seeking approximately $47 million in fines and penalties from us. Stewart believes that its reinsurance is traditional reinsurance applied to residential business, which was authorized by the Department of Housing and Urban Development in its August 1997 and 2004 letters on permissible captive reinsurance in residential transactions covered by the Real Estate Settlement and Procedures Act (RESPA). We have filed a notice of defense with the California Department of Insurance requesting an administrative hearing in response to its allegations. We believe that we have adequately reserved for this allegation and that the likely resolution will not materially affect our consolidated financial condition or results of operations.

Regulators periodically review title insurance premium rates and may seek reductions in the premium rates charged. In late 2006, the Texas Department of Insurance reduced rates by 3.2% effective February 1, 2007. The effect of this rate change is not expected to have a material impact on our consolidated financial condition or results of operations.

Results of Operations

A comparison of ~~the~~our results of operations ~~of the Company~~ for 2006 with 2005 and 2005 with 2004 ~~and 2004 with 2003~~ follows. Factors contributing to fluctuations in results of operations are presented in their order of monetary significance. We have quantified, when necessary, significant changes.

Title ~~revenues~~revenues.. Our revenues from direct title operations decreased 1.3% in 2006 and increased 18.3% in ~~2005~~2005. The largest revenue decreases in 2006 were in California and ~~decreased 0.9%~~Florida, partially offset by increases in ~~2004. Acquisitions added revenues~~Texas, including the results of ~~$37.3 million~~acquisitions made in that state, and ~~$53.2 million~~Canada. The decreases were due to a softening real estate market resulting primarily from the higher interest rate environment that has impacted certain major markets and an overall reduction in ~~2005 and 2004, respectively. The number of direct closings we handled increased 5.5% in 2005 and decreased 20.8% in 2004.~~home sales. The largest revenue increases in 2005 were in Texas, Florida, California and Arizona. Acquisitions added revenues of $51.7 million and $71.8 million in 2006 and 2005, respectively. Revenues from commercial and other large transactions increased $42.8 million and $6.3 million in 2006 and 2005, respectively.

The ~~largest decreases~~number of direct closings we handled decreased 17.3% in ~~2004 were~~2006 and increased 5.5% in ~~Texas, Colorado and Illinois, partially offset by increases in New York, Canada, California and Puerto Rico.~~

~~The~~2005. However, the average revenue per closing increased ~~12.3%~~17.0% in ~~2005~~2006 and ~~25.2%~~11.3% in ~~2004~~2005 primarily due to a lower ratio of ~~refinancings~~refinancing transactions closed by our direct operations compared towith the prior year. Title insurance premiums on ~~refinancings~~refinancing transactions are typically less than on property sales. The increase in ~~2005~~2006 in average revenue per closing was also due to ~~an increased proportion~~a higher complement of commercial ~~transactions and rising home prices.~~transactions.

~~- 12 -~~

Agency business increased in ~~2004 was primarily~~2006 due in part to new agencies added by us in Florida in 2006 and 2005 and due to ~~an overall decrease~~the acquisition of a New York title insurance underwriter with agency operations. These increases were partially offset by decreases in ~~the volume of transactions completed~~transaction volumes in California and a decrease in refinancing transactions offset somewhat by an increase in property sales. We are unable to quantify the relative contributions from refinancings and property sales because, in most jurisdictions, our independent agencies are not required to report this information. Our statements on sales and refinancings are based on published industry data from sources such as Fannie Mae, the Mortgage Bankers Association, the National Association of Realtors^{^®} ~~and Freddie Mac. We also use information from our direct operations.~~

Pennsylvania. The largest increases in revenues from agencies in 2005 were primarily in Florida, New Jersey, Georgia and Maryland, partially offset ~~partially~~ by decreases in California and Texas. ~~The largest decreases in 2004 in revenues from agencies were primarily in California, Utah, New York and Michigan, offset partially by increases in Virginia, Florida and Pennsylvania.~~

The Texas Department of Insurance reduced title insurance premium rates by 6.5% effective July 1, 2004. As a consequence, our revenues and net earnings were reduced by approximately $19.0 million and $5.6 million, respectively, in 2006, $17.6 million and $5.2 million, respectively, in 2005 and $8.8 million and $2.6 million, respectively, in 2004. In late 2006, the Texas Department of Insurance reduced premium rates by 3.2% effective February 1, 2007. The effect of this rate change is not expected to have a material impact on our consolidated financial condition or results of operations.

Our statements above on sales and loan activity are based on published industry data from sources including Fannie Mae, the Mortgage Bankers Association, the National Association of Realtors^® and Freddie Mac. We also use information from our direct operations.

Title revenues by ~~state~~state.. The approximate amounts and percentages of consolidated title operating revenues for the last three years were as follows:



		Amounts ($ millions)						Percentages					Amounts ($ millions)						Percentages
	2005		2004		2003		2005		2004		2003		2006		2005		2004		2006		2005		2004


Texas														321		292		269		14		13		13
California		367		353		414		16		17		19		317		367		353		13		16		17
Texas		292		269		264		13		13		12
Florida		245		175		159		11		8		7		280		245		175		12		11		8
New York		159		154		147		7		7		7		180		159		154		8		7		7
All others		1,251		1,131		1,154		53		55		55		1,253		1,251		1,131		53		53		55

		2,314		2,082		2,138		100		100		100		2,351		2,314		2,082		100		100		100

In our REI segment, employee costs for 2006 were comparable to 2005. In 2005, employee costs in our REI segment increased 10.7% ~~in 2005.~~compared with 2004. These employee costs did not increase proportionately with the 19.7% increase in segment revenues due to an increase in revenues from Section 1031 property ~~exchanges,~~exchange services, which are less labor intensive than other REI services. ~~In 2004 employee costs were comparable to 2003.~~

Other operating expenses.Our employee costs and certain other operating expenses. are sensitive to inflation. Other operating expenses for the combined business segments increased ~~14.9%~~$32.8 million, or 8.8%, in ~~2005~~2006 and ~~5.7%~~$48.3 million, or 14.9%, in ~~2004.~~2005. The increase in other operating expenses in 2006 was partially due to acquisitions, which contributed approximately $13.7 million of the increase. Other 2006 increases included technology costs, outside search fees, business promotion and litigation costs. The increase in other operating expenses in 2005 was partially due to acquisitions, which contributed approximately ~~$9.4~~$18.9 million of the increase. Other 2005 increases included rent of $10.0 million, ~~certain REI expenses,~~outside search fees, business promotion and technology costs. Increases in 2004 were in acquisitions, which contributed $12.4 million of the increase, litigation costs of $4.7 million, rent and technology costs. The increases were partially offset by decreases in certain REI expenses in response to volume decreases, supplies expense and attorney fees.

Other operating expenses also include title plant and travel expenses. ~~Most of our operating expenses follow, to varying degrees, the changes in transaction volume and revenues.~~

~~Our employee costs and certain other operating expenses are sensitive to inflation. To the extent inflation causes increases~~Included in the ~~prices of homes and other real estate, premium revenues also increase. Premiums are determined~~increase in ~~part by the insured values of the transactions we handle.~~rent expense in 2005 was a $2.8 million charge related to our accounting for leases.

-19-

Title ~~losses~~losses.. Provisions for title losses, as a percentage of title operating revenues, were ~~5.5%~~6.0%, 5.5% and 4.8% in 2006, 2005 and ~~4.4% in 2005,~~ 2004, ~~and 2003,~~ respectively. An increase in ~~the number of larger losses~~loss payment experience for recent policy years resulted in an increase in our loss ratio in 2006 compared with 2005. ~~The~~Additions to title loss reserves of $4.9 million and $4.3 million in the second and fourth quarters of 2006, respectively, related primarily to agency defalcations, also contributed to the increase ~~included a $10.5 million~~in our title loss ratio in the current year. Included in 2005 was an addition to title loss reserves of $10.5 million in the fourth quarter ~~of 2005~~ related to a mortgage fraud and aan agency defalcation. An increase in loss payment experience ~~for prior policy years~~ also resulted in an increase in our loss ~~ratios~~provision in 2005 ~~and~~compared with 2004.

Income ~~taxes~~taxes.~~. The provisions for federal, state and foreign income taxes represented~~Our effective tax rates, based on earnings before taxes and after deducting minority interests ($66.3 million, $145.5 million and $133.2 million in 2006, 2005 and 2004, respectively), were 34.8%, 39.0% and 38.1% for 2006, 2005 and 2004, respectively. For 2006, our effective tax rate was positively impacted primarily by a higher ratio of ~~37.9%, 37.4% and 37.6%~~tax-exempt income to earnings before taxes than in ~~2005, 2004 and 2003, respectively.~~2005.

Contractual obligations.Our material contractual obligations at December 31, ~~2005~~2006 were:



											Payments due by period ($ millions)
	Payments due ($ millions)										Less than		1–3		3–5		More than
	Less than		1-3		3-5		More than				1 year		years		years		5 years		Total
	1 year		years		years		5 years		Total

Notes payable		18.0		26.8		41.7		1.9		88.4		17.1		41.4		49.4		1.6		109.5
Operating leases		48.6		73.4		39.4		53.7		215.1		55.2		81.2		43.3		58.3		238.0
Estimated title losses		65.9		97.1		45.0		138.7		346.7		73.0		107.6		50.0		153.8		384.4

		132.5		197.3		126.1		194.3		650.2		145.3		230.2		142.7		213.7		731.9

~~Acquisitions~~Unrealized gains and losses on investments, net of taxes, are reported in accumulated other comprehensive earnings, a component of stockholders’ equity, until realized. For 2006, unrealized investment gains increased comprehensive earnings by $0.8 million, net of taxes. During the first six months of 2006, unrealized investment losses reduced comprehensive earnings by $6.5 million, net of taxes. These unrealized investment losses were primarily related to changes in bond values caused by interest rate increases. The increase in comprehensive income related to unrealized investment gains during the last six months of 2006 of $7.3 million, net of taxes, was primarily related to changes in bond values caused by interest rate decreases.

During the years ended 2006, 2005 and 2004, ~~and 2003~~acquisitions resulted in additions to goodwill of $48.7 million, $30.1 million ~~$45.6 million~~ and ~~$13.7~~$45.6 million, respectively.

~~Restrictions on liquidity.~~A substantial majority of our consolidated cash and investments at December 31, ~~2005~~2006 was held by ~~Stewart Title~~ Guaranty ~~Company (Guaranty)~~ and its subsidiaries. The use and investment of these funds, dividends to ~~the Company~~us, and cash transfers between Guaranty and its subsidiaries and ~~the Company~~us are subject to certain legal ~~restrictions (Notes~~restrictions. See Notes 2 and ~~3).~~3 to the accompanying consolidated financial statements.

Our liquidity at December 31, ~~2005,~~2006, excluding Guaranty and its subsidiaries, was comprised of cash and investments aggregating ~~$35.6~~$55.4 million and short-term liabilities of ~~$3.3~~$6.7 million. We know of no commitments or uncertainties that are likely to materially affect our ability to fund cash ~~needs (Note 17).~~needs. See Note 17 to the accompanying consolidated financial statements.

Loss reserves.Our loss reserves are fully funded, segregated and invested in high-quality securities and short-term ~~investments. This is~~investments as required by the insurance regulators of the states in which our underwriters are domiciled. At December 31, ~~2005,~~2006, these investments aggregated ~~$427.0~~$457.0 million and our estimated title loss reserves were ~~$346.7~~$384.4 million.

Effective September 1, 2005 and retroactive to the start of the year, the Texas Legislature reduced statutory reserve requirements for our major title insurer. The change does not directly impact reported earnings or loss reserves under U.S. generally accepted accounting principles. However, in the year 2005 the change released approximately $25.2 million, or approximately $18.3 million after ~~tax,~~taxes, of low-yielding statutory reserve investments, making that portion available for other uses.

Historically, our operating cash flow has been sufficient to pay all title policy ~~losses incurred.~~losses. As reported in Note 4 to the ~~market~~accompanying consolidated financial statements, the fair value of our debt securities maturing in less than one year was ~~$33.8~~$57.9 million at December 31, ~~2005. Combined with~~2006. Combining our expected annual cash flow ~~from~~provided by operations ($~~173.5~~99.7 million in ~~2005),~~2006) with investments maturing in less than one year, we do not expect future loss payments to create a liquidity problem for us. Beyond providing funds for ~~losses,~~loss payments, we manage the maturities of our investment portfolio to provide safety of capital, improve earnings and mitigate interest rate risks.

Capital resources.We consider our capital resources to be adequate. We expect external capital resources will be available, if needed, because of our low debt-to-equity ratio. Long-term debt was ~~$70.4~~$92.5 million and stockholders’ equity was ~~$766.3~~$802.3 million at December 31, ~~2005.~~2006. We are not aware of any trends, either favorable or unfavorable, that ~~will~~would materially affect notes payable or stockholders’ equity. We do not expect any material changes in the mix and relative cost of such resources. Significant acquisitions in the future could materially affect the notes payable or stockholders’ equity balances.

Off-balance sheet arrangements.We do not have any material source of liquidity or financing that involves off-balance sheet ~~arrangements.~~arrangements, other than our contractual obligations under operating leases.

-21-

~~Item 7A. Quantitative and Qualitative Disclosures About Market Risk~~


Item 7A.		Quantitative and Qualitative Disclosures About Market Risk

The discussion below about our risk management strategies includes forward-looking statements that are subject to risks and uncertainties. Management’s projections of hypothetical net losses in the fair ~~value~~values of our market rate-sensitive financial instruments, should certain potential changes in market rates occur, are presented below. While we believe that the potential market rate changes are possible, actual rate changes could differ.

Our only material market risk in investments in financial instruments is our debt securities portfolio. We invest primarily in ~~marketable~~ municipal, corporate ~~foreign,~~and utilities, U.S. Government and ~~mortgage-backed~~foreign debt securities. We do not invest in financial instruments of a hedging or derivative nature.

We have established policies and procedures to minimize our exposure to changes in the fair values of our investments. These policies include retaining an investment advisory firm, an emphasis upon credit quality, management of portfolio duration, maintaining or increasing investment income through high coupon rates and actively managing profile and security mix depending upon market conditions. We have classified all of our investments as available-for-sale.

Investments in debt securities at December 31, ~~2005~~2006 mature, according to their contractual terms, as follows (actual maturities may differ because of call or prepayment rights):



					Amortized		Fair
					costs		values
	Amortized		Market
	costs		values		($ thousands)
	($ thousands)
In one year or less		33,881		33,782		58,162		57,903
After one year through two years		51,474		51,107		52,537		52,162
After two years through three years		58,147		57,950		67,020		67,003
After three years through four years		70,591		71,136		49,325		48,782
After four years through five years		44,283		43,889		65,944		65,815
After five years		247,929		250,727		239,203		240,664
Mortgage-backed securities		310		281		228		200

		506,615		508,872		532,419		532,529

~~Item 8. Financial Statements and Supplementary Data~~


Item 8.		Financial Statements and Supplementary Data

The information required to be provided in this item is included in our audited Consolidated Financial Statements, including the Notes thereto, attached hereto as pages F-1 to ~~F-19,~~F-23, and such information is incorporated in this report by reference.

~~Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure~~


Item 9.		Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

~~Item 9A. Controls and Procedures~~


Item 9A.		Controls and Procedures

Our principal executive officers and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, ~~2005,~~2006, have concluded that, as of such date, our disclosure controls and procedures are adequate and effective to ensure that material information relating to us and our consolidated subsidiaries would be made known to them by others within those entities.

~~- 16 -~~

There has been no change in our internal control over financial reporting during the quarter ended December 31, ~~2005~~2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. As a result, no corrective actions were required or undertaken.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal controls over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal controls over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

~~The Board of Directors has adopted the~~~~Stewart Code of Business Conduct and Ethics~~~~and~~~~Guidelines on Corporate Governance,~~~~as well as the~~~~Code of Ethics for Chief Executive Officers, Principal Financial Officer and Principal Accounting Officer~~~~. Each of these documents can be found at our website,www.stewart.com~~.

See page F-2 for the Sarbanes-Oxley Section 404 Management Report and page F-3 for the Report of Independent Registered Public Accounting Firm on our effectiveness of internal control over financial reporting.

~~Item 9B. Other Information~~


Item 9B.		Other Information

None.

~~- 17 -~~-23-

PART III

~~Item 10. Directors and Executive Officers of the Registrant~~


Item 10.		Directors, Executive Officers and Corporate Governance

Information regarding our directors and executive officers will be included in our proxy statement for our ~~2006~~2007 Annual Meeting of Stockholders ~~(the Proxy~~(Proxy Statement), to be filed within 120 days after December 31, ~~2005,~~2006, and is incorporated in this report by reference.

The Board of Directors has adopted theStewart Code of Business Conduct and EthicsandGuidelines on Corporate Governance,as well as theCode of Ethics for Chief Executive Officers, Principal Financial Officers and Principal Accounting Officer. Each of these documents can be found at our website,www.stewart.com.

~~Item 11. Executive Compensation~~


Item 11.		Executive Compensation

Information regarding compensation for our executive ~~compensation~~officers will be included in the Proxy Statement and is incorporated in this report by reference. The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management and based on that review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Proxy Statement.


Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information regarding security ownership of certain beneficial owners and management and related stockholder matters will be included in the Proxy Statement and is incorporated in this report by reference.

~~Item 12. Security Ownership of Certain Beneficial Owners and Management~~


Item 13.		Certain Relationships and Related Transactions, and Director Independence

Information regarding ~~security ownership of~~ certain ~~beneficial owners~~relationships and ~~management~~related transactions, and director independence will be included in the Proxy Statement and is incorporated in this report by reference.

~~Item 13. Certain Relationships and Related Transactions~~

~~Information regarding certain relationships and related transactions will be included in the Proxy Statement and is incorporated in this report by reference.~~

~~Item 14. Principal Accounting Fees and Services~~


Item 14.		Principal Accounting Fees and Services

Information regarding fees paid to and services provided by our independent registered public accounting firm will be included in the Proxy Statement and is incorporated in this report by reference.

-24-

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, we have duly caused this report to be signed on our behalf by the undersigned, thereunto duly authorized.


			STEWART INFORMATION SERVICES CORPORATION (Registrant)
By:	/s/ Malcolm S. Morris
				~~(Registrant)~~

		~~By:~~	~~/s/ Malcolm S. Morris~~

			Malcolm S. Morris, Co-Chief Executive Officer
			and Chairman of the Board of Directors



By:	/s/ Stewart Morris, Jr.
		~~By:~~Stewart Morris, Jr., Co-Chief Executive Officer, President and Director		~~/s/ Stewart Morris, Jr.~~


By:	/s/ Max Crisp
			~~Stewart Morris, Jr., Co-Chief Executive Officer,~~
			~~President and Director~~


		~~By:~~	~~/s/ Max Crisp~~

			Max Crisp, Executive Vice President and Chief Financial Officer, Secretary–Treasurer, Director and Principal Financial Officer


By:	~~Officer, Secretary-Treasurer, Director and~~/s/ Alison R. Evers
	Alison R. Evers, Senior Vice President,
	Corporate Controller and Principal ~~Financial~~Accounting Officer

Dated: ~~March 13, 2006~~February 23, 2007

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on our behalf on February 23, 2007 by the following ~~persons on our behalf and in the capacities and on the dates indicated:~~Directors:


/s/ Robert L. Clarke ~~(Robert~~		/s/ Malcolm S. Morris

(Robert L. Clarke)	~~Director~~(Paul Hobby)	~~March 13, 2006~~(Malcolm S. Morris)

/s/ Max Crisp ~~(Max Crisp)~~	~~Director~~	~~March 13, 2006~~
~~/s/ Nita Hanks~~ ~~(Nita Hanks)~~	~~Director~~	~~March 13, 2006~~
~~(Paul Hobby)~~	~~Director~~
/s/ E. Douglas Hodo ~~(E.~~	/s/ Stewart Morris, Jr.

(Max Crisp)	(E. Douglas Hodo)	~~Director~~(Stewart Morris, Jr.)
	~~March 13, 2006~~
~~(Laurie~~

(Nita Hanks)	(Laurie C. Moore)	~~Director~~
~~/s/ Malcolm S. Morris~~ ~~(Malcolm S. Morris)~~	~~Director~~	~~March 13, 2006~~
~~/s/ Stewart Morris, Jr.~~ ~~(Stewart Morris, Jr.)~~	~~Director~~	~~March 13, 2006~~
~~(W.~~(W. Arthur Porter)	~~Director~~

~~- 19 -~~-26-

Sarbanes-Oxley Section 404 Management Report

To the Board of Directors and Stockholders of
Stewart Information Services Corporation

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, ~~2005.~~2006. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control — Integrated Framework.

Based on our assessment, management believes that, as of December 31, ~~2005,~~2006, the Company’s internal control over financial reporting is effective based on those criteria.

The Company’s independent registered public accounting firm has issued an audit report on our assessment of the Company’s internal control over financial reporting.


		~~By:~~	~~/s/ Malcolm S. Morris~~


By:	/s/ Malcolm S. Morris
	Malcolm S. Morris, Co-Chief Executive Officer and Chairman of the
	Board of Directors


By:	~~and Chairman of the Board of Directors~~

		/s/ Stewart Morris, Jr.
	~~By:~~Stewart Morris, Jr., Co-Chief Executive Officer, President and Director		~~/s/ Stewart Morris, Jr.~~


By:
		~~Stewart Morris, Jr., Co-Chief Executive Officer,~~
		~~President and Director~~


~~By:~~	~~/s/~~/s/ Max Crisp
		Max Crisp, Executive Vice President and
		~~Max Crisp, Executive Vice President and~~ Chief Financial
	Officer, Secretary-Treasurer, Director and
	Principal Financial Officer

F-2

Report of Independent Registered Public Accounting Firm

~~To the~~The Board of Directors and Stockholders of
Stewart Information Services ~~Corporation~~Corporation:

We have audited management’s assessment, included in the accompanying Sarbanes-Oxley Section 404 Management Report, that Stewart Information Services Corporation maintained effective internal control over financial reporting as of December 31, ~~2005,~~2006, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Stewart Information Services Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Stewart Information Services Corporation maintained effective internal control over financial reporting as of December 31, ~~2005,~~2006, is fairly stated, in all material respects, based on criteria established inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, Stewart Information Services Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2005,~~2006, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of Stewart Information Services Corporation and subsidiaries as listed in the accompanying index, ~~of Stewart Information Services Corporation~~ and our report dated March ~~7, 2006~~1, 2007 expressed an unqualified opinion on those consolidated financial statements.

~~/s/ KPMG LLP~~

~~Houston, Texas~~
~~March 7, 2006~~



/s/ KPMG LLP

Houston, Texas
March 1, 2007

F-3

Report of Independent Registered Public Accounting Firm

~~To the~~The Board of Directors and Stockholders of
Stewart Information Services ~~Corporation~~Corporation:

We have audited the consolidated financial statements of Stewart Information Services Corporation and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedules as listed in the accompanying index. These consolidated financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the ~~audits~~audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the ~~consolidated~~ financial position of Stewart Information Services Corporation and subsidiaries as of December 31, ~~2005~~2006 and ~~2004,~~2005, and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended December 31, ~~2005~~2006 in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Stewart Information Services Corporation’s internal control over financial reporting as of December 31, ~~2005,~~2006, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March ~~7, 2006~~1, 2007 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

~~/s/ KPMG LLP~~

~~Houston, Texas~~
~~March 7, 2006~~



/s/ KPMG LLP

Houston, Texas
March 1, 2007

F-4

CONSOLIDATED STATEMENTS OF EARNINGS, RETAINED EARNINGS AND COMPREHENSIVE EARNINGS



Years ended December 31	2005			2004			2003			2006			2005			2004
	($000 Omitted)									($000 omitted, except per share)
Revenues
Title insurance:
Direct operations		1,041,977			880,697			888,454			1,028,688			1,041,977			880,697
Agency operations		1,272,062			1,201,075			1,249,800			1,321,994			1,272,062			1,201,075

Real estate information services		82,495			68,907			78,666
Real estate information											81,159			82,495			68,907
Investment income		29,127			22,514			19,800			34,913			29,127			22,514
Investment gains – net		4,966			3,099			2,310
Investment and other gains — net											4,727			4,966			3,099

		2,430,627			2,176,292			2,239,030			2,471,481			2,430,627			2,176,292

Expenses
Amounts retained by agencies		1,032,496			980,457			1,024,282			1,067,071			1,032,496			980,457
Employee costs		694,599			591,092			573,486			728,529			694,599			591,092
Other operating expenses		373,161			324,897			307,509			405,951			373,161			324,897
Title losses and related claims		128,102			100,841			94,827			141,557			128,102			100,841
Depreciation and amortization		33,954			31,025			25,240			37,747			33,954			31,025
Interest		3,351			1,248			721			6,090			3,351			1,248

		2,265,663			2,029,560			2,026,065			2,386,945			2,265,663			2,029,560

Earnings before taxes and minority interests		164,964			146,732			212,965			84,536			164,964			146,732
Income taxes		56,768			50,696			75,748			23,045			56,768			50,696
Minority interests		19,431			13,518			13,462			18,239			19,431			13,518


Net earnings		88,765			82,518			123,755			43,252			88,765			82,518

Retained earnings at beginning of year		543,295			469,107			353,226			619,232			543,295			469,107
Excess distribution to minority interest		—			(478	)		—			—			—			(478	)
Cash dividends on Common Stock ($.75 per share in 2005 and $.46 per share in 2004 and 2003)		(12,828	)		(7,852	)		(7,874	)
Cash dividends on Common Stock ($.75 per share in 2006 and 2005 and $.46 per share in 2004)											(12,886	)		(12,828	)		(7,852	)


Retained earnings at end of year		619,232			543,295			469,107			649,598			619,232			543,295


Average number of shares outstanding – assuming dilution (000 omitted)		18,246			18,199			17,980
Average shares — diluted (000)											18,304			18,246			18,199

Earnings per share – basic		4.89			4.56			6.93
Earnings per share — basic											2.37			4.89			4.56

Earnings per share – diluted		4.86			4.53			6.88
Earnings per share — diluted											2.36			4.86			4.53


Comprehensive earnings:
Net earnings		88,765			82,518			123,755			43,252			88,765			82,518
Changes in other comprehensive earnings, net of taxes of ($4,394), ($663) and $3,056		(8,160	)		(1,231	)		5,675
Changes in other comprehensive earnings, net of taxes of $1,310, ($4,394) and ($663)											2,433			(8,160	)		(1,231	)


Comprehensive earnings		80,605			81,287			129,430			45,685			80,605			81,287

CONSOLIDATED BALANCE SHEETS



December 31	2005			2004			2006			2005
	($000 Omitted)						($000 omitted)
Assets
Cash and cash equivalents		134,734			121,383			136,137			134,734
Short-term investments		206,717			181,195			161,711			206,717

		341,451			302,578			297,848			341,451
Investments in debt and equity securities, at market:
Statutory reserve funds		449,475			401,814			490,540			449,475
Other		85,802			68,793			78,249			85,802

		535,277			470,607			568,789			535,277
Receivables:
Notes		6,850			6,683			6,901			6,850
Premiums from agencies		49,397			42,618			58,023			49,397
Income taxes		—			3,022			9,285			—
Other		40,941			35,384			45,370			40,941
Less allowance for uncollectible amounts		(8,526	)		(7,430	)		(9,112	)		(8,526	)

		88,662			80,277			110,467			88,662
Property and equipment, at cost:
Land		7,584			6,990			8,350			7,584
Buildings		15,303			15,162			20,591			15,303
Furniture and equipment		245,290			220,626			278,563			245,290
Less accumulated depreciation and amortization		(182,415	)		(159,387	)		(208,179	)		(182,415	)

		85,762			83,391			99,325			85,762

Title plants, at cost		58,930			52,679			70,324			58,930
Real estate, at lower of cost or net realizable value		2,688			1,743			3,658			2,688
Investments in investees, on an equity basis		16,387			19,814			17,139			16,387
Goodwill		155,624			124,636			204,302			155,624
Intangible assets, net of amortization		15,268			16,988			15,444			15,268
Other assets		61,102			40,640			70,911			61,102

		1,361,151			1,193,353			1,458,207			1,361,151


Liabilities
Notes payable, including $70,396 and $39,866 long-term portion		88,413			49,930
Notes payable, including $92,469 and $70,396 long-term portion								109,549			88,413
Accounts payable and accrued liabilities		125,255			101,544			130,589			125,255
Estimated title losses		346,704			300,749			384,396			346,704
Deferred income taxes		15,784			29,335			14,139			15,784
Minority interests		18,682			14,482			17,272			18,682

		594,838			496,040			655,945			594,838
Contingent liabilities and commitments

Stockholders’ equity
Common – $1 par, authorized 30,000,000, issued and outstanding 17,430,304 and 17,396,209		17,430			17,396
Class B Common – $1 par, authorized 1,500,000, issued and outstanding 1,050,012		1,050			1,050
Common Stock — $1 par, authorized 30,000,000, issued and outstanding 17,507,087 and 17,430,304								17,507			17,430
Class B Common Stock — $1 par, authorized 1,500,000, issued and outstanding 1,050,012								1,050			1,050
Additional paid-in capital		126,887			125,689			129,960			126,887
Retained earnings		619,232			543,295			649,598			619,232
Accumulated other comprehensive earnings:
Unrealized investment gains		2,551			9,749			3,399			2,551
Foreign currency translation adjustments		3,077			4,039			4,662			3,077
Treasury stock – 325,829 and 325,669 Common shares, at cost		(3,914	)		(3,905	)
Treasury stock — 325,829 shares, at cost								(3,914	)		(3,914	)

Total stockholders’ equity		766,313			697,313			802,262			766,313

		1,361,151			1,193,353			1,458,207			1,361,151

CONSOLIDATED STATEMENTS OF CASH FLOWS



Years ended December 31	2005			2004			2003			2006			2005			2004
	($000 Omitted)
Cash provided by operating activities (Note)		173,508			170,410			190,063
										($000 omitted)

Reconciliation of net earnings to cash provided by operating activities:
Net earnings											43,252			88,765			82,518
Add (deduct):
Depreciation and amortization											37,747			33,954			31,025
Provisions for title losses in excess of payments											34,968			45,940			32,433
Increase in receivables — net											(11,720	)		(7,858	)		(1,354	)
Increase in other assets — net											(9,330	)		(16,035	)		(8,977	)
(Decrease) increase in payables and accrued liabilities — net											(8,244	)		22,077			15,954
Minority interest expense											18,239			19,431			13,518
Net earnings from equity investees											(4,340	)		(6,992	)		(6,776	)
Dividends received from equity investees											4,804			4,868			6,002
Provision for deferred income taxes											(4,232	)		(9,158	)		7,391
Realized investment gains											(4,727	)		(4,966	)		(3,099	)
Other — net											3,314			3,482			1,775

Cash provided by operating activities											99,731			173,508			170,410

Investing activities:
Proceeds from investments matured and sold		580,925			405,689			264,318			435,529			580,925			405,689
Purchases of investments		(679,026	)		(470,777	)		(416,258	)		(405,942	)		(679,026	)		(470,777	)
Purchases of property and equipment, title plants and real estate — net		(33,931	)		(32,410	)		(37,236	)		(42,021	)		(33,931	)		(32,410	)
Increases in notes receivable		(2,654	)		(2,644	)		(1,329	)		(1,732	)		(2,654	)		(2,644	)
Collections on notes receivable		2,779			2,432			1,352			1,667			2,779			2,432
Proceeds from sale of equity investees		10,002			350			—			—			10,002			350
Cash paid for equity investees and related intangibles — net		(2,950	)		(4,141	)		(7,000	)		(4,747	)		(2,950	)		(4,141	)
Cash paid for acquisitions of subsidiaries — net (see below)		(18,149	)		(37,368	)		(3,499	)		(45,398	)		(18,149	)		(37,368	)

Cash used by investing activities		(143,004	)		(138,869	)		(199,652	)		(62,644	)		(143,004	)		(138,869	)

Financing activities:
Cash dividends paid		(12,828	)		(7,852	)		(7,874	)		(12,886	)		(12,828	)		(7,852	)
Distributions to minority interests		(16,549	)		(12,474	)		(11,433	)		(18,282	)		(16,549	)		(12,474	)
Proceeds from exercise of stock options		364			1,284			3,878			517			364			1,284
Proceeds from notes payable		37,161			5,834			3,295			17,307			37,161			5,834
Payments on notes payable		(23,821	)		(13,020	)		(7,108	)		(24,778	)		(23,821	)		(13,020	)

Cash used by financing activities		(15,673	)		(26,228	)		(19,242	)		(38,122	)		(15,673	)		(26,228	)

Effect of changes in foreign currency exchange rates		(1,480	)		1,868			3,877			2,438			(1,480	)		1,868


Increase (decrease) in cash and cash equivalents		13,351			7,181			(24,954	)
Increase in cash and cash equivalents											1,403			13,351			7,181

Cash and cash equivalents at beginning of period		121,383			114,202			139,156			134,734			121,383			114,202

Cash and cash equivalents at end of period		134,734			121,383			114,202			136,137			134,734			121,383


Note: Reconciliation of net earnings to the above amounts
Net earnings		88,765			82,518			123,755
Add (deduct):
Depreciation and amortization		33,954			31,025			25,240
Provisions for title losses in excess of payments		45,940			32,433			36,849
Increase in receivables — net		(7,858	)		(1,354	)		(9,848	)
Increase in other assets — net		(16,035	)		(8,977	)		(7,339	)
Increase (decrease) in payables and accrued liabilities — net		22,077			15,954			(3,317	)
Minority interest expense		19,431			13,518			13,462
Net earnings from equity investees		(6,992	)		(6,776	)		(6,586	)
Dividends received from equity investees		4,868			6,002			6,579
Provision for deferred income taxes		(9,158	)		7,391			9,375
Other — net		(1,484	)		(1,324	)		1,893
Cash provided by operating activities		173,508			170,410			190,063


Supplemental information:
Assets acquired:
Goodwill		30,108			45,552			13,655			48,678			30,108			45,552
Investments											13,429			—			—
Title plants		4,405			7,048			1,830			10,093			4,405			7,048
Property and equipment		1,319			7,479			1,115			4,829			1,319			7,479
Intangible assets		3,434			11,291			253			3,995			3,434			11,291
Other		6,202			2,301			4,032			—			6,202			2,301
Liabilities assumed		(2,543	)		(7,697	)		(4,933	)		(6,703	)		(2,543	)		(7,697	)
Debt issued		(24,776	)		(28,606	)		(12,453	)		(28,923	)		(24,776	)		(28,606	)

Cash paid for acquisitions of subsidiaries — net		18,149			37,368			3,499			45,398			18,149			37,368


Income taxes paid		51,652			47,436			81,267			43,897			51,652			47,436
Interest paid		2,665			971			618			4,613			2,665			971

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Three years ended December 31, ~~2005)~~2006)

NOTE 1

General.Stewart Information Services Corporation, through its subsidiaries (collectively, the Company), is primarily engaged in the title insurance-related services business. The Company also provides real estate information services. The Company operates through a network of policy-issuing offices and agencies in the United States and ~~several~~ international markets. Approximately ~~29 percent~~39% of consolidated title revenues for the year ended December 31, ~~2005~~2006 were generated in Texas, California and ~~Texas.~~Florida. The operations in the international markets in which the Company does business are immaterial to its consolidated financial results.

A. Management’s responsibility.The accompanying financial statements were prepared by management, which is responsible for their integrity and objectivity. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (GAAP), including management’s best judgments and estimates. Actual results could differ from estimates.

B. New significant accounting pronouncements.The ~~Company will adopt SFAS~~Securities and Exchange Commission issued Staff Accounting Bulletin No. ~~123(R), “Share-Based Payment”~~108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”, effective ~~January 1,~~for fiscal years ending after November 15, 2006, ~~which will require~~to address diversity in practice in quantifying financial statement misstatements and provide guidance on the ~~fair value~~consideration of ~~stock options to be recognized~~the effects of prior year misstatements in quantifying current year misstatements for the ~~consolidated financial statements as compensation expense. The pro forma impact~~purpose of ~~stock option expensing, calculated as required by SFAS No. 123, is disclosed in Note 1S.~~materiality assessment. The effect on the Company’s consolidated financial ~~position~~condition or results of operations iswas immaterial.

The Company will adopt FIN 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109”, effective January 1, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be ~~immaterial.~~taken in a tax return. The Company is in the process of evaluating the impact that FIN 48 will have on its consolidated financial statements. The Company does not expect the adoption of FIN 48 to have a material impact on its consolidated financial statements.

In September 2006, SFAS No. 157, “Fair Value Measurements”, was issued with an effective date of January 1, 2008. SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with GAAP and expands disclosure about fair value measurements. The Company is in the process of evaluating the impact that SFAS 157 will have on its consolidated financial statements.

C. Reclassifications.Certain prior year amounts in ~~the~~these consolidated financial statements have been reclassified for comparative purposes. Net earnings and stockholders’ equity, as previously reported, were not affected.

D. Consolidation.The consolidated financial statements include all ~~(1)~~ subsidiaries in which the Company owns more than 50% voting rights in electing directors and ~~(2)~~ variable interest entities when required by ~~FIN 46 and~~ FIN 46(R). Unconsolidated investees, in which the Company typically owns 20% through 50% ~~and where~~of the ~~Company exercises significant influence,~~equity, are accounted for by the equity method. All significant intercompany ~~accounts~~amounts and transactions are eliminated and provisions are made for minority interests.

E. Statutory accounting.Stewart Title Guaranty Company (Guaranty) and other title insurance underwriters owned by the Company prepare financial statements in accordance with statutory accounting practices prescribed or permitted by regulatory authorities.

F-8

In conforming the statutory financial statements to GAAP, the statutory premium reserve and the reserve for reported title losses are eliminated and, in substitution, amounts are established for estimated title losses (Note 1G). The net effect, after providing for ~~deferred~~ income taxes, is included in consolidated ~~retained~~ earnings.

F. Revenue recognition.Operating revenues from direct title operations are considered earned at the time of the closing of the related real estate transaction. The Company recognizes premium revenues on title insurance policies written by independent agencies (agencies) when the policies are reported to the Company. In addition, where reasonable estimates can be made, the Company also accrues for policies issued but not reported until after period end. The Company believes that reasonable estimates can be made when recent and consistent policy issuance information is available. Estimates are based on historical reporting patterns and other information obtained about ~~the operations of~~ agencies, as well as current ~~industry trends, including~~ trends in direct ~~operations.~~operations and in the title industry. In this accrual, future transactions are not being accrued. The Company is estimating revenues on policies that have already been issued by agencies but not yet reported to or received by the Company. The Company has consistently followed the same basic method of estimating unreported policy revenues for more than 10 years.

Revenues from real estate information services are generally considered earned at the time the service is performed or the work product is delivered to the customer.

G. Title losses and related claims.Estimating future title loss payments is difficult because of the complex nature of title claims, the length of time over which claims are paid, the significantly varying dollar amounts of individual claims and other factors.

The Company’s liability for estimated title losses comprises both known claims and claims expected to be reported in the future. The amount of the reserve represents the aggregate future payments ~~net~~(net of ~~recoveries,~~recoveries) that are expected to be incurred on policy and escrow losses and in costs to settle claims. Large losses are individually evaluated. Provisions are charged to income in the same year the related premium revenues are recognized. The Company bases the estimates on reported claims, historical loss experience, title industry averages and the current legal and economic environment.

~~F-8~~

The Company’s estimated liability for future loss payments is regularly reviewed for ~~reasonableness~~adequacy and adjusted as appropriate. Independent consulting actuaries also review the adequacy of the liability on an annual basis. In accordance with industry practice, the amounts have not been discounted to their present values.

H. Cash equivalents.Cash equivalents are highly liquid investments with insignificant interest rate risks and maturities of three months or less at the time of acquisition.

I. Short-term investments.Short-term investments comprise time deposits with banks, federal government obligations, money market accounts and other investments maturing in less than one year.

J. Investments.The investment portfolio is classified as available-for-sale. Realized gains and losses on sales of investments are determined using the specific identification method. Net unrealized gains and losses on securities, net of applicable deferred taxes, are included as a component of other comprehensive earnings within stockholders’ equity. At the time unrealized gains and losses become realized, these realized gains or losses are reclassified from accumulated other comprehensive earnings using the specific identification method. Any other-than-temporary declines in market values of securities are charged to earnings.

K. Property and equipment.Depreciation is computed principally using the straight-line method at the following rates: buildings– — 30 to 40 years and furniture and equipment– — 3 to 10 years. Maintenance and repairs are expensed as incurred while improvements are capitalized. Gains and losses are recognized at disposal.

F-9

L. Title plants.Title plants include compilations of a county’s official land records, prior examination files, copies of prior title policies, maps and related materials that are geographically indexed to a specific property. The costs of acquiring existing title plants and creating new ones, prior to the time such plants are placed in operation, are capitalized. Such costs are not amortized ~~because~~since there is no indication of any loss of value. The costs of maintaining and operating title plants are expensed as incurred. Gains and losses on sales of copies of title plants or interests in title plants are recognized at the time of sale.

M. Goodwill.Goodwill is the excess of the purchase price over the fair value of net assets acquired. Goodwill is not amortized but is reviewed no less than annually and, if determined to be impaired, is expensed to current operations.

N. Acquired intangibles.Intangible assets are comprised mainly of non-compete and underwriting agreements and are amortized on a straight-line basis over their estimated lives, which are primarily 3 to 10 years.

O. Other long-lived assets.The Company reviews the carrying values of title plants and other long-lived assets if certain events occur that may indicate impairment. An impairment of these long-lived assets is indicated when projected undiscounted cash flows over the estimated lives of the assets are less than carrying values. If impairment is determined by management, the recorded amounts are written down to fair values by calculating the discounted values of projected cash flows.

P. Fair values.The fair values of financial instruments, including cash and cash equivalents, short-term investments, notes receivable, notes payable and accounts payable, are determined by references to various market data and other valuation techniques, as appropriate. The fair values of these financial instruments approximate their carrying values. Investments in debt and equity securities are carried at their fair values (Note 4).

Q. Derivatives and hedging.The Company does not invest in hedging or derivative instruments.

R. Leases.The Company recognizes minimum rental payments under noncancelable operating leases, which expire over the next 10 years, on the straight-line basis over the terms of the leases, including provisions for any free rent periods or escalating lease payments.

S. Income taxes.Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the tax bases and the book carrying values of certain assets and liabilities. Valuation allowances are provided as may be appropriate. Enacted tax rates are used in calculating amounts.

S.T. Stock option plans.The Company combined its two stock option plans into a single plan in April 2005. ~~The~~Effective January 1, 2006, the Company ~~applies~~adopted SFAS No. 123(R), “Share-Based Payment”, using the modified prospective method under which share-based compensation expense is recognized for new share-based awards granted and any outstanding awards that are modified, repurchased or cancelled. Compensation expense is estimated using the Black-Scholes Model. All options expire 10 years from the date of grant and are granted at the closing market price of the Company’s Common Stock on the date of grant. All options are immediately exercisable, and therefore, there are no unvested awards.

Prior to the adoption of SFAS No. 123(R), the Company applied the intrinsic value method of APB No. 25, “Accounting for Stock Issued to Employees”, and related Interpretations in accounting for ~~the~~its plans. Accordingly, no stock-based employee compensation ~~cost is~~expense was reflected in net earnings, as all options granted had an exercise price equal to the market value of the Common Stock on the date of grant (Note 13).

Under SFAS No. 123, compensation cost is recognized for the fair value of the employees’ purchase rights, which is estimated using the Black-Scholes Model. The Company assumed a dividend yield of 0% to 1.4%, an expected life of ten years, an expected volatility of 34.5% to 37.2% and a risk-free interest rate of 4.0% to 6.0% for the three years ended December 31, 2005.

~~F-9~~F-10

Had compensation cost for the Company’s plans been determined consistent with SFAS No. 123, the Company’s net earnings and earnings per share would have been reduced to the pro forma amounts indicated as follows:

2005 2004 2003

($000 Omitted)
Net earnings:
As reported 88,765 82,518 123,755
Stock-based employee compensation determined under the
fair value method, net of taxes (1,186 ) (1,164 ) (718 )

Pro forma 87,579 81,354 123,037

Earnings per share:
Net earnings — basic 4.89 4.56 6.93
Pro forma — basic 4.83 4.50 6.89

Net earnings — diluted 4.86 4.53 6.88
Pro forma — diluted 4.80 4.47 6.84

NOTE 2

Restrictions on cash and investments.Statutory reserve funds of ~~$449,475,000~~$490,540,000 and ~~$401,814,000~~$449,475,000 and short-term investments of ~~$47,804,000~~$53,613,000 and ~~$56,870,000~~$47,804,000 at December 31, 2006 and 2005, ~~and 2004,~~ respectively, ~~are~~were maintained to comply with legal requirements for statutory premium reserves and state deposits. These funds are not available for any other purpose.

A substantial majority of consolidated investments and cash at each year end was held by the Company’s title insurer subsidiaries. Generally, the types of investments a title insurer can make are subject to legal restrictions. Furthermore, the transfer of funds by a title insurer to its parent or subsidiary operations, as well as other related party transactions, are restricted by law and generally require the approval of state insurance authorities.

NOTE 3

Dividend restrictions.Substantially all of the consolidated retained earnings at each year end were represented by Guaranty, which owns directly or indirectly substantially all of the subsidiaries included in the consolidation.

Guaranty cannot pay a dividend in excess of certain limits without the approval of the Texas Insurance Commissioner. The maximum dividend that can be paid without such approval in ~~2006~~2007 is ~~$97,639,000.~~$101,702,000. Guaranty declared dividends of $13,000,000, $31,000,000 and $21,615,000 in 2006, 2005 and ~~$33,790,000 in 2005,~~ 2004, ~~and 2003,~~ respectively.

Dividends from Guaranty are also voluntarily restricted primarily to maintain statutory surplus and liquidity at competitive levels. The ability of a title insurer to pay claims can significantly affect the decision of lenders and other customers when buying a policy from a particular insurer.

Surplus as regards policyholders for Guaranty was ~~$488,193,000~~$508,509,000 and ~~$417,906,000~~$488,193,000 at December 31, ~~2005~~2006 and ~~2004,~~2005, respectively. Statutory net income for Guaranty was $36,905,000, $56,449,000 and $26,609,000 in 2006, 2005 and ~~$35,645,000 in 2005,~~ 2004, ~~and 2003,~~ respectively.

~~F-10~~

NOTE 6

Income taxes.Deferred income taxes at December 31, ~~2005~~2006 and ~~2004~~2005 were as follows:



	2005			2004			2006			2005

	($000 Omitted)						($000 omitted)
Deferred tax assets:
Accruals not currently deductible		8,048			3,843
Litigation reserves not currently deductible		576			2,052
Accruals not currently deductible:
Deferred compensation								5,398			4,389
Deferred rent								2,701			1,786
Litigation reserves								1,716			576
Other								2,309			2,218
Allowance for uncollectible amounts								2,051			1,892
Book over tax depreciation — fixed assets								1,976			791
Book investment impairments								1,245			1,245
Investments in partnerships								1,820			1,720
Net operating loss carryforwards		590			224			465			590
Allowance for uncollectible amounts		1,892			1,365
Investments in partnerships		1,720			1,332
Foreign tax credit carryforwards		—			2,917
Other		2,110			2,001			202			520

		14,936			13,734			19,883			15,727
Less valuation allowance		(104	)		(492	)		(61	)		(104	)

		14,832			13,242			19,822			15,623

Deferred tax liabilities:
Tax over book title loss provisions		(22,469	)		(28,894	)		(21,618	)		(22,469	)
Unrealized gains on investments		(1,374	)		(5,250	)		(1,830	)		(1,374	)
Tax over book depreciation and amortization		(978	)		(4,350	)
Tax over book amortization — goodwill and other intangibles								(3,410	)		(1,769	)
Cash surrender value of insurance policies								(3,231	)		(2,452	)
Foreign translation adjustment								(2,510	)		(1,657	)
Other		(5,795	)		(4,083	)		(1,362	)		(1,686	)

		(30,616	)		(42,577	)		(33,961	)		(31,407	)

Net deferred income taxes		(15,784	)		(29,335	)		(14,139	)		(15,784	)

The following reconciles federal income taxes computed at the statutory rate with income taxes as reported.

2005 2004 2003

($000 Omitted)

Expected income taxes at 35% 50,937 46,625 69,826
State taxes — net 3,094 2,708 4,073
Foreign taxes — net of tax credits 1,305 1,204 864
Tax effect of permanent differences:
Tax-exempt interest (2,311 ) (2,205 ) (2,052 )
Meals and entertainment 2,108 2,098 1,680
Net earnings from equity investees (2,447 ) (2,372 ) (2,305 )
Minority interests 2,505 1,485 2,003
Other — net 1,577 1,153 1,659

Income taxes 56,768 50,696 75,748
Income taxes in minority interests 1,611 879 754

Income taxes after income taxes in minority interests 55,157 49,817 74,994

Effective income tax rate (%) 37.9 37.4 37.6



	2006			2005			2004

	($000 omitted)
Expected income taxes at 35%		23,204			50,937			46,625
State income taxes — net of federal tax benefit		1,786			3,094			2,708
Tax-exempt interest		(4,638	)		(2,311	)		(2,205	)
Meals and entertainment		2,748			2,108			2,098
Minority interests — corporate investees		1,593			2,505			1,485
Dividends received deductions on investments		(2,125	)		(1,197	)		(1,082	)
Other — net		477			1,632			1,067

Income taxes		23,045			56,768			50,696

Effective income tax rates (%)⁽¹⁾		34.8			39.0			38.1



⁽¹⁾	Calculated using earnings before taxes and after minority interests

F-14

~~Income taxes in minority interests represents the tax effect of minority interests in corporations that are excluded from the consolidated tax return.~~

The ~~Company’s effective tax rate before adjusting for~~Company had federal income taxes ~~in minority interests was 39.0%, 38.1%~~receivable of approximately $9,285,000 at December 31, 2006 and ~~38.0% in~~federal income taxes payable of approximately $11,860,000 at December 31, 2005. The Company had state income taxes payable of approximately $1,960,000 and $213,000 at December 31, 2006 and 2005, ~~2004 and 2003,~~ respectively.

NOTE 7

Goodwill and acquired intangibles.A summary of goodwill follows:



	Title			REI			Total			Title		REI		Total

	($000 Omitted)

Balances at December 31, 2002		56,916			9,969			66,885
Acquisitions		13,655			—			13,655
Impairment		(1,955	)		—			(1,955	)
Other		551			(52	)		499
										($000 omitted)
Balances at December 31, 2003		69,167			9,917			79,084			69,167		9,917		79,084
Acquisitions		45,552			—			45,552			45,552		—		45,552

Balances at December 31, 2004		114,719			9,917			124,636			114,719		9,917		124,636
Acquisitions		25,188			4,920			30,108			25,188		4,920		30,108
Other		880			—			880			880		—		880

Balances at December 31, 2005		140,787			14,837			155,624			140,787		14,837		155,624
Acquisitions											40,108		8,570		48,678

Balances at December 31, 2006											180,895		23,407		204,302

NOTE 9

Notes payable.

2005 2004

($000 Omitted)

Banks – primarily unsecured and at LIBOR⁽¹⁾ plus 0.75%, varying payments
86,294 47,501
Other than banks 2,119 2,429

88,413 49,930



	2006		2005
	($000 omitted)
Banks — primarily unsecured and at rates ranging from LIBOR⁽¹⁾ plus 0.50% to LIBOR⁽¹⁾ plus 0.75%, varying payments		101,674		86,294
Other than banks		7,875		2,119

		109,549		88,413



⁽¹⁾		~~4.39%~~5.33% and ~~2.42%~~4.39% at December 31, ~~2005~~2006 and ~~2004,~~2005, respectively.

In December 2005, the Company executed an agreement with a bank for a ~~$30,000,000~~$31,156,000 loan bearing interest at a fixed interest rate of 5.97% per ~~annum with a bank.~~annum. Approximately ~~$14,632,000~~$15,788,000 of the proceeds ~~represents~~represented the conversion of existing debt with the bank from variable interest rate loans to the fixed interest rate. Other than the conversion of the interest rates, the terms of the existing debt remain unchanged. The remaining ~~$15,368,000 of the loan~~amount has a five-year term and ~~will be~~was used to retire ~~currently~~ outstanding variable interest rate loans orand to fund acquisitions. The total outstanding balance at December 31, 2006 under this agreement was $27,269,000. The loan requires that the Company maintain certain liquidity ratios (excluding estimated title ~~losses)~~losses and contingent liabilities referred to in Note 17) throughout the term of the ~~loan.~~agreement. The Company was in compliance with ~~the~~these liquidity ratios at December 31, 2006 and 2005.

Principal payments on the notes are due in the amounts of ~~$18,017,000 in 2006, $13,563,000~~$17,080,000 in 2007, ~~$13,194,000~~$18,956,000 in 2008, ~~$16,722,000~~$22,481,000 in 2009, ~~$25,032,000~~$31,878,000 in 2010, $17,544,000 in 2011 and ~~$1,885,000~~$1,610,000 subsequent to ~~2010.~~2011.

~~F-14~~

At December 31, 2006 and 2005, the Company had unused lines of credit of approximately $8,486,000 and $2,577,000, respectively, which were subject to the same terms and interest rate range as noted above for notes payable to banks.

NOTE 10

Estimated title losses.Provisions accrued, payments made and liability balances for the three years follow:



	2005			2004			2003
	($000 Omitted)									2006			2005			2004
										($000 omitted)
Balances at January 1		300,749			268,089			230,058			346,704			300,749			268,089
Provisions		128,102			100,841			94,827			141,557			128,102			100,841
Payments		(82,162	)		(68,408	)		(57,978	)		(106,589	)		(82,162	)		(68,408	)
Reserve balances acquired		15			227			1,182			2,724			15			227

Balances at December 31		346,704			300,749			268,089			384,396			346,704			300,749

Provisions include amounts related to the current year of approximately $141,370,000, $127,999,000 and $100,611,000 for 2006, 2005 and ~~$94,578,000 for 2005,~~ 2004, ~~and 2003,~~ respectively. Payments related to the current year, including escrow and other loss payments, were approximately $25,279,000, $26,619,000 and $18,220,000 in 2006, 2005 and ~~$16,484,000 in 2005,~~ 2004, ~~and 2003,~~ respectively.

F-16

NOTE 11

Common Stock and Class B Common Stock.Holders of Common and Class B Common Stock have the same rights except no cash dividends may be paid on Class B Common Stock. The two classes of stock vote separately when electing directors and on any amendment to the Company’s certificate of incorporation that affects the two classes unequally.

A provision of the by-laws requires an affirmative vote of at least two-thirds of the directors to elect officers or to approve any proposal that may come before the directors. This provision cannot be changed without a majority vote of each class of stock.

Holders of Class B Common Stock may, with no cumulative voting rights, elect four directors if 1,050,000 or more shares of Class B Common Stock are outstanding; three directors if between 600,000 and 1,050,000 shares are outstanding; and none if less than 600,000 shares of Class B Common Stock are outstanding. Holders of Common Stock, with cumulative voting rights, elect the balance of the nine directors.

Class B Common Stock may, at any time, be converted by its stockholders into Common Stock on a share-for-share basis, although the holders of Class B Common Stock have agreed among themselves not to convert their stock. The agreement may be extended or terminated by them at any time. Such conversion is mandatory on any transfer to a person not a lineal descendant (or spouse, trustee, etc. of such descendant) of William H. Stewart.

At December 31, ~~2005~~2006 and ~~2004,~~2005, there were 145,820 shares of Common Stock held by a subsidiary of the Company. These shares are considered retired but may be issued from time to time in lieu of new shares.

~~F-15~~F-17

NOTE 12

Changes in stockholders’ equity.



	Common				Accumulated						Common				Accumulated
	and Class B		Additional		other						and Class B		Additional		other
	Common		paid-in		comprehensive			Treasury			Common		paid-in		comprehensive			Treasury
	Stock		capital		earnings			stock			Stock		capital		earnings			stock
	($000 Omitted)										($000 omitted)

Balances at December 31, 2002		18,057		116,870		9,344			(3,905	)
Stock bonuses and other		43		1,053		—			—
Exercise of stock options		252		3,626		—			—
Tax benefit of stock options exercised		—		1,267		—			—
Unrealized investment gains		—		—		3,158			—
Realized gain reclassification		—		—		(111	)		—
Foreign currency translation		—		—		2,628			—

Balances at December 31, 2003		18,352		122,816		15,019			(3,905	)		18,352		122,816		15,019			(3,905	)
Stock bonuses and other		31		1,170		—			—			31		1,170		—			—
Exercise of stock options		63		1,221		—			—			63		1,221		—			—
Tax benefit of stock options exercised		—		482		—			—
Unrealized investment losses		—		—		(1,476	)		—
Realized gain reclassification		—		—		(861	)		—
Tax benefit of options exercised												—		482		—			—
Net change in unrealized gains and losses												—		—		(737	)		—
Net realized gain reclassification												—		—		(1,600	)		—
Foreign currency translation		—		—		1,106			—			—		—		1,106			—

Balances at December 31, 2004		18,446		125,689		13,788			(3,905	)		18,446		125,689		13,788			(3,905	)
Stock bonuses and other		21		817		—			—			21		817		—			—
Exercise of stock options		13		360		—			—			13		360		—			—
Tax benefit of stock options exercised		—		21		—			—
Unrealized investment losses		—		—		(6,230	)		—
Realized gain reclassification		—		—		(968	)		—
Tax benefit of options exercised												—		21		—			—
Net change in unrealized gains and losses												—		—		(5,403	)		—
Net realized gain reclassification												—		—		(1,795	)		—
Foreign currency translation		—		—		(962	)		—			—		—		(962	)		—
Common Stock repurchased		—		—		—			(9	)
Common stock repurchased												—		—		—			(9	)

Balances at December 31, 2005		18,480		126,887		5,628			(3,914	)		18,480		126,887		5,628			(3,914	)
Stock bonuses and other												35		1,930		—			—
Exercise of stock options												42		809		—			—
Tax benefit of options exercised												—		334		—			—
Net change in unrealized gains and losses												—		—		(86	)		—
Net realized loss reclassification												—		—		934			—
Foreign currency translation												—		—		1,585			—

Balances at December 31, 2006												18,557		129,960		8,061			(3,914	)

~~Stock options are exercisable at date of grant.~~ The ~~weighted average~~weighted-average grant-date fair values of options granted during the years 2006, 2005 and 2004 were $16.32, $20.14 and ~~2003 were $20.14,~~ $19.44, ~~and $12.31,~~ respectively.

During the year ended December 31, 2006, the Company recognized compensation expense related to options granted of $0.4 million based on a fair value per option of $16.32. Under SFAS No. 123(R), compensation expense is recognized for the fair value of the employees’ purchase rights, which was estimated using the Black-Scholes Model. The ~~following summarizes fixed stock~~Company assumed a dividend yield of 2.0%, an expected life of seven years, an expected volatility of 35.1% and a risk-free interest rate of 8.0%.

At December 31, 2006, the weighted-average remaining contractual life of options outstanding was 5.7 years and ~~exercisable at~~the aggregate intrinsic value was $6.2 million. During the year ended December 31, ~~2005:~~2006, the aggregate intrinsic value of options exercised was $1.2 million and the Company recognized a tax benefit of $0.3 million related to these exercised options.

Range of exercise prices ($)
9.75 to 21.87 to
20.22 47.10 Total

Shares 214,934 234,700 449,634
Remaining contractual life – years⁽¹⁾
4.1 8.3 6.3
Exercise prices ($)⁽¹⁾
17.33 37.29 27.75

Had compensation expense for the years ended December 31, 2005 and 2004 been determined consistent with SFAS No. 123(R), the fair value of the employees’ purchase rights would have been estimated using the Black-Scholes Model assuming a dividend yield of 1.0% to 1.4%, an expected life of 10 years, an expected volatility of 34.5% to 34.9% and a risk-free interest rate of 4.0% to 6.0%. The effect on the Company’s net earnings and earnings per share for the years ended December 31, 2005 and 2004 would have been reduced to the pro forma amounts below (in thousands of dollars, except per share amounts):



	2005			2004
	($000 omitted)
Net earnings:
As reported		88,765			82,518
Stock-based employee compensation determined under the fair value method, net of taxes		(1,186	)		(1,164	)

Pro forma		87,579			81,354


Earnings per share:
Net earnings — basic		4.89			4.56
Pro forma — basic		4.83			4.50

Net earnings — diluted		4.86			4.53
Pro forma — diluted		4.80			4.47


⁽¹⁾		~~Weighted averages~~

NOTE 14

Earnings per share.The Company’s basic earnings per share was calculated by dividing net earnings by the ~~weighted average~~weighted-average number of shares of Common Stock and Class B Common Stock outstanding during the reporting period.

To calculate diluted earnings per share, the number of shares determined above was increased by assuming the issuance of all dilutive shares during the same reporting period. The treasury stock method was used to calculate the additional number of shares. The only potentially dilutive effect on earnings per share for the Company ~~was related~~relates to its stock option plans.

In calculating the effect of the options and determining diluted earnings per share, the ~~average~~weighted-average number of shares used in calculating basic earnings per share was increased by 90,000 in 2006, 112,000 in 2005 and 102,000 in ~~2004 and 118,000 in 2003. Stock options~~2004.

Options to purchase ~~66,500~~133,000, 67,000 and 67,000 shares were excluded from the computation of diluted earnings per share in 2006, 2005 and 2004, ~~as these~~respectively. These options were ~~anti-dilutive. There~~considered anti-dilutive since the exercise prices of the options were ~~no anti-dilutive options in 2003.~~greater than the weighted-average market values of the shares for the periods.

F-19

NOTE 15

Reinsurance.As is ~~the~~ industry practice, on certain transactions the Company cedes risks to other title insurance underwriters and reinsurers. However, the Company remains liable if the reinsurer should fail to meet its obligations. The Company also assumes risks from other underwriters. Payments and recoveries on reinsured losses were insignificant during the three years ended December 31, ~~2005.~~2006. The total amount of premiums for assumed and ceded risks was less than ~~one percent~~1% of consolidated title revenues in each of the last three years.

NOTE 16

Leases.The Company recognizes minimum rental payments under noncancelable operating leases, which expire over the next 11 years, on the straight-line basis over the terms of the leases, including provisions for any free rent periods or escalating lease payments. Rent expense was $66,052,000 in 2006, $64,698,000 in 2005 and $52,697,000 in ~~2004 and $46,511,000 in 2003.~~2004. The future minimum lease payments are summarized as follows (stated in thousands of dollars):


2006	48,639
2007	40,498	55,192
2008	32,878	46,268
2009	23,356	34,912
2010	16,006	24,947
2011 and after	53,699
2011		18,391
2012 and after		58,330

	215,076	238,040

NOTE 17

Contingent liabilities and commitments.~~The Company is contingently liable for disbursements of escrow funds held by agencies in those cases where specific insured closing guarantees have been issued.~~

The Company routinely holds funds in segregated escrow accounts pending the closing of real estate transactions. This resulted in a contingent liability to the Company of approximately ~~$1,454,379,000~~$1,514,429,000 at December 31, ~~2005.~~2006. The Company realizes economic benefits from certain commercial banks holding escrow deposits. The escrow funds are not invested under, and do not collateralize, the arrangements with the banks. Under these arrangements, there were no outstanding balances or liabilities at December 31, ~~2005~~2006 and ~~2004.~~2005.

The Company is a qualified intermediary 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. This resulted in a contingent liability to the Company of approximately ~~$1,062,130,000~~$1,189,406,000 at December 31, ~~2005.~~2006.

As is industry practice, these escrow and Section 1031 accounts are not included in the consolidated balance sheets.

In addition, the Company is contingently liable for disbursements of escrow funds held by agencies in those cases where specific insured closing guarantees have been issued.

At December 31, ~~2005~~2006, the Company was contingently liable for guarantees of indebtedness owed primarily to banks and others by certain third parties. The guarantees relate primarily to business expansion and expire no later than 2019. ~~As of~~At December 31, ~~2005,~~2006, the maximum potential future payments on the guarantees amounted to ~~$8,132,000.~~$7,275,000. Management believes that the related underlying assets and available collateral, primarily corporate stock and title plants, would enable the Company to recover ~~the~~ amounts paid under the guarantees. The Company believes no provision for losses is needed because no loss is expected on these guarantees. The Company’s accrued liability related to the non-contingent value of third-party guarantees was ~~$362,000~~$306,000 at December 31, ~~2005.~~2006.

F-20

In the ordinary course of business the Company guarantees the third-party indebtedness of ~~its~~certain consolidated subsidiaries. At December 31, ~~2005~~2006, the maximum potential future payments on the guarantees ~~are~~were not more than the related notes payable recorded in the 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 minimum lease payments ~~included in Note 16.~~(Note 16). In addition, the Company has unused letters of credit amounting to ~~$3,298,000~~$3,726,000 related primarily to workers’ compensation ~~policies.~~coverage.

~~In the normal conduct of~~The Company is also subject to routine lawsuits incidental to its business, most of which involve disputed policy claims. In many of these lawsuits, the ~~Company is subject to lawsuits, regulatory investigations and other legal proceedings that may involve substantial amounts. Such matters are not predictable with complete assurance.~~plaintiff seeks exemplary or treble damages in excess of policy limits based on the alleged malfeasance of an issuing agent. The Company ~~believes the probable resolution~~does not expect that any of ~~such contingencies~~these proceedings will ~~not materially affect the~~have a material adverse effect on its consolidated financial condition or results of ~~the Company.~~operations. Additionally, the Company has received various other inquiries from governmental regulators concerning practices in the insurance industry. Many of these practices do not concern title insurance and the Company does not anticipate that the outcome of these inquiries will materially affect ~~the~~its consolidated financial condition or results of ~~the Company. The Company, along~~operations. Along with the other major title insurance companies, the Company is party to a number of class actions concerning the title insurance ~~industry. The Company~~industry and believes that it has adequate reserves for these contingencies and that the likely resolution of these matters will not materially affect ~~the~~its consolidated financial condition or results of ~~the Company.~~operations.

NOTE 18

Regulatory developments.In September 2006, the California Commissioner of Insurance alleged that some of the Company’s captive reinsurance programs may have constituted improper payments for the placement or referral of title business and is seeking approximately $47 million in fines and penalties from us. Stewart believes that its reinsurance is traditional reinsurance applied to residential business, which was authorized by the Department of Housing and Urban Development in its August 1997 and 2004 letters on permissible captive reinsurance in residential transactions covered by the Real Estate Settlement and Procedures Act (RESPA). The Company has filed a notice of defense with the California Department of Insurance requesting an administrative hearing in response to its allegations. The Company believes that it has adequately reserved for this allegation and that the likely resolution will not materially affect its consolidated financial condition or results of operations.

Regulators periodically review title insurance premium rates and may seek reductions in the premium rates charged. In late 2006, the Texas Department of Insurance reduced rates by 3.2% effective February 1, 2007. The effect of this rate change is not expected to have a material impact on the Company’s consolidated financial condition or results of operations.

The rates charged by title insurance underwriters in Florida, from which the Company derives a significant portion of its revenues, are currently under review with proposals to enact premium rate decreases. The California Insurance Commissioner filed a rate reduction order that would have reduced title insurance rates in California by 26% commencing in 2009. On February 21, 2007, this rate reduction order was rejected by the California Office of Administrative Law. California’s Insurance Commissioner has announced plans to submit a revised rate reduction proposal in the future. The Company believes that California law requires rates to be established competitively and not by administrative order. The Company cannot predict the outcome of these proposals and, to the extent that rate decreases are enacted in the future, its financial condition and results of operations could be materially adversely affected.

F-21

NOTE 19

Variable interest entities.The Company, in the ordinary course of business, enters into joint ventures and partnerships related to its title operations. These entities are immaterial to the Company’s consolidated financial ~~position or~~condition and results of operations individually and in the aggregate. At December 31, ~~2005,~~2006, the Company had no material exposure to loss associated with variable interest entities to which it is a party.

NOTE 1920

Segment information.The Company’s two reportable segments are title and real estate information (REI). Both segments serve each other and the real estate and mortgage industries.

The title segment provides services needed ~~in transferring~~to transfer the title in a real estate transaction. These services include searching, examining and closing the title to real property and insuring the condition of the title.

The REI segment primarily provides electronic delivery of data, products and services related to real ~~estate transactions using electronic delivery.~~estate. These products and services include title reports, flood certificates, credit reports, property appraisals, document preparation, property information reports and background checks. This segment also provides post-closing services to lenders. In addition, the REI segment provides services related to Section 1031 tax-deferred property exchanges, mapping, and construction and maintenance of title plants for county clerks, tax assessors and title agencies.

~~F-18~~

Under the Company’s internal reporting system, most general corporate expenses are incurred by and charged to the title segment. Technology operating costs are also charged to the title segment, except for direct expenditures related to the REI segment. All investment income is included in the title segment as it is generated primarily from the investments of the title underwriters’ operations.



	Title		REI		Total		Title		REI		Total

							($000 omitted)

2006:
Revenues								2,390,322		81,159		2,471,481
Intersegment revenues								1,066		3,994		5,060
Depreciation and amortization								33,973		3,774		37,747
Earnings before taxes and minority interests								83,234		1,302		84,536
Identifiable assets								1,387,365		70,842		1,458,207
	($000 Omitted)
2005:
Revenues		2,348,132		82,495		2,430,627		2,348,132		82,495		2,430,627
Intersegment revenues		1,030		3,426		4,456		1,537		3,426		4,963
Depreciation and amortization		30,129		3,825		33,954		30,129		3,825		33,954
Earnings before taxes and minority interests		154,391		10,573		164,964		154,391		10,573		164,964
Identifiable assets		1,302,949		58,202		1,361,151		1,302,949		58,202		1,361,151

2004:
Revenues		2,107,385		68,907		2,176,292		2,107,385		68,907		2,176,292
Intersegment revenues		1,449		3,460		4,909		1,449		3,460		4,909
Depreciation and amortization		27,061		3,964		31,025		27,061		3,964		31,025
Earnings before taxes and minority interests		143,154		3,578		146,732		143,154		3,578		146,732
Identifiable assets		1,151,563		41,790		1,193,353

2003:
Revenues		2,160,364		78,666		2,239,030
Intersegment revenues		1,843		3,752		5,595
Depreciation and amortization		21,535		3,705		25,240
Earnings before taxes and minority interests		200,689		12,276		212,965

SCHEDULE I

STEWART INFORMATION SERVICES CORPORATION

(Parent Company)

STATEMENTS OF EARNINGS AND RETAINED EARNINGS ~~INFORMATION~~



Years ended December 31										2006			2005			2004
	Years ended December 31
	2005			2004			2003			($000 omitted)
	($000 Omitted)
Revenues
Investment income, including $18, $136 and $271 from affiliates	$	1,254		$	477		$	516
Investment income, including $0, $18, and $136 from affiliates											2,565			1,254			477
Other income		3			11			36			23			3			11

		1,257			488			552			2,588			1,257			488

Expenses
Employee costs		1,396			3,120			846			1,717			1,396			3,120
Other operating expenses, including $93, $101 and $73 to affiliates		4,666			3,618			4,044
Other operating expenses, including $147, $93 and $101 to affiliates											4,466			4,666			3,618
Depreciation and amortization		812			796			243			813			812			796

		6,874			7,534			5,133			6,996			6,874			7,534

Loss before taxes and earnings from subsidiaries		(5,617	)		(7,046	)		(4,581	)		(4,408	)		(5,617	)		(7,046	)
Income tax benefit		2,018			1,938			1,012			1,669			2,018			1,938
Earnings from subsidiaries		92,364			87,626			127,324			45,991			92,364			87,626


Net earnings		88,765			82,518			123,755			43,252			88,765			82,518

Retained earnings at beginning of year		543,295			469,107			353,226			619,232			543,295			469,107
Excess distribution to minority interest		—			(478	)		—			—			—			(478	)
Cash dividends on Common Stock ($.75, $.46 and $.46 per share in 2005, 2004 and 2003)		(12,828	)		(7,852	)		(7,874	)
Cash dividends on Common Stock ($.75 per share in 2006 and 2005 and $.46 per share in 2004)											(12,886	)		(12,828	)		(7,852	)


Retained earnings at end of year											649,598			619,232			543,295
	$	619,232		$	543,295		$	469,107

SCHEDULE I

(continued)

STEWART INFORMATION SERVICES CORPORATION
(Parent Company)

BALANCE ~~SHEET INFORMATION~~SHEETS

December 31
2005 2004
($000 Omitted)
Assets

Cash and cash equivalents $ 288 $ 1,186
Short-term investments 100 100

388 1,286

Investments in debt securities, at market 35,214 29,352

Receivables:
Notes, including $10,190 and $10,315 from affiliates 11,222 10,649
Other, including $21,594 and $11,898 from affiliates 22,409 12,091
Less allowance for uncollectible amounts (67 ) (69 )

33,564 22,671

Property and equipment, at cost:
Land 2,857 2,857
Buildings 455 455
Furniture and equipment 3,071 3,078
Less accumulated depreciation (975 ) (699 )

5,408 5,691

Title plants, at cost 48 48
Investments in subsidiaries, on an equity basis 684,082 629,332
Goodwill 8,470 8,470
Other assets 14,350 12,653

$ 781,524 $ 709,503

Liabilities

Notes payable $ 42 $ 121
Accounts payable and accrued liabilities 15,169 12,069

15,211 12,190

Contingent liabilities and commitments

Stockholders’ equity

Common – $1 par, authorized 30,000,000, issued and outstanding 17,430,304 and 17,396,209 17,430 17,396
Class B Common – $1 par, authorized 1,500,000, issued and outstanding 1,050,012 1,050 1,050
Additional paid-in capital 126,887 125,689
Retained earnings⁽¹⁾
619,232 543,295
Accumulated other comprehensive earnings:
Unrealized investment gains 2,551 9,749
Foreign currency translation adjustments 3,077 4,039
Treasury stock – 325,829 and 325,669 Common shares, at cost (3,914 ) (3,905 )

Total stockholders’ equity 766,313 697,313

$ 781,524 $ 709,503



December 31	2006			2005

	($000 omitted)

Assets
Cash and cash equivalents		884			288
Short-term investments		49,501			35,314

		50,385			35,602

Investments in debt securities, at market		5,000			—

Receivables:
Notes, including $10,040 and $10,190 from affiliates		10,934			11,222
Other, including $419 and $21,954 from affiliates		1,220			22,409
Less allowance for uncollectible amounts		(19	)		(67	)

		12,135			33,564
Property and equipment, at cost:
Land		2,857			2,857
Buildings		455			455
Furniture and equipment		3,104			3,071
Less accumulated depreciation		(1,230	)		(975	)

		5,186			5,408

Title plant, at cost		48			48
Investments in subsidiaries, on an equity basis		725,100			684,082
Goodwill		8,470			8,470
Other assets		15,786			14,350

		822,110			781,524


Liabilities
Notes payable		—			42
Accounts payable and accrued liabilities		19,848			15,169

		19,848			15,211
Contingent liabilities and commitments

Stockholders’ equity
Common Stock — $1 par, authorized 30,000,000, issued and outstanding 17,507,087 and 17,430,304		17,507			17,430
Class B Common Stock— $1 par, authorized 1,500,000, issued and outstanding 1,050,012		1,050			1,050
Additional paid-in capital		129,960			126,887
Retained earnings⁽¹⁾		649,598			619,232
Accumulated other comprehensive earnings:
Unrealized investment gains		3,399			2,551
Foreign currency translation adjustments		4,662			3,077
Treasury stock — 325,829 shares, at cost		(3,914	)		(3,914	)

Total stockholders’ equity		802,262			766,313

		822,110			781,524



⁽¹⁾		Includes undistributed earnings of subsidiaries of $672,737 in 2006 and $639,632 in ~~2005 and $560,096 in 2004.~~2005.

See accompanying note to financial statement information.

(Schedule continued on following page.)

S-2

SCHEDULE I
(continued)

STEWART INFORMATION SERVICES CORPORATION
(Parent Company)

STATEMENTS OF CASH ~~FLOW INFORMATION~~FLOWS



Years ended December 31										2006			2005			2004

	Years ended December 31									($000 omitted)
	2005			2004			2003
Reconciliation of net earnings to cash (used) provided by operating activities:
Net earnings											43,252			88,765			82,518
Add (deduct):
Depreciation and amortization											813			812			796
Decrease (increase) in receivables — net											331			(169	)		12,181
Increase in payables and accrued liabilities — net											4,679			3,100			5,553
Increase in other assets — net											(1,946	)		(2,207	)		(5,477	)
Net earnings from subsidiaries											(45,991	)		(92,364	)		(87,626	)
Deferred tax benefit (expense)											—			(45	)		(328	)
Other — net											(1,007	)		23			(600	)
	($000 Omitted)
Cash (used) provided by operating activities (Note)	$	(2,085	)	$	7,017		$	(3,205	)
Cash provided (used) by operating activities											131			(2,085	)		7,017

Investing activities:
Proceeds from investments matured and sold		63,729			31,861			15,951			46,262			63,729			31,861
Purchases of investments		(69,591	)		(39,194	)		(28,205	)		(65,449	)		(69,591	)		(39,194	)
Purchases of property and equipment – net		(19	)		(46	)		(1,882	)
Purchases of property and equipment — net											(81	)		(19	)		(46	)
Increases in notes receivables		(835	)		(447	)		(100	)		(150	)		(835	)		(447	)
Collections on notes receivables		261			6,462			7,032			248			261			6,462
Dividends received from subsidiary		20,850			10,765			22,290			34,000			20,850			10,765
Cash paid for acquisitions of subsidiaries – net		(665	)		(11,733	)		(5,604	)
Cash paid for acquisitions of subsidiaries — net											(1,954	)		(665	)		(11,733	)

Cash provided (used) by investing activities		13,730			(2,332	)		9,482			12,876			13,730			(2,332	)


Financing activities:
Dividends paid		(12,828	)		(7,852	)		(7,874	)		(12,886	)		(12,828	)		(7,852	)
Proceeds from exercise of stock options		364			1,284			3,878			517			364			1,284
Payments on notes payable		(79	)		(76	)		(69	)		(42	)		(79	)		(76	)

Cash used by financing activities		(12,543	)		(6,644	)		(4,065	)		(12,411	)		(12,543	)		(6,644	)


(Decrease) increase in cash and cash equivalents		(898	)		(1,959	)		2,212
Increase (decrease) in cash and cash equivalents											596			(898	)		(1,959	)

Cash and cash equivalents at beginning of period		1,186			3,145			933			288			1,186			3,145

Cash and cash equivalents at end of period	$	288		$	1,186		$	3,145			884			288			1,186


Note: Reconciliation of net earnings to the above amounts
Net earnings	$	88,765		$	82,518		$	123,755
Add (deduct):
Depreciation and amortization		812			796			243
(Decrease) increase in receivables – net		(2,376	)		1,331			(12,459	)
Increase in payables and accrued liabilities – net		3,100			5,553			5,345
Net earnings from subsidiaries		(92,364	)		(87,626	)		(127,324	)
Deferred tax benefit		(45	)		(328	)		(183	)
Other – net		23			4,773			7,418

Cash (used) provided by operating activities	$	(2,085	)	$	7,017		$	(3,205	)


Supplemental information:
Income taxes paid		—			—			—			—			—			—
Interest paid		12			12			17			1			12			12

SCHEDULE II

STEWART INFORMATION SERVICES CORPORATION AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

December 31, ~~2005~~2006


			Col. C					Col. D
Col. A	Col. B		Additions					Deductions			Col. E			Col. B		Col. C					Col. D			Col. E
	Balance		Charged		Charged to						Balance					Additions					Deductions
	at		to		other						at			Balance		Charged to		Charged to						Balance
	beginning		costs and		accounts						end			at		costs		other						at
														beginning		and		accounts						end
Description	of period		expenses		(describe)			(describe)			of period			of period		expenses		(describe)			(describe)			of period
($000 omitted)													($000 omitted)

Stewart Information Services Corporation and subsidiaries:

Year ended December 31, 2003:
Estimated title losses	$	230,057,674	$	94,826,566	$	1,182,000	(C)	$	57,977,311	(A)	$	268,088,929
Allowance for uncollectible amounts		5,307,562		2,522,000		—			1,569,738	(B)		6,259,824

Year ended December 31, 2004:
Estimated title losses		268,088,929		100,840,539		227,000	(C)		68,406,954	(A)		300,749,514			268,089		100,841		227	(C)		68,408	(A)		300,749
Allowance for uncollectible amounts		6,259,824		2,600,000		—			1,429,624	(B)		7,430,200			6,260		2,600		—			1,430	(B)		7,430

Year ended December 31, 2005:
Estimated title losses		300,749,514		128,102,493		15,000	(C)		82,163,018	(A)		346,703,989			300,749		128,102		15	(C)		82,162	(A)		346,704
Allowance for uncollectible amounts		7,430,200		2,673,000		—			1,577,629	(B)		8,525,571			7,430		2,673		—			1,577	(B)		8,526

Stewart Information Services Corporation – Parent Company:
Year ended December 31, 2006:
Estimated title losses															346,704		141,557		2,724	(C)		106,589	(A)		384,396
Allowance for uncollectible amounts															8,526		2,995		—			2,409	(B)		9,112

Year ended December 31, 2003:
Allowance for uncollectible amounts	$	19,706	$	53,415		—		$	1,975	(B)	$	71,146
Stewart Information Services Corporation — Parent Company

Year ended December 31, 2004:
Allowance for uncollectible amounts		71,146		—		—			2,279	(B)		68,867			71		—		—			2	(B)		69

Year ended December 31, 2005:
Allowance for uncollectible amounts		68,867		—		—			1,436	(B)		67,431			69		—		—			2	(B)		67

Year ended December 31, 2006:
Allowance for uncollectible amounts															67		—		—			48	(B)		19

INDEX TO EXHIBITS


Exhibit

3.1	-	Certificate of Incorporation of the Registrant, as amended March 19, 2001 (incorporated by reference in this report from Exhibit 3.1 of the Annual Report on Form 10-K for the year ended December 31, 2000)

3.2	-	By-Laws of the Registrant, as amended March 13, 2000 (incorporated by reference in this report from Exhibit 3.2 of the Annual Report on Form 10-K for the year ended December 31, 2000)

4.1	-	Rights of Common and Class B Common Stockholders (incorporated by reference to Exhibits 3.1 and 3.2 hereto)

10.1*†	-	Summary of agreements as to payment of bonuses to certain executive officers

10.2†	-	Deferred Compensation Agreements dated March 10, 1986, amended July 24, 1990 and October 30, 1992, between the Registrant and certain executive officers (incorporated by reference in this report from Exhibit 10.2 of the Annual Report on Form 10-K for the year ended December 31, 1997)

10.3†	-	Stewart Information Services Corporation 1999 Stock Option Plan (incorporated by reference in this report from Exhibit 10.3 of the Annual Report on Form 10-K for the year ended December 31, 1999)

10.4†	-	Stewart Information Services Corporation 2002 Stock Option Plan for Region Managers (incorporated by reference in this report from Exhibit 10.4 of the Quarterly Report on Form 10-Q for the quarter ended March 31, 2002)

10.5†	-	Stewart Information Services Corporation 2005 Long-Term Incentive Plan (incorporated by reference in this report from Exhibit 10.2 of the Quarterly Report on Form 10-Q for the quarter ended June 30, 2005)

14.1	-	Code of Ethics for Chief Executive Officers, Principal Financial Officer and Principal Accounting Officer (incorporated by reference in this report from Exhibit 14.1 of the Annual Report on Form 10-K for the year ended December 31, 2004)

21.1*	-	Subsidiaries of the Registrant

23.1*	-	Consent of ~~Independent Registered Public Accounting Firm,~~KPMG LLP, including consent to incorporation by reference of their reports into previously filed Securities Act registration statements

31.1*	-	Certification of Co-Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*	-	Certification of Co-Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.3*	-	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*	-	Certification of Co-Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2*	-	Certification of Co-Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.3*	-	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


*		Filed herewith

†		Management contract or compensatory plan



	2001		2002		2003		2004		2005		2006

Stewart		100.00		108.30		207.65		215.63		255.86		231.89
Russell 2000		100.00		79.52		117.12		138.67		145.09		171.85
Russell 2000 Financial Services Sector		100.00		103.47		144.69		175.22		179.08		213.91



		Employee costs (%)						Other operating (%)					Employee costs (%)				Other operating (%)
	2005		2004		2003		2005		2004		2003			2006	2005	2004		2006	2005	2004

Title		27.5		25.9		24.7		15.1		14.7		13.4		28.3	27.5	25.9		15.8	15.1	14.7
REI		60.5		65.5		56.9		22.4		23.2		27.2		63.8	60.5	65.5		35.2	22.4	23.2


Stewart Information Services Corporation and Subsidiaries’ Consolidated Financial Statements:

Sarbanes-Oxley Section 404 Management Report			F-2

Reports of Independent Registered Public Accounting Firm			F-3

Consolidated Statements of Earnings, Retained Earnings and Comprehensive Earnings for the Years ended December 31, 2006, 2005 ~~2004~~ and ~~2003~~2004			F-5

Consolidated Balance Sheets as of December 31, ~~2005~~2006 and ~~2004~~2005			F-6

Consolidated Statements of Cash Flows for the Years ended December 31, 2006, 2005 ~~2004~~ and ~~2003~~2004			F-7

Notes to Consolidated Financial Statements			F-8

Financial Statement Schedules:

Schedule I — Financial Information of the Registrant (Parent Company)			S-1

Schedule II — Valuation and Qualifying Accounts			S-5



	2005				2004

	Amortized		Market		Amortized		Market		2006				2005
	costs		values		costs		values		Amortized		Fair		Amortized		Fair
									costs		values		costs		values
	($000 Omitted)								($000 omitted)
Debt securities:
Municipal		211,066		211,895		191,758		196,883		224,270		224,713		211,066		211,895
Corporate and utilities		159,715		161,002		146,068		151,344		144,504		144,399		159,715		161,002
U.S. Government		41,339		40,601		29,041		28,905		45,929		45,332		41,339		40,601
Foreign bonds		94,185		95,093		68,488		69,978
Foreign										117,488		117,885		94,185		95,093
Mortgage-backed		310		281		318		295		228		200		310		281
Equity securities		24,736		26,405		19,936		23,202		31,139		36,260		24,736		26,405

		531,351		535,277		455,609		470,607		563,558		568,789		531,351		535,277



	Less than				More than
	12 months				12 months				Total
	Loss		Fair values		Loss		Fair values		Loss		Fair values
	($000 omitted)
Debt securities:
Municipal		198		29,754		1,142		80,376		1,340		110,130
Corporate and utilities		229		22,263		1,804		70,281		2,033		92,544
U.S. Government		13		9,357		656		29,299		669		38,656
Foreign		254		25,360		695		42,388		949		67,748
Mortgage-backed		—		—		28		200		28		200
Equity securities		430		4,492		45		464		475		4,956

		1,124		91,226		4,370		223,008		5,494		314,234


Item	Item						Page
No.			Page
PART I

						PART I

1.	1.	Business		1		Business		1
1A.	1A.	Risk Factors		4		Risk Factors		6
1B.	1B.	Unresolved Staff Comments		7		Unresolved Staff Comments		9
2.	2.	Properties		7		Properties		9
3.	3.	Legal Proceedings		7		Legal Proceedings		9
4.	4.	Submission of Matters to a Vote of Security Holders		7		Submission of Matters to a Vote of Security Holders		10

PART II
						PART II

5.	5.	Market for Registrant’s Common Equity and Related Stockholder Matters		8		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		11
6.	6.	Selected Financial Data		9		Selected Financial Data		13
7.	7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		10		Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
7A.	7A.	Quantitative and Qualitative Disclosures About Market Risk		16		Quantitative and Qualitative Disclosures About Market Risk		22
8.	8.	Financial Statements and Supplementary Data		16		Financial Statements and Supplementary Data		23
9.	9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		16		Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		23
9A.	9A.	Controls and Procedures		16		Controls and Procedures		23
9B.	9B.	Other Information		17		Other Information		23

PART III
						PART III

10.	10.	Directors and Executive Officers of the Registrant		18		Directors, Executive Officers and Corporate Governance		24
11.	11.	Executive Compensation		18		Executive Compensation		24
12.	12.	Security Ownership of Certain Beneficial Owners and Management		18		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		24
13.	13.	Certain Relationships and Related Transactions		18		Certain Relationships and Related Transactions, and Director Independence		24
14.	14.	Principal Accounting Fees and Services		18		Principal Accounting Fees and Services		24

PART IV
						PART IV

15.	15.	Exhibits and Financial Statement Schedules		18		Exhibits, Financial Statement Schedules		25

		Signatures		19		Signatures		26
Summary of agreements as to payment of bonuses to certain executive officers
Subsidiaries of the Registrant
Consent of Independent Registered Public Accounting Firm
Certification of Co-CEO pursuant to Section 302
Certification of Co-CEO pursuant to Section 302
Certification of CFO pursuant to Section 302
Certification of Co-CEO pursuant to Section 906
Certification of Co-CEO pursuant to Section 906
Certification of CFO pursuant to Section 906
Summary of Agreements as to Payment of Bonuses to Certain Executive Officers					Summary of Agreements as to Payment of Bonuses to Certain Executive Officers
Subsidiaries					Subsidiaries
Consent of KPMG LLP					Consent of KPMG LLP
Certification of Co-Chief Executive Officer Pursuant to Section 302					Certification of Co-Chief Executive Officer Pursuant to Section 302
Certification of Co-Chief Executive Officer Pursuant to Section 302					Certification of Co-Chief Executive Officer Pursuant to Section 302
Certification of Chief Financial Officer Pursuant to Section 302					Certification of Chief Financial Officer Pursuant to Section 302
Certification of Co-Chief Executive Officer Pursuant to Section 906					Certification of Co-Chief Executive Officer Pursuant to Section 906
Certification of Co-Chief Executive Officer Pursuant to Section 906					Certification of Co-Chief Executive Officer Pursuant to Section 906
Certification of Chief Financial Officer Pursuant to Section 906					Certification of Chief Financial Officer Pursuant to Section 906


Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities



					High		Low

2006:
First quarter					$	54.85	$	44.77
Second quarter						47.85		36.16
Third quarter						36.90		32.87
Fourth quarter						44.15		34.33
	High		Low
2005:
First quarter	$	42.98	$	34.70	$	42.98	$	34.70
Second quarter		42.64		34.71		42.64		34.71
Third quarter		51.99		41.40		51.99		41.40
Fourth quarter		53.01		45.38		53.01		45.38

2004:
First quarter	$	47.60	$	34.23
Second quarter		40.04		31.14
Third quarter		39.97		31.14
Fourth quarter		45.20		38.38

(a)		Financial Statements and Financial Statement Schedules

		The financial statements and financial statement schedules filed as part of this report are listed in the Index to Consolidated Financial Statements and Financial Statement Schedules on Page F-1 of this document. All other schedules are omitted, as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes.

(b)		Exhibits

		Those exhibits required to be filed by Item 601 of Regulation S-K are listed in the Index to Exhibits immediately preceding the exhibits filed herewith and such listing is incorporated herein by reference.



	2005				2004

	Gains		Losses		Gains		Losses		2006				2005
									Gains		Losses		Gains		Losses
	($000 Omitted)								($000 omitted)
Debt securities:
Municipal		2,253		1,424		5,518		393		1,783		1,340		2,253		1,424
Corporate and utilities		3,119		1,832		5,682		406		1,928		2,033		3,119		1,832
U.S. Government		91		829		178		314		72		669		91		829
Foreign bonds		1,615		707		1,699		209
Foreign										1,346		949		1,615		707
Mortgage-backed		1		30		1		24		—		28		1		30
Equity securities		2,164		495		3,457		191		5,596		475		2,164		495

		9,243		5,317		16,535		1,537		10,725		5,494		9,243		5,317



				Exercise
	Shares			prices ($)⁽¹⁾

December 31, 2002		504,700			16.31
Granted		89,700			23.16
Exercised		(251,422	)		15.42

December 31, 2003		342,978			18.75
Granted		92,100			42.97
Exercised		(62,600	)		20.50

December 31, 2004		372,478			24.44
Granted		90,600			41.35
Exercised		(13,444	)		27.76

December 31, 2005		449,634			27.75



	Range of exercise prices ($)
		9.75 to		21.87 to
	20.22		47.10		Total

Shares		214,934		234,700		449,634
Remaining contractual life – years⁽¹⁾		4.1		8.3		6.3
Exercise prices ($)⁽¹⁾		17.33		37.29		27.75



												Mar 31		June 30		Sept 30		Dec 31			Total

	Mar 31		June 30		Sept 30		Dec 31			Total		($000 omitted, except per share)
	($000 Omitted, except per share)
Revenues:
2006													539,423		644,729		641,521		645,808			2,471,481
2005		510,962		651,079		639,442		629,144			2,430,627		510,962		651,079		639,442		629,144			2,430,627
2004		465,438		569,636		528,942		612,276			2,176,292

Net earnings:
2006													2,647		15,710		14,150		10,745			43,252
2005		10,666		37,227		31,771		9,101	⁽¹⁾		88,765		10,666		37,227		31,771		9,101	⁽¹⁾		88,765
2004		11,140		29,961		21,138		20,279	⁽²⁾		82,518

Earnings per share – diluted:
Earnings per share — diluted:
2006													0.14		0.86		0.77		0.59			2.36
2005		0.59		2.04		1.74		0.50	⁽¹⁾		4.86		0.59		2.04		1.74		0.50			4.86
2004		0.61		1.65		1.16		1.11	⁽²⁾		4.53


⁽¹⁾		Includes ~~an addition~~additions to ~~large~~ title loss reserves ofaggregating $10.5 million, which reduced net earnings by $6.8 million. Also includes charges ~~relating~~related to ~~corrections of~~ the Company’s accounting for leases and employee vacations of $2.8 million and $2.1 million, respectively. ~~The combined after-tax effect of these two items was $3.2 million, which is immaterial for the year to net earnings, cash flow and stockholders’ equity.~~

⁽²⁾		~~Includes charge relating to litigation of $4.4 million, which reduced net earnings by $2.9 million.~~


(A)		Represents primarily payments of policy and escrow losses and loss adjustment expenses.

(B)		Represents uncollectible accounts written off.

(C)		Represents estimated title loss balance acquired.