QUOTE AND NEWS
PR Newswire  Oct 21  Comment 
JACKSONVILLE, Fla., Oct. 21 /PRNewswire-FirstCall/ -- Fidelity National Financial, Inc. (NYSE: FNF), a leading provider of title insurance, mortgage services, specialty insurance, claims management services and information services, today reported
PR Newswire  Oct 21  Comment 
JACKSONVILLE, Fla., Oct. 21 /PRNewswire-FirstCall/ -- Fidelity National Financial, Inc. (NYSE: FNF), a leading provider of title insurance, mortgage services, specialty insurance, claims management services and information services, today announced
Business Wire  Oct 21  Comment 
ServiceLink , a leading provider of mortgage origination and default services nationwide and the national mortgage lender platform for the Fidelity National Financial family of companies (NYSE: FNF), announced today that Jane Johnson has been
Business Wire  Oct 20  Comment 
LoanCare, a leading provider of subservicing solutions and wholly owned subsidiary of Fidelity National Financial (NYSE:FNF), announced that Ralph Carrigan has been appointed Chief Operating Officer. Mr. Carrigan will be responsible for overseeing
Business Wire  Oct 8  Comment 
ServiceLink, Fidelity National Financial’s national lender platform (NYSE: FNF), announced that George Schwartz, former Managing Director for Bank of America, has been named Executive Vice President and Division President of Default Services. Mr.
Business Wire  Oct 6  Comment 
ServiceLink, a leading provider of origination and default services, today announced a corporate rebranding initiative. With this rebranding ServiceLink has maintained its name but has updated the logo incorporating both the Fidelity colors and
PR Newswire  Oct 1  Comment 
JACKSONVILLE, Fla., Oct. 1 /PRNewswire-FirstCall/ -- Fidelity National Financial, Inc. (NYSE: FNF), a leading provider of title insurance, specialty insurance, claims management services and information services, will release 3rd quarter 2009
Reuters  Sep 25  Comment 
* To sell Fidelity National Capital to unit of TCF Financial
PR Newswire  Sep 4  Comment 
JACKSONVILLE, Fla., Sept. 4 /PRNewswire-FirstCall/ -- Fidelity National Information Services, Inc. (NYSE: FIS) today announced that its shareholders have voted to approve the issuance of FIS common stock in connection with the merger of Metavante
PR Newswire  Sep 3  Comment 
JACKSONVILLE, Fla. and MILWAUKEE, Sept. 3 /PRNewswire-FirstCall/ -- Fidelity National Information Services, Inc. (NYSE: FIS) and Metavante Technologies, Inc. (NYSE: MV) today announced that the companies have received clearance from the U.S.
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FNF AT A GLANCE
 
 
 
 
 
 
 
 

This article is about the title insurer. For other uses of fidelity, see Fidelity (disambiguation)

Fidelity National Financial is the second largest title insurer in the U.S., having written 26.4% of title insurance policies in the U.S. 2007. [1][2]

Its three main subsidiaries are Fidelity National Title Group, Fidelity National Property and Casualty Insurance Group as well as Sedgewick CMS, a minority-owned subsidiary.

In 2005, Fidelity sold off its ownership stake in Fidelity National Information Services (FIS), which processes transactions for financial institutions. This sale generated a $318.2 million gain for the 2005 fiscal year. [3]

Fidelity's revenues are tied to the real estate market. With fees and premiums earned only from the sales and refinancing of real estate. The company has been negatively affected by the subprime mortgage crisis, and first quarter earnings for 2008 were down 67% from the prior year due to the weak real estate market. [4] On June 5th, 2008, Fidelity announced the sale of 20% of its ownership stake in Sedgwick CMS. Management claimed this sale created liquidity and value from its assets. [5]Prior to this sale, the company ran a negative cash flow of nearly $75 million for the first quarter of 2008.[6] Fidelity's competitors have fared no better, with the top four Title Insurers all recording double digit negative quarterly revenue growth for first quarter of 2008. [7]

On November 26th, 2008, Fidelity announced the signing of a stock purchase agreement with former competitor LandAmerica Financial Group (LFG). Under the terms of the stock purchase agreement, Fidelity National Title Insurance Company will acquire Lawyers Title Insurance Corporation and United Capital Title Insurance Company (both are for $139.4 million, for a total purchase price of $298.0 million.[8]

A.M. Best Co. rated many of Fidelity's subsidiaries with an 'A' rating and the Fidelity parent company with a 'BBB' rating. [9]


Company Overview

 2007 Fidelity National Financial Income and Revenue
2007 Fidelity National Financial Income and Revenue[10]

Business Financials

Fidelity's revenue grew 7.5% and 16.4% in 2004 and 2005, respectively. Subsequently, their revenue fell 2.2% in 2006 and then fell 41.5% in 2007. [11] Fidelity's management comments that the 2005 revenue was exceptionally high due to the one time revenue of $318.2 million for the sale of the company's interest in Fidelity National Information Services (FIS). [12] Additionally, contributions to income for periods prior to October 24, 2006, include revenues from Fidelity National Information Services (FIS); the subsequent reporting periods do not. [13]

Business Segments

 2007 Revenue by Segment
2007 Revenue by Segment[14]

Direct Operations: (42.1% of title insurance premiums) Under this segment, the title insurer issues the title insurance policy and retains the entire premium paid in connectionwith the transaction. This results in higher margins, continuity of service levels and provide an additional source of revenue though Escrow and growing services.

Agency Operations: (57.9% of title insurance premiums) Under this segment, independent title insurance agents issue title policies on behalf of FNF. Although this results in lower margins, this gives FNF a wider reach to a broader customer base.

Fidelity has six main segments of operation:

  • Direct Title Insurance Premiums (29% of sales): Direct title premiums are premiums earned from Fidelity performing the entire insurance origination process. This means that an employee in the Fidelity family finds clients to insure, inspects the property, performs required research on the title, and then issues the policy, passing along the entire premium and claim obligation to Fidelity. Direct Title operations earn higher margins than Agency Operations. Revenues from Direct Title operations were $2.26 billion in 2005, and then declined to $1.96 billion in 2006. This figure further fell to $1.6 billion in 2007. Management cited a declining purchase market as a cause for the decrease in 2005-2006 and the declining purchase market compounded with a smaller volume of refinances to account for the decrease in 2006-2007. [15]
  • Agency Title Insurance Premiums (41% of sales): Agency title premiums are earned when an independent agent finds a client to insure and inspects the property and title. However, after issuing the policy, the agent sends a percentage of the premium to Fidelity, who in return assumes obligations to any claims losses connected to the policy. Agency Operations generate a smaller margin than Direct operations. Revenues from Agency Title Premiums were $2.68 billion in 2005, $2.65 billion in 2006, and $2.20 billion in 2007. The Agency Title Premiums decreased due to the same market conditions that affected the Direct Title Premiums and decreased further due to a change in accounting methods for the Agency Titles. [16]
  • Escrow, title-related and other fees (20% of sales): This segment encompasses fees earned in connection with the closing procedure for a real estate transaction. These services typically coincide with Fidelity's Direct Operations, and therefore are subject to the same economic conditions as the Direct Operations. The Escrow, title-related, and other fees decreased 7.6% from 2005 to 2006, but then increased 1.6% in 2007. [17]
  • Specialty Insurance (7% of sales) The Specialty Insurance segment generates revenues through premiums earned from Fidelity's flood, homeowners, home warranty, and automobile insurance operations. The flood insurance section of Specialty Insurance is a safe source of revenue because all flood insurance is underwritten by the US Government. [18] Specialty Insurance revenues declined from $438 million in 2005 to $410 million in 2006 and further declined to $403 million in 2007. These decreases were primarily due to fluctuations in the hurricane season which incurs extra claims processing costs to Fidelity. [19]


Operating Metrics 2005 2006 2007
Average Fee from Direct Operations $1,487 $1,580 $1,635
Claims loss provision (millions)[20] $356.5 $345.6 $502.3
Title Premiums (millions) $4,949 $4,608 $3,800
Claims loss provision/Premiums 7.2% 7.5% 13.2%
Number of Direct Title Orders Closed (Thousands)[21] 2,170 1,778 1,435

[22] [23] [24]

Operating Metrics

  • Average Fee from Direct Operations measures the earnings per policy from Fidelity's Direct operations. These fees have increased over the past three years due to the fact that the fees are proportional to the value of the property being insured and property values have appreciated. The values for Average Fee from Direct Operations do not include fees from FIS so that the average fees can be usefully compared over time.
  • Claims Loss Provision is the amount of money that Fidelity sets aside to cover claims on insurance policies. The money set aside in a given year is intended to cover not only claims from that year, but also claims from previous years. This number was significantly higher in 2007 because management decided that it had not set aside enough money to cover claims in the previous two years.
  • Title Premiums are the total revenues from premiums from both Direct and Agency operations. These premiums are the primary income for Fidelity.
  • Claims loss provision/Premiums is a percentage measure of how much money is set aside to cover claims relative to the total amount of premiums earned. This measure shows profitability because it measures how much Fidelity's insurance policies are costing the company relative to how much revenue they generate. The percentage for 2007 was significantly higher than the previous two years because Fidelity had a higher Claim Loss Provision in 2007.


 Title Premium Revenues by Location
Title Premium Revenues by Location[25]

Key Trends and Forces

The Weak Housing Market reduces the demand for Title Insurance

Premiums from Title Insurance policies generate the majority of Fidelity's revenue. Title Insurance policies are sold along with the sale of real estate. When more properties are sold, more premiums can be collected. However, with today's slow market for real estate, fewer properties are sold leaving fewer opportunities for Fidelity to earn premiums from Title Insurance policies. On June 27, 2008, Analyst Robert Napoli lowered his earnings forecast for Fidelity from 90 cents a share to 50 cents and cited the weak housing market as the reason for the decrease. [26]

Interest Rates strongly influence the volume of mortgage refinances

High interest rates make the option of refinancing mortgages unattractive, since homeowners have to pay more for their loans. In 2003, interest rates were between 1.00% and 1.25%, and then rose steadily until September of 2007, only to plummet throughout 2008 due to the economic downturn sparked off by the US housing marketing bust. On Dec 16, 2008 the Federal Reserve slashed interest rates to a historic low of a range between just above zero and a quarter of a percentage point. [27]

This sharp drop in interest rates creates a greater incentive to refinance and therefore more opportunities for Fidelity to earn Title Insurance premiums. When the average rate was 4.13% in 2001, revenues from Title Insurance were $2.7 billion. As interest rates fell to an average of only 1.13% in 2003, Title revenues rose to $4.7 billion, but then fell to $3.8 billion as interest rates rose to an average 5.08% in 2007. [28] [29]

Mortgage Market Meltdown

Mortgage levels in the U.S. hit a low of Mortgages and title insurance policies are complementary products, and as mortgage levels hit a new low, As the economy booms and busts, consumers change their preferences about how much to spend. During an economic downturn, fewer consumers are willing to purchase a new home, diminishing the number of potential Title Insurance policies. In addition, fewer consumers are willing to purchase new cars and other products covered by Fidelity's Specialty Insurance segment. The reverse is true during an economic expansion. The Economic Cycles affect the U.S. Housing Market, Interest Rates, and the Appreciation of home prices.

Worsening U.S. Housing Market

The premium charged for a Title Insurance policy and a home warranty is directly related to the value of the property being insured. An increase in property values increases the average premium earned by Fidelity. Average premiums from Direct Operations increased from $1,487 to $1,580 from 2005-2006, which Fidelity claims was due to an appreciation of home prices during that year. [30]

However, U.S. home values dropped by $1.9 trillion this year through Sept. 30, 2008 and total loan volume is expected to fall to $1, 885 bil in 2008, compared to $2,543 bil and $2,851 bil in 2007 and 2006 respectively. [31]

Competition

The title insurance industry is an oligopoly, with the top five firms contributing 92.6% of the industry's revenues. [32] FNF is currently the second-largest title insurance underwriter and shares a co-leading position with LandAmerica in the commercial title insurance market. The following is a list of FNF's largest competitors:

  • First American (FAF) is also a holding company and has earned at least 69% of its revenue from Title Insurance premiums over the past three years. First American has the largest market share in U.S. title insurance and competes directly with Fidelity for premiums, escrow, closing, and processing related fees. First American also operates an Information Technology Segment, which provides Mortgage and Property Information.[33]
  • LandAmerica Financial Group (LFG) earned 88.1% of its 2007 income from its Title Insurance Operations. [34], of which 13.1% was from operations in California, which is where Fidelity earns the majority of its title revenues. [35]
  • Old Republic International (ORI) is an insurance underwriter operating in three segments: General Insurance, Mortgage Guaranty, and Title Insurance. Old Republic's primary source of revenue is its General Insurance segment, which earned nearly 60% of the company's 2007 revenue. The General Insurance segment provides property and liability insurance. Only 21.4% of the company's revenue came from Title Insurance. [36] While Old Republic earned less revenue from Title Insurance than Fidelity, Old Republic is not as susceptible to fluctuations in the real estate market.
  • Stewart Information Services (STC) provides title insurance and related services through locations in the United States and several international markets. The Company meets the needs of real estate and mortgage industries through the electronic delivery of services required for settlement. Stewart's services include title reports, flood determinations, and credit reports.Stewart Information Services has two operating segments: Title Insurance and Real Estate Information. 94% of the company's 2007 revenue came from Title Operations. [37] 11% of the company's title revenues came from California, Fidelity's largest source of title revenue. [38]
Competition Fidelity National Financial LandAmerica Financial Group First American
Total Title Insurance Premiums (millions) $3,800 [39] $3,145 [40] $5,516 [41]
Claims loss provision (millions) $502.3 [42] $288.5 [43] $709.9 [44]
Total Revenue (millions) $5,524 [45] $3,569 [46] $8,196 [47]
Claims loss provision/Premiums 13.2% [48] 8.6% [49] 12.9% [50]

Fidelity's other main competitors compete in the smaller business segments of Specialty Insurance.

Market Share

Fidelity has the second largest market share according to a 2007 measurement by the American Land Title Association.

Market Share for Title Insurance, Year End 2007 [51]
Rank Company Market Share
1 First American (FAF) 30.04%
2 Fidelity Family 26.4%
3 LandAmerica Financial Group (LFG) 19.34%
4 Stewart Information Services (STC) 11.73%
5 Old Republic International (ORI) 5.48%

While Fidelity has the largest market capitalization of its peer group at $2.58 billion, it has only the second highest market share in Title Insurance. First American has the largest market share, but also has more than double the number of employees than Fidelity (37,354 versus 15,500). [52] Trailing behind is LandAmerica, Stewart Information Services, and Old Republic with 11,050, 8,500, 5,700 employees, respectively. [53] [54]While Fidelity has a smaller market share than First American, Fidelity has had a higher operating margin of 2.87% over the past twelve months versus only 2.21% for First American. [55]



References

  1. FNF 2007 10-K, Item 1: Business, page 1
  2. 2007 Market Share by Family and State - DISTRIBUTION
  3. FNF 2007 10-K, Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations, page 40
  4. Fidelity National Financial, Inc. Reports First Quarter 2008 EPS of $0.13
  5. Fidelity National Financial, Inc. Announces the Sale of Approximately 20 Percent of its Ownership Stake in Sedgwick CMS
  6. Fidelity National Financial, Inc. Reports First Quarter 2008 EPS of $0.13
  7. Yahoo Finance Competitors of FNF
  8. LandAmerica Signs Stock Purchase Agreement for Underwriters
  9. "A.M. Best Affirms Ratings of Fidelity National Financial Inc. and Its Subsidiaries" The Wall Street Journal, June 4, 2008
  10. FNF 2007 10-K, Item 6: Selected Financial Data, page 26
  11. FNF 2007 10-K, Item 6: Selected Financial Data, page 26
  12. FNF 2007 10-K, Item 6: Selected Financial Data, page 27
  13. FNF 2007 10-K, Item 6: Selected Financial Data, page 27
  14. FNF 2007 10-K, Item 8: Financial Statements and Supplementary Data, page 58
  15. FNF 2007 10-K, Item 6: Selected Financial Data, page 42
  16. FNF 2007 10-K, Item 6: Selected Financial Data, page 42
  17. FNF 2007 10-K, Item 6: Selected Financial Data, page 42
  18. FNF 2007 Annual Report, page AR2
  19. FNF 2007 10-K, Item 6: Selected Financial Data, page 47
  20. FNF 2007 10-K, Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations, page 36
  21. FNF 2007 10-K, Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations, page 42
  22. FNF 2007 10-K, Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations, page 42
  23. FNF 2007 10-K, Item 8: Financial Statements and Supplementary Data, pages 106-108
  24. FNF 2007 10-K, Item 6: Selected Financial Data, page 27
  25. FNF 2007 10-K, Item 1: Business, page 7
  26. Piper Jaffray cuts estimates on title insurers June 27, 2008
  27. [1]
  28. Historical Federal Funds Rates from moneycafe.com
  29. FNF 2005 10-K, Item 6: Selected Financial Data, page 24
  30. FNF 2007 10-K, Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations, page 42
  31. Rates and Loan Volume from Fannie Mae
  32. [2]
  33. FAF 2007 Annual Report, Item 1: Business, page 3
  34. LFG 2007 Annual Report, Item 1: Business, page 8
  35. LFG 2007 Annual Report, Item 1: Business, page 8
  36. ORI 2007 Annual Report, Item 1: Business, page 3
  37. STC 2007 Annual Report, Item 6: Selected Financial Data, page 13
  38. STC 2007 Annual Report, Item 1: Business, page 3
  39. FNF 2007 10-K, Item 8: Financial Statements and Supplementary Data, pages 106
  40. LFG 2007 10-K, Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations, page 44
  41. FAF 2007 10-K, Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations, page 29
  42. FNF 2007 10-K, Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations, page 36
  43. LFG 2007 10-K, Item 8: Financial Statements and Supplementary Data, page 83
  44. FAF 2007 10-K, Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations, page 34
  45. FNF 2007 10-K, Item 8: Financial Statements and Supplementary Data, page 58
  46. LFG 2007 10-K, Item 8: Financial Statements and Supplementary Data, page 107
  47. FAF 2007 10-K, Item 8: Financial Statements and Supplementary Data, page 46
  48. FNF 2007 10-K, Item 6: Selected Financial Data, page 27
  49. LFG 2007 10-K, Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations, page 39
  50. FAF 2007 10-K, Item 8: Financial Statements and Supplementary Data, Page 66
  51. 2007 Market Share by Family and State - DISTRIBUTION
  52. Yahoo Finance Competitors of FNF
  53. Yahoo Finance Competitors of STC
  54. Yahoo Finance Competitors of FNF
  55. Yahoo Finance Competitors of FNF
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