Fidelity National Financial (FNF)

TOP CONTRIBUTORS

Lawrence Tanzman

Andrew Lewis

Lauren Ooi

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. 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.^[1] Fidelity's revenues are tied to the real estate market. With fees and premiums earned only from the sales and refinancing of real estate.

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.^[2]

Business Overview

Business & Financial Metrics^[3]

FNF earned a net income of $222.3 million after incurring a $179.0 million net loss in 2008.

^[3]

Business Segments^[4]

Fidelity operates through three reportable business segments: Fidelity National Title Group, Specialty Insurance, and Corporate and Other.

*Fidelity Title Group: This segment underwrites title insurance.

*Specialty Insurance: This segment issues flood, homeowners', automobile, and other personal insurance policies.

*Corporate and Other: Operations reported in this segment are actions of the holding company or other unallocated activities.

^[5]

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.

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. Drops in interest rates create a greater incentive to refinance and therefore more opportunities for Fidelity to earn Title Insurance premiums.

Effects of Economy-at-large

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.

Competition

The title insurance industry is an oligopoly, with the top five firms contributing 92.6% of the industry's revenues. ^[6] FNF is currently the second-largest title insurance underwriter and shares a co-leading position with LandAmerica in the commercial title insurance market. FNF's largest competitors are:

• 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.^[7]
• LandAmerica Financial Group (LFG)
• 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.
• 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.^[8]

References

1. ↑ FNF 2007 10-K, Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations, page 40
2. ↑ LandAmerica Signs Stock Purchase Agreement for Underwriters
3. ↑ ^{3.0 3.1} FNF 2009 10-K pg. 126  
4. ↑ FNF 2009 10-K pg. 1  
5. ↑ FNF 2009 10-K pg. 113  
6. ↑ [1]
7. ↑ FAF 2007 Annual Report, Item 1: Business, page 3
8. ↑ STC 2007 Annual Report, Item 1: Business, page 3