The third quarter transcript of Fidelity National Financial, Inc. (FNF) gave us a clear picture into what is happening with all Title Insurance Underwriters.  To give you an overview of what is happening at FNF, here is a recap.  The entire transcript can be found at http://seekingalpha.com/article/101536-fidelity-national-financial-inc-q3-2008-earnings-call-transcript?page=1

Regarding expense reductions

  • FNF eliminated 1000 positions in the third quarter (800 frontline staff and 200 agency and corporate positions) 
  • It instituted a 10% company-wide pay reduction, most likely to be continued through the first quarter of 2009
  • It is asking board members to take a similar cut in pay
  • Its fourth-quarter dividend was reduced 50% .. from the previous  quarter
  • The company continued to close offices…more than 115 offices

The current situation The largest decline in revenues came in agency premiums as they fell by 24% and 40% versus the third quarter of 2007. Actual title claims paid in the third quarter were $85 million versus $79 million in the third quarter of 2007.

When asked about claims by type and percentage of claims, FNF responded the “primary three, I would say, are search and exam errors… That’s about roughly 30% of our claims experience. Fraud and forgery,.. moved to number two in the last three years or so …running somewhere close to 20% currently. Then in closing-related errors and underwritten risk, are kind of three and four, (and) make up about two-thirds of our total losses.”

Regarding claims, it was noted “…given the pattern we had seen where our actual claims results continued to exceed our forecasted results; we realized that the current model needed to be adjusted. So we really stepped back from the current model and said… We’re going to disregard all prior reported claims experience other than the last three years, those years being 2006 through 2008. (IBNR will now be reserved at an increased 8.5%)

To increase revenue

  • FNF is renegotiating agents splits
  • Is increasing filed rates …generally 15% – 20% or more across the country.

No surprises given the state of affairs in the real estate market, and this bloggers expectation is that the four remaining major title underwriters are or will be doing exactly the same thing. Increases will happen across the board for all costs related to title insurance and closings.