Fidelity National Financial, Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Title Business: Successfully navigated low transactional environment. Adjusted pre-tax title margin was 15.9% in Q3. Refinance volumes responsive to rate changes. Commercial volumes steady with potential for higher volumes in 2025 as office sector transacts. Invested in technology, with SoftPro powering direct residential operations and inHere Experience Platform having over one million users in 2023.
• F&G Business: Profitably grew AUM to record $62.9 billion. Executing on flow reinsurance and owned distribution strategies contributing to margin expansion. FNF benefits from majority ownership of F&G's earnings and cash dividends.
• Financials: Consolidated total revenue was $3.6 billion in Q3. Net earnings were $266 million in Q3. Adjusted net earnings were $356 million or $1.30 per diluted share. The Title Segment contributed $244 million, the F&G Segment contributed $135 million, and the Corporate Segment contributed $3 million before eliminating $26 million dividend income from F&G.

Segment Performance

• Title Segment: Delivered adjusted pre-tax earnings of $323 million in Q3 with an industry-leading adjusted pre-tax title margin of 15.9% (vs 16.2% in Q3 2023). Total revenue was $2 billion in Q3. Direct premiums increased 9%, agency premiums 8%, and escrow title related and other fees 1%. Interest and investment income in the Title and Corporate segments was $103 million. Title claims paid $64 million, $3 million higher than provision. Carried reserve for title claim losses was ~$29 million (2% above actuary central estimate).
• F&G Segment: Profitably grew assets under management before flow reinsurance to a record $62.9 billion at the end of Q3. Gross sales were $3.9 billion in Q3 (up 39% y-o-y), retail sales were a record $3.5 billion (nearly double prior year), and net sales were $2.4 billion in Q3 (up 4% y-o-y). Adjusted net earnings for the F&G segment were $135 million in Q3.

Guidance

• Title Segment: Expect quarterly interest and investment income to trend down from $103 million in Q3 to ~$95 million in Q4 and $85 million in Q3 2025 assuming 100 basis points Fed funds rate cuts. Expect over $100 million annual dividend income from F&G. Normal seasonal purchase falloff expected for remainder of 2024 if mortgage rates remain; poised to capture upside from higher transactional volumes if rates move lower.
• F&G Segment: F&G delivered strong gross and net sales, with retail sales a record. Expect continued growth through diversified new business platform and expanding profitability.

Risks

• Market Uncertainty: Continued market uncertainty led to no share repurchases in Q3. Hurricanes may impact Q4 closings, particularly in Florida direct market, with potential $1 million revenue impact for a couple of months.
• Regulatory Changes: Uncertainty around post-election regulatory environment, such as GSE, FHFA pilot, and CFPB efforts, could impact business operations.

Question and Answer

• Q: On total pretax margin for the quarter, any mix shift changes? A: Mike Nolan said they had outperformance in direct and agency to Q3 last year, with slight underperformance in some non-title businesses in the Title segment.
• Q: Outlook for Commercial in 4Q and 2025? A: Mike Nolan said commercial orders were up, there was strength in bigger deals, and national orders were up in October. The office market was expected to transact more in 2025.
• Q: F&G sales and spreads outlook? A: Chris Blunt said new sales were robust, driven by demographics and refinancing, spreads held up, and flow reinsurance and owned distribution were contributing to expansion.
• Q: First nationwide acquisition and impact on office market? A: Mike Nolan said it's an agency acquisition in New York, which helps access market share as the New York market recovers.
• Q: Post-election regulatory landscape impact? A: Mike Nolan said the Republican administration may lead to a less regulatory environment, potentially helpful for business, but they were still working on stakeholders regarding Title insurance value.