To make sure that buying a dream home doesn't become a nightmare, Fidelity National Financial (also known as FNF) provides title insurance, escrow, home warranties, and other services related to real estate transactions. It is now the biggest dog in the residential and commercial title insurance sectors, (the next largest player is First American) and accounts for 35% of all title insurance policies in the US. The company operates through underwriters including Fidelity National Title Company, Commonwealth Land Title, Alamo Title, and National Title of New York. It sells its products both directly and through independent agents. Fidelity National has been divesting its holdings in casual restaurant chains.
The company is organized into two segments: FNF Core Operations, which accounts for more than 80% of revenues and includes title insurance and related closing services; and FNF Ventures, which includes its other investments.
Title insurance is typically one of the most stable types of insurance written. It is folded into the piles of paperwork homebuyers sign during closings, with little or no fuss. Even when US home sales become sluggish, the company stays busy from the brisk pace of refinancing of existing mortgages. Through Black Knight Financial and ServiceLink, FNF provides mortgage technology and transaction services, utilizing subsidiary Lender Processing Services', or LPS', MSP system (the largest residential mortgage servicing technology platform in the country). Fidelity National Financial acquired LPS in early 2014 and it plans to make similar acquisitions going forward.
Title insurance premiums account for about three-fourths of Fidelity National Financial's revenues, but the company also maintains a small handful of other operations completely outside of the title insurance industry. These include a 32% stake in Ceridian, a payroll and HR services firm. It also has holdings in casual and upscale dining restaurants though its 55% ownership of American Blue Ribbon Holdings.
FNF's insurance businesses operate exclusively within the US. Naturally, the biggest markets are in states with the greatest populations: California, Texas, New York, and Florida combined account for some 45% of its title insurance premiums. The company has international operations in the Asia/Pacific region, Europe, and the Americas through its minority interest in an auto parts manufacturing business.
The company primarily leases offices in 41 states and Washington, DC, as well as in Canada, India, Mexico, and Puerto Rico.
Sales and Marketing
FNF uses direct sales representatives and independent agents to market its title and escrow products to residential and commercial real estate customers. The company maintains some 1,200 retail offices to provide residential title insurance. It markets its commercial title insurance through a network of 5,000 agents in major urban real estate markets.
While the company is basically sound, FNF's revenues can be hampered by stiffness in the residential mortgage lending market. With the exception of 2014, revenue has been rising; it rose 14% to $9.1 billion in 2015 as closing volumes rebounded in the improving real estate market. Additionally, increased in agent remittances, added earnings from recently acquired businesses, and growth in the Black Knight unit led to growth that year. All told, FNF saw 19% growth in escrow, title-related, and other fees; it saw 17% growth in agency title insurance premiums; and it saw 16% in direct title insurance premiums.
Net income, on the other hand, has been fluctuating for the past few years. It dropped 10% to $527 million in 2015 due to equity in loss of unconsolidated affiliates (including Ceridian). Higher agent commissions expenses and personnel costs also cut into profits that year.
Cash flow from operations rose 62% to $917 million as less cash was used toward accounts payable, accrued liabilities, and deferred revenue.
FNF and its operating subsidiaries have grown through numerous acquisitions in the title insurance space, as well as by adding new offerings to attract more customers.
However, FNF is now so dominant within the title insurance industry that any attempt to grow larger there would draw the scrutiny of regulators. While keeping its eye on strengthening its existing title insurance operations, the company has made some moves to diversify by buying up non-insurance related businesses.
To raise cash for more diversification, the company sometimes sells its stakes in certain investments. For example, in 2014 it spun off its stake in auto parts manufacturer Remy International. In 2015 it sold its 70% stake in Cascade Timberlands to Whitefish Cascade Forest Resources for $85 million. After a short stint investing in restaurants, the company spun off its stake in J. Alexander's in 2015; it also announced plans to spin off American Blue Ribbon Holdings.
Mergers and Acquisitions
In a move to further expand its presence in the real estate world, in 2014 FNF acquired Lender Processing Services for $3.4 billion. The company's MPS real estate services platform is the leading such system in the US. Later that year, the company acquired a majority stake in LandCastle Title, which had suffered from substantial escrow account violations. The bailout allowed the firm to further grow its title operations while preventing LandCastle's collapse.
In 2015, the group acquired Buyers Protection Group, which offers home warranty and home and commercial inspection services, for $46 million.
Two years later, it bought Hudson & Marshall, a leading property and real estate auction firm. FNF subsidiary ServiceLink entered the auction business through that transaction; Hudson & Marshall now powers the new ServiceLink Auction offering.
Like all title insurers, Fidelity National Financial shivered when the big chill hit the real estate market in 2008. But, while the company slowed, it remained quick enough to take advantage of opportunities. When its ailing rival LandAmerica Financial Group filed Chapter 11 in 2008, the company bought up the choicer bits for $235 million. This purchase helped make it into the largest title insurer in the US and caught the attention of the FTC, prompting the company to divest a few holdings to soothe the agency's nerves. The 2009 sale of Fidelity National Capital only brought in $50 million, but took $214 million of debt off company ledgers. The 2010 sale of its 32% stake in Sedgwick Claims Management brought in some $225 million.
The current company arose in 2006 when a previous company, also named Fidelity National Financial, split apart its title insurance operations from its information services business. What had been Fidelity National Title Group took on its former parent's name, while Fidelity National Information Services took on the former parent's remaining operations. The two companies share a history and some stray holdings, but are otherwise separate.