Fidelity National Posts $198.3 Million Q3 Loss

Title insurance titan Fidelity National Financial (FNF) swung into the red during the third quarter, posting a $198.3 million loss, or $.95/share, on Thursday morning; the quarterly loss came after the insurer eked out a slight $6.9 million, or $.03/share, gain in the second quarter. The Q3 loss was driven by a $261.6 million charge to build up loss reserves. “We continue to operate our businesses in an extremely difficult economic environment,” said Chairman William P. Foley, II. “Order counts in the title business continued to be weak in July and August, with a short-lived increase in early September that lasted only a few weeks. We remain focused on cost and expense management throughout the company, as we eliminated approximately 1,000 additional positions in the third quarter.” Foley also noted that the company updated its actuarial models in the third quarter to more heavily weight loss experience in the most recent three quarters in its determination of future expected paid claims, a move that led to the huge loss reserve build during the quarter. Closed direct title orders totaled just 260,600 during the second quarter, off more than 23 percent from one year earlier. The slowdown in transactions at Fidelity has continued essentially unabated throughout the past two quarter: April saw 113,200 closings; May, 99,800; June, 94,500; July, 90,600; August, 87,300; and in Sept., just 82,700. Those numbers aren’t only critical for Fidelity National, which largely earns revenue through title insurance premiums, but also for any analyst watching for early indicators of a turnaround in market conditions. So long as direct title orders are falling — and falling sharply, to boot — it’s not possible for real estate to be turning from its current downward slide. Total title premiums, like the number of closings, continued to fall at Fidelity as well. In Q3, total title premiums drove $610.3 million in revenue, off 34 percent from year-ago revenue numbers. And while the insurer has been slashing personnel expense, paid claims continue to rise to largely offset expense reduction measures: paid claims rose to $359.7 million during the third quarter, up a whopping 90 percent from year-ago levels. As a result, Fidelity slashed its quarterly cash dividend in half, to just $0.15/share, a move that ratings analysts warned was likely in late August. “The significant slowdown in the title business has hindered our ability to produce the cash flow necessary to maintain our dividend at its current level,” said Foley. Disclosure: The author held no relevant positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.