Fidelity National Financial, Inc. (FNF)

FNF 
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Fidelity National Financial (FNF)

Q2 2011 Earnings Call

July 26, 2011 11:00 am ET

Executives

Raymond Quirk - President

Daniel Murphy - Senior Vice President of Finance and Investor Relations of Fidelity National Financial

Anthony Park - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

George Scanlon - Chief Executive Officer and Chief Operating Officer

William Foley - Executive Chairman, Chairman of Executive Committee and Chairman of FNF Holding

Analysts

Brett Huff - Stephens Inc.

Nathaniel Otis - Keefe, Bruyette, & Woods, Inc.

Unknown Analyst -

Mark DeVries - Barclays Capital

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the FNF 2011 Second Quarter's Earnings Conference Call. [Operator Instructions] Also as a reminder, this conference call is being recorded. I would now like to turn the call over to your host, Mr. Dan Murphy. Mr. Murphy, you may begin.

Daniel Murphy

Thanks, and good morning, everyone, and thanks for joining us for our second quarter 2011 earnings conference call. Joining me today are Bill Foley, our Chairman; George Scanlon, CEO; Randy Quirk, our President; and Tony Park, our CFO. We will begin with a brief strategic overview from Bill Foley. George Scanlon will provide an update on the Title business and our other operating companies, and Tony will finish with a review of the financial highlights. We'll then open the call for your questions and finish with some concluding remarks from Bill.

This conference call may contain forward-looking statements that involve a number of risks and uncertainties. Statements that are not historical facts, including statements about our expectations, hopes, intentions or strategies regarding the future are forward-looking statements. Forward-looking statements are based on management's beliefs, as well as assumptions made by, and information currently available to, management. Because such statements are based on expectations as to future, financial and operating results and are not statements of fact, actual results may differ materially from those projected. We undertake no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise. The risks and uncertainties, which forward-looking statements are subject to, include but are not limited to the risks and other factors detailed in our press release dated yesterday and in the statement regarding forward-looking information, risk factors and other sections of the company's Form 10-K and other filings with the SEC.

This conference call will be available for replay via webcast at our website at fnf.com. It will also be available through phone replay beginning at 2 p.m. Eastern time today through next Tuesday, August 2. The replay number is (800) 475-6701 and the access code is 210285. Let me now turn the call over to our Chairman, Bill Foley.

William Foley

Thanks, Dan. We're pleased with our financial results this quarter, particularly in our Title insurance business. Despite a continued sluggish real estate environment, we were able to generate an impressive 11.7% pretax margin in our Title business, a 200 basis point increase over the prior year and a sequential increase of 240 basis points from the first quarter of this year.

While refinance orders represented 51% of closed order volumes this quarter versus 46% in prior year, we still produced a 5% increase in the fee per file. Much of this can be attributed to the strength of our Commercial business as we generated nearly $94 million in Commercial revenue in the second quarter, a 38% increase over the prior year and a sequential increase of 43% from the first quarter of this year.

The Commercial business produced a fee per file increase of 26% over both the prior quarter and the first quarter of this year. The impact of cost reduction initiatives also contributed to our strong 11.7% pretext title margin. On a sequential basis from the first quarter, title segment personnel costs and other operating expenses increased by less than 1%, while title gross operating revenue grew by nearly 11%. We will continue to manage our Title business with the same discipline, seeking to maximize profitability in any market environment.

Two weeks ago, we announced the sale of our flood insurance business for approximately $210 million. That flood business has been the nation's largest flood insurance provider and a very profitable and consistent business for FNF for nearly 10 years. We feel this transaction is a great opportunity to realize the value of the business we have created and redeploy the capital into other uses that can continue to create increased value for our shareholders. We are proud of the flood insurance business we created and we wish them future success with their new investment partners. We expect the transaction to close during the fourth quarter, and the sale will generate a pretax gain of approximately $154 million.

Let me now turn the call over to our CEO, George Scanlon.

George Scanlon

Thank you, Bill, and good morning, everyone. We are pleased to report a $17 million increase in title pretax earnings despite a $60 million decrease in title operating revenue versus the second quarter of 2010. Additionally, the prior year was a particularly strong quarter for realized gains in the Title segment, as we realized more than $24 million in gains versus only $2 million this year, another sign of the strength of the operating performance in our Title business this quarter.

As Bill mentioned, the significant contributor was the strong performance in our Commercial business. Commercial revenue accounted for more than 25% of total direct title premiums in the second quarter, compared with 20% in the second quarter of 2010.

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