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Edited Transcript of FNF earnings conference call or presentation 14-Feb-20 5:00pm GMT

·34 mins read

Q4 2019 Fidelity National Financial Inc Earnings Call JACKSONVILLE Feb 21, 2020 (Thomson StreetEvents) -- Edited Transcript of Fidelity National Financial Inc earnings conference call or presentation Friday, February 14, 2020 at 5:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Anthony John Park Fidelity National Financial, Inc. - Executive VP & CFO * Christopher Owsley Blunt FGL Holdings - President, CEO & Director * Michael Joseph Nolan Fidelity National Financial, Inc. - President * Raymond Randall Quirk Fidelity National Financial, Inc. - CEO & Director * William Patrick Foley Fidelity National Financial, Inc. - Non-Executive Chairman ================================================================================ Conference Call Participants ================================================================================ * Bose Thomas George Keefe, Bruyette, & Woods, Inc., Research Division - MD * John Robert Campbell Stephens Inc., Research Division - MD * Mackenzie Jean Aron Zelman & Associates LLC - VP * Mark C. DeVries Barclays Bank PLC, Research Division - Director & Senior Research Analyst * Mark Douglas Hughes SunTrust Robinson Humphrey, Inc., Research Division - MD * Pablo Augusto Serrano Singzon JP Morgan Chase & Co, Research Division - Analyst * Soham Jairaj Bhonsle Susquehanna Financial Group, LLLP, Research Division - Associate * Jamie Lillis SOLEBURY TROUT LLC - MD ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good day, ladies and gentlemen, and welcome to the FNF 2019 Fourth Quarter Earnings call. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to turn the call over to Jamie Lillis, Investor Relations for FNF. Please go ahead, sir. -------------------------------------------------------------------------------- Jamie Lillis, SOLEBURY TROUT LLC - MD [2] -------------------------------------------------------------------------------- Thank you, operator, and good morning, everyone. Thank you for joining our fourth quarter 2019 earnings conference call. Joining me today are our Chairman, Bill Foley; CEO; Randy Quirk; President, Mike Nolan; CFO, Tony Park; and F&G's CEO, Chris Blunt. We'll begin with a brief strategic overview from Bill. Randy will review the title business. And Tony will finish with a review of the financial highlights, and we'll open the call for your questions and finish with concluding remarks from Bill Foley. But before we begin, I would like to remind you that 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 2:00 p.m. Eastern today through February 21. The replay number is (844) 512-2921 and the access code is 13697834. Let me now turn the call over to our Chairman, Bill Foley. -------------------------------------------------------------------------------- William Patrick Foley, Fidelity National Financial, Inc. - Non-Executive Chairman [3] -------------------------------------------------------------------------------- Thank you, Jamie. The fourth quarter was another strong quarter for our title business, finishing off the banner year. We generated adjusted pretax title earnings of $355 million and a 16.3% adjusted pretax title margin during the fourth quarter. For the year, we generated adjusted pretax title earnings of $1.3 billion, a record, with an adjusted pretax title margin of 16.3%, which is our best since 2003. I'll let Randy go into more details on the title business in a moment. Turning to our acquisition of FG hold -- FGL Holdings or F&G, which we announced last week. FNF has agreed to acquire F&G for $12.50 per share of common stock in an equity deal valued at approximately $2.7 billion. We expect the transaction to be more than 20% accretive on a pro forma basis to FNF's 2021 earnings and 10% accretive on a pro forma basis to FNF's 2020 earnings, assuming the transaction closes by June 30, 2020. Through the acquisition, FNF will expand into the retirement and insurance business, which will diversify FNF's cash and income streams beyond title insurance. Importantly, we expect F&G to reduce the risk and volatility inherent in our title operations by providing a counterbalance to FNF's earnings sensitivity to mortgage interest rates, while offering significant intermediate earnings accretion. Ideally -- additionally, we are excited with F&G's very attractive growth outlook, as the retirement and insurance business is benefiting from an aging demographic and accommodative government policy, which are driving robust demand for their products. FNF also offers F&G's size, scale and financial strength, which will allow F&G to capitalize on incremental organic and inorganic growth opportunities. Of note, we expect our acquisition to accelerate F&G's ratings upgrades, which will open new broker-dealer and bank channels for the distribution of its retirement and insurance products. We also see the potential for cross-selling retirement and insurance products through FNF's extensive bank network. Looking forward, we are committing to creating meaningful long-term value for our shareholders through a thoughtful capital allocation strategy focused on dividends, share repurchases, debt pay down and further investments in our business segments. We have no plans to alter our current dividend policy. And as a reminder, during the fourth quarter, we raised our quarterly dividend 6.5% to $0.33 per share, which used $90 million in available holding company cash. With the addition of F&G's earnings and cash flow, we would expect to increase our dividend over time. We will continue to be opportunistic buyers of our stock in accordance with our existing buyback authorization. During the quarter and prior to the blackout period, we repurchased 80,000 shares and a total of 2.1 million shares throughout the year. Our current repurchase plan is 22.2 million shares remaining on the authorization. FNF Holding Company cash inflows were $350 million -- $351 million, primarily from the $335 million in underwriter and nonunderwriter dividends in the fourth quarter. And $16 million in principal and interest on the intercompany ServiceLink note. The net result was at the end of the fourth quarter with approximately $1.1 billion in available holding company cash. I'll now turn the call over to Randy Quirk to discuss the title insurance business. -------------------------------------------------------------------------------- Raymond Randall Quirk, Fidelity National Financial, Inc. - CEO & Director [4] -------------------------------------------------------------------------------- Thank you, Bill. We generated adjusted pretax title earnings of $355 million, a $97 million or 38% increase over the strong fourth quarter of 2018. Our adjusted pretax title margin was 16.3%, a 210 basis point increase over the prior year. We had a 39% increase in direct to orders closed, comprised of a 5% increase in daily purchase orders closed, a 139% increase in data refinance orders closed and an 11% increase in total commercial orders closed. Purchase orders opened increased by 3% versus the fourth quarter of 2018, refinance orders opened increased by 110% versus the fourth quarter of 2018, as the current mortgage rate environment drives refinances volumes. Lastly, total commercial orders opened increased by 20% over the fourth quarter of 2018. This quarter produced improving trends in purchase orders opened, a strong continued quarter of refinance orders opened as well as ongoing strength in commercial orders opened. We expect mortgage originations to remain strong through the first half of the year and then begin to moderate through the remainder of 2020. For the fourth quarter, total orders opened averaged 7,800 per day, with October at 8,500, November at 8,200 and December at 6,700. Purchase orders opened were up 3%, and closed orders were up 5% on a daily basis in the fourth quarter. Daily purchase orders opened in October were up by 1% versus the prior year period, while November was up 4% and December was up 5% versus the prior period. Refinance orders opened and closed increased by 110% and 139%, respectively, on a daily basis versus the fourth quarter of 2018. For the month of January, total orders opened were over 8,800 per day, with a steady increase each week and nearly 10,500 orders opened per day in the first week of February. Daily purchase orders opened for the month of January increased by 5% versus the prior year, and daily refinance orders opened increased by 98% over the prior year period. Total commercial revenue of $321 million was a 2% decline versus the record-breaking fourth quarter of 2018, driven primarily by a 12% decrease in the fee per file, partially offset by an 11% increase in closed orders. Commercial orders opened increased by 20% in the fourth quarter versus the prior year. Total commercial revenue for the year of 2019 was our best annual revenue performance since we began tracking total commercial revenue in 2015. Lastly, staffing levels remained relatively stable during the fourth quarter. However, in the second and third quarter, our staffing needs increased by approximately 500 as a result of the opened order and closed order volume increase. Let me now turn the call over to Tony Park to review the financial highlights. -------------------------------------------------------------------------------- Anthony John Park, Fidelity National Financial, Inc. - Executive VP & CFO [5] -------------------------------------------------------------------------------- Thank you, Randy. We generated $2.4 billion in total revenue in the fourth quarter, with the title segment generating all but the $52 million of revenue we generated in our corporate segment. Net earnings were $340 million, which included $131 million in net realized gains. Adjusted net earnings were $263 million or $0.95 per diluted share. Excluding net realized gains of $135 million, our title segment generated $2.2 billion in total revenue for the fourth quarter, a 20% increase from the fourth quarter of 2018. Direct premiums increased by 14% versus the fourth quarter of 2018. Agency revenue grew by 23%, and escrow title-related and other fees also increased by 23% versus the prior year. Personnel costs increased by 11%, and other operating expenses grew by 19%. All in, the title business generated a 16.3% adjusted pretax title margin, a 210 basis point increase versus the fourth quarter of 2018. Included in the increase in operating expenses were some unusual dispute- and litigation-related items, including the settlement of a case dating back nearly 2 decades. Since these types of expenses show up from time to time, we don't exclude them from adjusted earnings. However, it is relevant to point them out. Those amounts were over -- were approximately $24 million and negatively impacted our title margin by over 100 basis points. Interest income of $55 million was a $3 million increase over the prior year as we saw the positive impact of the reinvestment of proceeds from maturing fixed income securities and increased cash and short-term investment balances, partially offset by a decline in short-term interest rates on the interest we earn on the client exchange funds we hold in our 1031 exchange business. FNF debt outstanding was $838 million on December 31 for a debt-to-total-capital ratio of 12.8%. Our claims rate of $53 million were $13 million lower than our provision of $66 million for the fourth quarter. The carried reserve for claims losses is currently $34 million or 2% above the actuary's central estimate. We continue to provide for claims at 4.5% of total title premiums. Finally, our investment portfolio totaled $5.8 billion at December 31. Included in the $5.8 billion are fixed maturity and preferred securities of $2.5 billion, with an average duration of 3.6 years and an average rating of A2, equity securities of $800 million, short-term and other investments of $1.1 billion and cash of $1.4 billion. Of the $1.4 billion in cash, over $1.1 billion currently sits at the holding company level. Let me now turn the call back to our operator to allow for any questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question comes from the line of Mark DeVries with Barclays. -------------------------------------------------------------------------------- Mark C. DeVries, Barclays Bank PLC, Research Division - Director & Senior Research Analyst [2] -------------------------------------------------------------------------------- First question is for Randy. Randy, could you just talk a little bit more about what you saw in your commercial volumes in the quarter? As you noted, orders closed is actually up, but the revenue per order was down. What the characteristics were of the business you saw? And then also, the pipeline, as you indicated, probably the biggest increase since you've started monitoring it and the open orders, kind of your optimism going forward? -------------------------------------------------------------------------------- Michael Joseph Nolan, Fidelity National Financial, Inc. - President [3] -------------------------------------------------------------------------------- Mark, it's actually Mike. In the fourth quarter, there was a couple of things about the order volumes. One, they're up substantially, as you saw, 20%. But we did have a couple of big multi-site transactions that we didn't have in the fourth quarter of 2018, and that partly drove the increase in open orders. It also had an effect on the average fee per file because you're spreading that aggregate premium over many more locations and it just lowers the average fee per file when you do the math. I'd also point out that in the fourth quarter of last year, that was a really tough comp. That was probably one of our -- I think it was probably our highest average fee per file in national commercial we've ever had. We had a number of large single-site transactions in some high-rate states. And I think the pipeline, and if you look at the back half of the year, we're up 15% in the third quarter, 20% in the fourth and I think another 15% in January. So we're just seeing really strong order volumes and strong pipeline. -------------------------------------------------------------------------------- Mark C. DeVries, Barclays Bank PLC, Research Division - Director & Senior Research Analyst [4] -------------------------------------------------------------------------------- Okay, got it. And next question maybe for Bill. Assuming the F&G transaction closes as planned, how do you think about the relative attractiveness of the different options you'll have for deploying your free cash flow coming out of the title business? Where do you see the best returns between investing it in the F&G business, buybacks, M&A, dividends, et cetera? -------------------------------------------------------------------------------- William Patrick Foley, Fidelity National Financial, Inc. - Non-Executive Chairman [5] -------------------------------------------------------------------------------- Yes, I think M&A is, other than perhaps buying blocks of business on the F&G side, will not be significant. What I would like to see us do is continue to look at our dividend and move our dividend north and then also reengage on the stock repurchase program. And we're -- we've just got a couple of open items going on right now with F&G. So we're precluded from repurchasing shares at this particular time. But as soon as the window opens, we intend to go back in and start our normal daily stock repurchase plans or repurchase program. So F&G will be -- it'll be exciting for us. It's a growth business. We're going to enable them to get a ratings bump, ratings increase, which will allow different channels to open up for F&G. And that will kind of be where M&A occurs to the extent there is M&A. And then there's also always opportunities and possibilities with regard to title agents that we may want to assimilate and bring into our company. But there aren't a lot available, but there are some, and we will continue to try and grow our market share, either through acquisition or through organic growth by taking market share from the other large players. -------------------------------------------------------------------------------- Operator [6] -------------------------------------------------------------------------------- Our next question comes from the line of Bose George with KBW. -------------------------------------------------------------------------------- Bose Thomas George, Keefe, Bruyette, & Woods, Inc., Research Division - MD [7] -------------------------------------------------------------------------------- Actually, can you give us some guidance on your expectation for interest income next year, just assuming interest rates stay fairly stable? -------------------------------------------------------------------------------- Anthony John Park, Fidelity National Financial, Inc. - Executive VP & CFO [8] -------------------------------------------------------------------------------- Sure, Bose. This is Tony. So we generated about $225 million in interest income over the course of 2019. And as you know, we went through a period of 3 Fed rate adjustments downward. So we will feel a little pressure as we move our way through 2020. My expectation is over the course of 2020, it will probably decline about $20 million. And that's fairly spread equally, maybe a little less in Q1 relative to the prior year Q1. But then it will pick up a little bit gradually. And so again, you could almost average it out to about $5 million of impact on a comp basis per quarter. -------------------------------------------------------------------------------- Bose Thomas George, Keefe, Bruyette, & Woods, Inc., Research Division - MD [9] -------------------------------------------------------------------------------- Okay, great. That's helpful. And then actually last quarter, you guys spoke about potentially building a bank. And I was just -- is that still on the agenda? And any potential timing for that? -------------------------------------------------------------------------------- William Patrick Foley, Fidelity National Financial, Inc. - Non-Executive Chairman [10] -------------------------------------------------------------------------------- It is still on the agenda. We deferred our filings. We're ready to submit our filings. But we decided to defer the filings until the F&G transaction was concluded. We just didn't want to confuse regulators with 2 -- kind of 2 significant filings at the same time. -------------------------------------------------------------------------------- Bose Thomas George, Keefe, Bruyette, & Woods, Inc., Research Division - MD [11] -------------------------------------------------------------------------------- Is it something we could see in 2021? -------------------------------------------------------------------------------- William Patrick Foley, Fidelity National Financial, Inc. - Non-Executive Chairman [12] -------------------------------------------------------------------------------- Yes, it is something you could see. You could see the filings or the applications in 2021. The timing, that's really a -- that's out of our control. -------------------------------------------------------------------------------- Operator [13] -------------------------------------------------------------------------------- Our next question comes from the line of Mackenzie Aron with Zelman. -------------------------------------------------------------------------------- Mackenzie Jean Aron, Zelman & Associates LLC - VP [14] -------------------------------------------------------------------------------- Just was wondering if you could talk a little bit about margin expectations this year, given it sounds like commercial is going to be very strong, especially in the first half of the year, but recognizing back half of the year, revise might start to become a headwind. So just any color or guidance you could give around margins this year? -------------------------------------------------------------------------------- Raymond Randall Quirk, Fidelity National Financial, Inc. - CEO & Director [15] -------------------------------------------------------------------------------- Yes, this is Randy. Well, as you know, our margins here this year at 16.3% was significant. We're going to come in with a very good first quarter and second quarter with the refinance volume. And we do have growth in the purchase market that's -- it's got momentum that we think could continue on throughout the rest of the year. And of course, the market -- the commercial market's very solid, very stable, and we've got a great pipeline going in with the 20% increase in open orders that Mike had mentioned. So we're looking for another very, very good year. The first quarter will have a little bit of seasonality. Our measure -- our target has always been a 15% year-end margin. But I think we can push up from there and get it up into that 16% range again. So we're looking for a solid year. We need to see what rates do, of course. But our expectations are pretty high. We're on a -- we're in a good place right now and we'll get, obviously, a better measure at it as we get through the first 6 months of the year. But I think getting back up in this range is a very good possibility. -------------------------------------------------------------------------------- Operator [16] -------------------------------------------------------------------------------- Our next question comes from the line of Soham Bhonsle with SIG. -------------------------------------------------------------------------------- Soham Jairaj Bhonsle, Susquehanna Financial Group, LLLP, Research Division - Associate [17] -------------------------------------------------------------------------------- Just had a couple on FG, I guess. As we think about your earnings mix going forward longer term, after the acquisition, it looks like it's going to be 25-75 FG title. Where would you like that mix to go to? And where you'd feel adequately hedged, I guess, which is the point of this acquisition? -------------------------------------------------------------------------------- William Patrick Foley, Fidelity National Financial, Inc. - Non-Executive Chairman [18] -------------------------------------------------------------------------------- I'd like to think more in terms of what are the assets under management going to end up being at F&G. And our goal is to double the assets under management in 5 years. If that were to happen, we're probably going to be at 50-50 company earnings-wise. But that's really our -- that's our primary focus is to keep growing assets under management. And Chris can talk about that through -- for a bit, too, if you want to chime in. -------------------------------------------------------------------------------- Christopher Owsley Blunt, FGL Holdings - President, CEO & Director [19] -------------------------------------------------------------------------------- Yes. I think, again, a couple of key points. This is Chris Blunt. One, this is just an accelerator to the strategy that's already in place. So we don't need outsized additional growth to achieve that over the next 5 years. Bill mentioned the ratings upgrade. Obviously, that's critical for us. So that will be a big accelerant to our organic growth. And we are effectively capital self-sufficient at the moment. And so this is the potential capital infusion or need would really be if we just simply stepped on the gas from here. -------------------------------------------------------------------------------- Soham Jairaj Bhonsle, Susquehanna Financial Group, LLLP, Research Division - Associate [20] -------------------------------------------------------------------------------- Got it. And then I was just wondering on investment income. I think FG's yield is somewhere in the 4.5% range with the Blackstone relationship. Has there been any discussion internally on maybe moving some of the F&F book over there to sort of get that yield accretion over time? -------------------------------------------------------------------------------- William Patrick Foley, Fidelity National Financial, Inc. - Non-Executive Chairman [21] -------------------------------------------------------------------------------- Yes, there has been discussion, and that's kind of a part of our plans to take some of this free cash we have sitting at FNF that we just leave in money market funds and so on and free off some of that and let Chris work with it -- with Blackstone. -------------------------------------------------------------------------------- Soham Jairaj Bhonsle, Susquehanna Financial Group, LLLP, Research Division - Associate [22] -------------------------------------------------------------------------------- Are there any thoughts on timing on that? I mean is that right after the acquisition or something for 2021? -------------------------------------------------------------------------------- William Patrick Foley, Fidelity National Financial, Inc. - Non-Executive Chairman [23] -------------------------------------------------------------------------------- It will be after the acquisition. And right now, Chris is busy consolidating some offices and working through -- we're working through the acquisition plan. But it wouldn't be that complicated to give Blackstone some additional funds. -------------------------------------------------------------------------------- Operator [24] -------------------------------------------------------------------------------- Our next question comes from the line of Pablo Singzon with JPMorgan. -------------------------------------------------------------------------------- Pablo Augusto Serrano Singzon, JP Morgan Chase & Co, Research Division - Analyst [25] -------------------------------------------------------------------------------- So the first one is, as you think about FG's growth potential and ratings upgrades, I was wondering if you could talk about the implications of moving from BBB+ to an A- compared to moving from an A- to an A, which I think you had characterized as maybe a longer-term outcome. So I guess, what distribution channels open up when you move to A-? And are there certain partners that you can only transact with on the flat A? And Chris, prior to the FNF deal, was it your broker rollout this year just premising being rated BBB? -------------------------------------------------------------------------------- Christopher Owsley Blunt, FGL Holdings - President, CEO & Director [26] -------------------------------------------------------------------------------- Yes, great question. So I'll answer reverse order. Yes, the rollout that's going to occur in the second quarter of this year into independent broker-dealer and banks was assuming A-. If you know those distribution channels, that's kind of the minimum table stakes. So we had hoped that maybe a year out, 18 months out, we could get to that next upgrade. So accelerating that is very meaningful to us. So as a, say, hopefully, at some point, solid A with an A.M. Best, A- with the S&P's and the Moody's and Fitch's of the world. That is a very big deal for us. So that will open up faster, deeper penetration into independent broker-dealers. It opens up banks combined with all of the great relationships that FNF has. So -- and then it will also bring into play markets that we have not been able to really play in yet like pension risk transfer. So this is kind of taking what was a good growth story and a lot of initiatives in 2021 and '22 and basically rolling it forward a year, 1.5 years. -------------------------------------------------------------------------------- Pablo Augusto Serrano Singzon, JP Morgan Chase & Co, Research Division - Analyst [27] -------------------------------------------------------------------------------- Okay, that's helpful. And then, Chris, just a second one. In FG's statutory earnings, which I view as a proxy for cash flow. And I guess, the context of this question is just topic of cash flow generation, which I think is one of the themes investors in F&F focus on. So in the past stat earnings at about $200 million every year, which if I understood correctly, is truly excess capital net of any organic growth requirements. And so just recognizing the new ones have seen gap in stat, how should we think about the $200 million in the context of your operating earnings, which if you go back in a sense, those should grow by about 30% over the next couple of years? Should we expect a similar trajectory for stat cash flow, but maybe perhaps a little lag? -------------------------------------------------------------------------------- Christopher Owsley Blunt, FGL Holdings - President, CEO & Director [28] -------------------------------------------------------------------------------- Yes. So Pablo, I probably need to be a little careful here because as you know, we've got our earnings release coming up on the 26. But a couple of comments that we've made before. As I said, when we project forward pre-F&F, we felt we were capital self-sufficient for the growth plans that we had at the time. So now having the potential, at least for additional capital, if needed, just allows us to accelerate that growth. One thing you've seen from us consistently, and I don't expect that, that would change is our stat earnings have been pretty consistent in tracking our GAAP earnings, which hopefully gives folks comfort that we're straight down the middle on how we account for things. So I don't want to make any prognostications. But yes, this should be a positive in terms of access to capital and nothing that would cause it to be a negative. -------------------------------------------------------------------------------- Operator [29] -------------------------------------------------------------------------------- (Operator Instructions) Our next question comes from the line of John Campbell with Stephens. -------------------------------------------------------------------------------- John Robert Campbell, Stephens Inc., Research Division - MD [30] -------------------------------------------------------------------------------- Bill or maybe Tony, just a bigger picture question on FGL. It's clearly been met with somewhat mixed reception. You guys have had a couple of days since the announcement. I'm sure you've talked to a lot of investors. What's the main pushback? Or maybe what's the most common thing you think F&F investors are missing with this deal? -------------------------------------------------------------------------------- Anthony John Park, Fidelity National Financial, Inc. - Executive VP & CFO [31] -------------------------------------------------------------------------------- Well, the main pushback, I think, is just surprise currently. And I think that people anticipated that we were going to do something with the excess cash. But I don't think that they knew exactly what. And a lot of people were hopeful that we'd give it to them, either in the form of a buyback or a dividend. And when that didn't happen, I think you've seen some people maybe that were holders or sellers. I think you also have some ARB activity that influences right out of the gate, something like this. Chris could probably speak to maybe some of the things that people miss in F&G that might be different than similar companies in our industry. -------------------------------------------------------------------------------- Christopher Owsley Blunt, FGL Holdings - President, CEO & Director [32] -------------------------------------------------------------------------------- Yes, Tony, I think that's right. I would add that we're not a traditional life insurance company. So that's probably the biggest misunderstood component that people need to get in and do their homework to appreciate. We've got a young book of fixed indexed and indexed annuities. So we don't have a lot of legacy assets. We've proven over time, the company is pretty resilient to movements in the interest rates. We've been able to maintain a very consistent net spread, with rates everywhere from [1.40%] on the 10-year to 3% on the 10-year. So I think there's a sense, if you don't know the space, everybody gets lumped together, low rates, bad for insurance companies, yes, for traditional legacy insurance companies, but we are much more of a spread lender where we can reprice our liabilities on a regular basis. So that's probably number one. The second is this issue of what if we're late in the credit cycle and what's in that portfolio. We've actually taken credit risk down during the Blackstone period where Blackstone's been managing the FG portfolio. And we've done stress tests, which was released publicly. We've had independent folks verify that. So the miss there is -- so you're getting some extra yield, but it must be coming at the harm of credit. Actually, we've enhanced credit. We've been doing things like selling BBB corporates and buying higher-rated structured securities, CMBS, asset-backed securities. So it's really sort of getting your head around. We believe we've improved the credit profile. Some of those securities are a little less liquid, but we have very sticky liabilities and a ton of liquidity. So I think those are probably the 2 that most of our investors took them a while to get their arms around that because the sector -- the life sector, when rates are down, just doesn't trade well. But most of what people are concerned about just doesn't apply to us. -------------------------------------------------------------------------------- John Robert Campbell, Stephens Inc., Research Division - MD [33] -------------------------------------------------------------------------------- Okay. That makes sense. And then, I guess, also a bigger picture with FGL. Bill, is there a way that Cannae kind of fits into this future landscape? -------------------------------------------------------------------------------- William Patrick Foley, Fidelity National Financial, Inc. - Non-Executive Chairman [34] -------------------------------------------------------------------------------- No, I don't see this as a Cannae opportunity. Cannae is more focused on fintech and fintech-type investments, data companies. If we were to get involved in a kind of an area of business that we're ahead of the relationship with F&G, it would -- it could be in kind of the marketing side, marketing organizations. But we -- I don't really feel like this is a Cannae-type investment. -------------------------------------------------------------------------------- John Robert Campbell, Stephens Inc., Research Division - MD [35] -------------------------------------------------------------------------------- Okay. That makes sense. One last quick one. Tony, thanks for calling out the legal fees. We were a little curious about the title pretax margin. So I think you said that was 100 bps of an impact. A little curious why you didn't back that out of adjusted results. Is there any particular reason? Or is this some type of expense that maybe continues in the near term? Anything to call out there? -------------------------------------------------------------------------------- Anthony John Park, Fidelity National Financial, Inc. - Executive VP & CFO [36] -------------------------------------------------------------------------------- Certainly, it's a continuation of the expense, but I do want to be careful about cherry-picking this type of stuff. We do have legal expenses that flow through every quarter. These were just a lot bigger than what we normally have. And so I want to be careful that I don't call them out one quarter, and then maybe when they're down in next, that I don't mention it just from SEC purposes. So it's a fair question. And as you know, we don't like to back out a lot of stuff other than the standard stuff we normally do. So I thought it made more sense just to call it out in this phone call. And I think it was about 110 basis points back of the envelope. -------------------------------------------------------------------------------- Operator [37] -------------------------------------------------------------------------------- Our next question comes from the line of Mark Hughes. -------------------------------------------------------------------------------- Mark Douglas Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [38] -------------------------------------------------------------------------------- You had very strong numbers in the escrow title, other fees, also agency. I wonder if you could talk about what's driving that dynamic here lately and also about the sustainability. -------------------------------------------------------------------------------- Raymond Randall Quirk, Fidelity National Financial, Inc. - CEO & Director [39] -------------------------------------------------------------------------------- I'll give Mike the agency side. But on the escrow and other, we do have stronger escrow fees as a percentage of refi, especially in the west. And so if you see direct premiums up 14% or 15%, our escrow fees were up 25% or 28% on those particular orders, just because you sort of have a minimum fee for escrow. And so that was part of that. We also had stronger revenue on -- in the LoanCare area, where they've taken on a lot more loans over the course of the last 12 months. And also in the ServiceLink valuations business, we were stronger there in revenue versus Q4 of a year ago. So that's why you see a lot of strength there. -------------------------------------------------------------------------------- Michael Joseph Nolan, Fidelity National Financial, Inc. - President [40] -------------------------------------------------------------------------------- Yes, on the agency side, Mark, it's Mike. We're very pleased with the agency results. We had a record quarter and a record year. And we really feel like we're taking share in some key markets in the agency world, including Florida and places like Pennsylvania, New Jersey and Georgia. The market share numbers that we have through the first 9 months of the year show us up a full point nationally, which is a strong increase in market share. -------------------------------------------------------------------------------- Mark Douglas Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [41] -------------------------------------------------------------------------------- And then would it be too much to ask on the February you described? It looks like good acceleration. Presumably, some of that's seasonality, can you say? And I think you said that the purchase market continues to have good momentum. How did that February compare year-over-year, I think January is up 5%. Any sense on how February is trending? -------------------------------------------------------------------------------- Raymond Randall Quirk, Fidelity National Financial, Inc. - CEO & Director [42] -------------------------------------------------------------------------------- Yes, this is Randy. Of course, we only had really 1 week into February. And we did have, in the week of February, a record refinance order volume ever. So that -- again, that was for 1 week. But the purchase increase held 3.5%, 4%. But again, that was 1 week. And with purchase, typically, it will grow as you move through the month. But that was a -- that's a 1-week look at February. But of course, it's going in the right direction. -------------------------------------------------------------------------------- Michael Joseph Nolan, Fidelity National Financial, Inc. - President [43] -------------------------------------------------------------------------------- Yes. And I'll just add there, Mark, as well that the total open orders, and again, early part of February, were over 10,000, I think, 10,500 up against 8,800 in January. -------------------------------------------------------------------------------- Raymond Randall Quirk, Fidelity National Financial, Inc. - CEO & Director [44] -------------------------------------------------------------------------------- Right. -------------------------------------------------------------------------------- Michael Joseph Nolan, Fidelity National Financial, Inc. - President [45] -------------------------------------------------------------------------------- So big increase. -------------------------------------------------------------------------------- Mark Douglas Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [46] -------------------------------------------------------------------------------- Yes. And then one final question on the F&G, the goal of double assets in 5 years. Is there kind of a notional template, how much of that should be organic versus how much might be a block or PRT transactions? -------------------------------------------------------------------------------- Raymond Randall Quirk, Fidelity National Financial, Inc. - CEO & Director [47] -------------------------------------------------------------------------------- Yes. I would say that the overwhelming out part of that will be organic growth. So that does not assume any large transactions, not that we wouldn't take a swing at a couple of smaller size blocks or a flow transaction, for example. But the bulk of that is just running out the playbook off. We've been growing at 20% in our core IMO channel, that doesn't show signs of -- we're not anticipating that slowing for any particular reason. And now we add in banks and broker-dealers, a couple of small block transactions, maybe a flow deal here or there. It's not heroic assumptions to get to that doubling. -------------------------------------------------------------------------------- Operator [48] -------------------------------------------------------------------------------- Our next question is a follow-up question from Soham Bhonsle with SIG. -------------------------------------------------------------------------------- Soham Jairaj Bhonsle, Susquehanna Financial Group, LLLP, Research Division - Associate [49] -------------------------------------------------------------------------------- Just a follow-up on fee per file's down 15% year-over-year. And I know there's some mix shift there. But there's a lot going on this year with refi and purchase. And how are you guys thinking about fee per file profile for the year on a year-over-year basis? -------------------------------------------------------------------------------- Michael Joseph Nolan, Fidelity National Financial, Inc. - President [50] -------------------------------------------------------------------------------- I would -- it's Mike. I would think we may get a little bit of an increase if purchase grows and refi is down a little bit, so you get a positive shift there. And I would think commercial fee per file would be consistent with levels in 2019. -------------------------------------------------------------------------------- Soham Jairaj Bhonsle, Susquehanna Financial Group, LLLP, Research Division - Associate [51] -------------------------------------------------------------------------------- Okay. So is a mid-singles growth reasonable for this year? -------------------------------------------------------------------------------- Michael Joseph Nolan, Fidelity National Financial, Inc. - President [52] -------------------------------------------------------------------------------- Yes. I mean yes, I would think that's a reasonable expectation. -------------------------------------------------------------------------------- Raymond Randall Quirk, Fidelity National Financial, Inc. - CEO & Director [53] -------------------------------------------------------------------------------- I mean a lot of it's going to depend on mix. If we had a lot more refis, especially at the start of the year, we'll see some pressure on the fee per file. And that's really what you see. A 15% decline, it has a lot to do with the fact that we just had a ton of refis that closed in Q4. -------------------------------------------------------------------------------- Operator [54] -------------------------------------------------------------------------------- Our next question is a follow-up question from Mark Hughes with SunTrust. -------------------------------------------------------------------------------- Mark Douglas Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [55] -------------------------------------------------------------------------------- Yes. On the F&G, I know that one of the folks in your space, American Equity, yesterday had good results. They talked about a lengthening of the assets, more persistency, lower lapses. And therefore, you're getting higher long-term earnings. I'm just sort of curious whether you've seen that phenomenon in your book? Have you already taken it into account when you look at your financials? Just a couple of words on that topic would be helpful. -------------------------------------------------------------------------------- Christopher Owsley Blunt, FGL Holdings - President, CEO & Director [56] -------------------------------------------------------------------------------- Yes, this is Chris again. I probably have to be real careful, just given where we are in our timing of our own earnings announcements. But probably the most important thing is strong top line growth. And we're not -- just say, we're not seeing any negative patterns. So maybe just leave it at that. -------------------------------------------------------------------------------- Operator [57] -------------------------------------------------------------------------------- Our next question is a follow-up question from John Campbell with Stephens. -------------------------------------------------------------------------------- John Robert Campbell, Stephens Inc., Research Division - MD [58] -------------------------------------------------------------------------------- Just one quick follow-up. On the agent remittance rate, that looks like it's worked in your favor relative to last year or last 2 quarters. I was thinking maybe with seasonality with some of the western states there, maybe a little bit higher remittance rate. I thought that would actually work against you this quarter. Is there something structural over there that's helping that? -------------------------------------------------------------------------------- Michael Joseph Nolan, Fidelity National Financial, Inc. - President [59] -------------------------------------------------------------------------------- John, it's Mike. As you know, we actually don't do much agency business in the western states. I think it's really the growth we've had in markets like Florida vis-à-vis some other markets where we have better promulgated splits in a market like that and also markets like in the Carolinas. -------------------------------------------------------------------------------- Operator [60] -------------------------------------------------------------------------------- Mr. Foley, we have no further questions at this time. I would now like to turn the floor back over to you for closing comments. -------------------------------------------------------------------------------- William Patrick Foley, Fidelity National Financial, Inc. - Non-Executive Chairman [61] -------------------------------------------------------------------------------- Thank you. We're very pleased with our fourth quarter title results that rounded out a record-breaking year. Looking to 2020, with an anticipated moderation in mortgage originations later in the year, we will remain vigilant in our expenses as we manage the expected slowdown in volumes. Lastly, we're excited to welcome F&G into the FNF family in the coming months upon completion of our pending merger. Thank you for joining us today, and we look forward to updating everyone on our first quarter call. -------------------------------------------------------------------------------- Operator [62] -------------------------------------------------------------------------------- Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.