Massive cost-cutting measures and industry consolidation has put title insurers in a position to profit from a rebound in home sales, with the two largest companies boosting profits substantially during the second quarter.
Fidelity National Financial, which became the nation’s largest title insurer with its acquisition of bankrupt rival LandAmerica Financial Group Inc.’s underwriting companies in December, saw second-quarter revenue grow by 34 percent from a year ago, to $1.57 billion. Pretax profits grew more than 13-fold, to $91.9 million, the company said.
Revenue from the company’s title insurance division, Fidelity National Title Group, hit $1.45 billion, up 40 percent from $1.04 billion a year ago. Pretax profits of $133.3 million were up 26 times from the $5.1 million registered a year ago, with profit margins rising from 0.5 percent to 9.2 percent. Direct title orders closed totaled 524,100, up 70.4 percent percent from 307,500 a year ago.
Much of Fidelity’s revenue growth was attributable to its acquisition of former LandAmerica subsidiaries Commonwealth Land Title, Lawyers Title and United Capital Title (see story). But Fidelity said it was also able to boost profits by trimming $263 million in costs at those companies, largely by eliminating 2,300 positions and closing 240 offices.
The job cuts — equal to about 40 percent of all those employed by Lawyers, Commonwealth and United when the deal closed — were achieved with virtually no loss of market share, CEO Al Stinson said in a conference call with investors.
Fidelity controlled about 45 percent of the title insurance market during the first quarter, Stinson said — nearly identical to the combined market share of Fidelity and LandAmerica in 2008 — but with substantially fewer agents. Before acquiring Lawyers and Commonwealth, Fidelity had cut 2,800 of its own agents, or 35 percent, between 2006 and third-quarter 2008.
"The real story on that is for what we invested, the tremendous return that we’re getting within six months from that acquisition," Stinson said.
Pretax profit margins in title insurance broke through the 10 percent mark during June, Stinson said, and are expected to continue to grow. Fidelity has received approval for or instituted price increases of 5 percent to 10 percent in 23 states, Stinson said, and is waiting for approvals for price increases in another 15 states.
Fidelity Chief Financial Officer Tony Park said during 2003, at the height of the housing boom, pretax profit margins in the company’s title insurance segment were approaching 20 percent.
If and when housing markets come back, Stinson said, "we’re at a cost structure to take huge advantage of that," with margins of 10 percent to 20 percent "a pretty good range to talk about."
Rival First American Corp. has also set a goal of achieving 10 percent pretax profit margins for its title insurance business, said Dennis Gilmore, CEO of the company’s financial services group, in a conference call with investors.
During the second quarter, while declining home prices dented the average revenue per title order closed, First American’s profit margins still climbed to 6.6 percent, the company said. …CONTINUED