The big three ... title insurers?
By Matt Carter, Friday, December 12, 2008.Bookmarking Sites
For now at least, the U.S. auto industry's got its big three: GM, Ford and Chrysler. In real estate, you've got your big four title insurance underwriting companies -- soon to be the big three.
In 2007, the top four title insurers controlled 87 percent of the $14 billion U.S. title insurance business. First American Corp. led the pack with 30 percent market share, followed by Fidelity National Financial Inc. (26 percent), LandAmerica Financial Group (19 percent) and Stewart Information Services Corp. (12 percent).
With LandAmerica in Chapter 11 bankruptcy and Fidelity looking to buy its three underwriting subsidiaries -- Lawyers Title Insurance Corp., Commonwealth Land Title Insurance Co. and United Capital Title Insurance Co. -- the picture could soon look something like this: Fidelity (45 percent), First American (30 percent), and Stewart (12 percent).
But now we learn that Stewart also seems to be in the chase for LandAmerica's underwriters (see story).
If Stewart succeeds in outmaneuvering Fidelity, that would leave the three biggest companies still standing with roughly equal market share: Stewart (31 percent), First American (30 percent) and Fidelity (26 percent).
In a Nov. 10 analysis of a proposed Fidelity-LandAmerica merger, analysts at Keefe, Bruyette & Woods said that a combined Stewart and LandAmerica would make for a "healthy industry."
But KBW saw Fidelity as "the logical partner" for LandAmerica, because LandAmerica's $650 million-plus debt load would be too big a hurdle for Stewart, with its "conservative balance sheet philosophy," to overcome (this was before LandAmerica filed for bankruptcy protection and said instead of merging with another company, it would sell off its underwriting companies as part of a plan to pay off the parent company's debt).
The KBW analysts ruled out First American because the company's management has said they aren't interested in acquisitions right now -- like everybody else, they are downsizing as fast as they can to survive the downturn.
Fidelity's management has indicated that in order to realize "synergies," layoffs would be an inevitable part of an acquisition of Lawyers, Commonwealth and United. That's probably true regardless of who ends up with LandAmerica's underwriting subsidiaries.
That being said, who are you rooting for, Fidelity or Stewart? If Fidelity beats out Stewart, can Stewart boost its market share and attain parity with Fidelity and First American? Or will the big three eventually become the big two?
There's one other scenario that would preserve a "big four" title industry: What if Old Republic International Corp., which had 5 percent of the underwriting business in 2007, picked up LandAmerica's underwriters? That would create a landscape something like this: First American (30 percent), Fidelity (26 percent), Old Republic (24 percent) and Stewart (12 percent).
If that sounds far fetched, Old Republic did file an application with Nebraska regulators this week to acquire Lawyers and Commonwealth, but withdrew the application yesterday (see story link above).
What about First American? Should the current leader reconsider and jump into the hunt, now that it's LandAmerica's underwriting companies on the block, and not the parent company and all its debt? Or are they wise to stay on the sidelines and let Fidelity and Stewart engage in a bidding war?
Fidelity is hoping to wrap up a $298 million deal with LandAmerica this month, but LandAmerica's creditors are objecting to a quick sale and have asked the bankruptcy court to hold off on approving it, saying a better offer could emerge (for details, and access to filings in the case, see the story).
UPDATE: Fidelity has the go-ahead from bankruptcy court to acquire Lawyers, Commonwealth (see story).
UPDATE TWO: Feds standing aside on antitrust issues (see story).
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Submitted by (Fort Worth Real Estate Guy) on December 12, 2008 - 4:35pm.
We worked with land america alot in the Dallas area, I hope everything can be worked out for the good
Mike Pannell
Nu Home Source Realty LLC
817-509-1400
http://www.nuhomesource.com
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Submitted by Jodi Suguitan on December 14, 2008 - 4:11pm.
Hows the saying go, "everything comes in 3s".
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Submitted by Diane Cipa on December 15, 2008 - 4:59am.
First American - absolutely not. They have too much on their plate just staying alive.
Fidelity has the strength to make this acquisition successful and right now I am most concerned with strength, so my vote goes to Fidelity.
Title insurance tails mortgage lending and so it's behind the curve in going down and then coming back up again. The worst appears to be over in mortgage lending and the recovery has started. Title insurance is still moving down into its worst stage. Recovery will come but we have some tough times ahead as regulators continue their discovery process and claims tailing out of the massive shifts of real estate ownership surface.
Submitted by John Bethell on December 16, 2008 - 2:44am.
If I understand Fidelity's press release it looks like the Nebraska DOI approved both Fidelity and Stewart. Maybe a bankruptcy auction is in the near future? I'm pulling for Stewart.
All of the big U/W's are blaming agents instead of themselves for many of their problems; claims, defalcations, too generous contract splits. But the U/W's facilitated all of this over the last 10 years chasing bad business relationships.
LandAmerica's financial condition has nothing to do with the underlying fundementals of the business. Its due to grossly neglegent mismanagement of their 1031 business. As bad as things are right now in real estate, it pales in comparison to the early 80's. The industry came through that era fine and will come through this era fine as well. All of the major insurers, despite taking gas the last few quarters, are well reserved and making reasonable efforts to control their current expenses.
I'm worried what two companies controling 75% of the distribution channel and sharing similar strategies and objectives will be able to cram down the marketplace because of little or no competition. Having 3 major u/w's will prevent FAF and FNF from controling the distribution of title insurance to the detriment of the client and title agent community. Ensuring viable competition is the best way to ensure the long term health and vitality of the industry.
Submitted by Matt Carter on December 16, 2008 - 9:33am.
The Nebraska Department of Insurance has given its approval for either Fidelity or Stewart to purchase Lawyers and Commonwealth. It's now in the hands of the bankruptcy court (which is holding a hearing today) and Federal Trade Commission. According to NDI's ruling on Fidelity's application, Fidelity would pay $282 million for Commonwealth and Lawyers ($182 million in cash, plus $100 million in subordinated note (an IOU) and shares of FNF common stock), and commit $157 million to recapitalize the companies. Fidelity will hold 46 percent of national title insurance market if acquisition approved. The ruling on Stewart's application states that Stewart is prepared to pay $256 million and is committed to contributing $157 million to recapitalize the companies. Stewart's share of national market would be 32 percent, NDI says. NDI says both Fidelity and Stewart are in strong financial condition, and that industry consolidation must be weighed against the "lack of guaranty fund protection for current (Lawyers and Commonwealth) policyholders nationwide and the risk of harm to them." From the Fidelity ruling: "In such large holdings... the ability to lessen competition should be reviewed closely. Under current law, the Department is restricted to opining only with regard to the competitive impact on Nebraska. The national issue of competitive markets is one currently pending beore the Federal Trade Commission (FTC) and direction is expected on this issue this week... direction provided by the FTC may or may not have implications on the sale." In Nebraska, applicant will hold approximately 41 percent of market. "Unlike other insurance sectors where this amount of concentration ... would be objectionable as anti-competitive, title insurance is unique. Title insurance historically has been a permitted oligopoly, with roughly 90 percent of all title insurance written by insurers under the control of five groups as a permissible level of concentration. This larger concentration of market shares in Nebraska is permissible in title insurance under the state action doctrine which allows immunity from competitive concerns provided a state exercises sufficient independent judgment and control over these issues." (Nebraska requires prior approval of rates) "Title insurers are in rehabilitation with deteriorating financial condition, and without recapitalization by (LandAmerica Financial Group), the title insurers must be sold or ordered to cease writing. The gravity of a lack of guaranty fund protection for current policyholders nationwide and the risk of harm to them must be weighed against the competitive implications on Nebraskans that can be monitored effectively."Submitted by Matt Carter on December 16, 2008 - 2:16pm.
Fidelity gets the go-ahead from bankruptcy court to acquire Lawyers, Commonwalth: PRESS RELEASE Fidelity National Financial, Inc. Announces Chapter 11 Bankruptcy Court Approval of its Acquisition of Commonwealth Land Title Insurance Company and Lawyers Title Insurance Corporation Last update: 4:56 p.m. EST Dec. 16, 2008 JACKSONVILLE, Fla., Dec 16, 2008 /PRNewswire-FirstCall via COMTEX/ -- Fidelity National Financial, Inc. (FNF) today announced that the Chapter 11 Bankruptcy Court approved its acquisition of LandAmerica Financial Group, Inc.'s ("LFG") two principal title insurance underwriters, Commonwealth Land Title Insurance Company ("Commonwealth") and Lawyers Title Insurance Corporation ("Lawyers"). FNF's purchase remains subject to the expiration of the waiting period under the Hart Scott Rodino application and other closing conditions specified in the amended stock purchase agreement. The waiting period expires at Midnight on Thursday, December 18, 2008 and closing is to occur on or before December 22, 2008.Submitted by Toby Boyce on December 16, 2008 - 4:14pm.
A large mortgage company recently dictated that it will not accept LandAmerica title commitments on its deals.
Seems, like a good business move to me -- so why was it only one?
Did you open a checking account at IndyMac the day after they announced they'd be closing?
Submitted by Matt Carter on December 16, 2008 - 5:02pm.
Toby -- Fidelity has been reinsuring title insurance policies issued by LandAmerica's underwriting subsidiaries, but LandAmerica says this is a problem and one reason for an expedited sale. More in Inman News story tomorrow morning.
Submitted by Matt Carter on December 17, 2008 - 8:03am.
Story is up:
http://www.inman.com/news/2008/12/17/fidelity-closes-in-landamerica-deal
Submitted by George Farmer on December 18, 2008 - 7:27am.
Seems odd that Land America as a title insurer also has REO homes in their portfolio.
Land For Sale
Submitted by Matt Carter on December 19, 2008 - 3:23pm.
Antitrust issues won't block the sale:
http://www.inman.com/news/2008/12/19/fidelity-set-be-largest-title-insur...
Submitted by Jodi Suguitan on December 22, 2008 - 6:52pm.
Well one thing for sure if some of them go under then we can expect to see insurance premiums rise. The same happened to the general aviation community when AIG became virtually the only insurer of light aircraft.
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Submitted by Jill Black on December 23, 2008 - 1:06am.
I think with the title insurance companies consolidating and the same thing happening with lending companies (I think its goes to be Wells Fargo, Chase and BOA for the most part) Its going to be a much different industry in a few years. I don't think less options will be a good thing though.
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Submitted by Jonathan Phan on March 9, 2009 - 5:48pm.
That's interesting.. we'll see how things work out.
Jonathan Phan
http://www.jonathansellshomes.com/
Submitted by john cann on June 24, 2009 - 8:25pm.
the government will probably buy them all out when it is needed. They bought car business then will buy the insurance business.
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Submitted by oliva barnand on July 21, 2009 - 1:54am.
Offcourse not FirstAmerican but who know who will get rejump very confusing scenario, others are capable but it doesn't mean able to get market completedly....
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Submitted by Cheema Seema on August 20, 2009 - 4:48am.
After the trial, the insurer argued that the only matter for which it was obliged to bear costs was malicious prosecution and felt that a fair allocation of the cost was 80% to Western and 20% to the insurer 642-655 exam. The trial judge held that the factual foundation underlying the claims was the same and it was impractical, artificial and next to impossible to allocate 642-661 exam, with any precision, the legal expenses incurred with respect to what the insurer had called “covered, mixed and uncovered” claims 646-223 exam. The lower court judge found that only a small portion of the defense clause related exclusively to uncovered claims and allocated 95% of the defense costs to the insurer.
Submitted by William Harry on August 21, 2009 - 8:55pm.
All of the big U/W's are blaming agents instead of themselves for many of their problems; claims, defalcations, too generous contract splits. But the U/W's facilitated all of this over the last 10 years chasing bad business relationships.
LandAmerica's financial condition has nothing to do with the underlying fundementals of the business. Its due to grossly neglegent mismanagement of their 1031 business. As bad as things are right now in real estate, it pales in comparison to the early 80's. The industry came through that era fine and will come through this era fine as well.
Camwood Properties
Submitted by Lisa Udy on September 1, 2009 - 10:59am.
I agree with John above, they will probably just get bought out by the government(tax payers).
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Submitted by Lisa Udy on September 1, 2009 - 11:02am.
I agree with John above, they will probably just get bought out by the government(tax payers).
Logan UT Real Estate | Logan Utah Homes | Providence Utah Real Estate