Fidelity closes LandAmerica deal

Submitted by Matt Carter on December 31, 2008 - 1:09pm.

Here's an interesting passage from a transcript of Fidelity's third quarter 2008 earnings call with investors, which took place on Oct. 23. CEO William Foley talks about "very agressive" 10-20 percent price increases across the country already underway in 22 jurisdictions, including California, Texas, New Mexico and Florida. We noted Fidelity's plan to increase rates in a story that ran Nov. 7. But it's interesting to see the details on how the plan (which also includes higher agency splits) is being executed. Note Foley's hopes that Fidelity's competitors "will see that they too need to increase rates, and we won’t be operating at a competitive disadvantage." Foley doesn't see higher rates as a factor in real estate sales -- a 10 to 20 percent increase, he says, amounts to $70 to $140 on a $700 policy, and "the consumer and the lender can afford to pay it." Fidelity shares closed today at $17.75 on the final day of trading for the year, up 166 percent from a 52-week low of $6.66 Nov. 21. Hat tip to Rhonda Porter, who linked to the transcript in the comments on her Rain City Guide post on the Fidelity-LandAmerica deal. Transcript (The entire transcript is posted at Seeking Alpha): Robert Napoli - Piper Jaffray Okay. Then I heard and I missed a little bit of discussion upfront about pricing increases. Wondering if maybe you could give a little bit of color on the pricing, on what your strategy is there. Bill Foley Sure, Bob. There really has been price compression or price stability over about the last four or five years, with basically the boom in the real estate market. And we haven’t – we frankly have not been able to file and hold higher prices until, really recently. What we have done over the last 60 days is become very aggressive with regard to pricing, and our intention is to increase prices across the country at least 10% and up to 20% in this initial pass that we are now working on. To date, we are underway in 22 jurisdictions, and the price increases are between 10% and 20%. And that will include states such as California. It will take longer in states such as Texas, New Mexico, Florida, where the rates are promulgated and they are basically industry-wide rates. But in all of those cases we’re going to be very aggressive about pushing for higher prices and also emphasizing higher agency splits. In other words, we need to retain more of the dollars that our agents are generating. We have gone back in now and reviewed our entire portfolio of agents. And if an agent was a 90/10, 89/11, 88/12, we basically have gone to those agents and said, you need to be 87/13, 86/14, 85/15; otherwise, we just can’t maintain this relationship with you. So we’re trying to be very aggressive relative to retention of dollars, and also increasing prices. By the way, the agency relationships are very supportive of price increases because, obviously, if the title rates go up by 20% in a particular state and we have an agent in that state, they generate 20% more dollars. If they have to give us 15% of those dollars instead of 12%, it’s not quite as painful for them. So that’s the approach we’re taking relative to pricing and agency splits. So it was a long answer to kind of a short question. Robert Napoli - Piper Jaffray What kind of feedback, though — I mean for years, you have had, you have been beat up by regulators to reduce prices, reduce prices, reduce prices. And what kind of initial feedback are you getting? How long do you think it takes to start getting those price increases worked through, if you get approved? Bill Foley In many states, it’s simply file and 30 days later or 60 days later the rates are effective once you’ve gone through the posting period. We are receiving — we are being supported in almost every state at this point in time, relative to increasing title insurance rates, simply because the industry is an important industry to our real estate economy or the portion of the economy driven by real estate. If title insurance is under pressure, just as mortgage insurance, it’s important that the industry be healthy. We really believe, on that basis, the insurance commissioners that we are dealing with not only will be supportive, but they actually have been supportive toward our rate increases. Robert Napoli - Piper Jaffray California included? Bill Foley California included. Robert Napoli - Piper Jaffray Okay, that’s a big change. And how are your competitors following the moves? Bill Foley Well, antitrust situations preclude us from communicating with our competitors. We have always been the leader in our industry, and hopefully our competitors will see that they too need to increase rates, and we won’t be operating at a competitive disadvantage. Frankly, rates are not a sale factor in this kind of economy. They just really are not part of the real estate sale. The 10% or 20% increase we are talking about, on a $700 policy, might be between $70 and $140. And the consumer and the lender can afford to pay it.

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