It’s looking lonely at the top for First American Corp., as the nation’s leading title insurer is the only company in the industry to report good news during the second quarter.
First American said Thursday that it racked up $42 million in profits during the quarter ending in June, as cost-cutting measures outstripped a 20 percent year-over-year decline in revenue, which fell to $1.72 billion. The results beat analysts’ expectations and represented a turnaround from the same quarter a year ago, when First American lost $66 million.
In a press release, First American said its second-quarter results could be hurt by a $37.3 million investment First American Title Insurance Co. has in Mercury Companies Inc. Mercury, a Colorado-based holding company, has been forced to close down title and escrow companies in California, Arizona, Texas, Oregon and Nevada (see story).
First American said it cut salary and other personnel costs in title insurance and services by 24 percent during the second quarter, to $338.6 million, closing 94 offices and laying off about 700 employees. The company’s direct operations closed 401,200 title orders for the second quarter of 2008, a decrease of 17 percent from a year ago, and saw orders decline each month of the quarter. Another 30 offices have been targeted for closure by the end of the year.
First American Chairman and CEO Parker Kennedy also said the company has delayed plans to spinoff its financial services and information solutions units into separate companies.
"Given the uncertainty in the real estate and mortgage credit markets, we believe it is prudent to delay the split," Kennedy told investors in a conference call. "Our primary focus at this time is expense management, product development and maximizing profitability. We will split the companies when we see more stability in our markets and when the outlook becomes clearer."
First American’s closest rival, Fidelity National Financial, reported on July 23 that profits fell 92 percent, to $6.9 million, despite the elimination of more than 1,200 positions in title field operations and an additional 400 positions in other areas of the company during the quarter.
The nation’s third-largest title insurer, LandAmerica Financial Group, surprised analysts on Wednesday by posting a larger-than-expected $50 million loss for the second quarter, sending the company’s shares plummeting. LandAmerica said it cut salary and employee benefit costs by 39 percent from a year ago, laying off the equivalent of 3,600 full-time employees in title operations in the last 12 months.
Stewart Information Services Corp., the fourth-largest title insurer, reported a $26.6 million loss Wednesday, as revenue fell 25 percent to $428.5 million. Stewart reported laying off 350 employees in the second quarter, bringing year-to-date head-count reduction to 810, or 9.6 percent of the company’s workforce. Stewart has closed 68 branch and office locations this year, and laid off 2,400 employees since the end of 2006.
Old Republic International Corp., which reported a $45 million loss on July 24, has the smallest share of the title insurance market among the top five title insurance companies, but is struggling with losses from its private mortgage insurance business.
In a conference call with investors, Old Republic Chairman and CEO Aldo C. Zucaro said the company does not expect to make any money in mortgage guarantees this year or next.
Although there is "some noise out there" about a recovery, Zucaro said, "We think it’s wishful thinking … that a rainbow is about to come up on the good ship lollypop. As we (have) said in the past, our expectations are for a continuation of a relatively stressful period before we can see the emergence of profitability sometime in 2010."
According to the American Land Title Association, the top five title insurance providers captured 93 percent of the market in 2007, with $13.23 billion in premiums written. The top five companies were First American (30 percent), Fidelity (26 percent), LandAmerica (19 percent), Stewart (12 percent) and Old Republic (5 percent).
Title insurance companies — which also generate revenue selling property information to real estate brokerages and investors — have struggled during the downturn because fewer home purchases mean less business. They have also seen increased claims on title insurance policies written during the housing boom.
The rapid boom-to-bust turnaround could lead to more industry consolidation, a fact alluded to by Fidelity CEO William Foley. In a conference call with investors, Foley said the company is positioning itself to preserve cash to facilitate potential acquisitions.
As the market has deteriorated, Foley said, "We believe that there would be some opportunities with other underwriters or other large operations across the country to perhaps consolidate."
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