Fidelity, First American, Stewart, Old Republic report 1Q profits

May 10, 2024 4:51 PM

The first quarter was better for title insurers than the same period last year, as all of the five publicly traded companies posted higher net earnings.

However, Doma, which announced an agreement to be acquired by Title Resource Group as the second quarter began, reported a GAAP net loss, although it was lower than for the first quarter of 2023.

Old Republic, whose title insurance underwriting unit is a part of a larger firm that also has a general insurance line, did end up with lower pretax operating income.

Meanwhile, the title industry came under attack in the first quarter from the White House and the Federal Housing Finance Agency, which is pushing a pilot program that would waive the requirements for a lender policy on certain refinancings.

The Consumer Financial Protection Bureau is reportedly considering making lenders pay for their portion of the title policy.

Fidelity National Financial CEO Mike Nolan, on his company's earnings call, fired back. "While we strongly support the broader effort to make homeownership more affordable, we believe the recent comments from the FHFA and the CFPB relative to title insurance are misguided and display a misunderstanding of the vital role in value that title insurance provides consumers and the broader economy and the critical role it plays in helping to make the American dream of homeownership a reality."

The CEOs at First American, Ken DeGiorgio, made similar statements during its earnings call.

But Carolyn Monroe, president and CEO of Old Republic National Title Holding Co., took a more measured approach on parent company Old Republic International's call.

"We would characterize these developments as early stage and still subject to much debate and lobbying," Monroe said. "But considering the recent press, we wanted to note that we are tracking these developments and at this time, do not anticipate any significant implications for our business."

Later in the call, Craig Smiddy, president and CEO of Old Republic International added that the company was working with the American Land Title Association on these developments.

"It may change who pays for something…whether it's the borrower or the lender," Smiddy said. "But we don't see it materially impacting the business because at the end of the day, in order for a lender to sell a mortgage in the secondary market, they're going to need title insurance."

At the same time, the head of the nation's largest mortgage lender, United Wholesale Mortgage chief executive Mat Ishbia reiterated his prior comments about the product during the company's earnings call on May 9.

"The title insurance business itself is one of those parts of the industry that are ripe for disruption," Ishbia said in response to a question. "Charging consumers a lot of money for a product that doesn't require a lot of cost and so, reality is that's going to get disrupted at some point."

UWM partners with title companies and the product isn't going to go away, Ishbia continued.

"They're going to be part of the industry and they do great things, but there is going to be some disruption going to some movement, because there's a better way to do things for consumers," Ishbia said. "A lot of people look at it and we're one of those people that look at it."

Here are the first quarter results for the publicly traded title insurers:

Fidelity National returns to profitability

On the call, Nolan noted that FNF's title margin's sequential improvement versus the fourth quarter was "a little bit better" than in recent years, up 25% against an average of about 20%.

"That was actually very encouraging," he said. "Then April is up 4% over March of this year, it was a little less than last year."

FNF earned $248 million in the first quarter, after losses of $69 million in the fourth quarter and $59 million one year ago.

Title segment revenue was up 7% year-over-year to $1.7 billion including direct premiums of $440 million, 3% higher, and agent-derived premiums of $593 million, an improvement of 8%.

Open orders of 315,000 topped fourth quarter volume of 257,000 and first quarter 2023 activity of 308,000.

Expectations for 2024 remain unchanged at First American

First American Financial reported a small year-over-year improvement in first quarter earnings, to $46.7 million from $45.9 million. In the fourth quarter of 2023, it earned $34.1 million.

"On our last earnings call, we stated that we expect modest revenue growth this year and that we can achieve title margins similar to what we posted in 2023," DeGiorgio said during the first quarter update. "After closing the books on the first quarter and looking at the order pipeline in April, our expectations remain unchanged." Pretax margin was down one percentage point from the first quarter of 2023, to 5.5% from 6.5%. As a result, title revenue was down to $1.32 billion from $1.35 billion in that timeframe.

Open orders were lower to 155,500 from 172,600 one year ago. In the fourth quarter, First American had an open order count of 124,600.

However, orders rose in March over the prior and continued to do so in April.

"We're off the bottom now," said Mark Seaton, executive vice president and chief financial officer. "We've got open orders up and that's going to bode well for later in the year."

Stewart to be prudent on future agency acquisitions

Stewart Information Services posted first quarter net income of $3.1 million, which while down from net income of $8.8 million in the fourth quarter, was an improvement over the $8.2 million loss recorded in the first quarter of 2023.

But CEO Fred Eppinger dialed down past optimism regarding the housing market transitioning to a stronger environment in 2024.

"Following activity this quarter, we now believe the transition has been slowed with much of the improvement pushed into 2025 in a more normal market returning in '26," Eppinger said on Stewart's earnings call. "I'm pleased with our progress on our strategic priorities and we continue to see share gains in most of our businesses."

Stewart has been a buyer of title agencies in the past in an effort to grow its direct business, but management expressed it would exercise a level of caution for now on acquisitions.

"Our direct operations segment is focusing their growth efforts on the expansion in targeted MSAs, and we expect to utilize acquisitions to our advantage to gain share," Eppinger said. "We've been prudent with our acquisition-related investments in the current environment and routinely evaluate markets in our direct operations, where we have the opportunity to increase share and enhance our leadership capabilities."

Open orders of 79,335 for the first quarter compares with 68,583 in the previous three months and 73,861 for the same period in 2023.

Old Republic's title business challenged in 1Q

Higher mortgage interest rates and a slow real estate market presented Old Republic with some challenges, Smiddy said, leading it to have "much lower" pretax operating income.

For the first quarter, Old Republic reported title segment pretax income of $2.3 million compared with $43.9 million in the fourth quarter and $17.4 million in the first quarter of 2023.

"While challenging market conditions and interest rate uncertainties persist as the second quarter begins, we believe the trends in our order counts, along with a modest uptick in our directly produced revenues or positive signals as we head into the seasonally more active market period," Monroe said.

Old Republic had open orders of 84,495, trading places yet again with Stewart for third place as measured by this metric. It compares with 67,366 in the fourth quarter and 79,415 for the first quarter of 2023.

Because of the pending sale of the run-off mortgage insurance line to Arch, Republic Financial Indemnity Group is no longer a separately reported segment. The sale is expected to close this quarter.

Parent company Old Republic International earned $316.7 million in the first quarter, largely driven by investment gains of $132 million. This is compared with $190.6 million in the fourth quarter and $199.8 million for last year's first quarter.

Doma still losing money as it prepares for sale

Doma Holdings lost $19 million in the first quarter, compared with $18 million in the fourth quarter and $41.1 million one year prior.

This continued its streak of not earning a GAAP profit as a public company, and given the pending sale to privately held Title Resource Group, it is not likely to change.

Even before the sale, Doma spent much of 2023 paring down its operations.

Its preferred metric for profitability, adjusted EBIDTA, also was in the red, with a loss of $6 million, compared with $3 million in the fourth quarter and $13 million one year prior.

Because of the pending sale, Doma did not hold an earnings call.

Mortgage business participants "are seeking new and innovative solutions to reduce closing costs for consumers," Max Simkoff, Doma's CEO, said in a press release.

"We have long advocated the importance of title insurance and the protection it provides for homebuyers but also the potential for innovation around lenders' title to lower costs for homeowners," Simkoff continued. "We welcome the focus of Fannie Mae in this area, and believe our scale- and market-tested technology puts us in a leading position to participate in their pilot program."

Investors' net income slips from 4Q

Investors Title, the smallest of the publicly traded underwriters, had net income of $4.5 million in the first quarter, down from $5.8 million in the fourth quarter. But this is an increase from the $1.2 million net income in the first quarter of 2023.

Year-over-year, the company's revenues increased 4.1% to $53.5 million, compared with $51.3 million, primarily due to increases in premiums written and higher net investment gains.

A reduction in overhead expenses, primarily consisting of a $2.2 million decline in personnel costs resulting from reduced staffing levels, also contributed to the net income increase versus one year prior.

"Despite record low levels of housing affordability, mortgage originations on a national level increased during the first quarter, compared to the same prior year period, favorably impacting some of our key markets," J. Allen Fine, chairman, said in a press release. "We remain committed to identifying and investing in opportunities to profitably expand our market presence and improve our competitive strengths, while taking a long-term view toward disciplined expense management over the ebbs and flows of the economic cycle."