Fidelity, First American, Stewart, Old Republic report 2Q profits

August 19, 2024 5:00 AM

With the spring 2024 home purchase season falling short of expectations, publicly traded title insurers reported a meh second quarter for their business.

In its Aug. 15 reports affirming First American's and Stewart's rating, Fitch said "the title insurance industry [has] reported a recent decline in operating results relative to the very strong performance experienced during the pandemic years. Margin compression has been driven by higher interest rates and home affordability challenges that has limited origination activity."

The business is affected by the broader macroeconomic trends which continue to pressure top-line revenues, Fitch noted in its report on Fidelity National Financial, whose ratings it also affirmed.

"Elevated mortgage rates and increased affordability concerns continue to suppress both refinance and new purchase origination transactions, a trend which is expected to persist over the near term," the FNF comments said.

But in the Stewart and First American reports, the analysts made the same comment, that "performance remains within rating sensitivities and is expected to improve with a return to stronger purchase and refinance markets."

As for the competitive threats the industry is facing, especially from the federal government, Fitch said the various initiatives are not expected to impact any of the three companies' ratings.

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

Fidelity National Financial earnings up, but year-over-year orders slip

Net earnings at Fidelity National Financial, which on the holding company level has the largest market share in the industry, increased from the previous quarter as well as year-over-year.

Its net income of $306 million for the second quarter was an improvement over $248 million in the period ended March 31 and $219 million a year ago.

From its title business, the total revenue of $1.9 billion for the quarter was in line with what it did for the same three months in 2022.

The company's investment in life insurer F&G was key to its improved quarter, as it had "strong demand for its products given demographic tailwinds, prior investments in building out its multi-channel sales platform and continued strong investment performance," William Foley, chairman of FNF said in a press release.

Daily purchase open order counts recorded a 9% sequential improvement over the first quarter, Michael Nolan, CEO, said on the earnings call.

"We would expect the normal seasonal falloff for the remainder of the year if mortgage rates remain at current levels, although it could be better if mortgage rates move lower and generate an uplift in purchase volumes," he added.

Total open orders ended the quarter at 344,000, compared with 315,000 in the first quarter but down from 347,000 in the second quarter of 2024.

Nolan gave a peek at July daily order counts, which he said was down 7% from June.

First American hurt by 'disappointing' spring season

First American Financial's net income was lower compared with the second quarter of 2023, at $116 million versus $138.5 million. This was still an improvement over the $46.7 million earned in the first quarter.

"In the purchase market, despite early positive signs, the Spring selling season proved to be disappointing," Ken DeGiorgio, CEO, said during the earnings call. "Our closed orders [for purchases] were up less than 1% compared with last year as affordability issues, high mortgage rates, and elevated home prices suppressed demand."

Total orders for the three months ended June 30 were down around 3% compared with the second quarter of 2023, to 169,600 from 174,600. For the first quarter, orders were at 155,500.

For July, First American's daily open orders were down 1% from June, but the refinance business was up 8% more than offset by a 3% decline in purchase counts, a Keefe, Bruyette & Woods report said.

Stewart's overall orders are up, but purchase business slips

While total open order counts improved versus the second quarter a year ago at Stewart Information Services, residential purchase volume was down.

It reported open orders of all types at 86,721 for the period, compared with 85,185 in the second quarter of 2023. Purchase was 55,057 versus 57,443 for those periods, while refi was 16,731, a small decline from 16,860.

Net income of $17.3 million for the second quarter was an improvement over $3.1 million during the first quarter and $15.8 million in the prior year.

Stewart has been an active purchaser of title agency businesses, but on the first quarter call management dialed back expectations of future activity; that did not change this period.

"Even though we are currently cautious about acquisitions, we are still very positive about the outlook for opportunities as the market normalizes and we have not deviated from our long-term goals for this business, which is to grow share and scale in attractive MSAs," CEO Fred Eppinger said.

Old Republic's operating income from title rises 33%

The title insurance business at Old Republic International also reported higher open orders compared with the second quarter 2023, while pretax operating income for the segment rose 33%.

"Although mortgage rates remain high and the overall real estate market is slow, we're pleased to see revenue growth in the quarter in both the direct and agency channels," said Carolyn Monroe, president and CEO of Old Republic National Title Holding Co., during the earnings call. "We're cautiously optimistic that the market has found some footing, although the timing and the pace of the recovery really remain difficult to forecast."

The title business reported pretax income of $46 million, up from $2.3 million for the first quarter and $34.7 million a year ago.

Open orders ended the period at 54,747, up from 49,206 for the second quarter of 2023.

Starting with this quarter, the company changed how it reports both open and closed orders to only include those associated with the direct issuance of a policy. In the past its counts included certain when services on the policy were provided by Old Republic on behalf of independent agents.

The second quarter 2023 number uses this new methodology. For the first quarter, it had 49,122 open orders on a back of the envelope calculation using six-month data.

During the quarter, Old Republic completed the sale of what was left of its mortgage insurance business to Arch Capital Group.

The parent company, which also has a general insurance segment, reported net income of $91.8 million in the second quarter, inclusive of investment loss of $110.6 million. A year ago, it earned $155.5 million, which included an investment loss of $24 million.

As it nears the finish line, Doma's results improve

Doma, which is in the process of being sold to Title Resource Group, is still reporting net losses, but it was flat with the first quarter and improved over the year ago period.

Even before the merger agreement, Doma had divested parts of its operations, including its direct title production business.

In the second quarter, it lost $19 million, similar to the first quarter and better than the $24.3 million loss for the second quarter of 2023.

Doma's gross profit, which it uses GAAP to calculate from revenue minus premiums retained by title agents and expenses from labor and other items, was $5.06 million for the second quarter, up from $1.97 million a year ago.

For those same periods, revenue declined to $77.45 million from $81.28 million.

Because of the sale to privately held TRG, expected to close sometime in the second half of the year, Doma no longer conducts earnings calls.

"We are pleased with the continued progress our team is making toward achieving our strategic goals," Max Simkoff, Doma CEO, said in a very terse comment in the earnings press release.

Investors Title's profits at a two-year high

Investors Title, the smallest of the publicly traded title underwriters, saw its revenues rise over 12% compared with the same period last year.

The increase to $65.4 million, from $58.3 million for the second quarter 2023, was primarily due to an increase in premiums written stemming from higher activity levels in certain markets along with the continued increase in average home prices. Net income rose to $8.9 million for the second quarter, an increase from $4.5 million three months prior and $7.6 million a year ago.

It was Investors' most profitable quarter in over two years, said J. Allen Fine, its chairman. The profit margins for the period were comparable to those prior to the pandemic.

"Premiums written increased due to higher activity levels and higher average real estate sales prices," said Fine. "Our expense level continued to improve as a result of ongoing expense management efforts."