Fidelity National Financial, Inc. (NYSE:FNF) is a leading provider of title insurance, escrow and other title-related services, including loan sub-servicing, valuations, default services and home warranty products, as well as annuity and life insurance products through its majority-owned subsidiary, F&G Annuities & Life ("F&G"). With a strong presence across the United States, FNF has established itself as a diversified financial services company capable of navigating various market conditions.
For the full year 2023, FNF reported annual net income of $517 million, annual revenue of $11,788 million, annual operating cash flow of $6,901 million, and annual free cash flow of $6,769 million. In the first quarter of 2024, the company generated $3,299 million in total revenues, a significant increase from the $2,474 million reported in the same period of 2023. Net earnings for the first quarter of 2024 were $269 million, a substantial improvement from the net loss of $88 million recorded in the first quarter of 2023.
Business Overview
FNF operates through two main segments: Title and F&G. The Title segment is the company's core business, providing title insurance, escrow and other title-related services. The F&G segment focuses on the issuance of a broad portfolio of annuity and life insurance products, including deferred annuities (indexed annuities and fixed rate annuities), immediate annuities, indexed universal life (IUL) insurance, funding agreements, and pension risk transfer (PRT) solutions.The Title segment has consistently delivered strong financial performance, with the first quarter of 2024 being no exception. The segment generated $1,663 million in total revenues, up from $1,552 million in the same period of 2023. Direct title insurance premiums increased by 3% year-over-year, while agency title insurance premiums grew by 8%. Escrow, title-related and other fees also increased by 3% compared to the first quarter of 2023. The segment's adjusted pretax earnings were $171 million, representing a 10.7% adjusted pretax title margin, an increase of 70 basis points from the 10% margin reported in the prior year quarter.
The F&G segment has also been a strong contributor to FNF's overall performance. In the first quarter of 2024, F&G reported gross sales of $3.5 billion, a 6% increase from the same period in 2023, driven by continued strong retail sales and robust institutional market sales. F&G's net sales retained were $2.3 billion, in line with the prior year quarter. The segment's adjusted net earnings were $95 million in the first quarter of 2024.
Geographic and Revenue Breakdown
FNF's operations are primarily concentrated in the United States, with a strong presence across various regions. The company's Title segment generates revenue from both direct and agency title insurance premiums, as well as escrow, title-related and other fees. In the first quarter of 2024, the company's direct title insurance premiums were $440 million, up from $428 million in the same period of 2023, while agency title insurance premiums increased from $550 million to $593 million over the same period.The F&G segment's revenue is primarily derived from life insurance premiums, insurance and investment product fees, and other sources. In the first quarter of 2024, the segment's life insurance premiums and other fees totaled $718 million, up from $365 million in the first quarter of 2023. This increase was largely attributable to higher pension risk transfer premiums, which grew from $263 million in the first quarter of 2023 to $584 million in the first quarter of 2024.
Liquidity
FNF maintains a strong balance sheet and ample liquidity to support its operations and growth initiatives. As of March 31, 2024, the company held $618 million in cash and short-term liquid investments at the holding company level. The company's consolidated debt-to-capitalization ratio, excluding accumulated other comprehensive income (AOCI), remained within its long-term target range of 20% to 30%.FNF's annual interest expense on its $3.9 billion of consolidated debt outstanding is approximately $200 million, with $80 million attributable to the holding company's debt and $120 million to the F&G segment's debt. The company's current annual common dividend of approximately $525 million is considered sustainable, and the company continues to invest in the business for long-term growth, with strategic title acquisitions averaging $200 million to $300 million per year.
Guidance and Outlook
FNF's management has provided some insights into the company's outlook for the remainder of 2024. In the Title segment, the company expects margins to move into the low to mid-teens range over the next couple of quarters, depending on market conditions and mortgage rate volatility. The timing for a potential rebound in the housing market is uncertain and largely dependent on lower mortgage rates.In the F&G segment, the company's growth prospects remain compelling, and the recent $250 million investment in F&G's mandatory convertible preferred security is expected to enable the segment to accelerate the growth of its retained assets under management. F&G's performance has been recognized by the market, as evidenced by the segment's strong share price performance since its listing in December 2022.
Risks and Challenges
FNF's business is subject to various risks and challenges, including regulatory changes, competition, and market conditions in the real estate and insurance industries. The company's Title segment is heavily dependent on the level of real estate activity, which can be influenced by factors such as mortgage interest rates, mortgage funding supply, housing inventory, and the overall strength of the U.S. economy.The F&G segment is also subject to risks related to interest rate fluctuations, policyholder behavior, and regulatory changes in the insurance industry. Additionally, the company's operations are subject to extensive federal and state regulations, which could impact its ability to offer certain products or services or increase compliance costs.