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Fidelity National reprises role as title insurance industry consolidator

One of the most consolidated sectors of the U.S. insurance industry has produced another significant M&A deal.

Fidelity National Financial Inc.'s agreement to acquire Stewart Information Services Corp. as announced March 19 would elevate the pro forma market share of the top three title insurance groups to approximately 85.0% based on 2017 direct premiums written, and to 85.4% based on title premiums and related revenues with the combination of the No. 1 and No. 4 industry participants, from the current respective figures of 74.6% and 74.3%.

For Fidelity National Financial alone, the company's pro forma market share at the group level would rise to 43.5% based on premiums and 44.3% based on premiums and related revenues from already market-leading levels of 33.1% and 33.5%, respectively. Second-place First American Financial Corp. and third-place Old Republic International Corp. had respective 2017 market shares of 27% and 14.8% based on title premiums and related revenues.

"The U.S. title insurance industry is concentrated among a handful of industry participants," Fidelity National Financial said in its 2017 Form 10-K, repeating a line it has used for many years. For a frame of reference, the combined 2016 market share for the top three personal auto insurance groups was only 34.5%.

"Consolidation has created opportunities for increased financial and operating efficiencies for the industry's largest participants and should continue to drive profitability and market share in the industry," the company added in the annual filing.

The extent of the consolidation also presents some challenges, as Fidelity National Financial officials discussed during a conference call. The agreement and plan of merger between Fidelity National Financial and Stewart Information Services include provisions addressing the potential for the Federal Trade Commission or other governmental authorities to require the divestiture, disposal or other actions regarding the parties' title insurance presence at the county level.

Fidelity National Financial Chairman William Foley II said the FTC asked the company during past acquisitions in the title insurance business to take action to avoid situations where the combined entity would have control of or access to a high concentration of property record data. He added that the company had conducted a study to identify where such concentrations would exist.

But while Fidelity National Financial has been highly active in title insurance M&A over the years, nearly 10 years have elapsed since it acquired an entity of comparable size to Stewart Information Services.

"We're not totally sure how the FTC will approach this transaction," Foley said. "We believe, if we go by the historical activities of the FTC, they will look at control of data and information." But, he added, much has changed in the past decade in terms of the public's ability to access property information.

Fidelity National Financial bought the two principal title insurance units of LandAmerica Financial Group Inc. in December 2008: Commonwealth Land Title Insurance Co. and Lawyers Title Insurance Corp.

Data collected and reported by the American Land Title Association put the two LandAmerica companies' 2008 market share at 18.6%. Fidelity National Financial's share in the absence of those companies would have been 26.7% for that year. The consolidated group's market share fell to 41.6% in 2009 from 45.3% in 2008. It continued to fall in subsequent years, bottoming out at 32.4% in 2014, according to the American Land Title Association report.

The predecessor Fidelity National Financial entity closed its landmark $1.22 billion purchase of Chicago Title Corp. in March 2000.

Chicago Title Insurance Co. joins Fidelity National Title Insurance Co., Alamo Title Insurance, National Title Insurance of New York Inc. and Commonwealth Land Title as Fidelity National Financial's primary operating subsidiaries. The market share data reflects a consolidation of the 2017 results reported by those entities on their annual statutory statements.

Though the concentration of market share among the top three groups increased slightly in 2017, several other entities showed significant growth. Arguably most notable among them were AmTrust Title Insurance Co. and Amrock Title Insurance Co., which is part of the organization that includes nonbank mortgage lender Quicken Loans Inc. Title premiums and related revenues at the AmTrust Financial Services Inc. unit soared by 315.4% on a year-over-year basis to $19.7 million, while AmRock's volume grew by 118.8% to $15 million.