Q3 2022 Fidelity National Financial Inc Earnings Call
[music].
Good morning, and welcome to <unk> third quarter 2022 earnings call.
During todays presentation, all parties will be in a listen only mode.
Following the presentation. The conference will be opened for questions with instructions to follow at that time.
As a reminder, this conference call is being recorded.
I would now like to turn the call over to Lisa Foxworthy, Parker Senior Vice President Investor and external relations. Please go ahead.
Great. Thanks, operator, and welcome everyone to Fnf's third quarter 2022 earnings call. Joining me today are Mike Nolan, Chief Executive Officer, and Tony Park, Chief Financial Officer, as well as Chris Blunt <unk>, Chief Executive Officer, and when do you on F and G as Chief Financial Officer, we look forward to addressing.
Your questions following our prepared remarks.
Today's earnings call May include forward looking statements and projections under the private Securities Litigation Reform Act, which do not guarantee future events or performance, we do not undertake any duty to revise or update such statements to reflect new information subsequent events or changes in strategy.
Please refer to our most recent quarterly and annual reports and other SEC filings for a discussion of the factors that could cause actual results to differ materially from those expressed or implied.
This morning's discussion also includes non-GAAP financial measures that we believe maybe meaningful to investors non.
non-GAAP measures have been reconciled to GAAP, where required in accordance with SEC rules within our earnings materials available on the company's website, yes.
Yesterday, we issued a press release, which is also available on our website and today's call is being recorded and will be available for webcast replay at FNF Dot com. It will also be available through telephone replay beginning today at two P. M. Eastern time through November 16, 2022, and with that I'll now turn the call over to.
Our CEO Mike Nolan.
Thank you Alicia and good morning.
Overall, we have had another strong quarter, despite housing market headwinds from ongoing concerns about inflation.
Searching interest rates and a growing risk of recession.
Our title business, just continued to perform well despite declining mortgage originations well F. N. G continued to deliver on its diversified growth strategy with assets under management climbing to 42 billion at September 30th.
Looking forward, we are on track to complete the dividend distribution of 15% ownership of F. N G to FNF shareholders in the coming weeks and Chris will provide more details in a minute.
Starting with our title business commercial revenue was 381 million, a third quarter record compared with the year ago quarter of $366 million.
This was driven by a 19% increase in total commercial fee per file partially offset by a 12% decrease in closed orders.
On the residential side the focus on rising mortgage rates continues to make headlines as we have experienced one of the fastest moves in mortgage rates ever seen.
The average 30 year mortgage rates jumped from three 1% for 2021.
Four 5% for the first half of 2022, and it's just a matter of weeks is now over 7% a level not seen since 2002.
As expected this dynamic environment, and resulting market decline are impacting our order volumes as the rapid rise in mortgage rates and resulting decline in housing affordability are adding pressure to the normal second half seasonal falloff in purchase transactions.
Looking at third quarter volumes more closely.
Daily residential purchase orders closed were down 23% in July .
24% in August and 27% in September .
For an overall, 25% decrease in the third quarter compared to the prior year.
Daily purchase orders opened were down 22% from the third quarter of 2021 and down 29% for the month of October versus the prior year.
Next turning to refinance volumes, which are inherently more rate sensitive we saw refinance orders began to decline in the second quarter of 2021 and moved quickly to rightsize our operations.
We believe that current refinance volumes are at or near trough levels and would not expect volumes to return in 2023 without a meaningful reduction in mortgage rates.
For the third quarter, our refinance orders opened per day were down 75% from the third quarter of 2021 and down 74% for the month of October versus the prior year.
Over the last year as refinance volumes have fallen we.
<unk> benefited from diversification across our market segments as residential purchase and commercial revenue have helped to buffer lower refinance volumes.
Refinance revenue was only 7% of title total direct revenue in the third quarter compared to 19% in the third quarter of 2021.
As to commercial volumes, we've seen open order volumes fall from their historically high levels.
Though still running above the average seen over the last seven years.
For the third quarter, our total commercial orders opened per day were down 18% from the third quarter of 2021 and lower by 30% for the month of October versus the prior year.
For October total commercial orders opened were 760 per day.
For the quarter, we delivered solid title results, despite a challenging market backdrop.
Total orders opened averaged 5700 per day in the third quarter with July up 6000 August at 5700 and September at 5300.
For the month of October total orders opened were 4800 per day <unk>.
Total revenue.
Excluding recognize gains and losses was $2 3 billion, a 24% decrease compared with the third quarter of 2021.
Adjusted pre tax title earnings were $400 million and adjusted pretax title margin was 17, 1%.
And this declining market environment, we remain confident in our ability to navigate the challenges of operating in a cyclical business.
Our management team is experienced in operating through varying economic cycles.
It has a proven track record of reacting quickly to adjust to order volumes year.
Year to date net of acquisitions, we have reduced title headcount by approximately 20% and we'll continue to manage the business based on market conditions.
Our industry, leading position and strong balance sheet allow us to not only withstand periods of dislocation, but take advantage of opportunities to build our title business for the long term we will.
<unk> to make investments in technology data automation and people that enhance our security productivity and the overall customer experience.
We will continue to recruit revenue attached talent and look to acquire title agencies with strong management and people.
Additionally, the growing utilization of our in here digital transaction platform and mobile App, which allows real estate agents to track orders and better manage their businesses creates both both market growth and efficiency opportunities over the near and long term.
We have approximately 120000 real estate agents registered for the platform, reflecting an increase of 23000 or 25% from the second quarter.
Finally, the counter cyclical nature of <unk> business.
Which benefits from rising interest rate environments <unk>.
Provides an important source of additional earnings as market dynamics put pressure on mortgage origination volumes.
Since the merger over two years ago, <unk> has far exceeded our original expectation for growth and.
<unk> contributed approximately 900 million of adjusted net earnings over the last nine quarters on a cumulative basis.
By retaining an approximate 85% majority interest in <unk> following the dividend distribution.
We will continue to benefit from <unk> growth.
Wrapping up I would like to thank all of our employees for their hard work and contribution to our performance and ongoing commitment to providing our customers with exceptional service.
Let me now turn the call over to Chris Blunt and Wendy Yang to review <unk> third quarter highlights.
Thanks, Mike first starting with sales during the third quarter LNG generated total gross sales of $2 $9 billion. Our products are attractive in a rising rate environment as seen in our record $2 3 billion of retail total gross sales in the third quarter up 45% from the prior year quarter and in our <unk>.
<unk> location submissions, which are up nearly 60% from the prior year, providing a strong pipeline through year end.
In addition to increased demand from rising rates are retail sales volume reflects expanding relationships with new and existing distribution partners in the agent bank and broker dealer channels as well as traction from our comprehensive product portfolio that meets a broad range of consumer needs.
Third quarter activity also included $621 million of pension risk transfer transactions, including our first repeat client transaction compared with $371 million in the prior year, our first quarter in the PRT business.
There were no funding agreement issuances in the current quarter, which we expect to be lumpy and opportunistic.
It'll net sales were $2 $2 billion in the third quarter net of our flow reinsurance arrangement, which increased from 50% to 75% of my guess sales effective September one.
Assets under management for the quarter totaled $42 billion, reflecting an increase of 7 billion or 21% over the prior year driven by net new business flows.
Our high quality investment portfolio is performing very well and our strategic investment management partnership with Blackstone remains a differentiated competitive advantage for F N G.
As reported the average earned yield on the total portfolio was 331% for the quarter compared to $5 eight 9% in the year ago quarter. This 258 basis point decline primarily reflects short term changes in market value on the alternative investment portfolio.
Since the merger with us without <unk> alternative investment portfolios returned 12% on average our returns have been less volatile than the S&P 500 index.
Fixed income yield excluding alternative investment volatility CLO redemption games and bond prepay income has expanded over the last five quarters. This reflects higher yields on new investments upside from the 15% of our portfolio held in floating rate assets as well as lower fees from the Blackstone.
I am a wrap fee, which decreased to 14 basis points for assets over 34 billion from approximately 24 basis points, which will further improve our competitiveness and allow us to drive even more profitable growth overtime.
Looking ahead, given the macro environment uncertainty, we have updated our investment portfolio stress test to look at moderate and severe recession scenarios that are conservative and consistent with or more severe than what has happened historically.
We have applied cumulative default rates and an instantaneous shock at the asset class level.
Under both stress scenarios the largest impact is the mark to market on equity and preferred securities, which is unrealized and would be expected to recover over time.
Our <unk> investment portfolio is well diversified and tightly matched between assets and liabilities, which provides the immunization against point in time, mark to market volatility viewed as non economic.
The impact of default losses in credit drift viewed as economic losses is significantly less than the mark to market impact under both stress scenarios, reflecting our differentiated asset allocation and targeted portfolio mix.
LNG has a strong balance sheet ample sources of liquidity and adequate levers for management action to successfully navigate the stress scenarios.
In the moderate recession scenario no management action is required in.
In the severe recession stress scenario management levers such as revolver utilization increased reinsurance activity or moderated new business volumes would be more than adequate to provide the needed short term benefit.
Further our management team of seasoned and has experienced throughout various economic cycles.
We've included the detailed stress testing analysis in our analyst day presentation posted to both the asset Alfred F and G investors websites.
Additionally, we plan to post a refreshed analyst day presentation for third quarter results, including our updated non-GAAP measure for adjusted net earnings which is in our form 10 registration statement.
Let me now turn the call over to Wendy Yang to provide a brief update on <unk> third quarter financial highlights.
Thanks, Chris.
In regard to earnings for the third quarter pursuant to our form 10 registration process effective this quarter, we have updated our non-GAAP measure definition for adjusted net earnings are a N E to remove the alternative investment yield adjustment.
This adjustment had normalized for the current period yield impact of market volatility as compared to management's expectation of long term returns going forward. This reporting change will result, more volatility for adjusted net earnings importantly, the underlying economics of our business has.
What changed.
On a pro forma basis over the past nine quarters since the FNF merger any under the new definition would have had a quarterly range of volatility of $93 million lower to $60 million higher than any previously reported under the former definition due to the short term.
Alternative investment Mark to market movement.
Despite the quarterly Mark to market volatility cumulative earnings over the past nine quarters were 878 million under the former definition versus $963 million under the new definition and $85 million increase.
We have provided a reconciliation for F. N G segment any under both the former and new definitions over the past nine quarters in the earnings release. We have also added a new disclosure of significant income and loss items included in any including the effect of alternative fair value.
This disclosure is included in Fnf's earnings release, and 10-Q as well as S been jeans quarterly financial supplement.
For the third quarter F N G's adjusted net earnings were $12 million compared to $112 million reported in the second quarter of 2022 with both periods, reflecting the new definition for comparability.
<unk> net earnings for the third quarter at 22 includes a 10 million unrealized loss from alternative investments alternative investments net investment income based on management's long term expected return was $83 million, representing a $93 million difference between the new and previous any definition.
As Chris mentioned these amounts reflect actual short term changes in fair value, whereas since the merger, but that's enough F and G. As alternative investments have returned 12% on average.
Adjusted net earnings for the second quarter of 2022 included 30 million income from actuarial assumption updates and $6 million of CLO redemption games and other income as well as a 38 million unrealized gain from our alternative investments.
Turning to investments net investment income based on management's long term expected return of approximately 10% with $54 million.
Next turning to the new accounting standard for long duration targeted improvements are a L. D T I, which becomes effective in 2023 and is geared to fair value of certain long dated liabilities.
We're all we view the adoption of the L. D T I as an insignificant to our total book value given our mix of business prudent liability assumptions and recent purchase accounting associated with FNF acquisition, which marked our assets and liabilities to market value as of June <unk> 2020 merger date also as a reminder.
Under a fixed indexed annuity base reserves are already at fair value and not impacted by L. D. G I.
We estimate that the January one 2021 transition impact will increase total shareholders' equity by up to $200 million, reflecting the net after tax effect of the new L. D. T. I measurement drivers offset by the removal of shadow accounting for actuarial intangible balances.
We look forward to providing further details as we get closer to the full implementation in the first quarter of 2023, which will include 2021 and 'twenty 'twenty to recast the results on the new L. D. Ti basis, there will likely be timing differences when sources of actual earnings emerge although from an economic.
The underlying product profitability is unchanged as a reminder, this is a U S. GAAP accounting standard only with no impact as statutory results or regulatory capital.
With that I will now hand, it back to Chris to provide some final comments on S. N G.
Thanks, Wendy it was another strong quarter in our financial results demonstrate the underlying earnings power of the <unk> business model, particularly in a rising rate environment.
We are well positioned for future growth and on track for ethanol to take F&B public through the pro rata distribution of 15% of the common stock of LNG to FNF shareholders, whereby up enough will retain control of F. N G through an approximate 85% ownership stake.
<unk> expects the distribution to occur in the fourth quarter of 2022 at which time message you will be publicly listed on the New York stock exchange under the ticker symbol F G.
Completion of the distribution of LNG shares to FNF shareholders is subject to the satisfaction of certain conditions, including the registration statement on form 10 filed by F and G with the U S Securities and Exchange Commission is declared effective.
Also <unk> board of directors has approved the initiation of a dividend program under which the company intends to pay quarterly cash dividends on our common stock at an initial aggregate amount of $100 million per year commencing in early 2023.
With that I'd like to thank our team once again for their extraordinary efforts and I will now turn the call over to Tony Park to review <unk> third quarter financial highlights.
Thank you Chris.
Starting with our consolidated results, we generated $3 $2 billion in total revenue in the third quarter.
Third quarter net earnings were $289 million, including net recognized losses of $230 million versus net earnings of $732 million, including $154 million of net recognized losses in the third quarter of 2021.
The net recognized gains and losses in each period are primarily due to mark to market accounting treatment of equity and preferred stock securities whether the securities were disposed of in the quarter or continued to be held in our investment portfolio.
Excluding net recognized gains and losses, our total revenue was $3 $4 billion as compared with $4 billion in the third quarter of 2021.
Adjusted net earnings from continuing operations was $295 million or $1.07 per diluted share compared with $663 million or $2 33 per share for the third quarter of 2021.
The title segment contributed $298 million F. N G contributed $12 million in the corporate segment had an adjusted net loss of $15 million.
Turning to the title segment financial highlights our title segment generated $2 $3 billion in total revenue in the third quarter, excluding net recognized losses of $48 million compared with $3 $1 billion in the third quarter of 2021.
Direct premiums decreased by 23% versus the third quarter of 2021.
Agency premiums decreased by 27% and escrow title related and other fees decreased by 27% versus the prior year.
Personnel costs decreased by 13% and other operating expenses decreased by 18%.
Oh and the title segment generated a 17, 1% adjusted pretax title margin for the quarter.
The decrease of 460 basis points versus the record 21, 7% in the prior year quarter.
Our title in corporate investment portfolio totaled $5 $6 billion at September 30th.
Interest and investment income in the title and corporate segments of $71 million increased $44 million as compared with the prior year quarter, primarily due to increases in income from our 10 31 exchange business and short term investments.
Given the rising rate environment, we would anticipate the potential for higher investment income.
Through reinvestment of our three year duration fixed income secure maturities.
Based on the current interest rate environment and expected near term fed actions, we expect an additional $15 million to $20 million increase in interest and investment income in the fourth quarter on our 10 31 exchange balances and our short term investments.
Looking to 2023, we expect quarterly interest and investment income to moderate.
In the $85 million range with declining 10, 31 exchange balances and spreads and potentially declining cash and short term investment balances.
Our title claims paid of $65 million were $9 million lower than our provision of $74 million for the third quarter.
The carried reserve for title claim losses is approximately $88 million or five 1% above the actuary central estimate.
We continue to provide for title claims at four 5% of total title premiums.
Let me wrap up with a few thoughts on capital and liquidity.
We remain focused on ensuring a balanced capital allocation strategy as we navigate the current environment. This encompasses making investments in title technology and other strategic initiatives to support innovation and organic growth in the business.
Continuing to evaluate sensible strategic M&A opportunities and real estate related businesses title agencies and technology acquisitions.
Paying a generous quarterly dividend to our shareholders and repurchasing shares.
We ended the quarter with $1 $1 billion in cash and short term liquid investments at the holding company level.
Fnf's consolidated debt was $2 $7 billion on September 30th down $400 million from the preceding quarter due to the payment of our five 5% senior notes, which matured in September .
As a result, our debt to capitalization ratio, excluding a OCI was 23% as of September 30th.
Going forward, our annual interest expense on debt outstanding is approximately $100 million.
During the third quarter, we paid common dividends of 44 cents per share for a total of $120 million.
Following last week's announcement of the quarterly cash dividend increase to 45 per share we view, our current annual common dividend of approximately $500 million as sustainable.
The dividend is reviewed quarterly and expect it to increase over time subject to cash flows alternative uses of capital and market conditions.
FNF continues to return excess cash to shareholders over time through share repurchases and has remained active throughout the third quarter and into the fourth quarter.
During the third quarter, we repurchased five 3 million shares for a total of $205 million at an average price of $38 74 per share.
This compares to the second quarter of 2022.
Where we repurchased four 3 million shares for a total of $172 million.
For the third quarter, we have returned approximately $325 million of capital to our shareholders through common dividends and share repurchases.
Year to date, we have returned $876 million through common dividends and share repurchases.
This concludes our prepared remarks, and let me now turn the call back to our operator for questions.
Okay.
Thank you we will now be conducting a question and answer session if.
If you would like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue.
You May press star two if he would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
Thank you. Our first question comes from the line of Mark Devries with Barclays. Please proceed with your question.
Yes. Thanks.
Mike.
I heard your comment that head count is down about 20% from the peak, but I think order counts are down considerably more at this point can you just discuss how much more in the way of expense reduction.
We should expect.
Sure Mark.
Yes by 20% year to date and about.
5% of that occurred in October and the first week of November and we just continue to keep evaluating all of our expenses, but certainly head count in relation to the the order volume decline.
Youre not going to get all.
A complete kind of one to one with the percentage drops in volumes and personnel but.
Pretty pleased with our overall expense reduction quarter over quarter was about 20%.
Including personnel and Opex of course.
You know, maybe a little bit more than a 20% decline in revenue I think was about 24%. So we're going to continue to stay on it and we'll just evaluate it as we go through the back end of the year and into next year.
Okay, and then just given.
Given the current environment in which things you can do around expenses well, what's a realistic pretax title margin for us to expect in this type of environment.
Yes, it's a little a little tricky given the volatility of Mark I would say that we still think the 15% to 20% annual margins is the right range in a normalized market.
We've shown our ability to do that or be close to it over the last six years and a N.
A variety of different market conditions, even beating it of course in 'twenty, one, but with the with the rapid rise we've seen in rates and the resulting pressure on volumes, it's a little tougher to predict how 2023 is going to play out.
I'd, just say that we expect to have another strong commercial year.
Refinance is likely to remain low as we mentioned in our opening comments and I think purchase becomes a bit of the wildcard depending on where where rates are and the stability of home prices and you can look at it.
It's just the difference in the NBA and Fannie Mae forecast to see the different outcomes.
The third is thinking about depending on where rates are.
But certainly in the short term in our rates are a bit of a headwind relative to industry revenue and margin potential.
Potential homebuyers reconsidered the cost of purchasing a home we're just going to continue to as I said earlier to to move as quickly as we can to adjust our cost to our order volumes maximize margins and lead the industry, regardless of the environment and I think our work on on the head Count is a great example of that in addition to.
The.
The 20% that we mentioned on title head Count we've also taken about 12%.
Out in our non title head counts or were approaching it from all aspects of the business.
Okay got it thank you.
Our next question comes from the line of Mark Hughes with true Securities. Please proceed with your question.
Yeah. Thanks, good morning.
Chris you bought in the past using this formulation that day.
Got it.
Equal lets say 100 basis points.
<unk> assets.
Is that still a good.
Great approach.
Uh huh.
Accounting methodology, you're using our reporting methodology.
Yes, Mark Great question I would say it is we're just gonna see more volatility now quarter to quarter.
The way, we look at alternatives, it's our longest duration asset weeks, we expect to hold this portfolio for very long.
At a time, so economically we don't get too excited by a big Mark up or a big markdown quarter to quarter, but if you. If you look through the cycle right and our long term assumptions 10 per cent for alternatives, we've actually done 12 since.
The merger with that for now yeah, I still think that that 100 basis point target is a good one we've actually average probably closer to 109 or 110 and this is a good environment you know rates continue to go up.
So we're oh.
For us at least this is this is actually a good environment.
Okay.
And then will you continue to provide the disclosures that you have it.
Got it.
Variation take your expectation I guess similar to what you did here in the third quarter.
Yeah that that's our intent for particularly you know it is.
Hard to compare quarter to quarter.
Going forward without doing that but we will certainly disclose.
Our average balance and alternatives and again, if there's any change to what we consider to be a long term assumption, we would note that as well.
And then.
You had suggested a strong submission growth number I think something like 60%.
Sorry, what was that.
<unk>.
That would imply a corresponding growth in the fourth quarter.
Yeah, so that that was all application activity across our retail business, so micro business as well as at Phi included in that and I think that was really just our way of saying yeah. It was a it was a good quarter of <unk>.
Sales it was a record for retail and the momentum if anything is accelerating into year end.
Thank you.
Yeah.
Our next question comes from the line of Bose, George with K B W. Please proceed with your question.
Hey, guys good morning.
On your guidance on investment income.
It implies that commercial volumes will be down next year, just on the lower escrow I mean is that right. I mean, I guess, Mike noted that you still expect a strong commercial year, but just curious what youre thinking in terms of declines when you.
That's embedded in that investment income number.
Thanks Bose I can address this is Tony I can address the investment income.
And I don't know if it's really relates directly to our commercial market or not but really it's more our investment income is driven partly by our fixed income portfolio, but also as you know we have a lot of short term cash and short term investments and our 10 31 exchange business. So the.
<unk> that we provided we expect to see another 15 to.
To $20 million of of net investment income in Q4. This is just title and corporate.
Yeah, and that's really due to the increases in rates that we've seen and that's primarily on the 10 31 exchange balances in our short term investments and then looking to 2023 I would expect that to moderate so not continue to grow as we've seen in 2022.
And somewhere in the $85 million quarterly range or maybe three 340 million to $350 million for the full year 2023, and that's based on an expectation that the 10 31.
The 10 31 balances come down a little bit we've seen peak balances in the in that business and that drives really a big part of the investment income and I would expect those to come down I think we've seen peaks of like $10 billion and maybe the bottom end at somewhere around 4 billion and so.
Maybe somewhere in the in the middle of that range or maybe a little less than that but again, it's hard to predict where that lands, but but based on that and spreads would tighten a little bit as we would expect to share more of that with customers and so that's kind of where my guidance is based right now.
Okay, great. Thanks, and then actually Ed and Mike and then maybe just on the commercial you noted you expect a strong year next year, just curious as to the cadence.
How much sort of sort of a difference from what you what youre expecting now in 22 yeah.
Great question Bose and you know certainly still seeing commercial strength I think you look at the third quarter a record third quarter.
Beat to a really strong comp from last year's third quarter. So that's that's evidence of us still healthy market.
And you know that the pipeline is still good if you look at the open orders for the third quarter. They were just under 860 a day.
Which is down from the highs of 'twenty, one and the early part of 'twenty, two but for context that that lines up really well with the volumes we saw in 2019, which.
Which was the best year, we ever had before 2021 cell.
Feel like there's good activity, we did see a bit more of a decline in October .
I'll have to see if that becomes a new trend or is that kind of the lumpiness, but.
I would just say, we're still seeing strength across <unk>.
<unk> asset classes.
And.
We'll look to have a pretty solid fourth quarter and you know maybe some momentum going into the.
The first quarter of next year, so it's hard to say that it would be comparable.
Comparable though a 'twenty one or.
22 could be.
Our best year for revenue, we don't know that yet, but we may have our best year ever for revenue, which would be you know I think this is an.
<unk> achievement, but but.
Might look more like the year as we saw you know heading into 2019 at the end of 2019 year.
Okay. Okay, great. That's very helpful. Thank you.
Our next question comes from the line of Andrew <unk> with Credit Suisse. Please proceed with your question.
Hey, good morning, and maybe just kind of.
Tailing on to that question just now on commercial Mike.
So commercial open orders were down about 18% year over year, and then you said.
October was off a bit as well or maybe a little more so.
I'm kind of reading your comments to mean that kind of thing.
Commercial orders will kind of stabilize and they sell them is that the right read as to what you were seeing I just wanted to get a sense of.
A little better sense of where you think it's going relatively little little Andrew It's Mike, but it's a little tough to.
No stabilize or not.
Remember the comp is really tough you're talking about an environment, where we opened over 1000 commercial orders a day all through 'twenty one.
I don't know the first four or five months I think of 'twenty two.
And so kind of looking back to maybe markets prior to that to me is a little bit more helpful for context.
And opening in the mid eight hundreds in.
In the third quarter kind of takes you back to 2019, which was it was a great year or so.
But no question order should have come off a bit, particularly with rates moving up so.
My feeling is it will have a good 23, it just I can't I can't tell you exactly how it's going to look.
Got it okay.
And maybe for Chris.
It looked like.
And three Q.
Surrenders didn't really pick up they were around $600 million and rates keep picking up that's for sure. So how are you thinking about surrenders going forward are there any indications that that they're picking up into the fourth quarter and beyond.
Yes, no we haven't seen that you know I think this has been one of our points the stability of our liability base has been pretty consistent for a really long time right now and so no we're not seeing.
Seeing that and honestly, even if we were that would probably be a sign that there was a lot of 10 35 exchange activity and you just want to make sure that youre, winning as much as you're losing on the back end in terms of new business, but you know even during the pandemic when people had a good excuse to be non economic and their surrenders we saw.
Elevated surrenders, but it lasted for a nanosecond and it was within a band of normal it wasn't spike types of surrenders. So yes.
We're not we're not seeing anything that looks alarming.
Is that Chris is that a function of a strong surrenders in surrender charges and places. It is it that you've got an older population of annuity holders.
<unk> I would think it would it would start to spike up so I'm kind of curious what's the construct of your portfolio, that's allowing for the stability.
Yes, I think part of it is how young are book is so we've been selling really large volumes relative to the asset base. So 90% of our book has surrender charge protected and the average surrender charge.
Is 7%. So you can do the math you would need much higher rates for that to be an economic trade for someone to move out. The other thing is keeping my knees are these are retail policyholders, they're not generally sitting around looking for interest rate arbitrage. You know this is not what they're worried about their portfolio. They kind of wish they had more fixed annuities and less.
TFS frankly, so I'm. So I think they tend to think about it when it rolls as opposed to Gee I Wonder if I can cash out an arbitrage and make a bit more.
Got it that makes sense and if I could sneak one last one in quickly.
Yes, I would say the pipeline is still still very strong.
We're certainly evaluating.
Deals in light of kind of this changing market conditions. So I think there's good opportunities, but we've just got to make sure that.
We're timing it right and getting the right.
The right talent in the right the right company, because you know that the market could be a little choppy for particularly the you know the early part of the year.
Got it thank you.
As a reminder, if you would like to ask a question press star one on your telephone keypad.
Our next question comes from the line of John Campbell with Stephens. Please proceed with your question.
Hey, guys. Good morning, good morning, Good morning, Hey on F&B. It sounds like you guys have that kind of ready to go on the on the spin here. Shortly obviously, we've got to wait and see where the price shakes out but.
<unk> hundred million dollars dividend announcement, just running the math it looks like you know.
Again, depending on where the price comes out it looks like that dividend yield can range from a good bit better to maybe miles better than what a L has out there today.
Don't know if you can discuss this at this stage, but just maybe talk to us about the dividend strategy or whether you guys think there's maybe upside to that.
20% or so payout ratio and kind of what the other capital priority items are for LNG.
Yes. This is Chris I'll start and others can jump in here, but this is the point we've been trying to make which is the size of our in force book now.
Is large enough that it throws off quite a bit of capital to allow us to still.
Growth.
<unk> continue to sell at a good clip.
But also have some cash and so yeah. We were trying to send a signal. The board was trying to some signal with the dividend that we have cash capacity, it's something we would hope.
To grow over time and again, given the volume that we're selling.
Just simply reinsurer a bit more of a gross sales if we choose to do that we can earn a spread on the reinsurance, but it also frees up on me.
Meaningful amount of cash that would be to the board's discretion of how they want to.
To allocate that.
Okay. That's helpful. Chris and then maybe this is for Tony but.
A couple of years ago, you guys had the accounting change where you have to Mark your Mark Mark Your book to market and kind of create some volatility around the revenue.
F N G change it sounds like you're going to have a lot more volatility around the earnings I mean, if you look at just this quarter, but you guys really put up a great quarter I think he would've beat consensus by a pretty healthy amount if not for that change with F&D is you know with all that said is there is there any you know Budd.
Desire to maybe.
Port out directly on title just a way to kind of get beyond that volatility.
Yes, John Thanks.
Youre right, we did a few years ago.
We changed our reporting to.
To reflect these marks are really arent operating per se and and should be pulled out and of course, we've done that with <unk> for the most part, but you know given given the process that we were undertaking with the with the span.
Specific to the alts, we have to treat those differently. So I guess you know.
We will see some.
Some volatility, but the economics are.
The economics shouldn't shouldn't change at all so I don't know if I got your question, specifically, but but youre right. We had a we had a very good quarter masked a little bit by the headline Unfortunately, but it isn't too hard and hopefully we've helped you.
And others.
Be able to interpret what the what the real earnings were in and yes, we feel like we had a really strong quarter. Yeah. That's helpful. Ryan and original point that out is like with the change of the revenue accounting you guys are able to back that out in your adjusted EPS number. So you guys.
With this F&D change your print one O. Seven you know consensus is at 142 I felt again that would have been above consensus is there a way from a headline number of adjusted EPS that you guys can account for this recent change with with F&D reporting.
Okay.
Meaning.
Could we show the adjusted adjusted in the headline is that what you're asking.
Perhaps.
No we cannot do that okay.
There are.
That's why we.
Put it in there elsewhere. So that you can reconcile to it but we can't prominently display.
What most most people are most interested and unfortunately I understand I think you guys have given us enough, where we can certainly get to it. So that's certainly helpful. One more quick one if I can squeeze it in on the commercial order mix.
How much level of detail you guys can provide there, but what does that look like all in purchase versus refi and then if you could even get it down to what kind of local versus national.
Yeah, So maybe I'll start Chad, it's Mike with the with the mix on commercial opened so in the third quarter, 74% of the opens.
<unk> resale transactions and that compares to 69% in the third quarter last year.
And we've seen it really in 'twenty, two kind of in that <unk>.
70 to <unk>, 74% range so.
Probably a little bit of an uptick if you will.
Went back to prior years at resale number was probably more in the mid <unk> to 68. So so that's on the mix side in terms of.
Opened year to date, we're down 7% total and again offer just a record 21 with national down 3% in local down nine.
So just a little bit more of a falloff on the local side and that may be a market that maybe it gets impacted a little bit more.
By the rate increases than the national.
Okay. That's great color. Thank you guys.
Thanks.
And this will conclude our question and answer session.
I'll now turn the conference back over to CEO , Mike Nolan for closing remarks.
We are pleased with our overall results despite the uncertainty and volatility in the current macro environment.
FNF is well positioned to execute through this higher mortgage rate environment due to our disciplined operating strategy and long history of navigating market cycles.
Likewise, <unk> is poised to benefit from the rising rate environment and is on track to list as a publicly traded company by year end.
Thanks for your time. This morning, we appreciate your interest in FNF and look forward to updating you on our fourth quarter earnings call.
Thank you for.
Attending today's presentation in the conference call has concluded you may now disconnect.