Fidelity National Financial Inc (FNF) 2008 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the FNF first quarter earnings conference call.

(OPERATOR INSTRUCTIONS)

I'd like to introduce today's host of today's conference, Mr. Dan Murphy. Mr. Murphy, please go ahead.

Thank you and good morning, everyone. Thanks for joining us for our first quarter 2008 earnings conference call. Joining me today are Bill Foley, Chairman of the Board, Al Stinson, CEO, Randy Quirk, President, and Tony Park, our CFO.

We'll follow our normal format, starting with a brief strategic overview from Bill Foley. Al Stinson will provide an analysis of the closing ratio in the first quarter, as well as an update on our operating companies. Randy Quirk will provide a more in-depth analysis of the title business. Tony Park will finish with a review of the financial highlights. We'll then open up for your questions and finish with some concluding remarks from Bill Foley.

This conference call may contain forward-looking statements that involve a number of risks and uncertainties. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements are based on management's beliefs, as well as assumptions made by, and information currently available to management.

Because such statements are based on expectations as to future economic performance and are not statements of fact, actual results may differ materially from those projected. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

The risks and uncertainties which forward-looking statements are subject to include, but are not limited to changes in general economic, business and political conditions, including changes in the financial markets; adverse changes in the level of real estate activity, which may be caused by, among other things, high or increasing interest rates, a limited supply of mortgage funding or a weak U.S. economy; our potential inability to find suitable acquisition candidates, acquisitions and lines of business that will not necessarily be limited to our traditional areas of focus, or difficulties in integrating acquisitions; our dependence on operating subsidiaries as a source of cash flow; significant competitions at our operating subsidiary space; compliance with extensive government regulations of our operating subsidiaries; and other risks detailed in the statement regarding forward-looking information, risk factors and other sections of the Company's form 10-K and other filings with the SEC.

This conference call will be available for replay via webcast at our website at fnf.com. It will also be available through phone replay beginning at 1.30 pm Eastern time today through next Thursday, May 1st. That replay number is 800-475-6701 with an access code of 918238. Let me now turn the call over to our Chairman, Bill Foley.

Thanks, Dan. And thanks for joining us this morning. We continue to navigate through difficult economic conditions, particularly in the mortgage and real estate markets. I will let Randy Quirk go into more detail on the title business, but we did see a surge in open order volumes after the 75 basis point inter-meeting rate cut. But those elevated levels did not continue through the rest of the quarter.

While we peaked above 11,000 orders per day for a few weeks in January and early February, open orders have settled down closer to 8,000 to 8,500 orders per day over the last six weeks. Even that order volume is the highest level we've seen since the summer of 2007, right before the credit crisis hit the mortgage markets.

We have seen a little better start to 2008, particularly given that the first quarter is generally the weakest quarter of the year, and the fact that we now have our cost structure better aligned with that level of order volumes.

Overall, we're prepared for the operating environment to remain challenging, and we will continue to seek out ways to maximize the profitability of our title insurance operations, even in the face of continued difficult mortgage and real estate markets.

Our focus in 2008 and 2009 will be on continuing to operate our title business as efficiently as possible, pay our current $1.20 annual dividend, repurchase common shares and pay down debt.

In order to make substantive progress on debt repayment and stock repurchases, we will be focused on creating potential liquidity through the sale of some of our assets rather than looking to make significant new acquisitions. If you rank the possible assets to provide this potential liquidity, Sedgwick, Cascade Timberlands and specialty insurance would be the most likely, with Remy somewhat less likely and Ceridian the least likely.

To that end, we did close on one tract of land at Cascade on March 31st, as we sold the nearly 26,000 acre Smoke Creek Ranch tract for approximately $11.6 million. We do continue to work through the entitlement process on two other large tracts, and will look to sell those properties most likely in the mid-term rather than in the near-term.

Sedgwick and Specialty Insurance are both relatively matured businesses that may attract acquisition opportunities for strategic buyers. As I mentioned, if we are able to create [any] liquidity from the sale of some of these assets, we would most likely use a large portion of the proceeds to repurchase our stock. We continue to believe that our stock offers compelling value, and we are very interested in shrinking our outstanding share account.

We did not, however, buy back any stock during the first quarter. We remain committed to our $0.30 quarterly cash dividend. And this continues to be the major use of cash flow for the Company. Again, any excess liquidity that we may be able to generate through the remainder of 2008 would most likely be used to restart our share repurchase program. To that end, once our blackout period is over early next week, we intend to reinstitute our stock repurchase program with certain price targets in mind. Let me now turn the call over to our CEO, Al Stinson.

Thank you. The hot topic with many investors over the last several months has been the closing ratio and what direction it would move in the first quarter. We experienced a spike in open orders in late January after the Fed's 75 basis point inter-meeting rate cut, hitting more than 11,000 open orders for the last two weeks of January and first week of February.

Obviously this increase in open orders was a good thing, but the reported closing ratio for January was only 44%. This low closing ratio was driven by January's significant increase in open orders and the low seasonal closings in January, as January closings are based on the very low open order levels of late 2007. In January, a low closing ratio was actually a positive.

The 57% closing ratio for February was very similar to the 60% we experienced in February of '07. The closing ratio in March increased to approximately 65%, higher than the 60% we saw in March 2007. This was primarily driven by closings of refi orders opened in January as well as a decline in March open orders versus February. The reported March closing ratio of 65% shows that the fear that the refinance orders open in January would never close was overblown.

While the liquidity situation in the mortgage market has probably resulted at a modest increase in open orders not ultimately closing, we don't believe there is a significant negative difference in the closing of orders in the first quarter of 2008 due to the liquidity environment in the mortgage market.

Specialty insurance revenue was $89 million for the first quarter, a decline of $10 million from the first quarter of 2007. Flood insurance generated $30 million in revenue, a decline of approximately $4 million from the first quarter of 2007.

Personal lines insurance contributed $39 million in revenue, a 7% decrease from the first quarter of 2007, as we remained focused on our underwriting standards and profitable growth versus absolute revenue growth. The homeowners business produced a loss ratio of 68% for the quarter. Home warranty produced $17 million in revenue during the first quarter and generated an impressive pre-tax margin of nearly 23%.

While we do not consolidate the results of Sedgwick, they produced revenue of $171 million and EBITDA of nearly $28 million, more than a 16% EBITDA margin for the first quarter. Sedgwick also has approximately $435 million of debt on its balance sheet as of March 31. The Company continues to perform as we expect, and we remain convinced that Sedgwick will ultimately provide significant value for our shareholders.

We also do not consolidate the results of Ceridian, but through February, Ceridian generated $284 million in revenue and $75 million in EBITDA, a 26% EBITDA margin. The 26% margin is a 4% improvement over the same period of the prior year. Significant process has been made on the cost reduction plan including a head count reduction of more than 500 people or 9% of the workforce. Let me now turn the call to Randy Quirk to comment on the title insurance business.

Thank you, Al. First quarter total open order volume showed the first sequential increase since the first quarter of 2007. For the entire quarter, we opened 562,200 total orders for a quarterly average of 8,900 open orders per business day, a sequential increase of approximately 22% from the fourth quarter of last year, and a 14% decline from the first quarter of 2007.

Looking at it monthly, we opened 9,100 orders per day in January, 9,400 orders per day in February and 8,200 orders per day in March. Mortgage rates have declined, but not nearly as much as the Treasury rates, as liquidity remains tight. We saw a nice order of volume increases for some weeks during the quarter, but we did not see the type of increase you would expect after such aggressive Fed action in the first quarter.

While the first quarter is generally the weakest quarter of the year, we are not currently counting on improved liquidity in the mortgage market, or much of a seasonal improvement in the second quarter. Refinance orders as a percentage of total orders increased in the first quarter, comprising approximately 66% of opened and closed order volumes for the first quarter versus 62% in both the fourth quarter and the first quarter of 2007.

Finally, April open order counts have remained relatively consistent with March, averaging 8,100 open orders per day through last week, well off the peak levels we saw early in the quarter.

With the short lived increase in order counts, it was a relatively quiet quarter on the personnel front. In late January and early February, we were actually focused on limiting any increases in head count, as we watched to see if the open order increases could be sustained.

We began the year with approximately 9,950 employees in the field and ended the quarter with approximately 10,000 employees, an increase of about 50 positions, or less than 1%. In some very select situations, we have taken advantage of the uncertainty that these tough market conditions present and added a few large revenue producers from other title companies.

Overall, we will continue to monitor the order and head count metrics and will seek out further cost reductions as market conditions dictate. We are preparing ourselves for a continued difficult environment without any seasonal pickup in order volumes. As always, we remain committed to maximizing our efficiency in continuing to lead the title industry in profitability in all market environments.

The commercial title business remains relatively strong. We opened approximately 12,300 commercial orders in our national commercial divisions and closed approximately 7,400 commercial orders, generating nearly $67 million in revenue.

Orders closed were actually slightly above the first quarter of 2007, but a decrease in a fee for file led to a 12% decrease in reported commercial revenue. Commercial revenue accounted for approximately 22% of the total direct title premiums in the first quarter versus approximately 18% in the first quarter of 2007. Let me now turn the call over to Tony Park to review the financial highlights.

Thank you, Randy. FNF generated $1.1 billion in revenue for the first quarter with pretax earnings of $38 million, net earnings of $27 million, earnings per diluted share of $0.13 and cash flow used in operations of $75 million.

The first quarter is typically the weakest quarter for cash flow, with lower net earnings as well as bonus and commission payments in March. Although senior management did not receive bonuses for 2007, we did pay out $55 million in 2007 bonus and commissions to employees in the field during the quarter. Additionally, claims paid were in line with expectations, but larger than our provision by approximately $25 million.

Finally, we recorded a $50 million receivable related to one very large claim payment that we expect to recover through insurance and reinsurance. Those three items had a combined $130 million negative impact on cash flow from operations in the first quarter.

The title segment generated $1 billion in total revenue for the first quarter, a decline of 19% from the first quarter of 2007 and a 14% sequential decline from the fourth quarter of last year. The pretax title margin was 5.3%.

Personnel costs of $334 million were down $76 million, or 19% versus the first quarter of 2007 and $24 million, or 7% sequentially from the fourth quarter of last year.

Other operating expenses of $208 million actually showed an increase of $10 million or 5% from the first quarter of 2007, but a sequential decrease of $34 million, or 14% from the fourth quarter of 2007.

Two major items caused the increase versus the first quarter of last year. First, as we mentioned last quarter, we've started to record a gross [up] to both revenue and expense due to pass through default business in our services linked title operation. This gross up increased both revenue and other operating expenses by $12 million in the first quarter.

Second, earnings credits from off balance sheet escrow deposits continued to decline versus the prior year, tracking the significant decline in both order volumes and short term interest rates. We experienced a $27 million decline in earnings credits, which are an offset to operating expenses, for the first quarter versus the first quarter of last year.

The provision for title claim losses was $55 million or 7.5% of premiums for the first quarter. Actual claims paid were $76 million, resulting in a decrease of $21 million to the balance sheet reserves during the quarter.

We were encouraged by our performance in the first quarter and continued to be confident in our reserve position as no single policy year showed more than a ten basis point positive or negative change in the ultimate expected loss experience. This was the best quarterly performance versus the actuarial model since the first quarter of 2007. We will continue to asses our balance sheet reserve adequacy on a quarterly basis.

Debt on our balance sheet primarily consists of the $490 million in senior notes due in 2011 and 2013, the $535 million drawn under our credit facility to primarily fund our Ceridian investment in November 2007, and debt at Fidelity National Capital, the vast majority of which is non recourse. The debt to total capital ratio was 27% at March 31.

Finally, our investment portfolio totaled $4.5 billion at March 31st. There are approximately $3.2 billion of legal, regulatory and other restrictions on some of those investments, including secured trust deposits of approximately $700 million and statutory premium reserves for underwriters of approximately $1.7 billion.

There are also some other restrictions including less liquid investments like our ownership stakes in Sedwick, Ceridian and Remy, cash held as collateral and our security lending program, and working capital needs at some underwritten title companies, all of which total approximately $800 million.

So of the gross $4.5 billion, approximately $1.3 billion was theoretically available for use, with about $1.2 billion held at regulated underwriters and approximately $115 million in non regulated entities.

In addition to the $115 million available, we also have approximately $210 million of dividend capacity from our underwriters during the last nine months of 2008, for a total of $325 million in available cash during the remainder of the year. Let me now turn the call back to our operator to allow for any questions.

Thank you.

(OPERATOR INSTRUCTIONS)

Our first question comes from Nick Fisken. Your line is open.

Hi. Good morning everybody.

Good morning.

Can you run through that $130 million impact again, Tony, please?

Oh, the cash flow, sorry. Yes, negative cash flow, the first part was just weaker first quarter earnings due to the seasonal business.

The second piece was $55 million in bonuses paid in the first quarter, as we typically have. Last year's first quarter, I think, was above $80 million. So lower than we normally have, but still a negative cash impact. We also had a large claim payment that we expect to fully recover through insurance and reinsurance. That was $50 million.

And the final piece of that was claims payments exceeding our loss provision by about $25 million, that were not unexpected but still that was a negative cash for the quarter.

Yes. And there's been a lot of - in addition to Al's comment about closings, there's been a lot of discussions about your ability to maintain the commercial strong growth there. Can you speak to what you're seeing in terms of the outlook, in terms of not only orders but more so do you think these closing ratios in commercial will come down?

Well, Nick, this is Randy. Our commercial guys are seeing good open orders in the first quarter along with the same trend as the fourth quarter of '07. The deals are out there, they're getting additional underwriting scrutiny, so they're taking longer to get.

But our guys are optimistic, they're cautious as to where the market's going to go. But we're still thinking it's going to be a pretty good year.

But you're not seeing closings go down or anything?

Closings in the first quarter of '08 were about what they were in the first quarter of '07. So we held in the first quarter of '08, and although the open orders were softened a bit. So you might see some softening in the closings as you go through the second and third quarter.

Okay. And Bill, would you be surprised if you don't sell Sedgwick or specialty by the end of the year? Poignant question.

That's a very interesting question. I prefer to have you wait for a press release that we're in the process of preparing.

Okay.

Thanks.

Thanks so much.

Our next question comes from Robert Napoli. Your line is open.

Thank you. Good morning.

Good morning.

Good morning.

Just - let's see, a question, Al. You gave some numbers on Ceridian. What was the revenue growth on Ceridian?

The revenue growth was about 6% for January and February compared to the prior year. That's all organic. Pretty solid. We'd like it to do better, but the first quarter is typically the lowest quarter in terms of new customers and so on.

Okay.

The biggest improvement we had was in the margin side, which we were very pleased with.

Yes.

Of a 4% growth.

Okay. And what - is it just way too early in the game to talk about a long term strategy for Ceridian? Is this something that you want to play out over several years, or given the tough title environment, is that an asset you might do something with sooner rather than later?

Well if we could sell down our position with Ceridian, we would do so. However, with the credit markets in the state of flux that they're in at this point in time, and with questions being raised relative to Ceridian's growth patterns and profile, we're probably in Ceridian for several years. It's the least likely asset we have that would have a liquidity event associated with it in the near term, near term being within 12 months.

Okay. With the assets, and I missed the very beginning of the call, so I don't know if you addressed the dividend or not. Obviously you're probably going to under earn the dividend this year. Who knows when the housing market is really going to get better. Probably 2010 is a decent bet. But will you hold those - do you intend to hold the dividend at this level as long as possible to make it through the cycle, or is that something that you might pull back on a little bit?

Well really what we've said is the dividend is secure through 2008. We've run our cash flows and based upon our current modeling, the dividend's secure through 2009 with a nominal level of borrowing. If we get any kind of pickup in the business during 2009 or early 2010, the dividend is secure.

The only analysis that we're doing is really a capital allocation analysis. And that is that is it better for our shareholders to reduce the dividend and allocate those funds to repurchase shares, assuming we have the same amount of money available.

We are, and perhaps you missed this, we are going to reinstitute our share repurchase program as soon as our blackout period is over, which I believe is Monday or Tuesday of next week. And what we have done is we've established a price target, below which we enter the market and begin buying shares on a consistent basis through the day. Not trading the first half hour, not trading the last half hour. And we do it through a third party broker.

So that's really the best input I can give you. We have a lot of shareholders who are employees, myself included, and of course we're motivated at this kind of stock price level to reduce the number of shares outstanding. If we can have our share count at $100 million instead of $213 million, we'd love it.

However, as large shareholders, we're also motivated to maintain the dividend, just as our other shareholders, independent shareholders are, as there's - and its tax advantaged to 15% tax rate.

So that's probably the best I can do for you right now. We're doing our very best, and we've run our models. So far our models are holding, but the market is not good, as you know.

All right. And just talking about the market, your margins in title this year are likely to be around - probably in the mid single digit level. And if you're generating margins at that level, then others in the industry that have margins well below yours are probably going to have problems generating profits.

And given that and given that it might, that 2009 may not be a lot better than 2008, there's got to be some opportunities for some adjustments in the industry. And I just wondered how you - what you see shaking out, Bill, in the industry over the next couple of years. And is that something that you want to take advantage of, or would you rather just focus on your core of business?

What we've done is we've refocused with the spin-off and the distribution of the FIS shares and moving those away from FNF. And now our focus also on the disposition of what we would call non-core assets, if an opportunity were to evolve over the next year or two relative to - and I happen to agree with your timing, as a matter of fact. Although who knows what - I'm in the middle of reading Black Swan and they say you can't predict anything, so I guess we won't try and predict anything here.

But if your analysis holds true and we have problems through 2009, we believe that there will be one or more competitors that will shed their title assets and if they're the proper size, then it might result in an opportunity for us to grow our business significantly.

So we've - part of our strategy of disposing of assets is also to get ready for the next round of title acquisitions and grow that business.

Thank you.

Our next question comes from Darrin Peller. Your line is open.

Thanks. Two questions. The first is on claims. You know, the last few quarters saw provisions associated with prior year policy performance. Can you comment a little bit on, first of all, those prior years now? It seems like in this quarter it was holding up well versus your expectations.

And really where the more recent policies are and how those have been performing and your expectations, if they're still in line with that 7.5%.

Well let me give you a general overview and then I'm going to turn it over to Tony because Tony has the details.

And one thing we have done over the last couple of years is really get a lot of in depth clarity on where the claims are coming from, not just what the rates are but the types of claims.

And we began about three years ago, three and a half years ago, really focusing on attempting to fix what we anticipated would be a adverse claims development cycle. And to that end we have cancelled about half of our agents. We're in the process of canceling about half of our agents as particularly high claims agents. And we are starting to see some benefits from that.

However, I would - while the numbers are the numbers, and Tony has those numbers, it's fragile. It's very fragile. We've had a few positive months in terms of development, but all I can say is that we're not saying that it's over yet.

Our analysis is that it takes about 33 months from the policy issuance to the payment of a claim. If you go back 33 months, we are now covering policies issued in the third quarter of '05. So we are paying those policies.

There's a theory that with foreclosures accelerating that we may be frontloading policies somewhat, that we are paying them a little more quickly than we otherwise would. But that's an unproven fact, unproven statement. So, Tony, do you want to run through some numbers?

Sure. Darren, just to give you an idea.

And we're cautiously optimistic given the development we saw in the first quarter of 2008, which as I mentioned was the best we've seen since the first quarter of 2007.

We saw some increases in almost every policy year in the second, third and fourth quarters of 2007. But really the first quarter of this year saw almost no change in any of those ultimate loss factors.

To give you an idea of the numbers, 1996 through the 1999 policy years we saw no change at all. The 2000 and 2001 years we actually saw a little bit of a negative change. So our ultimate loss expectations went down. 2002 through 2004 we saw no change in any of those ultimate loss expectations. And then for the last three years, we just saw minor increases in those expectations.

So all in all, it was almost no change in our ultimate loss expectations. And April is looking a lot like what we saw in the first quarter. So again, we're cautiously optimistic that we'll be able to maintain our current reserve position.

Wouldn't you agree though, Tony, it's fragile?

Absolutely. We monitor it very closely.

All right. But that position is still 7.5% as a percentage of premium.

Yes. The current provision of 7.5% really reflects the policies we're writing in the current environment. My expectation would probably be that when we see some actual results from the 2008 policy year, it wouldn't surprise me at all if we saw lower loss developments given that we have a higher refinance portion of our business in 2008 relative to some of the more recent years.

Okay, thanks. Real quick, on the expense side, you commented on how in the first couple of months of the year, you weren't so sure as to what the real outlook for the year in terms of originations would be in refi. So not much changed there. I think there was 50 positions added.

Now that it seems like we're running at maybe 8,000 order per day range, and assuming that stays somewhat stagnant through the quarter, how much in the way of expense reduction is there still available? You had $360 million or so for personnel this quarter. Where should we expect that?

Well in a general overall overview, we have taken out most of the costs we can take out on a county by county basis, operation by operation basis.

Randy is now in the process of looking at consolidating operations in various low margin counties or negative counties, and basically going from multi brands down to a single brand.

The only way we can really effectively take out expenses at this time, other than getting rid of a receptionist here or there, is consolidation. And that - and when we consolidate a Chicago and a Fidelity branch into a single operation, whether it be Chicago or Fidelity, we are then getting significant cost saves.

Randy's goal for the next - for the balance of this quarter and through the third quarter, is to take out at least 10% of personnel costs with a goal of taking out 15%. We just need to get our costs better aligned, whether it's agency, corporate, or direct operations based, without impacting our ability to close transactions and do business.

So we gave it to - Randy and I talked about it last October. We gave it the November, December, January, February to see what happened earlier in the year. We went through March. And you are correct. We are in what appears to be an 8,000, 8,500 order a month cycle. And we need to continue to reduce expenses.

So when you say 10%, you're saying from what, '07 levels or from --

No, 10% from current levels. 10% of personnel from current levels.

Okay. Great.

All right. Thanks, guys.

Our next question comes from Luis Sykes. Your line is open.

Hi. Good afternoon. A couple of questions. One on the - I was wondering if you could help us understand the time lag with which the better auto volumes flow through to revenues. I think there might be some confusion around that.

I mean, basically you mentioned the open direct orders were up 22% sequentially. I guess closed direct orders up 4%. But revenues are down 14%. And I recognize that some of that has to do with the lower fee per file, due to the higher refis.

But could you just walk us through the mechanics there and what that might mean for the second quarter in terms of revenues?

Well the typical lag or closing period is 60 to 90 days, particularly on a resale. On the refinance it's often shorter than that. But in today's environment, even the refinances are taking a bit longer based on borrowers needing to qualify and homes needing to be appraised.

But generally it's a 60 to 90 day process from the opening side clear through to the closings.

Is that different for agency versus direct?

It's an entirely different subject on the agency side. Our lag time for us to receive our remittance from our agents runs at approximately four months.

But we make an adjustment, we accrue for the lag in the agency remittances. So we make an adjustment that's very similar to the direct business and the trends in the direct business.

So by and large it's sort of two to three months. So the revenues that we've seen in the first quarter mostly reflect the fourth quarter auto volumes.

That's correct. November and December open order volumes are reflected in the first quarter.

Okay. And then, the operating expenses were actually down nicely when you look at the personnel and other operating expenses and so forth, sequentially. So to the extent that you can keep those fixed it would actually, I guess, look fairly well for the second quarter.

That's the goal.

Okay. And then another question on the corporate expense, this other operating expense line item, it was $27 million versus the $16 million, I think, for the prior run rate. Was there anything specific contributing to that uptake?

Yes, a couple things. I guess when you compare the pretax in both years, we have a couple things. We have about $6 million in additional interest expense related to our borrowing in late '07 to fund the Ceridian investment. We also had a charge off of some intangible assets at one of our corporate operations of about $3 million. So had about $9 million of additional costs there.

In terms of other operating expenses, we also, as Bill mentioned, we had a sale of some real estate through Cascade, which added about $8 million. Now that wasn't a loss. We, in fact, had a small gain and a larger deferred gain. But we did have additional cost of sales on that of about $8 million that hit that other operating expense line.

Thank you.

Our next question comes from Nat Otis. Your line is open.

Good morning, gentlemen.

First question, going on the talk of that opportunistic head count adds, is that in any region, or is there any area that you're adding specifically?

The additions we made were particularly in California, in the West. That's where the opportunities seem to be currently, and that's where we have most of our direct operations.

So we did make some hires through the first quarter. We're slowing that down now, obviously as we go into the second quarter, based on what we see in the current environment.

One thing - there was a couple of things that did happen in the fourth quarter. Old Republic basically closed down their operations in Southern California. There are a few people that became available out of that transaction.

Alliance Title, which at one point had about 3,000 employees in California, closed its doors. There still is a sister company by the name of Financial that we're not sure what its future is.

And finally, there are changes underway at First American, which are causing some consternation within that company. And that is making some individuals available that are revenue producers or revenue associated individuals.

And Randy is just trying to be very careful about who he hires to make sure if they're revenue attached that they really are revenue attached.

Okay, that's very helpful.

Second question, and I apologize if you've already gone over. But in the agent business, are you seeing any differential from losses versus your direct business? Any difference between the two?

There is a difference between the two. And historically it's been fairly significant. So we are continuing to pay, Tony, if I'm not misstating this, we're continuing to pay on earlier policy years with agents - many agents have presently been cancelled.

And we ran a percentage on the agents that have been cancelled and the percentage of claims that were paid. And do you recall that?

Yes. We cancelled over the last three years, I think the numbers are, we've cancelled, and I don't know what the number of agents is, but it was 15% of our revenue, but 56% of the claims. So we are certainly focused on canceling the higher claims agents in that process.

Okay. That's very helpful too.

Last question, and since it was brought up earlier, I'll ask the question on the possibility for consolidation within the title insurance industry. Do you think there are any regulatory hurdles from a market share standpoint? Are the regulators going to look at any market share level that's too high for any one player, do you think?

Well the FTC traditionally has looked at control of real estate information and real estate data, title plants within particular counties, on a county by county basis.

There would be, for example, First American and Fidelity would have a difficult time getting together. Those two companies would have 75% of the national market, or 70% of the national market. It'd be very difficult. Beyond that, I would say that every other company would be in play, either - they might want to buy us. If they have the money.

Okay. Great. Thank you.

Next question comes from Mike Vinciquerra. Your line is open.

I just want to clarify your claims statement in the quarter. Did you say that you paid about $75 million in the first quarter?

That's right.

Okay. And does that figure include the $50 million claim that you expect to be covered by reinsurance?

No. The $50 million is not because it's considered a recoupment as well as a paid. Because it's a receivable, recoupment receivable. And the $75 million is net of recoupments.

Okay.

And so what is the time frame that you expect from the recoupment.

Well you might mention, Tony, it is a very, very large claim. And we've recovered a significant amount of money to date. And we continue to advance funds to sell the claims.

Right. The expectation would be that that's recovered throughout the course of 2008.

Got it. And switching gears a little bit, on the Ceridian side of the business, how does the current - I guess slower economic environment, but higher fuel costs, affect the Comdata side of the business?

In January and February, frankly, we haven't seen any particular slowdown. Now I hear that as potential. But we really haven't seen it yet. I think so far the impact may be a little bit overblown. But have not seen a downturn so far.

Okay. And then lastly, with regards to - you mentioned you give a priority list of areas that you might want to divest. Are you in any active discussions with regards to any of those businesses?

You know, I prefer to just have you wait for a release we're in the process of preparing, if that'd be all right.

Okay. Thank you.

(OPERATOR INSTRUCTIONS)

Mr. Foley, there are no further questions at this time. Please proceed.

Thank you. Despite the difficult economic conditions, most specifically in the mortgage and real estate markets, we remain committed to our underlying goals of managing the most profitable title insurance company in the industry, and continuing maximizing the value of all of the assets of FNF for the ultimate benefit of our shareholders. We look forward to updating you on our progress on our next earnings call. Thanks for joining us this morning.

That does conclude our conference for today. Thank you for participating in today's AT&T executive teleconference. You may now disconnect, and have a great day.