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Title Insurers Merge and Adopt Technology To Tackle Competitors

Bigger is spelling better for the title insurance industry. Through mergers with other title insurers, firms are gaining access to new markets and gearing up to combat anticipated competition from banks and insurance companies. Though expensive, such mergers are pursued to boost the industry's tight earnings margins and achieve operational efficiencies. Smoother operations, in turn, will push up earnings and improve service to customers, say the title insurers, which is why they are now beefing up their own e-commerce capabilities.

To permit shopping center owners to keep up with the pace of change at these vital industry service companies, here's a helpful scorecard. Nine title insurers, including recently merged companies and regional subsidiaries, color-play the action in the following quick-hit profiles.

Fidelity National Financial Inc. Before the completion of its merger with Chicago Title, Fidelity National Financial Inc.'s principal subsidiary, Fidelity National Title Insurance Co., ranked as the fourth largest title insurer with revenue of more than $1.3 billion in 1999, a 5% increase over the prior year's total. Obviously, after the merger, Fidelity National will leapfrog a number of notches, likely becoming the largest player in the industry.

Consolidation is expensive, but in the long run should be beneficial. The margins in the business are very tight and earnings hit $71.1 million, as compared to $102.6 million the prior year.

"The year 2000 should experience further slowdown in the overall number of title insurance transactions," observes James Kilgallon, Fidelity National's senior vice president and director of National Title Services. "However, I think the disciplines, the cost containment, the good financial management are in place and the industry will have a good year."

Irvine, Calif.-based Fidelity National is not only a title insurer, but also a provider of diversified real estate products and services. As a title insurer, it does business in 49 states, District of Columbia, Puerto Rico and the U.S. Virgin Islands.

Even before the merger, Fidelity National boasted a number of title insurance subsidiaries, including Fidelity National Title Insurance Co., its California operation, Fidelity National Title Insurance Co. of New York, and it recently acquired Alamo Title in Dallas.

"This is a relationship business and, quite frankly, having different brands proves better business as other brands can operate across the street from each other and all turn a good profit," says Kilgallon. "Because our basic title insurance orders come from real estate brokers, developers or attorneys, it is good management to keep the brands separate and alive."

Being a bigger company should be helpful in another regard. As Kilgallon notes, eventually coming into effect will be the Financial Services Modernization Act. The act permits banks and other insurers to get into the title insurance business, and some major banks and insurers are working hard to get into the game with their own title companies. "We are very concerned about this trend," says Kilgallon, "and we maintain that to compete the old title insurers have to become more substantial."

Chicago Title Insurance Chicago Title Corp., traditionally an agent of change in the title insurance industry, recently completed one more major alteration, a merger with Fidelity National Financial Inc. In 1998, the company was spun off from the Allegheny Corp., but itself was a combination of mergers including earlier acquisitions of Security Union Title and Ticor Title.

Despite the impending merger and corporate changes, the Chicago-based company reported a record year in 1999 with revenues tallying over $2 billion, a 69% increase from the same period a year earlier. For 1999, net income, excluding merger-related costs, reached $110.5 million, up slightly from $109.7 million the year earlier.

Fidelity National will certainly be a bigger company after the merger as Chicago Title claims 400 offices throughout the United States. "We don't anticipate closing many offices with the merger," says Ed Burton, Chicago Title's vice president and central region manager for Commercial Operations. "After the merger, we will be a much stronger company. This particular merger was a real nice fit because we really don't have many overlaps. We are strong in the Midwest, Fidelity is strong on the West Coast. Plus, there are a lot synergies."

Operationally for Chicago Title, Burton is predicting a mixed bag of results due to the rising interest-rate environment. "On the residential side, refinancing will absolutely be down this year." However, the company is still expecting to have a good year on the commercial side. "Every time you bump up those interest rates you impact residential," says Burton, "but on the commercial side there is enough in the hopper that we should continue to have a pretty good year."

Chicago Title of Dallas Chicago Title of Dallas is one of Chicago Title's five regional offices around the country. The regional office is responsible for eight states: Texas, Oklahoma, Arkansas, Colorado, Louisiana, Kansas, Missouri and New Mexico. Thomas Garner currently is a Chicago Title vice president and the regional manager in Dallas. Chicago Title also has three other regional offices in the East, and one in the West.

Taking into consideration all of the states reporting to the Dallas office, by far the busiest is Texas. "It has always been one of the hotter markets," says Garner, "and it continues to be so."

Garner doesn't expect the merger of Chicago Title with Fidelity National Financial to greatly affect his regional operations, except that "it will provide me with more bullets for my gun because Fidelity is ahead of Chicago in a number of areas, including technology. The corporate culture will change at Chicago Title for the better and the financial strength will be about 30% larger. But as for business as a whole, Chicago Title will continue to compete with the other underwriters, including Fidelity."

The Chicago Title brand will remain despite the merger, and that has been a common practice in the title industry. Companies fade away but the brands go on and on.

"Technology is going to play an important part in the success of the merger," says Garner. "Besides being a classic case of the big getting bigger, the merger will take the best practices of each organization and try to implement those. Most importantly will be technology, and Fidelity is a little further along the curve than Chicago Title. If I can implement those technologies into my company, I can provide a better level of service and meet the needs of the customers along technological lines."

The First American Financial Corp. Last year, The First American Financial Corp. ranked as the largest title insurer in the country with revenues of close to $3 billion, up 3% from $2.91 billion in 1998. Earnings fell to $88.6 million in 1999 from a record $181.7 billion the year before.

The Santa Ana, Calif.-based company also offers other financial services, including mortgage credit reporting, trust services and home warranty services for property buyers and mortgage lenders. The company operates with more than 400 branches in Australia, Canada, Ireland, Mexico, South Korea and the United Kingdom, besides the United States.

"There are a lot more efficiencies to run through the company, and there are a lot more economies of scale when you are a bigger company," says John Hollenbeck, First American's national processing director. "The more volume you run through a title company, the better the efficiencies that are to be gained."

And there is only one way to gain those efficiencies, through better technology.

As Hollenbeck notes, there are three main tiers of technology to which a title company has to pay attention: data acquisition, production (back-office systems) and e-commerce.

"First American has initiatives in each of those areas," he reports, "all of which will dramatically improve margins in our business." For example, through such subsidiaries as Smart Title Solutions and Data Tree Corp., the company is the largest provider of title information and image documents.

In the area of e-commerce, First American is leveraging a number of Internet-based technologies to develop an enterprise-wide, browser-based program called Fast Title and Escrow System. "This system essentially runs through an Internet browser and we will roll those out to all of our offices to support the production of title insurance commitments," Hollenbeck explains. The program is augmented by an automated search engine called "Fast Search," which is geared to produce a title search package, i.e., the background documents necessary to do a title search examination.

First American now produces a three-suite initiative of e-commerce solutions: Fast Web, Fast Direct and Fast Win.

The company has been so quick and imaginative in regard to e-commerce systems that it was named by PC Week magazine as No. 2 in the financial services industry as a business-to-business, e-commerce innovator.

LandAmerica Financial Group Inc. LandAmerica Financial Group Inc., with its subsidiaries of Lawyers Title Insurance, Commonwealth Land Title Insurance and Transnation Title Insurance, will still be one of the country's three largest title insurance firms even after the merger of Chicago Title and Fidelity National. The company reported a record $2 billion in revenue for 1999, a nice increase from $1.8 billion the year before.

The company also reported net income of $54 million in 1999 as compared with $93 million in 1998, but some of that difference can be attributed to the assimilation costs associated with the acquisitions of Commonwealth Land and Transnation the year before.

Taken as a whole, the company runs 600 offices around the country, which are all hooked together electronically. "The transfer of data among ourselves to keep employees apprised of current events, trend lines and the internal process of information and data has been a tremendous leap forward," says Rich Stopczynski, LandAmerica's senior vice president of Midwest retail and production management. "From an administrative standpoint this has been a tremendous savings for the company because we use our own network and the Internet for communications purposes."

The next big step for the company will be to use the Internet for e-commerce purposes, Stopczynski adds. In March, the company took a big step in that direction when it announced an agreement with RealEC Inc., which provides a secure business-to-business electronic commerce exchange used to order and deliver real estate settlement services. RealEC customers will now be able to electronically order, track and receive LandAmerica OneStop's title, closing, appraisal and other real estate products.

"Just like any industry, the title insurance business is going through an evolutionary process that has been accelerated by automation," says Stopczynski. "National customers are wanting national to provide service that is quicker, better and cheaper - and that means technology. A company that can provide a product more quickly and conveniently to customers will maintain the leadership role in the industry."

Lawyers Title Insurance Corp. As with the other title insurance companies, 1999 was not a great year for Lawyers Title Insurance Corp., as interest rate hikes and the drying up of refinance activity began to diminish the residential side of the business.

"Commercial business held its own, however," observes H. Randolph Farmer, Lawyers Title's senior vice president of corporate communications. "The buy-sell side is holding its own. Interest rate hikes have not driven that many people from the marketplace. The soft part is the refinancing."

The Richmond, Va.-based company has been a subsidiary of LandAmerica Financial Group Inc. since March 1998. That hasn't prevented Lawyers Title from continued expansion. Earlier this year, the company acquired the stock of Lorain County Title Co. of Elyria, Ohio, a 40-person firm that provides title insurance services in a six-county area of Ohio.

Lawyers Title, along with Commonwealth Land Title and Transnation Title, comprise LandAmerica's title insurance business, and the three maintain their brand identities. "In some markets we compete with one another and in some markets we have joined together," says Farmer. "The title products at each brand are basically alike. We have a group called National Commercial Services that can issue a policy for any of the three companies."

Lawyers Title and the other LandAmerica companies pushed to have more business processes established on the Internet. This means using the Internet for business-to-business relationships. "We have eliminated the faxes and phone calls which note: 'We have this property and we want a title policy,'" says Robert J. Palmer, senior vice president and chief information officer at LandAmerica. "We still have a way to go to make the whole process electronic because we have to deal with individual entities such as county courthouses, which are not always organized for e-commerce. Getting the information tends to be the biggest hitch in becoming fully electronic."

Old Republic Title Insurance With gross sales of $597.1 million in 1999, Old Republic Title Insurance can be considered one of the primary subsidiaries of Chicago-based Old Republic International Corp., a $2.2 billion general group insurance company. Old Republic National Title Insurance Co. calls Minneapolis its home, but it boasts 200 other offices in 48 states plus Puerto Rico and Washington, D.C. The company holds assets of $482.4 million, and despite what Kirk Knott, Old Republic's director of Information Services, calls a difficult year "in that we were certainly affected by the cyclical nature of the market," the company did boost revenues over and above the $578.8 million the year before.

"It was an acceptable year (1999)," says Knott. Unfortunately, he doesn't think 2000 will prove equally as buoyant. "We are seeing a downward trend for the industry in housing activity."

While there is some consolidation going on in the industry, Old Republic is expanding products and services through small acquisitions, joint ventures, partnerships and alliances, and not through major acquisitions.

In 1999, pretax operating income dropped to $44 million from $64.6 million the year before due to a slower reduction in operating costs. Those reductions in income should be reversed as the company is looking to create efficiencies through automation. For example, Rob Chapman, vice president and general manager of Old Republic's business information and technology group, says the company is just finishing up a work-flow initiative that is going to allow centrally located processing. "You will see more and more automation of the back office," he says.

A title insurance document now may be just a piece of paper, but most of that ultimately may disappear, he adds. "Our goal is to decrease the amount of paper to a reasonable extent. We are taking a tremendous amount of the human steps out of the process."

Old Republic is an old, established company selling title- and real estate-related products since 1889, and because it has been in business so long it is data rich. Now Old Republic is working to capitalize on its own well-rounded data services so employees and customers can obtain most of the title information they need over the Web. "The need for the title examiner to be at the courthouse has been diminished substantially," he says.

Stewart Title Co. In 1999, Stewart Information Services Corp., the parent company of Stewart Title Co., reported over $1 billion in sales for the first time. (The title insurance business represents about 90% of Stewart Information Services sales.) Revenues for 1999 came in at $1.1 billion, which were up 10.6% for the year before.

Net earnings last year for the Houston-based company reached $28.4 billion, down considerably from $47 million the year before.

Unlike some of the other major title insurers, Stewart Information Services hasn't sought any major mergers, mostly expanding through internal growth and acquisitions of regional title companies. Its most recent deal was the March purchase of Fidelity Title Co. Inc. of Los Lunas, N.M.

Stewart Title has also operated internationally for the past decade in Canada and the United Kingdom, and is also looking elsewhere. In Eastern Europe, for example, the company helps new governments privatize land records and start up operations for a tax-based type of revenue.

Stewart Title boasts 4,800 issuing agents and more than 500 issuing offices, and the way it makes these associations effective is through technology, says Ginny Abiassi, Stewart Information Services senior vice president and director of communications.

"We have developed a system called single-seat technology that allows orders to come in electronically and be able to be handled by a single person sitting at a computer," says Abiassi. "That single person can assign a file number and then deal with the order in a matter of minutes, as opposed to a matter of hours or days. That system is being implemented all over the country."

Stewart Title, along with Fidelity National Financial, is the joint venture leader on RealEC, which now includes most title insurers and allows lenders to order services, such as title insurance, electronically.

Sums up Abiassi, "The industry is using technology to gets its product out faster, better and cheaper."

Republic Title of Texas has been a subsidiary of First American Title since it was acquired back in 1994. Based in Dallas, the First American unit alone did about $33 million in business last year, up slightly from $32 million the year before.

Although Republic Title of Texas cannot be found in every state, the company does close business almost everywhere in the country and that is how a group of Republic Title of Texas title attorneys and closing officers happened to hole up in a New York hotel for one week to close a major refinancing.

On Jan. 4, a large REIT came to the company because it had a "short fuse" on a transaction, and Republic Title of Texas had done work for them in the past. The deal involved the refinancing of almost 40 properties in four states valued at well in excess of $1 billion and had to be closed by Jan. 31 in New York.

"We assembled a team of attorneys and experienced closers," explains Bill Kramer, chairman of Republic Title of Texas. "We set up an office in a hotel suite, put in our own fax machines and our own computers. We assembled all of the title work in less than two weeks, put it in binders, bound it and shipped it to everyone."

"The key was to keep to a discipline and to quickly follow through on the front end so everything was in place when things on the back end started to fly," says Kramer. By front end, Kramer means the title work and surveys. "We got all but three or four surveys done before the closing, which I did not think could be done," says Kramer. "There were multiple title issues on various sites and some popped up at the very last minute. There was also a requirement that the properties be moved out of the main client into a special purpose entity which is traditional for these refinancings, so we not only had to take care of the mortgage end but had to be sure the titles were moved correctly. I can remember staying up late at night in New York with our team, very carefully checking property descriptions."

Also interesting about the deal was that there were a number of co-insurers involved. "I would say the co-insurers that worked with us were very cooperative," says Kramer. "I really was proud of the industry and the way all of us worked together to get this deal done. It gives me a lot of faith in this industry."

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