Fidelity National Financial, Inc.

FNF

US31620R3030

Property & Casualty Insurance

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Apr. 23	Fidelity National Financial, Inc. Announces Successful Completion of Consent Solicitation	CI
Apr. 16	Fidelity National Financial, Inc. Announces Commencement of Consent Solicitation	CI

FIDELITY NATIONAL FINANCIAL : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

March 01, 2021 at 04:23 pm EST

The following discussion should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto and Selected Financial Data included
elsewhere in this Annual Report.
Overview
For a description of our business, including descriptions of segments, see the
discussion under Business in Item 1 of Part I of this Annual Report, which is
incorporated by reference into this Item 7 of Part II of this Annual Report.
Recent Developments
Acquisition of F&G
On June 1, 2020, we completed the acquisition of F&G for approximately $2.7
billion pursuant to the Agreement and Plan of Merger, dated February 7, 2020, as
amended (the "Merger Agreement").
For additional information on our acquisition of F&G refer to Note B
Acquisitions.
Business Trends and Conditions
Title
Our Title segment revenue is closely related to the level of real estate
activity that includes sales, mortgage financing and mortgage refinancing.
Declines in the level of real estate activity or the average price of real
estate sales will adversely affect our title insurance revenues.
We have found that residential real estate activity is generally dependent on
the following factors:
•mortgage interest rates;
•mortgage funding supply;
•housing inventory and home prices;
•supply and demand for commercial real estate; and
•the strength of the United States economy, including employment levels.
While we cannot predict the severity and duration of the negative impacts
related to the outbreak of COVID-19, the most recent forecast of the MBA, as of
February 19, 2021, estimated (actual for fiscal year 2019) the size of the U.S.
residential mortgage originations market as shown in the following table for
2019 - 2023 in its "Mortgage Finance Forecast" (in trillions):
                                                              2023       2022       2021       2020       2019
      Purchase transactions                                  $ 1.7      $ 1.6      $ 1.6      $ 1.4      $ 1.2
      Refinance transactions                                 $ 0.5      $ 0.6      $ 1.4      $ 2.3      $ 1.0


      Total U.S. mortgage originations forecast              $ 2.2      $

2.2 $ 3.0 $ 3.7 $ 2.2




As of January 20, 2021, the MBA expects residential purchase transactions to
steadily increase in 2021 and beyond from 2020 levels. Additionally the MBA
expects residential refinance transactions to steadily decrease in 2021 and
beyond as interest rates are expected to rise. The MBA expects overall mortgage
originations to decrease in 2021 and thereafter.
On March 11, 2020, the World Health Organization declared that the novel
coronavirus or COVID-19 "can be characterized as a pandemic," which is defined
as a worldwide spread of a new disease for which most people do not have
immunity. On March 15, 2020, the Federal Reserve took emergency action and
reduced its benchmark interest rate by a full percentage point to nearly zero.
Through the year ended December 31, 2020, mortgage interest rates continued to
decline to below 3.0%. Concerns over a slowing global economy and the impact of
a prolonged trade war, now combined with the worldwide COVID-19 pandemic, have
resulted in significant uncertainty in the economic outlook. However,
existing-home sales climbed month-over-month and year-over-year between
September 2020 and December 2020, showing strong signs of a market turnaround
after three consecutive months of sales declines caused primarily by the ongoing
pandemic, according to the National Association of Realtors.
Other economic indicators used to measure the health of the U.S. economy,
including the unemployment rate and consumer confidence, indicated that the U.S
was on strong footing prior to the outbreak of COVID-19. However, the impact of
COVID-19 reduced the outlook related to these economic indicators in March 2020.
According to the U.S. Department of Labor's Bureau of Labor, the unemployment
rate was at a historically low 3.5% in February 2020 but as of December 31,
2020, the unemployment rate had risen to 6.7%. Additionally, the Conference
Board's monthly Consumer Confidence Index remained at high levels through
February 2020 before falling as a result of the COVID-19 outbreak. As of
December 31, 2020, the Consumer Confidence Index had fallen by 33% from its
February 2020 highs.
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In 2019, total originations were reflective of a strong residential real estate
market driven by increasing home prices and low mortgage interest rates.
Concerns over a slowing global economy and the impact of a prolonged trade war
resulted in interest rate cuts in the second half of the year, which
significantly increased refinance transactions and slightly increased purchase
transactions when compared to 2018. Additionally, existing home sales increased
in each quarter of 2019. Average interest rates on 30-year fixed rate mortgages,
averaged 4.4% in the first quarter of 2019 but subsequently decreased in the
following three quarters to an average of 3.7% in the fourth quarter of 2019.
Because commercial real estate transactions tend to be generally driven by
supply and demand for commercial space and occupancy rates in a particular area
rather than by interest rate fluctuations, we believe that our commercial real
estate title insurance business is less dependent on the industry cycles
discussed above than our residential real estate title business. Commercial real
estate transaction volume is also often linked to the availability of financing.
Factors including U.S. tax reform and a shift in U.S. monetary policy have had,
or are expected to have, varying effects on availability of financing in the
U.S. Lower corporate and individual tax rates and corporate tax-deductibility of
capital expenditures have provided increased capacity and incentive for
investments in commercial real estate. In recent years, we have experienced
strong demand in commercial real estate markets and from 2015 through 2019, we
experienced historically high volumes and fee-per-file in our commercial
business. In 2020, we have experienced decreases in commercial volumes and
commercial fee-per-file as a result of the outbreak of COVID-19. While COVID-19
will likely have an impact on the timing and volume of commercial real estate
transactions in the short term as the logistics of transactions evolve and some
buyers move to the sidelines until the pandemic is resolved, we believe that
refinance activity will likely remain elevated in response to the recent Federal
rate cuts.
We cannot be certain how the outbreak of COVID-19 and the steps taken to attempt
to mitigate its spread will impact our future results of operations. We
continually monitor mortgage origination trends and believe that, based on our
ability to produce industry leading operating margins through all economic
cycles, we are well positioned to adjust our operations for adverse changes in
real estate activity and to take advantage of increased volume when demand
increases.
See Item 1A of Part I of this Annual Report for further discussion of risk
factors related to COVID-19.
Seasonality. Historically, real estate transactions have produced seasonal
revenue fluctuations in the real estate industry. The first calendar quarter is
typically the weakest quarter in terms of revenue due to the generally low
volume of home sales during January and February. The second and third calendar
quarters are typically the strongest quarters in terms of revenue, primarily due
to a higher volume of residential transactions in the spring and summer months.
The fourth quarter is typically strong due to the desire of commercial entities
to complete transactions by year-end. Seasonality in 2020 deviated from
historical patterns due to COVID-19. We have noted short-term fluctuations
through recent years in resale and refinance transactions as a result of changes
in interest rates.
Geographic Operations. Our direct title operations are divided into
approximately 180 profit centers. Each profit center processes title insurance
transactions within its geographical area, which is usually identified by a
county, a group of counties forming a region, or a state, depending on the
management structure in that part of the country. We also transact title
insurance business through a network of approximately 5,400 agents, primarily in
those areas in which agents are the more prevalent title insurance provider.
Substantially all of our revenues are generated in the United States.
The following table sets forth the approximate dollar and percentage volumes of
our title insurance premium revenue by state:
                                      Year Ended December 31,
                      2020                      2019                      2018
              Amount          %         Amount          %         Amount          %
                                       (Dollars in millions)
California   $   958        15.2  %    $   764        14.3  %    $   681        13.9  %
Texas            778        12.3           734        13.8           707        14.4
Florida          540         8.6           492         9.2           432         8.8
Illinois         312         5.0           273         5.1           271         5.5
New York         262         4.2           311         5.8           310         6.3
All others     3,448        54.7         2,768        51.8         2,510        51.1
Totals       $ 6,298       100.0  %    $ 5,342       100.0  %    $ 4,911       100.0  %






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F&G
We acquired F&G on June 1, 2020. The following factors represent some of the key
trends and uncertainties that have influenced the development of our F&G segment
and its historical financial performance, and we believe these key trends and
uncertainties will continue to influence the business and financial performance
of our F&G segment in the future.
COVID-19 pandemic
While continuously evolving, the COVID-19 pandemic has caused significant
economic and financial turmoil in the U.S. and around the world, and has fueled
concerns that it will lead to a global recession. These conditions may continue
or worsen in the near term. At this time, it is not possible to estimate the
longer term-effects the COVID-19 pandemic could have on our F&G segment or our
consolidated financial statements. Increased economic uncertainty and increased
unemployment resulting from the economic impacts of the spread of COVID-19 may
result in F&G policyholders seeking sources of liquidity and withdrawing at
rates greater than was previously expected. If policyholder lapse and surrender
rates significantly exceed expectations, it could have an adverse effect on our
F&G segment's, financial condition, results of operations, liquidity and cash
flows. Such events or conditions could also have an adverse effect on its sales
of new policies. F&G is monitoring the impact of COVID-19 on its investment
portfolio and the potential for ratings changes caused by the sudden slowdown of
economic activity. The extent to which the COVID-19 pandemic impacts our F&G
segment's, results of operations, financial condition, liquidity or prospects
will depend on future developments which cannot be predicted.
Market Conditions
Market volatility has affected and may continue to affect our business and
financial performance in varying ways. Volatility can pressure sales and reduce
demand as consumers hesitate to make financial decisions. To enhance the
attractiveness and profitability of our products and services, we continually
monitor the behavior of our customers, as evidenced by annuitization rates and
lapse rates, which vary in response to changes in market conditions. See Item 1A
of Part I of this Annual Report for further discussion of risk factors that
could affect market conditions.
Interest Rate Environment
Some of our products include guaranteed minimum crediting rates, most notably
our fixed rate annuities. As of December 31, 2020, the Company's reserves, net
of reinsurance, and average crediting rate on our fixed rate annuities were $4.0
billion and 3%, respectively. We are required to pay the guaranteed minimum
crediting rates even if earnings on our investment portfolio decline, which
would negatively impact earnings. In addition, we expect more policyholders to
hold policies with comparatively high guaranteed rates for a longer period in a
low interest rate environment. Conversely, a rise in average yield on our
investment portfolio would increase earnings if the average interest rate we pay
on our products does not rise correspondingly. Similarly, we expect that
policyholders would be less likely to hold policies with existing guarantees as
interest rates rise and the relative value of other new business offerings are
increased, which would negatively impact our earnings and cash flows.
See "Item 7A. Quantitative and Qualitative Disclosure about Market Risk" for a
more detailed discussion of interest rate risk.
Aging of the U.S. Population
We believe that the aging of the U.S. population will increase the demand for
our products. As the "baby boomer" generation prepares for retirement, we
believe that demand for retirement savings, growth, and income products will
grow. The impact of this growth may be offset to some extent by asset outflows
as an increasing percentage of the population begins withdrawing assets to
convert their savings into income.
Industry Factors and Trends Affecting Our Results of Operations
Demographics and macroeconomic factors are increasing the demand for our FIA and
IUL products. Over 10,000 people will turn 65 each day in the United States over
the next 15 years, and according to the U.S. Census Bureau, the proportion of
the U.S. population over the age of 65 is expected to grow from 17% in 2020 to
21% in 2035.
We operate in the sector of the insurance industry that focuses on the needs of
middle-income Americans. The underserved middle-income market represents a major
growth opportunity for the Company. As a tool for addressing the unmet need for
retirement planning, we believe that many middle-income Americans have grown to
appreciate the "sleep at night protection" that annuities such as our FIA
products afford. Accordingly, the FIA market grew from nearly $12 billion of
sales in 2002 to $73 billion of sales in 2019. Additionally, this market demand
has positively impacted the IUL market as it has expanded from $100 million of
annual premiums in 2002 to $4 billion of annual premiums in 2019.



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Critical Accounting Policies and Estimates
The accounting estimates described below are those we consider critical in
preparing our Consolidated Financial Statements. Management is required to make
estimates and assumptions that can affect the reported amounts of assets and
liabilities and disclosures with respect to contingent assets and liabilities at
the date of the Consolidated Financial Statements and the reported amounts of
revenues and expenses during the reporting period. Actual amounts could differ
from those estimates. See Note A Business and Summary of Significant Accounting
Policies to our Consolidated Financial Statements included in Item 8 of Part II
of this Annual Report for additional description of the significant accounting
policies that have been followed in preparing our Consolidated Financial
Statements.
Reserve for Title Claim Losses
Title companies issue two types of policies, owner's and lender's policies,
since both the new owner and the lender in real estate transactions want to know
that their interest in the property is insured against certain title defects
outlined in the policy. An owner's policy insures the buyer against such defects
for as long as he or she owns the property (as well as against warranty claims
arising out of the sale of the property by such owner). A lender's policy
insures the priority of the lender's security interest over the claims that
other parties may have in the property. The maximum amount of liability under a
title insurance policy is generally the face amount of the policy plus the cost
of defending the insured's title against an adverse claim; however, occasionally
we do incur losses in excess of policy limits. While most non-title forms of
insurance, including property and casualty, provide for the assumption of risk
of loss arising out of unforeseen future events, title insurance serves to
protect the policyholder from risk of loss for events that predate the issuance
of the policy.
Unlike many other forms of insurance, title insurance requires only a one-time
premium for continuous coverage until another policy is warranted due to changes
in property circumstances arising from refinance, resale, additional liens, or
other events. Unless we issue the subsequent policy, we receive no notice that
our exposure under our policy has ended and, as a result, we are unable to track
the actual terminations of our exposures.
Our reserve for title claim losses includes reserves for known claims as well as
for losses that have been incurred but not yet reported to us ("IBNR"), net of
recoupments. We reserve for each known claim based on our review of the
estimated amount of the claim and the costs required to settle the claim.
Reserves for IBNR claims are estimates that are established at the time the
premium revenue is recognized and are based upon historical experience and other
factors, including industry trends, claim loss history, legal environment,
geographic considerations, and the types of policies written. We also reserve
for losses arising from closing and disbursement functions due to fraud or
operational error.
The table below summarizes our reserves for known claims and incurred but not
reported claims related to title insurance:
                                                   December 31,           %             December 31,             %
                                                           2020                             2019
                                                 (in millions)                          (in millions)
Known claims                                    $        226             13.9  %       $        176             11.7  %
IBNR                                                   1,397             86.1                 1,333             88.3
Total Reserve for Title Claim Losses            $      1,623            100.0  %       $      1,509            100.0  %


Although claims against title insurance policies can be reported relatively soon
after the policy has been issued, claims may be reported many years later.
Historically, approximately 60% of claims are paid within approximately five
years of the policy being written. By their nature, claims are often complex,
vary greatly in dollar amounts and are affected by economic and market
conditions, as well as the legal environment existing at the time of settlement
of the claims. Estimating future title loss payments is difficult because of the
complex nature of title claims, the long periods of time over which claims are
paid, significantly varying dollar amounts of individual claims and other
factors.
Our process for recording our reserves for title claim losses begins with
analysis of our loss provision rate. We forecast ultimate losses for each policy
year based upon historical policy year loss emergence and development patterns
and adjust these to reflect policy year and policy type differences that affect
the timing, frequency and severity of claims. We also use a technique that
relies on historical loss emergence and on a premium-based exposure measurement.
The latter technique is particularly applicable to the most recent policy years,
which have few reported claims relative to an expected ultimate claim volume.
After considering historical claim losses, reporting patterns and current market
information, and analyzing quantitative and qualitative data provided by our
legal, claims and underwriting departments, we determine a loss provision rate,
which is recorded as a percentage of current title premiums. This loss provision
rate is set to provide for losses on current year policies, but due to
development of prior years and our long claim duration, it periodically includes
amounts of estimated adverse or positive development on prior years' policies.
Any significant adjustments to strengthen or release loss reserves resulting
from the comparison with our actuarial analysis are made in addition to this
loss provision rate.  At each quarter end, our recorded reserve for claim losses
is initially the result of taking the prior recorded reserve for claim losses,
adding the current provision
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and subtracting actual paid claims, resulting in an amount that management then
compares to the range of reasonable estimates provided by the actuarial
calculation.
We recorded our loss provision rate at 4.5% for the year ended December 31,
2020. Our average loss provision rate was 4.5% for the years ended December 31,
2020, 2019 and 2018. Of such annual loss provision rates, 4.5%, for each of the
years ended December 31, 2020, 2019 and 2018, respectively, related to losses on
policies written in the current year, and the remainder, if any related to
developments on prior year policies. The provision rate in 2020, 2019, and 2018
is supported by stability in payments for prior policy years, and qualitative
factors that would indicate consistency, including consistency in lender
underwriting standards, extension of credit to quality borrowers, a high
proportion of refinance activity, better claims expense management, better
mechanic's lien underwriting practices, and better fraud awareness by lenders,
title insurers and settlement agents.
Due to the uncertainty inherent in the process and due to the judgment used by
both management and our actuary, our ultimate liability may be greater or less
than our carried reserves. If the recorded amount is within the actuarial range
but not at the central estimate, we assess the position within the actuarial
range by analysis of other factors in order to determine that the recorded
amount is our best estimate. These factors, which are both qualitative and
quantitative, can change from period to period, and include items such as
current trends in the real estate industry (which we can assess, but for which
there is a time lag in the development of the data), any adjustments from the
actuarial estimates needed for the effects of unusually large or small claims,
improvements in our claims management processes, and other cost saving measures.
If the recorded amount is not within a reasonable range of our actuary's central
estimate, we may have to record a charge or credit and reassess the loss
provision rate on a go forward basis. We will continue to reassess the provision
to be recorded in future periods consistent with this methodology.
The table below presents our title insurance loss development experience for the
past three years:
                                                             2020         2019         2018
                                                                      (In millions)
Beginning balance                                          $ 1,509      $ 1,488      $ 1,490

Change in reinsurance recoverable                               34            1            -
Claims loss provision related to:
Current year                                                   283          240          221
Prior years                                                      -            -            -
Total title claim loss provision                               283          240          221
Claims paid, net of recoupments related to:
Current year                                                   (11)         (11)         (10)
Prior years                                                   (192)        (209)        (213)
Total title claims paid, net of recoupments                   (203)        (220)        (223)
Ending balance of claim loss reserve for title insurance   $ 1,623      $ 1,509      $ 1,488
Title premiums                                             $ 6,298      $ 5,342      $ 4,911


                                                                    2020                2019                2018
Provision for title insurance claim losses as a percentage of
title insurance premiums:
Current year                                                           4.5  %              4.5  %              4.5  %
Prior years                                                              -                   -                   -
Total provision                                                        4.5  %              4.5  %              4.5  %

Actual claims payments consist of loss payments and claims management expenses offset by recoupments and were as follows (in millions):


                                                                             Claims Management                                Net Loss
                                                       Loss Payments             Expenses              Recoupments            Payments
Year ended December 31, 2020                         $          120          $          122          $        (39)         $       203
Year ended December 31, 2019                                    139                     112                   (31)                 220
Year ended December 31, 2018                                    140                     118                   (35)                 223



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As of December 31, 2020 and 2019, our recorded reserves were $1,623 million and
$1,509 million, respectively, which we determined were reasonable and
represented our best estimate and these recorded amounts were within a
reasonable range of the central estimates provided by our actuaries. Our
recorded reserves were $62 million above the mid-point of the provided range of
$1.4 billion to $1.8 billion of our actuarial estimates as of December 31, 2020.
Our recorded reserves were $34 million above the mid-point of the provided range
of our actuarial estimates of $1.3 billion to $1.7 billion as of December 31,
2019.
During 2020, 2019, and 2018, payment patterns were consistent with our
actuaries' and management's expectations. Also, compared to prior years we have
seen a leveling off of the ultimate loss ratios in more mature policy years,
particularly 2005-2008. While we still see claims opened on these policy years,
the proportion of our claims inventory represented by these policy years has
continued to decrease. Additionally, we continued to see positive development
relating to the 2009 through 2020 policy years, which we believe is indicative
of more stringent underwriting standards by us and the lending industry.
Further, we have seen significant positive development in residential owner's
policies due to increased payments on residential lender's policies, which
inherently limit the potential loss on the related owner's policy to the
differential in coverage amount between the amount insured under the owner's
policy and the amount paid under the residential lender's policy. Also, any
residential lender's policy claim paid relating to a property that is in
foreclosure negates any potential loss under an owner's policy previously issued
on the property as the owner has no equity in the property. Our ending open
claim inventory decreased from approximately 11,800 claims at December 31, 2019
to approximately 10,700 claims at December 31, 2020. If actual claims loss
development varies from what is currently expected and is not offset by other
factors, it is possible that our recorded reserves may fall outside a reasonable
range of our actuaries' central estimate, which may require additional reserve
adjustments in future periods.
An approximate $63 million increase (decrease) in our annualized provision for
title claim losses would occur if our loss provision rate were 1% higher
(lower), based on 2020 title premiums of $6,298 million. A 10% increase
(decrease) in our reserve for title claim losses, as of December 31, 2020, would
result in an increase (decrease) in our provision for title claim losses of
approximately $162 million.
Reserves for Future Policy Benefits and Product Guarantees
The determination of future policy benefit reserves is dependent on actuarial
assumptions. The principal assumptions used to establish liabilities for future
policy benefits are based on our experience. These assumptions are established
at issue of the contract and include mortality, morbidity, contract full and
partial surrenders, investment returns, annuitization rates and expenses. The
assumptions used require considerable judgment. We review overall policyholder
experience at least annually and update these assumptions when deemed necessary
based on additional information that becomes available. For traditional life and
immediate annuity products, assumptions used in the reserve calculation can only
be changed if the reserve is deemed to be insufficient. For all other insurance
products, changes in assumptions will be used to calculate reserves. These
changes in assumptions will also incorporate changes in risk free rates and
option market values. Changes in, or deviations from, the assumptions previously
used can significantly affect our reserve levels and related results of
operations.
Mortality is the incidence of death amongst policyholders triggering the payment
of underlying insurance coverage by the insurer. In addition, mortality also
refers to the ceasing of payments on life-contingent annuities due to the death
of the annuitant. We utilize a combination of actual and industry experience
when setting our mortality assumptions.
A surrender rate is the percentage of account value surrendered by the
policyholder. A lapse rate is the percentage of account value canceled by us due
to nonpayment of premiums. We make estimates of expected full and partial
surrenders of our fixed annuity products. Our surrender rate experience in the
period ended December 31, 2020 on the fixed annuity products averaged 4%, which
is within our assumed ranges. Management's best estimate of surrender behavior
incorporates actual experience over the entire period, as we believe that, over
the duration of the policies, we will experience the full range of policyholder
behavior and market conditions. If actual surrender rates are significantly
different from those assumed, such differences could have a significant effect
on our reserve levels and related results of operations.
The assumptions used to establish the liabilities for our product guarantees
require considerable judgment and are established as management's best estimate
of future outcomes. We periodically review these assumptions and, if necessary,
update them based on additional information that becomes available. Changes in
or deviations from the assumptions used can significantly affect our reserve
levels and related results of operations.
At issue, and at each subsequent valuation, we determine the present value of
the cost of the GMWB rider benefits and certain GMDB riders in excess of
benefits that are funded by the account value. We also calculate the present
value of total expected policy assessments, including investment margins, if
applicable. We accumulate a reserve equal to the portion of these assessments
that would be required to fund the future benefits less benefits paid to date.
In making these projections, a number of assumptions are made and we update
these assumptions as experience emerges, and determined necessary. We began
issuing our GMWB products in 2008, and future experience could lead to
significant changes in our assumptions. If emerging experience deviates from our
assumptions on GMWB utilizations, such deviations could have a significant
effect on our reserve levels and related results of operations.
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Table of Contents Our aggregate reserves for contractholder funds, future policy benefits and product guarantees on a direct and net basis as of December 31, 2020 are summarized as follows:


        (Dollars in millions)          Direct       Reinsurance Recoverable         Net
        Fixed indexed annuities      $ 20,239      $                      -      $ 20,239
        Fixed rate annuities            5,149                          (850)        4,299
        Immediate annuities             3,443                          (137)        3,306
        Universal life                  1,748                          (988)          760
        Traditional life                2,149                        (1,199)          950
        Total                        $ 32,728      $                 (3,174)     $ 29,554


Certain FIA and UL products contain an embedded derivative; a feature that
permits the holder to elect an interest rate return or an equity-index linked
component, where interest credited to the contract is linked to the performance
of various equity indices. The FIA embedded derivative is valued at fair value
and included in the liability for contractholder funds in our Consolidated
Balance Sheets with changes in fair value included as a component of Benefits
and other changes in policy reserves in our Consolidated Statements of Earnings.
Valuation of Fixed Maturity, Preferred and Equity Securities, and Derivatives
and Reinsurance Recoverable.
Our fixed maturity securities have been designated as available-for-sale and are
carried at fair value, net of allowance for expected credit losses, with
unrealized gains and losses included in AOCI, net of associated adjustments for
DAC, VOBA, DSI, UREV, SOP 03-1 reserves, and deferred income taxes. Our equity
securities are carried at fair value with unrealized gains and losses included
in net income (loss). Realized gains and losses on the sale of investments are
determined on the basis of the cost of the specific investments sold and are
credited or charged to income on a trade date basis.
Management's assessment of all available data when determining fair value of the
AFS securities is necessary to appropriately apply fair value accounting.
Management utilizes information from independent pricing services, who take into
account perceived market movements and sector news, as well as a security's
terms and conditions, including any features specific to that issue that may
influence risk and marketability. Depending on the security, the priority of the
use of observable market inputs may change as some observable market inputs may
not be relevant or additional inputs may be necessary. We generally obtain one
value from our primary external pricing service. In situations where a price is
not available from the independent pricing service, we may obtain broker quotes
or prices from additional parties recognized to be market participants. We
believe the broker quotes are prices at which trades could be executed based on
historical trades executed at broker-quoted or slightly higher prices. When
quoted prices in active markets are not available, the determination of
estimated fair value is based on market standard valuation methodologies,
including discounted cash flows, matrix pricing, or other similar techniques.
We validate external valuations at least quarterly through a combination of
procedures that include the evaluation of methodologies used by the pricing
services, comparisons to valuations from other independent pricing services,
analytical reviews and performance analysis of the prices against trends, and
maintenance of a securities watch list. See Note D Fair Value of Financial
Instruments and Note E Investments to our Consolidated Financial Statements
included in Item 8 of Part II of this Annual Report.
The fair value of derivative assets and liabilities is based upon valuation
pricing models and represents what we would expect to receive or pay at the
balance sheet date if we canceled the options, entered into offsetting
positions, or exercised the options. Fair values for these instruments are
determined internally using a conventional model and market observable inputs,
including interest rates, yield curve volatilities and other factors. Credit
risk related to the counterparty is considered when estimating the fair values
of these derivatives. However, we are largely protected by collateral
arrangements with counterparties when individual counterparty exposures exceed
certain thresholds. The fair value of futures contracts at the balance sheet
date represents the cumulative unsettled variation margin (open trade equity net
of cash settlements). The fair values of the embedded derivatives in our FIA
contracts are derived using market value of options, use of current and budgeted
option cost, swap rates, mortality rates, surrender rates, partial withdrawals,
and non-performance spread and are classified as Level 3. The discount rate used
to determine the fair value of our FIA embedded derivative liabilities includes
an adjustment to reflect the risk that these obligations will not be fulfilled
("non-performance risk"). For the period ended December 31, 2020, our
non-performance risk adjustment was based on the expected loss due to default in
debt obligations for similarly rated financial companies. See Note D Fair Value
of Financial Instruments and Note F Derivative Financial Instruments to our
Consolidated Financial Statements included in Item 8 of Part II of this Annual
Report.
As discussed in Note P Reinsurance of our Consolidated Financial Statements
included in Item 8 of Part II of this Report, FGL Insurance entered into a
reinsurance agreement with Kubera effective December 31, 2018, to cede certain
multi-year guaranteed annuities ("MYGA") and deferred annuity statutory reserve
on a coinsurance funds withheld basis, net of applicable existing reinsurance.
Fair value movements in the funds withheld balances associated with this
arrangement create an obligation for FGL Insurance to pay Kubera at a later
date, which results in an embedded derivative. This embedded derivative is
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considered a total return swap with contractual returns that are attributable to
the assets and liabilities associated with this reinsurance arrangement. The
fair value of the total return swap is based on the change in fair value of the
underlying assets held in the funds withheld portfolio. Investment results for
the assets that support the coinsurance with funds withheld reinsurance
arrangement, including gains and losses from sales, are passed directly to the
reinsurer pursuant to contractual terms of the reinsurance arrangement. The
reinsurance related embedded derivative is reported in Accounts payable and
accrued liabilities on the Consolidated Balance Sheets and the related gains or
losses are reported in Recognized gains and losses, net on the Consolidated
Statements of Earnings.
We categorize our fixed maturity securities, preferred securities, equity
securities and derivatives into a three-level hierarchy based on the priority of
the inputs to the valuation technique. The fair value hierarchy gives the
highest priority to quoted prices in active markets for identical assets (Level
1) and the lowest priority to unobservable inputs (Level 3). If the inputs used
to measure fair value fall within different levels of the hierarchy, the
category level is based on the lowest priority level input that is significant
to the fair value measurement of the instrument. The following table presents
the fair value of fixed maturity securities and equity securities by pricing
source and hierarchy level as of December 31, 2020.
                                                                               As of December 31, 2020
                                                 Quoted Prices in                                    Significant
                                                Active Markets for            Significant            Unobservable
(Dollars in millions)                            Identical Assets          Observable Inputs            Inputs               Total
                                                    (Level 1)                  (Level 2)              (Level 3)
Fixed maturity securities
available-for-sale and equity
securities:
Prices via third party pricing services        $           1,823          $

24,883 $ 1,167 $ 27,873 Priced via independent broker quotations

- - 2,095 2,095
Priced via other methods - - 5 5
Total $ 1,823 $ 24,883 $ 3,267 $ 29,973
% of Total 6 % 83 % 11 % 100 %

Goodwill
We have made acquisitions that have resulted in a significant amount of
goodwill. As of December 31, 2020 and 2019, goodwill was $4,495 million and
$2,727 million, respectively. The majority of our goodwill as of December 31,
2020 relates to goodwill recorded in connection with the Chicago Title merger in
2000, our acquisition of ServiceLink in 2014 and our acquisition of F&G in 2020.
Refer to Note N Goodwill to our Consolidated Financial Statements included in
Item 8 of Part II of this Annual Report for a summary of recent changes in our
Goodwill balance.
In evaluating the recoverability of goodwill, we perform a qualitative analysis
at the reporting unit level to determine whether it is more likely than not that
the fair value of our recorded goodwill exceeds its carrying value. Based on the
results of this analysis, an annual goodwill impairment test may be completed
based on an analysis of the discounted future cash flows generated by the
underlying assets. The process of determining whether or not goodwill is
impaired or recoverable relies on projections of future cash flows, operating
results and market conditions. Future cash flow estimates are based partly on
projections of market conditions such as the volume and mix of refinance and
purchase transactions and interest rates, which are beyond our control and are
likely to fluctuate. While we believe that our estimates of future cash flows
are reasonable, these estimates are not guarantees of future performance and are
subject to risks and uncertainties that may cause actual results to differ from
what is assumed in our impairment tests. Such analyses are particularly
sensitive to changes in estimates of future cash flows and discount rates.
Changes to these estimates might result in material changes in fair value and
determination of the recoverability of goodwill, which may result in charges
against earnings and a reduction in the carrying value of our goodwill in the
future. We completed annual goodwill impairment analyses in the fourth quarter
of each period presented using a September 30 measurement date. As a result of
our analysis, $3 million of goodwill impairment related to a real estate
brokerage subsidiary in our Corporate and other segment was recorded in the year
ended December 31, 2018. For the years ended December 31, 2020 and 2019, we
determined there were no events or circumstances that indicated that the
carrying value exceeded the fair value. As of December 31, 2020, we have
determined that our title segment goodwill has a fair value, which substantially
exceeds its carrying value. On June 1, 2020 we acquired our F&G segment,
resulting in additional goodwill of $1,751 million.
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VOBA, DAC and DSI
Our intangible assets include an intangible asset reflecting the value of
insurance and reinsurance contracts acquired (VOBA), DAC, and DSI.
VOBA is an intangible asset that reflects the amount recorded as insurance
contract liabilities less the estimated fair value of in-force contracts ("VIF")
in a life insurance company acquisition. It represents the portion of the
purchase price that is allocated to the value of the rights to receive future
cash flows from the business in force at the acquisition date. VOBA is a
function of the VIF, current GAAP reserves, GAAP assets, and deferred tax
liability. The VIF is determined by the present value of statutory distributable
earnings less opening required capital, and is sensitive to assumptions
including the discount rate, surrender rates, partial withdrawals, utilization
rates, projected investment spreads, mortality, and expenses.
DAC consists principally of commissions. Additionally, acquisition costs that
are incremental, direct costs of successful contract acquisition are capitalized
as DAC. Indirect or unsuccessful acquisition costs, maintenance, product
development and overhead expenses are charged to expense as incurred. DSI
consists of contract enhancements such as premium and interest bonuses credited
to policyholder account balances.
DAC, DSI, and VOBA are subject to loss recognition testing on a quarterly basis
or when an event occurs that may warrant loss recognition.
For annuity and IUL products, DAC, DSI and VOBA are generally being amortized in
proportion to estimated gross profits from net investment spread margins,
surrender charges and other product fees, policy benefits, maintenance expenses,
mortality, and recognized gains and losses on investments. Current and future
period gross profits for FIA contracts also include the impact of amounts
recorded for the change in fair value of derivatives and the change in fair
value of embedded derivatives. At each valuation date, the most recent quarter's
estimated gross profits are updated with actual gross profits and the
assumptions underlying future estimated gross profits are evaluated for
continued reasonableness. If the update of assumptions causes estimated gross
profits to increase, DAC, DSI and VOBA amortization will decrease, resulting in
lower amortization expense in the period. The opposite result occurs when the
assumption update causes estimated gross profits to decrease. Current period
amortization is adjusted retrospectively through an unlocking process when
estimates of current or future gross profits (including the impact of recognized
investment gains and losses) to be realized from a group of products are
revised. Our estimates of future gross profits are based on actuarial
assumptions related to the underlying policies' terms, lives of the policies,
duration of contract, yield on investments supporting the liabilities, cost to
fund policy obligations, and level of expenses necessary to maintain the polices
over their entire lives.
Changes in assumptions can have a significant impact on DAC, DSI and VOBA,
amortization rates and results of operations. Assumptions are management's best
estimate of future outcomes, and require considerable judgment. We periodically
review assumptions against actual experience, and update our assumptions based
on historical results and our best estimates of future experience when
additional information becomes available.
Estimated future gross profits are sensitive to changes in interest rates,
which are the most significant component of gross profits. Assumptions related
to interest rate spreads and credit losses also impact estimated gross profits
for products with credited rates. These assumptions are based on the current
investment portfolio yields and credit quality, estimated future crediting
rates, capital markets, and estimates of future interest rates and defaults.
Significant assumptions also include policyholder behavior assumptions, such as
surrender, lapse, and annuitization rates. We use a combination of actual and
industry experience when setting and updating our policyholder behavior
assumptions.
We perform sensitivity analyses to assess the impact that certain assumptions
have on DAC, DSI and VOBA. The following table presents the estimated
instantaneous net impact to income before income taxes of various assumption
changes on our DAC, DSI and VOBA. The effects, increase or (decrease), presented
are not representative of the aggregate impacts that could result if a
combination of such changes to interest rates and other assumptions occurred.
As of December 31,
(Dollars in millions) 2020

A change to the long-term interest rate assumption of -50 basis points

  $             (25)

A change to the long-term interest rate assumption of +50 basis points

                 19
An assumed 10% increase in surrender rate                                                   (1)


Assumptions regarding shifts in market factors may be overly simplistic and not
indicative of actual market behavior in stress scenarios.
Lower assumed interest rates or higher assumed annuity surrender rates tend to
decrease the balances of DAC, DSI and VOBA, thus decreasing income before income
taxes. Higher assumed interest rates or lower assumed annuity surrender rates
tend to increase the balances of DAC, DSI and VOBA, thus increasing income
before income taxes.

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Other Intangible Assets
We have other intangible assets, not including goodwill, VOBA, DAC or DSI that
consist primarily of customer relationships and contracts, the value of
distribution network acquired ("VODA"), trademarks and tradenames, state
licenses and computer software, which are generally recorded in connection with
acquisitions at their fair value. Intangible assets with estimable lives are
amortized over their respective estimated useful lives to their estimated
residual values and reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. In
general, customer relationships are amortized over their estimated useful lives,
generally ten years, using an accelerated method, which takes into consideration
expected customer attrition rates. Contractual relationships are generally
amortized over their contractual life. VODA is an intangible asset that
represents the value of an existing distribution network and is amortized using
the sum of years digits method. Trademarks and tradenames are generally
amortized over ten years. Capitalized software includes the fair value of
software acquired in business combinations, purchased software and capitalized
software development costs. Purchased software is recorded at cost and amortized
using the straight-line method over its estimated useful life. Software acquired
in business combinations is recorded at its fair value and amortized using
straight-line or accelerated methods over its estimated useful life, ranging
from five to ten years. For internal-use computer software products, internal
and external costs incurred during the preliminary project stage are expensed as
they are incurred. Internal and external costs incurred during the application
development stage are capitalized and amortized on a product by product basis
commencing on the date the software is ready for its intended use. We do not
capitalize any costs once the software is ready for its intended use.
We recorded no impairment expense to other intangible assets during the years
ended December 31, 2020 and 2019. We recorded $3 million in impairment expense
to other intangible assets during the year ended December 31, 2018. The
impairment in 2018 primarily relates to an acquired customer relationship asset
in our Title segment.
Accounting for Income Taxes
As part of the process of preparing the consolidated financial statements, we
are required to determine income taxes in each of the jurisdictions in which we
operate. This process involves estimating actual current tax expense together
with assessing temporary differences resulting from differing recognition of
items for income tax and accounting purposes. These differences result in
deferred income tax assets and liabilities, which are included within the
Consolidated Balance Sheets. We must then assess the likelihood that deferred
income tax assets will be recovered from future taxable income and, to the
extent we believe that recovery is not likely, establish a valuation allowance.
To the extent we establish a valuation allowance or increase this allowance in a
period, we must reflect this increase as expense within Income tax expense in
the Consolidated Statement of Earnings. Determination of income tax expense
requires estimates and can involve complex issues that may require an extended
period to resolve. Further, the estimated level of annual pre-tax income can
cause the overall effective income tax rate to vary from period to period. We
believe that our tax positions comply with applicable tax law and that we
adequately provide for any known tax contingencies. We believe the estimates and
assumptions used to support our evaluation of tax benefit realization are
reasonable. Final determination of prior-year tax liabilities, either by
settlement with tax authorities or expiration of statutes of limitations, could
be materially different than estimates reflected in assets and liabilities and
historical income tax provisions. The outcome of these final determinations
could have a material effect on our income tax provision, net income or cash
flows in the period that determination is made.
Refer to Note V Income Taxes to our Consolidated Financial Statements in Item 8
of Part II of this Annual Report for details.


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Results of Operations

Consolidated Results of Operations
Net Earnings. The following table presents certain financial data for the years
indicated:
                                                                                  Year Ended December 31,
                                                                           2020              2019             2018
                                                                                       (In millions)
Revenues:
Direct title insurance premiums                                        $   2,699          $ 2,381          $ 2,221
Agency title insurance premiums                                            3,599            2,961            2,690
Escrow, title-related and other fees                                       3,092            2,584            2,615

Interest and investment income                                               900              225              177
Recognized gains and losses, net                                             488              318             (109)
Total revenues                                                            10,778            8,469            7,594

Expenses:


Benefits and other changes in policy reserves                                866                -                -
Personnel costs                                                            2,951            2,696            2,538
Agent commissions                                                          2,749            2,258            2,059

Other operating expenses                                                   1,759            1,681            1,801

Depreciation and amortization                                                296              178              182
Provision for title claim losses                                             283              240              221
Interest expense                                                              90               47               43
Total expenses                                                             8,994            7,100            6,844

Earnings before income taxes and equity in earnings of unconsolidated affiliates

                                                  1,784            1,369              750
Income tax expense                                                           322              308              120
Equity in earnings of unconsolidated affiliates                               15               15                5
Net earnings from continuing operations                                $

1,477 $ 1,076 $ 635

Revenues.


Total revenues increased by $2,309 million in 2020 compared to 2019, primarily
attributable to increases in both direct and agency premiums, increases in
escrow title-related and other fees and increases in interest and investment
income and recognized gains on our investment holdings. Total revenue in 2019
increased $875 million compared to 2018, primarily attributable to increases in
both our direct and agency premiums, increases in interest and investment
income, and non-cash valuation gains on our equity and preferred investment
holdings, partially offset by a decrease in escrow, title-related and other
fees.
See Note L Revenue Recognition to our Consolidated Financial Statements included
in Item 8 of Part II of this Annual Report for a breakout of our consolidated
revenues.
Total net earnings from continuing operations increased by $401 million in 2020
compared to 2019, and increased by $441 million in 2019 compared to 2018.
The change in revenue and net earnings from our reportable segments is discussed
in further detail at the segment level below.
Interest and investment income levels are primarily a function of securities
markets, interest rates and the amount of cash available for investment.
Interest and investment income was $900 million, $225 million, and $177 million
for the years ended December 31, 2020, 2019, and 2018, respectively. The
increase in 2020 as compared to 2019 is primarily attributable to the addition
of our F&G segment, partially offset by decreased interest income from lower
average balances of cash and cash equivalents and short term investments, and
lower investment yields as a result of declining interest rates year-over-year.
The increase in 2019 as compared to 2018 is primarily attributable to increased
fixed maturity interest income due to an increased average fixed maturity
portfolio balance, increased interest income from our tax-deferred property
exchange business, and
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increased interest income from a higher average balance of cash and cash
equivalents and short term investments portfolio balance compared to the prior
year, partially offset by lower investment yields as a result of declining
interest rates year-over-year. The effective return on average invested assets,
excluding realized gains and losses, was 4.1%, 5.5%, and 5.1% for the years
ended December 31, 2020, 2019, and 2018, respectively.
Recognized gains and (losses), net totaled $488 million, $318 million, and
$(109) million for the years ended December 31, 2020, 2019, and 2018,
respectively. Recognized gains and (losses), net for the year ended December 31,
2020 are primarily attributable to non-cash valuation gains on equity and
preferred security holdings of $208 million, realized gains on derivatives of
$192 million, gains on sales of fixed maturity, preferred and equity securities
of $148 million, losses on other assets of $25 million and losses on mortgage
loans of $32 million. Recognized gains and losses, net for the year ended
December 31, 2019 are primarily attributable to non-cash valuation gains on
equity and preferred security holdings of $316 million, non-cash valuation gains
on other long-term investments of $11 million, gains on sales of equity
securities of $10 million, partially offset by impairments of lease assets of $8
million, net realized losses of $5 million on sales and maturities of fixed
maturity investment securities, and $7 million of other net realized losses.
Recognized gains and losses, net for the year ended December 31, 2018 are
primarily attributable to non-cash valuation losses on equity and preferred
security holdings of $95 million, losses on sales of equity securities of $21
million, and asset impairments of $7 million, partially offset by net realized
gains of $3 million on sales and maturities of preferred and fixed maturity
investment securities and $9 million of other realized gains.
See Note E Investments to our Consolidated Financial Statements included in Item
8 of Part II of this Annual Report for a breakout of our consolidated interest
and investment income and realized gains and losses.

Expenses.


Our operating expenses consist primarily of Personnel costs; Other operating
expenses, which in our title business are incurred as orders are received and
processed; Agent commissions, which are incurred as title agency revenue is
recognized; and Benefits and other changes in policy reserves, which in our F&G
segment are charged to earnings in the period they are earned by the
policyholder based on their selected strategy. For traditional life and
immediate annuities, policy benefit claims are charged to expense in the period
that the claims are incurred, net of reinsurance recoveries. Title insurance
premiums, escrow and title-related fees are generally recognized as income at
the time the underlying transaction closes or other service is provided. Direct
title operations revenue often lags approximately 45-60 days behind expenses and
therefore gross margins may fluctuate. The changes in the market environment,
mix of business between direct and agency operations and the contributions from
our various business units have historically impacted margins and net earnings.
We have implemented programs and have taken necessary actions to maintain
expense levels consistent with revenue streams. However, a short-term lag exists
in reducing controllable fixed costs and certain fixed costs are incurred
regardless of revenue levels.
Personnel costs include base salaries, commissions, benefits, stock-based
compensation and bonuses paid to employees, and are one of our most significant
operating expenses.
Agent commissions represent the portion of premiums retained by our third-party
agents pursuant to the terms of their respective agency contracts.
Benefit expenses for deferred annuity, FIA and IUL policies include index
credits and interest credited to contractholder account balances and benefit
claims in excess of contract account balances, net of reinsurance recoveries.
Other changes in policy reserves include the change in the fair value of the FIA
embedded derivative and the change in the reserve for secondary guarantee
benefit payments. Other changes in policy reserves also include the change in
reserves for life insurance products.
Other operating expenses consist primarily of facilities expenses, title plant
maintenance, premium taxes (which insurance underwriters are required to pay on
title premiums in lieu of franchise and other state taxes), appraisal fees and
other cost of sales on ServiceLink product offerings and other title-related
products, postage and courier services, computer services, professional
services, travel expenses, general insurance and bad debt expense on our trade
and notes receivable.
The Provision for title claim losses includes an estimate of anticipated title
and title-related claims, and escrow losses.
The change in expenses attributable to our reportable segments is discussed in
further detail at the segment level below.
Income tax expense was $322 million, $308 million,and $120 million for the years
ended December 31, 2020, 2019, and 2018 respectively. Income tax expense as a
percentage of earnings before income taxes was 18.0%, 22.5%, and 16.0% in the
years ended December 31, 2020, 2019, and 2018 respectively. The decrease in
income tax expense as a percentage of earnings before taxes in 2020 when
compared to 2019 is primarily attributable to valuation allowance releases and
the tax status change recorded by F&G in 2020. The increase in income tax
expense as a percentage of earnings before taxes in 2019 when compared to 2018
is primarily attributable to the residual impacts of the Tax Cuts and Jobs Act
in 2018.


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Title
The following table presents the results of operations of our Title segment for
the years indicated:
                                                                                  Year Ended December 31,
                                                                           2020              2019             2018
                                                                                       (In millions)
Revenues:
Direct title insurance premiums                                        $   2,699          $ 2,381          $ 2,221
Agency title insurance premiums                                            3,599            2,961            2,690
Escrow, title-related and other fees                                       2,782            2,389            2,204
Interest and investment income                                               151              202              170
Recognized gains and losses, net                                             143              326             (110)
Total revenues                                                             9,374            8,259            7,175
Expenses:
Personnel costs                                                            2,778            2,562            2,444
Agent commissions                                                          2,749            2,258            2,059
Other operating expenses                                                   1,536            1,509            1,421
Depreciation and amortization                                                149              154              154
Provision for title claim losses                                             283              240              221
Interest expense                                                               1                -                -
Total expenses                                                             7,496            6,723            6,299

Earnings from continuing operations, before income taxes and equity in earnings of unconsolidated affiliates

$   1,878          $ 1,536          $   876
Orders opened by direct title operations (in thousands)                    2,950            2,066            1,818
Orders closed by direct title operations (in thousands)                    2,052            1,448            1,315
Fee per file (in dollars)                                              $   2,067          $ 2,511          $ 2,585



Total revenues for the Title segment increased by $1,115 million, or 14%, in the
year ended December 31, 2020 when compared to 2019. Total revenues increased by
$1,084 million or 15% in the year ended December 31, 2019 when compared to 2018.
The increase in the year ended December 31, 2020 as compared to 2019 is
primarily attributable to increases in both our direct and agency premiums, and
increases in escrow, title-related and other fees, partially offset by decreases
in interest and investment income, and non-cash valuation gains on our equity
and preferred investment holdings. The increase in the year ended December 31,
2019 as compared to 2018 is primarily attributable to increases in both our
direct and agency premiums, increases in escrow, title-related and other fees,
increases in interest and investment income, and non-cash valuation gains on our
equity and preferred investment holdings.

The following table presents the percentages of title insurance premiums generated by our direct and agency operations:


                                                                                        Year Ended December 31,
                                                              2020                               2019                               2018
                                                     Amount             %               Amount              %              Amount             %
                                                                                         (Dollars in Millions)
Title premiums from direct operations              $ 2,699             42.9  %       $   2,381             44.6  %       $ 2,221             45.2  %
Title premiums from agency operations                3,599             57.1              2,961             55.4            2,690             54.8
Total title premiums                               $ 6,298            100.0  %       $   5,342            100.0  %       $ 4,911            100.0  %



Title premiums increased by 18% in the year ended December 31, 2020 as compared
to 2019. The increase is comprised of an increase in Title premiums from direct
operations of $318 million, or 13%, and an increase in Title premiums from
agency operations of $638 million, or 22%. Title premiums increased 9% in the
year ended December 31, 2019 as compared to 2018. The increase was a result of
an increase in premiums from direct operations of $160 million, or 7%, and an
increase in premiums from agency operations of $271 million, or 10%.
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The following table presents the percentages of opened and closed title
insurance orders generated by purchase and refinance transactions by our direct
operations:

Year Ended December 31,


                                                                    2020                  2019                  2018

Opened title insurance orders from purchase transactions (1)

                                                                    39.0  %               56.7  %               68.5  %
Opened title insurance orders from refinance
transactions (1)                                                       61.0                  43.3                  31.5
                                                                      100.0  %              100.0  %              100.0  %

Closed title insurance orders from purchase transactions (1)

                                                                    39.8  %               57.6  %               68.2  %
Closed title insurance orders from refinance
transactions (1)                                                       60.2                  42.4                  31.8
                                                                      100.0  %              100.0  %              100.0  %

_______________________________________



(1)  Percentages exclude consideration of an immaterial number of non-purchase
and non-refinance orders.
Title premiums from direct operations increased in the year ended December 31,
2020 as compared to 2019. The increase is primarily attributable to an increase
in total closed order volume, driven by an increase in refinance order volume,
partially offset by a decline in total fee per file. Title premiums from direct
operations increased in 2019, primarily due to an increase in closed order
volumes, partially offset by a decrease in the average fee per file. The
residential refinance market has considerably lower fees per closed order than
commercial or residential purchase transactions.
We experienced an increase in closed title insurance order volumes from purchase
transactions and refinance transactions in the year ended December 31, 2020 as
compared to 2019. Total closed order volumes were 2,052,000 in the year ended
December 31, 2020 compared to 1,448,000 in the year ended December 31, 2019, an
overall increase of 41.7%. The increase in refinance transactions in the 2020 is
primarily due to lower average interest rates when compared to 2019. Closed
order volumes were 1,448,000 in the year ended December 31, 2019 compared with
1,315,000 in the year ended December 31, 2018, an increase of 10.1%. The
increase in closed order volumes was primarily attributable to increased
residential refinance activity as a result of lower mortgage interest rates in
the year ended December 31, 2019 compared to 2018.
Total opened title insurance order volumes increased in the year ended
December 31, 2020, as compared to 2019. The increase in the year ended 2020 was
attributable to increased opened title orders from purchase and refinance
transactions.
The average fee per file in our direct operations was $2,067 in the year ended
December 31, 2020, compared to $2,511 in the year ended December 31, 2019. The
decrease in average fee per file in 2020 as compared to 2019 reflects an
increased proportion of refinance transactions relative to total closed orders
and a weaker commercial market compared to the corresponding prior year period.
The fee per file tends to change as the mix of refinance and purchase
transactions changes, because purchase transactions involve the issuance of both
a lender's policy and an owner's policy, resulting in higher fees, whereas
refinance transactions only require a lender's policy, resulting in lower fees.
The average fee per file in our direct operations in the year ended December 31,
2018 was $2,585. The decrease in the year ended 2019 as compared to 2018
reflects the increase in residential refinance activity in 2018, partially
offset by an increase in the average fee per file in both commercial and
residential purchase transactions.
Title premiums from agency operations increased $638 million, or 22%, in the
year ended December 31, 2020 as compared to 2019, and increased $271 million, or
10%, in the year ended December 31, 2019 as compared to 2018. The current trends
in the agency business reflect an improving residential purchase environment in
many markets throughout the country and a concerted effort by management to
increase remittances with existing agents as well as cultivate new relationships
with potential new agents. In addition, lower mortgage rates have resulted in a
surge in refinance business with agents, which is further impacted by changes in
underlying real estate activity in the geographic regions in which the
independent agents operate.
Escrow, title-related and other fees increased by $393 million, or 16%, in the
year ended December 31, 2020 as compared to 2019, and increased by $185 million,
or 8%, in the year ended December 31, 2019 as compared to 2018. Escrow fees,
which are more closely related to our direct operations, increased by $271
million, or 30%, in the year ended December 31, 2020, as compared to 2019, and
increased $72 million, or 9%, in the year ended December 31, 2019 as compared to
2018 . The increases in the year ended December 31, 2020 as compared to 2019 is
primarily due to stronger residential refinance revenue, which has relatively
higher escrow fees than residential purchase and commercial transactions. The
increase in the year ended December 31, 2019 as compared to 2018 is primarily
driven by the related increase in direct title premiums. Other fees in the Title
segment, excluding escrow fees, increased by $122 million, or 8%, in the year
ended December 31, 2020 as compared to 2019,
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and increased $113 million, or 8%, in the year ended December 31, 2019 compared
to 2018. The increase in Other fees in the year ended December 31, 2020 as
compared to 2019 was primarily driven by an increase in revenue related to our
ServiceLink business in addition to increases in various individually immaterial
items. The change in both escrow fees and other fees is directionally consistent
with the change in title premiums from direct operations.
Interest and investment income levels are primarily a function of securities
markets, interest rates and the amount of cash available for investment.
Interest and investment income decreased $51 million, or 25%, in the year ended
December 31, 2020, as compared to 2019, and increased $32 million in the year
ended December 31, 2019 as compared to 2018. The decrease in the year ended
December 31, 2020 as compared to 2019 was primarily driven by a decline in
interest income related to the Company's tax-deferred property exchange business
and a decline in interest on cash and short-term investments, due to a decline
in short-term rates in 2020 as compared to 2019. The increase in the year ended
December 31, 2019 as compared to 2018 was primarily attributable to increased
fixed maturity interest income due to an increased average fixed maturity
portfolio balance, increased interest income from our tax-deferred property
exchange business, and increased yield on our cash and cash equivalents and
short term investments.
Recognized gains and losses, net, decreased $183 million in the year ended
December 31, 2020 as compared to 2019, and increased $436 million in the year
ended December 31, 2019 as compared to 2018. The decrease in the year ended
December 31, 2020 as compared to 2019, and the increase in the year ended
December 31, 2019 as compared to 2018 are primarily attributable to fluctuations
in non-cash valuation changes on our equity and preferred security holdings in
addition to various other individually immaterial items.
Personnel costs include base salaries, commissions, benefits, stock-based
compensation and bonuses paid to employees, and are one of our most significant
operating expenses. Personnel costs increased $216 million, or 8%, in the year
ended December 31, 2020, as compared to 2019, and increased $118 million, or 5%
in the year ended December 31, 2019 as compared to 2018. The increases in the
year ended December 31, 2020 as compared to 2019, and the year ended December
31, 2019 as compared to 2018 are primarily attributable to increased commissions
driven by the increases in year-over-year closed title order volumes. Personnel
costs as a percentage of total revenues from direct title premiums and escrow,
title-related and other fees were 51%, 54% and 55% for the years ended
December 31, 2020, 2019 and 2018, respectively. Average employee count in the
Title segment was 24,638, 23,484 and 23, 165 in the years ended December 31,
2020, 2019 and 2018, respectively.
Other operating expenses increased by $27 million, or 2%, in the year ended
December 31, 2020 as compared to 2019, and increased $88 million, or 6%, in the
year ended December 31, 2019 compared to 2018. Other operating expenses as a
percentage of total revenue excluding agency premiums, interest and investment
income, and recognized gains and losses were 28%, 32% and 32% in the years ended
December 31, 2020, 2019 and 2018, respectively.
Agent commissions represent the portion of premiums retained by agents pursuant
to the terms of their respective agency contracts. Agent commissions and the
resulting percentage of agent premiums that we retain vary according to regional
differences in real estate closing practices and state regulations.
The following table illustrates the relationship of agent premiums and agent
commissions:
                                                                                       Year Ended December 31,
                                                             2020                               2019                               2018
                                                    Amount             %               Amount              %              Amount             %
                                                                                        (Dollars in millions)
Agent premiums                                    $ 3,599            100.0  %       $   2,961            100.0  %       $ 2,690            100.0  %
Agent commissions                                   2,749             76.4              2,258             76.3            2,059             76.5
Net retained agent premiums                       $   850             23.6  %       $     703             23.7  %       $   631             23.5  %



The claim loss provision for title insurance was $283 million, $240 million, and
$221 million for the years ended December 31, 2020, 2019, and 2018 respectively.
The provision reflects an average provision rate of 4.5% of title premiums in
all periods. We continually monitor and evaluate our loss provision level,
actual claims paid, and the loss reserve position each quarter. This loss
provision rate is set to provide for losses on current year policies, but due to
development of prior years and our long claim duration, it periodically includes
amounts of estimated adverse or positive development on prior years' policies.
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F&G
Segment Overview
Through our wholly owned F&G subsidiary, which we acquired on June 1, 2020, we
provide our principal life and annuity products through the insurance
subsidiaries composing our F&G segment, FGL Insurance and FGL NY Insurance. Our
customers range across a variety of age groups and are concentrated in the
middle-income market. Our FIAs provide for pre-retirement wealth accumulation
and post-retirement income management. Our IUL products provide wealth
protection and transfer opportunities. Life and annuity products are primarily
distributed through Independent Marketing Organizations ("IMOs") and independent
insurance agents, and beginning in 2020, independent broker dealers and banks.
In setting the features and pricing of new FIA products relative to our targeted
net margin, we take into account our expectations regarding (1) net investment
spread (see Non-GAAP Financial Measures section), which is the difference
between the net investment income we earn and the sum of the interest credited
to policyholders and the cost of hedging our risk on the policies; (2) fees,
including surrender charges and rider fees, partly offset by vesting bonuses
that we pay our policyholders; and (3) a number of related expenses, including
benefits and changes in reserves, acquisition costs, and general and
administrative expenses.
  Annuity and Life Sales
We regularly monitor and report the production volume metric titled "Sales".
Sales are not derived from any specific GAAP income statement accounts or line
items and should not be viewed as a substitute for any financial measure
determined in accordance with GAAP. Annuity and IUL sales are recorded as
deposit liabilities (i.e. contractholder funds) within the Company's
Consolidated Financial Statements included in Item 8 of Part II of this Annual
Report in accordance with GAAP. Management believes that presentation of sales,
as measured for management purposes, enhances the understanding of our business
and helps depict longer term trends that may not be apparent in the results of
operations due to the timing of sales and revenue recognition.

Key Components of Our Historical Results of Operations
Under U.S. GAAP, premium collections for fixed indexed annuities, fixed rate
annuities, and immediate annuities without life contingency are reported in the
financial statements as deposit liabilities (i.e., contractholder funds) instead
of as sales or revenues. Similarly, cash payments to customers are reported as
decreases in the liability for contractholder funds and not as expenses. Sources
of revenues for products accounted for as deposit liabilities are net investment
income, surrender, cost of insurance and other charges deducted from
contractholder funds, and net realized gains (losses) on investments. Components
of expenses for products accounted for as deposit liabilities are
interest-sensitive and index product benefits (primarily interest credited to
account balances or the hedging cost of providing index credits to the
policyholder), amortization of DAC, DSI, and VOBA, other operating costs and
expenses, and income taxes.
Through our insurance subsidiaries, we issue a broad portfolio of deferred
annuities (fixed indexed and fixed rate annuities), indexed universal life
insurance and immediate annuities. A deferred annuity is a type of contract that
accumulates value on a tax deferred basis and typically begins making specified
periodic or lump sum payments a certain number of years after the contract has
been issued. An immediate annuity is a type of contract that begins making
specified payments within one annuity period (e.g., one month or one year) and
typically makes payments of principal and interest earnings over a period of
time.
F&G hedges certain portions of its exposure to product related equity market
risk by entering into derivative transactions. We purchase derivatives
consisting predominantly of call options and, to a lesser degree, futures
contracts on the equity indices underlying the applicable policy. These
derivatives are used to offset the statutory reserve impact of the index credits
due to policyholders under the FIA contracts. The majority of all such call
options are one-year options purchased to match the funding requirements
underlying the FIA contracts. We attempt to manage the cost of these purchases
through the terms of our FIA contracts, which permit us to change caps, spread,
or participation rates on each policy's annual anniversary, subject to certain
guaranteed minimums that must be maintained. The call options and futures
contracts are marked to fair value with the change in fair value included as a
component of net investment gains (losses). The change in fair value of the call
options and futures contracts includes the gains and losses recognized at the
expiration of the instruments' terms or upon early termination and the changes
in fair value of open positions.
Earnings from products accounted for as deposit liabilities are primarily
generated from the excess of net investment income earned over the sum of
interest credited to policyholders and the cost of hedging our risk on FIA
policies, known as the net investment spread. With respect to FIAs, the cost of
hedging our risk includes the expenses incurred to fund the index credits.
Proceeds received upon expiration or early termination of call options purchased
to fund annual index credits are
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recorded as part of the change in fair value of derivatives, and are largely
offset by an expense for index credits earned on annuity contractholder fund
balances.
Our profitability depends in large part upon the amount of assets under
management ("AUM"), the net investment spreads earned on our AUM, our ability to
manage our operating expenses and the costs of acquiring new business
(principally commissions to agents and bonuses credited to policyholders). As we
grow AUM, earnings generally increase. AUM increases when cash inflows, which
include sales, exceed cash outflows. Managing net investment spreads involves
the ability to maximize returns on our AUM and minimize risks such as interest
rate changes and defaults or impairment of investments. It also includes our
ability to manage interest rates credited to policyholders and costs of the
options and futures purchased to fund the annual index credits on the FIAs or
IULs. We analyze returns on average assets under management ("AAUM" - see
Non-GAAP Financial Measures section) pre- and post-DAC, DSI and VOBA as well as
pre- and post-tax to measure our profitability in terms of growth and improved
earnings.
Non-GAAP Financial Measures
Management believes that certain non-GAAP financial measures may be useful in
certain instances to provide additional meaningful comparisons between current
results and results in prior operating periods. Our non-GAAP measures may not be
comparable to similarly titled measures of other organizations because other
organizations may not calculate such non-GAAP measures in the same manner as we
do. Reconciliations of such measures to the most comparable GAAP measures, if a
comparable GAAP measure exists, are included herein.
Adjusted Net Earnings is a non-GAAP economic measure we use to evaluate
financial performance each period. Adjusted net earnings is calculated by
adjusting net earnings (loss) from continuing operations to eliminate:
(i) Recognized (gains) and losses, net: the impact of net investment
gains/losses, including changes in allowance for expected credit losses
recognized in operations; the impact of market volatility on the alternative
asset portfolio; and the effect of changes in fair value of the reinsurance
related embedded derivative;
(ii) Indexed product related derivatives: the impacts related to changes in the
fair value, including both realized and unrealized gains and losses, of index
product related derivatives and embedded derivatives, net of hedging cost, and
the fair value accounting impact of assumed reinsurance,
(iii) Purchase price amortization: the impacts related to the amortization of
certain intangibles (internally developed software, trademarks and value of
distribution asset (VODA)) recognized as a result of acquisition activities, and
(iv) Transaction costs: the impacts related to acquisition, integration and
merger related items.
Adjustments to Adjusted Net Earnings are net of the corresponding impact on
amortization of intangibles, as appropriate. The income tax impact related to
these adjustments is measured using an effective tax rate, as appropriate by tax
jurisdiction. While these adjustments are an integral part of the overall
performance of F&G, market conditions and/or the non-operating nature of these
items can overshadow the underlying performance of the core business.
Accordingly, management considers this to be a useful measure internally and to
investors and analysts in analyzing the trends of our operations.
Adjusted Net Earnings should not be used as a substitute for net earnings
(loss). However, we believe the adjustments made to net earnings (loss) in order
to derive adjusted net earnings provide an understanding of our overall results
of operations. For example, we could have strong operating results in a given
period, yet report net income that is materially less, if during such period the
fair value of our derivative assets hedging the FIA and IUL index credit
obligations decreased due to general equity market conditions but the embedded
derivative liability related to the index credit obligation did not decrease in
the same proportion as the derivative assets because of non-equity market
factors such as interest rate and non-performance credit spread movements.
Similarly, we could also have poor operating results in a given period yet show
net earnings (loss) that is materially greater, if during such period the fair
value of the derivative assets increases but the embedded derivative liability
did not increase in the same proportion as the derivative assets. We hedge our
index credits with a combination of static and dynamic strategies, which can
result in earnings volatility, the effects of which are generally likely to
reverse over time. Our management and board of directors review Adjusted Net
Earnings and net earnings (loss) as part of their examination of our overall
financial results. However, these examples illustrate the significant impact
derivative and embedded derivative movements can have on our net earnings
(loss). Accordingly, our management performs a review and analysis of these
items, as part of their review of our hedging results each period.
Amounts attributable to the fair value accounting for derivatives hedging the
FIA and IUL index credits and the related embedded derivative liability
fluctuate from period to period based upon changes in the fair values of call
options purchased to fund the annual index credits, changes in the interest
rates and non-performance credit spreads used to discount the embedded
derivative liability, and the fair value assumptions reflected in the embedded
derivative liability. The accounting standards for fair value measurement
require the discount rates used in the calculation of the embedded derivative
liability to be based on risk-free interest rates adjusted for our
non-performance as of the reporting date. The impact of the change in fair
values of FIA-
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related derivatives, embedded derivatives and hedging costs has been removed
from net earnings (loss) in calculating adjusted net earnings.
AAUM is a non-GAAP measure we use to assess the rate of return on assets
available for reinvestment. AAUM is calculated as the sum of:
(i) total invested assets at amortized cost, excluding derivatives;
(ii) related party loans and investments;
(iii) accrued investment income;
(iv) the net payable/receivable for the purchase/sale of investments, and
(v) cash and cash equivalents, excluding derivative collateral, at the beginning
of the period and the end of each month in the period, divided by the total
number of months in the period plus one.
Management considers this non-GAAP financial measure to be useful internally and
to investors and analysts when assessing the rate of return on assets available
for reinvestment.
Yield on AAUM is calculated by dividing annualized net investment income by
AAUM. Management considers this non-GAAP financial measure to be useful
internally and to investors and analysts when assessing the level of return
earned on AAUM.
Alternative investment yield adjustment is the current period yield impact of
market volatility on the alternative investment portfolio. Management considers
this non-GAAP financial measure to be useful internally and to investors and
analysts when assessing the level of return earned on AAUM.
Adjusted Yield on AAUM is calculated by dividing annualized net investment
income by AAUM, plus or minus the alternative investment yield adjustment.
Management considers this non-GAAP financial measure to be useful internally and
to investors and analysts when assessing the level of return earned on AAUM.
Net investment spread is the excess of net investment income, adjusted for
market volatility on the alternative asset investment portfolio, earned over the
sum of interest credited to policyholders and the cost of hedging our risk on
indexed product policies. Management considers this non-GAAP financial measure
to be useful internally and to investors and analysts when assessing the
performance of the Company's invested assets against the level of investment
return provided to policyholders, inclusive of hedging costs.
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F&G Results of Operations
The following table presents the results of operations of our F&G segment for
the period presented (in millions):
                                                                                              Period from
                                                                                               June 1 to
                                                                                             December 31,
                                                                                                 2020
Revenues:
Life insurance premiums and other fees (a)                                                   $      138
Interest and investment income                                                                      743
Recognized gains and losses, net                                                                    352
Total revenues                                                                                    1,233

Expenses:


Benefits and other changes in policy reserves                                                       866
Personnel costs                                                                                      65
Other operating expenses                                                                             75
Depreciation and amortization                                                                       123
Interest expense                                                                                     18
    Total expenses                                                                                1,147
Earnings from continuing operations, before income taxes                                             86

Federal income tax (expense) benefit                                                                 77
State income tax expense                                                                             (2)
Net earnings from continuing operations                                                      $      161
Loss from discontinued operations, net of tax                                                       (25)
Net earnings (loss) attributable to common shareholders                                      $      136

(a) Included within Escrow, title-related and other fees in Consolidated Statements of Earnings

The following table summarizes sales by product type of our F&G segment for the period presented (in millions):


                                              Period from June 1 to December 31, 2020
Fixed index annuities ("FIA")                $                                  2,006
Fixed rate annuities ("MYGA")                                                     629
Institutional spread based                                                        100
Total annuity                                $                                  2,735

Index universal life ("IUL")                 $                                     31

Flow reinsurance                             $                                    122


•FIA sales were strong during the seven months ended December 31, 2020 and
reflect disciplined pricing to achieve profit and capital targets.
•MYGA sales during the seven months ended December 31, 2020 were driven by the
low interest rate environment.
•Institutional spread based products reflect funding agreements with Federal
Home Loan Bank, under an investment strategy.

Revenues

Life insurance premiums and other fees



Life insurance premiums and other fees primarily reflect insurance premiums for
traditional life insurance products, which are recognized as revenue when due
from the policyholder, as well as the cost of insurance on IUL policies, policy
rider fees primarily on FIA policies and surrender charges assessed against
policy withdrawals in excess of the policyholder's allowable penalty-free
amounts (up to 10% of the prior year's value, subject to certain limitations).
The following table summarizes the Life insurance premiums and other fees,
included within Escrow, title-related and other fees on the Consolidated
Statements of Earnings for the period presented (in millions):
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                                                 Period from June 1 to December 31, 2020
Traditional life insurance                      $                                     13
Life-contingent immediate annuity


Surrender charges


Cost of insurance fees and other income

102


Life insurance premiums and other fees          $

138




•Traditional life insurance premiums for the seven months ended December 31,
2020 are primarily related to the return of premium riders on traditional life
contracts. FGL Insurance has ceded the majority of its traditional life business
to unaffiliated third party reinsurers. While the base contract has been
reinsured, we continue to retain the return of rider.
•Immediate annuity premiums for the seven months ended December 31, 2020 reflect
policyholder behavior for annuitizations as well as FGL Insurance's reinsurance
agreement with Kubera Insurance (SAC) Ltd. ("Kubera").
•Cost of insurance fees and other income for the seven months ended December 31,
2020 primarily reflect GMWB rider fees of $72 million and COI charges on IUL
policies of $49 million, partially offset by unearned revenue deferrals. GMWB
rider fees are based on the policyholder's benefit base and are collected at the
end of the policy year.
Interest and investment income
Below is a summary of interest and investment income for the period presented
(in millions):
                                                                                           Period from
                                                                                            June 1 to
                                                                                          December 31,
                                                                                              2020
Fixed maturity securities, available-for-sale                                             $      643
Equity securities                                                                                 42
Mortgage loans                                                                                    50

Other investments                                                                                 84
Gross investment income                                                                          819
Investment expense                                                                               (76)
Interest and investment income                                                            $      743

Our net investment spread and AAUM for the period presented are summarized as follows (annualized) (dollars in millions):


                                                                                       Period from
                                                                                        June 1 to
                                                                                      December 31,
                                                                                          2020
Yield on AAUM (at amortized cost)                                                            4.66  %
Alternative investment yield adjustment                                                      0.07  %
Adjusted yield on AAUM                                                                       4.73  %
Less: Interest credited and option cost                                                     (1.99) %
Net investment spread                                                                        2.74  %
AAUM                                                                                 $        27,322


•AAUM for the seven months ended December 31, 2020 reflect net new business
asset flows.
•The $743 million NII for the seven months ended December 31, 2020 was primarily
driven by $643 million in fixed maturity securities, $84 million in other
investments and $50 million in mortgage loans, partially offset by $(76) million
in investment expenses.
•Net investment spread for the seven month period ended December 31, 2020 is in
line with pre-merger historical trends.
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Recognized gains and losses, net
Below is a summary of the major components included in recognized gains and
losses, net for the period presented (in millions):
                                                                                           Period from
                                                                                            June 1 to
                                                                                          December 31,
                                                                                              2020

Net realized and unrealized gains on fixed maturity available-for-sale securities, equity securities and other invested assets

$      179
Change in allowance for expected credit losses                                                   (19)

Net realized and unrealized gains on certain derivatives instruments

                      237
Change in fair value of reinsurance related embedded derivatives                                 (53)

Change in fair value of other derivatives and embedded derivatives


                       8
                                                                                          $      352



•For the seven months ended December 31, 2020, net realized gains on fixed
maturity available-for-sale securities, equity securities and other invested
assets is primarily the result of trading gains and mark-to-market movement on
our equity securities.
•Allowance for expected credit losses increased during the period, primarily
related to residential mortgage loans.
•The fair value of reinsurance related embedded derivative is based on the
change in fair value of the underlying assets held in the funds withheld ("FWH")
portfolio.
•For the seven months ended December 31, 2020, net realized and unrealized gains
on certain derivative instruments primarily relates to the realized and
unrealized losses on futures and options used to hedge FIA and IUL products. See
the table below for primary drivers of gains (losses) on certain derivatives.
We utilize a combination of static (call options) and dynamic (long futures
contracts) instruments in our hedging strategy. A substantial portion of the
call options and futures contracts are based upon the S&P 500 Index with the
remainder based upon other equity, bond and gold market indices.
The components of the realized and unrealized gains (losses) on certain
derivative instruments hedging our indexed annuity and universal life products
are summarized in the table below for the period presented (dollars in
millions):
                                                                                       Period from June 1
                                                                                        to December 31,
                                                                                              2020
Call Options:
Gains on option expiration                                                             $            62
Change in unrealized gains                                                                         167
Futures contracts:
Gains on futures contracts expiration                                                               21
Change in unrealized losses                                                                         (6)
Foreign currency forward:
Losses on foreign currency forward                                                                  (7)
Total net change in fair value                                                         $           237

Annual Point-to-Point Change in S&P 500 Index during the period                                     23  %

•Realized gains and losses on certain derivative instruments are directly correlated to the performance of the indices upon which the call options and futures contracts are based and the value of the derivatives at the time of expiration compared to the value at the time of purchase. Gains (losses) on option expiration reflect the movement during the seven months ended December 31, 2020 on options settled during the period.


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•The change in unrealized gains and losses due to fair value of call options are
primarily driven by the underlying performance of the S&P 500 Index during each
respective year relative to the S&P 500 Index on the policyholder buy dates.
•The net change in fair value of the call options and futures contracts for the
seven months ended December 31, 2020 was primarily driven by movements in the
S&P 500 Index relative to the policyholder buy dates.
The average index credits to policyholders are as follows for the period
presented:
                                               Period from June 1 to December 31, 2020
    Average Crediting Rate                                                         3  %
    S&P 500 Index:
    Point-to-point strategy                                                        5  %
    Monthly average strategy                                                       2  %
    Monthly point-to-point strategy                                                -  %
    3 year high water mark                                                        19  %


•Actual amounts credited to contractholder fund balances may differ from the
index appreciation due to contractual features in the FIA contracts (caps,
spreads and participation rates), which allow F&G to manage the cost of the
options purchased to fund the annual index credits.
•The credits for the seven months ended December 31, 2020 were based on
comparing the S&P 500 Index on each issue date in the period to the same issue
date in the respective prior year periods. Surrender charges were higher in the
prior year periods, primarily due to a higher number of universal life policy
surrenders.

Benefits and expenses
Benefits and other changes in policy reserves
Below is a summary of the major components included in Benefits and other
changes in policy reserves for the period presented (in millions):
                                                                                       Period from
                                                                                        June 1 to
                                                                                      December 31,
                                                                                          2020

FIA embedded derivative impact                                                        $      317
Index credits, interest credited & bonuses                                                   319
Annuity payments                                                                              74
Other policy benefits and reserve movements                                                  156
   Total benefits and other changes in policy reserves                                $      866


•The FIA fair value option liability increased, driven by the changes in the
equity markets, change in non-performance spread, and risk free rates during the
period. The change in non-performance spread increased the FIA embedded
derivative liability by $205 million during the seven months ended December 31,
2020, partially offset by a $63 million decrease in the liability due to
movement of risk-free rates in both periods. The remaining change in the market
value of the derivative assets hedging our FIA policies was driven by equity
market impacts. See table in the net investment gains/losses discussion above
for summary and discussion of net unrealized gains (losses) on certain
derivative instruments.
•The index credits, interest credited & bonuses were primarily due to index
credits on FIA policies. Refer to average policyholder index discussion above
for details on drivers.
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Personnel Costs and Other Operating Expenses
Below is a summary of Personnel Costs and Other Operating Expenses for the
period presented (in millions):
                                                                                     Period from
                                                                                      June 1 to
                                                                                    December 31,
                                                                                        2020
Personnel costs                                                                     $       65
Other operating expenses                                                                    75

Total personnel costs and other operating expenses

$ 140




•Personnel costs for the seven months ended December 31, 2020 primarily reflect
employee-related expenses.
•Other operating expenses during the period reflect certain operating expenses
other than personnel costs and non-deferred acquisition costs.
Depreciation and amortization
Below is a summary of the major components included in depreciation and
amortization for the period presented (in millions):
                                                                                       Period from
                                                                                        June 1 to
                                                                                      December 31,
                                                                                          2020
Amortization of DAC, VOBA, and DSI                                                    $      131
Interest                                                                                     (22)
Unlocking                                                                                     (2)
Amortization of other intangible assets and other depreciation                                16
Total depreciation and amortization

$ 123




•Amortization of DAC, VOBA, and DSI is based on current and future expected
gross margins (pre-tax operating income before amortization). The amortization
for the seven months ended December 31, 2020 is the result of actual gross
profits ("AGPs") in the period.
Other items affecting net earnings
Income tax expense (benefit)
Below is a summary of the major components included in income tax expense
(benefit) for the period presented (dollars in millions):
                                                                                    Period from June 1
                                                                                     to December 31,
                                                                                           2020
Income (loss) before taxes                                                          $            86

Income tax benefit before valuation allowance                                                   (21)

Change in valuation allowance                                                                   (54)
Income tax expense (benefit)                                                        $           (75)
Effective rate                                                                                  (87) %


•Income tax benefit for the period ended December 31, 2020 was $75 million. The
income tax benefit was primarily driven by various valuation allowance releases
as a result of merger activity, partially offset by taxes on income. See "Note V
- Income Taxes" for further information.



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Adjusted Net Earnings (See Non-GAAP Financial Measures section)
The table below shows the adjustments made to reconcile Net earnings from
continuing operations attributable to common shareholders to Adjusted net
earnings from continuing operations attributable to common shareholders for the
period presented (in millions):
                                                                                       Period from
                                                                                        June 1 to
                                                                                      December 31,
                                                                                          2020

Net earnings from continuing operations attributable to common shareholders

$      161
Non-GAAP adjustments:
Recognized gains and losses, net                                                             (45)
Indexed product related derivatives                                                          111

Purchase price amortization                                                                   16

Transaction costs and other nonrecurring items                                                21
Income tax benefit on non-GAAP adjustments                                                   (29)

Adjusted net earnings from continuing operations attributable to common shareholders

$ 235




•Adjusted net earnings for the seven months ended December 31, 2020 primarily
reflects net investment income for the period, partially offset by changes in
benefits and other policy reserves and other expenses. Adjusted net earnings
includes $14 million of net favorable actual to expected mortality within the
single premium immediate annuity ("SPIA") line of business and $72 million of
other notable items primarily related to a favorable income tax benefit.

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Investment Portfolio
The types of assets in which we may invest are influenced by various state laws,
which prescribe qualified investment assets applicable to insurance companies.
Within the parameters of these laws, we invest in assets giving consideration to
four primary investment objectives: (i) maintain robust absolute returns;
(ii) provide reliable yield and investment income; (iii) preserve capital and
(iv) provide liquidity to meet policyholder and other corporate obligations.
Our investment portfolio is designed to contribute stable earnings and balance
risk across diverse asset classes and is primarily invested in high quality
fixed income securities.
As of December 31, 2020, the fair value of our investment portfolio was
approximately $31 billion and was divided among the following asset class and
sectors (dollars in millions):
                                                                 December

31, 2020


                                                              Fair Value

Percent

Fixed maturity securities, available for sale:


   United States Government full faith and credit         $             45           -  %
   United States Government sponsored entities                         106           -  %
   United States municipalities, states and territories              1,309           4  %
   Foreign Governments                                                 140           -  %

Corporate securities:


   Finance, insurance and real estate                                4,572          15  %
   Manufacturing, construction and mining                              936           3  %
   Utilities, energy and related sectors                             2,762           9  %
   Wholesale/retail trade                                            2,106           7  %
   Services, media and other                                         2,793           9  %
 Hybrid securities                                                     963

3 %


 Non-agency residential mortgage-backed securities                     694

2 %


 Commercial mortgage-backed securities                               2,806

9 %


 Asset-backed securities                                             6,267

20 %


 Total fixed maturity available for sale securities                 25,499          81  %
 Equity securities (a)                                               1,047           3  %
 Commercial mortgage loans                                             926           3  %
 Residential mortgage loans                                          1,123           4  %
 Other (primarily derivatives and limited partnerships)              2,153           8  %
 Short term investments                                                456           1  %
 Total investments                                        $         31,204         100  %


(a) Includes investment grade non-redeemable preferred stocks ($853 million).
Insurance statutes regulate the type of investments that our life insurance
subsidiaries are permitted to make and limit the amount of funds that may be
used for any one type of investment. In light of these statutes and regulations,
and our business and investment strategy, we generally seek to invest in
(i) corporate securities rated investment grade by established nationally
recognized statistical rating organizations (each, an "NRSRO"), (ii) U.S.
Government and government-sponsored agency securities, or (iii) securities of
comparable investment quality, if not rated.
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As of December 31, 2020, our fixed maturity available-for-sale ("AFS")
securities portfolio was approximately $25 billion. The following table
summarizes the credit quality, by NRSRO rating, of our fixed income portfolio
(dollars in millions):
                                                    December 31, 2020
              Rating                             Fair Value         Percent
              AAA                            $            488           2  %
              AA                                        1,590           6  %
              A                                         7,040          28  %
              BBB                                       9,669          38  %
              Not rated (b)                             4,336          17  %
              Total investment grade                   23,123          91  %
              BB                                        1,493           6  %
              B and below (a)                             612           2  %
              Not rated (b)                               271           1  %
              Total below investment grade              2,376           9  %
                                             $         25,499         100  %


(a) Includes $106 million of non-agency RMBS that carry a NAIC 1 designation.
(b) Securities denoted as not-rated by an NRSRO were classified as investment or
non-investment grade according to the securities' respective NAIC designation.
The NAIC's Securities Valuation Office ("SVO") is responsible for the day-to-day
credit quality assessment and valuation of securities owned by state regulated
insurance companies. Insurance companies report ownership of securities to the
SVO when such securities are eligible for regulatory filings. The SVO conducts
credit analysis on these securities for the purpose of assigning an NAIC
designation or unit price. Typically, if a security has been rated by an NRSRO,
the SVO utilizes that rating and assigns an NAIC designation based upon the
following system:
                     NAIC Designation       NRSRO Equivalent Rating
                            1                       AAA/AA/A
                            2                         BBB
                            3                          BB
                            4                          B
                            5                    CCC and lower
                            6                  In or near default


The NAIC has adopted revised designation methodologies for non-agency RMBS,
including RMBS backed by subprime mortgage loans and for commercial
mortgage-backed securities ("CMBS"). The NAIC's objective with the revised
designation methodologies for these structured securities was to increase
accuracy in assessing expected losses and to use the improved assessment to
determine a more appropriate capital requirement for such structured securities.
The NAIC designations for structured securities, including subprime and
Alternative A-paper ("Alt-A") RMBS, are based upon a comparison of the bond's
amortized cost to the NAIC's loss expectation for each security. Securities
where modeling does not generate an expected loss in all scenarios are given the
highest designation of NAIC 1. A number of our RMBS securities carry a NAIC 1
designation while the NRSRO rating indicates below investment grade. The revised
methodologies reduce regulatory reliance on rating agencies and allow for
greater regulatory input into the assumptions used to estimate expected losses
from such structured securities. In the tables below, we present the rating of
structured securities based on ratings from the revised NAIC rating
methodologies described above (which in some cases do not correspond to rating
agency designations). All NAIC designations (e.g., NAIC 1-6) are based on the
revised NAIC methodologies.
The table below presents our fixed maturity securities by NAIC designation as of
December 31, 2020 (dollars in millions):
                                                 December 31, 2020
  NAIC Designation       Amortized Cost       Fair Value       Percent of Total Fair Value
         1              $        11,696      $    12,370                              49  %
         2                        9,753           10,659                              42  %
         3                        1,373            1,595                               6  %
         4                          616              700                               3  %
         5                          162              174                               -  %
         6                            1                1                               -  %
                        $        23,601      $    25,499                             100  %


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Investment Industry Concentration
The tables below present the top ten industry categories of our fixed maturity
and equity securities and FHLB common stock, including the fair value and
percent of total fixed maturity and equity securities and FHLB common stock fair
value as of December 31, 2020 (dollars in millions):

December 31, 2020


                                                                                            Percent of Total
Top 10 Industry Concentration                                             Fair Value           Fair Value
ABS collateralized loan obligation ("CLO")                               $   4,268                     16  %
Banking                                                                      2,592                     10  %
Whole loan collateralized mortgage obligation ("CMO")                        2,343                      9  %
ABS other                                                                    1,873                      7  %
Life insurance                                                               1,657                      6  %
Electric                                                                     1,548                      6  %
Municipal                                                                    1,308                      5  %
CMBS                                                                           795                      3  %
Technology                                                                     784                      3  %
Healthcare                                                                     658                      2  %
                                                                         $  17,826                     67  %

The amortized cost and fair value of fixed maturity AFS securities by contractual maturities as of December 31, 2020, are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.


                                                                                        December 31, 2020
(In millions)                                                                  Amortized Cost           Fair Value

Corporate, Non-structured Hybrids, Municipal and Government securities: Due in one year or less

                                                      $           111          $       112
Due after one year through five years                                                  1,055                1,107
Due after five years through ten years                                                 1,808                1,918
Due after ten years                                                                   11,436               12,489

$ 14,410 $ 15,626 Other securities, which provide for periodic payments: Asset-backed securities

                                                      $         5,941          $     6,267
Commercial-mortgage-backed securities                                                  2,468                2,806

Residential mortgage-backed securities                                                   782                  800
                                                                             $         9,191          $     9,873
Total fixed maturity available-for-sale securities

$ 23,601 $ 25,499




Non-Agency RMBS Exposure
Our investment in non-agency RMBS securities is predicated on the conservative
and adequate cushion between purchase price and NAIC 1 rating, general lack of
sensitivity to interest rates, positive convexity to prepayment rates and
correlation between the price of the securities and the unfolding recovery of
the housing market.
The fair value of our investments in subprime and Alt-A RMBS securities was $68
million and $94 million as of December 31, 2020.
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The following tables summarizes our exposure to subprime and Alt-A RMBS by
credit quality using NAIC designations, NRSRO ratings and vintage year as of
December 31, 2020 (dollars in millions):
                                                                               December 31, 2020
NAIC Designation:                                                      Fair Value           Percent of Total
1                                                                  $           153                      94  %
2                                                                                1                       1  %
3                                                                                2                       1  %
4                                                                                3                       2  %
5                                                                                3                       2  %
6                                                                                -                       -  %
                                                                   $           162                     100  %

NRSRO:
AAA                                                                $             1                       1  %
AA                                                                               4                       2  %
A                                                                               17                      10  %
BBB                                                                             17                      10  %
Not rated - Above investment grade (a)                                          19                      12  %
BB and below                                                                   104                      65  %
                                                                   $           162                     100  %

Vintage:

2007                                                                            37                      23  %
2006                                                                            43                      27  %
2005 and prior                                                                  82                      50  %

                                                                   $           162                     100  %


(a) Securities denoted as not-rated by an NRSRO were classified as investment or
non-investment grade according to the securities' respective NAIC designation.
ABS Exposure
As of December 31, 2020, our ABS exposure was largely composed of CLOs, which
comprised 68% of all ABS holdings. These exposures are generally senior tranches
of CLOs, which have leveraged loans as their underlying collateral. The
remainder of our ABS exposure was largely diversified by underlying collateral
and issuer type, including automobile and home equity receivables.
As of December 31, 2020, the non-CLO exposure represents 32% of total ABS
assets, or 6% of total invested assets and the CLO and non-CLO positions were
trading at a net unrealized gain position of $247 million and $79 million,
respectively. The following table summarize our ABS exposure (dollars in
millions):
                                            December 31, 2020
                      Asset Class        Fair Value         Percent
                      ABS CLO        $          4,268          68  %

                      ABS auto                     26           -  %

                      ABS other                 1,973          32  %

                      Total ABS      $          6,267         100  %


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Municipal Bond Exposure

Our municipal bond exposure is a combination of general obligation bonds (fair
value of $241 million and an amortized cost of $229 million as of December 31,
2020) and special revenue bonds (fair value of $1,067 million and amortized cost
of $1,014 million as of December 31, 2020).
Across all municipal bonds, the largest issuer represented 9% of the category,
less than 1% of the entire portfolio and is rated NAIC 1. Our focus within
municipal bonds is on NAIC 1 rated instruments, and 91% of our municipal bond
exposure is rated NAIC 1.

Mortgage Loans
We rate all CMLs to quantify the level of risk. We place those loans with higher
risk on a watch list and closely monitor them for collateral deficiency or other
credit events that may lead to a potential loss of principal and/or interest. If
we determine the value of any CML to be impaired (i.e., when it is probable that
we will be unable to collect on amounts due according to the contractual terms
of the loan agreement), the carrying value of the CML is reduced to either the
present value of expected cash flows from the loan, discounted at the loan's
effective interest rate, or fair value of the collateral. For those mortgage
loans that are determined to require foreclosure, the carrying value is reduced
to the fair value of the underlying collateral, net of estimated costs to obtain
and sell at the point of foreclosure. The carrying value of the impaired loans
is reduced by establishing a specific write-down recorded in Recognized gains
and losses, net in the Consolidated Statements of Earnings.
LTV and DSC ratios are utilized as part of the review process described above.
As of December 31, 2020, our mortgage loans on real estate portfolio had a
weighted average DSC ratio of 2.5 times, and a weighted average LTV ratio of
47%. See Note E to the Consolidated Financial Statements included in Item 8 of
Part II of this Annual Report for additional information regarding our LTV and
DSC ratios.
F&G's RMLs are closed end, amortizing loans and 100% of the properties are
located in the United States. F&G diversifies its RML portfolio by state to
attempt to reduce concentration risk. RML's have a primary credit quality
indicator of either a performing or nonperforming loan. F&G defines
non-performing RML's as those that are 90 or more days past due and/or in
nonaccrual status, which is assessed monthly.


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Unrealized Losses
The amortized cost and fair value of the fixed maturity securities and the
equity securities that were in an unrealized loss position as of December 31,
2020, were as follows (in millions):
                                                                                             December 31, 2020
                                                                                                     Allowance for
                                                                                                       Expected            Unrealized
                                                Number of securities          Amortized Cost         Credit Losses           Losses              Fair

Value

Fixed maturity securities, available for sale:


 United States Government full faith and
credit                                                      4                $            5          $        -          $          -          $


 United States Government sponsored agencies               11                            23                   -                     -

United States municipalities, states and
territories                                                14                           117                   -                    (2)                 115

Corporate securities:
 Finance, insurance and real estate                        21                           347                   -                    (3)

344



 Utilities, energy and related sectors                     12                           185                   -                    (3)                 182
 Wholesale/retail trade                                    11                            86                   -                    (1)                  85
 Services, media and other                                 13                           221                   -                    (7)                 214
Hybrid securities                                           1                             1                   -                     -                    1
Non-agency residential mortgage backed
securities                                                 29                            32                  (1)                   (1)


Commercial mortgage backed securities                      19                            51                   -                    (3)                  48
Asset backed securities                                    66                           517                   -                   (18)                 499
Total fixed maturity available for sale
securities                                                201                         1,585                  (1)                  (38)               1,546
Equity securities                                           1                            16                   -                     -                   16
Total investments                                         202                $        1,601          $       (1)         $        (38)         $     1,562


The gross unrealized loss position on the fixed maturity available-for-sale
fixed and equity portfolio was $38 million as of December 31, 2020. Most
components of the portfolio exhibited price appreciation as credit spreads
narrowed during the period, offset by increases in treasury rates. The total
amortized cost of all securities in an unrealized loss position was $1,601
million as of December 31, 2020. The average market value/book value of the
investment category with the largest unrealized loss position was 97% for Asset
backed securities as of December 31, 2020. In aggregate, Asset backed securities
represented 47% of the total unrealized loss position as of December 31, 2020.
The amortized cost and fair value of fixed maturity available for sale
securities under watch list analysis and the number of months in a loss position
with investment grade securities (NRSRO rating of BBB/Baa or higher) as of
December 31, 2020, were as follows (dollars in millions):
                                                                                       December 31, 2020
                                                                                                                   Allowance for         Gross Unrealized
                                      Number of securities           Amortized Cost           Fair Value            Credit Loss               Losses
Investment grade:
Less than six months                              3                $           102          $        95          $           (6)         $           (1)
Six months or more and less than
twelve months                                     -                              -                    -                       -                       -
Twelve months or greater                          -                              -                    -                       -                       -
Total investment grade                            3                            102                   95                      (6)                     (1)

Below investment grade:
Less than six months                              1                              -                    -                       -                       -
Six months or more and less than
twelve months                                     -                              -                    -                       -                       -
Twelve months or greater                          -                              -                    -                       -                       -
Total below investment grade                      1                              -                    -                       -                       -
Total                                             4                $           102          $        95          $           (6)         $           (1)



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Expected Credit Losses and Watch List
F&G prepares a watch list to identify securities to evaluate for expected credit
losses. Factors used in preparing the watch list include fair values relative to
amortized cost, ratings and negative ratings actions and other factors. Detailed
analysis is performed for each security on the watch list to further assess the
presence of credit impairment loss indicators and, where present, calculate an
allowance for expected credit loss or direct write-down of a security's
amortized cost. At December 31, 2020, our watch list included four securities in
an unrealized loss position with an amortized cost of $102 million, allowance
for expected credit losses of $6 million, unrealized losses of $1 million and a
fair value of $95 million. The watch list excludes structured securities due to
a revision of processes as a result of ASU 2016-13.
There were 36 structured securities with a fair value of $65 million to which we
had potential credit exposure as of December 31, 2020. Our analysis of these
structured securities, which included cash flow testing, resulted in allowances
for expected credit losses of $3 million as of December 31, 2020.
Exposure to Sovereign Debt
Our investment portfolio had no direct exposure to European sovereign debt as of
December 31, 2020.
As of December 31, 2020, we also had no material exposure risk related to
financial investments in Puerto Rico.
Interest and investment income
For discussion regarding our net investment income and net investment gains
(losses) refer to Note E to the Consolidated Financial Statements included in
Item 8 of Part II of this Annual Report.
AFS Securities
For additional information regarding our AFS securities, including the amortized
cost, gross unrealized gains (losses), and fair value as well as the amortized
cost and fair value of fixed maturity AFS securities by contractual maturities,
as of December 31, 2020, refer to Note E to the Consolidated Financial
Statements included in Item 8 of Part II of this Annual Report.
Concentrations of Financial Instruments
For detail regarding our concentration of financial instruments refer to Item
7A. of Part II of this Annual Report.
Derivatives
We are exposed to credit loss in the event of nonperformance by our
counterparties on call options. We attempt to reduce this credit risk by
purchasing such options from large, well-established financial institutions.
We also hold cash and cash equivalents received from counterparties for call
option collateral, as well as U.S. Government securities pledged as call option
collateral, if our counterparty's net exposures exceed pre-determined
thresholds.
The Company is required to pay counterparties the effective federal funds rate
each day for cash collateral posted to F&G for daily mark to market margin
changes. We reduce the negative interest cost associated with cash collateral
posted from counterparties under various ISDA agreements by reinvesting
derivative cash collateral. This program permits collateral cash received to be
invested in short term Treasury securities, bank deposits and commercial paper
rated A1/P1, which are included in Cash and cash equivalents in the accompanying
Consolidated Balance Sheets.
See Note F to the Consolidated Financial Statements included in Item 8 of Part
II of this Annual Report for additional information regarding our derivatives
and our exposure to credit loss on call options.







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Corporate and Other
The Corporate and Other segment consists of the operations of the parent holding
company, our various real estate brokerage businesses and our real estate
technology subsidiaries. This segment also includes certain other unallocated
corporate overhead expenses and eliminations of revenues and expenses between it
and our Title segment.
The following table presents the results of operations of our Corporate and
Other segment for the years indicated:

Year Ended December 31,


                                                                            2020                2019             2018
                                                                                        (In millions)
Revenues:

Escrow, title-related and other fees                                  $     172              $   195          $   411
Interest and investment income                                                6                   23                7
Recognized gains and losses, net                                             (7)                  (8)               1
Total revenues                                                              171                  210              419
Expenses:
Personnel costs                                                             108                  134               94

Other operating expenses                                                    148                  172              380
Depreciation and amortization                                                24                   24               28

Interest expense                                                             71                   47               43
Total expenses                                                              351                  377              545

Loss from continuing operations, before income taxes and equity in earnings of unconsolidated affiliates

$    (180)             $  (167)         $  (126)


The revenue in the Corporate and Other segment for all years represents revenue
generated by our non-title real estate technology and brokerage subsidiaries as
well as mark-to-market valuation changes on certain corporate deferred
compensation plans.
Total revenues in the Corporate and Other segment decreased $39 million, or 19%
in the year ended December 31, 2020 as compared 2019, and decreased $209
million, or 50%, in the year ended December 31, 2019 compared to 2018. The
decrease in the year ended December 31, 2020 as compared to 2019 is primarily
attributable to valuation losses associated with our deferred compensation plan
assets in 2020 and decreased interest and investment income of $17 million
associated with a year-over-year reduction in cash holdings. The decrease in the
year ended December 31, 2019 as compared to 2018 is primarily attributable to
the sale of a real estate brokerage subsidiary in the third quarter of 2018,
partially offset by increased revenue associated with the valuation of deferred
compensation assets.
Personnel costs in the Corporate and Other segment decreased $26 million, or 19%
in the year ended December 31, 2020 as compared to 2019, and increased $40
million, or 43%, in the year ended December 31, 2019 compared to 2018. The
decrease in the year ended December 31, 2020 as compared to 2019 is attributable
to the aforementioned decrease in the valuation of deferred compensation plan
assets compared to the corresponding period in 2019. The increase in the year
ended December 31, 2019 as compared to 2018 is primarily attributable to
increased valuation of deferred compensation plan assets, increased costs
resulting from growth of our real estate technology subsidiaries, and increased
severance expense related to the departure of certain executives.
Other operating expenses in the Corporate and Other segment decreased $24
million, or 14%, in the year ended December 31, 2020 as compared to 2019, and
decreased $208 million, or 55% in the year ended December 31, 2019 as compared
to 2018. The decrease in the year ended December 31, 2020 as compared to 2019 is
primarily attributable to the reverse termination fee paid in 2019 related to
the abandoned Stewart Information Services Corporation acquisition, partially
offset by F&G acquisition costs in 2020. The decrease in the year ended December
31, 2019 as compared to 2018 is primarily attributable to the sale of a real
estate brokerage subsidiary, which is partially offset by the aforementioned
reverse termination fee related to the abandoned Stewart Information Services
Corporation acquisition of $50 million.
Interest expense increased $24 million, or 51%, in the year ended December 31,
2020 as compared to 2019, and increased $4 million, or 9%, in the year ended
December 31, 2019 as compared to 2018. The increase in the year ended December
31, 2020 as compared to 2019 is primarily attributable to increased average debt
outstanding in 2020 associated with the Term Loan Credit Agreement, our 3.40%
Notes and our 2.45% Notes. The increase in the year ended December 31, 2019 as
compared to 2018 is primarily attributable to interest associated with our 4.50%
Notes issued in August 2018.
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Liquidity and Capital Resources
Cash Requirements. Our current cash requirements include personnel costs,
operating expenses, claim payments, taxes, payments of interest and principal on
our debt, capital expenditures, business acquisitions, stock repurchases and
dividends on our common stock. We paid dividends of $1.35 per share in 2020, or
approximately $389 million to our common shareholders. On February 17, 2021, our
Board of Directors declared cash dividends of $0.36 per share, payable on
March 31, 2021, to FNF common shareholders of record as of March 17, 2021. On
December 7, 2020 and January 25, 2021, certain of our wholly-owned subsidiaries
entered into subscription agreements to purchase in the aggregate $650 million
of common stock in two newly incorporated special purpose acquisition companies.
These special purpose acquisition companies are expected to consummate their
respective initial business combinations in the first half of 2021. For more
information related to the subscription agreements, refer to Note A Basis of
Financial Statements in Item 8 of Part II of this Annual Report. There are no
restrictions on our retained earnings regarding our ability to pay dividends to
our shareholders, although there are limits on the ability of certain
subsidiaries to pay dividends to us, as described below. The declaration of any
future dividends is at the discretion of our Board of Directors. Additional uses
of cash flow are expected to include acquisitions, stock repurchases and debt
repayments.
As of December 31, 2020, we had cash and cash equivalents of $2,719 million,
short term investments of $769 million and available capacity under our
Revolving Credit Facility of $800 million. On April 22, 2020 we entered into the
Term Loan Agreement, which provided for a $1.0 billion, 364 day delayed-draw,
term loan. On June 1, 2020, in connection with the completion of our F&G
acquisition, we drew down the full $1.0 billion in principal to fund a portion
of the acquisition. On June 12, 2020 we completed our underwritten public
offering of $650 million aggregate principal amount of our 3.40% Notes pursuant
to our registration statement on Form S-3 (File No. 333-239002) and the related
prospectus supplement. The net proceeds from the registered offering of the
3.40% Notes were approximately $642 million, after deducting underwriting
discounts and commissions and offering expenses. We used the net proceeds from
the offering to repay $640 million of the outstanding principal amount under the
Term Loan. On July 31, 2020, we repaid an additional $100 million of the
principal amount under the Term Loan Agreement. On September 15, 2020, we
completed our underwritten public offering of $600 million aggregate principal
amount of our 2.45% Notes pursuant to our registration statement on Form S-3
(File No. 333-239002) and the related prospectus supplement. The net proceeds
from the registered offering of the 2.45% Notes were approximately $593 million,
after deducting underwriting discounts and commissions and offering expenses. We
used a portion of the net proceeds from the 2.45% Notes offering, consisting of
$260 million, to repay all of our outstanding indebtedness under the Term Loan.
On July 29, 2020, we purchased for $90 million the outstanding Class A units of
ServiceLink held by its minority owners. As of the purchase date ServiceLink is
a wholly owned subsidiary of FNF. On October 29, 2020, we entered into the Fifth
Restated Credit Agreement for our Amended Revolving Credit Facility. Among other
changes, the Fifth Restated Credit Agreement amends the Fourth Restated Credit
Agreement to extend the maturity date from April 27, 2022 to October 29, 2025.
Additionally, on October 29, 2020, we terminated the F&G Credit Agreement. We
continually assess our capital allocation strategy, including decisions relating
to the amount of our dividend, reducing debt, repurchasing our stock, investing
in growth of our subsidiaries, making acquisitions and/or conserving cash. We
believe that all anticipated cash requirements for current operations will be
met from internally generated funds, through cash dividends from subsidiaries,
cash generated by investment securities, potential sales of non-strategic
assets, potential issuances of additional debt or equity securities, and
borrowings on our Amended Revolving Credit Facility. Our short-term and
long-term liquidity requirements are monitored regularly to ensure that we can
meet our cash requirements. We forecast the needs of all of our subsidiaries and
periodically review their short-term and long-term projected sources and uses of
funds, as well as the asset, liability, investment and cash flow assumptions
underlying such forecasts.
Our insurance subsidiaries generate cash from premiums earned and their
respective investment portfolios, and these funds are adequate to satisfy the
payments of claims and other liabilities. Due to the magnitude of our investment
portfolio in relation to our title claim loss reserves, we do not specifically
match durations of our investments to the cash outflows required to pay claims,
but do manage outflows on a shorter time frame.
Our two significant sources of internally generated funds are dividends and
other payments from our subsidiaries. As a holding company, we receive cash from
our subsidiaries in the form of dividends and as reimbursement for operating and
other administrative expenses we incur. The reimbursements are paid within the
guidelines of management agreements among us and our subsidiaries. Our insurance
subsidiaries are restricted by state regulation in their ability to pay
dividends and make distributions. Each applicable state of domicile regulates
the extent to which our title underwriters can pay dividends or make other
distributions. As of December 31, 2020, $2,559 million of our net assets were
restricted from dividend payments without prior approval from the relevant
departments of insurance. We anticipate that our title insurance subsidiaries
will pay or make dividends to us in 2021 of approximately $551 million. Our
underwritten title companies and non-insurance subsidiaries are not regulated to
the same extent as our insurance subsidiaries.
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The maximum dividend permitted by law is not necessarily indicative of an
insurer's actual ability to pay dividends, which may be constrained by business
and regulatory considerations, such as the impact of dividends on surplus, which
could affect an insurer's ratings or competitive position, the amount of
premiums that can be written and the ability to pay future dividends. Further,
depending on business and regulatory conditions, we may in the future need to
retain cash in our underwriters or even contribute cash to one or more of them
in order to maintain their ratings or their statutory capital position. Such a
requirement could be the result of investment losses, reserve charges, adverse
operating conditions in the current economic environment or changes in statutory
accounting requirements by regulators.
Cash flow from our operations will be used for general corporate purposes
including to reinvest in operations, repay debt, pay dividends, repurchase
stock, pursue other strategic initiatives and/or conserve cash.
Operating Cash Flow. Our cash flows provided by operations for the years ended
December 31, 2020, 2019, 2018 were $1,578 million, $1,121 million, and $943
million respectively. The increase in cash provided by operating activities of
$457 million in 2020 as compared to 2019 is primarily attributable to the
increase in pre-tax earnings in 2020 and the addition of interest credited to
contractholder account balances of $750 million in 2020, partially offset by
deferred policy acquisition costs and deferred sales inducements of $266 million
in 2020, charges assessed to contactholders for mortality and administration of
$100 million in 2020, and the timing of receipts and payments of prepaid assets,
payables, receivables and income taxes. The increase in cash provided by
operations of $178 million in 2019 as compared to 2018 is primarily attributable
to the increase in pre-tax earnings in 2019 and the timing of receipts and
payments of payables, partially offset by the timing of receipts and payments of
prepaid assets, receivables and income taxes. Included in net earnings in 2019
is the reverse termination fee paid in connection with the abandoned Stewart
Information Services Corporation merger of $50 million.
Investing Cash Flows. Our cash used in investing activities for the years ended
December 31, 2020, 2019, and 2018 were $2,331 million, $520 million, $354
million respectively. The increase in cash used in investing activities of
$1,811 million in 2020 as compared to 2019 is primarily attributable to the net
cash outflow of $1,076 million associated with the F&G acquisition, increased
purchases of investment securities of $4.1 billion and additional investments in
unconsolidated affiliates of $293 million , partially offset by increased sales,
calls, and maturities of investment securities of $2,761 million, sales and
maturities of short-term investments of $540 million and increased distributions
from unconsolidated affiliates of $195 million. The increased activity related
to purchases, sales and calls of investment securities in the 2020 period is
primarily associated with our F&G segment. The increase in cash used in
investing activities of $166 million in 2019 as compared to 2018 is primarily
attributable to a decrease in net cash inflow from proceeds from calls and
maturities of investment securities, partially offset by reduced purchases of
investment securities.
Capital Expenditures. Total capital expenditures for property and equipment and
capitalized software were $110 million, $96 million, and $83 million for the
year ended December 31, 2020, 2019, and 2018 respectively.
Financing Cash Flows. Our cash flows provided by (used in) financing activities
for the year ended December 31, 2020, 2019, and 2018 were $2,096 million and
$(482) million, and $(442) million respectively. The increase in cash provided
by financing activities of $2,578 million as compared to 2019 is primarily
attributable to cash inflows from the offerings of our 3.40% Notes of $648
million and 2.45% Notes of $593 million, and increased cash inflows from
contractholder account deposits of $2,967 million, partially offset by increased
cash outflows from contractholder withdrawals of $1,327 million, increased
purchases of treasury stock of $150 million and the purchase of the outstanding
Class A units of ServiceLink held by minority owners of $90 million. The
increased activity in contractholder deposits and withdrawals in the 2020 period
is associated with our F&G segment. The increase in cash used in financing
activities of $40 million in the 2019 as compared to 2018 is primarily
attributable to increased purchases of treasury stock of $66 million, a decrease
in the change in net borrowing activity of $72 million, a decrease in net change
of secured trust deposits of $23 million, increased dividends paid of $16
million, and increased other financing activities of $25 million, partially
offset by increased exercise of stock options of $20 million and the payment of
the equity portion of debt conversions settled in cash of $142 million in the
2018 period.
Financing Arrangements. For a description of our financing arrangements see Note
G Notes Payable included in Item 8 of Part II of this Annual Report, which is
incorporated by reference into this Item 7 of Part II.
Contractual Obligations. Our long term contractual obligations generally include
our loss reserves, our credit agreements and other debt facilities and operating
lease payments on certain of our premises and equipment.





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As of December 31, 2020, our required annual payments relating to these contractual obligations were as follows:


                                    2021             2022             2023             2024             2025            Thereafter            Total
                                                                                     (In millions)
Notes payable principal
repayment                        $     -          $   400          $     -

$ - $ 550 $ 1,700 $ 2,650 Operating lease payments

             147              113               82               53               21                   31               447
Pension and other benefit
payments                              15               14               13               12               11                   90               155
Annuity and universal life
products                           2,738            2,770            2,926            2,402            2,368               26,611            39,815
Title claim loss estimated
payments                             190              190              184              147              102                  776             1,589
Interest on fixed rate notes
payable                              109              109               80               87               87                  290               762
Total                            $ 3,199          $ 3,596          $ 3,285          $ 2,701          $ 3,139          $    29,498          $ 45,418


As of December 31, 2020, we had title insurance reserves of $1,623 million. The
amounts and timing of these obligations are estimated and are not set
contractually. While we believe that historical loss payments are a reasonable
source for projecting future claim payments, there is significant inherent
uncertainty in this payment pattern estimate because of the potential impact of
changes in:
•future mortgage interest rates, which will affect the number of real estate and
refinancing transactions and; therefore, the rate at which title insurance
claims will emerge;
•the legal environment whereby court decisions and reinterpretations of title
insurance policy language to broaden coverage could increase total obligations
and influence claim payout patterns;
•events such as fraud, escrow theft, multiple property title defects,
foreclosure rates and individual large loss events that can substantially and
unexpectedly cause increases in both the amount and timing of estimated title
insurance loss payments; and
•loss cost trends whereby increases or decreases in inflationary factors
(including the value of real estate) will influence the ultimate amount of title
insurance loss payments.
Based on historical title insurance claim experience, we anticipate the above
payment patterns. The uncertainty and variation in the timing and amount of
claim payments could have a material impact on our cash flows from operations in
a particular period.
We sponsor certain frozen pension and other post-retirement benefit plans. See
Note W. Employee Benefit Plans to our Consolidated Financial Statements included
in Item 8 of Part II of this Annual Report for further information.
Capital Stock Transactions. On July 17, 2018, our Board of Directors approved a
new three-year stock repurchase program effective August 1, 2018 (the "2018
Repurchase Program") under which we may purchase up to 25 million shares of our
FNF common stock through July 31, 2021. We may make repurchases from time to
time in the on market, in block purchases or in privately negotiated
transactions, depending on market conditions and other factors. We repurchased
7,450,000 shares of FNF common stock during the year ended December 31, 2020 for
approximately $244 million, or an average of $32.75 per share. Subsequent to
December 31, 2020 and through market close on February 19, 2021, we repurchased
a total of 400,000 shares for $16 million, or an average of $40.00 under this
program. Since the original commencement of the 2018 Repurchase Program, we
repurchased a total of 10,630,000 FNF common shares for $366 million, or an
average of $34.43 per share. On October 28, 2020, we announced that we intend to
purchase approximately $500 million of FNF common shares over the following 12
months, based on market conditions. During the period from October 28, 2020
through January 7, 2021, we purchased 4,200,000 FNF common shares for
approximately $155 million.
Equity and Preferred Security Investments. Our equity and preferred security
investments may be subject to significant volatility. Currently prevailing
accounting standards require us to record the change in fair value of equity and
preferred security investments held as of any given period end within earnings.
Our results of operations in future periods is anticipated to be subject to such
volatility.
Off-Balance Sheet Arrangements. In conducting our operations, we routinely hold
customers' assets in escrow, pending completion of real estate transactions, and
are responsible for the proper disposition of these balances for our customers.
Certain of these amounts are maintained in segregated bank accounts and have not
been included in the accompanying Consolidated Balance Sheets, consistent with
Generally Accepted Accounting Principles and industry practice. These balances
amounted to $26.5 billion and $18.7 billion at December 31, 2020 and 2019,
respectively. As a result of holding these customers' assets in escrow, we have
ongoing programs for realizing economic benefits during the year through
favorable borrowing and vendor arrangements with various banks.
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We have unfunded investment commitments as of December 31, 2020 based upon the
timing of when investments are executed compared to when the actual investments
are funded, as some investments require that funding occur over a period of
months or years. Please refer to Note E Investments and Note H Commitments and
Contingencies to the Consolidated Financial Statements included in Item 8 of
Part II of this Annual Report for additional details on unfunded investment
commitments.
FHLB Collateral. We are currently a member of the Federal Home Loan Bank of
Atlanta ("FHLB") and are required to maintain a collateral deposit that backs
any funding agreements issued. We use these funding agreements as part of a
spread enhancement strategy. We have the ability to obtain funding from the FHLB
based on a percentage of the value of our assets, subject to the availability of
eligible collateral. Collateral is pledged based on the outstanding balances of
FHLB funding agreements. The amount of funding varies based on the type, rating
and maturity of the collateral posted to the FHLB. Generally, U.S. government
agency notes and mortgage-backed securities are pledged to the FHLB as
collateral. Market value fluctuations resulting from changes in interest rates,
spreads and other risk factors for each type of asset are monitored and
additional collateral is either pledged or released as needed.
Our borrowing capacity under these credit facilities does not have an expiration
date as long as we maintain a satisfactory level of creditworthiness based on
the FHLB's credit assessment. As of December 31, 2020, we had $1,203 million in
non-putable funding agreements included under contract owner account balances on
our consolidated balance sheet. As of December 31, 2020, we had assets with a
fair value of approximately $1,471 million, which collateralized the FHLB
funding agreements. Assets pledged to the FHLB are included in fixed maturities,
AFS, on our consolidated balance sheets.
Collateral-Derivative Contracts. Under the terms of our ISDA agreements, we may
receive from, or deliver to, counterparties collateral to assure that all terms
of the ISDA agreements will be met with regard to the Credit Support Annex
("CSA"). The terms of the CSA call for us to pay interest on any cash received
equal to the federal funds rate. As of December 31, 2020, $491 million
collateral was posted by our counterparties as they did not meet the net
exposure thresholds. Collateral requirements are monitored on a daily basis and
incorporate changes in market values of both the derivatives contract as well as
the collateral pledged. Market value fluctuations are due to changes in interest
rates, spreads and other risk factors.

Latest news about Fidelity National Financial, Inc.

Fidelity National Financial, Inc. Announces Successful Completion of Consent Solicitation	Apr. 23	CI
Fidelity National Financial, Inc. Announces Commencement of Consent Solicitation	Apr. 16	CI
Sector Update: Financial Stocks Fall Late Afternoon	Apr. 10	MT
Sector Update: Financial Stocks Fall Wednesday Afternoon	Apr. 10	MT
Sector Update: Financial	Apr. 10	MT
Title Insurance Stocks Down as CFPB Mulls Ban Against Charging Homebuyers for Lenders' Title Policies	Apr. 10	MT
Keefe, Bruyette & Woods Adjusts Price Target on Fidelity National Financial to $56 From $54, Keeps Market Perform Rating	Mar. 21	MT
Tranche Update on Fidelity National Financial, Inc.'s Equity Buyback Plan announced on August 3, 2021.	Feb. 29	CI
Keefe, Bruyette & Woods Adjusts Price Target on Fidelity National Financial to $54 From $51, Maintains Market Perform Rating	Feb. 26	MT
Barclays Trims Price Target on Fidelity National Financial to $52 From $55, Maintains Equalweight Rating	Feb. 23	MT
Truist Securities Raises Price Target on Fidelity National Financial to $60 From $55, Maintains Buy Rating	Feb. 23	MT
Fidelity National Financial, Inc. Seeks Acquisitions	Feb. 22	CI
Transcript : Fidelity National Financial, Inc., Q4 2023 Earnings Call, Feb 22, 2024	Feb. 22
Activist hedge fund Starboard targets benefits services provider Alight	Feb. 21	RE
Exclusive-Activist hedge fund Starboard targets benefits services provider Alight	Feb. 21	RE
Earnings Flash (FNF) FIDELITY NATIONAL FINANCIAL Posts Q4 EPS $0.75, vs. Street Est of $0.98	Feb. 21	MT
Earnings Flash (FNF) FIDELITY NATIONAL FINANCIAL Posts Q4 Revenue $3.43B, vs. Street Est of $2.67B	Feb. 21	MT
Fidelity National Financial Q4 Adjusted EPS Decreases, Revenue Rises	Feb. 21	MT
Fidelity National Financial, Inc. Reports Earnings Results for the Fourth Quarter and Full Year Ended December 31, 2023	Feb. 21	CI
Fidelity National Financial Amends, Extends $800 Million Credit Facility	Feb. 16	MT
Fidelity National Financial Amends and Extends $800 Million Senior Unsecured Revolving Credit Facility	Feb. 16	CI
Fidelity National Financial, Inc. Declares Quarterly Cash Dividend, Payable on March 29, 2024	Feb. 15	CI
F&G Annuities & Life Closes $250 Million Private Placement of Mandatory Convertible Preferred Stock	Jan. 16	MT
F&G Annuities & Life, Inc. announced that it has received $250 million in funding from Fidelity National Financial, Inc.	Jan. 11	CI
Deutsche Bank Initiates Fidelity National Financial at Hold Rating With $64 Price target	Jan. 10	MT

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Company Profile

Fidelity National Financial, Inc. is a title insurance company. The Company provides title insurance and transaction services to the real estate and mortgage industries. It has three segments: Title, F&G, and Corporate and Other. Title segment consists of the operations of its title insurance underwriters and related businesses, which provide title insurance and escrow and other title-related services, including trust activities, trustee sales guarantees, and home warranty products. This segment also includes its transaction services business, which includes other title-related services used in the production and management of mortgage loans, including mortgage loans that experience default. F&G segment primarily consists of operations of its annuities and life insurance related businesses. This segment issues a portfolio of annuity and life insurance products through its retail distribution channels. Corporate and Other segment consists of the operations of the parent holding company.

Sector

Property & Casualty Insurance

Calendar

2024-05-07 - Q1 2024 Earnings Release

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Ratings for Fidelity National Financial, Inc.

Trading Rating

Investor Rating

ESG Refinitiv

C+

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Analysts' Consensus

Sell

Buy

Mean consensus

OUTPERFORM

Number of Analysts

Last Close Price

49.88 USD

Average target price

58.83 USD

Spread / Average Target

+17.95%

Consensus

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Sector Property Insurance

	1st Jan change	Capi.
FIDELITY NATIONAL FINANCIAL, INC.	-2.23%	13.84B
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EFU GENERAL INSURANCE LIMITED	0.00%	60.35M

Property Insurance

Fidelity National Financial, Inc.

Equities

FNF

US31620R3030

Property & Casualty Insurance

FIDELITY NATIONAL FINANCIAL : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

EPS Revisions