UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2022
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-32630
FIDELITY NATIONAL FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
16-1725106
(I.R.S. Employer
Identification No.)
601 Riverside Avenue
Jacksonville, Florida, 32204
(Address of principal executive offices, including zip code)
(904) 854-8100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
FNF Common Stock, $0.0001 par value
Trading Symbol
FNF
Name of Each Exchange on Which Registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ or No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit such files). Yes ☒ or No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer,"
"smaller reporting company," and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Non-accelerated Filer
☒
☐
Accelerated Filer
Smaller reporting Company
Emerging growth company
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange
Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☒ No ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to
§240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the shares of FNF common stock held by non-affiliates of the registrant as of June 30, 2022 was $9,347,180,906 based on the closing price of $35.54 as reported
by The New York Stock Exchange.
The number of shares outstanding of the Registrant's common stock as of January 31, 2023 were:
FNF Common Stock 272,206,915
The information in Part III hereof for the fiscal year ended December 31, 2022, will be filed within 120 days after the close of the fiscal year that is the subject of this Report.
Table of Contents
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 5.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
FIDELITY NATIONAL FINANCIAL, INC.
FORM 10-K
TABLE OF CONTENTS
PART I
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosure About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors and Executive Officers of the Registrant
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART III
PART IV
Exhibits, Financial Statement Schedules
Summary
Page
Number
2
29
41
41
41
41
44
80
86
164
164
165
165
165
165
165
165
166
171
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Item 1. Business
Introductory Note
PART I
The following describes the business of Fidelity National Financial, Inc. and its subsidiaries. Except where otherwise noted, all references to "we," "us," "our", the "Company" or "FNF" are to
Fidelity National Financial, Inc. and its subsidiaries, taken together.
Overview
We are a leading provider of (i) title insurance, escrow and other title-related services, including trust activities, trustee sales guarantees, recordings and reconveyances and home warranty
products and (ii) transaction services to the real estate and mortgage industries. FNF is one of the nation’s largest title insurance companies operating through its title insurance underwriters - Fidelity
National Title Insurance Company ("FNTIC"), Chicago Title Insurance Company ("Chicago Title"), Commonwealth Land Title Insurance Company ("Commonwealth Land Title"), Alamo Title
Insurance and National Title Insurance of New York Inc. - which collectively issue more title insurance policies than any other title company in the United States. Through our subsidiary ServiceLink
Holdings, LLC ("ServiceLink"), we provide mortgage transaction services including title-related services and facilitation of production and management of mortgage loans. We are also a leading
provider of insurance solutions serving retail annuity and life customers and institutional clients through our majority-owned subsidiary, F&G Annuities & Life ("F&G").
On December 1, 2022, we completed our previously announced separation and distribution to our shareholders, on a pro rata basis, of approximately 15% of the common stock of F&G (the
“F&G Distribution”). Following the F&G Distribution, we retained control of F&G through our approximate 85% ownership stake. The F&G Distribution was accomplished by the distribution of 68
shares of common stock, par value $0.001 per share, of F&G for every 1,000 shares of our common stock, par value $0.0001 per share, as a dividend to each holder of shares of our common stock as
of the close of business on November 22, 2022, the record date for the F&G Distribution.
As a result of the F&G Distribution, F&G is a separate, publicly traded company and its businesses, assets and liabilities consist of those related to F&G’s business as a provider of insurance
solutions serving retail annuity and life customers and institutional clients. Through F&G’s insurance subsidiaries, including Fidelity & Guaranty Life Insurance Company and Fidelity & Guaranty
Life Insurance Company of New York, F&G intends to continue to market a broad portfolio of deferred annuities (fixed indexed annuities and multi-year guarantee annuities or other fixed rate
annuities), immediate annuities, indexed universal life insurance, funding agreements (through funding agreement-backed notes issuances and the Federal Home Loan Bank of Atlanta) and pension
risk transfer solutions. All of FNF’s core title insurance, real estate, technology and mortgage related businesses, assets and liabilities that are not held by F&G remain with FNF.
As of December 31, 2022, we had the following reporting segments:
•
•
•
Title. This segment consists of the operations of our 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 our 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. This segment primarily consists of operations of our annuities and life insurance related businesses. This segment issues a broad portfolio of annuity and life insurance products,
including deferred annuities (fixed indexed and fixed rate annuities), immediate annuities, and indexed universal life ("IUL") insurance, through its retail distribution channels. This segment
also provides funding agreements and pension risk transfer ("PRT") solutions through its institutional channels.
Corporate and Other. This segment consists of the operations of the parent holding company, our real estate technology subsidiaries, other smaller, non-title businesses and certain
unallocated corporate overhead expenses and eliminations of revenues and expenses between it and our Title segment.
Competitive Strengths
We believe that our competitive strengths include the following:
Corporate principles. A cornerstone of our management philosophy and operating success is the six fundamental precepts upon which we were founded, which are:
• Autonomy and entrepreneurship;
•
•
Bias for action;
Customer-oriented and motivated;
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• Minimize bureaucracy;
•
Employee ownership; and
• Highest standard of conduct.
These six precepts are emphasized to our employees from the first day of employment and are integral to many of our strategies described below.
Title
Leading residential and commercial title insurance company. We are one of the largest title insurance companies in the United States and a leading provider of title insurance and escrow and
other title-related services for real estate transactions. Through the third quarter of 2022, our insurance companies had a 31.9% share of the U.S. title insurance market, according to the American
Land Title Association ("ALTA"). While residential title insurance comprises the majority of our business, we are also a significant provider of commercial real estate title insurance in the United
States. Our network of independent title agents and employees in our direct operations that service the commercial real estate markets is one of the largest in the industry. Our commercial network
combined with our financial strength makes our title insurance operations attractive to large national lenders that require the underwriting and issuing of larger commercial title policies.
Established relationships with our customers. We have strong relationships with the customers who use our title services. Our distribution network, which includes more than 1,400 direct
residential title offices and approximately 5,300 agents, is among the largest in the United States. We also benefit from strong brand recognition in our multiple title brands that allows us to access a
broader client base than if we operated under a single consolidated brand and provides our customers with a choice among brands.
Strong value proposition for our customers as a leading provider of services and technology solutions to the title insurance industry. Through our Title segment, we provide our customers with
title insurance and escrow and other title-related services that support their ability to effectively close real estate transactions. We help make the real estate closing process more efficient for our
customers by offering a single point of access to a broad platform of title-related products and resources necessary to close real estate transactions.
Industry leading margins and disciplined operating focus. We have been able to maintain competitive operating margins in part by monitoring our businesses in a disciplined manner through
continual evaluation of business activity and management of our cost structure. When compared to our industry competitors, we also believe that our structure is more efficiently designed, which
allows us to operate with lower overhead costs.
Proven management team. The managers of our operating businesses have successfully built our Title segment over an extended period of time, resulting in our business attaining the size, scope
and presence in the industry that it has today. Our managers have demonstrated their leadership ability during numerous acquisitions through which we have grown and throughout a number of
business cycles and significant periods of industry change.
We believe that our Title segment's competitive strengths position us well to take advantage of future changes to the real estate market.
F&G
Trusted by distributors. We have long-standing relationships with a broad range of distributors representing more than 82,000 independent agents and financial advisors, and built on our
reputation for transparency and a consistently competitive product portfolio. We offer fixed annuities and life insurance products through a network of approximately 20 leading banks and broker
dealers and approximately 271 Independent Marketing Organizations (“IMOs”) that provide back-office support for thousands of independent insurance agents.
Winning in high-growth markets. The U.S. retirement and middle markets are growing, and we are both well-established and well-positioned for continued growth. Our strategic alignment with
our distribution partners allows us to reach a diverse, growing and underserved middle market demographic in both our retail and institutional channels.
Durable investment management edge. Our strategic partnership with Blackstone provides a sustained competitive advantage for our business. Blackstone and its affiliate Blackstone ISG-I
Advisors LLC (“BIS”) partners with our strategic investment office to deeply understand our liability profile when making asset allocation decisions and then originates unique investment
opportunities not traditionally available to insurers. These investments allow us to enter higher-margin lines and create the potential to intermediate investment banks in credit origination.
Clean and profitable in-force book. As a life insurer, we generate spread earnings based on our assets under management and over the lifetime of the liabilities in place. Our disciplined new
business underwriting process provides us with stable liabilities, primarily in products that reset annually, which has allowed us to achieve consistently attractive lifetime returns.
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Approximately 91% of our $30.4 billion fixed indexed and fixed rate annuities account value are surrender-charge protected and our asset and liability cash flows are well matched.
Track record of attracting top talent. F&G’s management team and nearly 872 employees have a record of long-term success and have delivered impressive results in the last few years. Our
commitment to our cultural values is the cornerstone of our success, whereby F&G is a company of individuals who believe in the power of partnerships, encourage innovation and creativity, and are
transparent about decisions while delivering on their commitments. This is borne out by consistently being recognized as an employer of choice as well as an involuntary turnover rate that is well
below that of other financial services companies. We believe our flexible, employee-centric work approach positions us as an employer of choice.
Clear governance structure. We have a disciplined approach for considering new lines of business to enter, the appropriate product/channel mix for achieving our targeted new business
profitability, and the management of our capital and in-force liabilities. Further, we target and pursue opportunities that leverage our strengths.
Our business model is strong and positions us to capitalize on the growth prospects in our addressable markets.
Strategy
Title
Our strategy in the Title segment is to maximize operating profits by increasing our market share and managing operating expenses throughout the real estate business cycle. To accomplish our
goals, we intend to do the following:
•
•
Continue to operate multiple title brands independently. We believe that in order to maintain and strengthen our title insurance customer base, we must operate our strongest brands in a
given marketplace independently of each other. Our national and regional brands include FNTIC, Chicago Title, Commonwealth Land Title, Lawyers Title, Ticor Title, Alamo Title, and
National Title of New York. In our largest markets, we operate multiple brands. This approach allows us to continue to attract customers who identify with a particular brand and allows us to
utilize a broader base of local agents and local operations than we would have with a single consolidated brand.
Consistently deliver superior customer service. We believe customer service and consistent product delivery are the most important factors in attracting and retaining customers. Our ability
to provide superior customer service and consistent product delivery requires continued focus on providing high quality service and products at competitive prices. Our goal is to continue to
improve the experience of our customers, in all aspects of our business.
• Manage our operations successfully through business cycles. Our Title segment operates in a cyclical industry and our ability to diversify our revenue base within our title insurance
business and manage the duration of our investments may allow us to better operate in this cyclical business. Maintaining a broad geographic revenue base, utilizing both direct and
independent agency operations and pursuing both residential and commercial title insurance business help diversify our title insurance revenues. We continue to monitor, evaluate and
execute upon the consolidation of administrative functions, legal entity structure, and office consolidation, as necessary, to respond to the continually changing marketplace. We maintain
shorter durations on our investment portfolio to mitigate our interest rate risk. A more detailed discussion of our investment strategies is included in “Investment Policies and Investment
Portfolio.”
•
Continue to improve our products and technology. As a national provider of real estate transaction products and services, we participate in an industry that is subject to significant change,
frequent new product and service introductions and evolving industry standards. We believe that our future success will depend in part on our ability to anticipate industry changes and offer
products and services that meet evolving industry standards. In connection with our service offerings, we are continuing to deploy new information system technologies to our direct and
agency operations. We expect to continue to improve the process of ordering title and escrow services and the delivery of our products to our customers.
• Maintain values supporting our strategy. We believe that our continued focus on and support of our long-established corporate culture will reinforce and support our business strategy. Our
goal is to foster and support a corporate culture where our employees and agents seek to operate independently and maintain profitability at the local level while forming close customer
relationships by meeting customer needs and improving customer service. Utilizing a relatively flat managerial structure and providing our employees with a sense of individual ownership
supports this goal.
•
Effectively manage costs based on economic factors. We believe that our focus on our operating margins is essential to our continued success in the title insurance business. Regardless of
the business cycle in which we may be operating, we seek to continue to evaluate and manage our cost structure and make appropriate adjustments where economic conditions dictate. This
continual focus on our cost structure helps us to better maintain our operating margins.
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F&G
Through a diversified growth strategy, our F&G segment seeks to deliver consistent and increasing earnings driven by asset growth. We are positioned to accomplish these goals through the following
areas of strategic focus:
•
•
•
Targeting large and growing markets. The opportunity for our core annuity products remains significant, as policyholders seek to add safety and certainty to their retirement plans. Our
investments in life insurance products allows us to penetrate the underserved middle market, which addresses the needs of many of our cultural communities. And as corporations continue to
de-risk their pension funds, our buyout solutions can guarantee pension-holders the lifetime benefits they need and want. Finally, we continue to attract strong institutional annuity buyers
with funding agreements. F&G is a national leader in the markets we play in, and demographic trends provide tailwinds and significant room to continue growing.
Superior ecosystem. Our business model gives us a sustainable competitive advantage. We have strong and long-standing relationships with a diverse network of distributors, a durable
investment edge through our Blackstone partnership, a scalable administrative platform, and a track record of attracting and retaining top talent.
Consistent track record of success. F&G’s deep and experienced management team has successfully diversified products and channels in recent years and demonstrated our ability to deliver
consistent top line growth, increase assets under management and generate steady spreads and return on assets across varying market cycles.
Acquisitions, Dispositions, Minority Owned Operating Subsidiaries and Financings
Acquisitions have been an important part of our growth strategy and dispositions have been an important aspect of our strategy of returning value to shareholders. On an ongoing basis, with
assistance from our advisors, we actively evaluate possible transactions, such as acquisitions and dispositions of business units and operating assets and business combination transactions.
In the future, we may seek to sell certain investments or other assets to increase our liquidity. In the past, we have obtained majority and minority investments in entities and securities where we
see the potential to achieve above market returns. Fundamentally, our goal is to acquire quality companies that are run by best in class management teams and that have attractive organic and acquired
growth opportunities. We leverage our operational expertise and track record of growing industry-leading companies along with our active interaction with the acquired company's management
directly or through our board of directors, to ultimately provide value for our shareholders.
There can be no assurance that any suitable opportunities will arise or that any particular transaction will be completed. We have made a number of acquisitions and dispositions over the past
several years to strengthen and expand our service offerings and customer base in our various businesses, to expand into other businesses or where we otherwise saw value, and to monetize
investments in assets and businesses.
Intellectual Property
We rely on a combination of contractual restrictions; internal security practices; and copyright and trade secret law to establish and protect our software, technology, and expertise across our
businesses. Further, we have developed a number of brands that have accumulated substantial goodwill in the marketplace, and we rely on trademark law to protect our rights in that area. We intend
to continue our policy of taking all measures we deem necessary to protect our copyright, trade secret, and trademark rights. These legal protections and arrangements afford only limited protection of
our proprietary rights, and there is no assurance that our competitors will not independently develop or license products, services, or capabilities that are substantially equivalent or superior to ours.
Technology and Research and Development
As a national provider of real estate transaction products and services, we participate in an industry that is subject to significant regulatory requirements, frequent new product and service
introductions, and evolving industry standards. We believe that our future success depends in part on our ability to anticipate industry changes and offer products and services that meet evolving
industry standards. In connection with our Title segment service offerings, we are continuing to deploy new information system technologies to our direct and agency operations. We continue to
improve the process of ordering title and escrow services and improve the delivery of our products to our customers. In order to meet new regulatory requirements, we also continue to expand our
data collection and reporting abilities.
Loss Reserves
For information about our loss reserves, see Item 7 of Part II of this Annual Report, under Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical
Accounting Estimates.
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Title Insurance
Market for title insurance. According to Demotech Performance of Title Insurance Companies 2022 Edition, an annual compilation of financial information from the title insurance industry that
is published by Demotech Inc. ("Demotech"), an independent firm, total operating income for the entire U.S. title insurance industry has increased over the last five years from approximately $15.6
billion in 2017 to $27.6 billion in 2021, which represents a $6.9 billion increase from 2020. The size of the industry is closely tied to various macroeconomic factors, including, but not limited to,
growth in the gross domestic product, inflation, unemployment, the availability of credit, consumer confidence, interest rates, and sales volumes and prices for new and existing homes, as well as the
volume of refinancing of previously issued mortgages.
Most real estate transactions consummated in the U.S. require the use of title insurance by a lending institution before the transaction can be completed. Generally, revenues from title insurance
policies are directly correlated with the value of the property underlying the title policy, and appreciation or depreciation in the overall value of the real estate market are major factors in total industry
revenues. Industry revenues are also driven by factors affecting the volume of real estate closings, such as the state of the economy, the availability of mortgage funding, and changes in interest rates,
which affect demand for new mortgage loans and refinancing transactions.
The U.S. title insurance industry is concentrated among a handful of industry participants. According to Demotech, the top four title insurance groups accounted for 79% of net premiums written
in 2021. Approximately 34 independent title insurance companies accounted for the remaining 21% of net premiums written in 2021. Consolidation has created opportunities for increased financial
and operating efficiencies for the industry’s largest participants and should continue to drive profitability and market share in the industry.
Our Title segment revenue is closely related to the level of real estate activity that includes sales, mortgage financing and mortgage refinancing. For further discussion of current trends in real
estate activity in the United States, see discussion under Business Trends and Conditions included in Item 7 of Part II of this Annual Report, which is incorporated by reference into this Item 1 of Part
I.
Title Insurance Policies. Title insurance plays a key role in the U.S. economy by insuring the secure transfer of real estate and facilitating the growth of homeownership. The products and
services we offer have a positive social impact on families and communities overall. For many families, their home is the single largest investment that they will make in their lifetimes. Generally,
real estate buyers and mortgage lenders purchase title insurance to insure good and marketable title to real estate and priority of lien. An owner’s title insurance policy, like those we issue in
connection with the closing of a real estate transaction, is the best way for property owners to protect themselves from losing their property due to unforeseen or unexpected title claims. Unlike other
types of insurance, title insurance protects against past problems instead of future risk, such as the previous owner’s debt, liens, or other claims of ownership that may have been in place prior to the
purchase of the property. Under our policies, we defend insureds when covered claims are filed against their interest in the property. A brief generalized description of the process of issuing a title
insurance policy is as follows:
The customer, typically a real estate salesperson or broker, escrow agent, attorney or lender, places an order for a title policy.
Company personnel note the specifics of the title policy order and place a request with the title company or its agents for a preliminary report or commitment.
•
•
• After the relevant historical data on the property is compiled, the title officer prepares a preliminary report that documents the current status of title to the property, any exclusions, exceptions
and/or limitations that the title company might include in the policy, and specific issues that need to be addressed and resolved by the parties to the transaction before the title policy will be
issued.
The preliminary report is circulated to all the parties for satisfaction of any specific issues.
•
• After the specific issues identified in the preliminary report are satisfied, an escrow agent closes the transaction in accordance with the instructions of the parties and the title company’s
conditions.
• Once the transaction is closed and all monies have been released, the title company issues a title insurance policy.
In real estate transactions financed with a mortgage, virtually all real property mortgage lenders require their borrowers to obtain a title insurance policy at the time a mortgage loan is made. This
lender’s policy insures the lender against any defect affecting the priority of the mortgage in an amount equal to the outstanding balance of the related mortgage loan. An owner’s policy is typically
also issued, insuring the buyer against defects in title in an amount equal to the purchase price. In a refinancing transaction, only a lender’s policy is generally purchased because ownership of the
property has not changed. In the case of an all-cash real estate purchase, no lender’s policy is issued but typically an owner’s title policy is issued.
Title insurance premiums paid in connection with a title insurance policy are based on (and typically are a percentage of) either the amount of the mortgage loan or the purchase price of the
property insured. Applicable state insurance regulations or regulatory practices may limit the maximum, or in some cases the minimum, premium that can be charged on a policy. Title insurance
premiums are due in full at the closing of the real estate transaction.
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The amount of the insured risk or “face amount” of insurance under a title insurance policy is generally equal to either the amount of the loan secured by the property or the purchase price of the
property. The title insurer is also responsible for the cost of defending the insured title against covered claims. The insurer’s actual exposure at any given time; however, generally is less than the total
face amount of policies outstanding because the coverage of a lender’s policy is reduced and eventually terminated as a result of payments on the mortgage loan. A title insurer also generally does not
know when a property has been sold or refinanced except when it issues the replacement coverage. Because of these factors, the total liability of a title underwriter on outstanding policies cannot be
precisely determined.
Title insurance companies typically issue title insurance policies directly through branch offices or through affiliated title agencies, or indirectly through independent third-party agencies
unaffiliated with the title insurance company. Where the policy is issued through a branch or wholly-owned subsidiary agency operation, the title insurance company typically performs or directs the
title search, and the premiums collected are retained by the title company. Where the policy is issued through an independent agent, the agent generally performs the title search (in some areas
searches are performed by approved attorneys), examines the title, collects the premium and retains a majority of the premium. The remainder of the premium is remitted to the title insurance
company as compensation, part of which is for bearing the risk of loss in the event a claim is made under the policy. The percentage of the premium retained by an agent varies from region to region
and is sometimes regulated by the states. The title insurance company is obligated to pay title claims in accordance with the terms of its policies, regardless of whether the title insurance company
issues policies through its direct operations or through independent agents.
Prior to issuing policies, title insurers and their agents attempt to reduce the risk of future claim losses by accurately performing title searches and examinations. A title insurance company’s
predominant expense relates to such searches and examinations, the preparation of preliminary title reports, policies or commitments, facilitation and closing of real estate transactions and the
maintenance of title plants. Title plants are indexed compilations of public records, maps and other relevant historical documents, and the facilitation and closing of real estate transactions. Claim
losses generally result from errors made in the title search and examination process, from hidden defects such as fraud, forgery, incapacity, missing heirs of the property, closing-related errors, etc.
Residential real estate business results from the construction, sale, resale and refinancing of residential properties, while commercial real estate business results from similar activities with respect
to properties with a business or commercial use. Commercial real estate title insurance policies insure title to commercial real property, and generally involve higher coverage amounts and yield
higher premiums. Residential real estate transaction volume is primarily affected by macroeconomic and seasonal factors, while commercial real estate transaction volume is affected primarily by
fluctuations in local supply and demand conditions for commercial space.
Direct and Agency Operations. We provide title insurance services through our direct operations and independent title insurance agents who issue title policies on behalf of our title insurance
companies. Our title insurance companies determine the terms and conditions upon which they will insure title to the real property according to our underwriting standards, policies and procedures.
Direct Operations. Our direct operations include both the operations of our underwriters and those of affiliated agencies. In our direct operations, the title insurer issues the title insurance policy
and retains the entire premium paid in connection with the transaction. Our direct operations provide the following benefits:
•
•
•
higher margins because we retain the entire premium from each transaction instead of paying a commission to an independent agent;
continuity of service levels to a broad range of customers; and
additional sources of income through escrow and closing services.
We have approximately 1,400 offices throughout the U.S. primarily providing residential real estate title insurance. We continuously monitor the number of direct offices to ensure that it remains
in line with our strategy and the current economic environment. Our commercial real estate title insurance business is operated primarily through our direct operations. We maintain direct operations
for our commercial title insurance business in all the major real estate markets including Atlanta, Boston, Chicago, Dallas, Houston, Los Angeles, New York, Philadelphia, Phoenix, Seattle and
Washington D.C.
Agency Operations. In our agency operations, the search and examination function is performed by an independent agent or the agent may purchase the search product from us. In either case, the
agent is responsible to ensure that the search and examination is completed. The agent thus retains the majority of the title premium collected, with the balance remitted to the title underwriter for
bearing the risk of loss in the event that a claim is made under the title insurance policy. Independent agents may select among several title underwriters based upon their relationship with the
underwriter, the amount of the premium “split” offered by the underwriter, the overall terms and conditions of the agency agreement and the scope of services offered to the agent. Premium splits
vary by geographic region, and in some states are fixed by insurance regulatory requirements. Our relationship with each agent is governed by an agency agreement defining how the agent issues a
title insurance policy on our
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behalf. The agency agreement also sets forth the agent’s liability to us for policy losses attributable to the agent’s errors. An agency agreement is usually terminable without cause upon 30 days notice
or immediately for cause. In determining whether to engage or retain an independent agent, we consider the agent’s experience, financial condition and loss history. For each agent with whom we
enter into an agency agreement, we maintain financial and loss experience records. We also conduct periodic audits of our agents and strategically manage the number of agents with which we
transact business in an effort to reduce future expenses and manage risks. As of December 31, 2022, we transact business with approximately 5,300 agents.
Fees and Premiums. One method of analyzing our business is to examine the level of premiums generated by direct and agency operations.
The following table presents the percentages of our title insurance premiums generated by direct and agency operations:
Direct
Agency
Total title insurance premiums
2022
Year Ended December 31,
2021
2020
Amount
%
Amount
%
Amount
%
(Dollars in millions)
$
$
2,858
3,976
6,834
41.8 % $
58.2
100.0 % $
3,571
4,982
8,553
41.8 % $
58.2
100.0 % $
2,699
3,599
6,298
42.9 %
57.1
100.0 %
The premium for title insurance is due in full when the real estate transaction is closed. We recognize title insurance premium revenues from direct operations upon the closing of the transaction.
Premium revenues from agency operations include an accrual based on estimates of the volume of transactions that have closed in a particular period for which premiums have not yet been reported
to us. The accrual for agency premiums is necessary because of the lag between the closing of these transactions and the reporting of these policies to us by the agent, and is based on estimates
utilizing historical information.
Escrow, Title-Related and Other Fees. In addition to fees for underwriting title insurance policies, we derive a significant amount of our revenues from escrow and other title-related services
including closing and trust activities, trustee sales guarantees, recordings and reconveyances, and home warranty products. The escrow and other services provided by us include all of those typically
required in connection with residential and commercial real estate purchases and refinance activities. Escrow, title-related and other fees included in our Title segment represented approximately
27.5%, 28.1%, and 29.7% of total Title segment revenues in 2022, 2021, and 2020, respectively.
Sales and Marketing. We market and distribute our title and escrow products and services to customers in the residential and commercial market sectors of the real estate industry through
customer solicitation by sales personnel. Although in many instances the individual homeowner is the beneficiary of a title insurance policy, we do not focus our marketing efforts on the homeowner.
We actively encourage our sales personnel to develop new business relationships with persons in the real estate community, such as real estate sales agents and brokers, financial institutions,
independent escrow companies and title agents, real estate developers, mortgage brokers and attorneys who order title insurance policies for their clients. While our smaller, local clients remain
important, large customers, such as national residential mortgage lenders, real estate investment trusts and developers are an important part of our business. The buying criteria of locally based clients
differ from those of large, geographically diverse customers in that the former tend to emphasize personal relationships and ease of transaction execution, while the latter generally place more
emphasis on consistent product delivery across diverse geographical regions and the ability of service providers to meet their information systems requirements for electronic product delivery.
Claims. An important part of our business is responsible claims management. We employ a large staff of attorneys in our claims department to handle title and escrow claims. Our claims
processing centers are located in Omaha, Nebraska and Jacksonville, Florida. In-house claims counsel are also located in other parts of the country.
Claims result from a wide range of causes. These causes generally include, but are not limited to, search and exam errors, forgeries, incorrect legal descriptions, signature and notary errors,
unrecorded liens, mechanics’ liens, the failure to pay off existing liens, mortgage lending fraud, mishandling or theft of settlement funds (including independent agency theft), and mistakes in the
escrow process. Under our policies, we are required to defend insureds when covered claims are filed against their interest in the property. Some claimants seek damages in excess of policy limits.
Those claims are based on various legal theories, including in some cases allegations of negligence or an intentional tort. We occasionally incur losses in excess of policy limits. Experience shows
that most policy claims and claim payments are made in the first five years after the policy has been issued, although claims may also be reported and paid many years later.
Title losses due to independent agency defalcations typically occur when the independent agency misappropriates funds from escrow accounts under its control. Such losses are usually
discovered when the independent agency fails to pay off an outstanding mortgage loan at closing (or immediately thereafter) from the proceeds of the new loan. Once the previous lender determines
that its loan has not been paid off timely, it will file a claim against the title insurer.
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Claims can be complex, vary greatly in dollar amounts and are affected by economic and market conditions and the legal environment existing at the time claims are processed. In our
commercial title business, we may issue polices with face amounts well in excess of $100 million, and from time to time claims are submitted with respect to large policies. We believe we are
appropriately reserved with respect to all claims (large and small) that we currently face. Occasionally we experience large losses from title policies that have been issued or from our escrow
operations, or overall worsening loss payment experience, which require us to increase our title loss reserves. These events are unpredictable and adversely affect our earnings. Claims can result in
litigation in which we may represent our insured and/or ourselves. We consider this type of litigation to be an ordinary course aspect of the conduct of our business.
Reinsurance and Coinsurance. Within our Title segment, we limit our maximum loss exposure by reinsuring risks with other insurers under excess of loss and case-by-case (“facultative”)
reinsurance agreements. Reinsurance agreements generally provide that the reinsurer is liable for loss and loss adjustment expense payments exceeding the amount retained by the ceding company.
However, the ceding company remains primarily liable to the insured whether or not the reinsurer is able to meet its contractual obligations. Facultative reinsurance agreements are entered into with
other title insurers when the transaction to be insured exceeds state statutory or self-imposed limits. Excess of loss reinsurance coverage protects us from a large loss from a single loss occurrence.
Our excess of loss reinsurance coverage is split into four contracts. The first excess of loss reinsurance contract provides an $75 million limit of coverage from a single loss occurrence for losses in
excess of a $25 million retention per single loss occurrence ("First XOL Contract"). The second excess of loss reinsurance contract ("Second XOL Contract") provides an additional $300 million limit
of coverage from a single loss occurrence, with the Company co-participating at approximately 10%. The third excess of loss reinsurance contract ("Third XOL Contract") provides an additional $80
million limit of coverage from a single loss occurrence, with the Company co-participating at approximately 16.25%. The fourth excess of loss reinsurance contract ("Fourth XOL Contract") provides
an additional $220 million limit of coverage from a single loss occurrence, with the Company co-participating at approximately 10%. Subject to the Company’s retention and co-participation on the
Second, Third and Fourth XOL Contracts, the maximum coverage from a single loss occurrence provided under our excess of loss reinsurance coverage is $610 million. Each XOL Contract provides
for one reinstatement of its respective limit, so the aggregate limit of coverage is $1.2 billion.
In addition to reinsurance, we carry errors and omissions insurance and fidelity bond coverage, each of which can provide protection to us in the event of certain types of losses that can occur in
our businesses.
Our policy is to be selective in choosing our reinsurers, seeking only those companies that we consider to be financially stable and adequately capitalized. In an effort to minimize exposure to the
insolvency of a reinsurer, we periodically review the financial condition of our reinsurers.
We also use coinsurance in our commercial title business to provide coverage in amounts greater than we would be willing or able to provide individually. In coinsurance transactions, each
individual underwriting company issues a separate policy and assumes a portion of the overall total risk. As a coinsurer we are only liable for the portion of the risk we assume.
We also earn a small amount of additional income, which is reflected in our direct premiums, by assuming reinsurance for certain risks of other title insurers.
Competition. Competition in the title insurance industry is based primarily on service and price. The number and size of competing companies varies in the different geographic areas in which
we conduct our business. In our principal markets, competitors include other major title underwriters such as First American Financial Corporation, Old Republic International Corporation, Stewart
Information Services Corporation, Westcor Land Title Insurance Company, and WFG National Title Insurance Company, as well as numerous regional title insurance companies, underwritten title
companies and independent agency operations at the regional and local level. The addition or removal of regulatory barriers might result in changes to competition in the title insurance business. New
competitors may include diversified financial services companies that have greater financial resources than we do and possess other competitive advantages. Competition among the major title
insurance companies, expansion by regional companies and any new entrants with alternative products could affect our business operations and financial condition.
Regulation. Our insurance subsidiaries, including title insurers, underwritten title companies and insurance agencies, are subject to extensive regulation under applicable state laws. Each of the
insurers is subject to a holding company act in its state of domicile, which regulates, among other matters, the ability to pay dividends and enter into transactions with affiliates. The laws of most
states in which we transact business establish supervisory agencies with broad administrative powers relating to issuing and revoking licenses to transact business; regulating trade practices; licensing
agents; approving policy forms and accounting and financial practices; establishing reserves and capital and surplus in regards to policyholder requirements defining suitable investments for reserves
and capital and surplus; approving rate schedules; etc. The state regulation process for rate changes ranges from states that set rates, to states where individual companies or associations of companies
prepare rate filings that are submitted for approval, to a few states in which rate changes do not need to be filed for approval.
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Since we are governed by both state and federal governments and the applicable insurance laws and regulations are constantly subject to change, it is not possible to predict the potential effects
on our insurance operations of any laws or regulations that may become more restrictive in the future or if new restrictive laws will be enacted.
Pursuant to statutory accounting requirements of the various states in which our title insurers are domiciled, these insurers must defer a portion of premiums as an unearned premium reserve for
the protection of policyholders (in addition to their reserves for known claims) and must maintain qualified assets in an amount equal to the statutory requirements. The level of unearned premium
reserve required to be maintained at any time is determined by a statutory formula based upon either the age, number of policies, and dollar amount of policy liabilities underwritten, or the age and
dollar amount of statutory premiums written. As of December 31, 2022, the combined statutory unearned premium reserve required and reported for our title insurers was $1,772 million. In addition
to statutory unearned premium reserves and reserves for known claims, each of our insurers maintains surplus funds for policyholder protection and business operations.
Each of our insurance subsidiaries is regulated by the insurance regulatory authority in its respective state of domicile, as well as that of each state in which it is licensed. The insurance
commissioners of their respective states of domicile are the primary regulators of our insurance subsidiaries. Each of the insurers is subject to periodic regulatory financial examination by regulatory
authorities.
Under the statutes governing insurance holding companies in most states, insurers may not enter into certain transactions, including sales, reinsurance agreements and service or management
contracts, with their affiliates unless the regulatory authority of the insurer’s state of domicile has received notice at least 30 days prior to the intended effective date of such transaction and has not
objected to, or has approved, the transaction within the 30-day period.
In addition to state-level regulation, our title insurance and certain other real estate businesses are subject to regulation by federal agencies, including the Consumer Financial Protection Bureau
(“CFPB”). The CFPB was established under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ("Dodd-Frank"), which also included regulation over financial services and
other lending related businesses. The CFPB has broad authority to regulate, among other areas, the mortgage and real estate markets in matters pertaining to consumers. This authority includes the
enforcement of the Truth-in-Lending Act ("TILA") and the Real Estate Settlement Procedures Act ("RESPA") formerly placed with the Department of Housing and Urban Development.
As a holding company with no significant business operations of our own, we depend on dividends or other distributions from our subsidiaries as the principal source of cash to meet our
obligations, including the payment of interest on and repayment of principal of any debt obligations and to pay any dividends to our shareholders. The payment of dividends or other distributions to
us by our insurers is regulated by the insurance laws and regulations of their respective states of domicile. In general, an insurance company subsidiary may not pay an “extraordinary” dividend or
distribution unless the applicable insurance regulator has received notice of the intended payment at least 30 days prior to payment and has not objected to or has approved the payment within the 30-
day period. In general, an “extraordinary” dividend or distribution is statutorily defined as a dividend or distribution that, together with other dividends and distributions made within the preceding
12 months, exceeds the greater of:
•
•
10% of the insurer’s statutory surplus as of the immediately prior year end; or
the statutory net income of the insurer during the prior calendar year.
The laws and regulations of some jurisdictions also prohibit an insurer from declaring or paying a dividend except out of its earned surplus or require the insurer to obtain prior regulatory
approval. During 2023, our directly owned title insurers can pay dividends or make distributions to us of approximately $606 million; however, insurance regulators have the authority to prohibit the
payment of ordinary dividends or other payments by our title insurers to us (such as a payment under a tax sharing agreement or for other services) if they determine that such payment could be
adverse to our policyholders. There are no restrictions on our retained earnings regarding our ability to pay dividends to shareholders.
The combined statutory capital and surplus of our title insurers was approximately $1,350 million and $1,903 million as of December 31, 2022 and 2021, respectively. The combined statutory
earnings of our title insurers were $778 million, $936 million, and $629 million for the years ended December 31, 2022, 2021, and 2020, respectively.
As a condition to continued authority to underwrite policies in the states in which our insurers conduct their business, they are required to pay certain fees and file information regarding their
officers, directors and financial condition.
Pursuant to statutory requirements of the various states in which our insurers are domiciled, such insurers must maintain certain levels of minimum capital and surplus. Required levels of
minimum capital and surplus are not significant to the insurers individually or in the aggregate. Each of our title insurers has complied with the minimum statutory requirements as of December 31,
2022.
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Our underwritten title companies, primarily those domiciled in California, are also subject to certain regulation by insurance regulatory or banking authorities relating to their net worth and
working capital. Minimum net worth and working capital requirements for each underwritten title company is less than $1 million. These companies were in compliance with their respective
minimum net worth and working capital requirements at December 31, 2022.
From time to time we receive inquiries and requests for information from state insurance departments, attorneys general and other regulatory agencies about various matters relating to our
business. Sometimes these take the form of civil investigative demands or subpoenas. We cooperate with all such inquiries and we have responded to or are currently responding to inquiries from
multiple governmental agencies. Various governmental entities are studying the title insurance product, market, pricing, and business practices, and potential regulatory and legislative changes, which
may materially affect our business and operations. From time to time, we are assessed fines for violations of regulations or other matters or enter into settlements with such authorities that may
require us to pay fines or claims or take other actions. For further discussion, see Item 3, Legal Proceedings.
Before a person can acquire control of a U.S. insurance company, prior written approval must be obtained from the insurance commissioner of the state in which the insurer is domiciled. Prior to
granting approval of an application to acquire control of a domestic insurer, the state insurance commissioner will consider such factors as the financial strength of the applicant; the integrity and
management of the applicant’s Board of Directors and executive officers; the acquirer’s plans for the insurer’s Board of Directors and executive officers; the acquirer’s plans for the future operations
of the domestic insurer; and any anti-competitive results that may arise from the consummation of the acquisition of control. Generally, state statutes provide that control over a domestic insurer is
presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing 10% or more of the voting securities of the domestic insurer. Because
a person acquiring 10% or more of our common shares would indirectly control the same percentage of the stock of our insurers, the insurance change of control laws would likely apply to such a
transaction.
The National Association of Insurance Commissioners ("NAIC") has adopted an instruction requiring an annual certification of reserve adequacy by a qualified actuary. Because all of the states
in which our title insurers are domiciled require adherence to NAIC filing procedures, each such insurer, unless it qualifies for an exemption, must file an actuarial opinion with respect to the
adequacy of its reserves.
Title Insurance Ratings. Our title insurance underwriters are regularly assigned ratings by independent agencies designed to indicate their financial condition and/or claims paying ability. The
rating agencies determine ratings by quantitatively and qualitatively analyzing financial data and other information. Our title subsidiaries include Alamo Title, Chicago Title, Commonwealth Land
Title, FNTIC and National Title of New York. Standard & Poor’s Ratings Group (“S&P”) and Moody’s Investors Service (“Moody’s”) provide ratings for the entire FNF family of companies as a
whole as follows:
FNF family of companies
S&P
A
Moody’s
A2
The relative position of each of our ratings among the ratings scale assigned by each rating agency is as follows:
• An S&P "A" rating is the third highest rating of eleven ratings for S&P. According to S&P, an insurer rated “A” has strong capacity to meet its financial commitments, but is somewhat more
susceptible to adverse effects of changes in circumstances and economic conditions than insurers with "AAA" or "AA" ratings.
• A Moody's "A2" rating is the third highest rating of nine ratings for Moody's. Moody's states that companies rated “A2” are judged to be upper-medium grade and are subject to low credit
risk.
Demotech provides financial strength/stability ratings for each of our title insurance underwriters individually, as follows:
Alamo Title Insurance
Chicago Title Insurance Company
Commonwealth Land Title Insurance Company
Fidelity National Title Insurance Company
National Title Insurance of New York
A'
A''
A'
A'
A'
Demotech states that its ratings of "A"(A double prime)" and "A' (A prime)" reflect its opinion that the insurer possesses "Unsurpassed" ability to maintain liquidity of invested assets, quality
reinsurance, acceptable financial leverage and realistic pricing while simultaneously establishing loss and loss adjustment expense reserves at reasonable levels. The A'' and A' ratings are the two
highest ratings of Demotech's six ratings.
The ratings of S&P, Moody’s, and Demotech described above are not designed to be, and do not serve as, measures of protection or valuation offered to investors. These financial strength ratings
should not be relied on with respect to making an
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investment in our securities. For further information, refer to Item 1A. Risk Factors — "If the rating agencies downgrade our Company, our results of operations and competitive position in the title
insurance industry may suffer.”
Investment Policies and Investment Portfolio. Within our Title segment, our investment policy is designed to maximize total return through investment income and capital appreciation consistent
with moderate risk of principal, while providing adequate liquidity. Our insurance subsidiaries, including title insurers, underwritten title companies and insurance agencies, are subject to extensive
regulation under applicable state laws. The various states in which we operate our underwriters regulate the types of assets that qualify for purposes of capital, surplus, and statutory unearned
premium reserves. Our investment policy specifically limits duration and non-investment grade allocations in the FNF fixed-income portfolio. Maintaining shorter durations on the investment
portfolio allows for the mitigation of interest rate risk. Equity securities and preferred stock are utilized to take advantage of perceived value or for strategic purposes. Due to the magnitude of the
investment portfolio in relation to our claims loss reserves, durations of investments are not specifically matched to the cash outflows required to pay claims.
As of December 31, 2022 and 2021, the carrying amount of total investments within our Title segment, which approximates the fair value, excluding investments in unconsolidated affiliates, was
approximately $3.2 billion and $3.7 billion, respectively.
We purchase investment grade fixed maturity securities, selected non-investment grade fixed maturity securities, preferred stock and equity securities. The securities in our portfolio are subject to
economic conditions and normal market risks and uncertainties.
The following table presents certain information regarding the investment ratings of our fixed maturity securities and preferred stock portfolio at December 31, 2022 and 2021:
Rating(1)
Aaa/AAA
Aa/AA
A
Baa/BBB
Lower
Other (2)
2022
2021
December 31,
Amortized
Cost
% of
Total
Fair
Value
% of
Total
Amortized
Cost
% of
Total
Fair
Value
% of
Total
$
$
504
129
574
741
154
55
23.4 % $
6.0
26.6
34.4
7.1
2.5
475
125
546
707
142
62
(Dollars in millions)
23.1 % $
6.1
26.5
34.4
6.9
3.0
589
157
532
798
205
72
25.0 % $
6.7
22.6
33.9
8.7
3.1
597
164
548
809
206
77
2,157
100.0 % $
2,057
100.0 % $
2,353
100.0 % $
2,401
24.9 %
6.8
22.8
33.7
8.6
3.2
100.0 %
(1) Ratings as assigned by Moody’s or S&P, if a Moody's rating is unavailable.
(2) This category is composed of unrated securities.
The following table presents certain information regarding contractual maturities of our fixed maturity securities at December 31, 2022:
Maturity
One year or less
After one year through five years
After five years through ten years
After ten years
Mortgage-backed/asset-backed securities
December 31, 2022
Amortized
Cost
% of
Total
Fair
Value
% of
Total
$
$
412
1,095
331
86
60
1,984
(Dollars in millions)
20.8 % $
55.2
16.7
4.3
3.0
100.0 % $
404
1,029
306
78
59
1,876
21.5 %
54.9
16.3
4.2
3.1
100.0 %
Expected maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Because of the
potential for prepayment on mortgage-backed and asset-backed securities, they are not categorized by contractual maturity.
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At December 31, 2022 and 2021, we held $187 million and $136 million, respectively, in investments that are accounted for using the equity method of accounting.
As of December 31, 2022 and 2021, other long-term investments were $127 million and $91 million, respectively. Other long-term investments include other investments carried at fair value and
company-owned life insurance policies carried at cash surrender value.
Short-term investments, which consist primarily of commercial paper and money market instruments that have an original maturity of one year or less, are carried at amortized cost, which
approximates fair value. As of December 31, 2022 and 2021, short-term investments amounted to approximately $1 billion and $118 million, respectively.
Our investment results for the years ended December 31, 2022, 2021 and 2020 were as follows:
Net investment income (1)
Average invested assets
Effective return on average invested assets
2022
December 31,
2021
2020
$
$
234
4,520
5.2 %
(Dollars in millions)
108
3,759
$
$
$
$
2.9 %
152
3,736
4.1 %
(1) Net investment income as reported in our Consolidated Statements of Earnings has been adjusted in the presentation above to provide the tax equivalent yield on tax exempt investments and
to exclude interest earned on cash and cash equivalents. Net investment income includes fees earned by holding customer funds in escrow (off-balance sheet) during facilitation of tax-
deferred property exchanges. See Note E Investments to our Consolidated Financial Statements included in Item 8 of Part II of this Annual Report for a detail of our interest income.
F&G
Through F&G, and its wholly-owned insurance subsidiaries, we market a broad portfolio of deferred annuities (fixed indexed and fixed rate annuities), immediate annuities, indexed universal life
insurance, funding agreements and pension risk transfer solutions.
For more than 60 years, F&G has helped middle-income Americans prepare for retirement and for their loved ones' financial security. We partner with leading IMOs and their agents to serve
the needs of the middle-income market and develop competitive products to align with their evolving needs. During 2020, F&G entered into the bank and broker dealer distribution channels to
connect with even more customers. As of December 31, 2022, F&G has approximately 623,000 policyholders who count on the safety and protection features our fixed annuity and life insurance
products provide.
Through the efforts of F&G's approximately 872 employees, most of whom are located in Des Moines, Iowa, and through a network of approximately 271 IMOs and 20 leading banks and
independent broker dealers, representing approximately 82,000 independent agents and advisers, we offer various types of fixed annuities and life insurance products. Our fixed annuities serve as a
retirement and savings tool for which our customers rely on principal protection and predictable income streams. In addition, our IUL insurance products provide our customers with a complementary
product that allows them to build on their savings and provide a payment to their designated beneficiaries upon the policyholder’s death. Our most popular products are FIAs that tie contractual
returns to specific market indices, such as the S&P 500 Index. Our customers value our FIAs, which provide a portion of the gains of an underlying market index, while also providing principal
protection. We believe this mix of “some upside but limited downside” fills the need for middle-income Americans who must save for retirement but who want to limit the risk of decline in their
savings.
For the year ended December 31, 2022, FIAs generated approximately 40% of our total gross sales. The remaining 60% of sales were primarily generated from funding agreements (13%), fixed
rate annuities (33%), PRT sales (13%) and IUL (1%). We invest the proceeds primarily in fixed income securities. We also use options and futures that hedge the index credit of our FIA and IUL
liabilities by replicating the market index returns to our policyholders. We invest predominantly in options on the S&P 500 Index. The majority of our products allow for active management to
achieve targeted lifetime returns. In addition, our annuity contracts generally either cannot be surrendered or include surrender charges that discourage early redemptions.
Annuities. Through F&G’s insurance subsidiaries, we issue a broad portfolio of deferred annuities (FIA and fixed rate annuities), immediate annuities, and PRT solutions. 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 pays principal and earnings in equal payments
over some period of time.
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Deferred Annuities – FIAs. Our FIAs allow contract owners the possibility of earning returns linked to the performance of a specified market index, predominantly the S&P 500 Index, while
providing principal protection. The contract owners typically make a single deposit into our deferred annuities. The contracts include a provision for a minimum guaranteed surrender value calculated
in accordance with applicable law. A market index tracks the performance of a specific group of stocks representing a particular segment of the market, or in some cases an entire market. For
example, the S&P 500 Composite Stock Price Index is an index of 500 stocks intended to be representative of a broad segment of the market. All FIA products allow policyholders to allocate funds
once a year among several different crediting strategies, including one or more index-based strategies and a traditional fixed rate strategy. High surrender charges apply for early withdrawal, typically
for seven to fourteen years after purchase.
We purchase derivatives consisting predominantly of over-the-counter options and, to a lesser degree, futures contracts (specifically for FIA contracts) on the equity indices underlying the
applicable policy such as the S&P 500. These derivatives are used to fund the index credits due to policyholders under the FIA and IUL contracts based upon policyholders’ contract elections. The
down-side risk to F&G is limited to the cost of the options because if the value of the options decreases there is no index credit. The cost of the hedge is included in the pricing of the product and can
be reset on an annual basis for each policy based on market conditions. The majority of all such call options are one-year options purchased to match the funding requirements underlying the FIA/IUL
contracts. On the anniversary dates of the FIA/IUL contracts, the market index used to compute the annual index credit under the contracts is reset. At such time, we purchase new call options to fund
the next index credit. We manage the cost of these purchases through the terms of our FIA/IUL contracts, which permit us to change caps or participation rates, subject to certain guaranteed
minimums on each contract’s anniversary date. The change in the fair value of the options and futures contracts is generally designed to offset the equity market related change in the fair value of the
FIA/IUL contract’s related reserve liability. The options and futures contracts are marked to fair value with the change in fair value included as a component of “Recognized gains and losses, net” in
our Consolidated Statements of Earnings. The change in fair value of the options and futures contracts includes the gains and losses recognized at the expiration of the instrument’s term or upon early
termination and the changes in fair value of open positions. GAAP accounting of the reserve liability for products with embedded derivatives such as FIA creates additional volatility beyond the
accounting for the options and the futures.
The contract holder account value of a FIA contract is equal to the sum of deposits paid, premium bonuses, if any, (described below), and index credits based on the change in the relevant
market index (subject to a cap, spread and/or a participation rate) less any fees for riders and any withdrawals taken to-date. Caps (a maximum rate that may be credited) generally range from 1% to
5% when measured annually and 1% to 3% when measured monthly, spreads (a credited rate determined by deducting a specific rate from the index return) generally range from 0% to 3% when
measured annually, and participation rates (a credited rate equal to a percentage of index return) generally range from 100% to 180% of the performance of the applicable market index. The cap,
spread and participation rate can typically be reset annually and in some instances every two to five years. Certain riders provide a variety of benefits, such as the ability to increase their cap, lifetime
income or additional liquidity for a set fee. As this fee is fixed, the contract holder may lose principal if the index credits received do not exceed the amount of such fee.
Approximately 30% of the FIA sales for the year ended December 31, 2022, involved “premium bonuses” or vesting bonuses. Premium bonuses increase the initial annuity deposit by a
specified rate of 2%. The vesting bonuses, which range from 1% to 15%, increase the initial annuity deposit liability but are subject to adjustment for unvested amounts in the event of surrender by
the policyholder prior to the end of the vesting period. We made compensating adjustments in the commission paid to the agent or the surrender charges on the policy to offset the premium bonus.
Approximately 37% of our FIA contracts were issued with a GMWB rider for the year ended December 31, 2022. With this rider, a contract owner can elect to receive guaranteed payments for
life from the FIA contract without requiring the owner to annuitize the FIA contract value. The amount of the income benefit available is determined by the growth in the policy’s benefit base value
as defined in the FIA contract rider. Typically, this accumulates for 10 years based on a guaranteed rate of 3% to 8%. Guaranteed withdrawal payments may be stopped and restarted at the election of
the contract owner. Some of the FIA contract riders that we offer include an additional death benefit or an increase in benefit amounts under chronic health conditions. Rider fees range from 0% to
1%. Unlike a variable annuity, policyholder values do not decline with market movements.
Deferred Annuities – Fixed Rate Annuities. Fixed rate annuities are typically single deposit contracts and include annual reset and multi-year rate guaranteed policies. Fixed rate annual reset
annuities issued by us have an annual interest rate (the “crediting rate”) that is guaranteed for the first policy year. After the first policy year, we have the discretionary ability to change the crediting
rate once annually to any rate at or above a guaranteed minimum rate. MYGAs are similar to fixed rate annual reset annuities except that the initial crediting rate is guaranteed for a specified number
of years before it may be changed at our discretion. As of December 31, 2022, crediting rates on outstanding (i) single-year guaranteed annuities generally ranged from 2% to 6% and (ii) MYGA
ranged from 1% to 6%. The average crediting rate on all outstanding fixed rate annuities at December 31, 2022 was 3%.
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Withdrawal Options for Deferred Annuities. After the first year following the issuance of a deferred annuity policy, holders of deferred annuities are typically permitted penalty-free
withdrawals up to a contractually specified amount. The penalty-free withdrawal amount is typically 10% of the prior year account value for FIAs, and is typically up to accumulated interest for fixed
rate annuities, subject to certain restrictions. Withdrawals in excess of allowable penalty-free amounts are assessed a surrender charge if such withdrawals are made during the penalty period of the
deferred annuity policy. The penalty period typically ranges from seven to fourteen years for FIAs and three to ten years for fixed rate annuities. This surrender charge initially ranges from 8% to 15%
of the contract value for FIAs and is 9% of the contract value for fixed rate annuities and generally decreases by approximately one to two percentage points per year during the penalty period. The
average surrender charge was 7% for our FIAs and 7% for our fixed rate annuities as of December 31, 2022. A market value adjustment (“MVA”) will also apply in most states to any withdrawal that
incurs a surrender charge, subject to certain exceptions. The MVA is based on a formula that accounts for changes in interest rates since contract issuance. Generally, if interest rates have risen, the
MVA will decrease surrender value, whereas if rates have fallen, it will increase surrender value. At December 31, 2022, approximately 72% of our business included an MVA feature.
The following table summarizes our deferred annuity account values and surrender charge protection as of December 31, 2022:
SURRENDER CHARGE EXPIRATION BY YEAR
Out of surrender charge
2023
2024 - 2026
2027 - 2028
2029 - 2030
Thereafter
Total
Fixed Rate and Fixed
Indexed Annuities Account
Value
Percent of Total
(Dollars in millions)
Weighted Average Surrender
Charge
$
$
2,626
1,463
6,830
5,017
5,977
8,490
30,403
9 %
5 %
22 %
17 %
20 %
27 %
100 %
— %
5 %
6 %
7 %
8 %
11 %
37 %
Subsequent to the penalty period, the policyholder may elect to take the proceeds of the surrender either in a single payment or in a series of payments over the life of the policyholder or for a
fixed number of years (or a combination of these payment options). In addition to the foregoing withdrawal rights, policyholders may also elect to have additional withdrawal benefits by purchasing a
GMWB.
Single Premium Immediate Annuities. We have previously sold single premium immediate annuities (or “SPIAs”), which provide a series of periodic payments for a fixed period of time or for
the life of the policyholder, according to the policyholder’s choice at the time of issue. The amounts, frequency and length of time of the payments are fixed at the outset of the annuity contract.
SPIAs are often purchased by persons at or near retirement age who desire a steady stream of payments over a future period of years. Existing policyholders may elect to surrender their contract and
use the proceeds to purchase a supplementary contract which functions as a SPIA.
Life Insurance. We currently offer IUL insurance policies and have previously sold universal life, term and whole life insurance products. Holders of universal life insurance policies may make
periodic payments over the life of the contract and earn returns on their policies, which are credited to the policyholder’s cash value account. The insurer periodically deducts its expenses and the cost
of life insurance protection from the cash value account. The balance of the cash value account is credited interest at a fixed rate or returns based on the performance of a market index, or both, at the
option of the policyholder, using a method similar to that described above for FIAs.
Almost all of the life insurance policies in force, except for the return of premium benefits on term life insurance products and universal life contracts issued after March 1, 2010, are subject to
a reinsurance arrangement with Wilton Reassurance Company (“Wilton Re”). See section titled “Reinsurance-Wilton Re Transaction” in Item 1. Business.
Funding Agreements. As defined by the IID, a funding agreement is an agreement for an insurer to accept and accumulate funds and to make one or more payments at future dates in amounts
that are not based on mortality or morbidity contingencies of the person to whom the funding agreement is issued. In essence, funding agreement providers are agreeing to a defined stream of future
payments in exchange for a single upfront premium. This type of business is sometimes referred to as spread lending, as funding agreement providers invest upfront premiums with the intent to earn
an investment spread on the funds prior to making agreed upon maturity and interest payments. The structure of the payments can take several forms, but are commonly a fixed or variable interest
payment with a single maturity principal re-payment.
F&G currently utilizes two forms of funding agreement offerings. The first is through the issuance of collateralized funding agreements with the FHLB. This enables spread-based income
without longevity or mortality exposure given the
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certainty in liability profile. Funding agreements through the FHLB are flexible in their format and the ability to issue during broad windows, as long as sufficient eligible collateral has been
deposited with the bank.
In June 2021, we established a funding agreement backed note ("FABN") program, which is a medium term note program under which funding agreements are issued to a special-purpose trust
that issues marketable notes. The notes are underwritten and marketed by major investment banks’ broker-dealer operations and are sold to institutional investors. These FABN offerings are more
limited regarding timing of issuance, but do not require collateralization as with the FHLB. The maximum aggregate principal amount permitted to be outstanding at any one time under the FABN
Program is currently $5.0 billion. As of December 31, 2022, we had approximately $2.6 billion outstanding under the FABN Program.
Pension Risk Transfer. In July 2021, we entered the pension risk transfer market. A pension risk transfer occurs when a defined-benefit pension provider seeks to remove some or all of its
obligation to pay guaranteed retirement income or post-retirement benefits to plan participants. There are four major types of PRT strategies: longevity reinsurance, buy-in, buy-out, and paying in
lump sums. We are currently active in plan buy-outs, where we have a direct, irrevocable commitment to each covered participant to make the specified annuity payments based upon the terms of the
pension plan. Plan buy-out transactions fully and permanently transfer all investment, mortality, and administrative risk, associated with covered benefits, from the pension plan sponsor to the
insurance provider.
Our PRT products are comparable to income annuities, as we generally receive a single, upfront premium in exchange for paying a guaranteed stream of future income payments which are
typically fixed in nature, but may vary in duration based on participant mortality experience. These products primarily create earnings through spread income. In each transaction FGL Insurance
and/or FGL NY Insurance issues a group annuity contract to discharge pension plan liabilities from a pension plan sponsor, either through a separate account or through a general account guarantee.
Certificate holders covered under a group annuity contract have a guaranteed benefit from the insurance company.
We entered the PRT solutions business by building a team of experienced professionals, then working with brokers and institutional consultants for distribution. As of December 31, 2022, we
had completed PRT transactions that represented pension obligations of $2.5 billion.
Distribution. We distribute our annuity and life insurance products through three main channels of distribution: independent agents, banks, and broker dealers.
In our independent agent channel, the sale of our products typically occurs as part of a four-party, three stage sales process between FGL Insurance, an independent marketing organization
("IMO"), the agent and the customer. FGL Insurance designs, manufactures, issues, and services the product. The IMOs will typically sign contracts with multiple insurance carriers to provide their
agents with a broad and competitive product portfolio. The IMO provides training and discusses product options with agents in preparation for meetings with clients. The IMO staff also provide
assistance to the agent during the selling and application process. The agent may get customer leads from the IMOs. The agent conducts a fact finding and presents suitable product choices to the
customers. We monitor the business issued by each distribution partner for pricing metrics, mortality, persistency, as well as market conduct and suitability.
We offer our products through a network of approximately 271 IMOs, representing approximately 73,000 agents. We believe that our relationships with these IMOs are strong. The average
tenure of the Power Partners is approximately 19 years. We identify Power Partners as those who have demonstrated the ability to generate significant production for our business. We currently have
41 Power Partners, comprised of 19 annuity IMOs and 22 life insurance IMOs.
We took a similar approach in launching products as a new entrant into the bank and broker dealer channels by partnering with one of the largest broker dealers in the industry. In 2020, F&G
launched a set of fixed rate annuity and FIA products to banks and broker dealers, and gained selling agreements with some of the largest banks and broker dealers in the United States. We offer our
products through a network of approximately 20 banks and broker dealers, representing approximately 9,000 financial advisers. The financial advisers at our bank and broker dealer partners are able
to offer their clients guaranteed rates of return, protected growth, and income for life through our Secure series of annuity products. We employ a hybrid distribution model in this channel, whereby
some financial institutions partner directly with F&G and our sales team, and others work with an intermediary. As such, we partner with a select number of financial institution intermediaries who
have expertise in the channel and maintain the appropriate field wholesaling forces to be successful in this channel. In 2022, the top 5 firms represented 87% of channel sales. Bank and broker dealers
represented 44% of annuity sales for the year ended December 31, 2022.
The top five states for the distribution of FGL Insurance’s products in the year ended December 31, 2022 were Florida, California, Texas, Pennsylvania and New Jersey, which together
accounted for 37% of FGL Insurance’s premiums.
In addition, beginning in 2021, our institutional business offers funding agreement products to institutional clients by means of capital markets transactions through investment banks. Funding
agreements are also executed through the FHLB. In 2021, we also entered the PRT solutions business by building an experienced team and then working with brokers and
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institutional consultants for distribution. These institutional solutions leverage our existing team's spread-based capabilities as well as our strategic partnership with Blackstone.
Investments. Within our F&G segment, we embrace a long-term conservative investment philosophy, investing nearly all the insurance premiums we receive in a wide range of high-quality
debt securities. Our investment strategy is designed to (i) preserve capital, (ii) provide consistent yield and investment income, and (iii) achieve attractive absolute returns. We base all of our decisions
on fundamental, bottom-up research, coupled with a top-down view that respects the cyclicality of certain asset classes. The types of assets in which we may invest are influenced by various state
laws, which prescribe qualified investment assets applicable to insurance companies.
FGL Insurance and certain other subsidiaries of F&G (other than FGL NY Insurance) are party to IMAs with BIS pursuant to which BIS is appointed as investment manager of the F&G
Accounts. There are no specified minimum amounts of assets that we have agreed that BIS will manage; however, BIS has the right to manage (and receive fees based on) all assets in the F&G
Accounts with limited exceptions. For certain asset classes, we continue to utilize specialized third-party investment managers. As of December 31, 2022, approximately 91% of our $41 billion
investment portfolio was managed by BIS, with 8% managed by other third parties, and the remaining 1% internally managed. BIS, in accordance with our IMAs, has delegated certain investment
services to its affiliates, including Blackstone’s Credit, Real Estate Debt and Asset-Based Finance businesses, in each case, pursuant to separate sub-management agreements executed between BIS
and each such affiliate.
Our investment portfolio consists of high quality fixed maturities, including publicly issued and privately issued corporate bonds, municipal and other government bonds, asset-backed
securities ("ABS"), residential mortgage-backed securities ("RMBS"), commercial mortgage-backed securities ("CMBS"), commercial mortgage loans ("CMLs"), residential mortgage loans
("RMLs"), limited partnership investments, and other investments. We also maintain holdings in floating rate, and less rate-sensitive investments, including senior tranches of collateralized loan
obligations (“CLOs”), non-agency RMBS, and various types of ABS. It is our expectation that our investment portfolio will broaden in scope and diversity to include other asset classes held by life
and annuity insurance writers. We also have a small amount of equity holdings required as part of our funding arrangements with the FHLB.
The portfolio also has exposure to U.S. dollar denominated emerging market bonds, highly rated preferred stocks and hybrids, and structured securities including ABS. We currently
maintain:
•
•
a well-matched asset/liability profile (asset duration, including cash and cash equivalents, of 4.9 years vs. liability duration of 5.1 years); and
an exposure to less rate-sensitive assets of 30%, of invested assets as of December 31, 2022.
For further discussion of portfolio activity, see Item 7 of Part II of this Annual Report, under Management’s Discussion and Analysis of Financial Condition and Results of Operations-
Investment Portfolio.
Outsourcing. Our F&G segment outsources the following functions to third-party service providers:
• new business administration (data entry and policy issue only);
• service of existing policies;
• underwriting administration of life insurance applications;
•
life reinsurance administration;
• call centers;
•
•
information technology development and maintenance;
investment accounting and custody; and
• co-located data centers and hosting of financial systems.
We closely manage our outsourcing partners and integrate their services into our operations. We believe that outsourcing such functions allows us to focus capital and our employees on our core
business operations and perform differentiating functions, such as investment, actuarial, product development and risk management functions. In addition, we believe an outsourcing model provides
predictable pricing, service levels and volume capabilities and allows us to benefit from technological developments that enhance our customer self-service and sales processes. We believe that we
have a good relationship with our principal outsource service providers.
Ratings. Within our F&G segment, access to funding and our related cost of borrowing, the attractiveness of certain of our products to customers and requirements for derivatives collateral
posting are affected by our credit ratings and insurance financial strength ratings, which are periodically reviewed by the rating agencies. Financial strength ratings and credit ratings are important
factors affecting public confidence in an insurer and its competitive position in marketing products.
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As of the date of this Annual Report, A.M. Best Company ("A.M. Best"), Fitch Ratings ("Fitch"), Moody's, and S&P had issued credit ratings, financial strength ratings and/or outlook
statements regarding us, as listed below. Credit ratings represent the opinions of rating agencies regarding an entity’s ability to repay its indebtedness. Financial strength ratings represent the opinions
of rating agencies regarding the ability of an insurance company to meet its financial obligations under an insurance policy and generally involve quantitative and qualitative evaluations by rating
agencies of a company’s financial condition and operating performance. Generally, rating agencies base their financial strength ratings upon information furnished to them by the insurer and upon
their own investigations, studies and assumptions. Financial strength ratings are based upon factors of concern to policyholders, agents and intermediaries and are not directed toward the protection of
investors. Credit and financial strength ratings are not recommendations to buy, sell or hold securities and they may be revised or revoked at any time at the sole discretion of the rating organization.
In addition to the financial strength ratings, rating agencies use an “outlook statement” to indicate a medium or long term trend that, if continued, may lead to a rating change. A positive
outlook indicates a rating may be raised and a negative outlook indicates a rating may be lowered. A stable outlook is assigned when ratings are not likely to be changed. A developing outlook is
assigned when a rating may be raised, lowered, or affirmed. Outlooks should not be confused with expected stability of the issuer’s financial or economic performance. A rating may have a "stable"
outlook to indicate that the rating is not expected to change, but a "stable" outlook does not preclude a rating agency from changing a rating at any time without notice.
The rating organizations may take various actions, positive or negative. Such actions are beyond our control and we cannot predict what these actions may be and the timing thereof.
Holding Company Ratings
F&G Annuities & Life, Inc.
Issuer Credit / Default Rating
Outlook
Senior Unsecured Notes (2028 maturity)
(a)
CF Bermuda Holdings Limited
Issuer Credit / Default Rating
Outlook
Fidelity & Guaranty Life Holdings, Inc.
Issuer Credit / Default Rating
Outlook
Senior Unsecured Notes
Outlook
Operating Subsidiary Ratings
Fidelity & Guaranty Life Insurance Company
Financial Strength Rating
Outlook
Fidelity & Guaranty Life Insurance Company of New York
Financial Strength Rating
Outlook
F&G Life Re Ltd
Financial Strength Rating
Outlook
F&G Cayman Re Ltd
Financial Strength Rating
Outlook
A.M. Best
S&P
Not Rated
Not Rated
Not Rated
BBB-
Positive
BBB-
Positive
A-
Positive
A-
Positive
Not Rated
BBB-
Stable
BBB-
BBB-
Stable
BBB-
Stable
BBB
A-
Stable
A-
Stable
A-
Stable
Not Rated
Not Rated
Fitch
BBB
Stable
BBB-
BBB
Stable
BBB
Stable
BBB
A-
Stable
A-
Stable
A-
Stable
A-
Stable
Moody's
Ba2
Positive
Not Rated
Ba1
Positive
Not Rated
Baa2
Stable
Baa1
Positive
Not Rated
Baa1
Positive
Not Rated
A.M. Best, S&P, Fitch and Moody’s review their ratings of insurance companies from time to time. There can be no assurance that any particular rating will continue for any given period of
time or that it will not be changed or withdrawn entirely if, in their judgment, circumstances so warrant. While the degree to which ratings adjustments will affect sales and persistency is unknown,
we believe if our ratings were to be negatively adjusted for any reason, we could experience a material decline in the sales of our products and the persistency of our existing business. See “Item 1A.
Risk Factors”.
F&G is required to maintain minimum ratings as a matter of routine practice as part of its over-the-counter derivatives agreements on ISDA forms. Under some ISDA agreements, we have
agreed to maintain certain financial strength ratings.
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Please refer to Note F Derivative Financial Instruments to our audited Consolidated Financial Statements included in Item 8 of Part II of this Annual Report for disclosure around the Company's
requirement to maintain minimum ratings.
If the insurance subsidiaries held net short positions against a counterparty, and the subsidiaries’ financial strength ratings were below the levels required in the ISDA agreement with the
counterparty, the counterparty would demand immediate further collateralization, which could negatively impact overall liquidity. Based on the fair value of our derivatives as of December 31, 2022,
we hold no net short positions against a counterparty; therefore, there is currently no potential exposure for us to post collateral.
A downgrade of the financial strength rating of one of our principal insurance subsidiaries could affect our competitive position in the insurance industry and make it more difficult for us to
market our products, as potential customers may select companies with higher financial strength ratings. A downgrade of the financial strength rating could also impact our borrowing costs.
Risk Management. Risk management is a critical part of our business. We seek to assess risk to our business through a formalized process involving (i) identifying short-term and long-term
strategic and operational objectives, (ii) development of risk appetite statements that establish what the company is willing to accept in terms of risks to achieving its goals and objectives, (iii)
identifying the levers that control the risk appetite of the company, (iv) establishing the overall limits of risk acceptable for a given risk driver, (v) establishing operational risk limits that are aligned
with the tolerances, (vi) assigning risk limit quantification and mitigation responsibilities to individual team members within functional groups, (vii) analyzing the potential qualitative and
quantitative impact of individual risks, including but not limited to stress and scenario testing covering over eight economic and insurance related risks, (viii) mitigating risks by appropriate actions
and (ix) identifying, documenting and communicating key business risks in a timely fashion.
The responsibility for monitoring, evaluating and responding to risk is assigned first to our management and employees, second to those occupying specialist functions, such as legal
compliance and risk teams, and third to those occupying supervisory functions, such as internal audit and the board of directors.
Reinsurance. Within our F&G segment, we cede insurance to other insurance companies. We use reinsurance to diversify risks and earnings, to manage loss exposures, to enhance our capital
position, and to manage new business volume. The effects of certain reinsurance agreements are not accounted for as reinsurance as they do not reinsure insurance contracts or they do not transfer the
risks of the reinsured policies.
In instances where we are the ceding company, we pay a premium to a reinsurer in exchange for the reinsurer assuming a portion of our liabilities under the policies we issued and collect
expense allowances in return for our administration of the ceded policies. Use of reinsurance does not discharge our liability as the ceding company because we remain directly liable to our
policyholders and are required to pay the full amount of our policy obligations in the event that our reinsurers fail to satisfy their obligations. We collect reimbursement from our reinsurers when we
pay claims on policies that are reinsured.
We monitor the credit risk related to the ability of our reinsurers to honor their obligations under various agreements. To minimize the risk of credit loss on such contracts, we generally
diversify our exposures among many reinsurers and limit the amount of exposure to each based on financial strength ratings, which are reviewed annually. We are able to further manage risk via
funds withheld arrangements.
See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” for further discussion on credit risk and counterparty risk.
See “Item 1A. Risk Factors” for further discussion of credit risk related to reinsurance agreements. A description of significant ceded reinsurance transactions appears below.
Wilton Reinsurance Transaction. Pursuant to the agreed upon terms, Wilton Reassurance Company ("Wilton Re") purchased through a 100% quota share reinsurance agreement certain FGL
Insurance life insurance policies that are subject to redundant reserves, reported on a statutory basis, under Regulation XXX and Guideline AXXX, as well as another block of FGL Insurance’s in-
force traditional, universal life and IUL insurance policies. The effects of this agreement are accounted for as reinsurance as the ceded policies qualify as insurance products and because the
agreement satisfies the risk transfer requirements for GAAP.
Hannover Reinsurance Transaction. FGL Insurance has a reinsurance agreement with Hannover Life Reassurance Company of America (Bermuda) Ltd. ("Hannover Re"), an unaffiliated
reinsurer, to reinsure an in-force block of its FIA and fixed deferred annuity contracts with GMWB and Guaranteed Minimum Death Benefit (“GMDB”) guarantees. In accordance with the terms of
this agreement, we cede 70% net retention of secondary guarantee payments in excess of account value for GMWB and GMDB guarantees. The effects of this agreement are not accounted for as
reinsurance as it does not satisfy the risk transfer requirements for GAAP; therefore, deposit accounting is applied.
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Canada Life Reinsurance Transaction. Effective May 1, 2020, FGL Insurance entered into an indemnity reinsurance agreement with Canada Life Assurance Company United States Branch, a
third-party reinsurer, to reinsure FIA policies with GMWB. In accordance with the terms of this agreement, FGL Insurance cedes a quota share percentage of the net retention of guarantee payments
in excess of account value for GMWB. The effects of this agreement are not accounted for as reinsurance as it does not satisfy the risk transfer requirements for GAAP; therefore, deposit accounting
is applied.
Kubera & Somerset Reinsurance Transactions. FGL Insurance entered into a reinsurance agreement with Kubera Insurance (SAC) Ltd. ("Kubera"), an unaffiliated reinsurer, effective December
31, 2018, to cede certain MYGA and deferred annuity GAAP and statutory reserves on a coinsurance funds withheld basis, net of applicable existing reinsurance. Effective October 31, 2021, this
agreement was novated from Kubera to Somerset Reinsurance Ltd. ("Somerset"), a certified third-party reinsurer. As the policies ceded to Somerset are investment contracts, there is no significant
insurance risk present and therefore the reinsurance agreement is accounted for as a separate investment contract. The presentation of this agreement is similar to other reinsurance agreements that
apply reinsurance accounting as discussed in further detail within Note O F&G Reinsurance to our Consolidated Financial Statements included in Item 8 of Part II of this Annual Report.
FGL Insurance has a reinsurance agreement with Kubera to cede certain FIA statutory reserves on a coinsurance funds withheld basis, net of applicable existing reinsurance. In accordance with
the terms of this agreement, F&G cedes a quota share percentage of FIA policies for certain issue years to Kubera. Effective October 31, 2021, this agreement was amended to increase the ceded
reserves from approximately $4 billion to approximately $10 billion. As the policies ceded to Kubera are investment contracts, there is no significant insurance risk present and therefore the
reinsurance agreement is accounted for as a separate investment contract.
Aspida Reinsurance Transaction. FGL Insurance has a reinsurance agreement with ASPIDA Life Re Ltd. (“Aspida Re”), an unaffiliated reinsurer, to cede certain MYGA business, on a funds
withheld coinsurance basis, net of applicable existing reinsurance. As the policies ceded to Aspida Re are investment contracts, there is no significant insurance risk present and therefore the
reinsurance agreement is accounted for as a separate investment contract. The presentation of this agreement is similar to other reinsurance agreements that apply reinsurance accounting as discussed
in further detail within Note O F&G Reinsurance to our Consolidated Financial Statements included in Item 8 of Part II of this Annual Report.
New Reinsurance Transaction. Effective December 31, 2022, FGL Insurance entered into an indemnity reinsurance agreement with New Reinsurance Company Ltd. (“New Re”), a third-party
reinsurer and wholly owned subsidiary of M✔nchener R✔ckversicherungs-Gesellschaft Aktiengesellschaft in M✔nchen (d/b/a Munich Re), to cede certain fixed index annuity policies.
The CARVM Facility. Life insurance companies operating in the United States must calculate required reserves for life and annuity policies based on statutory principles. The insurance division
has adopted the methodology contained in the NAIC Valuation Manual (VM) as the prescribed methodology for the insurance industry. The industry has reduced or eliminated redundancies thereby
increasing capital using a variety of techniques including reserve facilities.
FGL Insurance has a reinsurance treaty with Raven Reinsurance Company ("Raven Re"), its wholly-owned captive reinsurance company, to cede the Commissioners Annuity Reserve Valuation
Method (CARVM) liability for annuity benefits where surrender charges are waived. In connection with the CARVM reinsurance agreement, FGL Insurance and Raven Re entered into an agreement
with Nomura Bank International plc (“NBI”) to establish a reserve financing facility in the form of a letter of credit issued by NBI. The financing facility has $200 million available to draw on as of
December 31, 2022. The facility may terminate earlier than the current termination date of October 1, 2027, in accordance with the terms of the Reimbursement Agreement. Under the terms of the
reimbursement agreement, in the event the letter of credit is drawn upon, Raven Re is required to repay the amounts utilized, and Fidelity & Guaranty Life Holdings, Inc. ("FGLH") is obligated to
repay the amounts utilized if Raven Re fails to make the required reimbursement. FGLH also is required to make capital contributions to Raven Re in the event that Raven Re’s statutory capital and
surplus falls below certain defined levels. As of December 31, 2022 and December 31, 2021, Raven Re’s statutory capital and surplus was $11 million and $62 million, respectively, in excess of the
minimum level required under the Reimbursement Agreement. As this letter of credit is provided by an unaffiliated financial institution, Raven Re is permitted to carry the letter of credit as an
admitted asset on the Raven Re statutory balance sheet.
Regulation - U.S. FGL Insurance, Fidelity & Guaranty Life Insurance Company of New York (“FGL NY Insurance”) and Raven Re are subject to comprehensive regulation and supervision in
their domiciles, Iowa, New York and Vermont, respectively, and in each state in which they do business. FGL Insurance does business throughout the United States, except for New York. FGL NY
Insurance only does business in New York. Raven Re is a special purpose captive reinsurance company that only provides reinsurance to FGL Insurance under the CARVM Treaty. FGL Insurance’s
principal insurance regulatory authority is the Iowa Insurance Division ("IID"); however, state insurance departments throughout the United States also monitor FGL Insurance’s insurance operations
as a licensed insurer. The New York State Department of Financial Services (“NYDFS”) regulates the operations of FGL NY Insurance. The purpose of these regulations is primarily to protect
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policyholders and beneficiaries and not general creditors and shareholders of those insurers. Many of the laws and regulations to which FGL Insurance and FGL NY Insurance are subject are
regularly re-examined and existing or future laws and regulations may become more restrictive or otherwise adversely affect their operations.
Generally, insurance products underwritten by and rates used by FGL Insurance and FGL NY Insurance must be approved by the insurance regulators in each state in which they are sold. Those
products are also substantially affected by federal and state tax laws. For example, changes in tax law could reduce or eliminate the tax-deferred accumulation of earnings on the deposits paid by the
holders of annuities and life insurance products, which could make such products less attractive to potential purchasers. A shift away from life insurance and annuity products could reduce FGL
Insurance’s and FGL NY Insurance’s income from the sale of such products, as well as the assets upon which FGL Insurance and FGL NY Insurance earn investment income. In addition, insurance
products may also be subject to the Employee Retirement Income Security Act of 1974 ("ERISA").
State insurance authorities have broad administrative powers over FGL Insurance and FGL NY Insurance with respect to all aspects of the insurance business including:
•
•
licensing to transact business;
licensing agents;
• prescribing which assets and liabilities are to be considered in determining statutory surplus;
•
regulating premium rates for certain insurance products;
• approving policy forms and certain related materials;
• determining whether a reasonable basis exists as to the suitability of the annuity purchase recommendations producers make;
•
regulating unfair trade and claims practices;
• establishing reserve requirements and solvency standards;
•
•
•
•
regulating the amount of dividends that may be paid in any year;
regulating the availability of reinsurance or other substitute financing solutions, the terms thereof and the ability of an insurer to take credit on its financial statements for insurance ceded to
reinsurers or other substitute financing solutions;
fixing maximum interest rates on life insurance policy loans and minimum accumulation or surrender values; and
regulating the type, amounts, and valuations of investments permitted, transactions with affiliates, and other matters.
State insurance laws and regulations require FGL Insurance, FGL NY Insurance and Raven Re to file reports, including financial statements, with state insurance departments in each state in
which they do business, and their operations and accounts are subject to examination by those departments at any time. FGL Insurance, FGL NY Insurance and Raven Re prepare statutory financial
statements in accordance with accounting practices and procedures prescribed or permitted by these departments.
The NAIC has approved a series of statutory accounting principles and various model regulations that have been adopted, in some cases with certain modifications, by all state insurance
departments. These statutory principles are subject to ongoing change and modification. Moreover, compliance with any particular regulator’s interpretation of a legal or accounting issue may not
result in compliance with another regulator’s interpretation of the same issue, particularly when compliance is judged in hindsight. Any particular regulator’s interpretation of a legal or accounting
issue may change over time to FGL Insurance’s or FGL NY Insurance’s detriment, or changes to the overall legal or market environment, even absent any change of interpretation by a particular
regulator, may cause FGL Insurance and FGL NY Insurance to change their views regarding the actions they need to take from a legal risk management perspective, which could necessitate changes
to FGL Insurance’s or FGL NY Insurance’s practices that may, in some cases, limit their ability to grow and improve profitability.
State insurance departments conduct periodic examinations of the books and records, financial reporting, policy and rate filings, market conduct and business practices of insurance companies
domiciled in their states, generally once every three to five years. Examinations are generally carried out in cooperation with the insurance departments of other states under guidelines promulgated
by the NAIC. State insurance departments also have the authority to conduct examinations of non-domiciliary insurers that are licensed in their states.
The Iowa insurance law and the New York insurance law regulate the amount of dividends that may be paid in any year by FGL Insurance and FGL NY Insurance, respectively.
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Each year, FGL NY Insurance may pay a certain limited amount of ordinary dividends or other distributions without being required to obtain the prior consent of or the NYDFS. However, to
pay any dividends or distributions (including the payment of any dividends or distributions for which prior consent is not required), FGL NY Insurance must provide advance written notice to the
NYDFS.
Pursuant to Iowa insurance law, ordinary dividends are payments, together with all other such payments within the preceding twelve months, that do not exceed the greater of (i) 10% of FGL
Insurance’s statutory surplus as regards policyholders as of December 31 of the preceding year; or (ii) the net gain from operations of FGL Insurance (excluding realized capital gains) for the 12-
month period ending December 31 of the preceding year.
Dividends in excess of FGL Insurance’s ordinary dividend capacity are referred to as extraordinary and require prior approval of the Iowa Commissioner. In deciding whether to approve a
request to pay an extraordinary dividend, Iowa insurance law requires the Iowa Commissioner to consider the effect of the dividend payment on FGL Insurance’s surplus and financial condition
generally and whether the payment of the dividend will cause FGL Insurance to fail to meet its required RBC ratio. Dividends may only be paid out of statutory earned surplus.
Any payment of dividends by FGL Insurance is subject to the regulatory restrictions described above and the approval of such payment by the board of directors of FGL Insurance, which must
consider various factors, including general economic and business conditions, tax considerations, FGL Insurance’s strategic plans, financial results and condition, FGL Insurance’s expansion plans,
any contractual, legal or regulatory restrictions on the payment of dividends and its effect on RBC and such other factors the board of directors of FGL Insurance considers relevant. For example,
payments of dividends could reduce FGL Insurance’s RBC and financial condition and lead to a reduction in FGL Insurance’s financial strength rating. See section titled "Risks Relating to Our
Business-A financial strength ratings downgrade, potential downgrade, or any other negative action by a rating agency could make our products less attractive and increase our cost of capital, and
thereby adversely affect our financial condition and results of operations” in Item 1A. Risk Factors.
FGL NY Insurance has historically not paid dividends.
FGL Insurance and FGL NY Insurance are subject to the supervision of the regulators in states where they are licensed to transact business. Regulators have discretionary authority in
connection with the continuing licensing of these entities to limit or prohibit sales to policyholders if, in their judgment, the regulators determine that such entities have not maintained the minimum
surplus or capital or that the further transaction of business will be hazardous to policyholders.
In order to enhance the regulation of insurers’ solvency, the NAIC adopted a model law to implement RBC requirements for life, health and property and casualty insurance companies. All
states have adopted the NAIC’s model law or a substantially similar law. RBC is used to evaluate the adequacy of capital and surplus maintained by an insurance company in relation to risks
associated with: (i) asset risk, (ii) insurance risk, (iii) interest rate risk, and (iv) business risk. In general, RBC is calculated by applying factors to various asset, premium and reserve items, taking into
account the risk characteristics of the insurer. Within a given risk category, these factors are higher for those items with greater underlying risk and lower for items with lower underlying risk. The
RBC formula is used as an early warning regulatory tool to identify possible inadequately capitalized insurers for purposes of initiating regulatory action, and not as a means to rank insurers
generally. Insurers that have less statutory capital than the RBC calculation requires are considered to have inadequate capital and are subject to varying degrees of regulatory action depending upon
the level of capital inadequacy. As of the most recent annual statutory financial statements filed with insurance regulators, the RBC ratios for FGL Insurance and FGL NY Insurance each exceeded
the minimum RBC requirements.
It is desirable to maintain an RBC ratio in excess of the minimum requirements in order to maintain or improve financial strength ratings. FGL Insurance's estimated U.S. RBC ratio was
approximately 440% target for the year ended December 31, 2022. See section titled “Risks Relating to Our Business-A financial strength ratings downgrade, potential downgrade, or any other
negative action by a rating agency, could make our product offerings less attractive and increase our cost of capital, and thereby adversely affect our financial condition and results of operations” in
Item 1A. Risk Factors.
The NAIC has developed a set of financial relationships or tests known as the Insurance Regulatory Information System ("IRIS") to assist state regulators in monitoring the financial condition
of U.S. insurance companies and identifying companies that require special attention or action by insurance regulatory authorities. A ratio falling outside the prescribed “usual range” is not
considered a failing result. Rather, unusual values are viewed as part of the regulatory early monitoring system. In many cases, it is not unusual for financially sound companies to have one or more
ratios that fall outside the usual range. Insurance companies generally submit data annually to the NAIC, which in turn analyzes the data using prescribed financial data ratios, each with defined
“usual ranges”. Generally, regulators will begin to investigate or monitor an insurance company if its ratios fall outside the usual ranges for four or more of the ratios. IRIS consists of a statistical
phase and an analytical phase whereby financial examiners review insurers’ annual statements and financial ratios. The statistical phase consists of 12 key financial ratios based on year-end data that
are generated from the NAIC database annually; each ratio has a “usual range” of results. As of December 31, 2022, FGL Insurance, FGL NY Insurance and Raven Re had three, four and three ratios
outside the usual
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range, respectively. The IRIS ratios for net income to total income (including realized capital gains and losses), change in premium and change in product mix for FGL Insurance were outside the
usual range. The IRIS ratios for net change in capital and surplus, gross change in capital and surplus, net income to total income (including realized capital gains and losses) and change in reserving
ratio for FGL NY Insurance were outside the usual range. The IRIS ratios for net income to total income (including realized capital gains and losses), adequacy of investment income and change in
premium for Raven Re were outside the usual range.
In all instances in prior years, regulators have been satisfied upon follow-up that no regulatory action was required. FGL Insurance, FGL NY Insurance and Raven Re are not currently subject
to regulatory restrictions based on these ratios.
State insurance laws require insurers to analyze the adequacy of reserves. The respective appointed actuaries for FGL Insurance, FGL NY Insurance and Raven Re must each submit an opinion
on an annual basis that their respective reserves, when considered in light of the respective assets FGL Insurance, FGL NY Insurance and Raven Re hold with respect to those reserves, make adequate
provision for the contractual obligations and related expenses of FGL Insurance, FGL NY Insurance and Raven Re. FGL Insurance, FGL NY Insurance and Raven Re have filed all of the required
opinions with the insurance departments in the states in which they do business.
States regulate the extent to which insurers are permitted to take credit on their financial statements for the financial obligations that the insurers cede to reinsurers. Where an insurer cedes
obligations to a reinsurer that is neither licensed nor accredited by the state insurance department, the ceding insurer is not permitted to take such financial statement credit unless the unlicensed or
unaccredited reinsurer secures the liabilities it will owe under the reinsurance contract. Under the laws regulating credit for reinsurance issued by such unlicensed or unaccredited reinsurers, the
permissible means of securing such liabilities are (i) the establishment of a trust account by the reinsurer to hold certain qualifying assets in a qualified U.S. financial institution, such as a member of
the Federal Reserve, with the ceding insurer as the exclusive beneficiary of such trust account with the unconditional right to demand, without notice to the reinsurer, that the trustee pay over to it the
assets in the trust account equal to the liabilities owed by the reinsurer; (ii) the posting of an unconditional and irrevocable letter of credit by a qualified U.S. financial institution in favor of the ceding
company allowing the ceding company to draw upon the letter of credit up to the amount of the unpaid liabilities of the reinsurer and (iii) a “funds withheld” arrangement by which the ceding
company withholds transfer to the reinsurer of the assets, which support the liabilities to be owed by the reinsurer, with the ceding insurer retaining title to and exclusive control over such assets. In
addition, on January 1, 2014, the NAIC Model Credit for Reinsurance Act became effective in Iowa, which adds the concept of “certified reinsurer”, whereby a ceding insurer may take financial
statement credit for reinsurance provided by an unaccredited and unlicensed reinsurer, which has been certified by the Iowa Commissioner. The Iowa Commissioner certifies reinsurers based on
several factors, including their financial strength ratings, and imposes collateral requirements based on such factors. Effective January 1, 2020 reciprocal jurisdiction was added and adopted in Iowa.
FGL Insurance and FGL NY Insurance are subject to such credit for reinsurance rules in Iowa and New York, respectively, insofar as they enter into any reinsurance contracts with reinsurers that are
neither licensed nor accredited in Iowa and New York, respectively.
F&G, as the parent company of FGL Insurance and the indirect parent company of FGL NY Insurance, is subject to the insurance holding company laws in Iowa and New York. These laws
generally require each insurance company directly or indirectly owned by the holding company to register with the insurance department in the insurance company’s state of domicile and to furnish
annually financial and other information about the operations of companies within the holding company system. Generally, all transactions between insurers and affiliates within the holding company
system are subject to regulation and must be fair and reasonable, and may require prior notice and approval or non-disapproval by its domiciliary insurance regulator.
Most states, including Iowa and New York, have insurance laws that require regulatory approval of a direct or indirect change of control of an insurer or an insurer’s holding company. Such
laws prevent any person from acquiring control, directly or indirectly, of F&G Annuities & Life, FGL US Holdings, CF Bermuda, FGLH, FGL Insurance or FGL NY Insurance unless that person has
filed a statement with specified information with the insurance regulators and has obtained their prior approval. In addition, investors deemed to have a direct or indirect controlling interest are
required to make regulatory filings and respond to regulatory inquiries. Under most states’ statutes, including those of Iowa and New York, acquiring 10% or more of the voting stock of an insurance
company or its parent company is presumptively considered a change of control, although such presumption may be rebutted. Accordingly, any person who acquires 10% or more of our voting
securities or that of F&G Annuities & Life, FGL US Holdings, CF Bermuda, FGLH, FGL Insurance or FGL NY Insurance without the prior approval of the insurance regulators of Iowa and New
York will be in violation of those states’ laws and may be subject to injunctive action requiring the disposition or seizure of those securities by the relevant insurance regulator or prohibiting the
voting of those securities and to other actions determined by the relevant insurance regulator.
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Each state has insurance guaranty association laws under which insurers doing business in the state may be assessed by state insurance guaranty associations for certain obligations of insolvent
insurance companies to policyholders and claimants. Typically, states assess each member insurer in an amount related to the member insurer’s proportionate share of the business written by all
member insurers in the state. Although no prediction can be made as to the amount and timing of any future assessments under these laws, FGL Insurance and FGL NY Insurance have established
reserves that they believe are adequate for assessments relating to insurance companies that are currently subject to insolvency proceedings.
State insurance laws and regulations include numerous provisions governing the marketplace activities of insurers, including provisions governing the form and content of disclosure to
consumers, illustrations, advertising, sales and complaint process practices. State regulatory authorities generally enforce these provisions through periodic market conduct examinations. In addition,
FGL Insurance and FGL NY Insurance must file, and in many jurisdictions and for some lines of business obtain regulatory approval for, rates and forms relating to the insurance written in the
jurisdictions in which they operate. FGL Insurance is currently the subject of four ongoing market conduct examinations in various states. Market conduct examinations can result in monetary fines or
remediation and generally require FGL Insurance to devote significant resources to the management of such examinations. FGL Insurance does not believe that any of the current market conduct
examinations it is subject to will result in any fines or remediation orders that will be material to its business.
FGL Insurance, FGL NY Insurance, and Raven Re are subject to state laws and regulations that require diversification of their investment portfolios and limit the amount of investments in
certain asset categories, such as below investment grade fixed income securities, equity, real estate, other equity investments and derivatives. Failure to comply with these laws and regulations would
cause investments exceeding regulatory limitations to be treated as either non-admitted assets for purposes of measuring surplus or as not qualified as an asset held for reserve purposes and, in some
instances, would require divestiture or replacement of such non-qualifying investments. We believe that the investment portfolios of FGL Insurance, FGL NY Insurance, and Raven Re as of
December 31, 2022 complied in all material respects with such regulations.
Our operations are subject to certain federal and state laws and regulations that require financial institutions and other businesses to protect the security and confidentiality of personal
information, including health-related and customer information, and to notify customers and other individuals about their policies and practices relating to their collection and disclosure of health-
related and customer information and their practices relating to protecting the security and confidentiality of such information. These laws and regulations require notice to affected individuals, law
enforcement agencies, regulators and others if there is a breach of the security of certain personal information, including social security numbers, and require holders of certain personal information to
protect the security of the data. Our operations are also subject to certain federal regulations that require financial institutions and creditors to implement effective programs to detect, prevent, and
mitigate identity theft. In addition, our ability to make telemarketing calls and to send unsolicited e-mail or fax messages to consumers and customers and our uses of certain personal information,
including consumer report information, are regulated. Federal and state governments and regulatory bodies may be expected to consider additional or more detailed regulation regarding these subjects
and the privacy and security of personal information.
In recent years, the U.S. Securities and Exchange Commission (“SEC”) and state securities regulators have questioned whether FIAs, such as those sold by us, should be treated as securities
under the federal and state securities laws rather than as insurance products exempted from such laws. Treatment of these products as securities would require additional registration and licensing of
these products and the agents selling them, as well as cause us to seek additional marketing relationships for these products, any of which may impose significant restrictions on our ability to conduct
operations as currently operated. Under the Dodd-Frank Act, annuities that meet specific requirements, including requirements relating to certain state suitability rules, are specifically exempted from
being treated as securities by the SEC. We expect the types of FIAs that FGL Insurance and FGL NY Insurance sell will meet these requirements and; therefore, are exempt from being treated as
securities by the SEC and state securities regulators. However, there can be no assurance that federal or state securities laws or state insurance laws and regulations will not be amended or interpreted
to impose further requirements on FIAs.
The Dodd-Frank Act made sweeping changes to the regulation of financial services entities, products and markets. Certain provisions of the Dodd-Frank Act are applicable to us, our
competitors or those entities with which we do business. These provisions may impact us in many ways, including, but not limited to, having an effect on the overall business climate, requiring the
allocation of certain resources to government affairs, and increasing our legal and compliance related activities and the costs associated therewith.
We may offer certain insurance and annuity products to employee benefit plans governed by ERISA and/or the Internal Revenue Code (the "Code"), including group annuity contracts
designated to fund tax-qualified retirement plans. ERISA and the Code provide (among other requirements) standards of conduct for employee benefit plan fiduciaries, including investment managers
and investment advisers with respect to the assets of such plans, and holds fiduciaries liable if they fail to satisfy fiduciary standards of conduct.
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State and federal regulators have been adopting stronger consumer protection regulations that may materially impact our company, business, distribution, and products. The NAIC adopted an
amended Suitability in Annuity Transactions Model Regulation in February 2020 incorporating a requirement that agents act in the best interest of consumers without putting their own financial
interests or insurer’s interests ahead of consumer interests. The best interest requirement is satisfied by complying with four regulatory obligations relating to care, disclosure, conflict of interest, and
documentation. The amended model regulation also requires agents to provide certain disclosures to consumers, obligates insurers to supervise agent compliance with the new requirements, and
prohibits sales contests or other incentives based on sales of specific annuities within a limited period of time.
Several states have adopted the revised NAIC model regulation, including FGL Insurance’s domiciliary state of Iowa. Management has instituted business procedures to comply with these
revised requirements where required. FGL NY Insurance separately instituted new business procedures in response to the NYDFS best interest rule adopted in August 2019, which survived a legal
challenge and deviates from the NAIC model regulation and is considered more onerous in certain respects including its broader application to life insurance sales.
In December 2020 the U. S. Department of Labor (DOL) issued its final version of an investment advice rule replacing the previous “Fiduciary Rule” that had been challenged by industry
participants and vacated in March 2018 by the United States Fifth Circuit Court of Appeals. The new investment advice rule reinstates the five-part test for determining whether a person is considered
a fiduciary for purposes of ERISA and the Code and sets forth a new prohibited transaction class exemption (PTE) referred to as PTE 2020-02. The rule’s preamble also contains the DOL’s
reinterpretation of elements of the five-part test that appears to encompass more insurance agents selling individual retirement account ("IRA") products and withdraws the agency’s longstanding
position that rollover recommendations out of employer plans are not subject to ERISA. The new rule took effect on February 16, 2021.
The DOL investment advice rule leaves in place PTE 84-24, which is a longstanding class exemption providing prohibited transaction relief for insurance agents selling annuity products
provided certain disclosures are made to the plan fiduciary, which is the policyholder in the case of an individual retirement account (“IRA”), and certain other conditions are met. Among other
things, these disclosures include the agent’s relationship to the insurer and commissions received in connection with the annuity sale. FGL Insurance, along with FGL NY Insurance, designed and
launched a compliance program in January 2022 requiring all agents selling IRA products to submit an acknowledgment with each IRA application indicating the agent has satisfied PTE 84-24
requirements on a precautionary basis in case the agent acted or is found to have acted as a fiduciary. Meanwhile the DOL has publicly announced its intention to consider future rulemaking that
would revoke or modify PTE 84-24.
Management believes these current and emerging developments relating to market conduct standards for the financial services industry may over time materially affect the way in which our
agents do business, the role of IMOs, sale of IRA products including IRA-to-IRA and employer plan rollovers, how the company supervises its distribution force, compensation practices, and liability
exposure and costs. In addition to implementing the compliance procedures described above, management is monitoring further developments closely and will be working with IMOs and distributors
to adapt to evolving regulatory requirements and risks.
Regulation - Bermuda. F&G Life Re is a Bermuda exempted company incorporated under the Companies Act 1981, as amended (the “Companies Act”) and registered as a Class C insurer
under the Insurance Act 1978, as amended, and its related regulations (the “Insurance Act”). F&G Life Re is regulated by the Bermuda Monetary Authority (“BMA”).
Bermuda has been awarded full equivalence for commercial insurers under Europe’s Solvency II regime applicable to insurance companies, which regime came into effect on January 1, 2016.
In addition, the Insurance Act required BMA approval of increases in control or dispositions of control of an insurance company.
The BMA utilizes a risk-based approach when it comes to licensing and supervising insurance and reinsurance companies. As part of the BMA’s risk-based system, an assessment of the inherent
risks within each particular class of insurer or reinsurer is used to determine the limitations and specific requirements that may be imposed. Thereafter the BMA keeps its analysis of relative risk
within individual institutions under review on an ongoing basis, including through the scrutiny of audited financial statements, and, as appropriate, meeting with senior management during onsite
visits.
The Insurance Act imposes on Bermuda insurance companies solvency and liquidity standards, as well as auditing and reporting requirements. Certain significant aspects of the Bermuda
insurance regulatory framework are set forth below.
Minimum Solvency Margin. The Insurance Act provides that the value of the assets of an insurer must exceed the value of its liabilities by an amount greater than its prescribed minimum
solvency margin.
The minimum solvency margin that must be maintained by a Class E insurer is the greater of: (i) $8,000,000; (ii) 2% of first $500,000,000 of assets plus 1.5% of assets above $500,000,000; and
(iii) 25% of that insurer’s enhanced capital requirement (“ECR”). An insurer may file an application under the Insurance Act to waive the aforementioned requirements.
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ECR and Bermuda Solvency Capital Requirements (“BSCR”). Class C insurers are required to maintain available capital and surplus at a level equal to or in excess of the applicable ECR,
which is established by reference to either the applicable BSCR model or an approved internal capital model. Furthermore, to enable the BMA to better assess the quality of the insurer’s capital
resources, a Class C insurer is required to disclose the makeup of its capital in accordance with its 3-tiered capital system. An insurer may file an application under the Insurance Act to have the
aforementioned ECR requirements waived.
Restrictions on Dividends and Distributions. In addition to the requirements under the Companies Act (as discussed below), the Insurance Act limits the maximum amount of annual dividends
and distributions that may be paid or distributed by F&G Life Re without prior regulatory approval.
F&G Life Re is prohibited from declaring or paying a dividend if it fails to meet its minimum solvency margin, or ECR, or if the declaration or payment of such dividend would cause such
breach. If F&G Life Re were to fail to meet its minimum solvency margin on the last day of any financial year, it would be prohibited from declaring or paying any dividends during the next financial
year without the approval of the BMA.
In addition, as a Class C insurer, F&G Life Re must: (i) not make any payment from its long-term business fund for any purpose other than a purpose of the insurer’s long-term business, except
in so far as such payment can be made out of any surplus certified by the insurer’s approved actuary to be available for distribution otherwise than to policyholders; and (ii) not declare or pay a
dividend to any person other than a policyholder unless the value of the assets of its long-term business fund, as certified by the insurer’s approved actuary, exceeds the extent (as to certified) of the
liabilities of the insurer’s long-term business. In the event a dividend complies with the above, F&G Life Re must ensure the amount of any such dividend does not exceed the aggregate of (i) that
excess and (ii) any other funds properly available for the payment of dividend, being funds arising out of business of the insurer other than long-term business.
Furthermore, as a Class C insurer, F&G Life Re must not declare or pay a dividend to any person other than a policyholder unless the value of the assets of the insurer, as certified by its
approved actuary, exceeds its liabilities (as so certified) by the greater of its margin of solvency or its ECR and the amount of any such dividend shall not exceed that excess.
The Companies Act also limits F&G Life Re’s ability to pay dividends and make distributions to its shareholders. F&G Life Re is not permitted to declare or pay a dividend, or make a
distribution out of its contributed surplus, if it is, or would after the payment be, unable to pay its liabilities as they become due or if the realizable value of its assets would be less than its liabilities.
Reduction of Capital. F&G Life Re may not reduce its total statutory capital by 15% or more, as set out in its previous year’s financial statements, unless it has received the prior approval of the
BMA. Total statutory capital consists of the insurer’s paid in share capital, its contributed surplus (sometimes called additional paid in capital) and any other fixed capital designated by the BMA as
statutory capital.
Regulation - Cayman. F&G Cayman Re Ltd. ("F&G Cayman Re") is licensed as a class D insurer in the Cayman Islands by the Cayman Islands Monetary Authority (“CIMA”). As a regulated
insurance company, F&G Cayman Re is subject to the supervision of CIMA and CIMA may at any time direct F&G Cayman Re, in relation to a policy, a line of business or the entire business, to
cease or refrain from committing an act or pursing a course of conduct and to perform such acts as in the opinion of CIMA are necessary to remedy or ameliorate the situation.
The laws and regulations of the Cayman Islands require that, among other things, F&G Cayman Re maintain minimum levels of statutory capital, surplus and liquidity, meet solvency standards,
submit to periodic examinations of its financial condition and restrict payments of dividends and reductions of capital. Statutes, regulations and policies that F&G Cayman Re is subject to may also
restrict the ability of F&G Cayman Re to write insurance and reinsurance policies, make certain investments and distribute funds. Any failure to meet the applicable requirements or minimum
statutory capital requirements could subject it to further examination or corrective action by CIMA, including restrictions on dividend payments, limitations on our writing of additional business or
engaging in finance activities, supervision or liquidation.
Sustainability
FNF’s work to address Environmental, Social and Governance (“ESG”) issues is important to who we are as a company. Our Company and our Board of Directors are committed to addressing
ESG issues to better serve our employees, business partners, and the communities impacted by our business. To honor that commitment, our management team leads our ESG efforts with oversight
from the Audit Committee, who reports our ESG progress and efforts to the Board of Directors.
While our title insurance products and services are not materially impacted by climate change, we believe that building a sustainable business starts with being transparent about our business
practices, corporate governance, environmental impact, and our commitments to our stakeholders. In 2019, we shared our inaugural Sustainability report. Since then, we have continued to enhance
our ESG efforts and publish updates on our progress annually. Additional information regarding our ESG efforts and commitment to sustainable business practices can be found on our sustainability
page at www.fnf.com.
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FNF’s core ESG commitments include:
Protecting Property Owners: Our policyholders depend on the strength and security of a reputable title insurance company to protect their home for years to come. As a provider of title
insurance, we protect the rights of the insured – both residential and commercial property owners – against unexpected legal and financial claims that may arise after closing.
Data Privacy and Fraud Protection: The safety and security of our policyholders, customers, vendors and employees is one of our top priorities. This means ensuring rigorous information
security and internal auditing protocols, and monitoring to help ensure the safety of funds and private information when it is in our custody. We are also always working hard to educate and protect
our stakeholders from fraud, through enhancing our fraud prevention programs.
Preserving the Environment: FNF works to integrate environmental management practices into our operations, including our facilities. As part of our commitment to preserve the environment,
we understand that we not only have a duty to protect the local environments where we operate, but that environmental change also poses risks and opportunities to our business. In 2021, we
conducted our first climate risk assessment to understand climate-related risks that may impact our business and to manage these risks through our enterprise risk management systems.
We have a number of efforts underway to reduce our environmental footprint across our locations. Our efforts include: monitoring and mitigating our carbon footprint, eliminating the use of
plastic water bottles, and participating in recycling programs. As part of a traditionally paper-intensive industry, we have implemented customer-focused technology to significantly reduce paper
consumption in real estate transactions, and we are committed to moving the title insurance industry in a more sustainable direction.
Supporting Our Employees and Communities: As one of our greatest assets, we are committed to providing our employees with opportunities to expand their knowledge base and develop
skills for career advancement. Additionally, we are committed to building a diverse and inclusive workplace, and we strongly believe that the diversity of our clients should be reflected among our
employees. With over 1,400 locations throughout the United States and Canada and over 21,000 employees, we are positioned to make a difference within the communities in which we operate.
Through local community involvement, corporate initiatives, and philanthropic giving – as well as an active community volunteer ethos – we work hard each day to support the communities in which
we live. This community outreach and support has become even more pertinent in the ongoing battle against COVID-19, and we continue to provide resources to ensure the health and safety of our
employees, their families, our customers, and our community.
Operating Ethically: Our reputation for integrity is one of our most important assets, and each of our employees and directors is expected to contribute to the care and preservation of that asset.
We operate in ways that we believe are fair, transparent, and compliant with applicable regulations. We implement strong governance practices, policies, training, and reporting avenues designed to
encourage and promote that all employees adhere to the highest standards for business integrity.
Human Capital Resources
Employees
As of January 31, 2023, we had 21,759 full-time equivalent employees, which includes 20,195 in our Title segment, 889 in our F&G segment and 675 in our Corporate and other segment. In our
Title segment, we monitor our staffing levels based on current economic activity. In our F&G segment, our employee base increased approximately 40% during 2021 as our F&G business continues
to grow. None of our employees are subject to collective bargaining agreements. We believe that our relations with employees are generally good.
Diversity
Diversity is a key component of FNF’s success. We believe that the diversity of our employees allows us to offer our clientele meaningful customized products and services. FNF aims to have
diverse and inclusive practices in all aspects of our business operations; particularly for hiring, compensation, and opportunity. We are committed to being an equal opportunity employer and
enhancing diversity and inclusion efforts across our business. Our goal is to foster an inclusive workplace where each employee, regardless of race, ethnicity, sexual orientation, or gender
identification, receives equal access to opportunities throughout the organization.
FNF’s Code of Business Conduct & Ethics prohibits discrimination and harassment. We have a written nondiscrimination policy that is distributed to all employees as part of our employee
handbook, which employees must acknowledge annually. Our employees participate in annual trainings including Code of Business Conduct and Ethics Training and Reporting Harassment:
Everyone’s Responsibility Training.
We have many women in leadership roles throughout our organization. As of January 31, 2022, out of the 19,332 U.S. based employees under FNF, 70% of the total workforce are women and
30% are men. Two out of eleven board members are women; 42% percent of the members of FNF’s Executive Team are women; and 68% of FNF’s Non-Executive Managers are
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women. Our annual Women in Leadership Program for female executives, managers, and future managers is designed to encourage and promote women into more active leadership roles within FNF.
Our Board of Directors leads by example in its commitment to diversity. In 2018, our board codified its commitment to diversity when selecting new director nominees, including candidates with
a diversity of age, gender, nationality, race, ethnicity, and sexual orientation by integrating it into the director selection criteria in our Corporate Governance Guidelines.
Training and Personal Development
We believe that our employees are one of our greatest assets, and we are committed to providing opportunities for them to expand their knowledge base and develop opportunities for
advancement, which in turn results in improved employee performance and morale.
FNF offers a variety of training and educational opportunities for employees including, but not limited to, training on escrow policies and procedures, advanced escrow processing and practices,
title loss reduction, title underwriting, advanced title practices and procedures, fraud prevention, as well as software, soft skills, sales, and time management trainings. Our Commercial Sales
University is a course for new commercial sales reps and our Leadership Development Program provides employees mentorship from senior executives.
Leadership Development Program: Our Leadership Development Program helps employees advance their careers through professional development. Candidates are nominated once a year by
their manager to participate in an intensive program, where they are asked to prepare and present a managers’ report and to participate in the process of preparing an annual budget. In addition, the
program includes thought-provoking discussions between candidates and our management team about leadership, business, the economy, and other industry-related topics. This process enables
candidates to gain a better understanding of our Company culture and management expectations. Candidates also gain access to mentorship and engagement with senior executives.
Many departments provide Continuing Education (CE) and Continuing Legal Education (CLE) opportunities for state land title and legal associations. Some offices provide financial assistance to
join professional organizations and offer education reimbursement.
Financial Information by Operating Segment
For financial information by operating segment, see Note J Segment Information to our Consolidated Financial Statements included in Item 8 of Part II of this Annual Report.
Statement Regarding Forward-Looking Information
The statements contained in this Annual Report or in our other documents or in oral presentations or other statements made by our management that are not purely historical are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including
statements regarding our expectations, hopes, intentions, or strategies regarding the future. These statements relate to, among other things, future financial and operating results of the Company. In
many cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,”
or the negative of these terms and other comparable terminology. Actual results could differ materially from those anticipated in these statements as a result of a number of factors, including, but not
limited to the following:
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adverse changes in the level of real estate activity, which may be caused by, among other things, high or increasing interest rates, a limited supply of mortgage funding, increased mortgage
defaults, or a weak U.S. economy;
the severity of our title insurance claims;
downgrade of our credit rating by rating agencies;
compliance with extensive government regulation of our operating subsidiaries and adverse changes in applicable laws or regulations or in their application by regulators;
potential impact of the F&G Distribution on relationships, including employees, suppliers, customers and competitors;
regulatory investigations of the title insurance industry;
loss of key personnel that could negatively affect our financial results and impair our operating abilities;
our business concentration in the States of California and Texas are the source of approximately 12.0% and 15.0%, respectively, of our title insurance premiums;
our potential inability to find suitable acquisition candidates, as well as the risks associated with acquisitions in lines of business that will not necessarily be limited to our traditional areas of
focus, or difficulties integrating acquisitions;
our dependence on distributions from our title insurance underwriters as our main source of cash flow;
competition from other title insurance companies;
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•
•
•
changes in general economic, business, and political conditions, including changes in the financial markets related to COVID-19 conditions;
impacts to our business operations caused by the occurrence of a catastrophe or global crisis, including the spread of COVID-19 variants; and
other risks detailed in "Risk Factors" below and elsewhere in this document and in our other filings with the SEC.
We are not under any obligation (and expressly disclaim any such obligation) to update or alter our forward-looking statements, whether as a result of new information, future events or
otherwise. You should carefully consider the possibility that actual results may differ materially from our forward-looking statements.
Additional Information
Our website address is www.fnf.com. We make available free of charge on or through our website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such material is electronically filed
with or furnished to the SEC. However, the information found on our website is not part of this or any other report.
Item 1A. Risk Factors
In addition to the normal risks of business, we are subject to significant risks and uncertainties, including those listed below and others described elsewhere in this Annual Report. Any of the risks
described herein could result in a significant or material adverse effect on our results of operations or financial condition.
Risk Factors Relating to Market Conditions
If economic and credit market conditions continue to deteriorate, it could have a material adverse impact on our investment portfolio and could also cause our stock price to fluctuate
significantly.
Our investment portfolio is exposed to economic and financial market risks, including changes in interest rates, credit markets and prices of marketable equity and fixed-income securities. Our
investment policy in our title business is designed to maximize total return through investment income and capital appreciation consistent with moderate risk of principal, while providing adequate
liquidity and complying with internal and regulatory guidelines. To achieve this objective, our marketable debt investments are primarily investment grade, liquid, fixed-income securities and money
market instruments denominated in U.S. dollars. We make investments in certain equity securities and preferred stock in order to take advantage of perceived value and for strategic purposes.
Economic and credit market conditions may adversely affect the ability of some issuers of investment securities to repay their obligations and affect the values of investment securities. If the carrying
value of our investments exceeds the fair value, and the decline in fair value is deemed to be other-than-temporary, we will be required to write down the value of our investments, which could have a
material negative impact on our results of operations and financial condition.
Fixed maturities, equity securities and derivatives represent the majority of total cash and invested assets reported at fair value on our balance sheets. Fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). Fair value estimates are made based on available
market information and judgments about the financial instrument at a specific point in time. Expectations that our investments will continue to perform in accordance with their contractual terms are
based on evidence gathered through our normal credit surveillance process and on assumptions a market participant would use in determining the current fair value.
The value and performance of certain of our assets are dependent upon the performance of collateral underlying these investments. It is possible the collateral will not meet performance
expectations leading to adverse changes in the cash flows on our holdings of these types of securities.
In addition, many factors unrelated to our business could cause the market price of our common stock to rise and fall, including the operating and stock price performance of other comparable
companies, investors’ general perception of our industry, and changes in general economic and market conditions. If the market for stocks in our industry, or the stock market in general, experiences a
loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition or results of operations. If any of the foregoing occurs, it
could cause our stock price to fall and may expose us to lawsuits that, even if successfully defended, could be costly to defend and a distraction to management.
Equity market volatility could negatively impact our business.
The estimated cost of providing GMWB associated with our annuity products incorporates various assumptions about the overall performance of equity markets over certain time periods. Periods of
significant and sustained downturns in equity markets or increased equity volatility could result in an increase in the valuation of the future policy benefit or policyholder
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account balance liabilities associated with such products, resulting in a reduction in our revenues and net earnings (loss). The rate of amortization of our deferred acquisition costs ("DAC"), deferred
sales inducements ("DSI") and value of business acquired ("VOBA") relating to FIA products could also increase if equity market performance is worse than assumed and have a materially adverse
impact on our results of operations and financial condition.
Conditions in the economy generally could adversely affect our business, results of operations and financial condition.
Our results of operations are materially affected by conditions in the U.S. economy. Adverse economic conditions may result in a decline in revenues and/or erosion of our profit margins. In
addition, in the event of extreme prolonged market events and economic downturns, we could incur significant losses. Even in the absence of a market downturn we are exposed to substantial risk of
loss due to market volatility.
Factors such as consumer spending, business investment, government spending, the volatility and strength of the capital markets, investor and consumer confidence, foreign currency exchange
rates and inflation levels all affect the business and economic environment and, ultimately, the amount and profitability of our business. In an economic downturn characterized by higher
unemployment, lower family income, negative investor sentiment and lower consumer spending, the demand for our insurance products could be adversely affected. Under such conditions, our F&G
segment may also experience an elevated incidence of policy lapses, policy loans, withdrawals and surrenders. In addition, our investments could be adversely affected as a result of deteriorating
financial and business conditions affecting the issuers of the securities in our investment portfolio.
Our investments are subject to market and credit risks. These risks could be heightened during periods of extreme volatility or disruption in financial and credit markets.
A worsening business climate, such as the current recession, or changing trends could cause issuers of the fixed-income securities that we own to default on either principal or interest payments.
Additionally, market price valuations may not accurately reflect the underlying expected cash flows of securities within our investment portfolio. If we fail to react appropriately to difficult market or
economic conditions, our investment portfolio could incur material losses.
Our invested assets and derivative financial instruments are subject to risks of credit defaults and changes in market values. Periods of extreme volatility or disruption in the financial and credit
markets could increase these risks. Changes in interest rates and credit spreads could cause market price and cash flow variability in the fixed income instruments in our investment portfolio.
Significant volatility and lack of liquidity in the credit markets could cause the market value of the fixed-income securities we own to decline. Additionally, market price valuations may not
accurately reflect the underlying expected cash flows of securities within our investment portfolio. Finally, market volatility could cause investment income fluctuations in regards to our alternative
investments that may differ significantly from period to period.
The value of our mortgage-backed securities and our commercial and residential mortgage loan investments depends in part on the financial condition of the borrowers and tenants for the properties
underlying those investments, as well as general and specific economic trends affecting the overall default rate. We are also subject to the risk that cash flows resulting from the payments on pools of
mortgages that serve as collateral underlying the mortgage-backed securities we own may differ from our expectations in timing or size. Any event reducing the estimated fair value of these
securities, other than on a temporary basis, could have an adverse effect on our business, results of operations and financial condition.
If adverse changes in the levels of real estate activity occur, our revenues may decline.
Title insurance revenue is closely related to the level of real estate activity that includes sales, mortgage financing and mortgage refinancing. The levels of real estate activity are primarily
affected by the average price of real estate sales, the availability of funds to finance purchases and mortgage interest rates.
We have found that residential real estate activity generally decreases in the following situations:
• when mortgage interest rates are high or increasing;
• when the mortgage funding supply is limited;
• when housing inventory is limited or home prices are high or increasing; and
• when the United States economy is weak, including high unemployment levels.
Declines in the level of real estate activity or the average price of real estate sales are likely to adversely affect our title insurance revenues. The Mortgage Bankers Association's ("MBA")
Mortgage Finance Forecast as of February 21, 2023 calculates an approximately $2.2 trillion mortgage origination market for 2022, which would be a decrease from 2021 resulting primarily from
decreases in both purchase and refinance activity. The MBA predicts overall mortgage originations in 2023 will also decrease when compared to 2022 as a result of decreases in both purchase and
refinance activity. Our revenues in future periods will continue to be subject to these and other factors that are beyond our control and, as a result, are likely to fluctuate. See discussion under
'Business Trends and Conditions' within Management's Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 of Part II of this Annual Report for further
discussion of current market trends.
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Interest rate fluctuations could adversely affect our business, financial condition, liquidity, results of operations and cash flows.
Interest rate risk is a significant market risk as our F&G business involves issuing interest rate sensitive obligations backed primarily by investments in fixed income assets. For several years prior to
2022, interest rates remained at or near historically low levels. A prolonged period of low rates exposes us to the risk of not achieving returns sufficient to meet our earnings targets and/or our
contractual obligations. Furthermore, low or declining interest rates may reduce the rate of policyholder surrenders and withdrawals on our life insurance and annuity products, thus increasing the
duration of the liabilities, creating asset and liability duration mismatches and increasing the risk of having to reinvest assets at yields below the amounts required to support our obligations. Lower
interest rates may also result in decreased sales of certain insurance products, negatively impacting our profitability from new business.
During periods of increasing interest rates, such as those observed in 2022, we may offer higher crediting rates on interest-sensitive products, such as universal life insurance and fixed annuities, and
we may increase crediting rates on in-force products to keep these products competitive. We may be required to accept lower spread income (the difference between the returns we earn on our
investments and the amounts we credit to contractholders) thus reducing our profitability, as returns on our portfolio of invested assets may not increase as quickly as current interest rates. Rapidly
rising interest rates may also expose us to the risk of financial disintermediation, which is an increase in policy surrenders, withdrawals and requests for policy loans as customers seek to achieve
higher returns elsewhere requiring us to liquidate assets in an unrealized loss position. If we experience unexpected withdrawal activity, we could exhaust our liquid assets and be forced to liquidate
other less liquid assets such as limited partnership investments. We may have difficulty selling these investments in a timely manner and/or be forced to sell them for less than we otherwise would
have been able to realize, which could have a material adverse effect on our business, financial condition and results of operations. We have developed and maintain asset liability management
(“ALM”) programs and procedures designed to mitigate interest rate risk by matching asset cash flows to expected liability cash flows. In addition, we assess surrender charges on withdrawals in
excess of allowable penalty-free amounts that occur during the surrender charge period. There can be no assurance actual withdrawals, contract benefits, and maturities will match our estimates.
Despite our efforts to reduce the impact of rising interest rates, we may be required to sell assets to raise the cash necessary to respond to an increase in surrenders, withdrawals and loans, thereby
realizing capital losses on the assets sold.
We may experience spread income compression, and a loss of anticipated earnings, if credited interest rates are increased on renewing contracts in an effort to decrease or manage withdrawal activity.
Our expectation for future spread income is an important component in amortization of DAC, DSI, and VOBA under U.S. GAAP. Significant reductions in spread income may cause us to accelerate
DAC, DSI, and VOBA amortization. In addition, certain statutory capital and reserve requirements are based on formulas or models that consider interest rates and a prolonged period of low interest
rates may increase the statutory capital we are required to hold as well as the amount of assets we must maintain to support statutory reserves.
Risk Factors Relating to Our Business
We have recorded goodwill as a result of prior acquisitions, and an economic downturn could cause these balances to become impaired, requiring write-downs that would reduce our operating
income.
Goodwill aggregated approximately $4,642 million, or 7.1% of our total assets, as of December 31, 2022. Current accounting rules require that goodwill be assessed for impairment at least
annually or whenever changes in circumstances indicate that the carrying amount may not be recoverable from estimated future cash flows. Factors that may be considered a change in circumstance
indicating the carrying value of our intangible assets, including goodwill, may not be recoverable include, but are not limited to, significant underperformance relative to historical or projected future
operating results, a significant decline in our stock price and market capitalization, and negative industry or economic trends. For the years ended December 31, 2022, 2021 and 2020, no goodwill
impairment charge was recorded. However, if the current economic downturn continues or escalates into further deterioration, the carrying amount of our goodwill may no longer be recoverable, and
we may be required to record an impairment charge, which would have a negative impact on our results of operations and financial condition. We will continue to monitor our market capitalization
and the impact of the economy to determine if there is an impairment of goodwill in future periods.
Our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry and prevent
us from meeting our obligations under our indebtedness.
As of December 31, 2022, our outstanding debt was $3,238 million. Our high degree of leverage could have important consequences, including the following: (i) a substantial portion of our cash
flow from operations is dedicated to the payment of principal and interest on indebtedness, thereby reducing the funds available for operations, future business opportunities and capital expenditures;
(ii) our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate purposes in the future may be limited; (iii) we may
be unable to adjust rapidly to changing market conditions; (iv) the debt service requirements of our other indebtedness could make it more difficult for us
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to satisfy our financial obligations; and (v) we may be vulnerable in a downturn in general economic conditions or in our business and we may be unable to carry out activities that are important to
our growth.
Our ability to make scheduled payments of the principal of, or to pay interest on, or to refinance indebtedness depends on and is subject to our financial and operating performance, which in turn
is affected by general and regional economic, financial, competitive, business and other factors beyond our control. If we are unable to generate sufficient cash flow to service our debt or to fund our
other liquidity needs, we will need to restructure or refinance all or a portion of our debt, which could cause us to default on our obligations and impair our liquidity. Any refinancing of our
indebtedness could be at higher interest rates and may require us to comply with more stringent covenants that could further restrict our business operations. We from time to time may increase the
amount of our indebtedness, modify the terms of our financing arrangements, issue dividends, make capital expenditures and take other actions that may substantially increase our leverage.
The pattern of amortizing our DAC, DSI, and VOBA balances relies on assumptions and estimates made by management. Changes in these assumptions and estimates could impact our results
of operations and financial condition.
Amortization of our DAC, DSI and VOBA balances depends on the actual and expected profits generated by the respective lines of business that incurred the expenses. Expected profits are
dependent on assumptions regarding a number of factors including investment returns, benefit payments, expenses, mortality, and policy lapse. Due to the uncertainty associated with establishing
these assumptions, we cannot, with precision, determine the exact pattern of profit emergence. As a result, amortization of these balances will vary from period to period. Any difference in actual
experience versus expected results could require us to, among other things, accelerate the amortization of DAC, DSI and VOBA that would reduce profitability for such lines of business in the current
period.
For additional information, see Item 7 of Part II of this Annual Report, under Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting
Policies and Estimates.
We may face losses if our actual experience differs significantly from our reserving assumptions.
Our profitability depends significantly upon the extent to which our actual experience is consistent with the assumptions used in setting rates for our products and establishing liabilities for
future life insurance, annuity, and PRT policy benefits and claims. However, due to the nature of the underlying risks and the high degree of uncertainty associated with the determination of the
liabilities for unpaid policy benefits and claims, we cannot determine precisely the amounts we will ultimately pay to settle these liabilities. As a result, we may experience volatility in our
profitability and our reserves from period to period. To the extent that actual experience is less favorable than our underlying assumptions, we could be required to increase our liabilities, which may
reduce our profitability and impact our financial strength.
We have been issuing guaranteed minimum withdrawal benefit (“GMWB”) products since 2008. In our reserve calculations, we make assumptions for policyholder behavior as it relates to
GMWB utilization. If emerging experience deviates from our assumptions on GMWB utilization, it could have a significant effect on our reserve levels and related results of operations. Based on
experience of GMWB utilization, which continues to emerge, we updated our GMWB utilization assumption during 2022, with a favorable impact on reserves. We will continue to monitor the
GMWB utilization assumption and update our best estimate as applicable.
See Item 7 of Part II of this Annual Report, under. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates.
Our management has historically sought to grow through acquisitions, both in our current lines of business as well as in lines of business outside of our traditional areas of focus or geographic
areas. This expansion of our business subjects us to associated risks, such as risks and uncertainties associated with new companies, the diversion of management’s attention and lack of
experience in operating unrelated businesses, and may affect our credit and ability to repay our debt.
Our management has historically sought to grow through acquisitions, both in our current lines of business, as well as lines of business that are not directly tied to or synergistic with our current
operations. Accordingly, we have in the past acquired, and may in the future acquire, businesses in industries or geographic areas with which management is less familiar than we are with our current
businesses. These activities involve risks that could adversely affect our operating results, due to uncertainties involved with new companies, diversion of management’s attention and lack of
substantial experience in operating such businesses. There can be no guarantee that we will not enter into transactions or make acquisitions that will cause us to incur additional debt, increase our
exposure to market and other risks and cause our credit or financial strength ratings to decline.
We are a holding company and depend on distributions from our subsidiaries for cash.
We are a holding company whose primary assets are the securities of our operating subsidiaries. Our ability to pay interest on our outstanding debt and our other obligations and to pay dividends
is dependent on the ability of our subsidiaries to pay dividends or make other distributions or payments to us. If our operating subsidiaries are not able to pay dividends to us, we may not be able to
meet our obligations or pay dividends on our common stock.
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Our title insurance subsidiaries must comply with state laws, which require them to maintain minimum amounts of working capital, surplus and reserves, and place restrictions on the amount of
dividends that they can distribute to us. Compliance with these laws will limit the amounts our regulated subsidiaries can dividend to us. During 2023, our title insurers may pay dividends or make
distributions to us of approximately $606 million; however, insurance regulators have the authority to prohibit the payment of ordinary dividends or other payments by our title insurers to us if they
determine that such payment could be adverse to our policyholders.
Our F&G subsidiaries are also subject to state laws with respect to the payment of dividends. The Iowa insurance law and the New York insurance law regulate the amount of dividends that may
be paid in any year by FGL Insurance and FGL NY Insurance, respectively. Compliance with these state regulations will limit the amounts that FGL Insurance and FGL NY Insurance may dividend
to us. Any dividends in excess of a threshold amount are subject to advance state notice or approval.
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 interpretation
of statutory accounting requirements by regulators.
Our business could be interrupted or compromised if we experience difficulties arising from outsourcing relationships.
If we do not maintain an effective outsourcing strategy or third-party providers do not perform as contracted, we may experience operational difficulties, increased costs and a loss of business
that could have a material adverse effect on our results of operations. If there is a delay in our third-party providers’ introduction of our new products or if our third-party providers are unable to
service our customers appropriately, we may experience a loss of business that could have a material adverse effect on our results of operations. In addition, our reliance on third-party service
providers that we do not control does not relieve us of our responsibilities and requirements. Any failure or negligence by such third-party service providers in carrying out their contractual duties
may result in us becoming subjected to liability to parties who are harmed and ensuing litigation. Any litigation relating to such matters could be costly, expensive and time-consuming, and the
outcome of any such litigation may be uncertain. Moreover, any adverse publicity arising from such litigation, even if the litigation is not successful, could adversely affect our reputation and sales of
our products.
See section titled "Outsourcing” in Item 1. Business for functions we outsource to third-party service providers.
If we are unable to attract and retain national marketing organizations and independent agents, sales of our products may be reduced.
Within our F&G segment, we must attract and retain our network of IMOs and independent agents to sell our products. Insurance companies compete vigorously for productive agents. We compete
with other life insurance companies for marketers and agents primarily on the basis of our financial position, support services, compensation and product features. Such marketers and agents may
promote products offered by other life insurance companies that offer a larger variety of products than we do. If we are unable to attract and retain a sufficient number of marketers and agents to sell
our products, our ability to compete and our revenues would suffer.
Failure of our enterprise-wide risk management processes could result in unexpected monetary losses, damage to our reputation, additional costs or impairment of our ability to conduct
business effectively.
As a large insurance entity and a publicly traded company, we have always had risk management functions, policies and procedures throughout our operations and management. These functions
include but are not limited to departments dedicated to enterprise risk management and information technology risk management, information security, business continuity, lender strategy and
development, and vendor risk management. These policies and procedures have evolved over the years as we continually reassess our processes both internally and to comply with changes in the
regulatory environment. Due to limitations inherent in any internal process, if our risk management processes prove unsuccessful at identifying and responding to risks, we could incur unexpected
monetary losses, damage to our reputation, additional costs or impairment of our ability to conduct business effectively.
If we experience changes in the rate or severity of title insurance claims, it may be necessary for us to record additional charges to our claim loss reserve. This may result in lower net earnings
and the potential for earnings volatility.
By their nature, claims are often complex, vary greatly in dollar amounts and are affected by economic and market conditions and 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. From time to time, we experience large losses or an overall worsening of
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our loss payment experience in regard to the frequency or severity of claims that require us to record additional charges to our claims loss reserve. There are currently pending several large claims,
which we believe can be defended successfully without material loss payments. However, if unanticipated material payments are required to settle these claims, it could result in or contribute to
additional charges to our claim loss reserves. These loss events are unpredictable and adversely affect our earnings.
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 to that balance and subtracting
actual paid claims from that balance, resulting in an amount that management then compares to our actuary's central estimate provided in the actuarial calculation. Due to the uncertainty and
judgment used by both management and our actuary, our ultimate liability may be greater or less than our current reserves and/or our actuary’s calculation. If the recorded amount is within a
reasonable range of the actuary’s central estimate, but not at the central estimate, management assesses other factors in order to determine 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 management can assess, but for which there is a time lag in the
development of the data used by our actuary), 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. Depending upon our assessment of these factors, we may or may not adjust the recorded reserve. If the recorded amount is not within a reasonable range of
the actuary’s central estimate, we would record a charge or credit and reassess the provision rate on a go forward basis.
If the rating agencies downgrade our insurance companies, our results of operations and competitive position in the title insurance industry may suffer.
Ratings have always been an important factor in establishing the competitive position of insurance companies. Our title insurance subsidiaries are rated by S&P, Moody’s, and Demotech. Our
F&G insurance subsidiaries are rated by A.M. Best, Fitch, Moody's, and S&P. Ratings reflect the opinion of a rating agency with regard to an insurance company’s or insurance holding company’s
financial strength, operating performance and ability to meet its obligations to policyholders and are not evaluations directed to investors. Our ratings are subject to continued periodic review by
rating agencies and the continued retention of those ratings cannot be assured. If our ratings are reduced from their current levels by those entities, our results of operations could be adversely
affected.
If our claim loss prevention procedures fail, we could incur significant claim losses.
In the ordinary course of our title insurance business, we assume risks related to insuring clear title to residential and commercial properties. We have established procedures to mitigate the risk
of loss from title claims, including extensive underwriting and risk assessment procedures. We also mitigate the risk of large claim losses by reinsuring risks with other insurers under excess of loss
and case-by-case (“facultative”) reinsurance agreements. Reinsurance agreements generally provide that the reinsurer is liable for loss and loss adjustment expense payments exceeding the amount
retained by the ceding company. However, the ceding company remains primarily liable to the insured whether or not the reinsurer is able to meet its contractual obligations. If inherent limitations
cause our claim loss risk mitigation procedures to fail, we could incur substantial losses having an adverse effect on our results of operations or financial condition.
Our use of independent agents for a significant amount of our title insurance policies could adversely impact the frequency and severity of title claims.
In our agency operations, an independent agent performs the search and examination function or the agent may purchase a search product from us. In either case, the agent is responsible for
ensuring that the search and examination is completed. The agent thus retains the majority of the title premium collected, with the balance remitted to the title underwriter for bearing the risk of loss
in the event that a claim is made under the title insurance policy. Our relationship with each agent is governed by an agency agreement defining how the agent issues a title insurance policy on our
behalf. The agency agreement also sets forth the agent’s liability to us for policy losses attributable to the agent’s errors. For each agent with whom we enter into an agency agreement, financial and
loss experience records are maintained. Periodic audits of our agents are also conducted and the number of agents with whom we transact business is strategically managed in an effort to reduce
future expenses and manage risks. Despite efforts to monitor the independent agents with which we transact business, there is no guarantee that an agent will comply with their contractual obligations
to us. Furthermore, we cannot be certain that, due to changes in the regulatory environment and litigation trends, we will not be held liable for errors and omissions by agents. Accordingly, our use of
independent agents could adversely impact the frequency and severity of title claims.
Risk Factors Related to the F&G Distribution
The F&G Distribution could adversely affect our results of operations or financial condition.
On December 1, 2022, we completed the F&G Distribution. The F&G Distribution is subject to inherent risks and uncertainties, including, but not limited to: diversion of management’s attention and
the potential impact of the F&G
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Distribution on relationships, including with employees, suppliers, customers and competitors; our ability to successfully realize the anticipated benefits of the F&G Distribution; the terms and
conditions of agreements and arrangements between FNF and F&G following the distribution, such as the Corporate Services Agreement, dated as of November 30, 2022, between FNF and F&G
(the “Corporate Services Agreement”), which provides for, among other things, the provision of certain services by FNF to F&G following the F&G Distribution; and the nature and amount of
indebtedness incurred by F&G. In addition, our F&G segment contributes to a significant portion of our earnings and the F&G Distribution could adversely affect our earnings.
Certain F&G directors may have actual or potential conflicts of interest because of their FNF equity ownership or their current or former FNF positions.
A number of F&G’s directors have been, and will continue to be, officers, directors or employees of FNF (or officers, directors or employees of affiliates of FNF) and, thus, have professional
relationships with FNF’s officers, directors or employees. In addition, certain of F&G’s directors and executive officers own FNF common stock or other equity compensation awards. These
relationships may create, or may create the appearance of, conflicts of interest when these directors and officers are faced with decisions that could have different implications for FNF and F&G. For
example, potential conflicts of interest could arise in connection with the resolution of any dispute that may arise between FNF and F&G regarding the terms of the agreements governing F&G’s
relationship with FNF, including the Corporate Services Agreement.
FNF or F&G may fail to perform under various transaction agreements that were executed as part of the F&G Distribution.
In connection with the F&G Distribution, FNF and F&G entered into a separation and distribution agreement, the Corporate Services Agreement, and other transaction agreements. The
transaction agreements determine the allocation of assets, rights and liabilities between the companies and include indemnifications related to liabilities and obligations. The Corporate Services
Agreement provides for the performance of certain services by us for the benefit of F&G for a limited period of time after the F&G Distribution. The reverse services agreement provides for the
performance of certain services by F&G for the benefit of FNF for a limited period of time after the F&G Distribution. We will rely on F&G to satisfy its obligations under the transaction agreements.
If F&G is unable to satisfy its obligations under the transaction agreements, including its indemnification obligations, we could incur operational difficulties or losses.
Risk Factors Relating to the Geographic Concentrations of our Business Segments
Because we are dependent upon California and Texas for approximately 12.0% and 15.0% and of our title insurance premiums, respectively, our Title segment may be adversely affected by
regulatory conditions in California and/or Texas.
California and Texas are the two largest sources of revenue for our Title segment. In 2022, California-based premiums accounted for approximately 26.8% of premiums earned by our direct
operations and 0.6% of our agency premium revenues, while Texas-based premiums accounted for 20.2% of premiums earned by our direct operations and 11.0% of our agency premium revenues. In
the aggregate, California and Texas accounted for approximately 12.0% and 15.0%, respectively, of our total title insurance premiums for 2022. A significant part of our revenues and profitability are
therefore subject to our operations in California and Texas and to the prevailing regulatory conditions in these states. Adverse regulatory developments in California and Texas, which could include
reductions in the maximum rates permitted to be charged, inadequate rate increases or more fundamental changes in the design or implementation of the California and Texas title insurance regulatory
framework, could have a material adverse effect on our results of operations and financial condition.
Concentration in certain states for the distribution of our life insurance and annuity products in our F&G segment may subject us to losses attributable to economic downturns or catastrophes
in those states.
Our top five states for the distribution of our life insurance and annuity products in our F&G segment are Florida, California, Texas, Pennsylvania and New Jersey. Any adverse economic
developments or catastrophes in these states could have an adverse impact on our F&G segment.
Risk Factors Relating to Government Regulation of the Insurance Industry
Our subsidiaries must comply with extensive regulations. These regulations may increase our costs or impede or impose burdensome conditions on actions that we might seek to take to increase
the revenues of those subsidiaries.
Our insurance businesses are subject to extensive regulation by state insurance authorities in each state in which they operate. These agencies have broad administrative and supervisory power
relating to the following, among other matters:
•
•
•
•
•
•
licensing requirements;
trade and marketing practices;
accounting and financing practices;
disclosure requirements on key terms of mortgage loans;
capital and surplus requirements;
the amount of dividends and other payments made by insurance subsidiaries;
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•
•
•
•
•
investment practices;
rate schedules;
deposits of securities for the benefit of policyholders;
establishing reserves; and
regulation of reinsurance.
Most states also regulate insurance holding companies like us with respect to acquisitions, changes of control and the terms of transactions with our affiliates. State regulations may impede or
impose burdensome conditions on our ability to increase or maintain rate levels or on other actions that we may want to take to enhance our operating results. In addition, we may incur significant
costs in the course of complying with regulatory requirements. Further, various state legislatures have in the past considered offering a public alternative to the title industry in their states, as a means
to increase state government revenues. Although we think this situation is unlikely, if one or more such takeovers were to occur they could adversely affect our business. We cannot be assured that
future legislative or regulatory changes will not adversely affect our business operations. See “Item 1. Business — Regulation” for further discussion of the current regulatory environment.
Our ServiceLink subsidiary provides mortgage transaction services including title-related services and facilitation of production and management of mortgage loans. Certain of these businesses
are subject to federal and state regulatory oversight. For example, ServiceLink’s LoanCare business services and subservices mortgage loans secured primarily by residential real estate throughout the
United States. LoanCare is subject to extensive federal, state and local regulatory oversight, including federal and state regulatory examinations, information gathering requests, inquiries, and
investigations by governmental and regulatory agencies, including the CFPB. In connection with formal and informal inquiries by those agencies, LoanCare receives numerous requests, subpoenas,
and orders for documents, testimony and information in connection with various aspects of its or its clients’ regulated activities.
LoanCare is also required to maintain a variety of licenses, both federal and state. License requirements are in a frequent state of renewal and reexamination as regulations change or are
reinterpreted. In addition, federal and state statutes establish specific guidelines and procedures that debt collectors must follow when collecting consumer accounts. LoanCare’s failure to comply with
any of these laws, should the states take an opposing interpretation, could have an adverse effect on LoanCare in the event and to the extent that they apply to some or all of its servicing activities.
State regulation of the rates we charge for title insurance could adversely affect our results of operations.
Our insurance subsidiaries are subject to extensive rate regulation by the applicable state agencies in the jurisdictions in which they operate. Title insurance rates are regulated differently in
various states, with some states requiring the subsidiaries to file and receive approval of rates before such rates become effective and some states promulgating the rates that can be charged. In
general, premium rates are determined on the basis of historical data for claim frequency and severity as well as related production costs and other expenses. In all states in which our title subsidiaries
operate, our rates must not be excessive, inadequate or unfairly discriminatory. Premium rates are likely to prove insufficient when ultimate claims and expenses exceed historically projected levels.
Premium rate inadequacy may not become evident quickly and may take time to correct, and could adversely affect our business operating results and financial conditions.
Our F&G segment is highly regulated and subject to numerous legal restrictions and regulations.
State insurance regulators, the NAIC and federal regulators continually reexamine existing laws and regulations and may impose changes in the future. New interpretations of existing laws and
the passage of new legislation may harm our ability to sell new policies, increase our claims exposure on policies we issued previously and adversely affect our profitability and financial strength. We
are also subject to the risk that compliance with any particular regulator’s interpretation of a legal or accounting issue may not result in compliance with another regulator’s interpretation of the same
issue, particularly when compliance is judged in hindsight. Regulators and other authorities have the power to bring administrative or judicial proceedings against us, which could result in, among
other things, suspension or revocation of our licenses, cease and desist orders, fines, civil penalties, criminal penalties or other disciplinary action, which could materially harm our results of
operations and financial condition.
We cannot predict what form any future changes in these or other areas of regulation affecting the insurance industry might take or what effect, if any, such proposals might have on us if enacted
into law. In addition, because our activities are relatively concentrated in a small number of lines of business, any change in law or regulation affecting one of those lines of business could have a
disproportionate impact on us as compared to other more diversified insurance companies. See section titled “Regulation” in Item 1. Business for further discussion of the impact of regulations on our
business.
State Regulation
Our business is subject to government regulation in each of the states in which we conduct business and is concerned primarily with the protection of policyholders and other customers rather
than shareholders. Such regulation is vested in state
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agencies having broad administrative and discretionary authority, which may include, among other things, premium rates and increases thereto, underwriting practices, reserve requirements,
marketing practices, advertising, privacy, policy forms, reinsurance reserve requirements, acquisitions, mergers and capital adequacy. At any given time, we and our insurance subsidiaries may be the
subject of a number of ongoing financial or market conduct, audits or inquiries. From time to time, regulators raise issues during such examinations or audits that could have a material impact on our
business.
Under insurance guaranty fund laws in most states, insurance companies doing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies.
We cannot predict the amount or timing of any such future assessments and therefore the liability we have established for these potential assessments may not be adequate. In addition, regulators may
change their interpretation or application of existing laws and regulations such as the case with broadening the scope of carriers that must contribute towards Long Term Care insolvencies.
NAIC
Although our business is subject to regulation in each state in which we conduct business, in many instances the state regulatory models emanate from the NAIC. Some of the NAIC
pronouncements, particularly as they affect accounting issues, take effect automatically in the various states without affirmative action by the states. Statutes, regulations and interpretations may be
applied with retroactive impact, particularly in areas such as accounting and reserve requirements. The NAIC continues to work to reform state regulation in various areas, including comprehensive
reforms relating to cyber security regulations, best interest standards, RBC and life insurance reserves.
Our insurance subsidiaries are subject to minimum capitalization requirements based on RBC formulas for life insurance companies that establish capital requirements relating to insurance,
business, asset, interest rate and certain other risks. Changes to statutory reserve or risk-based capital requirements may increase the amount of reserves or capital our insurance companies are
required to hold and may impact our ability to pay dividends. In addition, changes in statutory reserve or risk-based capital requirements may adversely impact our financial strength ratings. Changes
currently under consideration include adding an operational risk component, factors for asset credit risk, and group wide capital calculations.
“Fiduciary” Rule Proposals
The DOL investment advice rule leaves in place PTE 84-24, which is a longstanding class exemption providing prohibited transaction relief for insurance agents selling annuity products
provided certain disclosures are made to the plan fiduciary, which is the policyholder in the case of an IRA, and certain other conditions are met. Among other things, these disclosures include the
agent’s relationship to the insurer and commissions received in connection with the annuity sale. F&G, along with FGL NY Insurance, designed and launched a compliance program in January 2022
requiring all agents selling IRA products to submit an acknowledgment with each IRA application indicating the agent has satisfied PTE 84-24 requirements on a precautionary basis in case the agent
acted or is found to have acted as a fiduciary. Meanwhile the DOL has publicly announced its intention to consider future rulemaking that would revoke or modify PTE 84-24.
Management believes these current and emerging developments relating to market conduct standards for the financial services industry may over time materially affect the way in which our
agents do business, the role of IMOs, sale of IRA products including IRA-to-IRA and employer plan rollovers, how the company supervises its distribution force, compensation practices, and liability
exposure and costs. In addition to implementing the compliance procedures described above, management is monitoring further developments closely and will be working with IMOs and distributors
to adapt to these evolving regulatory requirements and risks.
Bermuda and Cayman Islands Regulation
Our business is subject to regulation in Bermuda and the Cayman Islands, including the BMA and the CIMA. These regulations may limit or curtail our activities, including activities that might
be profitable, and changes to existing regulations may affect our ability to continue to offer our existing products and services, or new products and services we may wish to offer in the future.
Our reinsurance subsidiary, F&G Life Re, is registered in Bermuda under the Bermuda Insurance Act and subject to the rules and regulations promulgated thereunder. The BMA has sought
regulatory equivalency, which enables Bermuda’s commercial insurers to transact business with the European Union on a “level playing field.” In connection with its initial efforts to achieve
equivalency under the European Union’s Directive (2009/138/EC) (“Solvency II”), the BMA implemented and imposed additional requirements on the companies it regulates. The European
Commission in 2016 granted Bermuda’s commercial insurers full equivalence in all areas of Solvency II for an indefinite period of time.
Our reinsurance subsidiary, F&G Cayman Re, is licensed in the Cayman Islands by the CIMA and is subject to supervision by CIMA and CIMA may at any time direct F&G Cayman Re, in
relation to a policy, a line of business or the entire business, to cease or refrain from committing an act or pursing a course of conduct and to perform such acts as in the opinion of CIMA are
necessary to remedy or ameliorate the situation.
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The SECURE 2.0 Act of 2022 may impact our business and the markets in which we compete.
The Secure 2.0 Act of 2022, Division T of the Consolidated Appropriations Act, 2023 (“SECURE Act 2.0”), was signed into law on December 29, 2022, and went into effect as early as January
1, 2023, in certain respects. The SECURE Act 2.0 contains provisions that may impact our F&G insurance subsidiaries, and these changes could affect the desirability of IRAs, necessitate changes to
our administrative system to implement the Secure Act 2.0, and affect, to some extent, the length of time that IRA assets remain in our annuity products. These provisions include, for example,
raising the age for required minimum distributions from IRAs from 72 to 73 (age 74 after 2032); additional exceptions to the 10% penalty tax for distributions before age 59-1/2; reduction of the
penalty for failures to take a required distribution amount; directions to the SEC for new registration forms for registered index linked annuities; and directions to the DOL to revisit fiduciary
standards relating to choosing an annuity provider in pension risk transfer transactions. While we cannot predict whether, or to what extent, the SECURE Act 2.0 will ultimately impact us, whether
positive or negative, it may have implications for our business operations and the markets in which we compete.
Regulatory investigations of the insurance industry may lead to fines, settlements, new regulation or legal uncertainty, which could negatively affect our results of operations.
From time to time we receive inquiries and requests for information from state insurance departments, attorneys general and other regulatory agencies about various matters relating to our
business. Sometimes these take the form of civil investigative demands or subpoenas. We cooperate with all such inquiries and we have responded to or are currently responding to inquiries from
multiple governmental agencies. Also, regulators and courts have been dealing with issues arising from foreclosures and related processes and documentation. Various governmental entities are
studying the insurance product, market, pricing, and business practices, and potential regulatory and legislative changes, which may materially affect our business and operations. From time to time,
we are assessed fines for violations of regulations or other matters or enter into settlements with such authorities, which may require us to pay fines or claims or take other actions.
Risk Factors Relating to the Credit Risk of our Counterparties
We are subject to the credit risk of our counterparties, including companies with whom we have reinsurance agreements or we have purchased call options.
Our F&G insurance subsidiaries cede material amounts of insurance and transfer related assets and certain liabilities to other insurance companies through reinsurance. Accordingly, we bear credit
risk with respect to our reinsurers. The failure, insolvency, inability or unwillingness of any reinsurer to pay under the terms of reinsurance agreements with us could materially adversely affect our
business, financial condition and results of operations. We regularly monitor the credit rating and performance of our reinsurance parties. Wilton Re represents our largest reinsurance counterparty
exposure. We also utilize funds withheld reinsurance counterparty risk. Under funds withheld arrangements, each of our F&G insurance subsidiaries retains possession and legal title to assets backing
ceded liabilities.
Our F&G insurance subsidiaries are also exposed to credit loss in the event of non-performance by our counterparties on call options. We seek to reduce the risk associated with such agreements by
purchasing such options from large, well-established financial institutions, and by holding collateral. There can be no assurance we will not suffer losses in the event of counterparty non-performance.
If financial institutions at which we hold escrow funds fail, it could have a material adverse impact on our company.
We hold customers' assets in escrow at various financial institutions, pending completion of real estate transactions. These assets are maintained in segregated bank accounts and have not been
included in the accompanying Consolidated Balance Sheets. We have a contingent liability relating to proper disposition of these balances for our customers, which amounted to $18.9 billion at
December 31, 2022. Failure of one or more of these financial institutions may lead us to become liable for the funds owed to third parties and there is no guarantee that we would recover the funds
deposited, whether through Federal Deposit Insurance Corporation coverage or otherwise.
Risk Factors Related to a National or Global Crisis, Climate Change, Computer Cyber-terrorism and Other Catastrophic Events
Our business could be materially and adversely affected by the occurrence of a catastrophe, including natural disasters or those caused by humans.
Any catastrophic event, such as pandemic diseases, terrorist attacks, floods, severe storms or hurricanes or computer cyber-terrorism, could have a material and adverse effect on our business in
several respects:
•
the outbreak of a pandemic disease, like COVID-19, could have a material adverse effect on our liquidity, financial condition and the operating results of our insurance business due to its
impact on the economy and financial markets;
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•
the occurrence of any pandemic disease, natural disaster, terrorist attack or any other catastrophic event that results in our workforce being unable to be physically located at one of our
facilities could result in lengthy interruptions in our service; or
• we could experience long-term interruptions in our service and the services provided by our significant vendors due to the effects of catastrophic events, including but not limited to
government mandates to self-quarantine, work remotely and prolonged travel restrictions. Some of our operational systems are not fully redundant, and our disaster recovery and business
continuity planning cannot account for all eventualities. Additionally, unanticipated problems with our disaster recovery systems could further impede our ability to conduct business,
particularly if those problems affect our computer-based data processing, transmission, storage and retrieval systems and destroy valuable data;
• we manage our financial exposure for losses in our title insurance business and in our F&G segment with third-party reinsurance. Catastrophic events could adversely affect the cost and
availability of that reinsurance;
•
the value of our investment portfolio may decrease if the securities in which we invest are negatively impacted by climate change, pandemic diseases, severe weather conditions and other
catastrophic events.
Natural catastrophes, pandemics (including COVID-19) and malicious and terrorist acts present risks that could adversely affect our results of operations. Claims arising from such events could
have an adverse effect on our business, operations and financial condition, either directly or as a result of their effect on our reinsurers or other counterparties. Such events could also have an adverse
effect on the rate and amount of lapses and surrenders of existing policies, as well as sales of new policies.
While we believe we have taken steps to identify and mitigate these types of risks, such risks cannot be reliably predicted, nor fully protected against even if anticipated. In addition, such
events could result in overall macroeconomic volatility or specifically a decrease or halt in economic activity in large geographic areas, adversely affecting the marketing or administration of our
business within such geographic areas or the general economic climate, which in turn could have an adverse effect on our business, results of operations and financial condition. The possible
macroeconomic effects of such events could also adversely affect our asset portfolio.
General Risk Factors
Failure of our information security systems or processes could result in a loss or disclosure of confidential information, damage to our reputation, monetary losses, additional costs and
impairment of our ability to conduct business effectively.
Our operations are highly dependent upon the effective operation of our computer systems. We use our computer systems to receive, process, store and transmit sensitive personal consumer data
(such as names and addresses, social security numbers, driver's license numbers, credit cards and bank account information) and important business information of our customers. We also
electronically manage substantial cash, investment assets and escrow account balances on behalf of ourselves and our customers, as well as financial information about our businesses generally. The
integrity of our computer systems and the protection of the information that resides on such systems are important to our successful operation. If we fail to maintain an adequate security
infrastructure, adapt to emerging security threats such as ransomware or follow our internal business processes with respect to security, the information or assets we hold could be compromised.
Further, even if we, or third parties to which we outsource certain information technology services, maintain a reasonable, industry-standard information security infrastructure to mitigate these risks,
the inherent risk that unauthorized access to information or assets remains. This risk is increased by transmittal of information over the internet and the increased threat and sophistication of cyber
criminals. While, to date, we believe that we have not experienced a material breach of our computer systems, the occurrence or scope of such events is not always apparent. Examples of security
threats that represent significant inherent risk with little to no warning are the SolarWinds supply chain compromise from 2020 and the Apache Software Foundation Log4j vulnerability in its product
disclosed in December of 2021. With SolarWinds, we took all appropriate steps to evaluate any impact and we do not believe we were impacted by this incident. Similar supply chain incidents or
breaches could occur to us directly or indirectly through our vendors with little or no warning. With Log 4j, we took all appropriate steps to mitigate exposure to our systems. We know that certain
applications in our environment did utilize the affected versions of Log4j. Although we believe we identified and remediated the known Log4j vulnerabilities with no indication of compromise, the
risk of additional vulnerabilities and potential attacks related to this issue may continue for several months given the complexity and widespread nature of the situation. We are also working closely
with our supply chain partners to ensure they are addressing these vulnerabilities. If additional information regarding an event previously considered immaterial is discovered, or a new event were to
occur, it could potentially have a material adverse effect on our operations or financial condition. In addition, some laws and certain of our contracts require notification of various parties, including
regulators, consumers or customers, in the event that confidential or personal information has or may have been taken or accessed by unauthorized parties. Such notifications can potentially result,
among other things, in adverse publicity, diversion of management and other resources, the attention of regulatory authorities, the imposition of fines, and disruptions in business operations, the
effects of which may be material. Any inability to prevent security or privacy breaches, or the perception that such breaches may occur, could inhibit our ability to retain or
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attract new clients and/or result in financial losses, litigation, increased costs, negative publicity, or other adverse consequences to our business.
Further, our financial institution clients have obligations to safeguard their information technology systems and the confidentiality of customer information. In certain of our businesses, we are bound
contractually and/or by regulation to comply with the same requirements. If we fail to comply with these regulations and requirements, we could be exposed to suits for breach of contract,
governmental proceedings or the imposition of fines. In addition, future adoption of more restrictive privacy laws, rules or industry security requirements by federal or state regulatory bodies or by a
specific industry in which we do business could have an adverse impact on us through increased costs or restrictions on business processes.
Damage to our reputation may adversely affect our revenues and profitability.
Our reputation is a key asset, and our continued success is dependent upon our ability to earn and maintain the trust and confidence of our broad range of customers. We provide our products and
services to a wide range of customers, and our ability to attract and retain customers is highly dependent upon the external perceptions of our level of service, trustworthiness, business practices,
financial condition, and other subjective qualities. Damage to our reputation may arise from a variety of sources including, but not limited to, litigation or regulatory actions, compliance failures,
employee misconduct, cybersecurity incidents, unfavorable press coverage, and unfavorable comments on social media. Any damage to our reputation could adversely affect our ability to attract and
retain customers and employees, potentially leading to a reduction in our revenues and profitability.
Failure to respond to rapid changes in technology could adversely affect our results of operations or financial condition.
Rapidly evolving technologies and innovations in software and financial technology could drive changes in how real estate transactions are recorded and processed throughout the mortgage life
cycle. There is no guarantee that we will be able to effectively adapt to and utilize changing technology. Existing or new competitors may be able to utilize or create technology more effectively than
us, which could result in the loss of market share.
We may not be able to protect our intellectual property and may be subject to infringement claims.
We rely on a combination of contractual rights and copyright, trademark and trade secret laws to establish and protect our intellectual property. Although we use a broad range of measures to
protect our intellectual property rights, third parties may infringe or misappropriate our intellectual property. We may have to litigate to enforce and protect our copyrights, trademarks, trade secrets
and know-how or to determine their scope, validity or enforceability, which represents a diversion of resources that may be significant in amount and may not prove successful. The loss of intellectual
property protection or the inability to secure or enforce the protection of our intellectual property assets could adversely impact our business and our ability to compete effectively.
We may be subject to costly litigation in the event that another party alleges our operations or activities infringe upon that party’s intellectual property rights. Third parties may have, or may
eventually be issued, patents or other protections that could be infringed by our products, methods, processes or services or could otherwise limit our ability to offer certain product features. We may
also be subject to claims by third parties for breach of copyright, trademark, trade secret or license usage rights. Any such claims and any resulting litigation could result in significant expense and
liability for damages or we could be enjoined from providing certain products or services to our customers or utilizing and benefiting from certain methods, processes, copyrights, trademarks, trade
secrets or licenses, or alternatively, we could be required to enter into costly licensing arrangements with third parties, all of which could have a material adverse effect on our business, results of
operations and financial condition.
We are the subject of various legal proceedings that could have a material adverse effect on our results of operations.
We are involved from time to time in various legal proceedings, including in some cases class-action lawsuits and regulatory inquiries, investigations or other proceedings. If we are unsuccessful in
our defense of litigation matters or regulatory proceedings, we may be forced to pay damages, fines or penalties and/or change our business practices, any of which could have a material adverse
effect on our business and results of operations. See Note H Commitments and Contingencies to our Consolidated Financial Statements included in Item 8 of Part II of this Annual Report for further
discussion of pending litigation and regulatory matters and our related accrual.
We operate in a highly competitive industry, which could limit our ability to gain or maintain our position in the industry and could materially adversely affect our business, financial condition
and results of operations.
Our F&G insurance subsidiaries operate in a highly competitive industry and encounter significant competition in all of our product lines from other insurance companies, many of which have greater
financial resources and higher financial strength ratings than us and that may have a greater market share, offer a broader range of products, services or features, assume a
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greater level of risk, have lower operating or financing costs, or have different profitability expectations than us. Competition could result in, among other things, lower sales or higher lapses of
existing products.
Our annuity products compete with fixed indexed, fixed rate and variable annuities sold by other insurance companies and also with mutual fund products, traditional bank investments and other
retirement funding alternatives offered by asset managers, banks and broker-dealers. The ability of banks and broker dealers to increase their securities-related business or to affiliate with insurance
companies may materially and adversely affect sales of all of our products by substantially increasing the number and financial strength of potential competitors. Our insurance products compete with
those of other insurance companies, financial intermediaries and other institutions based on a number of factors, including premium rates, policy terms and conditions, service provided to distribution
channels and policyholders, ratings by rating agencies, reputation and commission structures.
Our ability to compete is dependent upon, among other things, our ability to develop competitive and profitable products, our ability to maintain low unit costs, and our maintenance of adequate
financial strength ratings from rating agencies. Our ability to compete is also dependent upon, among other things, our ability to attract and retain distribution channels to market our products, the
competition for which is vigorous.
The loss of key personnel could negatively affect our financial results and impair our operating abilities.
Our success substantially depends on our ability to attract and retain key members of our senior management team and officers. If we lose one or more of these key employees, our operating
results and in turn the value of our common stock could be materially adversely affected. Although we have employment agreements with many of our officers, there can be no assurance that the
entire term of the employment agreement will be served or that the employment agreement will be renewed upon expiration.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our corporate headquarters are in Jacksonville, Florida in owned facilities. F&G's headquarters are in Des Moines, Iowa in leased facilities.
The majority of our branch offices are leased from third parties. See Note Q Leases to our Consolidated Financial Statements included in Item 8 of Part II of this Annual Report for further
information on our outstanding leases. Our subsidiaries conduct their business operations primarily in leased office space in 46 states, Washington, DC, Canada, India, Bermuda and the Cayman
Islands.
Item 3. Legal Proceedings
For a description of our legal proceedings see discussion of Legal and Regulatory Contingencies in Note H Commitments and Contingencies to our Consolidated Financial Statements included in
Item 8 of Part II of this Annual Report, which is incorporated by reference into this Item 3 of Part I.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock trades on the New York Stock Exchange under the trading symbol "FNF".
PART II
On January 31, 2023, the last reported sale price of our common stock on the New York Stock Exchange was $44.03. We had approximately 5,998 shareholders of record on January 31, 2023.
Refer to Note U Employee Benefit Plans to our Consolidated Financial Statements included in Item 8 of Part II of this Annual Report, which is incorporated by reference into this Item 5 of Part
II, for further information on securities issued for employee stock compensation pursuant to our Omnibus Plan.
Information concerning securities authorized for issuance under our equity compensation plans will be included in Item 12 of Part III of this Annual Report.
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Performance Graph
Set forth below is a graph comparing cumulative total shareholder return on our FNF common stock against the cumulative total return on the S&P 500 Index and against the cumulative total
return of a peer group index consisting of certain companies in the primary industry in which we compete (SIC code 6361 — Title Insurance) for the period ending December 31, 2022. This peer
group consists of the following companies: First American Financial Corporation and Stewart Information Services Corp. The peer group comparison has been weighted based on their stock market
capitalization. The graph assumes an initial investment of $100.00 on December 31, 2017, with dividends reinvested over the periods indicated.
Fidelity National Financial, Inc.
S&P 500
Peer Group
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
12/31/2017
12/31/2018
12/31/2019
12/31/2020
12/31/2021
12/31/2022
100.00
100.00
100.00
82.86
95.62
84.70
123.41
125.72
109.40
111.03
148.85
104.43
153.45
191.58
165.46
120.4
156.8
110.1
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Dividends
On February 16, 2023, our Board of Directors formally declared a $0.45 per FNF share cash dividend that is payable on March 31, 2023 to FNF shareholders of record as of March 17, 2023.
During the years ended December 31, 2022 and 2021, we declared dividend on our common stock of $1.77 and $1.56, respectively.
Our current dividend policy anticipates the payment of quarterly dividends in the future. The declaration and payment of dividends will be at the discretion of our Board of Directors and will be
dependent upon our future earnings, financial condition and capital requirements.
Purchases of Equity Securities by the Issuer
On August 3, 2021, our Board of Directors approved a new three-year stock repurchase program effective August 3, 2021 (the "2021 Repurchase Program") under which we may purchase up to
25 million shares of our FNF common stock through July 31, 2024. We may make repurchases from time to time in the open market, in block purchases or in privately negotiated transactions,
depending on market conditions and other factors.
During the quarter ended December 31, 2022, we repurchased a total of 1,000,000 FNF common shares for an aggregate amount of $38 million or an average of $37.87 per share. Subsequent to
December 31, 2022 and through market close on February 23, 2023, we repurchased a total of 100,000 shares for approximately $4 million in the aggregate, or an average of $38.45 under the 2021
Repurchase Program. Since the original commencement of the 2021 Repurchase Program, we repurchased a total of 16,449,565 FNF common shares for an aggregate amount of $701 million, or an
average of $42.60 per share.
The following table summarizes repurchases of equity securities by FNF during the quarter ended December 31, 2022:
Period
10/1/2022 - 10/31/2022
11/1/2022 - 11/30/2022
12/1/2022 - 12/31/2022
Total
Total Number of Shares Purchased
Average Price Paid per Share
Total Number of Shares Purchased as
Part of Publicly Announced Plans or
Programs (1)
Maximum Number of Shares that May
Yet Be Purchased Under the Plans or
Programs (2)
475,000
—
525,000
1,000,000
$
38.39
—
37.4
37.87
475,000
—
525,000
1,000,000
9,175,435
9,175,435
8,650,435
(1) On August 3, 2021 our Board of Directors approved the 2021 Repurchase Program, effective August 3, 2021, under which we may purchase up to 25 million shares of our FNF common
stock through July 31, 2024.
(2) As of the last day of the applicable month.
Item 6. Reserved.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
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.
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.
The most recent forecast of the MBA, as of February 21, 2023, estimated (actual for fiscal year 2021) the size of the U.S. residential mortgage originations market as shown in the following table
for 2021 - 2025 in its "Mortgage Finance Forecast" (in trillions):
Purchase transactions
Refinance transactions
Total U.S. mortgage originations forecast
2025
2024
2023
2022
2021
$
$
$
1.8
0.7
2.5
$
$
$
1.7
0.6
2.3
$
$
$
1.4
0.5
1.9
$
$
$
1.6
0.6
2.2
$
$
$
1.8
2.6
4.4
As of February 21, 2023, the MBA expects residential purchase transactions to decrease in 2022 and 2023 followed by increases in 2024 and 2025. Additionally, the MBA expects residential
refinance transactions to dramatically decrease in 2022, followed by a slight decrease in 2023 before slightly increasing in 2024 and 2025. The MBA expects overall mortgage originations to decrease
in 2022 and 2023 before increasing in 2024 and 2025.
In recent years, total originations have been reflective of a strong residential real estate market driven by increasing home prices and low mortgage interest rates. Interest rate cuts in the second
half of 2019 resulted in a significant increase in refinance transactions and a slight increase in purchase transactions. In the beginning of 2020, refinance and purchase transactions remained strong
until the outbreak of COVID-19.
On March 15, 2020, the Federal Reserve took emergency action and reduced its benchmark interest rate by a full percentage point to nearly zero. Following this emergency action, average
interest rates for a 30-year fixed rate mortgages fell throughout the remainder of 2020. The outbreak of COVID-19 resulted in significant uncertainty in the economic outlook in the second quarter of
2020, and as a result real estate activity decreased significantly as consumers moved to the sidelines to assess the ongoing impact of COVID-19. However, real estate activity began to rebound in June
2020, with increases in purchase activity and a surge in refinance transactions as a result of historically low interest rates.
Residential purchase and refinance activity remained strong in 2021. However, with the surge in residential refinance transactions in 2020, residential refinance transactions began to slow in 2021
as the population of eligible refinance candidates declined.
The Federal Reserve raised the benchmark interest rate from near zero as of March 2022 to a range between 4.25% and 4.50% as of December 2022 in an effort to combat inflation. Interest rates
on a 30-year, fixed rate mortgage averaged 5.2% in 2022, up from 3.2% in 2021. On February 2, 2023, the Federal Reserve raised the benchmark interest rate an additional 25 basis points.
A shortage in the supply of homes for sale, increasing home prices, rising mortgage interest rates, inflation and disrupted labor markets created some volatility in the residential real estate market
in 2021 and 2022, which has continued into 2023. Additionally, geopolitical uncertainties associated with the war in Ukraine have created additional volatility in the global economy beginning in
2022. Existing-home sales decreased 34% in December 2022 as compared to the corresponding month in
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2021 while median existing-home sales prices rose to $366,900 in December 2022, a 2% increase over the corresponding month in 2021.
Other economic indicators used to measure the health of the U.S. economy, including the unemployment rate, indicated that the United States was on strong footing prior to the outbreak of
COVID-19. 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 subsequently fluctuated dramatically before
reaching 6.7% in December 2020. In 2021, the unemployment rate fell dramatically and remained near record lows throughout 2022. The unemployment rate was 3.5% and 3.9% in December of
2022 and 2021, respectively.
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 prior to the COVID-19 pandemic, we experienced strong demand in commercial real estate markets. In 2020, we experienced decreases in commercial
volumes and commercial fee-per-file as a result of the outbreak of COVID-19. Commercial volumes and commercial fee-per-file recovered in the second half of 2020 and remained stable throughout
2021 and the first three quarters of 2022. Commercial volumes and commercial fee-per-file declined in the fourth quarter of 2022.
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, 2021 and 2022 deviated from historical patterns due to COVID-19 and the subsequent rapid increase in interest rates. 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 5,300 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:
Texas
California
Florida
Pennsylvania
Illinois
All others
Totals
2022
Year Ended December 31,
2021
2020
Amount
%
Amount
%
Amount
%
$
$
1,027
819
722
356
360
3,550
6,834
(Dollars in millions)
15.0 % $
12.0
10.6
5.2
5.3
51.9
100.0 % $
1,112
1,251
799
439
436
4,516
8,553
13.0 % $
14.6
9.3
5.1
5.1
52.9
100.0 % $
778
958
540
303
312
3,407
6,298
12.3 %
15.2
8.6
4.8
5.0
54.1
100.0 %
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F&G
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
The health, economic and business conditions precipitated by the worldwide COVID-19 pandemic that emerged in 2020 increased our mortality experience in 2021 and 2020 in both our single
premium immediate annuity (“SPIA”) and IUL business which largely offset each other. As of December 31, 2022, we have not seen a sustained elevated level of adverse policyholder experience
from the impact of COVID-19 on the overall business.
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 F&G products include guaranteed minimum crediting rates, most notably our fixed rate annuities. As of December 31, 2022, our reserves, net of reinsurance, and average crediting
rate on our fixed rate annuities were $6.0 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 FIA and IUL products. As the “baby boomer” generation prepares for retirement, we believe that demand for
retirement savings, growth, and income products will grow. 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 18% in 2022 to 21% in 2035. 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
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 us.
As a tool for addressing the unmet need for retirement planning, we believe that many middle-income Americans have grown to appreciate the financial certainty that we believe annuities such as our
FIA products afford. Accordingly, the FIA market grew from nearly $12 billion of sales in 2002 to $66 billion of sales in 2021. Additionally, this market demand has positively impacted the IUL
market as it has expanded from $100 million of annual premiums in 2002 to $2 billion of annual premiums in 2021.
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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:
Known claims
IBNR
Total Reserve for Title Claim Losses
December 31, 2022
%
December 31, 2021
%
195
1,615
1,810
(Dollars in millions)
10.8 % $
89.2
100.0 % $
337
1,546
1,883
17.9 %
82.1
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 years ended December 31, 2022, 2021 and 2020 related to policies written in those years. The provision rate in 2022, 2021, and 2020 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, claims expense management, mechanic’s lien underwriting practices, and 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:
Beginning balance
Change in reinsurance recoverable
Claims loss provision related to:
Current year
Prior years
Total title claim loss provision
Claims paid, net of recoupments related to:
Current year
Prior years
Total title claims paid, net of recoupments
Ending balance of claim loss reserve for title insurance
Title premiums
Provision for title insurance claim losses as a percentage of title insurance premiums:
Current year
Prior years
Total provision
2022
2021
(In millions)
2020
$
1,883
(128)
$
1,623
94
308
—
308
(21)
(232)
(253)
1,810
6,834
$
$
385
—
385
(14)
(205)
(219)
1,883
8,553
$
$
$
$
$
2022
2021
2020
4.5 %
—
4.5 %
4.5 %
—
4.5 %
1,509
34
283
—
283
(11)
(192)
(203)
1,623
6,298
4.5 %
—
4.5 %
Actual claims payments consist of loss payments and claims management expenses offset by recoupments and were as follows (in millions):
Year ended December 31, 2022
Year ended December 31, 2021
Year ended December 31, 2020
Loss Payments
Claims Management
Expenses
Recoupments
Net Loss Payments
$
$
294
171
120
$
134
124
122
$
(175)
(76)
(39)
253
219
203
As of December 31, 2022 and 2021, our recorded reserves were $1,810 million and $1,883 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 $90 million above the mid-point of the provided range of $1.5
billion to $2.0 billion of our actuarial estimates as of December 31, 2022. Our recorded reserves were $59 million above the mid-point of the provided range of our actuarial estimates of $1.5 billion
to $2.0 billion as of December 31, 2021.
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During 2022, 2021, and 2020, 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 2006-2009. 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 2011 through 2022 policy years, which we believe is indicative of more stringent underwriting standards
by us and the lending industry. 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 9,600 claims at December 31, 2021 to approximately 9,100 claims at
December 31, 2022. 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 $68 million increase (decrease) in our annualized provision for title claim losses would occur if our loss provision rate were 1% higher (lower), based on 2022 title premiums of
$6,834 million. A 10% increase (decrease) in our reserve for title claim losses, as of December 31, 2022, would result in an increase (decrease) in our provision for title claim losses of approximately
$181 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 years ended December 31, 2022 and 2021, and the seven month period ended
December 31, 2020 on the fixed annuity products averaged 7%, 7% and 4%, respectively, 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 Guaranteed Minimum Withdrawal Benefit ("GMWB") rider benefits and certain Guaranteed
Minimum Death Benefit ("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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Our aggregate reserves for contractholder funds, future policy benefits and product guarantees on a direct and net basis as of December 31, 2022 and December 31, 2021 are summarized as
follows:
(Dollars in millions)
Fixed indexed annuities
Fixed rate annuities
Immediate annuities
Universal life
Traditional life
Funding agreement backed notes ("FABN")
Pension risk transfer ("PRT")
Total
(Dollars in millions)
Fixed indexed annuities
Fixed rate annuities
Immediate annuities
Universal life
Traditional life
Funding agreement backed notes
Pension risk transfer
Total
Net
$
Direct
Reinsurance
Recoverable
$
24,812
9,359
4,007
2,127
1,777
2,613
2,461
—
(3,719)
(135)
(947)
(786)
—
—
47,156
$
(5,587)
$
Direct
As of December 31, 2021
Reinsurance
Recoverable
$
23,370
6,369
3,657
1,981
1,823
1,904
1,153
—
(1,689)
(133)
(983)
(805)
—
—
Net
$
40,257
$
(3,610)
$
24,812
5,640
3,872
1180
991
2,613
2,461
41,569
23,370
4,680
3,524
998
1,018
1,904
1,153
36,647
$
$
$
$
Fixed indexed annuities ("FIA") and indexed universal life ("IUL") 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/ IUL embedded derivatives are 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
accumulated other comprehensive income (loss) ("AOCI"), net of associated adjustments for deferred acquisition costs ("DAC"), value of business acquired ("VOBA"), deferred sales inducements
("DSI"), unearned revenue ("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.
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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 and IUL 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/ IUL embedded derivative liabilities includes an adjustment to reflect the risk that these obligations will not be fulfilled (“non-performance risk”). For the years ended
December 31, 2022 and December 31, 2021, 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 O F&G Reinsurance of our Consolidated Financial Statements included in Item 8 of Part II of this Report, F&G entered into a reinsurance agreement with Kubera
Insurance (SAC) Ltd. ("Kubera") effective December 31, 2018, to cede certain multi-year guaranteed annuities ("MYGA") and deferred annuity GAAP and statutory reserves on a coinsurance funds
withheld basis, net of applicable existing reinsurance. Effective October 31, 2021, this agreement was novated from Kubera to Somerset. Additionally, F&G entered into a reinsurance agreement with
Aspida Re effective January 1, 2021, to cede a quota share of certain deferred annuity business on a funds withheld basis. Fair value movements in the funds withheld balances associated with these
arrangements create an obligation for F&G to pay Somerset and Aspida Re at a later date, which results in embedded derivatives. These embedded derivatives are considered total return swaps with
contractual returns that are attributable to the assets and liabilities associated with the reinsurance arrangements. The fair value of the total return swaps are 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 derivatives are 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.
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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, hierarchy level and net asset value ("NAV") as of December 31, 2022 and December 31, 2021.
(Dollars in millions)
Fixed maturity securities available-for-sale and equity
securities:
Prices via third-party pricing services
Priced via independent broker quotations
Priced via other methods
Total
% of Total
(Dollars in millions)
Fixed maturity securities available-for-sale and equity
securities:
Prices via third-party pricing services
Priced via independent broker quotations
Priced via other methods
Total
% of Total
Goodwill
$
$
$
$
$
$
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant
Observable Inputs
(Level 2)
As of December 31, 2022
Significant
Unobservable
Inputs
(Level 3)
NAV
Total
1,333
—
—
1,333
4 %
$
$
25,197
—
—
25,197
73 %
$
$
1,234
6,846
18
8,098
23 %
$
$
$
$
—
—
47
47
— %
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant
Observable Inputs
(Level 2)
As of December 31, 2021
Significant
Unobservable
Inputs
(Level 3)
NAV
Total
1,892
—
—
1,892
6 %
$
$
$
$
26,389
—
—
26,389
78 %
$
$
$
$
920
4,538
66
5,524
16 %
$
$
$
$
$
$
—
—
48
48
— %
27,764
6,846
65
34,675
100 %
29,201
4,538
114
33,853
100 %
We have made acquisitions that have resulted in a significant amount of goodwill. As of December 31, 2022 and 2021, goodwill was $4,642 million and $4,539 million, respectively. The
majority of our goodwill as of December 31, 2022 relates to goodwill recorded in connection with the Chicago Title merger in 2000, our initial acquisition of an ownership interest in 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. For the years ended December 31,
2022, 2021 and 2020, we determined there were no events or circumstances that indicated that the carrying value exceeded the fair value.
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VOBA, DAC and DSI
Our intangible assets include an intangible asset reflecting the value of insurance and reinsurance contracts acquired (hereafter referred to as 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, 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.
(Dollars in millions)
A change to the long-term interest rate assumption of -50 basis points
A change to the long-term interest rate assumption of +50 basis points
An assumed 10% increase in surrender rate
As of December 31, 2022
As of December 31, 2021
$
$
(113)
93
(6)
(91)
75
(4)
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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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 realized and, to the
extent we believe that realizability is not likely, establish a valuation allowance. 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.
For the year ended December 31, 2022, changes in market conditions, including rising interest rates, resulted in deferred tax assets related to the net unrealized capital losses in the Company’s
investment portfolio. U.S. GAAP requires the evaluation of the recoverability of deferred tax assets and the establishment of a valuation allowance, if necessary, to reduce the deferred tax asset to an
amount that is more likely than not to be realized. When assessing the need for valuation allowance on the unrealized capital loss deferred tax assets, we assert a tax planning strategy to hold the vast
majority of underlying securities to recovery or maturity. Our ability to assert such a tax planning strategy is dependent upon factors such as the Company’s asset/liability matching process, overall
investment strategy, projected future annuity product sales, and expected liquidity needs. In the event these estimates differ from our prior estimates due to the receipt of new information, we may be
required to significantly change the income tax expense recorded in the Consolidated Financial Statements. This includes a further significant decline in value of assets incorporated into our tax
planning strategies which could lead to an increase of our valuation allowance on deferred tax assets having an adverse effect on current and future results.
Refer to Note T 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:
Revenues:
Direct title insurance premiums
Agency title insurance premiums
Escrow, title-related and other fees
Interest and investment income
Recognized gains and losses, net
Total revenues
Expenses:
Personnel costs
Agent commissions
Other operating expenses
Benefits and other changes in policy reserves
Depreciation and amortization
Provision for title claim losses
Interest expense
Total expenses
Earnings before income taxes and equity in earnings of unconsolidated affiliates
Income tax expense
Equity in earnings of unconsolidated affiliates
Net earnings from continuing operations
Revenues.
2022
Year Ended December 31,
2021
(In millions)
2020
$
$
2,858
3,976
4,324
1,891
(1,493)
11,556
3,192
3,064
1,721
1,125
496
308
115
10,021
1,535
398
15
$
3,571
4,982
4,795
1,961
334
15,643
3,528
3,821
1,929
2,138
645
385
114
12,560
3,083
713
64
$
1,152
$
2,434
$
2,699
3,599
3,092
900
488
10,778
2,951
2,749
1,759
866
296
283
90
8,994
1,784
322
15
1,477
Total revenues decreased by $4,087 million in 2022 compared to 2021, primarily attributable to decreases in both direct and agency premiums, decreases in escrow title-related and other fees,
decreases in interest and investment income and net recognized losses on our investment holdings in 2022 as compared to net recognized gains on our investment holdings in 2021. Total revenues
increased by $4,865 million in 2021 compared to 2020, 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, partially offset by a decrease in recognized gains on our investment holdings.
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 decreased by $1,282 million in 2022 compared to 2021, and increased by $957 million in 2021 compared to 2020.
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 $1,891
million, $1,961 million, and $900 million for the years ended December 31, 2022, 2021, and 2020, respectively. The increase in 2021 as compared to 2020 is primarily attributable to a full year of
activity in our F&G segment.
Recognized gains and losses, net totaled $(1,493) million, $334 million, and $488 million for the years ended December 31, 2022, 2021, and 2020, respectively. Recognized gains and losses, net
for the year ended December 31, 2022 are primarily
55
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attributable to realized losses on derivatives of $515 million, losses on sales of fixed maturity securities of $282 million, losses on sales of mortgages and other assets of $80 million, losses on sales of
equity and preferred securities of $31 million and non-cash valuation losses on equity and preferred security holdings of $584 million. Recognized gains and losses, net for the year ended December
31, 2021 are primarily attributable to realized gains on derivatives of $655 million, gains on sales of fixed maturity securities of $114 million and gains on sales of mortgages and other assets of $13
million, partially offset by losses on sales of equity and preferred securities of $19 million and non-cash net valuation losses on equity and preferred securities of $429 million. 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.
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 segment 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, 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 $398 million, $713 million, and $322 million for the years ended December 31, 2022, 2021, and 2020 respectively. Income tax expense as a percentage of earnings
before income taxes was 25.9%, 23.1%, and 18.0% in the years ended December 31, 2022, 2021, and 2020 respectively. The increase in income tax expense as a percentage of earnings before taxes
in 2022 as compared to 2021 is primarily attributable to the recording of a valuation allowance in 2022 for tax benefits associated with deferred tax assets related to unrealized losses on equity
securities for which it is not more likely than not that we will not be able to realize the benefit for tax purposes, partially offset by the tax benefit of realized capital losses carried back to 2017. The
increase in income tax expense as a percentage of earnings before taxes in 2021 when compared to 2020 is primarily attributable to valuation allowance releases and the tax status change recorded by
F&G in 2020.
For the year ended December 31, 2022, changes in market conditions, including rising interest rates, resulted in deferred tax assets related to the net unrealized capital losses in the Company’s
investment portfolio. U.S. GAAP requires the evaluation of the recoverability of deferred tax assets and the establishment of a valuation allowance, if necessary, to reduce the deferred tax asset to an
amount that is more likely than not to be realized.
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When assessing the need for valuation allowance for the F&G segment on the unrealized capital loss deferred tax assets, F&G asserts a tax planning strategy to hold the vast majority of
underlying securities to recovery or maturity. F&G’s ability to assert such a tax planning strategy is dependent upon factors such as F&G’s asset/liability matching process, overall investment strategy,
projected future annuity product sales, and expected liquidity needs.
In the event these estimates differ from our prior estimates due to the receipt of new information, the Company may be required to significantly change the income tax expense recorded in the
Consolidated Financial Statements. This includes a further significant decline in value of assets incorporated into our tax planning strategies which could lead to an increase of our valuation
allowance on deferred tax assets having an adverse effect on current and future results.
Title
The following table presents the results of operations of our Title segment for the years indicated:
Revenues:
Direct title insurance premiums
Agency title insurance premiums
Escrow, title-related and other fees
Interest and investment income
Recognized gains and losses, net
Total revenues
Expenses:
Personnel costs
Agent commissions
Other operating expenses
Depreciation and amortization
Provision for title claim losses
Interest expense
Total expenses
Earnings from continuing operations, before income taxes and equity in earnings of unconsolidated affiliates
Orders opened by direct title operations (in thousands)
Orders closed by direct title operations (in thousands)
Fee per file by direct title operations (in dollars)
2022
Year Ended December 31,
2021
(In millions)
2020
$
$
$
$
2,858
3,976
2,502
213
(443)
9,106
2,987
3,064
1,515
142
308
—
8,016
1,090
$
1,594
1,222
3,381
$
$
3,571
4,982
3,228
109
(393)
11,497
3,292
3,821
1,725
138
385
—
9,361
2,136
$
2,689
2,169
2,467
$
2,699
3,599
2,782
151
143
9,374
2,778
2,749
1,536
149
283
1
7,496
1,878
2,950
2,052
2,067
Total revenues for the Title segment decreased by $2,391 million, or 21%, in the year ended December 31, 2022 when compared to 2021. Total revenues for the Title segment increased by
$2,123 million, or 23%, in the year ended December 31, 2021 when compared to 2020. The decrease in the year ended December 31, 2022 as compared to 2021 is primarily attributable to decreases
in both our direct and agency premiums, decreases in escrow, title-related and other fees and an increase in non-cash valuation losses on our equity and preferred investment holdings, partially offset
by an increase in interest and investment income. The increase in the year ended December 31, 2021 as compared to 2020 is primarily attributable to increases in both our direct and agency
premiums, and increases in escrow, title-related and other fees, partially offset by a decrease in interest and investment income, and an increase in non-cash valuation losses on our equity and
preferred investment holdings.
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The following table presents the percentages of title insurance premiums generated by our direct and agency operations:
Title premiums from direct operations
Title premiums from agency operations
Total title premiums
2022
Year Ended December 31,
2021
2020
Amount
%
Amount
%
Amount
%
(Dollars in millions)
$
$
2,858
3,976
6,834
41.8 % $
58.2
100.0 % $
3,571
4,982
8,553
41.8 % $
58.2
100.0 % $
2,699
3,599
6,298
42.9 %
57.1
100.0 %
Title premiums decreased by 20% in the year ended December 31, 2022 as compared to 2021. The decrease is primarily attributable to a decrease in Title premiums from direct operations of
$713 million, or 20%, and a decrease in Title premiums from agency operations of $1,006 million, or 20%. Title premiums increased by 36% in the year ended December 31, 2021 as compared to
2020. The increase is primarily attributable to an increase in Title premiums from direct operations of $872 million, or 32%, and an increase in Title premiums from agency operations of $1,383
million, or 38%.
The following table presents the percentages of opened and closed title insurance orders generated by purchase and refinance transactions by our direct operations:
Opened title insurance orders from purchase transactions (1)
Opened title insurance orders from refinance transactions (1)
Closed title insurance orders from purchase transactions (1)
Closed title insurance orders from refinance transactions (1)
Year Ended December 31,
2022
2021
2020
71.1 %
28.9
100.0 %
67.9 %
32.1
100.0 %
48.9 %
51.1
100.0 %
44.9 %
55.1
100.0 %
39.0 %
61.0
100.0 %
39.8 %
60.2
100.0 %
_______________________________________
(1) Percentages exclude consideration of an immaterial number of non-purchase and non-refinance orders.
Title premiums from direct operations decreased in the year ended December 31, 2022 as compared to 2021. The decrease is primarily attributable to a decrease in total closed order volume,
partially offset by an increase in fee per file. Title premiums from direct operations increased in 2021 as compared to 2020, primarily due to an increase in total closed order volume, driven by an
increase in purchase order volume and an increase in fee per file, partially offset by a decline in refinance volume. The residential refinance market has considerably lower fees per closed order than
commercial or residential purchase transactions.
We experienced a decrease in closed title insurance order volumes from both purchase and refinance transactions in the year ended December 31, 2022 as compared to 2021. Total closed order
volumes were 1,222,000 in the year ended December 31, 2022 compared to 2,169,000 in the year ended December 31, 2021, an overall decrease of 43.7%. Total closed order volumes from refinance
transactions, which have a lower fee per file than purchase transactions, were 369,000 in the year ended December 31, 2022 compared to 1,172,000 in the year ended December 31, 2021, an overall
decrease of 69%. The decrease in 2022 is primarily attributable to higher average mortgage interest rates in 2022 as compared to 2021. Total closed order volumes were 2,169,000 in the year ended
December 31, 2021 compared to 2,052,000 in the year ended December 31, 2020, an overall increase of 5.7%.The decrease in refinance transactions in 2021 is primarily attributable to the surge in
residential refinance transactions in 2020 and the first half of 2021, resulting in a decline in the population of eligible refinance candidates in the second half of 2021.
Total opened title insurance order volumes decreased in the year ended December 31, 2022, as compared to 2021. The decrease in 2022 was attributable to decreases in both opened title orders
from purchase transactions and refinance transactions. Total opened title insurance order volumes decreased in the year ended December 31, 2021, as compared to 2020. The decrease in 2021 was
attributable to decreased opened title orders from refinance transactions, partially offset by an increase in purchase transactions.
The average fee per file in our direct operations was $3,381 in the year ended December 31, 2022, compared to $2,467 in the year ended December 31, 2021. The increase in average fee per file
in 2022 as compared to 2021 reflects an increased proportion of purchase transactions relative to total closed orders and a stable commercial market. The average fee per file in our direct operations
was $2,467 in the year ended December 31, 2021, compared to $2,067 in the year ended December 31, 2020. The increase in average fee per file in 2021 as compared to 2020 reflects an increased
proportion of purchase transactions
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relative to total closed orders and a stronger commercial market compared to 2020. 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.
Title premiums from agency operations decreased $1,006 million, or 20%, in the year ended December 31, 2022 as compared to 2021, and increased $1,383 million, or 38%, in the year ended
December 31, 2021 as compared to 2020. The current trends in the agency business reflect a softening residential purchase environment in many markets throughout the country and a dramatic
decline in residential refinance transactions, consistent with trends in the direct business. In addition in 2021 and 2020, lower mortgage rates during those years resulted in a surge in refinance
business with agents, which was 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 decreased by $726 million, or 22%, in the year ended December 31, 2022 as compared to 2021, and increased by $446 million, or 16%, in the year ended
December 31, 2021 as compared to 2020. Escrow fees, which are more closely related to our direct operations, decreased by $414 million, or 30%, in the year ended December 31, 2022, as compared
to 2021, and increased $225 million, or 19%, in the year ended December 31, 2021 as compared to 2020. The decrease in the year ended December 31, 2022 as compared to 2021 is primarily due to
the decrease in closed order volume including the decline in residential refinance volume, which have relatively higher escrow fees than residential purchase and commercial transactions. The
increase in the year ended December 31, 2021 as compared to 2020 is primarily due to the increase in closed order volume. Other fees in the Title segment, excluding escrow fees, decreased by $311
million, or 17%, in the year ended December 31, 2022 as compared to 2021, and increased $221 million, or 14%, in the year ended December 31, 2021 as compared to 2020. The decrease in Other
fees in the year ended December 31, 2022 as compared to 2021 was primarily driven by a decrease in revenues related to our ServiceLink business in addition to decreases in various individually
immaterial items. The increase in Other fees in the year ended December 31, 2021 as compared to 2020 was primarily driven by an increase in revenues 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 in
2022 and 2021.
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 increased $104
million, or 95%, in the year ended December 31, 2022, as compared to 2021, and decreased $42 million, or 28%, in the year ended December 31, 2021 as compared to 2020. The increase in the year
ended December 31, 2022 as compared to 2021 was primarily attributable to increased income from our tax-deferred property exchange business and higher yields on our short-term investments
when compared to 2021. The decrease in the year ended December 31, 2021 as compared to 2020 was primarily attributable to decreased average fixed maturity portfolio balances, decreased
dividends on preferred and common stocks and a decline in interest on cash and short-term investments.
Recognized net losses were $443 million and $393 million in the years ended December 31, 2022 and 2021, respectively. Recognized net gains were $143 million in the year ended December 31,
2020. The variability in recognized gains and losses, net is 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
decreased $305 million, or 9%, in the year ended December 31, 2022, as compared to 2021, and increased $514 million, or 19% in the year ended December 31, 2021 as compared to 2020. The
decrease in the year ended December 31, 2022 as compared to 2021 is primarily attributable to lower average head count in 2022 in response to the significant decline in refinance orders and the
recent declines in purchase and commercial orders, partially offset by an increase in the 401(k) match in 2022. The increase in the year ended December 31, 2021 as compared to 2020 is 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 56%, 48% and 51% for the years ended December 31, 2022, 2021 and 2020, respectively. Average employee count in the Title segment was 25,157, 27,297, and
24,638 in the years ended December 31, 2022, 2021 and 2020, respectively.
Other operating expenses decreased by $210 million, or 12%, in the year ended December 31, 2022 as compared to 2021, and increased $189 million, or 12%, in the year ended December 31,
2021 compared to 2020. Other operating expenses as a percentage of total revenue excluding agency premiums, interest and investment income, and recognized gains and losses were 28%, 25% and
28% in the years ended December 31, 2022, 2021 and 2020, 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.
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The following table illustrates the relationship of agent premiums and agent commissions:
Agent premiums
Agent commissions
Net retained agent premiums
2022
Year Ended December 31,
2021
2020
Amount
%
Amount
%
Amount
%
(Dollars in millions)
$
$
3,976
3,064
912
100.0 % $
77.1
22.9 % $
4,982
3,821
1,161
100.0 % $
76.7
23.3 % $
3,599
2,749
850
100.0 %
76.4
23.6 %
The claim loss provision for title insurance was $308 million, $385 million, and $283 million for the years ended December 31, 2022, 2021, and 2020 respectively. The provision reflects a
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.
F&G
Segment Overview
Through our majority owned F&G subsidiary, which we acquired on June 1, 2020, we provide our principal annuity and life insurance 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 Fixed Indexed Annuity ("FIA")
products provide for pre-retirement wealth accumulation and post-retirement income management. Our Indexed Universal Life Insurance ("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. Additionally, we provide funding agreements and pension risk transfer ("PRT") solutions to various institutions through consultants and brokers.
In setting the features and pricing of our flagship FIA products relative to our targeted net margin, we take into account our expectations regarding (1) 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.
Key Components of Our Historical Results of Operations
Through our insurance subsidiaries, we issue a broad portfolio of deferred annuities (fixed indexed and fixed rate annuities), indexed universal life insurance, immediate annuities, funding
agreements and pension risk transfer solutions. 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. Indexed universal life insurance is a complementary type of contract that accumulates value in a cash value account and
provides a payment to designated beneficiaries upon the policyholder’s death. 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.
Under U.S. GAAP, premium collections for fixed indexed annuities, fixed rate annuities, immediate annuities and PRT without life contingency, and deposits received for funding agreements
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 VOBA, DAC, and DSI, other operating costs and expenses, and
income taxes.
We hedge certain portions of our 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 (specifically for FIA contracts) on the equity indices underlying the applicable policy. These derivatives are used to offset the reserve impact of the index credits due
to policyholders under the FIA and IUL contracts. The majority of all such call options are one-year options
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purchased to match the funding requirements underlying the FIA/IUL contracts. We attempt to manage the cost of these purchases through the terms of our FIA/IUL 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/IUL policies. With respect to FIAs/IULs, 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 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.
In June 2021, we established a funding agreement-backed notes program (the “FABN Program”), pursuant to which FGL Insurance may issue funding agreements to a special purpose statutory
trust (the “Trust”) for spread lending purposes. The maximum aggregate principal amount permitted to be outstanding at any one time under the FABN Program is currently $5.0 billion. We also issue
funding agreements through the Federal Home Loan Bank of Atlanta ("FHLB").
In July 2021, we entered the PRT market, pursuant to which FGL Insurance and FGL NY Insurance may issue group annuity contracts to discharge pension plan liabilities from a pension plan
sponsor. Life contingent pension risk transfer premiums are included in life insurance premiums and other fees below.
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F&G Results of Operations
The results of operations of our F&G segment for the years ended December 31, 2022 and December 31, 2021 and seven months ended December 31, 2020, were as follows:
Revenues:
Life insurance premiums and other fees
Interest and investment income
Recognized gains and losses, net
Total revenues
Benefits and expenses:
Benefits and other changes in policy reserves
Personnel costs
Other operating expenses
Depreciation and amortization
Interest expense
Total benefits and expenses
Pre-tax earnings (loss)
Income tax expense (benefit)
Net earnings (loss) from continuing operations
Earnings from discontinued operations, net of tax
Net earnings (loss)
Revenues
Life insurance premiums and other fees
Year ended
Seven months ended
December 31, 2022
December 31, 2021
December 31, 2020
(In millions)
$
$
$
$
1,695
1,655
(1,010)
2,340
1,125
157
102
329
29
1,742
598
117
481
—
481
$
$
1,395
1,852
715
3,962
2,138
129
105
484
29
2,885
1,077
220
857
8
865
$
$
$
138
743
352
1,233
866
65
75
123
18
1,147
86
75
161
(25)
136
Life insurance premiums and other fees primarily reflect premiums on life-contingent pension risk transfers and traditional life insurance products, which are recognized as revenue when due
from the policyholder, as well as policy rider fees primarily on FIA policies, the cost of insurance on IUL 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, on the
Consolidated Statements of Earnings for the respective periods:
Life-contingent pension risk transfer premiums
Traditional life insurance premiums
Life-contingent immediate annuity premiums
Surrender charges
Policyholder fees and other income
Life insurance premiums and other fees
Year ended
Seven months ended
December 31, 2022
December 31, 2021
December 31, 2020
(In millions)
$
$
$
1,362
15
17
58
243
$
1,147
18
13
33
184
1,695
$
1,395
$
—
13
10
13
102
138
•
•
Life contingent pension risk transfer premiums for the year ended December 31, 2022 increased compared to the year ended December 31, 2021, due to increased PRT premiums, reflecting
our first full year in the PRT market. As noted above, PRT premiums are subject to fluctuation period to period.
Surrender charges increased for the years ended December 31, 2022 and December 31, 2021, primarily reflecting an increase in market value adjustments (“MVA”) assessed on certain
surrendered FIA policies. A market value adjustment (“MVA”) will apply in most states to any withdrawal that incurs a surrender charge, subject to certain exceptions. The MVA is based on
a formula that takes into account changes in interest rates since contract issuance.
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Generally, if interest rates have risen, the MVA will decrease surrender value, whereas if rates have fallen, it will increase surrender value. In addition, surrender charges increases as a result
of increased amounts assessed against policy withdrawals in excess of the policyholder's allowable penalty-free amounts primarily on our FIA policies.
•
Policyholder fees and other income increased for the years ended December 31, 2022 and December 31, 2021, primarily due to increased GMWB rider fees, cost of insurance charges on IUL
policies and IUL premium loads. 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:
Fixed maturity securities, available-for-sale
Equity securities
Preferred securities
Mortgage loans
Invested cash and short-term investments
Limited partnerships
Other investments
Gross investment income
Investment expense
Net investment income
Year ended
Seven months ended
December 31, 2022
December 31, 2021
December 31, 2020
(In millions)
$
1,431
17
49
186
33
110
20
1,846
(191)
$
1,213
11
47
131
7
589
17
2,015
(163)
1,655
$
1,852
$
643
7
35
50
—
75
8
818
(75)
743
$
$
Interest and investment income is shown net of amounts attributable to certain funds withheld reinsurance agreements which is passed along to the reinsurer in accordance with the terms of these
agreements. Interest and investment income attributable to these agreements, and thus excluded from the totals in the table above, was $109 million, $53 million and $21 million, for the years ended
December 31, 2022 and December 31, 2021, and the seven months ended December 31, 2020, respectively.
Recognized gains and losses, net
Below is a summary of the major components included in recognized gains and losses, net:
Net realized and unrealized (losses) gains on fixed maturity available-for-sale securities, equity securities and other invested assets
Change in allowance for expected credit losses
Net realized and unrealized (losses) gains on certain derivatives instruments
Change in fair value of reinsurance related embedded derivatives
Change in fair value of other derivatives and embedded derivatives
Recognized gains and losses, net
Year ended
Seven months ended
December 31, 2022
December 31, 2021
December 31, 2020
$
$
$
(In millions)
(461)
(34)
(857)
352
(10)
(1,010)
$
57
4
615
34
5
715
$
$
179
(19)
237
(53)
8
352
Recognized gains and (losses) are shown net of amounts attributable to certain funds withheld reinsurance agreements which is passed along to the reinsurer in accordance with the terms of these
agreements. Recognized gains and (losses) attributable to these agreements, and thus excluded from the totals in the table above, was $381 million, $15 million and $(58) million for the year ended
December 31, 2022, the year ended December 31, 2021, the seven months ended December 31, 2020, respectively.
•
For the year ended December 31, 2022, recognized gains and (losses), net include $241 million of realized losses on fixed maturity available-for-sale securities and $207 million of
unrealized losses on equity securities (as a result of mark-to-market losses). For the year ended December 31, 2021, recognized gains and (losses), net include $102 million of realized gains
on fixed maturity available-for-sale securities and $51 million unrealized losses on equity securities (as a result of mark-to-market losses).
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•
•
•
•
For the period from June 1, 2020 to December 31, 2020, recognized gains and (losses), net include $95 million of realized gains on fixed maturity available-for-sale securities and $84
million of unrealized losses on equity securities (as a result of mark-to-market losses).
For all periods, the change in allowance for expected credit losses primarily relates to available for sale securities.
For all periods, net realized and unrealized gains (losses) on certain derivative instruments primarily relate to the net realized and unrealized gains (losses) on options and futures used to
hedge FIA and IUL products, including gains on option and futures expiration. See the table below for primary drivers of gains (losses) on certain derivatives.
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.
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:
Call options:
Realized (losses) gains
Change in unrealized (losses) gains
Futures contracts:
(Losses) gains on futures contracts expiration
Change in unrealized gains (losses)
Foreign currency forward:
Gains on foreign currency forward
Total net change in fair value
Year ended
December 31, 2022
December 31, 2021
(Dollars in millions)
Seven months ended
December 31, 2020
$
$
$
(170)
(692)
(6)
(1)
11
(858)
$
437
160
9
(1)
10
615
$
$
62
167
21
(6)
(7)
237
Year-to-Date Point-to-Point Change in S&P 500 Index during the periods
(19)%
27 %
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 each period on options settled
during the respective period.
The change in unrealized gains (losses) due to fair value of call options is primarily driven by the underlying performance of the S&P 500 Index during each respective period 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 was primarily driven by movements in the S&P 500 Index relative to the policyholder buy dates.
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The average index credits to policyholders are as follows:
Average Crediting Rate
S&P 500 Index:
Point-to-point strategy
Monthly average strategy
Monthly point-to-point strategy
3 year high water mark
Year ended
December 31, 2022
December 31, 2021
Seven months ended
December 31, 2020
1 %
1 %
2 %
— %
13 %
5 %
4 %
3 %
7 %
16 %
3 %
5 %
2 %
— %
19 %
• Actual amounts credited to contractholder fund balances may differ from the index appreciation due to contractual features in the FIA contracts and certain IUL contracts (caps, spreads and
participation rates), which allow us to manage the cost of the options purchased to fund the annual index credits.
•
The credits for the periods presented 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.
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:
PRT agreements
FIA/IUL market related liability movements
Index credits, interest credited & bonuses
Annuity payments and other
Total benefits and other changes in policy reserves
Year ended
Seven months ended
December 31, 2022
December 31, 2021
December 31, 2020
(In millions)
$
$
$
1,365
(1,010)
610
160
1,125
$
$
1,149
(378)
1,024
343
2,138
$
—
317
319
230
866
•
•
PRT agreements for the years ended December 31, 2022 and December 31, 2021 reflect our entrance into the PRT market in the second half of 2021. PRT agreements are subject to
fluctuation period to period.
The FIA/IUL market related liability movements for all periods are mainly driven by changes in the equity markets, non-performance spreads, and risk-free rates during the respective
periods. Additionally, 2021 includes the system implementation and assumption review process impacts discussed below. The change in risk free rates and non-performance spreads
(decreased)/ increased the FIA market related liability by $(656) million, $(74) million, $268 million and $141 million during the years ended December 31, 2022 and December 31, 2021,
the period from June 1, 2020 to December 31, 2020 and the Predecessor period from January 1, 2020 to May 31, 2020, respectively. The remaining change in market value of the market
related liability movements was driven by equity market impacts. See “Recognized gains and (losses)” above for summary and discussion of net unrealized gains (losses) on certain
derivative instruments.
• Annually, typically in the third quarter, we review assumptions associated with reserves for policy benefits and product guarantees. During the fourth quarter of 2022, based on increases in
interest rates and pricing changes during 2022, we updated certain FIA assumptions used to calculate the fair value of the embedded derivative component within contractholder funds and
certain assumptions used to calculate SOP 03-1 liabilities and intangible balances. These changes, taken together, resulted in an increase in contractholder funds and future policy benefits of
$97 million.
During the third quarter of 2021, we implemented a new actuarial valuation system, and as a result, our third quarter 2021 assumption updates include model refinements and assumption
updates resulting from the implementation. The system implementation and assumption review process included refinements in the calculation of the fair value of the embedded derivative
component of our fixed indexed annuities. These changes, taken together, resulted in a decrease in contractholder funds and future policy reserves of $397 million.
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•
Index credits, interest credited & bonuses for the year ended December 31, 2022 were lower compared to the year ended December 31, 2021 and primarily reflected lower index credits on
FIA policies as a result of market movement during the respective periods. Index credits, interest credited & bonuses for the year ended December 31, 2021 were higher compared with the
combined periods from June 1, 2020 to December 31, 2020 and the Predecessor period from January 1, 2020 to May 31, 2020, and primarily reflected higher index credits on FIA policies as
a result of market movement during the respective periods. Refer to average policyholder index discussion above for details on drivers.
Amortization of intangibles
Below is a summary of the major components included in depreciation and amortization:
Amortization of DAC, VOBA and DSI
Interest
Unlocking
Amortization of other intangible assets and other depreciation
Total depreciation and amortization
Year ended
Seven months ended
December 31, 2022
December 31, 2021
December 31, 2020
(In millions)
$
$
353
(57)
4
29
329
$
$
517
(44)
(12)
23
484
$
$
131
(22)
(2)
16
123
• Amortization of VOBA, DAC and DSI is based on current and future expected gross margins (pre-tax operating income before amortization) and includes the impacts of the assumption
changes and system implementation discussed below. The amortization for the each period presented is the result of AGPs in the respective periods.
• Annually, typically in the third quarter, we review assumptions associated with the amortization of intangibles. During the fourth quarter of 2022, based on increases in interest rates and
pricing changes during 2022, we updated certain FIA assumptions used to calculate the fair value of the embedded derivative component within contractholder funds and certain assumptions
used to calculate SOP 03-1 liabilities and intangible balances. These changes, taken together, resulted in an increase to intangible assets of $47 million.
During the third quarter of 2021, we implemented a new actuarial valuation system and as a result, our third quarter 2021 assumption updates include model refinements and assumption
updates resulting from the implementation. The changes, taken together, increased amortization of intangibles by $136 million.
Other items affecting net earnings
Income tax expense (benefit)
Below is a summary of the major components included in income tax expense (benefit):
Earnings from continuing operations before taxes
Income tax expense (benefit) before valuation allowance
Change in valuation allowance
Federal income tax expense (benefit)
Effective rate
Year ended
December 31, 2022
December 31, 2021
(Dollars in millions)
598
$
1,077
$
90
27
117
20 %
$
234
(14)
220
20 %
$
Seven months ended
December 31, 2020
86
(21)
(54)
(75)
(87)%
$
$
•
•
•
The income tax expense for the year ended December 31, 2022 was $117 million compared to the income tax expense of $220 million for the year ended December 31, 2021. The effective
tax rate was 20% for both years, which differs from the statutory rate of 21% primarily due to favorable permanent tax adjustments.
Income tax benefit for the seven months ended December 31, 2020 was $75 million. The income tax benefit was primarily driven by the change in tax status benefit recorded at December
31, 2020 and valuation allowance releases on the current period activity in Front Street Re Cayman Ltd. (“FSRC”) included in continuing operations and the US non-life companies.
See Note T Income Taxes to the Consolidated Financial Statements for further information.
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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, excluding the effects of short-term mark-to-market effects, and balance risk across diverse asset classes and is primarily
invested in high quality fixed income securities.
As of December 31, 2022 and December 31, 2021, the fair value of our investment portfolio was approximately $41 billion and $39 billion, respectively, and was divided among the following
asset classes and sectors:
Fixed maturity securities, available for sale:
United States Government full faith and credit
United States Government sponsored entities
United States municipalities, states and territories
Foreign Governments
Corporate securities:
Finance, insurance and real estate
Manufacturing, construction and mining
Utilities, energy and related sectors
Wholesale/retail trade
Services, media and other
Hybrid securities
Non-agency residential mortgage-backed securities
Commercial mortgage-backed securities
Asset-backed securities
Collateral loan obligations (“CLO”)
Total fixed maturity available for sale securities
Equity securities (a)
Limited partnerships:
Private equity
Real assets
Credit
Limited partnerships
Commercial mortgage loans
Residential mortgage loans
Other (primarily derivatives and company owned life insurance)
Short term investments
Total investments
December 31, 2022
December 31, 2021
Fair Value
Percent
Fair Value
Percent
(Dollars in millions)
$
$
$
$
32
42
1,410
148
5,085
737
2,275
2,008
2,794
705
1,479
3,036
7,245
4,222
31,218
823
1,129
431
867
2,427
2,083
1,892
809
1,556
40,808
— % $
— %
3 %
— %
12 %
2 %
6 %
5 %
7 %
2 %
4 %
7 %
18 %
10 %
76 % $
2 %
3 %
1 %
2 %
6 % $
5 %
5 %
2 %
4 %
100 % $
50
74
1,441
205
5,109
932
2,987
2,627
3,349
881
648
2,964
4,550
4,145
29,962
1,171
1,181
340
829
2,350
2,265
1,549
1,305
373
38,975
— %
— %
4 %
1 %
13 %
2 %
8 %
7 %
8 %
2 %
2 %
7 %
12 %
11 %
77 %
3 %
3 %
1 %
2 %
6 %
6 %
4 %
3 %
1 %
100 %
(a) Includes investment grade non-redeemable preferred stocks ($672 million and $928 million at December 31, 2022 and December 31, 2021, respectively).
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.
67
Table of Contents
As of December 31, 2022 and December 31, 2021, our fixed maturity available-for-sale ("AFS") securities portfolio was approximately $31 billion and $30 billion, respectively. The following
table summarizes the credit quality, by NRSRO rating, of our fixed income portfolio:
Rating
AAA
AA
A
BBB
Not rated (a)
Total investment grade
BB
B and below (b)
Not rated (a)
Total below investment grade
Total
December 31, 2022
December 31, 2021
Fair Value
Percent
Fair Value
Percent
(Dollars in millions)
$
$
1,358
2,297
8,076
8,158
9,529
29,418
986
236
578
1,800
31,218
4 % $
7 %
26 %
26 %
31 %
94 %
3 %
1 %
2 %
6 %
100 % $
660
2,181
7,667
10,462
6,642
27,612
1,372
432
546
2,350
29,962
2 %
7 %
26 %
35 %
22 %
92 %
5 %
1 %
2 %
8 %
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
(b) Includes $46 million and $68 million at December 31, 2022 and December 31, 2021, respectively, of non-agency RMBS (as defined below) that carry a NAIC 1 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
2
3
4
5
6
AAA/AA/A
BBB
BB
B
CCC and lower
In or near default
The NAIC uses designation methodologies for non-agency RMBS, including RMBS backed by subprime mortgage loans and for CMBS. The NAIC’s objective with the designation
methodologies for these structured securities is 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 assigns a NAIC designation based on the loss expectation for each security. Several 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 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 NAIC methodologies.
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Table of Contents
The tables below present our fixed maturity securities by NAIC designation as of December 31, 2022 and December 31, 2021:
(Dollars in millions)
NAIC Designation
Amortized Cost
December 31, 2022
Fair Value
Percent of Total Fair Value
1
2
3
4
5
6
Total
(Dollars in millions)
NAIC Designation
1
2
3
4
5
6
Total
$
$
$
$
$
21,917
11,889
1,571
240
54
52
35,723
$
$
15,636
10,779
1,603
567
80
59
28,724
$
Amortized Cost
69
December 31, 2021
Fair Value
19,234
10,250
1,419
220
39
56
31,218
15,848
11,441
1,850
669
93
61
29,962
Percent of Total Fair Value
62 %
33 %
4 %
1 %
— %
— %
100 %
54 %
38 %
6 %
2 %
— %
— %
100 %
Table of Contents
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, 2022 and December 31, 2021 (dollars in millions):
Top 10 Industry Concentration
ABS Other
CLO securities
Whole loan collateralized mortgage obligation (“CMO”)
Banking
Municipal
Electric
Life insurance
Technology
Healthcare
Commercial MBS
Total
Top 10 Industry Concentration
ABS Other
CLO securities
Banking
Whole loan collateralized mortgage obligation (“CMO”)
Life insurance
Electric
Municipal
Healthcare
Technology
Other Financial Institutions
Total
December 31, 2022
Fair Value
Percent of Total Fair Value
7,245
4,222
3,655
2,855
1,410
1,379
1,376
855
659
571
24,227
23 %
13 %
12 %
9 %
4 %
4 %
4 %
3 %
2 %
2 %
76 %
December 31, 2021
Fair Value
Percent of Total Fair Value
4,550
4,145
2,919
2,622
1,795
1,701
1,441
947
932
760
21,812
15 %
13 %
9 %
8 %
6 %
6 %
5 %
3 %
3 %
2 %
70 %
$
$
$
$
70
Table of Contents
The amortized cost and fair value of fixed maturity AFS securities by contractual maturities as of December 31, 2022 and December 31, 2021, are shown below. Actual maturities may differ from
contractual maturities because issuers may have the right to call or prepay obligations.
Corporate, Non-structured Hybrids, Municipal and U.S. Government securities:
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Subtotal
Other securities, which provide for periodic payments
Asset-backed securities
Commercial mortgage-backed securities
Structured hybrids
Residential mortgage-backed securities
Subtotal
Total fixed maturity available-for-sale securities
Non-Agency RMBS Exposure
December 31, 2022
December 31, 2021
Amortized Cost
Fair Value
Amortized Cost
Fair Value
$
$
$
$
$
124
2,193
1,840
14,417
18,574
12,209
3,309
—
1,631
17,149
35,723
$
$
$
$
$
(In millions)
123
2,059
1,633
11,379
15,194
11,467
3,036
—
1,521
16,024
31,218
$
$
$
$
$
105
1,724
2,141
12,842
16,812
8,516
2,669
5
722
11,912
28,724
$
$
$
$
$
106
1,754
2,201
13,515
17,576
8,695
2,964
5
722
12,386
29,962
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 $40 million and $54 million as of December 31, 2022, respectively, and $52 million and $75 million as of
December 31, 2021, respectively. As of December 31, 2022 and December 31, 2021, approximately 91% and 94%, respectively, of the subprime and Alt-A RMBS exposures were rated NAIC 2 or
higher.
ABS and CLO Exposures
Our ABS exposures are largely diversified by underlying collateral and issuer type. Our CLO exposures are generally senior tranches of CLOs which have leveraged loans as their underlying
collateral.
As of December 31, 2022, the CLO and ABS positions were trading at a net unrealized loss position of $236 million and $499 million, respectively. As of December 31, 2021, the CLO and
ABS positions were trading at a net unrealized gain position of $145 million and $37 million, respectively.
Municipal Bond Exposure
Our municipal bond exposure is a combination of general obligation bonds (fair value of $188 million and $258 million and an amortized cost of $231 million and $247 million as of
December 31, 2022 and December 31, 2021, respectively) and special revenue bonds (fair value of $1,017 million and $1,183 and an amortized cost of $1,248 million and $1,138 as of December 31,
2022 and December 31, 2021, respectively).
Across all municipal bonds, the largest issuer represented 6% and 7% of the category as of December 31, 2022 and December 31, 2021, respectively, less than 1% of the entire portfolio and is
rated NAIC 1. Our focus within municipal bonds is on NAIC 1 rated instruments, and 96% of our municipal bond exposure is rated NAIC 1 as of December 31, 2022.
Mortgage Loans
Commercial Mortgage Loans
We diversify our commercial mortgage loans ("CMLs") portfolio by geographic region and property type to attempt to reduce concentration risk. We continuously evaluate CMLs based on
relevant current information to ensure properties are performing at a level to secure the related debt. LTV and DSC ratios are utilized to assess the risk and quality of CMLs. As of December 31, 2022
and December 31, 2021, our mortgage loans on real estate portfolio had a weighted average DSC ratio of 2.3 times and 2.4 times, respectively, and a weighted average LTV ratio of 57% and 56%,
respectively.
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Table of Contents
We consider a CML delinquent when a loan payment is greater than 30 days past due. For 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. At December 31, 2022 we had one CML that was delinquent in principal or interest payments
and none in the process of foreclosure. At December 31, 2021 we had no CMLs that were delinquent in principal or interest payments or in process of foreclosure. See Note E Investments to the
Consolidated Financial Statements included in this report for additional information on our CMLs, including our distribution by property type, geographic region and LTV and DSC ratios.
Residential Mortgage Loans
Our residential mortgage loans are closed end, amortizing loans and 100% of the properties are in the United States. We diversify our RML portfolio by state to attempt to reduce concentration
risk. RMLs have a primary credit quality indicator of either a performing or nonperforming loan. We define nonperforming RMLs as those that are 90 or more days past due and/or in nonaccrual
status.
Loans are placed on nonaccrual status when they are over 90 days delinquent. If a loan becomes over 90 days delinquent, it is our general policy to initiate foreclosure proceedings unless a
workout arrangement to bring the loan current can be put in place. See Note E Investments to the Consolidated Financial Statements included in this Annual Report for additional information on our
RMLs.
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Table of Contents
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, 2022 and December 31, 2021, were as
follows (in millions):
Fixed maturity securities, available for sale:
United States Government full faith and credit
United States Government sponsored agencies
United States municipalities, states and territories
Foreign Governments
Corporate securities:
Finance, insurance and real estate
Manufacturing, construction and mining
Utilities, energy and related sectors
Wholesale/retail trade
Services, media and other
Hybrid securities
Non-agency residential mortgage-backed securities
Commercial mortgage-backed securities
Asset-backed securities
Total fixed maturity available for sale securities
Equity securities
Total investments
Fixed maturity securities, available for sale:
United States Government full faith and credit
United States Government sponsored agencies
United States municipalities, states and territories
Foreign Governments
Corporate securities:
Finance, insurance and real estate
Manufacturing, construction and mining
Utilities, energy and related sectors
Wholesale/retail trade
Services, media and other
Hybrid securities
Non-agency residential mortgage-backed securities
Commercial mortgage-backed securities
Asset-backed securities
Total fixed maturity available for sale securities
Equity securities
Total investments
Number of Securities
Amortized Cost
December 31, 2022
Allowance for
Expected Credit
Losses
Unrealized Losses
Fair Value
$
6
58
167
44
$
34
39
1,590
169
526
120
333
316
360
43
241
365
1,147
3,726
59
5,586
850
2,825
2,418
3,354
706
1,353
2,850
11,511
33,285
879
3,785
$
34,164
$
—
—
—
—
(15)
—
—
—
—
—
(5)
—
(1)
(21)
—
(21)
Number of Securities
Amortized Cost
December 31, 2021
Allowance for
Expected Credit
Losses
$
9
41
50
28
366
97
280
313
339
3
46
89
375
2,036
20
$
36
42
503
27
1,365
281
1,243
1,188
1,486
3
316
616
4,603
11,709
259
2,056
$
11,968
$
—
—
—
—
—
—
—
—
—
—
(2)
(1)
(2)
(5)
—
(5)
$
$
$
$
$
(2)
(4)
(289)
(37)
(876)
(160)
(644)
(532)
(783)
(84)
(105)
(284)
(770)
(4,570)
(174)
(4,744)
$
1
4
2
1
2
1
2
10
28
29
Unrealized Losses
Fair Value
$
—
(1)
(11)
—
(31)
(3)
(46)
(33)
(39)
—
(3)
(11)
(38)
(216)
(33)
(249)
$
1
1
1
1
4
11
11
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Table of Contents
The gross unrealized loss position on the fixed maturity available-for-sale fixed and equity portfolio was $4,744 million and $249 million as of December 31, 2022 and December 31, 2021,
respectively. Most components of the portfolio exhibited price depreciation caused by higher treasury rates and wider spreads. The total amortized cost of all securities in an unrealized loss position
was $34,164 million and $11,968 million as of December 31, 2022 and December 31, 2021, respectively. The average market value/book value of the investment category with the largest unrealized
loss position was 84% for finance, insurance and real estate as of December 31, 2022. In the aggregate, finance, insurance and real estate represented 18% of the total unrealized loss position as of
December 31, 2022. The average market value/book value of the investment category with the largest unrealized loss position was 96% for utilities, energy and related sectors as of December 31,
2021. In the aggregate, utilities, energy and related sectors represented 18% of the total unrealized loss position as of December 31, 2021.
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, 2022 and December 31, 2021, were as follows (in millions):
Number of Securities
Amortized Cost
Fair Value
Allowance for Credit Loss
Gross Unrealized
Losses
December 31, 2022
Investment grade:
Less than six months
Six months or more and less than twelve months
Twelve months or greater
Total investment grade
Below investment grade:
Less than six months
Six months or more and less than twelve months
Twelve months or greater
Total below investment grade
Total
Investment grade:
Less than six months
Six months or more and less than twelve months
Twelve months or greater
Total investment grade
Below investment grade:
Less than six months
Six months or more and less than twelve months
Twelve months or greater
Total below investment grade
Total
$
6
49
76
131
1
12
2
15
$
5
299
969
1,273
32
124
6
162
146
$
1,435
$
December 31, 2021
3
200
634
837
13
94
4
111
948
$
$
—
—
—
—
15
—
—
15
15
Number of Securities
Amortized Cost
Fair Value
Allowance for Credit Loss
$
82
34
—
116
—
—
16
16
$
79
32
—
111
—
—
14
14
132
$
125
$
—
—
—
—
—
—
—
—
—
4
2
—
6
—
—
2
2
8
$
$
74
$
$
$
$
(2)
(99)
(335)
(436)
(4)
(30)
(2)
(36)
(472)
Gross Unrealized
Losses
(3)
(2)
—
(5)
—
—
(2)
(2)
(7)
Table of Contents
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, 2022, our watch list included 146 securities in an unrealized loss position with an amortized cost of $1,435 million, allowance for expected credit losses of $15 million,
unrealized losses of $472 million and a fair value of $948 million.
At December 31, 2021, our watch list included seven securities in an unrealized loss position with an amortized cost of $132 million, allowance for expected credit losses of $0 million,
unrealized losses of $7 million and a fair value of $125 million.
The watch list excludes structured securities because we have separate processes to evaluate the credit quality on the structured securities.
There were 64 and 36 structured securities with a fair value of $162 million and $45 million, respectively, to which we had potential credit exposure as of December 31, 2022 and December 31,
2021, respectively. Our analysis of these structured securities, which included cash flow testing, resulted in allowances for expected credit losses of $16 million and $8 million as of December 31,
2022 and December 31, 2021, respectively.
Exposure to Sovereign Debt and Certain Other Exposures
Our investment portfolio had an immaterial amount of direct exposure to European sovereign debt as of December 31, 2022 and December 31, 2021, respectively. We have no exposure to
investments in Russia or Ukraine and de minimis investments in peripheral countries in the region.
Interest and Investment Income
For discussion regarding our net investment income and net investment gains (losses) refer to Note E Investments 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, 2022 and December 31, 2021, refer to Note E Investments 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.
We are 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 Derivative Financial Instruments 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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Table of Contents
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:
Revenues:
Escrow, title-related and other fees
Interest and investment income
Recognized gains and losses, net
Total revenues
Expenses:
Personnel costs
Other operating expenses
Depreciation and amortization
Interest expense
Total expenses
Loss from continuing operations, before income taxes and equity in earnings of unconsolidated affiliates
2022
Year Ended December 31,
2021
(In millions)
2020
$
$
$
127
23
(40)
110
48
104
25
86
263
$
172
—
12
184
107
99
23
85
314
(153)
$
(130)
$
172
6
(7)
171
108
148
24
71
351
(180)
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 $74 million, or 40% in the year ended December 31, 2022 as compared to 2021, and increased $13 million, or 8%, in the year ended
December 31, 2021 as compared to 2020. The decrease in the year ended December 31, 2022 as compared to 2021 is primarily attributable to a $59 million decrease in valuations associated with our
deferred compensation plan assets, which decreased both revenue and personnel costs and a $41 million impairment of cost method investments in 2022, partially offset by other immaterial items.
The increase in the year ended December 31, 2021 as compared to 2020 is primarily attributable to increased Recognized gains and losses, net, of approximately $19 million, partially offset by
decreased interest and investment income of $6 million associated with a year-over-year reduction in fixed-income investment holdings.
Personnel costs in the Corporate and Other segment decreased $59 million, or 55% in the year ended December 31, 2022 as compared to 2021, and decreased $1 million, or 1%, in the year ended
December 31, 2021 as compared to 2020. The decrease in the year ended December 31, 2022 as compared to 2021 is primarily attributable to the aforementioned decrease in the valuation of deferred
compensation plan assets in 2022.
Other operating expenses in the Corporate and Other segment increased $5 million, or 5%, in the year ended December 31, 2022 as compared to 2021, and decreased $49 million, or 33% in the
year ended December 31, 2021 as compared to 2020. The decrease in 2021 as compared to 2020 is primarily attributable to F&G transaction costs of approximately $38 million in 2020 that were not
incurred in 2021 and reduced real estate brokerage expenses of $24 million in 2021 related to previous divestitures, partially offset by growth in our real estate technology businesses.
Interest expense increased $1 million, or 1%, in the year ended December 31, 2022 as compared to 2021, and increased $14 million, or 20%, in the year ended December 31, 2021 as compared to
2020. The increase in the year ended December 31, 2021 as compared to 2020 is primarily attributable to increased average debt outstanding in 2021 associated with issuance of our 3.20% Notes in
September 2021 as well as having a full year outstanding of our 3.40% Notes and our 2.45% Notes issued in 2020.
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Table of Contents
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 $1.77 per share in 2022, or approximately $489 million to our common shareholders. On
February 16, 2023, our Board of Directors declared cash dividends of $0.45 per share, payable on March 31, 2023, to FNF common shareholders of record as of March 17, 2023. 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.
As of December 31, 2022, we had cash and cash equivalents of $2,286 million, short term investments of $2,590 million and available capacity under our Revolving Credit Facility of $800
million. Subsequent to December 31, 2022, F&G completed the issuance and sale on January 13, 2023 of $500 million aggregate principal amount of 7.40% Senior Notes due 2028 (the “7.40% F&G
Notes”) pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended. F&G intends to use the net proceeds from the offering of the 7.40% F&G Notes for general corporate
purposes, including to support the growth of assets under management and for our future liquidity requirements. On November 22, 2022, F&G entered into a Credit Agreement (the "F&G Credit
Agreement") with certain lenders (the "Lenders") and Bank of America, N.A. as administrative agent (the "Administrative Agent"), swing line lender and an issuing bank, pursuant to which F&G has
an available unsecured revolving credit facility (the "F&G Credit Facility") in an aggregate principal amount of $550 million to be used for working capital and general corporate purposes. A net
partial paydown of $35 million was made on January 6, 2023 and, on February 21, 2023, F&G entered into an amendment (the "First Amendment") to the F&G Credit Agreement (the "Amended
F&G Credit Agreement"). The First Amendment increased the aggregate principal amount of commitments under the F&G Credit Facility by $115 million to $665 million. For further information
related to the 7.40% F&G Notes and F&G Credit Facility, refer to Note G Notes Payable to the Consolidated Financial Statements included in Item 8 of Part II of this Annual Report. 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 Revolving Credit Facility and the F&G 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 title 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 title segment 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, 2022, $1,442 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 2023 of approximately $606 million. Our underwritten title companies and
non-insurance subsidiaries are not regulated to the same extent as our insurance subsidiaries.
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, 2022, 2021, 2020 were $4,355 million, $4,090 million, and $1,578 million respectively. The
increase in cash provided by operating activities of $265
77
Table of Contents
million in 2022 as compared to 2021 is primarily attributable to increased cash inflows associated with the change in funds withheld from reinsurers of $1,206 million, increased cash inflows
associated with the change in future policy benefits of $557 million, increased cash inflows from the net decrease in trade receivables of $298 million, increased cash inflows associated with the
change in reinsurance recoverable of $145 million and the increase in cash inflows associated with the change in income taxes of $43 million, partially offset by the decrease in pre-tax earnings in
2022 of $1,290 million, increased cash outflows associated with the decrease in the reserve for title claims losses of $333 million and the timing of receipts and payments of prepaid assets, payables,
receivables and income taxes. The increase in cash provided by operating activities of $2,512 million in 2021 as compared to 2020 is primarily attributable to the increase in pre-tax earnings in 2021,
non-cash valuation changes in equity, preferred and derivative securities of $821 million, increased cash inflows associated with the change in future policy benefits of $726 million, increased cash
inflows associated with the change in funds withheld from reinsurers of $865 million, partially offset by gains on sales of investments and other assets of $668 million, increased cash outflows
associated with increased deferred policy acquisition costs and deferred sales inducements of $409 million and the timing of receipts and payments of prepaid assets, payables, receivables and income
taxes. The primary driver of the increased cash flows associated with the change in future policy benefits in 2021 as compared to 2020 was cash received for PRT transactions associated with our
F&G segment.
Investing Cash Flows. Our cash used in investing activities for the years ended December 31, 2022, 2021, and 2020 were $10,524 million, $7,449 million, and $2,331 million, respectively. The
increase in cash used in investing activities in 2022 as compared to 2021 of $3,075 million is primarily associated with decreased cash inflows from proceeds from sales, calls and maturities of
investment securities of $3,456 million, net purchases of short-term investment securities of $2,571 million in 2022 as compared to proceeds from sales and maturities of short-term investment
securities of $266 million in 2021, partially offset by decreased cash outflows for additional investments in unconsolidated affiliates of $669 million and decreased cash outflows for purchases of
investment securities of $2,866 million. The increase in cash used in investing activities of $5,118 million in 2021 as compared to 2020 is primarily associated with increased purchases of investment
securities of $11,055 million, increased investment in unconsolidated affiliates of $1,419 million, partially offset by increased proceeds from sales, calls and maturities of investment securities of
$6,204 million, increased distributions from unconsolidated affiliates of $250 million and reduced cash outflows associated with acquisitions of $818 million.
Capital Expenditures. Total capital expenditures for property and equipment and capitalized software were $138 million, $131 million, and $110 million for the year ended December 31, 2022,
2021, and 2020 respectively.
Financing Cash Flows. Our cash flows provided by financing activities for the year ended December 31, 2022, 2021, and 2020 were $4,095 million, $5,000 million, and $2,096 million
respectively. The decrease in cash provided by financing activities of $905 million in 2022 as compared to 2021 is primarily associated with increased cash outflows for debt service payments,
including the repayment of $400 million for our 5.50% Notes that were due in September 2022, increased cash outflows from contractholder withdrawals of $519 million, and net cash outflows
associated with the change in secured trust deposits of $72 million in 2022 as compared to net cash inflows of $224 million in 2021, partially offset by increased cash inflows from contractholder
deposits of $365 million. The increase in cash provided by financing activities of $2,904 million in 2021 as compared to 2020 is primarily associated with increased cash inflows associated with the
change in contractholder accounts of $3,595 million, increased cash inflows associated with the change in secured trust deposits of $304 million and reduced debt service payments of $1,000 million,
partially offset by reduced debt offerings and borrowings of $1,797 million and increased purchases of treasury stock of $227 million.
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.
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Table of Contents
Obligations - Contractual and Other. As of December 31, 2022, our required annual payments relating to contractual and other obligations were as follows:
Notes payable principal repayment
Operating lease payments
Pension and other benefit payments
Annuity and universal life products
Pension risk transfer annuity payments
Funding agreements (FABN/FHLB)
Title claim loss estimated payments
Interest on fixed rate notes payable
Acquisitions
Total
2023
2024
2025
2026
(In millions)
2027
Thereafter
Total
$
$
550
147
13
4,044
397
790
236
147
225
$
—
116
12
3,775
383
938
220
147
—
$
550
74
11
4,908
370
776
212
147
—
$
—
51
10
3,653
357
816
174
147
—
$
—
26
10
3,988
343
661
117
147
—
$
2,150
35
61
29,341
4,308
878
851
605
—
$
6,549
$
5,591
$
7,048
$
5,208
$
5,292
$
38,229
$
3,250
449
117
49,709
6,158
4,859
1,810
1,340
225
67,917
As of December 31, 2022, we had title insurance reserves of $1,810 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 U 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 August 3, 2021, our Board of Directors approved the 2021 Repurchase Program under which we may purchase up to 25 million shares of our FNF common stock
through July 31, 2024. We may make repurchases from time to time in the open market, in block purchases or in privately negotiated transactions, depending on market conditions and other factors.
We repurchased 13,369,565 shares of FNF common stock during the year ended December 31, 2022 for approximately $549 million, or an average of $41.05 per share. Subsequent to December 31,
2022 and through market close on February 23, 2023, we repurchased a total of 100,000 shares for approximately $4 million in the aggregate, or an average of $38.45 per share under the 2021
Repurchase Program. Since the original commencement of the 2021 Repurchase Program, we have repurchased a total of 16,449,565 FNF common shares for an aggregate amount of $701 million, or
an average of $42.60 per share.
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 $18.9 billion and $30.5 billion at December 31, 2022 and 2021, respectively. As a result
of holding these customers’ assets in
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escrow, we have ongoing programs for realizing economic benefits during the year through favorable borrowing and vendor arrangements with various banks.
We have unfunded investment commitments as of December 31, 2022 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 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, 2022 and 2021, we had $1,983 million and $1,543 million, respectively, in FHLB non-putable funding agreements included under contractholder funds on our consolidated balance
sheet. As of December 31, 2022 and 2021, we had assets with a fair value of approximately $3,387 million and $2,420 million, respectively, 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, 2022 and 2021,
respectively, $219 million and $790 million of 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.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
In the normal course of business, we are routinely subject to a variety of risks, as described in Item 1A. Risk Factors of this Annual Report and in our other filings with the SEC. For example, we
are exposed to the risk that decreased real estate activity, which depends in part on the level of interest rates, may reduce our revenues.
The risks related to our business also include certain market risks that may affect our debt and other financial instruments. At present, we face the market risks associated with our marketable
equity securities subject to equity price volatility and with interest rate movements on our fixed income investments.
We regularly assess these market risks and have established policies and business practices designed to protect against the adverse effects of these exposures.
At December 31, 2022, we had $3,238 million in long-term debt, none of which bears interest at a floating rate, other than the F&G Credit Facility. Accordingly, fluctuations in market interest
rates will not have a material impact on our resulting interest expense.
Our fixed maturity investments, certain preferred securities and our floating rate debt are subject to an element of market risk from changes in interest rates. Increases and decreases in prevailing
interest rates generally translate into decreases and increases in fair values of those instruments. Additionally, fair values of interest rate sensitive instruments may be affected by the creditworthiness
of the issuer, prepayment options, relative values of alternative investments, the liquidity of the instrument and other general market conditions. We manage interest rate risk through a variety of
measures. We monitor our interest rate risk and make investment decisions to manage the perceived risk.
Equity price risk is the risk that we will incur economic losses due to adverse changes in equity prices. In the past, our exposure to changes in equity prices primarily resulted from our holdings
of equity securities. At December 31, 2022, we held $678 million in marketable equity securities (not including our investments in preferred securities of $903 million and our investments in
unconsolidated affiliates of $2,614 million). The carrying values of investments subject to equity price risks are based on quoted market prices as of the balance sheet date. Market prices are subject
to fluctuation and, consequently, the amount realized in the subsequent sale of an investment may significantly differ from the reported market value. Fluctuation in the market price of a security may
result from perceived changes in the underlying economic characteristics of the investee, the
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relative price of alternative investments and general market conditions. Furthermore, amounts realized in the sale of a particular security may be affected by the relative quantity of the security being
sold.
Financial instruments, which potentially subject us to concentrations of credit risk, consist primarily of cash equivalents, short-term investments, and trade receivables. We require placement of
cash in financial institutions evaluated as highly creditworthy.
For purposes of this Annual Report, we perform a sensitivity analysis to determine the effects that market risk exposures may have on the fair values of our debt and other financial instruments.
The financial instruments that are included in the sensitivity analysis with respect to interest rate risk include fixed maturity investments, preferred securities and notes payable. The financial
instruments that are included in the sensitivity analysis with respect to equity price risk include marketable equity securities. With the exception of our equity method investments, it is not anticipated
that there would be a significant change in the fair value of other long-term investments or short-term investments if there were a change in market conditions, based on the nature and duration of the
financial instruments involved.
To perform the sensitivity analysis, we assess the risk of loss in fair values from the effect of hypothetical changes in interest rates and equity prices on market-sensitive instruments. The changes
in fair values for interest rate risks are determined by estimating the present value of future cash flows using various models, primarily duration modeling. The changes in fair values for equity price
risk are determined by comparing the market price of investments against their reported values as of the balance sheet date.
Information provided by the sensitivity analysis does not necessarily represent the actual changes in fair value that we would incur under normal market conditions because, due to practical
limitations, all variables other than the specific market risk factor are held constant. For example, our reserve for title claim losses (representing 3.0% of total liabilities at December 31, 2022) is not
included in the hypothetical effects.
Market Risk Factors
Market risk is the risk of the loss of fair value resulting from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates, commodity prices and equity
prices. Market risk is directly influenced by the volatility and liquidity in the markets in which the related underlying financial instruments are traded. We have significant holdings in financial
instruments, which are naturally exposed to a variety of market risks. They are primarily exposed to interest rate risk, credit risk and equity price risk and have some exposure to counterparty risk,
which affect the fair value of financial instruments subject to market risk.
We have no market risk sensitive instruments entered into for trading purposes; therefore, all of our market risk sensitive instruments were entered into for purposes other than trading. The results
of the sensitivity analysis at December 31, 2022 and 2021, are as follows:
Interest Rate Risk
At December 31, 2022, an increase (decrease) in the levels of interest rates of 100 basis points, with all other variables held constant, would result in a (decrease) increase in the fair value of our
fixed maturity securities and certain of our investments in preferred securities, which are tied to interest rates of $2.0 billion as compared with a (decrease) increase of $2.3 billion at December 31,
2021.
The actuarial models used to estimate the impact of a one percentage point change in market interest rates incorporate numerous assumptions, require significant estimates and assume an
immediate and parallel change in interest rates without any management of the investment portfolio in reaction to such change. Consequently, potential changes in value of financial instruments
indicated by these simulations will likely be different from the actual changes experienced under given interest rate scenarios, and the differences may be material. Because we actively manage our
investments and liabilities, the net exposure to interest rates can vary over time. However, any such decreases in the fair value of fixed maturity securities, unless related to credit concerns of the
issuer requiring allowances for credit losses, would generally be realized only if we were required to sell such securities at losses prior to their maturity to meet liquidity needs. Within our F&G
segment, liquidity needs are managed using the surrender and withdrawal provisions of the annuity contracts and through other means.
Equity Price Risk
At December 31, 2022, a 10% increase (decrease) in market prices, with all other variables held constant, would result in an increase (decrease) in the fair value of our equity securities portfolio
of $68 million, as compared with an increase (decrease) of $126 million at December 31, 2021.
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Interest Rate Risk Related to our F&G Segment
Interest rate risk is the F&G segment's primary market risk exposure. We define interest rate risk as the risk of an economic loss due to adverse changes in interest rates. This risk arises from
F&G's holdings in interest sensitive assets and liabilities, primarily as a result of investing life insurance premiums and fixed annuity deposits received in interest-sensitive assets and carrying these
funds as interest-sensitive liabilities. Substantial and sustained increases or decreases in market interest rates can affect the profitability of the insurance products and the fair value of our investments,
as the majority of F&G's insurance liabilities are backed by fixed maturity securities.
The profitability of most of F&G's products depends on the spreads between interest yield on investments and rates credited on insurance liabilities. F&G has the ability to adjust the rates
credited, primarily caps and credit rates, on the majority of the annuity liabilities at least annually, subject to minimum guaranteed values. In addition, the majority of the annuity products have
surrender and withdrawal penalty provisions designed to encourage persistency and to help ensure targeted spreads are earned. However, competitive factors, including the impact of the level of
surrenders and withdrawals, may limit F&G's ability to adjust or maintain crediting rates at the levels necessary to avoid a narrowing of spreads under certain market conditions.
In order to meet F&G's policy and contractual obligations, F&G must earn a sufficient return on invested assets. Significant changes in interest rates exposes F&G to the risk of not earning the
anticipated spreads between the interest rate earned on its investments and the credited interest rates paid on outstanding policies and contracts. Both rising and declining interest rates can negatively
affect interest earnings, spread income and the attractiveness of certain products.
During periods of increasing interest rates, F&G may offer higher crediting rates on interest-sensitive products, such as IUL insurance and fixed annuities, and may increase crediting rates on in-
force products to keep these products competitive. A rise in interest rates, in the absence of other countervailing changes, will result in a decline in the market value of F&G's investment portfolio.
As part of F&G's asset liability management (“ALM”) program, F&G has made a significant effort to identify the assets appropriate to different product lines and ensure investing strategies
match the profile of these liabilities. The ALM strategy is designed to align the expected cash flows from the investment portfolio with the expected liability cash flows. As such, a major component
of F&G's effort to manage interest rate risk has been to structure the investment portfolio with cash flow characteristics that are consistent with the cash flow characteristics of the insurance liabilities.
F&G uses actuarial models to simulate the cash flows expected from the existing business under various interest rate scenarios. These simulations enable F&G to measure the potential gain or loss in
the fair value of interest rate-sensitive financial instruments, to evaluate the adequacy of expected cash flows from assets to meet the expected cash requirements of the liabilities and to determine if it
is necessary to lengthen or shorten the average life and duration of our investment portfolio. Duration measures the price sensitivity of a security to a small change in interest rates. When the durations
of assets and liabilities are similar, exposure to interest rate risk is minimized because a change in the value of assets could be expected to be largely offset by a change in the value of liabilities.
The duration of the investment portfolio, excluding cash and cash equivalents, derivatives, policy loans, and common stocks as of December 31, 2022 and 2021 is summarized as follows:
(Dollars in millions)
Duration (years)
0-4
5-9
10-14
15-19
20-30
Total
(Dollars in millions)
Duration (years)
0-4
5-9
10-14
15-19
20-30
Total
December 31, 2022
Amortized Cost
% of Total
25,323
10,010
9,423
2,515
64
47,335
December 31, 2021
Amortized Cost
% of Total
17,765
8,414
5,619
4,474
883
37,155
53 %
21 %
21 %
5 %
— %
100 %
48 %
23 %
15 %
12 %
2 %
100 %
$
$
$
$
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Equity Price Risk Related to our F&G Segment
Our F&G segment is exposed to equity price risk through certain insurance products. F&G offers a variety of FIA/ IUL contracts with crediting strategies linked to the performance of indices
such as the S&P 500 Index, Dow Jones Industrials or the NASDAQ 100 Index, and target volatility indices. Additionally, the estimated cost of providing GMWB on FIA products incorporates
various assumptions about the overall performance of equity markets over certain time periods. Periods of significant and sustained downturns in equity markets, increased equity volatility or reduced
interest rates could result in an increase in the valuation of the future policy benefit or policyholder account balance liabilities associated with such products, resulting in a reduction in F&G's net
earnings. The rate of amortization of intangibles related to FIA/ IUL products and the cost of providing GMWB could also increase if equity market performance is worse than assumed.
To economically hedge the equity returns on these products, F&G purchases derivatives to hedge the FIA and IUL equity exposures. The primary way F&G hedges FIA/ IUL equity exposure is
to purchase over the counter equity index call options from broker-dealer derivative counterparties approved by F&G. The second way to hedge FIA equity exposure is by purchasing exchange traded
equity index futures contracts. This hedging strategy enables F&G to reduce the overall hedging costs and achieve a high correlation of returns on the call options purchased relative to the index
credits earned by the FIA/ IUL contractholders. The majority of the call options are one-year options purchased to match the funding requirements underlying the FIA/ IUL contracts. These hedge
programs are limited to the current policy term of the FIA/ IUL contracts. Future returns, which may be reflected in FIA/ IUL contracts’ credited rates beyond the current policy term, are not hedged.
F&G attempts to manage the costs of these purchases through the terms of its FIA/ IUL contracts, which permit F&G to change cap, spread or participation rates, subject to certain guaranteed
minimums that must be maintained.
The derivatives are used to fund the FIA/ IUL contract index credits and the cost of the call options purchased is treated as a component of spread earnings. While the FIA/ IUL hedging
program does not explicitly hedge GAAP income volatility, the FIA/ IUL hedging program tends to mitigate a significant portion of the GAAP reserve changes associated with movements in the
equity market. This is due to the fact that a key component in the calculation of GAAP reserves is the market valuation of the current term embedded derivative. Due to the alignment of the embedded
derivative reserve component with hedging of this same embedded derivative, there should be a reasonable match between changes in this component of the reserve and changes in the assets backing
this component of the reserve. However, there may be an interim mismatch due to the fact that the hedges, which are put in place are only intended to cover exposures expected to remain until the end
of an indexing term. To the extent index credits earned by the contractholder exceed the proceeds from option expirations and futures income, F&G incurs a raw hedging loss.
See Note F Derivative Financial Instruments in the Consolidated Financial Statements included in Item 8 of Part II of this Annual Report for additional details on the derivatives portfolio.
Fair value changes associated with these investments are intended to, but do not always, substantially offset the increase or decrease in the amounts added to policyholder account balances for
indexed products. When index credits to policyholders exceed option proceeds received at expiration related to such credits, any shortfall is funded by F&G's net investment spread earnings and
futures income. For the years ended December 31, 2022 and 2021, the annual index credits to policyholders on their anniversaries were $155 million and $628 million, respectively. Proceeds received
at expiration on options related to such credits were $158 million and $702 million, respectively.
Other market exposures are hedged periodically depending on market conditions and our risk tolerance. The FIA/ IUL hedging strategy economically hedges the equity returns and exposes us to
the risk that unhedged market exposures result in divergence between changes in the fair value of the liabilities and the hedging assets. F&G uses a variety of techniques, including direct estimation
of market sensitivities, to monitor this risk daily. F&G intends to continue to adjust the hedging strategy as market conditions and risk tolerance change.
Credit Risk and Counterparty Risk Related to our F&G Segment
Our F&G segment is exposed to the risk that a counterparty will default on its contractual obligation resulting in financial loss. F&G's major source of credit risk arises predominantly in its
insurance operations’ portfolios of debt and similar securities. The fair value of F&G's fixed maturity portfolio totaled $31 billion and $30 billion at December 31, 2022 and 2021, respectively. F&G's
credit risk materializes primarily as impairment losses. F&G is exposed to occasional cyclical economic downturns, during which impairment losses may be significantly higher than the long-term
historical average. This is offset by years where it expects the actual impairment losses to be substantially lower than the long-term average. Credit risk in the portfolio can also materialize as
increased capital requirements as assets migrate into lower credit qualities over time. The effect of rating migration on its capital requirements is also dependent on the economic cycle and increased
asset impairment levels may go hand in hand with increased asset related capital requirements.
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F&G attempts to manage the risk of default and rating migration by applying disciplined credit evaluation and underwriting standards and limiting allocations to lower quality, higher risk
investments. In addition, F&G diversifies exposure by issuer and country, using rating based issuer and country limits. F&G also sets investment constraints that limit our exposure by industry
segment. To limit the impact that credit risk can have on earnings and capital adequacy levels, F&G has portfolio-level credit risk constraints in place. Limit compliance is monitored on a monthly or,
in some cases, daily basis.
In connection with the use of call options, F&G is exposed to counterparty credit risk-the risk that a counterparty fails to perform under the terms of the derivative contract. F&G has adopted a
policy of only dealing with credit worthy counterparties and obtaining sufficient collateral where appropriate, as a means of attempting to mitigate the financial loss from defaults. The exposure and
credit rating of the counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst different approved counterparties to limit the concentration in one
counterparty. This policy allows for the purchase of derivative instruments from counterparties and/or clearinghouses that meet the required qualifications under the Iowa Code. F&G reviews the
ratings of all the counterparties periodically. Collateral support documents are negotiated to further reduce the exposure when deemed necessary. See Note F Derivative Financial Instruments in the
Consolidated Financial Statements included in Item 8 of Part II of this Annual Report for additional information regarding our exposure to credit loss.
F&G also has credit risk related to the ability of reinsurance counterparties to honor their obligations to pay the contract amounts under various agreements. To minimize the risk of credit loss
on such contracts, F&G diversifies exposures among many reinsurers and limits the amount of exposure to each based on credit rating. F&G also generally limits selection of counterparties with
which to do new transactions to those with an “A-” credit rating or above and/or that are appropriately collateralized and provide credit for reinsurance. When exceptions are made to that principle,
F&G ensures that collateral is obtained to mitigate risk of loss. The following table presents F&G's reinsurance recoverable balances and financial strength ratings for our five largest reinsurance
recoverable balances as of December 31, 2022 and 2021:
(Dollars in millions)
Parent Company/Principal Reinsurers
Aspida
Wilton Reassurance Company
Somerset
London Life
Security Life of Denver Insurance Company
(Dollars in millions)
Parent Company/Principal Reinsurers
Wilton Re
Aspida Life Re Ltd
Somerset Reinsurance Ltd
Security Life of Denver
London Life Reinsurance Co.
Reinsurance Recoverable
$
3,121
1,231
570
100
93
Reinsurance Recoverable
$
1,269
873
780
102
102
AM Best
A-
A+
A-
A+
Not Rated
AM Best
A+
A-
A-
Not Rated
A+
December 31, 2022
Financial Strength Rating
S&P
Not Rated
Not Rated
BBB+
Not Rated
A-
Fitch
Not Rated
A
Not Rated
Not Rated
A-
December 31, 2021
Financial Strength Rating
S&P
Not Rated
Not Rated
BBB+
A-
Not Rated
Fitch
A+
BBB
Not Rated
A-
Not Rated
Moody's
Not Rated
Not Rated
Not Rated
Not Rated
Baa1
Moody's
Not Rated
Not Rated
Not Rated
Baa1
Not Rated
In the normal course of business, certain reinsurance recoverables are subject to reviews by the reinsurers. We are not aware of any material disputes arising from these reviews or other
communications with the counterparties as of December 31, 2022 that would require an allowance for uncollectible amounts.
For information on concentrations of reinsurance risk, refer to Note O F&G Reinsurance in the Consolidated Financial Statements included in Item 8 of Part II of this Annual Report.
For information on counter party risk associated with our title business, refer to Note H Commitments and Contingencies in the Consolidated Financial Statements included in Item 8 of Part II
of this Annual Report..
Use of Estimates and Assumptions
The preparation of our Consolidated Financial Statements included in Item 8 of Part II of this Annual Report in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and
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liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates and assumptions used.
Concentrations of Financial Instruments Related to our F&G Segment
As of December 31, 2022, our F&G segment’s most significant investment in one industry, excluding United States, Foreign Government securities and structured securities, was its investment
securities in the Banking industry with a fair value of $2,855 million or 7% of the invested assets portfolio and an amortized cost of $3,301 million. As of December 31, 2022, F&G’s holdings in this
industry include investments in 132 different issuers with the top ten investments accounting for 37% of the total holdings in this industry. As of December 31, 2022, F&G had one issuer, Blackstone
Wave Asset Holdco, in which investments exceeded 10% of shareholders' equity and was F&G's largest concentration in any single issuer with a total fair value of $741 million or 2% of the invested
assets portfolio. Blackstone Wave Asset Holdco is a special purpose vehicle that holds investments in numerous limited partnership investments. Those limited partnership investments are further
diversified by holding interest in multiple individual investments and industries.
Concentrations of Financial and Capital Markets Risk Related to our F&G Segment
Our F&G segment is exposed to financial and capital markets risk, including changes in interest rates and credit spreads, which can have an adverse effect on its results of operations, financial
condition and liquidity. Exposure to such financial and capital markets risk relates primarily to the market price and cash flow variability associated with changes in interest rates. A rise in interest
rates, in the absence of other countervailing changes, will increase the net unrealized loss position and, if long-term interest rates rise dramatically within a six to twelve month time period, certain of
F&G’s products may be exposed to disintermediation risk. Disintermediation risk refers to the risk that policyholders surrender their contracts in a rising interest rate environment, requiring F&G to
liquidate assets in an unrealized loss position. We attempt to mitigate the risk, including changes in interest rates by investing in less rate-sensitive investments, including senior tranches of
collateralized loan obligations, non-agency residential mortgage-backed securities, and various types of asset backed securities. Management believes this risk is also mitigated to some extent by
surrender charge protection provided by F&G’s products. We expect to continue to face these challenges and uncertainties that could adversely affect our results of operations and financial condition.
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Item 8. Financial Statements and Supplementary Data
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL INFORMATION
Report of Independent Registered Public Accounting Firm on Effectiveness of Internal Control over Financial Reporting (Ernst & Young, LLP, Jacksonville, FL, Auditor Firm
ID:42)
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements (Ernst & Young, LLP, Jacksonville, FL, Auditor Firm ID: 42)
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Earnings for the years ended December 31, 2022, 2021, and 2020
Consolidated Statements of Comprehensive Earnings for the years ended December 31, 2022, 2021, and 2020
Consolidated Statements of Equity for the years ended December 31, 2022, 2021, and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021, and 2020
Notes to Consolidated Financial Statements
Page
Number
87
88
92
93
94
95
96
99
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Fidelity National Financial, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Fidelity National Financial, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Fidelity National Financial, Inc. and
subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of
December 31, 2022 and 2021, the related consolidated statements of earnings, comprehensive earnings, equity and cash flows for each of the three years in the period ended December 31, 2022, and
the related notes and financial statement schedules listed in the Index at Item 15(a)(2) and our report dated February 27, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting
included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use,
or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Jacksonville, Florida
February 27, 2023
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Fidelity National Financial, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Fidelity National Financial, Inc. and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated
statements of earnings, comprehensive earnings, equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and financial statement schedules
listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity
with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of
December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework)
and our report dated February 27, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a
public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit
committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication
of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing
separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Description of the Matter
Loss Provision Rate Assumption related to the Reserve for Title Claim Losses
The Company’s reserve for title claim losses totaled $1.8 billion as of December 31, 2022. As discussed in Note A to the consolidated financial
statements, the reserve for title claim losses includes known claims as well as losses that have been incurred but not yet reported, net of recoupments.
The Company establishes reserves for claims which are incurred but not reported at the time premium revenue is recognized based on estimated loss
provision rates. There is significant uncertainty inherent in determining the loss provision rates.
Auditing the Company’s reserve for title claim losses was complex because of the highly judgmental nature of the determination of the loss provision
rates used in the valuation of the reserve for title claim losses. The significant judgment was primarily due to the sensitivity of management’s estimate to
claim loss history, industry trends, current legal environment, and geographic considerations.
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Table of Contents
How we Addressed the
Matter in Our Audit
Description of the Matter
How we Addressed the
Matter in Our Audit
We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s controls over management’s process for the
development of the loss provision rates and the recorded reserve for title claim losses. These controls included, among others, the review and approval
process management has in place for the development of the loss provision rates and the estimation of the reserve for title claim losses.
To evaluate the judgment used by management in determining the loss provision rates, among other procedures, we considered claim loss history,
industry trends, current legal environment and geographic considerations, and how management assessed these factors in the current period as compared
to prior periods. We involved actuarial professionals with specialized skills and industry knowledge, who assisted in performing an evaluation of the
Company’s current year loss provision rates compared with those used in prior periods, as well as a review of loss development experience for prior
years. We also independently calculated a range of reasonable reserve estimates which we compared to management’s recorded reserve for title claim
losses.
Value of Business Acquired (VOBA), Deferred Acquisition Costs (DAC), Deferred Sales Inducements (DSI) and secondary guarantee liabilities
At December 31, 2022 VOBA, DAC, and DSI reported within other intangible assets, net totaled $3.7 billion and contractholder funds totaled $41.2
billion, a portion of which related to indexed universal life (IUL)-type and Investment-type contracts with secondary guarantees. As discussed in Note A
to the consolidated financial statements, VOBA, DAC, and DSI are generally amortized over the lives of the policies in relation to the emergence of
actual gross profits (AGPs) and estimated gross profits (EGPs). Secondary guarantee liabilities on IUL-type products or Investment-type contracts are
calculated by multiplying the benefit ratio by the cumulative assessments recorded from contract inception through the balance sheet date less the
cumulative secondary guarantee benefit payments plus interest. The benefit ratio is the ratio of the present value of secondary guarantees to the present
value of the assessments used to provide the secondary guarantees. The assessments are calculated using the same assumptions used in VOBA, DAC,
and DSI EGPs. There is significant uncertainty inherent in calculating EGPs and assessments as the calculation is sensitive to management’s best
estimate of assumptions such as earned rate, budgeted option costs, surrender rates, mortality, and guaranteed minimum withdrawal benefit (GMWB)
utilization. Changes in assumptions, including the Company’s earned rate, budgeted option costs, surrender rates, mortality, and GMWB utilization can
have a significant impact on the pattern of EGPs of the underlying business and as a result the amortization of VOBA, DAC and DSI balances.
Management’s assumptions are adjusted, also known as unlocking, based on actual policyholder behavior and market experience and projecting for
expected trends. The unlocking results in amortization being recalculated using the new assumptions for estimated gross profits, resulting either in
additional or less cumulative amortization expense. Additionally, if experience or assumption changes result in a new benefit ratio, the secondary
guarantee liabilities are adjusted to reflect the changes in a manner similar to the unlocking of VOBA, DAC, and DSI.
Auditing the valuation of the Company’s VOBA, DAC, and DSI that are amortized in relation to the emergence of AGPs/EGPs and valuation of
secondary guarantee liabilities on IUL-type products or Investment-type contracts was complex because of the highly judgmental nature of the methods
used and determination of the assumptions applied to determine the EGPs and assessments. The high degree of judgment was primarily due to the
sensitivity of the EGPs and assessments to the methods used and assumptions applied which have a significant effect on the valuation of VOBA, DAC,
DSI and secondary guarantee liabilities on IUL-type products or Investment-type contracts.
We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls over the VOBA, DAC, DSI, and
contractholder funds estimation processes. These controls included, among others, the review and approval process management has in place for the
development of the significant assumptions described above.
To evaluate the judgment used by management in determining the EGPs and assessments, among other procedures, we involved actuarial specialists and
evaluated the methodology applied by management in determining the EGPs and assessments with those used in prior periods. To evaluate the
significant assumptions used by management, we compared policyholder behavior assumptions that we identified as being higher risk to prior actual
experience, observable market data or management’s estimates of prospective changes in these assumptions. We performed an independent recalculation
of EGPs and secondary guarantee liabilities for a sample of product cohorts, which we compared to the actuarial model used by management.
89
Table of Contents
Description of the Matter
Valuation of Investments in Securities
The Company’s fair value of fixed maturity securities totaled $33.1 billion as of December 31, 2022. The fair value of a subset of these securities,
including asset backed securities and bonds, is based on non-binding broker quotes as described in Note D to the consolidated financial statements. The
lack of visibility into assumptions used in non-binding broker quotes is a significant unobservable input, which creates greater subjectivity when
determining the fair values.
Auditing the fair value of the securities valued by brokers was especially challenging because determining the fair value is complex and highly
judgmental and involves using inputs and assumptions that are not directly observable in the market.
How we Addressed the
Matter in Our Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of management’s valuation process for broker-quoted
securities. These controls included management’s evaluation of the broker-quoted values compared to an independently calculated range of values.
Description of the Matter
How we Addressed the
Matter in Our Audit
To test the fair value of the securities, we utilized the support of our valuation specialists which included, among other procedures, independently
calculating a reasonable range of fair values for a sample of securities based on independently obtained information or available transaction data for
similar securities. We compared these ranges to management’s estimates of fair value for the selected securities.
Assumptions related to Fixed Indexed Annuity Embedded Derivative Liability
As of December 31, 2022, the fair value of the Company’s fixed indexed annuity embedded derivative liability totaled $3.1 billion. Certain of the
Company’s fixed indexed annuity contracts allow the policyholder to elect an equity index linked feature, where amounts credited to the contract’s
account value are linked to the performance of designated equity indices selected by the policyholder. The equity index crediting feature is accounted for
as an embedded derivative liability and reported at fair value as discussed in Note D to the consolidated financial statements.
Auditing the valuation of the Company’s fixed indexed annuity embedded derivative was complex because of the highly judgmental nature of the
determination of the assumptions required to determine the fair value of the embedded derivative. In particular, the fair value was sensitive to the
significant assumptions used to determine future policy growth including the mortality, surrender rates, partial withdrawals, GMWB utilization, non-
performance spread, and option cost. There is significant uncertainty inherent in determining the mortality, surrender rates, partial withdrawals, GMWB
utilization, non-performance spread and option cost assumptions.
We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s controls over management’s process for the
development of the significant assumptions used in measuring the fair value of the embedded derivative for fixed indexed annuities. These controls
included, among others, the review and approval process management has in place for the development of the significant assumptions.
To evaluate the judgment used by management in determining the assumptions used in measuring the fair value of the fixed indexed annuity embedded
derivative, among other procedures, we involved actuarial specialists and evaluated the methodology applied by management in determining the fair
value with those used in the prior period and in the industry. To evaluate the significant assumptions used by management in the methodology applied,
we compared policyholder behavior assumptions to prior actual experience and management’s estimate of prospective changes in the assumptions. In
addition, we compared the nonperformance spread and option costs assumptions to observable market data. We performed an independent recalculation
of the embedded derivative for a sample of products for comparison with the actuarial model used by management.
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/s/ Ernst & Young LLP
We have served as the Company's auditor since 2017.
Jacksonville, Florida
February 27, 2023
91
Table of Contents
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except share data)
December 31,
2022
December 31,
2021
Investments:
ASSETS
Fixed maturity securities available for sale, at fair value, at December 31, 2022 and December 31, 2021, at an amortized cost of $37,708 and $30,705, respectively, net of allowance for
credit losses of $39 and $8, respectively, and includes pledged fixed maturity securities of $448 and $460, respectively, related to secured trust deposits
Preferred securities, at fair value
Equity securities, at fair value
Derivative investments
Mortgage loans, net of allowance for credit losses of $42 and $31 at December 31, 2022 and 2021, respectively.
Investments in unconsolidated affiliates
Other long-term investments
Short-term investments, at December 31, 2022 and December 31, 2021 includes pledged short-term investments of $6 and $1, respectively, related to secured trust deposits
Total investments
Cash and cash equivalents, at December 31, 2022 and 2021 includes $242 and $480, respectively, of pledged cash related to secured trust deposits
Trade and notes receivables, net of allowance of $33 and $32 at December 31, 2022 and 2021, respectively
Reinsurance recoverable, net of allowance for credit losses of $10 and $20 at December 31, 2022 and 2021, respectively
Goodwill
Prepaid expenses and other assets
Lease assets
Other intangible assets, net
Title plants
Property and equipment, net
LIABILITIES AND EQUITY
Total assets
Liabilities:
Contractholder funds
Future policy benefits
Accounts payable and accrued liabilities
Notes payable
Reserve for title claim losses
Funds withheld for reinsurance liabilities
Secured trust deposits
Lease liabilities
Income taxes payable
Deferred tax liability
Total liabilities
Equity:
FNF common stock, $0.0001 par value; authorized 600,000,000 shares as of December 31, 2022 and 2021, respectively; outstanding of 272,309,890 and 283,778,574 as of December 31,
2022 and 2021, respectively, and issued of 327,757,349 and 325,486,429 as of December 31, 2022 and 2021, respectively
Preferred stock, $0.0001 par value; authorized 50,000,000 shares; issued and outstanding, none
Additional paid-in capital
Retained earnings
Accumulated other comprehensive earnings
Less: Treasury stock, 55,447,459 shares and 41,707,855 shares as of December 31, 2022 and 2021, respectively, at cost
Total Fidelity National Financial, Inc. shareholders’ equity
Non-controlling interests
Total equity
Total liabilities and equity
$
$
$
$
33,095
903
678
244
4,554
2,614
692
2,590
45,370
2,286
467
5,588
4,642
2,231
376
4,034
416
179
65,589
$
$
41,233
5,923
2,352
3,238
1,810
3,703
862
418
—
71
59,610
—
—
5,876
4,714
(2,862)
(2,109)
5,619
360
5,979
See accompanying Notes to Consolidated Financial Statements
92
$
65,589
$
31,990
1,401
1,263
816
3,749
2,486
579
491
42,775
4,360
557
3,738
4,539
1,203
376
2,557
400
185
60,690
35,525
4,732
2,696
3,096
1,883
1,676
934
414
72
205
51,233
—
—
5,811
4,369
779
(1,545)
9,414
43
9,457
60,690
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in millions, except per share data)
Table of Contents
Revenues:
Direct title insurance premiums
Agency title insurance premiums
Escrow, title-related and other fees
Interest and investment income
Recognized gains and losses, net
Total revenues
Expenses:
Personnel costs
Agent commissions
Other operating expenses
Benefits and other changes in policy reserves
Depreciation and amortization
Provision for title claim losses
Interest expense
Total expenses
Earnings from continuing operations before income taxes and equity in earnings of unconsolidated affiliates
Income tax expense
Earnings before equity in earnings of unconsolidated affiliates
Equity in earnings of unconsolidated affiliates
Net earnings from continuing operations
Net earnings (loss) from discontinued operations, net of tax
Net earnings
Less: Net earnings attributable to non-controlling interests
Net earnings attributable to Fidelity National Financial, Inc. common shareholders
Earnings per share
Basic
Net earnings from continuing operations attributable to FNF common shareholders
Net earnings (loss) from discontinued operations attributable to FNF common shareholders
Net earnings per share attributable to FNF common shareholders, basic
Diluted
Net earnings from continuing operations attributable to FNF common shareholders
Net earnings (loss) from discontinued operations attributable to FNF common shareholders
Net earnings per share attributable to FNF common shareholders, diluted
Weighted average shares outstanding FNF common stock, basic basis
Weighted average shares outstanding FNF common stock, diluted basis
See accompanying Notes to Consolidated Financial Statements
93
$
$
$
$
$
$
Year Ended December 31,
2022
2021
2020
$
2,858
3,976
4,324
1,891
(1,493)
11,556
3,192
3,064
1,721
1,125
496
308
115
$
3,571
4,982
4,795
1,961
334
15,643
3,528
3,821
1,929
2,138
645
385
114
10,021
12,560
1,535
398
1,137
15
1,152
—
1,152
16
3,083
713
2,370
64
2,434
8
2,442
20
1,136
$
2,422
$
$
$
$
$
4.13
—
4.13
4.10
—
4.10
275
277
$
$
$
$
8.47
0.03
8.50
8.41
0.03
8.44
285
287
2,699
3,599
3,092
900
488
10,778
2,951
2,749
1,759
866
296
283
90
8,994
1,784
322
1,462
15
1,477
(25)
1,452
25
1,427
5.11
(0.09)
5.02
5.08
(0.09)
4.99
284
286
Table of Contents
Net earnings
Other comprehensive earnings:
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In millions)
Year Ended December 31,
2022
2021
2020
$
1,152
$
2,442
$
1,452
Unrealized (loss) gain on investments and other financial instruments, net of adjustments to intangible assets and unearned revenue (excluding investments in unconsolidated
affiliates) (1)
Unrealized gain on investments in unconsolidated affiliates (2)
Unrealized (loss) gain on foreign currency translation (3)
Reclassification adjustments for change in unrealized gains and losses included in net earnings (4)
Change in reinsurance liabilities held at fair value resulting from a change in the instrument-specific credit risk (5)
Other comprehensive earnings attributable to non-controlling interest (6)
Minimum pension liability adjustment (7)
Other comprehensive (loss) earnings
Comprehensive (loss) earnings
Less: Comprehensive earnings attributable to non-controlling interests
(3,839)
9
(18)
173
—
29
5
(3,641)
(2,489)
16
(413)
22
(7)
(123)
3
—
(7)
(525)
1,917
20
Comprehensive (loss) earnings attributable to Fidelity National Financial, Inc. common shareholders
$
(2,505)
$
1,897
$
1,310
3
10
(73)
(3)
—
14
1,261
2,713
25
2,688
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Net of income tax (benefit) expense of $(1,010) million, $(113) million, and $350 million for the years ended December 31, 2022, 2021, and 2020, respectively.
Net of income tax expense of $3 million, $7 million, and $1 million for the years ended December 31, 2022, 2021, and 2020, respectively.
Net of income tax (benefit) expense of $(4) million, $0 million, and $1 million for the years ended December 31, 2022, 2021, and 2020, respectively.
Net of income tax expense (benefit) of $60 million, $(33) million and $(18) million for the years ended December 31, 2022, 2021 and 2020, respectively.
Net of income tax expense (benefit) of $1 million and $(1) million for the years ended December 31, 2021, and 2020, respectively.
Net of income tax expense of $8 million for the year ended December 31, 2022.
Net of income tax expense (benefit) of $2 million, $(2) million and $4 million for the years ended December 31, 2022, 2021, and 2020, respectively.
See accompanying Notes to Consolidated Financial Statements
94
Table of Contents
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(In millions, except per share data)
Fidelity National Financial, Inc. Common Shareholders
FNF
Common
Stock
Shares
$
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Earnings
Treasury
Stock
(Loss)
Shares
$
Non-
controlling
Interests
Total
Equity
Balance, January 1, 2020
Exercise of stock options
F&G Acquisition
Purchase of ServiceLink noncontrolling interest
Issuance of restricted stock
Treasury stock repurchased
Other comprehensive earnings - unrealized gain on investments and
other financial instruments
Other comprehensive earnings - unrealized gain on investments in
unconsolidated affiliates
Other comprehensive earnings - unrealized gain on foreign currency
translation
Other comprehensive earnings - minimum pension liability adjustment
Reclassification adjustments for change in unrealized gains and losses
included in net earnings
Stock-based compensation
Dividends declared
Shares withheld for taxes and in treasury
Change in reinsurance liabilities held at fair value resulting from change
in instrument-specific credit risk
Subsidiary dividends declared to non-controlling interests
Net earnings
Balance, December 31, 2020
Exercise of stock options
Treasury stock repurchased
Issuance of restricted stock
Purchase of incremental share in consolidated subsidiaries
Other comprehensive earnings — unrealized gain on investments and
other financial instruments
Other comprehensive earnings — unrealized gain on investments in
unconsolidated affiliates
Other comprehensive earnings — unrealized gain on foreign currency
translation
Other comprehensive earnings - minimum pension liability adjustment
Reclassification adjustments for change in unrealized gains and losses
included in net earnings
Stock-based compensation
Dividends declared
Shares withheld for taxes and in treasury
Change in reinsurance liabilities held at fair value resulting from change
in instrument-specific credit risk
Subsidiary dividends declared to non-controlling interests
Net earnings
$
292
3
25
—
2
—
—
—
—
—
—
—
—
—
—
—
322
$
2
—
1
—
—
—
—
—
—
—
—
—
—
—
—
Balance, December 31, 2021
$
325
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
4,581
62
827
211
—
—
—
—
—
—
—
39
—
—
—
—
$
5,720
$
50
—
—
—
—
—
—
—
—
41
—
—
—
—
—
$
5,811
$
$
1,356
—
—
—
—
—
—
—
—
—
—
—
(389)
—
—
1,427
2,394
$
—
—
—
—
—
—
—
—
—
—
(447)
—
—
—
2,422
4,369
$
43
—
—
—
—
—
1,310
3
10
14
(73)
—
—
—
(3)
—
—
1,304
—
—
—
—
(413)
22
(7)
(7)
(123)
—
—
—
3
—
—
779
17
—
7
—
—
7
—
—
—
—
—
—
—
—
—
—
31
—
10
—
—
—
—
—
—
—
—
—
1
—
—
—
42
$
$
(598)
—
(217)
—
—
(244)
—
—
—
—
—
—
—
(8)
—
—
$
(1,067)
$
—
(461)
—
—
—
—
—
—
—
—
—
(17)
—
—
—
$
(1,545)
$
(17)
—
—
47
—
—
—
—
—
—
—
—
—
—
(14)
25
41
—
—
—
1
—
—
—
—
—
—
—
—
$
—
(19)
20
43
$
5,365
62
610
258
—
(244)
1,310
3
10
14
(73)
39
(389)
(8)
(3)
(14)
1,452
8,392
50
(461)
—
1
(413)
22
(7)
(7)
(123)
41
(447)
(17)
3
(19)
2,442
9,457
Redeemable
Non-
controlling
Interests
$
344
(344)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
See accompanying Notes to Consolidated Financial Statements
95
Table of Contents
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY (CONTINUED)
(In millions, except per share data)
Fidelity National Financial, Inc. Common Shareholders
Balance, January 1, 2022
Exercise of stock options
Non-controlling interest associated with current period acquisitions
Treasury stock repurchased
Issuance of restricted stock
Purchase of incremental share in consolidated subsidiaries
Other comprehensive earnings - unrealized loss on investments and other
financial instruments
Other comprehensive earnings - unrealized gain on investments in
unconsolidated affiliates
Other comprehensive earnings - unrealized loss on foreign currency translation
Other comprehensive earnings - minimum pension liability adjustment
Reclassification adjustments for change in unrealized gains and losses included
in net earnings
Stock-based compensation
Dividends declared
Shares withheld for taxes and in treasury
Distribution of 15% of the common stock of F&G
Other comprehensive earnings attributable to non-controlling interest
Subsidiary dividends declared to non-controlling interests
Net earnings
Balance, December 31, 2022
FNF
Common
Stock
Shares
$
$
325
2
—
1
—
—
—
—
—
—
—
—
—
—
—
—
—
328
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Additional
Paid-in
Capital
Retained
Earnings
$
$
5,811
39
$
4,369
—
—
—
(3)
—
—
—
—
—
48
—
—
(19)
—
—
—
$
5,876
$
—
—
—
—
—
—
—
—
—
(490)
—
(301)
—
—
1,136
4,714
Accumulated
Other
Comprehensive
Earnings
(Loss)
Treasury
Stock
Shares
$
Non-
controlling
Interests
Total
Equity
779
—
—
—
—
(3,839)
9
(18)
5
173
—
—
—
—
29
—
—
42
—
13
—
—
—
—
—
—
—
—
—
—
—
—
—
—
55
$
(1,545)
—
$
(549)
—
—
—
—
—
—
—
—
—
(15)
—
—
—
—
$
(2,109)
$
43
—
45
—
—
(12)
—
—
—
—
—
1
—
—
320
(29)
(24)
16
360
$
$
9,457
39
45
(549)
—
(15)
(3,839)
9
(18)
5
173
49
(490)
(15)
—
(24)
1,152
5,979
$
(2,862)
See accompanying Notes to Consolidated Financial Statements
96
Table of Contents
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Cash Flows From Operating Activities:
Net earnings
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization
Equity in earnings of unconsolidated affiliates
Loss (gain) on sales of investments and other assets and asset impairments, net
Loss on sale of businesses
Interest credited/index credits to contractholder account balances
Deferred policy acquisition costs and deferred sales inducements
Charges assessed to contractholders for mortality and administration
Non-cash lease costs
Operating lease payments
Distributions from unconsolidated affiliates, return on investment
Stock-based compensation cost
Change in NAV of limited partnerships, net
Change in valuation of derivatives, equity and preferred securities, net
Changes in assets and liabilities, net of effects from acquisitions:
Change in reinsurance recoverable
Change in future policy benefits
Change in funds withheld from reinsurers
Net decrease (increase) in trade receivables
Net (decrease) increase in reserve for title claim losses
Net change in income taxes
Net change in other assets and other liabilities
Net cash provided by operating activities
Cash Flows From Investing Activities:
Proceeds from sales, calls and maturities of investment securities
Fundings of notes receivable
Additions to property and equipment and capitalized software
Purchases of investment securities
Net (purchases of) proceeds from sales and maturities of short-term investment securities
F&G acquisition
Other acquisitions/disposals, net of cash acquired
Additional investments in unconsolidated affiliates
Distributions from unconsolidated affiliates, return of investment
Net other investing activities
Net cash used in investing activities
For the Year Ended December 31,
2022
2021
2020
$
1,152
$
2,442
$
1,452
496
(15)
533
—
(542)
(814)
(212)
142
(154)
151
49
(109)
947
149
1,191
2,056
178
(73)
25
(795)
4,355
6,340
(99)
(138)
(13,148)
(2,571)
—
(180)
(1,077)
335
14
(10,524)
645
(64)
(588)
14
805
(675)
(180)
139
(150)
106
43
(589)
253
4
634
850
(120)
260
(18)
279
4,090
9,796
—
(131)
(16,014)
266
—
(100)
(1,746)
491
(11)
(7,449)
296
(15)
80
9
750
(266)
(100)
150
(152)
—
39
—
(568)
40
(92)
(15)
(83)
114
24
(85)
1,578
3,592
—
(110)
(4,959)
145
(1,076)
158
(327)
241
5
(2,331)
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Cash Flows From Financing Activities:
Borrowings
Debt offering
Debt costs/equity issuance additions
Debt service payments
Dividends paid
Subsidiary dividends paid to non-controlling interest shareholders
Exercise of stock options
Net change in secured trust deposits
Purchase of additional share in consolidated subsidiaries
Payment of contingent consideration for prior period acquisitions
Payment for shares withheld for taxes and in treasury
Contractholder account deposits
Contractholder account withdrawals
Purchases of treasury stock
Net cash provided by financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In millions)
For the Year Ended December 31,
2022
2021
2020
550
—
—
(404)
(489)
(20)
39
(72)
(15)
(7)
(15)
8,531
(3,450)
(553)
4,095
(2,074)
4,360
—
449
(6)
—
(446)
(19)
48
224
—
(5)
(17)
8,166
(2,931)
(463)
5,000
1,641
2,719
See accompanying Notes to Consolidated Financial Statements
$
2,286
$
4,360
$
98
1,000
1,246
(22)
(1,000)
(389)
(14)
62
(80)
(90)
(13)
(8)
2,967
(1,327)
(236)
2,096
1,343
1,376
2,719
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FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A. Business and Summary of Significant Accounting Policies
The following describes the business and significant accounting policies of Fidelity National Financial, Inc. and its subsidiaries (collectively, “we,” “us,” “our,” the "Company" or “FNF”), which
have been followed in preparing the accompanying Consolidated Financial Statements.
Description of the Business
We are a leading provider of (i) title insurance, escrow and other title-related services, including trust activities, trustee sales guarantees, recordings and reconveyances and home warranty
products, (ii) technology and transaction services to the real estate and mortgage industries and (iii) annuity and life insurance products. FNF is one of the nation’s largest title insurance companies
operating through its title insurance underwriters - Fidelity National Title Insurance Company ("FNTIC"), Chicago Title Insurance Company ("Chicago Title"), Commonwealth Land Title Insurance
Company ("Commonwealth Title"), Alamo Title Insurance and National Title Insurance of New York Inc. - which collectively issue more title insurance policies than any other title company in the
United States. Through our subsidiary, ServiceLink Holdings, LLC ("ServiceLink"), we provide mortgage transaction services, including title-related services and facilitation of production and
management of mortgage loans. We are also a leading provider of insurance solutions serving retail annuity and life customers and institutional clients through our majority owned subsidiary, F&G
Annuities & Life ("F&G").
For information about our reportable segments refer to Note J Segment Information.
Recent Developments
7.40% F&G Senior Notes
On January 13, 2023, F&G completed its issuance and sale of $500 million aggregate amount of its 7.40% Senior Notes due 2028 (the "7.40% F&G Notes"), pursuant to Rule 144A and
Regulation S under the Securities Act of 1933, as amended. The 7.40% F&G Notes are the senior unsecured, unsubordinated obligations of F&G and are guaranteed on an unsecured, unsubordinated
basis by each of F&G's subsidiaries that are guarantors of its obligations under the F&G Credit Agreement (the “Guarantors”). F&G intends to use the net proceeds from the offering of the 7.40%
F&G Notes for general corporate purposes, including to support the growth of assets under management and for F&G's future liquidity requirements. The interest rate payable on the 7.40% F&G
Notes will be subject to adjustment from time to time if either S&P or Fitch (or a substitute rating agency therefor) downgrades (or downgrades and subsequently upgrades) the credit ratings assigned
to the 7.40% F&G Notes.
Acquisition of TitlePoint
On January 1, 2023, we completed our previously announced acquisition of TitlePoint for $225 million in cash, subject to a customary working capital adjustment. TitlePoint enables searches for
detailed property information, images of documents and maps from hundreds of counties across the U.S and is a leader in the science of real estate property research technology.
F&G Distribution
On December 1, 2022, we completed our previously announced separation and distribution of approximately 15% of the common stock of F&G (the "F&G Distribution"). Following the F&G
Distribution, we retained control of F&G through our approximate 85% ownership stake. The F&G Distribution was accomplished by the distribution of 68 shares of common stock, par value $0.001
per share, of F&G for every 1,000 shares of common stock, par value $0.0001 per share, of FNF (“FNF Common Stock”) as a dividend to each holder of shares of FNF Common Stock as of the close
of business on November 22, 2022, the record date for the Distribution.
As a result of the F&G Distribution, F&G is a separate, publicly traded company and its businesses, assets and liabilities are expected to primarily consist of those related to F&G’s business as a
provider of insurance solutions serving retail annuity and life customers and institutional clients. Through F&G’s insurance subsidiaries, including Fidelity & Guaranty Life Insurance Company and
Fidelity & Guaranty Life Insurance Company of New York, F&G intends continue to market a broad portfolio of deferred annuities (fixed indexed annuities and multi-year guarantee annuities or
other fixed rate annuities), immediate annuities, indexed universal life insurance, funding agreements (through funding agreement-backed notes issuances and the Federal Home Loan Bank of
Atlanta) and pension risk transfer solutions. All of FNF’s core title insurance, real estate, technology and mortgage related businesses, assets and liabilities that are not held by F&G remain with FNF.
F&G Credit Facility
On November 22, 2022, F&G entered into a Credit Agreement (the "F&G Credit Agreement") with certain lenders (the "Lenders") and Bank of America, N.A. as administrative agent (the
"Administrative Agent"), swing line lender and an issuing
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bank, pursuant to which F&G has an available unsecured revolving credit facility (the "F&G Credit Facility") in an aggregate principal amount of $550 million to be used for working capital and
general corporate purposes. As of December 31, 2022, the F&G Credit Facility was fully drawn with $550 million outstanding, offset by approximately $3 million of unamortized debt issuance costs.
A net partial paydown of $35 million was made on January 6, 2023 and, on February 21, 2023, F&G entered into an amendment (the "First Amendment") to the F&G Credit Agreement (the
"Amended F&G Credit Agreement"). The First Amendment increased the aggregate principal amount of commitments under the F&G Credit Facility by $115 million to $665 million. For further
information related to the F&G Credit Facility, refer to Note G Notes Payable.
Repayment of 5.50% Senior Notes
On September 1, 2022, we repaid the remaining $400 million in outstanding principal amount of our 5.50% Senior Notes due September 2022.
Acquisition of AllFirst Title Insurance Agency ("AllFirst")
On August 9, 2022, we acquired approximately 74% of the outstanding equity of AllFirst for approximately $130 million in cash consideration. On December 19, 2022, we purchased an
additional 6% of the outstanding equity of AllFirst for approximately $10 million in cash consideration. AllFirst and its portfolio brands, FirsTitle, Excel Title Group, Allegiance Title Company,
Guaranty Title, Smith Brothers Abstract, Aggieland Title Company, and Guaranty Title New Mexico provide title examination, title plant, abstract, and settlement services for residential, commercial,
farm and ranch sales, and energy projects in 121 counties throughout Texas, Oklahoma, New Mexico, and Arkansas. For further information related to the acquisition of AllFirst, refer to Note B
Acquisitions.
Note Receivable from Cannae
In November 2017, in conjunction with the split-off of our former portfolio company investments into a separate company, Cannae Holdings, Inc. ("Cannae"), we issued to Cannae a revolver
note, which we and Cannae amended and restated on May 12, 2022 (as amended and restated, the "Cannae Revolver").
The Cannae Revolver in the aggregate principal amount of up to $100 million accrues interest quarterly at the Adjusted Term SOFR Rate, as defined in the Amended and Restated Revolver Note,
plus 450 basis points and matures on November 17, 2025. The maturity date is automatically extended for additional five-year terms unless notice of non-renewal is otherwise provided by either FNF
or Cannae, in their sole discretion.
During the year ended December 31, 2022, Cannae borrowed approximately $85 million under the Cannae Revolver.
We account for the Cannae Revolver as a financing receivable. Interest income is recorded ratably in periods in which principal is outstanding. Uncollectible financing receivables are written off
or impaired when, based on all available information, it is probable that a loss has occurred.
Principles of Consolidation and Basis of Presentation
The accompanying Consolidated Financial Statements are prepared in accordance with generally accepted accounting principles in the United States ("GAAP") and include our accounts as well
as our wholly-owned and majority-owned subsidiaries. All intercompany profits, transactions and balances have been eliminated. In our title segment, our investments in unconsolidated subsidiaries
and affiliates are accounted for using the equity method until such time that they become wholly or majority-owned. Earnings attributable to noncontrolling interests recorded on the Consolidated
Statements of Earnings represents the portion of a majority-owned subsidiary's net earnings or loss that is owned by noncontrolling shareholders of the subsidiary. Noncontrolling interest recorded on
the Consolidated Balance Sheets represents the portion of equity in a consolidated subsidiary owned by noncontrolling shareholders.
We are involved in certain entities that are considered variable interest entities ("VIEs") as defined under GAAP. Our involvement with VIEs is primarily to invest in assets that allow us to gain
exposure to a broadly diversified portfolio of asset classes. A VIE is an entity that does not have sufficient equity to finance its own activities without additional financial support, where investors
lack certain characteristics of a controlling financial interest, or where the entity is structured with non-substantive voting rights. We assess our relationships with VIEs to evaluate if we are the
primary beneficiary of the VIE. If we determine we are the primary beneficiary of a VIE, we consolidate the assets and liabilities of the VIE in our Consolidated Financial Statements. See Note E
Investments for additional information on our investments in VIEs.
Investments
Fixed Maturity Securities Available-for-Sale
Fixed maturity securities are purchased to support our investment strategies, which are developed based on factors including rate of return, maturity, credit risk, duration, tax considerations and
regulatory requirements. Our investments in fixed maturity securities have been designated as available-for-sale ("AFS") and are carried at fair value, net of allowance for
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expected credit losses, with unrealized gains and losses included within accumulated other comprehensive income (loss) ("AOCI"), net of associated adjustments for deferred acquisition costs
("DAC"), value of business acquired ("VOBA"), deferred sales inducements ("DSI"), unearned revenue ("UREV"), Statement of Position 03-1, “Accounting and Reporting by Insurance Enterprises
for Certain Nontraditional Long-Duration Contracts and for Separate Accounts,” ("SOP 03-1") reserves, and deferred income taxes. Fair values for fixed maturity securities are principally a function
of current market conditions and are valued based on quoted prices in markets that are not active or model inputs that are observable or unobservable. We recognize investment income on fixed
maturities based on the interest method, which results in the recognition of a constant rate of return on the investment equal to the prevailing rate at the time of purchase or at the time of subsequent
adjustments of book value. In our title segment, realized gains and losses on sales of our fixed maturity securities 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. Our F&G segment uses FIFO cost basis and generally records security transactions on a trade date basis except for private placements, which are
recorded on a settlement date basis. Realized gains and losses on sales of fixed maturity securities are reported within Recognized gains and losses, net in the accompanying Consolidated Statements
of Earnings. Fixed maturity securities AFS are subject to an allowance for credit loss and changes in the allowance are reported in net earnings as a component of Recognized gains and losses, net.
For details on our policy around allowance for expected credit losses on available-for-sale securities, refer to Note E Investments.
Preferred and Equity Securities
Equity and preferred securities held are carried at fair value as of the balance sheet dates. The fair values of our equity and preferred securities are based on quoted prices in active markets, or are
valued based on quoted prices in markets that are not active or model inputs that are observable or unobservable or based on net asset value (“NAV”). Changes in fair value and realized gains and
losses on sales of our preferred and equity securities are reported within Recognized gains and losses, net in the accompanying Consolidated Statements of Earnings. Recognized gains and losses on
sales of our preferred and equity securities are credited or charged to earnings on a trade date basis, unless the security is a private placement in which case settlement date basis is used. Interest and
dividend income from these investments is reported in Interest and investment income in the accompanying Consolidated Statements of Earnings.
Derivative Financial Instruments
In our F&G segment, we hedge certain portions of our exposure to product related equity market risk by entering into derivative transactions (primarily call options). All such derivative
instruments are recognized as either assets or liabilities in the accompanying Consolidated Balance Sheets at fair value. The changes in fair value are reported within Recognized gains and losses, net
in the accompanying Consolidated Statements of Earnings.
We purchase financial instruments and issue products that may contain embedded derivative instruments. If it is determined that the embedded derivative possesses economic characteristics that
are not clearly and closely related to the economic characteristics of the host contract, and a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative
is bifurcated from the host contract for measurement purposes. The embedded derivative is carried at fair value, which is determined through a combination of market observable inputs such as
market value of option and interest swap rates and unobservable inputs such as the mortality multiplier, surrender and withdrawal rates and non-performance spread. The changes in fair value are
reported within Benefits and other changes in policy reserves in the accompanying Consolidated Statements of Earnings. See a description of the fair value methodology used in Note D Fair Value of
Financial Instruments.
Reinsurance Related Embedded Derivatives
As discussed in Note O F&G Reinsurance, F&G entered into reinsurance agreements with Kubera Insurance (SAC) Ltd. ("Kubera"), effective December 31, 2018, and ASPIDA Life Re Ltd
("Aspida Re"), effective January 1, 2021, and amended in August 2021 and September 2022, to cede a quota share of certain deferred annuity and multi-year guaranteed annuities ("MYGA") and
deferred annuity "), respectively, GAAP and statutory reserves on a coinsurance funds withheld basis, net of applicable existing reinsurance. Effective October 31, 2021, the Kubera agreement was
novated from Kubera to Somerset Reinsurance Ltd. ("Somerset"), a certified third-party reinsurer. Funds withheld arrangements allow the Company to retain legal ownership of assets backing
reinsurance arrangements until they are earned by the reinsurer while passing credit risk associated with the assets in the funds withheld account to the reinsurer. These arrangements create embedded
derivatives considered to be total return swaps with contractual returns that are attributable to the assets and liabilities associated with the 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. These total return swaps are not clearly and
closely related to the underlying reinsurance contract and thus require bifurcation. The reinsurance related embedded derivative is reported in Prepaid expenses and other assets if in a net gain
position, or Accounts payable and accrued liabilities, if in a net loss position on the Consolidated Balance Sheets and the related gains or losses are reported in Recognized gains (losses) on the
Consolidated Statements of Earnings.
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Mortgage Loans
Our investment in mortgage loans consists of commercial and residential mortgage loans on real estate, which are reported at amortized cost, less allowance for expected credit losses. For details
on our policy around allowance for expected credit losses on mortgage loans, refer to Note E Investments.
Commercial mortgage loans are continuously monitored by reviewing appraisals, operating statements, rent revenues, annual inspection reports, loan specific credit quality, property
characteristics, market trends and other factors.
Commercial mortgage loans are rated for the purpose of quantifying the level of risk. Loans are placed on a watch list when the debt service coverage ("DSC") ratio falls below certain thresholds and
the loan-to-value ("LTV") ratios exceeds certain thresholds. Loans on the watchlist are closely monitored for collateral deficiency or other credit events that may lead to a potential loss of principal or
interest. We define delinquent mortgage loans as 30 days past due, consistent with industry practice.
Residential mortgage loans have a primary credit quality indicator of either a performing or nonperforming loan. We define nonperforming residential mortgage loans as those that are 90 or more
days past due and/or in nonaccrual status, which is assessed monthly. Generally, nonperforming residential mortgage loans have a higher risk of experiencing a credit loss. We consider residential
mortgage loans that are 90 or more days past due and have an LTV greater than 90% to be foreclosure probable.
Interest on loans is recognized on an accrual basis at the applicable interest rate on the principal amount outstanding. Loan origination fees and direct costs, as well as premiums and discounts, are
amortized as level yield adjustments over the respective loan terms. Unamortized net fees or costs are recognized upon early repayment of the loans. Loan commitment fees are deferred and
amortized on an effective yield basis over the term of the loan. Interest income, amortization of premiums and discounts, prepayment fees, and loan commitment fees are reported in Interest and
investment income in the accompanying Consolidated Statements of Earnings.
Short-term investments
Short-term investments consist of financial instruments with an original maturity of one year or less when purchased and include short-term fixed maturity securities and money market
instruments, which are carried at fair value, and short-term loans, which are carried at amortized cost, which approximates fair value.
Investments in Unconsolidated Affiliates
In our F&G segment, we primarily account for our investments in unconsolidated affiliates (primarily limited partnerships) using the equity method, where the cost is initially recorded as an
investment in the entity. Adjustments to the carrying amount reflect our pro rata ownership percentage of the operating results as indicated by NAV in the limited partnership financial statements.
Income from investments in unconsolidated affiliates is included within Interest and investment income in the accompanying Consolidated Statements of Earnings. Recognition of income and
adjustments to the carrying amount are delayed due to the availability of the related financial statements, which are obtained from the general partner generally on a one to three-month delay.
Management meets quarterly with the general partner to determine whether any credit or other market events have occurred since prior quarter financial statements to ensure any material events are
properly included in current quarter valuation and investment income. In our title business we account for our Investments in unconsolidated affiliates using the equity method of accounting and
earnings on our investments in unconsolidated affiliates are recorded within Equity in earnings of unconsolidated affiliates within the Consolidated Statements of Earnings.
Interest and investment income
Dividends and interest income are recorded in Interest and investment income and recognized when earned. Income or losses upon call or prepayment of fixed maturity securities are recognized
in Interest and investment income. Amortization of premiums and accretion of discounts on investments in fixed maturity securities are reflected in Interest and investment income over the
contractual terms of the investments, and for callable investments at a premium, based on the earliest call date of the investments, in a manner that produces a constant effective yield.
For mortgage-backed and asset-backed securities, included in the fixed maturity securities portfolios, one of two models may be used to recognize interest income. For higher rated securities,
interest income will be estimated based on an effective yield that considers cash flows received to date plus current expectations of future cash flows. For all other securities, interest income will be
estimated based upon an effective yield that considers current expectations of future cash flows. For both interest income models, the estimated future cash flows include assumptions regarding the
performance of the underlying collateral pool.
Interest and investment income is presented net of earned investment management fees and the effects of certain reinsurance contracts.
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Cash and Cash Equivalents
Highly liquid instruments purchased as part of cash management with original maturities of three months or less are considered cash equivalents. The carrying amounts reported in the
Consolidated Balance Sheets for these instruments approximate fair value.
Trade and Notes Receivables
The carrying values reported in the Consolidated Balance Sheets for trade and notes receivables approximate their fair value.
Premium revenues from agency title operations are recognized when the underlying title order and transaction closing, if applicable, are complete and reported to us. Premium revenues from
agency operations and related commissions include an accrual based on estimated historical transaction volume data for policies that have closed in a particular period in which premiums have not yet
been reported to us. Historically, the time lag between the closing of these transactions by our agents and the reporting of these policies, or premiums, to us has been up to 15 months, with 66% - 85%
reported within three months following closing, an additional 10% - 24% reported within the next three months and the remainder within seven to fifteen months. In addition to accruing these earned
but unreported agency premiums, we also accrue agent commission expense, which was 77.1% of agent premiums earned in 2022, 76.7% of agent premiums earned in 2021, and 76.4% of agent
premiums earned in 2020. The amount due from our agents relating to this accrual, i.e., the agent premium less their contractual retained commission, was approximately $74 million and $113 million
at December 31, 2022 and 2021, respectively. Due to the offsetting effects of reversing prior period accruals, the impact of this accrual to our recorded Agency title insurance premiums, Agent
commissions and net earnings in any given period is not considered material.
Fair Value of Financial Instruments
The fair values of financial instruments presented in the Consolidated Financial Statements are estimates of the fair values at a specific point in time using available market information and
appropriate valuation methodologies. These estimates are subjective in nature and involve uncertainties and significant judgment in the interpretation of current market data. See a description of the
fair value methodology used in Note D Fair Value of Financial Instruments.
Fair Value of Assets Acquired and Liabilities Assumed in Business Combinations
Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 805, Business Combinations, requires an acquirer to recognize, separately from goodwill, the
identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree, and to measure these items generally at their acquisition date fair values. Goodwill is recorded as the
residual amount by which the purchase price exceeds the fair value of the net assets acquired. If the initial accounting for a business combination is incomplete by the end of the reporting period in
which the combination occurs, we are required to report provisional amounts in the financial statements for the items for which the accounting is incomplete. Adjustments to provisional amounts
initially recorded that are identified during the measurement period are recognized in the reporting period in which the adjustment amounts are determined. This includes any effect on earnings of
changes in depreciation, amortization, or other income effects as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. During
the measurement period, we are also required to recognize additional assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if
known, would have resulted in the recognition of those assets and liabilities as of that date. The measurement period ends the sooner of one year from the acquisition date or when we receive the
information we were seeking about facts and circumstances that existed as of the acquisition date or learn that more information is not obtainable. Contingent consideration liabilities or receivables
recorded in connection with business acquisitions must also be adjusted for changes in fair value until settled.
Goodwill
Goodwill represents the excess of cost over fair value of identifiable net assets acquired and assumed in a business combination. Goodwill and other intangible assets with indefinite useful lives
are reviewed for impairment at the reporting unit level on an annual basis or more frequently if circumstances indicate potential impairment, through a comparison of fair value to the carrying
amount. In evaluating the recoverability of goodwill, we perform an annual goodwill impairment analysis based on a review of qualitative factors to determine if events and circumstances exist,
which will lead to a determination that the fair value of a reporting unit is greater than its carrying amount, prior to performing a full fair-value assessment.
We completed annual goodwill impairment analyses in the fourth quarter of each period presented using a September 30 measurement date. For the years ended December 31, 2022, 2021 and
2020, we determined there were no events or circumstances that indicated that the carrying value of a reporting unit exceeded the fair value.
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VOBA, DAC and DSI
Our intangible assets include the value of insurance and reinsurance contracts acquired (hereafter referred to as 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 that are
related directly to the successful sale of new or renewal insurance contracts, which may be deferred to the extent recoverable. Indirect or unsuccessful acquisition costs, maintenance, product
development and overhead expenses are charged to expense as incurred. DSI represents up front bonus credits and vesting and persistency bonuses to policyholder account values, which may be
deferred to the extent recoverable.
The methodology for determining the amortization of VOBA, DAC and DSI varies by product type. For all insurance contracts accounted for under long-duration contract deposit accounting,
amortization is based on assumptions consistent with those used in the development of the underlying contract liabilities, adjusted for emerging experience and expected trends. For all of the
insurance intangibles (VOBA, DAC and DSI), the balances are generally amortized over the lives of the policies in relation to the expected emergence of estimated gross profits (“EGPs”) from
investment income, surrender charges and other product fees, less policy benefits, maintenance expenses, mortality, and expense margins. Recognized gains (losses) on investments, changes in fair
value of derivatives and changes in fair value of the embedded derivative on our FIA and IUL products are included in actual gross profits in the period realized as described further below.
Amortization is reported within Depreciation and amortization in the accompanying Consolidated Statements of Earnings.
Changes in assumptions, including our earned rate (i.e., long term assumptions of the Company’s expected earnings on related investments), budgeted option costs (i.e., the expected cost to
purchase call options in future periods to fund the equity indexed linked feature) and surrender rates can have a significant impact on VOBA, DAC and DSI balances and amortization rates. Due to
the relative size and sensitivity to minor changes in underlying assumptions of those intangible balances, we perform quarterly and annual analyses of the VOBA, DAC and DSI balances for
recoverability to ensure that the unamortized portion does not exceed the expected recoverable amounts. At each evaluation date, actual historical gross profits are reflected with the impact on the
intangibles reported as “unlocking” as a component of amortization expense, and estimated future gross profits and related assumptions are evaluated for continued reasonableness. Any adjustment in
estimated future gross profits requires that the amortization rate be revised (“unlocking”) retroactively to the date of the contract issuance or acquisition date with respect to VOBA. The cumulative
unlocking adjustment is recognized as a component of current period amortization and reflected within Depreciation and amortization in the accompanying Consolidated Statements of Earnings.
For investment-type products, the VOBA, DAC and DSI assets are adjusted for the impact of unrealized gains (losses) on AFS investments as if these gains (losses) had been realized, with
corresponding credits or charges included in AOCI ("shadow adjustments").
Other Intangible Assets
We have other intangible assets, not including goodwill, VOBA, DAC or DSI, which consist primarily of customer relationships and contracts, the value of distribution network acquired
("VODA"), trademarks and tradenames and 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. VODA is an intangible asset that represents the value of an acquired distribution network and is amortized using the sum of years digits method. Contractual
relationships are generally amortized over their contractual life. Trademarks and tradenames are generally amortized over ten years. Capitalized computer 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.
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We recorded $14 million in impairment expense to other intangible assets in our F&G segment for the year ended December 31, 2022. We recorded no impairment expense to other intangible
assets during the years ended December 31, 2021, and 2020.
Title Plants
Title plants are recorded at the cost incurred to construct or obtain and organize historical title information to the point it can be used to perform title searches. Costs incurred to maintain, update
and operate title plants are expensed as incurred. Title plants are not amortized as they are considered to have an indefinite life, if maintained. Sales of title plants are reported at the amount received
net of the adjusted costs of the title plant sold. Sales of title plant copies are reported at the amount received. No cost is allocated to the sale of copies of title plants unless the carrying value of the title
plant is diminished or impaired. Title plants are reviewed for impairment whenever events or circumstances indicate that the carrying amounts may not be recoverable. We reviewed title plants for
impairment for the years ended December 31, 2022, 2021 and 2020 and identified and recorded impairment expense of $1 million in the year ended December 31, 2022 and recorded no impairment
expense related to title plants in the years ended December 31, 2021 or 2020.
Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is computed primarily using the straight-line method based on the estimated useful lives of the related
assets: twenty to thirty years for buildings and three to twenty-five years for furniture, fixtures and equipment. Leasehold improvements are amortized on a straight-line basis over the lesser of the
term of the applicable lease or the estimated useful lives of such assets. Property and equipment are reviewed for impairment whenever events or circumstances indicate that the carrying amounts may
not be recoverable.
Contractholder Funds
Contractholder Funds include FIAs, fixed rate annuities, IULs, funding agreements and PRT and immediate annuities contracts without life contingencies. The liabilities for contractholder funds
for fixed rate annuities, funding agreements and PRT and immediate annuities contracts without life contingencies consist of contract account balances that accrue to the benefit of the contractholders.
The liabilities for FIA and IUL policies consist of the value of the host contract plus the fair value of the indexed crediting feature of the policy, which is accounted for as an embedded derivative. The
embedded derivative is carried at fair value in Contractholder funds in the accompanying Consolidated Balance Sheets with changes in fair value reported in Benefits and other changes in policy
reserves in the accompanying Consolidated Statements of Earnings. See a description of the fair value methodology used in Note D Fair Value of Financial Instruments.
Liabilities for the Guaranteed Minimum Withdrawal Benefits ("GMWB") and Guaranteed Minimum Death Benefit ("GMDB") riders on FIA and fixed rate annuity products are calculated by
multiplying the benefit ratio by the cumulative assessments recorded from contract inception through the balance sheet date less the cumulative guaranteed minimum withdrawal and death benefit
payments plus interest. The benefit ratio is the ratio of the present value of future guaranteed minimum withdrawal and death benefit payments to the present value of the assessments used to provide
the guaranteed minimum withdrawal and death benefit payments using the same assumptions as we use for our intangible assets. If experience or assumption changes result in a new benefit ratio, the
reserves are adjusted to reflect the changes in a manner similar to the unlocking of VOBA, DAC and DSI. The accounting for these GMWB and GMDB benefit liabilities (also referred to as "SOP
03-1 liabilities") impact EGPs used to calculate amortization of VOBA, DAC and DSI. The related reserve is adjusted for the impact of unrealized gains (losses) on AFS investments as if these gains
(losses) had been realized, with corresponding credits or charges included in AOCI ("shadow adjustments").
Contractholder funds include funds related to funding agreements that have been issued pursuant to the FABN Program as well as to the Federal Home Loan Bank of Atlanta (" FHLB"). Single
premiums are received at the initiation of the funding agreements. As of December 31, 2022 and December 31, 2021, we had approximately $2,200 million and $1,900 million outstanding under the
FABN Program, respectively, which provides for semi-annual interest payments with principal maturities. Reserves for the FHLB funding agreements totaled $1,982 million and $1,543 million as of
December 31, 2022 and 2021, respectively. The FHLB agreements provide a guaranteed stream of payments or provide for a bullet payment at maturity with renewal provisions. In accordance with
the FHLB agreements, the investments supporting the funding agreement liabilities are pledged as collateral to secure the FHLB funding agreement liabilities and are not available to settle our
general obligations. The collateral investments had a fair value of $3,387 million and $2,469 million as of December 31, 2022 and 2021, respectively. Payments pursuant to FABN and FHLB funding
agreements extend through 2029.
Future Policy Benefits
The liabilities for future policy benefits and claim reserves for traditional life policies and life contingent immediate annuity policies (which includes life-contingent PRT annuities) are
computed using assumptions for investment yields, mortality and withdrawals, with a provision for adverse deviation, based on generally accepted actuarial methods and
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assumptions at the time of acquisition or contract issue. The investment yield assumption is 4.3% for traditional direct life reserves for all contracts, 4.1% for life contingent pay-out annuities, and
ranges from 3.6% to 6.9% for PRT annuities with life contingencies. Policies are terminated through surrenders and maturities, where surrenders represent the voluntary terminations of policies by
policyholders and maturities are determined by policy contract terms. Surrender assumptions are based upon policyholder experience adjusted for expected future conditions.
For long-duration contracts the assumptions are locked in at contract inception and only modified if we deem the reserves to be inadequate. We periodically review actual and anticipated
experience compared to the assumptions used to establish policy benefits. If the net GAAP liability (gross reserves less VOBA, DAC and DSI) is less than the gross premium liability, impairment is
deemed to have occurred, and the VOBA, DAC and DSI asset balances are reduced until the net GAAP liability is equal to the gross premium liability. If the VOBA, DAC and DSI asset balances are
completely written off and the net GAAP liability is still less than the gross premium liability, then an additional liability is recorded to arrive at the gross premium liability.
Reserve for Title Claim Losses
Our reserve for title claim losses includes known claims as well as losses we expect to incur, net of recoupments. Each known claim is reserved based on our review as to the estimated amount of
the claim and the costs required to settle the claim. Reserves for claims, which are incurred but not reported are established at the time premium revenue is recognized based on historical loss
experience and also take into consideration other factors, including industry trends, claim loss history, current legal environment, geographic considerations and the type of policy written.
The reserve for title claim losses also includes reserves for losses arising from closing and disbursement functions due to fraud or operational error.
If a loss is related to a policy issued by an independent agent, we may proceed against the independent agent pursuant to the terms of the agency agreement. In any event, we may proceed against
third parties who are responsible for any loss under the title insurance policy under rights of subrogation.
Secured Trust Deposits
In the state of Illinois, a trust company is permitted to commingle and invest customers’ assets with its own assets, pending completion of real estate transactions. Accordingly, our Consolidated
Balance Sheets reflect a secured trust deposit liability of $862 million and $934 million at December 31, 2022 and 2021, respectively, representing customers’ assets held by us and corresponding
assets including cash and investments pledged as security for those trust balances.
Income Taxes
We recognize deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities and expected benefits of utilizing net
operating loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The impact on deferred taxes of changes in tax rates and laws, if any, is applied to the years during which temporary differences are expected to be settled and
reflected in the financial statements in the period enacted.
Reinsurance
Title
In our Title segment, in a limited number of situations, we limit our maximum loss exposure by reinsuring certain risks with other title insurers. We also earn a small amount of additional
income, which is reflected in our direct premiums, by assuming reinsurance for certain risks of other title insurers. We cede a portion of certain policy and other liabilities under agent fidelity, excess
of loss and case-by-case reinsurance agreements. Reinsurance agreements provide that in the event of a loss (including costs, attorneys’ fees and expenses) exceeding the retained amounts, the
reinsurer is liable for the excess amount assumed. However, the ceding company remains primarily liable in the event the reinsurer does not meet its contractual obligations.
F&G
In our F&G segment, our insurance subsidiaries enter into reinsurance agreements with other companies in the normal course of business. For arrangements in which F&G follows reinsurance
accounting and for most arrangements that are accounted for as separate investment contracts, we present the amounts consistently and on a gross basis in our Consolidated Balance Sheets with the
ceded reserves balance presented as a Reinsurance recoverable. Where applicable, deferred gains associated with the reinsurance of insurance and investment contracts will be included within
Accounts payable and accrued expenses with the related accretion reflected within Escrow, title-related and other fees on the Consolidated Balance Sheets and Statements of Earnings, respectively.
Where applicable, deferred costs associated with the reinsurance of insurance and
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investment contracts will be included within the Prepaid expense and other assets with the related amortization reflected within Other operating expenses in the Consolidated Balance Sheets and
Statements of Earnings, respectively. Premium and expense are recorded net of reinsurance ceded for both insurance and investment contracts.
For some arrangements in which deposit accounting is applied or the arrangement is accounted for as a separate investment contract, the assets and liabilities of certain reinsurance contracts are
presented on a net basis in the accompanying Consolidated Balance Sheets. The related net investment income, investment gain/loss, and change in reserves are presented net on the accompanying
Consolidated Statements of Income. F&G intends to apply the right of offset where there is a right of offset explicit in the reinsurance agreement. See Note O F&G Reinsurance for more details over
F&G's reinsurance agreements.
Revenue Recognition
Refer to Note L Revenue Recognition for a description of our accounting for our various revenue streams.
Benefits and Other Changes in Policy Reserves
Benefit expenses for FIAs, fixed rate annuities, IUL policies and funding agreements include interest credited and, for FIA and IUL policies, index credits, to contractholder account balances.
Benefit claims in excess of contract account balances, net of reinsurance recoveries, are charged to expense in the period that they are earned by the policyholder based on their selected strategy or
strategies. Interest crediting rates associated with funds invested in the general account of our insurance subsidiaries range from 0.5% to 6.0% for fixed rate annuities and FIAs combined, 3.0% to
4.8% for IULs, and 0.9% to 5.2% for funding agreements. Other changes in policy reserves include the change in the fair value of the FIA embedded derivative and the change in the SOP 03-1
reserve for GMWB and GMDB benefits.
Other changes in policy reserves also include the change in reserves for life insurance products. For traditional life and immediate annuities (which includes PRT annuities with life contingencies),
policy benefit claims are charged to expense in the period that the claims are incurred, net of reinsurance recoveries.
Stock-Based Compensation Plans
We account for stock-based compensation plans using the fair value method. Using the fair value method of accounting, compensation cost is measured based on the fair value of the award at the
grant date using quoted market prices, and recognized over the service period.
Earnings Per Share
Basic earnings per share, as presented on the Consolidated Statement of Earnings, is computed by dividing net earnings available to common shareholders by the weighted average number of
common shares outstanding during the period. In periods when earnings are positive, diluted earnings per share is calculated by dividing net earnings available to common shareholders by the
weighted average number of common shares outstanding plus the impact of assumed conversions of potentially dilutive securities. For periods when we recognize a net loss, diluted earnings per share
is equal to basic earnings per share as the impact of assumed conversions of potentially dilutive securities is considered to be antidilutive. We have granted certain stock options, shares of restricted
stock, convertible debt instruments and certain other convertible share based payments, which have been treated as common share equivalents for purposes of calculating diluted earnings per share
for periods in which positive earnings have been reported.
The net earnings of F&G in our calculation of diluted earnings per share is adjusted for dilution related to certain F&G restricted stock granted to F&G's employees in accordance with ASC 260-
10-55-20. We calculate the ratio of the shares of F&G we own to the total weighted average diluted shares of F&G outstanding and multiply the ratio by F&G's net earnings. The result is used for
F&G's net earnings attributable to FNF included in our consolidated net earnings in the numerator for our diluted EPS calculation.
Restricted stock, options or other instruments, which provide the ability to acquire shares of our common stock that are antidilutive are excluded from the computation of diluted earnings per
share. There were 1 million antidilutive instruments outstanding for the years ended December 31, 2022 and 2021.
Comprehensive Earnings (Loss)
We report Comprehensive earnings (loss) in accordance with GAAP on the Consolidated Statements of Comprehensive Earnings. Total comprehensive earnings are defined as all changes in
shareholders' equity during a period, other than those resulting from investments by and distributions to shareholders. While total comprehensive earnings is the activity in a period and is largely
driven by net earnings in that period, accumulated other comprehensive earnings or loss represents the cumulative balance of other comprehensive earnings, net of tax, as of the balance sheet date.
Amounts reclassified to net earnings relate to the realized gains (losses) on our investments and other financial instruments, excluding investments in unconsolidated affiliates, and are included in
Recognized gains and losses, net on the Consolidated Statements of Earnings.
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Changes in the balance of Other comprehensive earnings (loss) by component are as follows:
Unrealized gain (loss) on investments and
other financial instruments, net (excluding
investments in unconsolidated affiliates)
Unrealized gain (loss) relating
to investments in
unconsolidated affiliates
Unrealized (loss) gain on
foreign currency translation
and cash flow hedging
Minimum pension liability
adjustment
Total Accumulated Other
Comprehensive Earnings
(Loss)
Balance January 1, 2020
Reclassification adjustments
Other comprehensive earnings
Balance December 31, 2020
Reclassification adjustments
Other comprehensive earnings
Balance December 31, 2021
Reclassification adjustments
Other comprehensive earnings
Balance December 31, 2022
Redeemable Non-controlling Interest
$
$
$
46
(73)
1,307
1,280
(123)
(410)
747
173
(3,810)
(2,890)
$
(In millions)
18
—
3
21
—
22
43
—
9
52
$
$
(11)
—
10
(1)
—
(7)
(8)
—
(18)
(26)
$
$
(10)
—
14
4
—
(7)
(3)
—
5
2
$
$
43
(73)
1,334
1,304
(123)
(402)
779
173
(3,814)
(2,862)
Subsequent to our acquisition of Lender Processing Services, Inc. ("LPS") in January 2014, we issued a 35% ownership interest in ServiceLink to funds affiliated with Thomas H. Lee Partners
("THL" or "the minority interest holder"). THL had an option to put its ownership interests of ServiceLink to us if no public offering of the corresponding business was consummated after four years
from the date of FNF's purchase of LPS. The Class A units owned by THL (the "redeemable noncontrolling interests") could have been settled in cash or common stock of FNF or a combination of
both at our election. As of January 2018, no public offering was made and the redeemable noncontrolling interests were no longer subject to a holding requirement. The redeemable noncontrolling
interests were settled at the current fair value at the time we received notice of THL's put election as determined by the parties or by a third-party appraisal under the terms of the Unit Purchase
Agreement. As a result of a recapitalization of ServiceLink in 2015, the ownership interest by the minority interest holder was reduced from 35% to 21%. The redeemable noncontrolling interests
were recorded at their initial value of $344 million in our Consolidated Balance Sheets and would have been adjusted to fair value were such value to rise above the initial value. As these redeemable
noncontrolling interests provided for redemption features not solely within our control, we classified the redeemable noncontrolling interests outside of permanent equity. On July 29, 2020, we
purchased for $90 million the outstanding Class A units of ServiceLink held by THL. As of the purchase date, ServiceLink is a wholly-owned subsidiary of FNF.
Management Estimates
The preparation of these Consolidated Financial Statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of 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 results could
differ from those estimates.
Periodically, and at least annually, typically in the third quarter, we review the assumptions associated with reserves for policy benefits, product guarantees, and amortization of intangibles.
During the fourth quarter of 2022, based on increases in interest rates and pricing changes during 2022, we updated certain FIA assumptions used to calculate the fair value of the embedded
derivative component within contractholder funds and certain assumptions used to calculate SOP 03-1 liabilities and intangible balances. These changes, taken together, resulted in an increase in
contractholder funds and future policy reserves of $96 million and an increase to intangible assets of $47 million.
During the third quarter of 2021, we implemented a new actuarial valuation system. As a result, our third quarter 2021 assumption updates include model refinements and assumption updates
resulting from the implementation. The system implementation and assumption review process that occurred in the third quarter of 2021 included refinements in the calculation of the fair value of the
embedded derivative component of our FIAs within contractholder funds and updates to the surrender rates, GMWB utilization, IUL premium persistency, maintenance expenses, and earned rate
assumptions to reflect our current and expected future experience. These changes, taken together, resulted in a decrease in contractholder funds and future policy reserves of $425 million and a
decrease to intangible assets of $136 million. These model refinements and assumptions are also used in the SOP 03-1 liability for GMWB and GMDB benefits and resulted in an increase in the
liability of $28 million. There was no material change to underlying policyholder behavior. The majority of the changes represent one-time adjustments in the
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third quarter of 2021 related to the cumulative impact of the system implementation and are not expected to re-occur in the future.
Note B — Acquisitions
AllFirst
On August 9, 2022, we acquired approximately 74% of the outstanding equity of AllFirst for approximately $130 million in cash consideration. On December 19, 2022, we purchased an
additional 6% of the outstanding equity of AllFirst for approximately $10 million in cash consideration.
The acquisition was accounted for as a business combination under FASB Accounting Standards Codification Topic 805, Business Combinations ("Topic 805"). The purchase price has been
allocated to AllFirst's assets acquired and liabilities assumed based on their fair values as of August 9, 2022. Goodwill has been recorded based on the amount that the purchase price exceeds the fair
value of the net assets acquired. Goodwill consists primarily of intangible assets that do not qualify for separate recognition. The goodwill recorded is expected to be deductible for tax purposes. In
connection with the acquisition, we recorded preliminary fair value estimates for goodwill, other intangibles, other assets, other liabilities and non-controlling interest of $105 million, $55 million,
$40 million, $19 million and $46 million, respectively, as of December 31, 2022.
The gross carrying value and weighted average estimated useful lives of Other intangible assets acquired in the AllFirst acquisition consist of the following (dollars in millions):
Other intangible assets:
Customer relationships
Trade name
Non-compete agreements
Software
Total Other intangible assets
F&G
Gross Carrying Value
Weighted Average
Estimated Useful Life
(in years)
$
$
46
7
1
1
55
10
10
5
2
On June 1, 2020, we acquired 100% of the outstanding equity 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"). In connection with the Merger, we issued approximately 24 million shares of FNF common stock and paid approximately $1.8 billion in cash to former holders of F&G
ordinary and preferred shares. On August 26, 2020, we issued an additional 1 million shares of FNF common stock and paid approximately $100 million in cash to Kingfishers, LP., Kingstown
Partners Master, LTD., Kingstown Partners II, LP., Kingstown 1740 Fund, LP. and Ktown, LP. (collectively the "Kingstown Dissenters"), who are former owners of F&G common stock. For more
information related to the Kingstown Dissenters, refer to Note H Commitments and Contingencies. At closing, all outstanding shares of F&G common stock, excluding shares associated with the
liability to former owners, were converted into the right to receive the Merger Consideration (as defined in the Merger Agreement). Additionally, each outstanding F&G Option and F&G Phantom
unit was canceled and converted into options to purchase FNF common stock and phantom units denominated in FNF common stock, and each outstanding warrant to purchase F&G common stock
was converted into the right to purchase and receive upon exercise $8.18 in cash and .0833 shares of FNF common stock. At closing, our subsidiaries' ownership of F&G common and preferred
shares was converted into approximately 7 million shares of FNF common stock, which are reflected as treasury shares in the accompanying Consolidated Financial Statements.
The initial purchase price is as follows (in millions):
Cash paid for outstanding F&G shares
Less: Cash Acquired
Net cash paid for F&G
Value of FNF share consideration
Value of outstanding converted equity awards attributed to services already rendered
Total net consideration paid
$
$
1,903
827
1,076
806
28
1,910
The acquisition was accounted for as a business combination under Topic 805.The purchase price was allocated to F&G's assets acquired and liabilities assumed based on their fair values as of
the acquisition date. Goodwill has been recorded based on the amount that the purchase price exceeds the fair value of the net assets acquired. Goodwill consists primarily of intangible
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assets that do not qualify for separate recognition. The goodwill recorded is not expected to be deductible for tax purposes, except for $16 million related to a prior F&G transaction.
Pursuant to Topic 805, the financial statements were not retrospectively adjusted for any provisional amount changes that occurred during the measurement period. Rather, we recognized
provisional adjustments as we obtained information not available as of the completion of the preliminary fair value calculation. We also recorded, in the same period as the financial statements, the
effect on earnings of changes in depreciation, amortization, or other income effects, as a result of any changes to the provisional amounts, calculated as if the accounting had been completed at the
acquisition date.
The following table summarizes the fair value amounts recognized for the assets acquired and liabilities assumed as of the acquisition date (in millions):
Fixed maturity securities
Preferred securities
Equity securities
Derivative instruments
Mortgage loans
Investments in unconsolidated affiliates
Other long-term investments
Short-term investments
Trade and notes receivable
Reinsurance recoverable
Goodwill
Prepaid expenses and other assets
Lease assets
Other intangible assets
Deferred tax asset
Assets of discontinued operations
Total assets acquired
Contractholder funds
Future policy benefits
Accounts payable and accrued liabilities
Notes payable
Funds withheld for reinsurance liabilities
Lease liabilities
Liabilities of discontinued operations
Total liabilities assumed
Net assets acquired
Fair Value
22,389
876
52
313
1,755
1,049
430
37
1
2,998
1,756
379
8
2,107
269
2,392
36,811
26,451
3,871
897
589
816
9
2,268
34,901
1,910
$
$
The gross carrying value and weighted average estimated useful lives of Other intangible assets acquired in the F&G acquisition consist of the following (dollars in millions):
Other intangible assets:
Value of business acquired
Value of distribution network acquired
Trademarks and licenses
Software
Total Other intangible assets
Gross Carrying Value
Estimated Useful Life
(in years)
$
$
1,908
140
38
21
2,107
Various
15
10
2
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We completed our assessment of the fair value of assets acquired and liabilities assumed within the one-year period from the date of acquisition. During the year ended December 31, 2021, we
recorded measurement period adjustments as of the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have
affected the measurement of the amounts recognized as of the acquisition date. Such adjustments resulted in a decrease in Reinsurance recoverable of approximately $289 million, an increase in
Other intangible assets of approximately $61 million, a decrease in Future policy benefits of $227 million and various other, individually immaterial items. There was no material impact on
Consolidated Statements of Earnings as a result of the measurement period adjustments recorded.
Unaudited Supplemental Pro-forma Financial Results
F&G's financial results since the acquisition date are reflected in our Consolidated Financial Statements. F&G's revenues and net earnings for the period from June 1, 2020 through December 31,
2020 of $1,233 million and $136 million, respectively, are included in the Consolidated Statements of Earnings for the year ended December 31, 2020. For comparative purposes, selected unaudited
pro-forma consolidated results of operations of FNF for the year ended December 31, 2020 is presented below. Unaudited pro-forma results presented assume the consolidation of F&G occurred as of
January 1, 2019.
Total revenues
Net earnings attributable to FNF common shareholders
Year Ended December 31,
2020
(In millions)
$
10,897
1,233
Amounts reflect certain pro forma adjustments to revenue and net earnings that were directly attributable to the acquisition, and for the elimination of historical activity between FNF and F&G prior
to the acquisition. These adjustments include the following:
•
•
•
•
•
•
•
elimination of valuation changes on FNF's investment in F&G common and preferred shares prior to the acquisition;
elimination of dividends received by FNF related to its holdings of F&G's common and preferred shares prior to the acquisition;
elimination of advisory fees F&G paid to FNF;
elimination of transaction costs paid by F&G;
adjustment to record interest expense related to financing associated with the acquisition;
adjustment to reflect the elimination of historical amortization of F&G intangibles and the additional amortization of F&G intangibles measured at fair value as of the acquisition date; and
adjustment to reflect the prospective reclassification from accumulated other comprehensive earnings of the unrealized gains on available-for-sale securities to a premium, which will be
amortized into income based on the expected life of the investment securities.
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Note C — Summary of Reserve for Title Claim Losses
A summary of the reserve for title claim losses follows:
Beginning balance
Change in insurance recoverable
Claim loss provision related to:
Current year
Prior years
Total title claim loss provision
Claims paid, net of recoupments related to:
Current year
Prior years
Total title claims paid, net of recoupments
Ending balance of claim loss reserve for title insurance
Provision for title insurance claim losses as a percentage of title insurance premiums
2022
Year Ended December 31,
2021
(Dollars in millions)
2020
$
$
$
1,883
(128)
308
—
308
(21)
(232)
(253)
1,810
$
4.5 %
$
1,623
94
385
—
385
(14)
(205)
(219)
1,883
$
4.5 %
1,509
34
283
—
283
(11)
(192)
(203)
1,623
4.5 %
Several lawsuits have been filed by various parties against Chicago Title Company and Chicago Title Insurance Company as its principal (collectively, the “Named Companies”). Generally,
plaintiffs claim they are investors who were solicited by Gina Champion-Cain through her former company, ANI Development LLC (“ANI”), or other affiliates to provide funds that purportedly were
to be used for high-interest, short-term loans to parties seeking to acquire California alcoholic beverage licenses. Plaintiffs contend they were told that under California state law, alcoholic beverage
license applicants are required to deposit into escrow an amount equal to the license purchase price while their applications remain pending with the State. Plaintiffs further alleged that employees of
Chicago Title Company participated with Ms. Champion-Cain and her entities in a fraud scheme involving an escrow account maintained by Chicago Title Company into which some of the plaintiffs’
funds were deposited.
In connection with the alcoholic beverage license scheme, a lawsuit styled, Securities and Exchange Commission v. Gina Champion-Cain and ANI Development, LLC, was filed in the United
States District Court for the Southern District of California asserting claims for securities fraud against Ms. Champion-Cain and certain of her affiliated entities. A receiver was appointed by the court
to preserve the assets of the defendant affiliated entities (the “receivership entities”), pay their debts, operate the businesses and pursue any claims they may have against third-parties. Pursuant to the
authority granted to her by the federal court, on January 7, 2022, a lawsuit styled, Krista Freitag v. Chicago Title Co. and Chicago Title Ins. Co., was filed in San Diego County Superior Court by the
receiver on behalf of the receivership entities against the Named Companies. The receiver seeks compensatory, incidental, consequential, and punitive damages, and seeks the recovery of attorneys’
fees. In turn, the Named Companies petitioned the Federal Court to sue ANI, via the receiver, to pursue indemnity and other claims against the receivership entities as joint tortfeasors, which was
granted.
On April 26, 2022, the Named Companies reached a global settlement with the receiver and several other investor claimants. As a condition of the settlement, the Named Companies and the
receiver jointly sought court approval of the global settlement and entry of an order barring any claims against the Named Companies related to the alcoholic beverage license scheme. On November
23, 2022, the federal court overruled any objections by non-joining investors and entered an order approving the global settlement and barring further claims against the Named Companies
(“Settlement and Bar Order”). The receiver is in receipt of the settlement payment from Chicago Title Company and will distribute the amount designated for each non-joining investor at the
conclusion of any such investor’s appeal of the Settlement and Bar Order (or back to Chicago Title Company if an appeal is successful). Some of the investor claimants who objected to entry of the
Settlement and Bar Order have appealed the decision to the United States Court of Appeals for the Ninth Circuit by (Cases 22-56206, 22-56208, and 23-55083). Appellate briefing is expected to take
place over the next several months.
The following lawsuits remain pending in the Superior Court of San Diego County for the State of California, all of which involve investor claimants who have claims against the Named
Companies, objected to the settlement with the receiver, and have appealed the Settlement and Bar Order. Since any pending and future claims against the Named Companies are barred, the state
court cases where plaintiffs have served a notice of appeal have been stayed pending the outcome of the appeals, and the claims against the Named Companies by non-appealing plaintiffs have been
dismissed with prejudice. While they have not been consolidated into one action, they have been deemed by the court to be related and are assigned to the same judge for purposes of judicial
economy.
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On December 13, 2019, a lawsuit styled, Kim Funding, LLC, Kim H. Peterson, Joseph J. Cohen, and ABC Funding Strategies, LLC v. Chicago Title Co., Chicago Title Ins. Co., Thomas
Schwiebert, Adelle Ducharme, and Betty Elixman, was filed in San Diego County Superior Court. Plaintiffs claim losses of more than $250 million as a result of the alleged fraud scheme, and
also seek statutory, treble, and punitive damages, as well as the recovery of attorneys' fees. The Named Companies have filed a cross-complaint against Ms. Champion-Cain, and others. The
Named Companies have reached a conditional settlement with the members of ABC Funding Strategies, LLC plaintiffs under confidential terms.
On July 7, 2020, a cross-claim styled, Laurie Peterson v. Chicago Title Co., Chicago Title Ins. Co., Thomas Schwiebert, Adelle Ducharme, and Betty Elixman, was filed in an existing lawsuit
styled, Banc of California, National Association v. Laurie Peterson, which is pending in San Diego County Superior Court. Cross-complaint plaintiff was sued by a bank to recover in excess of
$35 million that she allegedly guaranteed to repay for certain investments made by the Banc of California in the alcoholic beverage license scheme. Cross-complaint plaintiff has, in turn, sued the
Named Companies in that action seeking in excess of $250 million in monetary losses as well as exemplary damages and attorneys’ fees. The Named Companies filed a cross-complaint against
Ms. Champion-Cain, and others, and the Named Companies were substituted in as the Plaintiff following a settlement with the bank.
On September 3, 2020, a cross-claim styled, Kim H. Peterson Trustee of the Peterson Family Trust dated April 14 1992 v. Chicago Title Co., Chicago Title Ins. Co., Thomas Schwiebert,
Adelle Ducharme, and Betty Elixman, was filed in an existing lawsuit styled, CalPrivate Bank v. Kim H. Peterson Trustee of the Peterson Family Trust dated April 14 1992, which is pending in
Superior Court of San Diego County for the State of California. Cross-complaint plaintiff was sued by a bank to recover in excess of $12 million that the trustee allegedly guaranteed to repay for
certain investments made by CalPrivate Bank in the alcoholic beverage license scheme. Cross-complaint plaintiff has, in turn, sued the Named Companies in that action seeking in excess of
$250 million in monetary losses as well as exemplary damages and attorneys’ fees.
On November 2, 2020, a lawsuit styled, CalPrivate Bank v. Chicago Title Co. and Chicago Title Ins. Co., was also filed in the Superior Court of San Diego County for the State of California.
Plaintiff claims losses in excess of $12 million based upon business loan advances made in the alcoholic beverage license scheme, and seeks punitive damages and the recovery of attorneys’ fees.
The Named Companies have filed a cross-complaint against Ms. Champion-Cain, and others.
Chicago Title Company has also resolved a number of other pre-suit claims and previously-disclosed lawsuits from both individual and groups of alleged investors under confidential terms.
Based on the facts and circumstances of the remaining claims, including the settlements already reached, we have recorded reserves included in our reserve for title claim losses, which we believe are
adequate to cover losses related to this matter, and believe that our reserves for title claim losses are adequate.
We continually update loss reserve estimates as new information becomes known, new loss patterns emerge or as other contributing factors are considered and incorporated into the analysis of
reserve for claim losses. 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.
Due to the uncertainty inherent in the process and to the judgment used by management, the ultimate liability may be greater or less than our current reserves. If actual claims loss development
varies from what is currently expected and is not offset by other factors, it is possible that additional reserve adjustments may be required in future periods in order to maintain our recorded reserve
within a reasonable range of our actuary's central estimate.
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Note D — Fair Value of Financial Instruments
Our measurement of fair value is based on assumptions used by market participants in pricing the asset or liability, which may include inherent risk, restrictions on the sale or use of an asset, or
non-performance risk, which may include our own credit risk. We estimate an exchange price is the price in an orderly transaction between market participants to sell the asset or transfer the liability
(“exit price”) in the principal market, or the most advantageous market for that asset or liability in the absence of a principal market as opposed to the price that would be paid to acquire the asset or
assume a liability (“entry price”). We categorize financial instruments carried at fair value into a three-level fair value hierarchy, based on the priority of inputs to the respective valuation technique,
along with NAV. The hierarchy for fair value measurement is defined as follows:
Level 1 - Values are unadjusted quoted prices for identical assets and liabilities in active markets accessible at the measurement date.
Level 2 - Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices from those willing to trade in markets that are not active, or other inputs that are observable
or can be corroborated by market data for the term of the instrument. Such inputs include market interest rates and volatilities, spreads, and yield curves.
Level 3 - Certain inputs are unobservable (supported by little or no market activity) and significant to the fair value measurement. Unobservable inputs reflect the Company’s best estimate of
what hypothetical market participants would use to determine a transaction price for the asset or liability at the reporting date based on the best information available in the circumstances.
NAV - Certain equity investments are measured using NAV as a practical expedient in determining fair value. In addition, our unconsolidated affiliates (primarily limited partnerships) are
primarily accounted for using the equity method of accounting with fair value determined using NAV as a practical expedient. Our carrying value reflects our pro rata ownership percentage as
indicated by NAV in the limited partnership financial statements, which we may adjust if we determine NAV is not calculated consistent with investment company fair value principles. The
underlying investments of the limited partnerships may have significant unobservable inputs, which may include, but are not limited to, comparable multiples and weighted average cost of
capital rates applied in valuation models or a discounted cash flow model. Additionally, management meets quarterly with the general partner to determine whether any credit or other market
events have occurred since prior quarter financial statements to ensure any material events are properly included in current quarter valuation and investment income.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the
lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and
considers factors specific to the investment.
When a determination is made to classify an asset or liability within Level 3 of the fair value hierarchy, the determination is based upon the significance of the unobservable inputs to the overall
fair value measurement. Because certain securities trade in less liquid or illiquid markets with limited or no pricing information, the determination of fair value for these securities is inherently more
difficult. In addition to the unobservable inputs, Level 3 fair value investments may include observable components, which are components that are actively quoted or can be validated to market-
based sources.
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The carrying amounts and estimated fair values of our financial instruments for which the disclosure of fair values is required, including financial assets and liabilities measured and carried at fair
value on a recurring basis, with the exception of investment contracts, portions of other long-term investments and debt, which are disclosed later within this footnote, was summarized according to
the hierarchy previously described, as follows (in millions):
Assets
Cash and cash equivalents
Fixed maturity securities, available-for-sale:
Asset-backed securities
Commercial mortgage-backed securities
Corporates
Hybrids
Municipals
Residential mortgage-backed securities
U.S. Government
Foreign Governments
Equity securities
Preferred securities
Derivative investments
Reinsurance related embedded derivative, included in other assets
Short term investments
Other long-term investments
Total financial assets at fair value
Liabilities
Derivatives:
FIA/ IUL embedded derivatives, included in contractholder funds
Total financial liabilities at fair value
Level 1
Level 2
Level 3
NAV
Fair Value
December 31, 2022
$
2,286
$
—
$
—
$
—
$
2,286
—
—
40
93
—
—
260
—
621
320
—
—
2,590
—
5,204
3,026
12,857
638
1,431
1,225
11
223
—
582
244
279
—
—
6,263
37
1,440
—
29
302
—
16
10
1
—
—
—
71
6,210
$
25,720
$
8,169
$
—
—
$
—
—
$
3,115
3,115
$
—
—
—
—
—
—
—
—
47
—
—
—
—
—
47
—
—
$
$
11,467
3,063
14,337
731
1,460
1,527
271
239
678
903
244
279
2,590
71
40,146
3,115
3,115
$
$
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Assets
Cash and cash equivalents
Fixed maturity securities, available-for-sale:
Asset-backed securities
Commercial mortgage-backed securities
Corporates
Hybrids
Municipals
Residential mortgage-backed securities
U.S. Government
Foreign Governments
Equity securities
Preferred securities
Derivative investments
Short term investments
Other long-term investments
Total financial assets at fair value
Liabilities
Derivatives:
FIA/ IUL embedded derivatives, included in contractholder funds
Reinsurance related embedded derivatives, included in other liabilities
Total financial liabilities at fair value
Valuation Methodologies
Cash and Cash Equivalents
Level 1
Level 2
Level 3
NAV
Fair Value
December 31, 2021
$
4,360
$
—
$
—
$
—
$
—
—
37
132
—
—
394
—
1,206
506
—
168
—
4,736
2,944
15,322
780
1,458
731
—
266
—
893
816
2
—
3,959
35
1,135
—
43
—
—
18
9
2
—
321
78
$
$
6,803
$
27,948
$
5,600
$
—
—
—
$
—
73
73
$
3,883
—
3,883
$
—
—
—
—
—
—
—
—
48
—
—
—
—
48
—
—
—
$
$
4,360
8,695
2,979
16,494
912
1,501
731
394
284
1,263
1,401
816
491
78
40,399
3,883
73
3,956
The carrying amounts reported in the Consolidated Balance Sheets for these instruments approximate fair value.
Fixed Maturity, Preferred and Equity Securities
We measure the fair value of our securities based on assumptions used by market participants in pricing the security. The most appropriate valuation methodology is selected based on the specific
characteristics of the fixed maturity, preferred or equity security, and we will then consistently apply the valuation methodology to measure the security’s fair value. Our fair value measurement is
based on a market approach, which utilizes prices and other relevant information generated by market transactions involving identical or comparable securities. Sources of inputs to the market
approach include third-party pricing services, independent broker quotations, or pricing matrices. We use observable and unobservable inputs in our valuation methodologies. Observable inputs
include benchmark yields, reported trades, broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications. In
addition, market indicators and industry and economic events are monitored and further market data will be acquired when certain thresholds are met.
For certain security types, additional inputs may be used, or some of the inputs described above may not be applicable. The significant input used in the fair value measurement of equity
securities for which the market approach valuation technique is employed is yield for comparable securities. Increases or decreases in the yields would result in lower or higher, respectively, fair value
measurements. For broker-quoted only securities, quotes from market makers or broker-dealers are obtained from sources 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.
We analyze the third-party valuation methodologies and related inputs to perform assessments to determine the appropriate level within the fair value hierarchy. However, we did not adjust prices
received from third parties as of December 31, 2022 or December 31, 2021.
Certain equity investments are measured using NAV as a practical expedient in determining fair value.
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Derivative Financial Instruments
The fair value of call options is based upon valuation pricing models, which 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, based on industry accepted valuation pricing models, which use market-observable inputs,
including interest rates, yield curve volatilities, and other factors.
The fair value of futures contracts (specifically for FIA contracts) represents the cumulative unsettled variation margin (open trade equity, net of cash settlements), which represents what we
would expect to receive or pay at the balance sheet date if we canceled the contracts or entered into offsetting positions. These contracts are classified as Level 1.
The fair value measurement of the FIA/ IUL embedded derivatives included in contractholder funds is determined through a combination of market observable information and significant
unobservable inputs using the option budget method. The market observable inputs are the market value of option and treasury rates. The significant unobservable inputs are the budgeted option cost
(i.e., the expected cost to purchase call options in future periods to fund the equity indexed linked feature), surrender rates, mortality multiplier and non-performance spread. The mortality multiplier
at December 31, 2022 and December 31, 2021was applied to the 2012 Individual Annuity mortality tables. Increases or decreases in the market value of an option in isolation would result in a higher
or lower, respectively, fair value measurement. Increases or decreases in treasury rates, mortality multiplier, surrender rates, or non-performance spread in isolation would result in a lower or higher
fair value measurement, respectively. Generally, a change in any one unobservable input would not directly result in a change in any other unobservable input. Also refer to Management's Estimates
in Note A Business and Summary of Significant Accounting Policies regarding updated assumptions during the fourth quarter of 2022 and the implementation of a new actuarial valuation system and
assumption updates during third quarter of 2021. The system implementation and assumption review process included refinements in the calculation of the fair value of the embedded derivative
component of our fixed indexed annuities.
The fair value of the reinsurance-related embedded derivatives in the funds withheld reinsurance agreements with Kubera Insurance (SAC) Ltd. ("Kubera") (effective October 31, 2021, this
agreement was novated from Kubera to Somerset Reinsurance Ltd. ("Somerset"), a certified third-party reinsurer) and ASPIDA Life Re Ltd ("Aspida Re") are estimated based upon the fair value of
the assets supporting the funds withheld from reinsurance liabilities. The fair value of the assets is based on a quoted market price of similar assets (Level 2) and; therefore, the fair value of the
embedded derivative is based on market-observable inputs and classified as Level 2. Please see Note O F&G Reinsurance for further discussion on F&G reinsurance agreements.
Other long-term investments
We hold a fund-linked note that provides for an additional payment at maturity based on the value of an embedded derivative based on the actual return of a dedicated return fund. Fair value of
the embedded derivative is based on an unobservable input, the NAV of the fund at the balance sheet date. The embedded derivative is similar to a call option on the NAV of the fund with a strike
price of zero since Fidelity & Guaranty Life Insurance Company ("FGL Insurance") will not be required to make any additional payments at maturity of the fund-linked note in order to receive the
NAV of the fund on the maturity date. A Black-Scholes model determines the NAV of the fund as the fair value of the call option regardless of the values used for the other inputs to the option pricing
model. The NAV of the fund is provided by the fund manager at the end of each calendar month and represents the value an investor would receive if it withdrew its investment on the balance sheet
date. Therefore, the key unobservable input used in the Black-Scholes model is the value of the fund. As the value of the fund increases or decreases, the fair value of the embedded derivative will
increase or decrease. See further discussion on the available-for-sale embedded derivative in Note F Derivative Financial Instruments.
The fair value of the credit-linked note is based on a weighted average of a broker quote and a discounted cash flow analysis. The discounted cash flow approach is based on the expected
portfolio cash flows and amortization schedule reflecting investment expectations, adjusted for assumptions on the portfolio's default and recovery rates, and the note's discount rate. The fair value of
the note is provided by the fund manager at the end of each quarter.
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Quantitative information regarding significant unobservable inputs used for recurring Level 3 fair value measurements of financial instruments carried at fair value as of December 31, 2022 and
December 31, 2021 are as follows:
Assets
Asset-backed securities
Asset-backed securities
Commercial mortgage-backed securities
Commercial mortgage-backed securities
Corporates
Corporates
Corporates
Municipals
Residential mortgage-backed securities
Foreign Governments
Preferred securities
Equity securities
Equity securities
Other long-term investments:
Available-for-sale embedded derivative
Secured borrowing receivable
Credit Linked Note
Investment in affiliate
Total financial assets at fair value
Liabilities
Derivatives:
FIA/ IUL embedded derivatives, included in contractholder funds
Total financial liabilities at fair value
$
$
$
Fair Value at
December 31, 2022
(in millions)
Valuation Technique
Unobservable Input(s)
Range (Weighted average)
December 31, 2022
5,916
347
20
17
602
826
Broker-quoted
Third-Party Valuation
Broker-quoted
Third-Party Valuation
Broker-quoted
Third-Party Valuation
12 Discounted Cash Flow
Third-Party Valuation
29
Broker-quoted
302
16
Third-Party Valuation
1 Discounted Cash Flow
6 Broker Quoted
4 Discounted Cash Flow
Market Comparable Company Analysis
Offered quotes
Offered quotes
Offered quotes
Offered quotes
Offered quotes
Offered quotes
Discount Rate
Offered quotes
Offered quotes
Offered quotes
Discount rate
Offered quotes
Discount rate
EBITDA multiple
23 Black Scholes model
Broker-quoted
10
15
Broker-quoted
23 Market Comparable Company Analysis
Market value of fund
Offered quotes
Offered quotes
EBITDA multiple
8,169
52.85% - 117.17% (94.18%)
41.43% - 210.50% (67.99%)
109.02% - 109.02% (109.02%)
74.66% -88.48% (82.74%)
79.16% - 102.53% (94.16%)
—% - 104.96% (89.69%)
44.00% - 100.00%
(77.02%)
93.95% - 93.95% (93.95%)
0.00% - 91.04% (86.38%)
99.78% - 102.29% (100.56%)
100.00%
$64.25 - $64.25
($64.25)
11.10% - 11.10% (11.10%)
5.6x - 5.6x (5.6x)
100.00%
100.00% - 100.00% (100.00%)
96.23%
5x - 5.5x
Market value of option
Swap rates
Mortality multiplier
Surrender rates
Partial withdrawals
Non-performance spread
Option cost
0.00% - 23.90% (0.87%)
3.88% - 4.73% (4.31%)
100.00% - 100.00% (100.00%)
0.25% - 70.00% (6.57%)
2.00% - 29.41% (2.73%)
0.48% - 1.44% (1.30%)
0.07% - 4.97% (1.89%)
3,115 Discounted cash flow
3,115
118
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Assets
Asset-backed securities
Asset-backed securities
Commercial mortgage-backed securities
Commercial mortgage-backed securities
Corporates
Corporates
Corporates
Municipals
Short-term
Foreign governments
Preferred Securities
Equity securities
Equity securities
Equity securities
Other long-term investments:
Available-for-sale embedded derivative
Credit Linked Note
Investment in affiliate
Total financial assets at fair value
Liabilities
Derivatives:
FIA/ IUL embedded derivatives, included in contractholder funds
Total financial liabilities at fair value
Fair Value at
December 31, 2021
Valuation Technique
Unobservable Input(s)
December 31, 2021
Range (Weighted average)
$
3,844 Broker-quoted
115 Third-Party Valuation
24 Broker-quoted
11 Third-Party Valuation
380 Broker-quoted
741 Third-Party Evaluation
14 Discounted Cash Flow
43 Third-Party Evaluation
321 Broker-quoted
18 Third-Party Evaluation
2
Income-Approach
3 Broker-quoted
2 Black Scholes Model
4 Discounted Cash Flow
Market Comparable Company Analysis
Offered quotes
Offered quotes
Offered quotes
Offered quotes
Offered quotes
Offered quotes
Discount Rate
Offered quotes
Offered quotes
Offered quotes
Yield
Offered Quotes
Risk Free Rate
Strike Price
Volatility
Dividend Yield
Discount Rate
EBITDA multiple
52.56% - 260.70% (97.06%)
93.02% - 108.45% (104.95%)
126.70% - 126.70% (126.70%)
97.91% - 97.91% (97.91%)
—% - 109.69% (100.91%)
85.71% - 119.57% (107.72%)
44.00% - 100.00% (62.00%)
135.09% - 135.09% (135.09%)
100.00% - 100.00% (100.00%)
107.23% - 116.44% (110.11%)
2.43%
$6.23 - $6.23 ($6.23)
1.00% - 1.00% (1.00%)
$1.50 - $1.50 ($1.50)
81.00% - 81.00% (81.00%)
0.00% - 0.00% (0.00%)
12.70% - 12.70% (12.70%)
5.9x - 5.9x (5.9x)
34 Black Scholes model
23 Broker-quoted
21 Market Comparable Company Analysis
Market value of fund
Offered quotes
EBITDA multiple
100.00%
100.00%
8x - 8x
$
$
5,600
3,883 Discounted cash flow
3,883
119
Market value of option
Swap rates
Mortality multiplier
Surrender rates
Partial withdrawals
Non-performance spread
Option cost
0.00% - 38.72% (3.16%)
0.05% - 1.94% (1.00%)
100.00% - 100.00% (100.00%)
0.25% - 70.00% (6.26%)
2.00% - 23.26% (2.72%)
0.43% - 1.01% (0.68%)
0.07% - 4.97% (1.83%)
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The following tables summarize changes to the Company’s financial instruments carried at fair value and classified within Level 3 of the fair value hierarchy for the years ended December 31,
2022 and December 31, 2021, respectively. This summary excludes any impact of amortization of VOBA, DAC and DSI. The gains and losses below may include changes in fair value due in part to
observable inputs that are a component of the valuation methodology.
Total Gains (Losses)
Year ended December 31, 2022
(in millions)
Balance at
Beginning
of Period
Included in
Earnings
Included in
AOCI
Purchases
Sales
Settlements
Net transfer In
(Out) of
Level 3 (a)
Balance at End
of
Period
Change in
Unrealized Incl in
OCI
Assets
Fixed maturity securities available-for-sale:
Asset-backed securities
Commercial mortgage-backed securities
Corporates
Hybrids
Municipals
Residential mortgage-backed securities
Foreign Governments
Short-term
Preferred securities
Equity securities
Other long-term assets:
Available-for-sale embedded derivative
Credit linked note
Investment in affiliate
Secured borrowing receivable
Total assets at Level 3 fair value
Liabilities
Future policy benefits
FIA/ IUL embedded derivatives, included in
contractholder funds
Total liabilities at Level 3 fair value
$
$
$
$
$
3,959
35
1,135
—
43
—
18
321
2
9
34
23
21
—
5,600
—
3,883
3,883
$
$
$
$
$
(6)
—
1
—
—
—
—
—
—
—
(11)
(1)
—
—
(17)
—
$
$
$
$
(1,382)
(1,382)
$
(393)
(5)
(187)
—
(14)
—
(2)
(1)
(1)
—
—
(1)
2
—
(602)
—
—
—
$
$
$
$
$
3,269
—
714
—
—
316
—
20
—
2
—
—
—
—
4,321
—
768
768
$
$
$
$
$
(39)
—
(20)
—
—
—
—
—
—
(1)
—
(2)
—
—
(62)
—
—
—
$
$
$
$
$
(541)
—
(215)
—
—
—
—
—
—
—
—
(4)
—
—
(760)
—
(154)
(154)
$
$
$
$
$
14
7
12
—
—
(14)
—
(340)
—
—
—
—
—
10
(311)
—
—
—
$
$
$
$
$
6,263
37
1,440
—
29
302
16
—
1
10
23
15
23
10
8,169
—
$
$
$
$
3,115
3,115
$
(426)
(4)
(188)
—
(13)
—
(1)
(1)
(1)
—
—
—
2
—
(632)
—
—
—
(a) The net transfers out of Level 3 during the year ended December 31, 2022 were to Level 2.
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Total Gains (Losses)
Year ended December 31, 2021
Balance at
Beginning
of Period
Included in
Earnings
Included in
AOCI
Purchases
Sales
Settlements
Net transfer In
(Out) of
Level 3 (a)
Balance at End
of
Period
Change in
Unrealized Incl in
OCI
1,350
26
1,289
4
43
483
17
—
1
4
27
23
—
3,267
5
$
$
$
(1)
—
8
—
—
—
—
—
(1)
2
7
—
—
15
—
3,404
3,409
$
121
121
$
$
$
$
(8)
(3)
(40)
—
—
(1)
1
2
1
—
—
—
—
(48)
—
—
—
$
$
$
$
3,417
12
161
—
—
14
—
820
1
3
—
—
21
4,449
—
513
513
$
$
$
$
(97)
—
(23)
—
—
—
—
—
—
—
—
—
—
(120)
(4)
—
(4)
$
$
$
$
(595)
—
(247)
(4)
—
(102)
—
(501)
—
—
—
—
—
(1,449)
(1)
(155)
(156)
$
$
$
$
(107)
—
(13)
—
—
(394)
—
—
—
—
—
—
—
(514)
—
—
—
$
$
$
$
3,959
35
1,135
—
43
—
18
321
2
9
34
23
21
5,600
—
$
$
$
3,883
3,883
$
4
1
23
—
7
22
2
—
—
—
—
—
—
59
—
—
—
Assets
Fixed maturity securities available-for-sale:
Asset-backed securities
Commercial mortgage-backed securities
Corporates
Hybrids
Municipals
Residential mortgage-backed securities
Foreign Governments
Short-term
Preferred securities
Equity securities
Other long-term assets:
Available-for-sale embedded derivative
Credit linked note
Investment in affiliate
Total assets at Level 3 fair value
Liabilities
Future policy benefits (FSRC)
FIA embedded derivatives, included in
contractholder funds
Total liabilities at Level 3 fair value
$
$
$
$
(a) The net transfers out of Level 3 during the year ended December 31, 2021 were to Level 2.
Valuation Methodologies and Associated Inputs for Financial Instruments Not Carried at Fair Value
The following discussion outlines the methodologies and assumptions used to determine the fair value of our financial instruments not carried at fair value. Considerable judgment is required to
develop these assumptions used to measure fair value. Accordingly, the estimates shown are not necessarily indicative of the amounts that would be realized in a one-time, current market exchange of
all of our financial instruments.
Mortgage Loans
The fair value of mortgage loans is established using a discounted cash flow method based on internal credit rating, maturity and future income. This yield-based approach is sourced from our
third-party vendor. The internal ratings for mortgages in good standing are based on property type, location, market conditions, occupancy, debt service coverage, loan-to-value, quality of tenancy,
borrower, and payment record. The inputs used to measure the fair value of our mortgage loans are classified as Level 3 within the fair value hierarchy.
Investments in Unconsolidated affiliates
In our F&G segment, the fair value of Investments in unconsolidated affiliates is determined using NAV as a practical expedient and are included in the NAV column in the table below. In our Title
segment, Investments in unconsolidated affiliates are accounted for under the equity method of accounting. In our Title segment, Investments in unconsolidated affiliates were $187 million and
$136 million as of December 31, 2022 and December 31, 2021, respectively.
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Policy Loans (included within Other long-term investments)
Fair values for policy loans are estimated from a discounted cash flow analysis, using interest rates currently being offered for loans with similar credit risk. Loans with similar characteristics are
aggregated for purposes of the calculations.
Company Owned Life Insurance
Company owned life insurance (COLI) is a life insurance program used to finance certain employee benefit expenses. The fair value of COLI is based on net realizable value, which is generally
cash surrender value. COLI is classified as Level 3 within the fair value hierarchy.
Other Invested Assets (included within Other long-term investments)
The fair value of the bank loan is estimated using a discounted cash flow method with the discount rate based on weighted average cost of capital ("WACC"). This yield-based approach is
sourced from a third-party vendor and the WACC establishes a market participant discount rate by determining the hypothetical capital structure for the asset should it be underwritten as of each
period end. Other invested assets are classified as Level 3 within the fair value hierarchy.
Investment Contracts
Investment contracts include deferred annuities (FIAs and fixed rate annuities), indexed IULs, funding agreements and pension risk transfer solutions ("PRT") and immediate annuity contracts
without life contingencies. The FIA/ IUL embedded derivatives, included in contractholder funds, are excluded as they are carried at fair value. The fair value of the FIA, fixed rate annuity and IUL
contracts is based on their cash surrender value (i.e. the cost the Company would incur to extinguish the liability) as these contracts are generally issued without an annuitization date. The fair value
of funding agreements and PRT and immediate annuity contracts without life contingencies is derived by calculating a new fair value interest rate using the updated yield curve and treasury spreads
as of the respective reporting date. The Company is not required to, and has not, estimated the fair value of the liabilities under contracts that involve significant mortality or morbidity risks, as these
liabilities fall within the definition of insurance contracts that are exceptions from financial instruments that require disclosures of fair value.
Other
Federal Home Loan Bank of Atlanta ("FHLB") common stock, Accounts receivable and Notes receivable are carried at cost, which approximates fair value. FHLB common stock is classified as
Level 2 within the fair value hierarchy. Accounts receivable and Notes receivable are classified as Level 3 within the fair value hierarchy.
Debt
The fair value of debt is based on quoted market prices. The inputs used to measure the fair value of our outstanding debt are classified as Level 2 within the fair value hierarchy. The carrying
value of the F&G Credit Facility at December 31, 2022 approximates fair value as the rates are comparable to those at which we could currently borrow under similar terms. As such, the fair value of
the revolving credit facility was classified as a Level 2 measurement.
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The following tables provide the carrying value and estimated fair value of our financial instruments that are carried on the accompanying Consolidated Balance Sheets at amounts other than
fair value, summarized according to the fair value hierarchy previously described.
Assets
FHLB common stock
Commercial mortgage loans
Residential mortgage loans
Investments in unconsolidated affiliates
Policy loans
Other invested assets
Company-owned life insurance
Trade and notes receivables, net of allowance
Total
Liabilities
Investment contracts, included in contractholder funds
Debt
Total
Assets
FHLB common stock
Commercial mortgage loans
Residential mortgage loans
Investments in unconsolidated affiliates
Policy loans
Other invested assets
Company-owned life insurance
Trade and notes receivables, net of allowance
Total
Liabilities
Investment contracts, included in contractholder funds
Debt
Total
Level 1
Level 2
Level 3
NAV
Total Estimated Fair
Value
Carrying Amount
December 31, 2022
(in millions)
$
$
$
$
$
$
$
$
$
—
—
—
—
—
93
35
—
128
$
—
—
—
$
$
99
—
—
—
—
—
—
—
99
—
2,776
2,776
$
$
$
$
— $
—
—
2,427
—
—
—
—
2,427 $
— $
—
— $
$
—
2,083
1,892
—
52
16
328
467
4,838
$
34,464
—
34,464
$
$
December 31, 2021
(in millions)
$
99
2,083
1,892
2,427
52
109
363
467
7,492
$
34,464
2,776
37,240
$
$
99
2,406
2,148
2,427
52
109
363
467
8,071
38,412
3,238
41,650
Level 1
Level 2
Level 3
NAV
Total Estimated Fair
Value
Carrying Amount
—
—
—
—
—
—
—
—
—
—
—
—
$
$
$
$
72
—
—
—
—
—
—
—
72
—
3,218
3,218
$
$
$
$
$
—
2,265
1,549
—
39
57
333
557
4,800
$
27,448
—
27,448
$
$
— $
—
—
2,350
—
—
—
—
2,350 $
— $
—
— $
$
72
2,265
1,549
2,350
39
57
333
557
7,222
$
27,448
3,218
30,666
$
$
72
2,168
1,581
2,350
39
57
333
557
7,157
31,529
3,096
34,625
We review the fair value hierarchy classifications each reporting period. Changes in the observability of the valuation attributes may result in a reclassification of certain financial assets or
liabilities. Such reclassifications are reported as transfers in and out of Level 3, or between other levels, at the beginning fair value for the reporting period in which the changes occur. The transfers
into and out of Level 3 were related to changes in the primary pricing source and changes in the observability of external information used in determining the fair value.
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Note E — Investments
Our fixed maturity securities investments 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 preferred and equity securities investments are carried at fair value
with unrealized gains and losses included in net earnings (loss). The Company’s consolidated investments are summarized as follows (in millions):
Available-for-sale securities
Asset-backed securities
Commercial mortgage-backed securities
Corporates
Hybrids
Municipals
Residential mortgage-backed securities
U.S. Government
Foreign Governments
Total available-for-sale securities
Available-for-sale securities
Asset-backed securities
Commercial mortgage-backed/asset-backed securities
Corporates
Hybrids
Municipals
Residential mortgage-backed securities
U.S. Government
Foreign Governments
Total available-for-sale securities
Amortized Cost
Allowance for Expected
Credit Losses
Gross Unrealized
Gains
Gross Unrealized
Losses
Fair Value
December 31, 2022
$
12,209
3,337
17,396
806
1,749
1,638
287
286
37,708
$
(8)
(1)
(22)
—
—
(8)
—
—
(39)
$
$
36
11
32
9
4
6
—
—
98
$
$
$
(770)
(284)
(3,069)
(84)
(293)
(109)
(16)
(47)
(4,672)
$
11,467
3,063
14,337
731
1,460
1,527
271
239
33,095
Amortized Cost
Allowance for Expected
Credit Losses
Gross Unrealized
Gains
Gross Unrealized
Losses
Fair Value
December 31, 2021
$
8,516
2,684
15,822
838
1,445
731
393
276
30,705
$
(3)
(2)
—
—
—
(3)
—
—
(8)
$
$
$
220
308
830
74
67
7
3
9
1,518
$
(38)
(11)
(158)
—
(11)
(4)
(2)
(1)
(225)
$
$
8,695
2,979
16,494
912
1,501
731
394
284
31,990
$
$
$
$
Securities held on deposit with various state regulatory authorities had a fair value of $17,870 million and $22,343 million at December 31, 2022 and December 31, 2021, respectively.
As of December 31, 2022, we held $27 million of investments that were non-income producing for a period greater than twelve months. As of December 31, 2021, we held no material
investments that were non-income producing for a period greater than twelve months.
As of December 31, 2022 and December 31, 2021, the Company's accrued interest receivable balance was $365 million and $253 million, respectively. Accrued interest receivable is classified
within Prepaid expenses and other assets within the Consolidated Balance Sheets.
In accordance with our FHLB agreements, the investments supporting the funding agreement liabilities are pledged as collateral to secure the FHLB funding agreement liabilities and are not
available to the Company for general purposes. The collateral investments had a fair value of $3,387 million and $2,469 million at December 31, 2022 and December 31, 2021, respectively.
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The amortized cost and fair value of fixed maturity securities by contractual maturities, as applicable, are shown below. Actual maturities may differ from contractual maturities because issuers
may have the right to call or prepay obligations.
Corporates, Non-structured Hybrids, Municipal and Government securities:
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Other securities, which provide for periodic payments:
Asset-backed securities
Commercial mortgage-backed securities
Structured hybrids
Residential mortgage-backed securities
Total fixed maturity available-for-sale securities
Allowance for Current Expected Credit Loss
December 31, 2022
(in millions)
December 31, 2021
(in millions)
Amortized Cost
Fair Value
Amortized Cost
Fair Value
$
$
536
3,288
2,171
14,503
20,498
12,209
3,337
26
1,638
17,210
$
527 $
3,089
1,939
11,457
17,012
11,467
3,063
26
1,527
16,083
37,708
$
33,095 $
$
426
2,998
2,389
12,930
18,743
8,516
2,684
31
731
11,962
30,705
$
431
3,051
2,458
13,608
19,548
8,695
2,979
37
731
12,442
31,990
We regularly review AFS securities for declines in fair value that we determine to be credit related. For our fixed maturity securities, we generally consider the following in determining whether
our unrealized losses are credit related, and if so, the magnitude of the credit loss:
•
•
•
•
•
•
•
•
The extent to which the fair value is less than the amortized cost basis;
The reasons for the decline in value (credit event, currency or interest-rate related, including general credit spread widening);
The financial condition of and near-term prospects of the issuer (including issuer's current credit rating and the probability of full recovery of principal based upon the issuer's financial
strength);
Current delinquencies and nonperforming assets of underlying collateral;
Expected future default rates;
Collateral value by vintage, geographic region, industry concentration or property type;
Subordination levels or other credit enhancements as of the balance sheet date as compared to origination; and
Contractual and regulatory cash obligations and the issuer's plans to meet such obligations.
We recognize an allowance for current expected credit losses on fixed maturity securities in an unrealized loss position when it is determined, using the factors discussed above, a component of
the unrealized loss is related to credit. We measure the credit loss using a discounted cash flow model that utilizes the single best estimate cash flow and the recognized credit loss is limited to the
total unrealized loss on the security (i.e. the fair value floor). Cash flows are discounted using the implicit yield of bonds at their time of purchase and the current book yield for asset and mortgage
backed securities as well as variable rate securities. We recognize the expected credit losses in Recognized gains and losses, net in the Consolidated Statements of Earnings, with an offset for the
amount of non-credit impairments recognized in AOCI. We do not measure a credit loss allowance on accrued investment income because we write-off accrued interest through Interest and
investment income when collectability concerns arise.
We consider the following in determining whether write-offs of a security’s amortized cost is necessary:
•
•
•
We believe amounts related to securities have become uncollectible; or
We intend to sell a security; or
It is more likely than not that we will be required to sell a security prior to recovery.
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If we intend to sell a fixed maturity security or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis and the fair value of the security is
below amortized cost, we will write down the security to current fair value, with a corresponding charge, net of any amount previously recognized as an allowance for expected credit loss, to
Recognized gains and losses, net in the accompanying Consolidated Statements of Earnings. If we do not intend to sell a fixed maturity security or it is more likely than not that we will not be
required to sell a fixed maturity security before recovery of its amortized cost basis but believe amounts related to a security are uncollectible (generally based on proximity to expected credit loss), an
impairment is deemed to have occurred and the amortized cost is written down to the estimated recovery value with a corresponding charge, net of any amount previously recognized as an allowance
for expected credit loss, to Recognized gains and losses, net in the accompanying Consolidated Statements of Earnings. The remainder of unrealized loss is held in AOCI. As of December 31, 2022
and 2021, our allowance for expected credit losses for AFS securities was $39 million and $8 million, respectively.
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The fair value and gross unrealized losses of available-for-sale securities, excluding securities in an unrealized loss position with an allowance for expected credit loss, aggregated by investment
category and duration of fair value below amortized cost were as follows (dollars in millions):
Less than 12 months
December 31, 2022
12 months or longer
Total
Fair Value
Gross Unrealized
Losses
Fair Value
Gross Unrealized
Losses
Fair Value
Gross Unrealized
Losses
Available-for-sale securities
Asset-backed securities
Commercial mortgage-backed securities
Corporates
Hybrids
Municipals
Residential mortgage-backed securities
U.S. Government
Foreign Government
Total available-for-sale securities
Total number of available-for-sale securities in an unrealized loss position less than twelve
months
Total number of available-for-sale securities in an unrealized loss position twelve months
or longer
Total number of available-for-sale securities in an unrealized loss position
Available-for-sale securities
Asset-backed securities
Commercial mortgage-backed securities
Corporates
Hybrids
Municipals
Residential mortgage-backed securities
U.S. Government
Foreign Government
Total available-for-sale securities
Total number of available-for-sale securities in an unrealized loss position less than twelve
months
Total number of available-for-sale securities in an unrealized loss position twelve months
or longer
Total number of available-for-sale securities in an unrealized loss position
$
$
$
$
$
7,001
2,079
9,913
628
998
992
130
119
$
(410)
(169)
(1,735)
(83)
(180)
(51)
(7)
(32)
$
3,727
475
3,523
3
352
184
140
59
$
(360)
(116)
(1,330)
(1)
(113)
(22)
(8)
(14)
$
10,728
2,554
13,436
631
1,350
1,176
270
178
21,860
$
(2,667)
$
8,463
$
(1,964)
$
30,323
$
(770)
(285)
(3,065)
(84)
(293)
(73)
(15)
(46)
(4,631)
3,114
1,296
4,410
Less than 12 months
December 31, 2021
12 months or longer
Total
Fair Value
Gross Unrealized
Losses
Fair Value
Gross Unrealized
Losses
Fair Value
Gross Unrealized
Losses
$
$
4,410
603
5,391
3
410
325
219
82
11,443
$
(31)
(11)
(132)
—
(5)
(3)
(2)
(1)
(185)
$
$
$
146
1
394
—
85
11
4
5
646
$
$
$
(7)
—
(26)
—
(6)
(1)
—
—
(40)
$
$
$
$
$
4,556
604
5,785
3
495
336
223
87
12,089
$
(38)
(11)
(158)
—
(11)
(4)
(2)
(1)
(225)
2,056
68
2,124
We determined the increase in unrealized losses as of December 31, 2022 was caused by higher treasury rates as well as wider spreads. This is in part due to the Federal Reserve's action to
increase rates in efforts to combat inflation. For securities in an unrealized loss position as of December 31, 2022, our allowance for expected credit loss was $39 million. We believe that the
unrealized loss position for which we have not recorded an allowance for expected credit loss as of December 31, 2022 was primarily attributable to interest rate increases, near-term illiquidity, and
other macroeconomic uncertainties as opposed to issuer specific credit concerns.
Mortgage Loans
Our mortgage loans are collateralized by commercial and residential properties.
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Table of Contents
Commercial Mortgage Loans
Commercial mortgage loans ("CMLs") represented approximately 6% of our total investments at December 31, 2022 and December 31, 2021. The mortgage loans in our investment portfolio,
are generally comprised of high quality commercial first lien and mezzanine real estate loans. Mortgage loans are primarily on income producing properties including industrial properties, retail
buildings, multifamily properties and office buildings We diversify our CML portfolio by geographic region and property type to attempt to reduce concentration risk. We continuously evaluate
CMLs based on relevant current information to ensure properties are performing at a consistent and acceptable level to secure the related debt. The distribution of CMLs, gross of valuation
allowances, by property type and geographic region is reflected in the following tables (dollars in millions):
December 31, 2022
December 31, 2021
Amortized Cost
% of Total
Amortized Cost
% of Total
Property Type:
Hotel
Industrial
Mixed Use
Multifamily
Office
Retail
Student Housing
Other
Total commercial mortgage loans, gross of valuation allowance
Allowance for expected credit loss
Total commercial mortgage loans, net of valuation allowance
U.S. Region:
East North Central
East South Central
Middle Atlantic
Mountain
New England
Pacific
South Atlantic
West North Central
West South Central
Total commercial mortgage loans, gross of valuation allowance
Allowance for expected credit loss
Total commercial mortgage loans, net of valuation allowance
$
$
$
$
$
$
18
520
12
1,013
330
105
83
335
2,416
(10)
2,406
151
76
326
355
158
708
521
4
117
2,416
(10)
2,406
1 % $
22 %
1 %
42 %
14 %
4 %
3 %
13 %
100 % $
$
6 % $
3 %
13 %
15 %
7 %
28 %
22 %
1 %
5 %
100 % $
$
19
497
13
894
343
121
83
204
2,174
(6)
2,168
137
79
293
236
149
649
459
12
160
2,174
(6)
2,168
1 %
23 %
1 %
41 %
16 %
6 %
4 %
8 %
100 %
6 %
4 %
13 %
11 %
7 %
30 %
21 %
1 %
7 %
100 %
LTV and debt service coverage ("DSC") ratios are measures commonly used to assess the risk and quality of mortgage loans. The LTV ratio is expressed as a percentage of the amount of the
loan relative to the value of the underlying property. A LTV ratio in excess of 100% indicates the unpaid loan amount exceeds the underlying collateral. The DSC ratio, based upon the most recently
received financial statements, is expressed as a percentage of the amount of a property’s net income to its debt service payments. A DSC ratio of less than 1.00 indicates that a property’s operations do
not generate sufficient income to cover debt payments. We normalize our DSC ratios to a 25-year amortization period for purposes of our general loan allowance evaluation.
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Table of Contents
The following tables presents the recorded investment in CMLs by LTV and DSC ratio categories and estimated fair value by the indicated loan-to-value ratios, gross of valuation allowances
(dollars in millions):
December 31, 2022
LTV Ratios:
Less than 50.00%
50.00% to 59.99%
60.00% to 74.99%
75.00% to 84.99%
Commercial mortgage loans (a)
December 31, 2021
LTV Ratios:
Less than 50.00%
50.00% to 59.99%
60.00% to 74.99%
Commercial mortgage loans
Debt-Service Coverage Ratios
>1.25
1.00 - 1.25
<1.00
Total Amount
% of Total
Estimated Fair
Value
% of Total
$
$
$
$
$
511
706
1,154
—
2,371
$
$
626
470
1,036
2,132
$
4
—
3
—
7
33
—
—
33
$
$
$
$
11
—
—
18
29
9
—
—
9
$
$
$
$
526
706
1,157
18
2,407
668
470
1,036
2,174
22 % $
29 %
48 %
1 %
100 % $
31 % $
22 %
47 %
100 % $
490
615
955
14
2,074
745
481
1,039
2,265
24 %
30 %
45 %
1 %
100 %
33 %
21 %
46 %
100 %
(a) Excludes loans under development with an amortized cost and estimated fair value of $9 million.
We recognize mortgage loans as delinquent when payments on the loan are greater than 30 days past due. At December 31, 2022, we had one CML that was delinquent in principal or interest
payments as shown in the risk rating exposure table below. At December 31, 2021, we had no CMLs that were delinquent in principal or interest payments.
Residential Mortgage Loans
Residential mortgage loans ("RMLs") represented approximately 5% and 4% of our total investments at December 31, 2022 and December 31, 2021, respectively. Our residential mortgage
loans are closed end, amortizing loans and 100% of the properties are located in the United States. We diversify our RML portfolio by state to attempt to reduce concentration risk. The distribution of
RMLs by state with highest-to-lowest concentration are reflected in the following tables, gross of valuation allowances (dollars in millions):
U.S. State:
Florida
Texas
New Jersey
Pennsylvania
California
New York
Georgia
All Other States (1)
Total mortgage loans
(1) The individual concentration of each state is equal to or less than to 5%.
129
December 31, 2022
Amortized Cost
% of Total
$
$
324
215
172
153
139
138
125
914
2,180
15 %
10 %
8 %
7 %
6 %
6 %
6 %
42 %
100 %
Table of Contents
U.S. State:
Florida
Texas
New Jersey
All Other States (1)
Total residential mortgage loans
December 31, 2021
Amortized Cost
% of Total
$
$
234
170
153
1,049
1,606
15 %
10 %
10 %
65 %
100 %
(1) The individual concentration of each state is less than 9%.
RMLs have a primary credit quality indicator of either a performing or nonperforming loan. We define non-performing RMLs as those that are 90 or more days past due or in nonaccrual status,
which is assessed monthly. The credit quality of RMLs was as follows (dollars in millions):
Performance indicators:
Performing
Non-performing
Total residential mortgage loans, gross of valuation allowance
Allowance for expected loan loss
Total residential mortgage loans, net of valuation allowance
December 31, 2022
December 31, 2021
Amortized Cost
% of Total
Amortized Cost
% of Total
$
$
$
2,118
62
2,180
(32)
2,148
97 % $
3 %
100 % $
— %
100 % $
1,533
73
1,606
(25)
1,581
Loans segregated by risk rating exposure were as follows, gross of valuation allowances (in millions):
Residential mortgages
Current (less than 30 days past due)
30-89 days past due
90 days or more past due
Total residential mortgages
Commercial mortgages
Current (less than 30 days past due)
30-89 days past due
90 days or more past due
Total commercial mortgages
Residential mortgages
Current (less than 30 days past due)
30-89 days past due
90 days or more past due
Total residential mortgages
Commercial mortgages
Current (less than 30 days past due)
30-89 days past due
90 days or more past due
Total commercial mortgages
$
$
$
$
$
$
$
$
2022
2021
2020
2019
2018
Prior
Total
December 31, 2022
Amortized Cost by Origination Year
766 $
2
3
771 $
350 $
—
—
350 $
884 $
7
9
900 $
1,300 $
—
—
1,300 $
214 $
—
15
229 $
488 $
—
—
488 $
185 $
4
34
223 $
— $
—
—
— $
23 $
—
1
24 $
— $
—
—
— $
33 $
—
—
33 $
269 $
—
9
278 $
2021
2020
2019
2018
2017
Prior
Total
December 31, 2021
Amortized Cost by Origination Year
293 $
4
23
320 $
543 $
—
—
543 $
323 $
6
46
375 $
— $
—
—
— $
50 $
1
2
53 $
6 $
—
—
6 $
36 $
—
—
36 $
— $
—
—
— $
21 $
—
—
21 $
324 $
—
—
324 $
795 $
5
1
801 $
1301 $
—
—
1,301 $
130
95 %
5 %
100 %
— %
100 %
2,105
13
62
2,180
2,407
—
9
2,416
1,518
16
72
1,606
2,174
—
—
2,174
Table of Contents
Commercial mortgages
LTV
Less than 50.00%
50.00% to 59.99%
60.00% to 74.99%
75.00% to 84.99%
Total commercial mortgages (a)
Commercial mortgages
DSCR
Greater than 1.25x
1.00x - 1.25x
Less than 1.00x
Total commercial mortgages (a)
(a) Excludes loans under development with an amortized cost and estimated fair value of $9 million.
Commercial mortgages
LTV
Less than 50.00%
50.00% to 59.99%
60.00% to 74.99%
Total commercial mortgages
Commercial mortgages
DSCR
Greater than 1.25x
1.00x - 1.25x
Less than 1.00x
Total commercial mortgages
Non-accrual loans by amortized cost were as follows (in millions):
Amortized cost of loans on non-accrual
Residential mortgage
Commercial mortgage
Total non-accrual mortgages
$
$
$
$
$
$
$
$
2022
2021
2020
2019
2018
Prior
Total
December 31, 2022
Amortized Cost by Origination Year
70 $
149
113
9
341 $
329 $
3
9
341 $
120 $
268
912
—
1300 $
1,300 $
—
—
1300 $
207 $
158
123
—
488 $
488 $
—
—
488 $
— $
—
—
—
— $
— $
—
—
— $
— $
—
—
—
— $
— $
—
—
— $
129 $
131
9
9
278 $
254 $
4
20
278 $
2021
2020
2019
2018
2017
Prior
Total
December 31, 2021
Amortized Cost by Origination Year
120 $
267
914
1,301 $
1,301 $
—
—
1,301 $
229 $
192
122
543 $
543 $
—
—
543 $
— $
—
—
— $
— $
—
—
— $
$
$
6 $
—
—
6 $
4 $
2
—
6 $
— $
—
—
— $
— $
—
—
— $
313 $
11
—
324 $
284 $
31
9
324 $
December 31, 2022
December 31, 2021
64 $
9
73 $
526
706
1,157
18
2,407
2,371
7
29
2,407
668
470
1,036
2,174
2,132
33
9
2,174
72
—
72
Immaterial interest income was recognized on non-accrual financing receivables for the years ended December 31, 2022 and December 31, 2021.
It is our policy to cease to accrue interest on loans that are 90 days or more delinquent. For loans less than 90 days delinquent, interest is accrued unless it is determined that the accrued interest
is not collectible. If a loan becomes 90 days or more delinquent, it is our general policy to initiate foreclosure proceedings unless a workout arrangement to bring the loan current is in place. As of
December 31, 2022 and December 31, 2021, we had $71 million and $72 million, respectively, of mortgage loans that were over 90 days past due, of which $38 million and $39 million was in the
process of foreclosure as of December 31, 2022 and December 31, 2021, respectively.
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Table of Contents
Allowance for Expected Credit Loss
We estimate expected credit losses for our CML and RML portfolios using a probability of default/loss given default model. Significant inputs to this model include, where applicable, the loans'
current performance, underlying collateral type, location, contractual life, LTV, DSC and Debt to Income or FICO. The model projects losses using a two year reasonable and supportable forecast and
then reverts over a three year period to market-wide historical loss experience. Changes in our allowance for expected credit losses on mortgage loans are recognized in Recognized gains and losses,
net in the accompanying Consolidated Statements of Earnings.
The allowances for our mortgage loan portfolio is summarized as follows (in millions):
Beginning Balance
Provision for loan losses
Ending Balance
Year ended December 31, 2022
Year ended December 31, 2021
Residential
Mortgage
Commercial
Mortgage
Total
Residential
Mortgage
Commercial
Mortgage
Total
$
$
25
7
32
$
$
6
4
10
$
$
31
11
42
$
$
37
(12)
25
$
$
2
4
6
$
$
Beginning Balance
Provision for loan losses
For initial credit losses on purchased loans accounted for as PCD financial assets
Ending Balance
Seven months ended December 31, 2020
Residential
Mortgage
Commercial
Mortgage
Total
—
30
7
37
$
—
2
—
2
$
$
39
(8)
31
—
32
7
39
An allowance for expected credit loss is not measured on accrued interest income for CMLs as we have a process to write-off interest on loans that enter into non-accrual status (90 days or more
past due). Allowances for expected credit losses are measured on accrued interest income for RMLs and were immaterial as of December 31, 2022 and December 31, 2021.
Interest and Investment Income
The major sources of Interest and investment income reported on the accompanying Consolidated Statements of Earnings were as follows (in millions):
Fixed maturity securities, available-for-sale
Equity securities
Preferred securities
Mortgage loans
Invested cash and short-term investments
Limited partnerships
Tax deferred property exchange income
Other investments
Gross investment income
Investment expense
Interest and investment income
December 31, 2022
December 31, 2021
December 31, 2020
Year ended
$
$
$
1,489
31
67
186
61
110
103
41
2,088
(197)
$
1,267
23
63
131
7
589
16
32
2,128
(167)
1,891
$
1,961
$
708
19
59
50
8
76
33
25
978
(78)
900
The Company’s Interest and investment income is shown net of amounts attributable to certain funds withheld reinsurance agreements which is passed along to the reinsurer in accordance with
the terms of these agreements. Interest and Investment Income attributable to these agreements, and thus excluded from the totals in the table above, was $109 million, $53 million and $21 million for
the years ended December 31, 2022 and 2021 and for the period from June 1 to December 31, 2020.
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Table of Contents
Recognized Gains and Losses, net
Details underlying Recognized gains and losses, net reported on the accompanying Consolidated Statements of Earnings were as follows (in millions):
Net realized (losses) gains on fixed maturity available-for-sale securities
Net realized/unrealized (losses) gains on equity securities (2)
Net realized/unrealized (losses) gains on preferred securities (3)
Realized (losses) gains on other invested assets
Change in allowance for expected credit losses
Derivatives and embedded derivatives:
Realized (losses) gains on certain derivative instruments
Unrealized (losses) gains on certain derivative instruments
Change in fair value of reinsurance related embedded derivatives (1)
Change in fair value of other derivatives and embedded derivatives
Realized (losses) gains on derivatives and embedded derivatives
Recognized gains and losses, net
December 31, 2022
December 31, 2021
December 31, 2020
Year ended
$
$
(253)
(386)
(230)
(68)
(41)
(164)
(693)
352
(10)
(515)
$
(1,493)
$
111
(434)
(14)
8
8
456
159
34
6
655
334
$
$
102
241
15
(25)
(37)
76
161
(53)
8
192
488
(1) Change in fair value of reinsurance related embedded derivatives is due to activity related to the reinsurance treaties with Kubera (novated from Kubera to Somerset effective October 31, 2021) and Aspida Re.
(2) Includes net valuation (losses) gains of $(387) million, $(436) million and $248 million for the years ended December 31, 2022, 2021, and 2020 respectively.
(3) Includes net valuation losses of $198million, $14 million, and $40 million for the years ended December 31, 2022, 2021 and 2020, respectively.
The proceeds from the sale of fixed-maturity securities and the gross gains and losses associated with those transactions were as follows (in millions):
Proceeds
Gross gains
Gross losses
Unconsolidated Variable Interest Entities
Year ended
December 31, 2022
December 31, 2021
December 31, 2020
$
$
3,264
14
(252)
$
4,749
158
(49)
1,946
116
(12)
The Company owns investments in VIEs that are not consolidated within our financial statements. A VIE is an entity that does not have sufficient equity to finance its own activities without
additional financial support, where investors lack certain characteristics of a controlling financial interest, or where the entity is structured with non-substantive voting rights. VIEs are consolidated by
their ‘primary beneficiary’, a designation given to an entity that receives both the benefits from the VIE as well as the substantive power to make its key economic decisions. While the Company
participates in the benefits from VIEs in which it invests, but does not consolidate, the substantive power to make the key economic decisions for each respective VIE resides with entities not under
common control with the Company. It is for this reason that the Company is not considered the primary beneficiary for the VIE investments that are not consolidated.
We invest in various limited partnerships and limited liability companies primarily as a passive investor. These investments are primarily in credit funds with a bias towards current income, real
assets, or private equity. Limited partnership and limited liability company interests are accounted for under the equity method and are included in Investments in unconsolidated affiliates on our
Consolidated Balance Sheets. In addition, we invest in structured investments that may be VIEs, but for which we are not the primary beneficiary. These structured investments typically invest in
fixed income investments and are managed by third parties and include asset-backed securities, commercial mortgage-backed securities and residential mortgage-backed securities included in fixed
maturity securities available for sale on our Consolidated Balance Sheets.
Our maximum exposure to loss with respect to these VIEs is limited to the investment carrying amounts reported in our Consolidated Balance Sheets for limited partnerships and the amortized
costs of our fixed maturity securities, in addition to any required unfunded commitments (also refer to Note H Commitments and Contingencies).
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Table of Contents
The following table summarizes the carrying value and the maximum loss exposure of our unconsolidated VIEs:
Investments in unconsolidated affiliates
Fixed maturity securities
Total unconsolidated VIE investments
Concentrations
December 31, 2022
December 31, 2021
Carrying Value
Maximum Loss
Exposure
Carrying Value
Maximum Loss
Exposure
$
$
2,427
15,680
18,107
$
$
4,030
17,404
21,434
$
$
2,350
12,382
14,732
$
$
3,496
12,802
16,298
Our underlying investment concentrations that exceed 10% of shareholders equity are as follows (in millions):
Blackstone Wave Asset Holdco
(1)
December 31, 2022
$
741
__________________
(1)
individual investments and industries.
Represents a special purpose vehicle that holds investments in numerous limited partnership investments whose underlying investments are further diversified by holding interest in multiple
Investment in Cannae Holdings, Inc. ("Cannae")
Included in equity securities as of December 31, 2021 were 5,775,598 shares of Cannae common stock (NYSE: CNNE). The fair value of this investment based on quoted market prices was
$203 million as of December 31, 2021. During the year ended December 31, 2022, we sold all 5,775,598 shares of CNNE common stock back to Cannae for approximately $109 million in the
aggregate. As of December 31, 2022, we held no shares of CNNE common stock.
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Table of Contents
Note F — Derivative Financial Instruments
The carrying amounts of derivative instruments, including derivative instruments embedded in FIA and IUL contracts, and reinsurance is as follows (in millions):
Assets:
Derivative investments:
Call options
Other long-term investments:
Other embedded derivatives
Prepaid expenses and other assets:
Reinsurance related embedded derivatives
Liabilities:
Contractholder funds:
FIA/ IUL embedded derivatives
Accounts payable and accrued liabilities:
Reinsurance related embedded derivatives
December 31, 2022
December 31, 2021
$
$
$
$
244
$
23
279
546
$
3,115
$
—
3,115
$
816
33
—
849
3,883
73
3,956
The change in fair value of derivative instruments included within Recognized gains and losses, net, in the accompanying Consolidated Statements of Earnings is as follows (in millions):
Net investment gains (losses):
Call options
Futures contracts
Foreign currency forwards
Other derivatives and embedded derivatives
Reinsurance related embedded derivatives
Total net investment gains
Benefits and other changes in policy reserves:
FIA/ IUL embedded derivatives increase (decrease)
Additional Disclosures
Year Ended
Seven Months Ended
December 31, 2022
December 31, 2021
December 31, 2020
$
$
$
(862)
(7)
12
(10)
352
(515)
$
$
597
8
10
5
34
654
$
$
(768)
$
479
$
229
15
(7)
8
(53)
192
552
FIA/ IUL Embedded Derivative and Call Options and Futures
We have FIA and IUL contracts that permit the holder to elect an interest rate return or an equity index linked component, where interest credited to the contracts is linked to the performance of
various equity indices, primarily the S&P 500 Index. This feature represents an embedded derivative under GAAP. The FIA/IUL embedded derivatives are valued at fair value and included in the
liability for contractholder funds in the accompanying Consolidated Balance Sheets with changes in fair value included as a component of Benefits and other changes in policy reserves in the
Consolidated Statements of Earnings. See a description of the fair value methodology used in Note D Fair Value of Financial Instruments.
We purchase derivatives consisting of a combination of call options and futures contracts (specifically for FIA contracts) on the applicable market indices to fund the index credits due to FIA/
IUL contractholders. The call options are one, two, three, and five year options purchased to match the funding requirements of the underlying policies. On the respective anniversary dates of the
indexed policies, the index used to compute the interest credit is reset and we purchase new call options to fund the next index credit. We manage the cost of these purchases through the terms of our
FIA/IUL contracts, which permit us to change caps, spreads or participation rates, subject to guaranteed minimums, on each contract’s anniversary date. The change in
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Table of Contents
the fair value of the call options and futures contracts is generally designed to offset the portion of the change in the fair value of the FIA/IUL embedded derivatives related to index performance
through the current credit period. The call options and futures contracts are marked to fair value with the change in fair value included as a component of Recognized gains and losses, net, in the
accompanying Consolidated Statements of Earnings. The change in fair value of the call options and futures contracts includes the gains and losses recognized at the expiration of the instrument term
or upon early termination and the changes in fair value of open positions.
Other market exposures are hedged periodically depending on market conditions and our risk tolerance. Our FIA/IUL hedging strategy economically hedges the equity returns and exposes us to
the risk that unhedged market exposures result in divergence between changes in the fair value of the liabilities and the hedging assets. We use a variety of techniques, including direct estimation of
market sensitivities, to monitor this risk daily. We intend to continue to adjust the hedging strategy as market conditions and our risk tolerance changes.
Credit Risk
We are exposed to credit loss in the event of non-performance by our counterparties on the call options and reflect assumptions regarding this non-performance risk in the fair value of the call
options. The non-performance risk is the net counterparty exposure based on the fair value of the open contracts less collateral held. We maintain a policy of requiring all derivative contracts to be
governed by an International Swaps and Derivatives Association (“ISDA”) Master Agreement.
Information
regarding
our
exposure
to
credit
loss
on
the
call
options we
hold
is
presented
in
the
following
table
(in millions):
Counterparty
Merrill Lynch
Morgan Stanley
Barclay's Bank
Canadian Imperial Bank of Commerce
Wells Fargo
Goldman Sachs
Credit Suisse
Truist
Citibank
Total
Counterparty
Merrill Lynch
Morgan Stanley
Barclay's Bank
Canadian Imperial Bank of Commerce
Wells Fargo
Goldman Sachs
Credit Suisse
Truist
Total
(1) An * represents credit ratings that were not available.
Notional
Amount
Fair Value
Collateral
Net Credit Risk
December 31, 2022
$
3,563
1,699
6,049
5,169
1,361
1,133
1,039
2,489
795
$
23
14
65
68
17
9
5
35
8
$
—
19
59
64
17
10
5
36
9
23,297
$
244
$
219
$
December 31, 2021
Notional Amount
Fair Value
Collateral
Net Credit Risk
$
3,307
2,184
5,197
2,936
2,445
307
1,485
1,543
19,404
$
128
86
231
147
89
10
74
51
816
$
$
86
92
233
151
90
10
75
53
790
$
$
23
—
6
4
—
—
—
—
—
33
42
—
—
—
—
—
—
—
42
Credit Rating
(Fitch/Moody's/S&P) (1)
AA/*/A+
*/Aa3/A+
A+/A1/A
AA/Aa2/A+
A+/A1/BBB+
A/A2/BBB+
BBB+/A3/A-
A+/A2/A
A+/Aa3/A+
Credit Rating
(Fitch/Moody's/S&P)(1)
AA/*/A+
*/Aa3/A+
A+/A1/A
AA/Aa2/A+
A+/A1/BBB+
A/A2/BBB+
A/A1/A+
A+/A2/A
$
$
$
$
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Table of Contents
Collateral Agreements
We are required to maintain minimum ratings as a matter of routine practice as part of our over-the-counter derivative agreements on ISDA forms. Under some ISDA agreements, we have agreed
to maintain certain financial strength ratings. A downgrade below these levels provides the counterparty under the agreement the right to terminate the open option contracts between the parties, at
which time any amounts payable by us or the counterparty would be dependent on the market value of the underlying option contracts. Our current rating does not allow any counterparty the right to
terminate ISDA agreements. In certain transactions, both we and the counterparty have entered into a collateral support agreement requiring either party to post collateral when the net exposures
exceed pre-determined thresholds. For all counterparties, except Merrill Lynch, this threshold is set to zero. As of December 31, 2022 and December 31, 2021, counterparties posted $219 million and
$790 million, respectively, of collateral, of which $178 million and $576 million, respectively, is included in cash and cash equivalents with an associated payable for this collateral included in
accounts payable and accrued liabilities on the Consolidated Balance Sheets. Accordingly, the maximum amount of loss due to credit risk that we would incur if parties to the call options failed
completely to perform according to the terms of the contracts was $33 million at December 31, 2022 and $42 million at December 31, 2021.
We are 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 reinvest derivative cash collateral
to reduce the interest cost. Cash collateral is invested in overnight investment sweep products, which are included in cash and cash equivalents in the accompanying Consolidated Balance Sheets.
We held 409 and 329 futures contracts at December 31, 2022 and December 31, 2021, respectively. The fair value of the futures contracts represents the cumulative unsettled variation margin
(open trade equity, net of cash settlements). We provide cash collateral to the counterparties for the initial and variation margin on the futures contracts, which is included in cash and cash equivalents
in the accompanying Consolidated Balance Sheets. The amount of cash collateral held by the counterparties for such contracts was $3 million and $3 million at December 31, 2022 and December 31,
2021, respectively.
Reinsurance Related Embedded Derivatives
F&G entered into a reinsurance agreement with Kubera, effective December 31, 2018, to cede certain multi-year guaranteed annuity (“MYGA”) and deferred annuity business on a coinsurance
funds withheld basis, net of applicable existing reinsurance. Effective October 31, 2021, this agreement was novated from Kubera to Somerset, a certified third party reinsurer. Additionally, F&G
entered into a reinsurance agreement with Aspida Re effective January 1, 2021, and amended in August 2021 and September 2022, to cede a quota share of certain deferred annuity business on a
funds withheld basis. Fair value movements in the funds withheld balances associated with these arrangements creates an obligation for F&G to pay Somerset and Aspida Re at a later date, which
results in embedded derivatives. These embedded derivatives are considered total return swaps with contractual returns that are attributable to the assets and liabilities associated with the reinsurance
arrangements. 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 arrangements, including gains and losses from sales, were passed directly to the reinsurers pursuant to contractual terms of the reinsurance arrangements.
The reinsurance related embedded derivatives are reported in prepaid expenses and other assets if in a net gain position, or accounts payable and accrued liabilities, if in a net loss position, 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.
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Note G — Notes Payable
Notes payable consists of the following:
4.50% Notes, net of discount
5.50% Notes, net of discount
3.40% Notes, net of discount
2.45% Notes, net of discount
3.20% Notes, net of discount
Revolving Credit Facility
F&G Credit Agreement
5.50% F&G Notes
December 31, 2022
December 31, 2021
$
(In millions)
445
—
644
594
444
(3)
547
567
3,238
$
444
400
643
593
443
(4)
—
577
3,096
$
$
On November 22, 2022, F&G entered into the F&G Credit Agreement pursuant to which the Lenders have made available the F&G Credit Facility in an aggregate principal amount of
$550 million to be used for working capital and general corporate purposes.
The F&G Credit Agreement matures the earlier to occur of November 22, 2025 or 91 days prior to May 1, 2025, the stated maturity date of the 5.50% F&G Notes, unless the principal amount of
the 5.50% F&G Notes is $150,000,000 or less at such time, the 5.50% F&G Notes have been redeemed or defeased in full, and any refinancing Indebtedness incurred in connection therewith matures
at least 91 days after the date that is 3 years from the Effective Date or certain other conditions are met. Revolving loans under the Credit Agreement generally bear interest at a variable rate based on
either (i) the base rate (which is the highest of (a) one-half of one percent in excess of the federal funds rate, (b) the Administrative Agent’s “prime rate”, or (c) the sum of one percent plus Term The
Secured Overnight Financing Rate (“SOFR”) plus a margin of between 30.0 and 80.0 basis points depending on the non-credit-enhanced, senior unsecured long-term debt ratings of F&G or (ii) Term
SOFR plus a margin of between 130.0 and 180.0 basis points depending on the non-credit-enhanced, senior unsecured long-term debt ratings of F&G. As of December 31, 2022, the revolving credit
facility was fully drawn with $550 million outstanding, offset by approximately $3 million of unamortized debt issuance costs. A net partial paydown of $35 million was made on January 6, 2023
and, on February 21, 2023, F&G entered into the Amended F&G Credit Agreement with the Lenders and the Administrative Agent, swing line lender and issuing bank. The Amended F&G Credit
Agreement increased the aggregate principal amount of commitments under the F&G Credit Facility by $115 million to $665 million.
On September 17, 2021, we completed our underwritten public offering of $450 million aggregate principal amount of our 3.20% Notes due 2051, pursuant to our registration statement on Form
S-3 ASR (File No. 333-239002) and the related prospectus supplement. The net proceeds from the registered offering of the 3.20% Notes were approximately $443 million, after deducting
underwriting discounts, commissions and offering expenses. We plan to use the net proceeds from the offering for general corporate purposes.
On October 29, 2020, we entered into the Fifth Restated Credit Agreement for our Amended Revolving Credit Facility with Bank of America, N.A., as administrative agent and the other agents
party thereto. 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. The
material terms of the Fourth Restated Credit Agreement are set forth in our Annual Report for the year ended December 31, 2019. As of December 31, 2021, there was no principal outstanding,
$3 million of unamortized debt issuance costs, and $800 million of available borrowing capacity under the Revolving Credit Facility.
On September 15, 2020, we completed our underwritten public offering of $600 million aggregate principal amount of our 2.45% Notes due March 15, 2031 (the "2.45% Notes") pursuant to an
effective registration statement filed with the Securities and Exchange Commission ("SEC"). 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 the net proceeds from the offering (i) to repay the remaining $260 million outstanding indebtedness under our
prior term loan credit agreement dated April 22, 2020, among us, as borrower, various lenders, and Bank of American N.A., as administrative agent (the "Term Loan"), which provided for an
aggregate principal borrowing of $1.0 billion that we entered into to fund a portion of the acquisition of F&G and (ii) for general corporate purposes.
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Table of Contents
On June 12, 2020, we completed our underwritten public offering of $650 million aggregate principal amount of the 3.40% Notes due 2030 (the “3.40% Notes”) pursuant to an effective
registration statement filed with the SEC. 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 (i) to repay $640 million of the then outstanding principal amount under the Term Loan, and (ii) for general corporate
purposes.
On June 1, 2020, as a result of the F&G acquisition, we assumed $550 million aggregate principal amount of 5.50% senior notes due 2025 (the "5.50% F&G Notes"), originally issued on April
20, 2018 at 99.5% of face value for proceeds of $547 million.
On August 13, 2018, we completed an offering of $450 million in aggregate principal amount of 4.50% notes due August 2028 (the "4.50% Notes"), pursuant to Rule 144A and Regulation S
under the Securities Act of 1933, as amended. The 4.50% Notes were priced at 99.252% of par to yield 4.594% annual interest. We pay interest on the 4.50% Notes semi-annually on the 15th of
February and August, beginning February 15, 2019. The 4.50% Notes contain customary covenants and events of default for investment grade public debt, which primarily relate to failure to make
principal or interest payments. On May 16, 2019, we completed an offering to exchange the 4.50% Notes for substantially identical notes registered pursuant to Rule 424 under the Securities Act of
1933 (the "4.50% Notes Exchange"). There were no material changes to the terms of the 4.50% Notes as a result of the 4.50% Notes Exchange and all holders of the 4.50% Notes accepted the offer to
exchange.
On September 1, 2022, we repaid the remaining $400 million in outstanding principal amount of our 5.50% Senior Notes due September 2022.
Gross principal maturities of notes payable at December 31, 2022 are as follows (in millions):
2023
2024
2025
2026
2027
Thereafter
Note H — Commitments and Contingencies
Legal and Regulatory Contingencies
$
$
55
—
55
—
—
2,15
3,25
In the ordinary course of business, we are involved in various pending and threatened litigation matters related to our operations, some of which include claims for punitive or exemplary
damages. With respect to our title insurance operations, this customary litigation includes but is not limited to a wide variety of cases arising out of or related to title and escrow claims, for which we
make provisions through our loss reserves. See Note C Summary of Reserve for Title Claim Losses for further discussion. Additionally, like other companies, our ordinary course litigation includes a
number of class action and purported class action lawsuits, which make allegations related to aspects of our operations. We believe that no actions, other than the matters discussed below, if any,
depart from customary litigation incidental to our business.
We review lawsuits and other legal and regulatory matters (collectively “legal proceedings”) on an ongoing basis when making accrual and disclosure decisions. When assessing reasonably
possible and probable outcomes, management bases its decision on its assessment of the ultimate outcome assuming all appeals have been exhausted. For legal proceedings in which it has been
determined that a loss is both probable and reasonably estimable, a liability based on known facts and that represents our best estimate has been recorded. Our accrual for legal and regulatory matters
was $12 million as of December 31, 2022 and 2021. None of the amounts we have currently recorded are considered to be material to our financial condition individually or in the aggregate. Actual
losses may materially differ from the amounts recorded and the ultimate outcome of our pending legal proceedings is generally not yet determinable. While some of these matters could be material to
our operating results or cash flows for any particular period if an unfavorable outcome results, at present we do not believe that the ultimate resolution of currently pending legal proceedings, either
individually or in the aggregate, will have a material adverse effect on our financial condition.
In August 2020, a lawsuit styled, In the Matter of FGL Holdings, was filed in the Grand Court of the Cayman Islands related to FNF's acquisition of F&G where dissenting shareholders,
Kingfishers LP, Kingstown 1740 Fund LP, Kingstown Partners II LP, Kingstown Partners Master Ltd., and Ktown LP, asserted statutory appraisal rights relative to their ownership of 12,000,000
shares of F&G stock. They sought a judicial determination of the fair value of their shares of F&G stock as of the date of valuation under the law of the Cayman Islands, together with interest. On
September 5, 2022 the Grand Court of the
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Cayman Islands decided in favor of F&G. Kingstown Capital Management LP failed to appeal, and its appeal period expired on October 20, 2022. We are attempting to collect reimbursement of our
expenses in this lawsuit.
From time to time we receive inquiries and requests for information from state insurance departments, attorneys general and other regulatory agencies about various matters relating to our
business. Sometimes these take the form of civil investigative demands or subpoenas. We cooperate with all such inquiries and we have responded to or are currently responding to inquiries from
multiple governmental agencies. Also, regulators and courts have been dealing with issues arising from foreclosures and related processes and documentation. Various governmental entities are
studying the title insurance product, market, pricing, and business practices, and potential regulatory and legislative changes, which may materially affect our business and operations. From time to
time, we are assessed fines for violations of regulations or other matters or enter into settlements with such authorities, which may require us to pay fines or claims or take other actions. We do not
anticipate such fines and settlements, either individually or in the aggregate, will have a material adverse effect on our financial condition.
Escrow Balances
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 GAAP and industry
practice. These balances amounted to $18.9 billion and $30.5 billion at December 31, 2022 and 2021, 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. There were no investments or loans outstanding as of
December 31, 2022 and 2021 related to these arrangements.
FNF Commitments
As of December 31, 2022, we had a commitment to purchase TitlePoint for $225 million. On January 1, 2023, we completed our previously announced acquisition of TitlePoint for $225 million
in cash, subject to a customary working capital adjustment. For further information associated with the purchase of TitlePoint, refer to Note A Business and Summary of Significant Accounting
Policies.
F&G Commitments
In our F&G segment, we have unfunded investment commitments as of December 31, 2022 and 2021 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. A summary of unfunded commitments by invested asset class is included below:
Asset Type
Unconsolidated VIEs:
Limited partnerships
Whole loans
Fixed maturity securities, ABS
Other fixed maturity securities, AFS
Other assets
Commercial mortgage loans
Residential mortgage loans
Committed amounts included in liabilities
Total
December 31, 2022
December 31, 2021
(In millions)
$
$
1,603
419
201
48
120
36
2
1
2,430
$
$
$
1,146
589
306
119
156
44
—
—
2,360
See Note A Business and Summary of Significant Accounting Policies, for discussion of funding agreements that have been issued pursuant to the FABN Program as well as to the FHLB that
are included in Contractholder funds.
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As discussed in Note O F&G Reinsurance, to enhance Kubera's ability to pay its obligations under the amended reinsurance agreement, effective October 31, 2021, F&G entered into a Variable
Note Purchase Agreement (the “NPA”), whereby F&G agreed to fund a note to Kubera to be used to ultimately settle with F&G, with principal increases up to a maximum amount of $300 million, to
the extent a potential funding shortfall (treaty assets are less than the total funding requirement) is projected relative to the business ceded to Kubera from F&G as part of the amended reinsurance
agreement. The potential funding shortfall will be determined quarterly and, among other items, is impacted by the market value of the assets in the funds withheld account related to the reinsurance
agreement and Kubera's capital as calculated on a Bermuda regulatory basis. The NPA matures on November 30, 2071. Based on the current level of the treaty assets and projections that these
policies will be profitable over the lifetime of the agreement, we do not expect significant fundings to occur under the NPA. As of December 31, 2022 and December 31, 2021, the amount funded
under the NPA was insignificant.
Note I — Dividends
On February 16, 2023, our Board of Directors declared cash dividends of $0.45 per share, payable on March 31, 2023, to FNF common shareholders of record as of March 17, 2023.
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Note J — Segment Information
Summarized financial information concerning our reportable segments is shown in the following tables. On June 1, 2020, we completed our acquisition of F&G. As a result, the year ended
December 31, 2020 includes seven months of activity from our F&G segment.
As of and for the year ended December 31, 2022:
Title premiums
Other revenues
Revenues from external customers
Interest and investment income, including recognized gains and losses
Total revenues
Depreciation and amortization
Interest expense
Earnings (loss) from continuing operations before income taxes and equity in earnings of unconsolidated affiliates
Income tax expense (benefit)
Earnings (loss) before equity in earnings (loss) of unconsolidated affiliates
Equity in earnings of unconsolidated affiliates
Net earnings (loss) from continuing operations
Assets
Goodwill
As of and for the year ended December 31, 2021:
Title premiums
Other revenues
Revenues from external customers
Interest and investment income, including recognized gains and losses
Total revenues
Depreciation and amortization
Interest expense
Earnings (loss) before income taxes and equity in earnings of unconsolidated affiliates
Income tax expense (benefit)
Earnings (loss) before equity in earnings of unconsolidated affiliates
Equity in earnings of unconsolidated affiliates
Net earnings (loss)
Assets
Goodwill
142
Title
F&G
Corporate and Other
Total
$
$
$
$
$
$
$
$
$
$
$
$
6,834
2,502
9,336
(230)
9,106
142
—
1,090
298
792
15
807
8,295
2,620
8,553
3,228
11,781
(284)
11,497
138
—
2,136
511
1,625
58
1,683
9,663
2,517
Title
(In millions)
$
$
$
—
1,695
1,695
645
2,340
329
29
598
117
481
—
481
55,077
1,756
$
$
$
—
127
127
(17)
110
25
86
(153)
(17)
(136)
—
(136)
2,217
266
F&G
Corporate and Other
Total
(In millions)
$
$
$
—
1,395
1,395
2,567
3,962
484
29
1,077
220
857
—
857
48,730
1,756
$
$
$
—
172
172
12
184
23
85
(130)
(18)
(112)
6
(106)
2,297
266
6,834
4,324
11,158
398
11,556
496
115
1,535
398
1,137
15
1,152
65,589
4,642
8,553
4,795
13,348
2,295
15,643
645
114
3,083
713
2,370
64
2,434
60,690
4,539
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As of and for the year ended December 31, 2020:
Title premiums
Other revenues
Revenues from external customers
Interest and investment income, including recognized gains and losses
Total revenues
Depreciation and amortization
Interest expense
Earnings (loss) before income taxes and equity in earnings of unconsolidated affiliates
Income tax expense (benefit)
Earnings (loss) before equity in earnings of unconsolidated affiliates
Equity in earnings of unconsolidated affiliates
Net earnings (loss)
Assets
Goodwill
The activities in our segments include the following:
Title
F&G
Corporate and Other
Total
$
$
$
$
$
$
6,298
2,782
9,080
294
9,374
149
1
1,878
432
1,446
14
1,460
9,211
2,478
(In millions)
$
$
$
—
138
138
1,095
1,233
123
18
86
(75)
161
—
161
39,714
1,751
$
$
$
—
172
172
(1)
171
24
71
(180)
(35)
(145)
1
(144)
1,530
266
6,298
3,092
9,390
1,388
10,778
296
90
1,784
322
1,462
15
1,477
50,455
4,495
•
•
•
Title. This segment consists of the operations of our title insurance underwriters and related businesses. This segment provides core title insurance and escrow and other title-related services
including trust activities, trustee sales guarantees, and home warranty products. This segment also includes our 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. This segment primarily consists of the operations of our annuities and life insurance related businesses. This segment issues a broad portfolio of annuity and life products, including
deferred annuities (fixed indexed and fixed rate annuities), immediate annuities and indexed universal life insurance. This segment also provides funding agreements and pension risk transfer
solutions.
Corporate and Other. This segment consists of the operations of the parent holding company, our real estate technology subsidiaries and our remaining real estate brokerage businesses. This
segment also includes certain other unallocated corporate overhead expenses and eliminations of revenues and expenses between it and our Title segment.
Refer to Note L Revenue Recognition for a description of our accounting for our various revenue streams.
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Note K — Supplemental Cash Flow Information
The following supplemental cash flow information is provided with respect to certain cash payment and non-cash investing and financing activities.
Cash paid for:
Interest
Income taxes
Deferred sales inducements
Non-cash investing and financing activities:
Equity financing associated with the acquisition of F&G
Distribution of 15% of the common stock of F&G
Investments received from pension risk transfer premiums
Change in proceeds of sales of investments available for sale receivable in period
Change in purchases of investments available for sale payable in period
Lease liabilities recognized in exchange for lease right-of-use assets
Remeasurement of lease liabilities
Liabilities assumed in connection with acquisitions (excluding F&G)(1)
Fair value of assets acquired
Less: Total Purchase price
Liabilities and noncontrolling interests assumed
(1) For further information related to the acquisition of F&G, refer to Note B Acquisitions
144
2022
Year Ended December 31,
2021
(In millions)
2020
$
$
$
$
$
125
387
87
—
320
—
96
(25)
70
60
266
180
86
$
$
$
112
653
90
—
—
316
(160)
18
47
87
85
59
26
$
73
315
46
609
—
—
(4)
14
44
48
32
24
8
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Note L — Revenue Recognition
Disaggregation of Revenue
Our revenue consists of:
Revenue Stream
Income Statement Classification
Segment
Revenue from insurance contracts:
Direct title insurance premiums
Agency title insurance premiums
Life insurance premiums, insurance and investment product fees, and other (1)
Home warranty
Total revenue from insurance contracts
Revenue from contracts with customers:
Escrow fees
Other title-related fees and income
ServiceLink, excluding title premiums, escrow fees, and subservicing fees
Real estate technology
Real estate brokerage
Total revenue from contracts with customers
Other revenue:
Loan subservicing revenue
Other
Interest and investment income
Recognized gains and losses, net
Direct title insurance premiums
Agency title insurance premiums
Escrow, title-related and other fees
Escrow, title-related and other fees
Escrow, title-related and other fees
Escrow, title-related and other fees
Escrow, title-related and other fees
Escrow, title-related and other fees
Escrow, title-related and other fees
Escrow, title-related and other fees
Escrow, title-related and other fees
Interest and investment income
Recognized gains and losses, net
$
Title
Title
F&G
Title
Title
Title
Title
Corporate and other
Corporate and other
Title
Corporate and other
Various
Various
Year Ended December 31,
2022
2021
Total Revenue
(In millions)
2020
2,858
3,976
1,695
165
8,694
980
752
342
158
—
2,232
263
(31)
1,891
(1,493)
$
3,571 $
4,982
1,395
185
10,133
1,395
888
396
142
—
2,821
364
30
1,961
334
2,699
3,599
138
181
6,617
1,170
724
368
112
25
2,399
338
36
900
488
Total revenues
(1) Includes $1,362 and 1,146 of life-contingent pension risk transfer premiums in 2022 and 2021, respectively.
Total revenues
$
11,556
$
15,643 $
10,778
Our Direct title insurance premiums are recognized as revenue at the time of closing of the underlying transaction as the earnings process is then considered complete. Regulation of title
insurance rates varies by state. Premiums are charged to customers based on rates predetermined in coordination with each states' respective Department of Insurance. Cash associated with such
revenue is typically collected at closing of the underlying real estate transaction. Premium revenues from agency title operations are recognized when the underlying title order and transaction
closing, if applicable, are complete.
Revenues from our home warranty business are generated from contracts with customers to provide warranty for major home appliances. Substantially all of our home warranty contracts are one
year in length and revenue is recognized ratably over the term of the contract.
Escrow fees and Other title-related fees and income in our Title segment are closely related to Direct title insurance premiums and are primarily associated with managing the closing of real
estate transactions including the processing of funds on behalf of the transaction participants, gathering and recording the required closing documents, providing notary and home inspection services,
and other real estate or title-related activities. Revenue is primarily recognized upon closing of the underlying real estate transaction or completion of services. Cash associated with such revenue is
typically collected at closing.
Revenues from ServiceLink, excluding its title premiums, escrow fees and loan subservicing fees primarily include revenues from real estate appraisal services and foreclosure processing and
facilitation services. Revenues from real estate appraisal services are recognized when all appraisal work is complete, a final report is issued to the client and the client is billed. Revenues from
foreclosure processing and facilitation services are primarily recognized upon completion of the services and when billing to the client is complete.
Life insurance premiums in our F&G segment reflect premiums for life-contingent PRT, traditional life insurance products and life-contingent immediate annuity products, which are recognized
as revenue when due from the policyholder. We have ceded the majority of our traditional life business to unaffiliated third-party reinsurers. While the base contract has been reinsured, we continue to
retain the return of premium rider. Insurance and investment product fees and other consist primarily of the cost of insurance on IUL policies, unearned revenue ("UREV") on IUL policies, policy
rider fees primarily on FIA
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policies and surrender charges assessed against policy withdrawals in excess of the policyholder's allowable penalty-free amounts.
Premium and annuity deposit collections for FIA, fixed rate annuities, immediate annuities and PRT without life contingency, and amounts received for funding agreements 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 include 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.
Premiums, annuity deposits (net of reinsurance) and funding agreements, which are not included as revenues in the accompanying Consolidated Statements of Earnings, collected by product
type were as follows:
Product Type
Fixed indexed annuities
Fixed rate annuities
Funding agreements (FABN/FHLB)
Life insurance and other (a)
Total
December 31, 2022
December 31, 2021
December 31, 2020
(In millions)
Year ended
4,483
1,522
1,891
446
$
8,342
$
4,420 $
878
2,658
329
8,285 $
1,966
631
100
152
2,849
(a) Life insurance and other primarily includes indexed universal life insurance.
Real estate technology revenues are primarily comprised of subscription fees for use of software provided to real estate professionals. Subscriptions are only offered on a month-by-month basis
and fees are billed monthly. Revenue is recognized in the month services are provided.
Real estate brokerage revenues are primarily comprised of commission revenues earned in association with the facilitation of real estate transactions and are recognized upon closing of the sale
of the underlying real estate transaction.
Loan subservicing revenues are generated by certain subsidiaries of ServiceLink and are associated with the servicing of mortgage loans on behalf of its customers. Revenue is recognized when
the underlying work is performed and billed. Loan subservicing revenues are subject to the recognition requirements of ASC Topic 860.
Interest and investment income consists primarily of interest payments received on fixed maturity security holdings and dividends received on equity and preferred security holdings along with
the investment income of limited partnerships.
We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less, primarily related to revenue from our home warranty
business, and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
Contract Balances
The following table provides information about trade receivables and deferred revenue:
Trade receivables
Deferred revenue (contract liabilities)
December 31, 2022
December 31, 2021
$
(In millions)
$
349
296
524
144
Deferred revenue is recorded primarily for our home warranty contracts. Revenues from home warranty products are recognized over the life of the policy, which is primarily one year. The
unrecognized portion is recorded as deferred revenue in accounts payable and other accrued liabilities in the Consolidated Balance Sheets. During the years ended December 31, 2022 and 2021, we
recognized $98 million and $106 million of revenue, respectively, which was included in deferred revenue at the beginning of the respective period.
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Note M — Other Intangible Assets
A summary of the changes in the carrying amounts of our VOBA, DAC and DSI intangible assets are as follows (in millions):
Balance at January 1, 2022
Purchase price allocation adjustments
Deferrals
Amortization
Interest
Unlocking
Adjustment for net unrealized investment (gains) losses
Balance at December 31, 2022
Balance at January 1, 2021
Purchase price allocation adjustments
Deferrals
Amortization
Interest
Unlocking
Adjustment for net unrealized investment (losses) gains
Balance at December 31, 2021
VOBA
DAC
DSI
Total
1,185
$
—
(203)
25
(5)
662
$
761
—
727
(107)
30
(4)
182
$
88
—
87
(43)
2
5
68
1,664
$
1,589
$
207
$
VOBA
DAC
DSI
Total
$
1,466
61
—
(436)
30
13
51
1,185
$
222
—
585
(46)
13
1
(14)
761
$
$
$
36
—
90
(35)
1
(2)
(2)
88
$
2,034
—
814
(353)
57
(4)
912
3,460
1,724
61
675
(517)
44
12
35
2,034
$
$
$
$
Amortization of VOBA, DAC, and DSI is based on the current and future expected gross margins or profits recognized, including investment gains and losses. The interest accrual rate utilized
to calculate the accretion of interest on VOBA ranged from 0% to 4.71% for the years ended December 31, 2022 and December 31, 2021. The adjustment for unrealized net investment losses (gains)
represents the amount of VOBA, DAC, and DSI that would have been amortized if such unrealized gains and losses had been recognized. This is referred to as the “shadow adjustments” as the
additional amortization is reflected in AOCI On the Consolidated Balance Sheet rather than as depreciation and amortization on the Consolidated Statements of Earnings. As of December 31, 2022
and 2021, the VOBA balances included cumulative adjustments for net unrealized investment gains (losses) of $(430) million and $232 million respectively, the DAC balances included cumulative
adjustments for net unrealized investment gains (losses) of $(143) million and $39 million, respectively, and the DSI balance included net unrealized investment gains of $(61) million and $7 million,
respectively.
For the in-force liabilities as of December 31, 2022, the estimated amortization expense for VOBA in future fiscal periods is as follows (in millions):
Fiscal Year
2023
2024
2025
2026
2027
Thereafter
Estimated Amortization
Expense
$
(53)
172
151
133
129
702
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Definite and Indefinite Lived Other Intangible Assets
Other intangible assets as of December 31, 2022 consist of the following (in millions):
Customer relationships and contracts
Computer software
Value of distribution asset (VODA)
Definite lived trademarks, tradenames, and other
Indefinite lived tradenames and other
Total
Cost
Accumulated amortization
Net carrying amount
$
$
916
537
140
56
60
(713)
(341)
(40)
(41)
N/A
$
$
203
196
100
15
60
574
Weighted average useful life
(years)
10
2 to 10
15
10
Indefinite
Other intangible assets as of December 31, 2021 consist of the following (in millions):
Customer relationships and contracts
Computer software
Value of distribution Asset (VODA)
Definite lived trademarks, tradenames, and other
Indefinite lived tradenames and other
Total
Cost
Accumulated amortization
Net carrying amount
$
$
803
488
140
49
59
(651)
(307)
(25)
(33)
N/A
$
$
Weighted average useful life
(years)
10
2 to 10
15
10
Indefinite
152
181
115
16
59
523
Amortization expense for amortizable intangible assets, which consist primarily of VODA, customer relationships and computer software and definite lived trademarks, tradenames and other,
was $133 million, $135 million, and $138 million for the years ended December 31, 2022, 2021 and 2020, respectively. Estimated amortization expense for the next five years for assets owned at
December 31, 2022, is $131 million in 2023, $96 million in 2024, $72 million in 2025, $58 million in 2026 and $47 million in 2027.
Note N — Goodwill
A summary of the changes in Goodwill consists of the following:
Balance, December 31, 2020
Goodwill associated with acquisitions
Adjustments to prior year acquisitions
Balance, December 31, 2021
Goodwill associated with acquisitions
Balance, December 31, 2022
Note O — F&G Reinsurance
Title
F&G
Corporate and
Other
Total
$
$
$
$
2,478
38
1
2,517
103
2,620
$
$
$
$
(In millions)
1,751
—
5
1,756
—
1,756
$
$
$
$
266
—
—
266
—
266
$
$
$
4,495
38
6
4,539
103
4,642
F&G reinsures portions of its policy risks with other insurance companies. The use of indemnity reinsurance does not discharge an insurer from liability on the insurance ceded. The insurer is
required to pay in full the amount of its insurance liability regardless of whether it is entitled to or able to receive payment from the reinsurer. The portion of risks exceeding F&G's retention limit is
reinsured. F&G primarily seeks reinsurance coverage in order to limit its exposure to mortality losses and enhance capital management. F&G follows reinsurance accounting when there is adequate
risk transfer or deposit accounting if there is inadequate risk transfer. If the underlying policy being reinsured is an investment contract, the effects of the agreement are accounted for as a separate
investment contract. Refer to Note A Business and Summary of Significant Accounting Policies for more information over our accounting policy for reinsurance agreements.
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The effect of reinsurance on net premiums earned and net benefits incurred (benefits paid and reserve changes) for the years ended December 31, 2022 and December 31, 2021, and the seven
months ended December 31, 2020 were as follows (in millions):
Direct
Assumed
Ceded
Net
December 31, 2022
December 31, 2021
Year Ended
Seven months ended
December 31, 2020
Net Premiums
Earned
Net Benefits
Incurred
Net Premiums
Earned
Net Benefits
Incurred
Net Premiums
Earned
Net Benefits
Incurred
$
$
$
1,522
—
(128)
$
3,671
—
(2,546)
$
1,314
—
(137)
$
3,282
—
(1,144)
1,394
$
1,125
$
1,177
$
2,138
$
$
108
—
(85)
23
$
976
1
(111)
866
Amounts payable or recoverable for reinsurance on paid and unpaid claims are not subject to periodic or maximum limits. F&G did not write off any significant reinsurance balances during the
years ended December 31, 2022 and December 31, 2021, or the seven months ended December 31, 2020. F&G did not commute any ceded reinsurance treaties during the years ended December 31,
2022 and December 31, 2021, or the seven months ended December 31, 2020.
F&G estimates expected credit losses on reinsurance recoverables using a probability of default/loss given default model. Significant inputs to the model include the reinsurer's credit risk,
expected timing of recovery, industry-wide historical default experience, senior unsecured bond recovery rates, and credit enhancement features. As of the June 1, 2020 acquisition of F&G, due to
purchase accounting adjustments, our expected credit loss reserve was valued at $0. For the seven months ended December 31, 2020, the expected credit loss reserve increased from $0 to $21 million.
As of December 31, 2022 and December 31, 2021, the expected credit loss reserve was $10 million and $20 million, respectively.
No policies issued by F&G have been reinsured with any foreign company, which is controlled, either directly or indirectly, by a party not primarily engaged in the business of insurance.
F&G has not entered into any reinsurance agreements in which the reinsurer may unilaterally cancel any reinsurance for reasons other than non-payment of premiums or other similar credit
issues.
New Reinsurance Transaction. Effective December 31, 2022, F&G entered into an indemnity reinsurance agreement with New Reinsurance Company Ltd. ("New Re"), a third-party reinsurer,
to cede a quota share of certain FIA policies and related waiver of surrender charges, issued after January 1, 2022, on a coinsurance and yearly renewable term basis. The coinsurance quota share is
only applicable to the base contract benefits under the FIA policies. The yearly renewable term is applicable to the waiver of surrender charges. As the FIA policies ceded do not include any GMWB
or GMDB benefits, there is no significant insurance risk present and therefore the effects of this agreement are accounted for as a separate investment contract.
Aspida Reinsurance Transaction. F&G executed a Funds Withheld Coinsurance Agreement with Aspida Re, a Bermuda reinsurer. In accordance with the terms of this agreement, F&G cedes to
the reinsurer, on a fifty percent (50%) funds withheld coinsurance basis, certain multiyear guaranteed annuity business written effective January 1, 2021. The agreement was originally executed
January 15, 2021 and amended in August 2021 and September 2022. For reinsured policies issued prior to September 1, 2022, the policies are ceded on a fifty percent (50%) quota share basis. For
reinsured policies issued on or after September 1, 2022, the policies are ceded on a seventy-five percent (75%) quota share basis, capped at $350 million cession per month. As the policies ceded to
Aspida are investment contracts, there is no significant insurance risk present and therefore the effects of this agreement are accounted for as a separate investment contract.
Somerset Reinsurance Transaction. F&G entered into a reinsurance agreement with Kubera, a third-party reinsurer, effective December 31, 2018, to cede certain MYGA and deferred annuity
GAAP and statutory reserves on a coinsurance funds withheld basis, net of applicable existing reinsurance. In accordance with the terms of this agreement, F&G cedes a quota share percentage of
MYGA and deferred annuity policies for certain issue years to Kubera. Effective October 31, 2021, this agreement was novated from Kubera to Somerset, a certified third-party reinsurer. This
agreement cedes GAAP and statutory reserves of approximately $1 billion. As the policies ceded to Somerset are investment contracts, there is no significant insurance risk present and therefore the
effects of this agreement are accounted for as a separate investment contract.
Kubera Reinsurance Transaction. F&G has a reinsurance agreement with Kubera to cede certain FIA statutory reserves on a coinsurance funds withheld basis, net of applicable existing
reinsurance. In accordance with the terms of this agreement, F&G cedes a quota share percentage of FIA policies for certain issue years to Kubera. Effective October 31, 2021, this agreement was
amended to increase the ceded reserves from approximately $4 billion to approximately $10 billion. The agreement was subsequently amended and restated on October 1, 2022 whereby F&G
recaptured approximately $52 million in statutory reserves solely related to waiver of surrender charges. As the policies ceded to Kubera are investment contracts, there
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is no significant insurance risk present and therefore the reinsurance agreement is accounted for as a separate investment contract. F&G incurred risk charge fees of $12 million $5 million, and
$4 million during the years ended December 31, 2022 and December 31, 2021, or the seven months ended December 31, 2020, respectively, in relation to this reinsurance agreement.
To enhance Kubera's ability to pay its obligations under the amended reinsurance agreement, F&G entered into a Variable Note Purchase Agreement (the “NPA”), whereby F&G agreed to fund
a note to Kubera to be used to ultimately settle with F&G, with principal increases up to a maximum amount of $300 million, to the extent a potential funding shortfall (treaty assets are less than the
total funding requirement) is projected relative to the business ceded to Kubera from F&G as part of the amended reinsurance agreement. The potential funding shortfall will be determined quarterly
and, among other items, is impacted by the market value of the assets in the funds withheld account related to the reinsurance agreement and Kubera's capital as calculated on a Bermuda regulatory
basis. The NPA matures on November 30, 2071. Based on the current level of the treaty assets and projections that these policies will be profitable over the lifetime of the agreement, we do not
expect significant fundings to occur under the NPA. As of December 31, 2022 and December 31, 2021, the amount funded under the NPA was insignificant.
Canada Life Reinsurance Transaction. Effective May 1, 2020, F&G entered into an indemnity reinsurance agreement with Canada Life Assurance Company United States Branch, a third-party
reinsurer, to reinsure FIA policies with GMWB. In accordance with the terms of this agreement, F&G cedes a quota share percentage of the net retention of guarantee payments in excess of account
value for GMWB. This treaty was amended effective January 1, 2021 and January 1, 2022, and covers FIA policies with GMWB issued from January 1, 2020 to December 31, 2023. Effective
October 1, 2022, the treaty was then amended and restated to cover additional FIA business policies. The effects of this agreement are not accounted for as reinsurance as it does not satisfy the risk
transfer requirements for GAAP; therefore, deposit accounting is applied. F&G incurred risk charge fees of $4 million, $2 million and $1 million during the years ended December 31, 2022 and
December 31, 2021, and the seven months ended December 31, 2020, respectively, in relation to this reinsurance agreement.
Hannover Reinsurance Transaction. F&G has an indemnity reinsurance agreement with Hannover Re, a third-party reinsurer, to cede a quota share percentage of the net retention of guarantee
payments in excess of account value for GMWB and GMDB guarantees associated with an in-force block of its FIA and fixed deferred annuity contracts. The effects of this agreement are not
accounted for as reinsurance as it does not satisfy the risk transfer requirements for GAAP; therefore, deposit accounting is applied. F&G incurred risk charge fees of $20 million, $21 million and
$12 million during the years ended December 31, 2022 and December 31, 2021, or the seven months ended December 31, 2020, respectively, in relation to this reinsurance agreement.
Wilton Reinsurance Transaction. Pursuant to the agreed upon terms, Wilton Reassurance Company (“Wilton Re”) purchased through a 100% quota share reinsurance agreement certain FGL
Insurance life insurance policies that are subject to redundant reserves, reported on a statutory basis, under Regulation XXX and Guideline AXXX, as well as another block of FGL Insurance’s in-
force traditional, universal life and IUL insurance policies. The effects of this agreement are accounted for as reinsurance as the ceded policies qualify as insurance products and because the
agreement satisfies the risk transfer requirements for GAAP.
Concentration of Reinsurance Risk
The Company has a significant concentration of reinsurance risk with third-party reinsurers, Aspida Re, Wilton Reassurance Company (“Wilton Re”), and Somerset that could have a material
impact on our financial position in the event that any of these reinsurers fails to perform its obligations under the various reinsurance treaties. Aspida Re has an A- issuer credit rating from AM Best
as of December 31, 2022, and the risk of non-performance is further mitigated through the funds withheld arrangement. Wilton Re has an A+ issuer credit rating from AM Best and an A issuer credit
rating from Fitch as of December 31, 2022. Somerset has an A- issuer credit rating from AM Best and a BBB+ issuer credit rating from S&P as of December 31, 2022, and the risk of non-
performance is further mitigated through the funds withheld arrangement. On December 31, 2022, the net amounts recoverable from Aspida Re, Wilton Re, and Somerset were $3,121 million, $1,231
million, and $570 million, respectively. We monitor both the financial condition of individual reinsurers and risk concentration arising from similar activities and economic characteristics of
reinsurers to attempt to reduce the risk of default by such reinsurers. We believe that all amounts due from Aspida Re, Wilton Re, and Somerset for periodic treaty settlements are collectible as of
December 31, 2022.
Intercompany Reinsurance Agreements
Effective December 31, 2022, FGL Insurance entered into a Coinsurance Agreement with F&G Life Re Ltd. ("Reinsurer"), an affiliated Bermuda reinsurer to issue a quota share of PRT group
annuity contracts. Some of the contracts reinsured are held by FGL Insurance’s general account and others are held by a FGL Insurance separate account (which does not meet the GAAP definition of
a separate account). The cession from FGL Insurance to the Reinsurer is on a 80% quota share basis. Reinsurance of the separate account contracts are maintained on a modified coinsurance basis and
reinsurance of the
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general account contracts are maintained on a funds withheld basis. On the funds withheld portion of the transaction, FGL Insurance ceded approximately $380 million, in certain PRT Statutory
Reserves and Interest Maintenance Reserve. FGL Insurance also established a modified coinsurance reserve of approximately $1.7 billion associated with the PRT Separate Account Insurance
Liabilities.
F&G has a reinsurance treaty with Raven Reinsurance Company ("Raven Re"), its wholly-owned captive reinsurance company, to cede the Commissioners Annuity Reserve Valuation Method
("CARVM") liability for annuity benefits where surrender charges are waived related to certain FIA, DA and MYGA policies. Effective October 1, 2022, the treaty was amended and restated to cover
additional FIA, DA and MYGA policy issue years. In connection with the CARVM reinsurance agreement, FGL Insurance and Raven Re entered into an agreement with Nomura Bank International
plc (“NBI”) to establish a reserve financing facility in the form of a letter of credit issued by NBI. The reimbursement agreement associated with the facility was amended and restated on September
30, 2022. As a result, the financing facility now has $200 million available to draw on as of December 31, 2022. The amended facility may terminate earlier than the current termination date of
October 1, 2027, in accordance with the terms of the reimbursement agreement. Under the terms of the reimbursement agreement, in the event the letter of credit is drawn upon, Raven Re is required
to repay the amounts utilized, and Fidelity & Guaranty Life Holdings, Inc. ("FGLH") is obligated to repay the amounts utilized if Raven Re fails to make the required reimbursement. FGLH also is
required to make capital contributions to Raven Re in the event that Raven Re’s statutory capital and surplus falls below certain defined levels. As of December 31, 2022 and December 31, 2021,
Raven Re’s statutory capital and surplus was $11 million and $62 million, respectively, in excess of the minimum level required under the reimbursement agreement. As this letter of credit is
provided by an unaffiliated financial institution, Raven Re is permitted to carry the letter of credit as an admitted asset on the Raven Re statutory balance sheet.
Effective December 31, 2020, FGL Insurance executed a Coinsurance Agreement with F&G Life Re Ltd. ("Reinsurer"), an affiliated Bermuda reinsurer, to reinsure a quota share of FIA policies
to the Reinsurer. Concurrently, the Reinsurer and F&G Cayman Re Ltd., an affiliated reinsurer of both FGL Insurance and the Reinsurer, entered into a Retrocession Agreement. The cession from
FGL Insurance to the Reinsurer is on a 100% quota share basis, net of applicable existing reinsurance and the retrocession to F&G Cayman Re Ltd. from the Reinsurer is on a 45% quota share basis.
Additionally, both treaties are maintained on a funds withheld basis. FGL Insurance ceded and the Reinsurer retroceded approximately $5.0 billion and $2.2 billion, respectively, in certain FIA
Statutory Reserves and Interest Maintenance Reserve.
Note P — Regulation and Equity
Regulation
Title
Our insurance subsidiaries, including title insurers, underwritten title companies and insurance agencies, are subject to extensive regulation under applicable state laws. Each of the insurance
underwriters is subject to a holding company act in its state of domicile that regulates, among other matters, the ability to pay dividends and enter into transactions with affiliates. The laws of most
states in which we transact business establish supervisory agencies with broad administrative powers relating to issuing and revoking licenses to transact business, regulating trade practices, licensing
agents, approving policy forms, accounting practices, financial practices, establishing reserve and capital and surplus as regards policyholders (“capital and surplus”) requirements, defining suitable
investments for reserves and capital and surplus and approving rate schedules. The process of state regulation of changes in rates ranges from states that set rates, to states where individual companies
or associations of companies prepare rate filings that are submitted for approval, to a few states in which rate changes do not need to be filed for approval.
Since we are regulated by both state and federal governments and the applicable insurance laws and regulations are constantly subject to change, it is not possible to predict the potential effects
on our insurance operations, particularly the Title segment, of any laws or regulations that may become more restrictive in the future or if new restrictive laws will be enacted.
Statutory-basis financial statements are prepared in accordance with accounting practices prescribed or permitted by the various state insurance regulatory authorities. The National Association
of Insurance Commissioners' (“NAIC”) Accounting Practices and Procedures manual (“NAIC SAP”) has been adopted as a component of prescribed or permitted practices by each of the states that
regulate us. Each of our states of domicile for our title insurance underwriter subsidiaries have adopted a material prescribed accounting practice that differs from that found in NAIC SAP.
Specifically, in both years, the timing of amounts released from the statutory unearned premium reserve under NAIC SAP differs from the states' required practice. Statutory surplus at December 31,
2022 and 2021 was lower by approximately $32 million and $29 million than if we had reported such amounts in accordance with NAIC SAP.
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Pursuant to statutory accounting requirements of the various states in which our insurers are domiciled, these insurers must defer a portion of premiums earned as an unearned premium reserve
for the protection of policyholders and must maintain qualified assets in an amount equal to the statutory requirements. The level of unearned premium reserve required to be maintained at any time is
determined by statutory formula based upon either the age, number of policies and dollar amount of policy liabilities underwritten, or the age and dollar amount of statutory premiums written. As of
December 31, 2022, the combined statutory unearned premium reserve required and reported for our title insurers was $1,772 million. In addition to statutory unearned premium reserves, each of our
insurers maintains reserves for known claims and surplus funds for policyholder protection and business operations.
Each of our insurance subsidiaries is regulated by the insurance regulatory authority in its respective state of domicile, as well as that of each state in which it is licensed. The insurance
commissioners of their respective states of domicile are the primary regulators of our title insurance subsidiaries. Each of the insurers is subject to periodic regulatory financial examination by
regulatory authorities.
Our insurance subsidiaries are subject to regulations that restrict their ability to pay dividends or make other distributions of cash or property to their immediate parent company without prior
approval from the Department of Insurance of their respective states of domicile. As of December 31, 2022, $1,442 million of our net assets are restricted from dividend payments without prior
approval from the Departments of Insurance. During 2023, our title insurers can pay or make distributions to us of approximately $606 million, without prior approval.
The combined statutory capital and surplus of our title insurers was approximately $1,350 million and $1,903 million as of December 31, 2022 and 2021, respectively. The combined statutory net
earnings of our title insurance subsidiaries were $778 million, $936 million, and $629 million for the years ended December 31, 2022, 2021, and 2020, respectively.
As a condition to continued authority to underwrite policies in the states in which our insurers conduct their business, the insurers are required to pay certain fees and file information regarding
their officers, directors and financial condition. In addition, our escrow and trust business is subject to regulation by various state banking authorities.
Pursuant to statutory requirements of the various states in which our insurers are domiciled, such insurers must maintain certain levels of minimum capital and surplus. Required levels of
minimum capital and surplus are not significant to the insurers individually or in the aggregate. Each of our insurers has complied with the minimum statutory requirements as of December 31, 2022.
Our underwritten title companies, primarily those domiciled in California, are also subject to certain regulation by insurance regulatory or banking authorities relating to their net worth and
working capital. Minimum net worth and working capital requirements for each underwritten title company is less than $1 million. These companies were in compliance with their respective
minimum net worth and working capital requirements at December 31, 2022.
There are no restrictions on our retained earnings regarding our ability to pay dividends to shareholders although there are limits on the ability of certain subsidiaries to pay dividends to us, as
described above.
F&G
Through our wholly owned F&G subsidiary, our U.S. insurance subsidiaries, FGL Insurance, Fidelity & Guaranty Life Insurance Company of New York ("FGL NY Insurance"), and Raven Re,
file financial statements with state insurance regulatory authorities and the NAIC that are prepared in accordance with SAP prescribed or permitted by such authorities, which may vary materially
from GAAP. Prescribed SAP includes the Accounting Practices and Procedures Manual of the NAIC as well as state laws, regulations and administrative rules. Permitted SAP encompasses all
accounting practices not so prescribed. The principal differences between SAP financial statements and financial statements prepared in accordance with GAAP are that SAP financial statements do
not reflect VOBA, DAC and DSI, some bond portfolios may be carried at amortized cost, assets and liabilities are presented net of reinsurance, contractholder liabilities are generally valued using
more conservative assumptions and certain assets are non-admitted. Accordingly, SAP operating results and SAP capital and surplus may differ substantially from amounts reported in the GAAP
basis financial statements for comparable items.
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Our principal insurance subsidiaries' statutory (SAP and GAAP) financial statements are based on a December 31 year end. Statutory net income and statutory capital and surplus of our wholly
owned U.S regulated insurance subsidiaries were as follows (in millions):
Statutory Net income (loss):
Year ended December 31, 2022
Year ended December 31, 2021
Statutory Capital and Surplus:
December 31, 2022
December 31, 2021
FGL Insurance (IA)
FGL NY Insurance (NY)
Raven Re (VT)
Subsidiary (state of domicile) (a)
$
$
$
$
(243)
351
1,877
1,473
$
$
(15)
4
82
99
(111)
3
121
115
(a) FGL NY Insurance and Raven Re are subsidiaries of FGL Insurance, and the columns should not be added together.
FGL Insurance, FGL NY Insurance and Raven Re's respective statutory capital and surplus satisfies the applicable minimum regulatory requirements.
Life insurance companies domiciled in the U.S. are subject to certain Risk-Based Capital (“RBC”) requirements as specified by the NAIC. The RBC is used to evaluate the adequacy of capital
and surplus maintained by an insurance company in relation to risks associated with: (i) asset risk, (ii) insurance risk, (iii) interest rate risk and (iv) business risk. We monitor the RBC of FGLH’s
insurance subsidiaries. As of December 31, 2022, each of FGLH's insurance subsidiaries had exceeded the minimum RBC requirements.
Our insurance subsidiaries domiciled in the U.S. are restricted by state laws and regulations as to the amount of dividends they may pay to their parent, our wholly owned F&G subsidiary,
without regulatory approval in any year, the purpose of which is to protect affected insurance policyholders, depositors or investors. Any dividends in excess of limits are deemed “extraordinary” and
require regulatory approval. In addition, and pursuant to an order issued by the Iowa Commissioner on November 28, 2017, FGL Insurance may not pay any dividend or other distribution to
shareholders prior to November 28, 2020 without the prior approval of the Iowa Commissioner. During the years ended December 31, 2022 and 2021, upon approval by the Iowa Commissioner, FGL
Insurance declared and paid extraordinary dividends of $0 million and $38 million to its parent, respectively.
FGL Insurance applies Iowa-prescribed accounting practices that permit Iowa-domiciled insurers to report equity call options used to economically hedge FIA index credits at amortized cost for
statutory accounting purposes and to calculate FIA statutory reserves such that index credit returns will be included in the reserve only after crediting to the annuity contract. Effective October 1,
2022, the Company incorporated IUL products under these Iowa-prescribed accounting practices. This resulted in a $152 million and $106 million decrease to statutory capital and surplus at
December 31, 2022 and 2021, respectively.
FGL Insurance’s statutory carrying value of Raven Re reflects the effect of permitted practices Raven Re received to treat the available amount of a letter of credit as an admitted asset, which
increased Raven Re’s statutory capital and surplus by $200 million and $85 million at December 31, 2022 and 2021, respectively.
Raven Re is also permitted to follow Iowa prescribed statutory accounting practice for its reserves on reinsurance assumed from FGL Insurance, which increased Raven Re’s statutory capital
and surplus by $28 million at December 31, 2022 and by $0 million at December 31, 2021. Without such permitted statutory accounting practices, Raven Re’s statutory capital and surplus (deficit)
would be $(107) million as of December 31, 2022 and would be $30 million as of December 31, 2021, and its risk-based capital would not fall below the minimum regulatory requirements. The letter
of credit facility is collateralized by NAIC 1 rated debt securities. If the permitted practice was revoked, the letter of credit could be replaced by the collateral assets with Nomura’s consent as
discussed in Note O F&G Reinsurance. FGL Insurance’s statutory carrying value of Raven Re was $121 million and $115 million at December 31, 2022 and 2021, respectively.
As of December 31, 2022, FGL NY Insurance did not follow any prescribed or permitted statutory accounting practices that differ from the NAIC's statutory accounting practices.
The prescribed and permitted statutory accounting practices have no impact on our Consolidated Financial Statements, which are prepared in accordance with GAAP.
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Equity
On August 3, 2021, our Board of Directors approved the 2021 Repurchase Program under which we may purchase up to 25 million shares of our FNF common stock through July 31, 2024,
replacing the prior stock repurchase program that expired on July 31, 2021. We may make repurchases from time to time in the open market, in block purchases or in privately negotiated transactions,
depending on market conditions and other factors. During the year ended December 31, 2022, we repurchased a total of 13,369,565 FNF common shares for an aggregate of $549 million or an
average of $41.05 per share. Subsequent to December 31, 2022 and through market close on February 23, 2023, we repurchased a total of 100,000 shares for $4 million, or an average of $38.45 under
this program.
Note Q - Leases
Right-of-use assets and lease liabilities related to operating leases under ASC Topic 842 are recorded when we are party to a contract, which conveys the right for us to control an asset for a
specified period of time. Substantially all of our operating lease arrangements relate to rented office space and real estate for our title operations. We generally are not a party to any material contracts
considered finance leases. Right-of-use assets and lease liabilities under ASC Topic 842 are recorded as Lease assets and Lease liabilities, respectively, on the Consolidated Balance Sheet as of
December 31, 2022.
Our operating leases range in term from one to ten years. As of December 31, 2022, the weighted-average remaining lease term of our operating leases was 4.3 years.
Our lease agreements do not contain material variable lease payments, buyout options, residual value guarantees or restrictive covenants.
Most of our leases include one or more options to renew, with renewal terms that can extend the lease term by varying amounts. The exercise of lease renewal options is at our sole discretion. We
do not include options to renew in our measurement of lease assets and lease liabilities as they are not considered reasonably assured of exercise.
Our operating lease liability is determined by discounting future lease payments using a discount rate based on our incremental borrowing rate for similar collateralized borrowing. The discount
rate is calculated as an average of the current yield on our unsecured notes payable and 140 basis points in excess of the current five year LIBOR swap rate. As of December 31, 2022 the weighted-
average discount rate used to determine our operating lease liability was 3.4%.
We do not separate lease components from non-lease components for any of our right-of-use assets.
Our lease costs are included in Other operating expenses on the Consolidated Statements of Earnings and was $142 million, $139 million and $150 million for the years ended December 31,
2022, 2021 and 2020, respectively. We do not have any material short term lease costs, variable lease costs, or sublease income.
Future payments under operating lease arrangements accounted for under ASC Topic 842 as of December 31, 2022 are as follows (in millions):
2023
2024
2025
2026
2027
Thereafter
Total operating lease payments, undiscounted
Less: present value discount
Lease liability, at present value
$
$
$
147
116
74
51
26
35
449
31
418
See Note K Supplementary Cash Flow Information for certain information on noncash investing and financing activities related to our operating lease arrangements.
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Note R - Property and Equipment
Property and equipment consist of the following:
Furniture, fixtures and equipment
Data processing equipment
Leasehold improvements
Buildings
Land
Other
Total property and equipment, gross
Accumulated depreciation and amortization
Total property and equipment, net
December 31,
2022
2021
$
$
$
(In millions)
235
212
118
84
14
7
670
(491)
179
$
Depreciation expense on property and equipment was $59 million, $45 million, and $48 million for the years ended December 31, 2022, 2021, and 2020, respectively.
Note S - Accounts Payable and Other Accrued Liabilities
Accounts payable and other accrued liabilities consist of the following:
Salaries and incentives
Accrued benefits
Deferred revenue
Contingent consideration - acquisitions
Trade accounts payable
Accrued recording fees and transfer taxes
Accrued premium taxes
Liability for policy and contract claims
Retained asset account
Remittances and items not allocated
Option collateral liabilities
Funds withheld embedded derivative
Other accrued liabilities
December 31,
2022
2021
$
$
(In millions)
390
408
296
47
156
12
20
109
117
225
178
—
394
239
210
121
79
14
5
668
(483)
185
537
447
144
30
129
14
59
109
148
39
576
73
391
$
2,352
$
2,696
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Note T — Income Taxes
Income tax (benefit) expense on continuing operations consists of the following:
Current
Deferred
Total income tax expense was allocated as follows:
Net earnings from continuing operations
Other comprehensive (loss) earnings:
Unrealized (loss) gain on investments and other financial instruments
Unrealized (loss) gain on foreign currency translation and cash flow hedging
Other comprehensive earnings attributable to noncontrolling interest
Minimum pension liability adjustment
Total income tax (benefit) expense allocated to other comprehensive earnings
Total income taxes
A reconciliation of the federal statutory rate to our effective tax rate is as follows:
Federal statutory rate
State income taxes, net of federal benefit
Stock compensation
Tax credits
Consolidated partnerships
Tax gain on parent shares held
Valuation allowance for deferred tax assets
Change in tax status benefit
Benefit on Capital Loss Carryback
Non-deductible expenses and other, net
Effective tax rate
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2022
Year Ended December 31,
2021
(In millions)
2020
331
67
398
$
$
656
57
713
$
$
Year Ended December 31,
2022
2021
(In millions)
2020
398
$
713
$
(947)
(4)
8
2
(941)
(543)
$
(141)
—
—
(2)
(143)
570
$
$
$
$
$
Year Ended December 31,
2022
2021
2020
21.0 %
2.2
(0.1)
(0.7)
(0.2)
(1.0)
6.1
—
(1.5)
0.1
25.9 %
21.0 %
1.6
(0.2)
(0.2)
(0.1)
0.5
(0.3)
—
—
0.8
23.1 %
379
(57)
322
322
332
1
—
4
337
659
21.0 %
2.5
(0.3)
(0.4)
(0.3)
—
(3.0)
(2.0)
—
0.5
18.0 %
Table of Contents
The significant components of deferred tax assets and liabilities consist of the following:
Deferred Tax Assets:
Employee benefit accruals
Net operating loss carryforwards
Derivatives
Accrued liabilities
Allowance for uncollectible accounts receivable
Pension plan
Tax credits
State income taxes
Investment securities
Capital loss carryover
Life insurance and claim related adjustments
Funds held under reinsurance agreements
Other
Total gross deferred tax asset
Less: valuation allowance
Total deferred tax asset
Deferred Tax Liabilities:
Title plant
Amortization of goodwill and intangible assets
Other
Investment securities
Depreciation
Partnerships
Value of business acquired
Derivatives
Deferred acquisition costs
Transition reserve on new reserve method
Funds held under reinsurance agreements
Title Insurance reserve discounting
Total deferred tax liability
Net deferred tax asset (liability)
December 31,
2022
2021
(In millions)
$
$
$
$
$
$
$
$
103
38
67
5
5
1
74
5
952
8
669
37
21
1,985
151
1,834
(53)
(117)
(2)
—
(32)
(122)
(350)
—
(243)
(25)
(183)
(31)
(1,158)
676
$
$
111
27
—
1
5
2
77
8
—
41
854
52
33
1,211
33
1,178
(52)
(140)
(2)
(401)
(29)
(182)
(249)
(68)
(102)
(34)
(74)
(50)
(1,383)
(205)
Our net deferred tax asset (liability) was $676 million and $(205) million as of December 31, 2022 and 2021, respectively. The significant changes in the deferred taxes are as follows: the
deferred tax liability for investment securities decreased by $1,353 million primarily due to unrealized losses recorded on investment securities, of which $144 million was related to unrealized losses
in our Title segment and $1,209 million was related to unrealized losses in our F&G segment's life insurance business. The deferred tax liability relating to partnerships decreased by $60 million,
primarily due to increased tax basis in partnership investments by F&G and R&E expense capitalization at FNF’s partnerships. The F&G segment’s life insurance business’ deferred tax liability
relating to the VOBA increased by $101 million due to unrealized losses on the VOBA assets. The deferred tax liability related to deferred acquisition costs increased by $141 million, which is
consistent with the growth in sales in our F&G segment. The deferred tax liability relating to derivatives in our F&G segment decreased by $135 million due to unrealized losses for call options. The
reinsurance receivable deferred tax asset decreased by $15 million, and the reinsurance receivable deferred tax liability increased by $109 million both due to unrealized losses in the funds withheld
portfolios in the F&G segment. The deferred tax asset relating to the capital loss carryover decreased by $33 million which is primarily related to the effective settlement of a capital loss carryback
tax benefit previously unrecognized. The deferred tax asset relating to life insurance receivables decreased by $185 million primarily due to tax reserves increasing more than GAAP reserves by
F&G.
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As of December 31, 2022, we have net operating losses ("NOLs") on a pretax basis of $181 million, of which $48 million relates to our Title segment and $133 million relates to our F&G
segment's life insurance business, which are available to carryforward and offset future federal taxable income. The NOLs are U.S. federal NOLs arising from acquisitions made since 2012, including
Buyers Protection Group, Inc., Digital Insurance Holdings, Inc., ServiceLink, THL Corporations and F&G. Most of the NOLs are subject to an annual Internal Revenue Code Section 382 limitation.
These losses will begin to expire in 2034 and we fully anticipate utilizing these losses prior to expiration with the exception of $25 million of gross net operating losses that are offset by a $25 million
valuation allowance in the Title segment.
As of December 31, 2022 and 2021, we had $74 million and $77 million of tax credits, respectively, which expire between 2025 and 2042. The credits primarily consist of general business
credits from historical acquisitions, including $30 million associated with our F&G segment's life insurance business. We anticipate that these credits will be utilized prior to expiration after a
valuation allowance of $28 million, which primarily relates to the general business credits in our Title segment.
As of December 31, 2022, a valuation allowance on the net deferred tax asset for unrealized capital losses of $118 million was recorded, of which $88 million related to our Title segment and
$30 million related to our F&G segment. Valuation allowance was recorded in 2022 because it is more likely than not that this amount of deferred tax assets will not be realized. We considered
sources of income available as of December 31, 2022 and determined a valuation allowance was needed. No similar valuation allowance was necessary as of December 31, 2021 as there was a net
deferred tax liability for unrealized capital gains.
As of December 31, 2022 and 2021, the balance of unrecognized tax benefits which would, if recognized, favorably affect our effective tax rate was $0 million and $24 million, respectively.
Interest and penalties accrued on income tax uncertainties are recorded as a component of income tax expense and were $0 million and $1 million as of December 31, 2022, and 2021, respectively.
Unrecognized tax benefits decreased in 2022 when the refund was examined to a sufficient extent without adjustment such that the tax position was effectively settled.
A reconciliation of the beginning and ending unrecognized tax benefits is as follows:
Beginning balance
Additions based on positions taken in current year
Reductions related to statute of limitation lapses and audit payments
Ending balance
Year ended December 31,
2022
2021
(In millions)
$
60
1
(61)
—
$
64
—
(4)
60
$
$
F&G's life insurance subsidiaries, as well as certain F&G non-life subsidiaries file separate tax returns from the FNF consolidated group. Prepaid expenses and other assets in the accompanying
Consolidated Balance Sheets as of December 31, 2022 includes $27 million of tax receivables and $747 million of deferred tax assets related to F&G subsidiaries who file separate tax returns.
Prepaid expenses and other assets in the accompanying Consolidated Balance Sheets as of December 31, 2021 includes $52 million of tax receivables related to F&G subsidiaries who file separate
tax returns.
The Internal Revenue Service (“IRS”) has selected us to participate in the CAP program that is a real-time audit. We are currently under audit by the IRS for the 2021 through 2022 tax years. We
file income tax returns in various foreign and US state jurisdictions. Our state income tax returns for the 2018 through 2022 tax years remain subject to examination by state jurisdictions. The F&G
life insurance group files a separate consolidated return with the IRS. F&G is not currently under examination by the IRS.
Note U - Employee Benefit Plans
Stock Purchase Plan
During the three-year period ended December 31, 2022, our eligible employees could voluntarily participate in our employee stock purchase plan (“ESPP”) sponsored by us. Pursuant to the
ESPP, employees may contribute an amount between 3% and 15% of their base salary and certain commissions. We contribute varying amounts as specified in the ESPP.
We contributed $36 million, $24 million, and $30 million to the ESPP in the years ended December 31, 2022, 2021, and 2020, respectively, in accordance with our matching contribution.
FNF 401(k) Profit Sharing Plan
During the three-year period ended December 31, 2022, we have offered our employees the opportunity to participate in our 401(k) profit sharing plan (the “401(k) Plan”), a qualified voluntary
contributory savings plan that is available to
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substantially all of our employees. Eligible employees may contribute up to 40% of their pre-tax annual compensation, up to the amount allowed pursuant to the Internal Revenue Code. During the
years ended December 31, 2021 and 2020, we made an employer match on the 401(k) Plan of $0.375 on each $1.00 contributed up to the first 6% of eligible earnings contributed to the 401(k) Plan
by employees. During the year ended December 31, 2022, we increased the employer match on the 401(k) Plan to $0.50 on each $1.00 contributed up to the first 6% of eligible earnings contributed to
the 401(k) Plan by employees. The employer match was $50 million, $36 million, and $31 million for the years ended December 31, 2022, 2021, and 2020, respectively, and was credited based on
the participant's individual investment elections in the FNF 401(k) Plan.
Omnibus Incentive Plan
In 2005, we established the FNT 2005 Omnibus Incentive Plan (as amended and restated, the “Omnibus Plan”) authorizing the issuance of up to 8 million shares of common stock, subject to the
terms of the Omnibus Plan. On October 23, 2006; May 29, 2008; May 25, 2011; May 22, 2013; and June 15, 2016 the shareholders of FNF approved amendments to increase the number of shares for
issuance under the Omnibus Plan by 16 million, 11 million, 6 million, 6 million and 10 million shares, respectively. The primary purpose of the increases were to assure that we had adequate means
to provide equity incentive compensation to our employees on a going-forward basis. The Omnibus Plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted
stock units and performance shares, performance units, other cash and stock-based awards and dividend equivalents. As of December 31, 2022, there were 1,841,544 shares of restricted stock and no
stock options outstanding under the Omnibus Plan. Awards granted are approved by the Compensation Committee of the Board of Directors. Options vest over a 3 year period and have a contractual
life of 7 years. The exercise price for options granted equals the market price of the underlying stock on the grant date. Stock option grants vest according to certain time based and operating
performance criteria. Option exercises by participants are settled on the open market.
F&G Omnibus Incentive Plan
On June 1, 2020, in connection with the acquisition of F&G, we assumed the shares that remained available for future awards under the FGL Holdings 2017 Omnibus Incentive Plan, as amended
and restated (the “F&G Omnibus Plan”) and converted such shares into 2,096,429 shares of FNF common stock that may be issued pursuant to future awards granted under the F&G Omnibus Plan
and 2,411,585 shares of FNF common stock that may be issued pursuant to outstanding stock options under the F&G Omnibus Plan. Each unvested stock option assumed under the F&G Omnibus
Plan was converted into an FNF stock option and vests solely on the passage of time without any ongoing performance-vesting conditions. The options vest over a 3 year period, based on the option's
initial grant date, and have a contractual life of 7 years. As of December 31, 2022, there were 501,548 shares of restricted stock and 1,172,607 stock options outstanding under the F&G Omnibus
Plan.
FNF stock option transactions under the Omnibus Plan for 2022, 2021, and 2020 are as follows:
Balance, January 1, 2020
Exercised
Balance, December 31, 2020
Exercised
Balance, December 31, 2021
Exercised
Balance, December 31, 2022
Options
Weighted Average
Exercise Price
Exercisable
5,530,125
(3,208,712)
2,321,413
(1,325,300)
996,113
(996,113)
—
$
$
$
$
20.88
18.45
24.24
23.28
25.53
25.53
—
5,530,125
2,321,413
996,113
—
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FNF stock option transactions under the F&G Omnibus Plan for 2022, 2021, and 2020 are as follows:
Balance January 1, 2020
Options assumed in connection with F&G acquisition
Exercised
Canceled
Balance, December 31, 2020
Exercised
Canceled
Balance, December 31, 2021
Exercised
Canceled
Balance, December 31, 2022
FNF restricted stock transactions under the Omnibus Plan in 2022, 2021, and 2020 are as follows:
Balance, December 31, 2019
Granted
Canceled
Vested
Balance, December 31, 2020
Granted
Canceled
Vested
Balance, December 31, 2021
Granted
Vested
Balance, December 31, 2022
160
Options
Weighted Average
Exercise Price
$
$
$
—
2,411,585
(109,159)
(299,736)
2,002,690
(474,754)
—
1,527,936
(352,614)
(2,715)
1,172,607
$
—
36.04
27.64
38.41
36.14
36.68
—
35.97
38.79
28.00
35.15
Exercisable
—
1,021,671
1,072,584
1,172,607
Shares
Weighted Average
Grant Date Fair Value
$
$
$
1,517,176
1,006,058
(11,604)
(795,075)
1,716,555
772,189
(7,577)
(841,941)
1,639,226
994,548
(792,230)
1,841,544
$
38.90
33.40
38.93
37.60
36.26
48.27
37.20
36.15
41.97
40.83
41.44
41.59
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FNF restricted stock transactions under the F&G Omnibus Plan in 2022, 2021, 2020 are as follows:
Balance, January 1, 2020
Granted
Canceled
Balance, December 31, 2020
Granted
Canceled
Vested
Balance, December 31, 2021
Granted
Canceled
Vested
Balance, December 31, 2022
Shares
—
474,025
(24,155)
449,870
311,081
(12,437)
(29,873)
718,641
—
(78,551)
(138,542)
$
$
501,548
$
Weighted Average
Grant Date Fair Value
—
$
34.13
34.47
34.11
48.28
33.40
34.59
40.24
—
37.79
34.11
42.31
The following table summarizes information related to stock options outstanding and exercisable as of December 31, 2022:
Options Outstanding
Options Exercisable
Range of
Exercise Prices
$0.00 - $27.53
$27.54 - $28.00
$28.01 - $39.10
Weighted
Average
Remaining
Contractual
Life
(In years)
Weighted
Average
Exercise
Price
Intrinsic
Value
(In millions)
Number of
Options
Weighted
Average
Remaining
Contractual
Life
(In years)
Weighted
Average
Exercise
Price
Intrinsic
Value
(In millions)
$
2.98
3.32
2.62
27.53
28.00
39.10
$
$
4
—
—
4
359,510
43,019
770,078
1,172,607
$
2.98
3.32
2.62
27.53
28.00
39.10
$
$
4
—
—
4
Number of
Options
359,510
43,019
770,078
1,172,607
We account for stock-based compensation plans in accordance with GAAP on share-based payments, which requires that compensation cost relating to share-based payments be recognized in the
consolidated financial statements based on the fair value of each award. Using the fair value method of accounting, compensation cost is measured based on the fair value of the award at the grant
date and recognized over the service period. Fair value of restricted stock awards and units is based on the grant date value of the underlying stock derived from quoted market prices. The total fair
value of restricted stock awards granted in the years ended December 31, 2022, 2021 and 2020 was $41 million, $52 million, and $50 million, respectively. The total fair value of restricted stock
awards, which vested in the years ended December 31, 2022, 2021 and 2020 was $38 million, $43 million, and $25 million, respectively. Option awards are measured at fair value on the grant date
using the Black Scholes Option Pricing Model. The intrinsic value of options exercised in the years ended December 31, 2022, 2021 and 2020 was $16 million, $32 million, and $50 million,
respectively. Net earnings attributable to FNF Shareholders reflects stock-based compensation expense amounts of $49 million for the year ended December 31, 2022, $43 million for the year ended
December 31, 2021, and $39 million for the year ended December 31, 2020, which are included in personnel costs in the reported financial results of each period.
At December 31, 2022, the total unrecognized compensation cost related to non-vested stock option grants and restricted stock grants is $61 million, which is expected to be recognized in pre-tax
income over a weighted average period of 1.72 years.
Pension Plan
In 2000, FNF merged with Chicago Title Corporation ("CTC"). In connection with the merger, we assumed CTC’s noncontributory defined contribution plan and noncontributory defined benefit
pension plan (the “Pension Plan”). The Pension Plan covers certain CTC employees. The benefits are based on years of service and the employee’s average monthly compensation in the highest 60
consecutive calendar months during the 120 months ending at retirement or termination. Effective December 31, 2000, the Pension Plan was frozen and there will be no future credit given for years
of service or changes in salary. The accumulated benefit obligation is the same as the projected benefit obligation due to the pension plan
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being frozen as of December 31, 2000. Pursuant to GAAP on employers’ accounting for defined benefit pension and other post retirement plans, the measurement date is December 31.
The discount rate used to determine the benefit obligation as of December 31, 2022 and 2021 was 4.85% and 2.35%, respectively. As of December 31, 2022 and 2021, the projected benefit
obligation was $117 million and $154 million, respectively, and the fair value of plan assets was $112 million and $145 million, respectively. The net pension liability and net periodic expense
included in our financial position and results of operations relating to the Pension Plan is not considered material for any period presented.
Note V - Financial Instruments with Off-Balance Sheet Risk and Concentration of Risk
In the normal course of business, we and certain of our subsidiaries enter into off-balance sheet credit arrangements associated with certain aspects of the title insurance business and other
activities.
We generate a significant amount of title insurance premiums in Texas, California, Florida, Pennsylvania and Illinois. Title insurance premiums as a percentage of the total title insurance
premiums written from those five states are detailed as follows:
Texas
California
Florida
Illinois
Pennsylvania
2022
2021
2020
15.0 %
12.0 %
10.6 %
5.3 %
5.2 %
13.0 %
14.6 %
9.3 %
5.1 %
5.1 %
12.3 %
15.2 %
8.6 %
5.0 %
4.8 %
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash equivalents, short-term investments, and trade receivables.
We place cash equivalents and short-term investments with high credit quality financial institutions and, by policy, limit the amount of credit exposure with any one financial institution.
Investments in commercial paper of industrial firms and financial institutions are rated investment grade by nationally recognized rating agencies.
Concentrations of credit risk with respect to trade receivables are limited because a large number of geographically diverse customers make up our customer base, thus spreading the trade
receivables credit risk. We control credit risk through monitoring procedures.
Note W - Recent Accounting Pronouncements
Adopted Pronouncements
In June 2016, the FASB issued ASU No. 2016-13 Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326). The amendments in this ASU
introduce broad changes to accounting for credit impairment of financial instruments. The primary updates include the introduction of a new current expected credit loss ("CECL") model that is based
on expected rather than incurred losses and amendments to the accounting for impairment of fixed maturity securities available for sale. The method used to measure estimated credit losses for fixed
maturity available-for-sale securities will be unchanged from current GAAP; however, the amendments require credit losses to be recognized through an allowance rather than as a reduction to the
amortized cost of those securities. We adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost. Results for reporting period beginning after
December 15, 2019 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable Generally Accepted Accounting Principles. We adopted
this standard using the prospective transition approach for debt securities for which other than temporary impairment had been recognized prior to January 1, 2020. As a result, the amortized cost
basis remains the same before and after the effective date of ASC 326. The effective interest rate on these debt securities was not changed. Amounts previously recognized in accumulated other
comprehensive income as of January 1, 2020 relating to improvements in cash flows expected to be collected will be accreted into income over the remaining life of the asset. Recoveries of amounts
previously written off relating to improvements in cash flows after January 1, 2020 will be recorded in earnings when received. See Note E Investments for further discussion of the adoption as it
relates to our fixed maturity securities available for sale.
In December 2019, the FASB issued ASU 2019-12 Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740), which simplifies various aspects of the income tax accounting
guidance and will be applied using different approaches depending on what the specific amendment relates to and, for public entities, are effective for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2020. We adopted this standard as of January 1, 2021, and it had no impact on our Consolidated Financial Statements upon adoption.
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In October 2020, the FASB issued ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs. The amendments in this update clarify that
callable debt securities should be re-evaluated each reporting period to determine if the amortized cost exceeds the amount repayable by the issuer at the next earliest call date, and, if so, the excess
should be amortized to the next call date. We adopted this standard as of January 1, 2021 and are applying this guidance on a prospective basis. This standard had no impact on our Consolidated
Financial Statements upon adoption.
Pronouncements Not Yet Adopted
In August 2018, the FASB issued ASU 2018-12, Financial Services-Insurance (Topic 944), Targeted Improvements to the Accounting for Long-Duration Contracts, as clarified and amended by
ASU 2019-09, Financial Services-Insurance: Effective Date and ASU 2020-11, Financial Services-Insurance: Effective Date and Early Application, effective for fiscal years beginning after
December 15, 2022 including interim periods within those fiscal years. This update introduced the following requirements: assumptions used to measure cash flows for traditional and limited-
payment contracts must be reviewed at least annually with the effect of changes in those assumptions being recognized in the statement of operations; the discount rate applied to measure the liability
for future policy benefits and limited-payment contracts must be updated at each reporting date with the effect of changes in the rate being recognized in other comprehensive income (“OCI”); market
risk benefits ("MRBs") associated with deposit contracts must be measured at fair value, with the effect of the change in the fair value recognized in earnings, except for the change attributable to
instrument-specific credit risk which is recognized in OCI; deferred acquisition costs are no longer required to be amortized in proportion to premiums, gross profits, or gross margins; instead, those
balances must be amortized on a constant level basis over the expected term of the related contracts; deferred acquisition costs must be written off for unexpected contract terminations; and
disaggregated rollforwards of beginning to ending balances of the liability for future policy benefits, policyholder account balances, MRBs, separate account liabilities and deferred acquisition costs,
as well as information about significant inputs, judgments, assumptions, and methods used in measurement are required to be disclosed. The amendments in this ASU may be early adopted as of the
beginning of an annual reporting period for which financial statements have not yet been issued, including interim financial statements.
We have identified specific areas that will be impacted by the new guidance. This guidance will bring significant changes to how we account for certain insurance and annuity products within our
business and expand disclosures. As part of the implementation process, to date our progress includes, but is not limited to the following: identifying and documenting contracts and contract features
in scope of the guidance; identifying actuarial models, systems, and processes to be updated; building and running models; generating and analyzing preliminary output; evaluating and finalizing key
accounting policies; evaluating transition requirements and impacts; and establishing, documenting, and executing appropriate internal controls. We will not early adopt this standard and have
selected the full retrospective transition method, which requires the new guidance be applied as of the beginning of the earliest period presented or January 1, 2021, referred to as the transition date.
Adoption of this standard is expected to increase total stockholders’ equity as of the transition date, January 1, 2021, up to approximately $200 million, net of tax. This transition adjustment is
expected to primarily increase Retained Earnings, as well as OCI. The most significant driver of this transition adjustment expected to increase Retained Earnings is the measurement of certain
benefits historically recorded as insurance liabilities which will now be classified and measured as MRBs, along with their subsequent changes in fair value, excluding changes attributable to
instrument-specific credit risk, which are recorded as a component of OCI. The most significant drivers of this transition adjustment expected to increase OCI are the reversal of intangible balances
previously recorded as an adjustment to unrealized gains (losses) on available for sale securities, the remeasurement of the liability for future policyholder benefits using a discount rate assumption
that reflects upper-medium grade fixed-income instruments, and the effect of changes in the fair value of MRBs attributable to changes in the instrument-specific credit risk.
As of December 31, 2022, the Company continues to expect the measurement drivers above, in relation to the current market conditions, to support a favorable impact to total stockholders’
equity at or greater than the transition impact, contingent upon the completion of our ongoing implementation process. Further, the specific impacts on Retained Earnings and OCI upon adoption of
this standard on January 1, 2023 may also differ materially from the transition impact based on the performance of the Company’s business and macroeconomic conditions, including changes in
interest rates.
In March 2022, the FASB issued ASU 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The amendments in this update
eliminate the Troubled Debt Restructuring ("TDR") recognition and measurement guidance for creditors and, instead, require that an entity evaluate whether the modification represents a new loan or
a continuation of an existing loan. The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers
experiencing financial difficulty. Additionally, these amendments require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in
leases within the scope of Subtopic 326-20. The guidance is effective for entities that have adopted ASU 2016-13 Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial
Instruments (Topic 326) for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, though early adoption is permitted. We do not expect this guidance to
have a material impact on our Consolidated Financial Statements and related disclosures upon adoption. We do not currently plan to early adopt this standard.
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions. The amendments in
this update affect all entities that have investments in equity securities measured at fair value that are subject to a contractual sale restriction and clarify that a contractual restriction on the sale of an
equity security is not considered part of the unit of account of the equity security and, therefore, is not
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considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. Additionally, the
amendments require the following disclosures for equity securities subject to contractual sale restrictions: the fair value of equity securities subject to contractual sale restrictions reflected in the
balance sheet, the nature and remaining duration of the restriction(s), and the circumstances that could cause a lapse in the restriction(s). The amendments in this update do not change the principles
of fair value measurement, rather, they clarify those principles when measuring the fair value of an equity security subject to a contractual sale restriction and improve current GAAP by reducing
diversity in practice, reducing the cost and complexity in measuring fair value, and increasing comparability of financial information across reporting entities that hold those investments. The
amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, though early adoption is
permitted. We do not currently expect to early adopt this standard and are in the process of assessing this standard and its impact on our accounting and disclosures.
Note X — Net Income Attributable to FNF Common Shareholders and Change in Total Equity
On December 1, 2022, we completed the F&G Distribution. For further information related to the F&G Distribution, refer to Note A Business and Summary of Significant Accounting Policies.
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. For further information related to the purchase of the outstanding Class A units of ServiceLink held by its minority owners, refer to Note A Business and Summary of Significant Accounting
Policies.
The following table presents the effect of the change in our ownership percentage in F&G and ServiceLink on equity attributable to FNF:
Net earnings attributable to FNF common shareholders
Decrease in additional paid-in capital for decrease in ownership of F&G
Decrease in retained earnings for decrease in ownership of F&G
Increase in accumulated comprehensive earnings for decrease in ownership of F&G
Increase in additional paid-in capital for increase in ownership percentage in ServiceLink
Decrease in noncontrolling interests resulting from increased ownership in ServiceLink
Net transfers (to) from noncontrolling interests
Change in net earnings and equity attributable to FNF common shareholders
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Year ended December 31,
2022
2021
(In millions)
2020
$
$
1,136 $
(19)
(301)
29
—
—
(291)
845 $
2,422
—
—
—
—
—
—
2,422
$
$
1,427
—
—
—
211
47
258
1,685
Item 9A. Controls and Procedures
As of the end of the year covered by this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of
the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Exchange Act. Based on this evaluation, our principal
executive officer and principal financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file
or submit under the Exchange Act is: (a) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms; and (b) accumulated and
communicated to management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
There were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2022 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) or 15d-15(f). Under the
supervision and with the participation of our management,
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including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting. Management has adopted the
framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation under this
framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2022.
The effectiveness of our internal control over financial reporting as of December 31, 2022 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in
their report, which is included herein.
Item 9B. Other Information
On February 21, 2023, F&G entered into the Amended F&G Credit Agreement with the Lenders, the Administrative Agent, swing line lender and an issuing bank.
The Amended F&G Credit Agreement increases the aggregate principal amount of commitments under the F&G Credit Facility by $115 million to $665 million. Loans under the F&G Credit
Facility generally bear interest at a variable rate based on either (i) the base rate (which is the highest of (a) one-half of one percent in excess of the federal funds rate, (b) the Administrative Agent’s
“prime rate”, or (c) the sum of one percent plus Term SOFR) plus a margin of between 30.0 and 80.0 basis points depending on the non-credit-enhanced, senior unsecured long-term debt ratings of
F&G or (ii) Term SOFR plus a margin of between 130.0 and 180.0 basis points depending on the non-credit-enhanced, senior unsecured long-term debt ratings of F&G. At the current Standard &
Poor’s, Moody’s and Fitch non-credit-enhanced, senior unsecured long-term debt ratings of BBB-/Ba1//BBB-, respectively, the applicable margin for revolving loans subject to Term SOFR is 165
basis points. In addition, F&G will pay a facility fee of between 20.0 and 45.0 basis points on the entire facility, also depending on the F&G’s non-credit-enhanced, senior unsecured long-term debt
ratings, which is payable quarterly in arrears. The proceeds of the increased F&G Credit Facility may be used for working capital and general corporate purposes. Other than the foregoing, the terms
of the F&G Credit Agreement remain unchanged by the First Amendment.
The First Amendment is attached hereto as Exhibit 10.41 and is incorporated herein by reference. The foregoing summary of the First Amendment does not purport to be a complete statement of
the parties’ rights and obligations under the First Amendment, and is qualified in its entirety by reference to Exhibit 10.41.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
Items 10-14.
PART III
Within 120 days after the close of our fiscal year, we intend to file with the Securities and Exchange Commission the matters required by these items.
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Item 15. Exhibits and Financial Statement Schedules
PART IV
(a) (1) Financial Statements. The following is a list of the Consolidated Financial Statements of Fidelity National Financial, Inc. and its subsidiaries included in Item 8 of Part II:
Report of Independent Registered Public Accounting Firm on Effectiveness of Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm on Financial Statements
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Earnings for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Comprehensive Earnings for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Equity for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020
Notes to Consolidated Financial Statements
(a) (2) Financial Statement Schedules. The following is a list of financial statement schedules filed as part of this annual report on Form 10-K:
Schedule II: Fidelity National Financial, Inc. (Parent Company Financial Statements)
Schedule III: F&G Supplementary Insurance Information
Schedule IV: F&G Reinsurance
All other schedules are omitted because they are not applicable or not required, or because the required information is included in the Consolidated Financial Statements or notes thereto.
87
88
92
93
94
95
96
99
172
177
178
166
Table of Contents
(a) (3) The following exhibits are incorporated by reference or are set forth on pages to this Form 10-K:
Exhibit
Number
2.1
2.2
2.3
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
Exhibit
Number
4.11
4.12
4.13
Description
Agreement and Plan of Merger, dated February 7, 2020, by and between FGL Holdings, Fidelity National Financial, Inc., F Corp I and F Corp II. (incorporated by reference to Exhibit
2.1 to the Registrant's Current Report on Form 8-K filed on February 7, 2020)
First Amendment to the Agreement and Plan of Merger, dated as of April 24, 2020, by and between Fidelity National Financial, Inc., F I Corp., F II Corp., and FGL Holdings
(incorporated by reference to Exhibit 2.2 to the Registrant’s Registration Statement on Form S-4/A filed on April 24, 2020)
Separation and Distribution Agreement, dated as of November 30, 2022, between Fidelity National Financial, Inc. and F&G Annuities & Life, Inc. (incorporated by reference to Exhibit
99.1 to the Registrant's Current Report on Form 8-K filed on December 1, 2022)
Fifth Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on June 13, 2018)
Fifth Amended and Restated Bylaws of Fidelity National Financial, Inc., dated January 5, 2022 (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K
filed on January 5, 2022)
Indenture between the Registrant and The Bank of New York Trust Company, N.A., dated December 8, 2005 (incorporated by reference to Exhibit 4.1 to the Registrant’s Annual Report
on Form 10-K for the year ended December 31, 2005)
First Supplemental Indenture between the Registrant and the Bank of New York Trust Company, N.A., dated as of January 6, 2006 (incorporated by reference to Exhibit 4.1 to the
Registrant’s Current Report on Form 8-K filed on January 24, 2006)
Second Supplemental Indenture, dated May 5, 2010, between the Registrant and The Bank of New York Mellon Trust Company, N.A. (incorporated by reference to Exhibit 4.1 to the
Registrant's Current Report on Form 8-K filed on May 5, 2010)
Form of Subordinated Indenture between the Registrant and the Bank of New York Trust Company, N.A. (incorporated by reference to Exhibit 4.2 (A) to the Registrant’s Registration
Statement on Form S-3 filed on November 14, 2007)
Fourth Supplemental Indenture, dated August 13, 2018, between the Registrant and The Bank of New York Mellon Trust Company, N.A. (incorporated by reference to Exhibit 4.4 to the
Registrant's Current Report on Form 8-K filed on August 13, 2018)
Form of 4.50% Senior Note of the Registrant due 2028 (incorporated by reference to Exhibit A to Exhibit 4.4 to the Registrant's Current Report on Form 8-K filed on August 13, 2018).
Specimen certificate for shares of the Registrant’s FNF Group common stock, par value $0.0001 per Share (incorporated by reference to Exhibit 4.1 to the Registrant’s Registration
Statement on Form S-4/A filed on May 5, 2014)
Description of FNF Common Stock (incorporated by reference to Exhibit 4.9 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2019)
Supplemental Indenture, dated as of June 1, 2020, by and among Fidelity & Guaranty Life Holdings, Inc., Fidelity National Financial, Inc., and Wells Fargo Bank, National Association,
as trustee (incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed on June 1, 2020).
Indenture, dated as of April 20, 2018, by and among Fidelity & Guaranty Life Holdings, Inc., the guarantors party thereto and Wells Fargo Bank, National Association, as trustee
(incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed by FGL Holdings (File No. 001-37779) on April 25, 2018).
Description
Fifth Supplemental Indenture, dated as of June 12, 2020, between Fidelity National Financial, Inc. and The Bank of New York Mellon Trust Company, N.A. (incorporated by reference
to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed on June 12, 2020).
Form of 3.40% Senior Note of the Registrant due 2030 (included in Exhibit 4.12 hereto which is incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K
filed on June 12, 2020)
Sixth Supplemental Indenture, dated as of September 15, 2020, between Fidelity National Financial, Inc. and The Bank of New York Mellon Trust Company, N.A. (incorporated by
reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed on September 15, 2020).
167
Table of Contents
4.14
4.15
4.16
4.17
4.18
4.19
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
Form of 2.450% Senior Note of the Registrant due 2031 (included in Exhibit 4.14 hereto which is incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-
K filed on September 15, 2020)
Seventh Supplemental Indenture, dated as of September 17, 2021, between Fidelity National Financial, Inc. and The Bank of New York Mellon Trust Company, N.A. (incorporated by
reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed on September 17, 2021)
Form of 3.20% Senior Note of the Registrant due 2051 (included in exhibit 4.16 hereto which is incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K
filed on September 17, 2021)
Indenture, dated as of January 13, 2023, by and among F&G Annuities & Life, Inc., the guarantors named therein and Citibank, N.A. (incorporated by reference to Exhibit 4.1 to the
Registrant's Current Report on Form 8-K filed on January 13, 2023)
First Supplemental Indenture, dated as of January 13, 2023, among F&G Annuities & Life, Inc., the guarantors named therein and Citibank, N.A. (incorporated by reference to Exhibit
4.2 to the Registrant's Current Report on Form 8-K filed on January 13, 2023)
Form of F&G Annuities & Life, Inc’s 7.400% Senior Notes due 2028 (included in Exhibit 4.18 hereto which is incorporated by reference to Exhibit 4.2 to the Registrant's Current
Report on Form 8-K filed on January 13, 2023)
Amended and Restated Fidelity National Financial, Inc. 2005 Omnibus Incentive Plan (incorporated by reference to Annex A to the Registrant’s Schedule 14A filed on April 29, 2016)
(1)
Fidelity National Financial, Inc. Amended and Restated 2013 Employee Stock Purchase Plan (incorporated by reference to Exhibit 99.1 to the Registrant's Registration Statement on
Form S-8 filed on August 19, 2022) (1)
Fidelity National Financial, Inc. Annual Incentive Plan (incorporated by reference to Annex B to the Registrant's Schedule 14A filed on April 29, 2016) (1)
Fidelity National Financial, Inc. Deferred Compensation Plan, as amended and restated, effective January 1, 2009 (incorporated by reference to Exhibit 10.18 to the Registrant’s Annual
Report on Form 10-K for the year ended December 31, 2008) (1)
Form of Notice of FNF Group Stock Option Award and FNF Group Stock Option Award Agreement under Amended and Restated Fidelity National Financial, Inc. 2005 Omnibus
Incentive Plan for October 2015 Awards (incorporated by reference to Exhibit 10.12 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2015)(1)
Amended and Restated Employment Agreement between the Registrant and Anthony J. Park, effective as of October 10, 2008 (incorporated by reference to Exhibit 10.11 to
Registrant’s Annual Report on Form 10-K for the year ended December 31, 2008) (1)
Amendment effective February 4, 2010 to Amended and Restated Employment Agreement between the Registrant and Anthony J. Park, effective as of October 10, 2008 (incorporated
by reference to Exhibit 10.13 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2009) (1)
Director Services Agreement between Fidelity National Financial, Inc. and William P. Foley, II (incorporated by reference to Exhibit 10.27 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 2015) (1)
Amended and Restated Employment Agreement between the Registrant and Raymond R. Quirk, effective as of February 1, 2022 (incorporated by reference to Exhibit 10.2 to the
Registrant’s Current Report on Form 8-K filed on February 17, 2022)
Amended and Restated Employment Agreement between the Registrant and Michael L. Gravelle, effective as of January 30, 2013 (incorporated by reference to Exhibit 10.22 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 2012) (1)
Amendment No. 2 to Amended and Restated Employment Agreement between the Registrant and Michael L. Gravelle, effective as of March 1, 2015 (incorporated by reference to
Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015) (1)
Amended and Restated Employment Agreement between the Registrant and Peter T. Sadowski, effective as of February 4, 2010 (incorporated by reference to Exhibit 10.26 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 2012) (1)
ServiceLink Holdings, LLC 2013 Management Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on January 15, 2014)(1)
Form of ServiceLink Holdings, LLC Unit Grant Agreement (incorporated by reference to Exhibit 10.4 to the Registrant's Current Report on Form 8-K filed on January 15, 2014)(1)
168
Table of Contents
Exhibit
Number
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
Description
Amendment effective May 3, 2016 to Director Services Agreement between the Registrant and William P. Foley II (incorporated by reference to Exhibit 10.1 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2016) (1)
Letter agreement between Fidelity National Financial, Inc. and William P. Foley, II dated May 28, 2020 (incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on
Form 8-K filed on May 29, 2020) (1)
Amendment effective May 3, 2016 to Amended and Restated Employment Agreement between the Registrant and Anthony J. Park (incorporated by reference to Exhibit 10.4 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2016) (1)
Amendment effective May 3, 2016 to Amended and Restated Employment Agreement between the Registrant and Michael L. Gravelle (incorporated by reference to Exhibit 10.5 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2016) (1)
Amendment effective May 3, 2016 to Amended and Restated Employment Agreement between the Registrant and Peter T. Sadowski (incorporated by reference to Exhibit 10.6 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2016) (1)
Amended and Restated Employment Agreement between the Registrant and Michael Nolan, effective as of February 1, 2022 (incorporated by reference to Exhibit 10.1 to the
Registrant's Current Report on Form 8-K filed on February 17, 2022)
Employment Agreement between the Registrant and Roger Jewkes, effective March 3, 2016 (incorporated by reference to Exhibit 10.9 to the Registrant's Quarterly Report on Form 10-
Q for the quarter ended June 30, 2016) (1)
Amendment effective May 3, 2016 to Employment Agreement between the Registrant and Roger Jewkes (incorporated by reference to Exhibit 10.10 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2016) (1)
Form of Notice of Restricted Stock Grant and FNF Restricted Stock Award Agreement under Amended and Restated Fidelity National Financial, Inc. 2005 Omnibus Incentive Plan for
November 2021 Awards (incorporated by reference to Exhibit 10.34 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2021)
Form of Notice of Restricted Stock Grant and FNF Restricted Stock Award Agreement under Amended and Restated Fidelity National Financial, Inc. 2005 Omnibus Incentive Plan for
November 2022 Awards
Amendment effective November 1, 2019 to Amended and Restated Employment Agreement between the Registrant and Michael L. Gravelle effective May 3, 2016 (incorporated by
reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019) (1)
FGL Holdings 2017 Omnibus Incentive Plan, as amended and restated through June 1, 2020 (incorporated by reference to Exhibit 99.1 to the Registrant’s Registration Statement on
Form S-8 filed on June 1, 2020) (1)
F&G Annuities & Life, Inc. 2022 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.4 to F&G Annuities & Life, Inc.’s Current Report on Form 8-K filed on December 1,
2022, SEC File Number 001-41490) (1)
F&G Annuities & Life, Inc. Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.5 to F&G Annuities & Life, Inc.’s Current Report on Form 8-K filed on December
1, 2022, SEC File Number 001-41490) (1)
F&G Annuities & Life, Inc. Deferred Compensation Plan (incorporated by reference to Exhibit 10.6 to F&G Annuities & Life, Inc.’s Current Report on Form 8-K filed on December 1,
2022, SEC File Number 001-41490) (1)
Fifth Amended and Restated Credit Agreement, dated as of October 29, 2020, by and among Fidelity National Financial, Inc., as the Borrower, Bank of America, N.A., as
administrative agent, and other agents party thereto (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on November 4, 2020)
Form of Notice of Restricted Stock Grant and FNF Restricted Stock Award Agreement under Amended and Restated Fidelity National Financial, Inc. 2005 Omnibus Incentive Plan for
November 2020 Awards (incorporated by reference to Exhibit 10.34 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2020) (1)
169
Table of Contents
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
Registration Rights Agreement, dated as of January 13, 2023, by and among F&G Annuities & Life, Inc., the guarantors named therein and BofA Securities, Inc., J.P. Morgan Securities
LLC and RBC Capital Markets, LLC (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on January 13, 2023)
Investment Management Agreement, dated as of December 16, 2020, by and between F&G Cayman Re Ltd. and Blackstone ISGI Advisors L.L.C. (incorporated by reference to Exhibit
10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2022)
Investment Management Agreement, dated as of January 4, 2021, by and between F&G Annuities & Life, Inc. and Blackstone ISG-I Advisors L.L.C. (incorporated by reference to
Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2022)
Investment Management Agreement, dated as of July 29, 2021, by and between Fidelity & Guaranty Life Insurance Company and Blackstone ISG-I Advisors L.L.C. (incorporated by
reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2022)
Amended and Restated Amendment to Investment Management Agreements; IMA Omnibus Termination Side Letter; SMA Fee Agreement and Participation Fee Agreement, dated
September 24, 2021, by and among F&G Life & Annuities, Inc., Fidelity National Financial, Inc. and Blackstone ISG-I Advisors L.L.C. (incorporated by reference to Exhibit 10.4 to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2022)
Credit Agreement, dated as of November 22, 2022, by and among F&G Annuities & Life, Inc., a Delaware corporation, as the borrower, the guarantors party thereto, Bank of America,
N.A., as administrative agent, and the financial institutions party thereto as lenders (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on
November 22, 2022)
Corporate Services Agreement, dated as of November 30, 2022, between Fidelity National Financial, Inc. and F&G Annuities & Life, Inc. (incorporated by reference to Exhibit 99.2 to
the Registrant's Current Report on Form 8-K filed on December 1, 2022)
Reverse Corporate Services Agreement, dated as of November 30, 2022, between Fidelity National Financial, Inc. and F&G Annuities & Life, Inc. (incorporated by reference to Exhibit
99.3 to the Registrant's Current Report on Form 8-K filed on December 1, 2022)
Tax Sharing Agreement, dated as of November 30, 2022, between Fidelity National Financial, Inc. and F&G Annuities & Life, Inc. (incorporated by reference to Exhibit 99.4 to the
Registrant's Current Report on Form 8-K filed on December 1, 2022)
First Amendment to Credit Agreement, dated as of February 21, 2023, among F&G Annuities & Life, Inc. and the Guarantor parties and Lender parties signatory thereto.
170
Table of Contents
Exhibit
Number
21.1
23.1
31.1
31.2
32.1
32.2
101.INS
101.SCH
101.CAL
101.DEF
101.PRE
101.LAB
104
Description
Subsidiaries of the Registrant
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification by Chief Executive Officer of Periodic Financial Reports pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
Certification by Chief Financial Officer of Periodic Financial Reports pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
Inline XBRL Instance Document (2)
Inline XBRL Taxonomy Extension Schema Document
Inline XBRL Taxonomy Extension Calculation Linkbase Document
Inline XBRL Taxonomy Extension Definition Linkbase Document
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Inline XBRL Taxonomy Extension Label Linkbase Document
Cover Page Interactive Data File formatted in Inline XBRL and contained in Exhibit 101
(1) A management or compensatory plan or arrangement required to be filed as an exhibit to this report pursuant to Item 15(c) of Form 10-K
(2) The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
Item 16. Form 10-K Summary
None.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
SIGNATURES
authorized.
Date: February 27, 2023
Fidelity National Financial, Inc.
By:
/s/ Michael J. Nolan
Michael J. Nolan
Chief Executive Officer
171
Table of Contents
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated.
Signature
/s/ Michael J. Nolan
Michael J. Nolan
/s/ Anthony J. Park
Anthony J. Park
/s/ William P. Foley, II
William P. Foley, II
/s/ Raymond R. Quirk
Raymond R. Quirk
/s/ Douglas K. Ammerman
Douglas K. Ammerman
/s/ Halim Dhanidina
Halim Dhanidina
/s/ Thomas M. Hagerty
Thomas M. Hagerty
/s/ Daniel D. (Ron) Lane
Daniel D. (Ron) Lane
/s/ Sandra D. Morgan
Sandra D. Morgan
/s/ Heather H. Murren
Heather H. Murren
/s/ John D. Rood
John D. Rood
/s/ Peter O. Shea, Jr.
Peter O. Shea, Jr.
/s/ Cary H. Thompson
Cary H. Thompson
Title
Chief Executive Officer
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date
February 27, 2023
February 27, 2023
Director and Chairman of the Board
February 27, 2023
Director and Executive Vice Chairman of the Board
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
February 27, 2023
Director
Director
Director
Director
Director
Director
Director
Director
Director
172
Table of Contents
Cash
Short-term investments
Other long-term investments
Equity securities, at fair value
Investment in unconsolidated affiliates
Notes receivable
Investments in and amounts due from subsidiaries
Property and equipment, net
Prepaid expenses and other assets
Total assets
Liabilities:
Accounts payable and other accrued liabilities
Income taxes payable
Deferred tax liability
Notes payable
Total liabilities
Equity:
FIDELITY NATIONAL FINANCIAL, INC.
(Parent Company)
BALANCE SHEETS
ASSETS
LIABILITIES AND EQUITY
FNF common stock, $0.0001 par value; authorized 600,000,000 shares as of December 31, 2022 and December 31, 2021; outstanding of 279,064,457 and 290,533,141 as of December
31, 2022 and December 31, 2021, respectively, and issued of 327,757,349 and 325,486,429 as of December 31, 2022 and December 31, 2021, respectively
Preferred stock, $0.0001 par value; authorized 50,000,000 shares; issued and outstanding, none
Additional paid-in capital
Retained earnings
Accumulated other comprehensive earnings
Less: Treasury stock, 48,692,892 shares and 34,953,288 shares as of December 31, 2022 and December 31, 2021, respectively, at cost
Total equity of Fidelity National Financial, Inc. common shareholders
Total liabilities and equity
See Notes to Financial Statements
SCHEDULE II
December 31,
2022
2021
(In millions, except share data)
$
$
$
$
$
$
406
533
35
1
3
303
6,794
2
243
8,320
291
—
71
2,123
2,485
—
—
5,876
4,714
(2,862)
(1,893)
5,835
$
8,320
$
1,515
—
52
7
9
696
10,215
2
275
12,771
344
72
206
2,519
3,141
—
—
5,811
4,369
779
(1,329)
9,630
12,771
173
Table of Contents
FIDELITY NATIONAL FINANCIAL, INC.
(Parent Company)
STATEMENTS OF EARNINGS AND RETAINED EARNINGS
SCHEDULE II
Revenues:
Other fees and revenue
Interest and investment income and realized gains
Realized gains and losses, net
Total revenues
Expenses:
Personnel expenses
Other operating expenses
Interest expense
Total expenses
Losses before income tax benefit and equity in earnings of subsidiaries
Income tax benefit
Losses before equity in earnings of subsidiaries
Equity in earnings of subsidiaries
Earnings from continuing operations
Equity in earnings of discontinued operations
Net earnings attributable to Fidelity National Financial, Inc. common shareholders
Retained earnings, beginning of year
Dividends declared
Distribution of F&G to FNF common shareholders
Net earnings attributable to Fidelity National Financial, Inc. common shareholders
Retained earnings, end of year
Year Ended December 31,
2022
2021
2020
(In millions, except per share data)
$
$
$
$
$
(37)
43
(42)
(36)
(11)
16
92
97
(133)
(33)
(100)
1,236
1,136
—
$
24
17
12
53
54
25
87
166
(113)
(27)
(86)
2,500
2,414
8
1,136
$
2,422
$
$
4,369
(490)
(301)
1,136
$
2,394
(447)
—
2,422
4,714
$
4,369
$
32
25
(6)
51
58
60
71
189
(138)
(33)
(105)
1,557
1,452
(25)
1,427
1,356
(389)
—
1,427
2,394
See Notes to Financial Statements
174
Table of Contents
Cash Flows From Operating Activities:
Net earnings
Adjustments to reconcile net earnings to net cash provided by operating activities:
Equity in earnings of unconsolidated affiliates
Impairment of assets
Equity in earnings of subsidiaries
Depreciation and amortization
Stock-based compensation
Net change in income taxes
Net (increase) decrease in prepaid expenses and other assets
Net increase in accounts payable and other accrued liabilities
Net cash provided by (used in) operating activities
Cash Flows From Investing Activities:
Purchases of investments available for sale
Net purchases of short-term investment activities
Acquisition of F&G (net of cash acquired)
Additions to notes receivable
Collection of notes receivable
Distributions from unconsolidated affiliates
Additional investments in unconsolidated affiliates
Net cash used in investing activities
Cash Flows From Financing Activities:
Borrowings
Debt service payments
Debt issuance costs
Dividends paid
Purchases of treasury stock
Exercise of stock options
Payment for shares withheld for taxes and in treasury
Additional investments in non-controlling interests
Other financing activity
Net dividends from subsidiaries
Net cash provided by financing activities
Net change in cash and cash equivalents
Cash at beginning of year
Cash at end of year
FIDELITY NATIONAL FINANCIAL, INC.
(Parent Company)
STATEMENTS OF CASH FLOWS
SCHEDULE II
Year Ended December 31,
2022
2021
(In millions)
2020
$
1,136
$
2,422
$
—
—
(1,236)
1
48
748
41
(50)
688
—
(509)
—
(87)
79
—
—
(517)
—
(400)
—
(489)
(553)
39
(15)
(2)
—
140
(1,280)
(1,109)
1,515
(6)
—
(2,500)
1
43
65
(14)
36
47
(52)
(6)
—
(400)
120
—
—
(338)
449
—
(6)
(446)
(463)
48
(17)
—
—
1,266
831
540
975
See Notes to Financial Statements
$
406
$
1,515
$
175
1,427
(1)
1
(1,742)
1
39
(1)
(15)
26
(265)
—
564
(1,076)
(3)
89
—
(1)
(427)
2,246
(1,000)
(22)
(389)
(236)
62
(9)
(90)
1
539
1,102
410
565
975
Table of Contents
FIDELITY NATIONAL FINANCIAL, INC.
(Parent Company)
NOTES TO FINANCIAL STATEMENTS
SCHEDULE II
A. Summary of Significant Accounting Policies
Fidelity National Financial, Inc. transacts substantially all of its business through its subsidiaries. The Parent Company Financial Statements should be read in connection with the aforementioned
Consolidated Financial Statements and Notes thereto included elsewhere herein.
B. Notes Payable
Notes payable consist of the following:
4.50% Notes, net of discount
5.50% Notes, net of discount
3.40% Notes, net of discount
2.45% Notes, net of discount
3.20% Notes, net of discount
Revolving credit facility
C. Supplemental Cash Flow Information
Cash paid during the year:
Interest paid
Income tax payments
D. Cash Dividends Received
December 31,
2022
2021
$
(In millions)
445
—
644
594
443
(3)
444
400
643
593
443
(4)
2,123
$
2,519
$
$
2022
Year Ended December 31,
2021
(In millions)
2020
$
$
95
459
$
81
609
58
317
We have received cash dividends from subsidiaries and affiliates of $0.8 billion, $0.6 billion, and $0.5 billion during the years ended December 31, 2022, 2021, and 2020, respectively.
176
Table of Contents
F&G Segment:
Deferred acquisition costs
Future policy benefits, losses, claims and loss expenses
Other policy claims and benefits payable
Life insurance premiums and other fees
Interest and investment income
Benefits, claims, losses and settlement expenses
Amortization, interest, and unlocking of deferred acquisition costs
Other operating expenses, net of deferrals
FIDELITY NATIONAL FINANCIAL, INC.
F&G Supplementary Insurance Information
(in millions)
See Report of Independent Registered Public Accounting Firm.
177
Schedule III
Year Ended
December 31, 2022
December 31, 2021
1,589
5,923
109
1,695
1,655
(1,125)
(81)
(102)
761
4,732
109
1,395
1,852
(2,138)
(32)
(105)
Table of Contents
For the year ended December 31, 2022
Life insurance in force
Premiums and other considerations:
Traditional life insurance premiums
Life-contingent PRT premiums
Annuity product charges
Total premiums and other considerations
For the year ended December 31, 2021
Life insurance in force
Premiums and other considerations:
Traditional life insurance premiums
Life-contingent PRT premiums
Annuity product charges
Total premiums and other considerations
For the seven months ended December 31, 2020
Life insurance in force
Premiums and other considerations:
Traditional life insurance premiums
Annuity product charges
Total premiums and other considerations
FIDELITY NATIONAL FINANCIAL, INC.
F&G Reinsurance
(In millions)
Schedule IV
Gross Amount
Ceded to other
companies
Assumed from other
companies
Net Amount
Percentage of amount
assumed to net
6,258
$
(1,594)
$
—
$
160
1,362
300
1,822
$
(128)
—
(50)
(178)
$
—
—
—
—
$
4,664
32
1,362
250
1,644
— %
— %
— %
— %
— %
Gross Amount
Ceded to other
companies
Assumed from other
companies
Net Amount
Percentage of amount
assumed to net
4,881
$
(1,682)
$
—
$
168
1,146
269
1,583
$
(137)
—
(51)
(188)
$
—
—
—
—
$
3,199
31
1,146
218
1,395
— %
— %
— %
— %
— %
Gross Amount
Ceded to other
companies
Assumed from other
companies
Net Amount
Percentage of amount
assumed to net
3,892
$
(2,064)
$
—
$
1,828
108
146
254
$
(85)
(31)
(116)
$
—
—
—
$
23
115
138
— %
— %
— %
— %
$
$
$
$
$
$
See Report of Independent Registered Public Accounting Firm
178
FIDELITY NATIONAL FINANCIAL, INC.
AMENDED AND RESTATED
2005 OMNIBUS INCENTIVE PLAN
Notice of Restricted Stock Grant
You (the “Grantee”) have been granted the following award of restricted Shares (the “Restricted Stock”), of common stock, par value $0.0001 per share (the
“Shares”), by Fidelity National Financial, Inc. (the “Company”), pursuant to the Fidelity National Financial, Inc. Amended and Restated 2005 Omnibus Incentive
Plan (the “Plan”) and the terms set forth in the attached Restricted Stock Award Agreement:
Name of Grantee:
Number of Shares:
Effective Date of Grant:
Vesting and Period of Restriction:
Subject to the terms of the Plan and the R
Stock Award Agreement attached hereto, the Period of Restriction shall lapse, and the
Shares shall vest and become free of the forfeiture provisions contained in the
Restricted Stock Award Agreement, with respect to one third of the shares on each
anniversary of the Effective Date of Grant and satisfaction of the Performance
Restriction as set forth on Exhibit A of the Restricted Stock Award Agreement, attached
hereto.
By your electronic acceptance/signature below, you agree and acknowledge that the Restricted Stock is granted under and governed by the terms and
conditions of the Plan and the attached Restricted Stock Award Agreement, which are incorporated herein by reference, and that you have been provided with a copy
of the Plan and Restricted Stock Award Agreement. If you have not accepted or declined this Restricted Stock Grant, including the terms of this Notice and
Restricted Stock Award Agreement, prior to the first anniversary of the Effective Date of Grant, you are hereby advised and acknowledge that you shall be deemed to
have accepted the terms of this Notice and Restricted Stock Award Agreement on such first anniversary of the Effective Date of Grant.
FIDELITY NATIONAL FINANCIAL, INC.
AMENDED AND RESTATED 2005 OMNIBUS INCENTIVE PLAN
Restricted Stock Award Agreement
SECTION 1. GRANT OF RESTRICTED STOCK
(a) Restricted Stock. On the terms and conditions set forth in the Notice of Restricted Stock Grant and this Restricted Stock Award Agreement (the “Agreement”), the Company
grants to the Grantee on the Effective Date of Grant the Shares of Restricted Stock (the “Restricted Stock”) set forth in the Notice of Restricted Stock Grant.
(b) Plan and Defined Terms. The Restricted Stock is granted pursuant to the Plan. All terms, provisions, and conditions applicable to the Restricted Stock set forth in the Plan and
not set forth herein are hereby incorporated by reference herein. To the extent any provision hereof is inconsistent with a provision of the Plan, the provisions of the Plan will
govern. All capitalized terms that are used in the Notice of Restricted Stock Grant or this Agreement and not otherwise defined therein or herein shall have the meanings ascribed to
them in the Plan.
SECTION 2. FORFEITURE AND TRANSFER RESTRICTIONS
(a) Forfeiture. Except as otherwise provided in Grantee’s employment, director services or similar agreement in effect at the time of the employment termination:
(i) If the Grantee’s employment or service as a Director or Consultant is terminated for any reason other than death, or Disability (as defined below), the Grantee
shall, for no consideration, forfeit to the Company the Shares of Restricted Stock to the extent such Shares are subject to a Period of Restriction at the time of such termination.
(ii) If the Grantee’s employment or service as a Director or Consultant is terminated due to the Grantee’s death or Disability, a portion of the Shares which on the date
of termination of employment remain subject to a Time-Based Restriction and/or the Performance Restriction (as defined in Exhibit A) shall vest and become free of the forfeiture
and transfer restrictions contained in the Agreement (except as otherwise provided in Section 2(b) of this Agreement). The portion which shall vest shall be determined by the
following formula (rounded to the nearest whole Share):
(A x B) – C, where
A = the total number of Shares granted under this Agreement,
B = the number of completed months to the date of termination of employment since the Effective Date of Grant divided by 36, and
C = the number of Shares granted under this Agreement which vested on or prior to the date of termination of employment.
All Shares that are subject to a Period of Restriction on the date of termination of employment or service as a Director or Consultant and which will not be vested pursuant to
Section 2(a)(ii) above, shall be forfeited to the Company, for no consideration.
(iii) The term “Disability” shall have the meaning ascribed to such term in the Grantee’s employment, director services or similar agreement with the Company. If the
Grantee’s employment, director services or similar agreement does not define the term “Disability,” or if the Grantee has not entered into an employment, director services or similar
agreement with the Company or any Subsidiary, the term “Disability” shall mean the Grantee’s entitlement to long-term disability benefits pursuant to the long-term disability plan
maintained by the Company or in which the Company’s employees participate.
(iv) If the Performance Restriction is not satisfied during the Measurement Period, all of the Shares that do not satisfy the performance criteria for the applicable
Performance Period, shall be forfeited to the Company, for no consideration.
1
(b) Transfer Restrictions. During the Period of Restriction, the Restricted Stock may not be sold, assigned, pledged, exchanged, hypothecated or otherwise transferred, encumbered
or disposed of, to the extent such Shares are subject to a Period of Restriction.
(c) Holding Period. If and when (i) the Grantee is an Officer (as defined in Rule 16a-1(f) of the Exchange Act) or holds the title of President - Agency Operations, and (ii) Grantee
does not hold Shares with a value sufficient to satisfy the applicable stock ownership guidelines of the Company in place at that time, then Grantee must retain 50% of the Shares
acquired by Grantee as a result of the lapse of a Period of Restriction (excluding from the calculation any Shares withheld for purposes of satisfying Grantee’s tax obligations in
connection with such lapse of a Period of Restriction) until such time as the value of the Shares remaining in Grantee’s possession following any sale, assignment, pledge, exchange,
gift or other transfer of the Shares shall be sufficient to meet any applicable stock ownership guidelines of the Company in place at that time. For the avoidance of doubt, at any time
when Grantee holds, in the aggregate, Shares with a value sufficient to satisfy the applicable stock ownership guidelines of the Company in place at that time, Grantee may enter
into a transaction with respect to any Shares acquired by Grantee as a result of the lapse of a Period of Restriction without regard to the holding period requirement contained in this
Section 2(b) so long as Grantee shall continue to satisfy such stock ownership guidelines following such transaction.
(d) Lapse of Restrictions. The Period of Restriction shall lapse as to the Restricted Stock in accordance with the Notice of Restricted Stock Grant and the terms of this Agreement.
Subject to the terms of the Plan and Section 6(a) hereof, upon lapse of the Period of Restriction, the Grantee shall own the Shares that are subject to this Agreement free of all
restrictions other than the holding period described in Section 2(c) above. Upon the occurrence of a Change in Control, unless otherwise specifically prohibited under applicable
laws, or by the rules and regulations of any governing governmental agencies or national securities exchanges, any Period of Restriction or other restriction imposed on the
Restricted Stock that has not previously lapsed, including the holding period described in Section 2(c) above, shall lapse.
SECTION 3. STOCK CERTIFICATES
As soon as practicable following the grant of Restricted Stock, the Shares of Restricted Stock shall be
registered in the Grantee’s name in certificate or book-entry form. If a certificate is issued, it shall bear an appropriate legend referring to the restrictions and it shall be held by the
Company, or its agent, on behalf of the Grantee until the Period of Restriction has lapsed. If the Shares are registered in book-entry form, the restrictions shall be placed on the book-
entry registration. The Grantee may be required to execute and return to the Company a blank stock power for each Restricted Stock certificate (or instruction letter, with respect to
Shares registered in book-entry form), which will permit transfer to the Company, without further action, of all or any portion of the Restricted Stock that is forfeited in accordance
with this Agreement.
SECTION 4. SHAREHOLDER RIGHTS
Except for the transfer and dividend restrictions, and subject to such other restrictions, if any, as determined by the Committee, the Grantee shall have all other rights of a
holder of Shares, including the right to vote (or to execute proxies for voting) such Shares. Unless otherwise determined by the Committee, if all or part of a dividend in respect of
the Restricted Stock is paid in Shares or any other security issued by the Company, such Shares or other securities shall be held by the Company subject to the same restrictions as
the Restricted Stock in respect of which the dividend was paid.
SECTION 5. DIVIDENDS
(a) Any dividends paid with respect to Shares which remain subject to a Period of Restriction shall not be paid to the Grantee but shall be held by the Company.
(b) Such held dividends shall be subject to the same Period of Restriction as the Shares to which they relate.
(c) Any dividends held pursuant to this Section 5 which are attributable to Shares which vest pursuant to this Agreement shall be paid to the Grantee within 30 days of the applicable
vesting date.
(d) Dividends attributable to Shares forfeited pursuant to Section 2 of this Agreement shall be forfeited to the Company on the date such Shares are forfeited.
SECTION 6. MISCELLANEOUS PROVISIONS
(a) Tax Withholding. Pursuant to Article 20 of the Plan, the Committee shall have the power and right to deduct or withhold, or require the Grantee to remit to the Company, an
amount sufficient to satisfy any federal, state and local taxes (including the Grantee’s FICA obligations) required by law to be withheld with respect to this Award. The Committee
may condition the delivery of Shares upon the Grantee’s satisfaction of such withholding obligations. The Grantee may elect to satisfy all or part of such withholding requirement by
tendering previously-owned Shares or by having the Company withhold Shares having a Fair Market Value equal to the minimum statutory withholding (based on minimum
statutory withholding rates for federal, state and local tax purposes, as applicable, including payroll taxes) that could be imposed on the transaction, and, to the extent the Committee
so permits, amounts in excess of the minimum statutory withholding to the extent it would not result in additional accounting expense. Such election shall be irrevocable, made in
writing, signed by the Grantee, and shall be subject to any restrictions or limitations that the Committee, in its sole discretion, deems appropriate.
(b) Ratification of Actions. By accepting this Agreement, the Grantee and each person claiming under or through the Grantee shall be conclusively deemed to have indicated the
Grantee’s acceptance and ratification of, and consent to, any action taken under the Plan or this Agreement and Notice of Restricted Stock Grant by the Company, the Board or the
Committee.
(c) Notice. Any notice required by the terms of this Agreement shall be given in writing and shall be deemed effective upon personal delivery or upon deposit with the United States
Postal Service, by registered or certified mail, with postage and fees prepaid. Notice shall be addressed to the Company at its principal executive office and to the Grantee at the
address that he or she most recently provided in writing to the Company.
(d) Choice of Law. This Agreement and the Notice of Restricted Stock Grant shall be governed by, and construed in accordance with, the laws of Florida, without regard to any
conflicts of law or choice of law rule or principle that might otherwise cause the Plan, this Agreement or the Notice of Restricted Stock Grant to be governed by or construed in
accordance with the substantive law of another jurisdiction.
(e) Arbitration. Subject to, and in accordance with the provisions of Article 3 of the Plan, any dispute or claim arising out of or relating to the Plan, this Agreement or the Notice of
Restricted Stock Grant shall be settled by binding arbitration before a single arbitrator in Jacksonville, Florida and in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. The arbitrator shall decide any issues submitted in accordance with the provisions and commercial purposes of the Plan, this Agreement and the
Notice of Restricted Stock Grant, provided that all substantive questions of law shall be determined in accordance with the state and federal laws applicable in Florida, without
regard to internal principles relating to conflict of laws.
(f) Modification or Amendment. This Agreement may only be modified or amended by written agreement executed by the parties hereto; provided, however, that the adjustments
permitted pursuant to Section 4.3 of the Plan may be made without such written agreement.
(g) Severability. In the event any provision of this Agreement shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining provisions of
this Agreement, and this Agreement shall be construed and enforced as if such illegal or invalid provision had not been included.
(h) References to Plan. All references to the Plan shall be deemed references to the Plan as may be amended from time to time.
(i) Section 409A Compliance. To the extent applicable, it is intended that the Plan and this Agreement comply with the requirements of Code Section 409A and any related
regulations or other guidance promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service and the Plan and the Award
Agreement shall be interpreted accordingly.
EXHIBIT A
Vesting and Restrictions
This grant is subject to both a Performance Restriction and a Time-Based Restriction, as described below (collectively, the “Period of Restriction”).
In order for the Restricted Stock to vest, the Compensation Committee of the Board of Directors of the Company (the “Committee”) must determine that the Company has
achieved 12% or greater Title Operating Margin (as defined below) in at least two calendar quarters of any of the next five calendar quarters starting October 1, 2022 (the
“Performance Restriction”). The five calendar quarters starting October 1, 2022 and ending December 31, 2023 are referred to as the “Measurement Period.” “Title Operating
Margin” shall mean the Title Pre-Tax Margin as used for the annual bonus plan. Calculation of Title Operating Margin will exclude claim loss reserve adjustments (positive or
negative) for prior period loss development, extraordinary events or accounting adjustments, acquisitions, divestitures, major restructuring charges, and non-budgeted discontinued
operations. The Committee will evaluate whether the Title Operating Margin has been achieved following the completion of each calendar quarter during the Measurement Period.
Performance Restriction
Anniversary Date
st
First (1 ) anniversary of the Effective Date of Grant
Second (2 ) anniversary of the Effective Date of Grant
Third (3 ) anniversary of the Effective Date of Grant
nd
rd
Time-Based Restrictions
% of Restricted Stock
33.33%
33.33%
33.34%
Vesting
If the Performance Restriction has been achieved as of an Anniversary Date, the percentage of the Restricted Stock indicated next to such Anniversary Date shall vest on
such indicated Anniversary Date (such three year vesting schedule referred to as the “Time-Based Restrictions”). If the Performance Restriction has not been achieved as of an
Anniversary Date, but is achieved on or before the end of the Measurement Period, then the percentage of the Restricted Stock indicated next to such Anniversary Date shall vest at
such time as the Committee determines that the Company has achieved the Performance Restriction. If the Performance Restriction is not achieved during the Measurement Period,
none of the Restricted Stock granted hereunder shall vest and, for no consideration, will be automatically forfeited to the Company.
EXECUTION VERSION WEIL:\99001761\2\45181.0045 #96551106v8 This FIRST AMENDMENT TO CREDIT AGREEMENT (this “Amendment”), dated as of February 21, 2023, among F&G Annuities & Life, Inc., a Delaware corporation (the “Borrower”), each Guarantor party hereto, each Person listed on Schedule 1 hereto (each, an “Incremental Lender”), and the Administrative Agent (as defined below), to the Credit Agreement, dated as of November 22, 2022 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time prior to the date hereof, the “Credit Agreement”), among the Borrower, each Guarantor from time to time party thereto, each Lender from time to time party thereto, Bank of America, N.A., as Administrative Agent (the “Administrative Agent”) and Swing Line Lender, and the other parties party thereto from time to time. WHEREAS, pursuant to Section 2.13 of the Credit Agreement, the Borrower has requested an increase in the Aggregate Commitments in an aggregate commitment amount equal to $115,000,000 (the “Incremental Revolving Commitments”; and the revolving loans made pursuant to the Incremental Revolving Commitments, the “Incremental Revolving Loans”), and each Incremental Lender is severally willing to provide Incremental Revolving Commitments on the Amendment Effective Date (as defined below) in the amount set forth opposite its name on such schedule, subject to the terms and conditions set forth in this Amendment; WHEREAS, this Amendment shall not require the consent of any Lender other than the Administrative Agent and each Incremental Lender; and NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: SECTION 1. Defined Terms. Capitalized terms used and not otherwise defined herein
have the meanings assigned to them in the Credit Agreement as amended hereby. SECTION 2. Incremental Revolving Commitments. (a) Subject to the terms and conditions set forth herein, each Incremental Lender severally agrees to provide Incremental Revolving Commitments to the Borrower on the Amendment Effective Date in an aggregate commitment amount equal to its Incremental Revolving Commitment set forth opposite such Incremental Lender’s name on Schedule 1 hereto. (b) The Incremental Revolving Commitments shall take the form of an increase to the existing Aggregate Commitments, and the Incremental Revolving Commitments and the Incremental Revolving Loans shall have identical terms to the existing Commitments and the existing Revolving Loans, respectively, under the Credit Agreement. (c) The Incremental Revolving Commitments and the Incremental Revolving Loans shall be subject to the provisions of the Credit Agreement as amended hereby and the other Loan Documents. On the Amendment Effective Date, subject to the terms and conditions set forth herein, for all purposes of the Loan Documents, (i) each Incremental Revolving Commitment shall constitute a “Commitment”, (ii) each Incremental Revolving Loan shall constitute a “Revolving Loan” and (iii) each Incremental Lender shall be a “Lender” and shall have all of the rights and shall perform all of the obligations of a Lender holding a Commitment or a Revolving Loan, in each case, under the Credit Agreement (as amended by this Amendment). (d) On the Amendment Effective Date, subject to the satisfaction (or waiver) of the conditions in Section 4 hereof, (i) each then-existing Lender immediately prior to the Amendment Effective
2 WEIL:\99001761\2\45181.0045 #96551106v8 Date (each, an “Existing Lender”) will automatically and without further act be deemed to have assigned to each Incremental Lender, and each Incremental Lender will automatically and without further act be deemed to have assumed, a portion of such Existing Lender’s participations under the Credit Agreement in outstanding Swing Line Loans and Letters of Credit (if any) such that, after giving effect to each deemed assignment and assumption of participations, all of the Lenders’ (including each Incremental Lender) participations under the Credit Agreement as amended hereby in Swing Line Loans and Letters of Credit shall be held ratably on the basis of their respective Commitments (after giving effect to the Incremental Revolving Commitments) and (ii) the Existing Lenders shall assign Revolving Loans to the Incremental Lenders, and such Incremental Lenders shall purchase such Revolving Loans, in each case to the extent necessary so that all of the Lenders participate in each outstanding Revolving Loan Borrowing pro rata on the basis of their respective Commitments (after giving effect to the Incremental Revolving Commitments); it being understood and agreed that the minimum borrowing, pro rata borrowing and pro rata payment requirements contained in the Credit Agreement shall not apply to the transactions effected pursuant to this clause (d). If the Borrower anticipates there being outstanding Revolving Loans on the Amendment Effective Date immediately after giving effect to the foregoing, the Borrower shall have delivered a Revolving Loan Notice to the Administrative Agent in accordance with Section 2.02 of the Credit Agreement. SECTION 3. Representations and Warranties. To induce the other parties hereto to enter into this Amendment, each Loan Party party hereto represents and warrants to the other parties hereto on the Amendment Effective Date that: (a) this Amendment (x)
has been duly authorized, executed and delivered by it, and (y) constitutes the legal, valid and binding obligation of each Loan Party, enforceable against it in accordance with its terms, except as enforceability may be limited by Debtor Relief Laws and general equitable principles; (b) the representations and warranties of the Loan Parties set forth in Article V of the Credit Agreement (as amended by this Amendment) and the other Loan Documents are true and correct in all material respects (except that any representation and warranty that is qualified as to "materiality" or "Material Adverse Effect" shall be true and correct in all respects as so qualified) on and as of the Amendment Effective Date (both immediately before and after giving effect to the establishment of the Incremental Revolving Commitments), except to the extent that such representations and warranties specifically refer to an earlier date or specified period, in which case they shall be true and correct in all material respects as of such earlier date or for such specified period; and (c) no Default exists (both immediately before and after giving effect to the establishment of the Incremental Revolving Commitments). SECTION 4. Amendment Effective Date. This Amendment shall become effective as of the first date (the “Amendment Effective Date ”) on which each of the following conditions shall have been satisfied (or waived in accordance with Section 10.01 of the Credit Agreement): (a) the Administrative Agent shall have received (i) a counterpart signature page of this Amendment duly executed by each Loan Party, the Administrative Agent, the Swing Line Lender and each Incremental Lender and (ii) a Revolving Loan Note executed by the Borrower in favor of each Incremental Lender requesting a Revolving Loan Note at least three Business Days in advance of the Amendment Effective Date;
3 WEIL:\99001761\2\45181.0045 #96551106v8 (b) the Administrative Agent shall have received a certificate signed by a Responsible Officer of each Loan Party certifying (i) that the articles of formation or other comparable organizational documents of such Loan Party, certified by the relevant authority of the jurisdiction of organization of such Loan Party and a true and complete copy of the bylaws, operating agreement or comparable governing document of each Loan Party either (A) has not been amended since the Effective Date or (B) is attached as an exhibit to such certificate and that such documents or agreements have not been amended (except as otherwise attached to such certificate and certified therein as being the only amendments thereto as of such date), (ii) that attached thereto are the written consents of each Loan Party’s governing body authorizing the execution, delivery, performance of, this Amendment and such written consents have not been modified, rescinded or amended and are in full force and effect on the Amendment Effective Date without amendment, modification or rescission, and (iii) as to the incumbency and genuineness of the signature of the officers or other authorized signatories of each Loan Party executing this Amendment; (c) the Administrative Agent shall have received a certificate as of a recent date of the good standing of each Loan Party under the laws of its jurisdiction of organization from the relevant authority of its jurisdiction of organization (to the extent relevant and available in the jurisdiction of organization of such Loan Party); (d) the Administrative Agent shall have received (i) all documentation and other information from each Loan Party reasonably requested by the Administrative Agent (on behalf of any Incremental Lender as of the Amendment Effective Date) in writing at least three Business Days in advance of the Amendment Effective Date, which documentation or other information is required
by regulatory authorities under applicable "know your customer" and anti-money laundering rules and regulations, including the Act and (ii) to the extent the Borrower qualifies as a “legal entity customer” under the Beneficial Ownership Regulation, a Beneficial Ownership Certification in relation to the Borrower; (e) the representations and warranties set forth in Section 3 of this Amendment shall be true and correct in all material respects (except that any representation and warranty that is qualified as to “materiality” or “Material Adverse Effect” shall be true and correct in all respects as so qualified) on and as of the Amendment Effective Date, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct as of such earlier date, and (ii) the Administrative Agent shall have received a certificate (in form and substance reasonably acceptable to the Administrative Agent), dated as of the Amendment Effective Date and signed by a Responsible Officer of the Borrower, certifying as to such representations and warranties; (f) the Administrative Agent shall have received a favorable legal opinion of Weil, Gotshal & Manges LLP, counsel to the Loan Parties, addressed to the Administrative Agent and each Incremental Lender party hereto, as to matters concerning the Borrower and this Amendment (including enforceability of this Amendment under New York law); and (g) the Borrower shall have paid (i) to the Administrative Agent (or its applicable Affiliate) any fees due and required to be paid to the Administrative Agent (or its applicable Affiliate) on the Amendment Effective Date pursuant to that certain Letter Agreement, dated as of February 1, 2023, among the Borrower and the Administrative Agent (or its applicable Affiliate) and (ii) subject to Section 10.04(a) of the Credit Agreement and to the extent invoiced at least three Business Days prior to the Amendment Effective Date
the reasonable out-of-pocket expenses of the Administrative Agent in connection with this Amendment, including the reasonable and documented out-of-pocket fees and expenses of one counsel for the Administrative Agent.
4 WEIL:\99001761\2\45181.0045 #96551106v8 SECTION 5. Effect of Amendment. (a) Except as expressly set forth herein, this Amendment shall not by implication or otherwise limit, impair, constitute a waiver of or otherwise affect the rights and remedies of the Lenders or Administrative Agent under the Credit Agreement or any other Loan Document, and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other provision of the Credit Agreement or of any other Loan Document, all of which are ratified and affirmed in all respects and shall continue in full force and effect. Nothing herein shall be deemed to entitle the Borrower to a consent to, or a waiver, amendment, modification or other change of, any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other Loan Document in similar or different circumstances. (b) From and after the Amendment Effective Date, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof”, “herein”, or words of like import, and each reference to the “Credit Agreement” in any other Loan Document shall be deemed a reference to the Credit Agreement as amended hereby. This Amendment shall constitute a “Loan Document” for all purposes of the Credit Agreement and the other Loan Documents. (c) Each Loan Party party hereto hereby (i) ratifies and reaffirms all of its payment and performance obligations, contingent or otherwise, under each of the Loan Documents to which it is a party and (ii) in the case of each Guarantor, ratifies and reaffirms its guaranty of the Obligations (including, for the avoidance of doubt, all Obligations in respect of the Incremental Revolving Loans and Incremental Revolving Commitments made available hereunder) pursuant to the Guaranty. SECTION 6. Indemnification. The Borrower hereby confirms tha
the indemnification provisions set forth in Section 10.04 of the Credit Agreement as amended by this Amendment shall apply to this Amendment and the transactions contemplated hereby. SECTION 7. Amendments; Severability. (a) This Amendment may not be amended nor may any provision hereof be waived except pursuant to Section 10.01 of the Credit Agreement; and (b) If any provision of this Amendment is held to be illegal, invalid or unenforceable, the legality, validity and enforceability of the remaining provisions of this Amendment shall not be affected or impaired thereby. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 8. Governing Law; Jurisdiction; Etc.; Waiver of Jury Trial; Electronic Execution of Assignments and Certain Other Documents. THIS AMENDMENT AND ANY CLAIMS, CONTROVERSY, DISPUTE OR CAUSE OF ACTION (WHETHER IN CONTRACT OR TORT OR OTHERWISE) BASED UPON, ARISING OUT OF OR RELATING TO THIS AMENDMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE. The provisions of Sections 10.14(b), (c), (d), 10.15 and 10.17 of the Credit Agreement as amended by this Amendment are incorporated herein by reference, mutatis mutandis. SECTION 9. Headings. Section headings herein are included for convenience of reference only and shall not affect the interpretation of this Amendment.
5 WEIL:\99001761\2\45181.0045 #96551106v8 SECTION 10. Counterparts; Integration; Effectiveness. This Amendment may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Amendment, and any separate letter agreements with respect to fees payable to the Administrative Agent, constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Delivery of an executed counterpart of a signature page of this Amendment by facsimile or other electronic imaging means (e.g. “pdf” or “tif”) shall be effective as delivery of a manually executed counterpart of this Amendment. [Remainder of page intentionally left blank]
IN WITNESS WHEREOPF,the parties hereto have caused this Amendmentto be duly executed and delivered by their respective officers thereunto duly authorized as ofthe date first written above. F&G ANNUITIES & LIFE, INC., as the Borrower mn MadmYonngy Name: Wendy /B. Yourtg Title: Chief Financial Officer FGL US HOLDINGSINC., as a Guarantor MileyOYGiteZan Name: Wendy J.B/Young 4 Title: Executive Vice President & Chief Financial Officer FIDELITY & GUARANTY LIFE HOLDINGS, INC., ag aLA Name:ML)B. Young” Title: Executive Vice President & ae Financial Officer FIDELITY & GUARANTYLIFE BUSINESS SERVICES, INC., as a Guarantor » MdLigne Name: Wendy J.B. Youn’ Title: Executive Vice President & Chief Financial Officer CF BERMUDA HOLDINGSLIMITED,as a oeAddhVqunere Name: Wendy J.B. Young’ Title: Executive Vice President & Bice Financial Officer [Signature Page to First Amendment to Credit Agreement]
[Signature Page to First Amendment to Credit Agreement] WEIL:\99001761\2\45181.0045 #96551106v7 Name of Institution: Executing as an Incremental Lender By: Name: Title: U.S. Bank National Association Carlos Muñoz Vice President
Name of Institution: Deutsche B ank AG New York Branch Executing as an f ncremental Lender By: 66 / Name: t}nme Chr5 Title : Director By : a� Name: r{-1arko Lukin Title: V' ce President [Signature Page to First Amendment to Credit Agreement]
#96551106v8 #96551106v8 SCHEDULE 1 Incremental Lender Incremental Revolving Commitment U.S. Bank National Association $65,000,000.00 Barclays Bank PLC $25,000,000.00 Deutsche Bank AG New York Branch $25,000,000.00 Total $115,000,000.00
COMPANY
FNTG Holdings, LLC
Chicago Title Insurance Company
Fidelity National Title Group, Inc.
ServiceLink Holdings, Inc.
Fidelity National Title Insurance Company
Commonwealth Land Title Insurance Company
F&G Annuities & Life, Inc.
FIDELITY NATIONAL FINANCIAL, INC.
List of Subsidiaries December 31, 2022
Significant Subsidiaries
EXHIBIT 21.1
INCORPORATION
Delaware
Florida
Delaware
Delaware
Florida
Florida
Delaware
CONSENT OF ERNST & YOUNG LLP,
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
We consent to the incorporation by reference in the following Registration Statements:
1. Registration Statements (Form S-3 Nos. 333-157123, 333-147391, 333-174650, 333-238860, 333-239002) of Fidelity National Financial, Inc.
2. Registration Statements (Form S-4 Nos. 333-231213, 333-194938, 333-190902, 333-237540) of Fidelity National Financial, Inc.
3. Registration Statements (Form S-8 Nos. 333-197249, 333-190527, 333-157643, 333-132843, 333-138254, 333-129886, 333-129016, 333-176395, 333-213427, 333-238853, 333-266992) of
Fidelity National Financial, Inc.
of our reports dated February 27, 2023, with respect to the consolidated financial statements and schedules of Fidelity National Financial, Inc. and subsidiaries and the effectiveness of internal control
over financial reporting of Fidelity National Financial, Inc. and subsidiaries included in this Annual Report on Form 10-K for the year ended December 31, 2022.
/s/ Ernst & Young LLP
Jacksonville, Florida
February 27, 2023
Exhibit 31.1
I, Michael J. Nolan, certify that:
1. I have reviewed this annual report on Form 10-K of Fidelity National Financial, Inc.;
CERTIFICATIONS
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent functions):
(a)
(b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: February 27, 2023
By:
/s/ Michael J. Nolan
Michael J. Nolan
Chief Executive Officer
Exhibit 31.2
I, Anthony J. Park, certify that:
1. I have reviewed this annual report on Form 10-K of Fidelity National Financial, Inc.;
CERTIFICATIONS
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
(b)
(c)
(d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent functions):
(a)
(b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: February 27, 2023
By:
/s/ Anthony J. Park
Anthony J. Park
Chief Financial Officer
CERTIFICATION OF PERIODIC FINANCIAL REPORTS PURSUANT TO 18 U.S.C. §1350
The undersigned hereby certifies that he is the duly appointed and acting Chief Executive Officer of Fidelity National Financial, Inc., a Delaware corporation (the “Company”), and hereby further
certifies as follows.
1.
2.
The periodic report containing financial statements to which this certificate is an exhibit fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934.
The information contained in the periodic report to which this certificate is an exhibit fairly presents, in all material respects, the financial condition and results of operations of the
Company.
In witness whereof, the undersigned has executed and delivered this certificate as of the date set forth opposite his signature below.
Exhibit 32.1
By:
/s/ Michael J. Nolan
Michael J. Nolan
Chief Executive Officer
Date: February 27, 2023
CERTIFICATION OF PERIODIC FINANCIAL REPORTS PURSUANT TO 18 U.S.C. §1350
The undersigned hereby certifies that he is the duly appointed and acting Chief Financial Officer of Fidelity National Financial, Inc., a Delaware corporation (the “Company”), and hereby further
certifies as follows.
1.
2.
The periodic report containing financial statements to which this certificate is an exhibit fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934.
The information contained in the periodic report to which this certificate is an exhibit fairly presents, in all material respects, the financial condition and results of operations of the
Company.
In witness whereof, the undersigned has executed and delivered this certificate as of the date set forth opposite his signature below.
Exhibit 32.2
By:
/s/ Anthony J. Park
Anthony J. Park
Chief Financial Officer
Date: February 27, 2023