Fidelity leads way in insurance industry

By Andrew Frye  |   2008-6-7  |     NEWSPAPER EDITION

FIDELITY National Financial Inc has beaten every stock in the KBW Insurance Index this year by attracting investors who want to bet on a United States housing recovery without owning assets tainted by subprime mortgages.

Fidelity, the second-largest insurer of titles to US homes, was profitable in the first quarter, while record defaults by home owners led to more than US$10 billion of combined losses at American International Group Inc, the biggest US insurer, and MBIA Inc, the No. 1 bond guarantor, Bloomberg News reported.

Shares in Fidelity have risen 12 percent this year, as KBW's 24-stock index declined 9.1 percent.

Investors backed Fidelity because title insurance claims aren't directly linked to slumping prices or whether mortgages get paid on time, and its holdings have kept their value.

Fidelity and First American Corp, the largest company that protects home buyers from challenges to their ownership, paid out less than 20 percent of revenue in claims last year, while Travelers Cos and AIG paid more than half.

"Claims go up and claims go down within a modest range," said Jerome Bruni, president of Colorado-based J.V. Bruni and Co, which manages US$650 million and holds 1.27 million shares of Florida-based Fidelity. "It's not like Hurricane Katrina can come up and wreak havoc."

Title insurance stocks declined at the end of last year to their lowest in a decade relative to book value, or assets minus liabilities. Fidelity trades at less than 1.1 times book value and California-based First American is at 1.

Most title insurers' revenue is spent on commissions and salaries. They've been slashing costs by firing workers as home sales fell.

Fidelity has eliminated 8,500 jobs since 2003, a 46-percent cut, according to Vice President Daniel Murphy.