Fidelity National Financial Inc

NYSE:FNF

Earnings Call Transcript 2022-Q1

[Operator]

Good morning and welcome to FNF's First Quarter 2022 Earnings Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions with instructions to follow at that time. As a reminder, this conference call is being recorded.

I would now like to turn the call over to Lisa Foxworthy-Parker, Senior Vice President Investor and External Relations. Please, go ahead.

[Lisa Foxworthy-Parker]

Great. Thanks, operator, and welcome again, everyone. Before we begin and as a reminder, today's earnings call may include forward-looking statements and projections under the Private Securities Litigation Reform Act, which do not guarantee future events or performance. We do not undertake any duty to revise or update such statements to reflect new information, subsequent events or changes in strategy.

Please refer to our most recent quarterly and annual reports and other SEC filings for a discussion of the factors that could cause actual results to differ materially from those expressed or implied. We will be discussing certain non-GAAP measures on this call which we believe are relevant in assessing the financial performance of the business and you'll find reconciliations of these metrics within our earnings materials available on the company's website.

Yesterday, we issued a press release which is also available on our website. And today's conference call will be available for webcast replay at fnf.com. It will also be available through telephone replay beginning at 2:00 PM Eastern today through May 18, 2022.

Joining me this morning, to discuss the business momentum we are seeing at FNF and F&G and our results in further detail, are Mike Nolan, CEO; Tony Park, CFO; and Chris Blunt, F&G's CEO. We look forward to addressing your questions following conclusion of our prepared remarks.

And with that, I'll now turn the call over to Mike.

[Mike Nolan, Chief Executive Officer]

Thank you, Lisa, and good morning. Overall, we had a great start to the year, with total revenue of $3.2 billion, the best first quarter in FNF history. Our title business is performing well, as we had our second best first quarter in terms of adjusted pre-tax earnings and adjusted pre-tax margin.

Similarly F&G continues to deliver on its diversified growth strategy and we are excited about the recently announced dividend distribution of 15% ownership stake in F&G to FNF shareholders, which is on track to be completed in the late third quarter or early fourth quarter of this year.

Focusing on the title business, we have entered a period of rising interest rates coming off the historically low mortgage rates over the last two years. The average 30-year fixed mortgage rate has driven from roughly 3% at year-end to around 4% at the end of the first quarter and more recently to over 5% at the end of April.

We have seen steady levels of residential purchase origination demand, although, given the current environment, we are not seeing the typical increase heading into the spring selling season.

While current residential purchase demand is trailing last year, 2021 was a record year for the US residential purchase market and current forecasts indicate 2022 will still be one of the strongest purchase origination markets in the last decade.

We also continue to benefit from strength in the commercial market and home price appreciation in the residential purchase market. Commercial fee per file increased 35% and residential purchase fee per file increased 9% versus the prior year, which taken together have served to buffer reduced refinance volumes.

For the first quarter, total orders opened averaged 8,600 per day. For the month of April, total orders opened were 7,400 per day. Aside from the moderated refinance volumes, commercial and residential purchase activity have held up well especially as compared with the robust levels in early 2021, which benefited from low interest rates and pent-up demand from the pandemic and business shutdowns that occurred in 2020.

Daily purchase orders opened were down 1% or nearly in line with the first quarter of 2021 and down 6% for the month of April versus the prior year. Refinance orders opened per day were down 57% from the first quarter of 2021 and down 63% for the month of April versus the prior year.

Lastly, total commercial orders opened per day were higher by 6% over the first quarter of 2021 and lower by 2% for the month of April versus the prior year. For April, total commercial orders opened were over 1,000 per day for the fourth month in a row. This represents positive momentum going into the second quarter given the longer tail for closings in commercial as compared with residential.

Overall, we have seen stability in Title revenue for the quarter. Total revenue was $2.4 billion compared with $2.5 billion in the first quarter of 2021. Total revenue excluding recognized gains and losses was $2.6 billion and in line with the first quarter of 2021. For the quarter we delivered adjusted pre-tax Title earnings of $437 million a, 15% decrease from the prior year and an adjusted pretax Title margin of 17.1% as compared with 19.9% in the year ago quarter.

The results were driven by a 58% decrease in daily refinance orders closed partially offset by a 49% increase in average fee per file and a 7% increase in total commercial orders closed. Of note, total commercial revenue was $374 million compared with the year ago quarter of $257 million driven by the 7% increase in closed orders and 35% increase in total commercial fee per file.

Moving forward, we will remain focused on a number of areas. First, we continue to execute on our disciplined operating strategy in the Title segment. Given our long history and deep experience navigating various economic cycles, we have a proven track record of evaluating real-time market trends and effectively managing margin by adjusting expenses to align with trends in opened and closed order volumes.

Next, we will also continue to make investments to ensure we maintain and extend our market-leading position. Over the last decade, we have created an innovative and scalable technology platform in our Title business with expansive offerings to service the broader real estate industry.

We continue to make significant investments in developing, enhancing and integrating technology for ourselves and our customers. In 2021, considerable effort was put into enhancing functionality and expanding adoption of our inHere Experience Platform, a differentiated end-to-end digital platform that transforms the experience of buying, selling, or refinancing a home.

Additionally, over the last 12 months, we have made 10 acquisitions in the Title space for approximately $92 million and we continue to review potential acquisition targets to grow our national footprint. Last, but not least turning to F&G and which Chris will discuss in more detail in a moment, First quarter sales rose by 57% year-over-year to $2.6 billion with assets under management ending the quarter at $38.6 billion as we continue to take share, while gaining momentum in new distribution channels.

F&G contributed 21% to our adjusted earnings this quarter as compared to 17% in the year ago first quarter. As F&G's assets under management grow so too will their earnings power and contribution to FNF. We view this as a competitive advantage as F&G's primarily spread-based business provides a steady and growing source of earnings that will benefit FNF over time.

While F&G has exceeded expectations and remains an important part of our business, the market has not yet recognized the value creation that has taken place at F&G. As a result, we announced our plan in March to dividend 15% of the common stock of F&G to FNF shareholders on a pro rata basis with the expectation that F&G will be publicly listed in late third quarter or early fourth quarter of 2022, subject to customary approvals.

By retaining 85% ownership of F&G, we will continue to benefit from their growth while also highlighting the substantial equity value that has been and will continue to be created.

Finally, I would like to wrap-up by thanking our employees. Our team has continued to perform exceptionally well and kept our operations running efficiently with a steadfast focus on our customers.

Let me now turn the call over to Chris Blunt to review F&G's first quarter highlights.

[Chris Blunt, Chief Executive Officer, F&G]

Thanks Mike. The first quarter kicked off a strong start to 2022. We achieved sales of $2.6 billion, which boosted ending assets under management to $38.6 billion as of March 31st. Our success in expanding distribution under FNF's ownership now gives us the ability to source premiums from five distinct channels versus one at the time of the acquisition in June of 2020.

Our first quarter retail sales totaled $1.5 billion in line with the prior year quarter. The relatively flat sales from our agent bank and broker-dealer channels in the quarter reflected pricing actions taken in response to the macro environment in the fourth quarter, which carried into early first quarter results.

We took a measured approach in reflecting the move up in rates in our pricing during the early part of 2022, but have subsequently seen record levels of submitted annuity premium in March and April and are well-positioned to resume our strong growth trajectory in the second quarter.

Turning to institutional markets, which we launched in mid-2021, our first quarter sales totaled $1.1 billion. The first quarter marked our largest single pension risk transfer transaction to-date with over $500 million in premium transferred and we were ranked eighth in total market share for the full year 2021 according to LIMRA. This demonstrates our leadership in the large and growing addressable markets we plan. We foresee that demographic trends will provide tailwinds to give us significant room to continue growing in the untapped middle market, as well as the opportunity to migrate consumers from bank CDs to attractive fixed annuity products in a rising rate environment.

Our business model gives us a sustainable competitive advantage within our markets, given our long-standing relationships with distribution, durable investment management edge through our Blackstone partnership and a track record of attracting top talent. We continue to deliver consistent top line growth and net spread across varying market cycles. Adjusting for favorable investment income notable items, total net investment spread was 265 basis points and FIA spread was 334 basis points, both in line with our historical trends and consistent with our disciplined approach to pricing.

With regard to earnings, F&G's adjusted net earnings for the first quarter were $82 million. Adjusted net earnings for the quarter included net unfavorable items of $16 million, primarily $38 million in tax expense for a valuation allowance recorded against deferred tax assets related to the past sale of discontinued operations, partially offset by $22 million of favorable items, primarily comprised of gains on collateralized loan obligation redemptions.

Adjusted net earnings excluding those notable items were $98 million in the first quarter, an increase of $32 million or 48% compared to $66 million in the prior year quarter. Adjusted return on assets excluding notable items of 105 basis points was driven by our growing AAUM and strong spread results from disciplined pricing actions on both new business, as well as our in-force book. The financial results demonstrate the underlying earnings power of the F&G business model, particularly in a rising rate environment. We are well positioned for future growth and feel that we are at an inflection point with FNF's announcement of its intention to take F&G public through the dividend of 15% of the common stock of F&G to FNF shareholders as Mike mentioned.

We expect a list on the New York Stock Exchange with the ticker symbol, FG during late third quarter or early fourth quarter of this year. We see this as a vote of confidence for our business, while maintaining benefit from the continued partnership of FNF's majority ownership. We anticipate that the transition back to being a stand-alone public company will help to reinforce the value of F&G and allow investors to invest directly in F&G to capitalize on the earnings and cash flow potential of our in-force book, as well as the upside potential from our new business platform. The transaction is subject to various conditions including final approval by the FNF Board of Directors, filing and effectiveness of a Form 10 registration statement under the Securities Exchange Act of 1934 as amended and any applicable regulatory approvals. We look forward to providing further updates in the coming months.

I will now turn the call over to Tony Park to review FNF's first quarter financial highlights.

[Tony Park, Chief Financial Officer]

Thank you, Chris. Starting with our consolidated results, we generated $3.2 billion in total revenue in the first quarter, with the Title segment producing $2.4 billion, F&G producing $748 million and the Corporate segment generating $34 million. First quarter net earnings were $397 million including net recognized losses of $469 million versus net earnings of $605 million including $43 million of net recognized gains in the first quarter of 2021. The net recognized gains and losses in each period are primarily due to mark-to-market accounting treatment of equity and preferred stock securities, whether the securities were disposed of in the quarter or continue to be held in our investment portfolio.

Excluding net recognized gains and losses, our total revenue was $3.6 billion as compared with $3.1 billion in the first quarter of 2021. Adjusted net earnings from continuing operations was $388 million or $1.37 per diluted share compared with $455 million or $1.56 per diluted share for the first quarter of 2021. The Title segment contributed $334 million, F&G contributed $82 million and the Corporate segment had an adjusted net loss of $28 million.

Turning to the Title segment financial highlights. Our Title segment generated $2.6 billion in total revenue, excluding net recognized losses of $175 million in the first quarter compared with $2.6 billion in the first quarter of 2021. Direct premiums increased by 3% versus the first quarter of 2021, agency premiums grew by 4% and escrow title-related and other fees decreased by 11% versus the prior year. Personnel costs increased by 3% and other operating expenses decreased by 2%. All in, the Title business generated a 17.1% adjusted pre-tax title margin for the quarter, a decrease of 280 basis points versus the record 19.9% in the prior year quarter.

Our Title and Corporate investment portfolio totaled $6.5 billion at March 31. Interest and investment income in the Title and Corporate segments of $27 million, declined $2 million as compared with the prior year quarter primarily due to decreases in bond interest. Given the rising rate environment, we would anticipate the potential for higher investment income. To help put it in perspective for the Title and Corporate portfolio, we would expect approximately $5 million in annual run rate income for each 25 basis point increase in Fed funds with some moderation after about 200 basis points.

Our Title claims paid of $54 million were $30 million lower than our provision of $84 million for the first quarter. The carried reserve for Title claim losses is approximately $85 million or 5% above the actuary central estimate. We continue to provide for Title claims at 4.5% of total Title premiums.

Let me wrap up with a few thoughts on capital and liquidity. We remain focused on ensuring a balanced capital allocation strategy as we navigate the current environment. This encompasses making investments in title technology and other strategic initiatives to support innovation and organic growth in the business

Continuing to evaluate sensible strategic M&A opportunities in real estate-related businesses, title agencies and technology acquisitions, paying a generous quarterly dividend to our shareholders and repurchasing shares. With regard to capital funding commitments to F&G as shared in prior quarters, ahead of the F&G dividend distribution transaction, we expect to convert the existing $400 million intercompany term loan into equity. This will conclude FNF's capital commitments to F&G. Going forward, F&G intends to fund its continued growth with their strong and growing statutory earnings, reinsurance programs and unused debt capacity. F&G's debt to total capital ratio was 19% at March 31 and they expect to manage to a 25% debt to total capital ratio long-term target in line with ratings.

We ended the quarter with $1.5 billion in cash and short-term liquid investments at the holding company level in line with the sequential quarter. FNF's consolidated debt was $3.1 billion on March 31, which includes $400 million of 5.5% senior notes that will mature in September of 2022. Our annual interest expense on debt outstanding is approximately $100 million. During the first quarter, we paid common dividends of $0.44 per share for a total of $124 million. We view our current $500 million annual common dividend as sustainable. The dividend is reviewed quarterly and expected to increase over time subject to cash flows, alternative uses of capital and market conditions.

FNF continues to return excess cash to shareholders over time through share repurchases and has remained active throughout the first quarter and into the second quarter. During the first quarter, we repurchased 2.75 million shares for a total of $134 million at an average price of $48.68 per share. Combined, we have returned over $250 million of capital to our shareholders through common dividends and share repurchases in the first quarter.

This concludes our prepared remarks. And let me now turn the call back to our operator for questions.

[Operator]

Thank you. [Operator Instructions] Our first question comes from the line of Mark Hughes with Truist. Please proceed with your question.

[Mark Hughes, Truist]

Yes. Thank you. Good morning.

[Chris Blunt, Chief Executive Officer, F&G]

Good morning.

[Tony Park, Chief Financial Officer]

Good morning.

[Mark Hughes, Truist]

The acceleration you saw in sales in March and April was that a pricing action on your part? Was that just a broader uptick in demand on FIAs given the interest rate environment and the, I guess the equity market volatility?

[Chris Blunt, Chief Executive Officer, F&G]

Yeah. Great question. I think it was really a function of we were a little late to move pricing. Rates moved up quite quickly particularly in the liquid credit part of the market. And we just want to make sure that that was sustainable. And once we kind of moved with competitors and kind of move back to our traditional margin, we've seen sales jump pretty dramatically.

[Mark Hughes, Truist]

And then with this kind of backdrop, do you look to expand spreads either in the FIA category overall, or is that going to be a steady spread and whatever additional interest rate goes with the policyholder?

[Chris Blunt, Chief Executive Officer, F&G]

No, I think we do look at this as an environment to take a little bit of extra spread. Obviously you need to remain competitive. You need to have good competitive renewal rates. It's incredibly important to both policyholders, but also distribution partners but some spread expansion just happens even if you're not attempting to do that just given the movements that we've seen on the rate side.

Meaning we're pricing product we're bringing in premium. And by the time, we actually get it invested, you're in most cases grabbing a couple of extra basis points of spread. So I do think this is an environment we can continue to grow. We can continue to be very competitive, take market share, and at the same time, probably get a little extra spread along the way.

[Mark Hughes, Truist]

And then one quick question, if I might on the Title business purchase you described down 6% in April. Any sense of the trajectory of that given the interest rates have been moving so fast, how stable has that been? What's your experience been kind of in a recent week or two?

[Mike Nolan, Chief Executive Officer]

Sure, Mark, it's Mike. I would say it will all be dependent of course on whether rates stabilize or continue to move up. But as I mentioned in the opening, we're not seeing the typical increase as you move into the May, June time frame which are typically the peak months in a year. And we just may see – I would expect that, we'll see purchase orders kind of flattish through that time frame instead of increasing and then probably start to see just the typical month-over-month slight decline as you move through the back end of the year.

[Mark Hughes, Truist]

Thank you for that.

[Operator]

Our next question comes from the line of Andrew Kligerman with Credit Suisse. Please proceed with your question.

[Andrew Kligerman, Credit Suisse]

Hey, good morning. Mike on that last question, did I hear you correctly in your opening remarks when you said that opened orders for purchase went from 8,600 in April daily to 7,400 as we kind of start May. Is that right?

[Mike Nolan, Chief Executive Officer]

No, that's not correct Andrew that was total opened orders not purchase and the decline is primarily on the refi side.

[Andrew Kligerman, Credit Suisse]

Got it. Okay. Good. So things are somewhat stable then...

[Mike Nolan, Chief Executive Officer]

Yeah, but purchase is more a bit more stable although down, as I mentioned 1% for the first quarter and 6% for April year-over-year.

[Andrew Kligerman, Credit Suisse]

Got it. Good to hear. Okay. And then with respect to the adjusted pre-tax margin 17.1% in the quarter down from 19.9% year-over-year. And then sequentially down from 22.4%. And all the while revenue – or at least year-over-year the revenue as you cited is flat. So could you possibly Mike or Tony help me to dissect, what's driving that margin down and where we might expect that to be going forward?

[Mike Nolan, Chief Executive Officer]

Sure. It's Mike and I'll start with the first part. In terms of the year-over-year, which is really the more valid way to make a comparison, you really in our industry you can't really compare fourth quarter margins to first quarter margins. It's just that the trajectory of the business just doesn't really drive that. But if you look at the year-over-year, it's really just three things. We had personnel costs up about 3% in the Title segment on flattish revenue. So that takes your margin down a little bit.

We had a higher mix of agency revenue to the total. And as you know our agency gross margins are industry-leading, but still in the 9% to 10% range up against a direct pre-tax margin that might be in the mid-20s or 30s. So that has a bit of an impact. And then there's a few non-Title businesses -- in the Title segment that also had a little bit of margin compression quarter-over-quarter.

And then to your second question about going forward, I would expect margins to be very good. As you know we don't give guidance. But as we look at the second quarter, we still expect to see a very healthy commercial environment. Purchase maybe not as good as the original forecast thought, but still actually a very good purchase market in a historical context standpoint and just it should be a good quarter.

[Andrew Kligerman, Credit Suisse]

Got it. That's good to hear. And then as I kind of think about the expenses and you just said Mike that personnel was up 3%. And then I looked at other operating expenses year-over-year that was actually down 2%. With these pressures how are you looking at both the personnel and the other operating expenses going forward?

[Mike Nolan, Chief Executive Officer]

Sure. And we started with some modest resizing of the business and staff reductions. We had a little bit in the fourth quarter some more in the first quarter. And the first quarter number also includes adding approximately 250 employees through acquisitions as well as industry-focused hiring. So we continue to kind of work on both ends of it adding talented people to the company that can drive additional revenues but also rightsizing the overall size to the environment. And as we go through the second quarter, I would anticipate maybe another 3% to 4% decline in total employee counts.

[Tony Park, Chief Financial Officer]

And Andrew, it's Tony. Just maybe to add on to that. If you look at our personnel costs we're probably about two-thirds fixed and one-third variable in that line item. So clearly as revenue and profits move our variable costs on the personnel side move with them. And then the fixed are more salaries, payroll taxes that sort of thing. And of course that salaries get adjusted when you take headcount out.

On the other operating expense side of things we're probably a little more variable there. We have cost of sales in there and some of our businesses like valuations and maybe loan care. We have Title plant costs that can be more variable, certain professional fees. And so that's why you see maybe a little bit more of a decline or you see a little bit of a decline on the other operating versus a little bit of an increase on the personnel.

[Andrew Kligerman, Credit Suisse]

Very helpful. Thank you.

[Operator]

Our next question comes from the line of John Campbell with Stephens. Please proceed with your question.

[John Campbell, Stephens]

Hi, guys. Congrats on the quarter. Good morning.

[Mike Nolan, Chief Executive Officer]

Hi, John.

[Tony Park, Chief Financial Officer]

Hi, John. Thanks.

[John Campbell, Stephens]

Hey, Chris maybe starting off with you on the -- over the last year it looks like the F&G adjusted net earnings on a quarterly basis, it looks like you guys have averaged roughly $90 million. I think maybe that's a little bit -- a little overstated. It sounds like maybe normalized more like $80 million. But, obviously, you guys have built up the AUM quite a bit. I imagine you're probably getting a degree of added tailwinds with rates. But it's somewhere in that kind of $80 million to $90 million range per quarter. Is that a good range to consider going forward?

[Chris Blunt, Chief Executive Officer, F&G]

Yeah. No I think it is. And again if we just go back to that simple 1% return on asset metric and you project out average assets under management that's going to put you in the right ZIP code. But, yeah, I think that's a good starting point. Some positives this quarter continue to have some CLO refinancings. So that's pulling forward some earnings that will clearly decline now given where rates are but then we also had the tax adjustment. But yeah if you strip out some of the one-timers and some of the noise I'd still point back to that 1% ROA figure. We've been doing a bit better than that given the environment but I think that's a good estimate.

[John Campbell, Stephens]

Okay. That's helpful.

[Tony Park, Chief Financial Officer]

Yeah. And John it's Tony. Just maybe to put a finer point on it. When you do strip out those items that Chris was talking about we're actually closer to $100 million in the quarter. I think we were at $98 million excluding those notable items versus $66 million just to a year ago in Q1. So to Chris' point $98 million is almost $400 million run rate and that's pretty close to 100 basis points on assets.

[John Campbell, Stephens]

Yeah, makes sense. And I mean you guys have really put up some good results out of F&G. So hopefully with the 15% spend you guys will eventually get credit for that for sure.

On the commercial side that has been way ahead of at least our expectations the last couple of quarters. It looks like on the national side, it looks like open order is up 16% year-over-year, so continued momentum there. But maybe if you guys could talk about the mix what asset classes you would point out as the drivers of momentum and how you feel about the commercial business the rest of the year?

[Mike Nolan, Chief Executive Officer]

Yeah John, it's Mike. And you're absolutely right. The national orders will actually have closer to 18% quarter-over-quarter. But we're very optimistic on commercial. We've now got as I mentioned in the opener four months in a row over thousand orders a day. We're 14 out of our last 15 months have been over thousand a day, which from a historical standpoint is probably 20% better than the best trends we've ever had.

And from an asset class standpoint, we continue to see industrial multifamily are very strong. You see gaming and energy transactions come in and out. And in some cases hospitality improving, retail improving, some office transactions. So it's a pretty broad-based asset class activity and the geographic activity continues. So I would just say we're bullish on commercial for the year. And certainly with the pickup in national orders in particular, we should see that average fee per file continue to be pretty strong.

[John Campbell, Stephens]

Yeah. It’s good to hear. Thanks for the color guys.

[Mike Nolan, Chief Executive Officer]

Thanks John.

[Operator]

Our next question comes from the line of Bose George with KBW. Please proceed with your question.

[Bose George, KBW]

Hey, guys. Good morning. First, just in terms of the trend in premiums, just given home price appreciation remains strong and the benefit to fee per file, could we end up with premiums being fairly flat year-over-year on the purchase side despite the declines in volumes that you've highlighted?

[Tony Park, Chief Financial Officer]

Yeah. Bose, it's Tony. Yeah I think that's a real possibility. We obviously don't know exactly where we're headed in terms of volumes. And I think everyone believes that there's going to be pressure on that given what's going on with mortgage rates. But having said that I also think that we'll continue to see home price appreciation albeit probably moderating as we work through the year, which might be a good thing, because affordability will become more challenging if you have home prices continue to increase and mortgage rates continue to increase. So, yeah, I mean if you had a 10% decline in volumes and a 10% increase in price appreciation, you might see some sort of a wash.

[Bose George, KBW]

Yeah. Okay. So that makes sense. And then, Tony could you just repeat what you said about the expectations from interest income as rates increase?

[Tony Park, Chief Financial Officer]

Yeah, absolutely. And this is a rough estimate. But based on our portfolio, especially given how short it is, we would anticipate roughly $5 million in run rate income for each 25 basis point increase in Fed funds. And so we're already seeing some of that. Maybe to put it in perspective, I think we had about $110 million or so in investment income in Title and Corporate last year, and I could see that trending closer to maybe 180 if the Fed moves the way everyone has anticipated they will, which is maybe 10, 25 basis point increases or 250 basis points by first quarter of next year.

So, we definitely would expect to see some nice growth in investment income. And most of that's going to be from our cash balance as well as our 1031 Exchange business. Now, I also did say that, on the 1031 Exchange side, once we get to about 200 basis points of increases I think there's going to be a little bit more pressure on the customer side on -- at 1031. So, you don't necessarily get it dollar for dollar after that.

[Bose George, KBW]

Okay, great. That's helpful. And then, actually just one for Chris. The volatility in the equity markets, how does that impact just the hedging of the spread that you guys are offering?

[Chris Blunt, Chief Executive Officer, F&G]

Yeah. Those results have actually been quite consistent. Keep in mind, a big portion of the indices now are multi-asset indices. So, we've seen our hedging costs, if you will be pretty stable throughout this. So it's really anticipated volatility matters more. So, it really hasn't been a big swing factor so far.

[Bose George, KBW]

Okay. Great. Thanks.

[Operator]

[Operator Instructions] Our next question comes from the line of Ryan Gilbert with BTIG. Please proceed with your question.

[Ryan Gilbert, BTIG]

Hi, thanks. Good morning. Thanks for taking the questions. Just going back to what you said earlier about the sequential trends in -- heading into 2Q. It sounds like maybe we're heading towards in the purchase market anyway is maybe a mid-teens year-over-year decline in closed order counts in 2Q and maybe 3Q as well. Is that a fair characterization?

[Mike Nolan, Chief Executive Officer]

A mid-teens decline in closed door accounts and purchase.

[Ryan Gilbert, BTIG]

Yes.

[Mike Nolan, Chief Executive Officer]

Is that what you said?

[Ryan Gilbert, BTIG]

Yes. Just based on flattish month-over-month trends.

[Mike Nolan, Chief Executive Officer]

Yes. I don't know Ryan. I'd have to probably do a little math on that, but that sounds a little strong to me. But I'd have to look at it.

[Ryan Gilbert, BTIG]

Okay. Got it.

[Mike Nolan, Chief Executive Officer]

I mean we were -- our purchase trends were down 1% in the first quarter. And a lot of that's going to tee up your second quarter closings and you're saying mid-teens decline, it just seems a little bit of a -- I don't know that I'd get there from a 1% decline in the first quarter.

[Ryan Gilbert, BTIG]

Okay. Got it. And then we typically see a sequential increase in Title pretax margin from 1Q to 2Q. It sounds like that's still on the table. Is that correct?

[Mike Nolan, Chief Executive Officer]

Yes. Again, we don't give guidance but I would say that certainly in the realm, it's going to just depend on how commercial comes through. And maybe purchase as well. But certainly, something that we think for the realm.

[Ryan Gilbert, BTIG]

Okay. Great. Last one for me on F&G. Chris can you just remind us the return profile by each distribution channel?

[Chris Blunt, Chief Executive Officer, F&G]

Yes. So, I would say generally in our business, the independent agent channel has tended to have the highest return slightly less in bank and broker-dealer. Our PRT business is comparable returns to the business that we write in the retail channel. So, we blend it all together, it's really not all that dramatic. I mean you could be talking a point in one direction or the other. So, pretty consistent across the channels. Obviously that can vary within a year in different competitive environments, but pretty consistent. .

[Ryan Gilbert, BTIG]

Okay. Great. Thanks. I appreciate it.

[Operator]

We have a follow-up question from the line of Mark Hughes with Truist. Please proceed with your question.

[Mark Hughes, Truist]

Yes. I was just going to kind of get at that earlier issue about the closings of the trajectory in 2Q by asking, what's the normal step-up -- kind of seasonal step-up in May and June? If it's not going to happen this year kind of what's the absence that we're going to see?

[Mike Nolan, Chief Executive Officer]

Yes. Well, on the open side, Mark, usually you're seeing -- and it can depend on the year, but as you kind of go from March, May to June and maybe you're seeing sequential increases in the 3%, 4%, 5% per month and then it starts to kind of go back down the other way. And so, we're not -- absent a surprise, we're not seeing that. So it might be more flattish as I said earlier. And that's on the open side which of course feeds into the closing.

[Mark Hughes, Truist]

Yes. Yes, helpful to get some sort of magnitude on that. That was my only question. Thank you.

[Operator]

There are no further questions in the queue. I'd like to hand the call back over to Mr. Nolan for closing remarks.

[Mike Nolan, Chief Executive Officer]

We are pleased with the great start to the year despite the uncertainty and volatility in the current macro environment. FNF is well positioned to execute through this rising rate environment due to our disciplined operating strategy and long history of navigating market cycle fluctuations. Likewise, F&G is poised to benefit from the rising rate environment and is on track to list as a publicly traded company later this year. Thanks for your time this morning. We appreciate your interest in FNF and look forward to updating you on our second quarter earnings call.

[Operator]

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.