Fidelity National Financial Inc

NYSE:FNF

Earnings Call Transcript 2020-Q3

[Operator]

Good morning, ladies and gentlemen and welcome to the FNF 2020 Third Quarter Earnings Call. During today’s presentation all parties will be in a listen-only mode. Following the presentation, the conference will be opened 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 Jamie Lillis, Investor Relations for FNF. Please go ahead, sir.

[Jamie Lillis, Investor Relations]

Thank you, operator, and good morning everyone. Thank you for joining our third quarter 2020 earnings conference call. Joining me today is our CEO, Randy Quirk; President, Mike Nolan; CFO, Tony Park; and F&G’s CEO, Chris Blunt. We’ll begin with a brief strategic overview from Randy, Mike will review the title business, Chris will review F&G and Tony will finish with a review of the financial highlights. We’ll then open the call for your questions and finish with some concluding remarks from Randy.

But before we begin, I would like to remind you that this conference call may contain forward-looking statements that involve a number of risks and uncertainties, in particular, the COVID-19 pandemic. There is significant uncertainty about the duration and extent of the impact of this pandemic. Statements that are not historical facts, including statements about our expectations, hopes, intentions or strategies regarding the future are forward-looking statements.

Forward-looking statements are based on management’s beliefs as well as assumptions made by and information currently available to management at the time of this call. Because such statements are based on expectations as to future financial and operating results and are not statements of fact, actual results may differ materially from those projected. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

The risks and uncertainties which forward-looking statements are subject to include but are not limited to the risks and other factors detailed in our press release dated yesterday and in the statement regarding forward-looking information, risk factors and other sections of the company’s Form 10-K and other filings with the SEC.

This conference call will be available for replay via webcast at our website at fnf.com. It will also be available through phone replay beginning at 3:00 p.m. Eastern Time today through November 12. The replay number is [phone] and the access code is 13710928.

Let me now turn the call over to our CEO, Randy.

[Randy Quirk, Chief Executive Officer]

Thank you, Jamie. I would like to start by thanking our employees for their continued efforts as we work together through this challenging environment. It is our goal to ensure the health and safety of our employees while maintaining the continuity and efficiency of our operations as we strive to meet our customers’ needs day in and day out. We were able to accomplish these goals and achieve superior results in the third quarter while approximately 60% of our workforce continued to work remotely.

For the third quarter, we generated record adjusted pre-tax title earnings of $528 million compared with $407 million in the year ago quarter, and a 21.2% adjusted pre-tax title margin compared with 18.6% in the third quarter of 2019 and our best sense the third quarter of 2003. While our financial results were robust, we also made strong gains advancing our technology initiatives, which are focused on improving the security, transparency and overall closing experience for FNF’s customers. Mike will go into this in more detail, but we believe that our unmatched national footprint and strong local market relationships provide FNF with a significant competitive advantage that we can further leverage with technology.

Turning to our acquisition of FGL Holdings, F&G continues to execute on its growth strategy, producing excellent sales results in the quarter while maintaining pricing discipline. F&G’s recent entrance into the bank and broker dealer channel that surpassed expectations, we continue to see strong momentum into the fourth quarter. Furthermore, F&G’s investment portfolio continues to perform well in the current environment. Chris and his team also had success during the third quarter, streamlining the F&G’s operations as they entered into an agreement to sell F&G re-insurance to Aspida Holdings, a subsidiary of Ares Management Corporation.

The rationale for this divestiture was largely tied to the tax advantage of this third-party offshore reinsurance platform, which was no longer available upon FNF’s acquisition of F&G. In connection with the transaction, F&G also entered into a mutually beneficial annuity flow reinsurance partnership. The sale of F&G’s reinsurance represents a terrific outcome for F&G, its clients, employees and FNF’s shareholders. The transaction is expected to close prior to year end. Chris will go into more detail on F&G’s third quarter results shortly.

Looking forward, we continue to be committed to creating meaningful long-term value for our shareholders to our capital allocation strategy. Most recently we announced a quarterly cash dividend of $0.36 per share, which reflects a fourth quarter dividend increase of 9%. In conjunction with this announcement, we announced our plans for targeting $500 million in share repurchases based on market conditions over the course of the next 12 months.

Let me now turn the call over to Mike Nolan to discuss title insurance business in more detail.

[Mike Nolan, President]

Thank you, Randy. As Randy mentioned, the third quarter was a record quarter for adjusted pre-tax title earnings and produced our best quarterly adjusted pre-text title margin since the third quarter of 2003 as we benefited from the delayed spring selling season and sustained momentum in refinance. For the third quarter, we have generated adjusted pre-tax title earnings of $528 million, a 30% increase over the third quarter of 2019. Our adjusted pre-tax title margin was 21.2%, a 260 basis point increase over the prior year quarter. We had a 40% increase in direct orders closed driven by an 87% increase in daily refinance orders closed, an 8% increase in daily purchase orders closed offset by a 16% decrease in total commercial orders closed.

Total commercial revenue was $216 million compared with the year ago quarter of $301 million due to the 16% decrease in closed orders and a 14% decline in total commercial fee profile. For the third quarter, total orders opened averaged 13,200 per day with July at 13,300; August at 13,500; and September at 13,000. For October, total orders open or over 11,800 per day as we continue to see a strong recovery in purchase activity and continued strength in the refinance market. Daily purchase orders opened were up 12% in the quarter versus the prior year. For October, daily purchase orders open were up 15% versus the prior year.

Refinance orders opened increased by 83% on a daily basis versus the third quarter of 2019. For October, daily refinance orders opened were up 71% versus the prior year.

Lastly, total commercial orders opened increased by 4% over the third quarter of 2019. We continue to see steady improvement in commercial open orders per day during the quarter with the third quarter up 32% sequentially from the second quarter. For October, total commercial orders open per day were up 1% over October, 2019.

Our third quarter was also marked by notable achievements as we continue to invest in our digital technology initiatives, as Randy noted. We have been investing in technology and innovation designed to further enhance our existing systems and improve our customers’ experience working with FNF. One example is our startSafe initiative, which reached as a significant milestone during the third quarter.

We passed 800,000 digital opening packages delivered to buyers and sellers of residential purchase and refinance transactions, and are encouraged that 60% of all packages were completed. This high completion rate is evidence that consumers are ready to adopt a new real estate experience and a new way of interacting with title companies. Given the widespread pandemic and our current virtual environment, now is the time to accelerate this adoption.

Our focus will continue to be centered on utilizing technology to drive efficiencies across the title: life cycle, which will not only better meet the needs of real estate agents and lenders, but also improve their productivity, while reducing fraud and improving security. Looking forward, we expect the fourth quarter to moderate seasonally from what was an unusually strong third quarter. While it remains difficult to forecast the impacts, of COVID-19 on our business, we will continue to aggressively manage our expense structure orders, while investing in technology to further reduce costs and increase market share.

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

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

Great. Thanks Mike. Our growth momentum continues here at F&G coming off the second quarter, where we had record sales of fixed index annuities. We again had strong sales in the third quarter while maintaining our pricing discipline. Total retail sales of 1.1 billion in the third quarter, were up 34% from the prior year. And core fixed indexed annuity or FIA sales were $815 million, up 38% from prior year.

We continue to see meaningful runway ahead of us as we continue to take market share in our primary independent agent channel, and we’re gaining traction in new channels. In late June, we successfully launched our expansion into the financial institutions channel with one of the largest independent broker dealers in the country and our efforts are already bearing fruit.

In the third quarter, we generated $189 million in new annuity sales in this channel, and we believe we’re just now scratching the surface of opportunities in the bank and broker dealer channels.

With solid sales results, we grew average assets under management or AAUM to $27 billion, driven by approximately $400 million of net new business flows in the period.

Regarding spread results, total product net investment spread was 261 basis points in the third quarter. And FIA net investment spread was 347 basis points. Our spread results are above historical trends and demonstrate our continued pricing discipline to achieve targeted spread.

The solid spread result translated to adjusted net earnings of $74 million for the quarter. Most importantly, our investment portfolio continues to perform very well. As of September 30, the portfolio’s net unrealized gain position grew to $1.2 billion increasing by approximately – $600 million in the quarter.

Credit quality within the portfolio also remained strong. For the nine-month period ended September 30, we have taken credit related impairments, which we view as true economic losses of only $17 million or six basis points of the total portfolio. This is well below our product pricing assumption and demonstrates the portfolio is performing as expected.

We also remain confident in our capital position. We came into the pandemic with a strong balance sheet, allowing us to effectively weather economic impacts while continuing to grow the business.

Year-to-date credit impairments have resulted in a modest five-point decrease in our RBC ratio. Additionally, rating downgrades have resulted in a manageable 14-point decline year-to-date, and we would expect this ratings migration to reverse as markets recover over the long-term. Even with the anticipated cumulative effect of credit migrations and potential rating downgrades, we expect to end the year with a strong RBC ratio at or above our 400% target.

So in summary, our sales engine is firing on all cylinders, we continue to consistently generate and manage stable, net investment spread and earnings, and we’re confident in our investment portfolio and capital position.

With that I’ll now turn the call over to Tony Park to review FNF’s third quarter financial highlights.

[Tony Park, Chief Financial Officer]

Thank you, Chris. We generated $3 billion in total revenue in the third quarter with the Title segment producing approximately $2.5 billion, F&G producing $442 million and the Corporate segment generating $50 million. Third quarter net earnings were $378 million, which include net recognized gains of $73 million versus net recognized gains of $4 million in the third quarter of 2019, primarily due to mark-to-market accounting treatment of equity and preferred stock securities, whether these securities were disposed of in the quarter or continue to be held in our investment portfolio.

Excluding net recognized gains, our total revenue was $2.9 billion as compared with $2.2 billion in the third quarter of 2019. Adjusted net earnings from continuing operations were $435 million or $1.48 per diluted share. The Title segment contributed $391 million, F&G contributed $74 million and the Corporate and Other segment had an adjusted net loss of $30 million. Excluding net recognized losses of $3 million, our Title segment generated $2.5 billion in total revenue for the third quarter, compared with $2.2 billion in the third quarter of 2019.

Direct premiums increased by 11% versus the third quarter of 2019. Agency revenue grew by 19% and escrow title related and other fees increased by 14% versus the prior year. Personnel costs increased by 7% and other operating expenses decreased by 2%. All in, the title business generated the 21.2% adjusted pretax title margin, a 260 basis point increase versus the third quarter of 2019.

Interest income in the Title and Corporate segments of $31 million declined $26 million as compared with the prior year quarter, due to the reduction of short-term interest rates on our corporate cash balances and our 1031 Exchange business. In September, we closed an issuance of $600 million of 2.45% senior notes due March 15, 2031. The net proceeds have been used to repay all outstanding indebtedness under the one-year term loan agreement that we signed in April, which allowed us to secure the additional financing needed to close the acquisition of F&G.

FNF debt outstanding was $2.7 billion on September 30, for a debt to total capital ratio of 27.1%. Our title claims paid a $50 million were $27 million lower than our provision of $77 million for the quarter. The carried title reserve for claim losses is currently $55 million or 3.7% above the external actuary central estimate. We continue to provide for title claims at 4.5% of total title premiums.

Finally, our title investment portfolio totaled $5.3 billion at September 30 included in the $5.3 billion, our fixed maturity and preferred securities of $2.5 billion with an average duration of three years and an average rating of A2, equity securities of $600 million, short-term and other investments of $300 million, and cash of $1.9 billion. We ended the quarter with just under $1 billion in cash and short-term liquid investments at the holding company level.

Let me now turn the call back to our operator to allow for any questions.

[Operator]

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from Mark DeVries with Barclays. Please proceed with your question.

[Mark DeVries, Barclays]

Thank you. Your stock is trading at a pretty significant discount to at some of the parts valuation here. Given your – it’s trading off again today, does it make sense for you to consider front-loading your $500 million repurchase program?

[Tony Park, Chief Financial Officer]

Yes. Mark, this is Tony. Yes, that’s certainly a possibility. The plan I think was to be pretty consistent in our buyback over the course of the 12 months. But again, that’s based on market conditions. And I think we’ll have to evaluate what those market conditions are. And if we feel like it makes sense to buy more now and buy less later and it might very well then I think that that could that work and make a lot of sense.

We have roughly 160 days of actual trading days where we can be in the market over the course of the next 12 months. And so we’ll determine whether it’s a set number of shares or a set dollar amount per day, or to your point, maybe we do front loaded. So I guess I don’t have a definitive answer on that other than I think it’s a good thought.

[Mark DeVries, Barclays]

Okay. And are you free to start buying back today or tomorrow, or when are you freed up?

[Tony Park, Chief Financial Officer]

We’re free to start back buying tomorrow?

[Mark DeVries, Barclays]

Okay, got it. And then just a question, maybe for Chris, can you just talk about what your expectations are for investment spread, you decided that you’re kind of above long-term trend here with yields relatively low here, should we expect some compression or you expect that to hold up?

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

Yes, great question. So most of the compression that we have felt was in our floating rate book. So I wouldn’t want to predict, and you probably wouldn’t either what’s going to happen to LIBOR rate, but on the assumption that that doesn’t move materially. We’ve been really pleased with Blackstone’s ability to originate private credit for us. So I would say we’ve been holding in despite the pressure.

[Mark DeVries, Barclays]

Okay. And prospectively, you’re optimistic about the standing of that.

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

We are.

[Mark DeVries, Barclays]

Okay, great. Thank you.

[Operator]

Thank you. Our next question comes from Jack Micenko with Susquehanna International Group. Please proceed with your questions.

[Jack Micenko, Susquehanna International Group]

Hi, good morning. Looking at – I guess, afternoon, actually, sorry. Looking at some of the leverage on the OpEx and personnel cost lines in the quarter. I mean, obviously there’s a lot of volume benefit to the model. But you talked about some of these technology investments. I’m curious if there’s a way to, I don’t know, kind of frame out, how much of the improvements in operating leverage we’ve seen versus prior year’s volume. And how much of it is technology process, meaning, when volumes do ultimately presumably fade with refi, how much of that expense leverage do you think you can keep in the model.

[Mike Nolan, President]

Hey, Jack, it’s Mike. I don’t know, if I could put a specific number to it, but I can tell you with our title automation, particularly on the production side, we’re producing title commitments. We’ve made great advances with our investments in next day, switches our proprietary title automation technology. And I think we see stronger benefits in a refinance market. And we’re certainly seeing that now where in our centralized environment, for example, approximately 70% of our title product requires very little touch. The automation generates a lot of the effort for us.

And if we think of over time, over the past decade, let’s say, we’ve probably gone from we have 22 centralized production facilities today doing our two plus million title commitments. And I bet if you went back a decade, it would be double or triple that, probably triple that number and probably a third of the employees doing itself. Again, kind of a long answer, I can’t give you a number, but I’m confident that our automation is driving some of the upside.

[Jack Micenko, Susquehanna International Group]

And that automation is that – can that be – is that just refi or is there purchase opportunity there as well

[Mike Nolan, President]

It just purchase opportunity as well, it drives more benefit today on the refi side. But we use it as well for our purchase transactions, there’s still more what, I’ll call human touch on that side versus refi.

[Jack Micenko, Susquehanna International Group]

Okay. And then one for Chris, the 38% year-over-year growth, it was pretty impressive. The 6% down quarter-to-quarter, I’m not an annuity expert. It was – is that driven by market conditions? Is there a seasonality component to fix the next annuity sales and that down 6% for you? How do you think that compares to the industry?

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

Yes, I would say, keep in mind, in the second quarter is our recall the industry was down and we were up 20%, 30% I have to go back and check the exact number. So I think it’s neither, it’s just that we had a blow out second quarter that momentum continued into the third quarter. But you had the little lag probably one month, where sales slowed slightly because of the pandemic. So I think, set another way when the year we’re ahead of our sales plan year-to-date, which is pretty remarkable. And I think that’s going to put us in a really small peer group when the year is over.

[Jack Micenko, Susquehanna International Group]

Okay. So tough comp sounds like a sequential.

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

Yes.

[Jack Micenko, Susquehanna International Group]

Yes. Okay. Thanks guys.

[Randy Quirk, Chief Executive Officer]

Thank you.

[Operator]

[Operator Instructions] Our next question comes from Mark Hughes with SunTrust. Please proceed with your question.

[Mark Hughes, SunTrust]

Yes. Thank you very much. The F&G reinsurance transaction, if you described what the proceeds or the capital impact of that would be and then also the reinsurance agreement, the flow agreement that associated with that. Does that have a differential impact on capital, as we think about future growth?

[Randy Quirk, Chief Executive Officer]

Chris, you want to take that?

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

Sure. I’ll hit that. So rough, rough numbers, probably about $150 million of net capital in, it is helpful. And so it is incremental capital that wasn’t anticipated, when the deal – when the overall FNF, FG transaction was put together. So I think you’re correct. We could do that as a little additional runway as to grow a bit faster. The flow agreement is on our MYGA product, our fixed deferred annuity product. And so similarly, I think that’s going to allow us to grow faster in some of these bank and broker dealer channels in particular with less capital strain.

[Mark Hughes, SunTrust]

The margin outlook in the title business for the fourth quarter, I don’t know, whether you gave some thought about that earlier, but any commentary there is to sequential margin.

[Mike Nolan, President]

Sure, Mark. It’s Mike. Of course, the third quarter margin was just a fantastic margin as we set our best since I think the third quarter of all three. So but as we go into the fourth quarter, we would expect our margins to be very strong, certainly, ahead of last year. And we would expect full year margins to probably be our best ever. But whether it’s better than Q3, you can’t really say, we are going to run into seasonality a little bit in the fourth quarter on the residential side. So we’d expect that to be off versus the third quarter. And we’d also anticipate that our personnel expenses will be up somewhat in the fourth quarter as we added back staff in the third quarter.

[Mark Hughes, SunTrust]

And then just a broad question about the technology and the streamlining of the business, sounds like, it certainly helps from a margin standpoint. Is there any potential revenue negatives associated with that if there is more streamlining, less fee income perhaps? Just curious any thoughts on that topic.

[Mike Nolan, President]

Mike, again. I don’t really see a revenue impact in terms of reduced fees. Are you thinking of a specific context, Mark?

[Tony Park, Chief Financial Officer]

Yes. I mean, if you’re talking about pricing and if we’d have to give up some pricing given our efficiencies and profitability, I think you’d have to look at the entire industry and compare us to them and probably take an industry average. And if a regulator thought that the industry overall was maybe making more profits than they reasonably should, then maybe there would be some state pressure. But we’ve never seen that before. I’d be surprised by that. So it’s kind of hard to speculate on that.

[Randy Quirk, Chief Executive Officer]

Yes. And I – this is Randy. I would just add that a lot of our revenue is actually driven from our local markets. So the technology is developed to help us be more efficient in our field operations, but is to support the transactions, not to replace our local relationships and is to support our employees in the field. So it shouldn’t interfere whatsoever in terms of revenue.

[Mark Hughes, SunTrust]

And then I’ll sneak in one more, if I might be, when you think about commercial in the fourth quarter, is the mix changed at all? Is there any signs of life in those larger national deals?

[Mike Nolan, President]

Yes, Mark, Mike, again, we’re seeing some improvement there. If you look at the sequential open order improvement in the third quarter, we said it was 32%. It was actually 43% on the national side. So we saw a pretty nice increase in opened orders on the national side vis-a-vis local. And that could partly play out in the fourth quarter with a better fee per file. And we’ve seen some increase in bigger transactions, but still below what we were experiencing in 2019.

So I would expect average fee per file to be up in the fourth quarter, commercial revenue to be up in the fourth quarter vis-a-vis the third, but still below last year.

[Mark Hughes, SunTrust]

Thank you.

[Operator]

Thank you. Our next question comes from John Campbell with Stephens, Inc. Please proceed with your question.

[John Campbell, Stephens, Inc]

Hey, good morning guys. Congrats on another solid quarter.

[Mike Nolan, President]

Thanks, John.

[John Campbell, Stephens, Inc]

Chris or maybe, Tony, back to F&G, kind of a similar question around the earnings contribution. I mean clearly, we’re all kind of still getting our bearings on the F&G modeling, but it might help to shortcut this and just maybe run back to some of the commentary on the seasonality. But if you look at the adjusted earnings about $70 million or so over the last two quarters, pretty consistent. If you could talk to maybe – I mean, is that somewhat viewed as a run rate and kind of in the neighborhood of a run rate on a quarterly basis?

[Tony Park, Chief Financial Officer]

Yes, John, this is Tony. I think you’re right, we’re all trying to get our arms around it a little bit. We had one month of activity in the last quarter and we try to do a little back-of-the-envelope math based on that one month. And I think we got some of it right. And frankly, some of it not absolutely right, especially it comes down to purchase accounting.

And purchase accounting is one of those things that’s very complicated, and it’s a reason why we have one-year to finalize it. So right now, if you do a back-of-the-envelope analysis, I would take the $65 million of quarterly after-tax operating income, adjusted operating income add back the $8 million of preferred that we’re no longer paying because we retired those preferred shares, getting you to $73 million.

And then the net impact of purchase accounting is actually a negative $7 million, which is a combination of a positive $12 million of bond discount accretion because, as you’ll recall, the bond portfolio was in an unrealized loss position. And so we’re going to accrete that back over the life of the bonds. And that will be offset or actually more than offset by increased VOBA and VODA amortization that comes along with the purchase price allocation. That number is a negative $19 million. So net of those two pieces, it’s negative $7 million.

So I would say we’re somewhere in the mid-60s on a run rate basis when we take the puts and takes there. And then, of course, we expect growth in the portfolio of 2% or 3% or whatever it might be with maybe 100 basis point results from that growth that you could add on to the roughly mid-60s quarterly AOI. Hopefully, that answers your question.

[John Campbell, Stephens, Inc]

Yes. That’s very helpful. Obviously, I don’t think you guys are getting a whole lot of credit for that. You can tell that from your stock price. But I mean that’s consistent earnings for you guys. Obviously, it’s helping fuel the higher dividend and some of the buyback. So got to have some kind of value for sure. Last question for me. It’s been tough to keep up the election on this earnings season, but just if we just take a hypothetically assume if Biden wins, if you could maybe just talk about what you guys are thinking high level kind of ripple effect of the U.S. housing market?

And then now seeing some of those plans around first-time home buyers tax credit. So that’s clearly going to help, I would think. But on the flip side, with the tax plan, I know that the 1031 exchange kind of loophole, that might be up on the chopping block. So if you guys could just provide some high-level thoughts and then maybe talk to the degree of investment income coming off the exchange today?

[Mike Nolan, President]

John, it’s Mike. Maybe I’ll start with the first part of the question, and then Tony can comment on the investment income. But I think in terms of who wins the election, I don’t know how much it’s going to matter to housing as long as interest rates stay low. And I think most thinking is that regardless of who’s in the White House interest rates are going to be low for a period of time.

And I think one thing we’ve learned in this pandemic is that the demand for housing is very strong. And so I think when you put those together, we would have sort of a positive outlook on housing. And I think you referenced, if it’s Biden, maybe there’d be something on the tax side that might be helpful to housing, well, then that would just be the plus side.

As to 1031, yes, certainly, there’s been some discussion among the part of the democratic side that they should look at 1031. We engage very significantly with legislators and congressmen and senators pointing out the benefits of 1031 in terms of driving commercial activity. And we get a pretty receptive audience. And this has come up before. We went through this once before. But if that was taken down as a tax preference, well, then that will certainly impact that business, important business for us. But I mean I think you know the size of it, and then I’ll let Tony touch on the investment income.

[Tony Park, Chief Financial Officer]

Yes. I do think the big concern, I think, from the marketplace was the blue wave that you had a President and two separate congressional houses all with the same goals and plans in mind, and it doesn’t look like that’s going to play out that way. So I think any kind of tax reform you would expect is going to have to be reasonable for it to get through where it needs to go through.

Having said that, we’ve already felt the brunt – or most of the brunt of the pressure on our 1031 exchange results from interest rates going down, short-term rates going down as much as they have. So our run rate which was at one point almost $20 million a quarter is now down to $5 million a quarter and trending probably a little bit lower, maybe to $4 million. So if somehow we got hit and we – the 1031 business had to get smaller or whatever might happen there, it’s not a material impact to our results.

[John Campbell, Stephens, Inc]

Okay. That’s very helpful. Thank you guys.

[Operator]

Thank you. Our next question comes from Geoffrey Dunn with Dowling & Partners. Please proceed with your question.

[Geoffrey Dunn, Dowling & Partners]

Thanks. Good afternoon, guys.

[Randy Quirk, Chief Executive Officer]

Hey, Geoff. How are you doing?

[Geoffrey Dunn, Dowling & Partners]

I wanted to follow up on commercial and get a better feel for what’s occurring. With the rebound in activity, what is your sense for part of that just being catch up on stuff that was delayed from Q2, just like kind of the delay in spring selling season versus new organic? And how are you thinking about 2021 in terms of how that market could perform?

[Mike Nolan, President]

Sure, Geoff, it’s Mike. I think to the first question, I don’t know if it’s catch up, and we have seen month-by-month improvements in our open orders since April. So it just continues to get stronger. And September and October, Geoff, our open orders per day on commercial, were two of our best months in the last – they’re in our top four in the last six years. So I don’t think it’s pent-up demand. And in terms of our outlook for next year, we’re pretty positive on next year as having probably to be up from 2020. And so it will be, we think, at a very high level. And the increase sequentially in the third quarter, I just think points to not only a stronger fourth quarter, but positive energy going into 2021.

[Geoffrey Dunn, Dowling & Partners]

Okay. And then, Tony, I wanted to ask you about OpCo [ph] dividend capacity for 2021, both expected regulated and unregulated. And getting to the point that you’ve got $1 billion of cash at the Holdco, no lines to really pay down, more cash flow coming in next year, is $500 million of buyback potentially just a starting point?

[Tony Park, Chief Financial Officer]

Yes. It’s a fair question. I mean we had this conversation 90 days ago, and somebody asked where we were on the buyback, and I said, well, I think that we’d like to be in the market, but we really didn’t have any money. We were at $500 million at Holdco, but we had already spent $300 million by the time we had our call. We had a couple of acquisitions, ServiceLink acquisition. We had to pay a little bit more on the F&G acquisition, and we had some debt service. So that got us down to about $200 million.

But the cash generation in the third quarter has been extremely strong. We generated $600 million roughly in cash out of our operating companies and really only about $150 million of that came out of our regulated company. So the balance of that came from our unregulated or UTC title companies that can generate the cash and immediately upstream it to the parent company.

We do have $400-ish million of dividends that we’ll be paying next year and maybe $100 million in interest expense, but and again, I don’t have a projection for cash flow for 2021. But to give you an idea of what we did or what we’ll probably do this year in 2020, it looks to me like it’s going to be about $1.3 billion. And in 2019, it was probably $1.1 billion. So even if it came off and, call it, $1 billion, to your point, we would have more money to look at buybacks, look at potential growth opportunities in entitle or elsewhere. So as long as the business continues to operate somewhere around where it is, the cash flow generation is strong.

[Geoffrey Dunn, Dowling & Partners]

Okay. And then last question, I don’t remember, how much potential block acquisitions were part of the F&G opportunity, but given how the market is valuing the stock, does that make you rethink potential acquisitions that could help with F&G side?

[Randy Quirk, Chief Executive Officer]

Yes. I guess from my perspective and Chris can weigh in as well, but from my perspective it’s pretty early. I get it, we announced it back in February and some people say, "well, actually not that early", but we’ve just now reported our first full quarter of earnings. And it’s progressing exactly as we had hoped it would in terms of performance, in terms of sales growth, the portfolio is even in a challenging – at least challenging first quarter of marketplace. The portfolios held up very well and you know, we’re getting or generating good earnings. If hypothetically, we’re sitting here six months or a year from now, and we’re asking – we’re all asking the same questions, it’s hard to know what the Board would decide to do.

Will they see opportunities to grow F&G or will they look at it and say, we’re not getting credit, let’s do something creative, that maximizes value like we’ve done in the past. You know our track record, whether it’s the FIS and FNTG spent back in 2005 or more recently with the tracking stock of FNFV or the Black Knight partial IPO, or the split-off of Cannae or Black Knight, final Black Knight, Inc. back in 2017. The Board will take action if we feel like shareholders are benefiting it. But at this point, I think it’s pretty early

[Geoffrey Dunn, Dowling & Partners]

Okay. Thanks for the comment.

[Operator]

Thank you. Our last question will come from Bose George with KBW. Please proceed with your question.

[Bose George, KBW]

Hey guys, good afternoon. Most of them have been asked and answered, but couple of little things on F&G. Actually in terms of modeling it, when you are looking at this, the yield at F&G versus like your peer AEL, it looks like it’s 40 basis points to 50 basis points higher. Can you just help us understand what’s driving the difference?

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

Yes. Sure. This is Chris. So I think it’s probably a couple things. One is, just the structure of the overall portfolio, right? So you’ve seen some of the actions that they’ve taken recently to align with potential private credit partners. So I would say the first one is the originated credit that we’re able to drive out of Blackstone. So while still investment grade, we’re picking up, 200 basis points to 300 basis points on a portion of the portfolio. I think the others probably coming from the structured securities, CLO and CMBS position.

So those combined, I think it leads to the yield advantage. It’s also a little tricky to compare. So some of it is also a size of portfolio issue. One of our great competitive advantages in the marketplace today is, Blackstone has tremendous capacity to originate and find interesting opportunities, and our balance sheet is only $26 billion. So in the case of AEL there at least twice our size if not larger, so I think that’s probably a couple of explanation.

[Bose George, KBW]

Okay. Well that makes sense, thanks. And then also on F&G, you notice, I guess your CIO areas; I guess around this time that the insurance transaction is that, any comment there?

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

Yes. No, it’s, you never want to see anyone leave, but it’s a good opportunity for Raj. He did a nice job, while he was here. He was helpful in kind of educating a lot of the folks at Blackstone on the nuances of insurance investing. Remember the day-to-day credit decisions are with Blackstone, so it’s an important function and we will decide what we’re going to do in terms of external and internal candidates for the CIO role, because ultimately we own the performance of the portfolio and asset allocation and ALM et cetera, but we’ve got a pretty strong supporting team and a ton of resources over Blackstone. So we’re going to just take our time, be thoughtful there.

[Bose George, KBW]

Okay. Great. Thanks.

[Operator]

There are no further questions at this time. I would like to turn the call back over to Randy for any closing remarks.

[Randy Quirk, Chief Executive Officer]

Thank you. We are very pleased with the momentum we achieved during the third quarter and a continued execution by our team. A record type result produced in the quarter were further supported by our ongoing advancements in technology. As we look to leverage our footprint and scale. F&G continues to perform well producing strong sales results, while maintaining a solid investment portfolio and achieving stable net investment spread.

We’re also excited about our capital allocation plan including our recent dividend increase and our commitment for share repurchases over the course of the next 12 months. We look forward to updating you again in the New Year with our fourth quarter results and hope that you all stay healthy and safe as we head into the holiday season. Thank you.

[Operator]

That concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.