FIDELITY NATIONAL FINANCIAL, INC. – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations

The statements contained in this Quarterly Report on Form 10-Q 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, including statements regarding our
expectations, hopes, intentions or strategies regarding the future. All
forward-looking statements included in this document are based on information
available to us on the date hereof, and we assume no obligation to update any
such forward-looking statements. It is important to note that our actual results
could vary materially from those forward-looking statements contained herein due
to many factors, including, but not limited to: the potential impact of our
completed F&G acquisition on relationships, including employees, suppliers,
customers and competitors; changes in general economic, business and political
and COVID-19 conditions, including changes in the financial markets; weakness or
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, a weak U.S. economy; our potential inability to find suitable
acquisition candidates, acquisitions in lines of business that will not
necessarily be limited to our traditional areas of focus, or difficulties in
consummating and integrating acquisitions; our dependence on distributions from
our title insurance underwriters as our main source of cash flow; significant
competition that our operating subsidiaries face; compliance with extensive
government regulation of our operating subsidiaries; and other risks detailed in
the "Statement Regarding Forward-Looking Information," "Risk Factors" and other
sections of our Annual Report on Form 10-K (our "Annual Report") for the year
ended December 31, 2021 and other filings with the SEC.

The following discussion should be read in conjunction with our Annual Report.

Overview

For a description of our business, including descriptions of segments and recent
business developments, see the discussion in Note A Basis of Financial
Statements in the accompanying unaudited Condensed Consolidated Financial
Statements included in Item 1 of Part I of this Report, which is incorporated by
reference into this Part I, Item 2.

Business Trends and Conditions

Title

Our Title segment revenue is closely related to the level of real estate
activity which 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 Mortgage Bankers Association ("MBA"), as of
April 13, 2022, estimates (actual for fiscal year 2021) the size of the U.S.
residential mortgage originations market as shown in the following table for
2021 - 2024 in its "Mortgage Finance Forecast" (in trillions):
                                                                2024       

2023 2022 2021

        Purchase transactions                                  $ 1.8      $ 

1.8 $ 1.7 $ 1.6

        Refinance transactions                                 $ 0.7      $ 

0.7 $ 0.8 $ 2.3

        Total U.S. mortgage originations forecast              $ 2.5      $ 

2.5 $ 2.5 $ 3.9

As of April 13, 2022, the MBA expects residential purchase transactions to
slightly increase in 2022 and beyond. Additionally the MBA expects residential
refinance transactions to decrease in 2022 and beyond as interest rates are
expected to rise while the supply of refinance candidates decreases. The MBA
expects overall mortgage originations to decrease in 2022 and then remain
relatively flat through 2024.

Following the Federal Reserve's emergency action to reduce its benchmark
interest rate to near zero in response to COVID-19, there was an increase in
purchase activity and a surge in refinance activity beginning in the second
quarter of 2020 and continuing through 2021. In the second half of 2021,
refinance activity began to

                                       47
--------------------------------------------------------------------------------
  Table of Contents
slow as the population of eligible refinance candidates declined and interest
rates slightly increased. While refinance activity declined in the second half
of 2021, it still exceeded pre-pandemic activity levels. Purchase activity
remained strong throughout 2021 with variations in activity being consistent
with historical seasonality.

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 the beginning of
2022. Additionally, geopolitical uncertainties associated with the war in the
Ukraine have created additional volatility in the global economy in the first
half of 2022. Existing-home sales decreased 3% in the three months ended March
31, 2022 as compared to the corresponding period in 2021 while median
existing-home sales prices rose to $361,533 in the three months ended March 31,
2022, a 15 % increase over of the corresponding period in 2021. Total housing
inventory as of March 31, 2022 totaled 950,00 units, down 9.5% from the
corresponding period in 2021.

During the first quarter of 2022 the Federal Reserve raised the benchmark
interest rate by 25 basis points in an effort to combat inflation, the first
increase since 2018. Average interest rates for a 30-year fixed rate mortgage
rose to 3.8% for the three months ended March 31, 2022 as compared to 2.9% for
the corresponding period of 2021. Mortgage interest rates have continued to
increase in the second quarter of 2022, surpassing 5% in April, their highest
levels since 2010. In May, the Federal Reserve further raised the benchmark
interest rate by an additional 50 basis points.

Other economic indicators used to measure the health of the U.S. economy,
including the unemployment rate and consumer confidence, have continued to
improve. The unemployment rate was 3.6% in March 2022, which was near the record
low of 3.5% in February 2020, as compared to 6.0% in March 2021. Consumer
confidence, which has remained volatile since the outbreak of COVID-19, was
relatively high as of March 2022, supported by strong employment growth despite
geopolitical uncertainties and concerns over inflation.

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 2022 and 2021, we experienced strong
demand in commercial real estate markets and therefore experienced relatively
high volumes and fee-per-file in our commercial business when compared to
historical results. In the first quarter of 2022 our average fee per file was
$13,248, a first quarter all-time high, as compared to $11,290 in the
corresponding period in 2021.

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.

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. We have noted short-term fluctuations
through recent years in resale and refinance transactions as a result of changes
in interest rates. Due to COVID-19 and the Federal Reserve's action to reduce
the benchmark rate to near zero in response to the pandemic, seasonality
deviated from historical patterns in 2021.

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
While still evolving, the COVID-19 pandemic has caused significant economic and
financial turmoil in the U.S. and around the world. At this time, it is still
not possible to estimate the longer term-effects the COVID-19 pandemic could
have on our F&G segment or our consolidated financial statements. Increased
                                       48
--------------------------------------------------------------------------------
  Table of Contents
economic uncertainty and increased unemployment that could potentially result
from the spread of COVID-19 and its variants may result in F&G policyholders
seeking sources of liquidity and withdrawing at rates greater than was
previously expected. Additionally, adverse events or conditions resulting from
COVID-19 could also have a negative effect on its sales of new policies and
could result in more volatility from the impact of mortality experience. As of
March 31, 2022, F&G has not seen a sustained elevated level of adverse
policyholder experience from the impact of COVID-19 on the overall business. The
full extent to which the COVID-19 pandemic impacts our F&G segment's financial
condition, results of operations, liquidity or prospects will depend on future
developments which cannot be predicted at this time.

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 our Annual Report on Form 10-K for the year ended December 31, 2021
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 March 31, 2022, our reserves, net of
reinsurance, and average crediting rate on our fixed rate annuities were $5.0
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 of Part II of our Annual Report on Form 10-K for the year ended
December 31, 2021 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 fixed indexed annuities ("FIA") and indexed universal life ("IUL") products.
As the "baby boomer" generation prepares for retirement, we believe that demand
for retirement savings, growth, and income products will grow. It is projected
that over 10,000 people will turn 65 each day in the United States over the next
15 years, and according to the U.S. Census Bureau, the proportion of the U.S.
population over the age of 65 is expected to grow from 17% in 2021 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.

See Item 7 of Part II of our Annual Report on Form 10-K for the year ended
December 31, 2021 for a more detailed discussion of industry factors and trends
affecting our Results of Operations.

                                       49

--------------------------------------------------------------------------------

Table of Contents