Annual Statements Open main menu

Fidelity National Financial, Inc. - Annual Report: 2017 (Form 10-K)


 
 
 
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
 
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Fiscal Year Ended December 31, 2017
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  Commission File No. 1-32630
 _________________________________
 Fidelity National Financial, Inc.
(Exact name of registrant as specified in its charter)
Delaware
 
16-1725106
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
601 Riverside Avenue
Jacksonville, Florida 32204
 (Address of principal executive offices, including zip code)
 
(904) 854-8100
 (Registrant’s telephone number,
including area code) 
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of Each Exchange on Which Registered
FNF Common Stock, $0.0001 par value
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ    No o
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o     No þ
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ    No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K.  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ
 
     Accelerated filer o
 
 
Non-accelerated filer o
(Do not check if a smaller reporting company)  
 
Smaller reporting company o
 
Emerging growth company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ
 
The aggregate market value of the shares of FNF common stock held by non-affiliates of the registrant as of June 30, 2017 was $8,461,286,198 based on the closing price of $32.37 as reported by The New York Stock Exchange.
As of January 31, 2018 there were 274,438,819 shares of FNF common stock outstanding.
  
The information in Part III hereof for the fiscal year ended December 31, 2017, will be filed within 120 days after the close of the fiscal year that is the subject of this Report.
 
 
 
 
 



FIDELITY NATIONAL FINANCIAL, INC.
FORM 10-K
TABLE OF CONTENTS

 
 
Page
Number
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


i

Table of Contents

PART I

Item 1.
Business 
Introductory Note
The following describes the business of Fidelity National Financial, Inc. and its subsidiaries. Except where otherwise noted, all references to “we,” “us,” “our,” "the Company" or “FNF” are to Fidelity National Financial, Inc. and its subsidiaries, taken together.
Overview
We are a leading provider of (i) title insurance, escrow and other title-related services, including trust activities, trustee sales guarantees, recordings and reconveyances and home warranty products and (ii) technology and transaction services to the real estate and mortgage industries. FNF is the nation’s largest title insurance company operating through its title insurance underwriters - Fidelity National Title Insurance Company ("FNTIC"), Chicago Title Insurance Company ("Chicago Title"), Commonwealth Land Title Insurance Company ("Commonwealth Title"), Alamo Title Insurance and National Title Insurance of New York Inc. - which collectively issue more title insurance policies than any other title company in the United States. Through our subsidiary ServiceLink Holdings, LLC ("ServiceLink"), we provide mortgage transaction services including title-related services and facilitation of production and management of mortgage loans.
As of December 31, 2017, we had the following reporting segments:
Title. This segment consists of the operations of our title insurance underwriters and related businesses. This segment provides core title insurance and escrow and other title-related services including trust activities, trustee sales guarantees, recordings and reconveyances, and home warranty products. This segment also includes our transaction services business, which includes other title-related services used in the production and management of mortgage loans, including mortgage loans that experience default.
Corporate and Other. This segment consists of the operations of the parent holding company, our various real estate brokerage businesses, and Commissions, Inc. ("CINC") and other real estate technology subsidiaries. This segment also includes certain other unallocated corporate overhead expenses and eliminations of revenues and expenses between it and our Title segment.
In the year ended December 31, 2017, we completed two significant transactions which simplified the structure of our business.
On November 17, 2017 we completed our previously announced split-off (the “FNFV Split-Off”) of our former wholly-owned subsidiary Cannae Holdings, Inc. (“Cannae”) which consisted of the businesses, assets and liabilities formerly attributed to our FNF Ventures ("FNFV") Group including Ceridian Holding, LLC, American Blue Ribbon Holdings, LLC and T-System Holding LLC. The FNFV Split-Off was accomplished by the Company's redemption (the “Redemption”) of all of the outstanding shares of FNFV Group common stock, par value $0.0001 per share (“FNFV common stock”) for outstanding shares of common stock of Cannae, par value $0.0001 per share (“Cannae common stock”), amounting to a redemption on a per share basis of each outstanding share of FNFV common stock for one share of Cannae common stock, as of November 17, 2017. As a result of the FNFV Split-Off, Cannae is a separate, publicly traded company (NYSE: CNNE). All of the Company’s core title insurance, real estate, technology and mortgage related businesses, assets and liabilities previously attributed to the Company’s FNF Group common stock that were not held by Cannae remain with the Company. As a result of the FNFV Split-Off, we have reclassified the assets and liabilities divested as assets and liabilities of discontinued operations in our Consolidated Balance Sheet as of December 31, 2016. Further, the financial results of FNFV Group have been reclassified to discontinued operations for all periods presented in our Consolidated Statements of Earnings. See Note G. Discontinued Operations to our Consolidated Financial Statements included in Item 8 of Part II of this Annual Report for further details of the results of FNFV Group.
On September 29, 2017 we completed our tax-free distribution to FNF Group shareholders, of all 83.3 million shares of New BKH Corp. ("New BKH") common stock that we previously owned (the “BK Distribution”). Immediately following the BK Distribution, New BKH and Black Knight Financial Services, Inc. ("Black Knight") engaged in a series of transactions resulting in the formation of a new publicly-traded holding company, Black Knight, Inc. ("New Black Knight"). Holders of FNF Group common stock received approximately 0.30663 shares of New Black Knight common stock for every one share of FNF Group common stock held at the close of business on September 20, 2017, the record date for the BK Distribution. New Black Knight's common stock is now listed under the symbol “BKI” on the New York Stock Exchange. The BK Distribution is expected to generally be tax-free to FNF Group shareholders for U.S. federal income tax purposes, except to the extent of any cash received in lieu of New Black Knight's fractional shares. As a result of the BK Distribution, we have reclassified the assets and liabilities divested as assets and liabilities of discontinued operations in our Consolidated Balance Sheet as of December 31, 2016. Further, the financial results of Black Knight have been reclassified to discontinued operations for all periods presented in our Consolidated

1

Table of Contents

Statements of Earnings. See Note G. Discontinued Operations to our Consolidated Financial Statements included in Item 8 of Part II of this Annual Report for further details of the results of Black Knight.
Competitive Strengths
We believe that our competitive strengths include the following:
Corporate principles.  A cornerstone of our management philosophy and operating success is the six fundamental precepts upon which we were founded, which are:
Autonomy and entrepreneurship;
Bias for action;
Customer-oriented and motivated;
Minimize bureaucracy;
Employee ownership; and
Highest standard of conduct.
These six precepts are emphasized to our employees from the first day of employment and are integral to many of our strategies described below.
Competitive cost structure.  We have been able to maintain competitive operating margins in part by monitoring our businesses in a disciplined manner through continual evaluation of title order activity and management of our cost structure. When compared to our industry competitors, we also believe that our structure is more efficiently designed, which allows us to operate with lower overhead costs.
We believe that our competitive strengths position us well to take advantage of future changes to the real estate market.
Leading title insurance company.  We are the largest title insurance company in the United States and a leading provider of title insurance and escrow and other title-related services for real estate transactions. Through the third quarter of 2017, our insurance companies had a 33.4% share of the U.S. title insurance market, according to the American Land Title Association ("ALTA").
Established relationships with our customers.  We have strong relationships with the customers who use our title services. Our distribution network, which includes approximately 1,400 direct residential title offices and more than 5,200 agents, is among the largest in the United States. We also benefit from strong brand recognition in our multiple title brands that allows us to access a broader client base than if we operated under a single consolidated brand and provides our customers with a choice among brands.
Strong value proposition for our customers.  We provide our customers with title insurance and escrow and other title-related services that support their ability to effectively close real estate transactions. We help make the real estate closing more efficient for our customers by offering a single point of access to a broad platform of title-related products and resources necessary to close real estate transactions.
Proven management team.  The managers of our operating businesses have successfully built our title business over an extended period of time, resulting in our business attaining the size, scope and presence in the industry that it has today. Our managers have demonstrated their leadership ability during numerous acquisitions through which we have grown and throughout a number of business cycles and significant periods of industry change.
Commercial title insurance.  While residential title insurance comprises the majority of our business, we are also a significant provider of commercial real estate title insurance in the United States. Our network of agents, attorneys, underwriters and closers that service the commercial real estate markets is one of the largest in the industry. Our commercial network combined with our financial strength makes our title insurance operations attractive to large national lenders that require the underwriting and issuing of larger commercial title policies.
Strategy
Our strategy in the title business is to maximize operating profits by increasing our market share and managing operating expenses throughout the real estate business cycle. To accomplish our goals, we intend to do the following:
Continue to operate multiple title brands independently.  We believe that in order to maintain and strengthen our title insurance customer base, we must operate our strongest brands in a given marketplace independently of each other. Our national and regional brands include Fidelity National Title, Chicago Title, Commonwealth Land Title, Lawyers Title, Ticor Title, Alamo Title, and National Title of New York. In our largest markets, we operate multiple brands. This approach allows us to continue to attract customers who identify with a particular brand and allows us to utilize a broader base of local agents and local operations than we would have with a single consolidated brand.
Consistently deliver superior customer service.  We believe customer service and consistent product delivery are the most important factors in attracting and retaining customers. Our ability to provide superior customer service and consistent

2

Table of Contents

product delivery requires continued focus on providing high quality service and products at competitive prices. Our goal is to continue to improve the experience of our customers, in all aspects of our business.
Manage our operations successfully through business cycles.  We operate in a cyclical industry and our ability to diversify our revenue base within our core title insurance business and manage the duration of our investments may allow us to better operate in this cyclical business. Maintaining a broad geographic revenue base, utilizing both direct and independent agency operations and pursuing both residential and commercial title insurance business help diversify our title insurance revenues. We continue to monitor, evaluate and execute upon the consolidation of administrative functions, legal entity structure, and office consolidation, as necessary, to respond to the continually changing marketplace. We maintain shorter durations on our investment portfolio to mitigate our interest rate risk. A more detailed discussion of our investment strategies is included in “Investment Policies and Investment Portfolio.”
Continue to improve our products and technology.  As a national provider of real estate transaction products and services, we participate in an industry that is subject to significant change, frequent new product and service introductions and evolving industry standards. We believe that our future success will depend in part on our ability to anticipate industry changes and offer products and services that meet evolving industry standards. In connection with our service offerings, we are continuing to deploy new information system technologies to our direct and agency operations. We expect to improve the process of ordering title and escrow services and improve the delivery of our products to our customers.
Maintain values supporting our strategy.  We believe that our continued focus on and support of our long-established corporate culture will reinforce and support our business strategy. Our goal is to foster and support a corporate culture where our employees and agents seek to operate independently and maintain profitability at the local level while forming close customer relationships by meeting customer needs and improving customer service. Utilizing a relatively flat managerial structure and providing our employees with a sense of individual ownership support this goal.
Effectively manage costs based on economic factors.  We believe that our focus on our operating margins is essential to our continued success in the title insurance business. Regardless of the business cycle in which we may be operating, we seek to continue to evaluate and manage our cost structure and make appropriate adjustments where economic conditions dictate. This continual focus on our cost structure helps us to better maintain our operating margins.
Acquisitions, Dispositions, Minority Owned Operating Subsidiaries and Financings
Acquisitions have been an important part of our growth strategy and dispositions have been an important aspect of our strategy of returning value to shareholders. On an ongoing basis, with assistance from our advisors, we actively evaluate possible transactions, such as acquisitions and dispositions of business units and operating assets and business combination transactions.
In the future, we may seek to sell certain investments or other assets to increase our liquidity. Further, our management has stated that we may make acquisitions in lines of business that are not directly tied to, or synergistic with, our core operating segment. In the past we have obtained majority and minority investments in entities and securities where we see the potential to achieve above market returns. Fundamentally our goal is to acquire quality companies that are well-positioned in their respective industries, run by best in class management teams in industries that have attractive organic and acquired growth opportunities. We leverage our operational expertise and track record of growing industry leading companies and also our active interaction with the acquired company's management directly or through our board of directors, to ultimately provide value for our shareholders.
There can be no assurance that any suitable opportunities will arise or that any particular transaction will be completed. We have made a number of acquisitions and dispositions over the past several years to strengthen and expand our service offerings and customer base in our various businesses, to expand into other businesses or where we otherwise saw value, and to monetize investments in assets and businesses.
Title Insurance
Market for title insurance.  According to Demotech Performance of Title Insurance Companies 2017 Edition, an annual compilation of financial information from the title insurance industry that is published by Demotech Inc., an independent firm ("Demotech"), total operating income for the entire U.S. title insurance industry has increased over the last five years from approximately $12.2 billion in 2012 to $14.9 billion in 2016, which represents a $1.2 billion increase from 2015. The size of the industry is closely tied to various macroeconomic factors, including, but not limited to, growth in the gross domestic product, inflation, unemployment, the availability of credit, consumer confidence, interest rates, and sales volumes and prices for new and existing homes, as well as the volume of refinancing of previously issued mortgages.
Most real estate transactions consummated in the U.S. require the use of title insurance by a lending institution before the transaction can be completed. Generally, revenues from title insurance policies are directly correlated with the value of the property underlying the title policy, and appreciation or depreciation in the overall value of the real estate market are major factors in total industry revenues. Industry revenues are also driven by factors affecting the volume of real estate closings, such as the state of the economy, the availability of mortgage funding, and changes in interest rates, which affect demand for new mortgage loans and refinancing transactions.

3

Table of Contents

The U.S. title insurance industry is concentrated among a handful of industry participants. According to Demotech, the top four title insurance groups accounted for 85% of net premiums written in 2016. Approximately 34 independent title insurance companies accounted for the remaining 15% of net premiums written in 2016. Consolidation has created opportunities for increased financial and operating efficiencies for the industry’s largest participants and should continue to drive profitability and market share in the industry.
Our Title segment revenue is closely related to the level of real estate activity which includes sales, mortgage financing and mortgage refinancing. For further discussion of current trends in real estate activity in the United States, see discussion under Business Trends and Conditions included in Item 7 of Part II of this Report, which is incorporated by reference into this Part I, Item 1.
Title Insurance Policies.  Generally, real estate buyers and mortgage lenders purchase title insurance to insure good and marketable title to real estate and priority of lien. A brief generalized description of the process of issuing a title insurance policy is as follows:
The customer, typically a real estate salesperson or broker, escrow agent, attorney or lender, places an order for a title policy.
Company personnel note the specifics of the title policy order and place a request with the title company or its agents for a preliminary report or commitment.
After the relevant historical data on the property is compiled, the title officer prepares a preliminary report that documents the current status of title to the property, any exclusions, exceptions and/or limitations that the title company might include in the policy, and specific issues that need to be addressed and resolved by the parties to the transaction before the title policy will be issued.
The preliminary report is circulated to all the parties for satisfaction of any specific issues.
After the specific issues identified in the preliminary report are satisfied, an escrow agent closes the transaction in accordance with the instructions of the parties and the title company’s conditions.
Once the transaction is closed and all monies have been released, the title company issues a title insurance policy.
In real estate transactions financed with a mortgage, virtually all real property mortgage lenders require their borrowers to obtain a title insurance policy at the time a mortgage loan is made. This lender’s policy insures the lender against any defect affecting the priority of the mortgage in an amount equal to the outstanding balance of the related mortgage loan. An owner’s policy is typically also issued, insuring the buyer against defects in title in an amount equal to the purchase price. In a refinancing transaction, only a lender’s policy is generally purchased because ownership of the property has not changed. In the case of an all-cash real estate purchase, no lender’s policy is issued but typically an owner’s title policy is issued.
Title insurance premiums paid in connection with a title insurance policy are based on (and typically are a percentage of) either the amount of the mortgage loan or the purchase price of the property insured. Applicable state insurance regulations or regulatory practices may limit the maximum, or in some cases the minimum, premium that can be charged on a policy. Title insurance premiums are due in full at the closing of the real estate transaction.
The amount of the insured risk or “face amount” of insurance under a title insurance policy is generally equal to either the amount of the loan secured by the property or the purchase price of the property. The title insurer is also responsible for the cost of defending the insured title against covered claims. The insurer’s actual exposure at any given time, however, generally is less than the total face amount of policies outstanding because the coverage of a lender’s policy is reduced and eventually terminated as a result of payments on the mortgage loan. A title insurer also generally does not know when a property has been sold or refinanced except when it issues the replacement coverage. Because of these factors, the total liability of a title underwriter on outstanding policies cannot be precisely determined.
Title insurance companies typically issue title insurance policies directly through branch offices or through affiliated title agencies, or indirectly through independent third party agencies unaffiliated with the title insurance company. Where the policy is issued through a branch or wholly-owned subsidiary agency operation, the title insurance company typically performs or directs the title search, and the premiums collected are retained by the title company. Where the policy is issued through an independent agent, the agent generally performs the title search (in some areas searches are performed by approved attorneys), examines the title, collects the premium and retains a majority of the premium. The remainder of the premium is remitted to the title insurance company as compensation, part of which is for bearing the risk of loss in the event a claim is made under the policy. The percentage of the premium retained by an agent varies from region to region and is sometimes regulated by the states. The title insurance company is obligated to pay title claims in accordance with the terms of its policies, regardless of whether the title insurance company issues policies through its direct operations or through independent agents.
 Prior to issuing policies, title insurers and their agents attempt to reduce the risk of future claim losses by accurately performing title searches and examinations. A title insurance company’s predominant expense relates to such searches and examinations, the preparation of preliminary title reports, policies or commitments, the maintenance of "title plants,” which are indexed compilations of public records, maps and other relevant historical documents, and the facilitation and closing of real estate transactions. Claim

4

Table of Contents

losses generally result from errors made in the title search and examination process, from hidden defects such as fraud, forgery, incapacity, or missing heirs of the property, and from closing related errors.
Residential real estate business results from the construction, sale, resale and refinancing of residential properties, while commercial real estate business results from similar activities with respect to properties with a business or commercial use. Commercial real estate title insurance policies insure title to commercial real property, and generally involve higher coverage amounts and yield higher premiums. Residential real estate transaction volume is primarily affected by macroeconomic and seasonal factors while commercial real estate transaction volume is affected primarily by fluctuations in local supply and demand conditions for commercial space.
Direct and Agency Operations.  We provide title insurance services through our direct operations and through independent title insurance agents who issue title policies on behalf of our title insurance companies. Our title insurance companies determine the terms and conditions upon which they will insure title to the real property according to our underwriting standards, policies and procedures.
Direct Operations.  Our direct operations include both the operations of our underwriters as well as affiliated agencies. In our direct operations, the title insurer issues the title insurance policy and retains the entire premium paid in connection with the transaction. Our direct operations provide the following benefits:
higher margins because we retain the entire premium from each transaction instead of paying a commission to an independent agent;
continuity of service levels to a broad range of customers; and
additional sources of income through escrow and closing services.
We have approximately 1,400 offices throughout the U.S. primarily providing residential real estate title insurance. We continuously monitor the number of direct offices to make sure that it remains in line with our strategy and the current economic environment. Our commercial real estate title insurance business is operated almost exclusively through our direct operations. We maintain direct operations for our commercial title insurance business in all the major real estate markets including Atlanta, Boston, Chicago, Dallas, Houston, Los Angeles, New York, Philadelphia, Phoenix, Seattle and Washington D.C.
Agency Operations.  In our agency operations, the search and examination function is performed by an independent agent or the agent may purchase the search product from us. In either case, the agent is responsible to ensure that the search and examination is completed. The agent thus retains the majority of the title premium collected, with the balance remitted to the title underwriter for bearing the risk of loss in the event that a claim is made under the title insurance policy. Independent agents may select among several title underwriters based upon their relationship with the underwriter, the amount of the premium “split” offered by the underwriter, the overall terms and conditions of the agency agreement and the scope of services offered to the agent. Premium splits vary by geographic region, and in some states are fixed by insurance regulatory requirements. Our relationship with each agent is governed by an agency agreement defining how the agent issues a title insurance policy on our behalf. The agency agreement also sets forth the agent’s liability to us for policy losses attributable to the agent’s errors. An agency agreement is usually terminable without cause upon 30 days notice or immediately for cause. In determining whether to engage or retain an independent agent, we consider the agent’s experience, financial condition and loss history. For each agent with whom we enter into an agency agreement, we maintain financial and loss experience records. We also conduct periodic audits of our agents and strategically manage the number of agents with which we transact business in an effort to reduce future expenses and manage risks. As of December 31, 2017, we transact business with approximately 5,200 agents.
 Fees and Premiums.  One method of analyzing our business is to examine the level of premiums generated by direct and agency operations.
The following table presents the percentages of our title insurance premiums generated by direct and agency operations:
 
Year Ended December 31,
 
2017
 
2016
 
2015
 
Amount
 
%
 
Amount
 
%
 
Amount
 
%
 
(Dollars in millions)
Direct
$
2,170

 
44.3
%
 
$
2,097

 
44.4
%
 
$
2,009

 
46.9
%
Agency
2,723

 
55.7

 
2,626

 
55.6

 
2,277

 
53.1

     Total title insurance premiums
$
4,893

 
100.0
%
 
$
4,723

 
100.0
%
 
$
4,286

 
100.0
%
The premium for title insurance is due in full when the real estate transaction is closed. We recognize title insurance premium revenues from direct operations upon the closing of the transaction, whereas premium revenues from agency operations include an accrual based on estimates of the volume of transactions that have closed in a particular period for which premiums have not yet been reported to us. The accrual for agency premiums is necessary because of the lag between the closing of these transactions and the reporting of these policies to us by the agent, and is based on estimates utilizing historical information.

5

Table of Contents

Escrow, Title-Related and Other Fees.  In addition to fees for underwriting title insurance policies, we derive a significant amount of our revenues from escrow and other title-related services including trust activities, trustee sales guarantees, recordings and reconveyances, and home warranty products. The escrow and other services provided by us include all of those typically required in connection with residential and commercial real estate purchases and refinance activities. Escrow, title-related and other fees included in our Title segment represented approximately 30.2%, 30.5%, and 31.2% of total title segment revenues in 2017, 2016, and 2015, respectively.
Sales and Marketing. We market and distribute our title and escrow products and services to customers in the residential and commercial market sectors of the real estate industry through customer solicitation by sales personnel. Although in many instances the individual homeowner is the beneficiary of a title insurance policy, we do not focus our marketing efforts on the homeowner. We actively encourage our sales personnel to develop new business relationships with persons in the real estate community, such as real estate sales agents and brokers, financial institutions, independent escrow companies and title agents, real estate developers, mortgage brokers and attorneys who order title insurance policies for their clients. While our smaller, local clients remain important, large customers, such as national residential mortgage lenders, real estate investment trusts and developers are an important part of our business. The buying criteria of locally based clients differ from those of large, geographically diverse customers in that the former tend to emphasize personal relationships and ease of transaction execution, while the latter generally place more emphasis on consistent product delivery across diverse geographical regions and the ability of service providers to meet their information systems requirements for electronic product delivery.
Claims. An important part of our operations is the handling of title and escrow claims. We employ a large staff of attorneys in our claims department. Our claims processing centers are located in Omaha, Nebraska and Jacksonville, Florida. In-house claims counsel are also located in other parts of the country.
Claims result from a wide range of causes. These causes generally include, but are not limited to, search and exam errors, forgeries, incorrect legal descriptions, signature and notary errors, unrecorded liens, mechanics’ liens, the failure to pay off existing liens, mortgage lending fraud, mishandling or theft of settlement funds (including independent agency theft), and mistakes in the escrow process. Under our policies, we are required to defend insureds when covered claims are filed against their interest in the property. Some claimants seek damages in excess of policy limits. Those claims are based on various legal theories, including in some cases allegations of negligence or an intentional tort. We occasionally incur losses in excess of policy limits. Experience shows that most policy claims and claim payments are made in the first five years after the policy has been issued, although claims may also be reported and paid many years later.
Title losses due to independent agency defalcations typically occur when the independent agency misappropriates funds from escrow accounts under its control. Such losses are usually discovered when the independent agency fails to pay off an outstanding mortgage loan at closing (or immediately thereafter) from the proceeds of the new loan. Once the previous lender determines that its loan has not been paid off timely, it will file a claim against the title insurer.
Claims can be complex, vary greatly in dollar amounts and are affected by economic and market conditions and the legal environment existing at the time claims are processed. In our commercial title business, we may issue polices with face amounts well in excess of $100 million, and from time to time claims are submitted with respect to large policies. We believe we are appropriately reserved with respect to all claims (large and small) that we currently face. Occasionally we experience large losses from title policies that have been issued or from our escrow operations, or overall worsening loss payment experience, which require us to increase our title loss reserves. These events are unpredictable and adversely affect our earnings. Claims can result in litigation in which we may represent our insured and/or ourselves. We consider this type of litigation to be an ordinary course aspect of the conduct of our business.
Reinsurance and Coinsurance.  We limit our maximum loss exposure by reinsuring risks with other insurers under excess of loss and case-by-case (“facultative”) reinsurance agreements. Reinsurance agreements generally provide that the reinsurer is liable for loss and loss adjustment expense payments exceeding the amount retained by the ceding company. However, the ceding company remains primarily liable to the insured whether or not the reinsurer is able to meet its contractual obligations. Facultative reinsurance agreements are entered into with other title insurers when the transaction to be insured will exceed state statutory or self-imposed limits. Excess of loss reinsurance coverage protects us from a large loss from a single loss occurrence. Our excess of loss reinsurance coverage is split into two contracts. The first excess of loss reinsurance contract provides an $80 million aggregate limit of coverage from a single loss occurrence for residential and commercial losses in excess of a $20 million retention per single loss occurrence ("First XOL Contract"). The second excess of loss reinsurance contract ("Second XOL Contract") provides an additional $300 million aggregate limit of coverage, with the Company co-participating at approximately 10%.  Subject to the Company’s retention and co-participation on the Second XOL Contract, the maximum coverage provided under the First and Second XOL Contracts is $350 million.
 In addition to reinsurance, we carry errors and omissions insurance and fidelity bond coverage, each of which can provide protection to us in the event of certain types of losses that can occur in our businesses.

6

Table of Contents

Our policy is to be selective in choosing our reinsurers, seeking only those companies that we consider to be financially stable and adequately capitalized. In an effort to minimize exposure to the insolvency of a reinsurer, we periodically review the financial condition of our reinsurers.
We also use coinsurance in our commercial title business to provide coverage in amounts greater than we would be willing or able to provide individually. In coinsurance transactions, each individual underwriting company issues a separate policy and assumes a portion of the overall total risk. As a coinsurer we are only liable for the portion of the risk we assume.
We also earn a small amount of additional income, which is reflected in our direct premiums, by assuming reinsurance for certain risks of other title insurers.
Competition.  Competition in the title insurance industry is based primarily on expertise, service and price. In addition, the financial strength of the insurer has become an increasingly important factor in decisions relating to the purchase of title insurance, particularly in multi-state transactions and in situations involving real estate-related investment vehicles such as real estate investment trusts and real estate mortgage investment conduits. The number and size of competing companies varies in the different geographic areas in which we conduct our business. In our principal markets, competitors include other major title underwriters such as First American Financial Corporation, Old Republic International Corporation and Stewart Information Services Corporation, as well as numerous smaller title insurance companies, underwritten title companies and independent agency operations at the regional and local level. The addition or removal of regulatory barriers might result in changes to competition in the title insurance business. New competitors may include diversified financial services companies that have greater financial resources than we do and possess other competitive advantages. Competition among the major title insurance companies, expansion by smaller regional companies and any new entrants with alternative products could affect our business operations and financial condition.
 Regulation. Our insurance subsidiaries, including title insurers, underwritten title companies and insurance agencies, are subject to extensive regulation under applicable state laws. Each of the insurers is subject to a holding company act in its state of domicile, which regulates, among other matters, the ability to pay dividends and enter into transactions with affiliates. The laws of most states in which we transact business establish supervisory agencies with broad administrative powers relating to issuing and revoking licenses to transact business, regulating trade practices, licensing agents, approving policy forms, accounting practices, financial practices, establishing reserve and capital and surplus as regards policyholders (“capital and surplus”) requirements, defining suitable investments for reserves and capital and surplus and approving rate schedules. The process of state regulation of changes in rates ranges from states which set rates, to states where individual companies or associations of companies prepare rate filings which are submitted for approval, to a few states in which rate changes do not need to be filed for approval.
Since we are governed by both state and federal governments and the applicable insurance laws and regulations are constantly subject to change, it is not possible to predict the potential effects on our insurance operations of any laws or regulations that may become more restrictive in the future or if new restrictive laws will be enacted.
 Pursuant to statutory accounting requirements of the various states in which our title insurers are domiciled, these insurers must defer a portion of premiums as an unearned premium reserve for the protection of policyholders (in addition to their reserves for known claims) and must maintain qualified assets in an amount equal to the statutory requirements. The level of unearned premium reserve required to be maintained at any time is determined by a statutory formula based upon either the age, number of policies, and dollar amount of policy liabilities underwritten, or the age and dollar amount of statutory premiums written. As of December 31, 2017, the combined statutory unearned premium reserve required and reported for our title insurers was $1,400 million. In addition to statutory unearned premium reserves and reserves for known claims, each of our insurers maintains surplus funds for policyholder protection and business operations.
Each of our insurance subsidiaries is regulated by the insurance regulatory authority in its respective state of domicile, as well as that of each state in which it is licensed. The insurance commissioners of their respective states of domicile are the primary regulators of our insurance subsidiaries. Each of the insurers is subject to periodic regulatory financial examination by regulatory authorities.
Under the statutes governing insurance holding companies in most states, insurers may not enter into certain transactions, including sales, reinsurance agreements and service or management contracts, with their affiliates unless the regulatory authority of the insurer’s state of domicile has received notice at least 30 days prior to the intended effective date of such transaction and has not objected to, or has approved, the transaction within the 30-day period.
In addition to state-level regulation, our title insurance and certain other real estate businesses are subject to regulation by federal agencies, including the Consumer Financial Protection Bureau (“CFPB”). The CFPB was established under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ("Dodd-Frank") which also included regulation over financial services and other lending related businesses. The CFPB has broad authority to regulate, among other areas, the mortgage and real estate markets in matters pertaining to consumers. This authority includes the enforcement of the Truth-in-Lending Act ("TILA") and the Real Estate Settlement Procedures Act (individually, "RESPA", and together, "TILA-RESPA Integrated Disclosure" or "TRID") formerly placed with the Department of Housing and Urban Development. 

7

Table of Contents

 As a holding company with no significant business operations of our own, we depend on dividends or other distributions from our subsidiaries as the principal source of cash to meet our obligations, including the payment of interest on and repayment of principal of any debt obligations, and to pay any dividends to our shareholders. The payment of dividends or other distributions to us by our insurers is regulated by the insurance laws and regulations of their respective states of domicile. In general, an insurance company subsidiary may not pay an “extraordinary” dividend or distribution unless the applicable insurance regulator has received notice of the intended payment at least 30 days prior to payment and has not objected to or has approved the payment within the 30-day period. In general, an “extraordinary” dividend or distribution is statutorily defined as a dividend or distribution that, together with other dividends and distributions made within the preceding 12 months, exceeds the greater of:
10% of the insurer’s statutory surplus as of the immediately prior year end; or
the statutory net income of the insurer during the prior calendar year.
The laws and regulations of some jurisdictions also prohibit an insurer from declaring or paying a dividend except out of its earned surplus or require the insurer to obtain prior regulatory approval. During 2018, our directly owned title insurers can pay dividends or make distributions to us of approximately $363 million; however, insurance regulators have the authority to prohibit the payment of ordinary dividends or other payments by our title insurers to us (such as a payment under a tax sharing agreement or for other services) if they determine that such payment could be adverse to our policyholders. There are no restrictions on our retained earnings regarding our ability to pay dividends to shareholders.
The combined statutory capital and surplus of our title insurers was approximately $1,389 million and $1,469 million as of December 31, 2017 and 2016, respectively. The combined statutory earnings of our title insurers were $434 million, $541 million, and $381 million for the years ended December 31, 2017, 2016, and 2015, respectively.
As a condition to continued authority to underwrite policies in the states in which our insurers conduct their business, they are required to pay certain fees and file information regarding their officers, directors and financial condition.
 Pursuant to statutory requirements of the various states in which our insurers are domiciled, such insurers must maintain certain levels of minimum capital and surplus. Required levels of minimum capital and surplus are not significant to the insurers individually or in the aggregate. Each of our insurers has complied with the minimum statutory requirements as of December 31, 2017.
 Our underwritten title companies are also subject to certain regulation by insurance regulatory or banking authorities, primarily relating to minimum net worth. Minimum net worth requirements for each underwritten title company is less than $1 million. These companies were in compliance with their respective minimum net worth requirements at December 31, 2017.
 From time to time we receive inquiries and requests for information from state insurance departments, attorneys general and other regulatory agencies about various matters relating to our business. Sometimes these take the form of civil investigative demands or subpoenas. We cooperate with all such inquiries and we have responded to or are currently responding to inquiries from multiple governmental agencies. Various governmental entities are studying the title insurance product, market, pricing, and business practices, and potential regulatory and legislative changes, which may materially affect our business and operations. From time to time, we are assessed fines for violations of regulations or other matters or enter into settlements with such authorities which may require us to pay fines or claims or take other actions. For further discussion, see Item 3, Legal Proceedings.
Before a person can acquire control of a U.S. insurance company, prior written approval must be obtained from the insurance commissioner of the state in which the insurer is domiciled. Prior to granting approval of an application to acquire control of a domestic insurer, the state insurance commissioner will consider such factors as the financial strength of the applicant, the integrity and management of the applicant’s Board of Directors and executive officers, the acquirer’s plans for the insurer’s Board of Directors and executive officers, the acquirer’s plans for the future operations of the domestic insurer and any anti-competitive results that may arise from the consummation of the acquisition of control. Generally, state statutes provide that control over a domestic insurer is presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing 10% or more of the voting securities of the domestic insurer. Because a person acquiring 10% or more of our common shares would indirectly control the same percentage of the stock of our insurers, the insurance change of control laws would likely apply to such a transaction.
 The National Association of Insurance Commissioners ("NAIC") has adopted an instruction requiring an annual certification of reserve adequacy by a qualified actuary. Because all of the states in which our title insurers are domiciled require adherence to NAIC filing procedures, each such insurer, unless it qualifies for an exemption, must file an actuarial opinion with respect to the adequacy of its reserves.





8

Table of Contents


Title Insurance Ratings. Our title insurance underwriters are regularly assigned ratings by independent agencies designed to indicate their financial condition and/or claims paying ability. The rating agencies determine ratings by quantitatively and qualitatively analyzing financial data and other information. Our title subsidiaries include Alamo Title, Chicago Title, Commonwealth Land Title, Fidelity National Title and National Title of New York. Standard & Poor’s Ratings Group (“S&P”) and Moody’s Investors Service (“Moody’s”) provide ratings for the entire FNF family of companies as a whole as follows:
 
 
S&P
 
Moody’s
FNF family of companies
A
 
A3
The relative position of each of our ratings among the ratings scale assigned by each rating agency is as follows:
An S&P "A" rating is the third highest rating of 10 ratings for S&P. According to S&P, an “A” rating represents an investment grade company that, in its opinion, has strong capacity to meet financial commitments, but is somewhat susceptible to adverse economic conditions.
A Moody's "A3" rating is the third highest rating of 9 ratings for Moody's. Moody's states that companies rated “A3” are judged to be upper-medium grade and are subject to low credit risk.

Demotech provides financial strength/stability ratings for each of our principal title insurance underwriters individually, as follows: 
Alamo Title Insurance
A'
Chicago Title Insurance Company
A''
Commonwealth Land Title Insurance Company
A'
Fidelity National Title Insurance Company
A'
National Title Insurance of New York
A'
 Demotech states that its ratings of "A"(A double prime)" and "A' (A prime)" reflect its opinion that, regardless of the severity of a general economic downturn or deterioration in the insurance cycle, the insurers assigned either of those ratings possess "Unsurpassed" financial stability related to maintaining positive surplus as regards policyholders. The A'' and A' ratings are the two highest ratings of Demotech's six ratings.
The ratings of S&P, Moody’s, and Demotech described above are not designed to be, and do not serve as, measures of protection or valuation offered to investors. These financial strength ratings should not be relied on with respect to making an investment in our securities. See “Item 1A. Risk Factors — If the rating agencies downgrade our Company, our results of operations and competitive position in the title insurance industry may suffer” for further information.
Intellectual Property
We rely on a combination of contractual restrictions, internal security practices, and copyright and trade secret law to establish and protect our software, technology, and expertise across our businesses. Further, we have developed a number of brands that have accumulated substantial goodwill in the marketplace, and we rely on trademark law to protect our rights in that area. We intend to continue our policy of taking all measures we deem necessary to protect our copyright, trade secret, and trademark rights. These legal protections and arrangements afford only limited protection of our proprietary rights, and there is no assurance that our competitors will not independently develop or license products, services, or capabilities that are substantially equivalent or superior to ours.
Technology and Research and Development
 As a national provider of real estate transaction products and services, we participate in an industry that is subject to significant regulatory requirements, frequent new product and service introductions, and evolving industry standards. We believe that our future success depends in part on our ability to anticipate industry changes and offer products and services that meet evolving industry standards. In connection with our title segment service offerings, we are continuing to deploy new information system technologies to our direct and agency operations. We continue to improve the process of ordering title and escrow services and improve the delivery of our products to our customers. In order to meet new regulatory requirements, we also continue to expand our data collection and reporting abilities.
Investment Policies and Investment Portfolio
 Our investment policy is designed to maximize total return through investment income and capital appreciation consistent with moderate risk of principal, while providing adequate liquidity. Our insurance subsidiaries, including title insurers, underwritten title companies and insurance agencies, are subject to extensive regulation under applicable state laws. The various states in which

9

Table of Contents

we operate our underwriters regulate the types of assets that qualify for purposes of capital, surplus, and statutory unearned premium reserves. Our investment policy specifically limits duration and non-investment grade allocations in the FNF core fixed-income portfolio. Maintaining shorter durations on the investment portfolio allows for the mitigation of interest rate risk. Equity securities and preferred stock are utilized to take advantage of perceived value or for strategic purposes. Due to the magnitude of the investment portfolio in relation to our claims loss reserves, durations of investments are not specifically matched to the cash outflows required to pay claims.
As of December 31, 2017 and 2016, the carrying amount of total investments, which approximates the fair value, excluding investments in unconsolidated affiliates, was $3.2 billion and $3.6 billion, respectively.
 We purchase investment grade fixed maturity securities, selected non-investment grade fixed maturity securities, preferred stock and equity securities. The securities in our portfolio are subject to economic conditions and normal market risks and uncertainties. 
The following table presents certain information regarding the investment ratings of our fixed maturity securities and preferred stock portfolio at December 31, 2017 and 2016:
 
December 31,
 
2017
 
2016
 
Amortized
 
% of
 
Fair
 
% of
 
Amortized
 
% of
 
Fair
 
% of
Rating(1)
Cost
 
Total
 
Value
 
Total
 
Cost
 
Total
 
Value
 
Total
 
(Dollars in millions)
Aaa/AAA
$
398

 
18.8
%
 
$
396

 
18.5
%
 
$
418

 
15.4
%
 
$
412

 
15.1
%
Aa/AA
335

 
15.9

 
337

 
15.8

 
519

 
19.2

 
525

 
19.3

A
575

 
27.3

 
578

 
27.2

 
849

 
31.4

 
856

 
31.5

Baa/BBB
510

 
24.1

 
519

 
24.3

 
723

 
26.6

 
728

 
26.7

Ba/BB/B
155

 
7.3

 
159

 
7.4

 
98

 
3.6

 
97

 
3.6

Lower
45

 
2.1

 
49

 
2.3

 
53

 
2.0

 
55

 
2.0

Other (2)
95

 
4.5

 
97

 
4.5

 
48

 
1.8

 
49

 
1.8

 
$
2,113

 
100.0
%
 
$
2,135

 
100.0
%
 
$
2,708

 
100.0
%
 
$
2,722

 
100.0
%
______________________________________
(1)
Ratings as assigned by Moody’s Investors Service or Standard & Poor’s Ratings Group if a Moody's rating is unavailable.
(2)
This category is composed of unrated securities.
The following table presents certain information regarding contractual maturities of our fixed maturity securities:
 
December 31, 2017
 
Amortized
 
% of
 
Fair
 
% of
Maturity
Cost
 
Total
 
Value
 
Total
 
(Dollars in millions)
One year or less
$
496

 
27.5
%
 
$
496

 
27.3
%
After one year through five years
1,219

 
67.5

 
1,227

 
67.5

After five years through ten years
31

 
1.7

 
32

 
1.8

After ten years
5

 
0.3

 
5

 
0.3

Mortgage-backed/asset-backed securities
55

 
3.0

 
56

 
3.1

 
$
1,806

 
100
%
 
$
1,816

 
100
%
 Expected maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Because of the potential for prepayment on mortgage-backed and asset-backed securities, they are not categorized by contractual maturity.
Our equity securities at December 31, 2017 and 2016 consisted of investments with a cost basis of $517 million and $278 million, respectively, and fair value of $681 million and $386 million, respectively.
At December 31, 2017 and 2016, we also held $150 million in investments that are accounted for using the equity method of accounting.

10

Table of Contents

 As of December 31, 2017 and 2016, other long-term investments were $110 million and $42 million, respectively. Other long-term investments include investments accounted for using the cost method of accounting and company-owned life insurance policies carried at cash surrender value.
 Short-term investments, which consist primarily of commercial paper and money market instruments which have an original maturity of one year or less, are carried at amortized cost, which approximates fair value. As of December 31, 2017 and 2016, short-term investments amounted to $295 million and $482 million, respectively.
Our investment results for the years ended December 31, 2017, 2016 and 2015 were as follows:
 
 
December 31,
 
 
2017
 
2016
 
2015
 
 
(Dollars in millions)
Net investment income (1)
 
$
139

 
$
141

 
$
137

Average invested assets
 
$
3,296

 
$
3,936

 
$
4,020

Effective return on average invested assets
 
4.2
%
 
3.6
%
 
3.4
%
______________________________________
(1)
Net investment income as reported in our Consolidated Statements of Earnings has been adjusted in the presentation above to provide the tax equivalent yield on tax exempt investments and to exclude interest earned on cash and cash equivalents.
Loss Reserves
 For information about our loss reserves, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates.
Geographic Operations
Our direct title operations are divided into approximately 180 profit centers. Each profit center processes title insurance transactions within its geographical area, which is usually identified by a county, a group of counties forming a region, or a state, depending on the management structure in that part of the country. We also transact title insurance business through a network of approximately 5,200 agents, primarily in those areas in which agents are the more prevalent title insurance provider. Substantially all of our revenues are generated in the United States.
The following table sets forth the approximate dollar and percentage volumes of our title insurance premium revenue by state:
 
Year Ended December 31,
 
2017
 
2016
 
2015
 
Amount
 
%
 
Amount
 
%
 
Amount
 
%
 
(Dollars in millions)
California
$
708

 
14.5
%
 
$
690

 
14.6
%
 
$
649

 
15.1
%
Texas
693

 
14.2

 
670

 
14.2

 
616

 
14.4

Florida
392

 
8.0

 
364

 
7.7

 
349

 
8.1

New York
311

 
6.3

 
336

 
7.1

 
349

 
8.1

Illinois
283

 
5.8

 
267

 
5.7

 
243

 
5.7

All others
2,506

 
51.2

 
2,396

 
50.7

 
2,080

 
48.6

Totals
$
4,893

 
100.0
%
 
$
4,723

 
100.0
%
 
$
4,286

 
100.0
%
Employees
As of February 2, 2018, we had 24,367 full-time equivalent employees, which includes 23,617 in our Title segment and 750 in our Corporate and other segment. We monitor our staffing levels based on current economic activity. None of our employees are subject to collective bargaining agreements. We believe that our relations with employees are generally good.
Financial Information by Operating Segment
For financial information by operating segment, see Note R Segment Information to our Consolidated Financial Statements included in Item 8 of Part II of this Annual Report.
 Statement Regarding Forward-Looking Information
 The statements contained in this Form 10-K or in our other documents or in oral presentations or other statements made by our management that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities

11

Table of Contents

Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding our expectations, hopes, intentions, or strategies regarding the future. These statements relate to, among other things, future financial and operating results of the Company. In many cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” or the negative of these terms and other comparable terminology. Actual results could differ materially from those anticipated in these statements as a result of a number of factors, including, but not limited to the following:
changes in general economic, business, and political conditions, including changes in the financial markets;
the severity of our title insurance claims;
downgrade of our credit rating by rating agencies;
adverse changes in the level of real estate activity, which may be caused by, among other things, high or increasing interest rates, a limited supply of mortgage funding, increased mortgage defaults, or a weak U.S. economy;
compliance with extensive government regulation of our operating subsidiaries and adverse changes in applicable laws or regulations or in their application by regulators;
regulatory investigations of the title insurance industry;
loss of key personnel that could negatively affect our financial results and impair our operating abilities;
our business concentration in the States of California and Texas are the source of approximately 14.5% and14.2%, respectively, of our title insurance premiums;
our potential inability to find suitable acquisition candidates, as well as the risks associated with acquisitions in lines of business that will not necessarily be limited to our traditional areas of focus, or difficulties integrating acquisitions;
our dependence on distributions from our title insurance underwriters as our main source of cash flow;
competition from other title insurance companies; and
other risks detailed in "Risk Factors" below and elsewhere in this document and in our other filings with the SEC.
 We are not under any obligation (and expressly disclaim any such obligation) to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise. You should carefully consider the possibility that actual results may differ materially from our forward-looking statements.
 Additional Information
 Our website address is www.fnf.com. We make available free of charge on or through our website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. However, the information found on our website is not part of this or any other report.

Item 1A.      Risk Factors
In addition to the normal risks of business, we are subject to significant risks and uncertainties, including those listed below and others described elsewhere in this Annual Report on Form 10-K. Any of the risks described herein could result in a significant or material adverse effect on our results of operations or financial condition.
General
We have recorded goodwill as a result of prior acquisitions, and an economic downturn could cause these balances to become impaired, requiring write-downs that would reduce our operating income.
Goodwill aggregated approximately $2,746 million, or 30.0% of our total assets, as of December 31, 2017. Current accounting rules require that goodwill be assessed for impairment at least annually or whenever changes in circumstances indicate that the carrying amount may not be recoverable from estimated future cash flows. Factors that may be considered a change in circumstance indicating the carrying value of our intangible assets, including goodwill, may not be recoverable include, but are not limited to, significant underperformance relative to historical or projected future operating results, a significant decline in our stock price and market capitalization, and negative industry or economic trends. No goodwill impairment charge was recorded in the years ended December 31, 2017, 2016, or 2015. However, if there is an economic downturn in the future, the carrying amount of our goodwill may no longer be recoverable, and we may be required to record an impairment charge, which would have a negative impact on our results of operations and financial condition. We will continue to monitor our market capitalization and the impact of the economy to determine if there is an impairment of goodwill in future periods.




12

Table of Contents

Our management has articulated a willingness to seek growth through acquisitions, both in our current lines of business as well as in lines of business outside of our traditional areas of focus or geographic areas. This expansion of our business subjects us to associated risks, such as risks and uncertainties associated with new companies, the diversion of management’s attention and lack of experience in operating unrelated businesses, and may affect our credit and ability to repay our debt.
Our management has stated that we may make acquisitions, both in our current lines of business, as well as lines of business that are not directly tied to or synergistic with our core operations. Accordingly, we have in the past acquired, and may in the future acquire, businesses in industries or geographic areas with which management is less familiar than we are with our core businesses. These activities involve risks that could adversely affect our operating results, due to uncertainties involved with new companies, diversion of management’s attention and lack of substantial experience in operating such businesses. There can be no guarantee that we will not enter into transactions or make acquisitions that will cause us to incur additional debt, increase our exposure to market and other risks and cause our credit or financial strength ratings to decline.
We are a holding company and depend on distributions from our subsidiaries for cash.
We are a holding company whose primary assets are the securities of our operating subsidiaries. Our ability to pay interest on our outstanding debt and our other obligations and to pay dividends is dependent on the ability of our subsidiaries to pay dividends or make other distributions or payments to us. If our operating subsidiaries are not able to pay dividends to us, we may not be able to meet our obligations or pay dividends on our common stock.
Our title insurance subsidiaries must comply with state laws which require them to maintain minimum amounts of working capital, surplus and reserves, and place restrictions on the amount of dividends that they can distribute to us. Compliance with these laws will limit the amounts our regulated subsidiaries can dividend to us. During 2018, our title insurers may pay dividends or make distributions to us of approximately $363 million; however, insurance regulators have the authority to prohibit the payment of ordinary dividends or other payments by our title insurers to us if they determine that such payment could be adverse to our policyholders.
The maximum dividend permitted by law is not necessarily indicative of an insurer’s actual ability to pay dividends, which may be constrained by business and regulatory considerations, such as the impact of dividends on surplus, which could affect an insurer’s ratings or competitive position, the amount of premiums that can be written and the ability to pay future dividends. Further, depending on business and regulatory conditions, we may in the future need to retain cash in our underwriters or even contribute cash to one or more of them in order to maintain their ratings or their statutory capital position. Such a requirement could be the result of investment losses, reserve charges, adverse operating conditions in the current economic environment or changes in interpretation of statutory accounting requirements by regulators.
The loss of key personnel could negatively affect our financial results and impair our operating abilities.
Our success substantially depends on our ability to attract and retain key members of our senior management team and officers. If we lose one or more of these key employees, our operating results and in turn the value of our common stock could be materially adversely affected. Although we have employment agreements with many of our officers, there can be no assurance that the entire term of the employment agreement will be served or that the employment agreement will be renewed upon expiration.
Failure of our information security systems or processes could result in a loss or disclosure of confidential information, damage to our reputation, monetary losses, additional costs and impairment of our ability to conduct business effectively.
Our operations are highly dependent upon the effective operation of our computer systems. We use our computer systems to receive, process, store and transmit sensitive personal consumer data (such as names and addresses, social security numbers, driver's license numbers, credit cards and bank account information) and important business information of our customers. We also electronically manage substantial cash, investment assets and escrow account balances on behalf of ourselves and our customers, as well as financial information about our businesses generally. The integrity of our computer systems and the protection of the information that resides on such systems are important to our successful operation. If we fail to maintain an adequate security infrastructure, adapt to emerging security threats or follow our internal business processes with respect to security, the information or assets we hold could be compromised. Further, even if we, or third parties to which we outsource certain information technology services, maintain a reasonable, industry-standard information security infrastructure to mitigate these risks, the inherent risk that unauthorized access to information or assets remains. This risk is increased by transmittal of information over the internet and the increased threat and sophistication of cyber criminals. While, to date, we believe that we have not experienced a material breach of our computer systems, the occurrence or scope of such events is not always apparent. If additional information regarding an event previously considered immaterial is discovered, or a new event were to occur, it could potentially have a material adverse effect on our operations or financial condition. In addition, some laws and certain of our contracts require notification of various parties, including regulators, consumers or customers, in the event that confidential or personal information has or may have been taken or accessed by unauthorized parties. Such notifications can potentially result, among other things, in adverse publicity, diversion of management and other resources, the attention of regulatory authorities, the imposition of fines, and disruptions in business operations, the effects of which may be material. Any inability to prevent security or privacy breaches, or the perception

13

Table of Contents

that such breaches may occur, could inhibit our ability to retain or attract new clients and/or result in financial losses, litigation, increased costs, negative publicity, or other adverse consequences to our business.
Further, our financial institution clients have obligations to safeguard their information technology systems and the confidentiality of customer information. In certain of our businesses, we are bound contractually and/or by regulation to comply with the same requirements. If we fail to comply with these regulations and requirements, we could be exposed to suits for breach of contract, governmental proceedings or the imposition of fines. In addition, future adoption of more restrictive privacy laws, rules or industry security requirements by federal or state regulatory bodies or by a specific industry in which we do business could have an adverse impact on us through increased costs or restrictions on business processes.
If economic and credit market conditions deteriorate, it could have a material adverse impact on our investment portfolio.
Our investment portfolio is exposed to economic and financial market risks, including changes in interest rates, credit markets and prices of marketable equity and fixed-income securities. Our investment policy is designed to maximize total return through investment income and capital appreciation consistent with moderate risk of principal, while providing adequate liquidity and complying with internal and regulatory guidelines. To achieve this objective, our marketable debt investments are primarily investment grade, liquid, fixed-income securities and money market instruments denominated in U.S. dollars. We make investments in certain equity securities and preferred stock in order to take advantage of perceived value and for strategic purposes. In the past, economic and credit market conditions have adversely affected the ability of some issuers of investment securities to repay their obligations and have affected the values of investment securities. If the carrying value of our investments exceeds the fair value, and the decline in fair value is deemed to be other-than-temporary, we will be required to write down the value of our investments, which could have a material negative impact on our results of operations and financial condition.
Failure of our enterprise-wide risk management processes could result in unexpected monetary losses, damage to our reputation, additional costs or impairment of our ability to conduct business effectively.
As a large insurance entity and a publicly traded company, the Company has always had risk management functions, policies and procedures throughout its operations and management. These functions include but are not limited to departments dedicated to enterprise risk management and information technology risk management, information security, business continuity, lender strategy and development, and vendor risk management. These policies and procedures have evolved over the years as we continually reassess our processes both internally and to comply with changes in the regulatory environment. Due to limitations inherent in any internal process, if the Company's risk management processes prove unsuccessful at identifying and responding to risks, we could incur unexpected monetary losses, damage to our reputation, additional costs or impairment of our ability to conduct business effectively.
We are the subject of various legal proceedings that could have a material adverse effect on our results of operations.
We are involved from time to time in various legal proceedings, including in some cases class-action lawsuits and regulatory inquiries, investigations or other proceedings. If we are unsuccessful in our defense of litigation matters or regulatory proceedings, we may be forced to pay damages, fines or penalties and/or change our business practices, any of which could have a material adverse effect on our business and results of operations. See Note M Commitments and Contingencies to our Consolidated Financial Statements included in Item 8 of Part II of this Annual Report for further discussion of pending litigation and regulatory matters and our related accrual.
If adverse changes in the levels of real estate activity occur, our revenues may decline.
Title insurance revenue is closely related to the level of real estate activity which includes sales, mortgage financing and mortgage refinancing. The levels of real estate activity are primarily affected by the average price of real estate sales, the availability of funds to finance purchases and mortgage interest rates.
We have found that residential real estate activity generally decreases in the following situations:
when mortgage interest rates are high or increasing;
when the mortgage funding supply is limited; and
when the United States economy is weak, including high unemployment levels.
Declines in the level of real estate activity or the average price of real estate sales are likely to adversely affect our title insurance revenues. The Mortgage Bankers Association's ("MBA") Mortgage Finance Forecast as of January 20, 2018 estimates an approximately $1.6 trillion mortgage origination market for 2018, which would be a decrease of 5.9% from 2017. The MBA forecasts that the 5.9% decrease will result from a decrease in refinance activity, offset by a slight increase in forecast purchase transactions. Our revenues in future periods will continue to be subject to these and other factors which are beyond our control and, as a result, are likely to fluctuate.
If financial institutions at which we hold escrow funds fail, it could have a material adverse impact on our company.
We hold customers' assets in escrow at various financial institutions, pending completion of real estate transactions. These assets are maintained in segregated bank accounts and have not been included in the accompanying Consolidated Balance Sheets.

14

Table of Contents

We have a contingent liability relating to proper disposition of these balances for our customers, which amounted to $15.4 billion at December 31, 2017. Failure of one or more of these financial institutions may lead us to become liable for the funds owed to third parties and there is no guarantee that we would recover the funds deposited, whether through Federal Deposit Insurance Corporation coverage or otherwise.
If we experience changes in the rate or severity of title insurance claims, it may be necessary for us to record additional charges to our claim loss reserve. This may result in lower net earnings and the potential for earnings volatility.
By their nature, claims are often complex, vary greatly in dollar amounts and are affected by economic and market conditions and the legal environment existing at the time of settlement of the claims. Estimating future title loss payments is difficult because of the complex nature of title claims, the long periods of time over which claims are paid, significantly varying dollar amounts of individual claims and other factors. From time to time, we experience large losses or an overall worsening of our loss payment experience in regard to the frequency or severity of claims that require us to record additional charges to our claims loss reserve. There are currently pending several large claims which we believe can be defended successfully without material loss payments. However, if unanticipated material payments are required to settle these claims, it could result in or contribute to additional charges to our claim loss reserves. These loss events are unpredictable and adversely affect our earnings.
At each quarter end, our recorded reserve for claim losses is initially the result of taking the prior recorded reserve for claim losses, adding the current provision to that balance and subtracting actual paid claims from that balance, resulting in an amount that management then compares to our actuary's central estimate provided in the actuarial calculation. Due to the uncertainty and judgment used by both management and our actuary, our ultimate liability may be greater or less than our current reserves and/or our actuary’s calculation. If the recorded amount is within a reasonable range of the actuary’s central estimate, but not at the central estimate, management assesses other factors in order to determine our best estimate. These factors, which are both qualitative and quantitative, can change from period to period and include items such as current trends in the real estate industry (which management can assess, but for which there is a time lag in the development of the data used by our actuary), any adjustments from the actuarial estimates needed for the effects of unusually large or small claims, improvements in our claims management processes, and other cost saving measures. Depending upon our assessment of these factors, we may or may not adjust the recorded reserve. If the recorded amount is not within a reasonable range of the actuary’s central estimate, we would record a charge or credit and reassess the provision rate on a go forward basis.
Our subsidiaries must comply with extensive regulations. These regulations may increase our costs or impede or impose burdensome conditions on actions that we might seek to take to increase the revenues of those subsidiaries.
Our insurance businesses are subject to extensive regulation by state insurance authorities in each state in which they operate. These agencies have broad administrative and supervisory power relating to the following, among other matters:
licensing requirements;
trade and marketing practices;
accounting and financing practices;
disclosure requirements on key terms of mortgage loans;
capital and surplus requirements;
the amount of dividends and other payments made by insurance subsidiaries;
investment practices;
rate schedules;
deposits of securities for the benefit of policyholders;
establishing reserves; and
regulation of reinsurance.
Most states also regulate insurance holding companies like us with respect to acquisitions, changes of control and the terms of transactions with our affiliates. State regulations may impede or impose burdensome conditions on our ability to increase or maintain rate levels or on other actions that we may want to take to enhance our operating results. In addition, we may incur significant costs in the course of complying with regulatory requirements. Further, various state legislatures have in the past considered offering a public alternative to the title industry in their states, as a means to increase state government revenues. Although we think this situation is unlikely, if one or more such takeovers were to occur they could adversely affect our business. We cannot be assured that future legislative or regulatory changes will not adversely affect our business operations. See “Item 1. Business — Regulation” for further discussion of the current regulatory environment.
Our ServiceLink subsidiary provides mortgage transaction services including title-related services and facilitation of production and management of mortgage loans. Certain of these businesses are subject to federal and state regulatory oversight. For example, ServiceLink’s LoanCare business services and subservices mortgage loans secured primarily by residential real estate throughout the United States. LoanCare is subject to extensive federal, state and local regulatory oversight, including federal and state regulatory examinations, information gathering requests, inquiries, and investigations by governmental and regulatory agencies, including the CFPB. In connection with formal and informal inquiries by those agencies, LoanCare receives numerous

15

Table of Contents

requests, subpoenas, and orders for documents, testimony and information in connection with various aspects of its or its clients’ regulated activities. The ongoing implementation of the Dodd Frank Act, including the implementation of the originations and servicing rules by the CFPB, could increase our regulatory compliance burden and associated costs and place restrictions on our ability to operate the LoanCare business.
LoanCare is also required to maintain a variety of licenses, both federal and state. License requirements are in a frequent state of renewal and reexamination as regulations change or are reinterpreted. In addition, federal and state statutes establish specific guidelines and procedures that debt collectors must follow when collecting consumer accounts. LoanCare’s failure to comply with any of these laws, should the states take an opposing interpretation, could have an adverse effect on LoanCare in the event and to the extent that they apply to some or all of its servicing activities.
State regulation of the rates we charge for title insurance could adversely affect our results of operations.
Our title insurance subsidiaries are subject to extensive rate regulation by the applicable state agencies in the jurisdictions in which they operate. Title insurance rates are regulated differently in various states, with some states requiring the subsidiaries to file and receive approval of rates before such rates become effective and some states promulgating the rates that can be charged. In general, premium rates are determined on the basis of historical data for claim frequency and severity as well as related production costs and other expenses. In all states in which our title subsidiaries operate, our rates must not be excessive, inadequate or unfairly discriminatory. Premium rates are likely to prove insufficient when ultimate claims and expenses exceed historically projected levels. Premium rate inadequacy may not become evident quickly and may take time to correct, and could adversely affect the Company’s business operating results and financial conditions.
Regulatory investigations of the insurance industry may lead to fines, settlements, new regulation or legal uncertainty, which could negatively affect our results of operations.
From time to time we receive inquiries and requests for information from state insurance departments, attorneys general and other regulatory agencies about various matters relating to our business. Sometimes these take the form of civil investigative demands or subpoenas. We cooperate with all such inquiries and we have responded to or are currently responding to inquiries from multiple governmental agencies. Also, regulators and courts have been dealing with issues arising from foreclosures and related processes and documentation. Various governmental entities are studying the title insurance product, market, pricing, and business practices, and potential regulatory and legislative changes, which may materially affect our business and operations. From time to time, we are assessed fines for violations of regulations or other matters or enter into settlements with such authorities which may require us to pay fines or claims or take other actions.
Because we are dependent upon California and Texas for approximately 14.5% and 14.2% and of our title insurance premiums, respectively, our business may be adversely affected by regulatory conditions in California and/or Texas.
California and Texas are the two largest sources of revenue for our title segment and, in 2017, California-based premiums accounted for 29.5% of premiums earned by our direct operations and 0.7% of our agency premium revenues. Texas-based premiums accounted for 18.2% of premiums earned by our direct operations and 10.3% of our agency premium revenues. In the aggregate, California and Texas accounted for approximately 14.5% and 14.2%, respectively, of our total title insurance premiums for 2017. A significant part of our revenues and profitability are therefore subject to our operations in California and Texas and to the prevailing regulatory conditions in these states. Adverse regulatory developments in California and Texas, which could include reductions in the maximum rates permitted to be charged, inadequate rate increases or more fundamental changes in the design or implementation of the California and Texas title insurance regulatory framework, could have a material adverse effect on our results of operations and financial condition.
If the rating agencies downgrade our insurance companies, our results of operations and competitive position in the title insurance industry may suffer.
Ratings have always been an important factor in establishing the competitive position of insurance companies. Our title insurance subsidiaries are rated by S&P, Moody’s, and Demotech. Ratings reflect the opinion of a rating agency with regard to an insurance company’s or insurance holding company’s financial strength, operating performance and ability to meet its obligations to policyholders and are not evaluations directed to investors. Our ratings are subject to continued periodic review by rating agencies and the continued retention of those ratings cannot be assured. If our ratings are reduced from their current levels by those entities, our results of operations could be adversely affected.
If the Company's claim loss prevention procedures fail, we could incur significant claim losses.
In the ordinary course of our title insurance business, we assume risks related to insuring clear title to residential and commercial properties. The Company has established procedures to mitigate the risk of loss from title claims, including extensive underwriting and risk assessment procedures. We also mitigate the risk of large claim losses by reinsuring risks with other insurers under excess of loss and case-by-case (“facultative”) reinsurance agreements. Reinsurance agreements generally provide that the reinsurer is liable for loss and loss adjustment expense payments exceeding the amount retained by the ceding company. However, the ceding company remains primarily liable to the insured whether or not the reinsurer is able to meet its contractual obligations. If inherent

16

Table of Contents

limitations cause our claim loss risk mitigation procedures to fail, we could incur substantial losses having an adverse effect on our results of operations or financial condition.
The Company's use of independent agents for a significant amount of our title insurance policies could adversely impact the frequency and severity of title claims.
In the Company’s agency operations, an independent agent performs the search and examination function or the agent may purchase a search product from the Company. In either case, the agent is responsible for ensuring that the search and examination is completed. The agent thus retains the majority of the title premium collected, with the balance remitted to the title underwriter for bearing the risk of loss in the event that a claim is made under the title insurance policy. The Company’s relationship with each agent is governed by an agency agreement defining how the agent issues a title insurance policy on the Company’s behalf. The agency agreement also sets forth the agent’s liability to the Company for policy losses attributable to the agent’s errors. For each agent with whom the Company enters into an agency agreement, financial and loss experience records are maintained. Periodic audits of our agents are also conducted and the number of agents with which the Company transacts business is strategically managed in an effort to reduce future expenses and manage risks. Despite efforts to monitor the independent agents with which we transact business, there is no guarantee that an agent will comply with their contractual obligations to the Company. Furthermore, we cannot be certain that, due to changes in the regulatory environment and litigation trends, the Company will not be held liable for errors and omissions by agents. Accordingly, our use of independent agents could adversely impact the frequency and severity of title claims.
Failure to respond to rapid changes in technology could adversely affect the Company
Rapidly evolving technologies and innovations in software and financial technology could drive changes in how real estate transactions are recorded and processed throughout the mortgage life cycle. There is no guarantee that we will be able to effectively adapt to and utilize changing technology.  Our competitors may be able to utilize technology more effectively than us which could result in the loss of market share.

Item 1B.
Unresolved Staff Comments
None.

Item 2.  
Properties
Our corporate headquarters are on our campus in Jacksonville, Florida in owned facilities.
The majority of our branch offices are leased from third parties. See Note M Commitments and Contingencies to our Consolidated Financial Statements included in Item 8 of Part II of this Annual Report for further information on our outstanding leases. Our subsidiaries conduct their business operations primarily in leased office space in 44 states, Washington, DC, Canada and India.

Item 3.
Legal Proceedings  
For a description of our legal proceedings see discussion of Legal and Regulatory Contingencies in Note M Commitments and Contingencies to our Consolidated Financial Statements included in Item 8 of Part II of this Annual Report, which is incorporated by reference into this Part I, Item 3.


17

Table of Contents

PART II
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock trades on the New York Stock Exchange under the trading symbol "FNF". The following tables provide the high and low closing sales prices of our common stock and cash dividends declared per share of common stock for each quarter during 2017 and 2016.
 
Stock Price High
 
Stock Price Low
 
Cash Dividends
Declared
Year ended December 31, 2017
 

 
 

 
 

First quarter
$
27.64

 
$
23.54

 
$
0.25

Second quarter
31.91

 
26.99

 
0.25

Third quarter
34.78

 
31.54

 
0.25

Fourth quarter
40.35

 
33.84

 
0.27

 
 
 
 
 
 
Year ended December 31, 2016
 

 
 

 
 

First quarter
$
23.19

 
$
19.97

 
$
0.21

Second quarter
25.76

 
21.63

 
0.21

Third quarter
26.40

 
24.92

 
0.21

Fourth quarter
25.65

 
22.01

 
0.25

Information concerning securities authorized for issuance under our equity compensation plans will be included in Item 12 of Part III of this report.

18

Table of Contents

PERFORMANCE GRAPH
Set forth below is a graph comparing cumulative total shareholder return on our FNF common stock against the cumulative total return on the S&P 500 Index and against the cumulative total return of a peer group index consisting of certain companies in the primary industry in which we compete (SIC code 6361 — Title Insurance) for the period ending December 31, 2017. This peer group consists of the following companies: First American Financial Corporation and Stewart Information Services Corp. The peer group comparison has been weighted based on their stock market capitalization. The graph assumes an initial investment of $100.00 on December 31, 2012, with dividends reinvested over the periods indicated.
fnfgroup5year17.jpg
 
 
12/31/2012
12/31/2013
12/31/2014
12/31/2015
12/31/2016
12/31/2017
 
 
 
 
 
 
 
 
Fidelity National Financial, Inc.
 
100.00

141.40

186.97

192.43

193.40

317.26

S&P 500
 
100.00

132.39

150.51

152.59

170.84

208.14

Peer Group
 
100.00

120.24

146.83

158.07

172.47

249.23

On January 31, 2018, the last reported sale price of our common stock on the New York Stock Exchange was $38.98. We had approximately 7,000 shareholders of record.
On January 26, 2018, our Board of Directors formally declared a $0.30 per FNF share cash dividend that is payable on March 30, 2018 to FNF shareholders of record as of March 16, 2018.
Our current dividend policy anticipates the payment of quarterly dividends in the future. The declaration and payment of dividends will be at the discretion of our Board of Directors and will be dependent upon our future earnings, financial condition and capital requirements. There are no restrictions on our retained earnings regarding our ability to pay dividends to shareholders,

19

Table of Contents

although there are limits on the ability of certain subsidiaries to pay dividends to us, as described below. Our ability to declare dividends is subject to restrictions under our existing credit agreement. We do not believe the restrictions contained in our credit agreement will, in the foreseeable future, adversely affect our ability to pay cash dividends at the current dividend rate.
Since we are a holding company, our ability to pay dividends will depend largely on the ability of our subsidiaries to pay dividends to us, and the ability of our title insurance subsidiaries to do so is subject to, among other factors, their compliance with applicable insurance regulations. As of December 31, 2017, $1,700 million of our net assets are restricted from dividend payments without prior approval from the Departments of Insurance in the states where our title insurance subsidiaries are domiciled. During 2018, our directly owned title insurance subsidiaries can pay dividends or make distributions to us of approximately $363 million without prior approval. The limits placed on such subsidiaries’ abilities to pay dividends affect our ability to pay dividends.
On July 20, 2015, our Board of Directors approved a new three-year stock repurchase program under which we can purchase up to 25 million shares of our FNF Group common stock through July 30, 2018. We may make repurchases from time to time in the open market, in block purchases or in privately negotiated transactions, depending on market conditions and other factors. Since the original commencement of the plan, we have repurchased a total of 10,589,000 FNF Group common shares for $372 million, or an average of $35.10 per share, and there are 14,411,000 shares available to be repurchased under this program. We have not made any repurchases under this program in the year ended December 31, 2017 or in the subsequent period ended January 31, 2018.

20

Table of Contents

Item 6. 
Selected Financial Data
The information set forth below should be read in conjunction with the consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Form 10-K. Certain reclassifications have been made to the prior year amounts to conform with the 2017 presentation.
On November 17, 2017 we completed our previously announced split-off (the “FNFV Split-Off”) of our former wholly-owned subsidiary Cannae Holdings, Inc. (“Cannae”), which consisted of the businesses, assets and liabilities formerly attributed to our FNF Ventures ("FNFV") Group including Ceridian Holding, LLC, American Blue Ribbon Holdings, LLC and T-System Holding LLC. The results of FNFV are presented as discontinued operations in the following tables.
On September 29, 2017 we completed our tax-free distribution to FNF Group shareholders, of all 83.3 million shares of New BKH Corp. ("New BKH") common stock that we previously owned (the “BK Distribution”). Immediately following the BK Distribution, New BKH and Black Knight Financial Services, Inc. ("Black Knight") engaged in a series of transactions resulting in the formation of a new publicly-traded holding company, Black Knight, Inc. ("New Black Knight"). The results of Black Knight are presented as discontinued operations in the following tables.
On June 30, 2014, we completed a recapitalization of FNF common stock into two tracking stocks, FNF Group common stock and FNFV Group common stock. Each share of the previously outstanding FNF Class A common stock ("Old FNF common stock") was converted into one share of FNF Group common stock and 0.3333 of a share of FNFV Group common stock.
 
Year Ended December 31,
 
2017
 
2016
 
2015
 
2014
 
2013
 
(Dollars in millions, except share data)
Operating Data:
 

 
 

 
 

 
 
 
 
Revenue
$
7,663

 
$
7,257

 
$
6,664

 
$
5,647

 
$
5,950

Expenses:
 

 
 

 
 

 
 

 
 

Personnel costs
2,460

 
2,275

 
2,137

 
1,921

 
1,881

Agent commissions
2,089

 
1,998

 
1,731

 
1,471

 
1,789

Other operating expenses
1,781

 
1,648

 
1,557

 
1,367

 
1,189

Depreciation and amortization
183

 
160

 
150

 
148

 
68

Provision for title claim losses
238

 
157

 
246

 
228

 
291

Interest expense
48

 
64

 
73

 
91

 
68

 
6,799

 
6,302

 
5,894

 
5,226

 
5,286

Earnings before income taxes, equity in earnings (loss) of unconsolidated affiliates, and noncontrolling interest
864

 
955

 
770

 
421

 
664

Income tax expense
235

 
347

 
274

 
175

 
238

Earnings before equity in earnings of unconsolidated affiliates
629

 
608

 
496

 
246

 
426

Equity in earnings of unconsolidated affiliates
10

 
14

 
5

 
3

 
4

Earnings from continuing operations, net of tax
639

 
622

 
501

 
249

 
430

Earnings (loss) from discontinued operations, net of tax
155

 
70

 
60

 
270

 
(19
)
Net earnings
794

 
692

 
561

 
519

 
411

Less: net earnings (loss) attributable to noncontrolling interests
23

 
42

 
34

 
(64
)
 
17

Net earnings attributable to FNF common shareholders
$
771

 
$
650

 
$
527

 
$
583

 
$
394


21

Table of Contents

 
Year Ended December 31,
 
2017
 
2016
 
2015
 
2014
 
2013
 
(Dollars in millions, except share data)
Per Share Data:
 

 
 

 
 

 
 
 
 
Basic net earnings per share attributable to Old FNF common shareholders
 
 
 
 
 
 
$
0.33

 
$
1.71

Basic net earnings per share attributable to FNF Group common shareholders
$
2.44

 
$
2.40

 
$
1.95

 
0.77

 
 
Basic net earnings (loss) per share attributable to FNFV Group common shareholders
$
1.68

 
$
(0.06
)
 
$
(0.16
)
 
3.04

 
 
Weighted average shares outstanding Old FNF, basic basis (1)
 
 
 
 
 
 
138

 
230

Weighted average shares outstanding FNF Group, basic basis (1)
271

 
272

 
277

 
138

 
 
Weighted average shares outstanding FNFV Group, basic basis (1)
65

 
67

 
79

 
46

 
 
Diluted net earnings per share attributable to Old FNF common shareholders
 
 
 
 
 
 
$
0.32

 
$
1.68

Diluted net earnings per share attributable to FNF Group common shareholders
$
2.38

 
$
2.34

 
$
1.89

 
0.75

 
 
Diluted net earnings (loss) per share attributable to FNFV Group common shareholders
$
1.63

 
$
(0.06
)
 
$
(0.16
)
 
3.01

 
 
Weighted average shares outstanding Old FNF, diluted basis (1)
 
 
 
 
 
 
142

 
235

Weighted average shares outstanding FNF Group, diluted basis (1)
278

 
280

 
286

 
142

 
 
Weighted average shares outstanding FNFV Group, diluted basis (1)
67

 
70

 
82

 
47

 
 
Dividends declared per share of Old FNF common stock


 
 
 
 
 
$
0.36

 
$
0.66

Dividends declared per share of FNF Group common stock
$
1.02

 
$
0.88

 
$
0.80

 
$
0.37

 
 
Balance Sheet Data:
 

 
 

 
 

 
 

 
 

Investments (2)
$
3,371

 
$
3,782

 
$
4,015

 
$
3,694

 
$
3,387

Cash and cash equivalents (3)
1,110

 
1,049

 
696

 
604

 
1,815

Total assets
9,151

 
14,521

 
14,043

 
13,868

 
10,573

Notes payable
759

 
987

 
981

 
2,086

 
983

Reserve for title claim losses
1,490

 
1,487

 
1,583

 
1,621

 
1,636

Redeemable NCI
344

 
344

 
344

 
715

 

Equity
4,467

 
6,898

 
6,588

 
6,073

 
5,535

Book value per share Old FNF
 
 
 
 


 


 
$
22.14

Book value per share FNF Group (4)
$
17.53

 
$
22.81

 
$
21.21

 
$
18.87

 
 
Book value per share FNFV Group (4)
 
 
$
15.54

 
$
15.05

 
$
16.31

 
 
Other Data:
 
 
 
 
 
 
 
 
 
Orders opened by direct title operations (in 000's)
1,942

 
2,184

 
2,092

 
1,914

 
2,181

Orders closed by direct title operations (in 000's)
1,428

 
1,575

 
1,472

 
1,319

 
1,708

Provision for title insurance claim losses as a percent of title insurance premiums (5)
4.9
%
 
3.3
%
 
5.7
%
 
6.2
%
 
7.0
%
Title-related revenue (6):
 
 
 
 
 
 
 
 
 
Percentage direct operations
63.8
%
 
63.2
%
 
65.1
%
 
64.8
%
 
59.5
%
Percentage agency operations
36.2
%
 
36.8
%
 
34.9
%
 
35.2
%
 
40.5
%
______________________________________
(1)
Weighted average shares outstanding as of December 31, 2014 includes 25,920,078 FNF shares that were issued as part of the acquisition of LPS on January 2, 2014 and 91,711,237 FNFV shares that were issued as part of the recapitalization completed on June 30, 2014. Weighted average shares outstanding as of December 31, 2013 includes 19,837,500 shares that were issued as part of an equity offering by FNF on October 31, 2013.

22

Table of Contents

(2)
Investments as of December 31, 2017, 2016, 2015, 2014, and 2013, include securities pledged to secured trust deposits of $367 million, $544 million, $608 million, $499 million, and $261 million, respectively.
(3)
Cash and cash equivalents as of December 31, 2017, 2016, 2015, 2014, and 2013 include cash pledged to secured trust deposits of $475 million, $331 million, $108 million, $136 million, and $339 million, respectively.
(4)
Book value per share is calculated as equity at December 31 of each year presented divided by actual shares outstanding at December 31 of each year presented.
(5)
Includes the effects of the release of $97 million of excess reserves in the quarter ended December 31, 2016.
(6)
Includes title insurance premiums and escrow, title-related and other fees.
Selected Quarterly Financial Data (Unaudited)
Selected quarterly financial data is as follows:
 
Quarter Ended
 
March 31,
 
June 30,
 
September 30,
 
December 31,
 
(Dollars in millions, except per share data)
2017
 

 
 

 
 

 
 

Revenue
$
1,643

 
$
2,059

 
$
1,986

 
$
1,975

Earnings from continuing operations before income taxes, equity in earnings of unconsolidated affiliates, and noncontrolling interest
128

 
274

 
242

 
220

Net earnings attributable to FNF Group common shareholders
71

 
175

 
170

 
246

Net earnings (loss) attributable to FNFV Group common shareholders
1

 
121

 
(5
)
 
(8
)
Basic earnings per share attributable to FNF Group common shareholders
0.26

 
0.65

 
0.63

 
0.90

Basic earnings (loss) per share attributable to FNFV Group common shareholders
0.02

 
1.83

 
(0.08
)
 
(0.12
)
Diluted earnings per share attributable to FNF Group common shareholders
0.25

 
0.63

 
0.62

 
0.88

Diluted earnings (loss) per share attributable to FNFV Group common shareholders
0.01

 
1.81

 
(0.08
)
 
(0.12
)
Dividends paid per share FNF Group common stock
0.25

 
0.25

 
0.25

 
0.27

2016
 
 
 
 
 
 
 
Revenue
$
1,492

 
$
1,894

 
$
1,948

 
$
1,923

Earnings from continuing operations before income taxes, equity in earnings of unconsolidated affiliates, and noncontrolling interest
101

 
261

 
251

 
342

Net earnings attributable to FNF Group common shareholders
73

 
187

 
163

 
231

Net earnings (loss) attributable to FNFV Group common shareholders
1

 
10

 
(7
)
 
(8
)
Basic earnings per share attributable to FNF Group common shareholders
0.27

 
0.69

 
0.60

 
0.85

Basic earnings (loss) per share attributable to FNFV Group common shareholders
0.01

 
0.15

 
(0.11
)
 
(0.12
)
Diluted earnings per share attributable to FNF Group common shareholders
0.26

 
0.67

 
0.58

 
0.83

Diluted earnings (loss) per share attributable to FNFV Group common shareholders
0.01

 
0.14

 
(0.11
)
 
(0.12
)
Dividends paid per share FNF Group common stock
0.21

 
0.21

 
0.21

 
0.25







23

Table of Contents

As a result of the BK Distribution and FNFV Split-Off, the results of operations of Black Knight and FNFV were reclassified to discontinued operations in the quarters ended September 30, 2017 and December 31, 2017, respectively. Accordingly, revenue and earnings from continuing operations before income taxes, equity in earnings of unconsolidated affiliates, and noncontrolling interest ("earnings from continuing operations") for the quarters ended March 31, 2016 through September 30, 2017 differ from our previously reported amounts on our corresponding Form 10-Q or Form 10-K, as applicable.
A reconciliation of our selected quarterly financial data to our previously reported amounts is shown below:
 
Quarter Ended
 
March 31,
 
June 30,
 
September 30,
 
December 31,
 
(Dollars in millions, except per share data)
2017
 

 
 

 
 

 
 

Revenue, continuing operations
$
1,643

 
$
2,059

 
$
1,986

 
 
Revenue, discontinued operations (1)
574

 
828

 
279

 
 
Revenue, as reported (2)
2,217

 
2,887

 
2,265

 
 
Earnings from continuing operations
128

 
274

 
242

 
 
Earnings from continuing operations, subsequently discontinued (1)
33

 
256

 
(21
)
 
 
Earnings from continuing operations, as reported (2)
161

 
530

 
221

 
 
2016
 

 
 

 
 

 
 

Revenue, continuing operations
$
1,492

 
$
1,894

 
$
1,948

 
$
1,923

Revenue, discontinued operations (1)
556

 
588

 
569

 
584

Revenue, as reported (2)
2,048

 
2,482

 
2,517

 
2,507

Earnings from continuing operations
101

 
261

 
251

 
342

Earnings from continuing operations, subsequently discontinued (1)
30

 
47

 
20

 
20

Earnings from continuing operations, as reported (2)
131

 
308

 
271

 
362

______________________________________
(1)
Represents total revenue and earnings from Black Knight and FNFV.
(2)
As previously reported on our corresponding Form 10-Q or Form 10-K.


24

Table of Contents

Item 7.  
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Consolidated Financial Statements and the Notes thereto and Selected Financial Data included elsewhere in this Form 10-K.
Overview
For a description of our business, including descriptions of segments, see the discussion under Business in Item 1 of Part I of this Annual Report, which is incorporated by reference into this Part II, Item 7 of this Annual Report.
Recent Developments
On November 30, 2017, FGL Holdings (formerly known as CF Corporation), a Cayman Islands exempted company, consummated its previously announced acquisition of Fidelity & Guaranty Life, a Delaware corporation (“FGL”), pursuant to the Agreement and Plan of Merger, dated as of May 24, 2017, as amended (the “Merger Agreement”), by and among CF Corporation, FGL, and certain subsidiaries of CF Corporation and FGL (collectively, the "FGL Merger"). In connection with the FGL Merger, FNF received 13,732,000 common shares and 100,000 Series B Cumulative Preferred ('FG Preferred") shares in exchange for an aggregate investment of $213 million. As of December 31, 2017 FNF owns 16,732,000 common shares, inclusive of 3,000,000 common shares of CF Corporation held prior to the FGL Merger, and 100,000 FG Preferred shares with an aggregate market value of $246 million and we own approximately 8.5% of the outstanding common equity of FGL. The Company’s non-executive Chairman, William P. Foley, II, is also the Co-Executive Chairman of FGL.
On November 17, 2017 we completed our previously announced split-off (the “FNFV Split-Off”) of our former wholly-owned subsidiary Cannae Holdings, Inc. (“Cannae”) which consisted of the businesses, assets and liabilities formerly attributed to our FNF Ventures ("FNFV") Group including Ceridian Holding, LLC, American Blue Ribbon Holdings, LLC and T-System Holding LLC.. The FNFV Split-Off was accomplished by the Company's redemption (the “Redemption”) of all of the outstanding shares of FNFV Group common stock, par value $0.0001 per share (“FNFV common stock”) for outstanding shares of common stock of Cannae, par value $0.0001 per share (“Cannae common stock”), amounting to a redemption on a per share basis of each outstanding share of FNFV common stock for one share of Cannae common stock, as of November 17, 2017. As a result of the FNFV Split-Off, Cannae is a separate, publicly traded company (NYSE: CNNE). All of the Company’s core title insurance, real estate, technology and mortgage related businesses, assets and liabilities currently attributed to the Company’s FNF Group common stock that were not held by Cannae remain with the Company. As a result of the FNFV Split-Off, we have reclassified the assets and liabilities divested as assets and liabilities of discontinued operations in our Consolidated Balance Sheet as of December 31, 2016. Further, the financial results of FNFV Group have been reclassified to discontinued operations for all periods presented in our Consolidated Statements of Earnings. See Note G. Discontinued Operations to our Consolidated Financial Statements included in Item 8 of Part II of this Annual Report for further details of the results of FNFV Group.
On November 17, 2017, Frank P. Willey resigned from our Board of Directors.
On September 29, 2017 we completed our tax-free distribution to FNF Group shareholders, of all 83.3 million shares of New BKH Corp. ("New BKH") common stock that we previously owned (the “BK Distribution”). Immediately following the BK Distribution, New BKH and Black Knight Financial Services, Inc. ("Black Knight") engaged in a series of transactions resulting in the formation of a new publicly-traded holding company, Black Knight, Inc. ("New Black Knight"). Holders of FNF Group common stock received approximately 0.30663 shares of New Black Knight common stock for every one share of FNF Group common stock held at the close of business on September 20, 2017, the record date for the BK Distribution. New Black Knight's common stock is now listed under the symbol “BKI” on the New York Stock Exchange. The BK Distribution is expected to generally be tax-free to FNF Group shareholders for U.S. federal income tax purposes, except to the extent of any cash received in lieu of New Black Knight's fractional shares. As a result of the BK Distribution, we have reclassified the assets and liabilities divested as assets and liabilities of discontinued operations in our Consolidated Balance Sheet as of December 31, 2016. Further, the financial results of Black Knight have been reclassified to discontinued operations for all periods presented in our Consolidated Statements of Earnings.  See Note G. Discontinued Operations to our Consolidated Financial Statements included in Item 8 of Part II of this Annual Report for further details of the results of Black Knight.
On August 31, 2017, FNF Group completed its acquisition of 90% of the membership interests of Title Guaranty of Hawaii ("Title Guaranty") for $98 million. Title Guaranty was previously an unaffiliated agent of Chicago Title and will continue to be closely aligned with Chicago Title as it formally becomes part of the FNF title company family. Founded in 1896, Title Guaranty is the oldest title company in the State of Hawaii and is a leading provider of title and escrow services, with more than 300 employees in branches across the State of Hawaii providing title insurance and real estate closing services. See Note J Acquisitions for further discussion.
On May 3, 2017, our Board of Directors adopted a resolution to increase the size of our Board of Directors to thirteen and elected Heather H. Murren to serve on our Board of Directors. Ms. Murren will serve in Class I of our Board of Directors, and her term will expire at the annual meeting of our shareholders to be held in 2018. In January 2018, Ms. Murren was appointed to the Audit Committee of our Board.

25

Table of Contents

Effective March 1, 2017, three of the Company’s title insurance underwriters, Fidelity National Title Insurance Company, Chicago Title Insurance Company and Commonwealth Land Title Insurance Company, redomesticated from their respective former states of domicile to Florida (the "Redomestication"). In conjunction with the Redomestication, the Company received a special dividend of $280 million from these title insurance underwriters on March 15, 2017.
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; and
strength of the United States economy, including employment levels.
As of January 20, 2018, the Mortgage Banker's Association ("MBA") estimated the size of the U.S. mortgage originations market as shown in the following table for 2016 - 2020 in its "Mortgage Finance Forecast" (in trillions):
 
 
2020
 
2019
 
2018
 
2017
 
2016
Purchase transactions
 
$
1.3

 
$
1.2

 
$
1.2

 
$
1.1

 
$
1.1

Refinance transactions
 
0.4

 
0.4

 
0.4

 
0.6

 
1.0

Total U.S. mortgage originations
 
$
1.7

 
$
1.6

 
$
1.6

 
$
1.7

 
$
2.1

In 2016 and 2017, total originations were reflective of a generally improving residential real estate market driven by increasing home prices and historically low mortgage interest rates. Mortgage interest rates increased slightly in 2017 from 2016, but remained low compared to historical rates. Refinance transactions decreased in 2017 from the historically high levels experienced in recent years through 2016. Existing home sales increased and there was a decline in total housing inventory. In 2018 and beyond, increasing mortgage interest rates driven by gradual increases in the target federal funds rate are expected to adversely impact mortgage originations. In a rising interest rate environment, refinance transactions are expected to continue to decline. The MBA predicts overall mortgage originations in 2018 through 2019 will decrease compared to the 2016 and 2017 periods due to a decrease in refinance transactions, offset by a slight increase in purchase transactions. Purchase transactions involve the issuance of both a lender’s policy and an owner’s policy, resulting in higher title premiums, whereas refinance transactions only require a lender’s policy, resulting in lower title premiums.
While projected increases in mortgage interest rates present a potential headwind for mortgage originations, other economic indicators used to measure the health of the United States economy, including the unemployment rate and consumer confidence, have improved in recent years. According to the United States Department of Labor's Bureau of Labor, the unemployment rate has dropped from 7.4% in 2013 to 4.1% in December 2017. Additionally, the Conference Board's monthly Consumer Confidence Index rose sharply at the end of 2016 and has remained at historical highs through 2017. We believe that improvements in both of these economic indicators, among other indicators which support a generally improving United States economy, present potential tailwinds for mortgage originations and support recent home price trends.
We cannot be certain how, if at all, the positive effects of a change in mix of purchase to refinance transactions and of a generally improving United States economy and the negative effects of projected decreases in overall originations and increases in interest rates will impact our future results of operations. We continually monitor 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.
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. For several years through 2015, we experienced continual year-over-year increases in the fee per file of commercial transactions. In 2016, we experienced a slight decrease in the volume and fee per file of commercial transactions as compared to 2015, but commercial markets still remained at historically elevated levels. Through 2017, we have continued to see strong demand for commercial transactions and have experienced historically high fees per file.
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 third calendar quarter is typically the strongest quarter in terms of revenue, primarily due to a higher volume of

26

Table of Contents

home sales in the summer months. The fourth quarter is typically also 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.
Critical Accounting Estimates
The accounting estimates described below are those we consider critical in preparing our Consolidated Financial Statements. Management is required to make estimates and assumptions that can affect the reported amounts of assets and liabilities and disclosures with respect to contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates. See Note A Business and Summary of Significant Accounting Policies to our Consolidated Financial Statements included in Item 8 of Part II of this Annual Report for additional description of the significant accounting policies that have been followed in preparing our Consolidated Financial Statements.
Reserve for Title Claim Losses.  Title companies issue two types of policies, owner's and lender's policies, since both the new owner and the lender in real estate transactions want to know that their interest in the property is insured against certain title defects outlined in the policy. An owner's policy insures the buyer against such defects for as long as he or she owns the property (as well as against warranty claims arising out of the sale of the property by such owner). A lender's policy insures the priority of the lender's security interest over the claims that other parties may have in the property. The maximum amount of liability under a title insurance policy is generally the face amount of the policy plus the cost of defending the insured's title against an adverse claim; however, occasionally we do incur losses in excess of policy limits. While most non-title forms of insurance, including property and casualty, provide for the assumption of risk of loss arising out of unforeseen future events, title insurance serves to protect the policyholder from risk of loss for events that predate the issuance of the policy.
Unlike many other forms of insurance, title insurance requires only a one-time premium for continuous coverage until another policy is warranted due to changes in property circumstances arising from refinance, resale, additional liens, or other events. Unless we issue the subsequent policy, we receive no notice that our exposure under our policy has ended and, as a result, we are unable to track the actual terminations of our exposures.
Our reserve for title claim losses includes reserves for known claims as well as for losses that have been incurred but not yet reported to us (“IBNR”), net of recoupments. We reserve for each known claim based on our review of the estimated amount of the claim and the costs required to settle the claim. Reserves for IBNR claims are estimates that are established at the time the premium revenue is recognized and are based upon historical experience and other factors, including industry trends, claim loss history, legal environment, geographic considerations, and the types of policies written. We also reserve for losses arising from closing and disbursement functions due to fraud or operational error.
The table below summarizes our reserves for known claims and incurred but not reported claims related to title insurance:
 
 
December 31, 2017

 
%
 
December 31, 2016
 
%
 
 
(in millions)
Known claims
 
$
159

 
10.7
%
 
$
166

 
11.2
%
IBNR
 
1,331

 
89.3

 
1,321

 
88.8

Total Reserve for Title Claim Losses
 
$
1,490

 
100.0
%
 
$
1,487

 
100.0
%
Although claims against title insurance policies can be reported relatively soon after the policy has been issued, claims may be reported many years later. Historically, approximately 60% of claims are paid within approximately five years of the policy being written. By their nature, claims are often complex, vary greatly in dollar amounts and are affected by economic and market conditions, as well as the legal environment existing at the time of settlement of the claims. Estimating future title loss payments is difficult because of the complex nature of title claims, the long periods of time over which claims are paid, significantly varying dollar amounts of individual claims and other factors.
Our process for recording our reserves for title claim losses begins with analysis of our loss provision rate. We forecast ultimate losses for each policy year based upon historical policy year loss emergence and development patterns and adjust these to reflect policy year and policy type differences which affect the timing, frequency and severity of claims. We also use a technique that relies on historical loss emergence and on a premium-based exposure measurement. The latter technique is particularly applicable to the most recent policy years, which have few reported claims relative to an expected ultimate claim volume. After considering historical claim losses, reporting patterns and current market information, and analyzing quantitative and qualitative data provided by our legal, claims and underwriting departments, we determine a loss provision rate, which is recorded as a percentage of current title premiums. This loss provision rate is set to provide for losses on current year policies, but due to development of prior years and our long claim duration, it periodically includes amounts of estimated adverse or positive development on prior years' policies.  Any significant adjustments to strengthen or release loss reserves resulting from the comparison with our actuarial analysis are made in addition to this loss provision rate.  At each quarter end, our recorded reserve for claim losses is initially the result of

27

Table of Contents

taking the prior recorded reserve for claim losses, adding the current provision and subtracting actual paid claims, resulting in an amount that management then compares to the range of reasonable estimates provided by the actuarial calculation. We recorded our loss provision rate at 5.0% for the nine months ended September 30, 2017 and at 4.5% for the three months ended December 31, 2017. Our average loss provision rate was 4.9% for the year-ended December 31, 2017. Our average loss provision rate was 3.3% and 5.7% for the years ended December 31, 2016 and 2015, respectively. Our loss provision rate for the year ended December 31, 2016 also included a $97 million adjustment to reduce our prior claim loss reserves. Of such annual loss provision rates, 4.5%, 5.0% and 5.2% related to losses on policies written in the current year, and the remainder related to developments on prior year policies. The decrease in the loss provision rate during 2015 through 2017, excluding a one-time adjustment included in the 2016 period, was primarily driven by continued positive development in the more recent policy years. In 2017 and 2015, adverse development of prior year losses of $19 million or 0.4% of 2017 premium and $22 million or 0.5% of 2015 premium was accounted for in the provision rate. In 2016, favorable development of prior year losses of $79 million or 1.7% of 2016 premium was accounted for in the provision rate.
Due to the uncertainty inherent in the process and due to the judgment used by both management and our actuary, our ultimate liability may be greater or less than our carried reserves. If the recorded amount is within the actuarial range but not at the central estimate, we assess the position within the actuarial range by analysis of other factors in order to determine that the recorded amount is our best estimate. These factors, which are both qualitative and quantitative, can change from period to period, and include items such as current trends in the real estate industry (which we can assess, but for which there is a time lag in the development of the data), any adjustments from the actuarial estimates needed for the effects of unusually large or small claims, improvements in our claims management processes, and other cost saving measures. If the recorded amount is not within a reasonable range of our actuary's central estimate, we may have to record a charge or credit and reassess the loss provision rate on a go forward basis. We will continue to reassess the provision to be recorded in future periods consistent with this methodology.

During the quarter ended December 31, 2016, we released excess title reserves of $97 million. The release of excess reserves was due to analysis of historical ultimate loss ratios, the reduced volatility of development of those historical ultimate loss ratios and lower policy year loss ratios in recent years. Due to the reduction in volatility of prior year ultimate loss ratios experienced at the time, we felt that actual results were more in line with our actuarial analysis and released excess reserves to bring our recorded position in line with actuarial projections.
The table below presents our title insurance loss development experience for the past three years:
 
2017
 
2016
 
2015
 
(In millions)
Beginning balance
$
1,487

 
$
1,583

 
$
1,621

Change in reinsurance recoverable
(4
)
 
(8
)
 
1

Claims loss provision related to:
 
 
 
 
 
Current year
219

 
236

 
224

Prior years (1)
19

 
(79
)
 
22

Total title claims loss provision
238

 
157

 
246

Claims paid, net of recoupments related to:
 

 
 

 
 

Current year
(8
)
 
(10
)
 
(7
)
Prior years
(223
)
 
(235
)
 
(278
)
Total title claims paid, net of recoupments
(231
)
 
(245
)
 
(285
)
Ending balance
$
1,490

 
$
1,487

 
$
1,583

Title premiums
$
4,893

 
$
4,723

 
$
4,286

_____________________
(1) Reserve of $97 million released in 2016 related to improving development on prior year claim trends.
 
2017
 
2016
 
2015
Provision for claim losses as a percentage of title insurance premiums:
 

 
 

 
 

Current year
4.5
%
 
5.0
 %
 
5.2
%
Prior years
0.4

 
(1.7
)
 
0.5

Total provision
4.9
%
 
3.3
 %
 
5.7
%

28

Table of Contents

Actual claims payments consist of loss payments and claims management expenses offset by recoupments and were as follows (in millions):
 
 
Loss Payments
 
Claims Management Expenses
 
Recoupments
 
Net Loss Payments
Year ended December 31, 2017
 
$
145

 
$
121

 
$
(35
)
 
$
231

Year ended December 31, 2016
 
179

 
121

 
(55
)
 
245

Year ended December 31, 2015
 
211

 
137

 
(63
)
 
285

As of December 31, 2017 and 2016, our recorded reserves were $1,490 million and $1,487 million, respectively, which we determined were reasonable and represented our best estimate and these recorded amounts were within a reasonable range of the central estimates provided by our actuaries. Our recorded reserves were $30 million above the mid-point of the provided range of our actuarial estimates of $1.3 billion to $1.7 billion as of December 31, 2017. Our recorded reserves were equal to the mid-point of the range of our actuarial estimates as of December 31, 2016.
During 2017 and 2016, payment patterns were consistent with our actuaries' and management's expectations. Also, compared to prior years we have seen a leveling off of the ultimate loss ratios in more mature policy years, particularly 2005-2008. While we still see claims opened on these policy years, the proportion of our claims inventory represented by these policy years has continued to decrease. Additionally, we continued to see positive development relating to the 2009 through 2016 policy years, which we believe is indicative of more stringent underwriting standards by us and the lending industry. Further, we have seen significant positive development in residential owner's policies due to increased payments on residential lender's policies which inherently limit the potential loss on the related owner's policy to the differential in coverage amount between the amount insured under the owner's policy and the amount paid under the residential lender's policy. Also, any residential lender's policy claim paid relating to a property that is in foreclosure negates any potential loss under an owner's policy previously issued on the property as the owner has no equity in the property. Our ending open claim inventory decreased from approximately 15,000 claims at December 31, 2016 to approximately 14,000 claims at December 31, 2017. If actual claims loss development varies from what is currently expected and is not offset by other factors, it is possible that our recorded reserves may fall outside a reasonable range of our actuaries' central estimate, which may require additional reserve adjustments in future periods.
An approximate $49 million increase (decrease) in our annualized provision for title claim losses would occur if our loss provision rate were 1% higher (lower), based on 2017 title premiums of $4,893 million. A 10% increase (decrease) in our reserve for title claim losses, as of December 31, 2017, would result in an increase (decrease) in our provision for title claim losses of approximately $149 million.
Valuation of Investments.  We regularly review our investment portfolio for factors that may indicate that a decline in fair value of an investment is other-than-temporary. Some factors considered in evaluating whether or not a decline in fair value is other-than-temporary include: (i) our intent and need to sell the investment prior to a period of time sufficient to allow for a recovery in value; (ii) the duration and extent to which the fair value has been less than cost; and (iii) the financial condition and prospects of the issuer. Such reviews are inherently uncertain and the value of the investment may not fully recover or may decline in future periods resulting in a realized loss. Investments are selected for analysis whenever an unrealized loss is greater than a certain threshold that we determine based on the size of our portfolio or by using other qualitative factors. Fixed maturity investments that have unrealized losses caused by interest rate movements are not at risk as we do not anticipate having the need or intent to sell prior to maturity. Unrealized losses on investments in equity securities, preferred stock and fixed maturity instruments that are susceptible to credit related declines are evaluated based on the aforementioned factors. Currently available market data is considered and estimates are made as to the duration and prospects for recovery, and the intent or ability to retain the investment until such recovery takes place. These estimates are revisited quarterly and any material degradation in the prospect for recovery will be considered in the other-than-temporary impairment analysis. We believe that our monitoring and analysis has provided for the proper recognition of other-than-temporary impairments over the past three-year period. Any change in estimate in this area will have an impact on the results of operations of the period in which a charge is taken.
The fair value hierarchy established by the standard on fair value includes three levels, which are based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

29

Table of Contents

In accordance with the standard on fair value, our financial assets and liabilities that are recorded in the Consolidated Balance Sheets are categorized based on the inputs to the valuation techniques as follows:
Level 1.  Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that we have the ability to access.
Level 2.  Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability.
Level 3.  Financial assets and liabilities whose values are based on model inputs that are unobservable.
The following table presents our fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of December 31, 2017 and 2016, respectively:
 
December 31, 2017
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(In millions)
Assets:
 
 
 
 
 
 
 
Fixed-maturity securities available for sale:
 

 
 

 
 

 
 

U.S. government and agencies
$

 
$
195

 
$

 
$
195

State and political subdivisions

 
391

 

 
391

Corporate debt securities

 
1,117

 

 
1,117

Foreign government bonds

 
57

 

 
57

Mortgage-backed/asset-backed securities

 
56

 

 
56

Preferred stock available for sale
23

 
296

 

 
319

Equity securities available for sale
681

 

 

 
681

     Total assets
$
704

 
$
2,112

 
$

 
$
2,816

 
December 31, 2016
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(In millions)
Assets:
 
 
 
 
 
 
 
Fixed-maturity securities available for sale:
 

 
 

 
 

 
 

U.S. government and agencies
$

 
$
117

 
$

 
$
117

State and political subdivisions

 
615

 

 
615

Corporate debt securities

 
1,508

 

 
1,508

Foreign government bonds

 
109

 

 
109

Mortgage-backed/asset-backed securities

 
58

 

 
58

Preferred stock available for sale
32

 
283

 

 
315

Equity securities available for sale
386

 

 

 
386

     Total assets
$
418

 
$
2,690

 
$

 
$
3,108


Our Level 2 fair value measures for preferred stock and fixed-maturity securities available for sale are provided by a third-party pricing service. We utilize one firm for our preferred stock and our bond portfolios. The pricing service is a leading global provider of financial market data, analytics and related services to financial institutions. We rely on one price for each instrument to determine the carrying amount of the assets on our balance sheet. The inputs utilized in these pricing methodologies include observable measures such as benchmark yields, reported trades, broker dealer quotes, issuer spreads, two sided markets, benchmark securities, bids, offers and reference data including market research publications. We review the pricing methodologies for all of our Level 2 securities by obtaining an understanding of the valuation models and assumptions used by the third-party as well as independently comparing the resulting prices to other publicly available measures of fair value and internally developed models. The pricing methodologies used by the relevant third party pricing services are as follows:
U.S. government and agencies: These securities are valued based on data obtained for similar securities in active markets and from inter-dealer brokers.

30

Table of Contents

State and political subdivisions: These securities are valued based on data obtained for similar securities in active markets and from inter-dealer brokers. Factors considered include relevant trade information, dealer quotes and other relevant market data.
Corporate debt securities: These securities are valued based on dealer quotes and related market trading activity. Factors considered include the bond's yield, its terms and conditions, or any other feature which may influence its risk and thus marketability, as well as relative credit information and relevant sector news.
Foreign government bonds: These securities are valued based on a discounted cash flow model incorporating observable market inputs such as available broker quotes and yields of comparable securities.
Mortgage-backed/asset-backed securities: These securities are comprised of commercial mortgage-backed securities, agency mortgage-backed securities, collateralized mortgage obligations, and asset-backed securities. They are valued based on available trade information, dealer quotes, cash flows, relevant indices and market data for similar assets in active markets.
Preferred stock: Preferred stocks are valued by calculating the appropriate spread over a comparable US Treasury security. Inputs include benchmark quotes and other relevant market data.
As of December 31, 2017 and 2016 we held no material assets nor liabilities measured at fair value using Level 3 inputs.
During the years ended December 31, 2017, 2016 and 2015, we incurred impairment charges relating to investments that were determined to be other-than-temporarily impaired of $1 million, $19 million, and $14 million, respectively. Refer to Note D. Investments to our Consolidated Financial Statements included in Item 8, Part II of this Report for further discussion.
Included in our Investments as of December 31, 2017 are various holdings in foreign securities as follows (in millions):
 
Carrying
Value
 
Cost Basis
 
Unrealized
Gains
 
Unrealized
Losses
 
Market
Value
 
(In millions)
Available for sale securities:
 
 
 
 
 
 
 
 
 
Australia
$
22

 
$
22

 

 
$

 
$
22

Belgium
14

 
14

 

 

 
14

Cayman Islands
171

 
167

 
4

 

 
171

Canada
61

 
62

 
1

 
(2
)
 
61

China
6

 
6

 

 

 
6

France
9

 
9

 

 

 
9

Germany
50

 
50

 

 

 
50

Ireland
28

 
28

 

 

 
28

Japan
49

 
49

 

 

 
49

Norway
1

 
1

 

 

 
1

New Zealand
17

 
17

 

 

 
17

Switzerland
6

 
6

 

 

 
6

United Kingdom
24

 
24

 

 

 
24

  Total
$
458

 
$
455

 
$
5

 
$
(2
)
 
$
458


We have reviewed all of these securities as of December 31, 2017 and do not believe that there is a risk of significant credit loss as these securities are in a gross unrealized gain position of $5 million and a gross unrealized loss position of $2 million. We held no European sovereign debt at December 31, 2017.
Goodwill.  We have made acquisitions that have resulted in a significant amount of goodwill. As of December 31, 2017 and 2016, goodwill aggregated was $2,746 million and $2,555 million, respectively. The majority of our goodwill as of December 31, 2017 relates to goodwill recorded in connection with the Chicago Title merger in 2000 and our acquisition of ServiceLink in 2014. Refer to Note F Goodwill to our Consolidated Financial Statements included in Item 8 of Part II of this Annual Report for a summary of recent changes in our Goodwill balance.
In evaluating the recoverability of goodwill, we perform a qualitative analysis to determine whether it is more likely than not that the fair value of our recorded goodwill exceeds its carrying value. Based on the results of this analysis, an annual goodwill impairment test may be completed based on an analysis of the discounted future cash flows generated by the underlying assets. The process of determining whether or not goodwill is impaired or recoverable relies on projections of future cash flows, operating results and market conditions. Future cash flow estimates are based partly on projections of market conditions such as the volume and mix of refinance and purchase transactions and interest rates, which are beyond our control and are likely to fluctuate. While

31

Table of Contents

we believe that our estimates of future cash flows are reasonable, these estimates are not guarantees of future performance and are subject to risks and uncertainties that may cause actual results to differ from what is assumed in our impairment tests. Such analyses are particularly sensitive to changes in estimates of future cash flows and discount rates. Changes to these estimates might result in material changes in fair value and determination of the recoverability of goodwill, which may result in charges against earnings and a reduction in the carrying value of our goodwill in the future.We have completed our annual goodwill impairment analysis in each of the past three years and as a result, no impairment charges were recorded to goodwill in 2017, 2016, or 2015. As of December 31, 2017, we have determined that our goodwill has a fair value which substantially exceeds its carrying value.
Other Intangible Assets.  We have other intangible assets, not including goodwill, which consist primarily of customer relationships and contracts, trademarks and tradenames, and computer software, which are generally recorded in connection with acquisitions at their fair value. Intangible assets with estimable lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In general, customer relationships are amortized over their estimated useful lives using an accelerated method which takes into consideration expected customer attrition rates. Contractual relationships are generally amortized over their contractual life. Trademarks and tradenames are generally amortized over 10 years. Capitalized software includes the fair value of software acquired in business combinations, purchased software and capitalized software development costs. Purchased software is recorded at cost and amortized using the straight-line method over its estimated useful life. Software acquired in business combinations is recorded at its fair value and amortized using straight-line or accelerated methods over its estimated useful life, ranging from 5 to 10 years. For internal-use computer software products, internal and external costs incurred during the preliminary project stage are expensed as they are incurred. Internal and external costs incurred during the application development stage are capitalized and amortized on a product by product basis commencing on the date the software is ready for its intended use. We do not capitalize any costs once the software is ready for its intended use.
We recorded $1 million in impairment expense to other intangible assets during the years ended December 31, 2017 and 2016. The impairment in 2017 was for computer software at ServiceLink. The impairment in 2016 was for customer relationships and tradenames at our real estate subsidiaries in our Corporate and Other segment. We recorded no impairment expense related to other intangible assets in the year ended December 31, 2015.
Title Revenue Recognition.   Our direct title insurance premiums and escrow, title-related and other fees are recognized as revenue at the time of closing of the related transaction as the earnings process is then considered complete.
Premium revenues from agency operations and agency commissions include an accrual based on estimates using historical information of the volume of transactions that have closed in a particular period for which premiums have not yet been reported to us. The accrual for agency premiums is necessary because of the lag between the closing of these transactions and the reporting of these policies to us by the agent. Historically, the time lag between the closing of these transactions by our agents and the reporting of these policies, or premiums, to us has been up to 15 months, with 84 - 88% reported within three months following closing, an additional 9 - 12% reported within the next three months and the remainder within seven to fifteen months. In addition to accruing these earned but unreported agency premiums, we also accrue agent commission expense, which was 76.7% of agent premiums earned in 2017, 76.1% of agent premiums earned in 2016, and 76.0% of agent premiums earned in 2015. We also record a provision for claim losses at the provision rate at the time we record the accrual for the premiums, which averaged 4.9% for 2017, 5.4%, excluding the release of excess reserves relating to prior years of $97 million, for 2016, and 5.7% for 2015 and accruals for premium taxes and other expenses relating to our premium accrual. The resulting impact to pretax earnings in any period is approximately 11% or less of the accrued premium amount. The impact of the change in the accrual for agency premiums and related expenses on our pretax earnings was an increase of $1 million for the year ended December 31, 2017, an increase of $4 million for the year ended 2016 and a decrease of $5 million for the year ended 2015. The amount due from our agents relating to this accrual, i.e., the agent premium less their contractual retained commission, was approximately $55 million and $53 million at December 31, 2017 and 2016, respectively, which represents agency premiums of approximately $280 million and $267 million at December 31, 2017 and 2016, respectively, and agent commissions of $225 million and $214 million at December 31, 2017 and 2016, respectively. We may have changes in our accrual for agency revenue in the future if additional relevant information becomes available.
Accounting for Income Taxes.  As part of the process of preparing the consolidated financial statements, we are required to determine income taxes in each of the jurisdictions in which we operate. This process involves estimating actual current tax expense together with assessing temporary differences resulting from differing recognition of items for income tax and accounting purposes. These differences result in deferred income tax assets and liabilities, which are included within the Consolidated Balance Sheets. We must then assess the likelihood that deferred income tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must reflect this increase as expense within Income tax expense in the Consolidated Statement of Earnings. Determination of income tax expense requires estimates and can involve complex issues that may require an extended period to resolve. Further, the estimated level of annual pre-tax income can cause the overall effective income tax rate to vary from period to period. We believe that our tax positions comply with applicable tax law and that we adequately provide for any known tax contingencies. We believe the estimates and assumptions used to support our evaluation of tax benefit realization are

32

Table of Contents

reasonable. Final determination of prior-year tax liabilities, either by settlement with tax authorities or expiration of statutes of limitations, could be materially different than estimates reflected in assets and liabilities and historical income tax provisions. The outcome of these final determinations could have a material effect on our income tax provision, net income or cash flows in the period that determination is made.
Refer to Note K Income Taxes to our Consolidated Financial Statements in Item 8 of Part II of this Annual Report for discussion of the enactment of the Tax Cuts and Jobs Act ("Tax Reform") in December 2017 and the related impact on our accounting for income taxes.
Certain Factors Affecting Comparability
Year ended December 31, 2017. As a result of the BK Distribution and the FNFV Split-Off, we have reclassified the results of operations of Black Knight and FNFV to discontinued operations for all periods presented. See discussion under 'Recent Developments' above and Note G Discontinued Operations to our Consolidated Financial Statements in Item 8 of Part II of this Annual Report, which is incorporated by reference into this Part II, Item 7 of this Annual Report for further information on the results of Black Knight and FNFV.

33

Table of Contents

Results of Operations
 Consolidated Results of Operations
 Net earnings.  The following table presents certain financial data for the years indicated:
 
Year Ended December 31,
 
2017
 
2016
 
2015
 
(Dollars in millions)
Revenue:
 

 
 

 
 

Direct title insurance premiums
$
2,170

 
$
2,097

 
$
2,009

Agency title insurance premiums
2,723

 
2,626

 
2,277

Escrow, title-related and other fees
2,637

 
2,416

 
2,246

Interest and investment income
131

 
126

 
121

Realized gains and losses, net
2

 
(8
)
 
11

Total revenue
7,663

 
7,257

 
6,664

Expenses:
 

 
 

 
 

Personnel costs
2,460

 
2,275

 
2,137

Agent commissions
2,089

 
1,998

 
1,731

Other operating expenses
1,781

 
1,648

 
1,557

Depreciation and amortization
183

 
160

 
150

Provision for title claim losses
238

 
157

 
246

Interest expense
48

 
64

 
73

Total expenses
6,799

 
6,302

 
5,894

Earnings from continuing operations before income taxes and equity in earnings of unconsolidated affiliates
864

 
955

 
770

Income tax expense
235

 
347

 
274

Equity in earnings of unconsolidated affiliates
10

 
14

 
5

Net earnings from continuing operations
$
639

 
$
622

 
$
501

 Revenues.
Total revenue in 2017 increased $406 million compared to 2016, primarily due to an increase in fee per file offset by a decrease in closed order volumes in our direct title business and an increase in agent remittances. Total revenue in 2016 increased $593 million compared to 2015, primarily due to an increase in closed order volumes in our direct title business and increases in agent remittances.
Total net earnings from continuing operations increased $17 million in the year ended December 31, 2017, compared to the 2016 period and increased $121 million in the year ended December 31, 2016, compared to the 2015 period.
The change in revenue and net earnings is discussed in further detail at the segment level below.  
Interest and investment income levels are primarily a function of securities markets, interest rates and the amount of cash available for investment. Interest and investment income was $131 million, $126 million, and $121 million for the years ended December 31, 2017, 2016, and 2015, respectively. The increase in 2017 as compared to 2016 is primarily attributable to increased yield on our cash and cash equivalents and short term investments and an increase in other investment income, offset by a decrease in income from our fixed maturity holdings resulting from a decrease in average invested assets. The increase in 2016 as compared to 2015 is primarily attributable to increased yield on our fixed maturity holdings and increased dividend income on our equity and preferred securities, offset by a decrease in average invested assets. The effective return on average invested assets, excluding realized gains and losses, was 4.2%, 3.6%, and 3.4% for the years ended December 31, 2017, 2016, and 2015, respectively.
Net realized gains (losses) totaled $2 million, $(8) million, and $11 million for the years ended December 31, 2017, 2016, and 2015, respectively. Net realized gains for the year ended December 31, 2017 includes a gain of $9 million on the sale of an other long term investment and a gain of $2 million related to the sale of fixed assets, offset by losses of $6 million on redemptions of convertible debt, net losses on sales and impairment of available for sale investments of $1 million, and $2 million of other miscellaneous losses. The net realized losses for the year ended December 31, 2016 includes $12 million for net gains on sales of available for sale investments, a gain of $2 million related to the favorable outcome of litigation, and $1 million for other individually insignificant gains. The gains were more than offset by losses of $13 million on impairments of available for sale investments, $3 million for impairment of an equity method investment, $4 million for losses on disposal of fixed assets, a $1 million loss related to the impairments of other intangible assets, and $2 million in realized losses related to other individually insignificant items.

34

Table of Contents

The net realized gain for the year ended December 31, 2015 includes a net realized gain of $1 million on our investment portfolio, net realized gains of $16 million due to favorable settlement of litigation, and $6 million of miscellaneous other net realized losses.
 Expenses.
Our operating expenses consist primarily of personnel costs; other operating expenses, which in our title business are incurred as orders are received and processed; and agent commissions, which are incurred as revenue is recognized. Title insurance premiums, escrow and title-related fees are generally recognized as income at the time the underlying transaction closes or other service is provided. Direct title operations revenue often lags approximately 45-60 days behind expenses and therefore gross margins may fluctuate. The changes in the market environment, mix of business between direct and agency operations and the contributions from our various business units have historically impacted margins and net earnings. We have implemented programs and have taken necessary actions to maintain expense levels consistent with revenue streams. However, a short time lag exists in reducing variable costs and certain fixed costs are incurred regardless of revenue levels.
Personnel costs include base salaries, commissions, benefits, stock-based compensation and bonuses paid to employees, and are one of our most significant operating expenses. 
Agent commissions represent the portion of premiums retained by our third-party agents pursuant to the terms of their respective agency contracts.
Other operating expenses consist primarily of facilities expenses, title plant maintenance, premium taxes (which insurance underwriters are required to pay on title premiums in lieu of franchise and other state taxes), appraisal fees and other cost of sales on ServiceLink product offerings and other title-related products, postage and courier services, computer services, professional services, travel expenses, general insurance, and bad debt expense on our trade and notes receivable. 
The provision for title claim losses includes an estimate of anticipated title and title-related claims, and escrow losses.
The change in expenses is discussed in further detail at the segment level below. 
Income tax expense was $235 million, $347 million, and $274 million for the years ended December 31, 2017, 2016, and 2015, respectively. Income tax expense as a percentage of earnings from continuing operations before income taxes for the years ended December 31, 2017, 2016, and 2015 was 27.2%, 36.3%, and 35.6%, respectively. The decrease in the effective tax rate in 2017 from 2016 is primarily attributable to Tax Reform as described in Note K Income Taxes to our Consolidated Financial Statements included in Item 8 of of Part II of this Annual Report. The increase in the effective tax rate in 2016 from 2015 is primarily related to lower tax exempt interest income, tax credits and an increase in non-deductible expenses. The fluctuation in income tax expense as a percentage of earnings from continuing operations before income taxes is attributable to our estimate of ultimate income tax liability and changes in the characteristics of net earnings year to year, such as the weighting of operating income versus investment income.





35

Table of Contents

Segment Results of Operations
 Title
The following table presents the results of our Title segment for the years indicated:
 
Year Ended December 31,
 
2017
 
2016
 
2015
 
(In millions)
Revenues:
 

 
 

 
 

Direct title insurance premiums
$
2,170

 
$
2,097

 
$
2,009

Agency title insurance premiums
2,723

 
2,626

 
2,277

Escrow, title-related and other fees
2,181

 
2,128

 
2,005

Interest and investment income
131

 
127

 
123

Realized gains and losses, net
6

 

 
14

Total revenue
7,211

 
6,978

 
6,428

Expenses:
 

 
 

 
 

Personnel costs
2,366

 
2,214

 
2,090

Other operating expenses
1,404

 
1,436

 
1,381

Agent commissions
2,089

 
1,998

 
1,731

Depreciation and amortization
159

 
148

 
144

Provision for title claim losses
238

 
157

 
246

Total expenses
6,256

 
5,953

 
5,592

Earnings before income taxes
$
955

 
$
1,025

 
$
836

Orders opened by direct title operations (in 000's)
1,942

 
2,184

 
2,092

Orders closed by direct title operations (in 000's)
1,428

 
1,575

 
1,472

Total revenues in 2017 increased $233 million or 3% compared to 2016. Total revenues in 2016 increased $550 million or 9% compared to 2015. The increase in the year ended December 31, 2017 is primarily attributable to increases in both our direct and agency title insurance premiums and growth and acquisitions in our Corporate and Other segment.The increase in the year ended December 31, 2016 is primarily attributable to improvements in the overall real estate markets driving increases in closed order volumes, increased remittances from agents, and revenue associated with acquisitions.
The following table presents the percentages of title insurance premiums generated by our direct and agency operations:
 
Year Ended December 31,
 
2017
 
2016
 
2015
 
Amount
 
%
 
Amount
 
%
 
Amount
 
%
 
(Dollars in millions)
Title premiums from direct operations
$
2,170

 
44.3
%
 
$
2,097

 
44.4
%
 
$
2,009

 
46.9
%
Title premiums from agency operations
2,723

 
55.7

 
2,626

 
55.6

 
2,277

 
53.1

Total title premiums
$
4,893

 
100.0
%
 
$
4,723

 
100.0
%
 
$
4,286

 
100.0
%
Title premiums increased 4% in the year ended December 31, 2017 as compared to the 2016 period. The increase was a result of an increase in premiums from direct operations of $73 million, or 3% and an increase in premiums from agency operations of $97 million, or 4%. Title premiums increased 10% in the year ended December 31, 2016 as compared to the 2015 period. The increase was the result of an increase in premiums from direct operations of $88 million, or 4%, and an increase in premiums from agency operations of $349 million, or 15%.

36

Table of Contents

The following table presents the percentages of opened and closed title insurance orders generated by purchase and refinance transactions by our direct operations:
 
 
Year ended December 31,
 
 
2017
 
2016
 
2015
 
 
 
 
Opened title insurance orders from purchase transactions (1)
 
63.1
%
 
53.5
%
 
54.0
%
Opened title insurance orders from refinance transactions (1)
 
36.9

 
46.5

 
46.0

 
 
100.0
%
 
100.0
%
 
100.0
%
 
 
 
 
 
 
 
Closed title insurance orders from purchase transactions (1)
 
62.8
%
 
54.1
%
 
54.5
%
Closed title insurance orders from refinance transactions (1)
 
37.2

 
45.9

 
45.5

 
 
100.0
%
 
100.0
%
 
100.0
%
_______________________________________
 
(1)    Percentages exclude consideration of an immaterial number of non-purchase and non-refinance orders.
Title premiums from direct operations increased in 2017, primarily due to an increase in the average fee per file, offset by a decrease in closed order volumes as compared to the prior year. Closed order volumes were 1,428,000 in the year ended December 31, 2017 compared with 1,575,000 in the year ended December 31, 2016. This represented a decrease of 9%. The decrease in closed order volumes was primarily related to a decrease in refinance transactions, offset by an increase in purchase transactions in the year ended December 31, 2017 compared to the 2016 period.
The average fee per file in our direct operations was $2,346 and $2,065 in the years ended December 31, 2017 and 2016, respectively. The increase in average fee per file year over year reflects an increase in the average fee per file in both commercial and residential transactions. The increase in average fee per file from residential transactions is driven by an increase in purchase transactions and decrease in refinance transactions. The residential fee per file tends to change as the mix of refinance and purchase transactions changes, because purchase transactions involve the issuance of both a lender’s policy and an owner’s policy, resulting in higher fees, whereas refinance transactions only require a lender’s policy, resulting in lower fees.
The increase in title premiums from agency operations is primarily the result of an increase in remitted agency premiums that reflects an improving residential purchase environment in many markets throughout the country. The increase also reflects a concerted effort by management to increase remittances with existing agents as well as cultivate new relationships with potential new agents while reducing unprofitable agency relationships.
Escrow, title-related and other fees increased by $53 million, or 2%, in the year ended December 31, 2017 from the 2016 period. Escrow fees, which are more directly related to our direct operations, increased $21 million, or 3%, in the year ended December 31, 2017 compared to the 2016 period. The increase is primarily driven by the related increase in direct title premiums. Other fees in the Title segment, excluding escrow fees, increased $30 million, or 2%, in the year ended December 31, 2017 compared to the 2016 period. The increase in other fees was primarily attributable to revenue growth associated with our home warranty businesses and increased servicing revenue at ServiceLink, offset by decreases at certain other ServiceLink subsidiaries. Escrow, title related and other fees increased by $123 million, or 6%, in the year ended December 31, 2016 from the 2015 period. Escrow fees, which are more directly related to our direct operations, increased $102 million, or 15%, in the year ended December 31, 2016 compared to the 2015 period. The increase is consistent with the increase in direct title premiums. Other fees in the Title segment, excluding escrow fees, increased $21 million, or 1%, in the year ended December 31, 2016 compared to the 2015 period. The increase in other fees was primarily attributable to revenue growth associated with our home warranty businesses as well as acquisitions.
Interest and investment income levels are primarily a function of securities markets, interest rates and the amount of cash available for investment. Interest and investment income increased $4 million in the year ended December 31, 2017 compared to the 2016 period and increased $4 million in the year ended December 31, 2016 compared to the 2015 period.
Personnel costs include base salaries, commissions, benefits, stock-based compensation and bonuses paid to employees, and are one of our most significant operating expenses. The $152 million, or 7% increase in the year ended December 31, 2017 compared to the 2016 period is directionally consistent with and primarily attributable to the increase in revenue. The $124 million, or 6% increase in the year ended December 31, 2016 compared to the 2015 period is primarily related to additional expense associated with the increased order volumes and acquisitions in 2016. Personnel costs as a percentage of total revenues from direct title premiums and escrow, title-related and other fees was 54% and 52% for years ended December 31, 2017 and 2016, respectively. The increase in the 2017 period is primarily attributable to the increase in order volumes from purchase transactions, acquisitions, and the realignment of Property Insight in January 2017 which resulted in increased personnel costs offset by reduced

37

Table of Contents

other operating expenses. Average employee count in the Title segment was 23,245 and 21,999 in the years ended December 31, 2017 and 2016, respectively.
Other operating expenses decreased $32 million, or 2%, in the year ended December 31, 2017 from the corresponding 2016 period. The decrease in the 2017 period is primarily attributable to the realignment of Property Insight in January 2017 and a reduction in operating expenses at certain ServiceLink subsidiaries. Other operating expenses increased $55 million, or 4% in the year ended December 31, 2016 from the corresponding 2015 period. Other operating expenses increased consistently with the increase in direct title premiums and escrow, title-related and other fee income offset by other miscellaneous cost reductions.
Agent commissions represent the portion of premiums retained by agents pursuant to the terms of their respective agency contracts. Agent commissions and the resulting percentage of agent premiums we retain vary according to regional differences in real estate closing practices and state regulations.
The following table illustrates the relationship of agent title premiums and agent commissions:
 
Year Ended December 31,
 
2017
 
2016
 
2015
 
Amount
 
%
 
Amount
 
%
 
Amount
 
%
 
(Dollars in millions)
Agent title premiums
$
2,723

 
100.0
%
 
$
2,626

 
100.0
%
 
$
2,277

 
100.0
%
Agent commissions
2,089

 
76.7

 
1,998

 
76.1

 
1,731

 
76.0

Net retained agent premiums
$
634

 
23.3
%
 
$
628

 
23.9
%
 
$
546

 
24.0
%
Net margin from agency title insurance premiums retained as a percentage of total agency premiums in the year ended December 31, 2017 remained relatively consistent with the 2016 and 2015 periods, with the slight decrease attributable to new agents signed in the current year.
The provision for title claim losses includes an estimate of anticipated title and title-related claims and escrow losses. The estimate of anticipated title and title-related claims is accrued as a percentage of title premium revenue based on our historical loss experience and other relevant factors. Any significant adjustments to strengthen or release loss reserves resulting from the comparison with our actuarial analysis are made in addition to this loss provision rate. After considering historical claim losses, reporting patterns and current market information, and analyzing quantitative and qualitative data provided by our legal, claims and underwriting departments, we determine a loss provision rate, which is recorded as a percentage of current title premiums. This loss provision rate is set to provide for losses on current year policies, but due to development of prior years and our long claim duration, it periodically includes amounts of estimated adverse or positive development on prior years' policies. Effective October 1, 2017, we revised our loss provision rate to 4.5% from 5%. Effective October 1, 2016, we revised our loss provision rate to 5.0% from 5.5%. Effective July 1, 2015, we revised our loss provision rate to 5.5% from 6%. All revisions were attributable to favorable development on more recent policy year claims.
The claim loss provision for title insurance was $238 million, $157 million, and $246 million for the years ended December 31, 2017, 2016, and 2015, respectively. These amounts reflected average claim loss provision rates of 4.9% for 2017, 3.3% for 2016, and 5.7% of title premiums for 2015. The decrease in the provision in 2016 reflects the release of excess title reserves of $97 million as well as the reduction in the loss provision rate from 5.5% to 5.0% in the fourth quarter of 2016. The release of excess reserves and change in provision rate was due to analysis of historical ultimate loss ratios, the reduced volatility of development of those historical ultimate loss ratios and lower policy year loss ratios in recent years. We will continue to monitor and evaluate our loss provision level, actual claims paid, and the loss reserve position each quarter.











38

Table of Contents

Corporate and Other
The following table presents the results of our Corporate and Other segment for the years indicated:
 
Year Ended December 31,
 
2017
 
2016
 
2015
 
(In millions)
Revenues:
 

 
 

 
 

Escrow, title-related and other fees
$
456

 
$
288

 
$
241

Interest and investment income

 
(1
)
 
(2
)
Realized gains and losses, net
(4
)
 
(8
)
 
(3
)
Total revenue
452

 
279

 
236

Expenses:
 

 
 

 
 

Personnel costs
94

 
61

 
47

Other operating expenses
377

 
212

 
176

Depreciation and amortization
24

 
12

 
6

Interest expense
48

 
64

 
73

Total expenses
543

 
349

 
302

Earnings before income taxes
$
(91
)
 
$
(70
)
 
$
(66
)
The Corporate and Other segment consists of the operations of the parent holding company, our various real estate brokerage businesses, and CINC. This segment also includes certain other unallocated corporate overhead expenses and eliminations of revenues and expenses between it and our Title segment.
Total revenue in our Corporate and Other segment increased $173 million, or 62%, in the year ended December 31, 2017 from the corresponding period in 2016 and increased $43 million, or 18%, in the year ended December 31, 2016 from the corresponding period in 2015. The increase in 2017 is primarily driven by revenue growth of $111 million at our real estate brokerage companies and $53 million at our real estate technology companies, which included $9 million total from the acquisitions of Real Geeks and SkySlope acquired in September and October 2017, respectively. Revenue in 2017 also includes $15 million related to recording one additional month of results of operations for our real estate brokerages in order to catch up their results which were previously recorded on a one month lag. The increase in the year ended December 31, 2016 was primarily driven by growth at our real estate brokerage companies and the acquisition of CINC. Revenue in the 2016 period included $19 million in revenue from CINC which represented 4 months of activity.
Personnel costs increased $33 million, or 54%, in the year ended December 31, 2017 from the corresponding period in 2016 and increased $14 million or 30% in the year ended December 31, 2016 compared to the corresponding 2015 period. The increase in both periods is primarily driven by acquisitions.
Other operating expenses increased $165 million, or 78% in the year ended December 31, 2017 from the 2016 period and increased $36 million, or 20% in the year ended December 31, 2016 from the 2015 period. The increase in the 2017 period from 2016 is primarily attributable to current period acquisitions and increased operating expense associated with higher revenue. Other operating expenses in 2017 also includes $14 million related to recording one additional month results of operations for our real estate brokerages in order to catch up their results which were previously recorded on a one month lag and $17 million related to expenses incurred related to services received from Black Knight that no longer eliminate after the BK Distribution. The increase in the 2016 period from 2015 is primarily attributable to growth of our real estate subsidiaries and current period acquisitions.
Interest expense decreased $16 million, or 25%, in the year ended December 31, 2017 from the corresponding period in 2016 and decreased $9 million or 12% in the year ended December 31, 2016 compared to the corresponding 2015 period. The decrease in the 2017 period is primarily attributable to decreased interest on our convertible Notes resulting from redemptions in the current year. The decrease in the 2016 period is primarily attributable to the payoff of the FNF term loan in May 2015 upon the initial public offering of Black Knight.
Discontinued Operations
As a result of the FNFV Split-off and BK Distribution, the results of operations of FNFV and Black Knight are included in discontinued operations. Earnings from discontinued operations, net of tax, were $155 million, $70 million, and $60 million in the years ended December 31, 2017, 2016, and 2015, respectively. The increase in the 2017 period from the corresponding period in 2016 is primarily attributable to FNFV's realized gain on the sale of a subsidiary in the 2017 period. Refer to Note G Discontinued

39

Table of Contents

Operations to our Consolidated Financial Statements in Item 8 of Part II of this Annual Report for further information, including a breakout of the results of operations of both FNFV and Black Knight.

Liquidity and Capital Resources
Cash Requirements.  Our current cash requirements include personnel costs; operating expenses; claim payments; taxes; payments of interest and principal on our debt, including any premiums thereon, if any; capital expenditures; business acquisitions; stock repurchases and dividends on our common stock. We paid dividends of $1.02 per share during 2017, or approximately $278 million. On January 26, 2018, our Board of Directors formally declared a $0.30 per share cash dividend that is payable on March 30, 2018 to FNF Group shareholders of record as of March 16, 2018. There are no restrictions on our retained earnings regarding our ability to pay dividends to shareholders, although there are limits on the ability of certain subsidiaries to pay dividends to us, as described below. The declaration of any future dividends is at the discretion of our Board of Directors. Additional uses of cash flow are expected to include stock repurchases, acquisitions, and debt repayments.
We continually assess our capital allocation strategy, including decisions relating to the amount of our dividend, reducing debt, repurchasing our stock, and/or conserving cash. We believe that all anticipated cash requirements for current operations will be met from internally generated funds, through cash dividends from subsidiaries, cash generated by investment securities, potential sales of non-strategic assets, and borrowings on existing credit facilities. Our short-term and long-term liquidity requirements are monitored regularly to ensure that we can meet our cash requirements. We forecast the needs of all of our subsidiaries and periodically review their short-term and long-term projected sources and uses of funds, as well as the asset, liability, investment and cash flow assumptions underlying such forecasts.
 Our insurance subsidiaries generate cash from premiums earned and their respective investment portfolios and these funds are adequate to satisfy the payments of claims and other liabilities. Due to the magnitude of our investment portfolio in relation to our claims loss reserves, we do not specifically match durations of our investments to the cash outflows required to pay claims, but do manage outflows on a shorter time frame.
 Our two significant sources of internally generated funds are dividends and other payments from our subsidiaries. As a holding company, we receive cash from our subsidiaries in the form of dividends and as reimbursement for operating and other administrative expenses we incur. The reimbursements are paid within the guidelines of management agreements among us and our subsidiaries. Our insurance subsidiaries are restricted by state regulation in their ability to pay dividends and make distributions. Each state of domicile regulates the extent to which our title underwriters can pay dividends or make distributions. As of December 31, 2017, $1,700 million of our net assets were restricted from dividend payments without prior approval from the relevant departments of insurance. During 2018, our title insurance subsidiaries can pay or make distributions to us of approximately $363 million. Our underwritten title companies and non-title insurance subsidiaries collect revenue and pay operating expenses. However, they are not regulated to the same extent as our insurance subsidiaries.
The maximum dividend permitted by law is not necessarily indicative of an insurer’s actual ability to pay dividends, which may be constrained by business and regulatory considerations, such as the impact of dividends on surplus, which could affect an insurer’s ratings or competitive position, the amount of premiums that can be written and the ability to pay future dividends. Further, depending on business and regulatory conditions, we may in the future need to retain cash in our underwriters or even contribute cash to one or more of them in order to maintain their ratings or their statutory capital position. Such a requirement could be the result of investment losses, reserve charges, adverse operating conditions in the current economic environment or changes in interpretation of statutory accounting requirements by regulators.
Cash flow from FNF's operations is expected to be used for general corporate purposes including to reinvest in operations, repay debt, pay dividends, repurchase stock, other strategic initiatives or conserving cash.
Operating Cash Flow. Our cash flows provided by operations for the years ended December 31, 2017, 2016, and 2015 were $737 million, $1,162 million and $951 million, respectively, inclusive of discontinued operations. Operating cash flows from discontinued operations for the years ended December 31, 2017, 2016, and 2015 were $106 million, $407 million, and $277 million, respectively. The decrease in cash provided by operations of $425 million in the 2017 period from the 2016 period is primarily attributable to increased cash payments for taxes of $161 million and increased realized gains on sales of investments and assets which are included in earnings of $256 million, but which related to investing activities, in the 2017 period. The increase in cash provided by operations of $211 million in the 2016 period from the 2015 period is primarily attributable to increased earnings from operations before equity in earnings of unconsolidated affiliates of $123 million (inclusive of discontinued operations), lower claims payments of $40 million, and lower payments in the 2016 period under our executive investment success bonus program of $27 million, offset by increased payments for income taxes in 2016 compared to 2015 of $118 million. The remaining change in the 2016 period from the 2015 period is attributable to timing of receivables and payables.

40

Table of Contents

Investing Cash Flows. Our cash used in investing activities for the years ended December 31, 2017, 2016, and 2015 were $95 million, $254 million and $571 million, respectively, inclusive of discontinued operations. Cash (used in) provided by investing activities from discontinued operations for the years ended December 31, 2017, 2016, and 2015 were $(57) million, $(163) million, and $63 million, respectively. The decrease in cash used in investing activities of $159 million in the 2017 period from the 2016 period is primarily attributable to the $325 million in proceeds from the sale of a subsidiary by FNFV prior to the FNFV Split-Off, lower cash paid for acquisitions of $75 million and decreased capital expenditures of $141 million, offset by a $380 million decrease in net inflows from the sales and distributions of and from equity and fixed income investments, net of purchases and additional investments in unconsolidated investees. The decrease in cash used in investing activities of $317 million in the 2016 period from the 2015 period is primarily attributable to a $860 million increase in net cash inflows from the sales and distributions of and from equity and fixed income investments, net of purchases and additional investments in unconsolidated investees, offset by a $502 million increase in net cash used for acquisitions and dispositions and increased capital expenditures.
 Capital Expenditures.  Total capital expenditures for property and equipment and capitalized software were $149 million, $290 million and $241 million for the years ended December 31, 2017, 2016, and 2015, respectively. The 2017 period consists of capital expenditures of $74 million related to our continuing operations, primarily our Title segment, and $75 million related to discontinued operations. The decrease in the 2017 period from the 2016 period is primarily attributable to the purchase of our corporate headquarters for $71 million in the second quarter of 2016.
Financing Cash Flows. Our cash used in financing activities for the years ended December 31, 2017, 2016, and 2015 were $999 million, $588 million and $272 million, respectively, inclusive of discontinued operations. The increase in cash used in financing activities of $411 million in the 2017 period from the 2016 period is primarily attributable to increased net debt service activity of $143 million, cash transferred in the FNFV Split-off and BK Distribution of $109 million, an increase in dividends paid of $39 million, payment of premiums to repurchase convertible Notes of $317 million, and repurchases of BKFS stock by Black Knight of $47 million in the 2017 period prior to the BK Distribution, offset by a reduction in spending on treasury stock repurchases of $253 million. The increase in cash used in financing activities of $316 million in the 2016 period from the 2015 period was primarily attributable to proceeds received from the IPO of Black Knight of $475 million in the 2015 period and increased net debt service activity of $69 million in the 2016 period, offset by a reduction in treasury stock repurchases in 2016 of $222 million.
 Financing. For a description of our financing arrangements see Note J Notes Payable to the Consolidated Financial Statements included in Item 8 of Part II of this Annual Report, which is incorporated by reference into this Part II, Item 7.
Seasonality. Historically, real estate transactions have produced seasonal revenue levels for the real estate industry including title insurers. 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 third calendar quarter has been typically the strongest in terms of revenue primarily due to a higher volume of home sales in the summer months and the fourth quarter is usually also strong due to commercial entities desiring 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.
Contractual Obligations.  Our long term contractual obligations generally include our loss reserves, our credit agreements and other debt facilities and operating lease payments on certain of our premises and equipment.
As of December 31, 2017, our required annual payments relating to these contractual obligations were as follows:
 
2018
 
2019
 
2020
 
2021
 
2022
 
Thereafter
 
Total
 
(In millions)
Notes payable
$
66

 
$

 
$
1

 
$

 
$
700

 
$

 
$
767

Operating lease payments
150

 
127

 
98

 
71

 
46

 
44

 
536

Pension and other benefit payments
18

 
16

 
16

 
15

 
14

 
99

 
178

Title claim losses
230

 
218

 
174

 
149

 
96

 
623

 
1,490

Interest on fixed rate notes payable
25

 
22

 
22

 
22

 
15

 

 
106

Total
$
489

 
$
383

 
$
311

 
$
257

 
$
871

 
$
766

 
$
3,077

As of December 31, 2017, we had title insurance reserves of $1,490 million. The amounts and timing of these obligations are estimated and are not set contractually. While we believe that historical loss payments are a reasonable source for projecting future claim payments, there is significant inherent uncertainty in this payment pattern estimate because of the potential impact of changes in:
future mortgage interest rates, which will affect the number of real estate and refinancing transactions and, therefore, the rate at which title insurance claims will emerge;

41

Table of Contents

the legal environment whereby court decisions and reinterpretations of title insurance policy language to broaden coverage could increase total obligations and influence claim payout patterns;
events such as fraud, escrow theft, multiple property title defects, foreclosure rates and individual large loss events that can substantially and unexpectedly cause increases in both the amount and timing of estimated title insurance loss payments; and
loss cost trends whereby increases or decreases in inflationary factors (including the value of real estate) will influence the ultimate amount of title insurance loss payments.
Based on historical title insurance claim experience, we anticipate the above payment patterns. The uncertainty and variation in the timing and amount of claim payments could have a material impact on our cash flows from operations in a particular period.
We sponsor multiple pension plans and other post-retirement benefit plans. See Note O. Employee Benefit Plans to our Consolidated Financial Statements included in Item 8 of Part II of this Annual Report for further information.
Capital Stock Transactions.  On July 20, 2015, our Board of Directors approved a new three-year stock repurchase program under which we can purchase up to 25 million shares of our FNF Group common stock through July 30, 2018. We may make repurchases from time to time in the open market, in block purchases or in privately negotiated transactions, depending on market conditions and other factors. Since the original commencement of the plan, we have repurchased a total of 10,589,000 FNF common shares for $372 million, or an average of $35.10 per share, and there are 14,411,000 shares available to be repurchased under this program. We have not made any repurchases under this program in the year ended December 31, 2017 or in the subsequent period ended January 31, 2018.
Equity Security and Preferred Stock Investments.  Our equity security and preferred stock investments may be subject to significant volatility. Should the fair value of these investments fall below our cost basis and/or the financial condition or prospects of these companies deteriorate, we may determine in a future period that this decline in fair value is other-than-temporary, requiring that an impairment loss be recognized in the period such a determination is made.
Off-Balance Sheet Arrangements. We do not engage in off-balance sheet activities other than our escrow operations. In conducting our operations, we routinely hold customers’ assets in escrow, pending completion of real estate transactions, and are responsible for the proper disposition of these balances for our customers. Certain of these amounts are maintained in segregated bank accounts and have not been included in the accompanying Consolidated Balance Sheets, consistent with Generally Accepted Accounting Principles and industry practice. These balances amounted to $15.4 billion and $14.0 billion at December 31, 2017 and 2016, respectively. As a result of holding these customers’ assets in escrow, we have ongoing programs for realizing economic benefits during the year through favorable borrowing and vendor arrangements with various banks.
Recent Accounting Pronouncements
For a description of recent accounting pronouncements, see Note S Recent Accounting Pronouncements to our Consolidated Financial Statements included in Item 8 of Part II of this Annual Report.
Item 7A. 
Quantitative and Qualitative Disclosure about Market Risk
In the normal course of business, we are routinely subject to a variety of risks, as described in Item 1A. Risk Factors of this Annual Report on Form 10-K and in our other filings with the Securities and Exchange Commission. For example, we are exposed to the risk that decreased real estate activity, which depends in part on the level of interest rates, may reduce our revenues.
The risks related to our business also include certain market risks that may affect our debt and other financial instruments. At present, we face the market risks associated with our marketable equity securities subject to equity price volatility and with interest rate movements on our outstanding debt and fixed income investments.
We regularly assess these market risks and have established policies and business practices designed to protect against the adverse effects of these exposures.
At December 31, 2017, we had $759 million in long-term debt, of which $295 million, net of unamortized debt issuance costs of $5 million, bears interest at a floating rate. Accordingly, fluctuations in market interest rates will not have a material impact on our resulting interest expense.
Our fixed maturity investments, certain preferred stocks and our floating rate debt are subject to an element of market risk from changes in interest rates. Increases and decreases in prevailing interest rates generally translate into decreases and increases in fair values of those instruments. Additionally, fair values of interest rate sensitive instruments may be affected by the creditworthiness of the issuer, prepayment options, relative values of alternative investments, the liquidity of the instrument and other general market conditions. We manage interest rate risk through a variety of measures. We monitor our interest rate risk and make investment decisions to manage the perceived risk.
Equity price risk is the risk that we will incur economic losses due to adverse changes in equity prices. In the past, our exposure to changes in equity prices primarily resulted from our holdings of equity securities. At December 31, 2017, we held $681 million

42

Table of Contents

in marketable equity securities (not including our investments in preferred stock of $319 million at December 31, 2017 and our Investments in unconsolidated affiliates, which amounted to $150 million at December 31, 2017). The carrying values of investments subject to equity price risks are based on quoted market prices as of the balance sheet date. Market prices are subject to fluctuation and, consequently, the amount realized in the subsequent sale of an investment may significantly differ from the reported market value. Fluctuation in the market price of a security may result from perceived changes in the underlying economic characteristics of the investee, the relative price of alternative investments and general market conditions. Furthermore, amounts realized in the sale of a particular security may be affected by the relative quantity of the security being sold.
Financial instruments, which potentially subject us to concentrations of credit risk, consist primarily of cash equivalents, short-term investments, and trade receivables. We require placement of cash in financial institutions evaluated as highly creditworthy.
For purposes of this Annual Report on Form 10-K, we perform a sensitivity analysis to determine the effects that market risk exposures may have on the fair values of our debt and other financial instruments.
The financial instruments that are included in the sensitivity analysis with respect to interest rate risk include fixed maturity investments, preferred stock and notes payable. The financial instruments that are included in the sensitivity analysis with respect to equity price risk include marketable equity securities. With the exception of our equity method investments, it is not anticipated that there would be a significant change in the fair value of other long-term investments or short-term investments if there were a change in market conditions, based on the nature and duration of the financial instruments involved.
To perform the sensitivity analysis, we assess the risk of loss in fair values from the effect of hypothetical changes in interest rates and equity prices on market-sensitive instruments. The changes in fair values for interest rate risks are determined by estimating the present value of future cash flows using various models, primarily duration modeling. The changes in fair values for equity price risk are determined by comparing the market price of investments against their reported values as of the balance sheet date.
Information provided by the sensitivity analysis does not necessarily represent the actual changes in fair value that we would incur under normal market conditions because, due to practical limitations, all variables other than the specific market risk factor are held constant. For example, our reserve for title claim losses (representing 34.3% of total liabilities at December 31, 2017) is not included in the hypothetical effects.
We have no market risk sensitive instruments entered into for trading purposes; therefore, all of our market risk sensitive instruments were entered into for purposes other than trading. The results of the sensitivity analysis at December 31, 2017 and December 31, 2016, are as follows:
 Interest Rate Risk
At December 31, 2017, an increase (decrease) in the levels of interest rates of 100 basis points, with all other variables held constant, would result in a (decrease) increase in the fair value of our fixed maturity securities and certain of our investments in preferred stock which are tied to interest rates of $45 million as compared with a (decrease) increase of $59 million at December 31, 2016.
Equity Price Risk
At December 31, 2017, a 20% increase (decrease) in market prices, with all other variables held constant, would result in an increase (decrease) in the fair value of our equity securities portfolio of $136 million, as compared with an increase (decrease) of $77 million at December 31, 2016.


43

Table of Contents

Item 8.    Financial Statements and Supplementary Data

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL INFORMATION
 
 
Page
Number


44

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Shareholders and the Board of Directors of Fidelity National Financial, Inc.

Opinion on Internal Control over Financial Reporting

We have audited Fidelity National Financial, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Fidelity National Financial, Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of Fidelity National Financial, Inc. and subsidiaries as of December 31, 2017, and the related consolidated statements of earnings, comprehensive earnings, equity and cash flows for the year then ended, and the related notes and financial statement schedules listed in the Index at Item 15(a)(2) and our report dated February 23, 2018 expressed an unqualified opinion thereon.
 Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying “Management’s Annual Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP
Certified Public Accountants

Jacksonville, Florida
February 23, 2018



45

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Shareholders and the Board of Directors of Fidelity National Financial, Inc.

Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Fidelity National Financial, Inc. and subsidiaries as of December 31, 2017, and the related consolidated statements of earnings, comprehensive earnings, equity and cash flows for the year then ended, and the related notes and financial statement schedules listed in the Index at Item 15(a)(2) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2017, and the consolidated results of its operations and its cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 23, 2018 expressed an unqualified opinion thereon.

Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.


/s/ Ernst & Young LLP
Certified Public Accountants

We have served as the Company's auditor since 2017

Jacksonville, Florida
February 23, 2018




46

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Stockholders
Fidelity National Financial, Inc.:


We have audited the accompanying Consolidated Balance Sheet of Fidelity National Financial, Inc. and subsidiaries as of December 31, 2016, and the related Consolidated Statements of Earnings, Comprehensive Earnings, Equity, and Cash Flows for each of the years in the two-year period ended December 31, 2016. In connection with our audits of the Consolidated Financial Statements, we also have audited the Financial Statement Schedules listed in the Index at Item 15. These Consolidated Financial Statements and Financial Statement Schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these Consolidated Financial Statements and Financial Statement Schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the Consolidated Financial Statements referred to above present fairly, in all material respects, the financial position of Fidelity National Financial, Inc. and subsidiaries as of December 31, 2016, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related Financial Statement Schedules, when considered in relation to the basic Consolidated Financial Statements taken as a whole, present fairly, in all material respect, the information set forth therein.
 

 ////s/ KPMG LLP
 Jacksonville, Florida
February 27, 2017, except for Notes A and G,
as to which are February 23, 2018
Certified Public Accountants

47

Table of Contents

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
 
December 31,
 
2017

2016
 
(In millions, except share data)
ASSETS
 
 
 
Investments:
 

 
 

Fixed maturities available for sale, at fair value, at December 31, 2017 and 2016, includes pledged fixed maturities of $364 and $332, respectively, related to secured trust deposits
$
1,816

 
$
2,407

Preferred stock available for sale, at fair value
319

 
315

Equity securities available for sale, at fair value
681

 
386

Investments in unconsolidated affiliates
150

 
150

Other long-term investments
110

 
42

Short-term investments, includes pledged short term investments of $3 and $212 at December 31, 2017 and 2016, respectively, related to secured trust deposits
295

 
482

Total investments
3,371

 
3,782

Cash and cash equivalents, at December 31, 2017 and 2016, includes pledged cash of $475 and $331, respectively, related to secured trust deposits
1,110

 
1,049

Trade and notes receivables, net of allowance of $18 and $21 at December 31, 2017 and 2016, respectively
317

 
322

Goodwill
2,746

 
2,555

Prepaid expenses and other assets
398

 
422

Other intangible assets, net
618

 
585

Title plants
398

 
395

Property and equipment, net
193

 
192

Assets of discontinued operations

 
5,219

Total assets
$
9,151

 
$
14,521

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Liabilities:
 

 
 

Accounts payable and other accrued liabilities
$
955

 
$
933

Income taxes payable
137

 
4

Notes payable
759

 
987

Reserve for title claim losses
1,490

 
1,487

Secured trust deposits
830

 
860

Deferred tax liability
169

 
370

Liabilities of discontinued operations

 
2,638

Total liabilities
4,340

 
7,279

Commitments and Contingencies:


 


Redeemable non-controlling interest by 21% minority holder of ServiceLink Holdings, LLC
344

 
344

Equity:
 

 
 

FNF Group common stock, $0.0001 par value; authorized 487,000,000 shares as of December 31, 2017 and 2016; outstanding of 274,431,737 and 272,205,261 as of December 31, 2017 and 2016, respectively; and issued of 287,718,304 and 285,041,900 as of December 31, 2017 and 2016, respectively

 

FNFV Group common stock, $0.0001 par value; authorized 113,000,000 shares as of December 31, 2016, outstanding of 66,416,822 as of December 31, 2016, and issued of 80,581,675 as of December 31, 2016, see Note G

 

Preferred stock, $0.0001 par value; authorized, 50,000,000 shares; issued and outstanding, none

 

Additional paid-in capital
4,587

 
4,848

Retained earnings
217

 
1,784

Accumulated other comprehensive earnings (loss)
111

 
(13
)
Less: Treasury stock, 13,286,567 shares and 27,001,492 shares as of December 31, 2017 and 2016, respectively, at cost
(468
)
 
(623
)
Total Fidelity National Financial, Inc. shareholders’ equity
4,447

 
5,996

Noncontrolling interests
20

 
902

Total equity
4,467

 
6,898

Total liabilities, redeemable non-controlling interest and equity
$
9,151

 
$
14,521

 

See Notes to Consolidated Financial Statements.

48

Table of Contents

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
 
Year Ended December 31,
 
2017
 
2016
 
2015
 
(In millions, except share data)
Revenues:
 

 
 

 
 

Direct title insurance premiums
$
2,170

 
$
2,097

 
$
2,009

Agency title insurance premiums
2,723

 
2,626

 
2,277

Escrow, title-related and other fees
2,637

 
2,416

 
2,246

Interest and investment income
131

 
126

 
121

Realized gains and losses, net
2

 
(8
)
 
11

Total revenues
7,663

 
7,257

 
6,664

Expenses:
 

 
 

 
 

Personnel costs
2,460

 
2,275

 
2,137

Agent commissions
2,089

 
1,998

 
1,731

Other operating expenses
1,781

 
1,648

 
1,557

Depreciation and amortization
183

 
160

 
150

Provision for title claim losses
238

 
157

 
246

Interest expense
48

 
64

 
73

Total expenses
6,799

 
6,302

 
5,894

Earnings from continuing operations before income taxes and equity in earnings of unconsolidated affiliates
864

 
955

 
770

Income tax expense on continuing operations
235

 
347

 
274

Earnings from continuing operations before equity in earnings of unconsolidated affiliates
629

 
608

 
496

Equity in earnings of unconsolidated affiliates
10

 
14

 
5

Net earnings from continuing operations
639

 
622

 
501

Earnings from discontinued operations, net of tax
155

 
70

 
60

Net earnings
794

 
692

 
561

Less: Net earnings attributable to non-controlling interests
23

 
42

 
34

Net earnings attributable to Fidelity National Financial, Inc. common shareholders
$
771

 
$
650

 
$
527

 
 
 
 
 
 
Amounts attributable to Fidelity National Financial, Inc., common shareholders:
 

 
 

 
 

Net earnings from continuing operations, attributable to FNF Group common shareholders
$
639

 
$
627

 
$
511

Net earnings from discontinued operations, attributable to FNF Group common shareholders
23

 
27

 
29

Net earnings attributable to FNF Group common shareholders
$
662

 
$
654

 
$
540

 
 
 
 
 
 
Net earnings (loss) from discontinued operations attributable to FNFV Group common shareholders
$
109

 
$
(4
)
 
$
(13
)
 See Notes to Consolidated Financial Statements.















49

Table of Contents

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS - (continued)

 
Year Ended December 31,
 
2017
 
2016
 
2015
 
 
 
 
Earnings per share
 
 
 
 
 
Basic
 
 
 
 
 
Net earnings from continuing operations attributable to FNF Group common shareholders
$
2.36

 
$
2.31

 
$
1.85

Net earnings from discontinued operations attributable to FNF Group common shareholders
0.08

 
0.09

 
0.10

Net earnings per share attributable to FNF Group common shareholders
$
2.44

 
$
2.40

 
$
1.95

Net earnings (loss) per share from discontinued operations attributable to FNFV Group common shareholders
$
1.68

 
$
(0.06
)
 
$
(0.16
)
Diluted
 
 
 
 
 
Net earnings from continuing operations attributable to FNF Group common shareholders
$
2.30

 
$
2.24

 
$
1.79

Net earnings from discontinued operations attributable to FNF Group common shareholders
0.08

 
0.10

 
0.10

Net earnings per share attributable to FNF Group common shareholders
$
2.38

 
$
2.34

 
$
1.89

Net earnings (loss) per share from discontinued operations attributable to FNFV Group common shareholders
$
1.63

 
$
(0.06
)
 
$
(0.16
)
 
 
 
 
 
 
Weighted average shares outstanding FNF Group common stock, basic basis
271

 
272

 
277

Weighted average shares outstanding FNF Group common stock, diluted basis
278

 
280

 
286

Cash dividends paid per share FNF Group common stock
$
1.02

 
$
0.88

 
$
0.80

 
 
 
 
 
 
Weighted average shares outstanding FNFV Group common stock, basic basis
65

 
67

 
79

Weighted average shares outstanding FNFV Group common stock, diluted basis
67

 
70

 
82

 See Notes to Consolidated Financial Statements.


50

Table of Contents

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
 
 
Year Ended December 31,
 
2017
 
2016
 
2015
 
(In millions)
Net earnings
$
794

 
$
692

 
$
561

Other comprehensive earnings (loss), net of tax:
 

 
 

 
 

Unrealized gain (loss) on investments and other financial instruments, net (excluding investments in unconsolidated affiliates) (1)
25

 
38

 
(38
)
Unrealized gain (loss) relating to investments in unconsolidated affiliates (2)
12

 
10

 
(27
)
Unrealized gain (loss) on foreign currency translation and cash flow hedging(3)
6

 
2

 
(8
)
Reclassification adjustments for change in unrealized gains and losses included in net earnings (4)
3

 

 

Minimum pension liability adjustment (5)
9

 
6

 
2

Other comprehensive earnings (loss)
55

 
56

 
(71
)
Comprehensive earnings
849

 
748

 
490

Less: Comprehensive earnings attributable to noncontrolling interests
25

 
41

 
34

Comprehensive earnings attributable to Fidelity National Financial Inc. common shareholders
$
824

 
$
707

 
$
456

Comprehensive earnings attributable to FNF Group common shareholders
$
709

 
$
703

 
$
494

Comprehensive earnings (loss) attributable to FNFV Group common shareholders
$
115

 
$
4

 
$
(38
)
 
_______________________________________
 
(1)
Net of income tax expense (benefit) of $16 million, $23 million, and $(23) million for the years ended December 31, 2017, 2016 and 2015, respectively.
(2)
Net of income tax expense (benefit) of $7 million, $6 million, and $(17) million for the years ended December 31, 2017, 2016 and 2015, respectively.
(3)
Net of income tax expense (benefit) of $4 million, $1 million, and $(7) million for the years ended December 31, 2017, 2016, and 2015, respectively.
(4)
Net of income tax expense of $2 million for the year ended December 31, 2017.
(5)
Net of income tax expense of $3 million for the years ended December 31, 2017, 2016, and 2015, respectively.

See Notes to Consolidated Financial Statements.

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
 
Fidelity National Financial, Inc. Common Shareholders
 
 
 
 
 
 
 
FNF Group Common Stock
 
FNFV Group Common Stock
 
Additional Paid-In Capital
 
Retained Earnings
 
Accumulated
Other Comprehensive Earnings (Loss)
 
Treasury Stock
 
Non-controlling
Interests
 
Total
Equity
 
Redeemable Non-controlling Interests
 
Shares
 
$
 
Shares
 
$
 
 
 
 
Shares
 
$
 
 
 
 
(In millions)
Balance, December 31, 2014
279

 
$

 
93

 
$

 
$
4,855

 
$
1,150

 
$
2

 

 
$
(13
)
 
$
79

 
$
6,073

 
$
715

Gain on Black Knight IPO

 

 

 

 
53

 

 

 

 

 
(96
)
 
(43
)
 

Proceeds Black Knight IPO

 

 

 

 

 

 

 

 

 
475

 
475

 

Exercise of stock options
2

 

 

 

 
26

 

 

 

 

 

 
26

 

Purchase of additional interest in consolidated subsidiaries

 

 

 

 
(6
)
 

 

 

 

 

 
(6
)
 

Tax benefit associated with the exercise of stock-based compensation

 

 

 

 
21

 

 

 

 

 

 
21

 

Issuance of restricted stock
1

 

 

 

 

 

 

 

 

 

 

 

Equity offering costs

 

 

 

 
(1
)
 

 

 

 

 

 
(1
)
 

Other comprehensive earnings — unrealized loss on investments and other financial instruments

 

 

 

 

 

 
(38
)
 

 

 

 
(38
)
 

Other comprehensive earnings — unrealized loss on investments in unconsolidated affiliates

 

 

 

 

 

 
(27
)
 

 

 

 
(27
)
 

Other comprehensive earnings — unrealized loss on foreign currency and cash flow hedging

 

 

 

 

 

 
(8
)
 

 

 

 
(8
)
 

Other comprehensive earnings — minimum pension liability adjustment

 

 

 

 

 

 
2

 

 

 

 
2

 

Stock-based compensation

 

 

 

 
38

 

 

 

 

 
(41
)
 
(3
)
 
59

Shares withheld for taxes and in treasury

 

 

 

 

 

 

 

 
(14
)
 

 
(14
)
 

Purchases of treasury stock

 

 

 

 

 

 

 
27

 
(505
)
 

 
(505
)
 

Contributions to noncontrolling interests

 

 

 

 

 

 

 

 

 
(1
)
 
(1
)
 

Sale of noncontrolling interest

 

 

 

 

 

 

 

 

 
(27
)
 
(27
)
 

Reclassification of redeemable NCI resulting from IPO/share conversion

 

 

 

 

 

 

 

 

 
430

 
430

 
(430
)
Retirement of treasury shares

 

 
(12
)
 

 
(186
)
 

 

 
(12
)
 
186

 

 

 

Distribution of J. Alexander's to FNFV Shareholders

 

 

 

 

 
(81
)
 

 

 

 
(13
)
 
(94
)
 

Dilution of ownership in affiliates

 

 

 

 
(5
)
 

 

 

 

 

 
(5
)
 

Dividends declared

 

 

 

 

 
(222
)
 

 

 

 

 
(222
)
 

Subsidiary dividends paid to noncontrolling interests

 

 

 

 

 

 

 

 

 
(6
)
 
(6
)
 

Net earnings

 

 

 

 

 
527

 

 

 

 
34

 
561

 

Balance, December 31, 2015
282


$


81


$


$
4,795


$
1,374


$
(69
)

15


$
(346
)

$
834

 
$
6,588

 
$
344

Exercise of stock options
2

 

 

 

 
19

 

 

 

 

 

 
19

 

Issuance of restricted stock
1

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive earnings — unrealized gain (loss) on investments and other financial instruments

 

 

 

 

 

 
38

 

 

 
(1
)
 
37

 

Other comprehensive earnings — unrealized gain on investments in unconsolidated affiliates

 

 

 

 

 

 
10

 

 

 

 
10

 

Other comprehensive earnings — unrealized gain on foreign currency and cash flow hedging

 

 

 

 

 

 
2

 

 

 

 
2

 

Other comprehensive earnings — minimum pension liability adjustment

 

 

 

 

 

 
6

 

 

 

 
6

 

Stock-based compensation

 

 

 

 
36

 

 

 

 

 
22

 
58

 

Shares withheld for taxes and in treasury

 

 

 

 

 

 

 

 
(9
)
 

 
(9
)
 
 
Purchases of treasury stock

 

 

 

 

 

 

 
12

 
(268
)
 

 
(268
)
 

Debt conversion settled in cash

 

 

 

 
(2
)
 

 

 

 

 

 
(2
)
 

Acquisition of noncontrolling interest

 

 

 

 

 

 

 

 

 
14

 
14

 

Dividends declared

 

 

 

 

 
(240
)
 

 

 

 

 
(240
)
 

Subsidiary dividends paid to noncontrolling interests

 

 

 

 

 

 

 

 

 
(9
)
 
(9
)
 

Net earnings

 

 

 

 

 
650

 

 

 

 
42

 
692

 

Balance, December 31, 2016
285

 
$

 
81

 
$

 
$
4,848

 
$
1,784

 
$
(13
)
 
27

 
$
(623
)
 
$
902

 
$
6,898

 
$
344

See Notes to Consolidated Financial Statements.


51

Table of Contents

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY - (continued)
 
Fidelity National Financial, Inc. Common Shareholders
 
 
 
 
 
 
 
FNF Group Common Stock
 
FNFV Group Common Stock
 
Additional Paid-In Capital
 
Retained Earnings
 
Accumulated
Other Comprehensive Earnings (Loss)
 
Treasury Stock
 
Non-controlling
Interests
 
Total
Equity
 
Redeemable Non-controlling Interests
 
Shares
 
$
 
Shares
 
$
 
 
 
 
Shares
 
$
 
 
 
 
(In millions)
Balance, December 31, 2016
285

 
$

 
81

 
$

 
$
4,848

 
$
1,784

 
$
(13
)
 
27

 
$
(623
)
 
$
902

 
$
6,898

 
$
344

Exercise of stock options
2

 

 

 

 
31

 

 

 

 

 

 
31

 

Issuance of restricted stock
1

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive earnings — unrealized gain on investments and other financial instruments

 

 

 

 

 

 
25

 

 

 
2

 
27

 

Other comprehensive earnings — unrealized gain on investments in unconsolidated affiliates

 

 

 

 

 

 
12

 

 

 

 
12

 

Other comprehensive earnings — unrealized gain on foreign currency and cash flow hedging

 

 

 

 

 

 
6

 

 

 

 
6

 

Other comprehensive earnings — minimum pension liability adjustment

 

 

 

 

 

 
9

 

 

 

 
9

 

Reclassification adjustments for change in unrealized gains and losses included in net earnings

 

 

 

 

 

 
3

 

 

 

 
3

 

Stock-based compensation

 

 

 

 
33

 

 

 

 

 
11

 
44

 

Purchase of additional interest in consolidated subsidiaries

 

 

 

 
(1
)
 

 

 

 

 
(1
)
 
(2
)
 

Shares withheld for taxes and in treasury

 

 

 

 

 

 

 
1

 
(18
)
 

 
(18
)
 
 
Purchases of treasury stock

 

 

 

 

 

 

 
1

 
(23
)
 

 
(23
)
 

Sale of consolidated subsidiary

 

 

 

 

 

 

 

 

 
(6
)
 
(6
)
 

Debt conversions settled in cash

 

 

 

 
(324
)
 

 

 

 

 

 
(324
)
 

Acquisitions of noncontrolling interests

 

 

 

 

 

 

 

 

 
44

 
44

 

Black Knight repurchases of BKFS stock

 

 

 

 

 

 

 

 

 
(47
)
 
(47
)
 

Spin-off of Black Knight

 

 

 

 

 
(823
)
 

 

 

 
(801
)
 
(1,624
)
 

Distribution of FNFV to Cannae Holdings

 

 
(81
)
 

 

 
(1,236
)
 
69

 
(16
)
 
196

 
(98
)
 
(1,069
)
 

Dividends declared

 

 

 

 

 
(279
)
 

 

 

 

 
(279
)
 

Subsidiary dividends paid to noncontrolling interests

 

 

 

 

 

 

 

 

 
(9
)
 
(9
)
 

Net earnings

 

 

 

 

 
771

 

 

 

 
23

 
794

 

Balance, December 31, 2017
288

 
$

 

 
$

 
$
4,587

 
$
217

 
$
111

 
13

 
$
(468
)
 
$
20

 
$
4,467

 
$
344

See Notes to Consolidated Financial Statements.

52

Table of Contents

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Year Ended December 31,
 
2017
 
2016
 
2015
 
(In millions)
Cash Flows From Operating Activities:
 

 
 

 
 

Net earnings
$
794

 
$
692

 
$
561

Adjustments to reconcile net earnings to net cash provided by operating activities:
 

 
 

 
 

Depreciation and amortization
389

 
431

 
410

Equity in losses of unconsolidated affiliates
2

 
8

 
16

Net loss on sales of investments and other assets, net
16

 
2

 
13

Gain on sale of OneDigital
(276
)
 

 

Gain on sale of Cascade Timberlands

 

 
(12
)
Stock-based compensation cost
44

 
58

 
56

Changes in assets and liabilities, net of effects from acquisitions:
 

 
 

 
 

Net increase in pledged cash, pledged investments and secured trust deposits

 

 
(2
)
Net (increase) decrease in trade receivables
(11
)
 
(14
)
 
7

Net increase in prepaid expenses and other assets
(60
)
 
(4
)
 
(95
)
Net (decrease) increase in accounts payable, accrued liabilities, deferred revenue and other
(31
)
 
87

 
(2
)
Net increase (decrease) in reserve for title claim losses
3

 
(96
)
 
(38
)
Net change in income taxes
(133
)
 
(2
)
 
37

Net cash provided by operating activities
737

 
1,162

 
951

Cash Flows From Investing Activities:
 

 
 

 
 

Proceeds from sales of investment securities available for sale
434

 
238

 
775

Proceeds from calls and maturities of investment securities available for sale
626

 
452

 
383

Proceeds from sales of other assets
4

 
6

 
2

Proceeds from the sale of cost method and other investments
21

 
36

 
14

Additions to property and equipment and capitalized software
(149
)
 
(290
)
 
(241
)
Purchases of investment securities available for sale
(643
)
 
(598
)
 
(1,102
)
Purchases of other long-term investments
(86
)
 

 
(27
)
Net (purchases of) proceeds from short-term investment activities
(164
)
 
493

 
(565
)
Contributions to investments in unconsolidated affiliates
(78
)
 
(166
)
 
(97
)
Distributions from unconsolidated affiliates
104

 
139

 
353

Net other investing activities
(7
)
 
(7
)
 
(11
)
Proceeds from the sale of OneDigital
325

 

 

Acquisition of T-System Holding LLC, net of cash acquired
(202
)
 

 

Acquisition of Title Guaranty of Hawaii, net of cash acquired
(93
)
 

 

Acquisition of BPG Holdings, LLC, net of cash acquired

 

 
(43
)
Proceeds from sale of Cascade Timberlands

 

 
56

Acquisition of Commissions, Inc., net of cash acquired

 
(229
)
 

Acquisition of eLynx Holdings, Inc., net of cash acquired

 
(115
)
 

Acquisitions of Real Geeks, LLC and Sky Slope, Inc., net of cash acquired
(82
)
 

 

Other acquisitions/disposals of businesses, net of cash acquired
(105
)
 
(213
)
 
(68
)
Net cash used in investing activities
(95
)
 
(254
)
 
(571
)
Cash Flows From Financing Activities:
 

 
 

 
 

Borrowings
785

 
132

 
1,360

Debt service payments
(996
)
 
(200
)
 
(1,359
)
Additional investment in noncontrolling interest
(2
)
 

 
(6
)
Equity portion of debt conversions paid in cash
(317
)
 
(2
)
 

Proceeds from Black Knight IPO

 

 
475

Distributions by Black Knight to member

 

 
(17
)
Debt and equity issuance costs

 

 
(1
)
Black Knight treasury stock repurchases of BKFS stock
(47
)
 

 

Cash transferred in J. Alexander's spin-off

 

 
(13
)
Cash transferred in the Black Knight spin-off
(87
)
 

 

Cash transferred in the FNFV split-off
(22
)
 

 

Dividends paid
(278
)
 
(239
)
 
(220
)
Subsidiary dividends paid to noncontrolling interest shareholders
(9
)
 
(9
)
 
(6
)
Exercise of stock options
31

 
19

 
26

Payment of contingent consideration for prior period acquisitions
(16
)
 
(4
)
 

Payment for shares withheld for taxes and in treasury

(18
)
 
(9
)
 
(13
)
Purchases of treasury stock
(23
)
 
(276
)
 
(498
)
Net cash used in financing activities
(999
)
 
(588
)
 
(272
)
Net (decrease) increase in cash and cash equivalents, excluding pledged cash related to secured trust deposits
(357
)
 
320

 
108

Cash and cash equivalents, excluding pledged cash related to secured trust deposits, at beginning of year
992

 
672

 
564

Cash and cash equivalents, excluding pledged cash related to secured trust deposits, at end of year
$
635

 
$
992

 
$
672


See Notes to Consolidated Financial Statements.

53

Table of Contents

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note A.
Business and Summary of Significant Accounting Policies
The following describes the business and significant accounting policies of Fidelity National Financial, Inc. and its subsidiaries (collectively, “we,” “us,” “our,” "the Company" or “FNF”) which have been followed in preparing the accompanying Consolidated Financial Statements.
Description of Business
We are a leading provider of (i) title insurance, escrow and other title-related services, including trust activities, trustee sales guarantees, recordings and reconveyances and home warranty products and (ii) technology and transaction services to the real estate and mortgage industries. FNF is the nation’s largest title insurance company operating through its title insurance underwriters - Fidelity National Title Insurance Company ("FNTIC"), Chicago Title Insurance Company ("Chicago Title"), Commonwealth Land Title Insurance Company ("Commonwealth Title"), Alamo Title Insurance and National Title Insurance of New York Inc. - which collectively issue more title insurance policies than any other title company in the United States. Through our subsidiary, ServiceLink Holdings, LLC ("ServiceLink"), we provide mortgage transaction services, including title-related services and facilitation of production and management of mortgage loans.
For information about our reportable segments, refer to Note R Segment Information.
Recent Developments
On November 30, 2017, FGL Holdings (formerly known as CF Corporation), a Cayman Islands exempted company, consummated its previously announced acquisition of Fidelity & Guaranty Life, a Delaware corporation (“FGL”), pursuant to the Agreement and Plan of Merger, dated as of May 24, 2017, as amended (the “Merger Agreement”), by and among CF Corporation, FGL, and certain subsidiaries of CF Corporation and FGL (collectively, the "FGL Merger"). In connection with the FGL Merger, FNF received 13,732,000 common shares and 100,000 Series B Cumulative Preferred ("FG Preferred") shares in exchange for an aggregate investment of $213 million. As of December 31, 2017 FNF owns 16,732,000 common shares, inclusive of 3,000,000 common shares of CF Corporation held prior to the FGL Merger, and 100,000 FG Preferred shares with an aggregate market value of $246 million and we own approximately 8.5% of the outstanding common equity of FGL. The Company’s non-executive Chairman, William P. Foley, II, is also the Co-Executive Chairman of FGL.
On November 17, 2017 we completed our previously announced split-off (the “FNFV Split-Off”) of our former wholly-owned subsidiary Cannae Holdings, Inc. (“Cannae”) which consisted of the businesses, assets and liabilities formerly attributed to our FNF Ventures ("FNFV") Group including Ceridian Holding, LLC, American Blue Ribbon Holdings, LLC and T-System Holding LLC. The FNFV Split-Off was accomplished by the Company's redemption (the “Redemption”) of all of the outstanding shares of FNFV Group common stock, par value $0.0001 per share (“FNFV common stock”) for outstanding shares of common stock of Cannae, par value $0.0001 per share (“Cannae common stock”), amounting to a redemption on a per share basis of each outstanding share of FNFV common stock for one share of Cannae common stock, as of November 17, 2017. As a result of the FNFV Split-Off, Cannae is a separate, publicly traded company (NYSE: CNNE). All of the Company’s core title insurance, real estate, technology and mortgage related businesses, assets and liabilities currently attributed to the Company’s FNF Group common stock that are not held by Cannae remain with the Company. As a result of the FNFV Split-Off, we have reclassified the assets and liabilities divested as assets and liabilities of discontinued operations in our Consolidated Balance Sheet as of December 31, 2016. Further, the financial results of FNFV Group have been reclassified to discontinued operations for all periods presented in our Consolidated Statements of Earnings. See Note G. Discontinued Operations for further details of the results of FNFV Group.
On November 17, 2017, Frank P. Willey resigned from our Board of Directors.
On September 29, 2017 we completed our tax-free distribution, to FNF Group shareholders of all 83.3 million shares of New BKH Corp. ("New BKH") common stock that we previously owned (the “BK Distribution”). Immediately following the BK Distribution, New BKH and Black Knight Financial Services, Inc. ("Black Knight") engaged in a series of transactions resulting in the formation of a new publicly-traded holding company, Black Knight, Inc. ("New Black Knight"). Holders of FNF Group common stock received approximately 0.30663 shares of New Black Knight common stock for every one share of FNF Group common stock held at the close of business on September 20, 2017, the record date for the BK Distribution. New Black Knight's common stock is now listed under the symbol “BKI” on the New York Stock Exchange. The BK Distribution is expected to generally be tax-free to FNF Group shareholders for U.S. federal income tax purposes, except to the extent of any cash received in lieu of New Black Knight's fractional shares. As a result of the BK Distribution, we have reclassified the assets and liabilities divested as assets and liabilities of discontinued operations in our Consolidated Balance Sheet as of December 31, 2016. Further, the financial results of Black Knight have been reclassified to discontinued operations for all periods presented in our Consolidated Statements of Earnings. See Note G. Discontinued Operations for further details of the results of Black Knight.

54

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

On August 31, 2017, we completed our acquisition of 90% of the membership interests of Title Guaranty of Hawaii ("Title Guaranty") for $98 million. Title Guaranty was previously an unaffiliated agent of Chicago Title and will continue to be closely aligned with Chicago Title as it formally becomes part of the FNF title company family. Founded in 1896, Title Guaranty is the oldest title company in the State of Hawaii and is a leading provider of title and escrow services, with more than 300 employees in branches across the State of Hawaii providing title insurance and real estate closing services. See Note B. Acquisitions for further discussion.
On May 3, 2017, our Board of Directors adopted a resolution to increase the size of our Board of Directors to thirteen and elected Heather H. Murren to serve on our Board of Directors. Ms. Murren will serve in Class I of our Board of Directors, and her term will expire at the annual meeting of our shareholders to be held in 2018. In January 2018, Ms. Murren was appointed to the Audit Committee of our Board.
Effective March 1, 2017, three of the Company’s title insurance underwriters, Fidelity National Title Insurance Company, Chicago Title Insurance Company and Commonwealth Land Title Insurance Company, redomesticated from their respective former states of domicile to Florida (the "Redomestication"). In conjunction with the Redomestication, the Company received a special dividend of $280 million from these title insurance underwriters on March 15, 2017.
Principles of Consolidation and Basis of Presentation
The accompanying Consolidated Financial Statements are prepared in accordance with generally accepted accounting principles in the United States ("GAAP") and include our accounts as well as our wholly-owned and majority-owned subsidiaries. All intercompany profits, transactions and balances have been eliminated. Our investments in non-majority-owned partnerships and affiliates are accounted for using the equity method until such time that they become wholly or majority-owned. Earnings attributable to noncontrolling interests are recorded on the Consolidated Statements of Earnings relating to majority-owned subsidiaries with the appropriate noncontrolling interest that represents the portion of equity not related to our ownership interest recorded on the Consolidated Balance Sheets in each period.
Investments
Fixed maturity securities are purchased to support our investment strategies, which are developed based on factors including rate of return, maturity, credit risk, duration, tax considerations and regulatory requirements. Fixed maturity securities which may be sold prior to maturity to support our investment strategies are carried at fair value and are classified as available for sale as of the balance sheet dates. Fair values for fixed maturity securities are principally a function of current market conditions and are valued based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly. Discount or premium is recorded for the difference between the purchase price and the principal amount. The discount or premium is amortized or accrued using the interest method and is recorded as an adjustment to interest and investment income. The interest method results in the recognition of a constant rate of return on the investment equal to the prevailing rate at the time of purchase or at the time of subsequent adjustments of book value. Changes in prepayment assumptions are accounted for retrospectively.
Equity securities and preferred stocks held are considered to be available for sale and carried at fair value as of the balance sheet dates. Our equity securities and certain preferred stocks are Level 1 financial assets and fair values are based on quoted prices in active markets. Other preferred stock holdings are Level 2 financial assets and are valued based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly.
Investments in unconsolidated affiliates are recorded using the equity method of accounting.
Other long-term investments consist of various cost-method investments and company-owned life insurance policies. The cost-method investments are carried at historical cost. The carrying value of our cost-method investments is $78 million and $6 million, at December 31, 2017 and 2016, respectively. Company-owned life insurance policies are carried at cash surrender value.
Short-term investments, which consist primarily of commercial paper and money market instruments, which have an original maturity of one year or less, are carried at amortized cost, which approximates fair value.
Realized gains and losses on the sale of investments are determined on the basis of the cost of the specific investments sold and are credited or charged to income on a trade date basis. Unrealized gains or losses on securities which are classified as available for sale, net of applicable deferred income tax expenses (benefits), are excluded from earnings and credited or charged directly to a separate component of equity. If any unrealized losses on available for sale securities are determined to be other-than-temporary, such unrealized losses are recognized as realized losses. Unrealized losses are considered other-than-temporary if factors exist that cause us to believe that the value will not increase to a level sufficient to recover our cost basis. Some factors considered in evaluating whether or not a decline in fair value is other-than-temporary include: (i) our need and intent to sell the investment prior to a period of time sufficient to allow for a recovery in value; (ii) the duration and extent to which the fair value has been less than cost; and (iii) the financial condition and prospects of the issuer. Such reviews are inherently uncertain and the value of the investment may not fully recover or may decline in future periods resulting in a realized loss.

55

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

Cash and Cash Equivalents
Highly liquid instruments purchased as part of cash management with original maturities of three months or less are considered cash equivalents. The carrying amounts reported in the Consolidated Balance Sheets for these instruments approximate their fair value.
Fair Value of Financial Instruments
The fair values of financial instruments presented in the Consolidated Financial Statements are estimates of the fair values at a specific point in time using available market information and appropriate valuation methodologies. These estimates are subjective in nature and involve uncertainties and significant judgment in the interpretation of current market data. We do not necessarily intend to dispose of or liquidate such instruments prior to maturity.
Trade and Notes Receivables
The carrying values reported in the Consolidated Balance Sheets for trade and notes receivables approximate their fair value.
Goodwill
Goodwill represents the excess of cost over fair value of identifiable net assets acquired and assumed in a business combination. Goodwill and other intangible assets with indefinite useful lives are reviewed for impairment annually or more frequently if circumstances indicate potential impairment, through a comparison of fair value to the carrying amount. In evaluating the recoverability of goodwill, we perform an annual goodwill impairment analysis based on a review of qualitative factors to determine if events and circumstances exist which will lead to a determination that the fair value of a reporting unit is greater than its carrying amount, prior to performing a full fair-value assessment.
We completed annual goodwill impairment analyses in the fourth quarter of each period presented using a September 30 measurement date and as a result no goodwill impairments have been recorded. For the years ended December 31, 2017 and 2016, we determined there were no events or circumstances which indicated that the carrying value exceeded the fair value.
Other Intangible Assets
We have other intangible assets, not including goodwill, which consist primarily of customer relationships and contracts, trademarks and tradenames, and computer software, which are generally recorded in connection with acquisitions at their fair value. Intangible assets with estimable lives are amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In general, customer relationships are amortized over their estimated useful lives, generally 10 years, using an accelerated method which takes into consideration expected customer attrition rates. Contractual relationships are generally amortized over their contractual life. Trademarks and tradenames are generally amortized over 10 years. Capitalized software includes the fair value of software acquired in business combinations, purchased software and capitalized software development costs. Purchased software is recorded at cost and amortized using the straight-line method over its estimated useful life. Software acquired in business combinations is recorded at its fair value and amortized using straight-line or accelerated methods over its estimated useful life, ranging from 5 to 10 years. For internal-use computer software products, internal and external costs incurred during the preliminary project stage are expensed as they are incurred. Internal and external costs incurred during the application development stage are capitalized and amortized on a product by product basis commencing on the date the software is ready for its intended use. We do not capitalize any costs once the software is ready for its intended use.
We recorded $1 million in impairment expense to other intangible assets during the years ended December 31, 2017 and 2016. The impairment in 2017 was for computer software at ServiceLink. The impairment in 2016 was for customer relationships and tradenames at our real estate subsidiaries in our Corporate and Other segment. We recorded no impairment expense related to other intangible assets in the year ended December 31, 2015.
Title Plants
Title plants are recorded at the cost incurred to construct or obtain and organize historical title information to the point it can be used to perform title searches. Costs incurred to maintain, update and operate title plants are expensed as incurred. Title plants are not amortized as they are considered to have an indefinite life if maintained. Sales of title plants are reported at the amount received net of the adjusted costs of the title plant sold. Sales of title plant copies are reported at the amount received. No cost is allocated to the sale of copies of title plants unless the carrying value of the title plant is diminished or impaired. Title plants are reviewed for impairment whenever events or circumstances indicate that the carrying amounts may not be recoverable. We reviewed title plants for impairment but recorded no impairment expense related to title plants in the years ended December 31, 2017 or 2016. We reviewed title plants for impairment in the year ended December 31, 2015 and identified and recorded impairment expense of $1 million.

56

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is computed primarily using the straight-line method based on the estimated useful lives of the related assets: twenty to thirty years for buildings and three to twenty-five years for furniture, fixtures and equipment. Leasehold improvements are amortized on a straight-line basis over the lesser of the term of the applicable lease or the estimated useful lives of such assets. Property and equipment are reviewed for impairment whenever events or circumstances indicate that the carrying amounts may not be recoverable.
Reserve for Title Claim Losses
Our reserve for title claim losses includes known claims as well as losses we expect to incur, net of recoupments. Each known claim is reserved based on our review as to the estimated amount of the claim and the costs required to settle the claim. Reserves for claims which are incurred but not reported are established at the time premium revenue is recognized based on historical loss experience and also take into consideration other factors, including industry trends, claim loss history, current legal environment, geographic considerations and the type of policy written.
The reserve for title claim losses also includes reserves for losses arising from closing and disbursement functions due to fraud or operational error.
If a loss is related to a policy issued by an independent agent, we may proceed against the independent agent pursuant to the terms of the agency agreement. In any event, we may proceed against third parties who are responsible for any loss under the title insurance policy under rights of subrogation.
Secured Trust Deposits
In the state of Illinois, a trust company is permitted to commingle and invest customers’ assets with its own assets, pending completion of real estate transactions. Accordingly, our Consolidated Balance Sheets reflect a secured trust deposit liability of $830 million and $860 million at December 31, 2017 and 2016, respectively, representing customers’ assets held by us and corresponding assets including cash and investments pledged as security for those trust balances.
Income Taxes
We recognize deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities and expected benefits of utilizing net operating loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The impact on deferred taxes of changes in tax rates and laws, if any, is applied to the years during which temporary differences are expected to be settled and reflected in the financial statements in the period enacted.
Reinsurance
In a limited number of situations, we limit our maximum loss exposure by reinsuring certain risks with other insurers. We also earn a small amount of additional income, which is reflected in our direct premiums, by assuming reinsurance for certain risks of other insurers. We cede a portion of certain policy and other liabilities under agent fidelity, excess of loss and case-by-case reinsurance agreements. Reinsurance agreements provide that in the event of a loss (including costs, attorneys’ fees and expenses) exceeding the retained amounts, the reinsurer is liable for the excess amount assumed. However, the ceding company remains primarily liable in the event the reinsurer does not meet its contractual obligations.
Revenue Recognition
Title. Our direct title insurance premiums and escrow, title-related and other fees are recognized as revenue at the time of closing of the related transaction as the earnings process is then considered complete.
Premium revenues from agency operations and agency commissions include an accrual based on estimates using historical information of the volume of transactions that have closed in a particular period for which premiums have not yet been reported to us. The accrual for agency premiums is necessary because of the lag between the closing of these transactions and the reporting of these policies to us by the agent. Historically, the time lag between the closing of these transactions by our agents and the reporting of these policies, or premiums, to us has been up to 15 months, with 84 - 88% reported within three months following closing, an additional 9 - 12% reported within the next three months and the remainder within seven to fifteen months. In addition to accruing these earned but unreported agency premiums, we also accrue agent commission expense, which was 76.7%, of agent premiums earned in 2017, 76.1% of agent premiums earned in 2016, and 76.0% of agent premiums earned in 2015. We also record a provision for claim losses at the provision rate at the time we record the accrual for the premiums, which averaged 4.9% for 2017, 5.4%, excluding the release of excess reserves relating to prior years of $97 million, for 2016, and 5.7% for 2015 and accruals for premium taxes and other expenses relating to our premium accrual. The resulting impact to pretax earnings in any period is approximately 11% or less of the accrued premium amount. The impact of the change in the accrual for agency premiums and

57

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

related expenses on our pretax earnings was an increase of $1 million for the year ended December 31, 2017, an increase of $4 million for the year ended 2016 and a decrease of $5 million for the year ended 2015. The amount due from our agents relating to this accrual, i.e., the agent premium less their contractual retained commission, was approximately $55 million and $53 million at December 31, 2017 and 2016, respectively, which represents agency premiums of approximately $280 million and $267 million at December 31, 2017 and 2016, respectively, and agent commissions of $225 million and $214 million at December 31, 2017 and 2016, respectively.
Revenues from home warranty products are recognized over the life of the policy, which is one year. The unrecognized portion is recorded as deferred revenue in accounts payable and other accrued liabilities in the Consolidated Balance Sheets.
Comprehensive Earnings (Loss)
We report Comprehensive earnings (loss) in accordance with GAAP on the Consolidated Statements of Comprehensive Earnings. Total comprehensive earnings are defined as all changes in shareholders' equity during a period, other than those resulting from investments by and distributions to shareholders. While total comprehensive earnings is the activity in a period and is largely driven by net earnings in that period, accumulated other comprehensive earnings or loss represents the cumulative balance of other comprehensive earnings, net of tax, as of the balance sheet date. Amounts reclassified to net earnings relate to the realized gains (losses) on our investments and other financial instruments, excluding investments in unconsolidated affiliates, and are included in Realized gains and losses, net on the Consolidated Statements of Earnings.
Changes in the balance of Other comprehensive earnings (loss) by component are as follows:
 
Unrealized gain on investments and other financial instruments, net (excluding investments in unconsolidated affiliates)
 
Unrealized (loss) gain relating to investments in unconsolidated affiliates
 
Unrealized (loss) gain on foreign currency translation and cash flow hedging
 
Minimum pension liability adjustment
 
Total Accumulated Other Comprehensive (Loss) Earnings
 
(In millions)
Balance December 31, 2015
48

 
(78
)
 
(15
)
 
(24
)
 
(69
)
Other comprehensive earnings
38

 
10

 
2

 
6

 
56

Balance December 31, 2016
86

 
(68
)
 
(13
)
 
(18
)
 
(13
)
Other comprehensive earnings
25

 
12

 
6

 
9

 
52

Reclassification adjustments
3

 

 

 

 
3

Distribution of FNFV to Cannae Holdings
2

 
67

 

 

 
69

Balance December 31, 2017
$
116

 
$
11

 
$
(7
)
 
$
(9
)
 
$
111

Redeemable Non-controlling Interest 
Subsequent to our acquisition of Lender Processing Services, Inc. ("LPS") in January 2014, we issued a 35% ownership interest in ServiceLink to funds affiliated with Thomas H. Lee Partners ("THL" or "the minority interest holder"). THL has an option to put its ownership interests of ServiceLink to us if no public offering of the corresponding business was consummated after four years from the date of FNF's purchase of LPS. The units owned by THL (the "redeemable noncontrolling interests") may be settled in cash or common stock of FNF or a combination of both at our election. As of January 2018, no public offering was made and the redeemable noncontrolling interests were no longer subject to a holding requirement. The redeemable noncontrolling interests will be settled at the current fair value at the time we receive notice of THL's put election as determined by the parties or by a third party appraisal under the terms of the Unit Purchase Agreement. As a result of a recapitalization of ServiceLink in 2015, the ownership interest by the minority interest holder was reduced from 35% to 21%. As of December 31, 2017, we do not believe the exercise of their remaining put right in ServiceLink to be probable.
As these redeemable noncontrolling interests provide for redemption features not solely within our control, we classify the redeemable noncontrolling interests outside of permanent equity. Redeemable noncontrolling interests held by third parties in subsidiaries owned or controlled by FNF is reported on the Consolidated Balance Sheet outside permanent of equity; and the Consolidated Statement of Earnings reflects the respective redeemable noncontrolling interests in Net earnings (loss) attributable to non-controlling interests, the effect of which is removed from the net earnings attributable to Fidelity National Financial, Inc. common shareholders.

58

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

Earnings Per Share
Basic earnings per share, as presented on the Consolidated Statement of Earnings, is computed by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding during the period. In periods when earnings are positive, diluted earnings per share is calculated by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding plus the impact of assumed conversions of potentially dilutive securities. For periods when we recognize a net loss, diluted earnings per share is equal to basic earnings per share as the impact of assumed conversions of potentially dilutive securities is considered to be antidilutive. We have granted certain stock options, shares of restricted stock, convertible debt instruments and certain other convertible share based payments which have been treated as common share equivalents for purposes of calculating diluted earnings per share for periods in which positive earnings have been reported.
Options or other instruments which provide the ability to purchase shares of our common stock that are antidilutive are excluded from the computation of diluted earnings per share. For the year ended December 31, 2017, no antidilutive options were outstanding. For the year ended December 31, 2016 and 2015, options to purchase two million shares and one million shares, respectively, of our common stock were excluded from the computation of diluted earnings per share.
Basic and diluted earnings per share attributable to our former FNFV group common stock for the 2017 period were calculated using weighted average shares outstanding through the date of the FNFV Split-off, November 17, 2017.
Stock-Based Compensation Plans
We account for stock-based compensation plans using the fair value method. Using the fair value method of accounting, compensation cost is measured based on the fair value of the award at the grant date, using the Black-Scholes Model, and recognized over the service period. 
Management Estimates
The preparation of these Consolidated Financial Statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Certain Reclassifications
Certain reclassifications have been made in the 2016 and 2015 Consolidated Financial Statements to conform to classifications used in 2017. These reclassifications have not changed net earnings or total equity, as previously reported.
See Note G. Discontinued Operations for further information on reclassifications related to disposed businesses.
As of December 31, 2017, we have reclassified our Computer software to Other intangible assets, net. The impact for the Consolidated Balance Sheet as of December 31, 2016 was a decrease to Computer software and corresponding increase to Other intangible assets, net of $114 million. See Note H. Other Intangible Assets for further details.
Note B.         Acquisitions
The results of operations and financial position of the entities acquired during any year are included in the Consolidated Financial Statements from and after the date of acquisition.
Title
Title Guaranty of Hawaii
On August 31, 2017, FNF Group completed its acquisition of 90% of the membership interest of Title Guaranty of Hawaii ("Title Guaranty") for $98 million. Title Guaranty was previously an unaffiliated agent and will continue to be closely aligned with Chicago Title as it formally becomes part of the FNF title company family. Founded in 1896, Title Guaranty is the oldest title company in the State of Hawaii and is a leading provider of title and escrow services, with more than 300 employees in branches across the State of Hawaii providing title insurance and real estate closing services. The acquisition does not meet the definition of "significant" pursuant to Article 3 of Regulation S-X (§210.3-05). Further, the results of operations are not material to our historical financial statements.




59

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

We paid total consideration, net of cash received, of $93 million in exchange for 90% of the equity interests of Title Guaranty. The total cash consideration paid was as follows (in millions):
Total cash paid
$
98

Less: Cash acquired
(5
)
Total net consideration paid
$
93

The purchase price has been initially allocated to Title Guaranty's assets acquired and liabilities assumed based on our best estimates of their fair values as of the acquisition date. Goodwill has been recorded based on the amount that the purchase price exceeds the fair value of the net assets acquired. The goodwill recorded is expected to be deductible for tax purposes. These estimates are preliminary and subject to adjustments as we complete our valuation process with respect to Title plant, Goodwill, and Other intangible assets.
The following table summarizes the total purchase price consideration and the preliminary fair value amounts recognized for the assets acquired and liabilities assumed as of the acquisition date (in millions):
 
Fair Value
Accounts receivable
$
1

Property and equipment
4

Other intangible assets
60

Goodwill
40

Title plant
3

Prepaid expenses and other
1

Total assets acquired
109

Accounts payable and accrued liabilities
5

Total liabilities assumed
5

Non-controlling interests assumed
11

Total liabilities and equity assumed
16

Net assets acquired
$
93

The gross carrying value and weighted average estimated useful lives of Property and equipment and Other intangible assets acquired in the Title Guaranty acquisition consist of the following (dollars in millions):
 
Gross Carrying Value
 
Weighted Average
Estimated Useful Life
(in years)
Property and equipment
$
4

 
5
Other intangible assets:
 
 
 
Customer relationships
52

 
10
Trade name
7

 
10
Non-compete agreements
1

 
5
Total Other intangible assets
60

 
 
Total
$
64

 
 
Other Title Acquisitions
During the year ended December 31, 2016, we completed several acquisitions of businesses (the "Title Acquisitions") aligned with our Title segment. The Title Acquisitions do not meet the definition of "significant", individually or in the aggregate, pursuant to Article 3 of Regulation S-X (§210.3-05). Further, their historical results of operations are not material to our financial statements.




60

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

We paid total consideration, net of cash received, of $89 million in exchange for the assets and/or equity interests of the Title Acquisitions. The total consideration paid was as follows (in millions):
Cash paid
$
92

Less: Cash acquired
(3
)
Total net consideration paid
$
89

The purchase price has been allocated to the Title Acquisitions' assets acquired and liabilities assumed based on our best estimates of their fair values as of the acquisition date. Goodwill has been recorded based on the amount that the purchase price exceeds the fair value of the net assets acquired.
The following table summarizes the total purchase price consideration and the preliminary fair value amounts recognized for the assets acquired and liabilities assumed for the Title Acquisitions as of the acquisition date (in millions):
 
Fair Value
Trade and notes receivable
$
5

Other intangible assets
68

Goodwill
48

Prepaid expenses and other assets
1

Title plant
2

Property and equipment, net
3

Total assets acquired
127

Accounts payable and accrued liabilities
30

Deferred tax liability
8

Total liabilities assumed
38

Net assets acquired
$
89

The gross carrying value and weighted average estimated useful lives of Computer software and Other intangible assets acquired in the Title Acquisitions consist of the following (dollars in millions):
 
Gross Carrying Value
 
Weighted Average
Estimated Useful Life
(in years)
Other intangible assets:
 
 
 
Customer relationships
$
57

 
10
Trade name
6

 
10
Non-compete agreements
1

 
5
Computer software
2

 
3
Other
2

 
1
Total Other intangible assets
$
68

 
 
Corporate and Other
Real Geeks and SkySlope
During the year ended December 31, 2017, CINC and FNF completed their acquisitions of Real Geeks, LLC ("RG") and SkySlope, Inc. ("SS"), respectively (together, the "Real Estate Technology Acquisitions"). The Real Estate Technology Acquisitions were made to supplement our Commissions, Inc. ("CINC") business. The Real Estate Technology Acquisitions do not meet the definition of "significant", individually or in the aggregate, pursuant to Article 3 of Regulation S-X (§210.3-05). Further, their historical results of operations are not material to our financial statements.




61

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

CINC and FNF paid total aggregate consideration, net of cash received, of $98 million in exchange for 100% and 67% of the equity interests of RG and SS, respectively. The total consideration paid was as follows (in millions):
Total purchase price
$
101

Less: Cash acquired
(3
)
Total net assets acquired
98

Less: Contingent consideration payable
(16
)
Total net cash paid
$
82

The purchase price has been allocated to the Real Estate Technology Acquisitions' assets acquired and liabilities assumed based on our best estimates of their fair values as of the acquisition date. Goodwill has been recorded based on the amount that the purchase price exceeds the fair value of the net assets acquired. $37 million of the goodwill recorded is expected to be deductible for tax purposes. These estimates are preliminary and subject to adjustments as we complete our valuation process with respect to Goodwill and Other intangible assets.
The following table summarizes the total purchase price consideration and the preliminary fair value amounts recognized for the assets acquired and liabilities assumed for the Real Estate Technology Acquisitions as of the acquisition date (in millions):
 
Fair Value
Other intangible assets
$
38

Goodwill
92

Property and equipment, net
1

Total assets acquired
131

Accounts payable and accrued liabilities
1

Deferred tax liability
9

Total liabilities assumed
10

Non-controlling interests
23

Total liabilities and equity assumed
33

Net assets acquired
$
98

The gross carrying value and weighted average estimated useful lives of the Other intangible assets acquired in the Real Estate Technology Acquisitions consist of the following (dollars in millions):
 
Gross Carrying Value
 
Weighted Average
Estimated Useful Life
(in years)
Property and equipment, net
$
1

 
1 - 5
Other intangible assets:
 
 
 
Customer relationships
14

 
10
Trade name
5

 
10
Non-compete agreements
2

 
5
Computer software
17

 
7
Total Other intangible assets
$
38

 
 
Commissions, Inc.
On August 23, 2016, we completed our acquisition of CINC, a leading provider of web-based real estate marketing and customer relationship management software for elite Realtors® and agent teams across North America, for $229 million. CINC’s product offerings include software, marketing and services designed to enhance the productivity and sales results of elite Realtors® and agent teams through lead generation and proactive lead management. CINC's financial position and results of operations from the acquisition date are included in our Corporate and Other segment. The acquisition does not meet the definition of "significant" pursuant to Article 3 of Regulation S-X (§210.3-05). Further, the results of operations are not material to our historical financial statements.


62

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

We paid total consideration, net of cash received, of $229 million in exchange for 95% of the equity interests of CINC. The total consideration paid was as follows (in millions):
Cash paid
$
240

Less: Cash Acquired
(11
)
Total net consideration paid
$
229

The purchase price has been initially allocated to CINC's assets acquired and liabilities assumed based on our best estimates of their fair values as of the acquisition date. Goodwill has been recorded based on the amount that the purchase price exceeds the fair value of the net assets acquired.
The following table summarizes the total purchase price consideration and the preliminary fair value amounts recognized for the assets acquired and liabilities assumed as of the acquisition date (in millions):
 
Fair Value
Trade and notes receivable, net
$
1

Prepaid and other assets
2

Other intangible assets
90

Goodwill
165

Income taxes receivable
2

Total assets acquired
260

Accounts payable and accrued liabilities
7

Deferred tax liability
12

Total liabilities assumed
19

Non-controlling interests
12

Total liabilities and equity assumed
31

Net assets acquired
$
229

The gross carrying value and weighted average estimated useful lives of Computer software and Other intangible assets acquired in the CINC acquisition consist of the following (dollars in millions):
 
Gross Carrying Value
 
Weighted Average
Estimated Useful Life
(in years)
Other intangible assets:
 
 
 
Customer relationships
$
46

 
10
Tradename
13

 
10
Computer software
28

 
7
Non-compete agreements
3

 
4
Total Other intangible assets
$
90

 
 
For comparative purposes, selected unaudited pro-forma consolidated results of operations of FNF for the years ended December 31, 2016 and 2015 are presented below. Pro-forma results presented assume the consolidation of CINC occurred as of the beginning of the 2015 period. Amounts reflect our 95% ownership interest in CINC and are adjusted to exclude costs directly attributable to the acquisition of CINC, including transaction costs.
 
Year ended December 31,
 
2016
 
2015
Total revenues
$
7,285

 
$
6,695

Net earnings attributable to Fidelity National Financial, Inc. common shareholders
653

 
529



63

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

Note C.
Fair Value Measurements
The fair value hierarchy established by the accounting standards on fair value measurements includes three levels which are based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. Financial assets and liabilities that are recorded in the Consolidated Balance Sheets are categorized based on the inputs to the valuation techniques as follows:
Level 1.  Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that we have the ability to access.
Level 2.  Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability.
Level 3.  Financial assets and liabilities whose values are based on model inputs that are unobservable.
The following table presents our fair value hierarchy for those assets measured at fair value on a recurring basis as of December 31, 2017 and 2016, respectively:
 
December 31, 2017
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(In millions)
Assets:
 
 
 
 
 
 
 
Fixed-maturity securities available for sale:
 

 
 

 
 

 
 

U.S. government and agencies
$

 
$
195

 
$

 
$
195

State and political subdivisions

 
391

 

 
391

Corporate debt securities

 
1,117

 

 
1,117

Foreign government bonds

 
57

 

 
57

Mortgage-backed/asset-backed securities

 
56

 

 
56

Preferred stock available for sale
23

 
296

 

 
319

Equity securities available for sale
681

 

 

 
681

     Total
$
704

 
$
2,112

 
$

 
$
2,816

 
December 31, 2016
 
Level 1
 
Level 2
 
Level 3
 
Total
 
(In millions)
Fixed-maturity securities available for sale:
 

 
 

 
 

 
 

U.S. government and agencies
$

 
$
117

 
$

 
$
117

State and political subdivisions

 
615

 

 
615

Corporate debt securities

 
1,508

 

 
1,508

Foreign government bonds

 
109

 

 
109

Mortgage-backed/asset-backed securities

 
58

 

 
58

Preferred stock available for sale
32

 
283

 

 
315

Equity securities available for sale
386

 

 

 
386

     Total
$
418

 
$
2,690

 
$

 
$
3,108


Our Level 2 fair value measures for preferred stock and fixed-maturity securities available for sale are provided by a third-party pricing service. We utilize one firm for our preferred stock and our bond portfolios. The pricing service is a leading global provider of financial market data, analytics and related services to financial institutions. We rely on one price for each instrument to determine the carrying amount of the assets on our balance sheet. The inputs utilized in these pricing methodologies include observable measures such as benchmark yields, reported trades, broker dealer quotes, issuer spreads, two sided markets, benchmark securities, bids, offers and reference data including market research publications. We review the pricing methodologies for all of our Level 2 securities by obtaining an understanding of the valuation models and assumptions used by the third-party as well as

64

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

independently comparing the resulting prices to other publicly available measures of fair value and internally developed models. The pricing methodologies used by the relevant third party pricing services are as follows:
U.S. government and agencies: These securities are valued based on data obtained for similar securities in active markets and from inter-dealer brokers.
State and political subdivisions: These securities are valued based on data obtained for similar securities in active markets and from inter-dealer brokers. Factors considered include relevant trade information, dealer quotes and other relevant market data.
Corporate debt securities: These securities are valued based on dealer quotes and related market trading activity. Factors considered include the bond's yield, its terms and conditions, or any other feature which may influence its risk and thus marketability, as well as relative credit information and relevant sector news.
Foreign government bonds: These securities are valued based on a discounted cash flow model incorporating observable market inputs such as available broker quotes and yields of comparable securities.
Mortgage-backed/asset-backed securities: These securities are comprised of commercial mortgage-backed securities, agency mortgage-backed securities, collateralized mortgage obligations, and asset-backed securities. They are valued based on available trade information, dealer quotes, cash flows, relevant indices and market data for similar assets in active markets.
Preferred stock: Preferred stocks are valued by calculating the appropriate spread over a comparable US Treasury security. Inputs include benchmark quotes and other relevant market data.
As of December 31, 2017 and 2016 we held no material assets or liabilities measured at fair value using Level 3 inputs.
There were no transfers of assets or liabilities measured at fair value using Level 1 inputs to Level 2 in the years ended December 31, 2017 or 2016.
The carrying amounts of short-term investments, accounts receivable and notes receivable approximate fair value due to their short-term nature. The fair value of our notes payable is included in Note J Notes Payable.
Additional information regarding the fair value of our investment portfolio is included in Note D Investments.


65

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

Note D.     Investments
 The carrying amounts and fair values of our available for sale securities at December 31, 2017 and 2016 are as follows:
 
December 31, 2017
 
Carrying
Value
 
Cost Basis
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
(In millions)
Fixed maturity investments available for sale:
 

 
 

 
 

 
 

 
 

U.S. government and agencies
$
195

 
$
196

 
$

 
$
(1
)
 
$
195

States and political subdivisions
391

 
387

 
4

 

 
391

Corporate debt securities
1,117

 
1,110

 
11

 
(4
)
 
1,117

Foreign government bonds
57

 
58

 
1

 
(2
)
 
57

Mortgage-backed/asset-backed securities
56

 
55

 
1

 

 
56

Preferred stock available for sale
319

 
307

 
12

 

 
319

Equity securities available for sale
681

 
517

 
172

 
(8
)
 
681

  Total
$
2,816

 
$
2,630

 
$
201

 
$
(15
)
 
$
2,816

 
 
December 31, 2016
 
Carrying
Value
 
Cost Basis
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
(In millions)
Fixed maturity investments available for sale:
 

 
 

 
 

 
 

 
 

U.S. government and agencies
$
117

 
$
117

 
$

 
$

 
$
117

States and political subdivisions
615

 
607

 
9

 
(1
)
 
615

Corporate debt securities
1,508

 
1,499

 
15

 
(6
)
 
1,508

Foreign government bonds
109

 
117

 

 
(8
)
 
109

Mortgage-backed/asset-backed securities
58

 
56

 
2

 

 
58

Preferred stock available for sale
315

 
312

 
6

 
(3
)
 
315

Equity securities available for sale
386

 
278

 
108

 

 
386

  Total
$
3,108

 
$
2,986

 
$
140

 
$
(18
)
 
$
3,108

The cost basis of fixed maturity securities available for sale includes an adjustment for amortized premium or discount since the date of purchase.
The change in net unrealized gains and (losses) on fixed maturities for the years ended December 31, 2017, 2016, and 2015 was $(1) million, $13 million, and $(64) million, respectively.
The following table presents certain information regarding contractual maturities of our fixed maturity securities at December 31, 2017:
 
December 31, 2017
Maturity
Amortized Cost
 
% of
Total
 
Fair
Value
 
% of
Total
 
(Dollars in millions)
One year or less
$
496

 
27.5
%
 
$
496

 
27.3
%
After one year through five years
1,219

 
67.5

 
1,227

 
67.5

After five years through ten years
31

 
1.7

 
32

 
1.8

After ten years
5

 
0.3

 
5

 
0.3

Mortgage-backed/asset-backed securities
55

 
3.0

 
56

 
3.1

 
$
1,806

 
100.0
%
 
$
1,816

 
100.0
%


66

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

Expected maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Because of the potential for prepayment on mortgage-backed and asset-backed securities, they are not categorized by contractual maturity.
Fixed maturity securities valued at approximately $128 million and $123 million were on deposit with various governmental authorities at December 31, 2017 and 2016, respectively, as required by law.
Equity securities are carried at fair value. The change in net unrealized gains and losses on equity securities for the years ended December 31, 2017, 2016 and 2015 was a net increase (decrease) of $56 million$39 million, and $(4) million, respectively.
Net unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2017 and 2016 are as follows (in millions):
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
Less than 12 Months
 
12 Months or Longer
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
Corporate debt securities
$
464

 
$
(3
)
 
$
51

 
$
(1
)
 
$
515

 
$
(4
)
U.S. government and agencies
149

 
(1
)
 

 

 
149

 
(1
)
Foreign government bonds

 

 
10

 
(2
)
 
10

 
(2
)
Equity securities available for sale
121

 
(7
)
 
5

 
(1
)
 
126

 
(8
)
Total temporarily impaired securities
$
734

 
$
(11
)
 
$
66

 
$
(4
)
 
$
800

 
$
(15
)

December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
Less than 12 Months
 
12 Months or Longer
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
States and political subdivisions
$
107

 
$
(1
)
 
$

 
$

 
$
107

 
$
(1
)
Corporate debt securities
410

 
(4
)
 
11

 
(2
)
 
421

 
(6
)
Foreign government bonds
85

 
(4
)
 
20

 
(4
)
 
105

 
(8
)
Preferred stock available for sale
55

 
(2
)
 
42

 
(1
)
 
97

 
(3
)
Total temporarily impaired securities
$
657

 
$
(11
)
 
$
73

 
$
(7
)
 
$
730

 
$
(18
)

The unrealized losses for the corporate debt securities and U.S. government bonds were primarily caused by fluctuations in interest rates. The unrealized losses for the foreign government bonds were primarily caused by foreign exchange fluctuations. We consider the unrealized losses related to these securities to be temporary rather than changes in credit quality. We expect to recover the entire amortized cost basis of our temporarily impaired fixed maturity securities as we do not intend to sell these securities and we do not believe that we will be required to sell the fixed maturity securities before recovery of the cost basis. For these reasons, we do not consider these securities other-than-temporarily impaired at December 31, 2017. It is reasonably possible that declines in fair value below cost not considered other-than-temporary in the current period could be considered to be other-than-temporary in a future period and earnings would be reduced to the extent of the impairment.
The unrealized losses for the equity securities available for sale were primarily caused by market volatility in certain investees and market sectors. We expect to recover the entire cost basis of our temporarily impaired equity securities available for sale as we do not intend to sell these securities and we do not believe that we will be required to sell the securities before recovery of the cost basis. For these reasons, we do not consider these securities other-than-temporarily impaired at December 31, 2017. It is reasonably possible that declines in fair value below cost not considered other-than-temporary in the current period could be considered to be other-than-temporary in a future period and earnings would be reduced to the extent of the impairment.
During the years ended December 31, 2017, 2016 and 2015 we incurred impairment charges relating to investments that were determined to be other-than-temporarily impaired, which resulted in impairment charges of $1 million, $19 million and $14 million, respectively. The impairment charges in 2017 related to a fixed maturity security of an investee entering Chapter 11 bankruptcy which has exhibited a decreasing fair market value and from which we are uncertain of our ability to recover our initial investment.The impairment charges in 2016 related to fixed maturity securities of $13 million, an investment in an unconsolidated affiliate of $3 million, and an other long term investment of $3 million. In each case, we determined the credit risk of the holdings

67

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

was high and the ability to recover our investment was unlikely. Impairment charges in the 2015 period was for a fixed maturity security that we determined the credit risk was high and the ability of the issuer to pay the full amount of the principal outstanding was unlikely.
As of December 31, 2017, we held no securities for which other-than-temporary impairments had been previously recognized. As of December 31, 2016, we held $7 million investments for which an other-than-temporary impairment had been previously recognized. It is possible that future events may lead us to recognize potential future impairment losses related to our investment portfolio and that unanticipated future events may lead us to dispose of certain investment holdings and recognize the effects of any market movements in our consolidated financial statements.

The following table presents realized gains and losses on investments and other assets and proceeds from the sale or maturity of investments and other assets for the years ended December 31, 2017, 2016, and 2015, respectively:
 
 
Year ended December 31, 2017
 
 
Gross Realized Gains
 
Gross Realized Losses
 
Net Realized Gains (Losses)
 
Gross Proceeds from Sale/Maturity
 
 
(In millions)
Fixed maturity securities available for sale
 
$
7

 
$
(8
)
 
$
(1
)
 
$
968

Preferred stock available for sale
 

 

 

 
10

Other long-term investments
 
 
 
 
 
9

 
21

Loss on debt conversions
 
 
 
 
 
(6
)
 

Property, plant and equipment
 
 
 
 
 
2

 
4

Other intangible assets
 
 
 
 
 
(1
)
 

Other realized gains and losses, net
 
 
 
 
 
(1
)
 

Total
 
 
 
 
 
$
2

 
$
1,003

 
 
 
 
 
 
 
 
 
 
 
Year ended December 31, 2016
 
 
Gross Realized Gains
 
Gross Realized Losses
 
Net Realized Gains (Losses)
 
Gross Proceeds from Sale/Maturity
 
 
(In millions)
Fixed maturity securities available for sale
 
$
4

 
$
(16
)
 
$
(12
)
 
$
624

Preferred stock available for sale
 
1

 

 
1

 
9

Equity securities available for sale
 
11

 
(1
)
 
10

 
50

Investments in unconsolidated affiliates
 
 
 
 
 
(3
)
 

Other intangible assets
 
 
 
 
 
(1
)
 

Other assets
 
 
 
 
 
(3
)
 
6

Total
 
 
 
 
 
$
(8
)
 
$
689

 
 
 
 
 
 
 
 
 
 
 
Year ended December 31, 2015
 
 
Gross Realized Gains
 
Gross Realized Losses
 
Net Realized Gains (Losses)
 
Gross Proceeds from Sale/Maturity
 
 
(In millions)
Fixed maturity securities available for sale
 
$
14

 
$
(17
)
 
$
(3
)
 
$
1,076

Preferred stock available for sale
 
1

 

 
1

 
58

Equity securities available for sale
 
13

 
(11
)
 
2

 
51

Other assets
 
 
 
 
 
11

 

Total
 
 
 
 
 
$
11

 
$
1,185

 
 
 
 
 
 
 
 
 


68

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

Interest and investment income consists of the following:
 
Year Ended December 31,
 
2017
 
2016
 
2015
 
(In millions)
Cash and cash equivalents
$
3

 
$

 
$

Fixed maturity securities available for sale
61

 
76

 
82

Equity securities and preferred stock available for sale
28

 
28

 
24

Short-term investments
4

 
2

 

Other
35

 
20

 
15

Total
$
131

 
$
126

 
$
121


Note E. 
Property and Equipment
      Property and equipment consists of the following:
 
 
 
 
December 31,
 
2017
 
2016
 
(In millions)
Land
$
22

 
$
23

Buildings
111

 
108

Leasehold improvements
92

 
89

Data processing equipment
156

 
159

Furniture, fixtures and equipment
224

 
225

 
605

 
604

Accumulated depreciation and amortization
(412
)
 
(412
)
 
$
193

 
$
192


Depreciation expense on property and equipment was $48 million, $45 million, and $42 million for the years ended December 31, 2017, 2016, and 2015, respectively.

Note F. 
Goodwill
Goodwill consists of the following:
 
Title
 
Corporate and Other
 
Total
 
(In millions)
Balance, December 31, 2015
$
2,303

 
$
45

 
$
2,348

Goodwill acquired during the year (1)
48

 
170

 
218

Adjustments to prior year acquisitions
(6
)
 
(5
)
 
(11
)
Balance, December 31, 2016
$
2,345

 
$
210

 
$
2,555

Goodwill acquired during the year (1)
84

 
104

 
188

Adjustments to prior year acquisitions
3

 

 
3

Balance, December 31, 2017
$
2,432

 
$
314

 
$
2,746

_____________________________________
(1) See Note B Acquisitions for further discussion of significant goodwill acquired.



69

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

Note G.  
Discontinued Operations
Black Knight
As a result of the BK Distribution, we have reclassified the assets and liabilities divested as assets and liabilities of discontinued operations in our Consolidated Balance Sheet as of December 31, 2016.  Further, the financial results of Black Knight have been reclassified to discontinued operations for all periods presented in our Consolidated Statements of Earnings. We retained no ownership in Black Knight.
We have various agreements with Black Knight to provide technology, data and analytics services, as well as corporate shared services and information technology. We are also a party to certain other agreements under which we incur other expenses or receive revenues from Black Knight. We expect to continue utilizing Black Knight to provide technology and data and analytics services for the foreseeable future. Subsequent to the BK Distribution, Black Knight is considered a related party for FNF. The cash inflows and outflows from and to Black Knight as well as revenues and expenses included in continuing operations subsequent to September 29, 2017, the date of the BK Distribution, which were previously eliminated in our consolidated financial statements as intra-entity transactions, are not material to our results of operations for the year ended December 31, 2017.
A summary of the operations of Black Knight included in discontinued operations is shown below:
 
Year Ended December 31,
 
2017
 
2016
 
2015
Revenues:
(in millions)
Escrow, title-related and other fees
$
745

 
$
963

 
$
874

Realized gains and losses, net
(13
)
 

 
(5
)
Total revenues
732

 
963

 
869

Expenses:
 
 
 
 
 
Personnel costs
292

 
393

 
377

Other operating expenses
145

 
190

 
156

Depreciation and amortization
154

 
208

 
195

Interest expense
42

 
62

 
49

Total expenses
633

 
853

 
777

Earnings from discontinued operations before income taxes
99

 
110

 
92

Income tax expense
40

 
36

 
35

Net earnings from discontinued operations
59

 
74

 
57

Less: Net earnings attributable to non-controlling interests
36

 
47

 
28

Net earnings attributable to Fidelity National Financial, Inc. common shareholders
$
23

 
$
27

 
$
29

 
 
 
 
 
 
Cash flow from discontinued operations data:
 
 
 
 
 
Net cash provided by operations
$
240

 
$
326

 
$
248

Net cash used in investing activities
(46
)
 
(230
)
 
(103
)













70

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

A summary of the financial position of Black Knight included as assets and liabilities of discontinued operations is shown below:
 
December 31,
2016
 
(in millions)
Cash and cash equivalents
$
130

Short term investments
4

Trade and notes receivable
157

Goodwill
2,304

Prepaid expenses and other assets
184

Capitalized software, net
450

Other intangible assets, net
359

Property and equipment, net
173

Total assets of discontinued operations
$
3,761

 
 
Accounts payable and accrued liabilities
$
287

Notes payable
1,526

Income taxes payable
26

Deferred tax liabilities
334

Total liabilities of discontinued operations
$
2,173


FNFV
As a result of the FNFV Split-Off we have reclassified the assets and liabilities divested as assets and liabilities of discontinued operations in our Consolidated Balance Sheet as of December 31, 2016.  Further, the financial results of FNFV Group have been reclassified to discontinued operations for all periods presented in our Consolidated Statements of Earnings. Subsequent to the FNFV Split-Off, Cannae is considered a related party for FNF. The cash inflows and outflows from and to Cannae as well as revenues and expenses included in continuing operations subsequent to November 17, 2017, the date of the FNFV Split-Off, which were previously eliminated in our consolidated financial statements as intra-entity transactions, are not material to our results of operations for the year ended December 31, 2017.
In conjunction with the FNFV Split-Off, FNTIC, Chicago Title, and Commonwealth Title contributed an aggregate of $100 million to Cannae in exchange for 5,706,134 shares of Cannae common stock. As of December 31, 2017, we own approximately 8.1% of Cannae's outstanding common equity. In addition we issued to Cannae a revolver note (the "Cannae Revolver") in the aggregate principal amount of up to $100 million, which accrues interest at LIBOR plus 450 basis points and matures on the five-year anniversary of the date of the revolver note. The maturity date is automatically extended for additional five-year terms unless notice of non-renewal is otherwise provided by either FNF or Cannae, in their sole discretion. As of December 31, 2017, there is no outstanding balance under the Cannae Revolver.
In connection with the FNFV Split-Off, the following material agreements were entered into by and between the Company and Cannae (the “Split-Off Agreements”):
a Reorganization Agreement, dated as of November 17, 2017, by and between the Company and Cannae, which provides for, among other things, the principal corporate transactions required to effect the Split-Off, certain conditions to the Split-Off and provisions governing the relationship between the Company and Cannae with respect to and resulting from the Split-Off;
a Tax Matters Agreement, dated as of November 17, 2017, by and between the Company and Cannae, which governs the Company’s and Cannae’s respective rights, responsibilities and obligations with respect to taxes and tax benefits, the filing of tax returns, the control of audits and other tax matters; and
a Voting Agreement, dated as of November 17, 2017, by and between the Company and Cannae, pursuant to which the Company agrees to appear or cause all shares of Cannae common stock that the Company or its subsidiaries, as applicable, own after the Split-Off to be counted as present at any meeting of the stockholders of Cannae, for the purpose of establishing a quorum, and agrees to vote all of such shares of Cannae common stock (or cause them to be

71

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

voted) in the same manner as, and in the same proportion to, all shares voted by holders of Cannae common stock (other than the Company and its subsidiaries).
A summary of the operations of FNFV included in discontinued operations is shown below:
 
Year Ended December 31,
 
2017
 
2016
 
2015
Revenues:
(in millions)
Escrow, title-related and other fees
$
111

 
$
168

 
$
204

Restaurant revenue
981

 
1,158

 
1,412

Interest and investment income
5

 
3

 
2

Realized gains and losses, net
277

 
6

 
(19
)
Total revenues
1,374

 
1,335

 
1,599

Expenses:
 
 
 
 
 
Personnel costs
148

 
165

 
158

Other operating expenses
94

 
106

 
167

Cost of restaurant revenue
861

 
984

 
1,195

Depreciation and amortization
51

 
63

 
65

Interest expense
9

 
10

 
8

Total expenses
1,163

 
1,328

 
1,593

Earnings from discontinued operations before income taxes
211

 
7

 
6

Income tax expense (benefit)
103

 
(11
)
 
(19
)
Earnings from continuing operations before equity in (losses) earnings of unconsolidated affiliates
108

 
18

 
25

Equity in losses of unconsolidated affiliates
(12
)
 
(22
)
 
(22
)
Net earnings (loss) from discontinued operations
96

 
(4
)
 
3

Less: Net (losses) earnings attributable to non-controlling interests
(13
)
 

 
16

Net earnings (loss) attributable to Fidelity National Financial, Inc. common shareholders
$
109

 
$
(4
)
 
$
(13
)
 
 
 
 
 
 
Cash flow from discontinued operations data:
 
 
 
 
 
Net cash (used in) provided by operations
$
(134
)
 
$
81

 
$
29

Net cash (used in) provided by investing activities
(11
)
 
67

 
166


















72

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

A summary of the financial position of FNFV included as assets and liabilities of discontinued operations is shown below:
 
December 31,
2016
 
(in millions)
Investments:
 
Fixed maturities available for sale, at fair value
$
25

Equity securities available for sale, at fair value
52

Investments in unconsolidated affiliates
407

Other long term investments
12

Short term investments
2

Total investments
498

Cash and cash equivalents
144

Trade and notes receivable
52

Goodwill
206

Prepaid expenses and other assets
33

Capitalized software, net
16

Deferred tax assets
58

Other intangible assets, net
200

Property and equipment, net
251

Total assets of discontinued operations
$
1,458

 
 
Accounts payable and accrued liabilities
$
214

Notes payable
233

Income taxes payable
18

Total liabilities of discontinued operations
$
465

As a result of the reclassification of the assets and liabilities of FNFV to assets and liabilities of discontinued operations, the deferred tax assets of FNFV, which were formerly netted with our consolidated deferred tax liability in our Condensed Consolidated Balance Sheet as of December 31, 2016, were reclassified to assets of discontinued operations resulting in an increase to both our assets and liabilities of $58 million as of December 31, 2016.
Reconciliation to Consolidated Financial Statements
A reconciliation of the net earnings of Black Knight and FNFV to the Statement of Operations is shown below:
 
Year Ended December 31,
 
2017
 
2016
 
2015
 
(in millions)
Earnings from discontinued operations attributable to Black Knight
$
59

 
$
74

 
$
57

Earnings (loss) from discontinued operations attributable to FNFV
96

 
(4
)
 
3

Total earnings from discontinued operations, net of tax
$
155

 
$
70

 
$
60










73

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

A reconciliation of the financial position of Black Knight and FNFV to the Balance Sheet is shown below:
 
December 31,
2016
 
(in millions)
Assets:
 
Assets of discontinued operations attributable to Black Knight
$
3,761

Assets of discontinued operations attributable to FNFV
1,458

Total assets of discontinued operations
$
5,219

Liabilities:
 
Liabilities of discontinued operations attributable to Black Knight
$
2,173

Liabilities of discontinued operations attributable to FNFV
465

Total liabilities of discontinued operations
$
2,638



Note H.  
Other Intangible Assets
Other intangible assets consist of the following:
 
December 31,
 
2017
 
2016
 
(In millions)
Customer relationships and contracts
$
860

 
$
748

Trademarks and tradenames
81

 
74

Computer software
357

 
324

 
1,298

 
1,146

Accumulated amortization
(680
)
 
(561
)
 
$
618

 
$
585


Amortization expense for amortizable intangible assets, which consist primarily of customer relationships and computer software, was $130 million, $110 million, and $103 million for the years ended December 31, 2017, 2016 and 2015, respectively. Estimated amortization expense for the next five years for assets owned at December 31, 2017, is $100 million in 2018, $93 million in 2019, $79 million in 2020, $64 million in 2021 and $50 million in 2022.

Note I. 
Accounts Payable and Other Accrued Liabilities
Accounts payable and other accrued liabilities consist of the following:
 
December 31,
 
2017
 
2016
 
(In millions)
Accrued benefits
$
254

 
$
245

Salaries and incentives
277

 
267

Accrued rent
22

 
19

Trade accounts payable
39

 
42

Accrued recording fees and transfer taxes
17

 
16

Accrued premium taxes
20

 
26

Deferred revenue
107

 
103

Other accrued liabilities
219

 
215

 
$
955

 
$
933



74

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

Note J.  
Notes Payable
Notes payable consists of the following:
 
 
December 31,
 
 
2017
 
2016
 
 
(In millions)
Unsecured notes, net of discount, interest payable semi-annually at 5.50%, due September 2022
 
$
397

 
$
397

Unsecured convertible notes, net of discount, interest payable semi-annually at 4.25%, due August 2018
 
65

 
291

Unsecured notes, net of discount, interest payable semi-annually at 6.60%, due May 2017
 

 
300

Revolving Credit Facility, unsecured, unused portion of $500 at December 31, 2017, due April 2022 with interest payable monthly at LIBOR + 1.40% (2.76% at December 31, 2017)
 
295

 
(3
)
Other
 
2

 
2

 
 
$
759

 
$
987

At December 31, 2017, the estimated fair value of our long-term debt was approximately $940 million, or $173 million higher than its carrying value, excluding $8 million of net unamortized debt issuance costs and premium/discount. The fair value of our unsecured notes payable was $638 million as of December 31, 2017. The fair values of our unsecured notes payable are based on established market prices for the securities on December 31, 2017 and are considered Level 2 financial liabilities. The carrying value of the Revolving Credit Facility approximates fair value at December 31, 2017, as it is a variable rate instrument with a short reset period (monthly) which reflects current market rates. The Revolving Credit Facility is considered a Level 2 financial liability.
On June 25, 2013, we entered into an agreement to amend and restate our existing $800 million Second Amended and Restated Credit Agreement (the “Existing Credit Agreement”), dated as of April 16, 2012 with Bank of America, N.A., as administrative agent (in such capacity, the “Administrative Agent”) and the other agents party thereto (the “Revolving Credit Facility”). On April 27, 2017, the Revolving Credit Facility was amended (the "Restated Credit Agreement") to extend the term for 5 years, from a maturity date of July 15, 2018 to April 27, 2022. Revolving loans under the credit facility generally bear interest at a variable rate based on either (i) the base rate (which is the highest of (a) 0.5% in excess of the federal funds rate, (b) the Administrative Agent's “prime rate”, or (c) the sum of 1% plus one-month LIBOR) plus a margin of between 10 and 60 basis points depending on the senior unsecured long-term debt ratings of FNF or (ii) LIBOR plus a margin of between 110 and 160 basis points depending on the senior unsecured long-term debt ratings of the Company. Based on our current Moody’s and Standard & Poor’s senior unsecured long-term debt ratings of Baa3/BBB, respectively, the applicable margin for revolving loans subject to LIBOR is 140 basis points. In addition, we pay a commitment fee of between 15 and 40 basis points on the entire facility, also depending on our senior unsecured long-term debt ratings. Under the Revolving Credit Facility, we are subject to customary affirmative, negative and financial covenants, including, among other things, limits on the creation of liens, limits on the incurrence of indebtedness, restrictions on investments, dispositions and transactions with affiliates, limitations on dividends and other restricted payments, a minimum net worth and a maximum debt to capitalization ratio.  The Revolving Credit Facility also includes customary events of default for facilities of this type (with customary grace periods, as applicable) and provides that, if an event of default occurs and is continuing, the interest rate on all outstanding obligations may be increased, payments of all outstanding loans may be accelerated and/or the lenders' commitments may be terminated. These events of default include a cross-default provision that, subject to limited exceptions, permits the lenders to declare the Revolving Credit Facility in default if: (i) (a) we fail to make any payment after the applicable grace period under any indebtedness with a principal amount (including undrawn committed amounts) in excess of 3.0% of our net worth, as defined in the Revolving Credit Facility, or (b) we fail to perform any other term under any such indebtedness, or any other event occurs, as a result of which the holders thereof may cause it to become due and payable prior to its maturity; or (ii) certain termination events occur under significant interest rate, equity or other swap contracts. In addition, upon the occurrence of certain insolvency or bankruptcy related events of default, all amounts payable under the Revolving Credit Facility shall automatically become immediately due and payable, and the lenders' commitments will automatically terminate. As of December 31, 2017, there is $295 million outstanding, net of $5 million in unamortized debt issuance costs, and $500 million of remaining borrowing capacity under the Revolving Credit Facility.
On August 28, 2012, we completed an offering of $400 million in aggregate principal amount of 5.50% notes due September 2022 (the "5.50% notes"), pursuant to an effective registration statement previously filed with the Securities and Exchange Commission. The notes were priced at 99.513% of par to yield 5.564% annual interest. The 5.50% notes will pay interest semi-annually on the 1st of March and September, beginning March 1, 2013. These notes contain customary covenants and events of default for investment grade public debt. These events of default include a cross default provision, with respect to any other debt of the Company in an aggregate amount exceeding $100 million for all such debt, arising from (i) failure to make a principal

75

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

payment when due or (ii) the occurrence of an event which results in such debt being due and payable prior to its scheduled maturity.
On August 2, 2011, we completed an offering of $300 million in aggregate principal amount of 4.25% convertible senior notes due August 2018 (the "Notes") in an offering conducted in accordance with Rule 144A under the Securities Act of 1933, as amended. The Notes contain customary event-of-default provisions which, subject to certain notice and cure-period conditions, can result in the acceleration of the principal amount of, and accrued interest on, all outstanding Notes if we breach the terms of the Notes or the indenture pursuant to which the Notes were issued. The Notes are unsecured and unsubordinated obligations and (i) rank senior in right of payment to any of our existing or future unsecured indebtedness that is expressly subordinated in right of payment to the Notes; (ii) rank equal in right of payment to our existing and future unsecured indebtedness that is not so subordinated; (iii) are effectively subordinated in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and (iv) are structurally subordinated to all existing and future indebtedness and liabilities of our subsidiaries. Interest is payable on the principal amount of the Notes, semi-annually in arrears in cash on February 15 and August 15 of each year, commencing February 15, 2012. The Notes mature on August 15, 2018, unless earlier purchased by us or converted. The Notes were issued for cash at 100% of their principal amount. However, for financial reporting purposes, the notes were deemed to have been issued at 92.818% of par value, and as such we recorded a discount of $22 million to be amortized to August 2018, when the Notes mature. The Notes will be convertible into cash, shares of common stock, or a combination of cash and shares of common stock, at our election, based on an initial conversion rate, subject to adjustment, of 46.387 shares per $1,000 principal amount of the Notes (which represents an initial conversion price of approximately $21.56 per share), only in the following circumstances and to the following extent: (i) during any calendar quarter commencing after December 31, 2011, if, for each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading day period ending on, and including, the last trading day of the immediately preceding calendar quarter, the last reported sale price per share of our common stock on such trading day is greater than or equal to 130% of the applicable conversion price on such trading day; (ii) during the five consecutive business day period immediately following any ten consecutive trading day period (the “measurement period”) in which, for each trading day of the measurement period, the trading price per $1,000 principal amount of notes was less than 98% of the product of the last reported sale price per share of our common stock on such trading day and the applicable conversion rate on such trading day; (iii) upon the occurrence of specified corporate transactions; or (iv) at any time on and after May 15, 2018. However, in all cases, the Notes will cease to be convertible at the close of business on the second scheduled trading day immediately preceding the maturity date. It is our intent and policy to settle conversions through “net-share settlement”. Generally, under “net-share settlement,” the conversion value is settled in cash, up to the principal amount being converted, and the conversion value in excess of the principal amount is settled in shares of our common stock. As of October 1, 2013, these notes were convertible under the 130% Sale Price Condition described above. During the year ended December 31, 2017, we repurchased Notes with aggregate principal of $230 million for $549 million.
      Gross principal maturities of notes payable at December 31, 2017 are as follows (in millions):
 
2018
$
66

2019

2020
1

2021

2022
700

Thereafter

 
$
767


Note K. 
Income Taxes
Income tax expense on continuing operations consists of the following:
 
Year Ended December 31,
 
2017
 
2016
 
2015
 
(In millions)
Current
$
476

 
$
333

 
$
275

Deferred
(241
)
 
14

 
(1
)
 
$
235

 
$
347

 
$
274


76

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)


Total income tax expense (benefit) was allocated as follows (in millions):
 
Year Ended December 31,
 
2017
 
2016
 
2015
Net earnings from continuing operations
$
235

 
$
347

 
$
274

Tax expense attributable to net earnings from discontinued operations
144

 
25

 
16

Other comprehensive earnings (loss):
 

 
 

 
 

Unrealized gain (loss) on investments and other financial instruments
25

 
29

 
(40
)
Unrealized gain (loss) on foreign currency translation and cash flow hedging
4

 
1

 
(7
)
Minimum pension liability adjustment
3

 
3

 
3

Total income tax expense (benefit) allocated to other comprehensive earnings
32

 
33

 
(44
)
Additional paid-in capital, stock-based compensation

 

 
(21
)
Total income taxes
$
411

 
$
405

 
$
225


A reconciliation of the federal statutory rate to our effective tax rate is as follows:
 
Year Ended December 31,
 
2017
 
2016
 
2015
Federal statutory rate
35.0
 %
 
35.0
 %
 
35.0
 %
State income taxes, net of federal benefit
1.8

 
2.8

 
3.0

Deductible dividends paid to FNF 401(k) plan
(0.2
)
 
(0.1
)
 
(0.2
)
Tax exempt interest income
(0.4
)
 
(0.5
)
 
(0.8
)
Stock compensation
(1.4
)
 
(1.7
)
 

Tax Credits
(0.1
)
 
(0.1
)
 
(0.1
)
Consolidated Partnerships

 
0.2

 
0.4

Tax reform
(10.7
)
 

 

Non-deductible expenses and other, net
3.2

 
0.8

 
(1.6
)
   Effective tax rate
27.2
 %
 
36.4
 %
 
35.7
 %





77

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

The significant components of deferred tax assets and liabilities at December 31, 2017 and 2016 consist of the following:
 
December 31,
 
2017
 
2016
 
(In millions)
Deferred Tax Assets:
 

 
 

Employee benefit accruals
$
68

 
$
36

Net operating loss carryforwards
9

 
22

Insurance reserve discounting
26

 

Accrued liabilities
10

 
18

Allowance for uncollectible accounts receivable
4

 

Pension plan
2

 
5

Tax credits
40

 
41

State income taxes
4

 
13

Other
1

 
3

Total gross deferred tax asset
164

 
138

Less: valuation allowance
22

 
10

Total deferred tax asset
$
142

 
$
128

Deferred Tax Liabilities:
 

 
 

Title plant
$
(55
)
 
$
(85
)
Amortization of goodwill and intangible assets
(113
)
 
(174
)
Other investments
(5
)
 
(4
)
Other
(13
)
 
(11
)
Investment securities
(41
)
 
(39
)
Depreciation
(9
)
 
(12
)
Partnerships
(75
)
 
(94
)
Insurance reserve discounting

 
(79
)
Total deferred tax liability
$
(311
)
 
$
(498
)
Net deferred tax liability
$
(169
)
 
$
(370
)
 
Our net deferred tax liability was $169 million and $370 million at December 31, 2017, and 2016, respectively. Deferred tax liability incurred a one-time reduction of $93 million which was primarily a result of the decrease in the corporate tax rate from 35% to 21% associated with the enactment of the Tax Cuts and Jobs Act of 2017 ("Tax Reform"). The significant changes in the deferred taxes are as follows: The increase in the deferred tax asset for employee benefit accruals is a $71 million increase in deferred compensation related to a change in accounting method offset by a $38 million decrease driven by Tax Reform. The deferred tax liability for insurance reserve discounting decreased by $119 million largely due to the redomestication of certain of our insurance underwriters in 2017, offset by an increase of $15 million attributable to Tax Reform. The deferred tax liability for title plant decreased by $30 million primarily due to Tax Reform. The deferred tax liability relating to partnerships decreased by $19 million primarily due to an increase of $23 million related to ServiceLink activity offset by a $42 million decrease driven by Tax Reform. The deferred tax liability on amortization decreased by $61 million primarily due to Tax Reform. The decrease in the deferred tax asset on net operating losses of $13 million is primarily attributable to usage of assets in the current year and Tax Reform.
We had a valuation allowance of $22 million and $10 million at December 31, 2017 and 2016, respectively. The increase in the valuation allowance is primarily attributable to Tax Reform which decreased the ability to use credit carryovers before they expire in future years.
SEC Staff Accounting Bulletin No. 118 ("SAB 118"), has provided guidance for companies that have not completed their accounting for the income tax effects of the Tax Reform in the period of enactment, allowing for a measurement period of up to one year after the enactment date to finalize the recording of the related tax impacts. As of December 31, 2017, we have not completed our accounting for the tax effects of the enactment of the Tax Reform, however, we have made a reasonable estimate

78

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

of the effects on our deferred tax balances. In other cases, we have not been able to make a reasonable estimate and will continue to analyze the Tax Reform in order to finalize any related impacts within the measurement period.
At December 31, 2017, we have net operating losses on a pretax basis of $36 million available to carryforward and offset future federal taxable income. The net operating losses are US federal net operating losses arising from acquisitions made since 2008, including CINC and are subject to an annual Internal Revenue Code Section 382 limitation.  These losses will begin to expire in year 2021 and we fully anticipate utilizing these losses prior to expiration with the exception of $3 million of gross net operating losses that are offset by a $1 million valuation allowance. 
At December 31, 2017 and 2016, we had $40 million and $41 million of tax credits, respectively. The credits primarily consist of general business credits from acquisitions in the Restaurant Group. We anticipate that these credits will be utilized prior to expiration after a valuation allowance of $21 million on the general business credits.
A tax benefit of $21 million associated with the exercise of employee stock options and the vesting of restricted stock grants was allocated to equity for the year ended December 31, 2015. For the years ended December 31, 2017 and 2016 we have recorded $13 million and $17 million in income tax benefit related to the tax effects associated with the exercise of stock options and vesting of restricted stock. Our adoption of ASU 2016-09 in 2016 resulted in a change in accounting for the tax-effects of stock-based compensation. Beginning January 1, 2016, the tax-effect of the difference in grant date and vest date fair value of stock-based compensation is included in total income tax expense (benefit).
 
As of December 31, 2017 and 2016, we had approximately $11 million (including interest of less than $1 million) and $18 million (including interest of less than $1 million), respectively, of total gross unrecognized tax benefits that, if recognized, would favorably affect our income tax rate. These amounts are reported on a gross basis and do not reflect a federal tax benefit on state income taxes. We record interest and penalties related to income taxes as a component of income tax expense.
The Internal Revenue Service (“IRS”) has selected us to participate in the Compliance Assurance Program that is a real-time audit. We are currently under audit by the Internal Revenue Service for the 2016 through 2018 tax years. We file income tax returns in various foreign and US state jurisdictions.

Note L.  
Summary of Reserve for Claim Losses
 A summary of the reserve for claim losses follows:
 
Year Ended December 31,
 
2017
 
2016
 
2015
 
(Dollars in millions)
Beginning balance
$
1,487

 
$
1,583

 
$
1,621

Change in reinsurance recoverable
(4
)
 
(8
)
 
1

Claim loss provision related to:
 

 
 

 
 

Current year
219

 
236

 
224

Prior years
19

 
(79
)
 
22

Total title claim loss provision
238

 
157

 
246

Claims paid, net of recoupments related to:
 

 
 

 
 

Current year
(8
)
 
(10
)
 
(7
)
Prior years
(223
)
 
(235
)
 
(278
)
Total title claims paid, net of recoupments
(231
)
 
(245
)
 
(285
)
Ending balance of claim loss reserve for title insurance
$
1,490

 
$
1,487

 
$
1,583

Provision for title insurance claim losses as a percentage of title insurance premiums
4.9
%
 
3.3
%
 
5.7
%

We continually update loss reserve estimates as new information becomes known, new loss patterns emerge, or as other contributing factors are considered and incorporated into the analysis of reserve for claim losses. Estimating future title loss payments is difficult because of the complex nature of title claims, the long periods of time over which claims are paid, significantly varying dollar amounts of individual claims and other factors.
In the quarter ended December 31, 2017, we reduced the current quarter provision for claims losses to 4.5%. During the quarter ended December 31, 2016, we released excess title reserves of $97 million in addition to reducing the provision for claims

79

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

losses for the quarter to 5.0%. In response to favorable development on recent year claims, the average provision rate has decreased in each of the years ended 2015, 2016, and 2017.
Due to the uncertainty inherent in the process and to the judgment used by management, the ultimate liability may be greater or less than our current reserves. If actual claims loss development varies from what is currently expected and is not offset by other factors, it is possible that our recorded reserves may fall outside a reasonable range of our actuary's central estimate, which may require additional reserve adjustments in future periods.

Note M.  
Commitments and Contingencies
Legal and Regulatory Contingencies
In the ordinary course of business, we are involved in various pending and threatened litigation matters related to our operations, some of which include claims for punitive or exemplary damages. With respect to our title insurance operations, this customary litigation includes but is not limited to a wide variety of cases arising out of or related to title and escrow claims, for which we make provisions through our loss reserves. Additionally, like other companies, our ordinary course litigation includes a number of class action and purported class action lawsuits, which make allegations related to aspects of our operations. We believe that no actions, other than the matters discussed below, if any, depart from customary litigation incidental to our business.
We review lawsuits and other legal and regulatory matters (collectively “legal proceedings”) on an ongoing basis when making accrual and disclosure decisions. When assessing reasonably possible and probable outcomes, management bases its decision on its assessment of the ultimate outcome assuming all appeals have been exhausted. For legal proceedings in which it has been determined that a loss is both probable and reasonably estimable, a liability based on known facts and which represents our best estimate has been recorded. Our accrual for legal and regulatory matters was $2 million and $68 million as of December 31, 2017 and 2016, respectively. During the quarter ended March 31, 2017, ServiceLink paid $65 million to settle all remaining obligations to complete the document execution review under the 2011 LPS consent order with certain banking agencies. Details of the consent order and the terms of the settlement are set forth in Note M Commitments and Contingencies to our Consolidated Financial Statements in our Annual Report for the year ended December 31, 2016. On January 12, 2018, the banking agencies entered an Order terminating the 2011 LPS consent order, having found ServiceLink attained full compliance. None of the amounts we have currently recorded are considered to be material to our financial condition individually or in the aggregate. Actual losses may materially differ from the amounts recorded and the ultimate outcome of our pending legal proceedings is generally not yet determinable. While some of these matters could be material to our operating results or cash flows for any particular period if an unfavorable outcome results, at present we do not believe that the ultimate resolution of currently pending legal proceedings, either individually or in the aggregate, will have a material adverse effect on our financial condition.
From time to time we receive inquiries and requests for information from state insurance departments, attorneys general and other regulatory agencies about various matters relating to our business. Sometimes these take the form of civil investigative demands or subpoenas. We cooperate with all such inquiries and we have responded to or are currently responding to inquiries from multiple governmental agencies. Also, regulators and courts have been dealing with issues arising from foreclosures and related processes and documentation. Various governmental entities are studying the title insurance product, market, pricing, and business practices, and potential regulatory and legislative changes, which may materially affect our business and operations. From time to time, we are assessed fines for violations of regulations or other matters or enter into settlements with such authorities which may require us to pay fines or claims or take other actions.
Escrow Balances
In conducting our operations, we routinely hold customers’ assets in escrow, pending completion of real estate transactions, and are responsible for the proper disposition of these balances for our customers. Certain of these amounts are maintained in segregated bank accounts and have not been included in the accompanying Consolidated Balance Sheets, consistent with Generally Accepted Accounting Principles and industry practice. These balances amounted to $15.4 billion at December 31, 2017. As a result of holding these customers’ assets in escrow, we have ongoing programs for realizing economic benefits during the year through favorable borrowing and vendor arrangements with various banks. There were no investments or loans outstanding as of December 31, 2017 and 2016 related to these arrangements.

80

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

Operating Leases
      Future minimum operating lease payments are as follows (in millions):
 
2018
$
150

2019
127

2020
98

2021
71

2022
46

Thereafter
44

Total future minimum operating lease payments
$
536


Rent expense incurred under operating leases during the years ended December 31, 2017, 2016 and 2015 was $144 million, $128 million, and $122 million, respectively. Rent expense in 2017, 2016, and 2015 includes abandoned lease charges related to office closures of $1 million.

Note N.      Regulation and Equity
Regulation
Our insurance subsidiaries, including title insurers, underwritten title companies and insurance agencies, are subject to extensive regulation under applicable state laws. Each of the insurance underwriters is subject to a holding company act in its state of domicile which regulates, among other matters, the ability to pay dividends and enter into transactions with affiliates. The laws of most states in which we transact business establish supervisory agencies with broad administrative powers relating to issuing and revoking licenses to transact business, regulating trade practices, licensing agents, approving policy forms, accounting practices, financial practices, establishing reserve and capital and surplus as regards policyholders (“capital and surplus”) requirements, defining suitable investments for reserves and capital and surplus and approving rate schedules. The process of state regulation of changes in rates ranges from states which set rates, to states where individual companies or associations of companies prepare rate filings which are submitted for approval, to a few states in which rate changes do not need to be filed for approval.
Since we are regulated by both state and federal governments and the applicable insurance laws and regulations are constantly subject to change, it is not possible to predict the potential effects on our insurance operations, particularly the Title segment, of any laws or regulations that may become more restrictive in the future or if new restrictive laws will be enacted.
Pursuant to statutory accounting requirements of the various states in which our insurers are domiciled, these insurers must defer a portion of premiums earned as an unearned premium reserve for the protection of policyholders and must maintain qualified assets in an amount equal to the statutory requirements. The level of unearned premium reserve required to be maintained at any time is determined by statutory formula based upon either the age, number of policies and dollar amount of policy liabilities underwritten, or the age and dollar amount of statutory premiums written. As of December 31, 2017, the combined statutory unearned premium reserve required and reported for our title insurers was $1,400 million. In addition to statutory unearned premium reserves, each of our insurers maintains reserves for known claims and surplus funds for policyholder protection and business operations.
Each of our insurance subsidiaries is regulated by the insurance regulatory authority in its respective state of domicile, as well as that of each state in which it is licensed. The insurance commissioners of their respective states of domicile are the primary regulators of our title insurance subsidiaries. Each of the insurers is subject to periodic regulatory financial examination by regulatory authorities.
Our insurance subsidiaries are subject to regulations that restrict their ability to pay dividends or make other distributions of cash or property to their immediate parent company without prior approval from the Department of Insurance of their respective states of domicile. As of December 31, 2017, $1,700 million of our net assets are restricted from dividend payments without prior approval from the Departments of Insurance. During 2018, our title insurers can pay or make distributions to us of approximately $363 million, without prior approval.
The combined statutory capital and surplus of our title insurers was approximately $1,389 million and $1,469 million as of December 31, 2017 and 2016, respectively. The combined statutory net earnings of our title insurance subsidiaries were $434 million, $541 million, and $381 million for the years ended December 31, 2017, 2016, and 2015, respectively.
Statutory-basis financial statements are prepared in accordance with accounting practices prescribed or permitted by the various state insurance regulatory authorities. The National Association of Insurance Commissioners' (“NAIC”) Accounting

81

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

Practices and Procedures manual (“NAIC SAP”) has been adopted as a component of prescribed or permitted practices by each of the states that regulate us. Each of our states of domicile for our title insurance underwriter subsidiaries have adopted a material prescribed accounting practice that differs from that found in NAIC SAP. Specifically, in both years the timing of amounts released from the statutory unearned premium reserve under NAIC SAP differs from the states' required practice. Statutory surplus at December 31, 2017 and 2016, respectively, was lower by approximately $28 million and $207 million than if we had reported such amounts in accordance with NAIC SAP. The decrease at December 31, 2017 from 2016 is primarily attributable to the Redomestication.
As a condition to continued authority to underwrite policies in the states in which our insurers conduct their business, the insurers are required to pay certain fees and file information regarding their officers, directors and financial condition. In addition, our escrow and trust business is subject to regulation by various state banking authorities.
 Pursuant to statutory requirements of the various states in which our insurers are domiciled, such insurers must maintain certain levels of minimum capital and surplus. Required levels of minimum capital and surplus are not significant to the insurers individually or in the aggregate. Each of our insurers has complied with the minimum statutory requirements as of December 31, 2017.
 Our underwritten title companies are also subject to certain regulation by insurance regulatory or banking authorities, primarily relating to minimum net worth. Minimum net worth requirements for each underwritten title company is less than $1 million. These companies were in compliance with their respective minimum net worth requirements at December 31, 2017.
There are no restrictions on our retained earnings regarding our ability to pay dividends to shareholders although there are limits on the ability of certain subsidiaries to pay dividends to us, as described above.
Equity
On July 20, 2015, our Board of Directors approved a three-year stock repurchase program under which we can purchase up to 25 million shares of our FNF Group common stock through July 30, 2018. We may make repurchases from time to time in the open market, in block purchases or in privately negotiated transactions, depending on market conditions and other factors. Since the original commencement of the plan, we have repurchased a total of 10,589,000 FNF common shares for $372 million, or an average of $35.10 per share, and there are 14,411,000 shares available to be repurchased under this program.
Note O.  
Employee Benefit Plans 
Stock Purchase Plan
During the three-year period ended December 31, 2017, our eligible employees could voluntarily participate in employee stock purchase plans (“ESPPs”) sponsored by us and our subsidiaries. Pursuant to the ESPPs, employees may contribute an amount between 3% and 15% of their base salary and certain commissions. We contribute varying amounts as specified in the ESPPs.
We contributed $23 million, $20 million, and $18 million to the ESPPs in the years ended December 31, 2017, 2016, and 2015, respectively, in accordance with the employer’s matching contribution.
401(k) Profit Sharing Plan
During the three-year period ended December 31, 2017, we have offered our employees the opportunity to participate in our 401(k) profit sharing plans (the “401(k) Plan”), qualified voluntary contributory savings plans which are available to substantially all of our employees. Eligible employees may contribute up to 40% of their pretax annual compensation, up to the amount allowed pursuant to the Internal Revenue Code. We make an employer match on the 401(k) Plan of $0.375 on each $1.00 contributed up to the first 6% of eligible earnings contributed to the 401(k) Plan by employees. The employer match for the years ended December 31, 2017, 2016 and 2015 was $26 million, $26 million and $23 million, respectively, that was credited based on the participant's individual investment elections in the FNF 401(k) Plan.
Omnibus Incentive Plan
In 2005, we established the FNT 2005 Omnibus Incentive Plan (the “Omnibus Plan”) authorizing the issuance of up to 8 million shares of common stock, subject to the terms of the Omnibus Plan. On October 23, 2006; May 29, 2008; May 25, 2011; May 22, 2013; and June 15, 2016 the shareholders of FNF approved amendments to increase the number of shares for issuance under the Omnibus Plan by 16 million, 11 million, 6 million, 6 million and 10 million shares, respectively. The primary purpose of the increases were to assure that we had adequate means to provide equity incentive compensation to our employees on a going-forward basis. The Omnibus Plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units and performance shares, performance units, other cash and stock-based awards and dividend equivalents. As of December 31, 2017, there were 1,839,061 shares of restricted stock and 8,529,427 stock options outstanding under this plan. Awards granted are approved by the Compensation Committee of the Board of Directors. Options vest over a 3 year period and have a contractual life of 7 years. The exercise price for options granted equals the market price of the underlying stock on the

82

Table of Contents

grant date. Stock option grants vest according to certain time based and operating performance criteria. Option exercises by participants are settled on the open market.
FNF stock option transactions under the Omnibus Plan for 2015, 2016, and 2017 are as follows:
 
Options
 
Weighted Average
Exercise Price
 
Exercisable
Balance, December 31, 2014
9,393,211

 
$
19.43

 
5,173,802

Granted
1,886,320

 
34.84

 
 

Exercised
(1,966,937
)
 
12.96

 
 

Canceled
(12,085
)
 
26.62

 
 

Balance, December 31, 2015
9,300,509

 
$
23.92

 
5,256,426

Granted
35,000

 
35.63

 
 

Exercised
(1,846,153
)
 
10.12

 
 

Canceled
(7,673
)
 
26.17

 
 

Balance, December 31, 2016
7,481,683

 
$
27.38

 
5,821,592

Options issued as make-whole adjustment for BK Distribution
2,375,111

 
20.32

 
 
Exercised
(1,313,061
)
 
18.38

 
 

Canceled
(14,306
)
 
24.49

 
 

Balance, December 31, 2017
8,529,427

 
$
20.38

 
7,648,837


FNF restricted stock transactions under the Omnibus Plan in 2015, 2016, and 2017 are as follows:
 
 
 
 
 
Shares
 
Weighted Average Grant Date Fair Value
Balance, December 31, 2014
1,770,781

 
$
25.08

Granted
613,960

 
34.84

Canceled
(10,105
)
 
26.14

Vested
(982,762
)
 
23.00

Balance, December 31, 2015
1,391,874

 
$
30.85

Granted
803,292

 
34.54

Canceled
(3,266
)
 
28.07

Vested
(720,227
)
 
28.97

Balance, December 31, 2016
1,471,673

 
$
33.79

Granted
828,818

 
37.12

Restricted stock issued as make-whole adjustment for BK Distribution
545,676

 
24.62

Canceled
(11,233
)
 
24.52

Vested
(995,873
)
 
23.98

Balance, December 31, 2017
1,839,061

 
$
30.58




83

Table of Contents

The following table summarizes information related to stock options outstanding and exercisable as of December 31, 2017:
 
Options Outstanding
 
Options Exercisable
 
 
 
Weighted
 
 
 
 
 
 
 
Weighted
 
 
 
 
 
 
 
Average
 
Weighted
 
 
 
 
 
Average
 
Weighted
 
 
 
 
 
Remaining
 
Average
 
 
 
 
 
Remaining
 
Average
 
 
Range of
Number of
 
Contractual
 
Exercise
 
Intrinsic
 
Number of
 
Contractual
 
Exercise
 
Intrinsic
Exercise Prices
Options
 
Life
 
Price
 
Value
 
Options
 
Life
 
Price
 
Value
 
 
 
(In years)
 
 
 
(In millions)
 
 
 
(In years)
 
 
 
(In millions)
$0.00 — $14.38
662,763

 
1.85
 
$
14.38

 
$
16

 
662,763

 
1.85
 
$
14.38

 
$
16

$14.39 — $17.76
4,070,183

 
2.89
 
17.76

 
87

 
4,070,183

 
2.89
 
17.76

 
87

$17.77 — $21.84
1,342,007

 
3.84
 
21.84

 
23

 
1,342,007

 
3.84
 
21.84

 
23

$21.85 — $25.34
13,648

 
5.98
 
25.34

 

 
4,549

 
5.98
 
25.34

 

$25.35 — $25.53
2,422,627

 
4.83
 
25.53

 
33

 
1,569,335

 
4.83
 
25.53

 
22

$25.54 — $26.99
18,199

 
5.55
 
26.99

 

 

 
0
 

 

 
8,529,427

 
 
 
 
 
$
159

 
7,648,837

 
 
 
 
 
$
148


We account for stock-based compensation plans in accordance with GAAP on share-based payments, which requires that compensation cost relating to share-based payments be recognized in the consolidated financial statements based on the fair value of each award. Using the fair value method of accounting, compensation cost is measured based on the fair value of the award at the grant date and recognized over the service period. Fair value of restricted stock awards and units is based on the grant date value of the underlying stock derived from quoted market prices. The total fair value of restricted stock awards granted in the years ended December 31, 2017, 2016 and 2015 was $31 million,$29 million, and $21 million, respectively. The total fair value of restricted stock awards which vested in the years ended December 31, 2017, 2016 and 2015 was $38 million, $25 million, and $35 million, respectively. Option awards are measured at fair value on the grant date using the Black Scholes Option Pricing Model. The intrinsic value of options exercised in the years ended December 31, 2017, 2016 and 2015 was $25 million, $46 million, and $47 million, respectively. Net earnings attributable to FNF Shareholders reflects stock-based compensation expense amounts of $44 million for the year ended December 31, 2017, $58 million for the year ended December 31, 2016, and $56 million for the year ended December 31, 2015, which are included in personnel costs in the reported financial results of each period.
At December 31, 2017, the total unrecognized compensation cost related to non-vested stock option grants and restricted stock grants is $56 million, which is expected to be recognized in pre-tax income over a weighted average period of 1.65 years. 
Pension Plans
In 2000, FNF merged with Chicago Title Corporation ("Chicago Title"). In connection with the merger, we assumed Chicago Title’s noncontributory defined contribution plan and noncontributory defined benefit pension plan (the “Pension Plan”). The Pension Plan covers certain Chicago Title employees. The benefits are based on years of service and the employee’s average monthly compensation in the highest 60 consecutive calendar months during the 120 months ending at retirement or termination. Effective December 31, 2000, the Pension Plan was frozen and there will be no future credit given for years of service or changes in salary. The accumulated benefit obligation is the same as the projected benefit obligation due to the pension plan being frozen as of December 31, 2000. Pursuant to GAAP on employers’ accounting for defined benefit pension and other post retirement plans, the measurement date is December 31.
The net pension liability included in Accounts payable and other accrued liabilities as of December 31, 2017, and 2016 was $4 million and $11 million, respectively. The discount rate used to determine the benefit obligation as of the years ended December 31, 2017 and 2016 was 3.34% and 3.54%, respectively. As of the years ended December 31, 2017 and 2016 the projected benefit obligation was $166 million and $168 million, respectively, and the fair value of plan assets was $162 million and $157 million, respectively. The net periodic expense included in the results of operations relating to these plans was $5 million, $6 million, and $8 million for the years ended December 31, 2017, 2016, and 2015, respectively.
Postretirement and Other Nonqualified Employee Benefit Plans
We assumed certain health care and life insurance benefits for retired Chicago Title employees in connection with the FNF merger with Chicago Title. Beginning on January 1, 2001, these benefits were offered to all employees who met specific eligibility requirements. Additionally, in connection with the acquisition of LandAmerica Financial Group's two principal title insurance underwriters, Commonwealth Land Title Insurance Company and Lawyers Title Insurance Corporation, as well as United Capital Title Insurance Company (collectively, the "LFG Underwriters"), we assumed certain of the LFG Underwriters' nonqualified benefit plans, which provide various postretirement benefits to certain executives and retirees. The costs of these benefit plans are accrued during the periods the employees render service. We are both self-insured and fully insured for postretirement health care

84

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

and life insurance benefit plans, and the plans are not funded. The health care plans provide for insurance benefits after retirement and are generally contributory, with contributions adjusted annually. Postretirement life insurance benefits are primarily contributory, with coverage amounts declining with increases in a retiree’s age. The aggregate benefit obligation for these plans was $13 million at December 31, 2017 and $14 million at December 31, 2016. The net costs relating to these plans were immaterial for the years ended December 31, 2017, 2016, and 2015.

Note P.  
Supplementary Cash Flow Information
The following supplemental cash flow information is provided with respect to interest and tax payments, as well as certain non-cash investing and financing activities.
 
 
Year Ended December 31,
 
 
2017
 
2016
 
2015
 
 
(In millions)
Cash paid during the year:
 
 

 
 

 
 

Interest
 
$
102

 
$
125

 
$
124

Income taxes
 
528

 
367

 
250

 
 
 
 
 
 
 
Non-cash investing and financing activities:
 
 

 
 

 
 

Investing activities:
 
 
 
 
 
 
Change in proceeds of sales of investments available for sale receivable in period
 
$
3

 
$
7

 
$
(25
)
Change in purchases of investments available for sale payable in period
 
(9
)
 
19

 
(2
)
 
 
 
 
 
 
 
Financing activities:
 
 
 
 
 
 
Liabilities assumed in connection with acquisitions (1):
 
 

 
 

 
 

Fair value of net assets acquired
 
$
595

 
$
625

 
$
155

Less: Total purchase price
 
481

 
557

 
111

Liabilities and noncontrolling interests assumed
 
$
114

 
$
68

 
$
44

Change in treasury stock purchases payable in period
 
$

 
$
8

 
$
(7
)
_____________________________________
(1) See Note B Acquisitions for further discussion of assets and liabilities acquired in business combinations in the current year.

Note Q.      Financial Instruments with Off-Balance Sheet Risk and Concentration of Risk
Title
 In the normal course of business we and certain of our subsidiaries enter into off-balance sheet credit arrangements associated with certain aspects of the title insurance business and other activities.
We generate a significant amount of title insurance premiums in California, Texas, Florida and New York. Title insurance premiums as a percentage of the total title insurance premiums written from those four states are detailed as follows:
 
2017
 
2016
 
2015
California
14.5
%
 
14.6
%
 
15.1
%
Texas
14.2
%
 
14.2
%
 
14.4
%
Florida
8.0
%
 
7.7
%
 
8.1
%
New York
6.3
%
 
7.1
%
 
8.1
%

Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash equivalents, short-term investments, and trade receivables.
We place cash equivalents and short-term investments with high credit quality financial institutions and, by policy, limit the amount of credit exposure with any one financial institution. Investments in commercial paper of industrial firms and financial institutions are rated investment grade by nationally recognized rating agencies.

85

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

Concentrations of credit risk with respect to trade receivables are limited because a large number of geographically diverse customers make up our customer base, thus spreading the trade receivables credit risk. We control credit risk through monitoring procedures.
Note R.      Segment Information
On September 29, 2017, we completed the BK Distribution. As a result, Black Knight is no longer a reportable segment and the historical results of Black Knight are presented as discontinued operations for all periods presented and are excluded from the following tables. Refer to Note G Discontinued Operations for further discussion of the results of Black Knight.
On November 17, 2017, we completed the FNFV Split-off. As a result, FNFV is no longer a reportable segment and the historical results of FNFV are presented as discontinued operations for all periods presented and are excluded from the following tables. Refer to Note G Discontinued Operations for further discussion of the results of FNFV.
Summarized financial information concerning our reportable segments is shown in the following tables. There are certain intercompany corporate related arrangements between our various businesses. The effects of these arrangements including intercompany notes and related interest and any other non-operational intercompany revenues and expenses have been eliminated in the segment presentations below.

As of and for the year ended December 31, 2017:
 
Title
 
Corporate and Other
 
Total FNF
 
(In millions)
Title premiums
$
4,893

 
$

 
$
4,893

Other revenues
2,181

 
456

 
2,637

Revenues from external customers
7,074

 
456

 
7,530

Interest and investment income (loss), including realized gains and losses
137

 
(4
)
 
133

Total revenues
7,211

 
452

 
7,663

Depreciation and amortization
159

 
24

 
183

Interest expense

 
48

 
48

Earnings (loss) from continuing operations, before income taxes and equity in earnings of unconsolidated affiliates
955

 
(91
)
 
864

Income tax expense (benefit)
274

 
(39
)
 
235

Earnings (loss) from continuing operations, before equity in earnings of unconsolidated affiliates
681

 
(52
)
 
629

Equity in earnings of unconsolidated affiliates
10

 

 
10

Earnings (loss) from continuing operations
$
691

 
$
(52
)
 
$
639

Assets
$
8,405

 
$
746

 
$
9,151

Goodwill
2,432

 
314

 
2,746



86

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

As of and for the year ended December 31, 2016:
 
Title
 
Corporate and Other
 
Total FNF
 
(In millions)
Title premiums
$
4,723

 
$

 
$
4,723

Other revenues
2,128

 
288

 
2,416

Revenues from external customers
6,851

 
288

 
7,139

Interest and investment income (loss), including realized gains and losses
127

 
(9
)
 
118

Total revenues
6,978

 
279

 
7,257

Depreciation and amortization
148

 
12

 
160

Interest expense

 
64

 
64

Earnings (loss) from continuing operations, before income taxes and equity in earnings of unconsolidated affiliates
1,025

 
(70
)
 
955

Income tax expense (benefit)
386

 
(39
)
 
347

Earnings (loss) from continuing operations, before equity in earnings of unconsolidated affiliates
639

 
(31
)
 
608

Equity in earnings of unconsolidated affiliates
13

 
1

 
14

Earnings (loss) from continuing operations
$
652

 
$
(30
)
 
$
622

Assets
$
8,756

 
$
5,765

 
$
14,521

Goodwill
2,345

 
210

 
2,555



As of and for the year ended December 31, 2015:
 
Title
 
Corporate and Other
 
Total FNF
 
(In millions)
Title premiums
$
4,286

 
$

 
$
4,286

Other revenues
2,005

 
241

 
2,246

Revenues from external customers
6,291

 
241

 
6,532

Interest and investment income (loss), including realized gains and losses
137

 
(5
)
 
132

Total revenues
6,428

 
236

 
6,664

Depreciation and amortization
144

 
6

 
150

Interest expense

 
73

 
73

Earnings (loss) from continuing operations, before income taxes and equity in earnings (loss) of unconsolidated affiliates
836

 
(66
)
 
770

Income tax expense (benefit)
305

 
(31
)
 
274

Earnings (loss) from continuing operations, before equity in earnings (loss) of unconsolidated affiliates
531

 
(35
)
 
496

Equity in earnings (loss) of unconsolidated affiliates
6

 
(1
)
 
5

Earnings (loss) from continuing operations
$
537

 
$
(36
)
 
$
501

Assets
$
8,533

 
$
5,510

 
$
14,043

Goodwill
2,303

 
45

 
2,348


The activities in our segments include the following:
Title. This segment consists of the operations of our title insurance underwriters and related businesses. This segment provides core title insurance and escrow and other title-related services including trust activities, trustee sales guarantees, recordings and reconveyances, and home warranty products. This segment also includes our transaction services business, which includes other title-related services used in the production and management of mortgage loans, including mortgage loans that experience default.
Corporate and Other. This segment consists of the operations of the parent holding company, our various real estate brokerage businesses, and CINC and other real estate technology subsidiaries. This segment also includes certain other unallocated corporate overhead expenses and eliminations of revenues and expenses between it and our Title segment. This segment also includes the assets of discontinued operations, Black Knight and FNFV, as of December 31, 2016 and 2015. Refer to Note G. Discontinued Operations for further information.

87

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

Note S.  
Recent Accounting Pronouncements
Revenue Recognition
In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU provides a new comprehensive revenue recognition model that requires companies to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. This update also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. This update permits the use of either the retrospective or cumulative effect transition method. ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations was issued by FASB in March 2016 to clarify the principal versus agent considerations within ASU 2014-09. ASU 2016-10 Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing was issued by the FASB in April 2016 to clarify how to determine whether goods and services are separately identifiable and thus accounted for as separate performance obligations. ASU 2016-12 Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients was issued by the FASB in May 2016 to clarify certain terms from the aforementioned updates and to add practical expedients for contracts at various stages of completion. ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, was issued by the FASB in December 2016 which includes thirteen technical corrections and improvements affecting narrow aspects of the guidance issued in ASU 2014-09.
We have completed our analysis of the impact of the standards and have concluded that these standards will not have a material impact on our accounting or reporting. 
Upon issuance of ASU 2015-14, the effective date of ASU 2014-09 was deferred to annual and interim periods beginning on or after December 15, 2017. We will adopt the guidance on January 1, 2018. Either of the following transition methods is permitted: (i) a full retrospective approach reflecting the application of the new standard in each prior reporting period, or (ii) a modified retrospective approach with a cumulative-effect adjustment to the opening balance of retained earnings in the year the new standard is first applied. We plan to transition to this new guidance using the modified retrospective approach.
Other Pronouncements
In January 2016, the FASB issued ASU No. 2016-01 Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The primary amendments required by the ASU include: requiring equity investments with readily determinable fair values to be measured at fair value through net income rather than through other comprehensive income; allowing entities with equity investments without readily determinable fair values to report the investments at cost, adjusted for changes in observable prices, less impairment; requiring entities that elect the fair value option for financial liabilities to report the change in fair value attributable to instrument-specific credit risk in other comprehensive income; and clarifying that entities should assess the need for a valuation allowance on a deferred tax asset related to available-for-sale debt securities in combination with other deferred tax assets. The amendments in this ASU are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The ASU requires a cumulative-effect adjustment of the balance sheet as of the beginning of the year of adoption. Early adoption of the ASU is not permitted, except for the provision related to financial liabilities for which the fair value option has been elected. We have completed our evaluation of the effects this new guidance will have on our consolidated financial statements and related disclosures and have determined that the ASU will result in: (1) reclassification of our unrealized gains and losses on our equity and preferred securities available for sale currently included in accumulated other comprehensive income to beginning retained earnings as of January 1, 2018 and (2) changes in fair value of our equity and preferred securities available for sale subsequent to January 1, 2018 to be included in our earnings from continuing operations. As of December 31, 2017, we held equity and preferred securities available for sale with combined net unrealized gains (net of losses) of $164 million and $12 million, respectively. Including the associated effects of deferred taxes, based on the net of tax balances as of December 31, 2017, we expect to reclassify a total of approximately $109 million from Accumulated other comprehensive income to beginning Retained earnings as of January 1, 2018.
In February 2016, the FASB issued ASU No. 2016-02 Leases (Topic 842). The amendments in this ASU introduce broad changes to the accounting and reporting for leases by lessees. The main provisions of the new standard include: clarifications to the definitions of a lease, components of leases, and criteria for determining lease classification; requiring virtually all leased assets, including operating leases and related liabilities, to be reflected on the lessee's balance sheet; and expanding and adding to the required disclosures for lessees. This update is effective for annual and interim periods beginning after December 15, 2018, including interim periods within those fiscal years. Early application of the standard is permitted. The ASU requires a modified retrospective approach to transitioning which allows for the use of practical expedients to effectively account for leases commenced prior to the effective date in accordance with previous GAAP, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP. We are still evaluating the totality of the effects this new guidance

88

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

will have on our business process and systems, consolidated financial statements, related disclosures. We have identified a vendor with software suited to track and account for leases under the new standard. We have not concluded on the anticipated financial statement effects of adoption. We plan to adopt this standard on January 1, 2019. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13 Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. The amendments in this ASU introduce broad changes to accounting for credit impairment of financial instruments. The primary updates include the introduction of a new current expected credit loss ("CECL") model that is based on expected rather than incurred losses and amendments to the accounting for impairment of debt securities available for sale. This update is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. We are currently evaluating the effect this new guidance will have on our consolidated financial statements and related disclosures and have not yet concluded on its effects. We do not plan to early adopt the standard.
In August 2016, the FASB issued ASU No. 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The amendments in this ASU introduce clarifications to the presentation of certain cash receipts and cash payments in the statement of cash flows. The primary updates include additions and clarifications of the classification of cash flows related to certain debt repayment activities, contingent consideration payments related to business combinations, proceeds from insurance policies, distributions from equity method investees, and cash flows related to securitized receivables. This update is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption of this ASU is permitted, including in interim periods. The ASU requires retrospective application to all prior periods presented upon adoption. We will adopt this ASU on January 1, 2018 and based on our preliminary analysis, we do not expect the adoption of this ASU to have a material impact on our resulting operating, investing, or financing cash flows.
In November 2016, the FASB issued ASU No. 2016-18 Statement of Cash Flows (Topic 230): Restricted Cash. The amendments in this ASU require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. GAAP currently does not include specific guidance on the cash flow classification and presentation of changes in restricted cash. The Company currently excludes cash pledged related to secured trust deposits, which generally meets the definition of restricted cash, from the reconciliation of beginning-of-period to end-of-period total amounts shown on the statement of cash flows. This update is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption of this ASU is permitted, including in interim periods. The ASU requires retrospective application to all prior periods presented upon adoption. We will adopt this ASU on January 1, 2018. Based on our preliminary analysis, we expect the adoption of this ASU to result in the movement of the change in our cash pledged against secured trust deposits from operating activities to the net change in cash, the change in investments pledged against secured trust deposits from operating to investing activities, and the change in secured trust deposits from operating to financing activities.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business to assist companies with evaluating whether transactions should be accounted for as acquisitions of assets or businesses. The new guidance requires a company to evaluate if substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of assets and activities is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in the guidance for revenue from contracts with customers. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. The guidance should be applied prospectively to any transactions occurring within the period of adoption. We will adopt this ASU on January 1, 2018. Based on our historical acquisition activity, we do not expect this to have a material impact on our ongoing accounting or financial reporting.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.  The guidance simplifies the measurement of goodwill impairment by removing step 2 of the goodwill impairment test, which requires the determination of the fair value of individual assets and liabilities of a reporting unit.  The new guidance requires goodwill impairment to be measured as the amount by which a reporting unit’s carrying value exceeds its fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The amendments should be applied on a prospective basis.  The new standard is effective for fiscal years beginning after December 15, 2019 with early adoption permitted for interim or annual goodwill impairment tests performed after January 1, 2017. We are currently evaluating the effect this new guidance will have on our consolidated financial statements and related disclosures and have not yet concluded on its effects.
In March 2017, the FASB issued ASU No. 2017-08, Receivables-Nonrefundable Fees and Other Costs (Topic 310-20): Premium Amortization on Purchased Callable Debt Securities. The amendments in this ASU shortens the amortization period for

89

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

the premium on certain purchased callable debt securities to the earliest call date. The new guidance does not change the accounting for purchased callable debt securities held at a discount. This update is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption of this ASU is permitted, including in interim periods. We early adopted the standard as of January 1, 2017. The adoption of this standard did not have a material impact on our financial statements.


90

Table of Contents

Item 9. 
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. 
Controls and Procedures
As of the end of the year covered by this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as such term is defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Act is: (a) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms; and (b) accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f) or 15d-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting. Management has adopted the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our evaluation under this framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2017. The effectiveness of our internal control over financial reporting as of December 31, 2017 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included herein.
Item 9B.
Other Information
None.

91

Table of Contents

PART III
Items 10-14.
 Within 120 days after the close of our fiscal year, we intend to file with the Securities and Exchange Commission the matters required by these items.

92

Table of Contents

PART IV
Item 15.
Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Financial Statements.  The following is a list of the Consolidated Financial Statements of Fidelity National Financial, Inc. and its subsidiaries included in Item 8 of Part II:
(a) (2) Financial Statement Schedules.   The following is a list of financial statement schedules filed as part of this annual report on Form 10-K:
Schedule II: Fidelity National Financial, Inc. (Parent Company Financial Statements)
Schedule V: Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or not required, or because the required information is included in the Consolidated Financial Statements or notes thereto.

93

Table of Contents

(a) (3) The following exhibits are incorporated by reference or are set forth on pages to this Form 10-K:
Exhibit
Number
Description
 
 
2.1
2.2
2.3

2.4

2.5
3.1
3.2
4.1
4.2
4.3
4.4
4.5
4.6
4.7
10.1
10.2
10.3
10.4
10.5
10.6

94

Table of Contents

Exhibit
Number
Description
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27


95

Table of Contents

Exhibit
Number
Description
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
21.1
23.1
23.2
31.1
31.2
32.1
32.2
101
The following materials from Fidelity National Financial, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2017, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Earnings, (iii) the Consolidated Statements of Comprehensive Earnings, (iv) the Consolidated Statements of Stockholders' Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements.

(1) A management or compensatory plan or arrangement required to be filed as an exhibit to this report pursuant to Item 15(c) of Form 10-K 

96

Table of Contents

SIGNATURES  
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
Fidelity National Financial, Inc.
 
 
By: 
/s/  Raymond R. Quirk
 
 
 
Raymond R. Quirk
 
 
 
Chief Executive Officer and Director
 
 
 
 
Date: February 23, 2018

      Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
 
 
 
 
 
Signature
 
Title
 
Date
 
 
 
 
 
/s/  Raymond R. Quirk
 
Chief Executive Officer and Director
 
February 23, 2018
Raymond R. Quirk
 
(Principal Executive Officer)
 
 
 
 
 
 
 
/s/  Anthony J. Park
 
Chief Financial Officer
 
February 23, 2018
Anthony J. Park
 
(Principal Financial and Accounting Officer)
 
 
 
 
 
 
 
/s/  William P. Foley, II
 
Director and Chairman of the Board
 
February 23, 2018
William P. Foley, II
 
 
 
 
 
 
 
 
 
/s/  Douglas K. Ammerman
 
Director
 
February 23, 2018
Douglas K. Ammerman
 
 
 
 
 
 
 
 
 
/s/  Willie D. Davis
 
Director
 
February 23, 2018
Willie D. Davis
 
 
 
 
 
 
 
 
 
/s/  Thomas M. Hagerty
 
Director
 
February 23, 2018
Thomas M. Hagerty
 
 
 
 
 
 
 
 
 
/s/  Janet E. Kerr
 
Director
 
February 23, 2018
Janet E. Kerr
 
 
 
 
 
 
 
 
 
/s/  Daniel D. (Ron) Lane
 
Director
 
February 23, 2018
Daniel D. (Ron) Lane
 
 
 
 
 
 
 
 
 
/s/  Richard N. Massey
 
Director
 
February 23, 2018
Richard N. Massey
 
 
 
 
 
 
 
 
 
/s/  Heather H. Murren
 
Director
 
February 23, 2018
Heather H. Murren
 
 
 
 
 
 
 
 
 
/s/  John D. Rood
 
Director
 
February 23, 2018
John D. Rood
 
 
 
 
 
 
 
 
 
/s/  Peter O. Shea, Jr.
 
Director
 
February 23, 2018
Peter O. Shea, Jr.
 
 
 
 
 
 
 
 
 
/s/  Cary H. Thompson
 
Director
 
February 23, 2018
Cary H. Thompson
 
 
 
 


97

Table of Contents

SCHEDULE II

FIDELITY NATIONAL FINANCIAL, INC.
(Parent Company)

BALANCE SHEETS
 
December 31,
 
2017
 
2016
 
(In millions, except share data)
ASSETS
Cash
$
230

 
$
246

Short term investments
85

 
1

Equity securities available for sale, at fair value
1

 

Investment in unconsolidated affiliates
13

 
7

Notes receivable
576

 
622

Investments in and amounts due from subsidiaries
4,672

 
4,253

Property and equipment, net
4

 
4

Prepaid expenses and other assets
1

 
3

Investments in discontinued subsidiaries

 
2,581

Total assets
$
5,582

 
$
7,717

LIABILITIES AND EQUITY
Liabilities:
 

 
 

Accounts payable and other accrued liabilities
$
72

 
$
42

Income taxes payable
137

 
65

Deferred tax liability
169

 
629

Notes payable
757

 
985

Total liabilities
1,135

 
1,721

Equity:
 

 
 

FNF Group common stock, $0.0001 par value; authorized 487,000,000 shares as of December 31, 2017 and 2016; outstanding of 274,431,737 and 272,205,261 as of December 31, 2017 and 2016, respectively; and issued of 287,718,304 and 285,041,900 as of December 31, 2017 and 2016, respectively

 

FNFV Group common stock, $0.0001 par value; authorized 113,000,000 shares as of December 31, 2016, outstanding of 66,416,822 as of December 31, 2016, and issued of 80,581,675 as of December 31, 2016, see Note G

 

Additional paid-in capital
4,587

 
4,848

Retained earnings
217

 
1,784

Accumulated other comprehensive loss
111

 
(13
)
Less: Treasury stock, 13,286,567 shares and 27,001,492 shares as of December 31, 2017 and 2016, respectively, at cost
(468
)
 
(623
)
Total equity of Fidelity National Financial, Inc. common shareholders
4,447

 
5,996

Total liabilities and equity
$
5,582

 
$
7,717


See Notes to Financial Statements


98

Table of Contents

SCHEDULE II

FIDELITY NATIONAL FINANCIAL, INC.
(Parent Company)

STATEMENTS OF EARNINGS AND RETAINED EARNINGS
 
Year Ended December 31,
 
2017
 
2016
 
2015
 
(In millions, except per share data)
Revenues:
 

 
 

 
 

Other fees and revenue
$
1

 
$
4

 
$
3

Interest and investment income and realized gains
24

 
24

 
86

Total revenues
25

 
28

 
89

Expenses:
 

 
 

 
 

Personnel expenses
32

 
26

 
28

Other operating expenses
8

 
6

 
1

Interest expense
48

 
64

 
74

Total expenses
88

 
96

 
103

Losses before income tax benefit and equity in earnings of subsidiaries
(63
)
 
(68
)
 
(14
)
Income tax benefit
(17
)
 
(24
)
 
(5
)
Losses before equity in earnings of subsidiaries
(46
)
 
(44
)
 
(9
)
Equity in earnings of subsidiaries
685

 
671

 
520

Earnings from continuing operations
639

 
627

 
511

Equity in earnings of discontinued operations
132

 
23

 
16

Net earnings attributable to Fidelity National Financial, Inc. common shareholders
$
771

 
$
650

 
$
527

 
 
 
 
 
 
Retained earnings, beginning of year
$
1,784

 
$
1,374

 
$
1,150

Dividends declared
(279
)
 
(240
)
 
(222
)
Distribution of Black Knight to FNF common shareholders
(823
)
 

 

Redemption of FNFV tracking stock and distribution of Cannae Holdings, Inc. common stock to holders of FNFV tracking stock
(1,236
)
 

 

Distribution of J. Alexander's to FNFV Group common shareholders

 

 
(81
)
Net earnings attributable to Fidelity National Financial, Inc. common shareholders
771

 
650

 
527

Retained earnings, end of year
$
217

 
$
1,784

 
$
1,374


See Notes to Financial Statements


99

Table of Contents

SCHEDULE II

FIDELITY NATIONAL FINANCIAL, INC.
(Parent Company)
 STATEMENTS OF CASH FLOWS
 
Year Ended December 31,
 
2017
 
2016
 
2015
 
(In millions)
Cash Flows From Operating Activities:
 

 
 

 
 

Net earnings
$
771

 
$
650

 
$
527

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
 
 
Equity in earnings of unconsolidated affiliates

 
(2
)
 

Impairment of assets

 
3

 

Equity in earnings of subsidiaries
(817
)
 
(694
)
 
(536
)
Depreciation and amortization

 
1

 
2

Stock-based compensation
34

 
36

 
38

Net change in income taxes
(130
)
 
29

 
17

Net decrease (increase) in prepaid expenses and other assets
18

 
26

 
(25
)
Net increase (decrease) in accounts payable and other accrued liabilities
17

 
(13
)
 
2

Net cash (used in) provided by operating activities
(107
)
 
36

 
25

Cash Flows From Investing Activities:
 

 
 

 
 

Purchases of investments available for sale
(1
)
 

 

Net (purchases of) proceeds from short-term investment activities
(84
)
 
162

 
(163
)
Additions to notes receivable
(13
)
 
(24
)
 
(28
)
Collection of notes receivable
49

 
22

 
1,542

Distributions from unconsolidated affiliates
1

 
2

 

Additional investments in unconsolidated affiliates
(2
)
 
(8
)
 

Net cash (used in) provided by investing activities
(50
)
 
154

 
1,351

Cash Flows From Financing Activities:
 

 
 

 
 

Borrowings
296

 

 

Debt service payments
(530
)
 
(2
)
 
(1,100
)
Equity portion of debt conversions paid in cash
(317
)
 
(2
)
 

Dividends paid
(278
)
 
(240
)
 
(220
)
Purchases of treasury stock
(23
)
 
(268
)
 
(506
)
Exercise of stock options
31

 
19

 
26

Payment for shares withheld for taxes and in treasury
(18
)
 
(9
)
 
(13
)
Cash transferred in the Black Knight spin-off
(87
)
 

 

Cash transferred in the FNFV split-off
(22
)
 

 

Other financing activity
(1
)
 

 
(15
)
Net dividends from subsidiaries
1,090

 
265

 
594

Net cash provided by (used in) financing activities
141

 
(237
)
 
(1,234
)
Net change in cash and cash equivalents
(16
)
 
(47
)
 
142

Cash at beginning of year
246

 
293

 
151

Cash at end of year
$
230

 
$
246

 
$
293

See Notes to Financial Statements 

100

Table of Contents

SCHEDULE II

FIDELITY NATIONAL FINANCIAL, INC.
(Parent Company)
 
NOTES TO FINANCIAL STATEMENTS

A.    Summary of Significant Accounting Policies
Fidelity National Financial, Inc. transacts substantially all of its business through its subsidiaries. The Parent Company Financial Statements should be read in connection with the aforementioned Consolidated Financial Statements and Notes thereto included elsewhere herein.
B.
Notes Payable
Notes payable consist of the following:
 
 
December 31,
 
 
2017
 
2016
 
 
(In millions)
Unsecured notes, net of discount, interest payable semi-annually at 5.50%, due September 2022
 
$
397

 
$
397

Unsecured convertible notes, net of discount, interest payable semi-annually at 4.25%, due August 2018
 
65

 
291

Unsecured notes, net of discount, interest payable semi-annually at 6.60%, due May 2017
 

 
300

Revolving Credit Facility, unsecured, unused portion of $500 at December 31, 2017, due April 2022 with interest payable monthly at LIBOR + 1.40% (2.76% at December 31, 2017)
 
295

 
(3
)
 
 
$
757

 
$
985

C.
Supplemental Cash Flow Information
 
Year Ended December 31,
 
2017
 
2016
 
2015
 
(In millions)
Cash paid during the year:
 

 
 

 
 

Interest paid
$
54

 
$
63

 
$
72

Income tax payments
528

 
367

 
250

D.
Cash Dividends Received
We have received cash dividends from subsidiaries and affiliates of $0.8 billion, $0.4 billion, and $0.2 billion during the years ended December 31, 2017, 2016, and 2015, respectively.


101

Table of Contents

SCHEDULE V

FIDELITY NATIONAL FINANCIAL, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
 
Years Ended December 31, 2017, 2016 and 2015
 
 
 
 
Column C
 
 
 
 
 
 
Column B
 
Additions
 
Column D
 
Column E
 
 
Balance at
 
Charge to
 
 
 
 
 
Balance at
Column A
 
Beginning of
 
Costs and
 
Other
 
Deduction
 
End of
Description
 
Period
 
Expenses
 
(Described)
 
(Described)
 
Period
 
 
(In millions)
Year ended December 31, 2017:
 
 
 
 
 
 
 
 
 
 
 
 
Reserve for claim losses

$
1,487

 
$
238

 
$
(4
)
(1)
 
$
231

(2)
 
$
1,490

 
 
 
 
 
 
 
 
 
 
 
 
 
Year ended December 31, 2016:
 
 
 
 
 
 
 
 
 
 
 
 
Reserve for claim losses
 
$
1,583

 
$
157

 
$
(8
)
(1)
 
$
245

(2)
 
$
1,487

 
 
 
 
 
 
 
 
 
 
 
 
 
Year ended December 31, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
Reserve for claim losses
 
$
1,621

 
$
246

 
$
1

(1)
 
$
285

(2)
 
$
1,583

____________________________
(1)
Represents the change in reinsurance recoverable.
(2)
Represents payments of claim losses, net of recoupments.



See Accompanying Report of Independent Registered Public Accounting Firm


102