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Item 1A. Risk Factors

2023-02-27 compared with 2022-02-25 · 161 added, 115 removed, 264 unchanged (51% of the section changed)

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Any of the risks described herein could result in a significant or material adverse effe ct on our results of operations or financial condition.

Risk Factors Relating to Market Conditions

If economic and credit market conditions continue to deteriorate, it could have a material adverse impact on our investment portfolio and could also cause our stock price to fluctuate significantly.

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 in our title business 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.

We make investments in certain equity securities and preferred stock in order to take advantage of perceived value and for strategic purposes.

Economic and credit market conditions may adversely affect the ability of some issuers of investment securities to repay their obligations and affect 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.

Fixed maturities, equity securities and derivatives represent the majority of total cash and invested assets reported at fair value on our balance sheets.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price).

Fair value estimates are made based on available market information and judgments about the financial instrument at a specific point in time.

Expectations that our investments will continue to perform in accordance with their contractual terms are based on evidence gathered through our normal credit surveillance process and on assumptions a market participant would use in determining the current fair value.

The value and performance of certain of our assets are dependent upon the performance of collateral underlying these investments.

It is possible the collateral will not meet performance expectations leading to adverse changes in the cash flows on our holdings of these types of securities.

In addition, many factors unrelated to our business could cause the market price of our common stock to rise and fall, including the operating and stock price performance of other comparable companies, investors’ general perception of our industry, and changes in general economic and market conditions.

If the market for stocks in our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition or results of operations.

If any of the foregoing occurs, it could cause our stock price to fall and may expose us to lawsuits that, even if successfully defended, could be costly to defend and a distraction to management.

Equity market volatility could negatively impact our business.

The estimated cost of providing GMWB associated with our annuity products incorporates various assumptions about the overall performance of equity markets over certain time periods.

Periods of significant and sustained downturns in equity markets or increased equity volatility could result in an increase in the valuation of the future policy benefit or policyholder

account balance liabilities associated with such products, resulting in a reduction in our revenues and net earnings (loss).

The rate of amortization of our deferred acquisition costs ("DAC"), deferred sales inducements ("DSI") and value of business acquired ("VOBA") relating to FIA products could also increase if equity market performance is worse than assumed and have a materially adverse impact on our results of operations and financial condition.

Conditions in the economy generally could adversely affect our business, results of operations and financial condition.

Our results of operations are materially affected by conditions in the U.S.

Adverse economic conditions may result in a decline in revenues and/or erosion of our profit margins.

In addition, in the event of extreme prolonged market events and economic downturns, we could incur significant losses.

Even in the absence of a market downturn we are exposed to substantial risk of loss due to market volatility.

Factors such as consumer spending, business investment, government spending, the volatility and strength of the capital markets, investor and consumer confidence, foreign currency exchange rates and inflation levels all affect the business and economic environment and, ultimately, the amount and profitability of our business.

In an economic downturn characterized by higher unemployment, lower family income, negative investor sentiment and lower consumer spending, the demand for our insurance products could be adversely affected.

Under such conditions, our F&G segment may also experience an elevated incidence of policy lapses, policy loans, withdrawals and surrenders.

In addition, our investments could be adversely affected as a result of deteriorating financial and business conditions affecting the issuers of the securities in our investment portfolio.

Our investments are subject to market and credit risks.

These risks could be heightened during periods of extreme volatility or disruption in financial and credit markets.

A worsening business climate, such as the current recession, or changing trends could cause issuers of the fixed-income securities that we own to default on either principal or interest payments.

Additionally, market price valuations may not accurately reflect the underlying expected cash flows of securities within our investment portfolio.

If we fail to react appropriately to difficult market or economic conditions, our investment portfolio could incur material losses.

Our invested assets and derivative financial instruments are subject to risks of credit defaults and changes in market values.

Periods of extreme volatility or disruption in the financial and credit markets could increase these risks.

Changes in interest rates and credit spreads could cause market price and cash flow variability in the fixed income instruments in our investment portfolio.

Significant volatility and lack of liquidity in the credit markets could cause the market value of the fixed-income securities we own to decline.

Additionally, market price valuations may not accurately reflect the underlying expected cash flows of securities within our investment portfolio.

Finally, market volatility could cause investment income fluctuations in regards to our alternative investments that may differ significantly from period to period.

The value of our mortgage-backed securities and our commercial and residential mortgage loan investments depends in part on the financial condition of the borrowers and tenants for the properties underlying those investments, as well as general and specific economic trends affecting the overall default rate.

We are also subject to the risk that cash flows resulting from the payments on pools of mortgages that serve as collateral underlying the mortgage-backed securities we own may differ from our expectations in timing or size.

Any event reducing the estimated fair value of these securities, other than on a temporary basis, could have an adverse effect on our business, results of operations and financial condition.

If adverse changes in the levels of real estate activity occur, our revenues may decline.

Title insurance re venue is closely related to the level of real estate activity that 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;

• when housing inventory is limited or home prices are high or increasing;

• 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 February 21, 2023 calculates an approximately $2.2 trillion mortgage origination market for 2022, which would be a decrease from 2021 resulting primarily from decreases in both purchase and refinance activity.

The MBA predicts overall mortgage originations in 2023 will also decrease when compared to 2022 as a result of decreases in both purchase and refinance activity.

Ou r revenues in future periods will continue to be subject to these and other factors that are beyond our control and, as a result, are likely to fluctuate.

See discussion under 'Business Trends and Conditions' within Management's Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 of Part II of this Annual Report for further discussion of current market trends.

Interest rate fluctuations could adversely affect our business, financial condition, liquidity, results of operations and cash flows.

Interest rate risk is a significant market risk as our F&G business involves issuing interest rate sensitive obligations backed primarily by investments in fixed income assets.

For several years prior to 2022, interest rates remained at or near historically low levels.

A prolonged period of low rates exposes us to the risk of not achieving returns sufficient to meet our earnings targets and/or our contractual obligations.

Furthermore, low or declining interest rates may reduce the rate of policyholder surrenders and withdrawals on our life insurance and annuity products, thus increasing the duration of the liabilities, creating asset and liability duration mismatches and increasing the risk of having to reinvest assets at yields below the amounts required to support our obligations.

Lower interest rates may also result in decreased sales of certain insurance products, negatively impacting our profitability from new business.

During periods of increasing interest rates, such as those observed in 2022, we may offer higher crediting rates on interest-sensitive products, such as universal life insurance and fixed annuities, and we may increase crediting rates on in-force products to keep these products competitive.

We may be required to accept lower spread income (the difference between the returns we earn on our investments and the amounts we credit to contractholders) thus reducing our profitability, as returns on our portfolio of invested assets may not increase as quickly as current interest rates.

Rapidly rising interest rates may also expose us to the risk of financial disintermediation, which is an increase in policy surrenders, withdrawals and requests for policy loans as customers seek to achieve higher returns elsewhere requiring us to liquidate assets in an unrealized loss position.

If we experience unexpected withdrawal activity, we could exhaust our liquid assets and be forced to liquidate other less liquid assets such as limited partnership investments.

We may have difficulty selling these investments in a timely manner and/or be forced to sell them for less than we otherwise would have been able to realize, which could have a material adverse effect on our business, financial condition and results of operations.

We have developed and maintain asset liability management (“ALM”) programs and procedures designed to mitigate interest rate risk by matching asset cash flows to expected liability cash flows.

In addition, we assess surrender charges on withdrawals in excess of allowable penalty-free amounts that occur during the surrender charge period.

There can be no assurance actual withdrawals, contract benefits, and maturities will match our estimates.

Despite our efforts to reduce the impact of rising interest rates, we may be required to sell assets to raise the cash necessary to respond to an increase in surrenders, withdrawals and loans, thereby realizing capital losses on the assets sold.

We may experience spread income compression, and a loss of anticipated earnings, if credited interest rates are increased on renewing contracts in an effort to decrease or manage withdrawal activity.

Our expectation for future spread income is an important component in amortization of DAC, DSI, and VOBA under U.S.

Significant reductions in spread income may cause us to accelerate DAC, DSI, and VOBA amortization.

In addition, certain statutory capital and reserve requirements are based on formulas or models that consider interest rates and a prolonged period of low interest rates may increase the statutory capital we are required to hold as well as the amount of assets we must maintain to support statutory reserves.

Risk Factors Relating to Our Business

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 approximatel y $4,539 million, or 7.5% of our total assets, as of December 31, 2021.

Goodwill aggregated approximate ly $4,642 million, or 7.1% of our total assets, as of December 31, 2022.

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.

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For the years ended December 31, 2022, 2021 and 2020, no goodwill impairment charge was recorded.

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.

However, if the current economic downturn continues or escalates into further deterioration, 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.

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(iii) we may be unable to adjust rapidly to changing market conditions;

(iv) the debt service requirements of our other indebtedness could make it more difficult for us to satisfy our financial obligations;

(iv) the debt service requirements of our other indebtedness could make it more difficult for us

to satisfy our financial obligations;

and (v) we may be vulnerable in a downturn in general economic conditions or in our business and we may be unable to carry out activities that are important to our growth.

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Changes in these assumptions and estimates could impact our results of operations and financial condition.

Amortization of our deferred acquisition costs ("DAC"), deferred sales inducements ("DSI") and value of business acquired ("VOBA") balances depends on the actual and expected profits generated by the respective lines of business that incurred the expenses.

Amortization of our DAC, DSI and VOBA balances depends on the actual and expected profits generated by the respective lines of business that incurred the expenses.

Expected profits are dependent on assumptions regarding a number of factors including investment returns, benefit payments, expenses, mortality, and policy lapse.

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We may face losses if our actual experience differs significantly from our reserving assumptions.

Our profitability depends significantly upon the extent to which our actual experience is consistent with the assumptions used in setting rates for our products and establishing liabilities for future life insurance, annuity, and PRT policy benefits and

However, due to the nature of the underlying risks and the high degree of uncertainty associated with the determination of the liabilities for unpaid policy benefits and claims, we cannot determine precisely the amounts we will ultimately pay to settle these liabilities.

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To the extent that actual experience is less favorable than our underlying assumptions, we could be required to increase our liabilities, which may reduce our profitability and impact our financial strength.

We have minimal experience to date on policyholder behavior for our GMWB products that we began issuing in 2008.

We have been issuing guaranteed minimum withdrawal benefit (“GMWB”) products since 2008.

In our reserve calculations, we make assumptions for policyholder behavior as it relates to GMWB utilization.

If emerging experience deviates from our assumptions on GMWB utilization, it could have a significant effect on our reserve levels and related results of operations.

Based on experience on GMWB utilization, which continues to emerge, we updated our GMWB utilization assumption during 2019, with a favorable impact on reserves.

Based on experience of GMWB utilization, which continues to emerge, we updated our GMWB utilization assumption during 2022, with a favorable impact on reserves.

We will continue to monitor the GMWB utilization assumption and update our best estimate as applicable.

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Compliance with these laws will limit the amounts our regulated subsidiaries can dividend to us.

During 2022 , our title insurers may pay dividends or make distributions to us of approximatel y $831 million;

During 2023 , our title insurers may pay dividends or make distributions to us of approxim ately $606 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.

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In addition, our reliance on third-party service providers that we do not control does not relieve us of our responsibilities and requirements.

Any failure or negligence by such third-party service providers in carrying out their

contractual duties may result in us becoming subjected to liability to parties who are harmed and ensuing litigation.

Any failure or negligence by such third-party service providers in carrying out their contractual duties may result in us becoming subjected to liability to parties who are harmed and ensuing litigation.

Any litigation relating to such matters could be costly, expensive and time-consuming, and the outcome of any such litigation may be uncertain.

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If we are unable to attract and retain national marketing organizations and independent agents, sales of our products may be reduced.

Within our F&G operating segment, we must attract and retain our network of IMOs and independent agents to sell our products.

Within our F&G segment, we must attract and retain our network of IMOs and independent agents to sell our products.

Insurance companies compete vigorously for productive agents.

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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.

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.

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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.

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.

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Accordingly, our use of independent agents could adversely impact the frequency and severity of title claims.

Risk Factors Related to the F&G Distribution

The F&G Distribution could adversely affect our results of operations or financial condition.

On December 1, 2022, we completed the F&G Distribution.

The F&G Distribution is subject to inherent risks and uncertainties, including, but not limited to:

diversion of management’s attention and the potential impact of the F&G

Distribution on relationships, including with employees, suppliers, customers and competitors;

our ability to successfully realize the anticipated benefits of the F&G Distribution;

the terms and conditions of agreements and arrangements between FNF and F&G following the distribution, such as the Corporate Services Agreement, dated as of November 30, 2022, between FNF and F&G (the “Corporate Services Agreement”), which provides for, among other things, the provision of certain services by FNF to F&G following the F&G Distribution;

and the nature and amount of indebtedness incurred by F&G.

In addition, our F&G segment contributes to a significant portion of our earnings and the F&G Distribution could adversely affect our earnings.

Certain F&G directors may have actual or potential conflicts of interest because of their FNF equity ownership or their current or former FNF positions.

A number of F&G’s directors have been, and will continue to be, officers, directors or employees of FNF (or officers, directors or employees of affiliates of FNF) and, thus, have professional relationships with FNF’s officers, directors or employees.

In addition, certain of F&G’s directors and executive officers own FNF common stock or other equity compensation awards.

These relationships may create, or may create the appearance of, conflicts of interest when these directors and officers are faced with decisions that could have different implications for FNF and F&G.

For example, potential conflicts of interest could arise in connection with the resolution of any dispute that may arise between FNF and F&G regarding the terms of the agreements governing F&G’s relationship with FNF, including the Corporate Services Agreement.

FNF or F&G may fail to perform under various transaction agreements that were executed as part of the F&G Distribution.

In connection with the F&G Distribution, FNF and F&G entered into a separation and distribution agreement, the Corporate Services Agreement, and other transaction agreements.

The transaction agreements determine the allocation of assets, rights and liabilities between the companies and include indemnifications related to liabilities and obligations.

The Corporate Services Agreement provides for the performance of certain services by us for the benefit of F&G for a limited period of time after the F&G Distribution.

The reverse services agreement provides for the performance of certain services by F&G for the benefit of FNF for a limited period of time after the F&G Distribution.

We will rely on F&G to satisfy its obligations under the transaction agreements.

If F&G is unable to satisfy its obligations under the transaction agreements, including its indemnification obligations, we could incur operational difficulties or losses.

Risk Factors Relating to the Geographic Concentrations of our Business Segments

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Concentration in certain states for the distribution of our life insurance and annuity products in our F&G segment may subject us to losses attributable to economic downturns or catastrophes in those states.

Our top five states for the distribution of our life insurance and annuity products in our F&G segment are California, Florida, Texas, New Jersey and Ohio.

Our top five states for the distribution of our life insurance and annuity products in our F&G segment are Florida, California, Texas, Pennsylvania and New Jersey.

Any adverse economic developments or catastrophes in these states could have an adverse impact on our F&G segment.

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Premium rate inadequacy may not become evident quickly and may take time to correct, and could adversely affect our business operating results and financial conditions.

Our F&G business is highly regulated and subject to numerous legal restrictions and regulations.

Our F&G segment is highly regulated and subject to numerous legal restrictions and regulations.

State insurance regulators, the NAIC and federal regulators continually reexamine existing laws and regulations and may impose changes in the future.

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We are also subject to the risk that compliance with any particular regulator’s interpretation of a legal or accounting issue may not result in compliance with another regulator’s interpretation of the same issue, particularly when compliance is judged in hindsight.

Regulators and other authorities have the power to bring administrative or judicial

proceedings against us, which could result in, among other things, suspension or revocation of our licenses, cease and desist orders, fines, civil penalties, criminal penalties or other disciplinary action, which could materially harm our results of operations and financial condition.

Regulators and other authorities have the power to bring administrative or judicial proceedings against us, which could result in, among other things, suspension or revocation of our licenses, cease and desist orders, fines, civil penalties, criminal penalties or other disciplinary action, which could materially harm our results of operations and financial condition.

We cannot predict what form any future changes in these or other areas of regulation affecting the insurance industry might take or what effect, if any, such proposals might have on us if enacted into law.

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Our business is subject to government regulation in each of the states in which we conduct business and is concerned primarily with the protection of policyholders and other customers rather than shareholders.

Such regulation is vested in state agencies having broad administrative and discretionary authority, which may include, among other things, premium rates and increases thereto, underwriting practices, reserve requirements, marketing practices, advertising, privacy, policy forms, reinsurance reserve requirements, acquisitions, mergers and capital adequacy.

Such regulation is vested in state

agencies having broad administrative and discretionary authority, which may include, among other things, premium rates and increases thereto, underwriting practices, reserve requirements, marketing practices, advertising, privacy, policy forms, reinsurance reserve requirements, acquisitions, mergers and capital adequacy.

At any given time, we and our insurance subsidiaries may be the subject of a number of ongoing financial or market conduct, audits or inquiries.

From time to time, regulators raise issues during such examinations or audits that could have a material impact on our business.

We have received inquiries from a number of state regulatory authorities regarding our use of the U.S.

Social Security Administration’s Death Master File (“Death Master File”) and compliance with state claims practices regulations and unclaimed property or escheatment laws.

We have established procedures to periodically compare our in-force life insurance and annuity policies against the Death Master File or similar databases;

investigate any identified potential matches to confirm the death of the insured;

determine whether benefits are due;

and attempt to locate the beneficiaries of any benefits due or, if no beneficiary can be located, escheat the benefit to the state as unclaimed property.

We believe we have established sufficient reserves with respect to these matters;

however, it is possible that third parties could dispute these amounts and additional payments or additional unreported claims or liabilities could be identified which could be significant and could have a material adverse effect on our results of operations.

Under insurance guaranty fund laws in most states, insurance companies doing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies.

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Our reinsurance subsidiary, F&G Life Re, is registered in Bermuda under the Bermuda Insurance Act and subject to the rules and regulations promulgated thereunder.

The BMA has sought regulatory equivalency, which enables Bermuda’s commercial insurers to transact business with the EU on a “level playing field.” In connection with its initial efforts to achieve equivalency under the European Union’s Directive (2009/138/EC) (“Solvency II”), the BMA implemented and imposed additional requirements on the companies it regulates.

The BMA has sought regulatory equivalency, which enables Bermuda’s commercial insurers to transact business with the European Union on a “level playing field.” In connection with its initial efforts to achieve equivalency under the European Union’s Directive (2009/138/EC) (“Solvency II”), the BMA implemented and imposed additional requirements on the companies it regulates.

The European Commission in 2016 granted Bermuda’s commercial insurers full equivalence in all areas of Solvency II for an indefinite period of time.

Our reinsurance subsidiary, F&G Cayman Re, is licensed in the Cayman Islands by the CIMA and is subject to supervision by CIMA and CIMA may at any time direct F&G Cayman Re, in relation to a policy, a line of business or the entire business, to cease or refrain from committing an act or pursing a course of conduct and to perform such acts as in the opinion of CIMA are necessary to remedy or ameliorate the situation.

The SECURE 2.0 Act of 2022 may impact our business and the markets in which we compete.

The Secure 2.0 Act of 2022, Division T of the Consolidated Appropriations Act, 2023 (“SECURE Act 2.0”), was signed into law on December 29, 2022, and went into effect as early as January 1, 2023, in certain respects.

The SECURE Act 2.0 contains provisions that may impact our F&G insurance subsidiaries, and these changes could affect the desirability of IRAs, necessitate changes to our administrative system to implement the Secure Act 2.0, and affect, to some extent, the length of time that IRA assets remain in our annuity products.

These provisions include, for example, raising the age for required minimum distributions from IRAs from 72 to 73 (age 74 after 2032);

additional exceptions to the 10% penalty tax for distributions before age 59-1/2;

reduction of the penalty for failures to take a required distribution amount;

directions to the SEC for new registration forms for registered index linked annuities;

and directions to the DOL to revisit fiduciary standards relating to choosing an annuity provider in pension risk transfer transactions.

While we cannot predict whether, or to what extent, the SECURE Act 2.0 will ultimately impact us, whether positive or negative, it may have implications for our business operations and the markets in which we compete.

Regulatory investigations of the insurance industry may lead to fines, settlements, new regulation or legal uncertainty, which could negatively affect our results of operations.

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We also utilize funds withheld reinsurance counterparty risk.

Under funds withheld arrangements, F&G retains possession and legal title to assets backing ceded liabilities.

Under funds withheld arrangements, each of our F&G insurance subsidiaries retains possession and legal title to assets backing ceded liabilities.

Our F&G insurance subsidiaries are also exposed to credit loss in the event of non-performance by our counterparties on call options.

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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.

Risk Factors Relating to Market Conditions

If economic and credit market conditions deteriorate, it could have a material adverse impact on our investment portfolio.