Feb 4, 2009
Executives
Daniel Kennedy Murphy - Senior Vice President and Treasurer William P. Foley, II - Chairman, Fidelity National Financial, Inc., Executive Chairman, Fidelity National Information Services, Inc.
Alan L. Stinson - Chief Executive Officer Raymond R.
Quirk - Co-President Anthony J. Park - Chief Financial Officer
Analysts
Robert Napoli - Piper Jaffray Doug Mewhirter - RBC Capital Markets Nikolai Fisken - Stephens Inc. Nathaniel Otis - Keefe, Bruyette & Woods Operator: Good morning ladies and gentlemen.
Thank you for standing by. Welcome to the FNF Fourth Quarter Earnings Conference Call.
At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session, instructions will be given at that time.
(Operator Instructions). And as a reminder this conference call is being recorded.
I'd now like to turn the conference over to your host Mr. Dan Murphy.
Please go ahead.
Daniel Kennedy Murphy
Thank you Rachel and good morning everyone. Thanks for joining us for our fourth quarter 2008 earnings conference call.
Joining me today are Bill Foley, Chairman of the Board; Al Stinson, Chief Executive Officer; Randy Quirk, President; and Tony Park, CFO. We will follow our normal format his morning, starting with a brief strategic overview from Bill Foley.
Al Stinson will provide an update on our operating companies. Randy will provide a more in-depth analysis of the title business, and Tony Park will finish with a review of the financial highlights.
We will then open it up for your questions and finish with some concluding remarks from Bill Foley. This conference call may contain forward-looking statements that involve a number of risks and uncertainties.
Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements are based on management's beliefs, as well as assumptions made by and information currently available to management.
Because such statements are based on expectations as to future economic performance and are not statements of facts, actual results may differ materially from those projected. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
The risks and uncertainties, which forward-looking statements are subject to include, but are not limited to the risks and other factors detailed in our press release dated today, and in the statement regarding forward-looking information, risk factors, and other sections of the company's Form 10-K and other filings with the SEC. This conference call will be available for the reply via webcast at our website at fnf.com.
It will also be available through phone replay beginning at 1 pm Eastern Time today through February the 11th. That replay number is 800-475-6701 with an access code of 983329.
Let me now turn the call over to our Chairman, Bill Foley.
William P. Foley, II
Thanks Dan. 2008 will go down as one of most difficult economic environments for United States in the last several generations.
On top of terrible macro economic backdrop, the significant declines in mortgage and real estate markets throughout the country severely impacted the title insurance industry. We spend much of 2008 as we did in 2007 reducing expenses throughout our title insurance operations both in the form of reducing personnel expenses as well as through the disclosure of a number of title and escrow offices.
However there were two positive events that occurring during the month of December that provide a momentum and renewed optimism as we enter 2009. Firstly close on the acquisition of Commonwealth Land Title Insurance, Lawyers Title and United Capital Title on December 22nd.
The acquisition of these underwriters makes FNF the largest title insurer by market share in the country. We now have reserves for claim losses of more than $2.6 billion which is approximately twice that of any other title company, reserves plus stockholders equity of approximately $5.4 billion and a cash investment portfolio of more than $4.7 billion.
The second positive event was the significant increase of open order account in the month of December and January. Absolute total order accounts more than doubled in December versus their November level with per day open orders increasing by approximately 65%.
January open order accounts improved further from the significant December increase. The significantly strong order account levels and acquisition of Commonwealth Land Title Insurance, Lawyers Title and United Capital Title both provide a significant opportunity for our title business as we move in to 2009.
I will let Randy Quirk cover some of the integration progress we have made in the first month of the acquisition. Our last -- on our last earnings conference call we mentioned that we were seeking price increases in many states in which we do business and in the last three months we have made significant progress on that project.
We have instituted revised rate that are now effect even approximately 21 states. The revisions include simplified rate structures in some states as well as pricing increases anywhere from 0 to 20%; as an example a 10% increase went into effect in the state of California in 9th January.
Texas and Florida are two large states where the rates are promulgated so we will not be seeking independent price increases in those states. The last of the big four states, New York, has rates set by a rating bureau of which the title insurers are members.
We are working through our membership in New York in the New York Rate Bureau to insure rates are properly set based upon industry performance and market expectations. Additional rate revisions are pending in the number of other states and we are also analyzing the filed rates of our newly acquired underwriters to make them consistent with the rest of our underwriters.
Over the course of 2008, our company engaged in an exhaustive analysis of our claims management and payment procedures. The outcome of that analysis and the implementation of centralized payment practices began to show results in the fourth quarter with claim payments of $50 million versus $85 million in the third quarter.
The trends continued in the month of January with approximately 10 million of net claims being recorded -- net paid claims being recorded during the month. I will now turn the call over to our CEO, Al Stinson.
Alan L. Stinson
Thank you, Bill. Specialty insurance revenue was $97 million for the fourth quarter, an increase of approximately $4.5 million from the fourth quarter of 2007.
Flood insurance generated 41 million in revenue, and personal lines insurance contributed 34 million in revenue. Pre-tax earnings of 18 million were positively impacted by the increased flood claim processing revenue during the fourth quarter, driven by late summer hurricane related floods.
The home owners business produced a loss ratio of 63% for the quarter. While we do not consolidate the results of Sedgwick, they produced revenue of 175 million and EBITDA of 30 million for an EBITDA margin of more than 17% for the fourth quarter.
Pre-tax earnings of 7.5 million include interest expense of 7 million, and depreciation and amortization of 11 million. We continue to own 32% of Sedgwick.
We also do not consolidate the results of Ceridian, but they produced revenue of 390 million and EBITDA of 89 million, and EBITDA margin of 23%. The pre-tax loss of approximately 31 million includes interest expense of 72 million and depreciation and amortization of 47 million.
We continue to own 33% of Ceridian. Overall, our loss from equity investments was $6 million for the fourth quarter.
Let me now turn the call to Randy Quirk to comment on the Title Insurance business.
Raymond R. Quirk
Thank you, Al. Overall total open order volumes were weak during October and most of November, and then increased significantly in December.
We opened 5300 orders per day in October, 5006 orders per day in November, and nearly 9300 orders per day in December, a sequential monthly increase of 65% in December. Refinance orders drove the sharp increase in December as refis were approximately 73% of total December open orders.
January open order accounts have increased from December's level as we opened approximately 14,200 orders per day in January, a 50% increase over the month of December. The newly acquired Lawyers, Commonwealth and United underwriters contributed to those increases.
For January open orders on just the historic Fidelity underwriters increased significantly from December. We also believe that the majority of those open orders are closing as we saw an increase in closed orders in the last week of January, although we do think that it will probably take longer to close those orders due to significant increases in volume.
We continue to reduce headcount through much of the fourth quarter eliminating approximately 600 additional positions before the addition of the new underwriters. In the first month since the acquisition of Commonwealth, Lawyers and United Title we have been very aggressive on reducing costs in those underwriters.
Through the end of January we have eliminated approximately 1500 of the 5500 employees that we inherited at the closing on December 22nd; a reduction of approximately 27% of the existing workforce. We have also closed about 125 offices in the first month of ownership.
In total we have eliminated annual run rate expenses of approximately $180 million. We will continue to evaluate the cost structure of the acquired underwriters in the first quarter, but we believe the largest costs have been taken out in the first month of ownership.
We are also focused on implementing the Fidelity matrix base system throughout these operations and bringing their operating efficiencies up to the level of our other underwriters during 2009. We have been very impressed with the experience expertise and professionalism of the employees of all of the acquired underwriters, and look forward to their significant future contribution to the success of their Fidelity family of title insurance underwriters.
The commercial title business had a mixed quarter as order accounts declined moderately but the fee profile declined significantly. We opened approximately 13,800 commercial order commercial orders in our national commercial divisions, and closed approximately 8000 commercial orders generating $39 million in revenue on a nearly 50% decline in the fee profile versus the fourth quarter of 2007.
We believe that many large deals are experiencing delays in closing due to financing issues. Commercial revenue accounted for approximately 17% of total direct title premiums in the fourth quarter.
Let me now turn the call over to Tony Park to review the financial highlights.
Anthony J. Park
Thank you Andy. FNF generated $1 billion in revenue for the fourth quarter with a net loss of $1.7 million.
The fourth quarter results include the impact of Commonwealth, Lawyers and United Title from their acquisition date of December 22nd. Those acquired underwriters contributed a net loss of $2.8 million for the fourth quarter.
Without those underwriters FNF on a standalone basis produced earnings of approximately $1.2 million or $0.01 per share. The Title segment generated $899 million in total revenue for the fourth quarter, a decline of 23% from the fourth quarter of 2007.
Again those results include the impact of Commonwealth, Lawyers and United Capital Title from their acquisition date of December 22nd. Direct title premiums declined by 34% versus the fourth quarter 2007, while agency premiums declined by 26%.
Escrow and other fees were down by only 2%, as the $55 million in default revenue in our asset link business offset the decline in escrow fees. Of this $55 million $34 million was pass-through revenue that also shows up as an expense in other operating expenses offsetting some of the benefits seen in the revenue line item.
Personnel cost of $267 million were down $91 million or 26% versus the fourth quarter of 2007 and decreased by $45 million or 14% sequentially from the third quarter. Head count was reduced by approximately 600 positions during the fourth quarter ending the year with about 8000 field employees before the impact of the Commonwealth and Lawyers acquisitions.
Other operating expenses of $238 million showed a 2% decline versus the fourth quarter of 2007 and the third quarter of 2008. Two major items negatively impacted the actual very significant operational decline in operating expenses.
First, earnings credits from off-balance sheet escrow deposits continued to decline tracking the significant decline in order volumes and thus escrow balances, as well as short-term interest rate that are effectively at zero. This situation cost a $24 million decline in earnings credit in the fourth quarter versus the fourth quarter of 2007.
Additionally, the previously mentioned gross-up business and Asset Link contributed $34 million in additional operating expenses. If you segregate facilities, supplies, travel and entertainment, marketing, and title plant expenses, costs that we managed aggressively during the quarter, there was a $45 million or 32% decline in those categories of expenses, versus the fourth quarter of 2007.
The provision for title claims was $52 million for the fourth quarter. As Bill mentioned, actual title claims paid in the quarter declined significantly to 50 million, down sequentially from $85 million in the third quarter and $95 million in the fourth quarter of 2007.
As we always do, we will continue to evaluate the size of our balance sheet reserves and our provisional level each quarter. New open claims declined in the fourth quarter, as we opened approximately 7100 new claims versus 8500 in the fourth quarter of 2007, and 7500 in the third quarter of 2008.
Debt on our balance sheet primarily consists of the $490 million in senior notes due in 2011 and 2013, the $585 million drawn under our credit facility, the $50 million subordinated note issued to LandAmerica, and debt at Fidelity National Capital, the vast majority of which is non recourse. The debt-to-total capital ratio was 32% at December 31, 2008, and 29% without the non-recourse debt.
Also, we repaid $50 million under our revolving credit facility on January 22nd leaving us with $535 million outstanding today. Finally, our investment portfolio totaled $4.7 billion at December 31st.
There are approximately $3.6 billion of legal, regulatory and other restrictions on some of those investments, including secured trust deposits of approximately $500 million, and statutory premium reserves for underwriters of approximately $2.4 billion. There are also some other restrictions, including less liquid investments like ownership stakes in Sedgwick, Ceridian, and Remy, cash held as collateral in our securities lending program, and working capital needs at some underwritten title companies, all of which totaled approximately $700 million.
Of the gross $4.7 billion, approximately $1.1 billion was theoretically available for use, with about $900 million held at regulated underwriters and approximately $200 million in non-regulated entities. Let me now turn the call back to our operator Rachel, to allow for any questions.
Operator
Thank you. (Operator Instructions).
And the first question is from the line of Bob Napoli. Please go ahead.
Robert Napoli - Piper Jaffray
Thank you. Good morning, everybody.
William Foley, II
Good morning.
Robert Napoli - Piper Jaffray
And a little different world than it was last conference call for you guys. The question on the title claims, I am sorry, the title trends in the month of January in LandAmerica, trying to understand, I think -- trying to get a handle on what the earnings power of the company with the acquisition closing -- opening 14,000 orders in the month of January, which as you said includes the LandAmerica business.
If I looked at LandAmerica's direct claims, prior to the transaction, as relative to your claims, it would suggest that they were about 40% the size of their direct revenue versus FNF. That would suggest that LandAmerica closed orders.
Assuming you kept, let's call it's 85% of the business, that there -- they would be opening about 4900 orders a day if they kept the same relative to FNF. Now, is that -- I don't think from hearing you that it sounded like LandAmerica was that much.
Is it fully integrated, are all the orders that are being originated by those underwriters coming through to FNF, how much market share have you lost.
William Foley, II
Thanks, Bob, that's a terrific question. And I am going to attempt to respond to a part of it and then turn it over to Randy.
The -- obviously the LandAmerica employees have been fully integrated. We did not assume responsibility or assume direct control over all of LandAmerica's offices; we really assumed control over those Lawyers Title and Commonwealth offices in various parts of the country.
And that -- assumption of that business was very effective, and Randy could give you some specifics with regard to the number of employees retained in those various locations. We did however take a very aggressive approach relative to making decisions to reduce staff and close offices where we thought there was any question at all.
So we probably or easily could have over achieved in our -- in terms of being conservative in order to integrate LandAmerica or the LandAmerica offices and operations just as quickly as possible with the least risk possible. Now Randy may -- perhaps you could address the order levels coming out of Lawyers Title, Commonwealth Title and also the -- whether we're completely capturing all of those orders.
Bob, I would say one other thing though with regard to Lawyers and Commonwealth. We have implemented the claims management procedures for those companies effective December 22nd and we're seeing significant progress relative to the manner in which -- and the way those claims had been process versus how they will be processed under our system.
So we do anticipate significant improvement in claims payments coming out of the LandAmerica acquired companies. Randy could you --
Raymond Quirk
Sure.
William Foley, II
-- answer the other piece?
Raymond Quirk
Sure, Bill. As you'd mentioned in January we were opening up 14,100 orders per day.
Of that about 2100 of those orders opened per day in January were from the Commonwealth, Lawyers Title underwriters. Now on the closing side, they were closing of about a 1000 to 1200 orders per day.
That company -- the addition of these employees in the field we brought in about 2100 in the field and about 6 or 700 in their production center. So we figure the productivity at this point in time when the open orders per day runs at about 20 open orders per employee.
The -- but we just closed this transaction at the backend of December. So as we came out of the shoot on January 1st counting the open orders, the closed orders and the employees, it took probably one week to get all of our adjustments in there.
So in February, the numbers should report little bit higher in terms of what their contribution is to the overall order account.
Robert Napoli - Piper Jaffray
What it sounds like is just on -- it sounds like that group of companies as it relates to LandAmerica that their market share is down by about half? Is that from -- on the direct basis and I am not sure about the agent side; their agent business was bigger?
William Foley, II
Yeah, Bob, one of the things that -- keep in mind is that LandAmerica is roughly 65% agency driven and 35% direct driven.
Robert Napoli - Piper Jaffray
Okay.
William Foley, II
And Fidelity in Chicago are 50-50 plus or minus. And, so the result is that there -- you can't quite extrapolate the number of orders that were to be coming out of Fidelity system on certain amount of revenue to LandAmerica because the revenue is about 33% less from the direct side.
We really haven't -- there has been a diminution in business to LandAmerica because at the -- during the time of dependency of the transaction while LandAmerica had filed their chapter 11 proceeding, a number of lenders redirected their orders, a lot of them redirected them to our company. After we closed the transaction beginning in January, those order levels -- those order flows have now reopened.
And so you should be seeing improvement as we go forward relative to land -- the Lawyers and -- I keep on calling it LandAmerica -- it really is Lawyers -- it's Lawyers and Commonwealth sales representatives and escrow officers garnering the business they used to have. We had almost no fallout of individuals in the sales and marketing and in the escrow area of individuals that we wanted to hire that we didn't hire.
It was -- it's about a 95%, 96% retention rate. So we are anticipating order flows on the Lawyers, Commonwealth side moving up and they are moving up as we speak today because the lenders have now redirected those orders that were going to First American or to Fidelity or to Chicago, they are coming back to LandAmerica.
So that's a long way -- or Lawyers and Commonwealth. So that's a long-winded answer.
And hope we got it for you.
Robert Napoli - Piper Jaffray
That's very helpful. I think we'll learn a lot more next -- over the next 60 to 90 days.
On that -- the margin -- in this environment, can you kind of give some color on what kind of margins you think you can generate in the title business? And what -- how large do you think the mortgage industry is going to be in 2009.
William Foley, II
Al?
Robert Napoli - Piper Jaffray
Obviously.
Alan Stinson
I am going to take the latter one first. Yes the answer I don't know.
But there's a lot of guess, guesses that the refinance business will drive mortgage originations considerably higher. I think if that is the case we can return to very attractive profit margins as we've talked about in the past.
So I think it's all positive.
Robert Napoli - Piper Jaffray
Do you expect to be double-digit margins comfortably in '09?
Alan Stinson
I am not sure I'm going to go there quite that much detail, but we'll be in line with our margins that we have earned in similar market conditions. And I know that's sort of evasive but it all depends on how much refis business really flows through the system.
Robert Napoli - Piper Jaffray
And the margin.
William Foley, II
But if everyone could just write their congressman and ask them to allow refis without the need of a new appraisal --
Robert Napoli - Piper Jaffray
Yes.
William Foley, II
-- if the individual is current and then turn it on their mortgages and then Fannie and Freddie would acquire those mortgages we'd solve the -- would solve a good piece of the housing problem and stabilize prices and we would have a gigantic market.
Robert Napoli - Piper Jaffray
That may happen at a 4 -- but a 4% mortgage rate I guess is the --
Alan Stinson
Even 4.5, we don't want to be greedy.
Robert Napoli - Piper Jaffray
Just a last question on claims; seems to have improved pretty substantially and what have you done in the towns process oriented more than -- I mean, because market-wise certainly foreclosures remain high, maybe a little bit delayed on some of these programs, but why would you -- I mean is it purely process improvement or market environment, I cant believe it's market environment improvement?
William Foley, II
Well we -- it does appear that we have turned the corner in the number of new claims being generated because each successive month we are opening less claims than we opened in the same month a year before. So that's running at about 12, 15% improvement rate.
So that's encouraging. The other thing we've done -- we are making sure we are paying every claim that should be paid but we are examining the payment of claims in great detail to ensure that when a claim is submitted to our company that there is proper documentation that demonstrates that it's a legitimate claim.
I'd rather not go into it in more detail on that. But, we significantly changed our operating procedures, beginning October 23rd of this year, and we are seeing a massive improvement in the way claims are being paid.
We were paying claims in the past exactly in accordance with the procedures we had in place. Those procedures were not appropriate for the current claims environment.
And we now believe that we have a policies, procedures, and analytics in place that allow us to more appropriately evaluate claims as they're presented. The other thing we've done, we've counted as claims very minor items that would be a deed reformation, a document that hadn't been recorded, mis-recording of documents in proper order.
Those in the past had become claims. And now we've returned those items -- those claims or those incidences back to the county operations to fix.
So a lawyer no longer touches them. We still count them as reported claim, but they're not processed by claim centers.
And of the 7,000 claims that were opened -- 7100 claims that were opened in the third quarter, about 2,000 items were kicked back to the counties, and about 50% of those have already been solved, because they're fairly simple non-monetary issues. So that's one example of the way we have reformed our policies and procedures that we're going to be much more effective in terms of costs incurred relative to handling claims.
Robert Napoli - Piper Jaffray
Right. Thank you.
Operator
And the next question comes from the line of Marc de Vries (ph). Please go ahead sir.
Unidentified Analyst
Yeah, thanks. A lot of moving parts with the integration of all of the LandAmerica businesses, and with the cost saves you've already taken out.
I mean can you give us any guidance on kind of what the new run rate will be on your personnel costs and other operating expenses?
Alan Stinson
Yeah. That's a pretty tough one.
But, I can tell you this. Let me try it this way.
I think everybody is trying to figure out what our profit margins might end up being. With the kind of cost reductions that Randy and his group have done, we are very well-positioned to take advantage of higher mortgage origination levels.
And I think all you've got to do is sort of go back in history to some of those years when we had high mortgage origination levels, and take a look at what our profit margins were. But we're running at very, very attractive personnel costs at this time.
We are very well-positioned. We will do everything possible to prevent that personnel cost from creeping up as these higher margin -- higher volumes kick in.
Does that -- is that helpful?
Unidentified Analyst
Yeah, thanks. Next question, it looks like based on our calculation, the kind of average fee per order closed fell pretty significantly q-over-q.
I'm assuming that was attributable to the trends in the commercial business. Could you give us some color on that and also kind of where you see it headed with refi presumably making up a larger share of the business going forward?
William Foley, II
Well you've hit a very important point. And that -- our commercial average fee per file is down about 40%.
So, that's a piece of it. And the other piece of it is that back in the third quarter, we were running 50% resale and new home sales and 50% refis.
And now as we've kicked into the end of the fourth quarter, we were running 80% refis. And our average -- so our average fee per file on a basic transaction went from about $1400 down to about $1100.
So, while it's easier in this -- it's more efficient to handle a refi, the money garnered from those -- from that refi business obviously is a good deal less. So you need to kind of make it up in volume, which we now are.
Right now, refis are running about 75% of total transactions according to EMBA. And so, you just have to kind of -- it's the moving target and that would mean our average fee per file is probably up around 1200 bucks instead of 1100.
Unidentified Analyst
Okay. And then finally, it looks like the premier shifted a little bit back towards the agency during the quarter.
Is that more of a product of kind of the mix of business that came in during the quarter?
William Foley, II
It's actually a result of the fact that agents tend not to pay their underwriters as quickly as they should although we are very aggressive about collecting our accounts receivable. But normally in the fourth quarter, the agents clean up any past due obligations back to the underwriters, that's been our historical situation.
And if they are ever -- if there are going to be any kind of incentive programs to qualify, they need to get their money in, in the fourth quarter. So that's why you see the little shift in the fourth quarter.
And so it's more of a business aberration as opposed to anything else as a business shift.
Unidentified Analyst
Okay. And is the Fidelity business has come online, would you expect that the shift would have been towards agency going forward, or are you doing a disproportionate amount of kind of cutting back in that channel?
William Foley, II
Well, we've actually reduced the total of -- the total number of agents at Fidelity from about 12,000 three years ago, down the 4600. However, we've only removed about 10% of our volumes.
So, we were doing a lot of business with small agents that weren't generating much revenue for us. We also intend to, of course, reduce the (inaudible) Lawyers Title, and Commonwealth agency base.
And that should come down by about 40% over the next 12 months. However, the large agents that are really generating the revenue will be retained.
We're just trying to get rid of the agents that are high-claims oriented, or just don't generate enough revenue for us to be able to properly service them.
Unidentified Analyst
Okay. Thank you.
Operator
All right, thank you. And next we'll go to the line Doug Mewhirter.
Please go ahead.
Doug Mewhirter - RBC Capital Markets
Excuse me. Good morning.
The first question I had is the relationship in the closed and open orders. If you just look at the trends on your press release, the trend has been down.
Although -- am I correct in saying that you were just reporting December orders opened and December orders closed, for example. The orders closed actually weren't from orders opened in December, they work from October and November.
So there could be a lagging issue there. And -- although given that the commentary from the press saying, everybody is -- no one's getting approved for a loan or the -- there is too many operational bottlenecks and closing aren't happening.
Are you pretty comfortable in saying that just above 50% of orders seem to be closing?
Alan Stinson
Let me answer this; this is Al. What happens every time you have an increase in order volumes, temporarily the closing ratio looks to be lower because you are adding them faster than they are being closed.
So you always have that trend. Secondly, I am not so sure it's a hang up with the banks on not approving refis, they are just swamped.
And so you've got a bit of a slowdown from that. I think Randy's view is that the banks are going to take a little bit longer this time around to process transactions.
But we are very confident that our closings are going to be in line with the historical trends.
William Foley, II
And your comment was absolutely correct. In December, we were really closing October's orders.
In January, we're closing November or early December's orders. And so we'll start seeing these closings from the openings we're now achieving.
We'll kick-in in March. We're starting to see in late January a little bit but it's going to be mid-February to the end of March that we really start closing the early January orders.
Doug Mewhirter - RBC Capital Markets
Okay, my second question is, I guess, to Bill or Tony or whoever it be. Ceridian, there -- it seemed to be still getting by with positive operating margins.
It's a very economically leveraged company and it seems to be -- EBITDA seems to be uncomfortably close to the interest expense. Do you believe that the banks are still comfortable with where it's at given the economy and the worsening trends?
Alan Stinson
This is Al, I will answer that. We are in compliance with all of our debt covenants.
Our loans are at very attractive rates. We're buying excess cash to reduce debt levels.
We're in very good shape with the banks. The economy, of course, does impact Ceridian and we've been fairly aggressive in cost cuts and the profit margins actually keep going up and have improved year-over-year and we're planning for that again in '09 as we get our profit plans or business plans in place.
Doug Mewhirter - RBC Capital Markets
Okay, that's helpful. Any update on the -- your P&C business, your specialty business, I know it's -- you've been negotiating with various potential buyers?
William Foley, II
We have been and really the update is that we continue to negotiate with one particular buyer. The -- that the distance between a purchase sale trend, the purchaser and the seller are fairly close -- the sale price -- the sale price we're talking about were a little -- was almost ambivalent about whether to proceed with it or not and we're somewhat currently evaluating whether we should sell that business at the proposed sales price and -- or should we keep the business and continue to reevaluate the areas of the country where we do business as a P&C carrier which we've removed ourselves from about 16 higher claim states.
So I would say there is probably -- there's more to come and we don't have a good answer for you right now.
Doug Mewhirter - RBC Capital Markets
Okay, thanks that's very helpful. My last question is for Tony.
Were there any lease terminations or severance charges in this quarter and given that you've done a lot of cutting already, do you anticipate booking -- do you have an estimate for any kind of charges you might be booking in the first quarter for lease termination or severance charges?
Alan Stinson
Well we had just $3.5 million in lease termination charges in the fourth quarter. That's come down from about $12.5 million in the third quarter and $13 million in the prior year with -- in terms of the LandAmerica or the Lawyers, Commonwealth operations, all of those terminations to the extent we're closing offices and there are many offices we are or have closed.
Those would all be put up in purchase accounting, so you won't see further lease terminations on those offices and I would also say that given the volumes and the number of offices closed over the last couple of years which is well over 400 at this point, I believe, we are just about to the end of any kind of further consolidation in terms of lease terminations. From a severance standpoint, we don't pay -- we don't have severance costs, so that really doesn't come into play.
Doug Mewhirter - RBC Capital Markets
Okay, thanks, that's all my questions. Operator: Thank you.
Next we will go to the line of Nick Fisken, please go ahead.
Nikolai Fisken - Stephens Inc.
Hi. Good morning everybody.
William Foley, II
Good morning.
Nikolai Fisken - Stephens Inc.
Can you give us the close ratio for January?
William Foley, II
Do you have that Al, or does Tony or does -- Tony or Randy, could you give a little color on that one?
Anthony Park
Yeah our closing ratio with the influence of the refinances was approximately 65% when you typically closing 6 out of 10 refis when you have this type of volume starting to kick in as it did. On the closing side of the back end of January it starts to skew the closure ratio a bit.
So 65% would be the number.
Nikolai Fisken - Stephens Inc.
And if you're just seeing no evidence, the closing rates are going to fall below 60?
Anthony Park
Well we don't know as we discussed earlier with this wave of refis and the extension of that closing period, you might see some impact in that regard below 60. But we are confident that these refis will close, but as Bill or Al had mentioned earlier, it's going to take 45, 60 days, maybe 75 days, which prior to this was typically maybe a 30-day cycle.
Alan Stinson
The answer, Nick, to your question is that we don't anticipate that we have a closing ratio dropping below 60%.
Nikolai Fisken - Stephens Inc.
Thanks. And if I -- I'm turning gauge the land expense base that you are cutting -- that you have cut the 180 out of.
Can you kind of give us a historic run rate of personnel and other expenses?
Alan Stinson
I guess, Nick, to give you a sense we've only recorded 10 days of December's result from the Commonwealth Lawyers expenses. But just to give you rough numbers on that from a personnel related level, they -- their December results showed about $37 million in expenses and from a sort of G&A and other their expenses in December were about $28 million, depreciation's about $2 million and of course they have a loss provision which is probably fairly consistent with ours.
So that should give you sense of a starting point. Those numbers are down; we've worked with them pretty closely in November as well.
Those numbers are down from what they had seen really in the third quarter but clearly with the expense reductions that we've made in the last 30 to 45 days you will see a considerable impact on those numbers.
Nikolai Fisken - Stephens Inc.
So that 37, 28 and 2 (ph) was for the 10 days of December?
Alan Stinson
No. That was for the full month of December of which we booked 10 days of that in our results.
Nikolai Fisken - Stephens Inc.
Okay. And then can you kind of give us an outlook on the $180 million, what could that go to?
Alan Stinson
I am sorry.
Nikolai Fisken - Stephens Inc.
The 180 million of expense savings at land.
Alan Stinson
Our target is 225 million.
Nikolai Fisken - Stephens Inc.
All right.
Alan Stinson
I believe we'll achieve that short order.
Nikolai Fisken - Stephens Inc.
And -- so talk to us about headcount reductions -- what -- since you had this big spike in orders?
William Foley, II
Randy?
Raymond Quirk
Well. Our reduction there, as we mentioned earlier, we pulled out another 600 positions in the fourth quarter.
Currently we are holding the line on our stacking levels and one exception to that would be in our centralized lending centers, service link up in Pittsburg. We've had to bring on another 2 or 300 employees.
But in the field operations, we are working hard to hold the line. So we don't anticipate a spike in the staff into the first quarter.
Nikolai Fisken - Stephens Inc.
And then on the price increases; if I were just to say apples to apples since you are getting these price increases? What do you think the effective impact is on fee per file for 2009, holding everything else equal?
Alan Stinson
I don't know if we can answer that one Nick, we would rather defer that to the end of the first quarter, so we start seeing the results of these price increases. Obviously we got a 10% increase in California.
It's our largest and most deeply penetrated state in terms of volume and that went into effect on January 31st. So that was the big one.
In Texas and Florida, as they are promulgated states, each state goes through a review and we believe that they'll be if not price increases differences in the amount of agency versus underwriter split in both states and Texas has continually squeezed the underwriter relative to the percentage they received relative to the agent. It probably moves the other direction or there is a price increase instituted and the same in Florida because they've -- all the regulators -- and all the regulators understand very clearly that this needs to be a healthy industry and there haven't been price increases taken in really any significant way in 10 years.
Nikolai Fisken - Stephens Inc.
Last one for Al, on Remy any debt covenant cash call issues?
Alan Stinson
No Nick, we're okay with Remy and actually in spite of the headwinds that Remy has had they've performed admirably. They actually, on EBITDA, they exceeded the budgeted amounts for 2008 and are planning...
they've just taken so much headcount out as they plan for these GM plant reductions or shutdowns, they continue to perform quite well. We don't have any debt issues at this point.
Nikolai Fisken - Stephens Inc.
Great. Thanks so much.
Operator: (Operator Instructions). The next question comes from the line of Nat Otis.
Please go ahead.
Nathaniel Otis - Keefe, Bruyette & Woods
Good morning gentlemen.
William Foley, II
Good morning.
Nathaniel Otis - Keefe, Bruyette & Woods
Most of the questions have been answered, just have one follow-up. Any thoughts on whether the lower paid claim activity has anything to do with more foreclosure moratoriums going into effect over maybe the third and fourth quarter of last year?
Anthony Park
No, actually they wouldn't have any impact because those claims keep on being submitted and being processed because of -- of course the title claim relates to the condition of title of the property and because there's a foreclosure moratorium it just means that something has popped up that potentially maybe a claim. So that has no impact.
Nathaniel Otis - Keefe, Bruyette & Woods
Even going forward? So if there are less foreclosures going in the pipeline that still wouldn't -- that's not going to impact your pay claims in any way?
Anthony Park
Nat, the only thing that might happen is that there are less foreclosures going forward because the foreclosure is an event in which the title of the property has to be -- we have to ensure that the title of the property is good in the name of the foreclosure; it will be good in the name of the foreclosing entity. If there are less foreclosures, then I guess it would be the situation that we might not get notice of a claim on a piece of property because no one would know about it.
So that would be -- that's a typical experience that we have with the whole claims profile.
Nathaniel Otis - Keefe, Bruyette & Woods
And then in that event it could hypothetically be pushed off a little bit into the future.
Anthony Park
For a very, very small percentage hypothetically. It really wouldn't be significant.
Nathaniel Otis - Keefe, Bruyette & Woods
Okay, fine, thank you. Operator: And the next question comes from the line of David Wes (ph), please go ahead.
Unidentified Analyst
Good morning. You had cash flow of operations in the quarter of 60 million.
I wondered if you could comment about your outlook for cash flow in '09 and maybe more importantly or as importantly what your top priorities would be regarding dividend and debt repayment?
Anthony Park
Well, we've done our internal cash flow analyses and the dividend we feel is secure at least through 2010 taking -- through mid 2010, taking a very conservative approach looking at our cash flows as they have been not as how we anticipate they will be. We also were focused on repaying debt.
We have reduced our line of credit down to $535 million. We do have some sources of cash that we see on the horizon.
So we work towards -- we do see that line of credit lower this year. Our internal target is to reduce it by another $100 million.
And cash flow wise, we're anticipating a pretty good cash flow year versus last year. Historically, this company has fairly easily achieved $500 to $700 million of cash flow and I don't know if we can get quite to 500 this year in a turnaround here but we would certainly like -- we would certainly focus on that.
Unidentified Analyst
Thanks very much.
Operator
And the next question comes from the line of Ethan Sandberg (ph). Please go ahead.
Unidentified Analyst
Hi guys. I want to understand a little bit better on the price increases -- you said that California went through the end of January.
Can you give us a sense of how big California is as a percentage of business and then maybe just -- if you look across the 21 states that you did make progress on. In general what is the average price range versus what it was?
Alan Stinson
Well, California, Al, represents about 25% of our total business. So that's a big -- that's major and those are all direct operations.
So that's a price increase that certainly benefits our company better than or more directly than almost any other state. The balance, I'd really like to differ until the end of the first quarter when we get a few more price increases in place and we will be able to give you a very good synopsis of what we've achieved over the last six months in terms of increasing prices and increasing margin.
I mean it's all good, it's all dollar-for-dollar to the -- to pre-tax line. But California of course is significant getting that price increase through; we're very pleased with.
Unidentified Analyst
And if that one in at the end of January, when should that start to show up in revenues?
Anthony Park
February -- closings on February 1st forward.
Unidentified Analyst
Okay, so stuff that was in the pipeline?
Anthony Park
Sure, yeah.
Unidentified Analyst
And I guess is that -- was that -- when you guys look at that LandAmerica deal and then had been tinkering with what the profitability could be or you guys are assuming any progress on these price increases.
Anthony Park
The transaction became such a bargain purchase at such a low percentage of their book value that it really did not -- it did not really figure into our analysis. We were more concerned about insuring that their investment portfolio was in good position that we were buying and getting what we though we were buying and also looking at their operations and their systems to ensure that we get the adequate level of synergies that we are achieving.
So that was the focus of our due diligence.
Unidentified Analyst
Okay, and just two more question, I think. And you were referring back to -- in normal or this kind of environment we should look at the types of margins you had historically.
Given the price increases going on now that doesn't lead to upside to what the historical margins would be in a similar environment?
William Foley, II
We just don't want to guide you to a double-digit margin level at this point. Because we've just gone through two very difficult years and we had a little spike in refis a year ago and we started feeling pretty good, and of course then the refis evaporated.
So, we really just don't want to guide -- we just don't want to anticipate too many good things right now. We feel -- we finally feel like we may be at the end of the tunnel because we can see the light, but we just want to make sure there's not -- it's not a train.
Unidentified Analyst
Okay, now it's prudent. And as far as the trend accelerating in January can you give us a little better sense of what the organic trend was if you -- because you had the new business in there and did it accelerate or decelerate as you got through the end of January and into early February.
Alan Stinson
Yeah, the levels of orders as we move through January actually peaked about the second week of January at 16,000 orders a day and have reduced down to somewhere between 12 and 13,000 orders a day. We believe that's directly related to the little kick in long-term rates and also the fact that the lenders have raised rates because they have been inundated with refi transactions and they're trying to slow it down to ensure that their procedures and practices are in good shape and no one wants to experience what we went through in '05 to -- through '07.
And so we're not -- again 12 to 13,000 orders a day is a 140% of where we where in October. So we -- and we haven't added the staff to -- we haven't really added the staff.
So, we're feeling really good. We are going to maintain 12,000 orders a day this year.
It'll be a -- we'll all have a good investment experience.
Unidentified Analyst
Okay. And organically can you, how much of that -- how much of the increase from January in December were -- how much of that was organic?
Alan Stinson
Oh, I see. Well, basically if you are referring to Commonwealth, Lawyers Title, they are running about 2000 orders a day and so organic growth is from 5 to 10 -- 10,000 as we said at the end of January.
Unidentified Analyst
Got it. Okay.
Thanks guys.
Alan Stinson
Okay.
Operator
And the next question comes from the line of Lisa Walker (ph). Please go ahead.
Unidentified Analyst
Hi. Just had a question on the cram-down legislation that's going through or potentially going through, what's the effect on the tile business for that?
Anthony Park
We are so naive; we don't probably know what it is.
Unidentified Analyst
Unless give us a little more color on what you are referring to the cram-down?
Unidentified Analyst
What Citi agreed to as far as that -- instead of actually going through a foreclosure, the cram-down or foreclosure, mitigation that you're actually going to take the mortgage into the bankruptcy process and the judge can take down the value of the mortgage?
Anthony Park
Well, that would be good for us. Because that means our policy would be reduced, our policy exposure will be reduced on those particular loans.
We haven't really seen -- we basically would issue a new policy when there is a foreclosure, and what I'd call a trusty sale guarantee or when there's a refinanced transaction which is obviously a refi transaction or a new or existing home sale for the owner. So, we are pretty simple on the piece of paper that we assume.
And normally when government gets involved that usually serves to our benefit because someone wants to get policy of title insurance on their house in some fashion.
Unidentified Analyst
Okay, thanks.
Anthony Park
You bet.
Operator
And Mr. Murphy, there are no additional questions at this time.
Please continue.
Daniel Kennedy Murphy
While 2008 was a challenging year, we enter 2009 with optimism and momentum, as both the increased order counts, and the acquisition of Commonwealth, Lawyers and United Title provide significant opportunities for our title business. Thank you for joining us this morning.
Operator
Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference.
You may now disconnect.