Daniel Kennedy Murphy - Fidelity National Financial, Inc. William P. Foley II - Fidelity National Financial, Inc. Raymond R. Quirk - Fidelity National Financial, Inc. Anthony J. Park - Fidelity National Financial, Inc. Michael J. Nolan - Fidelity National Financial, Inc..

Jeremy Campbell - Barclays Capital, Inc. Geoffrey Murray Dunn - Dowling & Partners Securities LLC Bose George - Keefe, Bruyette & Woods, Inc. John Campbell - Stephens, Inc. Kevin Kaczmarek - Zelman & Associates Jason S. Deleeuw - Piper Jaffray & Co. Ryan Byrnes - Janney Montgomery Scott LLC.

Ladies and gentlemen, thank you for standing by, and welcome to FNF 2016 Third Quarter Earnings Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. And as a reminder, today's conference is being recorded.

I would now like to turn the conference over to your host, Mr. Dan Murphy. Please go ahead, sir..

Thanks. Good morning, everyone, and thanks for joining us for our third quarter 2016 earnings conference call. Joining me today are our Chairman, Bill Foley; CEO, Randy Quirk; President, Mike Nolan; CFO, Tony Park; and EVP, Brent Bickett. We will begin with a brief strategic overview from Bill.

Randy will review the title business, and Tony will finish with a review of the financial highlights. We'll then open the call up for your questions and finish with some concluding remarks from Bill Foley. Please note that we are only focused on FNF on this call. We'll have a separate FNFV call at 12:30 PM Eastern Time today.

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 expectations, hopes, intentions or strategies regarding the future are forward-looking statements.

Forward-looking statements are based on management's beliefs as well as assumptions made by and information currently available to management. Because such statements are based on expectations as to future financial and operating results and are not statements of fact, actual results may differ materially from those projected.

We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

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

This conference call will be available for replay via webcast at fnf.com. It will also be available through phone replay beginning at 1:30 PM Eastern Time today through November 10. The replay number is 800-475-6701 with an access code of 403298. Let me now turn the call over to our Chairman, Bill Foley..

Thank you, Dan. This was another strong quarter in our title insurance business as we generated adjusted pre-tax title earnings of $295 million and a 15.8% adjusted pre-tax title margin. Overall, we remain the most profitable company in the industry, and we are confident that our title insurance business will have a solid finish to the year.

In August, we closed on the acquisition of Commissions, Inc. or CINC, a rapidly growing provider of SaaS-based CRM lead generation and lead management software platform, focused on high-performing residential real estate agents and agent teams.

The CINC platform is combined with marketing and proactive lead management services that enhance the productivity and sales results of the lead realtors and agent teams. CINC has more than 1,500 customers who collectively have closed more than 170,000 residential real estate transactions over the last 12 months.

We are excited to partner with CINC to bring value-added technology and services to our realtor customers. To this point, CINC's strong revenue and customer growth has largely been organic with minimal outbound sales efforts needed. We plan to leverage FNF's title sales force to proactively cross-sell the CINC product suite to our leading customers.

With CINC's solid and growing customer base and our combined plan for continued development of the CINC product suite, we find the opportunity for further revenue and EBITDA growth to be compelling.

Black Knight continued to execute its business plan and generated revenue of $267 million and adjusted EBITDA of $115 million for a 44.6% adjusted EBITDA margin. FNF's Black Knight ownership stake is currently worth more than $3.2 billion or nearly $12 per FNF share.

During the third quarter, we scaled back our stock repurchase efforts after making the CINC acquisition. For the third quarter, we repurchased a total of 1.1 million shares at a total cost of $41 million. We also spent approximately $57 million on our quarterly cash dividend.

On the acquisition front, we closed six title acquisitions for a total cost of approximately $36 million. Additionally, our board approved a 19% increase in our dividend yesterday to $0.25 per quarter or $1 annually.

So, we continue to use our significant free cash flow to both return value to our shareholders and invest in the future of our title business. I'll now turn the call over to Randy Quirk to discuss the title insurance business..

Thank you, Bill. As Bill mentioned, this was another strong quarter for our title operations as we again led the industry with a 15.8% adjusted pre-tax margin.

Our adjusted pre-tax title earnings of $295 million were a $28 million increase over the third quarter of 2015, while the 15.8% adjusted pre-tax title margin was a 40 basis point increase from the prior year.

Our residential business was strong as strength in the refinance market this quarter helped our residential direct title premium grow 19% over the third quarter of 2015. Agency growth continues as third quarter agency title premiums increased 10% over the third quarter of last year.

We did experience some weakness in the overall commercial market, particularly in the fee per file, which declined by 6% versus the third quarter of 2015. While July and August commercial revenue declined by 12%, we were encouraged to see September commercial revenue bounce back and show only a 3% decline versus September of 2015.

In October, we had our largest total commercial revenue month of the year. On a daily basis, our October total commercial revenue declined by approximately 3.5% versus October of 2015. Additionally, total commercial open orders showed a slight increase in the third quarter versus the prior year, which bodes well for future commercial closings.

Overall, we continue to feel very good about the commercial market.

During the third quarter, we added a total of 558 positions in our field operations; 197 of those positions were primarily added to handle the increase in refinance transactions in the quarter and 361 of the increase was a result of six title agent acquisitions that we closed during the third quarter.

For the third quarter, total open orders averaged approximately 9,600 per day with July at 10,100; August at 9,500; September at 9,300. FNTG purchase orders opened and closed in the third quarter increased by 5% and 4%, respectively.

The mix towards purchase transactions was approximately 50% and 54%, respectively, for opened and closed orders during the quarter.

For the month of October, total open orders fell per day to 8,600 as purchase slows seasonally in the fall, and the refinance transactions have fallen off with the modest increase in interest rates from their summer bottom.

Refinance represents 49% of those open orders, and FNTG purchase-related orders increased by 8% on a daily basis versus October of 2015. As I mentioned earlier, we saw a decline in commercial revenue in the third quarter.

We generated $233 million in total commercial revenue, a 10% decrease from the third quarter of 2015, driven by a 3% decrease in closed commercial orders and a 6% decline in the fee per file. National commercial revenue of $130 million declined by 11% as closed orders declined by 4% and the fee per file fell by 8%.

The total fee per file of $2,015 decreased by 6% versus the third quarter of 2015 as the mix shifted to more refinance closings in the third quarter of the year and the commercial fee per file was lower than the prior year. Let me now turn the call over to Tony Park to review the financial highlights..

Thank you, Randy. We generated $2.2 billion in total revenue in the third quarter, with title generating nearly $1.9 billion in total revenue, Black Knight contributing $267 million in total revenue and our corporate and other segment generating $66 million, which is predominantly the real estate brokerage revenue.

Adjusted pre-tax title earnings were $295 million, a $28 million or 10% increase over the third quarter of 2015. The third quarter adjusted pre-tax title margin was 15.8%. Adjusted net earnings were $192 million or $0.69 per diluted share.

The tax rate for the third quarter was 37%, approximately 200 basis points higher than the 35% we had expected heading into the quarter. The increased tax rate was a $0.02 drag on earnings per share in the quarter. The title segment generated nearly $1.9 billion in total revenue for the third quarter, a 7% increase over the third quarter of 2015.

Direct title premiums increased 6%, while agency premiums grew more than 10%. Direct title premiums benefited from the 31% increase in refinance closed orders in the quarter but were negatively impacted by the 10% decline in total commercial revenue.

Personnel costs increased by 6%, driven by the increase in refinance orders and the 361 positions added through the six title acquisitions. Other operating expenses grew 4%. FNF Group debt outstanding was $2.5 billion, with nearly $1.6 billion of that debt at Black Knight.

Our debt to total capital on a consolidated basis was approximately 28% at September 30. On an FNF-only basis, the debt to cap ratio was approximately 17% and 23% when the guarantee on $400 million of Black Knight debt is included.

Total title claims paid were $57 million during the third quarter, a decrease of $14 million or 20% from the third quarter 2015. We expect 2016 total claims paid to be approximately $250 million, a 12% decline from 2015 total claims paid of $285 million.

We remain $87 million above the actuarial midpoint of expected ultimate claims payments for all years. Finally, our FNF Group investment portfolio totaled approximately $4.9 billion at September 30.

From a regulated standpoint, we have $1.7 billion in statutory reserves, $1.4 billion in regulated cash and investments, and $900 million in secured trust deposits for a total of $4 billion in regulated cash and investments. From an unregulated perspective, we have approximately $300 million of unregulated cash at FNF Group as of September 30.

There is also approximately $200 million in consolidated cash and investments at Black Knight and ServiceLink and approximately $200 million in cash at subsidiaries, both of which are restricted by minimum working capital, other regulatory requirements or to let those businesses run themselves autonomously.

We also have $200 million in various other equity investments. Let me now turn the call back to our operator to allow for any questions..

Thank you. And our first question will come from the line of Jeremy Campbell with Barclays. Please go ahead..

Hey. Thanks.

Bill, I understand wanting to hold onto that Black Knight business because the economics are great, and they've just been absolutely killing it over there, but you guys have always been really good stewards of shareholder value and as large shareholders yourselves, I imagine you guys are pretty frustrated the FNF stock just simply isn't getting any credit for the Black Knight stake at this point.

And at this point, it seems like maybe the only way to unlock the end value would be through a spin out. Now, I know there's a couple of boxes you guys need to check off like cross-sells, settling a debt guarantee, and getting your IRS consent letter.

But can you update us on one, your progress with those initiatives; and two, your thoughts about spinning the rest of BKFS off to shareholders?.

A couple of things and thanks for the question. It's a good question. And you are right. We're always looking at various ways to enhance shareholder value of our shareholders. We have a kind of a structural issue with regard to $390 million of guaranteed Black Night debt. It's really prohibiting to prepay it prior to next October.

Next October, we kind of roll through the prepayment to make whole provisions that are in that instrument, and we can prepay it for – I think it's 102% or 102.5%. Right now, the prepayment would be about 130%. So, really, it's really, really expensive. We are looking at filing with the IRS just to possibly prepare for a spin out.

However, we are also interested in executing on our cross-sell plan, which really got under way earlier this year. We restructured the way that we attack the marketplace and really started utilizing some Black Knight personnel to help cross-sell of our non-investment-related products. And we're having quite a bit of success.

I mean, three or four serious accounts have come in, in the third quarter. Several more are moving over in the fourth quarter. So, we want to give that particular cross-sell activity time to evolve and to prove itself.

But if you've thought about a timeframe, it's probably late next year sometime or early in 2018 if the board decided that, that was the right thing to do. Black Knight does have a couple of interesting opportunities, which may need the help of FNF to execute against. So, a lot of things are moving.

We're definitely not going to do anything for at least a year, a year and two months. We want to get through that guaranteed debt, and I guess that's the most transparent answer I can give you if that's okay..

Yeah, I mean, regarding the debt though, I mean, companies like Genworth have just removed themselves as a guarantor on other third-party debt.

Is that not an option for you, guys?.

No. It's not an option unfortunately. We're stuck. It was part of our original transaction, and we're stuck with it..

Okay. Great. And then just kind of pivoting over, I mean, you guys added I think you said 350 agents in the quarter.

What does that mean for future order counts and how much of that was embedded in your 3Q print?.

What we had indicated was that was a staffing addition. That was not agents being added. And that 358 represents our title acquisition. So, there were six acquisitions made during the third quarter, title agents, one large operation that has about 170 employees of those 358 and then the other four or five make up the difference.

We also acquired a couple of relatively small escrow companies in the West. That's going to give us, as we see it now, an additional $4 million a month of revenue and gives us about 150 open orders per day..

The other thing that's interesting that has been happening in those, we put an emphasis on expanding our agency network. We expanded it intelligently because we don't want to get in the mess we were in back in the mid-2000s when we had a lot of agent claims and defalcations and so on.

But our goal was over a couple of year period to increase our national agency market share by 3%. And we don't have the numbers through October. We have them through the first six months of the year, and our agency national market share increased by 2% over the previous year.

So, we're pretty happy about the level of major agents that we're getting the additional business from or new agents that we're signing. And to keep it again in perspective, in the first quarter of 2015 when we started this process, I believe the net new agency revenue was $4 million, $5 million, and now at this run rate, I think it's....

$71 million..

...$71 million. So, in a year-and-a-half, these agents are now providing the additional $71 million of gross revenue to the company and it's growing. So, this is a major initiative for the company..

Got it. And then just one final follow-up regarding your dividend increase.

If Black Knight actually is in a holding pattern for a little bit of a while here regarding a spin to shareholders, what's the thought process behind raising the dividend to $0.25 now as basically you're paying that on effectively all Black Knight shares, which is about a 30-year stock, but you're really not getting any cash flow from that to kind of support the dividends out either?.

Obviously, as you can see from the financials and the release today, we've had excellent cash flow. We have a restructure under way with regard to redomesticating our underwriters to a different state and consolidate it in one state. That's going to free up a pretty significant amount of money, several hundred million dollars.

So, we've discussed it yesterday, and we felt like we should return a little more value to our shareholders. So, we've had to increase the dividend for 18 months. We've been pretty consistent in trying to increase it every year or every 18 months, and we thought it was a good time to do it. So, we're all shareholders, and we all kind of like the idea..

Thanks a lot..

Our next question comes from the line of Geoffrey Dunn with Dowling & Partners. Please go ahead..

Thanks. Good morning..

Good morning..

Randy, can you talk a little bit about ServiceLink? We've seen the margin in that business come down as refi volumes have compressed, but it seems lately that the revenue pattern doesn't keep up with the aggregate market volumes we're seeing on refi.

So, have lenders' behavior patterns with that business changed at all or has something else shifted that it's not as sensitive as we've seen in the past?.

Well, what we did see is that as the refinances kicked up at the front end of the third quarter, we saw a lot of that refinance activity going to our local markets. As we move towards the back end of the third quarter, ServiceLink has begun to pick up that additional volume in a centralized fashion out of the large national banks.

So, I don't know if that answers your question, but the trend changed slightly as we moved through the third quarter..

Is there more of a trend in general moving towards local markets versus centralized?.

Well, it seems like that. It's a little early to tell if that – how long that's going to continue, but you do see more local activity, you see it with the non-banks, you see it with the mortgage brokers.

The centralized solution is still very, very much in play with the large national banks, but we did see a little movement as we moved through the third quarter. Actually, it surprised us at the very beginning of it..

Okay. On national commercial, what type of insight to the pipeline do your kind of metro area producers have in terms of the big megadeals? I mean I think we've heard for several months that the bigger deals seem to have declined in terms of mix of the marketplace, and you saw that in the fee per file. But I know it's difficult.

Everything is always lumpy in title, but I would assume there's a lot of lead time that goes into some of those deals.

So, how much insight do you have into the pipeline of larger transactions?.

Geoff, this is Mike. I mean, I think our insight is typically just our order activity, and in the third quarter, our national commercial opens were off a little bit from the prior year but still really very strong. No question that there's less of the very large transactions.

As we look back to the fourth quarter of last year, we had a handful of really megadeals, and it's tough to know if those will be repeated in the fourth quarter of this year. Having said that, we still have some large transactions in inventory, and it's just a matter of when they close.

You don't know if they're going to close in the fourth quarter or the first quarter, or the second quarter for that matter..

Okay. And the last question, when you're thinking about – you've done several of these smaller title acquisitions.

How do you go about screening for what you want to pursue and what will fill in for you?.

Generally speaking, Geoff, we're looking at areas of the marketplace that are more direct oriented as opposed to say Massachusetts, which is a heavy attorney-driven state.

So, we're more focused in the West, in Texas, Illinois, Florida, and sometimes it's a supplement – we're working on one now in a particular metropolitan area that would be a roll-in but would add about 9% market share in that particular metropolitan area.

And other times, it's a penetration of a market we're really not in, which was what Western Title ended up being up in Bend. We weren't covering the area that Western Title was covering. And we have a lot of opportunities like that. Idaho is sort of wide open for us. Washington State is wide open.

There are a lot of areas in Texas that we could supplement with what we already have. So, it's really opportunistic but it's trying to either acquire companies that we can get synergies when we acquire them or we're penetrating a new market. And as a general rule, we're paying 4 to 5 times EBITDA for these companies.

So, they're owned by individuals who might be getting older, they want to retire, and we're monetizing their long-term investment, but it goes right into our system. So, we started this process about a little over a year ago of being serious about acquiring companies.

We have about six or seven in the pipeline right now that are going to add a pretty significant amount of revenue to our base business..

Okay. Great. Thank you..

And next, we'll go to the line of Bose George with KBW. Please go ahead..

Yes. Good afternoon. Actually, first on the title margin, last quarter, you guys had talked about a roughly flat margin.

Was the decline here driven really by the somewhat lower-than-expected commercial revenue? And then can you just talk about margin trends potentially for this quarter?.

Yeah. Yeah, I think that's absolutely the case. We finished out the second quarter very strong with commercial revenue. We anticipated it would continue.

July was a little short, and then as you know, our commercial revenue built each month through the third quarter, August over July, September over August, and then October was more commercial revenue than September. So, that's really what moved. As Mike had already said, it's a product of what deals closed in what quarter.

And sometimes the closing cycle on a commercial transaction can be two months or three months or it could be two years. So, as we look forward, and again, as Mike had already said, we got a good pipeline, we're optimistic, commercial is still strong, we know our second best year ever, and we'll have a good finish to the year..

And, Bose, I'll just add two other items. This is Tony. We had some seasonality in our home warranty business where typically in the third quarter, it's a little hotter in the West, and so claims costs run a little higher. That probably costs us about 30 basis points when you're comparing Q2 versus Q3.

And then we did have some higher interest income in Q2 that we've talked about last quarter. That, again, was more – it occurs every Q2, but it doesn't repeat itself in Q3 related to some investments and title plans we have in the State of Texas and that probably was 30 basis points.

So, you combine those two with the commercial impact that Randy talked about, you're probably talking about 100 basis points..

Okay. Great. That's helpful. Thanks.

Again, just switching over to the realtor business, I mean, can you just talk about if there are decent opportunities there, could we see sort of meaningful growth in that or is that always kind of a small piece of what you might do?.

No, we're actually pretty serious about the realtor side. We have several different transactions that are under way to grow our business. We want to expand the Pacific Union base from kind of North Bay, San Francisco area. And we want to expand down into Southern California. We own minority positions in a number of different real estate operations.

So, the realtor piece, especially with the CINC acquisition, is going to be very important to us, and we view it as a growth mechanism going forward..

Okay. Great. Thanks. Actually, one more just on the tax rate.

Just when I look at the segment level, where does the higher tax rate – which segment did that go through?.

I think most of it would have shown up – well, some of it is in title. But title maintains a pretty steady tax rate. So, it probably showed up in the FNF Group. I look at it on a consolidated basis, and that was really driven by a couple of things, higher forecasted full-year earnings than we thought a quarter ago and then lower equity compensation.

As you know, I think we've talked about equity compensation, both stock option exercise as investing a restricted stock lowers the tax rate, and we didn't have a lot of that activity in Q3. And so, we anticipated a little lower rate than what we ended up getting. So, I do expect a rate in Q4 to be roughly 35%, which is what we thought Q3 would be..

Okay. Great. Thank you..

Next we'll go to the line of John Campbell with Stephens, Incorporated. Please go ahead..

Hi, guys. Good morning..

Good morning..

Good morning..

Just back to the commercial business, I know you guys obviously don't have a crystal ball, but I mean, it does sound like the commercial business is not back a little bit going into the late stages in 3Q. It sounds like 4Q is going to be fine. And even if it's down a little bit, I mean, that's going to be your second best commercial quarter ever.

But just curious about next year, do you guys, I mean, just based on what you're seeing and what some of the guys and the trends you're seeing, do you guys feel like you can maybe hold that flat next year?.

John, it's Mike. So, kind of on the order side, let me just kind of walk through that a little bit. As we got into the third quarter, July open orders fell off about 15% from last year, which was a bigger drop than we would have anticipated.

And had that trend continued, I'd be obviously more concerned, but orders really came back strong in August and September. And we actually finished the quarter with more open commercial orders than we had both last year and in the second quarter this year. So, that kind of tells us that we still got very positive trends on the commercial side.

I just got back from a meeting in New York two weeks ago, met with all of our commercial operators from our national commercial offices, and they are anticipating a good, strong 2017 and looking, based on the inventories they have right now, for a good first quarter.

And that's about the visibility we have, our order trends that we're seeing today, and they're very strong. Full year, we've opened the exact same number of orders that we opened last year. We've actually closed a few more.

The only difference is national commercial is up a little bit, local commercial is up a little bit, and it has obviously implications for the fee per file..

Okay. That's helpful. And then on the home warranty business, I know First American, they've kind of run into some of the same kind of claim loss pressure, and then they also had some higher costs running through the business as well just from operational standpoint.

But just curious, I mean, Tony, I think you said there is about 30 bps or about $5 million or $6 million of pressure in the quarter.

Is that all due to just the kind of abnormal claim loss or is there a higher kind of run rate cost running that businesses?.

Yeah. No. Thanks, John. It's claims. It's not operating cost at all. And we've been in this business a long time and have a very good operation, but we typically have higher claims in the third quarter, and this was even higher than normal. So, it did cost us about $6 million, to your point, relative to the second quarter..

And then that is kind of normalized through October?.

Oh, yes. Yes. We'll be back when the summer wanes and the weather gets cooler, those air conditioners stop breaking, and that drives a lot of the claims costs..

Okay. Thanks. Thanks ,guys..

And our next question comes from the line of Kevin Kaczmarek with Zelman & Associates. Please go ahead..

Hey, guys. Thanks for taking my question.

I guess, on Commissions, Inc., can you elaborate a little bit on maybe the financial profile and the strategy there? I mean, obviously, it's good to stay closer to realtors, but what kind of revenue numbers and margins and overall strategy you guys are thinking for that over the next couple of years?.

Well, this is Randy. The overall strategy, as Bill had already mentioned, was to leverage our Fidelity sales team and put this very innovative CRM product, lead generating product in front of our realtor customers.

In terms of the financial side, they're running about $50 million currently, and the anticipated margin, that will run from 25% up to the 30% range.

And as we as mature this and we continue to build volume, as we really move the product and expose the product out into our realtor customers across the country, we should be able to increase those margins in addition..

Okay. And I guess the FNTG purchase orders that you mentioned were up 8% in October.

Was that opened or closed orders?.

That was opened orders in October. And our refinances are significant also if you take the purchase orders going back to Q3-over-Q3, our refinance orders were up 20%. Our purchase orders were up 5% and now to 8% in October.

So, we're going to have some good closings in the fourth quarter on the refinance side to carry over from Q3, also what took place in October and as well with the purchase transactions..

Okay. Thanks. And I guess, one last one.

On the agent retention ratio, I know it depends a lot on geography, but I guess, going forward, given your share gains in certain parts of the agent market, can you give us a sense of how you expect the retention ratio to trend going forward?.

Yeah. This is Mike. I think the retention ratio, as you said, really depends on the geography that the remittances are coming from. We've seen very strong performance year-over-year in the Mid-Atlantic states, Texas, also the Midwest, and some of those states, particularly Texas, have high retention rates.

They're actually set by the state, and they are some of the highest that we have. So, it's more of a geographic mix versus an issue of us having to give up a split to get more agency business..

Okay.

So, (34:25-34:30) retention rate kind of be a good run rate or should it maybe go back to 76%?.

I think you cut out there for a minute. We didn't hear the question..

I think somewhere between 23% and 24%, 76% and 77% on the commission line item is probably a fair run rate..

Okay. All right. Thanks a lot. That's all I had..

Our next question comes from the line of Jason Deleeuw with Piper Jaffray. Please go ahead..

Hey, guys. Thanks. A question on the commercial trends.

Were there any regions that you could call out that were softer than others?.

Yeah. Jason, this is Mike again. So, New York is probably the one area that stands out in terms of a revenue difference year-over-year.

And it's probably more of a function of just the outstanding year they had in the prior year versus a weaker this year, but the bigger transactions that we saw last year tend to be generated out of the New York markets. And so, that's the one market that's down. It's maybe off about 15%.

And then to some extent, we've seen some softness in the Houston, Texas market with our commercial operations there again being off low double digits on the revenue side..

All right. Thanks for that. And then the provision rate going forward, you're still at 5.5%. The claims continue to trend nicely.

So, any updates on the provision rate going forward? Could we see another step-down there?.

Yeah, that is a possibility. The trends are coming in pretty much as we expected. We continue to maintain a position of $87 million redundancy above our actuary's best estimate. That's the same number we had in the second quarter, also the same number we had at year-end 2015, so we haven't built on that.

What we continue to see is the pre-2008 policies that are a little adverse of what we're expecting. In the meantime, all the years or almost all years since 2008 have actually trended down below and sometimes well below that 5.5%.

So, once we stop seeing any leakage in the pre-2008 years, and I think that will probably come relatively soon, I could anticipate seeing that 5.5% provision rate come down to 5% and possibly lower than that. It all depends on what we continue to see, but we are seeing some sub 5% years in the more recent vintages..

Great. And then the last question is just on high-end home trends for residential, been a lot of talk the last few quarters about softness there in some of the key big city coastal markets.

Have you guys seen any weakness there and has that impacted, kind of held back your purchase activity at all?.

No. This is Randy. I don't think that's held back our purchase activity. The real hot markets are still moving very well at the high end. The biggest issue you have in any of the metropolitan centers is inventory. That seems to be the one thing that still gets in the way.

But no, the high-end market's moving extremely well, particularly some of the technology areas over in the West, over in California. Those properties continue to move very quickly. Lot of all-cash deals still, quick closes. So, there's still a lot of dynamics in that. Same thing in the New York market, it's still moving very well..

Okay. Thank you very much..

And our next question comes from the line of Ryan Byrnes with Janney. Please go ahead..

Great. Thanks for taking my call. Just had a question on – I think you guys mentioned you're maybe redomiciling a sub and that would help free cash flow.

Can you just add some more color to that and the mechanics behind that and the timing?.

Yeah. This is Tony. We're still working through that. We don't want to disclose a lot more information on that front at this time. But the timing would likely be sometime in the first or second quarter of next year. And it appears to be a very good opportunity for us. But we're still kind of working through that process..

So, with the impact, did you say a couple hundred million dollars of free cash flow? I just want to make sure I understood that..

Yes, that's correct..

Okay. Great. That's pretty interesting. And then secondly, last question, just kind of buyback patterns obviously slowed down. You guys are a little more, I guess, aggressive on the M&A market in the quarter.

Should it resume back to, I guess, 1H 2016 level or stay in this, I guess, 1 million share range? I think you guys noted that the backlog was pretty strong right now..

I think we'd like to get through this – the redomestication situation works out for us, that would allow us to probably reinvest a bit more in repurchasing shares. So, we're going to be at this level for six months or so, and then we'll probably revisit it in the second quarter of next year..

Okay. Great. Thanks. Thanks for the color, guys..

And there are no further questions in queue. I would now like to turn the conference back to Mr. Foley for closing remarks..

Thank you. This was another strong quarter for our title insurance business. As we enter the fourth quarter of 2016, we will continue to strive to maximize earnings from our operations and remain the most profitable title insurance company in the country. Thanks for joining us today..

And that does conclude your conference for today. Thank you for your participation and for using AT&T's Executive TeleConference Service. You may disconnect your lines..