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Led by the 'Bruce Lee' of Title Companies, Fidelity Is Booming : Insurance: William Foley's hard-edged style of management and acquisition has led to phenomenal growth for the Irvine-based firm.

September 07, 1993|JAMES S. GRANELLI | TIMES STAFF WRITER

IRVINE — For a hard-charging entrepreneur like William P. Foley II, the title insurance industry was so stodgy and dull in the early 1980s that it was ripe for conquest.

So Foley built a title company to fit his aggressive, no-nonsense style; one that now earns him the sobriquet, the "Bruce Lee of title insurers." He introduced marketing and management ideas that inspired employees and caught competitors off guard.

In the process, he led Fidelity National Financial Inc. from a tiny Arizona storefront operation 10 years ago to become the nation's fifth-largest title insurance company with 4,700 employees in 48 states and its headquarters in Irvine. It is No. 2 in the state behind First American Financial Corp. in Santa Ana, the nation's second-largest title company.

Foley, 48, the president and chief executive officer, and his top aides also have made Fidelity the envy of the industry by achieving what no other major title insurer has been able to do in the past five years--generate annual profits solely from operations. And it will do it again this year.

"There's no room for comparison in my book. These guys are the best," gushed John O'Neil, an industry analyst with the Oppenheimer & Co. Inc. brokerage in New York.

Fidelity's revenue solely from title operations has grown at a rate of 30% a year for the last five years. It expects one more blockbuster year--topping $500 million in revenue, a 31% hike over last year--before it eases into a slower-growth cycle and concentrates on adding ventures related to its title business.

Both the rapid growth, which came largely from major acquisitions in the past two years, and the complexities of managing a much larger, nationwide company have forced Foley to add a bit of fat to his bare-bones approach to management.

He has, for instance, broken one of his longtime corporate vows--to avoid bureaucracy--by hiring a regional manager to handle the company's East Coast operations. "He's not allowed to have a regional staff; just him and a secretary," said the red-tape-hating Foley. His tenet now is "minimize bureaucracy."

He also said he is trying to soften his domineering ways over his own staff.

"I used to have hair before I worked for him," Steve McCartney quipped about his stressful days as Fidelity's chief financial officer for five years in the mid-1980s.

*

The stress has paid off on the bottom line, though. The company's net income has grown from $2.5 million in 1988 to $15.1 million last year.

The company's phenomenal growth is almost as much a surprise to Foley as it is to Fidelity investors and competitors.

"I hate to say this," he confessed, "but there really wasn't much of a plan," he said. "I mean, there was a plan in that we wanted to expand, but I never dreamed back in the mid-'80s that our company would become as big as it is today."

As a business, title insurance is one of the least risky because it insures against past events, not future ones. It protects buyers against mistakes in ownership, liens or encumbrances such as taxes, mortgages or other ownership claims on property being insured. If companies research the public record accurately, they would never have a loss. But mistakes are made, and the companies fall victim to fraud, especially by independent agents.

Fidelity owes its success mainly to an approach unusual in the industry:

* Its title policies are sold mostly by employees, not through agents. This not only saves money--agents keep 80% of premiums, while using employees cost only about 50%--it also gives Fidelity a better way to guard against losses. Fidelity paid out about 5% of its revenue on losses last year, compared to an industry average of 8%.

* It focuses on the residential resales, which are safer and more consistent than the commercial and new-home markets. While concentrating on home resales, Fidelity has benefited from the refinancing boom over the last few years--lenders require a new title policy for any new home loan.

* It has made astute acquisitions--two major ones in the last two years and 11 since 1986--and turned around undervalued, lagging operations. The expansion has given it a national presence and something it never had before: a sizable investment portfolio. "One of the reasons we've been so successful in operations is that we had to be," Foley said. "We had no cushion like other title companies that could rely on earnings from their investment portfolios when title operations were down. Now, we've got a cushion, but that doesn't mean we're going to change."

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