OTTAWA, September 4, 2018 — On August 20, 2018, the Competition Bureau issued a No Action Letter (NAL) with respect to the proposed merger between Stewart Information Services Corporation (Stewart) and Fidelity National Financial Inc. (FNF). The NAL indicates that the Interim Commissioner of Competition does not, at this time, intend to make an application under section 92 of the Competition Act in respect of the proposed transaction.
The Bureau’s investigation pertained to title insurance, including residential and commercial policies sold to both lenders and property owners. The Bureau concluded that the proposed transaction is not likely to lead to a substantial lessening or prevention of competition with respect to title insurance.
In the course of its review, the Bureau conducted interviews with numerous industry stakeholders, including customers, competitors and government regulators. The Bureau also reviewed a wide array of documents and retained the services of an economic expert to analyze sales and financial data provided by the parties and obtained from other sources.
This statement summarizes the approach taken by the Bureau in its review of the proposed transaction.Footnote 1
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Stewart and FNF are providers of title insurance in Canada and the United States. In Canada, Stewart operates as Stewart Title Guaranty Company, while FNF operates as FNF Canada and Chicago Title Insurance Company Canada. FNF also provides mortgage transaction services, including appraisal services, document processing and property tax management. As Stewart does not offer mortgage transaction services, the Bureau’s investigation pertained primarily to title insurance.
Title insurance is an insurance policy that protects residential or commercial property owners and their lenders against losses related to the property’s title or ownership, such as title defects, liens, encroachments and real estate fraud. Title insurance is usually sold either:
- prior to the closing of real estate transactions, in which case the purchase is typically facilitated by the purchaser’s real estate lawyer or notary, or
- leading up to a mortgage refinancing, when the purchase is commonly initiated by the lender.
Many mortgage lenders will require borrowers to purchase title insurance on the lender’s behalf prior to issuing a mortgage, and borrowers will often simultaneously buy an owners’ title insurance policy for their own benefit.
Throughout its review, the Bureau collaborated with the United States Federal Trade Commission. There are significant factual differences between the Canadian and American title insurance industries and the activities of the parties in each jurisdiction.
The Bureau concluded that the likely geographic market for title insurance is provincial, as title insurance is priced and sold differently in each province, based on risk of claims, distinctions in how land is conveyed, and compliance rules pertaining to compensation of real estate lawyers, who often facilitate the sale of title insurance.
Title insurance is segmented into lenders’ and owners’ policies and commercial and residential policies.
The Bureau considered whether title insurance products constituted product markets distinct from other forms of title assurance, notably title opinions. Title opinions are legal opinions given by lawyers or notaries in the course of real estate closings. To provide a title opinion, legal professionals gather information by conducting title searches, seeking comfort letters from tax authorities and utilities companies and, sometimes, obtaining a land survey. If title is found to be defective after issuance of a title opinion, injured owners and lenders may in some cases bring a legal claim against the lawyer or notary, who may in turn be indemnified by her or his errors & omissions insurer.
Most lending institutions in Canada will accept without preference either title insurance or a title opinion, particularly in residential transactions. However, the Bureau noted significant cost and qualitative differences between the two products. Title insurance, particularly in residential transactions, is priced significantly lower than title opinions in many parts of the country, because of the costs associated with the searches required for a legal professional to issue a title opinion. As well, title insurers promote additional benefits of insurance such as shorter turnaround times, gap coverage, and protections against certain real estate frauds and government errors on which legal professionals will not generally opine. For these reasons, some lenders will require that title insurance be purchased in every transaction. Further, title insurance may be necessary in unusual circumstances where known issues are associated with title to a property.
The Bureau considered evidence on the degree of substitution between title insurance and title opinions, and concluded that the two products likely form a single product market in a large number of commercial real estate transactions, where greater substitution occurs. In residential transactions, the Bureau found that the degree of substitution between title insurance and title opinions differed greatly across Canada, and that the penetration rate of title insurance varies by province. Notably, title insurance is obtained in nearly all residential real estate transactions in Ontario for three reasons. First, the costs of title opinions are high due to high disbursement costs. Second, title insurers commonly provide payment to Ontario real estate lawyers in connection with the sale of title insurance policies. Third, regulation requires Ontario real estate lawyers to discuss the option of title insurance with their clients. The Bureau found that substitution to title opinions was less likely for certain residential transactions, and in certain regions, where the benefits of title insurance were particularly pronounced.
In consideration of these factors, the Bureau concluded that for at least a subset of real estate transactions and particularly certain residential transactions, a title opinion is not a close substitute for title insurance. However, it was unnecessary to determine the precise bounds of the product market, as the Bureau concluded that even if the product market were to be defined narrowly as title insurance alone, the proposed transaction is unlikely to result in a substantial lessening of competition.
Effective remaining competition
In addition to the parties, at least two other firms currently provide title insurance in Canada. First Canadian Title is the largest title insurance provider in Canada, and the Bureau’s review found that First Canadian Title competes vigorously with the parties across all regions and types of title insurance. As well, Lawyers’ Professional Indemnity Corporation, a corporation owned by the Law Society of Ontario, also offers title insurance under its TitlePLUS banner for residential and small commercial transactions across Canada.
Barriers to entry and expansion
The Bureau assessed barriers to entry and expansion in title insurance, particularly for firms already providing property and casualty (P&C) insurance in Canada. Regulatory barriers to entry appear to be relatively low, and the regulatory obligations for offering title insurance, including mandatory capital reserves, are comparable to other lines of P&C insurance.
The Bureau considered whether entrants would face reputational barriers, or barriers relating to distribution of title insurance products, as title insurance products must typically be approved by lending institutions and then sold through real estate lawyers or notaries. The Bureau found that such barriers would be surmountable for established P&C insurers, who generally have strong existing business relationships with Canada’s banks, credit unions and caisses populaires. The Bureau also reviewed previous instances of entrants successfully establishing such relationships with real estate lenders. The Bureau found that an entrant would likely require only modest investments in specialized underwriting personnel and sales professionals to offer effective title insurance products.
Based on the above, the Bureau concluded that the proposed transaction is not likely to lead to a substantial lessening or prevention of competition with respect to the provision of title insurance in Canada. Accordingly, the Bureau issued a NAL.
This publication is not a legal document. The Bureau’s findings, as reflected in this Position Statement, are not findings of fact or law that have been tested before a tribunal or court. Further, the contents of this Position Statement do not indicate findings of unlawful conduct by any party.
However, in an effort to further enhance its communication and transparency with stakeholders, the Bureau may publicly communicate the results of certain investigations, inquiries and merger reviews by way of a Position Statement. In the case of a merger review, Position Statements briefly describe the Bureau's analysis of a particular proposed transaction and summarize its main findings. The Bureau also publishes Position Statements summarizing the results of certain investigations, inquiries and reviews conducted under the Competition Act. Readers should exercise caution in interpreting the Bureau’s assessment. Enforcement decisions are made on a case‑by‑case basis and the conclusions discussed in the Position Statement are specific to the present matter and are not binding on the Commissioner of Competition.
The Competition Bureau, as an independent law enforcement agency, ensures that Canadian businesses and consumers prosper in a competitive and innovative marketplace.