UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the fiscal year ended December 31, 2022
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from __to __
Commission file number 0-11774
INVESTORS TITLE COMPANY
(Exact name of registrant as specified in its charter)
North Carolina
56-1110199
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
121 North Columbia Street
Chapel Hill, North Carolina 27514
(919) 968-2200
(Address and telephone number of principal executive office)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, no par value
Rights to Purchase Series A Junior Participating Preferred Stock
Trading symbol(s)
Name of each exchange on which registered:
ITIC
The Nasdaq Stock Market LLC
The Nasdaq Stock Market LLC
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of
the Exchange Act.
Large accelerated filer ☐
Accelerated filer ☒
Non-accelerated filer ☐
Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing
reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any
of the registrant’s executive officers during the relevant recovery period pursuant to§240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the shares held by non-affiliates of the registrant as of June 30, 2022 was $220,925,752 based on the closing price on the Nasdaq
Stock Market LLC.
As of February 17, 2023, there were 1,896,666 common shares of the registrant outstanding.
Documents incorporated by reference: Portions of Investors Title Company’s definitive proxy statement for the Annual Meeting of Shareholders to be held
May 17, 2023 are incorporated by reference in Part III hereof.
Safe Harbor and Forward-Looking Statements
This Annual Report on Form 10-K, as well as information included in future filings by Investors Title Company (the “Company”)
with the Securities and Exchange Commission (the “SEC”) and information contained in written material, press releases and oral
statements issued by or on behalf of the Company, contains, or may contain, “forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the
“Exchange Act”), that reflect management’s current outlook for future periods. These statements may be identified by the use of
words such as “plan,” “expect,” “aim,” “believe,” “project,” “anticipate,” “intend,” “estimate,” “should,” “could,” “would” and other
expressions that indicate future events and trends. All statements that address expectations or projections about the future, including
statements about the Company’s strategy for growth, product and service development, market share position, claims, expenditures,
financial results and cash requirements, are forward-looking statements. Without limitation, projected developments in mortgage
interest rates and the overall economic environment set forth in “Management’s Discussion and Analysis of Financial Condition and
Results of Operations – Business Trends and Recent Conditions” constitute forward-looking statements. Forward-looking statements
are based on certain assumptions and expectations of future events that are subject to a number of risks and uncertainties. For a
description of factors that may cause actual results to differ materially from such forward-looking statements, refer to “Item 1A. Risk
Factors” of this Annual Report on Form 10-K. Actual future results and trends may differ materially from historical results or those
projected in any such forward-looking statements depending on a variety of factors, including, but not limited to, the following:
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changes in interest rates and real estate values;
changes in general economic, business, and political conditions, including the performance of the financial and real estate
markets;
the impact of inflation;
the impact of ongoing military conflict between Russia and Ukraine;
the impact of a failure of the U.S. federal government to manage its fiscal matters or to raise or further suspend the debt
ceiling;
potential reform of government-sponsored entities;
the level of real estate transaction volumes, the level of mortgage origination volumes (including refinancing), the mix of title
insurance between markets with varying real estate values, changes to the insurance requirements of the participants in the
secondary mortgage market, and the effect of these factors on the demand for title insurance;
the possible inadequacy of provisions for claims to cover actual claim losses;
the incidence of fraud-related losses;
the impact of cyberattacks (including ransomware attacks) and other cybersecurity events, including damage to the
Company's reputation in the event of a serious IT breach or failure;
the impact of COVID-19, including its variants, or other pandemics, climate change, severe weather conditions or the
occurrence of another catastrophic event;
unanticipated adverse changes in securities markets that could result in material losses to the Company’s investments;
significant competition that the Company’s operating subsidiaries face, including the Company’s ability to develop and offer
products and services that meet changing industry standards in a timely and cost-effective manner and expansion into new
geographic locations;
the Company’s reliance upon the North Carolina, Texas, South Carolina and Georgia markets for a significant portion of its
premiums, comprising approximately 35.6%, 29.0%, 9.4% and 9.2% of premiums written, respectively;
compliance with government regulation, including pricing regulation, and significant changes to applicable regulations or in
their application by regulators;
the impact of governmental oversight of compliance of the Company’s service providers, including the application of
financial regulation designed to protect consumers;
possible downgrades from a rating agency, which could result in a loss of underwriting business;
the inability of the Company to manage, develop and implement technological advancements and prevent system
interruptions or unauthorized system intrusions;
statutory requirements applicable to the Company’s insurance subsidiaries that require them to maintain minimum levels of
capital, surplus and reserves and restrict the dividend amounts they may pay the Company without prior regulatory approval;
the desire to maintain capital above statutory minimum requirements for competitive, marketing and other reasons;
heightened regulatory scrutiny and investigations of the title insurance industry;
the Company’s dependence on key management and marketing personnel, the loss of whom could have a material adverse
effect on the Company’s business;
difficulty managing growth, whether organic or through acquisitions;
unfavorable economic or other conditions could cause the Company to record impairment charges for all or a portion of its
goodwill and other intangible assets;
policies and procedures for the mitigation of risks may be insufficient to prevent losses;
the shareholder rights plan could discourage transactions involving actual or potential changes of control; and
other risks detailed elsewhere in this document and in the Company’s other filings with the SEC.
2 These and other risks and uncertainties may be described from time to time in the Company’s other reports and filings with the
SEC. The Company is not under any obligation (and expressly disclaims any such obligation) and does not undertake to update or
alter any forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are
made. You should consider the possibility that actual results may differ materially from our forward-looking statements.
3 INVESTORS TITLE COMPANY AND SUBSIDIARIES
TABLE OF CONTENTS
PART I
Business
Executive Officers of the Company
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Exhibits, Financial Statement Schedules
Form 10-K Summary
PART IV
Signatures
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4 ITEM 1. BUSINESS
GENERAL
PART I
Investors Title Company (the “Company”) is a holding company that operates through its subsidiaries and was incorporated as a
corporation under the laws of the state of North Carolina in 1973. The Company became operational in 1976, when it acquired
Investors Title Insurance Company (“ITIC”), which had itself been operating since 1972, as a wholly owned subsidiary under a plan
of exchange of shares of common stock. In 1983, the Company acquired National Investors Title Insurance Company (“NITIC”),
formerly Northeast Investors Title Insurance Company, which had itself been operating since 1973, as a wholly owned subsidiary
under a plan of exchange of shares of common stock. The Company’s executive offices are located at 121 North Columbia Street,
Chapel Hill, North Carolina 27514 and its telephone number is (919) 968-2200. The Company maintains a website at
www.invtitle.com. The contents of the Company’s website are not and shall not be a part of this Annual Report on Form 10-K or any
other SEC filing.
OVERVIEW OF THE BUSINESS
The Company’s primary business activity, and its only reportable operating segment, is the issuance of residential and commercial
title insurance through ITIC and NITIC. Additionally, the Company provides (i) tax-deferred real property exchange services through
its subsidiaries, Investors Title Exchange Corporation (“ITEC”) and Investors Title Accommodation Corporation (“ITAC”); (ii)
investment management and trust services to individuals, trusts and other entities through its subsidiary Investors Trust Company
(“Investors Trust”); and (iii) management services to title insurance agencies through its subsidiary, Investors Title Management
Services (“ITMS”). Refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and
Note 12 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K (the “Consolidated
Financial Statements”) for additional information related to the revenues, income and assets attributable to the Company’s primary
operating segment.
Title Insurance
Through its two wholly owned title underwriting subsidiaries, ITIC and NITIC, the Company underwrites title insurance for
owners and mortgagees as a primary insurer. ITIC and NITIC offer primary title insurance coverage to owners and mortgagees of real
estate and assume reinsurance of title insurance risks from other title insurance companies. The commitments and policies are
predominantly issued using standard forms approved by the American Land Title Association (“ALTA”).
Title insurance protects against losses resulting from title defects affecting real property. Upon a real estate closing, the seller of
real property executes a deed to the new owner, and typically, the property is encumbered with a new mortgage. When real property is
conveyed from one party to another, occasionally there is an undisclosed or undiscovered defect in the title or a mistake or omission in
a prior deed or mortgage that may give a third party a legal claim against such property or result in the invalidity or unenforceability of
the insured mortgage. If a claim is made against the title to real property, title insurance provides indemnification against covered
defects.
Numerous types of defects could jeopardize the property owner’s or mortgagee’s interest in the property for which a title policy
may provide coverage. Such risks include title being vested in an individual or entity other than the insured, lack of a right of access
to the property, invalidity or unenforceability of the insured mortgage, or other liens or encumbrances that make the property
unmarketable. The policy may provide coverage for defects arising from prior unsatisfied mortgages, judgments, tax liens or
confirmed assessments, or encumbrances against the property arising through easements, restrictions or other existing covenants. Title
insurance may also protect against deeds or mortgages that were forged or improperly acknowledged or delivered, that were executed
by spouses without the other spouse’s signature or that were conveyed by minors or other persons who lack legal capacity.
Title Insurance Policies: The Company issues title insurance policies based on a search of public records. The title search
documents the current status of title to the property. There are two basic types of title insurance policies – one for the mortgage lender
and one for the real property owner. A lender often requires property owners to purchase title insurance to protect the priority of its
mortgage loan, but the lender’s title insurance policy does not protect the property owner. The property owner has to purchase a
separate owner’s title insurance policy to protect its investment.
5 Insured Risk on Policies in Force: Generally, the amount of the insured risk under a title insurance policy is equal to the purchase
price, the loan amount or the fair market value of the insured property. If a claim is made against an insured property’s title, the
insurer can choose to pay the cost of eliminating the covered title defects or to defend the insured party against the covered title
defects affecting the property. In the alternative, the insurer may opt to pay the policy limits to the insured or, if the loss is less than
the policy limits, the amount of the insured’s actual loss due to such title defects, at which time the insurer’s duty to defend the claim
and all other obligations of the insurer with respect to the claim are satisfied.
At any given time, the insurer’s actual risk of monetary loss under outstanding policies is only a portion of the aggregate insured
risk, or total face amount, of all policies in force. The lower risk results primarily from the reissuance of title insurance policies for the
same property by other underwriters over time when such property is subsequently conveyed or refinanced. The coverage on a
lender’s title insurance policy is reduced and eventually terminated as the mortgage loan is paid. An owner’s policy is effective as
long as the insured has an ownership interest in the property or has liability under warranties of title. Due to the variability of these
factors, the aggregate contingent liability of the Company’s title underwriters on outstanding policies cannot be determined with
precision.
Losses and Reserves: While most other forms of insurance provide for the assumption of risk of loss arising from unforeseen
events, title insurance is based upon a process of loss avoidance. Title insurance generally serves to protect the policyholder from the
risk of loss from events that predate the issuance of the policy. Losses on policies typically occur when a title defect is not discovered
during the examination and settlement process or upon the occurrence of certain hidden risks which cannot be determined from an
accurate search of public land records. The maximum amount of liability under a title insurance policy is generally the face amount of
the policy plus the cost of defending the insured’s title against an adverse claim, if agreed to by the insurer prior to payment of loss
under the policy, and any inflation protection clause associated with the policy. The reserve for claim losses is established from
known claims, as well as estimated losses incurred but not yet reported to the Company based upon historical experience and other
factors.
Title claims can often be complex, vary greatly in dollar amounts, are affected by economic and market conditions and may
involve uncertainties as to ultimate exposure. Therefore, reserve estimates are subject to variability. For a more complete description
of the Company’s reserve for claims, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations” in this Annual Report on Form 10-K.
Title Insurance Underwriting Operations: ITIC and NITIC issue title insurance policies directly and through a network of agents.
Issuing agents are typically real estate attorneys, independent agents or subsidiaries of community and regional mortgage lending
institutions, depending on local customs and regulations and the Company’s marketing strategy in a particular territory. The
Company’s title insurance subsidiaries determine the terms and conditions upon which they will insure title to real property according
to the Company’s underwriting standards, policies and procedures. Title insurance premiums written reflect a one-time premium
payment, with no recurring premiums.
Generally, premiums for title insurance are recorded and recognized as revenue at the closing of the related transaction, when the
earnings process is considered complete. When the policy is issued directly, the premiums collected are retained by the Company.
When the policy is issued through a non-wholly owned title insurance agency, the agency retains a majority of the premium as a
commission and remits the net amount to the Company. Title insurance commissions earned by the Company’s agents are recognized
as expenses concurrently with premium recognition. The percentage of the premium retained by agents varies by region and is
sometimes regulated by the states where the property is located.
For a description of the level of net premiums written directly and through agency operations, refer to “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K.
Geographic Operations: ITIC was incorporated in North Carolina in 1972, and is licensed to write title insurance in 44 states and
the District of Columbia. ITIC currently writes title insurance as a primary insurer in 22 states and the District of Columbia, primarily
located in the eastern half of the United States, and as a reinsurer for NITIC and third-party title insurance companies.
NITIC was incorporated in South Carolina in 1973, and is licensed to write title insurance in 20 states and the District of
Columbia. In November 2014, NITIC redomesticated to Texas. NITIC currently writes title insurance as a primary insurer in Texas,
and as a reinsurer for ITIC.
Premiums from title insurance written on properties located in North Carolina, Texas, South Carolina and Georgia represent the
largest source of revenue for the title insurance segment. In North Carolina, a majority of the Company’s title insurance commitments
and policies are issued directly. In Texas, South Carolina, Georgia and other states, title policies are primarily issued through issuing
agents. For a description of the level of net premiums written geographically for significant states, refer to “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K.
6 Each state license authorizing ITIC or NITIC to write title insurance must be renewed annually. These licenses are necessary for
the companies to operate as a title insurer in each state in which they write premiums.
Ratings: The Company’s title insurance subsidiaries are regularly assigned ratings by independent agencies designed to indicate
their financial condition and/or their claims paying ability. The rating agencies determine ratings primarily by analyzing financial
data.
Reinsurance: The Company assumes and cedes reinsurance with other insurance companies in the normal course of business.
Reinsurance is a contractual arrangement whereby one insurer assumes some or all of the risk exposure written by another insurer.
Ceded reinsurance is comprised of excess of loss treaties, which outline the conditions in which the reinsurance company will pay
claims and protect the ceding insurer against losses over certain agreed amounts.
In the ordinary course of business, ITIC and NITIC reinsure certain risks with other title insurers to limit their risk exposure and
to comply with state insurance regulations. They also assume reinsurance for certain risks of other title insurers for which they receive
additional income in the form of reinsurance premiums. For each of the last two years, revenues from reinsurance activities accounted
for less than 1% of total premium volume.
Exchange Services, Investment Management and Trust Services, and Management Services
The Company’s other lines of business include services offered by wholly owned subsidiaries ITEC, ITAC, Investors Trust, and
ITMS.
In 1988, the Company established ITEC to provide services in connection with tax-deferred exchanges of like-kind property
pursuant to §1031 of the Internal Revenue Code of 1986, as amended (the “IRC”). ITEC acts as a qualified intermediary in tax-
deferred exchanges of real property held for productive use in a trade or business or for investment, and its income is derived from
fees for handling exchange transactions and interest earned on client deposits held by the Company. In its role as qualified
intermediary, ITEC coordinates the exchange aspects of the real estate transaction, and its duties include drafting standard exchange
documents, holding the exchange funds between the time the old property is sold and the new property is purchased, and accepting the
formal identification of the replacement property within the required identification period. ITAC provides services as an exchange
accommodation titleholder for accomplishing “parking transactions” as set forth in the safe harbor contained in Internal Revenue
Procedure 2000-37. These transactions include reverse exchanges when taxpayers decide to acquire replacement property before
selling the relinquished property, or “build to suit” exchanges, when improvements must be made to the replacement property before
the taxpayer acquires the improved replacement property. The services provided by the Company’s exchange services division, ITEC
and ITAC, are pursuant to provisions in the IRC. From time to time, these laws are subject to review and changes, which may
negatively affect the demand for tax-deferred exchanges in general, and consequently, the revenues and profitability of the Company’s
exchange services division.
Investors Trust provides investment management and trust services to individuals, companies, banks and trusts.
ITMS offers various consulting and management services to provide clients with the technical expertise to start and successfully
operate a title insurance agency.
None of these other lines of business is currently a reportable segment for which separate financial information is presented;
instead, they are collectively included and reported in the category “All Other” in the segment information in Note 12 of the Notes to
the Consolidated Financial Statements.
CYCLICALITY AND SEASONALITY
Real estate activity, home sales and mortgage lending are cyclical in nature. Title insurance premiums are closely related to the
level of real estate activity and the average price of real estate sales. The availability of funds to finance purchases directly affects real
estate sales. Other factors include mortgage interest rates, consumer confidence, economic conditions, supply, demand and family
income levels. The Company’s premiums in future periods are likely to fluctuate due to these and other factors which are beyond
management’s control.
Historically, the title insurance business tends to be seasonal as well as cyclical. Because home sales are typically strongest in
periods of favorable weather, the first calendar quarter tends to have the lowest activity levels, while the spring and summer quarters
tend to be more active. Refinance activity is generally less seasonal, but is subject to interest rate fluctuations.
7 MARKETING
The Company markets its title insurance services to a broad range of customers in the residential and commercial market sectors
of the real estate industry. Issuing agents are typically real estate attorneys, independent agents or subsidiaries of community and
regional mortgage lending institutions, depending on local customs and regulations and the Company’s marketing strategy in a
particular territory.
ITIC and NITIC strive to provide superior service to their customers and consider this an important factor in attracting and
retaining customers. Company personnel strive to develop new business and agency relationships to increase market share while
ITIC’s Commercial Services Division focuses on services provided to commercial clients.
REGULATION
Any material change in the Company’s regulatory environment may have an adverse effect on its business.
Title Insurance
The Company is an insurance holding company and therefore, it is subject to regulation in the states in which its insurance
subsidiaries do business. These regulations, among other things, require insurance holding companies to register and file certain
reports, and require prior regulatory approval of the payment of extraordinary dividends and other intercompany distributions or
transfers. They also may require approval of the insurance commissioner prior to a third party directly or indirectly acquiring control
of the insurer, which may make it difficult or prohibitive for a third party to acquire the Company.
Title insurance companies are extensively regulated under applicable state laws. All states have requirements for admission to do
business as an insurance company, including minimum levels of capital, surplus and reserves. State regulatory authorities monitor the
stability and service of insurance companies and possess broad powers with respect to the licensing of title insurers and agents,
approving rate schedules and policy forms, financial reporting and accounting practices, reserve requirements, investments and
dividend restrictions, approving related party transactions, as well as examining and auditing title insurers. At December 31, 2022,
both ITIC and NITIC met the statutory premium reserve requirements and the minimum capital and surplus requirements of the states
where they are licensed. A substantial portion of the assets of the Company’s title insurance subsidiaries consists of their portfolios of
investment securities. Both of these subsidiaries are required by various state laws to maintain assets of a defined minimum quality
and amount.
The Company’s insurance subsidiaries are subject to examination at any time by the insurance regulators in the states where they
are licensed as well as required periodic examinations. These and other governmental authorities have the power to enforce state and
federal laws to which the title insurance subsidiaries are subject. These governmental authorities include, but are not limited to, the
Consumer Financial Protection Bureau (“CFPB”), which enforces the Real Estate Settlement Procedures Act (“RESPA”), the primary
federal regulatory guidance governing the real estate settlement industry. The CFPB has the authority to identify and address, through
regulation, unfair, deceptive and abusive practices in the mortgage industry and certain other settlement service industries.
Increased regulatory involvement may affect the Company and its service providers. Proposals to change regulations governing
insurance holding companies and the title insurance industry are often introduced in Congress, in state legislatures and before various
insurance regulatory agencies, including the CFPB. Although the Company regularly monitors such proposals, the likelihood and
timing of passage of any such regulation, and the possible effects of any such regulation on the Company and its subsidiaries, cannot
be determined at this time.
Certain laws and regulations, such as the cyber security requirements of governmental authorities, require the Company to
maintain certain information security standards and practices. Other laws and regulations regulate the manner in which the Company
collects, uses, retains, protects, discloses, transfers, and processes personal data. Following the enactment of the California Consumer
Privacy Act, the Virginia Consumer Data Protection Act and the European Union General Data Protection Regulation, the Company
expects the adoption of comprehensive data privacy laws in more jurisdictions in which it operates.
Exchange Services, Investment Management and Trust Services, and Management Services
Investors Trust is regulated by the North Carolina Commissioner of Banks.
8 COMPETITION
The title insurance industry is highly competitive. The four largest title insurance companies typically maintain greater than 80%
of the market for title insurance in the United States, with smaller regional companies holding the balance of the market. The number
and size of competing companies varies in the respective geographic areas in which the Company conducts business. Key competitive
factors in the title insurance industry are the financial strength and size of the insurer, timeliness and quality of service, price and
expertise in certain transactions. Title insurance underwriters also compete for agents based upon service and commission levels.
Some title insurers currently have greater financial resources, larger distribution networks and more extensive computerized databases
of property records and related information than the Company. In addition, there are numerous industry-related regulations and
statutes that set out conditions and requirements to conduct business. Changes to or the removal of such regulations and statutes could
result in additional competition from alternative title insurance products or new entrants into the industry that could materially affect
the Company’s business operations and financial condition.
CUSTOMER AND LENDER CONCENTRATION
The Company is not dependent upon any single title insurance customer or a few customers, and the loss of any single customer
would not have a material adverse effect on the Company.
Lending institutions benefit from title insurance policies that are purchased by borrowers on the lending institutions’ behalf as a
condition to the making of loans. Refusal by major market lenders to accept our product offerings could have a material adverse effect
on the Company.
INVESTMENT POLICIES
The Company and its subsidiaries derive a substantial portion of their income from investments in municipal and U.S.
government securities and investment grade corporate fixed maturity securities and equity securities. The Company’s fixed maturity
securities are classified as available for sale and carried at estimated fair value. Equity securities are also carried at estimated fair
value. The Company’s investment policy is designed to maintain a high quality portfolio and maximize income. Some state laws
impose restrictions upon the types and amounts of investments that can be made by the Company’s insurance subsidiaries. The
Company’s investment portfolio is managed internally and via a wholly owned subsidiary. The securities in the Company’s portfolio
are subject to economic conditions and normal market risks. Equity securities at December 31, 2022 and 2021 consisted of
investments in various industry groups. The Company’s investment portfolio did not include any significant investments in banks,
trust or insurance companies at December 31, 2022 or 2021. Short-term investments, which consist primarily of money market funds
and US treasury bills, have an original maturity of one year or less, are carried at cost, which approximates fair value due to the short
duration to maturity. In addition, at December 31, 2022 and 2021, the Company held investments that are accounted for using the
equity method and measurement alternative method (refer to Note 1 of the Notes to the Consolidated Financial Statements).
Refer to Note 3 of the Notes to the Consolidated Financial Statements for the major categories of investments, scheduled
maturities, fair values of investment securities and earnings by category.
ENVIRONMENTAL MATTERS
The title insurance policies ITIC and NITIC currently issue exclude any liability for environmental risks and contamination unless
a notice of violation relating to an environmental protection law, ordinance or regulation is recorded prior to the date of such policy or
the Company issues a specific policy endorsement providing coverage for environmental liens recorded prior to the date of such
policy. The Company has not experienced, and does not anticipate that it or its subsidiaries will incur, any significant expenses related
to environmental claims.
In connection with tax-deferred exchanges of like-kind property, ITAC may temporarily hold title to property pursuant to an
accommodation titleholder agreement. In order for ITAC to enter into such arrangements, each person or entity for which title is
being held must (a) execute an indemnification agreement under which it agrees to indemnify ITAC for any environmental or other
claims which may arise as a result of the arrangement, and (b) provide due diligence materials regarding any known environmental
issues, in the form of an environmental questionnaire and/or applicable environmental engineering studies, if indicated for review by
ITAC, as applicable.
EMPLOYEES AND HUMAN CAPITAL
The Company and its subsidiaries had 626 full-time employees and 29 part-time employees as of December 31, 2022. None of
the employees are covered by any collective bargaining agreements. Management considers its relationship with its employees to be
favorable.
9 Recruiting and retaining qualified personnel and key talent is important to the Company’s success. The Company’s business
results depend in part on its ability to successfully manage its human capital resources. Factors that may affect the Company’s ability
to attract and retain qualified employees include employee morale, competition from other employers and availability of qualified
individuals.
The Company is an equal opportunity employer, committed to creating an inclusive culture that supports all employees and is free
of discrimination based on gender, race, ethnicity, religion, disability or other legally protected characteristic. The current makeup of
the Company's Board of Directors complies with the Nasdaq Stock Market LLC's rules related to board diversity.
Compensation and Benefits
The Company strives to provide robust compensation and benefits to its employees. In addition to competitive salaries,
compensation and benefit programs include annual bonuses, an employer-sponsored 401(k) plan, employer paid healthcare, life
insurance, long and short term disability benefits, flexible spending accounts, an employee assistance program, and paid time off. The
Company’s ability to attract and retain key personnel who are necessary to the operation of the business is critical to its success.
ADDITIONAL INFORMATION
The Company files annual, quarterly and current reports and other information with the SEC. The SEC maintains a website at
www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically
with the SEC.
The Company’s internet address is www.invtitle.com. The contents of the Company’s website, including the “Investor Relations”
section, are not and shall not be deemed to be a part of this Annual Report on Form 10-K or any other SEC filing. The Company
makes available free of charge through its internet website its annual reports on Form 10-K, its quarterly reports on Form 10-Q, its
current reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange
Act as soon as reasonably practicable after such materials are electronically filed with, or furnished to, the SEC, and also makes
available the Section 16 reports on Forms 3, 4 and 5 of its insiders no later than the end of the business day following such filings.
The information is free of charge and may be reviewed and downloaded from the website at any time. The “Investor Relations”
section of the Company’s website also includes its Code of Business Conduct and Ethics and the charters of the Audit, Compensation
and Nominating Committees of its Board of Directors.
Executive Officers of the Company
Following is information regarding the executive officers of the Company as of February 21, 2023. Each officer is appointed at
the annual meeting of the Board of Directors to serve until the next annual meeting of the Board or until his or her respective successor
has been elected and qualified.
Name
J. Allen Fine
Age Position with Registrant
88 Chief Executive Officer and Chairman of the Board
James A. Fine, Jr.
60
President, Treasurer, Chief Financial Officer, Chief Accounting Officer and Director
W. Morris Fine
56 Executive Vice President, Secretary and Director
J. Allen Fine has been Chief Executive Officer and Chairman of the Board of the Company since its incorporation in 1973. He
also served as President of the Company until May 1997. He is the father of James A. Fine, Jr. and W. Morris Fine.
James A. Fine, Jr. was named Vice President of the Company in 1987. In 1997, he was named President and Treasurer and
appointed as a Director of the Company. In 2002, he was appointed as Chief Financial Officer and Chief Accounting Officer. He is
the son of J. Allen Fine and the brother of W. Morris Fine.
W. Morris Fine was named Vice President of the Company in 1992. In 1993, he was named Treasurer of the Company and
served in that capacity until 1997. In 1997, he was named Executive Vice President and Secretary of the Company. In 1999, he was
appointed as a Director of the Company. He is the son of J. Allen Fine and the brother of James A. Fine, Jr.
10 ITEM 1A. RISK FACTORS
The risk factors listed in this section and other factors noted herein could cause actual results to differ materially from those
contained in any forward-looking statements or could result in a significant or material adverse effect on the Company’s results of
operations.
RISKS RELATED TO THE COMPANY’S BUSINESS
Adverse changes in economic conditions, especially those related to real estate activity, may negatively impact the
Company’s results of operations and financial condition.
The demand for the Company’s title insurance and other real estate transaction products and services varies from year to year and
is dependent upon, among other factors, the volume of residential and commercial real estate transactions and mortgage financing
transactions. The volume of these transactions has historically been influenced by factors such as the overall state of the economy, the
average price level of real estate sales, housing inventory, unemployment levels, and the availability and pricing of mortgage
financing. Real estate activity generally decreases when the economy is weak or uncertain, home prices are increasing, housing
inventory is limited, the availability of mortgage credit is limited, or mortgage interest rates are increasing. The cyclical nature of the
Company’s business has caused volatility in revenue and profitability in the past and could do so in the future.
Demand for title insurance also depends in part upon the requirement by mortgage lenders and other participants in the secondary
mortgage market that title insurance policies be obtained on residential and commercial real property.
The current period of inflation, as well as ongoing military conflict between Russia and Ukraine, has created additional volatile
market conditions and uncertainties in the global economy. Current political tensions may make it difficult for Congress to agree on
any further increases to or suspension of the debt ceiling in a timely manner or at all, further increasing market volatility and economic
uncertainty. These events have impacted and could continue to impact the Company in a number of ways including, but not limited
to, future fluctuations in the Company's investment portfolio and potential decreases in net premiums written. The Federal Open
Market Committee (“FOMC”) of the Federal Reserve has been highly attentive to the risks that these events have created, and in
response has been raising the target federal funds rate at recent meetings. Although the federal funds rate does not directly impact
mortgage interest rates, it can have a significant influence as lenders pass on the costs of rate increases to consumers. Higher
mortgage interest rates have and could continue to negatively impact the demand and pricing of real estate, which has and could
continue to adversely affect the Company’s operations and financial condition. For example, net premiums written for the Company
decreased during certain periods of 2022 due to an overall decline in the level of real estate transaction volumes resulting from higher
average mortgage interest rates.
The Company may experience material losses resulting from fraud, defalcation or misconduct.
Underwriting agents and approved settlement providers, which can include issuing agents and approved attorneys, perform a
significant portion of the work necessary to issue the Company’s title insurance policies. These agents and providers operate with a
substantial degree of independence from the Company, subject to certain contractual limitations. As a result, the Company’s use of
title agents and approved providers could result in claims on the Company’s policies and other expenses due to fraud and negligence.
Fraud, defalcation, errors and other misconduct by the Company’s agents, approved attorneys and employees are risks inherent in the
Company’s business. Agents and approved attorneys typically handle large sums of money in trust pursuant to the closing of real
estate transactions. Misappropriation of funds by any of these parties could result in title claims, some of which could be large and
have a material negative impact on the Company’s results of operations and financial condition.
The Company relies upon the North Carolina, Texas, South Carolina and Georgia markets for a significant portion of its
premiums. Changes in the economic or regulatory environments in these states could have an adverse impact on the
Company.
North Carolina, Texas, South Carolina and Georgia are the largest sources of premium revenue for the Company’s title insurance
subsidiaries. In 2022, these states represented 35.6%, 29.0%, 9.4% and 9.2% of total premiums written by the Company, respectively.
A decrease in the level of real estate activity in these states, whether driven by weak economic conditions, changes in regulatory
environments or other factors that influence demand, could have a negative impact on the Company’s financial results. Some of these
markets, like the overall real estate market, experienced during 2022 and may continue to experience, an overall decline in the level of
real estate transaction volumes resulting from higher average mortgage interest rates.
11 Adverse deviation of actual claims experience from expected claims experience will result in lower net earnings.
The Company’s net income is affected by the extent to which its actual claims experience differs from the assumptions used in
establishing the reserve for claims. The reserve for claims is established based on actuarial estimates of future payments for reported
claims, as well as claims which have been incurred but not yet reported. In addition, management considers factors such as the
Company’s historical claims experience, case reserve estimates on reported claims, large claims and other relevant factors in
determining loss provision rates and the aggregate recorded expected liability for claims.
Due to the nature of the underlying risks and the high degree of uncertainty associated with the estimation of the reserve for
claims, the Company cannot determine precisely the amounts which it will ultimately pay to settle its claims. Factors contributing to
the complexity in establishing reserves can include varying loss potentials, timing, unfavorable market or economic conditions and the
legal environment. The timing of claims is difficult to estimate as payments may not occur until well into the future. Higher levels of
defaults and foreclosures upon insured properties are more prevalent in times of unfavorable economic conditions and can lead to an
increase in title insurance claims. The Company may also incur higher than normal claim payment experience or large losses. To the
extent that actual claims experience is greater than estimated, the Company could be required to increase the reserve.
Competition affects the Company’s results of operations.
The title insurance industry is highly competitive with only a few insurers comprising a large percentage of the market. Key
competitive factors are quality of service, price within regulatory parameters, expertise, timeliness and the financial strength and size
of the insurer. Title insurance underwriters compete for premiums by choosing various distribution channels which may include
company-owned operations, independent agents and agency relationships with real estate attorneys, subsidiaries of community and
regional lending institutions, realtors, builders and other settlement service providers. Title insurance underwriters compete for agents
on the basis of service, technology and commission levels. Some title insurers currently have greater financial resources, larger
distribution networks and more extensive computerized databases of property records and information than the Company. The
number and size of competing companies varies in the different geographic areas in which the Company operates, and any reductions
to current regulatory barriers within any of the different geographic areas could increase the number of competitors entering into the
title insurance market. Competition among the major providers of title insurance or the acceptance of alternative products to
traditional title products by the regulatory authorities and the marketplace could adversely affect the Company’s operations and
financial condition.
The Company may encounter difficulties managing growth, which could adversely affect its operating results.
The Company’s future growth plans involve expansion into new geographic locations and further penetration into established
markets through new or existing agents, or through acquisitions. Such growth may subject the Company to associated risks, such as
diverting management’s attention, incurring unanticipated liabilities from an acquired business, difficulty integrating an acquired
entity, or retaining its employees or customers and realization of synergies. The occurrence of any of these risks may deprive the
Company of some or all of the anticipated value of an acquisition or other growth initiatives, resulting in lower returns on investments
and result in a negative impact on the Company’s results of operations. These risks could be particularly significant if the Company
incurs significant costs in pursuing an acquisition or other initiatives.
The Company depends on its ability to attract and retain key personnel and agents, and its inability to do so could
adversely affect its business.
Competition for skilled and experienced personnel in the Company’s industry is high, and the success of the Company is
substantially dependent on its ability to attract and retain such personnel. The Company may have difficulty hiring and retaining the
necessary marketing and management personnel to support future growth plans. Also, the Company’s results of operations and
financial condition could be adversely affected if it is unsuccessful in attracting and retaining new agents.
12 Mortgage lending is highly concentrated and changes in relationships with lenders or reform of government-sponsored
entities could adversely affect the Company.
Large mortgage lenders and government-sponsored entities, because of their significant role in the mortgage process, have
significant influence over the Company and other service providers. Refusal by major market lenders to accept the Company’s
product offerings could have a material adverse effect on the Company. Furthermore, government-sponsored entities, the Federal
National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”), often require the
purchase of title insurance for home loans they securitize. Changes by these regulatory entities could impact the entire mortgage loan
process and as a result, could impact the demand for title insurance. This includes the recent promotion of the use of alternative
products in lieu of title insurance, such as attorney opinion letters, in certain circumstances to lower closing costs. In addition, the
federal government has had discussions about the possible reform of Fannie Mae and Freddie Mac. The timing and results of reform
are currently unknown; however, changes to these entities could adversely impact the Company and its results of operations.
Unfavorable economic or other conditions could cause the Company to record impairment charges for all or a portion of
its goodwill and other intangible assets.
As a result of acquisition activity, the Company has goodwill and other intangible assets that comprise approximately 5.2% of
total assets as of December 31, 2022. Quarterly, the Company performs an impairment analysis that reviews changes in events or
circumstances that could lead to the carrying value not being recoverable. Economic downturns or poor performance of the
acquisitions could result in the Company recognizing an impairment of a portion or all of the goodwill and intangible assets on the
Company’s books and could have a material adverse effect on the Company’s results of operations.
RISKS RELATED TO REGULATORY AND COMPLIANCE MATTERS
The Company’s insurance subsidiaries are subject to complex government regulations. Changes in regulations may have
an adverse effect on the Company’s results of operations.
The Company’s title insurance subsidiaries are subject to extensive regulations that are intended to protect policyholders and
consumers.
The Company’s title insurance subsidiaries are subject to regulations by the CFPB, created by the Dodd-Frank Act. The CFPB
has extensive regulatory and enforcement authority over real estate and mortgage markets, including RESPA, the primary federal
regulatory guidance governing the real estate settlement industry. The manner and extent to which the CFPB will implement new
regulations is not fully known; however, any new regulations implemented could result in changes to internal processes, including
changes to systems and forms.
In addition to federal regulation, title insurance subsidiaries are subject to state regulations. The nature and extent of state
regulations, which vary from state to state, typically involve, among other matters, licensing and renewal requirements and trade and
marketing practices, including, but not limited to, the following:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
licensing of insurers and agents;
capital and surplus requirements;
approval, regulation or establishment of premium rates for insurance;
limitations on types and amounts of investments;
limitations on the size of risks that may be insured by a single company;
filing of annual and other reports with respect to financial condition;
the amount of dividends and other payments made by insurance subsidiaries;
establishing reserves;
accounting and financing practices;
deposits of securities for the benefit of policyholders;
trade and marketing practices;
regulation of reinsurance;
approval of policy forms; and
use of personal information, including cybersecurity regulations.
Insurance holding companies are subject to periodic examinations and the regulation of acquisitions, intercompany transactions
and changes in control, among other regulations, by state regulators.
The Company and its subsidiaries are also subject to certain federal regulations established by the Office of the Comptroller of
Currency, the Federal Reserve and various other governmental agencies.
13 The Company’s other businesses also operate within state and federal guidelines. Any changes in the regulatory environment
could restrict its existing or future operations and could possibly make it more burdensome and costly to conduct them.
New regulations, or differing interpretations of existing laws, could change business processes, products and services and have a
negative impact on the Company’s results of operations and financial condition.
A downgrade from a rating agency could result in a loss of underwriting business.
The competitive positions of title insurance companies rely partly on ratings published by independent rating services.
Government-sponsored entities and lending institutions utilize these ratings, among other items, to evaluate a title insurer’s strength
and stability. The Company’s title insurance subsidiaries are currently rated by A.M. Best Company and Demotech, Inc. The ratings
issued by independent rating agencies are not credit ratings, but represent the opinion of the individual rating agency regarding the title
insurance subsidiaries’ financial strength, operating performance, and ability to meet policyholder obligations. These insurer ratings
are subject to periodic review and there can be no assurance that the Company’s insurance subsidiaries will maintain their current
respective ratings. A significant downgrade in the ratings of either of the Company’s insurance subsidiaries could negatively impact
the ability to compete for new business, retain existing business and maintain the necessary licenses to operate as title insurance
companies in various states.
Title insurance rate regulation could have an adverse impact on the Company’s results of operations.
Rates for title insurance vary by state and are subject to extensive regulation. Statutes generally provide that rates must not be
excessive, inadequate or unfairly discriminatory. The process of implementing a rate change in most states involves pre-approval by
the applicable state insurance regulator. These regulations could impact the Company’s ability to adjust prices in the face of rapidly
changing market conditions, which could adversely affect results of operations.
Regulatory investigations of the title insurance industry by governmental entities could adversely impact the Company’s
results of operations.
The title insurance industry is subject to scrutiny by both federal and state regulators focusing on violations of state insurance
codes, RESPA and similar state and federal laws, among others. The Company’s insurance subsidiaries occasionally receive inquiries
from regulators involving market conduct. Future inquiries could lead to fines for violations, settlements with regulating authorities
that could result in fines or requirements to pay claims, and the potential for further regulation. The results of future inquiries could
adversely affect the Company’s results of operations and financial condition.
The Company relies on distributions from its insurance subsidiaries.
The Company is an insurance holding company and it has no substantial operations of its own. Its principal assets are
investments in its operating subsidiaries, primarily its insurance subsidiaries. The Company’s ability to pay dividends and meet its
obligations is dependent, among other factors, on the ability of its subsidiaries to pay dividends or repay intercompany loans. The
Company’s insurance subsidiaries are subject to regulations that limit the amount of dividends, loans or advances they may make to
the Company. The restriction on these amounts is based on the amount of the insurance subsidiaries’ unassigned surplus and net
income, with certain adjustments. Additionally, these subsidiaries are required to maintain minimum amounts of capital, surplus and
reserves. As of December 31, 2022, approximately $110.3 million of consolidated shareholders’ equity represented the net assets of
the Company’s subsidiaries that cannot be transferred in the form of dividends, loans or advances to the Company. In general,
dividends in excess of prescribed limits are deemed “extraordinary” and require prior approval by the appropriate regulatory body. In
addition, the Company’s ability to pay dividends may be constrained by business considerations, such as the impact of dividends on
insurer ratings or competitive position. These dividend restrictions could limit the Company’s ability to pay dividends to its
shareholders or fund growth opportunities.
14 RISKS RELATED TO INVESTMENTS AND DEPOSITS
Deterioration in financial markets may cause a decline in the performance of the Company’s investments and could have a
material adverse impact on net income.
The Company derives a substantial portion of its income from its investment portfolio that primarily includes fixed maturity
securities, equity securities and short-term investments. The Company’s investment policy is designed to comply with regulatory
requirements and to balance the competing objectives of asset quality and investment returns. The Company’s investment portfolio is
subject to risk from changes in general economic conditions, prices of marketable fixed maturity securities and equity securities,
interest rates, liquidity, credit markets, and other external factors. The risk of loss is increased during periods of economic uncertainty
and tight credit markets as these factors could limit the ability of some issuers to repay their debt obligations.
Fixed maturity securities and equity securities are carried at estimated fair value on the Company’s Consolidated Balance Sheets.
Changes in the estimated fair value of fixed maturity securities are recorded as a component of accumulated other comprehensive
income. Fixed maturity securities are regularly reviewed for differences between the cost and estimated fair value of each security for
factors indicating impairment that would result in the value of the investment being written down. Unrealized holding gains and
losses on equity securities are reported in the Consolidated Statements of Operations as changes in the estimated fair value of equity
security investments, without regard to impairment. Changes in the estimated fair value of securities in the Company’s investment
portfolio could have a material adverse effect on the Company’s results of operations and financial condition.
Financial institution failures could adversely affect the Company.
The Company has substantial deposits with financial institutions, including fiduciary deposits that are owned by third parties.
There is no guarantee the Company, whether through the Federal Deposit Insurance Corporation or otherwise, would recover the
funds it has deposited should one or more of the financial institutions at which the Company maintains deposits fail.
RISKS RELATED TO CYBERSECURITY, TECHNOLOGY AND RISK MANAGEMENT
Breaches and failures of, and other disruptions to, information technology systems of the Company or its service providers
may disrupt the Company’s operations, result in monetary losses and harm the Company’s reputation.
The Company relies on information technology (“IT”) systems for a wide range of activities involved in the delivery of its
products and services, including, but not limited to, the following:
process title insurance applications and policy issuances;
perform due diligence on land titles;
•
•
• manage substantial cash, investment assets, bank deposits, trust assets and escrow account balances on behalf of the
Company and its customers;
• manage billing, collections and payables, including insurance premiums and agent commissions;
• manage accounting and financial reporting; and
• manage payroll and human resources information.
The Company’s IT systems may be disrupted or fail, and information stolen or otherwise misappropriated, for a number of
reasons, including, but not limited to:
•
•
•
•
hacking, computer viruses, malware, ransomware or other cyberattacks;
software “bugs”, hardware defects or human error;
natural disasters, like fires, or pandemics; or
power loss.
Any of these events could disrupt operations both internally and externally, which may result in the loss of revenues. These
events could also result in the unauthorized release of proprietary and/or non-public information, or even defalcation of corporate or
client funds.
15 Like all companies, the Company’s IT systems have been, and likely will continue to be, the target of computer viruses,
cyberattacks, phishing attacks and other malicious activity. While the Company has not experienced a known material breach to date,
the occurrence or scope of such events is not always immediately apparent and there can be no assurance that the Company will not
suffer additional attacks or incur serious financial consequences or expense in the future. The Company invests resources in
maintaining the security of its systems and adapting to evolving security threats. There is, however, no guarantee that its security
measures will be adequate to prevent all cyberattacks. There is similarly no guarantee that the Company’s backup systems or disaster
recovery procedures will be adequate to mitigate losses due to IT system disruptions in a timely fashion, and the Company may incur
significant expense in correcting IT system emergencies. The Company’s reputation may also be damaged in the event of a serious IT
breach or failure. Furthermore, as technology develops, and as cybercriminals become more capable, the difficulty and expense of
maintaining IT security and redundancy may increase.
To the extent the Company’s IT systems store non-public personal information, and information about its employees, security
breaches may expose the Company to other serious liabilities and reputational harm if such data is misappropriated. Non-public
personal information may include, but is not limited to, names, addresses, social security numbers, and banking information.
Additionally, future or past business transactions (such as acquisitions or integrations) could expose the Company to additional
cybersecurity risks and vulnerabilities, as the Company’s systems could be negatively affected by vulnerabilities present in acquired or
integrated entities’ systems and technologies.
In conducting its business and delivering its products and services, the Company also utilizes service providers. These service
providers and the IT systems they utilize are typically subject to similar types of risks that the Company faces. The Company
provides certain of these service providers with data, including non-public personal information. There is no guarantee that the
Company’s due diligence or ongoing vendor oversight will be sufficient to ensure the integrity and security of the systems utilized by
these service providers or the protection of the information that resides thereon.
Furthermore, the Company is required by law and by certain contracts, particularly contracts with financial institutions, to notify
various parties, consumers and customers in the event that confidential or personal information may have been or was accessed by
unauthorized third parties. Such an event could potentially result in a breach of contract, and any required notifications could result in,
among other things, the loss of customers, negative publicity, distraction of management, fines, lawsuits for breach of contract,
regulatory inquiries or involvement and a decline in sales.
The Company seeks to mitigate the financial risk associated with unauthorized disclosure of non-public information by
maintaining cyber liability insurance coverage. As cybercriminals continue to become more sophisticated, the costs to insure against
cyberattacks have risen and may continue to rise in the future.
Any inability of the Company or its service providers to prevent or adequately respond to the issues described above could disrupt
the Company’s business, delay or impact the delivery of its products and services, inhibit its ability to retain existing customers or
attract new customers, divert management’s time and energy, otherwise harm its reputation and/or result in financial losses, litigation,
regulatory inquiries, increased costs or other adverse consequences that could be material to the Company.
Errors and fraud involving the transfer of funds may adversely affect the Company.
The Company relies on its systems, employees and banks to transfer its own funds and the funds of third parties. These transfers
are susceptible to user input error, fraud, system interruptions and other similar errors that could result in lost funds or delayed
transactions. The Company’s email and computer systems, along with systems used by other parties involved in the transactions, have
been subject to, and are likely to continue to be the target of, fraudulent attacks, including attempts to cause the improper transfer of
funds. Funds transferred to a fraudulent recipient are often not recoverable and, in certain instances, the Company may be liable for
those unrecovered funds. These attacks have increased in frequency and sophistication. The controls and procedures used by the
Company to prevent transfer errors and fraud may prove inadequate, resulting in financial losses, reputational harm, loss of customers
or other adverse consequences which could be material to the Company.
The Company may encounter difficulties managing system or technological changes, which could adversely affect its
financial and operating results.
Technological changes in the title insurance industry are driven primarily by evolution in technology, competitive factors and
regulatory changes. These changes have resulted in faster information delivery and efficient, highly automated production processes.
The inability of the Company to manage, develop or successfully implement new systems or technological changes could negatively
impact profitability.
16 Policies and procedures for the mitigation of risk may not be sufficient.
The Company has policies and procedures in place to help identify, analyze, and measure the risks associated with the issuance of
title insurance policies, investment risks, interest rate risks and legal risks, among others. In evaluating risks, the Company considers
enterprise risk management, information technology risk management, disaster recovery, business continuity, and vendor risk
management. Because a significant degree of judgment is involved with the establishment of policies and processes as well as the
measurement of risks, it is possible not all risks have been identified or anticipated. Misidentified or unanticipated risks could
adversely impact the Company and its results of operations.
RISKS RELATED TO THE EFFECTS OF CLIMATE CHANGE, SEVERE WEATHER CONDITIONS, POTENTIAL
PANDEMICS, HEALTH CRISES, OR OTHER CATASTROPHIC EVENTS
Our business could be adversely affected by climate change, severe weather conditions, potential pandemics, health crises,
or the occurrence of another catastrophic event.
Climate change, extreme weather conditions and catastrophic events, such as future pandemic diseases, natural disasters and
terrorist attacks, could have a material adverse effect on the Company’s future results of operations and financial condition. The
Company’s business operations could be impacted, including availability of key Company personnel or the Company’s information
technology systems, by volatility of real estate prices, significant climate migration, and disruptions to the real estate environment or
financial markets. Given the unpredictable nature of these events with respect to size, severity, duration and geographic location, it is
not currently possible to quantify the ultimate impact that they may have on the Company’s business.
COVID-19 or other potential pandemics could continue to affect the Company in a number of ways including, but not limited to,
the impact of employees becoming ill, quarantined, or otherwise unable to work or travel due to illness or governmental restriction,
potential decreases in net premiums written in the future, and future fluctuations in the Company's investment portfolio.
RISKS RELATED TO OWNING THE COMPANY’S COMMON STOCK
Certain provisions in the Company’s organizational law, North Carolina law, organizational documents, and the
Company’s shareholder rights plan may deter or discourage a takeover of the Company.
The Company’s articles of incorporation, as amended (the “Articles”) and amended and restated bylaws (the “Bylaws”) contain
certain provisions that could delay, prevent or discourage transactions involving actual or potential changes of control, including
transactions that may involve payment of a premium over prevailing market prices to the Company’s common shareholders. In
addition, the Company has adopted a shareholder rights plan (the “Plan”). The provisions in the Company’s organizational documents
and the rights set forth in the Plan are not intended to prevent a takeover of the Company, and the Company believes these protective
measures are beneficial to the Company and its shareholders in the event of negotiations with a potential acquirer. These provisions
are described in further detail in “Description of the Company’s Securities” incorporated by reference as Exhibit 4.1 to this Annual
Report on Form 10-K.
17 The Company’s Bylaws provide that, unless the Company consents in writing to the selection of an alternative forum, the
state courts of North Carolina will be the sole and exclusive forum for substantially all disputes between the Company’s
and its shareholders.
The Bylaws provide that, unless the Company consents in writing to the selection of an alternative forum, the sole and exclusive
forum for (i) any derivative action or proceeding brought in the name or right of the Company or on its behalf, (ii) any action asserting
a claim of breach of a fiduciary duty owed by any director, officer or other employee of Company to the Company or its shareholders,
(iii) any action asserting a claim arising pursuant to any provision of the North Carolina Business Corporation Act (the “NCBCA”),
the Articles, or the Bylaws, (iv) any action to interpret, apply, enforce, or determine the validity of the Articles or the Bylaws, or (v)
any action asserting a claim governed by the internal affairs doctrine, including, without limitation, any action to interpret, apply,
enforce or determine the validity of the Articles or the Bylaws, shall be the state courts of North Carolina in and for Orange County,
North Carolina, subject to designation or assignment to the North Carolina Business Court (or, if no state court located within the
State of North Carolina has jurisdiction, the United States District Court for the Middle District of North Carolina). The Bylaws also
provide that, notwithstanding the foregoing, (a) the provisions described above will not apply to suits brought to enforce any liability
or duty created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction, and (b) unless the
Company consents in writing to the selection of an alternative forum, the federal district courts shall, to the fullest extent permitted by
law, be the exclusive forum for the resolution of any complaint asserting a cause of action against the Company or any director,
officer, employee, or agent of the Company and arising under the Securities Act (however, there is uncertainty as to whether a court
would enforce such provision, and investors cannot waive compliance with federal securities laws and the rules and regulations
thereunder). The choice of forum provision may limit a shareholder’s ability to bring a claim in a judicial forum that it finds favorable
for disputes with the Company or its directors, officers or other employees and may also result in increased costs for shareholders to
bring any such claim, which may discourage such lawsuits against the Company and its directors, officers, and other employees.
If a court were to find the choice of forum provision contained in the Bylaws to be inapplicable or unenforceable in an action, the
Company may incur additional costs associated with resolving such action in other jurisdictions, which could harm the Company’s
business, results of operations, and financial condition. Even if the Company is successful in defending against these claims, litigation
could result in substantial costs and be a distraction to management and other employees.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. PROPERTIES
The Company owns two adjacent office buildings and property located on the corner of North Columbia and West Rosemary
streets in Chapel Hill, North Carolina, which serve as the Company’s corporate headquarters. The main building contains
approximately 23,000 square feet and has on-site parking facilities. The Company’s subsidiaries, principally ITIC and NITIC, lease
office space throughout North Carolina, South Carolina, Texas, Michigan, Florida, Georgia and Nebraska. The Company believes that
each of the office facilities occupied by the Company and its subsidiaries are in good condition, adequately insured and sufficient for
its present operations.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are involved in legal proceedings that are incidental to their business. In the Company’s
opinion, based on the present status of these proceedings, any potential liability of the Company or its subsidiaries with respect to
these legal proceedings, will not, in the aggregate, be material to the Company’s consolidated financial condition or operations.
Additional information about the Company’s legal proceedings is included in Note 11 of the Notes to the Consolidated Financial
Statements.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable
18 PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Common Stock Data and Dividends
The common stock of the Company is traded under the symbol “ITIC” on the Nasdaq Stock Market LLC. The number of record
holders of common stock at December 31, 2022 was 212. The number of record holders is based upon the actual number of holders
registered on the books of the Company at such date and does not include holders of shares in “street name” or persons, partnerships,
associations, corporations or other entities identified in security position listings maintained by securities depositories.
The Company’s current dividend policy anticipates the payment of quarterly dividends in the future. The declaration and
payment of dividends will be at the discretion of the Board of Directors and will be dependent upon the Company’s future earnings,
financial condition and capital requirements. The Company’s ability to pay dividends is also subject to certain regulatory restrictions
on the payment of dividends by its insurance subsidiaries as described in the “Liquidity and Capital Resources” section of “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Note 2 to the Consolidated Financial
Statements.
The following table provides information about purchases by the Company (and all affiliated purchasers), during the quarter
ended December 31, 2022, of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act:
Period
Beginning of period
October 1 through October 31, 2022
November 1 through November 30, 2022
December 1 through December 31, 2022
Total
Issuer Purchases of Equity Securities (unrounded)
Total
Number of
Shares
Purchased
Average
Price
Paid per
Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plan
Maximum
Number of Shares
that May Yet Be
Purchased Under
the Plan (1)
— $
—
316
316 $
—
—
146.11
146.11
—
—
316
316
427,532
427,532
427,532
427,216
427,216
(1) On November 9, 2015, the Board of Directors of the Company approved the purchase of an additional 163,335 shares
pursuant to the Company’s repurchase plan, such that there was authority remaining under the plan to purchase up to an
aggregate of 500,000 shares of the Company’s common stock pursuant to the plan immediately after this approval. During
the quarter and year ended December 31, 2022, the Company purchased 316 and 945 shares of common stock under the
Company’s repurchase plan, respectively. As of December 31, 2022, there was authority remaining under the plan to
purchase up to an aggregate of 427,216 shares of the Company’s common stock. Unless terminated earlier by resolution of
the Board of Directors, the plan will expire when all shares authorized for purchase under the plan (as such number may be
amended by the Board from time to time) have been purchased. The Company anticipates making further purchases under
this plan from time to time in the future, depending on such factors as the prevailing market price of the Company’s common
stock, the Company’s available cash and the existing alternative uses for such cash.
ITEM 6. [Reserved]
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the Consolidated Financial Statements and the related notes in this
report. The following discussion may contain forward-looking statements. These forward-looking statements are based on certain
assumptions and expectations of future events that are subject to a number of risks and uncertainties. Actual results may vary. See the
sections in this Annual Report on Form 10-K titled “Safe Harbor and Forward-Looking Statements” and “Risk Factors” included in
Part I, Item 1A that could affect forward-looking statements.
19 Overview
Investors Title Company (the “Company”) is a holding company that engages primarily in issuing title insurance through two
subsidiaries, Investors Title Insurance Company (“ITIC”) and National Investors Title Insurance Company (“NITIC”). Total revenues
from the title segment accounted for 94.9% of the Company’s revenues in 2022. Through ITIC and NITIC, the Company underwrites
land title insurance for owners and mortgagees as a primary insurer.
Title insurance protects against loss or damage resulting from title defects that affect real property. When real property is
conveyed from one party to another, occasionally there is an undisclosed defect in the title or a mistake or omission in a prior deed,
will or mortgage that may give a third party a legal claim against such property. If a covered claim is made against real property, title
insurance provides indemnification against insured defects.
There are two basic types of title insurance policies – one for the mortgage lender and one for the real property owner. A lender
often requires the property owner to purchase a lender’s title insurance policy to protect its position as a holder of a mortgage loan, but
the lender’s title insurance policy does not protect the property owner. The property owner has to purchase a separate owner’s title
insurance policy to protect its investment.
The Company issues title insurance policies directly and through a network of agents. Issuing agents are typically real estate
attorneys, independent agents or subsidiaries of community and regional mortgage lending institutions, depending on local customs
and regulations and the Company’s marketing strategy in a particular territory. The ability to attract and retain issuing agents is a key
determinant of the Company’s growth in title insurance premiums written.
Revenues for the title insurance segment primarily result from purchases of new and existing residential and commercial real
estate, refinance activity and certain other types of mortgage lending such as home equity lines of credit.
Title insurance premiums vary from state to state and are subject to extensive regulation. Statutes generally provide that rates
must not be excessive, inadequate or unfairly discriminatory. The process of implementing a rate change in most states involves pre-
approval by the applicable state insurance regulator.
Volume is a factor in the Company’s profitability due to fixed operating costs that are incurred by the Company regardless of title
insurance premium volume. The resulting operating leverage tends to amplify the impact of changes in volume on the Company’s
profitability. The Company’s profitability also depends, in part, upon its ability to manage its investment portfolio to maximize
investment returns and to minimize risks such as interest rate changes, defaults and impairments of assets.
The Company’s volume of title insurance premiums is affected by the overall level of residential and commercial real estate
activity, which includes property sales, mortgage financing and mortgage refinancing. Real estate activity, home sales and mortgage
lending are cyclical in nature. Real estate activity is affected by a number of factors, including the availability of mortgage credit, the
cost of real estate, consumer confidence, employment and family income levels, and general United States economic conditions.
Interest rate volatility is also an important factor in the level of residential and commercial real estate activity.
The Company’s title insurance premiums in future periods are likely to fluctuate due to these and other factors which are beyond
management’s control.
Services other than title insurance provided by operating divisions of the Company are not reported separately, but rather are
reported collectively in a category called “All Other”. These other services include those offered by the Company and by its wholly
owned subsidiaries, Investors Title Exchange Corporation (“ITEC”), Investors Title Accommodation Corporation (“ITAC”), Investors
Trust Company (“Investors Trust”) and Investors Title Management Services, Inc. (“ITMS”).
20 The Company’s exchange services division, consisting of the operations of ITEC and ITAC, provides customer services in
connection with tax-deferred real property exchanges. ITEC acts as a qualified intermediary in tax-deferred exchanges of real
property held for productive use in a trade or business or for investment, and its income is derived from fees for handling exchange
transactions and interest earned on client deposits held by the Company. In its role as qualified intermediary, ITEC coordinates the
exchange aspects of the real estate transaction, and its duties include drafting standard exchange documents, holding the exchange
funds between the time the old property is sold and the new property is purchased, and accepting the formal identification of the
replacement property within the required identification period. ITAC provides services as an exchange accommodation titleholder for
accomplishing “parking transactions” as set forth in the safe harbor contained in Internal Revenue Procedure 2000-37. These
transactions include reverse exchanges when taxpayers decide to acquire replacement property before selling the relinquished
property, or “build to suit” exchanges, when improvements must be made to the replacement property before the taxpayer acquires the
improved replacement property. The services provided by the Company’s exchange services division, ITEC and ITAC, are pursuant
to provisions in the IRC. From time to time, these laws are subject to review and changes, which may negatively affect the demand
for tax-deferred exchanges in general, and consequently, the revenues and profitability of the Company’s exchange services division.
The Company’s trust services division, Investors Trust, provides investment management and trust services to individuals,
companies, banks and trusts.
ITMS offers various consulting and management services to provide clients with the technical expertise to start and successfully
operate a title insurance agency.
Business Trends and Recent Conditions
The housing market is heavily influenced by government policies and overall economic conditions. Regulatory reform and
initiatives by various governmental agencies, including the Federal Reserve's monetary policy and other regulatory changes, could
impact lending standards or the processes and procedures used by the Company. The current real estate environment, including
interest rates and general economic activity, typically influence the demand for real estate. Changes in either of these areas, in
addition to ongoing supply constraints and volatility in the cost and availability of building materials, could impact the Company's
results of operations in future periods.
COVID-19 could continue to affect the Company in a number of ways including, but not limited to, the impact of employees
becoming ill, quarantined, or otherwise unable to work or travel due to illness or governmental restriction, potential decreases in net
premiums written in the future, and future fluctuations in the Company's investment portfolio.
The current period of inflation, as well as ongoing military conflict between Russia and Ukraine, has created additional volatile
market conditions and uncertainties in the global economy. These events have impacted and could continue to impact the Company in
a number of ways including, but not limited to, future fluctuations in the Company's investment portfolio and potential decreases in
net premiums written. The Federal Open Market Committee (“FOMC”) of the Federal Reserve has been highly attentive to the risks
that these events have created, and in response has been raising the target federal funds rate at recent meetings. Although the federal
funds rate does not directly impact mortgage interest rates, it can have a significant influence as lenders pass on the costs of rate
increases to consumers. Higher mortgage interest rates have impacted the demand and pricing of real estate.
Regulatory Environment
The FOMC issues disclosures on a periodic basis that include projections of the federal funds rate and expected actions. The
FOMC had maintained a target range between 0.00% and 0.25% from March 2020 until March 2022, when the target federal funds
rate range was increased to between 0.25% and 0.50%. The target federal funds rate range was further raised at subsequent meetings,
with the FOMC's most recent change increasing the target range in February 2023 to between 4.50% and 4.75%. The FOMC has
noted that it anticipates that ongoing increases in the target range will be appropriate and, in addition, has decided to continue with
balance sheet holdings reductions that began in May of 2022. In normal economic situations, future adjustments to the FOMC’s
stance of monetary policy are expected to be based on realized and expected economic developments to achieve maximum
employment and inflation near the FOMC's symmetric long-term 2.0% objective.
21
Real Estate Environment
The Mortgage Bankers Association's (“MBA”) January 19, 2023 Mortgage Finance Forecast (“MBA Forecast”) projects 2023
purchase activity to decrease 8.8% to $1,439 billion and refinance activity to decrease 32.7% to $449 billion, resulting in a decrease in
total mortgage originations of 15.9% to $1,888 billion, all from 2022 levels. In 2022, purchase activity accounted for 70.3% of all
mortgage originations and is projected in the MBA Forecast to represent 76.2% of all mortgage originations in 2023. According to
data published by Freddie Mac, the average 30-year fixed mortgage interest rates in the United States were 5.3% and 3.0% for the
years ended December 31, 2022 and 2021, respectively. Per the MBA Forecast, mortgage interest rates are projected to decrease over
the subsequent 3-year period, reaching 4.4% in 2025. Due to the rapidly changing environment that has continued to be influenced by
COVID-19, supply constraints, inflationary pressures and geopolitical conflicts, these projections and the impact of actual future
developments on the Company could be subject to material change.
Historically, activity in real estate markets has varied over the course of market cycles by geographic region and in response to
evolving economic factors. Operating results can vary from year to year based on cyclical market conditions and do not necessarily
indicate the Company's future operating results and cash flows.
Critical Accounting Estimates and Policies
The Consolidated Financial Statements of the Company are prepared in conformity with accounting principles generally accepted
in the United States (“GAAP”) and follow general practices within the industries in which it operates. This preparation requires
management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.
These estimates and assumptions are based on information available as of the date of the financial statements; accordingly, as this
information changes, actual results could differ from the estimates and assumptions reflected in the financial statements. Certain
estimates inherently have a greater reliance on the use of assumptions and judgments and, as such, have a greater possibility of
producing results that could be materially different than originally reported. Management believes the following estimates are both
important to the portrayal of the Company’s financial condition and results of operations and require subjective or complex judgments
and, therefore, management considers the following to be critical accounting estimates.
Reserve for Claim Losses
The Company’s reserve for claims is established using estimates of amounts required to settle claims for which notice has been
received (reported) and the amount estimated to be required to satisfy incurred claims of policyholders which may be reported in the
future (incurred but not reported, or “IBNR”). The total reserve for all losses incurred but unpaid as of December 31, 2022 is
represented by the reserve for claims totaling $37.2 million in the Consolidated Balance Sheets included in Item 8 of this Annual
Report on Form 10-K (the “Consolidated Balance Sheets”). Of that total, approximately $3.3 million was reserved for specific claims
which have been reported to the Company, and approximately $33.9 million was reserved for IBNR claims.
A provision for estimated future claims payments is recorded at the time the related policy revenue is recorded. The Company
records the claims provision estimate as a percentage of net premiums written. In making loss estimates, management determines a
loss provision rate, which it then applies to net premiums written. This loss provision rate is set to provide for losses on current year
policies. By their nature, title claims can often be complex, vary greatly in dollar amounts, vary in number due to economic and
market conditions such as an increase in mortgage foreclosures, and involve uncertainties as to ultimate exposure. In addition, some
claims may require a number of years to settle and determine the final liability for indemnity and loss adjustment expense. The
payment experience may extend for more than 20 years after the issuance of a policy. Events such as fraud, defalcation and multiple
property defects can substantially and unexpectedly cause increases in estimates of losses. Due to the length of time over which claim
payments are made and regularly occurring changes in underlying economic and market conditions, these estimates are subject to
variability.
Management considers factors such as the Company’s historical claims experience, case reserve estimates on reported claims,
large claims, actuarial projections and other relevant factors in determining its loss provision rates and the aggregate recorded
expected liability for claims. In establishing the reserve, actuarial projections are compared with recorded reserves to evaluate the
adequacy of such recorded claims reserves and any necessary adjustments are then recorded in the current period’s Consolidated
Statement of Operations. Loss ratios for earlier years tend to be more reliable than recent policy years as those years are more fully
developed. As the most recent claims experience develops and new information becomes available, the loss reserve estimate related to
prior periods will change to more accurately reflect updated and improved emerging data. The Company reflects any adjustments to
the reserve in the results of operations in the period in which new information (principally claims experience) becomes available.
The Company initially reserves for each known claim based upon an assessment of specific facts and updates the reserve amount
as necessary over the course of administering each claim.
22 The Company assumes the reported liability for known claims and IBNR, in the aggregate, will be comparable to its historical
claims experience unless factors, such as loss experience and charged premium rates, change significantly. Also affecting the
Company’s assumptions are large losses related to fraud and defalcation, as these can cause significant variances in loss emergence
patterns. Management defines a large loss as one where incurred losses exceed $500,000. Due to the small volume of large claims,
the long-tail nature of title insurance claims and the inherent uncertainty in loss emergence patterns, large claim activity can vary
significantly between policy years. The estimated development of large claims by policy year is, therefore, subject to significant
changes as experience develops. The loss provision rate is set to provide for losses on current year policies and changes in prior year
estimates.
Management also considers actuarial analyses in evaluating the claims reserve. The actuarial methods used to evaluate the
reserve are loss development methods, Bornhuetter-Ferguson methods and Cape Cod methods, all of which are accepted actuarial
methods for estimating ultimate losses and, therefore, loss reserves. In the loss development method, each policy year’s paid or
incurred losses are projected to an ultimate level using loss development factors. In the Bornhuetter-Ferguson method, a type of
expected loss method, losses for each policy year are estimated based on an expected loss ratio derived directly from a previous
estimate of ultimate loss for each policy year plus an additional provision for losses that have not been reported or paid as of the
evaluation date. Bornhuetter-Ferguson methods produce more stable ultimate loss estimates than do loss development methods, which
are more responsive to the current loss data but can lead to volatile results. The Cape Cod method, a special case of the Bornhuetter-
Ferguson method, blends the results of the loss development and expected loss methods. For more recent policy years, the Cape Cod
methods give more weight to the results of the expected loss methods; for older policy years, more weight is given to the loss
development method results.
The key actuarial assumptions are principally loss development factors and expected loss ratios. The selected loss development
factors are based on a combination of the Company’s historical loss experience and title industry loss experience. Expected loss ratios
are estimated for each policy year based on the Company’s own experience and title industry loss ratios. When updated data is
incorporated into the actuarial models, the resulting loss development factors and expected loss ratios will likely change from the prior
values. Changes in these values for historical policy years have generally been the result of actual Company and industry experience
during the calendar years.
If one or more of the variables or assumptions used changed such that the Company’s recorded loss ratio, or loss provision as a
percentage of net title premiums, increased or decreased three loss ratio percentage points, the impact on after-tax income for the year
ended December 31, 2022 would be as follows:
(in thousands)
Increase in loss ratio of three percentage points
Decrease in loss ratio of three percentage points
$
$
(5,893)
5,893
Company management believes that using a sensitivity of three loss percentage points for the loss ratio provides a reasonable
benchmark for analysis of the calendar year loss provision of the Company based on historical loss ratios by year.
Despite the variability of such estimates, management believes that, based on historical claims experience and actuarial analysis,
the Company’s reserve for claims is adequate to cover claim losses resulting from pending and future claims for policies issued
through December 31, 2022. The ultimate settlement of claims will likely vary from the reserve estimates included in the
accompanying Consolidated Financial Statements. The Company continually reviews and adjusts its reserve estimates to reflect its
loss experience and any new information that becomes available. There are no known claims that are expected to have a material
adverse effect on the Company’s financial position or operating results.
Premiums Written and Commissions to Agents
Generally, title insurance premiums are recognized at the time of settlement of the related real estate transaction, as the earnings
process is then considered complete, irrespective of the timing of the issuance of a title insurance policy or commitment. Expenses
typically associated with premiums, including agent commissions, premium taxes, and a provision for future claims are recognized
concurrent with recognition of related premium revenue.
23 Total premiums include an estimate of premiums for policies that have been issued directly and by agents, but not reported to the
Company as of the balance sheet date. To determine the estimated premiums, the Company uses historical experience, as well as other
factors, to make certain assumptions about the average elapsed time between the policy effective date and the date the policies are
reported. Reporting lag times vary by market. In certain markets, the lag time may be very short, but in others, can be as high as three
months. From time to time, the Company adjusts the inputs to the estimation process as branches and agents report transactions and
new information becomes available. The Company reviews and adjusts lag time estimates periodically, using historical experience
and other factors, and reflects any adjustments in the result of operations in the period in which new information becomes available.
Quarterly, the Company evaluates the collectability of receivables. Write-offs of receivables have not been material to the
Company.
Valuation, Impairment and Credit Losses of Investments in Securities
Investments in Fixed Maturity Securities: Fixed maturity securities are classified as available-for-sale and reported at estimated
fair value with unrealized gains and losses, net of tax, reported as accumulated other comprehensive income. Securities are regularly
reviewed for differences between the cost and estimated fair value of each security indicating impairment. Factors considered in
determining whether the impairment is credit-related include the financial condition and prospects of the issuer (including credit
ratings and analyst reports) and macro-economic changes. If the Company intends to sell an available-for-sale security in an
unrealized loss position, or determines that it is more likely than not that the Company will be required to sell the security before it
recovers its amortized cost basis, the security is impaired and it is written down to estimated fair value with all losses recognized in
earnings. For available-for-sale fixed maturity securities in an unrealized loss position for which the Company does not intend to sell
the security, the Company evaluates the securities to determine whether the decline in the estimated fair value below the amortized
cost basis (impairment) is due to credit-related factors or noncredit-related factors. Any impairment that is not credit-related is
recognized in other comprehensive loss, net of applicable taxes. Credit-related impairment is recognized as an allowance for credit
losses (“ACL”) on the Consolidated Balance Sheets, limited to the amount by which the amortized cost basis exceeds the estimated
fair value, with a corresponding adjustment to earnings.
Both the ACL and the adjustment to the Consolidated Statements of Operations may be reversed if conditions change. Changes in
the ACL are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the ACL when management
believes the uncollectability of an available-for-sale fixed maturity security is confirmed or when certain criteria regarding intent or
requirement to sell is met. Accrued interest receivable is excluded from the estimate of credit losses. Impairment reviews are
inherently uncertain and the value of the investment may not fully recover or may decline in future periods resulting in a realized loss.
Realized gains and losses are determined on the specific identification method. Refer to Note 3 to the Consolidated Financial
Statements for further information about the Company’s investments in fixed maturity securities.
Investments in Equity Securities: Equity securities represent ownership interests held by the Company in entities for investment
purposes. Unrealized holding gains and losses are reported in the Consolidated Statements of Operations as changes in the estimated
fair value of equity security investments. Realized investment gains and losses from sales are recorded on the trade date and are
determined using the specific identification method. Refer to Note 3 to the Consolidated Financial Statements for further information
about the Company’s investments in equity securities.
Other Investments: Other investments consist of investments in real estate and unconsolidated affiliated entities, typically
structured as limited liability companies ("LLCs"), without readily determinable fair values.
Real estate investments are reported at amortized cost. The Company monitors any events or changes in circumstances that may
have had a significant adverse effect on the fair value of real estate investments and makes any necessary adjustments, with any
reductions in the carrying amount of these investments recorded in net realized investment gains in the Consolidated Statement of
Operations when recognized.
Other investments are accounted for under either the equity method or the measurement alternative method. The measurement
alternative method is used when an investment does not qualify for the equity method or an estimated fair value using the net asset
value per share. Under the measurement alternative method, investments are recorded at cost, less any impairment and plus or minus
any changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer.
The Company monitors any events or changes in circumstances that may have had a significant adverse effect on the estimated fair
value of these investments and makes any necessary adjustments.
The fair values of the majority of the Company’s investments are based on quoted market prices from independent pricing
services. Refer to Note 3 to the Consolidated Financial Statements for further information about the Company’s valuation techniques.
24 Deferred Taxes
The Company recorded net deferred tax liabilities at December 31, 2022 and 2021. The deferred tax liabilities recorded during
both periods primarily relate to net unrealized gains on investments, the excess of tax over book depreciation, intangible assets, and
the recorded statutory premium reserve, net of reserve for claims. Refer to Note 8 to the Consolidated Financial Statements for further
information on the Company’s deferred taxes.
Cyclicality and Seasonality
Real estate activity, home sales and mortgage lending are cyclical in nature. Title insurance premiums are closely related to the
level of real estate activity and the average price of real estate sales. Real estate activity is affected by a number of factors, including
the availability of mortgage credit, the cost of real estate, consumer confidence, employment and family income levels, and general
United States economic conditions. Interest rate volatility is also an important factor in the level of residential and commercial real
estate activity. The Company’s premiums in future periods are likely to fluctuate due to these and other factors which are beyond
management’s control.
Historically, the title insurance business tends to be seasonal as well as cyclical. Because home sales are typically strongest in
periods of favorable weather, the first calendar quarter tends to have the lowest activity levels, while the spring and summer seasons
tend to be more active. Refinance activity is generally less seasonal, but is subject to interest rate fluctuations.
Results of Operations
The following table presents certain Consolidated Statements of Operations data for the years ended December 31, 2022 and
2021:
For the Years Ended December 31, (in thousands)
2022
2021
Revenues:
Net premiums written
Escrow and other title-related fees
Non-title services
Interest and dividends
Other investment income
Net realized investment gains
Changes in the estimated fair value of equity security investments
Other
Total Revenues
Operating Expenses:
Commissions to agents
Provision for claims
Personnel expenses
Office and technology expenses
Other expenses
Total Operating Expenses
Income before Income Taxes
Provision for Income Taxes
Net Income
$
248,632 $
21,721
14,524
4,704
3,896
9,735
(20,961)
1,141
283,392
273,885
13,678
9,667
3,773
6,920
1,869
14,934
4,772
329,498
121,566
142,815
4,255
85,331
17,323
24,809
5,686
64,193
13,059
18,813
253,284
244,566
30,108
84,932
6,205
17,912
$
23,903 $
67,020
25 Insurance Revenues
Insurance revenues include net premiums written and escrow and other title-related income that includes escrow fees,
commissions and settlement fees. Non-title services revenue, investment-related revenues and other income are discussed separately
below. The following is a summary of the Company’s total revenue broken out between the title insurance segment and all other
income with intersegment eliminations netted with each segment; therefore, the individual segment amounts will not agree to Note 12
in the accompanying Consolidated Financial Statements.
(in thousands, except percentages)
Title Insurance
All Other
Total
Net Premiums Written
2022
%
2021
$
$
269,004
14,388
283,392
94.9 $
310,592
5.1
18,906
100.0 $
329,498
%
94.3
5.7
100.0
Net premiums written decreased 9.2% in 2022 to $248.6 million, compared with $273.9 million in 2021. The decrease in 2022,
compared with 2021, was primarily driven by an overall decline in the level of real estate transaction volumes resulting from higher
average mortgage interest rates.
Total premiums include an estimate of premiums for policies that have been issued directly and by agents, but not reported to the
Company as of the balance sheet date. To determine the estimated premiums, the Company uses historical experience, as well as other
factors, to make certain assumptions about the average elapsed time between the policy effective date and the date the policies are
reported. From time to time, the Company adjusts the inputs to the estimation process as reported transactions and new information
becomes available from direct and agency business. In addition to estimating revenues, the Company also estimates and accrues agent
commissions, claims provision, premium taxes, income taxes, and other expenses associated with the estimated revenues that have
been accrued. The Company reflects any adjustments to the accruals in the results of operations in the period in which new
information becomes available.
Title insurance companies typically issue title insurance policies directly or through title agencies. Following is a breakdown of
net premiums generated by direct and agency operations for the years ended December 31, 2022 and 2021, with certain balances for
2021 reclassified to conform to the 2022 presentation.
(in thousands, except percentages)
Direct
Agency
Total
2022
%
2021
$
$
85,676
162,956
248,632
34.5 $
65.5
100.0 $
82,085
191,800
273,885
%
30.0
70.0
100.0
Direct Net Premiums: The Company's direct business consists of operations at the home office, branch offices, and wholly owned
title insurance agencies. In the Company's direct operations, the Company issues a title insurance policy and retains the entire
premium, as no commissions are recognized in connection with these policies. Net premiums written from direct operations increased
4.4% in 2022 to $85.7 million, compared with $82.1 million in 2021. The increase in net premiums written from direct operations for
2022, compared with 2021, was primarily attributable to higher average home prices and increased premiums written by wholly
owned agencies in our Texas market, partially offset by a decline in transaction volume associated with higher mortgage interest rates.
Agency Net Premiums: When a policy is written through a non-wholly owned title agency, the premium is shared between the
agency and the underwriter. The agent retains a majority of the premium as a commission and remits the net amount to the Company.
Title insurance commissions earned by the Company’s agents are recognized as expenses concurrently with premium recognition.
Agency net premiums written decreased 15.0% in 2022 to $163.0 million, compared with $191.8 million in 2021. The decrease in
2022, compared with 2021, was primarily attributable to an overall decline in the level of real estate transaction volume following the
rise in mortgage interest rates, partially offset by higher average home prices.
26 The following is a schedule of net premiums written in select states in which the Company’s two insurance subsidiaries, ITIC and
NITIC, currently underwrite title insurance:
State (in thousands)
North Carolina
Texas
South Carolina
Georgia
All Others
Premiums Written
Reinsurance Assumed
Reinsurance Ceded
Net Premiums Written
2022
2021
$
88,777 $
72,278
23,454
22,954
41,987
99,049
62,557
24,981
34,619
53,197
249,450
274,403
—
(818)
—
(518)
$
248,632 $
273,885
The increase in net premiums written in the state of Texas in 2022, compared with 2021, primarily resulted from the Company’s
recent acquisitions of title insurance agencies doing business in the state of Texas. The Company evaluates nonorganic growth
opportunities, such as acquisitions of title insurance agencies, from time to time in the ordinary course of business.
Escrow and Other Title-Related Fees
Escrow and other title-related fees consists primarily of commission income, escrow and other various fees associated with the
issuance of a title insurance policy including settlement, examination and closing fees. In 2022, escrow and other title-related fee
revenue increased 58.8% to $21.7 million, compared with $13.7 million in 2021, primarily due to a larger share of business in markets
that generate escrow income, and fee income associated with commercial activity.
Revenue from Non-Title Services
Revenue from non-title services includes trust services, agency management services and exchange services income. Non-title
service revenues increased 50.2% in 2022 to $14.5 million, compared with $9.7 million in 2021. The increase in 2022, compared with
2021, primarily related to increases in like-kind exchange revenues.
Investment Related Revenues
Investment related revenues include interest and dividends, other investment income, net realized investment gains and changes in
the estimated fair value of equity security investments.
Interest and Dividends
The Company derives a substantial portion of its income from investments in fixed maturity securities, which are primarily
municipal and corporate fixed maturity securities, and equity securities. The Company’s investment policy is designed to comply with
regulatory requirements and to balance the competing objectives of asset quality and investment returns. The Company’s title
insurance subsidiaries are required by statute to maintain minimum levels of investments in order to protect the interests of
policyholders. Fixed maturity securities totaling approximately $6.7 million and $7.0 million at December 31, 2022 and 2021,
respectively, were deposited with the insurance departments of the states in which business is conducted.
The Company’s investment strategy emphasizes after-tax income and principal preservation. The Company’s investments are
primarily in fixed maturity securities and, to a lesser extent, equity securities. The average effective maturity of the majority of the
fixed maturity securities is less than 10 years. The Company’s invested assets are managed to fund its obligations and evaluated to
ensure long term stability of capital accounts.
27 As the Company generates cash from operations, it is invested in accordance with the Company’s investment policy and
corporate goals. The Company’s investment policy has been designed to balance multiple goals, including the assurance of a stable
source of income from interest and dividends, the preservation of principal, and the provision of liquidity sufficient to meet insurance
underwriting and other obligations as they become payable in the future. Securities purchased may include a combination of taxable
or tax-exempt fixed maturity securities and equity securities. The Company also invests in short-term investments that typically
include money market funds, and, at times, the Company has or could invest in U.S. Treasury bills, commercial paper and certificates
of deposit. The Company strives to maintain a high quality investment portfolio. In 2022, ongoing evaluation of changing business
and financial market conditions led to portions of cash flow from operations, and certain amounts resulting from sales and maturities
in the company’s investment portfolio, to be invested in short term investments to take advantage of elevated short-term interest rates.
Interest and dividends were $4.7 million in 2022, compared with $3.8 million in 2021. Interest and investment income levels are
primarily a function of general market performance, interest rates and the amount of cash available for investment. Refer to Note 3 in
the accompanying Consolidated Financial Statements for the major categories of investments, scheduled maturities, amortized costs,
estimated fair values of investment securities and earnings by security category.
Other Investment Income
Other investment income consists primarily of income related to investments in unconsolidated affiliates, typically structured as
LLCs, accounted for under either the equity method of accounting or the measurement alternative for investments that do not have
readily determinable fair values. The measurement alternative method requires investments without readily determinable fair values
to be recorded at cost, less impairments, and plus or minus any changes resulting from observable price changes. The Company
monitors any events or changes in circumstances that may have had a significant adverse effect on the fair value of these investments
and makes any necessary adjustments.
Other investment income was $3.9 million in 2022, compared with $6.9 million in 2021. Changes in other investment income are
impacted by fluctuations in the carrying value of the underlying investment and/or distributions received.
Net Realized Investment Gains
Dispositions of equity securities at a realized gain or loss reflect such factors as industry sector allocation decisions, ongoing
assessments of issuers’ business prospects and tax planning considerations. Additionally, the amounts included in net realized
investment gains are affected by assessments of securities’ valuation for impairment. As a result of the interaction of these factors and
considerations, the net realized investment gain or loss can vary significantly from period to period.
The net realized investment gains were $9.7 million for 2022, compared with $1.9 million for 2021. The net realized gain on the
sales of investments and other assets of $9.9 million in 2022 was partially offset by impairment charges of $172 thousand for certain
fixed maturity securities where the intent to hold had changed in 2022. There were no impairment charges recorded in 2021.
Management believes unrealized losses on the remaining fixed maturity securities at December 31, 2022 are not credit-related.
The securities in the Company’s investment portfolio are subject to economic conditions and market risks. The Company
considers relevant facts and circumstances in evaluating whether a credit or interest-related impairment of a fixed maturity security has
occurred. Relevant facts and circumstances include the extent and length of time the fair value of an investment has been below cost.
There are a number of risks and uncertainties inherent in the process of monitoring impairments and determining if an impairment
exists. These risks and uncertainties include the risk that the economic outlook will be worse than expected or have more of an impact
on the issuer than anticipated; the risk that the Company’s assessment of an issuer’s ability to meet all of its contractual obligations
will change based on changes in the characteristics of that issuer; the risk that information obtained by the Company or changes in
other facts and circumstances leads management to change its intent to sell the fixed maturity security; and the risk that management is
making decisions based on inaccurate information in the financial statements provided by issuers.
Changes in the Estimated Fair Value of Equity Security Investments
Changes in the estimated fair value of equity security investments were $(21.0) million in 2022 and $14.9 million in 2021. Such
fluctuations are the result of changes in general market conditions during the respective periods. All major indices experienced
significant declines in 2022.
28 Other Income
Other income primarily includes gains and losses on the disposal of assets, rental income from real estate investments and
miscellaneous revenues. Other income was $1.1 million in 2022, compared with $4.8 million for 2021. The decrease in 2022,
compared with 2021, primarily related to a gain on the sale of a property in 2021.
Expenses
The Company's operating expenses consist primarily of commissions to agents, personnel expenses, office and technology
expenses and the provision for claims. Operating expenses increased 3.6% in 2022, compared with 2021, primarily due to increases in
personnel, office, technology and other operating expenses, partially offset by a decrease in commissions to agents.
Following is a summary of the Company’s operating expenses for 2022 and 2021. Intersegment eliminations have been netted;
therefore, the individual segment amounts will not agree to Note 12 in the accompanying Consolidated Financial Statements.
(in thousands, except percentages)
Title Insurance
All Other
Total
Total Company
2022
%
2021
$
$
242,280
11,004
253,284
95.7 $
234,573
4.3
9,993
100.0 $
244,566
%
95.9
4.1
100.0
Personnel Expenses: Personnel expenses include base salaries, benefits and payroll taxes, bonuses paid to employees and contract
labor expenses. Personnel expenses were $85.3 million and $64.2 million for 2022 and 2021, respectively. Personnel expenses
increased by 32.9% in 2022, compared with 2021, primarily due to staffing of new offices and hiring to support growth initiatives.
Increases in staffing levels are the result of both organic growth and recent acquisitions of title insurance agencies, as the Company
continues expansion of its geographic footprint. Employee headcount increased by 16.5%, when compared to the same prior year
period, primarily due to the Company's continued expansion efforts in the Texas market. On a consolidated basis, personnel expenses
as a percentage of total revenues were 30.1% and 19.5% in 2022 and 2021, respectively.
Office and Technology Expenses: Office and technology expenses primarily include facilities expenses, software and hardware
expenses, depreciation expense, telecommunications expenses, and business insurance. Office and technology expenses were $17.3
million and $13.1 million for 2022 and 2021, respectively. The increase in office and technology expenses in 2022, compared with
2021, was primarily in support of expanding the Company's geographic footprint, the result of adding new office locations due to both
organic growth and recent acquisitions of title insurance agencies, and various ongoing technology initiatives.
Other Expenses: Other expenses primarily include business development expenses, premium-related taxes and licensing,
professional services, title and service fees, amortization of intangible assets and other general expenses. Other expenses were $24.8
million and $18.8 million for 2022 and 2021, respectively. The increase in 2022, compared with 2021, was primarily related to
increases in title and service fees, technology fees, business development expenses, and amortization of intangible assets.
Title Insurance
Commissions to Agents: Agent commissions represent the portion of premiums retained by agents pursuant to the terms of their
respective agency contracts. In 2022, commissions to agents decreased 14.9% to $121.6 million, compared with $142.8 million in
2021. Commission expense as a percentage of net premiums written by agents was 74.6% and 74.5% in 2022 and 2021, respectively.
The decrease in commission expense, when comparing 2022 with 2021, was commensurate with the decrease in agent premium
volume. Commission rates vary by market due to local practice, competition and state regulations.
Provision for Claims: The provision for claims decreased 25.2% in 2022, compared to 2021. The provision for claims as a
percentage of net premiums written was 1.7% and 2.1% in 2022 and 2021, respectively. The dollar decrease in the provision for
claims in 2022, compared with 2021, was primarily due to reductions in net premiums written and the impact of changes in the
geographical mix for underwriting risk.
The decrease in the loss provision rate in 2022, from the 2021 level, resulted in approximately $907 thousand less in reserves than
would have been recorded at the higher 2021 level. Loss provision rates are subject to variability and are reviewed and adjusted as
experience develops.
29 Title claims are typically reported and paid within the first several years of policy issuance. The provision for claims reflects
actual payments of claims, net of recovery amounts, plus adjustments to the specific and incurred but not reported claims reserves, the
latter of which are actuarially determined based on historical claims experience. Actual payments of claims, net of recoveries, were
$3.8 million and $2.5 million in 2022 and 2021, respectively.
Reserve for Claims: At December 31, 2022, the total reserve for claims was $37.2 million. Of that total, approximately $3.3
million was reserved for specific claims, and approximately $33.9 million was reserved for claims for which the Company had no
notice. Because of the uncertainty of future claims, changes in economic conditions and the fact that many claims do not materialize
for several years, reserve estimates are subject to variability.
Changes from prior periods in the expected liability for claims reflect the uncertainty of the claims environment, as well as the
limited predictive power of historical data. The Company continually updates and refines its reserve estimates as current experience
develops and credible data emerges. Such data includes payments on claims closed during the quarter, new details that emerge on
open cases that cause claims adjusters to increase or decrease the case reserves, and the impact that these types of changes have on the
Company’s total loss provision. Adjustments may be required as new information develops which often varies from past experience.
Income Taxes
The provision for income taxes was $6.2 million and $17.9 million for 2022 and 2021, respectively. Income tax expense,
including federal and state taxes, as a percentage of income before income taxes was 20.6% and 21.1% for 2022 and 2021,
respectively. The effective income tax rates for both 2022 and 2021 differ from the U.S. federal statutory income tax rate of 21%
primarily due to the effect of tax-exempt income and state taxes. Tax-exempt income lowers the effective tax rate.
The Company believes it is more likely than not that the tax benefits associated with recognized impairments and unrecognized
losses recorded through December 31, 2022 will be realized. However, this judgment could be impacted by further market
fluctuations. Information regarding the components of income tax expense and the items included in the reconciliation of the effective
rate with the federal statutory rate can be found in Note 8 to the Consolidated Financial Statements.
After-Tax Profit Margin
The Company’s after-tax profit margin varies according to a number of factors, including the volume and type of real estate
activity. On a combined basis, the after-tax profit margins were 8.4% and 20.3% in 2022 and 2021, respectively. The decrease in
after-tax margin in 2022, compared with 2021, was primarily related to a decrease in total revenue and an increase in expenses. The
Company continually strives to enhance its competitive strengths and market position, including ongoing initiatives to manage its
operating expenses.
Liquidity and Capital Resources
The Company’s material cash requirements include general operating expenses, contractual and other obligations for the future
payment of title claims, employment agreements, lease agreements, income taxes, capital expenditures, dividends on its common stock
and other contractual commitments for goods and services needed for operations. All other arrangements entered into by the
Company are not reasonably likely to have a material effect on liquidity or the availability of capital resources. Cash flows from
operations have historically been the primary source of financing for expanding operations, whether through organic growth or outside
investments. The Company believes its balances of cash, short-term investments and other readily marketable securities, along with
cash flows generated by ongoing operations, will be sufficient to satisfy its cash requirements over the next 12 months and thereafter,
including the funding of operating activities and commitments for investing and financing activities. There are currently no known
trends that the Company believes will materially impact the Company’s capital resources, nor is the Company anticipating any
material changes in the mix or relative cost of such resources except as otherwise disclosed in the Business Trends and Recent
Conditions section of this Management's Discussion and Analysis.
The Company evaluates nonorganic growth opportunities, such as mergers and acquisitions, from time to time in the ordinary
course of business. Because of the episodic nature of these events, related incremental liquidity and capital resource needs can be
difficult to predict.
The Company’s operating results and cash flows are heavily dependent on the real estate market. The Company’s business has
certain fixed costs such as personnel; therefore, changes in the real estate market are monitored closely, and operating expenses such
as staffing levels are managed and adjusted accordingly. The Company believes that its significant working capital position and
management of operating expenses will aid its ability to manage cash resources through fluctuations in the real estate market.
30 Cash Flows: Net cash flows provided by operating activities were $36.2 million and $51.9 million for 2022 and 2021,
respectively. Cash flows provided by operating activities differ from net income due to adjustments for non-cash items, such as
changes in the estimated fair value of equity security investments, gains and losses on investments and property, the timing of
disbursements for taxes, claims and other accrued liabilities, and collections or changes in receivables and other assets.
Cash flows from non-operating activities have historically consisted of purchases and proceeds from investing activities, the
issuance of dividends and repurchases of common stock. In 2022, the Company had higher investment purchase activity and lower
dividends paid when compared to 2021. In the fourth quarters of 2022 and 2021, the Company paid special cash dividends in the
amounts of $3.00 and $18.00 per share, respectively, in addition to regular cash dividends. Total dividends paid per share were $4.84
and $19.82 in 2022 and 2021, respectively.
The Company maintains a high degree of liquidity within its investment portfolio in the form of cash, short-term investments, and
other readily marketable securities. As of December 31, 2022, the Company held cash and cash equivalents of $35.3 million, short-
term investments of $103.6 million, available-for-sale fixed maturity securities of $54.0 million and equity securities of $51.7 million.
The net effect of all activities on total cash and cash equivalents was a decrease of $1.9 million for 2022. In 2022, ongoing evaluation
of changing business and financial market conditions led to portions of cash flow from operations, and certain amounts resulting from
sales and maturities in the company’s investment portfolio, to be invested in short term investments to take advantage of elevated
short-term interest rates.
Capital Resources: The amount of capital resources the Company maintains is influenced by state regulation, the need to
maintain superior financial ratings from third-party rating agencies and other marketing and operational considerations.
The Company's significant sources of funds are dividends and distributions from its subsidiaries, primarily its two title insurance
subsidiaries. Cash is received from its subsidiaries in the form of dividends and as reimbursements for operating and other
administrative expenses that it incurs. The reimbursements are executed within the guidelines of management agreements between the
Company and its subsidiaries.
The ability of the Company's title insurance subsidiaries to pay dividends to the Company is subject to state regulation from their
respective states of domicile. Each state regulates the extent to which title underwriters can pay dividends or make distributions and
requires prior regulatory approval of the payment of dividends and other intercompany transfers. The maximum dividend permitted
by law is not necessarily indicative of an insurer’s actual ability to pay dividends. Depending on regulatory conditions, the Company
may in the future need to retain cash in its title insurance subsidiaries in order to maintain their statutory capital position. As of
December 31, 2022, both ITIC and NITIC met the minimum capital, surplus and reserve requirements for each state in which they are
licensed.
As of December 31, 2022, approximately $110.3 million of the consolidated shareholders’ equity represented net assets of the
Company’s subsidiaries that are restricted by regulation from being transferred in the form of dividends, loans or advances to the
parent company without prior approval from the respective state insurance department. The Company believes, however, that
amounts available for transfer from the insurance and other subsidiaries are adequate to meet the Company’s current operating needs.
During 2023, the maximum distributions the insurance subsidiaries can make to the Company without prior approval from
applicable regulators total approximately $30.9 million.
While state regulations and the need to cover risks may set a minimum level for capital requirements, other factors necessitate
maintaining capital resources in excess of the required minimum amounts. For instance, the Company’s capital resources help it
maintain high ratings from insurance company rating agencies. Superior ratings strengthen the Company's ability to compete with
larger, well known title insurers with national footprints.
A strong financial position provides the necessary flexibility to fund potential acquisition activity, to invest in the Company's core
business, and to minimize the financial impact of potential adverse developments. Adverse developments that generally require
additional capital include adverse financial results, changes in statutory accounting requirements by regulators, reserve charges,
investment losses or costs incurred to adapt to a changing regulatory environment, including costs related to CFPB regulation of the
real estate industry.
The Company bases its capitalization levels in part on net coverage retained. Since the Company's geographical focus has been
and continues to be concentrated in states with average premium rates typically lower than the national average, capitalization relative
to premiums will usually appear higher than industry averages.
31 Due to the Company’s historical ability to consistently generate positive cash flows from its consolidated operations and
investment income, management believes that funds generated from operations will enable the Company to adequately meet its current
operating needs for the foreseeable future. However, with any continued impact of COVID-19, ongoing inflationary pressures and the
ongoing military conflict between Russia and Ukraine, there can be no assurance that future experience will be similar to historical
experience, since it is influenced by such factors as the interest rate environment, real estate activity, the Company’s claims-paying
ability and its financial strength ratings. In addition to operational and investment considerations, taking advantage of opportunistic
external growth opportunities may necessitate obtaining additional capital resources. The Company is carefully monitoring the
COVID-19 situation, inflation, the conflict in Ukraine, and other trends that could potentially result in material adverse liquidity
changes, and will continually assess its capital allocation strategy, including decisions relating to payment of dividends, repurchasing
the Company’s common stock and/or conserving cash.
Purchase of Company Stock: On November 9, 2015, the Board of Directors of the Company approved the purchase of an
additional 163,335 shares pursuant to the Company’s repurchase plan, such that there was authority remaining under the plan to
purchase up to an aggregate of 500,000 shares of the Company’s common stock pursuant to the plan immediately after this approval.
Unless terminated earlier by resolution of the Board of Directors, the plan will expire when all shares authorized for purchase under
the plan have been purchased. Pursuant to the Company’s ongoing purchase program, the Company purchased 945 shares at an
average per share price of $141.01 in 2022. No shares were purchased in 2021. The Company anticipates making further purchases
under this plan from time to time in the future, depending on such factors as the prevailing market price of the Company’s common
stock, the Company’s available cash and the existing alternative uses for such cash.
Capital Expenditures: Capital expenditures were approximately $5.7 million and $6.5 million during 2022 and 2021,
respectively, with the higher 2021 expenditures related primarily to system development initiative expenses. The Company has plans
for various capital improvement projects, including increased investment in a number of technology and system development
initiatives and hardware purchases which are anticipated to be funded via cash flows from operations. All material anticipated capital
expenditures are subject to periodic review and revision and may vary depending on a number of factors.
Contractual Obligations: As of December 31, 2022, the Company had a claims reserve totaling $37.2 million. The amounts and
timing of these obligations are estimated and not set contractually. Events such as fraud, defalcation, and multiple property title
defects can substantially and unexpectedly cause increases in both the amount and timing of estimated title insurance loss payments
and loss cost trends whereby increases or decreases in inflationary factors (including the value of real estate) will influence the
ultimate amount of title insurance loss payments and could increase total obligations and influence claim payout patterns. Due to the
length of time over which claim payments are made and regularly occurring changes in underlying economic and market conditions,
claim estimates are subject to variability and future payments could increase or decrease from these estimated amounts in the future.
ITIC, a wholly owned subsidiary of the Company, has entered into employment agreements with certain executive officers. The
amounts accrued for these agreements at December 31, 2022 and 2021 were approximately $15.0 million and $13.4 million,
respectively, which includes postretirement compensation and health benefits, and were calculated based on the terms of the contracts.
These executive contracts are accounted for on an individual contract basis. As payments are based upon the occurrence of specific
events, including death, disability, retirement, termination without cause or upon a change in control, payment periods are currently
uncertain. Information regarding retirement agreements and other postretirement benefit plans can be found in Note 10 to the
Consolidated Financial Statements.
The Company enters into lease agreements that are primarily used for office space. These leases are accounted for as operating
leases, with lease expense recognized on a straight-line basis over the term of the lease. The Company occasionally assumes
equipment lease agreements through business acquisitions. These leases are accounted for as finance leases. A portion of the
Company's current leases include an option to extend or cancel the lease term, and the exercise of such an option is solely at the
Company's discretion. The total of undiscounted future minimum lease payments under leases that have initial or remaining
noncancelable lease terms in excess of one year as of December 31, 2022 is $5.2 million, which includes lease payments related to
options to extend or cancel the lease term if the Company determined at the date of adoption that the lease was expected to be renewed
or extended. Information regarding leases can be found in Note 9 to the Consolidated Financial Statements.
In the normal course of business, the Company enters into other contractual commitments for goods and services needed for
operations. Such commitments are not expected to have a material adverse effect on the Company’s liquidity.
32 Off-Balance Sheet Arrangements
As a service to its customers, the Company, through ITIC, administers escrow and trust deposits representing earnest money
received under real estate contracts, undisbursed amounts received for settlement of mortgage loans and indemnities against specific
title risks. Cash held by the Company for these purposes was approximately $24.2 million and $27.5 million as of December 31, 2022
and 2021, respectively. These amounts are not considered assets of the Company and, therefore, are excluded from the Consolidated
Balance Sheets. However, the Company remains contingently liable for the disposition of these deposits.
In addition, in administering tax-deferred like-kind exchanges pursuant to § 1031 of the IRC, ITEC serves as a qualified
intermediary for exchanges, holding the net sales proceeds from relinquished property to be used for purchase of replacement
property. ITAC serves as exchange accommodation titleholder and, through LLCs that are wholly owned subsidiaries of ITAC, holds
property in reverse exchange transactions. Like-kind exchange deposits and reverse exchange property held by the Company for the
purpose of completing such transactions totaled approximately $432.0 million and $763.9 million as of December 31, 2022 and 2021,
respectively. These exchange deposits are held at third-party financial institutions. Exchange deposits are not considered assets of the
Company and, therefore, are excluded from the Consolidated Balance Sheets; however, the Company remains contingently liable for
the disposition of the transfers of property, disbursements of proceeds and the return on the proceeds at the agreed upon rate.
Exchange services revenue includes earnings on these deposits; therefore, investment income is shown as non-title services rather than
investment income. These like-kind exchange funds are primarily invested in money market and other short-term investments.
External assets under management of Investors Trust Company totaled approximately $635.3 million and $728.2 million as of
December 31, 2022 and 2021, respectively. These amounts are not considered assets of the Company and, therefore, are excluded
from the Consolidated Balance Sheets.
It is not the general practice of the Company to enter into off-balance sheet arrangements or issue guarantees to third parties. The
Company does not have any material source of liquidity or financing that involves off-balance sheet arrangements. Other than items
noted above, off-balance sheet arrangements are generally limited to the future payments due under various agreements with third-
party service providers.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item not required for smaller reporting companies.
33 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
1.
Report of Independent Registered Public Accounting Firm (PCAOB ID: 686)
2. Management's Report on Internal Control Over Financial Reporting
3.
4.
5.
6.
7.
8.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
9. Notes to Consolidated Financial Statements
35
38
39
41
42
43
44
45
47
The financial statement schedules meeting the requirements of Regulation S-X are attached hereto as Schedules I, II, III, IV and
V.
34 Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
Investors Title Company
Chapel Hill, NC
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Investors Title Company and Subsidiaries (the
“Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income,
shareholders’ equity and cash flows9F for each of the years then ended, and the related notes and schedules (collectively
referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and
the results of its operations and its cash flows for each of the years then ended in conformity with accounting principles
generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established
in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 14, 2023, expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on the Company’s consolidated financial statements based on our audits.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include
examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our
audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable
basis for our opinion.
FORVIS is a trademark of FORVIS, LLP, registration of which is pending with the U.S. Patent and Trademark Office.
35 Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts
or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on
the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.
Reserve for Claims
As described in notes 1 and 6 to the Company’s consolidated financial statements, the Company’s unpaid loss and losses
adjustment expenses are established using estimated amounts required to settle claims for which notice has been received
(reported) and the amount estimated to be required to satisfy incurred claims of policyholders which may be reported in the
future (incurred but not reported, or “IBNR”). As of December 31, 2022, the Company had approximately $37.1 million in
reserve for claims. Management records a provision for future claim payments at the time the related premium revenue is
recognized by applying a loss provision rate against net premiums written. Management determines its loss provision rate
through the consideration of factors such as the Company’s historical claim experience, case reserve estimates on reported
claims, large claims, actuarial projections, and other relevant factors. The Company’s specialist utilizes accepted actuarial
methodologies when performing the actuarial projections. Management’s assumptions include assumed comparability to its
historical claims experience unless factors, such as loss experience and charged premium rates, change significantly, as
well as assumptions around large losses related to fraud and defalcation.
We identified the reserve for claims as a critical audit matter. The principal considerations for our determination of the
reserve for claims as a critical audit matter were management’s use of significant actuarial estimates and assumptions to
estimate the reserve for claims, including the selection of actuarial methods, loss development factors, and expected loss
ratios, as well as the high degree of auditor judgment, subjectivity, and effort in determining the reasonableness of the
actuarial assumptions and methodologies utilized, and our use of an auditor’s specialist.
FORVIS is a trademark of FORVIS, LLP, registration of which is pending with the U.S. Patent and Trademark Office.
36 Our audit procedures related to the reserve for claims included the following, among others:
We obtained an understanding, evaluated the design and implementation, and tested the operating effectiveness
of the Company’s controls over the process for developing its reserve for claims. This included, among others, the
controls over the determination of the actuarial methods and assumptions utilized to support the reserve for claims
calculations and controls over the completeness and accuracy of historical loss data utilized in the reserve for claims
calculations.
We engaged a third-party actuary with specialized skill and knowledge to assist in evaluating the reasonableness
of the reserving methodologies utilized by the Company’s specialist and evaluating the reasonableness of the
assumptions related to loss development factors and expected loss ratios.
We tested the inputs utilized by the Company’s specialist in developing the reserve for claims. This included testing
the accuracy and completeness of the data provided to the Company’s specialist.
We evaluated the reasonableness of the significant assumptions utilized by the Company in developing the reserve
for claims.
We have served as the Company’s auditor since 2004.
High Point, NC
March 14, 2023
FORVIS is a trademark of FORVIS, LLP, registration of which is pending with the U.S. Patent and Trademark Office.
37 MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of Investors Title Company and Subsidiaries is responsible for establishing and maintaining adequate internal control
over financial reporting, as such term is defined in the Exchange Act Rules 13a-15(f) and 15(d)-15(f). The Company’s internal control
over financial reporting has been designed to provide reasonable assurance regarding the reliability of the Company’s financial
reporting and the preparation of published financial statements in accordance with generally accepted accounting principles.
The Company’s internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets of the Company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America, and that receipts and expenditures are being made only in accordance
with authorization of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s
Consolidated Financial Statements.
Because of its inherent limitation, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with policies or procedures may deteriorate.
Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the
framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) and concluded that the Company’s internal control over financial reporting was effective as of December 31,
2022.
38 2F
Report of Independent Registered Public Accounting Firm2
Shareholders and Board of Directors
Investors Title Company
Chapel Hill, NC
Opinion on the Internal Control over Financial Reporting
We have audited Investors Title Company and Subsidiaries’ (the “Company”) internal control over financial reporting as of
December 31, 2022, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria
established in Internal Control – Integrated Framework: (2013) issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the consolidated financial statements of the Company as of December 31, 2022 and 2021, and for each of the
years then ended, and our report dated March 14, 2023, expressed an unqualified opinion on those consolidated financial
statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in
all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing
the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definitions and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of reliable financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
FORVIS is a trademark of FORVIS, LLP, registration of which is pending with the U.S. Patent and Trademark Office.
39 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
High Point, NC
March 14, 2023
FORVIS is a trademark of FORVIS, LLP, registration of which is pending with the U.S. Patent and Trademark Office.
40 Investors Title Company and Subsidiaries
Consolidated Balance Sheets
(in thousands)
As of December 31,
Assets
Cash and cash equivalents
Investments:
2022
2021
$
35,311 $
37,168
Fixed maturity securities, available-for-sale, at fair value (amortized cost: December 31, 2022:
$53,775; December 31, 2021: $75,511)
53,989
79,791
Equity securities, at fair value (cost: December 31, 2022: $25,278; December 31, 2021:
$29,478)
Short-term investments
Other investments
Total investments
Premium and fees receivable
Accrued interest and dividends
Prepaid expenses and other receivables
Property, net
Goodwill and other intangible assets, net
Lease assets
Other assets
Current income taxes receivable
Total Assets
Liabilities and Shareholders’ Equity
Liabilities:
Reserve for claims
Accounts payable and accrued liabilities
Lease liabilities
Current income taxes payable
Deferred income taxes, net
Total liabilities
Commitments and Contingencies
Shareholders’ Equity:
Preferred stock (1,000 authorized shares; no shares issued)
Common stock – no par value (10,000 authorized shares; 1,897 and 1,895 shares issued and
outstanding as of December 31, 2022 and 2021, respectively, excluding in each period 292
shares of common stock held by the Company)
Retained earnings
Accumulated other comprehensive income
Total shareholders’ equity
Total Liabilities and Shareholders’ Equity
Refer to the Notes to the Consolidated Financial Statements.
51,691
103,649
18,368
227,697
19,047
872
11,095
17,785
17,611
6,707
2,458
1,174
76,853
45,930
20,298
222,872
22,953
817
11,721
13,033
15,951
5,202
1,771
—
$
339,757 $
331,488
$
37,192 $
47,050
6,839
—
7,665
98,746
—
—
—
240,811
200
241,011
$
339,757 $
36,754
43,868
5,329
3,329
13,121
102,401
—
—
—
225,861
3,226
229,087
331,488
41 Investors Title Company and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per share amounts)
For the Years Ended December 31,
Revenues:
Net premiums written
Escrow and other title-related fees
Non-title services
Interest and dividends
Other investment income
Net realized investment gains
Changes in the estimated fair value of equity security investments
Other
Total Revenues
Operating Expenses:
Commissions to agents
Provision for claims
Personnel expenses
Office and technology expenses
Other expenses
Total Operating Expenses
Income before Income Taxes
Provision for Income Taxes
Net Income
Basic Earnings per Common Share
Weighted Average Shares Outstanding – Basic
Diluted Earnings per Common Share
Weighted Average Shares Outstanding – Diluted
Refer to the Notes to the Consolidated Financial Statements.
2022
2021
$
248,632 $
21,721
14,524
4,704
3,896
9,735
(20,961)
1,141
283,392
121,566
4,255
85,331
17,323
24,809
253,284
273,885
13,678
9,667
3,773
6,920
1,869
14,934
4,772
329,498
142,815
5,686
64,193
13,059
18,813
244,566
30,108
84,932
6,205
17,912
23,903 $
67,020
12.60 $
35.38
1,897
1,894
12.59 $
35.28
1,898
1,900
$
$
$
42 Investors Title Company and Subsidiaries
Consolidated Statements of Comprehensive Income
(in thousands)
For the Years Ended December 31,
Net income
Other comprehensive loss, before income tax:
Accumulated postretirement benefit obligation adjustment
Unrealized losses on investments arising during the period
Reclassification adjustment for sale of securities included in net income
Reclassification adjustment for write-down of securities included in net income
Other comprehensive loss, before income tax
Income tax expense related to postretirement health benefits
Income tax benefit related to net unrealized losses on investments arising during the year
Income tax expense (benefit) related to reclassification adjustment for sale of securities
included in net income
Income tax expense related to reclassification adjustment for write-down of securities
included in net income
Net income tax benefit on other comprehensive loss
Other comprehensive loss
Comprehensive Income
Refer to the Notes to the Consolidated Financial Statements.
2022
2021
$
23,903 $
67,020
228
(4,342)
104
172
(3,838)
48
(921)
22
39
(812)
(3,026)
$
20,877 $
—
(1,376)
(19)
—
(1,395)
—
(291)
(4)
—
(295)
(1,100)
65,920
43 Investors Title Company and Subsidiaries
Consolidated Statements of Shareholders’ Equity
(in thousands, except per share amounts)
Balance, January 1, 2021
Net income
Dividends paid ($19.82 per share)
Exercise of stock appreciation rights
Share-based compensation expense related to stock
appreciation rights
Net unrealized loss on investments
Balance, December 31, 2021
Net income
Dividends paid ($4.84 per share)
Repurchases of common stock
Exercise of stock appreciation rights
Share-based compensation expense related to stock
appreciation rights
Accumulated postretirement benefit obligation adjustment
Net unrealized loss on investments
Common Stock
Shares
Amount
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Total
Shareholders’
Equity
1,892 $
— $
196,096 $
4,326 $
3
67,020
(37,553)
(1)
299
(1,100)
200,422
67,020
(37,553)
(1)
299
(1,100)
1,895 $
— $
225,861 $
3,226 $
229,087
(1)
3
23,903
(9,181)
(133)
(1)
362
23,903
(9,181)
(133)
(1)
362
180
(3,206)
180
(3,206)
Balance, December 31, 2022
1,897 $
— $
240,811 $
200 $
241,011
Refer to the Notes to the Consolidated Financial Statements.
44 Investors Title Company and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
For the Years Ended December 31,
Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
2022
2021
$
23,903 $
67,020
Depreciation
Amortization of investments, net
Amortization of other intangible assets, net
Share-based compensation expense related to stock appreciation rights
Net gains on disposals of property
Net realized gains on securities
Net realized losses (gains) on other investments
Changes in the estimated fair value of equity security investments
Net earnings from other investments
Provision for claims
(Benefit) provision for deferred income taxes
Changes in assets and liabilities:
Decrease (increase) in premium and fees receivable
Decrease (increase) in other assets
Increase in lease assets
Increase in current income taxes recoverable
Increase in lease liabilities
Increase in accounts payable and accrued liabilities
(Decrease) increase in current income taxes payable
Payments of claims, net of recoveries
Net cash provided by operating activities
Investing Activities
Purchases of fixed maturity securities
Purchases of equity securities
Purchases of short-term investments
Purchase of subsidiary
Purchases of other investments
Proceeds from sales and maturities of fixed maturity securities
Proceeds from the sale of equity securities
Proceeds from sales and maturities of short-term investments
Proceeds from sales and distributions of other investments
Proceeds from sales of other assets
Purchases of property, equipment and software
Proceeds from disposals of property
Net cash (used in) provided by investing activities
2,298
271
1,282
362
(58)
(10,101)
366
20,961
(2,224)
4,255
(4,644)
3,906
532
(1,505)
(1,174)
1,510
3,410
(3,329)
(3,817)
36,204
(10,704)
(5,855)
(101,718)
(4,927)
(1,574)
31,305
20,785
44,236
5,332
29
(5,681)
26
(28,746)
1,892
994
544
299
(3,957)
(911)
(958)
(14,934)
(4,040)
5,686
4,825
(3,526)
(9,017)
(1,669)
—
1,660
7,848
2,691
(2,516)
51,931
—
(4,688)
(34,015)
—
(6,616)
35,550
8,577
3,257
5,838
960
(6,534)
6,739
9,068
45 Consolidated Statements of Cash Flows, continued
For the Years Ended December 31,
Financing Activities
Repurchases of common stock
Exercise of stock appreciation rights
Dividends paid
Net cash used in financing activities
Net (Decrease) Increase in Cash and Cash Equivalents
Cash and Cash Equivalents, Beginning of Period
2022
2021
(133)
(1)
(9,181)
(9,315)
(1,857)
37,168
—
(1)
(37,553)
(37,554)
23,445
13,723
37,168
Cash and Cash Equivalents, End of Period
$
35,311 $
Supplemental Disclosures:
Cash Paid During the Year for:
Income tax payments, net
Non Cash Investing and Financing Activities:
Non cash net unrealized loss on investments, net of deferred tax benefit of $860 and $295
for December 31, 2022 and 2021, respectively
Adjustments to postretirement benefits obligation, net of deferred tax expense of $(48) and
$0 for December 31, 2022 and 2021, respectively
Changes in Financial Statement Amounts Related to Purchase of Subsidiaries, Net of
Cash Received:
Goodwill and other intangibles acquired
Title plant acquired
Prepaid and other assets acquired
Fixed assets acquired
Purchase of subsidiary, net of cash received
Refer to the Notes to the Consolidated Financial Statements.
$
$
$
$
$
15,363 $
10,410
3,206 $
1,100
(180) $
(2,832) $
(637)
(121)
(1,337)
(4,927) $
—
—
—
—
—
—
46 Investors Title Company and Subsidiaries
Notes to Consolidated Financial Statements
1. Basis of Presentation and Summary of Significant Accounting Policies
Description of Business: Investors Title Company’s (the “Company”) primary business, and only reportable segment, is title
insurance. The title insurance segment, through its two subsidiaries, Investors Title Insurance Company (“ITIC”) and National
Investors Title Insurance Company (“NITIC”), is licensed to insure titles to residential, institutional, commercial and industrial
properties. The Company issues title insurance policies directly and through a network of agents in 23 states and the District of
Columbia, primarily in the eastern half of the United States. The majority of the Company’s business is concentrated in North
Carolina, Texas, South Carolina and Georgia.
Principles of Consolidation and Basis of Presentation: The accompanying Consolidated Financial Statements include the
accounts and operations of Investors Title Company and its subsidiaries, and have been prepared in accordance with accounting
principles generally accepted in the United States (“GAAP”). All intercompany balances and transactions have been eliminated in
consolidation.
Significant Accounting Policies: The significant accounting policies of the Company are summarized below.
Cash and Cash Equivalents
For the purpose of presentation in the Consolidated Balance Sheets and Consolidated Statements of Cash Flows, cash equivalents
are highly liquid instruments with remaining original maturities of three months or less. The carrying amount of cash and cash
equivalents is a reasonable estimate of fair value due to the short-term maturity at purchase of these instruments.
Investments in Securities
Investments in Fixed Maturity Securities: Fixed maturity securities are classified as available-for-sale and reported at estimated
fair value with unrealized gains and losses, net of tax and adjusted for recognized impairment, and reported as accumulated other
comprehensive income. Securities are regularly reviewed for differences between the cost and estimated fair value of each security for
factors that may indicate that a decline in fair value is impaired. In evaluating available-for-sale fixed maturity securities in unrealized
loss positions for impairment and the criteria regarding its intent or requirement to sell such securities, the Company considers the
extent to which estimated fair value is less than amortized cost, whether the securities are issued by the federal government or its
agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuers’ financial condition,
among other factors. If the Company intends to sell an available-for-sale security in an unrealized loss position, or determines that it is
more likely than not that the Company will be required to sell the security before it recovers its amortized cost basis, the security is
impaired and it is written down to estimated fair value with all losses recognized in earnings. For available-for-sale fixed maturity
securities in an unrealized loss position for which the Company does not intend to sell the security and it is not more likely than not
that the Company will be required to sell the security, the Company evaluates the securities to determine whether the decline in the
estimated fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors. Any
impairment that is not credit-related is recognized in other comprehensive loss, net of applicable taxes. Credit-related impairment is
recognized as an allowance for credit losses (“ACL”) on the Consolidated Balance Sheets, limited to the amount by which the
amortized cost basis exceeds the estimated fair value, with a corresponding adjustment to earnings.
The ACL may be reversed if conditions change through an adjustment to the Consolidated Statements of Operations. Changes in
the ACL are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the ACL when management
believes the uncollectability of an available-for-sale fixed maturity security is confirmed or when either of the criteria regarding intent
or requirement to sell is met. Accrued interest receivable is excluded from the estimate of credit losses. Impairment reviews are
inherently uncertain and the value of the investment may not fully recover or may decline in future periods resulting in a realized loss.
Realized gains and losses are determined on the specific identification method. Refer to Note 3 for further information about the
Company’s investments in fixed maturity securities.
Investments in Equity Securities: Equity securities represent ownership interests held by the Company in entities for investment
purposes. Changes in the estimated fair value of equity security investments are reported in the Consolidated Statements of
Operations. Realized investment gains and losses from sales are recorded on the trade date and are determined using the specific
identification method. Refer to Note 3 for further information about the Company’s investments in equity securities.
47 Other Investments
Other investments consist of investments in real estate and unconsolidated affiliated entities, typically structured as limited
liability companies ("LLCs"), without readily determinable fair values. As of December 31, 2022, the Company had investments in
real estate of $5.0 million and investments in unconsolidated affiliated entities of $13.3 million.
Real estate investments are reported at amortized cost. Depreciation and other related expenses are recorded as an offset to
investment income. The Company monitors any events or changes in circumstances that may have had a significant adverse effect on
the fair value of real estate investments and makes any necessary adjustments, with any reductions in the carrying amount of these
investments recorded in net realized investment gains in the Consolidated Statement of Operations when recognized. Lease rental
income earned by the Company, which does not have a material impact on the Company's results of operations, is included with other
income on the Consolidated Statements of Operations.
Investments in unconsolidated affiliated entities are accounted for under either the equity method or the measurement alternative
method. The measurement alternative method is used when an investment does not qualify for either the equity method or an
estimated fair value using the net asset value per share. Under the measurement alternative method, investments are recorded at cost,
less any impairment and plus or minus any changes resulting from observable price changes in orderly transactions for an identical or
similar investment of the same issuer. The Company monitors any events or changes in circumstances that may have had a significant
adverse effect on the fair value of these investments and makes any necessary adjustments.
Short-Term Investments
Short-term investments are comprised of money market accounts which are invested in short-term funds, U.S. Treasury bills,
commercial paper, certificates of deposit, and other investments expected to have maturities or redemptions greater than three months
and less than twelve months. The Company monitors any events or changes in circumstances that may have a significant adverse
effect on the fair value of these investments.
Property Acquired in Settlement of Claims
Property acquired in settlement of claims is held for sale and valued at the lower of cost or estimated realizable value, net of any
indebtedness on the property. Adjustments to reported estimated realizable values and realized gains or losses on dispositions are
recorded as increases or decreases in claim costs. Properties acquired in settlement of claims are included in other assets in the
Consolidated Balance Sheets.
Property and Equipment
Property and equipment are recorded at cost and are depreciated principally under the straight-line method over the estimated
useful lives (3 to 25 years) of the respective assets. Maintenance and repairs are charged to operating expenses and improvements are
capitalized.
Reserve for Claims
The total reserve for all reported and unreported losses the Company incurred through December 31, 2022 is represented by the
reserve for claims. The Company’s reserve for unpaid losses and loss adjustment expenses is established using estimated amounts
required to settle claims for which notice has been received (reported) and the amount estimated to be required to satisfy incurred
claims of policyholders which may be reported in the future (incurred but not reported, or “IBNR”). Despite the variability of such
estimates, management believes that the reserve is adequate to cover claims losses resulting from pending and future claims for
policies issued through December 31, 2022. The Company continually reviews and adjusts its reserve estimates as necessary to reflect
its loss experience and any new information that becomes available. Adjustments resulting from such reviews may be significant.
Claims losses paid are charged to the reserve for claims. Although claims losses are typically paid in cash, occasionally claims
are settled by purchasing the interest of the insured or the claimant in the real property. When this event occurs, the acquiring
company carries the assets as property acquired in the settlement of claims.
48 Income Taxes
The Company makes certain estimates and judgments in determining income tax expense (benefit) for financial statement
purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities which arise from differences in
the timing of recognition of revenue and expense for tax and financial statement purposes. The Company provides for deferred
income taxes (benefits) for the tax consequences in future years of temporary differences between the financial statements’ carrying
values and the tax bases of assets and liabilities using currently enacted tax rates. The Company establishes a valuation allowance if it
believes that it is more likely than not that some or all of its deferred tax assets will not be realized. Refer to Note 8 for further
information regarding income taxes.
Premiums Written and Commissions to Agents
Generally, title insurance premiums are recognized at the time of settlement of the related real estate transaction, as the earnings
process is then considered complete, irrespective of the timing of issuance of a title insurance policy or commitment. Expenses
typically associated with premiums, including agent commissions, premium taxes, and a provision for future claims are recognized
concurrent with recognition of related premium revenue.
Allowance for Doubtful Accounts
Company management continually evaluates the collectability of receivables and provides an allowance for doubtful accounts
equal to estimated losses expected to be incurred in the collection of premiums and fees receivable. Changes to the allowance for
doubtful accounts are reflected within net premiums written in the Consolidated Statements of Operations. Amounts are charged off
in the period they are deemed to be uncollectible.
Quarterly, the Company evaluates the collectability of receivables. Write-offs of receivables have not been material to the
Company.
Exchange Services Revenue
Fees are recognized at the signing of a binding agreement, as the earnings process, or performance obligation, is then considered
to be complete. Investment earnings are recognized as they are earned. Exchange services revenue is included in non-title services in
the Consolidated Statements of Operations.
Fair Values of Financial Instruments
The carrying amounts reported in the Consolidated Balance Sheets for cash and cash equivalents, short-term investments,
premium and fees receivable, accrued interest and dividends, accounts payable, commissions payable, reinsurance payable and current
income taxes recoverable/payable approximate fair value due to the short-term nature of these assets and liabilities. Estimated fair
values for the majority of investment securities are based on quoted market prices. Refer to Note 3 for further information regarding
investments in securities and fair value.
Comprehensive Income
The Company’s accumulated other comprehensive income is comprised of unrealized holding gains or losses on available-for-sale
securities, net of tax, and unrealized gains or losses associated with postretirement benefit liabilities, net of tax. Accumulated other
comprehensive income as of December 31, 2022 consists of $164 thousand of unrealized holding gains on available-for-sale securities
and $36 thousand of unrecognized actuarial gains associated with postretirement benefit liabilities. Accumulated other comprehensive
income as of December 31, 2021 consists of $3.4 million of unrealized holding gains on available-for-sale securities and $144
thousand of unrecognized actuarial losses associated with postretirement benefit liabilities.
Share-Based Compensation
Share-based compensation cost is generally measured at the grant date, based on the estimated fair value of the award, and is
recognized as an expense over the employee’s requisite service period.
As the share-based compensation expense recognized in the Consolidated Statements of Operations is based on awards ultimately
expected to vest, it has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary,
in subsequent periods if actual forfeitures differ from those estimates.
49 Goodwill
Goodwill represents the excess of cost over fair value of identifiable net assets acquired and assumed in a business combination.
The fair value of the Company’s goodwill at acquisition is principally based on values obtained from an independent third-party
valuation service.
Goodwill was reviewed for impairment as of December 31, 2022, and is reviewed at least annually, or when events or changes in
circumstances indicate the carrying value may not be recoverable. When evaluating whether goodwill is impaired, the Company
determines through qualitative analysis whether relevant events and circumstances indicate that it is more likely than not that goodwill
balances are impaired as of the testing date. If the qualitative analysis does not indicate that an impairment of goodwill is more likely
than not, then no other specific quantitative impairment testing is required. If it is determined that it is more likely than not that an
impairment exists, the Company performs a quantitative assessment whereby a discounted cash flow analysis is utilized to determine
an estimated fair value. The estimated fair value is compared to the carrying value of goodwill as of the measurement date. The
discounted cash flows used in estimating fair value are dependent on a number of significant assumptions, and therefore estimated fair
value measurements are subject to change given the inherent uncertainty in predicting future results and cash flows.
Other Intangible Assets
The Company’s other intangible assets consist of non-compete agreements, referral relationships and a tradename resulting from
agency acquisitions; all of which are recorded at the acquisition date fair value. The fair value of the Company’s other intangible
assets is principally based on values obtained from an independent third-party valuation service. Assets with remaining useful lives
will be amortized on a straight-line basis over those useful lives, which range from 14 months to 30 years; noting that the amortization
of certain non-compete contracts will start at a future date when the related employment agreements are terminated. Other intangible
assets are reviewed for impairment at least annually or when events or changes in circumstances indicate the carrying value may not
be recoverable.
Title Plants
Title plants represent a historical record of matters affecting title to parcels of land in a particular geographic area. Title plants are
recorded at the cost incurred to construct or obtain and organize historical title information to the point it can be used to perform title
searches. Costs incurred to maintain, update and operate title plants are expensed as incurred. Title plants are not amortized as they
are considered to have an indefinite life with no diminishment of value if properly maintained; but are subject to impairment
evaluation, which the Company performs on at least an annual basis.
Leases
At inception, the Company determines if an arrangement is a lease. The Company enters into lease agreements that are primarily
used for office space, and the majority of current leases are accounted for as operating leases. Amounts related to leases are included
in right-of-use ("ROU") assets and lease liabilities on the Consolidated Balance Sheets. Lease ROU assets represent the Company’s
right to use an underlying asset for the stated lease term. Lease liabilities represent the Company’s obligation to make lease payments
arising from a lease. Lease ROU assets and liabilities are recognized at the date of the lease commencement, and are based on the
present value of lease payments over the lease term. The Company's current leases do not provide an implicit interest rate, thus the
Company utilized the average rate over a 10-year term based upon the Moody's seasoned Aaa corporate bond yields in determining the
present value of lease payments. A portion of the Company's current leases includes an option to extend or cancel the lease term. The
exercise of such an option is solely at the Company's discretion. The lease liability recorded in the Consolidated Balance Sheets
includes lease payments related to options to extend or cancel the lease term if the Company determined at the date of adoption that
the lease was expected to be renewed or extended. A lease expense is recognized on a straight-line basis over the lease term.
Adjustments for straight-line rental expense for the periods presented are not material and as such, the lease expense recognized was
reflected in cash used in operating activities for the respective periods. Refer to Note 9 for further information about the Company's
leases.
Subsequent Events
The Company has evaluated and concluded that there were no material subsequent events requiring adjustment or disclosure to its
Consolidated Financial Statements.
50 Use of Estimates and Assumptions
The preparation of the Consolidated Financial Statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities at the date of
the Consolidated Financial Statements, and the reported amounts of revenues and expenses during the reporting period and the
accompanying Notes to Consolidated Financial Statements. Actual results could differ materially from those estimates and
assumptions used. The more significant of these estimates and assumptions include the following:
Claims: The Company’s reserve for claims is established using estimated amounts required to settle claims for which notice has
been received (reported) and the amount estimated to be required to satisfy incurred claims of policyholders which have been incurred
but not reported. A provision for estimated future claims payments is recorded at the time policy revenue is recorded as a percentage
of net premiums written. By their nature, title claims can often be complex, vary greatly in dollar amounts, vary in number due to
economic and market conditions such as an increase in mortgage foreclosures, and involve uncertainties as to ultimate exposure. In
addition, some claims may require a number of years to settle and determine the final liability for indemnity and loss adjustment
expense. The payment experience may extend for more than 20 years after the issuance of a policy. Events such as fraud, defalcation
and multiple property defects can substantially and unexpectedly cause increases in estimates of losses. Due to the length of time over
which claim payments are made and regularly occurring changes in underlying economic and market conditions, these estimates are
subject to variability.
Management considers factors such as the Company’s historical claims experience, case reserve estimates on reported claims,
large claims, actuarial projections and other relevant factors in determining its loss provision rates and the aggregate recorded
expected liability for claims. In establishing the reserve, actuarial projections are compared with recorded reserves to evaluate the
adequacy of such recorded claims reserves and any necessary adjustments are then recorded in the current period’s statements of
operations. As the most recent claims experience develops and new information becomes available, the loss reserve estimate related
to prior periods will change to more accurately reflect updated and improved emerging data. The Company reflects any adjustments
to the reserve in the results of operations in the period in which new information (principally claims experience) becomes available.
Premiums written: Premium revenues issued directly and by agency operations include accruals for transactions which have
settled but have not been reported as of the balance sheet date. These accruals are based on estimates of the typical lag time between
settlement of real estate transactions and the reporting of these transactions to the Company. Reporting lag times vary by market. In
certain markets, the lag time may be very short, but in others, can be as high as 3 months. The Company reviews and adjusts lag time
estimates periodically, using historical experience and other factors, and reflects any adjustments in the result of operations in the
period in which new information becomes available.
Impairments: Securities are regularly evaluated and reviewed for differences between the cost and estimated fair value of each
security for factors that may indicate that a decline in estimated fair value is an impairment. When, in the opinion of management, a
decline in the estimated fair value of an investment is considered to be an impairment, such investment is written down to its estimated
fair value. Some factors considered in evaluating whether or not a decline in estimated fair value is an impairment include the
duration and extent to which the estimated fair value has been less than cost; the probability that the Company will be unable to collect
all amounts due under the contractual terms of the security; whether the Company has the intent to sell or will more likely than not be
required to sell a particular security before recovery in value; and the financial condition and prospects of the issuer (including credit
ratings). These factors are reviewed quarterly and any material degradation in the prospect for recovery will be considered in the
impairment analysis. Such reviews are inherently uncertain and the value of the investment may not fully recover or may decline in
future periods resulting in a realized loss. The estimated fair values of the majority of the Company’s investments are based on quoted
market prices from independent pricing services.
2. Statutory Accounting and Restrictions on Consolidated Shareholders’ Equity and Investments
The Consolidated Financial Statements have been prepared in conformity with GAAP, which differ in some respects from
statutory accounting practices prescribed or permitted in the preparation of financial statements for submission to insurance regulatory
authorities.
Combined capital and surplus on a statutory basis was $235.6 million and $223.3 million as of December 31, 2022 and 2021,
respectively. Net income on a statutory basis was $35.6 million and $54.4 million and for the years ended December 31, 2022 and
2021, respectively.
The Company has designated approximately $53.3 million and $49.5 million of retained earnings as of December 31, 2022 and
2021, respectively, as appropriated to reflect the required statutory premium and supplemental reserves. Refer to Note 8 for the tax
treatment of the statutory premium reserve.
51 As of December 31, 2022 and 2021, approximately $110.3 million and $117.9 million, respectively, of consolidated shareholders’
equity represents net assets of the Company’s subsidiaries that cannot be transferred in the form of dividends, loans or advances to the
parent company under statutory regulations without prior insurance department approval. During 2023, the maximum distributions
the insurance subsidiaries can make to the Company without prior approval from applicable regulators total approximately $30.9
million.
Fixed maturity securities with fair market values totaling approximately $6.7 million and $7.0 million at December 31, 2022 and
2021, respectively, are deposited with the insurance departments of the states in which business is conducted.
3. Investments and Estimated Fair Value
Investments in Fixed Maturity Securities
The estimated fair value, gross unrealized holding gains, gross unrealized holding losses and amortized cost for fixed maturity
securities by major classification are as follows:
As of December 31, 2022 (in thousands)
Fixed maturity securities, available-for-sale, at fair value:
Government obligations
General obligations of U.S. states, territories and political
subdivisions
Special revenue issuer obligations of U.S. states, territories
and political subdivisions
Corporate debt securities
Total
As of December 31, 2021 (in thousands)
Fixed maturity securities, available-for-sale, at fair value:
Governmental obligations
General obligations of U.S. states, territories and political
subdivisions
Special revenue issuer obligations of U.S. states, territories and
political subdivisions
Corporate debt securities
Total
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
$
4,329 $
— $
7 $
4,322
8,561
30,123
10,762
21
106
417
36
219
68
$
53,775 $
544 $
330 $
8,546
30,010
11,111
53,989
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
$
— $
— $
— $
—
16,669
41,753
17,089
922
2,453
955
—
2
48
$
75,511 $
4,330 $
50 $
17,591
44,204
17,996
79,791
The special revenue category for both periods presented includes approximately 40 individual fixed maturity securities with
revenue sources from a variety of industry sectors.
The scheduled maturities of fixed maturity securities at December 31, 2022 are as follows:
(in thousands)
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Total
Available-for-Sale
Fair
Value
Amortized
Cost
$
$
12,920 $
37,041
1,370
2,444
53,775 $
12,936
37,079
1,396
2,578
53,989
Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with or
without penalties.
52 The following table presents the gross unrealized losses on fixed maturity securities and the estimated fair value of the related
securities, aggregated by investment category and length of time that individual securities have been in a continuous loss position at
December 31, 2022 and 2021, respectively:
As of December 31, 2022 (in
thousands)
Estimated
Fair Value
Unrealized
Losses
Estimated
Fair Value
Unrealized
Losses
Estimated
Fair Value
Unrealized
Losses
Government obligations
$
4,322 $
(7) $
— $
— $
4,322 $
(7)
Less than 12 Months
12 Months or Longer
Total
General obligations of U.S. states,
territories and political subdivisions
Special revenue issuer obligations of
U.S. states, territories and political
subdivisions
Corporate debt securities
Total
As of December 31, 2021 (in thousands)
Special revenue issuer obligations of
U.S. states, territories and political
subdivisions
Corporate debt securities
Total
3,221
(36)
—
12,568
6,498
(216)
(68)
1,100
—
—
(3)
—
3,221
(36)
13,668
6,498
(219)
(68)
(330)
$
26,609 $
(327) $
1,100 $
(3) $
27,709 $
Less than 12 Months
12 Months or Longer
Total
Estimated
Fair Value
Unrealized
Losses
Estimated
Fair Value
Unrealized
Losses
Estimated
Fair Value
Unrealized
Losses
$
$
— $
8,493
8,493 $
— $
(13)
(13) $
1,102 $
(2) $
1,102 $
6,203
(35)
14,696
7,305 $
(37) $
15,798 $
(2)
(48)
(50)
Management evaluates available-for-sale fixed maturity securities in unrealized loss positions to determine whether the
impairment is due to credit-related factors or noncredit-related factors. The decline in estimated fair value of the fixed maturity
securities can be attributed primarily to changes in market interest rates and changes in credit spreads over Treasury securities.
Factors considered in determining whether a loss is credit-related include the financial condition and prospects of the issuer
(including credit ratings and analyst reports) and macro-economic changes. A total of 51 and 9 fixed maturity securities had
unrealized losses at December 31, 2022 and 2021, respectively. The Company does not intend to sell any of these securities and
believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost. The fair
value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments
decline. The Company believes that the unrealized losses detailed in the previous table are due to noncredit-related factors, including
changes in market interest rates and other market conditions, and therefore the unrealized loss is recorded in accumulated other
comprehensive income.
Reviews of the values of fixed maturity securities are inherently uncertain and the value of the investment may not fully recover,
or may decline in future periods resulting in a realized loss. The Company recorded $172 thousand and $0 of impairment charges
related to fixed maturity securities for the twelve-month periods ended December 31, 2022 and 2021, respectively. Expenses related
to impairments are recorded in net realized investment gains in the Consolidated Statements of Operations when recognized.
Investments in Equity Securities
The cost and estimated fair value of equity securities are as follows:
As of December 31, 2022 (in thousands)
Equity securities, at fair value:
Common stocks
Total
Estimated
Fair
Value
Cost
$
$
25,278 $
25,278 $
51,691
51,691
53 As of December 31, 2021 (in thousands)
Equity securities, at fair value:
Common stocks
Total
Estimated
Fair
Value
Cost
$
$
29,478 $
29,478 $
76,853
76,853
Unrealized holding gains and losses are reported in the Consolidated Statements of Operations as changes in the estimated fair
value of equity security investments.
Interest and Dividends
Earnings on investments for the years ended December 31 are as follows:
(in thousands)
Fixed maturity securities
Equity securities
Invested cash and other short-term investments
Miscellaneous interest
Interest and dividends
Net Realized Investment Gains
2022
2021
1,902 $
1,425
1,375
2
2,337
1,413
21
2
4,704 $
3,773
$
$
Gross realized gains and losses on sales of investments for the years ended December 31 are summarized as follows:
(in thousands)
Gross realized gains from securities:
Corporate debt securities
Common stocks
Total
Gross realized losses from securities:
General obligations of U.S. states, territories and political subdivisions
Corporate debt securities
Common stocks
Impairment of securities
Total
Net realized gains from securities
Net realized other investment gains (losses):
(Losses) gains on other assets
Total
Net realized investment gains
Realized gains and losses are determined on the specific identification method.
2022
2021
$
$
$
$
$
$
$
$
— $
11,020
11,020 $
(353) $
(104)
(290)
(172)
(919) $
10,101 $
(366) $
(366) $
9,735 $
52
1,900
1,952
—
(33)
(1,008)
—
(1,041)
911
958
958
1,869
54 Variable Interest Entities
The Company holds investments in variable interest entities (“VIEs”) that are not consolidated in the Company's financial
statements as the Company is not the primary beneficiary. These entities are considered VIEs as the equity investors at risk, including
the Company, do not have the power over the activities that most significantly impact the economic performance of the entities; this
power resides with a third-party general partner or managing member that cannot be removed except for cause. The following table
sets forth details about the Company's variable interest investments in VIEs, which are structured either as limited partnerships ("LPs")
or LLCs, as of December 31, 2022:
Type of Investment (in thousands)
Balance Sheet Classification
Real estate LLCs or LPs
Small business investment LLCs or LPs
Other investments
Other investments
Total
Carrying
Value
Estimated
Fair Value
Maximum
Potential
Loss *
$
$
3,320 $
5,014 $
8,369
8,179
11,689 $
13,193 $
4,658
14,320
18,978
* Maximum potential loss is calculated as the total investment in the LLC or LP including any capital commitments that may
have not yet been called. The Company is not exposed to any loss beyond the total commitment of its investment.
Valuation of Financial Assets
The Financial Accounting Standards Board (“FASB”) has established a valuation hierarchy for disclosure of the inputs used to
measure estimated fair value of financial assets and liabilities, such as securities. This hierarchy categorizes the inputs into three broad
levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are
quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or
indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable
inputs based on the Company’s own assumptions intended to represent market participant assumptions used to measure assets and
liabilities at fair value.
A financial instrument’s classification within the valuation hierarchy is based upon the lowest level of input that is significant to
the fair value measurement – consequently, if there are multiple significant valuation inputs that are categorized in different levels of
the hierarchy, the instrument’s hierarchy level is the lowest level (with Level 3 being the lowest level) within which any significant
input falls.
The Level 1 category includes equity securities and U.S. Treasury securities that are measured at estimated fair value using quoted
active market prices.
The Level 2 category includes fixed maturity securities such as corporate debt securities, U.S. government obligations, and
obligations of U.S. states, territories, and political subdivisions. Estimated fair value is principally based on market values obtained
from a third-party pricing service. Factors that are used in determining estimated fair market value include benchmark yields, reported
trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. The Company
receives one quote per security from a third-party pricing service, although as discussed below, the Company does consult other
pricing resources when confirming that the prices it obtains reflect the fair values of the instruments in accordance with GAAP.
Generally, quotes obtained from the pricing service for instruments classified as Level 2 are not adjusted and are not binding. As of
December 31, 2022 and 2021, the Company did not adjust any Level 2 fair values.
A number of the Company’s investment grade corporate debt securities are frequently traded in active markets, and trading prices
are consequently available for these securities. However, these securities are classified as Level 2 because the pricing service from
which the Company has obtained estimated fair values for these instruments uses valuation models that use observable market inputs
in addition to trading prices. Substantially all of the input assumptions used in the service’s model are observable in the marketplace
or can be derived or supported by observable market data.
In the measurement of the estimated fair value of certain financial instruments, other valuation techniques were utilized if quoted
market prices were not available. These derived fair value estimates are significantly affected by the assumptions used. Additionally,
certain financial instruments, including those related to insurance contracts, pension and other postretirement benefits, and equity
method investments are excluded from the scope of disclosures.
55 In estimating the fair value of the financial instruments presented, the Company used the following methods and assumptions:
Cash and cash equivalents
The carrying amount for cash and cash equivalents is a reasonable estimate of fair value due to the short-term maturity of these
investments.
Measurement alternative equity investments
The measurement alternative method requires investments without readily determinable fair values to be recorded at cost, less
impairments, and plus or minus any changes resulting from observable price changes. The Company monitors any events or changes
in circumstances that may have had a significant adverse effect on the fair value of these investments and makes any necessary
adjustments.
Accrued interest and dividends
The carrying amount for accrued interest and dividends is a reasonable estimate of fair value due to the short-term maturity of
these assets.
The following table presents, by level, fixed maturity securities carried at estimated fair value as of December 31, 2022 and 2021:
As of December 31, 2022 (in thousands)
Level 1
Level 2 *
Level 3
Total
Fixed maturity securities:
Obligations of U.S. states, territories and political
subdivisions
Corporate debt securities
Total
$
$
4,322 $
38,556 $
—
11,111
4,322 $
49,667 $
— $
—
— $
42,878
11,111
53,989
As of December 31, 2021 (in thousands)
Level 1
Level 2 *
Level 3
Total
Fixed maturity securities:
Obligations of U.S. states, territories and political subdivisions
$
— $
61,795 $
Corporate debt securities
Total
—
17,996
$
— $
79,791 $
— $
—
— $
61,795
17,996
79,791
*Denotes fair market value obtained from pricing services.
56 The following table presents, by level, estimated fair values of equity investments and other financial instruments as of
December 31, 2022 and 2021:
As of December 31, 2022 (in thousands)
Financial assets:
Cash
Accrued interest and dividends
Equity securities, at fair value:
Common stocks
Short-term investments:
Money market funds and US treasury bills
Other investments:
Equity investments in unconsolidated affiliates,
measurement alternative
Total
Level 1
Level 2
Level 3
Total
$
35,311 $
872
— $
—
— $
—
51,691
103,649
—
—
—
—
35,311
872
51,691
103,649
—
191,523 $
$
—
— $
8,915
8,915 $
8,915
200,438
As of December 31, 2021 (in thousands)
Level 1
Level 2
Level 3
Total
Financial assets:
Cash
Accrued interest and dividends
Equity securities, at fair value:
Common stocks
Short-term investments:
Money market funds
Other investments:
Equity investments in unconsolidated affiliates, measurement
alternative
Total
$
37,168 $
— $
— $
37,168
817
76,853
45,930
—
—
—
—
—
—
—
—
817
76,853
45,930
8,688
8,688
$
160,768 $
— $
8,688 $
169,456
The Company did not hold any Level 3 category debt or marketable equity investment securities as of December 31, 2022 or
2021.
There were no transfers into or out of Levels 1, 2 or 3 during the periods presented.
To help ensure that estimated fair value determinations are consistent with GAAP, prices from our pricing services go through
multiple review processes to ensure appropriate pricing. Pricing procedures and inputs used to price each security include, but are not
limited to, the following: unadjusted quoted market prices for identical securities such as stock market closing prices; non-binding
quoted prices for identical securities in markets that are not active; interest rates; yield curves observable at commonly quoted
intervals; volatility; prepayment speeds; loss severity; credit risks; and default rates. The Company reviews the procedures and inputs
used by its pricing services, and verifies a sample of the services’ quotes by comparing them to values obtained from other pricing
resources. In the event the Company disagrees with a price provided by its pricing services, the respective service reevaluates the
price to corroborate the market information and then reviews inputs to the evaluation in light of potentially new market data.
57 Certain equity investments under the measurement alternative are measured at estimated fair value on a non-recurring basis and
are reviewed for impairment quarterly. If any such investment is determined to be impaired, an impairment charge is recorded against
such investment and reflected in the Consolidated Statements of Operations. There were no impairments of such investments made
during the twelve-month periods ended December 31, 2022 or 2021. The following table presents a rollforward of equity investments
under the measurement alternative as of December 31, 2022 and 2021:
Balance,
January 1,
2022
Amounts
Impaired
Observable
Changes
Purchases and
Additional
Commitments
Paid
Sales, Returns
of Capital
and Other
Reductions
Balance,
December 31,
2022
8,688 $
8,688 $
— $
— $
— $
— $
1,288 $
1,288 $
(1,061) $
(1,061) $
8,915
8,915
Balance,
January 1,
2021
Amounts
Impaired
Observable
Changes
Purchases and
Additional
Commitments
Paid
Sales, Returns
of Capital
and Other
Reductions
Balance,
December 31,
2021
$
$
8,741 $
8,741 $
— $
— $
— $
— $
1,543 $
1,543 $
(1,596) $
(1,596) $
8,688
8,688
(in thousands)
Other investments:
Equity investments in
unconsolidated affiliates,
measurement alternative
Total
$
$
(in thousands)
Other investments:
Equity investments in
unconsolidated affiliates,
measurement alternative
Total
4. Property and Equipment
Property and equipment and estimated useful lives at December 31 are summarized as follows:
(in thousands)
Land
Office buildings and improvements (25 years)
Furniture, fixtures and equipment (3 to 10 years)
Automobiles (3 years)
Total
Less accumulated depreciation
Property and equipment, net
2022
2021
$
805 $
6,460
25,202
1,367
33,834
805
4,808
20,656
1,017
27,286
(16,049)
(14,253)
$
17,785 $
13,033
Included within furniture, fixtures and equipment is software developed by the Company for internal use. Capitalized costs
include both direct and indirect costs, such as payroll costs of employees associated with developing software, incurred during the
software development stage.
5. Reinsurance
The Company assumes and cedes reinsurance with other insurance companies in the normal course of business. There were no
premiums assumed for 2022 and 2021, respectively. Ceded premiums were approximately $818 thousand and $518 thousand for 2022
and 2021, respectively. Ceded reinsurance is comprised of excess of loss treaties, which outline the conditions in which the
reinsurance company will pay claims and protect against losses over certain agreed upon amounts. The Company remains liable to the
insured for claims under ceded insurance policies in the event the assuming insurance companies are unable to meet their obligations
under these contracts. The Company did not pay or recover any reinsured losses during 2022 and 2021.
58 6. Reserve for Claims
Changes in the reserve for claims for the years ended December 31 are summarized as follows based on the year in which the
policies were written:
(in thousands)
Balance, beginning of period
Provision related to:
Current year
Prior years
Total provision charged to operations
Claims paid, net of recoveries, related to:
Current year
Prior years
Total claims paid, net of recoveries
Balance, end of year
2022
2021
$
36,754 $
33,584
9,817
(5,562)
4,255
(333)
(3,484)
(3,817)
$
37,192 $
11,450
(5,764)
5,686
(146)
(2,370)
(2,516)
36,754
The Company continually refines its reserve estimates as current loss experience develops and more credible data emerges.
Movements in the reserve related to prior periods were primarily the result of changes to estimates to better reflect the latest reported
loss data. The decrease in the provision for claims in 2022, compared to 2021, is primarily related to lower premium levels in the
current year period. Due to variances between actual and expected loss payments, loss development is subject to significant
variability.
The Company does not recognize claim recoveries until an actual payment has been received by the Company. The Company
realized claim recoveries of approximately $1.0 million and $793 thousand during 2022 and 2021, respectively.
The provision for claims as a percentage of net premiums written was 1.7% and 2.1% in 2022 and 2021, respectively.
A large claim is defined as a claim with incurred losses exceeding $500 thousand. Due to the small volume of large claims, the
long-tail nature of title insurance claims and the inherent uncertainty in loss emergence patterns, large claim activity can vary
significantly between policy years. The estimated development of large claims by policy year is therefore subject to significant
changes as experience develops.
A summary of the Company’s reserve for claims, broken down into its components of known title claims and IBNR, follows:
(in thousands, except percentages)
Known title claims
IBNR
Total reserve for claims
2022
%
2021
$
$
3,250
33,942
37,192
8.7 $
91.3
100.0 $
3,317
33,437
36,754
%
9.0
91.0
100.0
In management’s opinion, the reserve for claims is adequate to cover claims losses which might result from pending and future
claims.
59 7. Earnings Per Common Share and Share Awards
Basic earnings per common share is computed by dividing net income by the weighted average number of common shares
outstanding during the reporting period. Diluted earnings per common share is computed by dividing net income by the combination
of dilutive potential common stock, comprised of shares issuable under the Company’s share-based compensation plans, and the
weighted average number of common shares outstanding during the reporting period. Dilutive common share equivalents include the
dilutive effect of in-the-money share-based awards, which are calculated based on the average share price for each period using the
treasury stock method. Under the treasury stock method, when share-based awards are assumed to be exercised, (a) the exercise price
of a share-based award and (b) the amount of compensation cost, if any, for future services that the Company has not yet recognized,
are assumed to be used to repurchase shares in the current period.
The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31:
(in thousands, except per share amounts)
Net Income
Weighted average common shares outstanding – Basic
Incremental shares outstanding assuming the exercise of dilutive SARs (share-settled)
Weighted average common shares outstanding – Diluted
Basic earnings per common share
Diluted earnings per common share
2022
2021
23,903 $
1,897
1
1,898
12.60 $
12.59 $
67,020
1,894
6
1,900
35.38
35.28
$
$
$
There were 18 thousand and 14 thousand potential shares excluded from the computation of diluted earnings per share in 2022
and 2021, respectively, due to the out-of-the-money status of the related share-based awards rendering them anti-dilutive.
The Company historically has adopted employee stock award plans under which restricted stock, options or stock appreciation
rights ("SARs") exercisable for the Company's stock may be granted to key employees or directors of the Company. As of
December 31, 2022 there was one active plan from which the Company may grant share-based awards and one legacy plan under
which equity awards remain outstanding. The awards eligible to be granted under the active plan are limited to SARs, and the
maximum aggregate number of shares of common stock of the Company available pursuant to the plan for the grant of SARs is 250
thousand shares.
As of December 31, 2022, the only outstanding awards under the plans were SARs, which expire within seven years or less from
the date of grant. All outstanding SARs vest and are exercisable within five years or less from the date of grant, and all SARs issued to
date have been share-settled only. There have been no stock options or SARs granted where the exercise price was less than the
market price on the date of grant.
During both 2022 and 2021, the Company issued share-settled SARs to directors of the Company. During 2022, the Company
also issued share-settled SARs to certain non-executive employees of the Company. SARs give the holder the right to receive stock
equal to the appreciation in the value of shares of stock from the grant date for a specified period of time, and as a result, are accounted
for as equity instruments. A summary of share-based award transactions for all share-based award plans follows:
Number
Of Shares
Weighted
Average
Exercise
Price
Average
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic
Value
(in thousands, except weighted average exercise price and
average remaining contractual term)
Outstanding as of January 1, 2021
SARs granted
SARs exercised
Outstanding as of December 31, 2021
SARs granted
SARs exercised
Outstanding as of December 31, 2022
36 $
5
(6)
35 $
10
(6)
39 $
139.16
184.26
106.71
150.36
155.16
94.44
159.39
Exercisable as of December 31, 2022
28 $
164.86
3.48 $
Unvested as of December 31, 2022
11 $
145.29
5.68 $
4.38 $
903
3.96 $
1,643
4.10 $
243
197
46
60 The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted
price of the Company’s common stock at December 31. The intrinsic values of SARs exercised during 2022 and 2021 were
approximately $496 thousand and $484 thousand, respectively.
There were no options outstanding at December 31, 2022. The following table summarizes information about SARs outstanding
at December 31, 2022:
(in thousands, except exercise prices and
average remaining contractual term)
Range of Exercise Prices
—
—
—
—
$ 60.00
100.00
150.00
$ 60.00
$ 99.99
149.99
199.99
$ 199.99
Number
Outstanding
2
14
23
39
SARs Outstanding at Year-End
Weighted
Average
Remaining
Contractual
Life
Weighted
Average
Exercise
Price
SARs Exercisable at Year-End
Number
Exercisable
Weighted
Average
Exercise
Price
0.38 $
5.28
3.74
4.10 $
93.87
138.79
178.44
159.39
2 $
4
22
28 $
93.87
129.43
179.04
164.86
In 2022, 6 thousand SARs vested with a fair value of approximately $362 thousand.
The fair value of each SAR is estimated on the date of grant using the Black-Scholes option valuation model with the weighted
average assumptions noted in the table shown below. Expected volatilities are based on both the implied and historical volatility of
the Company’s stock. The Company uses historical data to project SAR exercises and pre-exercise forfeitures within the valuation
model. The expected term of awards represents the period of time that SARs granted are expected to be outstanding. The interest rate
assumed for the expected life of the award is based on the U.S. Treasury yield curve in effect at the time of the grant. The weighted
average fair values for the SARs issued during 2022 and 2021 were $62.60 and $59.83, respectively, and were estimated using the
weighted average assumptions shown in the table below:
Expected life in years
Volatility
Interest rate
Yield rate
2022
7.0
35.6%
3.2%
0.6%
2021
7.0
33.9%
1.3%
1.1%
There was approximately $362 thousand and $299 thousand of compensation expense relating to SARs vesting on or before
December 31, 2022 and 2021, respectively, included in personnel expenses in the Consolidated Statements of Operations. As of
December 31, 2022, there was approximately $540 thousand of total unrecognized compensation cost related to unvested share-based
compensation arrangements granted under the Company’s stock award plans. That cost is expected to be recognized over a weighted
average period of approximately two years.
8. Income Taxes
The components of income tax expense for the years ended December 31 are summarized as follows:
(in thousands)
Current:
Federal
State
Total current
Deferred:
Federal
State
Total deferred
Total
2022
2021
$
10,685 $
164
10,849
(4,510)
(134)
(4,644)
6,205 $
$
12,911
176
13,087
4,740
85
4,825
17,912
61 For state income tax purposes, ITIC and NITIC generally pay only a gross premium tax found in other expenses in the
Consolidated Statements of Operations.
At December 31, the approximate tax effect of each component of deferred income tax assets and liabilities is summarized as
follows:
(in thousands)
Deferred income tax assets:
Accrued benefits and retirement services
Net operating loss carryforward
Impairment of assets
Allowance for doubtful accounts
Postretirement benefit obligation
Reinsurance and commission payable
Other
Total
Deferred income tax liabilities:
Net unrealized gain on investments
Recorded statutory premium reserve, net of reserves for claims
Excess of tax over book depreciation
Intangible assets
Other
Total
2022
2021
$
3,860 $
3,382
202
185
59
—
28
1,799
6,133
5,615
2,497
1,551
885
3,250
13,798
186
161
66
39
39
1,550
5,423
10,964
1,835
1,662
1,002
3,081
18,544
(13,121)
Net deferred income tax liabilities
$
(7,665) $
At December 31, 2022 and 2021, there were no valuation allowances recorded. Based upon the Company’s historical results of
operations, the existing financial condition of the Company and management’s assessment of all other available information,
management believes that it is more likely than not that the benefit of these deferred income tax assets will be realized.
A reconciliation of the U.S. federal statutory income tax rate of 21.0% for the years ended December 31, 2022 and 2021, to
income tax expense, is as follows:
(in thousands)
Anticipated income tax expense
Increase (decrease) related to:
State income taxes, net of federal income tax benefit
Tax-exempt interest income, net of amortization
162(m) non-deductible compensation
Other, net
Provision for income taxes
2022
2021
$
6,323 $
17,836
130
(577)
332
(3)
139
(1,310)
253
994
$
6,205 $
17,912
In accounting for uncertainty in income taxes, the Company is required to recognize in its Consolidated Financial Statements the
impact of a tax position if that position is more likely than not of being sustained on an audit, based on the technical merits of the
position. In this regard, an uncertain tax position represents the Company’s expected treatment of a tax position taken in a filed tax
return, or planned to be taken in a future tax return, that has not been reflected in measuring income tax expense for financial reporting
purposes. There were no unrecognized tax benefits or liabilities as of December 31, 2022.
The amount of unrecognized tax benefit or liability may increase or decrease in the future for various reasons, including adding
amounts for current tax year positions, expiration of open income tax returns due to the expiration of the applicable statute of
limitations, changes in management’s judgment about the level of uncertainty, status of examinations, litigation and legislative activity
and the additions or eliminations of uncertain tax positions.
The Company’s policy is to report interest and penalties related to income taxes in the other expenses line item in the
Consolidated Statements of Operations.
62 The Company files income tax returns in the U.S. federal jurisdiction and various states. With few exceptions, the Company is no
longer subject to U.S. federal or state and local examinations by taxing authorities for years before 2018.
9. Leases
The Company enters into lease agreements that are primarily for office space. These leases are accounted for as operating leases,
with lease expense recognized on a straight-line basis over the term of the lease. The Company occasionally assumes equipment lease
agreements through business acquisitions. These leases are accounted for as finance leases.
A portion of the Company's current leases include an option to extend or cancel the lease term. The exercise of such an option is
solely at the Company's discretion. The lease liability recorded in the Consolidated Balance Sheets includes lease payments related to
options to extend or cancel the lease term if the Company determines at the inception date that the lease is expected to be renewed or
extended. The Company, in determining the present value of lease payments, utilizes the average rate over a 10-year term based upon
the Moody's seasoned Aaa corporate bond yields, as explicit rates of interest are not readily determinable in the lease contracts. The
Company does not carry debt; thus no incremental borrowing rate is available to the Company.
Lease expense is included in office and technology expenses in the Consolidated Statements of Operations. Information regarding
the Company’s leases for the years ended December 31 is as follows:
(in thousands)
Operating leases
Finance leases:
Amortization of lease assets
Interest on lease liabilities
Short-term leases (a)
Lease expense
Sub-lease income
Lease cost
2022
2021
2,518 $
168
24
214
2,924 $
—
2,924 $
1,376
—
—
323
1,699
—
1,699
$
$
$
(a) Leases with an initial term of twelve months or less are not recorded on the Consolidated Balance Sheets.
Components of the lease liability presented on the Consolidated Balance Sheets for the years ended December 31 are as follows:
(in thousands)
Current:
Operating lease liabilities
Finance lease liabilities
Non-current:
Operating lease liabilities
Finance lease liabilities
Total lease liabilities
2022
2021
$
$
1,693 $
218
4,401
527
6,839 $
1,547
—
3,782
—
5,329
63 The future minimum payments for leases that have initial or remaining noncancelable lease terms in excess of one year as of
December 31, 2022, are summarized as follows:
Year Ended (in thousands)
Operating Leases
Finance Leases
Total
2023
2024
2025
2026
2027
Thereafter
Total undiscounted payments
Less: present value adjustment
Lease liabilities
$
$
$
1,904 $
242 $
1,993
1,424
893
266
50
6,530 $
(436)
6,094 $
201
171
134
51
—
799 $
(54)
745 $
Supplemental lease information for the years ended December 31 is as follows:
Weighted average remaining lease term (years)
Operating Leases
Finance Leases
Weighted average discount rate
Operating Leases
Finance Leases
2022
2021
3.43
3.80
3.9 %
3.7 %
2,146
2,194
1,595
1,027
317
50
7,329
(490)
6,839
4.13
0.00
4.2 %
— %
The Company does not have any material pending operating or financing lease agreements that become effective in future
periods.
10. Retirement Agreements and Other Postretirement Benefit Plan
The Company has a 401(k) savings plan. In order to participate in the plan, employees must be 21 years old. In order to be
eligible for employer contributions, individuals must be employed for a period of one year and work at least 1,000 hours annually.
The Company makes a 3% Safe Harbor contribution and also has the option annually to make a discretionary profit share contribution.
Individuals may elect to make contributions up to the maximum deductible amount as determined by the Internal Revenue Code of
1986, as amended (the “IRC”). Expenses related to the 401(k) plan were approximately $1.7 million and $2.0 million for 2022 and
2021, respectively.
In November 2003, ITIC, a wholly owned subsidiary of the Company, entered into employment agreements with the Chief
Executive Officer, Chief Financial Officer and Chief Operating Officer of ITIC. These individuals also serve as the Chairman,
President and Executive Vice President, respectively, of the Company. The agreements provide compensation and life, health, dental
and vision benefits upon the occurrence of specific events, including death, disability, retirement, termination without cause or upon a
change in control. The employment agreements also prohibit each of these executives from competing with ITIC and its parent,
subsidiaries and affiliates in North Carolina while employed by ITIC and for a period of two years following termination of their
employment.
In addition, during the second quarter of 2004, ITIC entered into nonqualified deferred compensation plan agreements with these
executives. The amounts accrued for all agreements at December 31, 2022 and 2021 were approximately $15.0 million and $13.4
million, respectively, which includes postretirement compensation and health benefits, and was calculated based on the terms of the
contract. Both the 2022 and 2021 accruals are included in the accounts payable and accrued liabilities line item of the Consolidated
Balance Sheets. These executive contracts are accounted for on an individual contract basis. On December 24, 2008, the executive
contracts were amended effective January 1, 2009 to bring them into compliance with Section 409A of the IRC, and were amended
and restated to provide for an annual cash payment to the officers equal to the amounts the Company would have contributed to their
accounts under its 401(k) plan if such contributions were not limited by the federal tax laws, less the amount of any contributions that
the Company actually makes to their accounts under the Company’s 401(k) plan.
64 On November 17, 2003, ITIC entered into employment agreements with key executives that provide for the continuation of
certain employee benefits upon retirement, which employment agreements were most recently amended and restated on May 4, 2022.
The executive employee benefits include health insurance, dental insurance, vision insurance and life insurance. The benefits are
unfunded. Estimated future benefit payouts expected to be paid for each of the next five years are $30 thousand in 2023, $36 thousand
in 2024, $45 thousand in 2025, $52 thousand in 2026, $39 thousand in 2027 and $249 thousand in the next five years thereafter.
Cost of the Company’s postretirement benefits included the following components and is presented in the personnel expenses line
of its Consolidated Statements of Operations:
(in thousands)
Net periodic benefit cost
Service cost – benefits earned during the year
Interest cost on the projected benefit obligation
Amortization of unrecognized prior service cost
Amortization of unrecognized loss
Net periodic benefits cost at end of year
2022
2021
$
$
— $
26
—
12
38 $
—
29
—
—
29
The Company is required to recognize the funded status (i.e., the difference between the fair value of the assets and the
accumulated postretirement benefit obligations of its postretirement benefits) in its Consolidated Balance Sheets, with a corresponding
adjustment to accumulated other comprehensive income, net of tax. The net amount in accumulated other comprehensive income is
$44 thousand, $36 thousand net of tax, for December 31, 2022, and $(184) thousand, $(144) thousand net of tax, for December 31,
2021, and represents the net unrecognized actuarial gains (losses) and unrecognized prior service costs. The effects of the funded
status on the Company’s Consolidated Balance Sheets at December 31, 2022 and 2021 are presented in the following table:
(in thousands)
Funded status
Actuarial present value of future benefits:
Fully eligible active employees
Non-eligible active employees
Plan assets
Funded status of accumulated postretirement benefit obligation, recognized in accounts payable and
accrued liabilities
2022
2021
$
(928) $
(1,118)
—
—
—
—
$
(928) $
(1,118)
Development of the accumulated postretirement benefit obligation for the years ended December 31, 2022 and 2021 includes the
following:
(in thousands)
Accrued postretirement benefit obligation at beginning of year
Service cost – benefits earned during the year
Interest cost on projected benefit obligation
Actuarial gain
2022
2021
$
(1,118) $
(1,089)
—
(26)
216
—
(29)
—
Accrued postretirement benefit obligation at end of year
$
(928) $
(1,118)
The changes in amounts related to accumulated other comprehensive income, pre-tax, are as follows:
(in thousands)
Balance at beginning of year
Components of accumulated other comprehensive income:
Unrecognized prior service cost
Amortization of loss, net
Actuarial gain
Balance at end of year
2022
2021
$
(184) $
(184)
—
12
216
44 $
—
—
—
(184)
$
65 11. Commitments and Contingencies
Legal Proceedings: The Company and its subsidiaries are involved in legal proceedings that are incidental to their business. In
the Company’s opinion, based on the present status of these proceedings, any potential liability of the Company or its subsidiaries
with respect to these legal proceedings is not expected to, in the aggregate, be material to the Company’s consolidated financial
condition or operations.
Regulation: The Company’s title insurance and trust subsidiaries are regulated by various federal, state and local governmental
agencies and are subject to various audits and inquiries. It is the opinion of management based on its present expectations that these
audits and inquiries will not have a material impact on the Company’s consolidated financial condition or operations.
Escrow and Trust Deposits: As a service to its customers, the Company, through ITIC, administers escrow and trust deposits
representing earnest money received under real estate contracts, escrowed funds received under escrow agreements, undisbursed
amounts received for settlement of mortgage loans and indemnities against specific title risks. Cash held by the Company for these
purposes was approximately $24.2 million and $27.5 million as of December 31, 2022 and 2021, respectively. These amounts are not
considered assets of the Company and, therefore, are excluded from the accompanying Consolidated Balance Sheets; however, the
Company remains contingently liable for the disposition of these deposits.
Like-Kind Exchange Proceeds: In administering tax-deferred like-kind exchanges pursuant to § 1031 of the IRC, the Company’s
wholly owned subsidiary, Investors Title Exchange Corporation (“ITEC”), serves as a qualified intermediary, holding the net sales
proceeds from relinquished property to be used for purchase of replacement property. Another Company wholly owned subsidiary,
Investors Title Accommodation Corporation (“ITAC”), serves as exchange accommodation titleholder and, through LLCs that are
wholly owned subsidiaries of ITAC, holds property in reverse exchange transactions. Like-kind exchange deposits and reverse
exchange property totaled approximately $432.0 million and $763.9 million as of December 31, 2022 and 2021, respectively. These
amounts are not considered assets of the Company and, therefore, are excluded from the accompanying Consolidated Balance Sheets;
however, the Company remains contingently liable for the disposition of the transfers of property, disbursements of proceeds and the
return on the proceeds at the agreed upon rate. Exchange services revenue includes earnings on these deposits; therefore, investment
income is shown as other income rather than investment income. These like-kind exchange funds are primarily invested in money
market funds and other short-term investments.
12. Segment Information
The Company has one reportable segment, title insurance services. The remaining immaterial segments have been combined into
a group called “All Other.”
The title insurance segment primarily issues title insurance policies directly and through a network of agents. Title insurance
policies insure titles to real estate.
Provided below is selected financial information about the Company’s operations by segment for the periods ended December 31,
2022 and 2021:
2022 (in thousands)
Title
Insurance
All
Other
Intersegment
Eliminations
Total
Insurance and other services revenues
$
294,851 $
15,540 $
(24,373) $
286,018
Investment loss
Net realized gains on investments
Total revenues
Operating expenses
Income before income taxes
Total assets
(9,333)
6,655
(3,028)
3,080
—
—
292,173 $
15,592 $
(24,373) $
264,952
11,223
(22,891)
27,221 $
4,369 $
(1,482) $
(12,361)
9,735
283,392
253,284
30,108
244,399 $
95,358 $
— $
339,757
$
$
$
66 2021 (in thousands)
Title
Insurance
All
Other
Intersegment
Eliminations
Total
Insurance and other services revenues
$
305,615 $
14,821 $
(18,434) $
302,002
Investment income
Net realized gains on investments
Total revenues
Operating expenses
Income before income taxes
Total assets
13. Shareholders’ Equity
21,460
779
4,167
1,090
—
—
327,854 $
20,078 $
(18,434) $
247,018
10,131
(12,583)
80,836 $
9,947 $
(5,851) $
25,627
1,869
329,498
244,566
84,932
279,597 $
51,891 $
— $
331,488
$
$
$
On November 12, 2002, the Company’s Board of Directors amended the Company’s Articles of Incorporation, creating a series of
preferred stock designated Series A Junior Participating Preferred Stock (the “Series A Preferred Stock”). The Series A Preferred
Stock is senior to common stock in dividends or distributions of assets upon liquidations, dissolutions or winding up of the Company.
Dividends on the Series A Preferred Stock are cumulative and accrue from the quarterly dividend payment date. Each share of Series
A Preferred Stock entitles the holder thereof to 100 votes on all matters submitted to a vote of shareholders of the Company. These
shares were reserved for issuance under the Shareholder Rights Plan (the “Plan”), which was adopted on November 21, 2002, by the
Company’s Board of Directors. Under the terms of the Plan, the Company’s common stock acquired by a person or a group buying
15% or more of the Company’s common stock would be diluted, except in transactions approved by the Board of Directors.
In connection with the Plan, the Company’s Board of Directors declared a dividend distribution of one right (a “Right”) for each
outstanding share of the Company’s common stock paid on December 16, 2002, to shareholders of record at the close of business on
December 2, 2002. Each Right entitles the registered holder to purchase from the Company a unit (a “Unit”) consisting of one one-
hundredth of a share of Series A Preferred Stock. Under the Plan, the Rights detach and become exercisable upon the earlier of (a) 10
days following public announcement that a person or group of affiliated or associated persons has acquired, or obtained the right to
acquire, beneficial ownership of 15% or more of the outstanding shares of the Company’s common stock, or (b) 10 business days
following the commencement of, or first public announcement of the intent of a person or group to commence, a tender offer or
exchange offer that would result in a person or group beneficially owning 15% or more of such outstanding shares of the Company’s
common stock. The exercise price, the kind and the number of shares covered by each right are subject to adjustment upon the
occurrence of certain events described in the Plan.
If any person or group of affiliated or associated persons acquires beneficial ownership of 15% or more of the outstanding
common stock, each holder of a Right (other than the acquiring person or group) will have the right to buy, at the exercise price,
common stock of the Company having a market value of twice the exercise price. If the Company is acquired in a merger or
consolidation in which the Company is not the surviving corporation, or the Company engages in a merger or consolidation in which
the Company is the surviving corporation and the Company’s common stock is changed or exchanged, or more than 50% of the
Company’s assets or earning power is sold or transferred, the Rights entitle a holder (other than the acquiring person or group) to buy,
at the exercise price, stock of the acquiring company having a market value equal to twice the exercise price. At any time after a
person or group of affiliated or associated persons has acquired beneficial ownership of 15% or more of the outstanding common
stock and prior to the acquisition by such person or group of 50% or more of the outstanding common stock, the Company’s Board of
Directors may exchange the Rights (other than the Rights owned by such person or group), in whole or in part, at an exchange ratio of
one share of the Company’s common stock, or one one-hundredth of a share of Series A Preferred Stock, per Right.
The Rights are redeemable upon action by the Board of Directors at a price of $0.01 per right at any time before they become
exercisable. Until the Rights become exercisable, they are evidenced only by the common stock certificates and are transferred with
and only with such certificates.
On September 30, 2022, the Plan was amended to, among other things, extend the expiration date of the Plan from October 31,
2022 to September 30, 2032 and increase the exercise price of the stock purchase rights from $220 per unit to $525 per unit. There
were 1.0 million shares of Preferred Stock authorized as of December 31, 2022 and 2021, with 200,000 being designated Series A
Preferred Stock.
67 14. Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash
equivalents. The Company invests its cash and cash equivalents into high credit quality security instruments. Deposits which exceed
$250 thousand at each institution are not insured by the Federal Deposit Insurance Corporation (“FDIC”). Of the $35.3 million in cash
and cash equivalents at December 31, 2022, $33.8 million was not insured by the FDIC. Of the $37.2 million in cash and cash
equivalents at December 31, 2021, $35.7 million was not insured by the FDIC. The Company mitigates the risk of having cash and
cash equivalents not insured by the FDIC by monitoring the credit quality of the financial institutions in which the funds are held.
15. Business Concentration
The Company generates a significant amount of title insurance premiums in North Carolina, Texas, South Carolina and Georgia.
In 2022 and 2021, these states generated the following percentage of total premiums written:
State
North Carolina
Texas
South Carolina
Georgia
16. Related Party Transactions
2022
2021
35.6 %
29.0 %
9.4 %
9.2 %
36.1 %
22.8 %
9.1 %
12.6 %
The Company does business with, and has investments in, unconsolidated LLCs that are primarily title insurance agencies. The
Company utilizes the equity method to account for its investments in these LLCs. The following table sets forth the approximate
values by year found within each financial statement classification:
Financial Statement Classification, Consolidated Balance Sheets (in thousands)
2022
2021
Other investments
Premium and fees receivable
Financial Statement Classification, Consolidated Statements of Operations (in thousands)
Net premiums written
Non-title services and other investment income
Commissions to agents
17. Business Combinations, Intangible Assets, Goodwill and Title Plants
Intangible Assets
$
$
$
$
$
4,420 $
735 $
6,623
882
2022
2021
26,666 $
2,935 $
18,798 $
28,945
4,677
20,249
The estimated fair values of intangible assets recognized as the result of title insurance agency acquisitions, all Level 3 inputs, are
principally based on values obtained from an independent third-party valuation service. Management determined that no events or
changes in circumstances occurred during the periods ended December 31, 2022 and 2021 that would indicate the carrying amounts
may not be recoverable, and therefore, determined that no identifiable intangible assets were impaired.
Identifiable intangible assets consist of the following as of December 31:
Year Ended (in thousands)
Referral relationships
Non-complete agreements
Tradename
Total
Accumulated amortization
Identifiable intangible assets, net
2022
2021
$
8,898 $
3,155
747
12,800
(4,814)
7,986 $
$
8,567
2,938
747
12,252
(3,505)
8,747
68 The following table provides the estimated aggregate amortization expense for each of the five succeeding fiscal years:
Year Ended (in thousands)
2023
2024
2025
2026
2027
Thereafter
Total
Goodwill and Title Plants
$
$
1,281
1,162
1,079
1,079
663
2,535
7,799
As of December 31, 2022, the Company recognized $9.6 million in goodwill and $1.5 million in title plants, net of impairments,
as the result of title insurance agency acquisitions. The title plants are included with other assets in the Consolidated Balance Sheets.
The fair values of goodwill and the title plants as of the date of acquisition, both Level 3 inputs, were principally based on values
obtained from an independent third-party valuation service. In accordance with FASB’s Accounting Standards Codification (“ASC”)
350, management determined that no events or changes in circumstances occurred during the periods ended December 31, 2022 and
2021 that would indicate the carrying amounts may not be recoverable, and therefore, determined that there were no goodwill or title
plant impairments.
18. Accumulated Other Comprehensive Income
The following table provide changes in the balances of each component of accumulated other comprehensive income, net of tax,
for the periods ended December 31, 2022 and 2021:
Unrealized Gains and
Losses
On Available-for-Sale
Securities
Postretirement
Benefits Plans
Total
2022 (in thousands)
Beginning balance at January 1
Other comprehensive (loss)
income before calculations
Amounts reclassified from
accumulated other
comprehensive income
Net current-period other
comprehensive (loss) income
Ending balance
$
$
3,370 $
(3,421)
215
(3,206)
164 $
2021 (in thousands)
Unrealized Gains and Losses
On Available-for-Sale
Securities
Postretirement
Benefits Plans
Beginning balance at January 1
$
Other comprehensive (loss) income
before calculations
Amounts reclassified from
accumulated other
comprehensive income
Net current-period other
comprehensive loss
Ending balance
$
4,470 $
(1,085)
(15)
(1,100)
3,370 $
(144) $
180
—
180
36 $
(144) $
—
—
—
(144) $
3,226
(3,241)
215
(3,026)
200
4,326
(1,085)
(15)
(1,100)
3,226
Total
69 The following table provide significant amounts reclassified out of each component of accumulated other comprehensive income
for the periods ended December 31, 2022 and 2021:
2022 (in thousands)
Details about Accumulated Other Comprehensive Income
Components
Unrealized gains and losses on available-for-sale securities:
Net realized losses on investments
Impairments
Total
Tax
Net of Tax
Reclassifications for the period
2021 (in thousands)
Details about Accumulated Other Comprehensive Income
Components
Unrealized gains and losses on available-for-sale securities:
Net realized gains on investments
Impairments
Total
Tax
Net of Tax
Reclassifications for the period
19. Revenue from Contracts with Customers
Amount Reclassified from
Accumulated Other
Comprehensive Income
Affected Line Item in the
Consolidated
Statements of Operations
$
$
$
$
(104)
(172)
Net realized investment
gains
(276)
61 Provision for Income Taxes
(215)
(215)
Amount Reclassified from
Accumulated Other
Comprehensive Income
Affected Line Item in the
Consolidated
Statements of Operations
$
$
$
$
19
—
19 Net realized investment gains
(4) Provision for Income Taxes
15
15
ASC 606, Revenue from Contracts with Customers, requires that an entity recognize revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for
those goods or services. This guidance does not apply to revenue associated with insurance contracts (including title insurance
policies), financial instruments and lease contracts; and therefore is primarily applicable to the following Company revenue categories.
Escrow and other title-related fees: The Company’s title segment recognizes commission revenue and fees related to items such
as searches, settlements, commitments and other ancillary services. Escrow and other title-related fees are recognized as revenue at
the time of the related transactions as the earnings process, or performance obligation, is then considered to be complete.
Non-title services: Through various subsidiaries, the Company offers management services, tax-deferred real property exchange
services, investment management and trust services. Nonrefundable exchange fees are recognized as revenue upon receipt of the
funds, which is at the time of closing of the initial sale of property. All other non-title service fees are recognized as revenue as
performance obligations are completed.
Other: The Company occasionally recognizes revenue from other miscellaneous contracts which can include, but is not limited to
seminar and education registration fees and software licensing contracts. These revenue streams are deemed immaterial to the
operations of the Company, and revenue is recognized when, or as, performance obligations are completed.
70 The following table provides a breakdown of the Company’s revenue by major business activity:
(in thousands)
Revenue from contracts with customers:
Escrow and other title-related fees
Non-title services
Total revenue from contracts with customers
Other sources of revenue:
Net premiums written
Investment-related (loss) revenue
Other
Total revenues
2022
2021
$
21,721 $
14,524
36,245
248,632
(2,626)
1,141
$
283,392 $
13,678
9,667
23,345
273,885
27,496
4,772
329,498
71 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the
time periods specified by the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include
controls and procedures designed to ensure that information required to be disclosed in such reports is accumulated and communicated
to the Company’s management as appropriate to allow timely decisions regarding required disclosure.
No system of controls, no matter how well designed and operated, can provide absolute assurance that the objectives of the
system of controls are met, and no evaluation of controls can provide absolute assurance that the system of controls has operated
effectively in all cases. The Company’s disclosure controls and procedures, however, are designed to provide reasonable assurance
that the objectives of disclosure controls and procedures are met.
Pursuant to Rule 13a-15(b) under the Exchange Act, an evaluation was performed under the supervision and with the participation
of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design
and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s Chief Executive Officer
and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2022
to provide reasonable assurance that the objectives of disclosure controls and procedures are met.
Changes in Internal Control Over Financial Reporting
During the quarter ended December 31, 2022, there were no changes in the Company’s internal control over financial reporting
that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Reports of Management and Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
Management has assessed, and the Company’s independent registered public accounting firm, FORVIS LLP, has audited, the
Company’s internal control over financial reporting as of December 31, 2022. The reports of management and FORVIS LLP thereon
are included in Item 8 of this Annual Report on Form 10-K and are incorporated by reference herein.
ITEM 9B. OTHER INFORMATION
There was no information required to be disclosed in a report on Form 8-K during the fourth quarter of the year that has not been
reported.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable
72 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
The information called for by this item is incorporated by reference to the material under the captions “Proposals Requiring Your
Vote – Proposal 1 – Election of Directors,” “Corporate Governance – Board of Directors and Committees – The Audit Committee”
and “Corporate Governance – Code of Business Conduct and Ethics” in the Company’s definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on May 17, 2023, to be filed by the Company with the Securities and Exchange Commission
(“SEC”) pursuant to Regulation 14A within 120 days after the year ended December 31, 2022 (the “2023 Proxy Statement”). Other
information with respect to the executive officers of the Company is included at the end of Part I of this Annual Report on Form 10-K
under the separate caption “Executive Officers of the Company.”
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this item is set forth under the captions “Executive Compensation” and “Compensation of
Directors” in the 2023 Proxy Statement and is incorporated by reference in this Annual Report on Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
SHAREHOLDER MATTERS
The information pertaining to securities ownership of certain beneficial owners and management is set forth under the caption
“Stock Ownership of Certain Beneficial Owners and Management” in the 2023 Proxy Statement and is incorporated by reference in
this Annual Report on Form 10-K.
The following table provides information about the Company’s compensation plans under which equity securities are authorized
for issuance as of December 31, 2022. The Company does not have any equity compensation plans that have not been approved by its
shareholders.
Equity Compensation Plan Information (unrounded)
Plan Category
Number of
Securities
to be Issued
Upon
Exercise of
Outstanding
Options,
Warrants and
Rights
Weighted
Average
Exercise Price
of
Outstanding
Options,
Warrants and
Rights
Number of
Securities
Remaining
Available for
Future
Issuance Under
Equity
Compensation
Plans
Equity compensation plans approved by shareholders
39,125
(a)
$
Equity compensation plans not approved by shareholders
Total
—
39,125
$
159.39
—
159.39
217,500
(b)
—
217,500
(a)
Includes 11,250 shares issuable upon exercise of outstanding stock appreciation rights (“SARs”) under the 2009 Stock
Appreciation Rights Plan (the “2009 Plan”), and 27,875 shares issuable upon exercise of SARs under the 2019 Stock
Appreciation Rights Plan (the “2019 Plan”).
(b)
Includes shares remaining for future issuance under the 2019 Plan. The 2009 Plan expired in March 2019.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information called for by this item is set forth under the captions “Certain Relationships and Related Transactions,”
“Corporate Governance – Independent Directors” and “Proposals Requiring Your Vote – Proposal 1 – Election of Directors” set forth
in the 2023 Proxy Statement and is incorporated by reference in this Annual Report on Form 10-K.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information pertaining to principal accountant fees and services is set forth under the caption “Proposals Requiring Your
Vote – Proposal 2 – Ratification of Appointment of Independent Registered Public Accounting Firm” in the 2023 Proxy Statement and
is incorporated by reference in this Annual Report on Form 10-K.
73 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
PART IV
The following financial statements are filed under Item 8 of this Annual Report on Form 10-K:
Report of Independent Registered Public Accounting Firm (PCAOB ID: 686)
Management’s Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Operations for the Years Ended December 31, 2022 and 2021
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2022 and 2021
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2022 and 2021
Consolidated Statements of Cash Flows for the Years Ended December 31, 2022 and 2021
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules
The following is a list of financial statement schedules filed as part of this Form 10-K Annual Report:
Schedule
Number
I
II
III
IV
V
Description
Summary of Investments – Other Than Investments in Related Parties
Condensed Financial Information of Registrant
Supplementary Insurance Information
Reinsurance
Valuation and Qualifying Accounts
All other schedules are omitted, as the required information either is not applicable, is not required, or is presented in the
accompanying Consolidated Financial Statements or the notes thereto.
(a)(3) Exhibits
The following exhibits are filed as part of this Annual Report on Form 10-K are incorporated herein by reference.
74 Exhibit
Number
Description
INDEX TO EXHIBITS
Location
3.1(a)
Articles of Incorporation dated January 22, 1973
Incorporated by reference to Exhibit 4.1 to Form S-8
filed August 10, 2009, File No. 333-161209
3.1(b)
3.1(c)
3.1(d)
3.1(e)
3.1(f)
3.2
4.1
4.2
4.3
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
Articles of Amendment to the Articles of Incorporation,
dated February 8, 1973
Incorporated by reference to Exhibit 4.2 to Form S-8
filed August 10, 2009, File No. 333-161209
Articles of Amendment to Articles of Incorporation,
dated May 14, 1987
Incorporated by reference to Exhibit 4.3 to Form S-8
filed August 10, 2009, File No. 333-161209
Articles of Amendment to Articles of Incorporation,
dated May 15, 2002
Incorporated by reference to Exhibit 3.3 to Form 10-Q
for the quarter ended June 30, 2002, File No. 11774
Articles of Amendment to Articles of Incorporation,
dated November 12, 2002
Incorporated by reference to Exhibit 3.4 to Form 10-Q
for the quarter ended March 31, 2003, File No. 11774
Articles of Amendment to Articles of Incorporation,
dated October 31, 2012
Incorporated by reference to Exhibit 3.1 to Form 10-Q
filed on October 31, 2012, File No. 11774
Amended and Restated By-laws, dated November 9,
2020
Incorporated by reference to Exhibit 3.1 to Form 10-Q
filed on November 9, 2020, File No. 11774
Description of the Company’s Securities
Incorporated by reference to Exhibit 4.1 to Form 10-K
for the year ended December 31, 2019, File No. 11774
Amended and Restated Rights Agreement, dated October
31, 2012, between the Company and Broadridge Issuer
Solutions, Inc., as Rights Agent
Incorporated by reference to Exhibit 4.1 to Form 8-K
filed on November 2, 2012, File No. 11774
Amended and Restated Rights Agreement, dated
September 30, 2022, between the Company and
Broadridge Corporate Issuer Solutions, Inc., as Rights
Agent
Incorporated by reference to Exhibit 4.1 to Form 8-K
filed on October 3, 2022, File No. 11774
Amended and Restated Employment Agreement
effective January 1, 2009 for J. Allen Fine
Incorporated by reference to Exhibit 10.7 to Form 10-K
for the year ended December 31, 2008, File No. 11774
Amended and Restated Employment Agreement
effective January 1, 2009 for James A. Fine, Jr.
Incorporated by reference to Exhibit 10.8 to Form 10-K
for the year ended December 31, 2008, File No. 11774
Amended and Restated Employment Agreement
effective January 1, 2009 for W. Morris Fine
Incorporated by reference to Exhibit 10.9 to Form 10-K
for the year ended December 31, 2008, File No. 11774
Amended and Restated Death Benefit Plan Agreement
effective January 1, 2021 for J. Allen Fine
Incorporated by reference to Exhibit 10.4 to Form 10-K
for the year ended December 31, 2020, File No. 11774
Amended and Restated Death Benefit Plan Agreement
effective January 1, 2009 for James A. Fine, Jr.
Incorporated by reference to Exhibit 10.11 to Form 10-K
for the year ended December 31, 2008, File No. 11774
Death Benefit Plan Agreement effective January 1, 2009
for W. Morris Fine
Incorporated by reference to Exhibit 10.12 to Form 10-K
for the year ended December 31, 2008, File No. 11774
Amended and Restated Nonqualified Deferred
Compensation Plan effective January 1, 2009
Incorporated by reference to Exhibit 10.13 to Form 10-K
for the year ended December 31, 2008, File No. 11774
Amended and Restated Nonqualified Supplemental
Retirement Benefit Plan effective January 1, 2009
Incorporated by reference to Exhibit 10.14 to Form 10-K
for the year ended December 31, 2008, File No. 11774
75 10.9(a)*
10.9(b)*
2009 Stock Appreciation Right Plan effective March 2,
2009
Incorporated by reference to Appendix A to the Proxy
Statement dated May 26, 2009, File No. 11774
Form of Stock Appreciation Rights Agreement under
2009 Stock Appreciation Right Plan
Incorporated by reference to Exhibit 10 to Form 10-Q
for the quarter ended June 30, 2011, File No. 11774
10.10(a)*
2019 Stock Appreciation Rights Plan effective March
11, 2019
Incorporated by reference to Exhibit 99.1 to the
Registration Statement on Form S-8 filed on May 15,
2019, File No. 333-231486
10.10(b)*
Form of Stock Appreciation Rights Agreement under
2019 Stock Appreciation Right Plan
Incorporated by reference to Exhibit 10.2 to Form 8-K
filed on May 16, 2019, File No. 11774
10.11*
Summary of Non-Employee Director Compensation
Incorporated by reference to Exhibit 10.11 to Form 10-K
for the year ended December 31, 2019, File No. 11774
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
16.1
21
23
31.1
31.2
32
Second Amended and Restated Employment Agreement,
by and between Investors Title Insurance Company and
J. Allen Fine, dated May 4, 2022
Incorporated by reference to Exhibit 10.1 to Form 10-Q
for the quarter ended March 31, 2022, File No. 11774
Second Amended and Restated Employment Agreement,
by and between Investors Title Insurance Company and
James A. Fine, Jr., dated May 4, 2022
Incorporated by reference to Exhibit 10.2 to Form 10-Q
for the quarter ended March 31, 2022, File No. 11774
Second Amended and Restated Employment Agreement,
by and between Investors Title Insurance Company and
W. Morris Fine, Jr., dated May 4, 2022
Incorporated by reference to Exhibit 10.3 to Form 10-Q
for the quarter ended March 31, 2022, File No. 11774
Amended and Restated Death Benefit Plan Agreement,
by and between Investors Title Insurance Company and
J. Allen Fine, dated May 4, 2022
Amended and Restated Death Benefit Plan Agreement,
by and between Investors Title Insurance Company and
James A. Fine, Jr., dated May 4, 2022
Amended and Restated Death Benefit Plan Agreement,
by and between Investors Title Insurance Company and
W. Morris Fine, Jr., dated May 4, 2022
Incorporated by reference to Exhibit 10.4 to Form 10-Q
for the quarter ended March 31, 2022, File No. 11774
Incorporated by reference to Exhibit 10.5 to Form 10-Q
for the quarter ended March 31, 2022, File No. 11774
Incorporated by reference to Exhibit 10.6 to Form 10-Q
for the quarter ended March 31, 2022, File No. 11774
Letter, dated June 7, 2022, from FORVIS, LLP to the
U.S. Securities and Exchange Commission
Incorporated by reference to Exhibit 16.1 to Form 8-K
filed on June 7, 2022 , File No. 11774
Subsidiaries of Registrant
Consent of Independent Registered Public Accounting
Firm
Filed herewith
Filed herewith
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith
Certifications of Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Furnished herewith
101.INS
XBRL Instance Document (the instance document does
not appear in the Interactive Data File because its XBRL
tags are embedded within the Inline XBRL document)
Filed herewith
101.SCH
XBRL Taxonomy Extension Schema Document
Filed herewith
76 101.CAL
XBRL Taxonomy Extension Calculation Linkbase
Document
Filed herewith
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
Filed herewith
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
Document
Filed herewith
101.DEF
XBRL Taxonomy Extension Definition Linkbase
Document
Filed herewith
104
*
Cover Page Interactive Data File (formatted in Inline
XBRL and contained in Exhibit 101)
Filed herewith
Management contract or compensatory plan or arrangement
77 INVESTORS TITLE COMPANY AND SUBSIDIARIES
SUMMARY OF INVESTMENTS – OTHER THAN INVESTMENTS IN RELATED PARTIES
AS OF DECEMBER 31, 2022
SCHEDULE I
Type of Investment (in thousands)
Cost (1)
Market Value
Amount at
which shown
in the
Balance Sheet
(3)
Fixed maturity securities:
Government obligations
General obligations of U.S. states, territories and political subdivisions
Special revenue issuer obligations of U.S. states, territories and political
$
4,329 $
8,360
4,322 $
8,346
subdivisions
Public utilities
Corporate debt securities
Total fixed maturity securities
Equity securities:
Common stocks:
Public utilities
Banks, trusts and insurance companies
Industrial, miscellaneous and all other
Technology
Total equity securities
Other investments:
Short-term investments
Other investments (2)
Total other investments
22,508
7,816
10,762
53,775
606
2,834
20,160
1,678
25,278
22,497
7,713
11,111
53,989
760
5,761
39,495
5,675
51,691
4,322
8,346
22,497
7,713
11,111
53,989
760
5,761
39,495
5,675
51,691
103,649
16,207
119,856
103,649
16,207
119,856
103,649
16,207
119,856
Total investments (2)
$
198,909 $
225,536 $
225,536
(1)
(2)
(3)
Fixed maturity securities are shown at amortized cost and equity securities are shown at original cost.
The above summary of investments does not include investments in related parties accounted for under the equity
method or the measurement alternative methods of accounting in the amount of $2,161.
All fixed maturity securities presented are classified as available-for-sale and shown at estimated fair value. Equity
securities are shown at fair value.
78 INVESTORS TITLE COMPANY (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
AS OF DECEMBER 31, 2022 AND 2021
SCHEDULE II
(in thousands)
Assets
Cash and cash equivalents
Fixed maturity securities, available-for-sale, at fair value
Equity securities, at fair value
Short-term investments
Investments in affiliated companies
Other investments
Prepaid expenses and other receivables
Current income taxes receivable
Accrued interest and dividends
Property, net
Total Assets
Liabilities and Shareholders’ Equity
Liabilities:
Accounts payable and accrued liabilities
Current income taxes payable
Deferred income taxes, net
Total liabilities
Shareholders’ Equity:
Preferred stock (1,000 authorized shares; no shares issued)
Common stock – no par value (10,000 authorized shares; 1,897 and 1,895 shares issued and
outstanding as of December 31, 2022 and 2021, respectively, excluding in each period 292
shares of common stock held by the Company)
Retained earnings
Accumulated other comprehensive income
Total shareholders’ equity
Total Liabilities and Shareholders’ Equity
Refer to the Notes to Condensed Financial Statements.
2022
2021
$
3,450 $
5,900
325
64,832
159,700
6,703
3,864
2,799
185
1,691
584
2,222
5,946
23,637
188,698
7,840
5,113
—
32
1,665
$
249,449 $
235,737
$
7,726 $
—
712
8,438
—
—
240,811
200
241,011
$
249,449 $
4,514
433
1,703
6,650
—
—
225,861
3,226
229,087
235,737
79 INVESTORS TITLE COMPANY (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
SCHEDULE II
(in thousands, except per share amounts)
2022
2021
Revenues:
Interest and dividends
Net realized investment gains
Changes in the estimated fair value of equity security investments
Rental income
Gain on disposals of property
Miscellaneous income
Total Revenues
Operating Expenses:
Personnel expenses
Office and technology expenses
Other expenses
Total Operating Expenses
$
990 $
2,680
(3,419)
869
—
305
1,425
947
447
936
2,330
376
1,050
1,182
734
3,937
2,015
9,294
1,039
407
882
2,328
Equity in Net Income of Affiliated Companies
24,584
61,372
Income before Income Taxes
(Benefit) Provision for Income Taxes
Net Income
Basic Earnings per Common Share
Weighted Average Shares Outstanding – Basic
Diluted Earnings per Common Share
Weighted Average Shares Outstanding – Diluted
Refer to the Notes to Condensed Financial Statements.
23,679
68,338
(224)
1,318
23,903 $
67,020
12.60 $
35.38
1,897
1,894
12.59 $
35.28
1,898
1,900
$
$
$
80 INVESTORS TITLE COMPANY (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
SCHEDULE II
(in thousands)
Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
2022
2021
$
23,903 $
67,020
Equity in net earnings of subsidiaries
Depreciation
Amortization, net
Share-based compensation expense related to stock appreciation rights
Net realized gains on disposal of property
Net realized gains on securities
Net realized losses (gains) on other investments
Changes in the estimated fair value of equity security investments
Net losses (earnings) from other investments
(Benefit) provision for deferred income taxes
Decrease (increase) in receivables
(Increase) decrease in current income taxes receivable
(Increase) decrease in other assets
(Decrease) increase in current income taxes payable
Increase in accounts payable and accrued liabilities
Net cash provided by operating activities
Investing Activities
Dividends received from subsidiaries
Purchases of fixed maturity and equity securities
Purchases of short-term securities
Purchases of and net earnings from other investments
Proceeds from sales and maturities of fixed maturity and equity securities
Proceeds from sales and maturities of short-term securities
Proceeds from sales and distributions of other investments
Proceeds from sales of other assets
Purchases of property
Proceeds from disposals of property
Net cash provided by investing activities
Financing Activities
Repurchases of common stock
Exercise of stock appreciation rights
Capital contribution to subsidiaries
Dividends paid
Net cash used in financing activities
Net Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents, Beginning of Period
Cash and Cash Equivalents, End of Period
Supplemental Disclosures:
Income tax payments, net
Refer to the Notes to Condensed Financial Statements.
(24,584)
115
(272)
362
—
(3,076)
396
3,419
11
(927)
1,249
(2,799)
(153)
(433)
3,212
423
55,643
(3,851)
(64,513)
(46)
5,278
23,487
776
—
(201)
60
16,633
(133)
(1)
(4,875)
(9,181)
(14,190)
2,866
584
3,450 $
(61,372)
110
(51)
299
(3,937)
(92)
(958)
(1,182)
(238)
1,214
(2,660)
2,487
175
433
2,201
3,449
30,651
(631)
(21,345)
(5,050)
25,512
3,028
1,651
958
—
4,585
39,359
—
(1)
(8,350)
(37,553)
(45,904)
(3,096)
3,680
584
15,186 $
10,156
$
$
81 INVESTORS TITLE COMPANY (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
(in thousands)
SCHEDULE II
1. The accompanying Condensed Financial Statements should be read in conjunction with the Consolidated Financial Statements
and notes thereto of Investors Title Company and Subsidiaries.
2. Cash dividends paid to Investors Title Company by its wholly owned subsidiaries were as follows:
Subsidiaries
Investors Title Insurance Company, net*
Investors Title Exchange Corporation
Investors Title Accommodation Corporation
Investors Trust Company
Investors Title Commercial Agency, LLC
Total
2022
2021
$
48,243 $
4,300
100
400
2,600
28,401
1,350
50
500
350
$
55,643 $
30,651
* Total dividends of $49,655 and $34,182 paid to the Parent Company in 2022 and 2021, respectively, netted with dividends of
$1,412 and $5,781 received from the Parent Company in 2022 and 2021, respectively.
82 INVESTORS TITLE COMPANY AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
SCHEDULE III
Deferred
Policy
Acquisition
Cost
Segment
Future
Policy
Benefits,
Losses,
Claims and
Loss
Expenses
Other
Policy
Claims
and
Benefits
Payable
Unearned
Premiums
Year Ended December 31, 2022 (in thousands)
Premium
Revenue
Net
Investment
Income
Benefits,
Claims,
Losses and
Settlement
Expenses
Amortization
of Deferred
Policy
Acquisition
Costs
Other
Operating
Expenses
Premiums
Written
Title
Insurance
All Other
$
$
— $
37,192 $
— $
1,491 $
248,632 $
(9,333) $
4,255 $
— $
238,025
—
—
—
—
—
(3,028)
—
—
11,004
— $
37,192 $
— $
1,491 $
248,632 $
(12,361) $
4,255 $
— $
249,029
Year Ended December 31, 2021 (in thousands)
Title
Insurance
All Other
$
$
— $
36,754 $
— $
2,215 $
273,885 $
21,461 $
5,686 $
— $
228,887
—
—
—
—
—
4,166
—
—
9,993
— $
36,754 $
— $
2,215 $
273,885 $
25,627 $
5,686 $
— $
238,880
N/A
N/A
N/A
N/A
N/A
N/A
83 INVESTORS TITLE COMPANY AND SUBSIDIARIES
REINSURANCE
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
SCHEDULE IV
Gross Amount
Ceded to
Other
Companies
Assumed from
Other
Companies
Net Amount
Percentages of
Amount
Assumed to
Net
Year Ended December 31, 2022 (in thousands)
Title Insurance
$
249,450 $
818 $
— $
248,632
— %
Year Ended December 31, 2021 (in thousands)
Title Insurance
$
274,403 $
518 $
— $
273,885
— %
84 SCHEDULE V
INVESTORS TITLE COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
Balance at
Beginning of
Period
Additions
Charged to
Costs and
Expenses
Additions
Charged to
Other
Accounts –
Describe
Deductions –
Describe
Balance at
End of Period
$
$
$
$
190 $
36,754 $
508 $
4,255 $
— $
— $
(539) (a)
(3,817) (b)
$
$
159
37,192
173 $
33,584 $
264 $
5,686 $
— $
— $
(247) (a)
(2,516) (b)
$
$
190
36,754
Description
2022 (in thousands)
Premiums receivable:
Valuation provision
Reserves for claims
2021 (in thousands)
Premiums receivable:
Valuation provision
Reserves for claims
(a)
(b)
Canceled premiums
Payments of claims, net of recoveries
85 ITEM 16. FORM 10-K SUMMARY
None
86 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
INVESTORS TITLE COMPANY
(Registrant)
By:
/s/ J. Allen Fine
J. Allen Fine, Chairman and Chief Executive
Officer (Principal Executive Officer)
March 14, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities indicated on the 14th day of March, 2023.
/s/ J. Allen Fine
J. Allen Fine, Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
/s/ W. Morris Fine
W. Morris Fine, Executive Vice President,
Secretary and Director
/s/ David L. Francis
David L. Francis, Director
/s/ Elton C. Parker, Jr.
Elton C. Parker, Jr., Director
/s/ James H. Speed, Jr.
James H. Speed, Jr., Director
/s/ James A. Fine, Jr.
James A. Fine, Jr., President, Treasurer, Chief
Financial Officer, Chief Accounting Officer and
Director (Principal Financial Officer and
Principal Accounting Officer)
/s/ Tammy F. Coley
Tammy F. Coley, Director
/s/ Richard M. Hutson II
Richard M. Hutson II, Director
/s/ James E. Scott
James E. Scott, Director
87 BR461804-0423-10K