What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-15 compared with 2020-03-11 · 355 added, 373 removed, 787 unchanged (48% of the section changed)

4 unchanged sentences

Consolidated Balance Sheets

Consolidated Statements of Income

Consolidated Statements of Operations

Consolidated Statements of Comprehensive Income

Consolidated Statements of Stockholders' Equity

Consolidated Statements of Shareholders' Equity

Consolidated Statements of Cash Flows

1 unchanged sentence

The financial statement schedules meeting the requirements of Regulation S-X are attached hereto as Schedules I, II, III, IV and V.

Selected Quarterly Financial Data (unaudited)

2019 (in thousands)

Net premiums written

Net income attributable to the Company

Basic earnings per common share

Diluted earnings per common share

2018 (in thousands)

Net premiums written

Net income attributable to the Company

Basic earnings per common share

Diluted earnings per common share

2017 (in thousands)

Net premiums written

Net income attributable to the Company

Basic earnings per common share

Diluted earnings per common share

Selected Quarterly Financial Data

Selected quarterly financial data not required for smaller reporting companies.

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders Investors Title Company

Board of Directors and Shareholders

Investors Title Company

Chapel Hill, North Carolina

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, 2019 and 2018, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2019 and the related consolidated notes and schedules (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S.

We have audited the accompanying consolidated balance sheets of Investors Title Company and Subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows, 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 present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of their operations and their cash flows for each of the years then ended, in conformity with U.S.

generally accepted accounting principles.

1 unchanged sentence

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

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.

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We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the 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 financial statements.

Those standards require that we plan and perform the audit 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 included 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.

Critical Audit Matters

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 the 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 a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Reserve for Claims

As described in notes 1 and 6 to the Company’s consolidated financial statements, 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”).

As of December 31, 2020, the Company had approximately $33.6 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 utilizes accepted actuarial methodologies when performing the actuarial projections.

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 included management’s significant actuarial estimates and assumptions used to estimate the reserve for claims, including the selection of actuarial methods, loss development factors and expected loss ratios.

This required a high degree of judgment, subjectivity and effort in auditing the reasonableness of the actuarial methodologies and assumptions used in determining the reserve for claims, including the use of an auditor-engaged specialist.

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 reserve for claims development process.

This included 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.

/S/ DIXON HUGHES GOODMAN LLP

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Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders Investors Title Company

Board of Directors and Shareholders

Investors Title Company

Chapel Hill, North Carolina

Opinion on Internal Control Over Financial Reporting

We have audited Investors Title Company and Subsidiaries’ (the Company’s) internal control over financial reporting as of December 31, 2019, 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, 2019, 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, 2019 and 2018, and for each of the three years in the period ended December 31, 2019, and our report dated March 11, 2020, expressed an unqualified opinion on those consolidated financial statements.

We have audited Investors Title Company and Subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

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 for each of the two years in the period ended December 31, 2020, and our report dated March 15, 2021, expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

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We believe that our audit provides a reasonable basis for our opinion.

Board of Directors and Stockholders Investors Title Company

March 11, 2020

Definition and Limitations of Internal Control Over Financial Reporting

16 unchanged sentences

December 31, 2019:

117,713 104,638

Equity securities, at fair value (cost:

1 unchanged sentence

December 31, 2019:

64,919 61,108

Short-term investments 15,170 13,134

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Operating lease right-of-use assets 3,533 4,469

Liabilities and Stockholders’ Equity

Other assets 1,560 1,487

Total Assets $ 282,925 $ 263,893

Liabilities and Shareholders’ Equity

Reserve for claims $ 33,584 $ 31,333

5 unchanged sentences

Commitments and Contingencies — —

Stockholders’ Equity:

Shareholders’ Equity:

Preferred stock ( 1,000 authorized shares;

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Accumulated other comprehensive income 4,326 3,100

Total stockholders’ equity

Total Liabilities and Stockholders’ Equity

Total shareholders’ equity 200,422 191,362

Total Liabilities and Shareholders’ Equity $ 282,925 $ 263,893

Refer to the Notes to the Consolidated Financial Statements.

Investors Title Company and Subsidiaries

Consolidated Statements of Income

Consolidated Statements of Operations

(in thousands, except per share amounts)

5 unchanged sentences

Other investment income 3,723 3,191

Net realized investment gains (losses)

Net realized investment gains 333 1,340

Changes in the estimated fair value of equity security investments 4,904 10,303

Other 623 678

Total Revenues 236,408 183,502

1 unchanged sentence

Commissions to agents 106,807 72,780

Provision (benefit) for claims

Provision for claims 5,204 3,532

Personnel expenses 51,929 46,058

4 unchanged sentences

Provision for Income Taxes 10,241 8,365

Net Loss Attributable to Noncontrolling Interests

Net Income Attributable to the Company

Net Income $ 39,420 $ 31,458

Basic Earnings per Common Share $ 20.84 $ 16.66

7 unchanged sentences

For the Years Ended December 31, 2020 2019

Other comprehensive income (loss), before tax:

Amortization of unrecognized loss

Accumulated postretirement expense obligation adjustment

Unrealized gains (losses) on investments arising during the period

Net income $ 39,420 $ 31,458

Other comprehensive income, before tax:

Accumulated postretirement benefit obligation adjustment ( 143 ) —

Unrealized gains on investments arising during the period 1,253 2,727

Reclassification adjustment for sale of securities included in net income

Reclassification adjustment for write-down of securities included in net income

Other comprehensive income (loss), before tax

Income tax expense related to postretirement health benefits

Income tax expense (benefit) related to unrealized gains (losses) on investments arising during the year

Income tax expense (benefit) related to reclassification adjustment for sale of securities included in net income

Other comprehensive income, before tax 1,562 2,727

Income tax benefit related to postretirement health benefits ( 31 ) —

Income tax expense related to unrealized gains on investments arising during the year 262 576

Income tax benefit related to reclassification adjustment for sale of securities included in net income ( 6 ) —

Income tax expense related to reclassification adjustment for write-down of securities included in net income

Net income tax expense (benefit) on other comprehensive income (loss)

Other comprehensive income (loss)

Net income tax expense on other comprehensive income 336 576

Other comprehensive income 1,226 2,151

Comprehensive Income $ 40,646 $ 33,609

Comprehensive loss attributable to noncontrolling interests

Comprehensive Income Attributable to the Company

Refer to the Notes to the Consolidated Financial Statements.

Investors Title Company and Subsidiaries

Consolidated Statements of Stockholders’ Equity

Consolidated Statements of Shareholders’ Equity

(in thousands, except per share amounts)

Retained Earnings

Common Stock Retained Earnings Accumulated

Comprehensive

Noncontrolling Interests

Stockholders’

Shareholders’

Shares Amount

Balance, January 1, 2019

Net income attributable to the Company

1,887 $ — $ 174,690 $ 949 $ 175,639

Net income 31,458 31,458

Dividends paid ($ 9.60 per share)

( 18,131 ) ( 18,131 )

Repurchases of common stock

— ( 19 ) ( 19 )

Exercise of stock appreciation rights

Share-based compensation expense related to stock appreciation rights

Amortization related to postretirement health benefits

Accumulated postretirement benefit obligation adjustment

Net unrealized gain on investments 2,151 2,151

Net loss attributable to noncontrolling interests

Balance, December 31, 2019

Net income attributable to the Company

1,889 $ — $ 188,262 $ 3,100 $ 191,362

Net income 39,420 39,420

Dividends paid ($ 16.76 per share)

( 31,716 ) ( 31,716 )

Repurchases of common stock

— ( 6 ) ( 6 )

Exercise of stock appreciation rights

Share-based compensation expense related to stock appreciation rights

Cumulative-effect adjustment for adoption of new accounting standards

Accumulated postretirement benefit obligation adjustment ( 112 ) ( 112 )

Net unrealized loss on investments

Distribution of equity to noncontrolling interest

Net loss attributable to noncontrolling interests

Balance, December 31, 2018

Net income attributable to the Company

Dividends paid ($9.60 per share)

Repurchases of common stock

Exercise of stock appreciation rights

Share-based compensation expense related to stock appreciation rights

Net unrealized gain on investments

Other ( 94 ) ( 94 )

Balance, December 31, 2020

1,892 $ — $ 196,096 $ 4,326 $ 200,422

Refer to the Notes to the Consolidated Financial Statements.

4 unchanged sentences

Operating Activities

Net income $ 39,420 $ 31,458

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation 1,759 1,759

Amortization of investments, net 872 712

Amortization of other intangible assets, net 504 505

Amortization related to postretirement benefits obligation

Share-based compensation expense related to stock appreciation rights 229 264

Net (gain) loss on disposals of property

Net realized (gain) loss on securities

Net realized loss (gain) on other investments

Net realized loss on impairments of other assets and other investments

Net gain on disposals of property ( 26 ) ( 46 )

Net realized gain on securities ( 311 ) ( 1,343 )

Net realized (gain) loss on other investments ( 22 ) 3

Changes in the estimated fair value of equity security investments ( 4,904 ) ( 10,303 )

Net earnings from other investments ( 2,880 ) ( 2,209 )

Provision (benefit) for claims

Provision (benefit) for deferred income taxes

Provision for claims 5,204 3,532

Provision for deferred income taxes 1,218 2,278

Changes in assets and liabilities:

Increase in receivables ( 6,904 ) ( 395 )

Decrease in other assets

Increase in operating lease right-of-use assets

Decrease (increase) in current income taxes receivable

Increase in operating lease liabilities

(Increase) decrease in other assets ( 3,977 ) 1,654

Decrease (increase) in operating lease right-of-use assets 842 ( 4,469 )

(Decrease) increase in operating lease liabilities ( 833 ) 4,502

Increase in accounts payable and accrued liabilities 7,559 583

(Decrease) increase in current income taxes payable

Decrease in current income taxes payable ( 702 ) ( 3,641 )

Payments of claims, net of recoveries ( 2,953 ) ( 3,928 )

10 unchanged sentences

Proceeds from sales of other assets 22 3

Purchase of subsidiary, net of cash received

Purchases of property, equipment and software ( 3,202 ) ( 1,486 )

Proceeds from disposals of property 85 301

Net cash provided by (used in) investing activities

Net cash (used in) provided by investing activities ( 14,600 ) 4,489

Consolidated Statements of Cash Flows, continued

For the Years Ended December 31, 2020 2019

Financing Activities

1 unchanged sentence

Exercise of stock appreciation rights 1 —

Distribution of equity for noncontrolling interest

Dividends paid ( 31,716 ) ( 18,131 )

Net cash used in financing activities ( 31,721 ) ( 18,150 )

Net Increase (Decrease) in Cash and Cash Equivalents

Net (Decrease) Increase in Cash and Cash Equivalents ( 12,226 ) 7,255

Cash and Cash Equivalents, Beginning of Period 25,949 18,694

4 unchanged sentences

Non Cash Investing and Financing Activities

Non cash net unrealized (gain) loss on investments, net of deferred tax (provision) benefit of $(576), $377 and $(2,145) for December 31, 2019, 2018 and 2017, respectively

Adjustments to postretirement benefits obligation, net of deferred tax provision of $0, $(9) and $(24) for December 31, 2019, 2018 and 2017, respectively

Changes in Financial Statement Amounts Related to Purchase of Subsidiaries, Net of Cash Received

Goodwill and other intangibles acquired

Accounts payable and accrued liabilities assumed

Purchase of subsidiary, net of cash received

Non cash net unrealized gain on investments, net of deferred tax provision of $( 367 ) and $( 576 ) for December 31, 2020 and 2019, respectively

$ ( 1,338 ) $ ( 2,151 )

Adjustments to postretirement benefits obligation, net of deferred tax benefit of $ 31 and $ 0 for December 31, 2020 and 2019, respectively

Adjustments to operating lease right-of-use assets for December 31, 2020 and 2019, respectively

Refer to the Notes to the Consolidated Financial Statements.

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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”).

Earnings attributable to noncontrolling interests in majority-owned insurance agencies are recorded in the Consolidated Statements of Income.

All intercompany balances and transactions have been eliminated in consolidation.

2 unchanged sentences

Cash and Cash Equivalents

For the purpose of presentation in the Company’s Consolidated Statements of Cash Flows, cash equivalents are highly liquid instruments with remaining original maturities of three months or less.

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 Securitie s:

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 other-than-temporary declines in fair value, reported in accumulated other comprehensive income.

Securities are regularly reviewed for differences between the cost and estimated fair value for factors that may indicate that a decline in fair value is other-than-temporary.

Some factors considered in evaluating whether or not a decline in fair value is other-than-temporary include the duration and extent to which the fair value has been less than cost and the Company’s ability and intent to retain the investment for a period of time sufficient to allow for a recovery in value.

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.

Investments in Fixed Maturity Securities :

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 other-than-temporary.

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 income, 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 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.

2 unchanged sentences

Equity securities represent ownership interests held by the Company in entities for investment purposes.

Prior to January 1, 2018, these equity securities were classified as available-for-sale and were carried at estimated fair value on the Company’s Consolidated Balance Sheets.

Unrealized holding gains and losses from changes in the fair values of available-for-sale equity securities were reported in accumulated other comprehensive income.

Effective January 1, 2018, changes in the estimated fair value of equity security investments are reported in the Consolidated Statements of Income.

As a result, other-than-temporary impairments will no longer be considered for equity securities.

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.

1 unchanged sentence

Other Investments

Other investments consist of investments in unconsolidated affiliated entities, typically structured as limited liability companies ("LLC's"), without readily determinable fair values.

Other investments consist of investments in unconsolidated affiliated entities, typically structured as limited liability companies ("LLCs"), without readily determinable fair values.

Other investments are accounted for under either the equity method or the measurement alternative method.

4 unchanged sentences

Short-term Investments

Short-term investments are comprised of money market accounts which are invested in short-term funds, commercial paper, certificates of deposit, and other investments expected to have maturities or redemptions greater than three months and less than twelve months.

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 market.

Property acquired in settlement of claims is held for sale and valued at the lower of cost or estimated realizable value.

Adjustments to reported estimated realizable values and realized gains or losses on dispositions are recorded as increases or decreases in claim costs.

22 unchanged sentences

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 Income.

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.

Premiums not collected within 7 months are fully reserved.

Write-offs of receivables have not been material to the Company.

1 unchanged sentence

Fees are recognized at the signing of a binding agreement and investment earnings are recognized as they are earned.

Exchange services revenue is included in non-title services in the Consolidated Statements of Income.

Exchange services revenue is included in non-title services in the Consolidated Statements of Operations.

Fair Values of Financial Instruments

5 unchanged sentences

Accumulated other comprehensive income as of December 31, 2020 consists of $ 4.5 million of unrealized holding gains on available-for-sale securities and $ 144 thousand of unrecognized actuarial losses associated with postretirement benefit liabilities.

Accumulated other comprehensive income as of December 31, 2018 consists of $981 thousand of unrealized holding gains on available-for-sale securities and $32 thousand of unrecognized actuarial losses associated with postretirement benefit liabilities.

Accumulated other comprehensive income as of December 31, 2019 consists of $ 3.1 million of unrealized holding gains on available-for-sale securities and $ 32 thousand of unrecognized actuarial losses associated with postretirement benefit liabilities.

2 unchanged sentences

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 Income is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures.

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.

1 unchanged sentence

The fair value of the Company’s goodwill at acquisition is principally based on values obtained from a third-party valuation service.

Goodwill is reviewed for impairment at least annually, or when events or changes in circumstances indicate the carrying value may not be recoverable.

Goodwill was reviewed for impairment as of December 31, 2020, 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.

17 unchanged sentences

The Company enters into lease agreements that are primarily used for office space, and all current leases are accounted for as operating leases.

Amounts related to operating leases are included in operating lease right-of-use ("ROU") assets and operating lease liabilities on the Company's Consolidated Balance Sheets.

Amounts related to operating leases are included in operating lease right-of-use ("ROU") assets and operating lease liabilities on the Consolidated Balance Sheets.

Operating lease ROU assets represent the Company’s right to use an underlying asset for the stated lease term.

12 unchanged sentences

Recently Adopted Accounting Standards

In February 2016, the FASB issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842) .

ASU 2016-02 updated guidance to improve financial reporting for leasing transactions.

The core principle of the guidance is that lessees will be required to recognize assets and liabilities on the balance sheet for all leases with terms of more than twelve months.

A lessee will recognize a liability to make lease payments and a ROU asset representing its right to use the underlying asset for the lease term.

Disclosures are required by lessees to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.

In transition, lessees are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach, with certain practical expedients available.

The update was effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

The Company adopted this update on January 1, 2019 with no material impact on the Company's Consolidated Statements of Income or the Consolidated Statements of Cash Flows.

The update did have a material impact on the Company's Consolidated Balance Sheets, which included the recognition of operating lease ROU assets and operating lease liabilities.

Refer to Note 9 and the Significant Accounting Policies section, above, for further information regarding the Company's accounting for leases.

In March 2017, the FASB issued ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20):

Premium Amortization on Purchased Callable Debt Securities.

ASU 2017-08 is intended to enhance the accounting for the amortization of premiums for purchased callable debt securities.

Specifically, the ASU shortens the amortization period for certain investments in callable debt securities purchased at a premium by requiring that the premium be amortized to the earliest call date.

The amendments do not require an accounting change for securities held at a discount;

the discount continues to be amortized to maturity.

The update was effective for annual periods beginning after December 15, 2018, and interim periods within those fiscal years.

The Company adopted this update on January 1, 2019 with no impact on the Company's financial position and results of operations.

Recently Issued Accounting Standards

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) .

ASU 2016-13 is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.

The update broadens the information that an entity must consider in developing its expected credit loss estimates, and is meant to better reflect an entity’s current estimate of all expected credit losses.

In addition, this update amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.

The update is effective for annual periods beginning after December 15, 2019, and interim periods within those fiscal years.

Early adoption is permitted as of fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

The Company has evaluated the impact that the recently issued accounting standard will have on the Company's financial position and results of operations, and does not expect it to have a material impact.

Currently, the Company's potential credit losses under this accounting standard relate to fixed maturity securities.

The Company does not believe that the risk of credit losses, based on current fixed maturity securities holdings, is material to the Company's consolidated financial statements as a whole.

In June 2016, the FASB issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326) .

ASU 2016-13 updated guidance to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.

The update broadened the information that an entity must consider in developing its expected credit loss estimates, and was meant to better reflect an entity’s current estimate of all expected credit losses.

In addition, this update amended the accounting for credit losses on available-for-sale fixed maturity securities and purchased financial assets with credit deterioration.

The update was effective for the Company for annual periods beginning after December 15, 2019, and interim periods within those fiscal years.

The Company adopted this update on January 1, 2020 with no material impact on the Company's financial position and results of operations.

Refer to Note 3 for further information about the Company's investments.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350).

This update removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step 2 of the goodwill impairment test.

As a result, under the ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value;

however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

In addition, the ASU clarifies that an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable.

The update is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019.

Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.

This update removed the requirement to compare the implied fair value of goodwill with its carrying amount as part of step two of the goodwill impairment test.

As a result, under the ASU, an entity is required to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and must recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value;

however, the loss recognized must not exceed the total amount of goodwill allocated to that reporting unit.

In addition, the ASU clarified that an entity is required to consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable.

The update was effective for the Company for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019.

The Company adopted this update on January 1, 2020 with no impact on the Company's financial position and results of operations.

Recently Issued Accounting Standards

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes .

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None of these amendments are expected to have a material impact on the Company's financial position or results of operations.

In January 2020, the FASB issued ASU 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815).

This update clarifies that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative immediately before applying or upon discontinuing the equity method.

In addition, this update clarifies that, when determining the accounting for certain forward contracts and purchased options, a company should not consider, whether upon settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value option.

The update is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

Early adoption is permitted , including early adoption in an interim period, for periods for which financial statements have not yet been issued.

The Company is currently evaluating the impact that the recently issued accounting standard will have on the Company's financial position and results of operations, and does not expect it to have a material impact.

Use of Estimates and Assumptions

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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 income statement.

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.

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The estimated fair values of the majority of the Company’s investments are based on quoted market prices from independent pricing services.

Statutory Accounting and Restrictions on Consolidated Stockholders’ Equity and Investments

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 $ 196.1 million and $ 194.0 million as of December 31, 2020 and 2019, respectively.

Net income on a statutory basis was $21.3 million , $41.0 million and $18.8 million for the years ended December 31, 2019 , 2018 and 2017 , respectively.

Net income on a statutory basis was $ 33.3 million and $ 21.3 million and for the years ended December 31, 2020 and 2019, respectively.

The Company has designated approximately $ 42.0 million and $ 37.3 million of retained earnings as of December 31, 2020 and 2019, 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.

As of December 31, 2019 and 2018 , approximately $103.5 million and $81.8 million , respectively, of consolidated stockholders’ 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.

As of December 31, 2020 and 2019, approximately $ 104.1 million and $ 103.5 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 2021, the maximum distributions the insurance subsidiaries can make to the Company without prior approval from applicable regulators total approximately $ 37.2 million.

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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, 2019 (in thousands)

As of December 31, 2020 (in thousands) Amortized

Losses Estimated

Fixed maturity securities, available-for-sale, at fair value:

Government obligations

$ 24,026 $ 57 $ — $ 24,083

General obligations of U.S.

states, territories and political subdivisions

17,391 1,262 — 18,653

Special revenue issuer obligations of U.S.

states, territories and political subdivisions

44,939 3,270 3 48,206

Corporate debt securities 25,681 1,114 24 26,771

As of December 31, 2018 (in thousands)

Total $ 112,037 $ 5,703 $ 27 $ 117,713

As of December 31, 2019 (in thousands) Amortized

Losses Estimated

Fixed maturity securities, available-for-sale, at fair value:

Governmental obligations

$ 25,161 $ 6 $ 4 $ 25,163

General obligations of U.S.

states, territories and political subdivisions

18,887 843 — 19,730

Special revenue issuer obligations of U.S.

states, territories and political subdivisions

51,188 2,530 20 53,698

Corporate debt securities 5,431 621 5 6,047

Total $ 100,667 $ 4,000 $ 29 $ 104,638

The special revenue category for both periods presented includes approximately 50 individual fixed maturity securities with revenue sources from a variety of industry sectors.

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Available-for-Sale

(in thousands)

(in thousands) Amortized

Due in one year or less $ 38,775 $ 38,861

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Due after ten years 816 1,401

Total $ 112,037 $ 117,713

Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without penalties.

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, 2020 and 2019, respectively.

Less than 12 Months

12 Months or Longer

As of December 31, 2019 (in thousands)

Estimated Fair Value

Unrealized Losses

Estimated Fair Value

Unrealized Losses

Estimated Fair Value

Unrealized Losses

Government obligations

Less than 12 Months 12 Months or Longer Total

As of December 31, 2020 (in thousands) Estimated Fair Value Unrealized Losses Estimated Fair Value Unrealized Losses Estimated Fair Value Unrealized Losses

Special revenue issuer obligations of U.S.

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Total temporarily impaired securities $ 20,630 $ ( 24 ) $ 1,103 $ ( 3 ) $ 21,733 $ ( 27 )

Less than 12 Months

12 Months or Longer

As of December 31, 2018 (in thousands)

Estimated Fair Value

Unrealized Losses

Estimated Fair Value

Unrealized Losses

Estimated Fair Value

Unrealized Losses

Less than 12 Months 12 Months or Longer Total

As of December 31, 2019 (in thousands) Estimated Fair Value Unrealized Losses Estimated Fair Value Unrealized Losses Estimated Fair Value Unrealized Losses

Government obligations

General obligations of U.S.

states, territories and political subdivisions

$ 12,045 $ ( 4 ) $ — $ — $ 12,045 $ ( 4 )

Special revenue issuer obligations of U.S.

states, territories and political subdivisions

1,101 ( 17 ) 1,118 ( 3 ) 2,219 ( 20 )

Corporate debt securities 413 ( 5 ) — — 413 ( 5 )

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Because the Company does not have the intent to sell these securities and will likely not be compelled to sell them before it can recover its cost basis, the Company does not consider these investments to be other-than-temporarily impaired.

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.

Consideration is given to (1) the extent to which the fair value is less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value.

Factors considered in determining whether a loss is temporary include the length of time and extent to which the estimated fair value has been below cost, the financial condition and prospects of the issuer (including credit ratings and analyst reports) and macro-economic changes.

A total of 6 and 51 fixed maturity securities had unrealized losses at December 31, 2019 and 2018 , respectively.

Reviews of the values of 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.

During 2019 , 2018 and 2017, the Company recorded no other-than-temporary impairment charges related to fixed maturity securities.

If the Company determines an other-than-temporary impairment charge is necessary, the expense would be recorded in net realized investment gains (losses) in the Consolidated Statements of Income when recognized.

A total of 12 and six fixed maturity securities had unrealized losses at December 31, 2020 and 2019, respectively.

The Company does not have the intent 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 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 $ 482 thousand and $ 0 of other-than-temporary impairment charges related to fixed maturity securities for the twelve-month periods ended December 31, 2020 and 2019, respectively.

Expenses related to other-than-temporary 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, 2019 (in thousands)

As of December 31, 2020 (in thousands) Cost Estimated

Equity securities, at fair value:

Common stocks $ 32,478 $ 64,919

As of December 31, 2018 (in thousands)

Total $ 32,478 $ 64,919

As of December 31, 2019 (in thousands) Cost Estimated

Equity securities, at fair value:

Common stocks $ 33,570 $ 61,108

Unrealized holding gains and losses are reported in the Consolidated Statements of Income as changes in the estimated fair value of equity security investments.

Total $ 33,570 $ 61,108

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

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Investment income $ 4,393 $ 4,752

Net Realized Investment Gains (Losses)

Net Realized Investment Gains

Gross realized gains and losses on sales of investments for the years ended December 31 are summarized as follows:

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Gross realized gains from securities:

Corporate debt securities $ 30 $ —

Common stocks 3,428 1,725

Total $ 3,458 $ 1,725

Gross realized losses from securities:

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Other-than-temporary impairment of securities ( 482 ) —

Net realized gains (losses) from securities

Net realized other investment (losses) gains:

Impairments on other investments

Total $ ( 3,147 ) $ ( 382 )

Net realized gains from securities $ 311 $ 1,343

Net realized other investment gains (losses):

Gains on other investments $ 31 $ 3

Losses on other investments ( 9 ) ( 6 )

Net realized investment gains (losses)

Total $ 22 $ ( 3 )

Net realized investment gains $ 333 $ 1,340

Realized gains and losses are determined on the specific identification method.

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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 limited liability companies ("LLCs"), as of December 31, 2019:

Type of Investment (in thousands)

Balance Sheet Classification

Carrying Value

Estimated Fair Value

Maximum Potential Loss (a)

Tax credit LPs

Other investments

Real estate LLCs or LPs

Other investments

Small business investment LLCs or LPs

Other investments

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, 2020:

Type of Investment (in thousands) Balance Sheet Classification Carrying Value Estimated Fair Value Maximum Potential Loss *

Tax credit LPs Other investments $ 267 $ 267 $ 1,768

Real estate LLCs or LPs Other investments 5,152 6,535 7,000

Small business investment LLCs or LPs Other investments 7,535 7,204 13,295

Total $ 12,954 $ 14,006 $ 22,063

* 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.

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Measurement alternative equity investments

The measurement alternative method requires investments without readily determinable fair values to be recorded at cost, less impairments plus or minus any changes resulting from observable price changes.

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.

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The following table presents, by level, fixed maturity securities carried at estimated fair value as of December 31, 2020 and 2019:

As of December 31, 2019 (in thousands)

As of December 31, 2020 (in thousands) Level 1 Level 2 * Level 3 Total

Fixed maturity securities:

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Corporate debt securities — 26,771 — 26,771

As of December 31, 2018 (in thousands)

Total $ 24,083 $ 93,630 $ — $ 117,713

As of December 31, 2019 (in thousands) Level 1 Level 2 * Level 3 Total

Fixed maturity securities:

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Corporate debt securities — 6,047 — 6,047

Total $ 24,160 $ 80,478 $ — $ 104,638

*Denotes fair market value obtained from pricing services.

The following table presents, by level, equity investments and other financial instruments at estimated fair values as of December 31, 2019 and December 31, 2018 :

As of December 31, 2019 (in thousands)

The following table presents, by level, estimated fair values of equity investments and other financial instruments as of December 31, 2020 and 2019:

As of December 31, 2020 (in thousands) Level 1 Level 2 Level 3 Total

Financial assets:

Cash $ 13,723 $ — $ — $ 13,723

Accrued interest and dividends 1,038 — — 1,038

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Short-term investments:

Money market funds and certificates of deposit

Money market funds, Treasury bills, commercial paper and certificates of deposit 15,170 — — 15,170

Other investments:

Equity investments in unconsolidated affiliates, equity method

— — 6,752 6,752

Equity investments in unconsolidated affiliates, measurement alternative

As of December 31, 2018 (in thousands)

— — 8,741 8,741

Total $ 94,850 $ — $ 15,493 $ 110,343

As of December 31, 2019 (in thousands) Level 1 Level 2 Level 3 Total

Financial assets:

Cash $ 25,949 $ — $ — $ 25,949

Accrued interest and dividends 1,033 — — 1,033

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Short-term investments:

Commercial paper and money market funds

Money market funds and certificates of deposit 13,134 — — 13,134

Other investments:

Equity investments in unconsolidated affiliates, equity method

— — 6,083 6,083

Equity investments in unconsolidated affiliates, measurement alternative

— — 7,899 7,899

Total $ 101,224 $ — $ 13,982 $ 115,206

The Company did not hold any Level 3 category debt or marketable equity investment securities as of December 31, 2020 or 2019.

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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 other-than-temporarily impaired, an impairment charge is recorded against such investment and reflected in the Consolidated Statements of Income.

If any such investment is determined to be other-than-temporarily 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, 2020 or 2019.

The following table presents a rollforward of equity investments under the measurement alternative as of December 31, 2020 and 2019:

(in thousands)

January 1, 2019

Amounts Impaired

Observable Changes

Purchases and

(in thousands) Balance,

January 1, 2020 Amounts Impaired Observable Changes Purchases and

Additional Commitments

Sales, Returns

Paid Sales, Returns

Reductions Balance,

December 31, 2020

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Equity investments in unconsolidated affiliates, measurement alternative

(in thousands)

January 1, 2018

Amounts Impaired

Observable Changes

Purchases and

$ 7,899 $ — $ — $ 1,227 $ ( 385 ) $ 8,741

Total $ 7,899 $ — $ — $ 1,227 $ ( 385 ) $ 8,741

(in thousands) Balance,

January 1, 2019 Amounts Impaired Observable Changes Purchases and

Additional Commitments

Sales, Returns

Paid Sales, Returns

Reductions Balance,

December 31, 2019

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Equity investments in unconsolidated affiliates, measurement alternative

$ 6,589 $ — $ — $ 2,241 $ ( 931 ) $ 7,899

Total $ 6,589 $ — $ — $ 2,241 $ ( 931 ) $ 7,899

Property and Equipment

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(in thousands) 2020 2019

Land $ 1,413 $ 1,413

Office buildings and improvements ( 25 years)

Furniture, fixtures and equipment ( 3 to 10 years)

17,902 14,982

Automobiles ( 3 years)

Total 24,994 21,954

Less accumulated depreciation ( 13,834 ) ( 12,178 )

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The Company assumes and cedes reinsurance with other insurance companies in the normal course of business.

Premiums assumed and ceded were approximately $2 thousand and $411 thousand , respectively, for 2019 , $4 thousand and $327 thousand , respectively, for 2018 , and $3 thousand and $264 thousand , respectively, for 2017 .

Premiums assumed and ceded were approximately $ 3 thousand and $ 296 thousand, respectively, for 2020, and $ 2 thousand and $ 411 thousand, respectively, for 2019.

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 has not paid or recovered any reinsured losses during the three years ended December 31, 2019 .

The Company did not pay or recover any reinsured losses during 2020 and 2019.

Reserve for Claims

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Balance, beginning of period $ 31,333 $ 31,729

Provision (benefit) related to:

Total provision (benefit) charged to operations

Provision related to:

Current year 8,877 8,610

Prior years ( 3,673 ) ( 5,078 )

Total provision charged to operations 5,204 3,532

Claims paid, net of recoveries, related to:

Current year ( 249 ) ( 2,057 )

Prior years ( 2,704 ) ( 1,871 )

Total claims paid, net of recoveries ( 2,953 ) ( 3,928 )

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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 increase in the provision for claims in 2019, compared to 2018, primarily related to less favorable loss development and higher incurred claims in the current period.

The favorable development in 2019 was primarily related to policy years 2012 through 2018.

The increase in the provision for claims in 2020, compared to 2019, primarily related to higher 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 $815 thousand , $1.9 million and $570 thousand during 2019 , 2018 and 2017 , respectively.

The provision (benefit) for claims as a percentage of net premiums written was 2.4% , (0.2)% and 2.4% in 2019 , 2018 and 2017 , respectively.

The Company realized claim recoveries of approximately $ 308 thousand and $ 815 thousand during 2020 and 2019, respectively.

The provision for claims as a percentage of net premiums written was 2.5 % and 2.4 % in 2020 and 2019, respectively.

A large claim is defined as a claim with incurred losses exceeding $ 500 thousand.

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Known title claims $ 3,585 10.7 $ 3,799 12.1

IBNR 29,999 89.3 27,534 87.9

Total reserve for claims $ 33,584 100.0 $ 31,333 100.0

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Earnings Per Common Share and Share Awards

Basic earnings per common share is computed by dividing net income attributable to the Company by the weighted average number of common shares outstanding during the reporting period.

Diluted earnings per common share is computed by dividing net income attributable to the Company 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.

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 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.

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) 2020 2019

Net income attributable to the Company

Net income $ 39,420 $ 31,458

Weighted average common shares outstanding – Basic 1,892 1,888

Incremental shares outstanding assuming the exercise of dilutive stock options and SARs (share-settled)

Incremental shares outstanding assuming the exercise of dilutive SARs (share-settled) 4 8

Weighted average common shares outstanding – Diluted

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Diluted earnings per common share $ 20.80 $ 16.59

There were 14 thousand , 9 thousand and 4 thousand potential shares excluded from the computation of diluted earnings per share in 2019 , 2018 and 2017 , respectively.

The Company historically has adopted employee stock award plans under which restricted stock, and options or stock appreciation rights ("SARs") of the Company's stock may be granted to key employees or directors of the Company at a price not less than the market value on the date of grant.

There were 18 thousand and 14 thousand potential shares excluded from the computation of diluted earnings per share in 2020 and 2019, 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.

There is currently one active plan from which the Company may grant share-based awards.

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, 2020, 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.

A summary of share-based award transactions for all share-based award plans follows:

(in thousands, except weighted average exercise price and average remaining contractual term)

(in thousands, except weighted average exercise price and average remaining contractual term) Number

Of Shares Weighted

Price Average

Term (Years) Aggregate

Outstanding as of January 1, 2019 28 $ 110.27 3.64 $ 2,019

SARs exercised

Outstanding as of December 31, 2017

SARs granted 4 162.81

SARs exercised ( 2 ) 50.50

Outstanding as of December 31, 2019 30 $ 124.13 3.53 $ 1,352

SARs granted 14 137.40

SARs exercised ( 8 ) 75.75

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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 2019 , 2018 and 2017 were approximately $364 thousand , $153 thousand and $473 thousand , respectively.

The intrinsic values of SARs exercised during 2020 and 2019 were approximately $ 583 thousand and $ 364 thousand, respectively.

There were no options outstanding at December 31, 2020.

The following table summarizes information about SARs outstanding at December 31, 2020:

(in thousands, except exercise prices and average remaining contractual term)

SARs Outstanding at Year-End

SARs Exercisable at Year-End

Range of Exercise Prices

Contractual Life

(in thousands, except exercise prices and average remaining contractual term) SARs Outstanding at Year-End SARs Exercisable at Year-End

Range of Exercise Prices Number

Outstanding Weighted

Contractual Life Weighted

Exercisable Weighted

$ 60.00 — $ 99.99 9 1.38 $ 78.52 9 $ 78.52

100.00 — 149.99 12 6.43 134.41 3 122.80

150.00 — 199.99 15 4.48 179.50 15 179.50

$ 60.00 — $ 199.99 36 4.38 $ 139.16 27 $ 139.31

In 2020, 6 thousand SARs vested with a fair value of approximately $ 229 thousand.

During the second quarters of 2019 , 2018 and 2017 , the Company issued share-settled SARs to the directors of the Company.

During both 2020 and 2019, the Company issued share-settled SARs to directors of the Company.

During 2020, 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.

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Expected life in years 6.2 - 7.0 7.0 - 7.0

Volatility 29.4 % 30.2 %

Interest rate 0.7 % 2.3 %

There have been no stock options or SARs granted where the exercise price was less than the market price on the date of grant.

There was approximately $264 thousand , $327 thousand and $219 thousand of compensation expense relating to SARs vesting on or before December 31, 2019 , 2018 and 2017 , respectively, included in personnel expenses in the Consolidated Statements of Income.

Yield rate 1.2 % 1.0 %

There was approximately $ 229 thousand and $ 264 thousand of compensation expense relating to SARs vesting on or before December 31, 2020 and 2019, respectively, included in personnel expenses in the Consolidated Statements of Operations.

As of December 31, 2020, there was approximately $ 338 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 3 months .

That cost is expected to be recognized over a weighted average period of approximately two years.

The components of income tax expense for the years ended December 31 are summarized as follows:

(in thousands) 2020 2019

Federal $ 8,886 $ 5,945

State 137 142

Total current 9,023 6,087

Federal 1,236 2,280

State ( 18 ) ( 2 )

Total deferred 1,218 2,278

For state income tax purposes, ITIC and NITIC generally pay only a gross premium tax found in other expenses in the Consolidated Statements of Income.

Total $ 10,241 $ 8,365

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:

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Other-than-temporary impairment of assets 167 178

Allowance for doubtful accounts

Net operating loss carryforward 118 77

Reinsurance and commission payable

Allowance for doubtful accounts 65 91

Postretirement benefit obligation 39 9

Reinsurance and commission payable 9 36

Other 1,129 1,329

Total 4,716 4,769

Deferred income tax liabilities:

Net unrealized gain on investments 8,090 6,691

Intangible assets

Recorded reserve for claims, net of statutory premium reserves 1,199 1,096

Excess of tax over book depreciation 1,149 947

Intangible assets 1,086 1,168

Other 1,784 1,905

Total 13,308 11,807

Net deferred income tax liabilities $ ( 8,592 ) $ ( 7,038 )

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As computed for the years ended December 31 at the U.S.

federal statutory income tax rate of 21.0% for 2019 , 21.0% for 2018 and 35.0% for 2017 , respectively, to income tax expense follows:

federal statutory income tax rate of 21.0 % for 2020 and 2019, to income tax expense follows:

(in thousands) 2020 2019

3 unchanged sentences

Tax-exempt interest income, net of amortization ( 1,199 ) ( 900 )

Tax Cuts and Jobs Act*

Other, net 903 791

Provision for income taxes $ 10,241 $ 8,365

* On December 22, 2017, the TCJA, was enacted into law.

This tax legislation, among other changes, reduced the federal corporate income tax rate from 35.0% to 21.0% , effective January 1, 2018.

As required under generally accepted accounting principles, the Company’s deferred tax assets and liabilities were revalued at the newly enacted U.S.

corporate income tax rate.

The impact was recognized in the Company’s provision for income taxes in the fourth quarter of 2017.

The revaluation resulted in a benefit of approximately $5.3 million , or $2.82 per diluted share.

In accounting for uncertainty in income taxes, the Company is required to recognize in its 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 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.

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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 line item in the Consolidated Statements of Income.

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.

The Company, or one of its subsidiaries, files income tax returns in the U.S.

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thus no incremental borrowing rate was available to the Company.

Lease expense is included in office and technology expenses in the Consolidated Statements of Income.

Information regarding the Company’s operating leases is as follows:

Lease expense is included in office and technology expenses in the Consolidated Statements of Operations.

Information regarding the Company’s operating leases for the years ended December 31 is as follows:

(in thousands) 2020 2019

Operating leases $ 1,293 $ 1,273

Short-term leases (b)

Short-term leases (a) 159 139

Lease expense $ 1,452 $ 1,412

Sub-lease income — —

Leases with an initial term of twelve months or less are not recorded on the Consolidated Balance Sheets.

Components of the operating lease liability presented on the Consolidated Balance Sheets are as follows:

Lease cost $ 1,452 $ 1,412

(a) Leases with an initial term of twelve months or less are not recorded on the Consolidated Balance Sheets.

Components of the operating lease liability presented on the Consolidated Balance Sheets for the years ended December 31 are as follows:

(in thousands) 2020 2019

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Year Ended (in thousands)

Thereafter 322

Total undiscounted payments $ 4,032

1 unchanged sentence

Operating lease liabilities $ 3,669

Supplemental lease information is as follows:

Supplemental lease information for the years ended December 31 is as follows:

Weighted average remaining lease term (years) 4.24 4.84

3 unchanged sentences

The Company has a 401(k) savings plan.

In order to participate in the plan, individuals must have worked at the Company for at least 3 months.

In order to be eligible for employer contributions, individuals must be employed for one full year and work at least 1,000 hours annually.

In order to participate in the plan, individuals must have worked at the Company for at least three months .

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.

Expenses related to the 401(k) plan were approximately $1.2 million , $1.2 million and $1.6 million for 2019 , 2018 and 2017 , respectively.

Expenses related to the 401(k) plan were approximately $ 1.8 million and $ 1.2 million for 2020 and 2019, 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.

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Estimated future benefit payouts expected to be paid for each of the next five years are $ 15 thousand in 2021, $ 23 thousand in 2022, $ 31 thousand in 2023, $ 28 thousand in 2024, $ 34 thousand in 2025 and $ 217 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 Income:

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) 2020 2019

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Actuarial present value of future benefits:

Fully eligible active employee

Fully eligible active employees $ ( 1,089 ) $ ( 956 )

Non-eligible active employees — —

Plan assets — —

Funded status of accumulated postretirement benefit obligation, recognized in other liabilities $ ( 1,089 ) $ ( 956 )

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Interest cost on projected benefit obligation ( 31 ) ( 33 )

Actuarial (loss) gain

Actuarial loss ( 102 ) ( 41 )

Accrued postretirement benefit obligation at end of year $ ( 1,089 ) $ ( 956 )

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Amortization of loss, net — —

Actuarial loss (gain)

Actuarial loss 102 41

Balance at end of year $ 184 $ 82

The amounts currently in accumulated other comprehensive income, pre-tax, that will be reclassified to the Consolidated Statements of Income and recognized as components of net periodic benefit costs in 2020 are:

(in thousands)

Amortization of unrecognized prior service cost

Amortization of unrecognized loss

Net periodic benefit cost at end of year

Assumed health care cost trend rates do have an effect on the amounts reported for the postretirement benefit obligations.

The following illustrates the effects on the net periodic postretirement benefit cost (“NPPBC”) and the accumulated postretirement benefit obligation (“APBO”) of a one percentage point increase and one percentage point decrease in the assumed health care cost trend rate as of December 31, 2019 :

(in thousands)

Net periodic postretirement benefit cost

Effect on the service cost component

Effect on interest cost

Total effect on the net periodic postretirement benefit cost

Accumulated postretirement benefit obligation (including active employees

who are not fully eligible)

Effect on those currently receiving benefits (retirees and spouses)

Effect on active fully eligible

Effect on actives not yet eligible

Total effect on the accumulated postretirement benefit obligation

Commitments and Contingencies

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Like-Kind Exchange Proceeds:

In administering tax-deferred property exchanges, the Company’s subsidiary, Investors Title Exchange Corporation (“ITEC”), serves as a qualified intermediary for exchanges, holding the net sales proceeds from relinquished property to be used for purchase of replacement property.

Another Company subsidiary, Investors Title Accommodation Corporation (“ITAC”), serves as exchange accommodation titleholder and, through limited liability companies that are wholly owned subsidiaries of ITAC, holds property for exchangers in reverse exchange transactions.

In administering tax-deferred like-kind exchanges pursuant to § 1031 of the Internal Revenue Code, the Company’s 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 subsidiary, Investors Title Accommodation Corporation (“ITAC”), serves as exchange accommodation titleholder and, through LLCs that are wholly owned subsidiaries of ITAC, holds property for exchangers in reverse exchange transactions.

Like-kind exchange deposits and reverse exchange property totaled approximately $ 237.9 million and $ 214.6 million as of December 31, 2020 and 2019, respectively.

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Provided below is selected financial information about the Company’s operations by segment for the periods ended December 31, 2020 and 2019.

2019 (in thousands)

Insurance and other services revenues

Investment income

Net realized gain on investments

Total revenues

Operating expenses

Income before income taxes

2018 (in thousands)

2020 (in thousands) Title

Insurance All

Other Intersegment

Eliminations Total

Insurance and other services revenues $ 225,781 $ 9,606 $ ( 12,332 ) $ 223,055

Investment income 11,622 1,398 — 13,020

Net realized (loss) gain on investments

Net realized gain (loss) on investments 334 ( 1 ) — 333

Total revenues $ 237,737 $ 11,003 $ ( 12,332 ) $ 236,408

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Income before income taxes $ 52,711 $ 1,908 $ ( 4,958 ) $ 49,661

2017 (in thousands)

Total assets $ 225,974 $ 56,951 $ — $ 282,925

2019 (in thousands) Title

Insurance All

Other Intersegment

Eliminations Total

Insurance and other services revenues $ 161,463 $ 11,157 $ ( 8,704 ) $ 163,916

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Income before income taxes $ 37,548 $ 5,145 $ ( 2,870 ) $ 39,823

Stockholders’ Equity

Total assets $ 196,825 $ 67,068 $ — $ 263,893

Shareholders’ Equity

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”).

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In 2020 and 2019, these states generated the following percentage of total premiums written:

State 2020 2019

North Carolina 36.8 % 39.1 %

Texas 18.6 % 18.2 %

Georgia 11.4 % 11.2 %

South Carolina 9.1 % 9.4 %

Related Party Transactions

The Company does business with, and has investments in, unconsolidated limited liability companies that are primarily title insurance agencies.

The Company utilizes the equity method to account for its investments in these limited liability companies.

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:

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Premium and fees receivable $ 753 $ 410

Financial Statement Classification, Consolidated Statements of Income (in thousands)

Financial Statement Classification, Consolidated Statements of Operations (in thousands) 2020 2019

Net premiums written $ 24,186 $ 16,040

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Non-complete agreements 1,406 1,406

Tradename 560 560

Total 8,382 8,382

Accumulated amortization ( 2,961 ) ( 2,456 )

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Year Ended (in thousands)

Thereafter 2,946

Total $ 5,421

Goodwill and Title Plant

As of December 31, 2019 , the Company has reported $4.4 million in goodwill and $690 thousand in a title plant, net of impairments, as the result of title agency acquisitions.

As of December 31, 2020, the Company has reported $ 4.4 million in goodwill and $ 690 thousand in a title plant, net of historical impairments, as the result of title agency acquisitions.

The title plant is included with other assets in the Consolidated Balance Sheets.

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Accumulated Other Comprehensive Income

The following tables provide changes in the balances of each component of accumulated other comprehensive income, net of tax, for the periods ended December 31, 2019 , 2018 and 2017 :

2019 (in thousands)

Unrealized Gains and Losses

On Available-for-Sale

Postretirement

Benefits Plans

Beginning balance at January 1

Other comprehensive income before reclassifications

Amounts reclassified from accumulated other comprehensive income

Net current-period other comprehensive income

Ending balance

2018 (in thousands)

Unrealized Gains and Losses

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, 2020 and 2019:

2020 (in thousands) Unrealized Gains and Losses

On Available-for-Sale

Postretirement

Securities Postretirement

Benefits Plans

Beginning balance at January 1 $ 3,132 $ ( 32 ) $ 3,100

Cumulative-effect adjustment for adoption of new accounting standards

Other comprehensive (loss) income before reclassifications

Other comprehensive income (loss) before reclassifications 991 ( 112 ) 879

Amounts reclassified from accumulated other comprehensive income

Net current-period other comprehensive (loss) income

Net current-period other comprehensive income (loss) 1,338 ( 112 ) 1,226

Ending balance $ 4,470 $ ( 144 ) $ 4,326

2017 (in thousands)

Unrealized Gains and Losses

2019 (in thousands) Unrealized Gains and Losses

On Available-for-Sale

Postretirement

Securities Postretirement

Benefits Plans

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Ending balance $ 3,132 $ ( 32 ) $ 3,100

The following tables provide significant amounts reclassified out of each component of accumulated other comprehensive income for the periods ended December 31, 2019 , 2018 and 2017 :

2019 (in thousands)

Details about Accumulated Other

Comprehensive Income Components

Amount Reclassified from

Accumulated Other

Comprehensive Income

Affected Line Item in the Consolidated

Statements of Income

Unrealized gains and losses on available-for-sale securities:

Net realized gain (loss) on investment

Other-than-temporary impairments

Net realized investment gains (losses)

Provision for Income Taxes

Amortization related to postretirement benefit plans:

Prior year service cost

Unrecognized loss

Provision for Income Taxes

Reclassifications for the period

The following table provide significant amounts reclassified out of each component of accumulated other comprehensive income for the periods ended December 31, 2020 and 2019:

2020 (in thousands)

Details about Accumulated Other

Comprehensive Income Components

Amount Reclassified from

Comprehensive Income Components Amount Reclassified from

Accumulated Other

Comprehensive Income

Affected Line Item in the Consolidated

Statements of Income

Comprehensive Income Affected Line Item in the Consolidated

Statements of Operations

Unrealized gains and losses on available-for-sale securities:

Net realized loss on investment

Net realized gain on investments $ 30

Other-than-temporary impairments ( 482 )

Net realized investment gains (losses)

Provision for Income Taxes

Total $ ( 452 ) Net realized investment gains

Tax 105 Provision for Income Taxes

Net of Tax $ ( 347 )

Amortization related to postretirement benefit plans:

1 unchanged sentence

Unrecognized loss —

Provision for Income Taxes

Total $ — (b)

Tax — Provision for Income Taxes

Net of Tax $ —

Reclassifications for the period $ ( 347 )

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Details about Accumulated Other

Comprehensive Income Components

Amount Reclassified from

Comprehensive Income Components Amount Reclassified from

Accumulated Other

Comprehensive Income

Affected Line Item in the Consolidated

Statements of Income

Comprehensive Income Affected Line Item in the Consolidated

Statements of Operations

Unrealized gains and losses on available-for-sale securities:

Net realized gain on investment

Net realized gain on investments $ —

Other-than-temporary impairments —

Net realized investment gains (losses)

Provision for Income Taxes

Total $ — Net realized investment gains

Tax — Provision for Income Taxes

Net of Tax $ —

Amortization related to postretirement benefit plans:

1 unchanged sentence

Unrecognized loss —

Provision for Income Taxes

Total $ — (b)

Tax — Provision for Income Taxes

Net of Tax $ —

Reclassifications for the period $ —

These accumulated other comprehensive income components are not reclassified to net income in their entirety in the same reporting period.

The amounts are presented within personnel expenses on the Consolidated Statements of Income as amortized.

(b) These accumulated other comprehensive income components are not reclassified to net income in their entirety in the same reporting period.

The amounts are presented within personnel expenses on the Consolidated Statements of Operations as amortized.

Amortization related to postretirement benefit plans is included in the computation of net periodic pension costs, as discussed in Note 10.

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Investment-related revenue 13,353 19,586

Other 623 678

Total revenues $ 236,408 $ 183,502

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data