What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-11-09 compared with 2021-08-09 · 95 added, 88 removed, 307 unchanged (37% of the section changed)

6 unchanged sentences

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 93.6% of the Company's revenues for the six-month period ended June 30, 2021.

Total revenues from the title segment accounted for 94.5% of the Company's revenues for the nine-month period ended September 30, 2021.

Through ITIC and NITIC, the Company underwrites land title insurance for owners and mortgagees as a primary insurer.

39 unchanged sentences

The current real estate environment, including interest rates and general economic activity, typically influence the demand for real estate.

Purchase volume and refinance activity were strong in the latter half of 2020, which continued into the first half of 2021.

However, variability of interest rates combined with ongoing supply constraints and volatility in the cost and availability of building materials in recent months could result in reduced purchase volumes during the second half of 2021.

While certain COVID-19 vaccines have been approved and are now generally available for use in the United States and certain other countries, we are unable to predict how widely utilized the vaccines will be, whether they will be effective in preventing the spread of COVID-19 (including its variant strains), and when or if normal economic activity and business operations will resume.

In light of the increasing percentage of vaccinated individuals, many previously implemented restrictions have gradually been lifted.

While the number of new cases is significantly below the levels witnessed at the height of the pandemic, there has been a recent uptick in the number of new cases.

Despite the availability of vaccines, COVID-19 continues to spread across the globe, including in U.S.

Purchase volume and refinance activity were strong in the latter half of 2020, which has continued through the first three quarters of 2021.

While certain COVID-19 vaccines have been approved and are now generally available for use in the United States and certain other countries, we are unable to predict how widely utilized the vaccines will be, and when or if normal economic activity and business operations will resume.

It is expected that progress on vaccination levels will continue to reduce the effects of the public health crisis on the economy and, in light of the increasing percentage of vaccinated individuals, many previously implemented restrictions have gradually been lifted.

Despite the availability of vaccines, COVID-19 (including its variant strains) continues to spread across the globe, including in U.S.

states where the Company conducts business.

3 unchanged sentences

Such actions included an unscheduled cut to the federal funds rate, the introduction of new programs to preserve market liquidity, extended unemployment and sick leave benefits, mortgage loan forbearance actions, low-interest loans for working capital access and payroll assistance, and other relief measures for both workers and businesses.

The Company has remained fully operational throughout the pandemic and did not have any reductions in workforce during 2020 or the first half of 2021.

The Company has remained fully operational throughout the pandemic and did not have any reductions in workforce during 2020 or the first three quarters of 2021.

A large portion of the Company's workforce is performing their job functions remotely.

The Company has not taken stimulus relief funding or incurred any other forms of debt.

The COVID-19 pandemi c has caused the Company to modify its business practices (including employee travel, employee work locations and cancellation of physical participation in meetings, events and conferences).

The COVID-19 pandemic and any of its variants could continue to affect the Company in a number of ways including, but not limited to, the impact on 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 due to the pandemic and the economic disruption it is causing.

The COVID-19 pandemic has caused the Company to modify its business practices (including employee travel, employee work locations and cancellation of physical participation in meetings, events and conferences).

The COVID-19 pandemic and any of its variants could continue to affect the Company in a number of ways including, but not limited to, the impact on employees becoming ill, quarantined, or otherwise unable to work or travel due to illness or gover nmental restriction, potential decreases in net premiums written in the future, and future fluctuations in the Company's investment portfolio due to the pandemic and the economic disruption it is causing.

Because of the inherent uncertainty regarding the duration and severity of the COVID-19 pandemic (including any of its variants) and its effects on the economy, as well as uncertainty regarding the effects of government measures already taken, and which may be taken or continued in the future, to combat the spread of the virus and any of its variants, and/or provide additional economic stimulus, the Company is currently unable to predict the ultimate impact of the pandemic.

1 unchanged sentence

The Federal Open Market Committee (“FOMC”) of the Federal Reserve issues disclosures on a periodic basis that include projections of the federal funds rate and expected actions.

In response to risk posed to economic activity by COVID-19, the FOMC in March 2020 lowered the target federal funds rate twice by a total of 150 basis points.

In March 2020, the FOMC lowered the target federal funds rate twice by a total of 150 basis points in response to risk posed to economic activity by COVID-19.

As a result of these actions, the target federal funds rate now ranges between 0.00% and 0.25%.

The FOMC has maintained this target range, although recent comments by several members of the FOMC have indicated the potential for future rate increases.

Further, the FOMC hinted that they will begin tapering asset purchases, potentially as early as the fourth quarter of 2021, if economic progress continues.

In normal economic situations, future adjustments to the rate 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.

With inflation having run persistently below the 2.0% goal in recent years, the current period of elevated inflation is not necessarily problematic to the FOMC's long-term inflation objective.

In 2008, the federal government took control of the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) in an effort to keep these government-sponsored entities from failing.

5 unchanged sentences

however, any changes to these entities could affect the Company and its results of operations.

In recent years, the Consumer Financial Protection Bureau (“CFPB”), Office of the Comptroller of Currency and the Federal Reserve have issued memorandums to banks that communicated those agencies’ heightened focus on vetting third-party providers.

In recent years, the Consumer Financial Protection Bureau (“CFPB”), Office of the Comptroller of Currency and the Federal Reserve have issued memoranda to banks that communicated those agencies’ heightened focus on vetting third-party providers.

Such increased regulatory involvement may affect the Company's agents and approved providers.

2 unchanged sentences

The timing and nature of any reforms are currently unknown;

however, the CFPB is expected to take a significantly more aggressive approach to using its rulemaking, supervision, and enforcement authorities under President Biden’s administration, and any changes to the CFPB or other governmental entities could affect the Company and its results of operations.

however, the CFPB is expected to take a significantly more aggressive approach to using its rulemaking, supervision, and enforcement authorities under President Biden’s administration.

Any changes to the CFPB or other governmental entities could affect the Company and its results of operations.

Real Estate Environment

The Mortgage Bankers Association's ("MBA") June 18, 2021 Mortgage Finance Forecast (“MBA Forecast”) projects 2021 purchase activity to increase 15.6% to $1,656 billion and mortgage refinance activity to decrease 24.5% to 1,809 billion, resulting in a net decrease in total mortgage originations of 9.5% to $3,465 billion, all from 2020 levels.

The Mortgage Bankers Association's ("MBA") October 17, 2021 Mortgage Finance Forecast (“MBA Forecast”) projects 2021 purchase activity to increase 7.1% to $1,587 billion and mortgage refinance activity to decrease 13.9% to $2,259 billion, resulting in a net decrease in total mortgage originations of 6.4% to $3,846 billion, all from 2020 levels.

In 2020, purchase activity accounted for 36.1% of all mortgage originations and is projected in the MBA Forecast to represent 41.3% of all mortgage originations in 2021.

1 unchanged sentence

Due to the rapidly changing environment brought on by COVID-19, these projections and the impact of actual future developments on the Company could be subject to material change.

According to data published by Freddie Mac, the average 30-year fixed mortgage interest rates in the United States were 2.9% and 3.4% for the six-month periods ended June 30, 2021 and 2020, respectively.

According to data published by Freddie Mac, the average 30-year fixed mortgage interest rates in the United States were 2.9% and 3.2% for the nine-month periods ended September 30, 2021 and 2020, respectively.

Per the MBA Forecast, mortgage interest rates are projected to be 3.1% in the fourth quarter of 2021, and then further increase to 4.3% by 2023.

4 unchanged sentences

Actual results could differ from these estimates.

During the six-month period ended June 30, 2021, the Company did not make any material changes to its critical accounting policies as previously disclosed in Management's Discussion and Analysis in the Company's Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the Securities and Exchange Commission (the "SEC").

During the nine-month period ended September 30, 2021, the Company did not make any material changes to its critical accounting policies as previously disclosed in Management's Discussion and Analysis in the Company's Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the Securities and Exchange Commission (the "SEC").

Results of Operations

The following table presents certain unaudited Consolidated Statements of Operations data for the three- and six-month periods ended June 30, 2021 and 2020:

The following table presents certain unaudited Consolidated Statements of Operations data for the three- and nine-month periods ended September 30, 2021 and 2020:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2021 2020 2021 2020

24 unchanged sentences

Net Premiums Written

Net premiums written increased 42.2% and 49.8% for the three- and six-month periods ended June 30, 2021 to $67.5 million and $129.0 million, compared with $47.5 million and $86.1 million for the same prior year periods.

The increases for the three- and six-month periods ended June 30, 2021 were primarily driven by lower average mortgage interest rates and an ongoing economic recovery continuing to drive strong levels of refinance activity and home sales.

Net premiums written increased 26.5% and 40.5% for the three- and nine-month periods ended September 30, 2021 to $72.3 million and $201.3 million, compared with $57.2 million and $143.3 million for the same prior year periods.

The increases for the three- and nine-month periods ended September 30, 2021 were primarily driven by higher average home prices and continued low mortgage interest rates.

Total premiums include an estimate of premiums for policies that have been issued by branches and 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 branches and agents report transactions and new information becomes available.

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 through home and branch offices or through title agencies.

Following is a breakdown of premiums generated by branch and agency operations for the three- and six-month periods ended June 30, 2021 and 2020:

Following is a breakdown of premiums generated by branch and agency operations for the three- and nine-month periods ended September 30, 2021 and 2020:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands, except percentages) 2021 % 2020 % 2021 % 2020 %

3 unchanged sentences

Home and Branch Office Net Premiums – In the Company's home and branch operations, the Company issues a title insurance policy and retains the entire premium, as no commissions are paid in connection with these policies.

Net premiums written from home and branch operations increased 31.4% and 50.5% for the three- and six-month periods ended June 30, 2021, respectively, compared with the same prior year periods.

The increases for the three- and six-month periods ended June 30, 2021 were primarily attributable to lower average mortgage interest rates and an ongoing economic recovery continuing to drive strong levels of refinance activity and home sales.

Net premiums written from home and branch operations increased 19.4% and 37.9% for the three- and nine-month periods ended September 30, 2021, respectively, compared with the same prior year periods.

The increases for the three- and nine-month periods ended September 30, 2021 were primarily driven by higher average home prices and continued low mortgage interest rates.

All of the Company's home office operations and the majority of branch offices are located in North Carolina;

1 unchanged sentence

Agency Net Premiums – When a policy is written through a title agency, the premium is shared between the agency and the underwriter.

Total premiums include an estimate of premiums for policies that have been issued by agents, but not reported to the Company as of the balance sheet date.

From time to time, the Company adjusts the inputs to the estimation process as agents report transactions and new information becomes available.

The Company reflects any adjustments to the accruals in the results of operations in the period in which new information becomes available.

Agency net premiums written increased 46.3% and 49.6% for the three- and six-month periods ended June 30, 2021, respectively, compared with the same prior year periods.

Following is a schedule of net premiums written for the three- and six-month periods ended June 30, 2021 and 2020 in select states in which the Company's two insurance subsidiaries, ITIC and NITIC, currently underwrite title insurance:

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 increased 29.1% and 41.4% for the three- and nine-month periods ended September 30, 2021, respectively, compared with the same prior year periods.

The increases for the three- and nine-month periods ended September 30, 2021 were primarily driven by higher average home prices and continued low mortgage interest rates.

Following is a schedule of net premiums written for the three- and nine-month periods ended September 30, 2021 and 2020 in select states in which the Company's two insurance subsidiaries, ITIC and NITIC, currently underwrite title insurance:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

State (in thousands) 2021 2020 2021 2020

9 unchanged sentences

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.

Escrow and other title-related fee revenues were $3.5 million and $6.3 million for the three- and six-month periods ended June 30, 2021, respectively, compared with $2.0 million and $3.9 million for the same prior year periods.

The increases for the three- and six-month periods ended June 30, 2021 were mainly due to growth in premiums.

Escrow and other title-related fees consists primarily of commission income, escrow and other various fees associated with the issuance of title insurance policies including settlement, examination and closing fees.

Escrow and other title-related fee revenues were $3.9 million and $10.1 million for the three- and nine-month periods ended September 30, 2021, respectively, compared with $2.2 million and $6.0 million for the same prior year periods.

The increases for the three- and nine-month periods ended September 30, 2021 were mainly due to increases in commission income and title ancillary services.

Revenue from Non-Title Services

Revenue from non-title services includes trust services, agency management services and exchange services income.

Non-title service revenues were $2.4 million and $4.5 million for the three- and six-month periods ended June 30, 2021, respectively, compared with $2.0 million and $4.5 million for the same prior year periods.

The increase for the three-month period ended June 30, 2021 was primarily related to increases in exchange services income, trust fee income and agency management services income.

For the six-month period ended June 30, 2021, revenue was virtually unchanged from the same prior year period as increases in trust fee income and agency management services income was partially offset by a decline in exchange services income.

Non-title service revenues were $2.4 million and $6.9 million for the three- and nine-month periods ended September 30, 2021, respectively, compared with $2.0 million and $6.5 million for the same prior year periods.

The increase for the three-month period ended September 30, 2021 was primarily related to increases in exchange services and trust fee income.

The increase for the nine-month period ended September 30, 2021, was primarily related to increases in trust fee income and agency management services income, partially offset by a decline in exchange services income.

Investment-Related Revenues

14 unchanged sentences

Interest and investment income levels are primarily a function of general market performance, interest rates and the amount of cash available for investment.

Interest and dividends were $898 thousand and $1.9 million for the three- and six-month periods ended June 30, 2021, respectively, compared with $1.1 million and $2.3 million for the same prior year periods.

The decreases in 2021 were primarily related to lower interest rates on fixed maturity securities and lower levels of dividends received.

Interest and dividends were $893 thousand and $2.8 million for the three- and nine-month periods ended September 30, 2021, respectively, compared with $1.1 million and $3.3 million for the same prior year periods.

The decreases in 2021 were primarily related to lower interest rates, lower average balances of fixed maturity securities and lower levels of dividends received.

Other Investment Income

2 unchanged sentences

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 $1.5 million and $2.4 million for the three- and six-month periods ended June 30, 2021, respectively, compared with $526 thousand and $966 thousand for the same prior year periods.

Other investment income was $2.2 million and $4.6 million for the three- and nine-month periods ended September 30, 2021, respectively, compared with $1.3 million and $2.2 million for the same prior year periods.

Changes in other investment income are impacted by fluctuations in the carrying value of the underlying investment and/or distributions received.

3 unchanged sentences

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 $182 thousand and $503 thousand for the three- and six-month periods ended June 30, 2021, respectively, compared with $553 thousand and $141 thousand for the same prior year periods.

The net realized investment gains for the six-month period ended June 30, 2020 included impairment charges of $482 thousand for certain fixed maturity securities the Company determined were other-than-temporarily impaired.

The net realized investment gains were $268 thousand and $771 thousand for the three- and nine-month periods ended September 30, 2021, respectively, compared with $186 thousand and $327 thousand for the same prior year periods.

The net realized investment gain for the nine-month period ended September 30, 2020 included impairment charges of $482 thousand for certain fixed maturity securities the Company determined were other-than-temporarily impaired.

There were no impairment charges recorded in 2021.

Management believes unrealized losses on the remaining fixed maturity securities at June 30, 2021 are temporary in nature.

Management believes unrealized losses on the remaining fixed maturity securities at September 30, 2021 are temporary in nature.

The securities in the Company’s investment portfolio are subject to economic conditions and market risks.

5 unchanged sentences

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 misstated information in the financial statements provided by issuers.

and the risk that management is making decisions based on inaccurate information.

Changes in the Estimated Fair Value of Equity Security Investments

Changes in the estimated fair value of equity security investments were $4.8 million and $8.1 million for the three- and six-month periods ended June 30, 2021, respectively, compared with $8.0 million and $(6.5) million for the same prior year periods.

Changes in the estimated fair value of equity security investments were $(802) thousand and $7.3 million for the three- and nine-month periods ended September 30, 2021, respectively, compared with $3.6 million and $(2.9) million for the same prior year periods.

Such fluctuations are the result of changes in general market conditions during the respective periods.

In the first quarter of 2020, all major U.S.

stock market indices substantially declined due to economic slowdowns and uncertainty resulting from COVID-19.

Other Revenues

Other revenues primarily include gains and losses on the disposal of fixed assets and miscellaneous revenues.

Other revenues were $4.1 million and $4.4 million for the three- and six-month periods ended June 30, 2021, respectively, compared with $120 thousand and $258 thousand for the same prior year periods.

The increase for the three- and six-month periods ended June 30, 2021 primarily related to a gain on the sale of a property.

Other revenues were $217 thousand and $4.6 million for the three- and nine-month periods ended September 30, 2021, respectively, compared with $185 thousand and $443 thousand for the same prior year periods.

The increase for the nine-month period ended September 30, 2021 primarily related to a gain on the sale of a property.

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 36.2% and 39.1% for the three- and six-month periods ended June 30, 2021, respectively, compared with the same prior year periods.

The increases for the three- and six-month periods ended June 30, 2021 were primarily due to increases in commissions to agents and personnel expenses.

Following is a summary of the Company's operating expenses for the three- and six-month periods ended June 30, 2021 and 2020.

Operating expenses increased 29.1% and 35.4% for the three- and nine-month periods ended September 30, 2021, respectively, compared with the same prior year periods.

The increases for the three- and nine-month periods ended September 30, 2021 were primarily due to increases in commissions to agents and personnel expenses.

Following is a summary of the Company's operating expenses for the three- and nine-month periods ended September 30, 2021 and 2020.

Inter-segment eliminations have been netted;

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands, except percentages) 2021 % 2020 % 2021 % 2020 %

2 unchanged sentences

Total $ 62,979 100.0 $ 48,776 100.0 $ 177,415 100.0 $ 131,032 100.0

On a combined basis, after-tax profit margins were 23.3% and 21.4% for the three- and six-month periods ended June 30, 2021, respectively, compared with 23.5% and 8.2% for the same prior year periods.

On a combined basis, after-tax profit margins were 17.8% and 20.2% for the three- and nine-month periods ended September 30, 2021, respectively, compared with 22.6% and 14.3% for the same prior year periods.

The Company continually strives to enhance its competitive strengths and market position, including ongoing initiatives to manage its operating expenses.

1 unchanged sentence

Personnel Expenses – Personnel expenses include base salaries, benefits and payroll taxes, bonuses paid to employees and contract labor expenses.

Personnel expenses were $15.9 million and $32.1 million for the three- and six-month periods ended June 30, 2021, respectively, compared with $12.2 million and $24.1 million for the same prior year periods.

On a consolidated basis, personnel expenses as a percentage of total revenues were 18.7% and 20.4% for the three- and six-month periods ended June 30, 2021, respectively, compared with 19.8% and 26.2% for the same prior year period.

The increases in personnel expenses for the three- and six-month periods ended June 30, 2021 were primarily due to staffing additions in support of strategic growth initiatives and volume increases.

Personnel expenses were $15.5 million and $47.5 million for the three- and nine-month periods ended September 30, 2021, respectively, compared with $12.6 million and $36.6 million for the same prior year periods.

On a consolidated basis, personnel expenses as a percentage of total revenues were 19.0% and 19.9% for the three- and nine-month periods ended September 30, 2021, respectively, compared with 18.6% and 23.0% for the same prior year period.

The increases in personnel expenses for the three- and nine-month periods ended September 30, 2021 were primarily due to staffing additions in support of strategic growth initiatives and volume increases.

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 $3.2 million and $6.0 million for the three- and six-month periods ended June 30, 2021, respectively, compared with $2.5 million and $4.9 million for the same prior year periods.

The increases for the three- and six-month periods ended June 30, 2021 were primarily related to ongoing investments in software and technology related initiatives.

Office and technology expenses were $3.2 million and $9.1 million for the three- and nine-month periods ended September 30, 2021, respectively, compared with $2.5 million and $7.3 million for the same prior year periods.

The increases for the three- and nine-month periods ended September 30, 2021 were primarily related to ongoing investments in software and technology related 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 $4.8 million and $8.5 million for the three- and six-month periods ended June 30, 2021, respectively, compared with $3.0 million and $6.2 million for the same prior year periods.

The increases for the three- and six-month periods ended June 30, 2021 were primarily related to increases in premium-related taxes and licensing, professional services, and title and service fees.

Other expenses were $4.8 million and $13.3 million for the three- and nine-month periods ended September 30, 2021, respectively, compared with $3.1 million and $9.3 million for the same prior year periods.

The increases for the three- and nine-month periods ended September 30, 2021 were primarily related to increases in premium-related taxes and licensing, professional services, title and service fees, and travel-related expenses.

Title Insurance

Commissions to Agents – Agent commissions represent the portion of premiums retained by agents pursuant to the terms of their respective agency contracts.

Commissions to agents increased 42.6% and 46.6% for the three- and six-month periods ended June 30, 2021, respectively, compared with the same prior year periods.

Commission expense as a percentage of net premiums written by agents was 68.0% and 68.6% for the three- and six-month periods ended June 30, 2021, respectively, compared with 69.8% and 70.0% for the same prior year periods.

The changes in commission expense, and commission expense as a percentage of net premiums written, were primarily related to increased premiums written by agents and changes in geographic mix for the three- and six-month periods ended June 30, 2021.

Commissions to agents increased 29.2% and 39.7% for the three- and nine-month periods ended September 30, 2021, respectively, compared with the same prior year periods.

Commission expense as a percentage of net premiums written by agents was 69.8% and 69.0% for the three- and nine-month periods ended September 30, 2021, respectively, compared with 69.7% and 69.9% for the same prior year periods.

Commission rates vary by market due to local practice, competition and state regulations.

Provision for Claims – The provision for claims decreased 28.0% and increased 4.4% for the three- and six-month periods ended June 30, 2021, respectively, compared with the same prior year periods.

The provision for claims as a percentage of net premiums written was 2.1% and 2.3% for the three- and six-month periods ended June 30, 2021, respectively, compared with 4.2% and 3.4% for the same prior year periods.

The decrease in the provision for claims for the three-month period ended June 30, 2021 was driven by improved incurred claims experience and higher levels of favorable loss development related to prior policy years.

The increase in the provision for claims for the six-month period ended June 30, 2021 was primarily due to additional underwriting risks caused by the increase in premiums written.

Provision for Claims – The provision for claims increased 28.4% and 12.8% for the three- and nine-month periods ended September 30, 2021, respectively, compared with the same prior year periods.

The provision for claims as a percentage of net premiums written was 2.8% and 2.5% for the three- and nine-month periods ended September 30, 2021, respectively, compared with 2.7% and 3.1% for the same prior year periods.

The increases in the provision for claims for the three- and nine-month periods ended September 30, 2021 were primarily due to additional underwriting risks caused by the increase in premiums written.

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 $1.3 million and $1.5 million for the six-month periods ended June 30, 2021 and 2020, respectively.

At June 30, 2021, the total reserve for claims was $35.3 million.

Actual payments of claims, net of recoveries, were $1.8 million and $2.3 million for the nine-month periods ended September 30, 2021 and 2020, respectively.

At September 30, 2021, the total reserve for claims was $36.8 million.

Of that total, approximately $3.4 million was reserved for specific claims, and approximately $33.4 million was reserved for claims for which the Company had no notice.

4 unchanged sentences

Adjustments may be required as new information develops, which often varies from past experience.

The provision for income taxes was $5.5 million and $9.0 million for the three- and six-month periods ended June 30, 2021, respectively, compared with $3.4 million and $1.9 million for the same prior year periods.

Income tax expense, including federal and state taxes, as a percentage of income before income taxes was 21.8% and 21.1% for the three- and six-month periods ended June 30, 2021, compared with 19.1% and 20.3% for the same prior year periods.

The increases in income tax expense as a percentage of income before income taxes primarily relate to a higher percentage of taxable, relative to tax exempt, income.

The provision for income taxes was $3.9 million and $12.9 million for the three- and nine-month periods ended September 30, 2021, respectively, compared with $3.6 million and $5.5 million for the same prior year periods.

Income tax expense, including federal and state taxes, as a percentage of income before income taxes was 21.3% and 21.2% for the three- and nine-month periods ended September 30, 2021, compared with 18.9% and 19.3% for the same prior year periods.

The increases in income tax expense as a percentage of income before income taxes primarily relate to a higher percentage of taxable income, relative to tax exempt income.

The effective income tax rates for both 2021 and 2020 differ from the U.S.

federal statutory income tax rate of 21% primarily due to the effect of tax-exempt income.

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 June 30, 2021 will be realized.

The Company believes it is more likely than not that the tax benefits associated with recognized impairments and unrecognized losses recorded through September 30, 2021 will be realized.

However, this judgment could be impacted by further market fluctuations.

12 unchanged sentences

The Company has not taken stimulus relief funding or incurred any other forms of debt.

Cash Flows – Net cash flows provided by operating activities was $16.5 million and $16.0 million for the six-month periods ended June 30, 2021 and 2020, respectively.

Cash flows provided by operating activities differs 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 and other accrued liabilities, and collections or changes in receivables and other assets.

Cash Flows – Net cash flows provided by operating activities were $35.7 million and $21.9 million for the nine-month periods ended September 30, 2021 and 2020, 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 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 and the payment of dividends.

Net cash was provided by investing activities in the first half of 2021, compared with net cash being used in investing activities in the prior year period, due to proceeds received from investments outpacing purchase activity.

Net cash was provided by investing activities for the nine-month period ended September 30, 2021, compared with net cash being used in investing activities in the prior year period.

Net cash provided by investing activities increased due to proceeds received from investments outpacing purchase activity during the current year period.

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 June 30, 2021, the Company held cash and cash equivalents of $31.6 million, short-term investments of $44.4 million, available-for-sale fixed maturity securities of $89.0 million and equity securities of $69.9 million.

As of September 30, 2021, the Company held cash and cash equivalents of $48.5 million, short-term investments of $51.2 million, available-for-sale fixed maturity securities of $82.3 million and equity securities of $69.5 million.

The net effect of all activities on total cash and cash equivalents was an increase of $34.8 million in 2021.

7 unchanged sentences

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 June 30, 2021, both ITIC and NITIC met the minimum capital, surplus and reserve requirements for each state in which they are licensed.

As of September 30, 2021, both ITIC and NITIC met the minimum capital, surplus and reserve requirements for each state in which they are licensed.

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.

11 unchanged sentences

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 did not purchase any shares in either the six-month period ended June 30, 2021 or 2020.

Pursuant to the Company’s ongoing purchase program, the Company did not purchase any shares in the nine-month periods ended September 30, 2021 or 2020.

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 then existing alternative uses for such cash.

Capital Expenditures – Capital expenditures were approximately $6.1 million for the six-month period ended June 30, 2021.

Capital Expenditures – Capital expenditures were approximately $6.8 million for the nine-month period ended September 30, 2021.

In 2021, 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.

1 unchanged sentence

Contractual Obligations :

As of June 30, 2021, the Company had a claims reserve totaling $35.3 million.

As of September 30, 2021, the Company had a claims reserve totaling $36.8 million.

The amounts and timing of these obligations are estimated and not set contractually.

2 unchanged sentences

ITIC, a wholly owned subsidiary of the Company, has entered into employment agreements with certain executive officers.

The amounts accrued for these agreements at June 30, 2021 and December 31, 2020, were $13.4 million and $12.5 million, respectively, which includes postretirement compensation and health benefits, and was calculated based on the terms of the contracts.

The amounts accrued for these agreements at September 30, 2021 and December 31, 2020, were $13.4 million and $12.5 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.

4 unchanged sentences

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 operating leases that have initial or remaining noncancelable lease terms in excess of one year as of June 30, 2021 is $3.2 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.

The total of undiscounted future minimum lease payments under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of September 30, 2021 is $3.4 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 about leases can be found in Note 12 to the unaudited Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

7 unchanged sentences

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 held by the Company for the purpose of completing such transactions totaled approximately $370.5 million and $237.9 million as of June 30, 2021 and December 31, 2020, respectively.

Like-kind exchange deposits and reverse exchange property held by the Company for the purpose of completing such transactions totaled approximately $525.2 million and $237.9 million as of September 30, 2021 and December 31, 2020, respectively.

These exchange deposits are held at third-party financial institutions.

25 unchanged sentences

• 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;

• unanticipated adverse changes in securities markets could result in material losses to the Company's investments;

21 unchanged sentences

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-Q

Item 2. Management’s Discussion and Analysis