What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-14 compared with 2021-03-15 · 105 added, 108 removed, 387 unchanged (36% of the section changed)

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Changes in either of these areas would likely impact the Company's results of operations.

and other countries continue to experience the outbreak of the COVID-19 pandemic.

This contagious disease outbreak has continued to spread across the globe, including in U.S.

states where the Company conducts business, and is impacting worldwide economic activity and financial markets.

Purchase volume and refinance activity were strong in 2021 and 2020, 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 reductions in future periods.

Despite the widespread availability of vaccines, COVID-19 (including its variant strains) continues to impact U.S.

states where the Company conducts business.

The COVID-19 pandemic has negatively impacted worldwide economic activity and created significant volatility and disruptions of financial markets.

In response, the U.S.

government and its agencies have taken a number of significant measures to provide fiscal and monetary stimulus.

Such actions include 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 is fully operational and did not have any reductions in workforce during 2020.

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

Such actions have 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.

Many such actions have lapsed or otherwise been reduced as time has passed since the onset of the pandemic.

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

A large number of the Company's employees are performing their job functions remotely.

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

The primary impact of the COVID-19 pandemic on the Company’s first quarter results of operations was a reduction in value of the investment portfolio.

In the last three quarters and the full-year 2020, the Company recognized income from changes in the estimated fair value of equity securities as the Company's equity holdings rebounded.

Purchase volume and refinance activity were strong in the third and fourth quarters, as lower average mortgage interest rates, a tight real estate supply and pent-up demand spurred real estate activity and prices.

It is unclear if real estate activity will remain as resilient in future periods.

It is possible that net premiums written could decline in the future 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 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/or provide additional economic stimulus, the Company is currently unable to predict what the ultimate impact of the pandemic on its business will be.

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 of 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.

Regulatory Environment

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, on March 15, 2020, the FOMC lowered the target range between 0.00% and 0.25%.

The FOMC has maintained this target range, and expects to continue to do so until it is confident that the U.S.

economy has weathered recent events and is on track to meet its goals.

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.

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 the Federal Reserve disclosure issued on January 26, 2022 indicated that the FOMC expects that it will soon be appropriate to raise the target range.

Further, the FOMC decided that it will continue to taper ongoing asset purchases, potentially bringing these purchases to an end in March 2022.

In normal economic situations, future adjustments to the FOMC’s stance of monetary policy are expected to be based on realized and expected economic developments to achieve maximum employment and inflation near the FOMC's symmetric long-term 2.0% objective.

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.

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Although the Company regularly monitors such proposals, the likelihood and timing of passage of any such regulation, and the possible effects of any such regulation on the Company and its subsidiaries, cannot be determined at this time.

The Supreme Court of the United States has ruled that the structure of the CFPB is unconstitutional, but has allowed the work of the agency to continue.

The timing and nature of any reforms are currently unknown, especially with the changes in the presidential administration and Congress in January 2021;

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

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.

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

Real Estate Environment

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In 2021, purchase activity accounted for 41.2% of all mortgage originations and is projected in the MBA Forecast to represent 66.9% of all mortgage originations in 2022.

The MBA Forecast is projecting continued decreases in total mortgage originations for 2022 and 2023.

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.

Due to the rapidly changing environment brought on by COVID-19, as well as other potential factors, 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 3.0% and 3.1% for the years ended December 31, 2021 and 2020, respectively.

Per the MBA Forecast, mortgage interest rates are projected to increase over the subsequent 3-year period, reaching 4.4% by 2023.

Per the MBA Forecast, mortgage interest rates are projected to increase over the subsequent 3-year period, reaching 4.3% in 2024.

Historically, activity in real estate markets has varied over the course of market cycles by geographic region and in response to evolving economic factors.

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Critical Accounting Estimates and Policies

This discussion and analysis of the Company’s financial condition and results of operations is based upon the Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States.

The Company’s management makes various estimates and judgments when applying policies affecting the preparation of the Consolidated Financial Statements.

Actual results could differ from those estimates.

Significant accounting policies of the Company are discussed in Note 1 to the Consolidated Financial Statements.

Following are the accounting estimates and policies considered critical to the Company.

The Consolidated Financial Statements of the Company are prepared in conformity with U.S.

GAAP and follow general practices within the industries in which it operates.

This preparation requires management to make estimates and assumptions, that affect the amounts reported in the financial statements and accompanying notes.

These estimates and assumptions are based on information available as of the date of the financial statements;

accordingly, as this information changes, actual results could differ from the estimates and assumptions reflected in the financial statements.

Certain estimates inherently have a greater reliance on the use of assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported.

Management believes the following estimates are both important to the portrayal of the Company’s financial condition and results of operations and require subjective or complex judgments and, therefore, management considers the following to be critical accounting estimates.

Reserve for Claim Losses

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Expenses typically associated with premiums, including agent commissions, premium taxes, and a provision for future claims are recognized concurrent with recognition of related premium revenue.

Premium revenues from certain agency operations include accruals for transactions which have settled but have not been reported as of the balance sheet date.

These accruals are based on estimates of the typical lag time between settlement of real estate transactions and the agent’s reporting of these transactions to the Company.

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.

Reporting lag times vary by market.

In certain markets, the lag time may be very short, but in others, can be as high as 100 days.

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

The Company reviews and adjusts lag time estimates periodically, using historical experience and other factors, and reflects any adjustments in the result of operations in the period in which new information becomes available.

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

Valuation and Impairment of 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 as accumulated other comprehensive income.

Valuation, Impairment and Credit Losses of 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 as accumulated other comprehensive income.

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

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Refer to Note 3 to the Consolidated Financial Statements for further information about the Company’s investments in fixed maturity securities.

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

Investments in Equity Securities:

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

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

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Refer to Note 3 to the Consolidated Financial Statements for further information about the Company’s investments in equity securities.

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

Other Investments:

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

Real estate investments are reported at amortized cost.

The Company monitors any events or changes in circumstances that may have had a significant adverse effect on the fair value of real estate investments and makes any necessary adjustments, with any reductions in the carrying amount of these investments recorded in net realized investment gains in the Consolidated Statement of Operations when recognized.

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

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The Company recorded net deferred tax liabilities at December 31, 2021 and 2020.

The deferred tax liabilities recorded during both periods primarily relate to net unrealized gains on investments, the excess of tax over book depreciation, intangible assets, and the recorded reserve for claims, net of statutory premium reserves.

The deferred tax liabilities recorded during both periods primarily relate to net unrealized gains on investments, the excess of tax over book depreciation, intangible assets, and the recorded statutory premium reserve, net of reserve for claims.

Refer to Note 8 to the Consolidated Financial Statements for further information on the Company’s deferred taxes.

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Results of Operations

The following table presents certain Consolidated Statement of Operations data for the years ended December 31, 2020 and 2019:

The following table presents certain Consolidated Statements of Operations data for the years ended December 31, 2021 and 2020:

For the Years Ended December 31, (in thousands) 2021 2020

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Insurance revenues include net premiums written and escrow and other title-related income that includes escrow fees, commissions and settlement fees.

Non-title services revenue, investment-related revenues and other revenues are discussed separately below.

The following is a summary of the Company’s total revenue broken out between the title insurance segment and all other revenues with intersegment eliminations netted with each segment;

Non-title services revenue, investment-related revenues and other income are discussed separately below.

The following is a summary of the Company’s total revenue broken out between the title insurance segment and all other income with intersegment eliminations netted with each segment;

therefore, the individual segment amounts will not agree to Note 12 in the accompanying Consolidated Financial Statements.

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Net premiums written increased 33.3% in 2021 to $273.9 million, compared with $205.4 million in 2020.

The increase in 2020, compared with 2019, was primarily driven by increased refinance activity and strong purchase volume, as lower average mortgage interest rates continued to spur real estate activity.

The increase in 2021, compared with 2020, was 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.

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.

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Net premiums written from home and branch operations increased 28.9% in 2021 to $68.6 million, compared with $53.2 million in 2020.

The increase in net premiums written from home and branch operations for 2020, compared with 2019, was primarily attributable to increased refinance activity and strong purchase volume, as lower average mortgage interest rates continued to spur real estate activity.

The increase in net premiums written from home and branch operations for 2021, compared with 2020, was primarily attributable to 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;

as a result, the home and branch office net premiums written are primarily for North Carolina title insurance policies.

Agency Net Premiums:

Agency Net Prem iums:

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.

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 34.9% in 2021 to $205.3 million, compared with $152.2 million in 2020.

The increase in 2020, compared with 2019, was primarily attributable to increased refinance activity and strong purchase volume, as lower average mortgage interest rates continued to spur real estate activity.

The increase in 2021, compared with 2020, was primarily attributable to higher average home prices and continued low mortgage interest rates.

The following is a schedule of net premiums written in select states in which the Company’s two insurance subsidiaries, ITIC and NITIC, currently underwrite title insurance:

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

In 2020, escrow and other title-related fee revenue increased 11.3% to $8.3 million, compared with $7.5 million in 2019, primarily due to an increase in fee income, partially offset by a decline in commission income.

In 2021, escrow and other title-related fee revenue increased 64.4% to $13.7 million, compared with $8.3 million in 2020, primarily due to increases in title ancillary services and commission income.

Revenue from Non-Title Services

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

Non-title service revenues decreased 12.4% in 2020 to $8.7 million, compared with $9.9 million in 2019.

The decrease in 2020, compared with 2019, primarily related to decreased exchange services income due to the impact of lower interest rates, partially offset by increased agency management and trust services income.

Non-title service revenues increased 11.2% in 2021 to $9.7 million, compared with $8.7 million in 2020.

The increase in 2021, compared with 2020, primarily related to increases in exchange services income, trust fee income and agency management services income.

Investment Related Revenues

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Securities purchased may include a combination of taxable or tax-exempt fixed maturity securities and equity securities.

The Company also invests in short-term investments that include money market funds, U.S.

The Company also invests in short-term investments that typically include money market funds, and at times, the Company has or could invest in U.S.

Treasury bills, commercial paper and certificates of deposit.

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Interest and dividends were $3.8 million in 2021, compared with $4.4 million in 2020.

The decrease in 2020, compared with 2019, was primarily due to lower interest rates on fixed maturity securities.

The decrease in 2021, compared with 2020, was primarily due to lower interest rates, lower average balances of fixed maturity securities and lower levels of dividends received.

Refer to Note 3 in the accompanying Consolidated Financial Statements for the major categories of investments, scheduled maturities, amortized costs, estimated fair values of investment securities and earnings by security category.

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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 values of these investments and makes any necessary adjustments.

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 $6.9 million in 2021, compared with $3.7 million in 2020.

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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 $333 thousand for 2020, compared with $1.3 million for 2019.

The net realized investment gains were $1.9 million for 2021, compared with $333 thousand for 2020.

The net realized investment gains in 2020 included impairment charges of $482 thousand for certain fixed maturity securities the Company determined were other-than-temporarily impaired, offset by a net realized gain on the sales of investments and other assets of $815 thousand.

There were no impairments recorded in 2019.

Management believes unrealized losses on remaining fixed maturity securities at December 31, 2020 are temporary in nature.

There were no impairment charges recorded in 2021.

Management believes unrealized losses on the remaining fixed maturity securities at December 31, 2021 are not credit related and are temporary in nature.

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

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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 in the financial statements provided by issuers.

Changes in the Estimated Fair Value of Equity Security Investments

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

Other Revenues

Other revenues primarily include miscellaneous revenues, gains and losses on the disposal of fixed assets and state tax credit income.

Other revenues were $623 thousand in 2020, compared with $678 thousand for 2019.

The decrease in 2020, compared with 2019, primarily related to a decline in state tax credit income, partially offset by an increase in miscellaneous revenues.

Other income primarily include gains and losses on the disposal of assets, rental income from real estate investments and miscellaneous revenues.

Other income was $4.8 million in 2021, compared with $623 thousand for 2020.

The increase in 2021, compared with 2020, 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 30.0% in 2020, compared with 2019, primarily due to increases in commissions to agents, personnel expenses and the provision for claims.

Operating expenses increased 31.0% in 2021, compared with 2020, primarily due to increases in commissions to agents and personnel expenses.

Following is a summary of the Company’s operating expenses for 2021 and 2020.

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On a combined basis, the after-tax profit margins were 20.3% and 16.7% in 2021 and 2020, respectively.

The decrease in after-tax margin in 2020, compared with 2019, was primarily related to increases in expenses from commissions to agents, personnel expenses and the provision for claims, partially offset by an increase in revenue from net premiums written.

The increase in after-tax margin in 2021, compared with 2020, was primarily related to an increase in total revenue that outpaced the increase in expenses.

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

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Personnel expenses were $64.2 million and $51.9 million for 2021 and 2020, respectively.

Personnel expenses increased by approximately 12.7% in 2020, compared with 2019, primarily due to additions to staffing in support of strategic growth initiatives, additional staffing required to support volume increases, and increased levels of incentive compensation.

Personnel expenses increased by approximately 23.6% in 2021, compared with 2020, primarily due to staffing additions in support of strategic growth initiatives and volume increases.

On a consolidated basis, personnel expenses as a percentage of total revenues were 19.5% and 22.0% in 2021 and 2020, respectively.

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Other expenses were $18.8 million and $12.9 million for 2021 and 2020, respectively.

The increase in 2020, compared with 2019, was primarily related to increases in premium-related taxes and licensing, title and service fees and professional services, partially offset by a decline in business development expenses.

The increase in 2021, compared with 2020, was primarily related to higher premiums increasing premium-related taxes, licensing, title and service fees, increased professional services fees related to ongoing investments in software and technology initiatives and increased travel-related expenses.

Title Insurance

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Commission expense as a percentage of net premiums written by agents was 69.6% and 70.2% in 2021 and 2020, respectively.

The increases in commission expense, and commission expense as a percentage of net premiums written, when comparing 2020 with 2019, were primarily related to increased premiums written by agents and changes in geographic mix.

The increase in commission expense, when comparing 2021 with 2020, was primarily related to increased premiums written by agents and changes in geographic mix.

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

Provision for Claims :

The provision for claims increased 9.3% in 2021, compared to 2020.

The provision for claims as a percentage of net premiums written was 2.1% and 2.5% in 2021 and 2020, respectively.

The increase in the provision for claims in 2020, compared with 2019, was primarily due to additional underwriting risks caused by the increase in premiums written and a reduction in favorable loss development.

The increase in the loss provision rate in 2020, from the 2019 level, resulted in approximately $229 thousand more in reserves than would have been recorded at the lower 2019 level.

The dollar increase in the provision for claims in 2021, compared with 2020, was primarily due to additional underwriting risks resulting from premium increases .

The decrease in the loss provision rate in 2021, from the 2020 level, resulted in approximately $1.3 million less in reserves than would have been recorded at the higher 2020 level.

Loss provision rates are subject to variability and are reviewed and adjusted as experience develops.

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Income tax expense, including federal and state taxes, as a percentage of income before income taxes was 21.1% and 20.6% for 2021 and 2020, respectively.

The effective income tax rate for 2020 differs from the U.S.

federal statutory income tax rate of 21% primarily due to changes in tax-exempt income, as tax-exempt income lowers the effective tax rate.

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 and state taxes.

Tax-exempt income lowers the effective tax rate.

The Company believes it is more likely than not that the tax benefits associated with recognized impairments and unrecognized losses recorded through December 31, 2021 will be realized.

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Liquidity and Capital Resources

The Company’s current cash requirements primarily include general operating expenses (including the payment of title claims), income taxes, capital expenditures and dividends on its common stock.

The Company’s material cash requirements include general operating expenses, contractual and other obligations for the future payment of title claims, employment agreements, lease agreements, income taxes, capital expenditures, dividends on its common stock and other contractual commitments for goods and services needed for operations.

All other arrangements entered into by the Company are not reasonably likely to have a material effect on liquidity or the availability of capital resources.

Cash flows from operations have historically been the primary source of financing for expanding operations, whether through organic growth or outside investments.

The Company believes its balances of cash, short-term investments and other readily marketable securities, along with cash flows generated by ongoing operations, will be sufficient to satisfy its cash requirements over the next 12 months and thereafter, including the funding of operating activities and commitments for investing and financing activities.

There are currently no known trends that the Company believes will materially impact the Company’s capital resources, nor is the Company anticipating any material changes in the mix or relative cost of such resources.

The Company evaluates nonorganic growth opportunities, such as mergers and acquisitions, from time to time in the ordinary course of business.

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The Company believes that its significant working capital position and management of operating expenses will aid its ability to manage cash resources through fluctuations in the real estate market.

The extent to which COVID-19 impacts the Company's future operations will depend on future developments which cannot be predicted with certainty at this time, including the duration and severity of the pandemic, actions taken to contain the spread of the virus, and regulatory actions taken as a result of the outbreak.

Currently, the Company is fully operational and has not had any reductions in workforce during 2020.

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

The extent to which COVID-19 impacts the Company's future operations will depend on future developments which cannot be predicted with certainty at this time, including the duration and severity of the pandemic, actions taken to contain the spread of the virus and its variants, and regulatory actions taken as a result of the outbreak and the availability and rate of vaccinations.

Throughout the pandemic, the Company has remained fully operational and has not had any reductions in workforce during 2021 or 2020.

A large number of the Company's employees are performing their job functions remotely.

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

Net cash flows provided by operating activities were $51.9 million and $34.1 million for 2021 and 2020, respectively.

Cash flows from operating activities increased in 2020, from 2019, primarily due to net income increasing before and after adjustments for non-cash items, such as changes in the estimated fair value of equity security investments, and the timing of tax and payable disbursements.

This was partially offset by changes in other assets and the timing of the collection of receivables.

Cash flows provided by operating activities differ from net income due to adjustments for non-cash items, such as changes in the estimated fair value of equity security investments, gains and losses on investments and property, the timing of disbursements for taxes, claims and other accrued liabilities, and collections or changes in receivables and other assets.

Cash flows from non-operating activities have historically consisted of purchases and proceeds from investing activities, the issuance of dividends and repurchases of common stock.

In 2020, the Company had more dividends paid and a net shift to investment purchases outpacing investment proceeds, compared with net investment proceeds outpacing investment purchases in 2019.

In 2021, the Company received more investment proceeds, had lower investment purchase activity and more dividends paid when compared to 2020.

In the fourth quarters of 2021 and 2020, the Company paid special cash dividends in the amounts of $18.00 and $15.00 per share, respectively, in addition to regular cash dividends.

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As of December 31, 2021, the Company held cash and cash equivalents of $37.2 million, short-term investments of $45.9 million, available-for-sale fixed maturity securities of $79.8 million and equity securities of $76.9 million.

The net effect of all activities on total cash and cash equivalents was a decrease of $12.2 million for 2020.

The net effect of all activities on total cash and cash equivalents was an increase of $23.4 million for 2021.

Capital Resources:

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Due to the Company’s historical ability to consistently generate positive cash flows from its consolidated operations and investment income, management believes that funds generated from operations will enable the Company to adequately meet its current operating needs for the foreseeable future.

However, especially with the onset and continued spread of COVID-19, there can be no assurance that future experience will be similar to historical experience, since it is influenced by such factors as the interest rate environment, real estate activity, the Company’s claims-paying ability and its financial strength ratings.

However, especially with the continued spread of COVID-19 and its variants, there can be no assurance that future experience will be similar to historical experience, since it is influenced by such factors as the interest rate environment, real estate activity, the Company’s claims-paying ability and its financial strength ratings.

In addition to operational and investment considerations, taking advantage of opportunistic external growth opportunities may necessitate obtaining additional capital resources.

The Company is carefully monitoring the COVID-19 situation and any other trends that are likely to result in material adverse liquidity changes, and will continually assess its capital allocation strategy, including decisions relating to payment of dividends, repurchasing the Company’s stock and/or conserving cash.

Purchase of Company Stock :

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Unless terminated earlier by resolution of the Board of Directors, the plan will expire when all shares authorized for purchase under the plan have been purchased.

Pursuant to the Company’s ongoing purchase program, the Company purchased 25 shares in 2020 and 109 shares in 2019, at average per share prices of $173.44 and $165.08, respectively.

Pursuant to the Company’s ongoing purchase program, the Company purchased no shares in 2021.

In 2020, the Company purchased 25 shares at an average per share prices of $173.44.

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.

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Capital expenditures were approximately $6.5 million and $3.2 million during 2021 and 2020, respectively.

The increase in 2021 related primarily to system development initiative expenses.

The Company has plans for various capital improvement projects, including increased investment in a number of technology and system development initiatives and hardware purchases which are anticipated to be funded via cash flows from operations.

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

The amounts accrued for these agreements at December 31, 2020 and 2019 were approximately $12.5 million and $12.2 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 December 31, 2021 and 2020 were approximately $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.

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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 December 31, 2021 is $4.1 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 leases can be found in Note 9 to the Consolidated Financial Statements.

Information regarding leases can be found in Note 9 to the Consolidated Financial Statements.

In the normal course of business, the Company enters into other contractual commitments for goods and services needed for operations.

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However, the Company remains contingently liable for the disposition of these deposits.

In addition, in administering tax-deferred property exchanges, ITEC serves as a qualified intermediary for exchanges, holding the net sales proceeds from relinquished property to be used for purchase of replacement property.

In addition, in administering tax-deferred like-kind exchanges pursuant to § 1031 of the Internal Revenue Code, ITEC serves as a qualified intermediary for exchanges, holding the net sales proceeds from relinquished property to be used for purchase of replacement property.

ITAC serves as exchange accommodation titleholder and, through LLCs that are wholly owned subsidiaries of ITAC, holds property for exchangers in reverse exchange transactions.

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Exchange services revenue includes earnings on these deposits;

therefore, investment income is shown as other revenue rather than investment income.

therefore, investment income is shown as non-title services rather than investment income.

These like-kind exchange funds are primarily invested in money market and other short-term investments.

6 unchanged sentences

Recently Adopted Accounting Standards

In June 2016, the Financial Accounting Standards Board (“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.

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2019-12, Simplifying the Accounting for Income Taxes .

ASU 2019-12 was intended to reduce the complexity in accounting for income taxes during interim and annual periods and provide clarity on income tax situations where a diversity in practice had developed.

The update was effective for annual and interim periods in fiscal years beginning after December 15, 2020.

The Company adopted this update on January 1, 2021, 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 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 .

ASU 2019-12 is intended to reduce the complexity in accounting for income taxes during interim and annual periods and is expected to provide clarity on income tax situations where a diversity in practice has developed.

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

Early adoption is permitted for interim or annual periods for which financial statements have not yet been issued.

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.

This update clarified 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 clarified 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 was effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

The Company adopted this update on January 1, 2021, with no material impact on the Company's financial position and results of operations.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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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 7. Management’s Discussion and Analysis