What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-09 compared with 2022-11-08 · 90 added, 115 removed, 277 unchanged (43% of the section changed)

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

Total revenues from the title segment accounted for 96.1% of t he Company's revenues for the nine-month period ended September 30, 2022.

Total revenues from the title segment accounted for 88.0% of t he Company's revenues for the three-month period ended March 31, 2023.

Title insurance protects against loss or damage resulting from title defects that affect real property.

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The Company’s exchange services division, consisting of the operations of ITEC and ITAC, provides customer services in connection with tax-deferred real property exchanges.

ITEC acts as a qualified intermediary in tax-deferred exchanges of property held for productive use in a trade or business or for investment, and its income is derived from fees for handling exchange transactions and interest earned on client deposits held by the Company.

ITEC acts as a qualified intermediary in tax-deferred exchanges of real property held for productive use in a trade or business or for investment, and its income is derived from fees for handling exchange transactions and interest earned on client deposits held by the Company.

In its role as qualified intermediary, ITEC coordinates the exchange aspects of the real estate transaction, and its duties include drafting standard exchange documents, holding the exchange funds between the time the old property is sold and the new property is purchased, and accepting the formal identification of the replacement property within the required identification period.

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Changes in either of these areas, in addition to ongoing supply constraints and volatility in the cost and availability of building materials, could impact the Company's results of operations in future periods.

COVID-19 – COVID-19 could continue to affect the Company in a number of ways including, but not limited to, the impact of employees becoming ill, quarantined, or otherwise unable to work or travel due to illness or gover nmental restriction, potential decreases in net premiums written in the future, and future fluctuations in the Company's investment portfolio.

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

The current period of inflation, as well as ongoing military conflict between Russia and Ukraine, has created additional volatile market conditions and uncertainties in the global economy.

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Although the federal funds rate does not directly impact mortgage interest rates, it can have a significant influence as lenders pass on the costs of rate increases to consumers.

Higher mortgage interest rates could impact the demand and pricing of real estate.

Higher mortgage interest rates have impacted the demand and pricing of real estate.

Regulatory Environment

The FOMC issues disclosures on a periodic basis that include projections of the federal funds rate and expected actions.

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, resulting in a target federal funds rate range between 0.00% and 0.25%.

The FOMC had maintained this target range until March 2022, when the target federal funds rate range was increased to between 0.25% and 0.50%.

The target federal funds rate range was further raised at subsequent meetings, with the FOMC's most recent change increasing the target range in November 2022 to between 3.75% and 4.00%.

The FOMC has noted that it anticipates that ongoing increases in the target range will be appropriate and, in addition, has decided to continue with balance sheet holdings reductions that began in May of 2022.

The FOMC had maintained a target range between 0.00% and 0.25% from March 2020 until March 2022, when the target federal funds rate range was increased to between 0.25% and 0.50%.

The target federal funds rate range was further raised at subsequent meetings, with the FOMC's most recent change increasing the target range in May 2023 to between 5.00% and 5.25%.

The FOMC has noted that it anticipates that additional increases in the target range may be appropriate.

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.

The primary functions of Fannie Mae and Freddie Mac are to provide liquidity to the nation's mortgage finance system by purchasing mortgages on the secondary market, pooling them and selling them as mortgage-backed securities.

In order to securitize, Fannie Mae and Freddie Mac typically require the purchase of title insurance for loans they acquire.

Since the federal takeover, there have been various discussions and proposals regarding their reform.

Changes to these entities could impact the entire mortgage loan process and, as a result, could affect the demand for title insurance.

The timing and results of reform are currently unknown;

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.

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

Further proposals to change regulations governing insurance holding companies and the title insurance industry are often introduced in Congress, in state legislatures and before various insurance regulatory agencies.

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 timing and nature of any reforms are currently unknown;

however, the CFPB has taken 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") September 19, 2022 Mortgage Finance Forecast (“MBA Forecast”) projects 2022 purchase activity to decrease 13.2% to $1,618 billion and mortgage refinance activity to decrease 72.6% to $706 billion, resulting in a net decrease in total mortgage originations of 47.6% to $2,324 billion, all from 2021 levels.

The Mortgage Bankers Association's ("MBA") March 20, 2023 Mortgage Finance Forecast (“MBA Forecast”) projects 2023 purchase activity to decrease 10.5% to $1,412 billion and mortgage refinance activity to decrease 35.2% to $432 billion, resulting in a net decrease in total mortgage originations of 17.9% to $1,844 billion, all from 2022 levels.

In 2022, purchase activity accounted for 70.3% of all mortgage originations and is projected in the MBA Forecast to represent 76.6% of all mortgage originations in 2023.

According to data published by Freddie Mac, the average 30-year fixed mortgage interest rates in the United States were 4.9% and 2.9% for the nine-month periods ended September 30, 2022 and 2021, respectively.

The FOMC has noted that it anticipates that ongoing increases in the federal funds rate will be appropriate in response to the current inflationary environment, with mortgage rates typically moving in conjunction with the federal funds rate.

Per the MBA Forecast, mortgage interest rates are projected to stay at or around 5.5% for the remainder of 2022, before decreasing in both 2023 and 2024.

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

According to data published by Freddie Mac, the average 30-year fixed mortgage interest rates in the United States were 6.4% and 3.8% for the three-month periods ended March 31, 2023 and 2022, respectively.

Per the MBA Forecast, mortgage interest rates are projected to decrease in subsequent periods, reaching 4.4% in 2025.

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

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

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Actual results could differ from these estimates.

During the nine-month period ended September 30, 2022, the Company did not make any material changes to its critical accounting policies as previously disclosed in Management's Discussion and Analysis in the 2021 Form 10-K.

During the three-month period ended March 31, 2023, the Company did not make any material changes to its critical accounting policies as previously disclosed in Management's Discussion and Analysis in the 2022 Form 10-K.

Results of Operations

The following table presents certain unaudited Consolidated Statements of Operations data for the three- and nine-month periods ended September 30, 2022 and 2021:

The following table presents certain unaudited Consolidated Statements of Operations data for the three-month periods ended March 31, 2023 and 2022:

Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2023 2022

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Net Premiums Written

Net premiums written decreased 7.9% and 1.0% for the three- and nine-month periods ended September 30, 2022 to $66.7 million and $199.4 million, respectively, compared with $72.3 million and $201.3 million for the same prior year periods.

The decreases for the three- and nine-month periods ended September 30, 2022 were primarily driv en by an overall decline in the level of real estate transaction volume following the rise in mortgage interest rates, partially offset by higher average home prices and increased premiums in our Texas market.

Net premiums written decreased 38.3% for the three-month period ended March 31, 2023 to $39.0 million, compared with $63.1 million for the same prior year period.

The decrease for the three-month period ended March 31, 2023 was primarily driv en by an overall decline in the level of real estate transaction volumes resulting from higher average mortgage interest rates and ongoing housing supply constraints .

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

To determine the estimated premiums, the Company uses historical experience, as well as other factors, to make certain assumptions about the average elapsed time between the policy effective date and the date the policies are reported.

From time to time, the Company adjusts the inputs to the estimation process as reported transactions and new information becomes available from direct and agency business.

From time to time, the Company adjusts the inputs to the estimation process as reported 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.

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Title insurance companies typically issue title insurance policies directly or through title agencies.

Following is a breakdown of premiums generated by direct and agency operations for the three- and nine-month periods ended September 30, 2022 and 2021, with certain balances for 2021 reclassified to conform to the 2022 presentation:

Following is a breakdown of premiums generated by direct and agency operations for the three-month periods ended March 31, 2023 and 2022, with certain balances for 2022 reclassified to conform to the 2023 presentation:

Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands, except percentages) 2023 % 2022 %

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In the Company's direct operations, the Company issues a title insurance policy and retains the entire premium, as no commissions are recognized in connection with these policies.

Net premiums written from direct operations increased 0.1% and 11.1% for the three- and nine-month periods ended September 30, 2022, respectively, compared with the same prior year periods.

The increases for the three- and nine-month periods ended September 30, 2022 and 2021 were driven by higher average home prices and increased premiums written by wholly owned agencies in our Texas market, partially offset by a decline in transaction volume associated with higher mortgage interest rates.

Net premiums written from direct operations decreased 44.0% for the three-month period ended March 31, 2023, compared with the same prior year period.

The decrease for the three-month period ended March 31, 2023 was driven by an overall decline in the level of real estate transaction volumes resulting from higher average mortgage interest rates and ongoing housing supply constraints.

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

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Title insurance commissions earned by the Company’s agents are recognized as expenses concurrently with premium recognition.

Agency net premiums written decreased 11.3% and 6.3% for the three- and nine-month periods ended September 30, 2022, compared with the same prior year periods.

Following is a schedule of net premiums written for the three- and nine-month periods ended September 30, 2022 and 2021 in select states in which the Company's two insurance subsidiaries, ITIC and NITIC, currently underwrite title insurance:

Agency net premiums written decreased 35.1% for the three-month period ended March 31, 2023, compared with the same prior year period.

Following is a schedule of net premiums written for the three-month periods ended March 31, 2023 and 2022 in select states in which the Company's two insurance subsidiaries, ITIC and NITIC, currently underwrite title insurance:

Three Months Ended

September 30, Nine Months Ended

September 30,

State (in thousands) 2023 2022

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Texas 10,951 15,762

Georgia 6,094 7,667 18,819 25,527

South Carolina 4,229 5,388

Georgia 3,547 6,972

All Others 6,627 10,894

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Net Premiums Written $ 38,966 $ 63,125

The increases in net premiums written in the state of Texas for the three- and nine-month periods ended September 30, 2022 primarily resulted from the Company's recent acquisitions of title insurance agencies doing business in the state of Texas.

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

Escrow and Other Titl e-Related Fees

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 $6.0 million and $17.2 million for the three- and nine-month periods ended September 30, 2022, respectively, compared with $3.9 million and $10.1 million for the same prior year periods.

The increases for the three- and nine-month periods ended September 30, 2022 were mainly due to a larger share of business in markets that generate escrow income, and fee income associated with commercial activity.

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 $3.1 million for the three-month period ended March 31, 2023, compared with $5.1 million for the same prior year period.

The decrease for the three-month period ended March 31, 2023 was related to the decline in real estate transaction volume.

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 $3.9 million and $9.1 million for the three- and nine-month periods ended September 30, 2022, respectively, compared with $2.4 million and $6.9 million for the same prior year periods.

The increases for the three- and nine-month periods ended September 30, 2022 were primarily related to increases in like-kind exchange revenues.

Non-title service revenues were $5.8 million for the three-month period ended March 31, 2023, compared with $2.4 million for the same prior year period.

The increase for the three-month period ended March 31, 2023 was primarily related to an increase in like-kind exchange revenues.

Investment-Related Revenues

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The Company’s investment strategy emphasizes after-tax income and principal preservation.

The Company’s investments are primarily in fixed maturity securities and equity securities.

The Company’s investments are primarily in short-term investments, fixed maturity securities and equity securities.

The average effective maturity of the majority of the fixed maturity securities is less than 10 years.

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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 typically include money market funds, and, at times, the Company has or could invest in U.S.

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

Treasury bills, commercial paper and certificates of deposit.

The Company strives to maintain a high quality investment portfolio.

In 2022, the Company has purchased higher levels of short-term investments due to the downturns in other investment vehicles utilized by the Company and uncertainty in the investment market.

Interest and dividends were $1.2 million and $3.1 million for the three- and nine-month periods ended September 30, 2022, respectively, compared with $893 thousand and $2.8 million for the same prior year periods.

Since 2022, the Company has been purchasing higher levels of short-term investments to take advantage of elevated short-term interest rates during this period of uncertainty in the investment market.

Interest and dividends were $2.1 million for the three-month period ended March 31, 2023, compared with $915 thousand for the same prior year period.

Interest and investment income levels are primarily a function of general market performance, interest rates and the amount of cash available for investments that meet the Company's investment policy.

The increase for the three-month period ended March 31, 2023 was primarily related to an increase in interest received in conjunction with higher interest rates and levels of short-term investments.

Other Investment Income

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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 $2.2 million and $4.6 million for the three- and nine-month periods ended September 30, 2022, respectively, compared with $2.2 million and $4.6 million for the same prior year periods.

Other investment income was $753 thousand for the three-month period ended March 31, 2023, compared $1.3 million for the same prior year period.

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

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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 $2.5 million and $6.3 million for the three- and nine-month periods ended September 30, 2022, respectively, compared with $268 thousand and $771 thousand for the same prior year periods.

The Company recorded impairment charges of $35 thousand and $162 thousand on certain fixed maturity securities where the intent to hold has changed in the three- and nine-month periods ended September 30, 2022.

There were no impairment charges recorded in 2021.

Management believes unrealized losses on the remaining fixed maturity securities at September 30, 2022 are temporary in nature.

The net realized investment gains were $7.2 million for the three-month period ended March 31, 2023, compared with $1.7 million for the same prior year period.

The Company recorded impairment charges of $82 thousand on certain fixed maturity securities where the intent to hold had changed in the three-month period ended March 31, 2023.

There were no impairment charges recorded in the three-month period ended March 31, 2022.

Management believes unrealized losses on the remaining fixed maturity securities at March 31, 2023 are not credit related.

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

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Relevant facts and circumstances include the extent and length of time the fair value of an investment has been below cost.

There are a number of risks and uncertainties inherent in the process of monitoring impairments and determining if an impairment is other-than-temporary.

There are a number of risks and uncertainties inherent in the process of monitoring impairments and determining if an impairment exists.

These risks and uncertainties include the risk that the economic outlook will be worse than expected or have more of an impact on the issuer than anticipated;

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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 inaccurate information.

and the risk that management is making decisions based on inaccurate information in the financial statements provided by the issuers.

Changes in the Estimated Fair Value of Equity Security Investments

Changes in the estimated fair value of equity security investments were $(4.6) million and $(22.7) million for the three- and nine-month periods ended September 30, 2022, respectively, compared with $(802) thousand and $7.3 million for the same prior year periods.

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

All major indices have experienced significant declines in 2022.

Changes in the estimated fair value of equity security investments were $(6.8) million for the three-month period ended March 31, 2023, compared with $(5.9) million for the same prior year period.

Such fluctuations are typically the result of changes in general market conditions during the respective periods, however, the sale of appreciated investment securities during the current year period resulted in a reduction in unrealized gains as they were reclassified to net realized investment gains, which is not indicative of a decline in estimated fair value.

Other Revenues

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

Other revenues were $277 thousand and $924 thousand for the three- and nine-month periods ended September 30, 2022, respectively, compared with $217 thousand and $4.6 million for the same prior year periods.

The decrease for the nine-month period ended September 30, 2022 was primarily related to a gain on the sale of a property recorded in 2021.

Other revenues were $140 thousand for the three-month period ended March 31, 2023, compared with $299 thousand for the same prior year period.

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 7.8% and 11.1% for the three- and nine-month periods ended September 30, 2022, compared with the same prior year periods.

The increases for the three- and nine-month periods ended September 30, 2022 were primarily due to increases in personnel expenses, title fees, and office and technology expenses.

Following is a summary of the Company's operating expenses for the three- and nine-month periods ended September 30, 2022 and 2021.

Operating expenses decreased 18.7% for the three-month period ended March 31, 2023, compared with the same prior year period.

The decrease for the three-month period ended March 31, 2023 was primarily due to a decline in commissions to agents commensurate with the decrease in agent premium volume, partially offset by an increase in the provision for claims.

Following is a summary of the Company's operating expenses for the three-month periods ended March 31, 2023 and 2022.

Inter-segment eliminations have been netted;

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Three Months Ended

September 30, Nine Months Ended

September 30,

(in thousands, except percentages) 2023 % 2022 %

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Total $ 49,782 100.0 $ 61,205 100.0

On a combined basis, the after-tax profit margins were 10.1% and 7.5% for the three- and nine-month periods ended September 30, 2022, respectively, compared with 17.8% and 20.2% for the same prior year periods.

The decreases for the three- and nine-month periods ended September 30, 2022 were primarily due to reductions in the estimated fair value of equity security investments during the current year periods, a gain on the sale of property in the same prior year periods, and increases in total expenses that outpaced the changes in revenue.

On a combined basis, the after-tax profit margin was 2.3% for the three-month period ended March 31, 2023, compared with 9.0% for the same prior year period.

The decrease for the three-month period ended March 31, 2023 was due to the decline in total revenues outpacing the decline in total 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 – Personnel expenses include base salaries, benefits and payroll taxes, bonuses paid to employees and contract labor expenses.

Personnel expenses were $21.6 million and $63.7 million for the three- and nine-month periods ended September 30, 2022, respectively, compared with $15.5 million and $47.5 million for the same prior year periods.

On a consolidated basis, personnel expenses as a percentage of total revenues were 27.7% and 29.3% for the three- and nine-month periods ended September 30, 2022, respectively, compared with 19.0% and 19.9% for the same prior year periods.

The increases in personnel expenses for the three- and nine-month periods ended September 30, 2022 were primarily due to staffing of new offices, hiring to support growth initiatives, and increased employee benefit costs.

Increases in staffing levels are the result of both organic growth and rec ent acquisitions of title insurance agencies, as the Company continues expansion of its geographic footprint.

Employee headcount increased by 40.2% as of September 30, 2022, when compared to the same prior year period, primarily due to the Company's continued expansion efforts in the Texas market.

Personnel expenses were $20.8 million for the three-month period ended March 31, 2023, compared with $21.3 million for the same prior year period.

On a consolidated basis, personnel expenses as a percentage of total revenues were 40.6% for the three-month period ended March 31, 2023, compared with 30.8% for the same prior year period.

The decrease in personnel expenses for the three-month period ended March 31, 2023 was primarily due to reductions in incentive compensation .

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 $4.3 million and $12.9 million for the three- and nine-month periods ended September 30, 2022, respectively, compared with $3.2 million and $9.1 million for the same prior year periods.

The increases for the three- and nine-month periods ended September 30, 2022 were primarily in support of expanding the Company's geographic footprint, the result of adding new office locations due to both organic growth and recent acquisitions of title insurance agencies, and various ongoing technology initiatives.

Office and technology expenses were $4.4 million for both three-month periods ended March 31, 2023 and 2022.

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 $6.6 million and $19.8 million for the three- and nine-month periods ended September 30, 2022, respectively, compared with $4.8 million and $13.3 million for the same prior year periods.

The increases for the three- and nine-month periods ended September 30, 2022 were primarily related to increases in title and service fees, technology fees and business development expenses.

Other expenses were $4.2 million for the three-month period ended March 31, 2023, compared with $5.6 million for the same prior year period.

The decrease for the three-month period ended March 31, 2023 was primarily related to decreases in title and service fees, premium-related taxes and licensing, partially offset by an increase in business development 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 decreased 10.9% and 5.2% for the three- and nine-month periods ended September 30, 2022, respectively, compared with the same prior year periods.

Commission expense as a percentage of net premiums written by agents was 74.7% and 74.2% for the three- and nine-month periods ended September 30, 2022, compared with 74.3% and 73.3% 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 the decreases in agent premium volume and changes in geographic mix.

Commissions to agents decreased 35.3% for the three-month period ended March 31, 2023, compared with the same prior year period.

Commission expense as a percentage of net premiums written by agents was 73.6% for the three-month period ended March 31, 2023, compared with 73.8% for the same prior year period.

The change in commission expense was primarily related to the decrease in agent premium volume.

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

Provision for Claims – The provision for claims decreased 1.4% and 31.2% for the three- and nine-month periods ended September 30, 2022, respectively, compared with the same prior year periods.

The provision for claims as a percentage of net premiums written was 2.9% and 1.7% for the three- and nine-month periods ended September 30, 2022, compared with 2.8% and 2.5% for the same prior year periods.

The decrease in the provision for claims for the nine-month period ended September 30, 2022 was primarily due to changes in the geographic mix for underwriting risk and higher levels of favorable loss development in 2022.

Provision for Claims – The provision for claims increased $892 thousand for the three-month period ended March 31, 2023, compared with the same prior year period.

The provision for claims as a percentage of net premiums written was 2.7% for the three-month period ended March 31, 2023, compared with 0.3% for the same prior year period.

The increase in the provision for claims for the three-month period ended March 31, 2023 was primarily due to a lower level of favorable loss development in the current year period.

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 $2.6 million and $1.8 million for the nine-month periods ended September 30, 2022 and 2021, respectively.

At September 30, 2022, the total reserve for claims was $37.6 million.

Actual payments of claims, net of recoveries, were $1.3 million and $564 thousand for the three-month periods ended March 31, 2023 and 2022, respectively.

At March 31, 2023, the total reserve for claims was $36.9 million.

Of that total, approximately $3.1 million was reserved for specific claims, and approximately $33.8 million was reserved for claims for which the Company had no notice.

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

The provision for income taxes was $2.2 million and $4.5 million for the three- and nine-month periods ended September 30, 2022, respectively, compared with $3.9 million and $12.9 million for the same prior year periods.

Income tax expense, including federal and state taxes, as a percentage of income before income taxes was 21.6% and 21.4% for the three- and nine-month periods ended September 30, 2022, respectively, compared with 21.3% and 21.2% for the same prior year periods.

The provision for income taxes was $380 thousand for the three-month period ended March 31, 2023, compared with $1.6 million for the same prior year period.

Income tax expense, including federal and state taxes, as a percentage of income before income taxes was 24.3% for the three-month period ended March 31, 2023, compared with 20.6% for the same prior year period.

The effective income tax rates for both 2023 and 2022 differ from the U.S.

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

federal statutory income tax rate of 21% primarily due to the effects of state taxes and tax-exempt income.

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 September 30, 2022 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 March 31, 2023 will be realized.

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

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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, in addition to potential purchases under the Company's repurchase plan described below.

There are currently no known trends that the Company believes will materially impact the Company’s capital resources, nor is the Company anticipating any material changes in the mix or relative cost of such resources except as otherwise disclosed in the Business Trends and Recent Conditions section of this Management's Discussion and Analysis.

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The Company’s operating results and cash flows are heavily dependent on the real estate market.

The Company’s business has certain fixed costs;

The Company’s business has certain fixed costs such as personnel;

therefore, changes in the real estate market are monitored closely, and operating expenses such as staffing levels are managed and adjusted accordingly.

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

Cash Flows – Net cash flows provided by operating activities were $20.3 million and $35.7 million for the nine-month periods ended September 30, 2022 and 2021, respectively.

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

Cash Flows – Net cash flows (used in) provided by operating activities were $(13.1) million and $1.3 million for the three-month periods ended March 31, 2023 and 2022, respectively.

Cash flows (used in) 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.

Net cash was used in investing activities for the nine-month period ended September 30, 2022, compared with net cash being provided by investing activities in the prior year period, due primarily to an increase in purchases of investments, net of proceeds from investment sales and maturities, the purchase of a subsidiary during the current year period, and a decrease in proceeds from the sale of property.

Net cash was provided by investing activities for the three-month period ended March 31, 2023, compared with net cash being used in investing activities in the prior year period, due primarily to a current period increase in net proceeds from investment sales and maturities of short-term investments and equity securities.

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 September 30, 2022, the Company held cash and cash equivalents of $41.4 million, short-term investments of $80.8 million, available-for-sale fixed maturity securities of $55.3 million and equity securities of $52.7 million.

The net effect of all activities on total cash and cash equivalents was an increase of $4.2 million in 2022.

As of March 31, 2023, the Company held cash and cash equivalents of $29.6 million, short-term investments of $105.7 million, available-for-sale fixed maturity securities of $52.2 million and equity securities of $42.8 million.

The net effect of all activities on total cash and cash equivalents was a decrease of $5.8 million in 2023.

Beginning in late 2022, ongoing evaluation of changing business and financial market conditions led to portions of cash flow from operations, and certain amounts resulting from sales and maturities in the company’s investment portfolio, to be invested in short-term investments to take advantage of elevated short-term interest rates.

Capital Resources – The amount of capital resources the Company maintains is influenced by state regulation, the need to maintain superior financial ratings from third-party rating agencies and other marketing and operational considerations.

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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 September 30, 2022, both ITIC and NITIC met the minimum capital, surplus and reserve requirements for each state in which they are licensed.

As of March 31, 2023, 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.

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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, with any continued impact of COVID-19, ongoing inflationary pressures and the ongoing military conflict between Russia and Ukraine, there can be no assurance that future experience will be similar to historical experience, since it is influenced by such factors as the interest rate environment, real estate activity, the Company’s claims-paying ability and its financial strength ratings.

However, with ongoing inflationary pressures, the ongoing military conflict between Russia and Ukraine, and any continued impact 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.

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

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

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

Purchase of Company Stock – On November 9, 2015, the Board of Directors of the Company approved the purchase of an additional 163,335 shares pursuant to the Company’s repurchase plan, such that there was authority remaining under the plan to purchase up to an aggregate of 500,000 shares of the Company’s common stock pursuant to the plan immediately after this approval .

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

Pursuant to the Company’s ongoing purchase program, the Company purchased 629 shares in the nine-month periods ended September 30, 2022 and did not repurchase any shares in the corresponding period in 2021.

The Company anticipates increasing its purchases under the repurchase plan during the remainder of 2022 and first half of 2023, subject to 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 Expend itures – Capital expenditures were approximately $4.0 million for the nine-month period ended September 30, 2022 .

The Company did not purchase any shares in the three-month periods ended March 31, 2023 and 2022.

The Company anticipates making further purchases under this plan from time to time in the future, depending on such factors as the prevailing market prices of the Company's common stock, the Company's available cash and the existing alternative uses for such cash.

Capital Expend itures – Capital expenditures were approximately $2.3 million for the three-month period ended March 31, 2023 .

In 2023, the Company has plans for various capital improvement projects, including increased investment in a number of technology and system development initiatives and hardware purchases which are anticipated to be funded via cash flows from operations.

All material anticipated capital expenditures are subject to periodic review and revision and may vary depending on a number of factors.

Contractual Obligations - As of September 30, 2022, the Company had a claims reserve totaling $37.6 million.

Contractual Obligations - As of March 31, 2023, the Company had a claims reserve totaling $36.9 million.

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

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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 September 30, 2022 and December 31, 2021, were $14.2 million and $13.4 million, respectively, which includes postretirement compensation and health benefits, and were calculated based on the terms of the contracts.

The amounts accrued for these agreements at March 31, 2023 and December 31, 2022, were $15.0 million, 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 Company enters into lease agreements that are primarily used for office space.

These leases are accounted for as operating leases.

A portion of the Company's current leases include an option to extend or cancel the lease term, and the exercise of such an option is solely at the Company's discretion.

These leases are accounted for as operating leases, with lease expense recognized on a straight-line basis over the term of the lease.

The Company occasionally assumes equipment lease agreements through business acquisitions.

These leases are accounted for as finance leases.

Included in a portion of the Company's current leases is 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 after 2023 is $5.5 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.

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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 $477.9 million and $763.9 million as of September 30, 2022 and December 31, 2021, respectively.

Like-kind exchange deposits and reverse exchange property held by the Company for the purpose of completing such transactions totaled approximately $343.0 million and $432.0 million as of March 31, 2023 and December 31, 2022, respectively.

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

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• the impact of the ongoing military conflict between Russia and Ukraine;

• the impact of a failure of the U.S.

federal government to manage its fiscal matters or to raise or further suspend the debt ceiling;

• potential reform of government sponsored entities;

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• significant competition that the Company’s operating subsidiaries face, including the Company’s ability to develop and offer products and services that meet changing industry standards in a timely and cost-effective manner and expansion into new geographic locations;

• the Company’s r eliance upon the North Carolina, Texas, Georgia and South Carolina markets for a significant portion of its premiums;

• the Company’s r eliance upon the North Carolina, Texas, South Carolina and Georgia markets for a significant portion of its premiums;

• compliance with government regulation, including pricing regulation, and significant changes to applicable regulations or in their application by regulators;

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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-Q

Item 2. Management’s Discussion and Analysis