What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-08 compared with 2023-08-09 · 77 added, 75 removed, 296 unchanged (34% 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 89.2% of t he Company's revenues for the six-month period ended June 30, 2023.

Total revenues from the title segment accounted for 89.7% of t he Company's revenues for the nine-month period ended September 30, 2023.

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

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

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

The current period of inflation, as well as ongoing geopolitical conflicts, has created additional volatile market conditions and uncertainties in the global economy.

These events have impacted and could continue to impact the Company in a number of ways including, but not limited to, future fluctuations in the Company's investment portfolio and potential decreases in net premiums written.

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

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.

Regulatory Environment

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

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

The target federal funds rate range was further raised at subsequent meetings, with the FOMC's most recent change increasing the target range in July 2023 to between 5.25% and 5.50%.

The FOMC will continue to closely monitor incoming information and it is possible that additional increases in the target range may be appropriate.

The FO MC 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 July 2023 to between 5.25% and 5.50% and no change being made at the November 2023 meeting.

The FOMC will continue to closely monitor incoming information and it is possible that additional increases in the target range ma y 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.

Real Estate Environment

The Mortgage Bankers Association's ("MBA") July 20, 2023 Mortgage Finance Forecast (“MBA Forecast”) projects 2023 purchase activity to decrease 11.9% to $1,391 billion and mortgage refinance activity to decrease 44.8% to $368 billion, resulting in a net decrease in total mortgage originations of 21.6% to $1,759 billion, all from 2022 levels.

The Mortgage Bankers Association's ("MBA") October 15, 2023 Mortgage Finance Forecast (“MBA Forecast”) projects 2023 purchase activity to decrease 18.2% to $1,325 billion and mortgage refinance activity to decrease 54.2% to $314 billion, resulting in a net decrease in total mortgage originations of 28.9% to $1,639 billion, all from 2022 levels.

In 2022, purchase activity accounted for 70.2% of all mortgage originations and is projected in the MBA Forecast to represent 80.8% 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 6.4% and 4.5% for the six-month periods ended June 30, 2023 and 2022, respectively.

According to data published by Freddie Mac, the average 30-year fixed mortgage interest rates in the United States were 6.6% and 4.9% for the nine-month periods ended September 30, 2023 and 2022, respectively.

Per the MBA Forecast, mortgage interest rates are projected to decrease in subsequent periods, reaching 5.5% in 2025.

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Actual results could differ from these estimates.

During the six-month period ended June 30, 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.

During the nine-month period ended September 30, 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 six-month periods ended June 30, 2023 and 2022:

The following table presents certain unaudited Consolidated Statements of Operations data for the three- and nine-month periods ended September 30, 2023 and 2022:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands) 2023 2022 2023 2022

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Other investment income 514 2,173 2,915 4,616

Net investment gains (losses) 1,092 (10,134) 1,535 (14,302)

Net investment (losses) gains (815) (2,154) 720 (16,456)

Other 257 277 647 924

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Net Premiums Written

Net premiums written decreased 36.8% and 37.5% for the three- and six-month periods ended June 30, 2023 to $44.0 million and $83.0 million, respectively, compared with $69.6 million and $132.8 million for the same prior year periods.

The decreases for the three- and six-month periods ended June 30, 2023 were attributable to an overall decline in the level of real estate transaction volumes resulting from higher average mortgage interest rates and ongoing housing inventory constraints.

Net premiums written decreased 25.3% and 33.4% for the three- and nine-month periods ended September 30, 2023 to $49.8 million and $132.8 million, respectively, compared with $66.7 million and $199.4 million for the same prior year periods.

The decreases for the three- and nine-month periods ended September 30, 2023 were attributable to an overall decline in the level of real estate transaction volumes resulting from higher average mortgage interest rates and ongoing housing inventory 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.

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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 six-month periods ended June 30, 2023 and 2022, with certain balances for 2022 reclassified to conform to the 2023 presentation:

Following is a breakdown of premiums generated by direct and agency operations for the three- and nine-month periods ended September 30, 2023 and 2022, with certain balances for 2022 reclassified to conform to the 2023 presentation:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands, except percentages) 2023 % 2022 % 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 decreased 36.0% and 39.8% for the three- and six-month periods ended June 30, 2023, respectively, compared with the same prior year periods.

The decreases for the three- and six-month periods ended June 30, 2023 were driven by an overall decline in the level of real estate transaction volumes resulting from higher average mortgage interest rates and ongoing housing inventory 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.

Net premiums written from direct operations decreased 20.9% and 33.8% for the three- and nine-month periods ended September 30, 2023, respectively, compared with the same prior year periods.

The decreases for the three- and nine-month periods ended September 30, 2023 were driven by an overall decline in the level of real estate transaction volumes resulting from higher average mortgage interest rates and ongoing housing inventory 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 Company.

The agent retains a majority of the premium as a commission and remits the net amount to the Company.

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

Agency net premiums written decreased 37.2% and 36.2% for the three- and six-month periods ended June 30, 2023, compared with the same prior year periods.

The decreases for the three- and six-month periods ended June 30, 2023 were 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 inventory constraints.

Following is a schedule of net premiums written for the three- and six-month periods ended June 30, 2023 and 2022 in select states in which the Company's two insurance subsidiaries, ITIC and NITIC, currently underwrite title insurance:

Agency net premiums written decreased 27.4% and 33.2% for the three- and nine-month periods ended September 30, 2023, compared with the same prior year periods.

The decreases for the three- and nine-month periods ended September 30, 2023 were 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 inventory constraints.

Following is a schedule of net premiums written for the three- and nine-month periods ended September 30, 2023 and 2022 in select states in which the Company's two insurance subsidiaries, ITIC and NITIC, currently underwrite title insurance:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

State (in thousands) 2023 2022 2023 2022

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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 title insurance policies including settlement, examination and closing fees.

Escrow and other title-related fee revenues were $4.6 million and $8.3 million for the three- and six-month periods ended ended June 30, 2023, respectively, compared with $6.2 million and $11.3 million for the same prior year periods.

The decreases for the three- and six-month periods ended June 30, 2023 were mainly due to the decline in real estate transaction volume.

Escrow and other title-related fee revenues were $4.7 million and $12.9 million for the three- and nine-month periods ended September 30, 2023, respectively, compared with $6.1 million and $17.5 million for the same prior year periods.

The decreases for the three- and nine-month periods ended September 30, 2023 were mainly due 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 $4.6 million and $9.9 million for the three- and six-month periods ended June 30, 2023, respectively, compared with $2.8 million and $5.2 million for the same prior year periods.

The increases for the three- and six-month periods ended June 30, 2023 were primarily related to increases in like-kind exchange revenues.

Non-title service revenues were $4.6 million and $14.5 million for the three- and nine-month periods ended September 30, 2023, respectively, compared with $3.7 million and $8.9 million for the same prior year periods.

The increases for the three- and nine-month periods ended September 30, 2023 were primarily related to increases in like-kind exchange revenues.

Investment-Related Revenues

Investment-related revenues include interest and dividends, other investment income, and net investment gains (losses).

Investment-related revenues include interest and dividends, other investment income, and net investment (losses) gains.

Interest and Dividends

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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 $2.2 million and $4.2 million for the three- and six-month periods ended June 30, 2023, respectively, compared with $911 thousand and $1.8 million for the same prior year periods.

Interest and dividends were $2.3 million and $6.5 million for the three- and nine-month periods ended September 30, 2023, respectively, compared with $1.2 million and $3.1 million for the same prior year periods.

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 increases for the three- and six-month periods ended June 30, 2023 were primarily related to increases in interest received in conjunction with higher interest rates and levels of short-term investments.

The increases for the three- and nine-month periods ended September 30, 2023 were primarily related to increases in interest received in conjunction with higher interest rates.

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 $1.6 million and $2.4 million for the three- and six-month periods ended June 30, 2023, respectively, compared with $1.1 million and $2.4 million for the same prior year periods.

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

Net Investment Gains (Losses)

Other investment income was $514 thousand and $2.9 million for the three- and nine-month periods ended September 30, 2023, respectively, compared with $2.2 million and $4.6 million for the same prior year periods.

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

Net Investment (Losses) Gains

Net investment gains and losses include realized gains and losses on the sale of investment securities and changes in the estimated fair value of equity security investments.

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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 $5.9 million and $13.1 million for the three- and six-month periods ended June 30, 2023, respectively, compared with $2.0 million and $3.8 million for the same prior year periods.

The Company recorded impairment charges of $30 thousand and $112 thousand on certain fixed maturity securities where the intent to hold has changed in the three- and six-month periods ended June 30, 2023, respectively, compared with $127 thousand in each of the prior year periods.

Management believes unrealized losses on the remaining fixed maturity securities at June 30, 2023 are temporary in nature.

The net realized investment gains were $1.6 million and $14.7 million for the three- and nine-month periods ended September 30, 2023, respectively, compared with $2.5 million and $6.3 million for the same prior year periods.

The Company recorded impairment charges of $96 thousand and $208 thousand on certain fixed maturity securities where the intent to hold has changed in the three- and nine-month periods ended September 30, 2023, respectively, compared with $35 thousand and $162 thousand for the same prior year periods.

Management believes unrealized losses on the remaining fixed maturity securities at September 30, 2023 are temporary in nature.

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

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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 $(4.8) million and $(11.6) million for the three- and six-month periods ended June 30, 2023, respectively, compared with $(12.2) million and $(18.1) million for the same prior year periods.

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 periods 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.

Changes in the Estimated Fair Value of Equity Security Investments – Changes in the estimated fair value of equity security investments were $(2.4) million and $(14.0) million for the three- and nine-month periods ended September 30, 2023, respectively, compared with $(4.6) million and $(22.7) million for the same prior year periods.

Such fluctuations are typically the result of changes in general market conditions during the respective periods, however, the sale of appreciated investment securities can result in a reduction in unrealized gains as they are 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 $250 thousand and $390 thousand for the three- and six-month periods ended June 30, 2023, respectively, compared with $348 thousand and $647 thousand for the same prior year periods.

Other revenues were $257 thousand and $647 thousand for the three- and nine-month periods ended September 30, 2023, respectively, compared with $277 thousand and $924 thousand for the same prior year periods.

The Company's operating expenses consist primarily of commissions to agents, personnel expenses, office and technology expenses and the provision for claims.

Operating expenses decreased 28.7% and 23.9% for the three- and six-month periods ended June 30, 2023, compared with the same prior year periods.

The decreases for the three- and six-month periods ended June 30, 2023 were primarily due to decreases in commissions to agents, personnel expenses and other expenses.

Following is a summary of the Company's operating expenses for the three- and six-month periods ended June 30, 2023 and 2022.

Operating expenses decreased 22.3% and 23.3% for the three- and nine-month periods ended September 30, 2023, compared with the same prior year periods.

The decreases for the three- and nine-month periods ended September 30, 2023 were primarily due to decreases in commissions to agents, personnel expenses and other expenses.

Following is a summary of the Company's operating expenses for the three- and nine-month periods ended September 30, 2023 and 2022.

Inter-segment eliminations have been netted;

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

(in thousands, except percentages) 2023 % 2022 % 2023 % 2022 %

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Total $ 52,800 100.0 $ 67,910 100.0 $ 151,050 100.0 $ 197,064 100.0

On a combined basis, the after-tax profit margins were 13.0% and 8.0% for the three- and six-month periods ended June 30, 2023, respectively, compared with 3.2% and 6.1% for the same prior year periods.

The increases for the three- and six-month periods ended June 30, 2023 were primarily due to Company expense reduction initiatives, higher investment earnings, and growth in revenue from non-title services.

On a combined basis, the after-tax profit margins were 11.5% and 9.3% for the three- and nine-month periods ended September 30, 2023, respectively, compared with 10.1% and 7.5% for the same prior year periods.

The increases for the three- and nine-month periods ended September 30, 2023 were primarily due to Company expense reduction initiatives, higher investment earnings, and growth in revenue from non-title services.

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 $18.5 million and $39.4 million for the three- and six-month periods ended June 30, 2023, respectively, compared with $20.9 million and $42.2 million for the same prior year periods.

On a consolidated basis, personnel expenses as a percentage of total revenues were 31.8% and 35.9% for the three- and six-month periods ended June 30, 2023, respectively, compared with 29.5% and 30.1% for the same prior year periods.

The decreases in personnel expenses for the three- and six-month periods ended June 30, 2023 were primarily due to reductions in incentive compensation.

Personnel expenses were $19.1 million and $58.5 million for the three- and nine-month periods ended September 30, 2023, respectively, compared with $21.6 million and $63.7 million for the same prior year periods.

On a consolidated basis, personnel expenses as a percentage of total revenues were 31.1% and 34.2% for the three- and nine-month periods ended September 30, 2023, respectively, compared with 27.7% and 29.3% for the same prior year periods.

The decreases in personnel expenses for the three- and nine-month periods ended September 30, 2023 were primarily due to reductions in incentive compensation and reductions in staffing levels.

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 $4.5 million and $8.9 million for the three- and six-month periods ended June 30, 2023, respectively, compared with $4.3 million and $8.7 million for the same prior year periods.

The increases for the three- and six-month periods ended June 30, 2023 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 remained consistent with the prior year period at $4.2 million and $13.1 million for the three- and nine-month periods ended September 30, 2023, respectively, compared with $4.3 million and $12.9 million for the same prior year periods.

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 $3.8 million and $8.0 million for the three- and six-month periods ended June 30, 2023, respectively, compared with $7.6 million and $13.2 million for the same prior year periods.

The decreases for the three- and six-month periods ended June 30, 2023 were primarily related to a decline in premium volume resulting in lower title and service fees, premium-related taxes and licensing, and professional services for technology.

Other expenses were $3.9 million and $11.8 million for the three- and nine-month periods ended September 30, 2023, respectively, compared with $6.6 million and $19.8 million for the same prior year periods.

The decreases for the three- and nine-month periods ended September 30, 2023 were mainly due to the impact of lower title insurance volumes and a reduction in the level of contractors engaged in software development activities.

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 39.1% and 37.3% for the three- and six-month periods ended June 30, 2023, respectively, compared with the same prior year periods.

Commission expense as a percentage of net premiums written by agents was 73.0% and 73.3% for the three- and six-month periods ended June 30, 2023, compared with 75.2% and 74.6% for the same prior year periods.

Commissions to agents decreased 28.9% and 34.4% for the three- and nine-month periods ended September 30, 2023, respectively, compared with the same prior year periods.

Commission expense as a percentage of net premiums written by agents was 73.6% and 73.4% for the three- and nine-month periods ended September 30, 2023, compared with 75.2% and 74.8% for the same prior year periods.

The changes in commission expense, and commission expense as a percentage of net premiums written, were commensurate with the decrease in agent premium volume.

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

Provision for Claims – The provision for claims decreased 24.4% and increased 38.6% for the three- and six-month periods ended June 30, 2023, respectively, compared with the same prior year periods.

The provision for claims as a percentage of net premiums written was 2.3% and 2.5% for the three- and six-month periods ended June 30, 2023, compared with 1.9% and 1.1% for the same prior year periods.

The increases in the provision for claims as a percentage of net premiums written for the three- and six-month periods ended June 30, 2023 were primarily due to lower levels of favorable loss development and increases in incurred claims in the current year periods.

Provision for Claims – The provision for claims decreased 6.5% and increased 12.9% for the three- and nine-month periods ended September 30, 2023, respectively, compared with the same prior year periods.

The provision for claims as a percentage of net premiums written was 3.7% and 2.9% for the three- and nine-month periods ended September 30, 2023, compared with 2.9% and 1.7% for the same prior year periods.

The increases in the provision for claims as a percentage of net premiums written for the three- and nine-month periods ended September 30, 2023 were primarily due to changes in the geographic mix for underwriting risk and lower levels 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 $2.4 million and $1.6 million for the six-month periods ended June 30, 2023 and 2022, respectively.

At June 30, 2023, the total reserve for claims was $36.9 million.

Actual payments of claims, net of recoveries, were $3.6 million and $2.6 million for the nine-month periods ended September 30, 2023 and 2022, respectively.

At September 30, 2023, the total reserve for claims was $37.5 million.

Of that total, approximately $3.3 million was reserved for specific claims, and approximately $34.2 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 $2.3 million and $2.6 million for the three- and six-month periods ended June 30, 2023, respectively, compared with $674 thousand and $2.3 million for the same prior year periods.

Income tax expense, including federal and state taxes, as a percentage of income before income taxes was 23.0% and 23.2% for the three- and six-month periods ended June 30, 2023, respectively, compared with 22.8% and 21.2% for the same prior year periods.

The provision for income taxes was $1.5 million and $4.2 million for the three- and nine-month periods ended September 30, 2023, respectively, compared with $2.2 million and $4.5 million for the same prior year periods.

Income tax expense, including federal and state taxes, as a percentage of income before income taxes was 17.7% and 20.8% for the three- and nine-month periods ended September 30, 2023, respectively, compared with 21.6% and 21.4% for the same prior year periods.

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

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Tax-exempt income lowers the effective tax rate.

The Company believes it is more likely than not that the tax benefits associated with recognized impairments and unrecognized losses recorded through June 30, 2023 will be realized.

The Company believes it is more likely than not that the tax benefits associated with recognized impairments and unrecognized losses recorded through September 30, 2023 will be realized.

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

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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.

Cash Flows – Net cash flows (used in) provided by operating activities were $(7.4) million and $8.3 million for the six-month periods ended June 30, 2023 and 2022, respectively.

Cash Flows – Net cash flows (used in) provided by operating activities were $(6.7) million and $20.3 million for the nine-month periods ended September 30, 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 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 provided by investing activities for the six-month period ended June 30, 2023, compared with net cash being used in investing activities in the prior year period, due primarily to a current period increase in proceeds from investment sales and maturities outpacing purchases of investments.

Net cash was provided by investing activities for the nine-month period ended September 30, 2023, compared with net cash being used in investing activities in the prior year period, due primarily to a current period increase in proceeds from investment sales and maturities outpacing purchases of investments.

The Company maintains a high degree of liquidity within its investment portfolio in the form of cash, short-term investments and other readily marketable securities.

As of June 30, 2023, the Company held cash and cash equivalents of $26.2 million, short-term investments of $114.9 million, available-for-sale fixed maturity securities of $58.5 million and equity securities of $34.1 million.

As of September 30, 2023, the Company held cash and cash equivalents of $30.4 million, short-term investments of $104.0 million, available-for-sale fixed maturity securities of $64.6 million and equity securities of $31.8 million.

The net effect of all activities on total cash and cash equivalents was a decrease of $4.9 million in 2023.

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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 June 30, 2023, both ITIC and NITIC met the minimum capital, surplus and reserve requirements for each state in which they are licensed.

As of September 30, 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, given ongoing inflationary pressures and geopolitical conflicts, including the 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.

However, given ongoing inflationary pressures and geopolitical conflicts, 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 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.

The Company is carefully monitoring ongoing inflation and geopolitical conflicts, 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 7,000 shares in the six-month period ended June 30, 2023 and did not repurchase any shares in the corresponding period in 2022.

Pursuant to the Company’s ongoing purchase program, the Company purchased 7,000 shares in the nine-month period ended September 30, 2023 and 629 shares in the corresponding period in 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 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 $5.0 million for the six-month period ended June 30, 2023 .

Capital Expenditures – Capital expenditures were approximately $6.6 million for the nine-month period ended September 30, 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 June 30, 2023, the Company had a claims reserve totaling $36.9 million.

Contractual Obligations - As of September 30, 2023, the Company had a claims reserve totaling $37.5 million.

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

2 unchanged sentences

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

The amounts accrued for these agreements at June 30, 2023 and December 31, 2022, were $15.1 million and $15.0 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 September 30, 2023 and December 31, 2022, were $15.1 million and $15.0 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.

16 unchanged sentences

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

Like-kind exchange deposits and reverse exchange property held by the Company for the purpose of completing such transactions totaled approximately $232.2 million and $432.0 million as of June 30, 2023 and December 31, 2022, respectively.

Like-kind exchange deposits and reverse exchange property held by the Company for the purpose of completing such transactions totaled approximately $263.6 million and $432.0 million as of September 30, 2023 and December 31, 2022, respectively.

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

19 unchanged sentences

• changes in interest rates and real estate values;

• changes in general economic, business, and political conditions, including the performance of the financial and real estate markets;

• changes in general economic, business, and political conditions, including the performance of the financial and real estate markets and the effects of a shutdown of the U.S.

• the impact of inflation;

• the impact of the ongoing geopolitical conflicts, including the military conflict between Russia and Ukraine;

• the impact of the ongoing geopolitical conflicts ;

• potential reform of government sponsored entities;

26 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis