What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-15 compared with 2023-03-14 · 79 added, 84 removed, 375 unchanged (30% of the section changed)

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See the sections in this Annual Report on Form 10-K titled “Safe Harbor and Forward-Looking Statements” and “Risk Factors” included in Part I, Item 1A that could affect forward-looking statements.

Title Insurance

Investors Title Company (the “Company”) is a holding company that engages primarily in issuing title insurance through two subsidiaries, Investors Title Insurance Company (“ITIC”) and National Investors Title Insurance Company (“NITIC”).

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

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

Title insurance protects against loss or damage resulting from title defects that affect real property and customarily arising prior to the policy date.

When real property is conveyed from one party to another, occasionally there is an undisclosed defect in the title or a mistake or omission in a prior deed, will or mortgage that may give a third party a legal claim against such property.

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The Company’s title insurance premiums in future periods are likely to fluctuate due to these and other factors which are beyond management’s control.

Services other than title insurance provided by operating divisions of the Company are not reported separately, but rather are reported collectively in a category called “All Other”.

These other services include those offered by the Company and by its wholly owned subsidiaries, Investors Title Exchange Corporation (“ITEC”), Investors Title Accommodation Corporation (“ITAC”), Investors Trust Company (“Investors Trust”) and Investors Title Management Services, Inc.

Exchange Services

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 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.

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 a portion of the 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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From time to time, these laws are subject to review and changes, which may negatively affect the demand for tax-deferred exchanges in general, and consequently, the revenues and profitability of the Company’s exchange services division.

The Company’s trust services division, Investors Trust, provides investment management and trust services to individuals, companies, banks and trusts.

Management Services, Investment Management and Trust Services

Other services provided by operating divisions of the Company are not reported separately, but rather are reported collectively in a category called “All Other.” These other services include those offered by the Company and by its wholly owned subsidiaries, Investors Title Management Services, Inc.

(“ITMS”) and Investors Trust Company (“Investors Trust”).

ITMS offers various consulting and management services to provide clients with the technical expertise to start and successfully operate a title insurance agency.

The Company’s trust services division, Investors Trust, provides investment management and trust services to individuals, companies, banks and trusts.

Business Trends and Recent Conditions

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

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 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 governmental 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.

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.

A recent period of inflation, as well as ongoing geopolitical and military conflicts, have 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.

The Federal Open Market Committee (“FOMC”) of the Federal Reserve has been highly attentive to the risks that these events have created, and in response has been raising the target federal funds rate at recent meetings.

The Federal Open Market Committee (“FOMC”) of the Federal Reserve has been highly attentive to the risks that these events have created, and in response raised the target federal funds rate at several meetings held during 2022 and 2023.

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.

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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 February 2023 to between 4.50% and 4.75%.

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.

In norm al 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.

The FO MC maintained a target range between 0.00% and 0.25% from March 2020 until March 2022.

Starting at the March 2022 meeting of the FOMC, the FOMC consistently raised the target federal funds rate range through July 2023, when the FOMC increased the target range to between 5.25% and 5.50%.

No additional changes to the target federal funds rate have been made since the July 2023 meeting.

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”) January 19, 2023 Mortgage Finance Forecast (“MBA Forecast”) projects 2023 purchase activity to decrease 8.8% to $1,439 billion and refinance activity to decrease 32.7% to $449 billion, resulting in a decrease in total mortgage originations of 15.9% to $1,888 billion, all from 2022 levels.

The Mortgage Bankers Association's (“MBA”) January 19, 2024 Mortgage Finance Forecast (“MBA Forecast”) projects 2024 purchase activity to increase 15.9% to $1,536 billion and refinance activity to increase 50.0% to $471 billion, resulting in an increase in total mortgage originations of 22.5% to $2,007 billion, all from 2023 levels.

In 2023, purchase activity accounted for 80.8% of all mortgage originations and is projected in the MBA Forecast to represent 76.5% of all mortgage originations in 2024.

According to data published by Freddie Mac, the average 30-year fixed mortgage interest rates in the United States were 6.8% and 5.3% for the years ended December 31, 2023 and 2022, respectively.

Per the MBA Forecast, mortgage interest rates are projected to decrease over the subsequent 3-year period, reaching 4.4% in 2025.

Due to the rapidly changing environment that has continued to be influenced 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.

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

Due to the rapidly changing environment brought on by inflationary pressures, inventory constraints, geopolitical and military 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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The Consolidated Financial Statements of the Company are prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) and follow general practices within the industries in which it operates.

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

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

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

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

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

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

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

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In establishing the reserve, actuarial projections are compared with recorded reserves to evaluate the adequacy of such recorded claims reserves and any necessary adjustments are then recorded in the current period’s Consolidated Statement of Operations.

Loss ratios for earlier years tend to be more reliable than recent policy years as those years are more fully developed.

Loss ratios for older years tend to be more reliable than recent policy years as those years are more fully developed.

As the most recent claims experience develops and new information becomes available, the loss reserve estimate related to prior periods will change to more accurately reflect updated and improved emerging data.

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Quarterly, the Company evaluates the collectability of receivables.

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

Receivables deemed uncollectible have not been material to the Company.

Valuation, Impairment and Credit Losses of Investments in Securities

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For available-for-sale fixed maturity securities in an unrealized loss position for which the Company does not intend to sell the security, the Company evaluates the securities to determine whether the decline in the estimated fair value below the amortized cost basis (impairment) is due to credit-related factors or noncredit-related factors.

Any impairment that is not credit-related is recognized in other comprehensive loss, net of applicable taxes.

Credit-related impairment is recognized as an allowance for credit losses (“ACL”) on the Consolidated Balance Sheets, limited to the amount by which the amortized cost basis exceeds the estimated fair value, with a corresponding adjustment to earnings.

Any impairment that is not credit-related is recognized in other comprehensive income (loss), net of applicable taxes.

Credit-related impairment is recognized as an allowance for credit losses (“ACL”) in the Consolidated Balance Sheets, limited to the amount by which the amortized cost basis exceeds the estimated fair value, with a corresponding adjustment to earnings.

Both the ACL and the adjustment to the Consolidated Statements of Operations may be reversed if conditions change.

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

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

Unrealized holding gains and losses are reported in the Consolidated Statements of Operations as net investment gains (losses).

Realized investment gains and losses from sales are recorded on the trade date and are determined using the specific identification method.

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The Company recorded net deferred tax liabilities at December 31, 2023 and 2022.

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

The deferred tax liabilities recorded during both periods primarily relate to net unrealized gains on investments, the excess of tax over book depreciation, recorded statutory premium reserve, net of reserve for claims, 1031 exchange gains, and intangible assets.

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

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Refinance activity is generally less seasonal, but is subject to interest rate fluctuations.

Seasonal factors affecting the level of real estate activity and the volume of title premiums written will also affect the demand for exchange services.

Results of Operations

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Other investment income 3,752 3,896

Net realized investment gains 9,735 1,869

Changes in the estimated fair value of equity security investments (20,961) 14,934

Net investment gains (losses) 3,448 (11,226)

Other 991 1,141

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Net Income $ 21,686 $ 23,903

Insurance Revenues

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

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

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

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

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

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Title Insurance $ 200,937 89.4 $ 269,004 94.9

Exchange Services 13,467 6.0 8,082 2.9

All Other 10,346 4.6 6,306 2.2

Total $ 224,750 100.0 $ 283,392 100.0

Title Insurance Revenues

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

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

Net Premiums Written

Net premiums written decreased 31.2% in 2023 to $171.2 million, compared with $248.6 million in 2022.

The decrease in 2022, compared with 2021, was primarily driven by an overall decline in the level of real estate transaction volumes resulting from higher average mortgage interest rates.

The decrease in 2023, compared with 2022, was primarily 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.

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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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 4.4% in 2022 to $85.7 million, compared with $82.1 million in 2021.

The increase in net premiums written from direct operations for 2022, compared with 2021, was primarily attributable to 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 32.2% in 2023 to $58.1 million, compared with $85.7 million in 2022.

The decrease in net premiums written from direct operations for 2023, compared with 2022, was primarily 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.

Agency Net Premiums :

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Agency net premiums written decreased 30.6% in 2023 to $113.1 million, compared with $163.0 million in 2022.

The decrease in 2022, compared with 2021, was primarily attributable to 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.

The decrease in 2023, compared with 2022, was primarily 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.

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

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Net Premiums Written $ 171,158 $ 248,632

The increase in net premiums written in the state of Texas in 2022, compared with 2021, 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 Title-Related Fees

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

In 2022, escrow and other title-related fee revenue increased 58.8% to $21.7 million, compared with $13.7 million in 2021, primarily due to a larger share of business in markets that generate escrow income, and fee income associated with commercial activity.

In 2023, escrow and other title-related fee revenue decreased 23.3% to $17.1 million, compared with $22.3 million in 2022, primarily due to the decline in real estate transactions volume.

Revenue from Non-Title Services

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Non-title service revenues increased 38.1% in 2023 to $19.2 million, compared with $13.9 million in 2022.

The increase in 2022, compared with 2021, primarily related to increases in like-kind exchange revenues.

The increase in 2023, compared with 2022, primarily related to the Company’s exchange services segment benefiting from the impact of higher interest rate spreads on like-kind exchange deposits.

Investment Related Revenues

Investment related revenues include interest and dividends, other investment income, net realized investment gains and changes in the estimated fair value of equity security investments.

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

Interest and Dividends

The Company derives a substantial portion of its income from investments in fixed maturity securities, which are primarily municipal and corporate fixed maturity securities, and equity securities.

The Company derives a substantial portion of its income from investments in short-term investments, fixed maturity securities, which are primarily municipal and corporate fixed maturity securities, and equity securities.

The Company’s investment policy is designed to comply with regulatory requirements and to balance the competing objectives of asset quality and investment returns.

The Company’s title insurance subsidiaries are required by statute to maintain minimum levels of investments in order to protect the interests of policyholders.

Fixed maturity securities totaling approximately $6.7 million and $7.0 million at December 31, 2022 and 2021, respectively, were deposited with the insurance departments of the states in which business is conducted.

Fixed maturity securities totaling approximately $6.7 million at December 31, 2023 and 2022, were deposited with the insurance departments of the states in which business is conducted.

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

The Company’s investments are primarily in fixed maturity securities and, to a lesser extent, equity securities.

The Company’s investments are primarily in short-term investments and fixed maturity securities and, to a lesser extent, 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, 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.

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 $9.1 million in 2023, compared with $4.7 million in 2022.

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

The increase in 2023 primarily related to an increase in interest received in conjunction with higher interest rates.

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

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

Net Realized Investment Gains

Dispositions of equity securities at a realized gain or loss reflect such factors as industry sector allocation decisions, ongoing assessments of issuers’ business prospects and tax planning considerations.

Additionally, the amounts included in net realized investment gains are affected by assessments of securities’ valuation for impairment.

Net Investment Gains (Losses)

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

Net investment gains (losses) were $3.4 million and $(11.2) million in 2023 and 2022, respectively.

Net Realized Investment Gains and Losses - Dispositions of equity securities at a realized gain or loss reflect such factors as industry sector allocation decisions, ongoing assessments of issuers’ business prospects and tax planning considerations.

Additionally, the amounts included in net investment gains (losses) are affected by assessments of securities’ valuation for impairment.

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 $15.6 million for 2023, compared with $9.7 million for 2022.

The net realized gain on the sales of investments and other assets of $9.9 million in 2022 was partially offset by impairment charges of $172 thousand for certain fixed maturity securities where the intent to hold had changed in 2022.

There were no impairment charges recorded in 2021.

The net realized gains in 2023 and 2022 included impairment charges of $201 thousand and $172 thousand, respectively, for certain fixed maturity securities where the intent to hold had changed.

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

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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 in the financial statements provided by issuers.

Changes in the Estimated Fair Value of Equity Security Investments

Changes in the estimated fair value of equity security investments were $(21.0) million in 2022 and $14.9 million in 2021.

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

All major indices experienced significant declines in 2022.

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

Other income was $1.1 million in 2022, compared with $4.8 million for 2021.

The decrease in 2022, compared with 2021, primarily related to a gain on the sale of a property in 2021.

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

Changes in the Estimated Fair Value of Equity Security Investments - Changes in the estimated fair value of equity security investments were $(12.2) million in 2023 and $(21.0) million in 2022.

Such fluctuations are 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 includes gains and losses on the disposal of assets, rental income from real estate investments and miscellaneous revenues.

Other revenues were virtually unchanged at $1.0 million in 2023, compared with $1.1 million for 2022.

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 3.6% in 2022, compared with 2021, primarily due to increases in personnel, office, technology and other operating expenses, partially offset by a decrease in commissions to agents.

Operating expenses decreased 21.6% in 2023, compared with 2022, primarily due to decreases in commissions to agents, personnel expenses and other operating expenses.

Following is a summary of the Company’s operating expenses for 2023 and 2022.

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Title Insurance $ 187,333 94.4 $ 242,280 95.7

Exchange Services 2,414 1.2 2,588 1.0

All Other 8,773 4.4 8,416 3.3

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Personnel expenses were $76.7 million and $85.3 million for 2023 and 2022, respectively.

Personnel expenses increased by 32.9% in 2022, compared with 2021, primarily due to staffing of new offices and hiring to support growth initiatives.

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

Employee headcount increased by 16.5%, when compared to the same prior year period, primarily due to the Company's continued expansion efforts in the Texas market.

Personnel expenses decreased by 10.1% in 2023, compared with 2022, primarily due to reductions in incentive compensation and reductions in staffing levels.

Employee headcount decreased by 12.8%, when compared to the same prior year period, primarily due to the Company's cost saving measures.

On a consolidated basis, personnel expenses as a percentage of total revenues were 34.1% and 30.1% in 2023 and 2022, respectively.

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Office and technology expenses were $17.4 million and $17.3 million for 2023 and 2022, respectively.

The increase in office and technology expenses in 2022, compared with 2021, was 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.

The slight increase in office and technology expenses in 2023, compared with 2022, was primarily due to an increase in technology expenses partially offset by a decline in office expenses.

Other Expenses:

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Other expenses were $16.3 million and $24.8 million for 2023 and 2022, respectively.

The increase in 2022, compared with 2021, was primarily related to increases in title and service fees, technology fees, business development expenses, and amortization of intangible assets.

The decrease in 2023, compared with 2022, was 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

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Provision for Claims :

The provision for claims decreased 25.2% in 2022, compared to 2021.

The provision for claims increased 11.9% in 2023, compared to 2022.

The provision for claims as a percentage of net premiums written was 2.8% and 1.7% in 2023 and 2022, respectively.

The dollar decrease in the provision for claims in 2022, compared with 2021, was primarily due to reductions in net premiums written and the impact of changes in the geographical mix for underwriting risk.

The decrease in the loss provision rate in 2022, from the 2021 level, resulted in approximately $907 thousand less in reserves than would have been recorded at the higher 2021 level.

The dollar increase in the provision for claims in 2023, compared with 2022, was primarily due to less favorable loss development and higher incurred claims in the current period.

The increase in the loss provision rate in 2023, from the 2022 level, resulted in approximately $1.8 million more in reserves than would have been recorded at the lower 2022 level.

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

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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.

Tax-exempt income lowers the effective tax rate.

federal statutory income tax rate of 21% primarily due to the effects of deferred tax adjustments, tax credits, tax-exempt income and state taxes, all of which lowered the effective tax rate.

The Company believes it is more likely than not that the tax benefits associated with recognized impairments and unrecognized losses recorded through December 31, 2023 will be realized.

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On a combined basis, the after-tax profit margins were 9.6% and 8.4% in 2023 and 2022, respectively.

The decrease in after-tax margin in 2022, compared with 2021, was primarily related to a decrease in total revenue and an increase in expenses.

The increase in after-tax margin in 2023, compared with 2022, was primarily related to a decrease 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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Cash flows from non-operating activities have historically consisted of purchases and proceeds from investing activities, the issuance of dividends and repurchases of common stock.

In 2022, the Company had higher investment purchase activity and lower dividends paid when compared to 2021.

In 2023, the Company had higher investment purchase activity, higher levels of proceeds from investment sales activity and higher dividends paid when compared to 2022.

In the fourth quarters of 2023 and 2022, the Company paid special cash dividends in the amounts of $4.00 and $3.00 per share, respectively, in addition to regular cash dividends.

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The net effect of all activities on total cash and cash equivalents was a decrease of $11.3 million for 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:

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Adverse developments that generally require additional capital include adverse financial results, changes in statutory accounting requirements by regulators, reserve charges, investment losses or costs incurred to adapt to a changing regulatory environment, including costs related to CFPB regulation of the real estate industry.

The Company bases its capitalization levels in part on net coverage retained.

Since the Company's geographical focus has been and continues to be concentrated in states with average premium rates typically lower than the national average, capitalization relative to premiums will usually appear higher than industry averages.

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, given inflationary pressures and geopolitical and military conflicts, 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, geopolitical and military conflicts, 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 :

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

Pursuant to the Company’s ongoing purchase program, the Company purchased 945 shares at an average per share price of $141.01 in 2022.

No shares were purchased in 2021.

Pursuant to the Company’s ongoing purchase program, the Company purchased 7,000 shares at an average per share price of $137.00 and 945 shares at an average per share price of $141.01 in 2023 and 2022, respectively.

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 the existing alternative uses for such cash.

Capital Expenditures :

Capital expenditures were approximately $5.7 million and $6.5 million during 2022 and 2021, respectively, with the higher 2021 expenditures related primarily to system development initiative expenses.

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

Capital expenditures were approximately $9.2 million and $5.7 million during 2023 and 2022, respectively.

Cash flows from operations are expected to fund the Company's investment in technology and system development initiatives and hardware purchases, given ongoing capital improvement projects and plans for future projects.

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

32 unchanged sentences

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

External assets under management of Investors Trust Company totaled approximately $635.3 m illion and $728.2 million as of December 31, 2022 and 2021, respectively.

External assets under management of Investors Trust Company totaled approximately $663.9 million and $635.3 million as of December 31, 2023 and 2022, respectively.

These amounts are not considered assets of the Company and, therefore, are excluded from the Consolidated Balance Sheets.

2 unchanged sentences

Other than items noted above, off-balance sheet arrangements are generally limited to the future payments due under various agreements with third-party service providers.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Item not required for smaller reporting companies.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis