INVESTORS TITLE CO

Previous wording

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”). 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 the Company's revenues for the three-month period ended March 31, 2024.

Current wording

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”). 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 90.3% of the Company's revenues for the six-month period ended June 30, 2024.

Previous wording

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. If a covered claim is made against real property, title insurance provides indemnification against insured defects.

Current wording

Title insurance protects against loss or damage resulting from title defects that affect real property. 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. If a covered claim is made against real property, title insurance provides indemnification against insured defects.

Previous wording

The Mortgage Bankers Association's ("MBA") April 18, 2024 Mortgage Finance Forecast (“MBA Forecast”) projects 2024 purchase activity to increase 5.1% to $1,393 billion and mortgage refinance activity to increase 34.4% to $422 billion, resulting in a net increase in total mortgage originations of 10.7% to $1,815 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 76.7% 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 6.7% and 6.4% for the three-month periods ended March 31, 2024 and 2023, respectively. Per the MBA Forecast, mortgage interest rates are projected to decrease in subsequent periods, reaching 5.5% in 2026. Due to the rapidly changing environment brought on by inflationary pressures, inventory constraints, and geopolitical and military conflicts, these projections and the impact of actual future developments on the Company could be subject to material change.

Current wording

The Mortgage Bankers Association's ("MBA") June 24, 2024 Mortgage Finance Forecast (“MBA Forecast”) projects 2024 purchase activity to increase 3.7% to $1,374 billion and mortgage refinance activity to increase 34.4% to $422 billion, resulting in a net increase in total mortgage originations of 9.6% to $1,796 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 6.9% and 6.4% for the six-month periods ended June 30, 2024 and 2023, respectively. Per the MBA Forecast, mortgage interest rates are projected to decrease in subsequent periods, declining to 5.8% in 2026. Due to the rapidly changing environment brought on by inflationary pressures, inventory constraints, and geopolitical and military conflicts, these projections and the impact of actual future developments on the Company could be subject to material change.

Previous wording

The preparation of the Company's unaudited Consolidated Financial Statements requires management to make estimates and judgments that affect the reported amounts of certain assets, liabilities, revenues, expenses and related disclosures regarding contingencies and commitments. Actual results could differ from these estimates. During the three-month period ended March 31, 2024, the Company did not make any material changes to its critical accounting policies as previously disclosed in Management's Discussion and Analysis in the 2023 Form 10-K.

Current wording

The preparation of the Company's unaudited Consolidated Financial Statements requires management to make estimates and judgments that affect the reported amounts of certain assets, liabilities, revenues, expenses and related disclosures regarding contingencies and commitments. Actual results could differ from these estimates. During the six-month period ended June 30, 2024, the Company did not make any material changes to its critical accounting policies as previously disclosed in Management's Discussion and Analysis in the 2023 Form 10-K.

Previous wording

The following table presents certain unaudited Consolidated Statements of Operations data for the three-month periods ended March 31, 2024 and 2023:

Current wording

The following table presents certain unaudited Consolidated Statements of Operations data for the three- and six-month periods ended June 30, 2024 and 2023:

Previous wording

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.

Current wording

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.

Previous wording

Net premiums written increased 3.1% for the three-month period ended March 31, 2024 to $40.2 million, compared with $39.0 million for the same prior year period. The increase for the three-month period ended March 31, 2024 is attributable to higher activity levels in some of our key markets.

Current wording

Net premiums written increased 16.8% and 10.4% for the three- and six-month periods ended June 30, 2024 to $51.4 million and $91.6 million, respectively, compared with $44.0 million and $83.0 million for the same prior year periods. The increases for the three- and six-month periods ended June 30, 2024 were attributable to higher real estate activity levels in certain markets and continued increases in average home prices.

Previous wording

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-month periods ended March 31, 2024 and 2023:

Current wording

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, 2024 and 2023:

Previous wording

Direct Net Premiums – The Company's direct business consists of operations at the home office, branch offices, and wholly owned title insurance agencies. 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 4.8% for the three-month period ended March 31, 2024, compared with the same prior year period. The increase for the three-month period ended March 31, 2024 is attributable to higher activity levels in some of our key markets.

Current wording

Direct Net Premiums – The Company's direct business consists of operations at the home office, branch offices, and wholly owned title insurance agencies. 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 1.6% and increased 1.3% for the three- and six-month periods ended June 30, 2024, respectively, compared with the same prior year periods. The decrease for the three-month period ended June 30, 2024 was primarily the result of the Company making the strategic decision to close less profitable offices of a wholly owned title insurance agency. The increase for the six-month period ended June 30, 2024 was primarily driven byhigher activity levels in certain markets and continued increases in average home prices.

Previous wording

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. The agent retains a majority of the premium as a commission and remits the net amount to the Company. Title insurance commissions earned by the Company’s agents are recognized as expenses concurrently with premium recognition. Agency net premiums written increased 2.3% for the three-month period ended March 31, 2024, compared with the same prior year period. The increase for the three-month period ended March 31, 2024 is attributable to higher activity levels in some of our key markets.

Current wording

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 increased 27.1% and 15.2% for the three- and six-month periods ended June 30, 2024, compared with the same prior year periods. The increases for the three- and six-month periods ended June 30, 2024 were primarily driven byhigher activity levels in certain markets and continued increases in average home prices.

Previous wording

Following is a schedule of net premiums written for the three-month periods ended March 31, 2024 and 2023 in select states in which the Company's two insurance subsidiaries, ITIC and NITIC, currently underwrite title insurance:

Current wording

Following is a schedule of net premiums written for the three- and six-month periods ended June 30, 2024 and 2023 in select states in which the Company's two insurance subsidiaries, ITIC and NITIC, currently underwrite title insurance:

Previous wording

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 virtually unchanged at $3.7 million for the three-month periods ended March 31, 2024 and 2023.

Current wording

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 $4.8 million and $8.5 million for the three- and six-month periods ended June 30, 2024, respectively, compared with $4.6 million and $8.3 million for the same prior year periods. The increases for the three- and six-month periods ended June 30, 2024 were mainly due to increases in real estate transaction volume.

Previous wording

Revenue from non-title services includes trust services, agency management services and exchange services income. Non-title service revenues were $4.3 million for the three-month period ended March 31, 2024, compared with $5.3 million for the same prior year period. The decrease for the three-month period ended March 31, 2024 was primarily related to a decrease in like-kind exchange revenues.

Current wording

Revenue from non-title services includes trust services, agency management services and exchange services income. Non-title service revenues were $4.3 million and $8.6 million for the three- and six-month periods ended June 30, 2024, respectively, compared with $4.6 million and $9.9 million for the same prior year periods. The decreases for the three- and six-month periods ended June 30, 2024 were primarily related to decreases in like-kind exchange revenues.

Previous wording

The Company derives a 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.

Current wording

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.

Previous wording

The Company’s investment strategy emphasizes after-tax income and principal preservation. 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. The Company’s invested assets are managed to fund its obligations and evaluated to ensure long term stability of capital accounts.

Current wording

The Company’s investment strategy emphasizes after-tax income and principal preservation. 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 at June 30, 2024 is less than 10 years. The Company’s invested assets are managed to fund its obligations and evaluated to ensure long term stability of capital accounts.

Previous wording

As the Company generates cash from operations, it is invested in accordance with the Company’s investment policy and corporate goals. The Company’s investment policy has been designed to balance multiple goals, including the assurance of a stable source of income from interest and dividends, the preservation of principal, and the provision of liquidity sufficient to meet insurance underwriting and other obligations as they become payable in the future. 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, U.S. Treasury bills, commercial paper and certificates of deposit. The Company strives to maintain a high quality investment portfolio. 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.

Current wording

As the Company generates cash from operations, it is invested in accordance with the Company’s investment policy and corporate goals. The Company’s investment policy has been designed to balance multiple goals, including the assurance of a stable source of income from interest and dividends, the preservation of principal, and the provision of liquidity sufficient to meet insurance underwriting and other obligations as they become payable in the future. 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, U.S. Treasury bills, commercial paper and certificates of deposit. The Company strives to maintain a high quality investment portfolio.

Previous wording

Interest and dividends were $2.5 million for the three-month period ended March 31, 2024, compared with $2.1 million for the same prior year period. Interest and dividend 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, 2024 was primarily related to an increase in interest received due to higher interest rates and levels of short-term investments and fixed maturity securities.

Current wording

Interest and dividends were $2.6 million and $5.1 million for the three- and six-month periods ended June 30, 2024, respectively, compared with $2.2 million and $4.2 million for the same prior year periods. Interest and dividend 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, 2024 were primarily related to elevated levels of interest income, predominantly influenced by interest rates, general market performance, and the amount of investments and cash held.

Previous wording

Other investment income was $111 thousand for the three-month period ended March 31, 2024, compared $753 thousand 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.

Current wording

Other investment income was $890 thousand and $1.0 million for the three- and six-month periods ended June 30, 2024, respectively, compared with $1.6 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 distributions received.

Previous wording

Net investment gains 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 were $2.4 million for the three-month period ended March 31, 2024, compared with $443 thousand for the same prior year period.

Current wording

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.

Previous wording

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 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.

Current wording

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 realized investment gains or 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.

Previous wording

The net realized investment gains were $2.6 million for the three-month period ended March 31, 2024, compared with $7.2 million for the same prior year period. The Company recorded impairment charges of $53 thousand and $82 thousand on certain fixed maturity securities where the intent to hold had changed in the three-month periods ended March 31, 2024 and 2023, respectively. Management believes unrealized losses on the remaining fixed maturity securities at March 31, 2024 are not credit related.

Current wording

The net realized investment gains were $1.8 million and $4.4 million for the three- and six-month periods ended June 30, 2024, respectively, compared with $5.9 million and $13.1 million for the same prior year periods. The Company recorded impairment charges of $21 thousand and $74 thousand on certain fixed maturity securities where the intent to hold has changed in the three- and six-month periods ended June 30, 2024, respectively, compared with $30 thousand and $112 thousand for the same prior year periods. Management believes unrealized losses on the remaining fixed maturity securities at June 30, 2024 are temporary in nature.

Previous wording

Changes in the Estimated Fair Value of Equity Security Investments– Changes in the estimated fair value of equity security investments were $(169) thousand for the three-month period ended March 31, 2024, compared with $(6.8) million for the same prior year period. 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.

Current wording

Changes in the Estimated Fair Value of Equity Security Investments – Changes in the estimated fair value of equity security investments were $(589) thousand and $(759) thousand for the three- and six-month periods ended June 30, 2024, respectively, compared with $(4.8) million and $(11.6) 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.

Previous wording

Other revenues primarily include miscellaneous income and gains and losses on the disposal of fixed assets and real estate and rental income. Other revenues were $199 thousand for the three-month period ended March 31, 2024, compared with $140 thousand for the same prior year period.

Current wording

Other revenues primarily include miscellaneous income and gains and losses on the disposal of fixed assets and real estate. Other revenues were $161 thousand and $360 thousand for the three- and six-month periods ended June 30, 2024, respectively, compared with $250 thousand and $390 thousand for the same prior year periods.

Previous wording

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 4.3% for the three-month period ended March 31, 2024, compared with the same prior year period. The decrease for the three-month period ended March 31, 2024 was primarily due to a decline in personnel expenses and other expenses, partially offset by an increase in commissions to agents.

Current wording

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 11.7% and 3.6% for the three- and six-month periods ended June 30, 2024, compared with the same prior year periods. The increases for the three- and six-month periods ended June 30, 2024 were primarily due to increases in commissions to agents and other expenses, partially offset by decreases in personnel expenses.

Previous wording

Following is a summary of the Company's operating expenses for the three-month periods ended March 31, 2024 and 2023. Inter-segment eliminations have been netted; therefore, the individual segment amounts will not agree to Note 4 to the unaudited Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

Current wording

Following is a summary of the Company's operating expenses for the three- and six-month periods ended June 30, 2024 and 2023. Inter-segment eliminations have been netted; therefore, the individual segment amounts will not agree to Note 4 to the unaudited Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

Previous wording

On a combined basis, the after-tax profit margin was 8.5% for the three-month period ended March 31, 2024, compared with 2.3% for the same prior year period. The increase for the three-month period ended March 31, 2024 was primarily due to increases in premiums and net investment gains and decreases in personnel costs and other overhead expense categories. The Company continually strives to enhance its competitive strengths and market position, including ongoing initiatives to manage its operating expenses.

Current wording

On a combined basis, the after-tax profit margins were 13.6% and 11.3% for the three- and six-month periods ended June 30, 2024, respectively, compared with 13.0% and 8.0% for the same prior year periods. The increases for the three- and six-month periods ended June 30, 2024 were primarily due to growth in net premiums written, Company expense reduction initiatives, and higher levels of investment earnings. The Company continually strives to enhance its competitive strengths and market position, including ongoing initiatives to manage its operating expenses.

Previous wording

Personnel Expenses– Personnel expenses include base salaries, benefits and payroll taxes, bonuses paid to employees and contract labor expenses. Personnel expenses were $18.6 million for the three-month period ended March 31, 2024, compared with $20.8 million for the same prior year period. On a consolidated basis, personnel expenses as a percentage of total revenues were 34.8% for the three-month period ended March 31, 2024, compared with 40.6% for the same prior year period. The decrease in personnel expenses for the three-month period ended March 31, 2024 was primarily due to reduced staffing levels.

Current wording

Personnel Expenses– Personnel expenses include base salaries, benefits and payroll taxes, bonuses paid to employees and contract labor expenses. Personnel expenses were $18.2 million and $36.7 million for the three- and six-month periods ended June 30, 2024, respectively, compared with $18.5 million and $39.4 million for the same prior year periods. On a consolidated basis, personnel expenses as a percentage of total revenues were 27.8% and 30.9% for the three- and six-month periods ended June 30, 2024, respectively, compared with 31.8% and 35.9% for the same prior year periods. The decreases in personnel expenses for the three- and six-month periods ended June 30, 2024 were primarily due to lower staffing levels.

Previous wording

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 $4.4 million for the three-month periods ended March 31, 2024 and 2023, respectively.

Current wording

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 remained relatively consistent with the prior year period at $4.3 million and $8.8 million for the three- and six-month periods ended June 30, 2024, respectively, compared with $4.5 million and $8.9 million for the same prior year periods.

Previous wording

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 for the three-month period ended March 31, 2024, compared with $4.2 million for the same prior year period. The decrease for the three-month period ended March 31, 2024 was primarily related to decreases in title and service fees, technology expenses and miscellaneous expenses.

Current wording

Other Expenses– Other expenses primarily include business development expenses, premium-related taxes and licensing, professional services, title and service fees, amortization of intangible assets and other general expenses. Other expenses were $4.2 million and $8.0 million for the three- and six-month periods ended June 30, 2024, respectively, compared with $3.8 million and $8.0 million for the same prior year periods. The increase for the three-month period June 30, 2024 was mainly due to expenses associated with higher title insurance revenues.

Previous wording

Commissions to Agents– Agent commissions represent the portion of premiums retained by agents pursuant to the terms of their respective agency contracts. Commissions to agents increased 2.8% for the three-month period ended March 31, 2024, compared with the same prior year period. Commission expense as a percentage of net premiums written by agents was 74.0% for the three-month period ended March 31, 2024, compared with 73.6% for the same prior year period. The change in commission expense was primarily related to the increase in agent premium volume. Commission rates vary by market due to local practice, competition and state regulations.

Current wording

Commissions to Agents– Agent commissions represent the portion of premiums retained by agents pursuant to the terms of their respective agency contracts. Commissions to agents increased 28.9% and 16.3% for the three- and six-month periods ended June 30, 2024, respectively, compared with the same prior year periods. Commission expense as a percentage of net premiums written by agents was 74.0% and 74.0% for the three- and six-month periods ended June 30, 2024, respectively, compared with 73.0% 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 commensurate with the increases in agent premium volume. Commission rates vary by market due to local practice, competition and state regulations.

Previous wording

Provision for Claims– The provision for claims decreased $158 thousand for thethree-month period ended March 31, 2024, compared with the same prior year period. The provision for claims as a percentage of net premiums written was 2.3% for thethree-month period ended March 31, 2024, compared with 2.7% for the same prior year period. The decrease in the provision for claims for the three-month period ended March 31, 2024 was primarily due to a higher level of favorable loss development and less incurred claims losses in the current year period.

Current wording

Provision for Claims– The provision for claims decreased 8.7% and 11.9% for thethree- and six-month periods ended June 30, 2024, respectively, compared with the same prior year periods. The provision for claims as a percentage of net premiums written was 1.8% and 2.0% for thethree- and six-month periods ended June 30, 2024, respectively, compared with 2.3% and 2.5% for the same prior year periods. The decreases in the provision for claims as a percentage of net premiums written for the three- and six-month periods ended June 30, 2024 were primarily due to favorable loss development.

Previous wording

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$741 thousand and $1.3 million for the three-month periods ended March 31, 2024 and 2023, respectively.

Current wording

Title claims are typically reported and paid within the first several years of policy issuance. The provision for claims reflects actual payments of claims, net of recovery amounts, plus adjustments to the specific and incurred but not reported claims reserves, the latter of which are actuarially determined based on historical claims experience. Actual payments of claims, net of recoveries, were $1.8 million and $2.4 million for the six-month periods ended June 30, 2024 and 2023, respectively.

Previous wording

At March 31, 2024, the total reserve for claims was $37.3 million. Of that total, approximately $3.2 million was reserved for specific claims, and approximately $34.1 million was reserved for claims for which the Company had no notice. Because of the uncertainty of future claims, changes in economic conditions and the fact that claims may not materialize for several years, reserve estimates are subject to variability.

Current wording

At June 30, 2024, the total reserve for claims was $37.2 million. Of that total, approximately $3.3 million was reserved for specific claims, and approximately $33.9 million was reserved for claims for which the Company had no notice. Because of the uncertainty of future claims, changes in economic conditions and the fact that claims may not materialize for several years, reserve estimates are subject to variability.

Previous wording

The provision for income taxes was $1.3 million for the three-month period ended March 31, 2024, compared with $380 thousand for the same prior year period. Income tax expense, including federal and state taxes, as a percentage of income before income taxes was 21.9% for the three-month period ended March 31, 2024, compared with 24.3% for the same prior year period. The effective income tax rates for both 2024 and 2023 differ from the U.S. 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.

Current wording

The provision for income taxes was $2.4 million and $3.7 million for the three- and six-month periods ended June 30, 2024, respectively, compared with $2.3 million and $2.6 million for the same prior year periods. Income tax expense, including federal and state taxes, as a percentage of income before income taxes was 21.3% and 21.5% for the three- and six-month periods ended June 30, 2024, respectively, compared with 23.0% and 23.2% for the same prior year periods. The effective income tax rates for both 2024 and 2023 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.

Previous wording

Cash Flows– Net cash flows provided by (used in) operating activities were $1.4 million and $(13.1) million for the three-month periods ended March 31, 2024 and 2023, respectively. Cash flows provided by (used in) 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.

Current wording

Cash Flows– Net cash flows provided by (used in) operating activities were $9.9 million and $(7.4) million for the six-month periods ended June 30, 2024 and 2023, respectively. Cash flows provided by (used in) 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.

Previous wording

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 three-month period ended March 31, 2024, compared with net cash being provided by investing activities in the prior year period.

Current wording

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 six-month period ended June 30, 2024, compared with net cash being provided by investing activities in the prior year period. Net cash was used in financing activities for the six-month periods ended June 30, 2024 and 2023.

Previous wording

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 March 31, 2024, the Company held cash and cash equivalents of $21.6 million, short-term investments of $113.4 million, available-for-sale fixed maturity securities of $62.6 million and equity securities of $36.7 million. The net effect of all activities on total cash and cash equivalents was a decrease of $2.4 million in 2024. 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.

Current wording

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, 2024, the Company held cash and cash equivalents of $26.7 million, short-term investments of $84.5 million, available-for-sale fixed maturity securities of $93.5 million and equity securities of $36.8 million. The net effect of all activities on total cash and cash equivalents was an increase of $2.7 million in 2024.

Previous wording

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 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 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.

Current wording

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 inflationary pressures and geopolitical and military conflicts, there can be no assurance that future experience will be similar tohistorical 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, 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.

Previous wording

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. The Company purchased 6,763 shares in thethree-month period ended March 31, 2024 and no shares in the same prior year period. 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.

Current wording

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 7,039 shares in the six-month period ended June 30, 2024 and 7,000 shares in the corresponding period in 2023. 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.

Previous wording

Capital Expend itures– Capital expenditures were approximately $2.2 million for the three-month period ended March 31, 2024. In 2024, 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.

Current wording

Capital Expenditures– Capital expenditures were approximately $4.3 million for the six-month period ended June 30, 2024. In 2024, the Company has plans for various capital improvement projects, including 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.