INVESTORS TITLE CO

Previous wording

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”). Total revenues from the title segment accounted for 89.4% of the Company’s revenues in 2023. Through ITIC and NITIC, the Company underwrites land title insurance for owners and mortgagees as a primary insurer.

Current wording

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”). Total revenues from the title segment accounted for 91.2% of the Company’s revenues in 2024. Through ITIC and NITIC, the Company underwrites land title insurance for owners and mortgagees as a primary insurer.

Previous wording

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 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. ITAC provides services as an exchange accommodation titleholder for accomplishing “parking transactions” as set forth in the safe harbor contained in Internal Revenue Procedure 2000-37. These transactions include reverse exchanges when taxpayers decide to acquire replacement property before selling the relinquished property, or “build to suit” exchanges, when improvements must be made to the replacement property before the taxpayer acquires the improved replacement property. The services provided by the Company’s exchange services division, ITEC and ITAC, are pursuant to provisions in the IRC. 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.

Current wording

The Company’s exchange services division, consisting of the operations of Investors Title Exchange Corporation (“ITEC”) and Investors Title Accommodation Corporation (“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 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. ITAC provides services as an exchange accommodation titleholder for accomplishing “parking transactions” as set forth in the safe harbor contained in Internal Revenue Procedure 2000-37. These transactions include reverse exchanges when taxpayers decide to acquire replacement property before selling the relinquished property, or “build to suit” exchanges, when improvements must be made to the replacement property before the taxpayer acquires the improved replacement property. The services provided by the Company’s exchange services division, ITEC and ITAC, are pursuant to provisions in the Internal Revenue Code of 1986, as amended (the “IRC”). 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.

Previous wording

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

Current wording

A recent period of inflation, ongoing geopolitical and military conflicts, and changes in government regulations and policy, including as a result of the recent change in presidential administration, 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 adjusted the target federal funds rate at several meetings held from 2022 to 2024. Although the federal funds rate does not directly impact mortgage interest rates, it can have a significant influence as lenders pass on the costs of rate increases to consumers. Higher mortgage interest rates have impacted the demand and pricing of real estate.

Previous wording

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

Current wording

The FOMC issues disclosures on a periodic basis that include projections of the federal funds rate and expected actions. The FOMC 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%. During several FOMC meetings throughout 2024, the target federal funds rate was reduced, with the most recent adjustment occurring in December 2024, lowering the rate to a range of 4.25% to 4.50%. During its January 2025 meeting, the FOMC opted to keep the target federal funds rate unchanged within the 4.25% to 4.50% range, emphasizing a cautious approach due to prevailing economic uncertainties and a desire to evaluate upcoming economic data. 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.

Previous wording

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 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.

Current wording

The Mortgage Bankers Association's (“MBA”) January 19, 2025 Mortgage Finance Forecast (“MBA Forecast”) projects 2025 purchase activity to increase 8.1% to $1,392 billion and refinance activity to increase 34.4% to $660 billion, resulting in an increase in total mortgage originations of 15.3% to $2,052 billion, all from 2024 levels. In 2024, purchase activity accounted for 72.4% of all mortgage originations and is projected in the MBA Forecast to represent 67.8% of all mortgage originations in 2025. According to data published by Freddie Mac, the average 30-year fixed mortgage interest rates in the United States were 6.7% and 6.8% for the years ended December 31, 2024 and 2023, respectively. Per the MBA Forecast, mortgage interest rates are projected to decline modestly in subsequent periods, reaching 6.4% in 2026. Due to the rapidly changing environment brought on by inflationary pressures, inventory constraints, geopolitical and military conflicts, and changes in government regulations and policy, including as a result of the recent change in presidential administration, these projections and the impact of actual future developments on the Company could be subject to material change.

Previous wording

The Company’s reserve for claims is established using estimates of amounts required to settle claims for which notice has been received (reported) and the amount estimated to be required to satisfy incurred claims of policyholders which may be reported in the future (incurred but not reported, or “IBNR”). The total reserve for all losses incurred but unpaid as of December 31, 2023 is represented by the reserve for claims totaling $37.1 million in the Consolidated Balance Sheets included in Item 8 of this Annual Report on Form 10-K (the “Consolidated Balance Sheets”). Of that total, approximately $2.9 million was reserved for specific claims which have been reported to the Company, and approximately $34.3 million was reserved for IBNR claims.

Current wording

The Company’s reserve for claims is established using estimates of amounts required to settle claims for which notice has been received (reported) and the amount estimated to be required to satisfy incurred claims of policyholders which may be reported in the future (incurred but not reported, or “IBNR”). The total reserve for all losses incurred but unpaid as of December 31, 2024 is represented by the reserve for claims totaling $37.1 million in the Consolidated Balance Sheets included in Item 8 of this Annual Report on Form 10-K (the “Consolidated Balance Sheets”). Of that total, approximately $2.7 million was reserved for specific claims which have been reported to the Company, and approximately $34.4 million was reserved for IBNR claims.

Previous wording

Investments in Fixed Maturity Securities: Fixed maturity securities are classified as available-for-sale and reported at estimated fair value with unrealized gains and losses, net of tax, reported as accumulated other comprehensive income. Securities are regularly reviewed for differences between the cost and estimated fair value of each security indicating impairment. Factors considered in determining whether the impairment is credit-related include the financial condition and prospects of the issuer (including credit ratings and analyst reports) and macro-economic changes. If the Company intends to sell an available-for-sale security in an unrealized loss position, or determines that it is more likely than not that the Company will be required to sell the security before it recovers its amortized cost basis, the security is impaired and it is written down to estimated fair value with all losses recognized in earnings. 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 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.

Current wording

Investments in Fixed Maturity Securities: Fixed maturity securities are classified as available-for-sale and reported at estimated fair value with unrealized gains and losses, net of tax, reported as accumulated other comprehensive income. Securities are regularly reviewed for differences between the cost and estimated fair value of each security indicating impairment. Factors considered in determining whether the impairment is credit-related include the financial condition and prospects of the issuer (including credit ratings and analyst reports) and macro-economic changes. If the Company intends to sell an available-for-sale security in an unrealized loss position, or determines that it is more likely than not that the Company will be required to sell the security before it recovers its amortized cost basis, the security is impaired and it is written down to estimated fair value with all losses recognized in earnings. 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) income, 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.

Previous wording

Investments in Equity Securities: Equity securities represent ownership interests held by the Company in entities for investment purposes. Unrealized holding gains and losses are reported in the Consolidated Statements of Operations as 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. Refer to Note 3 to the Consolidated Financial Statements for further information about the Company’s investments in equity securities.

Current wording

Investments in Equity Securities: Equity securities represent ownership interests held by the Company in entities for investment purposes. Realized gains and losses on the sale of investment securities and changes in the estimated fair value of equity security investments are reported in the Consolidated Statements of Operations as net investment gains. Realized investment gains and losses from sales are recorded on the trade date and are determined using the specific identification method. Refer to Note 3 to the Consolidated Financial Statements for further information about the Company’s investments in equity securities.

Previous wording

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

Current wording

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

Previous wording

Title insurance companies typically issue title insurance policies directly or through title agencies. Following is a breakdown of net premiums generated by direct and agency operations for the years ended December 31, 2023 and 2022, with certain balances for 2022 reclassified to conform to the 2023 presentation.

Current wording

Title insurance companies typically issue title insurance policies directly or through title agencies. Following is a breakdown of net premiums generated by direct and agency operations for the years ended December 31, 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 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.

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 increased 4.4% in 2024 to $60.6 million, compared with $58.1 million in 2023. The increase in net premiums written from direct operations for 2024, compared with 2023, was primarily driven by increased activity levels, which were influenced by ongoing expansion initiatives and lower average mortgage interest rates, and appreciation 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 decreased 30.6% in 2023 to $113.1 million, compared with $163.0 million in 2022. 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.

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 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 27.0% in 2024 to $143.6 million, compared with $113.1 million in 2023. The increase in 2024, compared with 2023, was primarily driven by increased activity levels, which were influenced by ongoing expansion initiatives and lower average mortgage interest rates, and appreciation in average home prices.

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. 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.

Current 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. In 2024, escrow and other title-related fee revenue increased 4.9% to $18.0 million, compared with $17.1 million in 2023, primarily due to an increase in real estate activity levels.

Previous wording

Revenue from non-title services includes trust services, agency management services and exchange services income. Non-title service revenues increased 38.1% in 2023 to $19.2 million, compared with $13.9 million in 2022. 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.

Current wording

Revenue from non-title services includes trust services, agency management services and exchange services income. Non-title service revenues decreased 10.6% in 2024 to $17.2 million, compared with $19.2 million in 2023. The decrease in 2024, compared with 2023, primarily related to a decrease in like-kind exchange revenues.

Previous wording

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

Current wording

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

Previous 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. 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.

Current wording

The Company derives a substantial portion of its income from investments in short-term investments, fixed maturity securities, which are primarily corporate and municipal 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 $6.1 million and $6.7 million at December 31, 2024 and 2023, respectively, were deposited with the insurance departments of the states in which business is conducted.

Previous wording

The Company’s investment strategy emphasizes after-tax income and principal preservation. 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. 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 fixed maturity securities and short-term investments and, to a lesser extent, 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.

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 $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.

Current wording

Interest and dividends were $10.7 million in 2024, compared with $9.1 million in 2023. 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 2024 primarily related to elevated levels of interest income, predominantly influenced by the amount of fixed maturity securities held, interest rates, and general market performance. 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.

Previous wording

Other investment income was $3.8 million in 2023, compared with $3.9 million in 2022. 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 $2.6 million in 2024, compared with $3.8 million in 2023. Changes in other investment income are impacted by fluctuations in the carrying value of the underlying investment and/or distributions received.

Previous wording

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.

Current 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 $4.7 million and $3.4 million in 2024 and 2023, respectively.

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 (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.

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 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.

Previous wording

The net realized investment gains were $15.6 million for 2023, compared with $9.7 million for 2022. 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.

Current wording

The net realized investment gains were $5.0 million for 2024, compared with $15.6 million for 2023. The net realized gains in 2024 and 2023 included impairment charges of $74 thousand and $201 thousand, respectively, for certain fixed maturity securities where the intent to hold had changed. There was also an impairment charge of $309 thousand in 2024 related to a write-down of other assets and investments. Management believes unrealized losses on the remaining fixed maturity securities at December 31, 2024 are not credit-related.

Previous wording

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.

Current wording

Changes in the Estimated Fair Value of Equity Security Investments -Changes in the estimated fair value of equity security investments were $(318) thousand in 2024 and $(12.2) million in 2023. 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.

Previous wording

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.

Current wording

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 $947 thousand in 2024, compared with $991 thousand for 2023.

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

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 10.2% in 2024, compared with 2023, primarily due to an increase in commissions to agents, partially offset by a decrease in personnel 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 $76.7 million and $85.3 million for 2023 and 2022, respectively. 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.

Current wording

Personnel Expenses: Personnel expenses include base salaries, benefits and payroll taxes, bonuses paid to employees and contract labor expenses. Personnel expenses were $72.5 million and $76.7 million for 2024 and 2023, respectively. Personnel expenses decreased by 5.5% in 2024, compared with 2023, primarily due to lower staffing levels. Employee headcount decreased by 3.7%, 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 28.1% and 34.1% in 2024 and 2023, respectively.

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 $17.4 million and $17.3 million for 2023 and 2022, respectively. 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.

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 were $17.5 million and $17.4 million for 2024 and 2023, respectively. The slight increase in office and technology expenses in 2024, compared with 2023, was primarily due to an increase in technology expenses partially offset by a decline in office expenses.

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 $16.3 million and $24.8 million for 2023 and 2022, respectively. 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.

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 $16.9 million and $16.3 million for 2024 and 2023, respectively. The increase in 2024, compared with 2023, was mainly due to expenses associated with higher title insurance revenues and business development.

Previous wording

Commissions to Agents: Agent commissions represent the portion of premiums retained by agents pursuant to the terms of their respective agency contracts. In 2023, commissions to agents decreased 31.4% to $83.4 million, compared with $121.6 million in 2022. Commission expense as a percentage of net premiums written by agents was 73.7% and 74.6% in 2023 and 2022, respectively. The decrease in commission expense, when comparing 2023 with 2022, was commensurate with the decrease 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. In 2024, commissions to agents increased 28.7% to $107.3 million, compared with $83.4 million in 2023. Commission expense as a percentage of net premiums written by agents was 74.7% and 73.7% in 2024 and 2023, respectively. The increase in commission expense, when comparing 2024 with 2023, was commensurate with the increase 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 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 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.

Current wording

Provision for Claims: The provision for claims decreased 4.9% in 2024, compared to 2023. The provision for claims as a percentage of net premiums written was 2.2% and 2.8% in 2024 and 2023, respectively. The decrease in the provision for claims as a percentage of net premiums written in 2024, compared with 2023, was primarily due to higher levels of favorable loss development in the current year period.

Previous wording

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.

Current wording

The decrease in the loss provision rate in 2024, from the 2023 level, resulted in approximately $1.2 million less in reserves than would have been recorded at the higher 2023 level. Loss provision rates are subject to variability and are reviewed and adjusted as experience develops.

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 $4.8 million and $3.8 million in 2023 and 2022, 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 $4.6 million and $4.8 million in 2024 and 2023, respectively.

Previous wording

Reserve for Claims: At December 31, 2023, the total reserve for claims was $37.1 million. Of that total, approximately $2.9 million was reserved for specific claims, and approximately $34.3 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 many claims do not materialize for several years, reserve estimates are subject to variability.

Current wording

Reserve for Claims: At December 31, 2024, the total reserve for claims was $37.1 million. Of that total, approximately $2.7 million was reserved for specific claims, and approximately $34.4 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 many claims do not materialize for several years, reserve estimates are subject to variability.

Previous wording

The provision for income taxes was $4.5 million and $6.2 million for 2023 and 2022, respectively. Income tax expense, including federal and state taxes, as a percentage of income before income taxes was 17.3% and 20.6% for 2023 and 2022, respectively. 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 effects of deferred tax adjustments, tax credits, tax-exempt income and state taxes, all of which lowered the effective tax rate.

Current wording

The provision for income taxes was $8.4 million and $4.5 million for 2024 and 2023, respectively. Income tax expense, including federal and state taxes, as a percentage of income before income taxes was 21.3% and 17.3% for 2024 and 2023, respectively. 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 deferred tax adjustments, tax credits, tax-exempt income and state taxes.

Previous wording

The Company’s after-tax profit margin varies according to a number of factors, including the volume and type of real estate activity. On a combined basis, the after-tax profit margins were 9.6% and 8.4% in 2023 and 2022, respectively. 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.

Current wording

The Company’s after-tax profit margin varies according to a number of factors, including the volume and type of real estate activity. On a combined basis, the after-tax profit margins were 12.0% and 9.6% in 2024 and 2023, respectively. The increase in after-tax margin in 2024, compared with 2023, was primarily related to an increase in total revenues outpacing the increase in expenses. The Company achieved gains in revenue, while profitability was aided by ongoing cost control measures. The Company continually strives to enhance its competitive strengths and market position, including ongoing initiatives to manage its operating expenses.

Previous wording

Cash Flows: Net cash flows provided by operating activities were $7.4 million and $36.2 million for 2023 and 2022, respectively. Cash flows provided by operating activities differ from net income due to adjustments for non-cash items, such as changes in the estimated fair value of equity security investments, gains and losses on investments and property, the timing of disbursements for taxes, claims and other accrued liabilities, and collections or changes in receivables and other assets.

Current wording

Cash Flows: Net cash flows provided by operating activities were $29.8 million and $7.4 million for 2024 and 2023, respectively. Cash flows 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.

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. 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. Total dividends paid per share were $5.84 and $4.84 in 2023 and 2022, respectively.

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. In 2024, the Company distributed more dividends while reducing investment purchase activity and generating lower proceeds from investment sales and maturities, compared to 2023. In the fourth quarters of 2024 and 2023, the Company paid special cash dividends in the amounts of $14.00 and $4.00 per share, respectively, in addition to regular cash dividends. Total dividends paid per share were $15.84 and $5.84 in 2024 and 2023, respectively.

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 December 31, 2023, the Company held cash and cash equivalents of $24.0 million, short-term investments of $110.2 million, available-for-sale fixed maturity securities of $63.8 million and equity securities of $37.2 million. 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.

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 December 31, 2024, the Company held cash and cash equivalents of $24.7 million, short-term investments of $59.1 million, available-for-sale fixed maturity securities of $113.0 million and equity securities of $39.9 million. The net effect of all activities on total cash and cash equivalents was an increase of $623 thousand for 2024.

Previous wording

As of December 31, 2023, approximately $113.0 million of the consolidated shareholders’ equity represented net assets of the Company’s subsidiaries that are restricted by regulation from being transferred in the form of dividends, loans or advances to the parent company without prior approval from the respective state insurance department. The Company believes, however, that amounts available for transfer from the insurance and other subsidiaries are adequate to meet the Company’s current operating needs.

Current wording

As of December 31, 2024, approximately $118.2 million of the consolidated shareholders’ equity represented net assets of the Company’s subsidiaries that are restricted by regulation from being transferred in the form of dividends, loans or advances to the parent company without prior approval from the respective state insurance department. The Company believes, however, that amounts available for transfer from the insurance and other subsidiaries are adequate to meet the Company’s current operating needs.