First American Financial Corp

Previous wording

This Management’s Discussion and Analysis contains certain financial measures that are not presented in accordance with generally accepted accounting principles (“GAAP”), including adjusted information and other revenues, adjusted personnel costs and adjusted other operating expenses, in each case excluding the effects of recent acquisitions, and adjusted debt to capitalization ratio as it excludes the effects of secured financings payable and accumulated other comprehensive loss. The Company is presenting these non-GAAP financial measures because they provide the Company’s management and readers of this Annual Report on Form 10-K with additional insight into the operational performance of the Company relative to earlier periods and additional insight into the financial leverage of the Company. The Company does not intend for these non-GAAP financial measures to be a substitute for any GAAP financial information. In this Annual Report on Form 10-K, these non-GAAP financial measures have been presented with, and reconciled to, the most directly comparable GAAP financial measures. Readers of this Annual Report on Form 10-K should use these non-GAAP financial measures only in conjunction with the comparable GAAP financial measures. Because not all companies use identical calculations, the presentation of adjusted debt to capitalization ratio may not be comparable to other similarly titled measures of other companies.

Current wording

This Management’s Discussion and Analysis contains the financial measure adjusted debt to capitalization ratio that is not presented in accordance with generally accepted accounting principles (“GAAP”) as it excludes the effects of secured financings payable and accumulated other comprehensive loss. The Company is presenting this non-GAAP financial measure because it provides the Company’s management and readers of this Annual Report on Form 10-K with additional insight into the financial leverage of the Company. The Company does not intend for this non-GAAP financial measure to be a substitute for any GAAP financial information. In this Annual Report on Form 10-K, this non-GAAP financial measure has been presented with, and reconciled to, the most directly comparable GAAP financial measure. Readers of this Annual Report on Form 10-K should use this non-GAAP financial measure only in conjunction with the comparable GAAP financial measure. Because not all companies use identical calculations, the presentation of adjusted debt to capitalization ratio may not be comparable to other similarly titled measures of other companies.

Previous wording

The consolidated financial statements have been prepared in accordance with GAAP and reflect the consolidated operations of the Company. The consolidated financial statements include the accounts of First American Financial Corporation and all controlled subsidiaries. All significant intercompany transactions and balances have been eliminated. Equity investments in which the Company exercises significant influence but does not control and is not the primary beneficiary, are accounted for using the equity method of accounting. Equity investments in which the Company does not exercise significant influence over the investee and without readily determinable fair values, or non-marketable equity securities, are accounted for at cost, less impairment, and are adjusted up or down for any observable price changes.

Current wording

The consolidated financial statements have been prepared in accordance with GAAP and reflect the consolidated operations of the Company. The consolidated financial statements include the accounts of First American Financial Corporation, all controlled subsidiaries and any variable interest entities where the Company is deemed the primary beneficiary. All significant intercompany transactions and balances have been eliminated. Equity investments in which the Company exercises significant influence but does not control and is not the primary beneficiary, are accounted for using the equity method of accounting. Equity investments in which the Company does not exercise significant influence over the investee and without readily determinable fair values, or non-marketable equity securities, are accounted for at cost, less impairment, and are adjusted up or down for any observable price changes.

Previous wording

The title insurance and services segment issues title insurance policies on residential and commercial property in the United States and offers similar or related products and services internationally. This segment also provides closing and/or escrow services; accommodates tax-deferred exchanges of real estate; provides products, services and solutions designed to mitigate risk or otherwise facilitate real estate transactions; maintains, manages and provides access to title plant data and records; provides appraisals and other valuation-related products and services; provides lien release, document custodial and default-related products and services; provides document generation services; provides warehouse lending services; subservices mortgage loans; and provides banking, trust and wealth management services. The Company, through its principal title insurance subsidiary and such subsidiary’s affiliates, transacts its title insurance business through a network of direct operations and agents. Through this network, the Company issues policies in the 49 states that permit the issuance of title insurance policies, the District of Columbia and certain United States territories. The Company also offers title insurance, closing services and similar or related products and services, either directly or through third parties in other countries, including Canada, the United Kingdom, Australia, New Zealand, South Korea and various other established and emerging markets.

Current wording

The title insurance and services segment issues title insurance policies on residential and commercial property in the United States and offers similar or related products and services internationally. This segment also provides closing and/or escrow services; accommodates tax-deferred exchanges of real estate; provides products, services and solutions designed to mitigate risk or otherwise facilitate real estate transactions; maintains, manages and provides access to title plant data and records; provides appraisals and other valuation-related products and services; provides lien release, document custodial and default-related products and services; provides document generation services; provides warehouse lending services; subservices mortgage loans; and provides banking, trust and wealth management services. The Company, through its principal title insurance subsidiary and such subsidiary’s affiliates, transacts its title insurance business through a network of direct operations and agents. Through this network, the Company issues policies in the 49 states that permit the issuance of title insurance policies, the District of Columbia and certain United States territories. The Company also offers title insurance, closing services and similar or related products and services, either directly or through third parties in other countries, including Canada, the United Kingdom, South Korea, Australia, New Zealand and various other established and emerging markets.

Previous wording

During 2023, the Company changed the name of its specialty insurance segment to the home warranty segment. In connection with this change, the Company reclassified all current year and prior year operating results related to the Company’s property and casualty insurance business, which no longer has policies in force, to the corporate segment. The home warranty segment sells products including residential service contracts that cover residential systems, such as heating and air conditioning systems, and certain appliances against failures that occur as the result of normal usage during the coverage period. This business currently operates in 36 states and the District of Columbia.

Current wording

The home warranty segment sells products including residential service contracts that cover residential systems, such as heating and air conditioning systems, and certain appliances against failures that occur as the result of normal usage during the coverage period. This business currently operates in 36 states and the District of Columbia.

Previous wording

The corporate segment includes investments in venture-stage companies, operating results of the property and casualty insurance business (as noted above), certain financing facilities and corporate services that support the Company’s business operations.

Current wording

The corporate segment includes investments in venture-stage companies, certain financing facilities and corporate services that support the Company’s business operations.

Previous wording

Title insurance policies are long-duration contracts with the majority of the claims reported to the Company within the first few years following the issuance of the policy. Generally, 65% to 75% of claim amounts become known in the first six years of the policy life, and the majority of IBNR reserves relate to the six most recent policy years. Changes in expected ultimate losses and corresponding loss rates for recent policy years are considered likely and could result in a material adjustment to the IBNR reserves. Based on historical experience, management believes a 50 basis point change to the loss rates for recent policy years, positive or negative, is reasonably likely given the long duration nature of a title insurance policy. In uncertain economic times an even larger change is more likely. As examples, if the expected ultimate losses for each of the last six policy years increased or decreased by 50 basis points, the resulting impact on the Company’s IBNR reserve would be an increase or decrease, as the case may be, of $157.6 million, and if expected ultimate losses for those same years were to fluctuate by 100 basis points, the resulting impact would be $315.2 million. A material change in expected ultimate losses and corresponding loss rates for older policy years is also possible, particularly for policy years with loss ratios exceeding historical norms. The estimates made by management in determining the appropriate level of IBNR reserves could ultimately prove to be materially different from actual claims experience.

Current wording

Title insurance policies are long-duration contracts with the majority of the claims reported to the Company within the first few years following the issuance of the policy. Generally, 65% to 75% of claim amounts become known in the first six years of the policy life, and the majority of IBNR reserves relate to the six most recent policy years. Changes in expected ultimate losses and corresponding loss rates for recent policy years are considered likely and could result in a material adjustment to the IBNR reserves. Based on historical experience, management believes a 50 basis point change to the loss rates for recent policy years, positive or negative, is reasonably likely given the long duration nature of a title insurance policy. In uncertain economic times an even larger change is more likely. As examples, if the expected ultimate losses for each of the last six policy years increased or decreased by 50 basis points, the resulting impact on the Company’s IBNR reserve would be an increase or decrease, as the case may be, of $159.0 million, and if expected ultimate losses for those same years were to fluctuate by 100 basis points, the resulting impact would be $318.0 million. A material change in expected ultimate losses and corresponding loss rates for older policy years is also possible, particularly for policy years with loss ratios exceeding historical norms. The estimates made by management in determining the appropriate level of IBNR reserves could ultimately prove to be materially different from actual claims experience.

Previous wording

The provision for title insurance losses, expressed as a percentage of title insurance premiums and escrow fees, was 3.25% for 2023, and 4.0% for 2022 and 2021. The 3.25% loss rate in the current year reflects an ultimate loss rate of 3.75% for the current policy year and a reserve release of 0.5%, or $21.6 million for prior policy years, all based on current year title insurance premiums and escrow fees for the year ended December 31, 2023.

Current wording

The provisions for title insurance losses, expressed as a percentage of title insurance premiums and escrow fees, were 3.0%, 3.25% and 4.0% for the years ended December 31, 2024, 2023 and 2022, respectively. The 3.0% loss provision rate in the current year reflects an ultimate loss rate of 3.75% for the current policy year and a reserve release of 0.75%, or $34.6 million and for prior policy years, all of which are based on title insurance premiums and escrow fees for the year ended December 31, 2024.

Previous wording

The provision in 2023 related to current year decreased by $86.9 million, or 35.0%, from 2022 as a result of decreases in title premiums and escrow fees in 2023 from 2022. The provision in 2022 related to current year decreased by $26.0 million, or 9.5%, from 2021 as a result of decreases in title premiums and escrow fees in 2022 from 2021.

Current wording

The provision in 2024 related to current year increased by $11.4 million, or 7.1%, from 2023 as a result of increases in title premiums and escrow fees in 2024 from 2023. The provision in 2023 related to current year decreased by $86.9 million, or 35.0%, from 2022 as a result of decreases in title premiums and escrow fees in 2023 from 2022.

Previous wording

In 2023, the Company chose to perform a quantitative impairment test for its title insurance reporting unit and a qualitative assessment for its home warranty reporting unit. The Company performed qualitative assessments for both reporting units in 2022 and 2021. Based on the results of the quantitative test in 2023, the Company determined that the fair value for the title insurance reporting unit exceeded its carrying amount and no additional analysis was required. The results of the Company’s qualitative assessment in 2023 for the home warranty reporting unit and the results of the qualitative assessments in 2022 and 2021 for both reporting units supported the conclusion that the reporting unit fair values were not more likely than not less than their carrying amounts and, therefore, a quantitative impairment test was not considered necessary. As a result of the Company’s annual goodwill impairment assessments, the Company did not record any goodwill impairment losses for 2023, 2022 or 2021.

Current wording

The Company performed qualitative assessments for both reporting units in 2024 and 2022. In 2023, the Company chose to perform a quantitative impairment test for its title insurance reporting unit and a qualitative assessment for its home warranty reporting unit. The results of the Company’s qualitative assessments in 2024 and 2022 for both reporting units and, in 2023, for the home warranty reporting unit, supported the conclusion that the reporting unit fair values were not more likely than not less than their carrying amounts and, therefore, a quantitative impairment test was not considered necessary. Based on the results of the quantitative test in 2023, the Company determined that the fair value for the title insurance reporting unit exceeded its carrying amount and no additional analysis was required. As a result of the Company’s annual goodwill impairment assessments, the Company did not record any goodwill impairment losses for 2024, 2023 or 2022.

Previous wording

The Company’s total revenues for 2023 were $6.0 billion, which reflected a decrease of $1.6 billion, or 21.1%, when compared with $7.6 billion for 2022. This decrease was primarily attributable to decreases in direct premiums and escrow fees of $832.7 million, or 27.0%, agent premiums of $1.1 billion, or 31.0%, and information and other revenue of $210.0 million, or 18.3%. The Company’s total revenues for 2023 also included $206.4 million of net investment losses compared to $515.8 million of net investment losses for the prior year. The decrease in direct premiums and escrow fees attributable to the title insurance and services segment was $806.5 million, or 30.3%. Direct premiums and escrow fees in the title insurance and services segment from domestic residential refinance transactions and from residential purchase transactions decreased $113.2 million, or 58.1% and $264.7 million, or 22.8%, respectively, in 2023 when compared to 2022. Direct premiums and escrow fees from domestic commercial transactions in the title insurance and services segment decreased $384.7 million, or 36.9%, in 2023 when compared to 2022.

Current wording

The Company’s total revenues for 2024 were $6.1 billion, which reflected an increase of $124.6 million, or 2.1%, when compared with $6.0 billion for 2023. This increase was primarily attributable to increases in direct premiums and escrow fees of $193.9 million, or 8.6%, agent premiums of $112.6 million, or 4.6%, and information and other revenue of $22.3 million, or 2.4%. The Company’s total revenues for 2024 also included $401.6 million of net investment losses compared to $206.4 million of net investment losses for the prior year. The increase in direct premiums and escrow fees attributable to the title insurance and services segment for 2024 totaled $191.9 million, or 10.3%, which included increases from domestic residential refinance transactions, residential purchase transactions and domestic commercial transactions of $13.0 million, or 15.9%, $56.6 million, or 6.3% and $103.8 million, or 15.8%, respectively, in 2024, when compared to 2023.

Previous wording

According to the Mortgage Bankers Association’s January 19, 2024 Mortgage Finance Forecast (the “MBA Forecast”), residential mortgage originations in the United States (based on the total dollar value of the transactions) decreased 28.9% in 2023 when compared with 2022. According to the MBA Forecast, the dollar amount of purchase originations decreased 18.2% and refinance originations decreased 54.2%. This volume of domestic residential mortgage origination activity contributed to a decrease in direct premiums and escrow fees for the Company’s direct title operations of 22.8% from domestic residential purchase transactions and a decrease of 58.1% from domestic refinance transactions in 2023 when compared to 2022.

Current wording

According to the Mortgage Bankers Association’s January 19, 2025 Mortgage Finance Forecast (the “MBA Forecast”), based on the total dollar value of the transactions, residential mortgage originations in the United States increased 22.0%, purchase originations increased 4.0% and refinance originations increased 124.2% in 2024, when compared to 2023. This volume of domestic residential mortgage origination activity contributed to an increase in direct premiums and escrow fees for the Company’s direct title operations of 6.3% from domestic residential purchase transactions and a decrease of 15.9% from domestic refinance transactions in 2024, when compared to 2023.

Previous wording

During 2023, the level of domestic title orders opened per day by the Company’s direct title operations decreased by 29.5% when compared to 2022. Also, during 2023, residential refinance opened orders per day, residential purchase opened orders per day and commercial opened orders per day decreased by 46.7%, 20.4%, and 22.0%, respectively, when compared to 2022.

Current wording

During 2024, the level of domestic title orders opened per day by the Company’s direct title operations were flat when compared to 2023. Also, during 2024, residential refinance opened orders per day, residential purchase opened orders per day and commercial opened orders per day increased by 20.2%, 1.4%, and 2.7%, respectively, when compared to 2023.

Previous wording

Direct premiums and escrow fees decreased $806.5 million, or 30.3%, in 2023 from 2022 and $438.0 million, or 14.1%, in 2022 from 2021. The decreases in direct premiums and escrow fees in 2023 from 2022 and 2022 from 2021 were primarily due to reductions in the number of domestic title orders closed by the Company’s direct title operations, partially offset by increases in domestic average revenues per order. The domestic average revenues per order closed were $3,651, $3,498 and $2,718 for 2023, 2022 and 2021, respectively. The 4.4% increase in average revenues per order closed in 2023 from 2022 was due to a shift in mix from lower premium residential refinance and default transactions to higher premium commercial transactions, partially offset by a decrease in the average revenues per order from commercial transactions. The 28.7% increase in average revenues per order closed in 2022 from 2021 was primarily due to a shift in mix from lower premium residential refinance transactions to higher premium commercial transactions, home price appreciation and, to a lesser extent, higher average revenues per order from residential purchase transactions due primarily to recent acquisitions of escrow companies, which contributed escrow revenue to the numerator when determining average revenues per order without a corresponding title order included in the denominator. The Company’s direct title operations closed 455,500, 695,900 and 1,050,700 domestic title orders during 2023, 2022 and 2021, respectively. The 34.5% decrease in orders closed in 2023 from 2022 and the 33.8% decrease in orders closed in 2022 from 2021 were generally consistent with the changes in residential mortgage origination activity in the United States as reported in the MBA Forecast.

Current wording

Direct premiums and escrow fees increased $191.9 million, or 10.3%, in 2024 from 2023 and decreased $806.5 million, or 30.3%, in 2023 from 2022. The increase in direct premiums and escrow fees in 2024 from 2023 was primarily due to increases in both domestic average revenue per order and the number of domestic title orders closed by the Company’s direct title operations. The decrease in 2023 from 2022 was primarily due to a reduction in the number of domestic title orders closed by the Company’s direct title operations, partially offset by an increase in domestic average revenue per order. The domestic average revenues per order closed were $3,914, $3,651 and $3,498 for 2024, 2023 and 2022, respectively. The 7.2% increase in average revenues per order closed in 2024 from 2023 was primarily due to increases in average revenues per order on commercial and purchase transactions, partially offset by a shift in the mix from higher premium commercial transactions to lower premium refinance transactions. The 4.4% increase in average revenues per order closed in 2023 from 2022 was due to a shift in the mix from lower premium residential refinance and default transactions to higher premium commercial transactions, partially offset by a decrease in the average revenues per order from commercial transactions. The Company’s direct title operations closed 468,800, 455,500 and 695,900 domestic title orders during 2024, 2023 and 2022, respectively. The 2.9% increase in orders closed in 2024 from 2023 and the 34.5% decrease in orders closed in 2023 from 2022 were generally consistent with the changes in residential mortgage origination activity in the United States as reported in the MBA Forecast.

Previous wording

Agent premiums decreased $1.1 billion, or 31.0%, in 2023 from 2022 and $209.5 million, or 5.6%, in 2022 from 2021. Agent premiums are recorded when notice of issuance is received from the agent, which is generally when cash payment is received by the Company. As a result, there is generally a delay between the agent’s issuance of a title policy and the Company’s recognition of agent premiums. Therefore, full year agent premiums typically reflect mortgage origination activity from the fourth quarter of the prior year through the third quarter of the current year. The decrease in agent premiums in 2023 from 2022 was generally consistent with the 34.0% decrease in the Company’s direct premiums and escrow fees in the twelve months ended September 30, 2023 as compared with the twelve months ended September 30, 2022. The decrease in agent premiums in 2022 from 2021 was generally consistent with the 1.3% decrease in the Company’s direct premiums and escrow fees in the twelve months ended September 30, 2022 as compared with the twelve months ended September 30, 2021.

Current wording

Agent premiums increased $112.6 million, or 4.6%, in 2024 from 2023 and decreased $1.1 billion, or 31.0%, in 2023 from 2022. Agent premiums are recorded when notice of issuance is received from the agent, which is generally when cash payment is received by the Company. As a result, there is generally a delay between the agent’s issuance of a title policy and the Company’s recognition of agent premiums. Therefore, full year agent premiums typically reflect mortgage origination activity from the fourth quarter of the prior year through the third quarter of the current year. The increase in agent premiums in 2024 from 2023 was generally consistent with the 2.6% decrease in the Company’s direct premiums and escrow fees in the twelve months ended September 30, 2024 as compared with the twelve months ended September 30, 2023. The decrease in agent premiums in 2023 from 2022 was generally consistent with the 34.0% decrease in the Company’s direct premiums and escrow fees in the twelve months ended September 30, 2023 as compared with the twelve months ended September 30, 2022.

Previous wording

Information and other revenues decreased $210.0 million, or 18.6%, in 2023 from 2022 and $76.0 million, or 6.3%, in 2022 from 2021. The decrease in information and other revenues in 2023 from 2022 was primarily attributable to decreases in the demand for the Company’s information products, post-close services and document generation services. Excluding the $142.4 million impact from recent acquisitions for the year ended December 31, 2022, information and other revenues decreased $218.4 million, or 18.2% in 2022 compared to 2021. The decrease in information and other revenues in 2022 from 2021, adjusted for the impact of acquisitions, was primarily due to decreased demand for the Company’s information products, post-close services and document generation services.

Current wording

Information and other revenues increased $21.1 million, or 2.3%, in 2024 from 2023 and decreased $210.0 million, or 18.6%, in 2023 from 2022. The increase in information and other revenues in 2024 from 2023 was primarily attributable to increased volume in the Company's commercial and international businesses. The decrease in information and other revenues in 2023 from 2022 was primarily attributable to decreases in the demand for the Company’s information products, post-close services and document generation services.

Previous wording

Net investment income increased $181.1 million, or 50.4%, in 2023 from 2022 and $170.8 million, or 90.7%, in 2022 from 2021. The increase in 2023 from 2022 was primarily attributable to the positive impact of higher interest rates on the Company’s cash balances, tax-deferred property exchange and escrow balances and investment portfolio. The increase was also driven by an increase in interest income from the company’s warehouse lending business. The increase in 2022 from 2021 was primarily attributable to higher short-term interest rates in the Company’s investment portfolio and escrow, like-kind exchange and subservicing deposits.

Current wording

Net investment income decreased $5.9 million, or 1.1%, in 2024 from 2023 and increased $181.1 million, or 50.4%, in 2023 from 2022. The decrease in 2024 from 2023 was primarily attributable to declines in the Company’s escrow and tax-deferred property exchange balances, partially offset by an increase in interest income from the Company’s warehouse lending business and investment portfolio. The increase in 2023 from 2022 was primarily attributable to the positive impact of higher interest rates on the Company’s cash balances, tax-deferred property exchange and escrow balances and investment portfolio. The increase was also driven by an increase in interest income from the company’s warehouse lending business.

Previous wording

Net investment gains/losses totaled losses of $38.2 million for 2023 and were primarily attributable to losses recognized on sales of debt securities, partially offset by changes in the fair values of marketable equity securities. Net investment losses of $149.8 million for 2022 were primarily attributable to losses recognized on sales of debt securities and changes in the fair values of marketable equity securities, partially offset by a $51.1 million gain realized on the sale of an investment in a title insurance business. Net investment gains of $71.6 million for 2021 and were primarily from increases in the fair values of marketable equity securities and from sales of debt securities.

Current wording

Net investment gains/losses totaled losses of $345.4 million for 2024 and were primarily attributable to losses realized from the Company’s investment portfolio rebalancing project discussed above and asset impairments, partially offset by an increase in the fair values of marketable equity securities. Net investment losses of $38.2 million for 2023 were primarily attributable to losses recognized on sales of debt securities, partially offset by changes in the fair values of marketable equity securities. Net investment losses of $149.8 million for 2022 were primarily attributable to losses recognized on sales of debt securities and changes in the fair values of marketable equity securities, partially offset by a $51.1 million gain realized on the sale of an investment in a title insurance business.

Previous wording

Direct operations in the title insurance and services segment are labor intensive; accordingly, a major expense component is personnel costs. Labor costs are driven by two primary considerations: the need to optimize staffing levels to match the level of corresponding or anticipated new orders and the need to provide quality service. The Company continues to closely monitor order volumes and related staffing levels and adjusts staffing levels as considered necessary. The Company’s direct title operations opened 629,100, 895,500 and 1,275,000 domestic title orders in 2023, 2022 and 2021, respectively, representing decreases of 29.7% in 2023 from 2022 and 29.8% in 2022 from 2021.

Current wording

Direct operations in the title insurance and services segment are labor intensive; accordingly, a major expense component is personnel costs. Labor costs are driven by two primary considerations: the need to optimize staffing levels to match the level of corresponding or anticipated new orders and the need to provide quality service. The Company continues to closely monitor order volumes and related staffing levels and adjusts staffing levels as considered necessary. The Company’s direct title operations opened 634,300, 629,100 and 895,500 domestic title orders in 2024, 2023 and 2022, respectively, representing an increase of 0.8% in 2024 from 2023 and a decrease of 29.7% in 2023 from 2022.

Previous wording

Personnel costs decreased $396.9 million, or 17.5%, in 2023 from 2022 and increased $37.8 million, or 1.7%, in 2022 from 2021. The decrease in personnel costs in 2023 from 2022 was primarily attributable to lower incentive compensation as a result of lower revenue and profitability, declines in salary, payroll tax and employee benefit expense driven by lower headcount, lower overtime and temporary labor expense on lower volumes and lower severance expense. Excluding the $205.2 million impact from recent acquisitions for the year ended December 31, 2022, personnel expenses decreased $167.4 million, or 7.5% in 2022 compared to 2021. The decrease in 2022, adjusted for the impact of recent acquisitions, was due to lower incentive compensation resulting from lower revenue and profitability, lower expense related to the Company’s 401(k) savings plan match and lower overtime expense, partially offset by higher severance expense. Personnel costs included severance expenses of $12.6 million, $34.7 million, and $4.6 million for 2023, 2022, and 2021, respectively.

Current wording

Personnel costs increased $77.2 million, or 4.1%, in 2024 from 2023 and decreased $396.9 million, or 17.5%, in 2023 from 2022. The increase in personnel costs in 2024 from 2023 was primarily attributable to higher salary expense, incentive compensation due to higher revenue and profitability, employee benefits and payroll tax expense. The decrease in personnel costs in 2023 from 2022 was primarily attributable to lower incentive compensation as a result of lower revenue and profitability, declines in salary, payroll tax and employee benefit expense driven by lower headcount, lower overtime and temporary labor expense on lower volumes and lower severance expense. Personnel costs included severance expenses of $8.3 million, $12.6 million, and $34.7 million for 2024, 2023, and 2022, respectively.

Previous wording

Other operating expenses decreased $217.7 million, or 18.8%, in 2023 from 2022 and $42.3 million, or 3.5%, in 2022 from 2021. The decrease in 2023 from 2022 was primarily attributable to lower production expense due to lower transaction volumes, a decline in professional services expense and an increase in bank credits, partially offset by an increase in software expense. Excluding the $80.7 million impact from recent acquisitions for the year ended December 31, 2022, other operating expenses decreased $123.0 million, or 10.3% in 2022 compared to 2021. The decrease in 2022, adjusted for the impact of recent acquisitions, was due to lower production expense due to lower transaction volumes, partially offset by higher software expense.

Current wording

Other operating expenses increased $54.8 million, or 5.8%, in 2024 from 2023 and decreased $217.7 million, or 18.8%, in 2023 from 2022. The increase in 2024 from 2023 was primarily attributable to higher production expense, software expense, legal expense and the impact of an out-of-period adjustment of $6.2 million to write-off certain uncollectible balances related to fees that should have been previously written off, and lower bank credits. The decrease in 2023 from 2022 was primarily attributable to lower production expense due to lower transaction volumes, a decline in professional services expense and an increase in bank credits, partially offset by an increase in software expense.

Previous wording

The provision for policy losses and other claims, expressed as a percentage of title insurance premiums and escrow fees, was 3.25% for 2023, and 4.0% for 2022 and 2021.

Current wording

The provisions for policy losses and other claims, expressed as a percentage of title insurance premiums and escrow fees, were 3.0%, 3.25%, and 4.0% for 2024, 2023, and 2022, respectively.

Previous wording

The 3.25% loss provision rate in the current year reflects an ultimate loss rate of 3.75% for the current policy year and a reserve release of 0.5%, or $21.6 million and for prior policy years, all based on current year title insurance premiums and escrow fees for 2023.

Current wording

The 3.0% loss provision rate in the current year reflects an ultimate loss rate of 3.75% for the current policy year and a reserve release of 0.75%, or $34.6 million and for prior policy years, all of which are based on title insurance premiums and escrow fees for 2024.

Previous wording

As of December 31, 2023, the IBNR claims reserve for the title insurance and services segment was $1.2 billion, which reflected management’s best estimate. The Company’s internal actuary determined a range of reasonable estimates of $926.5 million to $1.2 billion. The range limits are $260.0 million below and $43.2 million above management’s best estimate, respectively, and represent an estimate of the range of variation among reasonable estimates of the IBNR reserve. Actuarial estimates are sensitive to assumptions used in models, as well as the structures of the models themselves, and to changes in claims payment and incurral patterns, which can vary materially due to economic conditions, among other factors.

Current wording

As of December 31, 2024, the IBNR claims reserve for the title insurance and services segment was $1.1 billion, which reflected management’s best estimate. The Company’s internal actuary determined a range of reasonable estimates of $965.8 million to $1.2 billion. The range limits are $143.6 million below and $135.7 million above management’s best estimate, respectively, and represent an estimate of the range of variation among reasonable estimates of the IBNR reserve. Actuarial estimates are sensitive to assumptions used in models, as well as the structures of the models themselves, and to changes in claims payment and incurral patterns, which can vary materially due to economic conditions, among other factors.

Previous wording

The 2022 and 2021 loss provision rates of 4.0% reflected the ultimate loss rates for policy years 2022 and 2021 and no change in loss reserve estimates for prior policy years.

Current wording

The 2023 loss provision rate of 3.25% reflected the ultimate loss rate for policy year 2023 of 3.75% and a reserve release of 0.5%, or $21.6 million for prior policy years, all of which are based on title insurance premiums and escrow fees for 2023. The 2022 loss provision rate of 4.0% reflected the ultimate loss rate for policy year 2022 and no change in loss reserve estimates for prior policy years.

Previous wording

Depreciation and amortization expense increased $21.3 million, or 13.1%, in 2023 from 2022 and $9.8 million, or 6.4%, in 2022 from 2021. The increase in depreciation and amortization expense in 2023 from 2022 was primarily attributable to higher amortization of capitalized software. The increase in depreciation and amortization expense in 2022 from 2021 was primarily attributable to higher amortization of capitalized software and intangible assets related to recent acquisitions.

Current wording

Depreciation and amortization expense increased $18.6 million, or 10.1%, in 2024 from 2023 and $21.3 million, or 13.1%, in 2023 from 2022. The increase in depreciation and amortization expense in 2024 from 2023 was primarily attributable to higher amortization of capitalized software from recently deployed digital settlement products, partially offset by lower purchase-related amortization. The increase in depreciation and amortization expense in 2023 from 2022 was primarily attributable to higher amortization of capitalized software.

Previous wording

Interest expense increased $48.1 million, or 140.6%, in 2023 from 2022 and $12.4 million, or 56.9%, in 2022 from 2021. The increases in 2023 from 2022 and 2022 from 2021 were primarily attributable to higher deposit balances at the Company's banking operations. The increase in 2023 from 2022 was also attributable to higher interest expense in the company’s warehouse lending business.

Current wording

Interest expense increased $14.3 million, or 17.4%, in 2024 from 2023 and $48.1 million, or 140.6%, in 2023 from 2022. The increases in 2024 from 2023 and 2023 from 2022 were primarily attributable to higher interest expense in the Company’s warehouse lending business. The increase in 2023 from 2022 was also attributable to higher deposit balances at the Company's banking operations.

Previous wording

Pretax margins for the title insurance business reflect the high cost of performing the essential services required before insuring title, whereas the corresponding revenues are subject to regulatory and competitive pricing restraints. Due to the relatively high proportion of fixed costs in the title insurance business, pretax margins generally improve as closed order volumes increase. Pretax margins for the segment are also impacted by (1) net investment income and net investment gains or losses, which may not move in the same direction as closed order volumes, (2) the composition (residential or commercial) and type (resale, refinancing or new construction) of real estate activity and (3) the percentage of title insurance premiums generated by agency operations as margins from direct operations are generally higher than from agency operations due primarily to the large portion of the premium that is retained by the agent. The title insurance and services segment recorded pretax margins of 8.6%, 10.0% and 16.3% for 2023, 2022 and 2021, respectively.

Current wording

Pretax margins for the title insurance business reflect the high cost of performing the essential services required before insuring title, whereas the corresponding revenues are subject to regulatory and competitive pricing restraints. Due to the relatively high proportion of fixed costs in the title insurance business, pretax margins generally improve as closed order volumes increase. Pretax margins for the segment are also impacted by (1) net investment income and net investment gains or losses, which may not move in the same direction as closed order volumes, (2) the composition (residential or commercial) and type (resale, refinancing or new construction) of real estate activity and (3) the percentage of title insurance premiums generated by agency operations as margins from direct operations are generally higher than from agency operations due primarily to the large portion of the premium that is retained by the agent. The title insurance and services segment recorded pretax margins of 4.3%, 8.6% and 10.0% for 2024, 2023 and 2022, respectively.

Previous wording

Direct premiums decreased $17.5 million, or 4.2% in 2023 from 2022 and increased $13.3 million, or 3.3% in 2022 from 2021. The decrease in direct premiums in 2023 from 2022 was primarily attributable to a decline in real estate transactions. The increase in direct premiums in 2022 from 2021 was primarily attributable to an increase in the average price charged per contract, increases in renewals and from a shift in expected claims experience resulting from a return to pre-pandemic levels.

Current wording

Direct premiums increased $2.2 million, or 0.6%, in 2024 from 2023 and decreased $17.5 million, or 4.2% in 2023 from 2022. The increase in direct premiums in 2024 from 2023 was primarily attributable to an increase in the average price per policy. The decrease in direct premiums in 2023 from 2022 was primarily attributable to a decline in real estate transactions.

Previous wording

Net investment gains/losses totaled losses of $6.0 million for 2023 and were primarily due to losses recognized on sales of debt securities. Net investment gains/losses totaled losses of $12.5 million for 2022 and were primarily due to losses recognized on sales of debt securities and from decreases in the fair values of marketable equity securities. Net investment gains were $7.1 million for 2021 and were primarily from sales of debt securities and increases in the fair values of marketable equity securities.

Current wording

Net investment gains/losses totaled gains of $1.4 million for 2024 and were primarily due to an increase in the fair values of marketable equity securities. Net investment gains/losses totaled losses of $6.0 million for 2023 and were primarily due to losses recognized on sales of debt securities. Net investment gains/losses totaled losses of $12.5 million for 2022 and were primarily due to losses recognized on sales of debt securities and from decreases in the fair values of marketable equity securities.

Previous wording

Personnel costs and other operating expenses increased $7.6 million, or 5.0%, in 2023 from 2022 and $12.4 million, or 8.8%, in 2022 from 2021. The increase in 2023 from 2022 was primarily attributable to higher advertising expense. The increase in 2022 from 2021 was primarily attributable to higher deferred policy acquisition expense, advertising expense, professional services and salary expense, partially offset by lower incentive compensation.

Current wording

Personnel costs and other operating expenses increased $6.6 million, or 4.1%, in 2024 from 2023 and $7.6 million, or 5.0%, in 2023 from 2022. The increase in 2024 from 2023 was primarily attributable to higher advertising, postage, salary and employee benefits expense, partially offset by lower sales tax, technology, and deferred policy acquisition expense. The increase in 2023 from 2022 was primarily attributable to higher advertising expense.

Previous wording

The provision for home warranty claims, expressed as a percentage of home warranty premiums, was 48.8% in 2023, 51.3% in 2022 and 54.6% in 2021. The decreases in the claims rate in 2023 from 2022 and 2022 from 2021 were primarily attributable to lower claims volume, partially offset by higher claims severity.

Current wording

The provision for home warranty claims, expressed as a percentage of home warranty premiums, was 46.4% in 2024, 48.8% in 2023 and 51.3% in 2022. The decrease in the claims rate in 2024 from 2023 was primarily attributable to lower severity, partially offset by higher frequency. The decrease in the claims rate in 2023 from 2022 was primarily attributable to lower claims severity, partially offset by higher claims volume.

Previous wording

A large part of the revenues for the home warranty segment are generated by renewals and are not dependent on the level of real estate activity in the year of renewal. With the exception of loss expense, the majority of the expenses for this segment are variable in nature and, therefore, generally fluctuate with revenue. Accordingly, pretax margins (before loss expense) are relatively constant, although, as a result of some fixed expenses, profit margins (before loss expense) should nominally improve as premium revenues increase. Pretax margins are also impacted by net investment income and net investment gains or losses, which may not move in the same direction as premium revenues. The home warranty segment recorded pretax margins of 13.0%, 10.6% and 12.5% for 2023, 2022 and 2021, respectively.

Current wording

A large part of the revenues for the home warranty segment are generated by renewals and are not dependent on the level of real estate activity in the year of renewal. With the exception of the provision for losses, the majority of the expenses for this segment are variable in nature and, therefore, generally fluctuate with revenue. Accordingly, pretax margins (before provision for losses) are relatively constant, although, as a result of some fixed expenses, profit margins (before provision for losses) should nominally improve as premium revenues increase. Pretax margins are also impacted by net investment income and net investment gains or losses, which may not move in the same direction as premium revenues. The home warranty segment recorded pretax margins of 15.1%, 13.0% and 10.6% for 2024, 2023 and 2022, respectively.

Previous wording

Net investment income/loss totaled income of $25.1 million in 2023, loss of $21.7 million in 2022, and income of $23.5 million in 2021, respectively. The changes in net investment income/loss for all years were primarily attributable to fluctuations in earnings and losses on investments associated with the Company’s deferred compensation plan.

Current wording

Net investment income/loss totaled income of $24.1 million and $25.1 million for 2024 and 2023, respectively, and losses of $21.7 million in 2022. The changes in net investment income/loss for all years were primarily attributable to fluctuations in earnings and losses on investments associated with the Company’s deferred compensation plan.

Previous wording

Net investment gains/losses totaled losses of $162.3 million and $353.4 million for 2023 and 2022, respectively, resulting from impairment charges and observable pricing changes on non-marketable equity investments within the Company’s venture investment portfolio and, for 2022, also included unrealized losses totaling $190.9 million resulting from fluctuations in the fair value of the Company’s investment in Offerpad Solutions Inc. (“Offerpad”). Net investment gains of $356.9 million for 2021, which related to venture portfolio investments also included unrealized gains of $120.7 million resulting from an increase in the fair value of the company’s investment in Offerpad.

Current wording

Net investment losses totaled $57.5 million, $162.3 million and $353.4 million for 2024, 2023, and 2022, respectively, resulting from impairment charges and observable pricing changes on non-marketable equity investments within the Company’s venture investment portfolio and included unrealized losses and gains resulting from fluctuations in the fair value of the Company’s investment in Offerpad Solutions Inc.

Previous wording

Personnel costs and other operating expenses totaled $81.8 million, $30.6 million and $100.8 million in 2023, 2022 and 2021, respectively. The increase in 2023 when compared to 2022 was primarily attributable to higher returns on participant investments within the Company’s deferred compensation plan. The decrease in 2022 when compared to 2021 was primarily attributable to lower returns on participant investments within the Company’s deferred compensation plan.

Current wording

Personnel costs and other operating expenses totaled $60.1 million, $81.8 million and $30.6 million in 2024, 2023 and 2022, respectively. The decrease in 2024 when compared to 2023 and the increase in 2023 when compared to 2022 were primarily attributable to fluctuations in returns on participant investments within the Company’s deferred compensation plan. The decrease in 2024 also included a reinsurance credit related to the wind down of the property and casualty insurance business and lower legal and incentive compensation expense related to the cybersecurity incident in 2023.

Previous wording

Interest expense decreased $9.8 million, or 16.0%, in 2022 from 2021 and increased $9.4 million, or 18.1%, in 2022 from 2021. The decrease in 2023 from 2022 was primarily attributable to the repayment of the Company's $250 million 4.30% senior unsecured notes, upon maturity, in February 2023. The increases in 2022 and 2021 were due to the additional interest accrued on the $650 million of 2.4% senior unsecured notes issued by the Company in August 2021.

Current wording

Interest expense increased $2.9 million, or 5.6%, in 2024 from 2023 and decreased $9.8 million, or 16.0%, in 2023 from 2022. The increase in 2024 from 2023 was primarily due to the issuance of $450 million 5.45% senior unsecured notes in September 2024, partially offset by the repayment of the Company's $300 million 4.60% senior unsecured notes, upon maturity, in November 2024. The decrease in 2023 from 2022 was primarily attributable to the repayment of the Company's $250 million 4.30% senior unsecured notes, upon maturity, in February 2023.

Previous wording

The Company’s effective income tax rates (income tax expense as a percentage of income before income taxes) were 21.5% for 2023, 18.7% for 2022 and 23.9% for 2021. The differences in the effective tax rates year over year are typically due to changes in state and foreign income taxes resulting from fluctuations in the Company’s noninsurance and foreign subsidiaries’ contributions to pretax income and changes in the ratio of permanent differences to income before income taxes. In addition, the 2023 rate reflects tax credits claimed in current and prior years and a valuation allowance recorded against losses on certain equity investments. The effective tax rate for 2022 also reflects the recognition of losses and impairments on certain equity investments and benefits from the resolution of state tax matters from prior years. The effective tax rate for 2021 also reflects benefits related to foreign tax law changes.

Current wording

The Company’s effective income tax rates (income tax expense as a percentage of income before income taxes) were 19.8% for 2024, 21.5% for 2023 and 18.7% for 2022. The differences in the effective tax rates year over year are typically due to changes in state and foreign income taxes resulting from fluctuations in the Company’s noninsurance and foreign subsidiaries’ contributions to pretax income and changes in the ratio of permanent differences to income before income taxes. The effective income tax rates also reflect the impact on pretax earnings from impairment losses on the Company’s venture investment portfolio and, for 2024, realized losses from sales of debt securities in an unrealized loss position in connection with the Company’s portfolio rebalancing project. In addition, the effective tax rates for 2024 and 2023 reflect tax credits claimed in current and prior years and a valuation allowance recorded against losses on certain equity investments. The effective tax rate for 2022 also reflects the benefits from the resolution of state tax matters from prior years.

Previous wording

Cash requirements. The Company generates cash primarily from sales of its products and services and from investment income. The Company’s current cash requirements include operating expenses, taxes, payments of principal and interest on its debt, capital expenditures, dividends on its common stock, and may include business acquisitions, investments in private companies (primarily those in the venture-stage) and repurchases of its common stock. Management forecasts the cash needs of the holding company and its primary subsidiaries and regularly reviews their short-term and long-term projected sources and uses of funds, as well as the asset, liability, investment and cash flow assumptions underlying such forecasts. Based on the Company’s ability to generate cash flows from operations, its liquid-asset position and amounts available on its revolving credit facility, management believes that its resources are sufficient to satisfy its anticipated operational cash requirements and obligations for at least the next twelve months.

Current wording

Cash requirements. The Company generates cash primarily from sales of its products and services and from investment income. The Company’s current cash requirements include operating expenses, taxes, payments of principal and interest on its debt, capital expenditures, dividends on its common stock, and may include business acquisitions, investments and loans in private companies and repurchases of its common stock. Management forecasts the cash needs of the holding company and its primary subsidiaries and regularly reviews their short-term and long-term projected sources and uses of funds, as well as the asset, liability, investment and cash flow assumptions underlying such forecasts. Based on the Company’s ability to generate cash flows from operations, its liquid-asset position and amounts available on its revolving credit facility, management believes that its resources are sufficient to satisfy its anticipated operational cash requirements and obligations for at least the next twelve months.

Previous wording

Cash provided by operating activities totaled $354.3 million, $777.6 million and $1.2 billion for 2023, 2022 and 2021, respectively, after claim payments, net of recoveries, of $381.8 million, $434.3 million and $482.3 million, respectively. The principal nonoperating uses of cash and cash equivalents for 2023, 2022 and 2021 were advances and repayments under secured financing agreements, purchases of debt and equity securities, capital expenditures, dividends to common stockholders and repurchases of company shares. Principal nonoperating uses of cash and cash equivalents also included repayment of senior unsecured notes for 2023, and acquisitions for 2022 and 2021. The most significant nonoperating sources of cash and cash equivalents for 2023, 2022 and 2021 were borrowings and collections under secured financing agreements, proceeds from the sales and maturities of debt and equity securities, increases in deposits at the Company’s banking operations, and for 2021, proceeds from issuance of unsecured senior notes. The net effect of all activities on total cash and cash equivalents was an increase of $2.4 billion for 2023, and decreases of $4.5 million and $47.5 million for 2022 and 2021, respectively. The increases to cash and cash equivalents and deposits in 2023 related to the cybersecurity incident are further discussed below.

Current wording

Cash provided by operating activities totaled $897.5 million, $354.3 million and 777.6 million for 2024, 2023 and 2022, respectively, after claim payments, net of recoveries, of $397.8 million, $381.8 million and $434.3 million, respectively. The principal nonoperating uses of cash and cash equivalents for 2024, 2023 and 2022 were advances and repayments under secured financing agreements, purchases of debt and equity securities, dividends to common stockholders, capital expenditures and repurchases of company shares. Principal nonoperating uses of cash and cash equivalents also included decreases in deposits at the Company’s banking operations for 2024, repayment of senior unsecured notes for 2024 and 2023, and acquisitions for 2022. The most significant nonoperating sources of cash and cash equivalents for 2024, 2023 and 2022 were borrowings and collections under secured financing agreements, and proceeds from the sales and maturities of debt and equity securities. Principal nonoperating sources of cash and cash equivalents also included proceeds from issuance of unsecured senior notes in 2024 and increases in deposits at the Company’s banking operations for 2023 and 2022. The net effect of all activities on total cash and cash equivalents were decreases of $1.9 billion and $4.5 million for 2024 and 2022, respectively, and an increase of $2.4 billion for 2023. The increases to cash and cash equivalents and deposits in 2023 related to the cybersecurity incident are further discussed below.

Previous wording

As disclosed in Item 1C. Cybersecurity, the Company experienced a cybersecurity incident in late December 2023. The Company’s actions to contain and remediate the incident, which included, among others, isolating certain systems from the internet, resulted in delaying numerous customer transactions from closing until January 2024. Also, as discussed below, the Company manages escrow deposits at both its federal savings bank subsidiary and at third-party financial institutions. Because of the incident, the Company maintained a higher proportion of total escrow deposits at its federal savings bank than would have happened had the Company followed its normal allocation process. The delay in closing transactions and the maintenance of a higher proportion of escrow balances at the Company’s federal savings bank, resulted in higher cash and deposit liability balances remaining at the Company’s federal savings bank subsidiary at December 31, 2023.

Current wording

The decreases in the Company’s cash and deposit liability balances at December 31, 2024 when compared to December 31, 2023, reflect the Company’s return to a normal allocation process for managing escrow deposits at its federal savings bank subsidiary in 2024. Due to the cybersecurity incident in late December 2023, the Company maintained a higher proportion of escrow deposits at its federal savings bank at December 31, 2023.