Investors Title Company — FY2021 Form 10-K
Business context and period: The filing covers the fiscal year ended December 31, 2021, compared with FY2020. Investors Title is a holding company whose primary business is residential and commercial title insurance; title insurance represented 94.3% of 2021 revenue. Other activities include tax-deferred exchange, trust and investment management, and agency management services.
Financial performance and position
| Metric | FY2021 | FY2020 |
|---|---|---|
| Total revenue | $329.5 million | $236.4 million |
| Net premiums written | $273.9 million | $205.4 million |
| Income before taxes | $84.9 million | $49.7 million |
| Net income | $67.0 million | $39.4 million |
| Diluted EPS | $35.28 | $20.80 |
| Operating cash flow | $51.9 million | $34.1 million |
| After-tax profit margin | 20.3% | 16.7% |
- Revenue rose 39.4%; net premiums written rose 33.3%; net income rose about 70.0%. Management attributed premium growth primarily to higher average home prices and continued low mortgage rates.
- Operating expenses increased 31.0% to $244.6 million, principally reflecting higher agent commissions and personnel expenses. The provision for claims was $5.7 million, or 2.1% of net premiums written, versus 2.5% in 2020.
- Investment-related results included $14.9 million of gains from changes in the estimated fair value of equity securities, versus $4.9 million in 2020. Other income was $4.8 million, including a gain on property sale. Interest and dividends declined to $3.8 million from $4.4 million.
- At year-end, total assets were $331.5 million, liabilities $102.4 million and shareholders’ equity $229.1 million. Cash and cash equivalents were $37.2 million; short-term investments were $45.9 million; available-for-sale fixed maturities were $79.8 million; and equity securities were $76.9 million.
- The company reported no debt and stated that cash, short-term investments, marketable securities and operating cash flows should be sufficient for anticipated requirements. Insurance subsidiaries met statutory minimum capital, surplus and reserve requirements. About $117.9 million of consolidated equity was restricted from transfer to the parent without regulatory approval; approximately $53.2 million of subsidiary distributions could be made in 2022 without prior approval.
- Cash and cash equivalents increased $23.4 million during 2021. Capital expenditures were $6.5 million. Dividends totaled $19.82 per share, including a $18.00-per-share special dividend; total dividends paid were $37.6 million.
Material changes, outlook and commentary
- Growth reflected strong purchase and refinance activity in 2021 and 2020. Management noted that supply constraints and volatility in building-material costs could reduce activity in future periods.
- The filing cites an MBA forecast—not company guidance—projecting 2022 purchase mortgage activity up 5.7%, refinancing down 63.3%, and total mortgage originations down 34.9% from 2021. It also cites expected mortgage-rate increases. Management cautioned that forecasts and COVID-19 effects were uncertain; the company did not provide specific financial guidance.
- North Carolina, Texas, Georgia and South Carolina accounted for 36.1%, 22.8%, 12.6% and 9.1% of premiums written, respectively, creating geographic concentration.
- Title claims reserves were $36.8 million, including $33.4 million for incurred-but-not-reported claims. A three-percentage-point change in the loss ratio would change estimated after-tax income by approximately $6.5 million. The reserve estimate was identified as a critical audit matter; the auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
- A ransomware incident in the third quarter of 2021 temporarily interrupted one entity’s network. The company stated it was remediated and was not expected to have a material financial impact.
- Customer escrow and trust deposits of $27.5 million, and like-kind exchange deposits and reverse-exchange property of $763.9 million, were excluded from company assets, but the company remains contingently responsible for their disposition. These amounts are not company debt or balance-sheet assets.
- Legal proceedings and regulatory audits were described as incidental and not expected by management to have a material consolidated impact. Other principal risks include claim-reserve variability, fraud or defalcation, real-estate and interest-rate cycles, investment-market volatility, regulation, competition, cyber risk, and reliance on regulated subsidiary distributions.
Key facts for investors to verify
- How much of earnings growth is attributable to core title activity versus equity-security fair-value gains and the property-sale gain.
- Whether the $36.8 million claims reserve remains adequate as claims develop, particularly given the large IBNR component and sensitivity disclosed.
- Whether title transaction volumes, home prices, mortgage rates and market mix support premium levels if refinancing declines.
- The liquidity and regulatory implications of restricted subsidiary assets and the company’s dependence on subsidiary distributions for parent-company needs and dividends.
- Safeguards and potential exposure relating to escrow and exchange funds held for customers, as well as remediation and controls following the ransomware incident.