Investors Title Company — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; comparisons are with FY2019. The company is primarily a title insurer operating through ITIC and NITIC, with smaller exchange, trust, and agency-management businesses. Title insurance represented 95.8% of 2020 revenue.
Financial performance
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenue | $236.4 million | $183.5 million | +28.8% |
| Net premiums written | $205.4 million | $145.8 million | +40.8% |
| Income before taxes | $49.7 million | $39.8 million | +24.7% |
| Net income | $39.4 million | $31.5 million | +25.3% |
| Diluted earnings per share | $20.80 | $16.59 | +25.4% |
| Operating cash flow | $34.1 million | $20.9 million | +$13.2 million |
The after-tax profit margin was 16.7%, versus 17.1% in 2019. The effective tax rate was 20.6%, compared with 21.0%. Net premiums rose on strong purchase and refinance activity amid lower mortgage rates. Agent commissions increased 46.8% to $106.8 million, while personnel expense rose 12.7% to $51.9 million. Non-title services revenue declined 12.4% to $8.7 million, mainly due to lower exchange-services income.
Investment-related results were mixed: interest and dividends fell to $4.4 million from $4.8 million; changes in equity-security fair value contributed $4.9 million, down from $10.3 million; and net realized investment gains were $0.3 million versus $1.3 million. The 2020 realized result included $0.5 million of fixed-maturity impairment charges.
Balance sheet, liquidity, and capital
- At year-end, total assets were $282.9 million, liabilities $82.5 million, and shareholders’ equity $200.4 million. The filing reports no debt; the company says it did not incur debt or receive pandemic stimulus funding.
- Cash and cash equivalents were $13.7 million, short-term investments $15.2 million, available-for-sale fixed maturities $117.7 million, and equity securities $64.9 million. Cash declined $12.2 million during the year.
- Operating cash flow was $34.1 million; investing activities used $14.6 million and financing activities used $31.7 million. Capital expenditures were $3.2 million.
- Dividends totaled $16.76 per share in 2020, including a $15.00 special dividend, compared with $9.60 per share in 2019. The company paid $31.7 million in dividends.
- Insurance subsidiaries met stated statutory capital, surplus, and reserve requirements. Approximately $104.1 million of consolidated equity was subject to restrictions on transfer to the parent without regulatory approval; 2021 distributions permitted without prior approval were estimated at $37.2 million.
Material changes, outlook, and risks
- COVID-19 and real estate activity: The company remained fully operational, with many employees working remotely and no workforce reductions. Management attributed the first-quarter investment-portfolio decline to pandemic-driven market volatility; equity holdings subsequently rebounded. Strong purchase and refinance volume in the second half supported premium growth. Management could not predict the pandemic’s ultimate effects and cautioned that activity may not remain resilient.
- Outlook: The filing provides no company-specific earnings or revenue guidance. A cited Mortgage Bankers Association forecast projected 2021 purchase originations up 10.5% and refinance originations down 46.7% from 2020, with total originations down 23.9%; it also projected further declines in total originations in 2022 and 2023. The company emphasized that these estimates could change materially.
- Concentration and operating risks: North Carolina, Texas, Georgia, and South Carolina represented 36.8%, 18.6%, 11.4%, and 9.1% of 2020 premiums, respectively. Results are exposed to real-estate volumes, mortgage rates, competition, regulated pricing, claims and reserve-estimation uncertainty, fraud or defalcation, and reliance on agents and key personnel.
- Claims and contingencies: The claims reserve was $33.6 million, including $30.0 million for incurred-but-not-reported claims. Management considered it adequate, but estimates are uncertain and claims can take many years to settle. A three-percentage-point change in the loss ratio would affect after-tax income by approximately $4.9 million. Legal proceedings and regulatory inquiries were described as not expected to have a material aggregate effect.
- Off-balance-sheet responsibilities: The company administered $16.5 million of escrow and trust cash and $237.9 million of like-kind exchange deposits and reverse-exchange property, excluded from its balance sheet but involving contingent responsibilities for their disposition. External assets under management were $640.1 million and are not company assets.
- Other notable matters: The company reported $12.5 million accrued under certain executive agreements. Its auditor issued unqualified opinions on the financial statements and internal controls; the reserve for claims was identified as a critical audit matter. Management reported effective internal controls.
Key facts for investors to verify
- Whether strong 2020 premium growth persists if refinancing declines and purchase activity or housing supply weakens.
- Claims-reserve development, including IBNR assumptions, prior-year favorable development, and any large or fraud-related losses.
- Investment-portfolio composition, equity-market sensitivity, and the potential for further impairments or valuation changes.
- Cash available at the parent company after subsidiary dividend restrictions, and the sustainability of special dividends and repurchases.
- Exposure and controls related to escrow, trust, and exchange funds held for customers, including financial-institution and operational risks.
- Regulatory, cybersecurity, and geographic-concentration developments that could affect underwriting, costs, or access to business.