Professional Documents
Culture Documents
Comprehensive Analysis
Copyright 2015
October 2015
Legal Disclaimer
This presentation is for general informational purposes only. The views expressed herein represent the opinions of GrizzlyRock Capital, LLC and Groveland
Capital, LLC and their affiliates, whose analysis is based on publicly available information and have been developed independently of Investors Title Insurance
Company (the "Company") and of other third parties. No representation or warranty, express or implied, is made as to the accuracy or completeness of any
information contained in this presentation. GrizzlyRock Capital, LLC and Groveland Capital, LLC and their affiliates have not assumed any responsibility for
independently verifying the information in this presentation, and they disclaim any obligation to update the information contained herein and reserve the right to
modify or change their conclusions at any time in the future.
This presentation is solely for informational purposes. This presentation is not intended to provide the sole basis for any decision on any transaction and is not a
recommendation with respect to any transaction. The recipient should make its own independent business decision based on all other information, advice and the
recipient's own judgment. This presentation does not recommend the purchase or sale of any security nor is it an offer to sell or a solicitation of an offer to buy
any security. Furthermore, this presentation is not and should not be considered a solicitation of proxies in connection with any present or future proxy
solicitation.
GrizzlyRock Capital, LLC and Groveland Capital, LLC and their affiliates represent a group of investors that as of the date hereof beneficially owns, in the
aggregate, approximately 5.58% of the outstanding shares of common stock of the Company as disclosed in the groups Schedule 13D filed with the Securities
and Exchange Commission on October 7, 2015. Members of the group reserve the right to acquire additional shares of common stock or sell or otherwise
dispose of any or all of the shares of common stock of the Company beneficially owned by them, in the open market, in privately negotiated transactions or
otherwise. The group may also take any other action with respect to the Company or any of its debt or equity securities in any manner permitted by law.
Cautionary Statement Regarding Forward-Looking Statements
The information herein contains forward-looking statements. Specific forward-looking statements can be identified by the fact that they do not related strictly to
historical or current facts and include, without limitation, words such as "may," will," "expects," "believer," "anticipates," "plans," "estimates," "projects," "targets,"
"forecasts," "seeks," "could," "should" or the negative of such terms or other variations on such terms or comparable terminology. Such forward-looking
statements, estimates, and projections reflect various assumptions concerning anticipated results that are inherently subject to significant uncertainties and
contingencies and have been included solely for illustrative purposes, including those risks and uncertainties detailed in the continuous disclosure and other filings
of the Company, copies of which are available on the U.S. Securities and Exchange Commission website (EDGAR) at www.sec.gov/edgar. You should not rely
upon forward-looking statements as a prediction of actual results and actual results may vary materially from what is expressed in or indicated by the forwardlooking statements.
1
Table of Contents
Investors Title
Overview
Excess Capital
Valuation Analysis
Appendix
Executive
Summary
A.M. Best
Historical
Performance
Company
Description
Excess Capital
Price to Book
Direct vs
Independent Agent
Financial Metrics
Snapshot
Asset Base
Intrinsic Valuation
Title American /
Independence
Business Operation
Distribution
Options
Comparable
Businesses
Industry Analysis
Executive Summary
GrizzlyRock and Groveland believe Investors Title is dramatically undervalued
at recent trading levels of ~$71 per share. Our base case valuation is ~$115
per share is based upon cash flow and tangible book value. We believe
Investors Title has excess capital of approximately $75 million.
We encourage Investors Title to evaluate strategic options that will enhance
shareholder value including: a tender offer or share buyback program; a
special dividend; a synergistic merger or acquisition to facilitate expansion
into new markets; a review of the Companys reinsurance program to assure
that it is consistent with a plan to add economic value and manage tail risks;
and board reform including but not limited to shareholder representation on
the board of directors.
Company Description
Investors Title
Financial Metrics Snapshot
Fully-Diluted Shares
2.0 million
Market Capitalization
$143.7 million
$11.1 million
$5.5 per share
12.9x
$9.7 million
$139.7 million
$2.0 million
$7.7 million
1.0x
8.0%
Dividend Yield
0.4%
(1)
Investors Title
Business Operations
Insurance policies are written through direct branch agents or independent agents.
Table of Contents
Investors Title
Overview
Excess Capital
Valuation Analysis
Appendix
Executive
Summary
A.M. Best
Historical
Performance
Company
Description
Excess Capital
Price to Book
Direct vs
Independent Agent
Financial Metrics
Snapshot
Asset Base
Intrinsic Valuation
Title American /
Independence
Business Operation
Distribution
Options
Comparable
Businesses
Industry Analysis
10 Year Average
(2003 - 2014)
0.9x
0.9x
4.1x
4.3x
a-
2.5x
4.5x
3.3x
4.3x
a-
(1)
Surplus is based off of Statutory Surplus at the Parent per Capital IQ.
(2)
10
Historical Industry
Premiums to Surplus
Title Insurance Historical Premium/Surplus Relationship
(1)
7.40x
6.40x
5.40x
4.40x
3.40x
2.40x
1.40x
0.40x
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
ITIC
(1)
Dec-08
Dec-09
Dec-10
FAF
FNF
STC
Dec-11
Dec-12
Dec-13
Dec-14
Surplus is based off of Statutory Surplus at the Parent per Capital IQ.
Investors Title has averaged a 0.9x surplus leverage ratio since 2003.
Comparable firms have averaged over 4.0x over the same time period.
11
Investors Title
AM Best Analysis
AM Best affirmed the a credit rating of the Investors Title subsidiaries in May 2015 with the
following comments:
o
The ratings reflect ITC Group's excellent capitalization as evidenced by its conservative
underwriting leverage ratios, which are relatively modest compared to the title industry
as a whole.
ITC Group's favorable results are partly due to its efforts to carefully manage its expense
structure while limiting losses.
Additionally, the group has taken initiatives to diversify its book of business by reducing
its concentration in North Carolina.
12
Source
$149 million
$20 million
$168 million
$38 million
$48 million
$7 million
- Investments Required
$94 million
Excess Capital
$75 million
$37
13
Source
$149 million
$20 million
$168 million
Summation
$38 million
$37 million
- Investments Required
$75 million
Excess Capital
$94 million
$47
+ Total Assets
- Claim Reserve Liability
- Equity/Surplus required to maintain
3:1 underwriting ratio
14
Organizational Chart
Values in $ millions. Based on 2O14 yearly data
Premiums/Surplus: 0.9x
Premiums/Surplus: 3.9x
Other
ITEC
ITAC
ITMS
Investors Trust
Capital Analysis
Investors OpCo
(1 )
Bonds
Equity
(2 ) (3 )
2014
Investors
5.7
72.1
72.1
53.3
12.3
40.9
8.6
1.7
6.8
21.5
6.8
14.7
161.2
20.8
140.4
68.3
0.9x
72.5
34.1
Excess Capital
38.4
(1)
Other Payables
2014
16.8
(2)
Total Liabilities
67.9
(3)
72.5
Includes Preferreds.
Investors owns $21 million worth common shares of ITIC and
in accordance with NAIC Securities Valuation, admitted assets
have been reduced by $12.3MM.
16
Capital Analysis
Investors OpCo
(1)
10.7
5.0
7.3
17
Capital Analysis
National OpCo
(1 )
Bonds
Equity
(2 )
2014
Assets Non-Admitted Admitted
1.7
1.7
8.2
8.2
3.0
3.0
1.7
0.1
1.6
14.5
0.1
14.4
Other Payables
Total Liabilities
Surplus as Regards Policyholders
(1 )
(2 )
10.6
40.9
3.9x
1.3
3.8
10.6
18
Capital Analysis
HoldCo
Investors Title HoldCo
(in $ millions)
Cash
(1 )
Bonds
Equity
8.2
1.6
Other Assets
6.7
Total Liabilities
Equity for Parent and ITIC
2.5
Other Payables
43.3
2.2
2.2
41.2
24.4
(2 )
(1 )
2014
19
Excess Capital
Conclusion
$25.0 million
Investors (Sub)
2015 Dividend Allowed
2016 Dividend
2017 Dividend
2018 Dividend
(1)
$7.3 million
$7.3 million
$7.3 million
$7.3 million
$54.2 million
20
Table of Contents
Investors Title
Overview
Excess Capital
Valuation Analysis
Appendix
Executive
Summary
A.M. Best
Historical
Performance
Company
Description
Excess Capital
Price to Book
Direct vs
Independent Agent
Financial Metrics
Snapshot
Asset Base
Intrinsic Valuation
Title American /
Independence
Business Operation
Distribution
Options
Comparable
Businesses
Industry Analysis
21
71.5
(1)
Dividend Yield
0.4%
TTM EBITDA
16.0
2.0
143.7
EV to EBITDA
4.3x
38.1
Excess Capital
$75
48.4
Excess Capital/share
$37
- Investments at 6/30/15
12.9x
148.5
2014 FCF to EV
11.1%
- Cash at 06/30/15
19.9
8.0%
68.9
Price to Book
1.0x
(1)
7.0
Enterprise Value
Share Price 10/01/15
Fully-Diluted Shares 10/01/15
Market Capitalization 9/28/15
+ Claim Reserve Liability
+ Inv Held for Regulatory Needs to
Continue Underwriting New Policies
+ Additional Investments to Ensure an
AM Best 'a' Rating
- Investments at 6/30/15
- Cash at 6/30/15
Enterprise Value
6/30/15 LTM EBITDA
6/30/15E EBITDA ex Independence
(1)
(1)
Source
$71.50
$144 million
Summation
$38 million
$48 million
$7 million
$149 million
$20 million
$68.9 million
Summation
$17.2 million
4.0x EV/EBITDA
$16.0 million
4.3x EV/EBITDA
Discussed in Appendix
23
Base Case
Intrinsic Value Assumptions
Selling Expenses includes salaries, employee benefits and payroll taxes, office occupancy
and operations, business development and professional and contract labor fees.
G&A Expense includes filing fees, premium and retaliatory taxes and other.
CapEx: $2.0 million in 2015 and then normalized to $1.5 million after the CFPB costs roll off.
24
Base Case
Intrinsic Value
12/30/12
12/30/13
12/31/14
Revenue
Sales Growth
2015E
2016E
2017E
2018E
2019E
97.4
101.3
4.0%
105.4
4.0%
109.6
4.0%
114.0
4.0%
N/A
(1 )
Gross Margin
43.1%
47.3%
42.4%
50.0%
50.0%
50.0%
50.0%
50.0%
EBITDA
EBITDA Margin
17.0
14.8%
22.7
18.0%
15.0
12.1%
15.0
15.4%
15.6
15.4%
16.7
15.9%
18.0
16.4%
19.2
16.9%
1/1/2015
9.5
1.5
(1.7)
(2.0)
7.2
1/2/2015
9.9
1.5
0.3
(1.5)
10.1
1/3/2015
10.7
1.5
0.3
(1.5)
10.9
1/4/2015
11.5
1.5
0.3
(1.5)
11.8
1/5/2015
12.4
1.5
0.3
(1.5)
12.7
25
6.1
Base Case
Intrinsic Value
Perpetuity Growth Method
WACC
19
EPS in 2016
$4.85
3.0%
Exit Multiple
8.5x
Earnings Multiple
17.0x
Terminal Value
187
Terminal Value
164
116
39
155
102
39
141
Equity Value
155
Equity Value
141
Diluted Shares
Equity Value Per Share
2.0
77
Diluted Shares
Equity Value Per Share
2.0
70
37
37
10.0%
EPS Method
$114.5
$107.2
$37
$119.7
EBITDA Reconciliation
EBITDA
Net Income
Taxes
Depr & Amort
2007
8.4
3.4
1.5
2008
(1.2)
(2.0)
1.2
2009
4.8
1.1
0.9
2010
6.4
2.2
0.9
2011
6.9
2.6
0.8
2012
11.2
4.9
1.0
2013 (2)
14.8
6.7
1.2
2014
9.7
3.8
1.5
LTM (3)
11.1
4.5
1.6
0.0
13.3
1.2
(0.8)
-106%
0.8
7.6
N/A
0.4
9.9
29%
0.3
10.6
8%
0.1
17.1
61%
0.0
22.8
33%
0.0
15.0
-34%
0.0
17.2
15%
Impairment charges on certain investments and other assets that were deemed to be otherthan temporarily-impaired.
(1)
Changes in actuarial inputs in 2013 resulted in a reduction of $2.2 million in reserves as well
as a $2.2 million provision for claims operating expense (Increased net income by $1.45
million or $0.70 per diluted share)
(2)
(3)
$17.2 million of EBITDA includes Texas American Title. Pro Forma EBITDA is $16.0 million.
27
Industry
Enterprise Value to EBITDA
2008 Data
Skewed by
Negative
EBITDA for
Many
Mortgage
Title Firms
10.0x
8.0x
6.0x
4.0x
2.0x
0.0x
Dec-05
Dec-06
Dec-07
Dec-08
ITIC
Dec-09
FAF
Dec-10
FNF
28
Dec-11
STC
Dec-12
Dec-13
Dec-14
Price
Price
Price
Price
Price
Return
Return
Return
Return
Return
at
at
at
at
at
at
at
at
at
at
1.00x
1.25x
1.50x
1.75x
2.00x
1.00x
1.25x
1.50x
1.75x
2.00x
BV
BV
BV
BV
BV
BV
BV
BV
BV
BV
FY2019E
$177.2
16.0
1.0
15.0
4.5
0.6
$187.1
$93.1
$73
$92
$110
$128
$147
$78
$98
$117
$137
$157
$83
$104
$125
$146
$166
$88
$110
$132
$154
$176
$93
$116
$140
$163
$186
3%
28%
54%
80%
105%
10%
37%
64%
92%
119%
16%
46%
75%
104%
133%
23%
54%
85%
116%
147%
30%
63%
95%
128%
160%
29
Base Case
Price to Tangible Book Value
Title Insurance Historical P/TBV Relationship
4.5x
4.0x
3.5x
3.0x
2.5x
2.0x
1.5x
1.0x
0.5x
ITIC
FAF
FNF
STC
30
6/30/2015
6/30/2015
Stewart
Information
Services
Corporation
Fidelity
National
Financial, Inc.
NYSE:STC
NYSE:FNF
NYSE:ORI
NYSE:FAF
ITIC
101
956
(50)
483
15
CapEx ($ in MMs)
(22)
(230)
(119)
(2)
79
726
(50)
364
13
Stock Price
$41.4
$36.9
$15.9
$39.5
$71.2
Return on Assets
4.2%
4.5%
2.0%
3.9%
5.0%
Return on Capital
7.6%
6.5%
7.3%
9.5%
7.2%
Return on Equity
7.4%
10.8%
9.0%
11.3%
8.2%
TEV/EBITDA
10.9x
9.6x
8.4x
6.9x
4.5x
1.4x
1.7x
1.0x
1.6x
1.0x
3.1x
NM
1.0x
3.9x
1.0x
Ticker
6/30/2015
6/30/2015
6/30/2015
Investors
Title Co.
* EV for FAF, STC and FNF calculated as M arket Cap + Debt + Claim Reserves + Surplus/Equity required to maintain current premium to surplus leverage + deposits liability - cash - investments
31
Table of Contents
Investors Title
Overview
Excess Capital
Valuation Analysis
Appendix
Executive
Summary
A.M. Best
Historical
Performance
Company
Description
Excess Capital
Price to Book
Direct vs
Independent Agent
Financial Metrics
Snapshot
Asset Base
Intrinsic Valuation
Title American /
Independence
Business Operation
Distribution
Options
Comparable
Businesses
Industry Analysis
32
12/31/06
12/31/07
12/31/08
12/31/09
12/31/10
12/31/11
12/31/12
12/31/13
Sales
Cost of Sales
Gross Profit
Gross Margin
84.7
34.1
50.5
59.7%
84.9
38.6
46.4
54.6%
71.1
42.9
28.2
39.6%
71.3
37.7
33.6
47.1%
71.3
35.6
35.7
50.0%
90.7
52.9
37.7
41.6%
115.1
65.5
49.6
43.1%
126.3
66.6
59.7
47.3%
123.1
70.9
52.3
42.4%
125.2
68.8
56.4
45.1%
Pretax Income
Income Tax Expense (Benefit)
Net Income
17.3
4.1
13.2
11.8
3.4
8.4
(3.2)
(2.0)
(1.2)
5.9
1.1
4.8
8.6
2.2
6.4
9.5
2.6
6.9
16.1
4.9
11.3
21.5
6.7
14.9
13.5
3.8
9.7
15.6
4.5
11.1
2.6
2.5
2.4
2.3
2.3
2.2
2.1
2.1
2.0
2.0
$5.14
$3.35
($0.50)
$2.10
$2.78
$3.20
$5.33
$7.17
$4.76
$5.51
$0.24
$0.24
$0.28
$0.28
$0.28
$0.28
$0.29
$0.32
$0.32
$0.32
Total Assets
143.5
149.6
139.9
146.4
153.5
158.0
171.9
188.3
198.0
200.2
95.3
99.3
89.9
97.3
103.9
106.5
114.6
128.1
137.6
139.7
The Company has been profitable 9 of the last 10 years, paid a consistent dividend,
increased premiums at ~4% per annum, decreased shares outstanding by 3% per
annum, and compounded book value per share at ~10% per annum.
33
2008
2009
2010
ITIC
34.8
State
177.7
4%
ITIC
34.3
-2%
State
126.0
-29%
ITIC
29.7
-13%
State
112.8
-10%
ITIC
27.1
-9%
State
96.7
-14%
ITIC
23.2
-14%
Texas
1,662.0
year-over-year growth
0.0
1,609.1
-3%
0.0
N/A
1,231.2
-23%
0.0
N/A
1,014.9
-18%
0.0
N/A
1,061.8
5%
2.1
N/A
South Carolina
year-over-year growth
147.3
7.1
139.8
-5%
7.6
7%
100.9
-28%
7.5
0%
89.5
-11%
5.8
-24%
84.3
-6%
6.3
10%
Virginia
year-over-year growth
453.1
6.6
374.4
-17%
6.2
-7%
265.9
-29%
5.7
-7%
287.5
8%
5.0
-13%
286.2
0%
4.3
-14%
Michigan
year-over-year growth
395.5
3.5
314.8
-20%
3.1
-11%
258.3
-18%
3.3
7%
251.5
-3%
4.4
33%
253.0
1%
4.1
-6%
Georgia
year-over-year growth
304.1
0.0
270.8
-11%
0.1
N/A
175.6
-35%
0.1
-44%
167.5
-5%
0.1
95%
171.0
2%
0.2
84%
New York
1,177.1
year-over-year growth
2.4
1,174.2
0%
2.4
-1%
757.0
-36%
2.1
-13%
585.5
-23%
2.8
35%
664.4
13%
2.6
-7%
Nationwide
16,568.0
year-over-year growth
70.0
14,227.1
-14%
70.0
0%
10,042.9
-29%
62.8
-10%
9,598.5
-4%
62.3
-1%
9,614.0
0%
61.4
-1%
North Carolina
year-over-year growth
State
170.1
2007
2011
State
ITIC
96.7
21.4
0%
-8%
2012
State
ITIC
124.0
31.4
28%
47%
2013
State
ITIC
146.7
31.5
18%
0%
2014
State
ITIC
118.5
30.9
-19%
-2%
Texas
year-over-year growth
1,152.1
9%
26.3
1127%
1,429.1
24%
25.5
-3%
1,703.9
19%
30.6
20%
1,712.5
1%
40.1
31%
South Carolina
year-over-year growth
80.1
-5%
6.7
6%
95.6
19%
8.8
31%
116.8
22%
13.3
51%
104.9
-10%
8.7
-35%
Virginia
year-over-year growth
265.5
-7%
4.2
-2%
313.8
18%
5.4
30%
353.4
13%
5.2
-5%
265.0
-25%
4.9
-5%
Michigan
year-over-year growth
250.5
-1%
4.3
5%
305.9
22%
5.1
18%
350.5
15%
5.3
3%
289.6
-17%
3.7
-30%
Georgia
year-over-year growth
162.5
-5%
0.1
-33%
211.2
30%
1.1
724%
251.8
19%
2.8
158%
230.9
-8%
4.5
56%
New York
year-over-year growth
719.5
8%
2.3
-11%
825.0
15%
2.8
20%
991.9
20%
1.8
-36%
975.8
-2%
1.5
-17%
Nationwide
year-over-year growth
9,469.5
-2%
81.3
32%
11,434.4
21%
102.8
26%
12,745.5
11%
114.9
12%
11,360.6
-11%
110.2
-4%
2007
2008
2009
2010
2011
2012
2013
2014
North Carolina
Texas
South Carolina
Virginia
Michigan
Georgia
Other
Total
49%
48%
43%
11%
9%
4%
12%
9%
5%
9%
8%
7%
38%
3%
10%
7%
7%
27%
32%
8%
5%
5%
27%
100%
26%
100%
32%
100%
35%
100%
23%
100%
31%
25%
9%
5%
5%
1%
25%
100%
27%
27%
11%
4%
5%
2%
23%
100%
28%
36%
8%
4%
3%
4%
16%
100%
36
2007
2008
2009
2010
2011
2012
2013
2014
20.5%
19.3%
23.6%
24.1%
24.0%
22.2%
25.3%
21.5%
26.1%
Texas
0.0%
0.0%
0.0%
0.0%
0.2%
2.3%
1.8%
1.8%
2.3%
South Carolina
4.8%
5.4%
7.5%
6.4%
7.5%
8.4%
9.2%
11.4%
8.3%
Virginia
1.5%
1.6%
2.1%
1.7%
1.5%
1.6%
1.7%
1.5%
1.8%
Michigan
0.9%
1.0%
1.3%
1.7%
1.6%
1.7%
1.7%
1.5%
1.3%
Georgia
0.0%
0.0%
0.0%
0.1%
0.1%
0.1%
0.5%
1.1%
1.9%
New York
0.2%
0.2%
0.3%
0.5%
0.4%
0.3%
0.3%
0.2%
0.2%
Nationwide
0.4%
0.5%
0.6%
0.6%
0.6%
0.9%
0.9%
0.9%
1.0%
North Carolina
37
Investors Title
Historical Claim Provisions
$ in millions
2005
2006
2007
2008
2009
2010
2011
31.8
9.8
(1.7)
8.1
34.9
9.8
(2.4)
7.4
36.9
9.8
0.3
10.1
37.0
15.6
(0.4)
15.2
39.2
7.7
0.7
8.5
39.5
6.7
(2.3)
4.4
38.2
6.8
(3.5)
3.3
38.0
7.7
(1.6)
6.1
39.1
7.2
(7.8)
(0.6)
35.4
6.9
(1.6)
5.2
0.3
4.9
5.1
0.6
4.7
5.4
0.6
9.4
10.1
5.9
7.0
12.9
0.4
7.8
8.2
0.3
5.4
5.7
0.3
3.2
3.5
0.1
4.9
5.0
0.1
3.0
3.1
0.1
3.8
3.9
34.8
36.9
37.0
39.2
39.5
38.2
38.0
39.1
35.4
36.7
76.5
70.2
70.0
63.7
62.2
61.5
81.5
102.3
113.9
110.0
(2)
(1)
Changes in actuarial inputs in 2013 resulted in a reduction of $2.2 million in reserves as well as a $2.2 million
provision for claims operating expense (Increased net income by $1.45 million or $0.70 per diluted share)
(2)
Year End Claim Reserves = Beginning of Year Reserves + Net Claim Expenses Net Claims Paid
38
Investors Title
Historical Claim Provisions
Historical Provision for Claims/Premiums Relationship
0.25x
0.20x
0.15x
0.10x
0.05x
0.00x
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
Dec-13
Dec-14
-0.05x
ITIC
FAF
FNF
STC
The Company has historically been conservative with their Provision for Claims estimates.
Recently they have changed their actuarial inputs to better reflect actual claims.
39
LTM Analysis
(in $ millions)
Direct Agent
Combined
Independent
(Home and
Direct and
Agent
Branch)
Independent
26.3
84.4
110.6
- Agent Commissions
0.0
63.3
63.3
26.3
21.0
47.3
(2 )
(1 )
5.1
9.5
61.9
5.5
25.1
14.1
$17.2
40
Direct Agent:
In the Companys home and branch
operations, the Company issues the
insurance policy and retains the entire
premium as no commissions are paid in
connection with these policies.
Independent Agents:
When a policy is written through a title
agency, the premium is shared between
the agency and the underwriter. Agent
commissions represent the portion of
premiums retained by agents pursuant to
the terms of their respective agency
contracts.
Policy Origination %
2007
2008
2009
2010
2011
2012
2013
2014
43%
38%
35%
29%
20%
23%
22%
22%
Agent
57%
62%
65%
71%
80%
77%
78%
78%
Total
100%
100%
100%
100%
100%
100%
100%
100%
As Investors Title has diversified their presence across states, the Company
has seen a proportional increase of their business with independent agents.
Revenue from independent agents provide a much lower margin as the Company
pays ~80% of premium written as commissions to independent agents.
41
Independence Title
Acquisition by Title Resource (Realogy)
In 2010, Investors Title began to partner with Independence
Title to grow premiums in Texas.
Investors Title was
underwriting the insurance portion of the title policies that
Independences agents were issuing & performing the analysis
(i.e. non-branch model relying on non-Investors Title agents).
Independence Title made up 23.6% of ITICs premiums
written for FY 2014. This only represented 8.8% of the net
premiums written after commissions.
42
Texas
American
Title
Company
Independence
Title
(Name of Texas
Operating
Subsidiary)
Estimation
LTM 6/3O/15 ex-Independence Title
LTM Analysis
(in $ millions)
Direct Agent
Independent Combined Direct
(Home and Branch)
Agent
and Independent
Independence
Title
Independence Title
26.3
84.4
110.6
20.7
90.0
- Agent Commissions
0.0
63.3
63.3
17.9
45.4
26.3
21.0
47.3
2.8
44.5
5.1
9.5
61.9
2.8
5.1
9.5
59.1
5.5
25.1
0.1
0.7
5.3
24.5
14.1
0.8
13.3
$17.2
$1.2
$16.0
(1 )
(2 )
(1 )
(2 )
Other Expenses inc. office, business development, filing fees, premium & retaliatory taxes, professional fees, and other.
Figures are from 2014 as we do not have LTM statuatory figures.
Potential Impact of
Independence Title Volume Loss
With the anticipated reduction from Independences premium volume,
Investors Title will either have even higher excess capital or they will
fill the volume reduction with premiums from new sources.
Replace Volume
Excess Surplus
44
45
Title insurers carry a statutory liability known as statutory premium reserve (SPR), which is mandated by
each state to be kept aside to provide ultimate loss protection to policyholders. Rules for maintaining the level
and length of time of these reserves vary by state. To compare companies domiciled in different states, the
excess of the SPR over incurred but not reported (IBNR) reserves on a tax-effected basis is treated as an
adjustment to surplus when calculating a title companys overall capitalization and its leverage and return onsurplus ratios. The excess of the change in SPR over change in IBNR is treated as an adjustment to earnings
when calculating the loss ratio as well as return on revenue.
Companies that have more flexible operating cost structures (i.e. including a balanced distribution mix
between agency &direct) tend to adapt better to rapidly changing economic conditions.
46
Refinances to Purchases
o The mix between purchases and refinances is another important
relationship that can affect revenue and margins.
o Purchases typically have much higher premiums than refinances.
o 2014 was the first purchase dominated market the industry has seen
since the crisis of 2008. Predominantly been due to the low interest
rate environment.
47
Mortgage Originations
48
Industry Growth in
Investors Titles Primary States
State
North Carolina
Texas
South Carolina
Virginia
Michigan
Georgia
New York
Nationwide
2007
4%
-3%
-5%
-17%
-20%
-11%
0%
-14%
2008
-29%
-23%
-28%
-29%
-18%
-35%
-36%
-29%
2009
-10%
-18%
-11%
8%
-3%
-5%
-23%
-4%
2010
-14%
5%
-6%
0%
1%
2%
13%
0%
2011
0%
9%
-5%
-7%
-1%
-5%
8%
-2%
2012
28%
24%
19%
18%
22%
30%
15%
21%
2013
18%
19%
22%
13%
15%
19%
20%
11%
2014
-19%
1%
-10%
-25%
-17%
-8%
-2%
-11%
49
51
Optional Disclosure
o Owners title insurance has always been optional, but now the word optional
is being displayed in a more formal manner.
o After speaking with several members of the title insurance industry it appears
the impact from this disclosure will be minimal if any.
52
o The industry should be able to handle changes, given underwriters and agents
have generally prepared in advance. Some much smaller players could struggle
with compliance changes.
o Potential for some consolidation and market share growth.
53
Top US Mortgage
Title Insurance Firms
Company
2014 Premium
Written
Market Share
by Premium
Ownership
2,956,204,833
1,624,701,635
1,666,872,375
1,315,832,649
1,197,703,569
548,209,582
299,420,911
214,805,598
232,312,667
223,557,129
156,822,399
90,224,348
75,911,713
$68,779,126
62,946,339
67,077,636
60,014,298
26.0%
14.3%
14.7%
11.6%
10.5%
4.8%
2.6%
1.9%
2.0%
2.0%
1.4%
0.8%
0.7%
0.6%
0.6%
0.6%
0.5%
Public
Public
Public
Public
Public
Public
Private
Private
Public
Public
Public
Public
Private
Public
Public
Private
Private
$41,439,457
0.4%
Public
54
Ticker / Name
If Public
Ownership Commentary
FAF
ORI
FNF
FNF
STC
FNF
No Investor Info on CapIQ
Start-Up / Roll-Up Backed by Golden Gate in 2009
Realogy
Stewart
Lennar
BKFS
Black Knight Financial Services, Inc.
Private Equity firm Crescendo in Colorado
ITIC
Fidelity National
No Investor Info on CapIQ
No Investor Info on CapIQ
ITIC