INVESTORS TITLE CO [ITIC] Filings

10-Q 1 itic-20220331.htm 10-Q itic-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________ to ___________________

Commission File Number: 0-11774

INVESTORS TITLE COMPANY

(Exact name of registrant as specified in its charter)

North Carolina

56-1110199

(State of incorporation)

(I.R.S. Employer Identification No.)

121 North Columbia Street, Chapel Hill, North Carolina 27514

(Address of principal executive offices) (Zip Code)

(919) 968-2200

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, no par value

ITIC

The Nasdaq Stock Market LLC

Rights to Purchase Series A Junior Participating Preferred Stock

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 27, 2022, there were 1,897,255 common shares of the registrant outstanding.

INVESTORS TITLE COMPANY

AND SUBSIDIARIES

INDEX


PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021	1

	Consolidated Statements of Operations For the Three Months Ended March 31, 2022 and 2021	2

	Consolidated Statements of Comprehensive Income For the Three Months Ended March 31, 2022 and 2021	3

	Consolidated Statements of Stockholders’ Equity For the Three Months Ended March 31, 2022 and 2021	4

	Consolidated Statements of Cash Flows For the Three Months Ended March 31, 2022 and 2021	5

	Notes to Consolidated Financial Statements	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35

Item 4.	Controls and Procedures	35

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	36

Item 1A.	Risk Factors	36

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 3.	Defaults Upon Senior Securities	36

Item 4.	Mine Safety Disclosures	36

Item 5.	Other Information	36

Item 6.	Exhibits	38

SIGNATURE		39

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Investors Title Company and Subsidiaries

Consolidated Balance Sheets

As of March 31, 2022 and December 31, 2021

(in thousands)

(unaudited)


	March 31, 2022		December 31, 2021
Assets
Cash and cash equivalents	$	37,310	$	37,168
Investments:
Fixed maturity securities, available-for-sale, at fair value (amortized cost: March 31, 2022: $66,209; December 31, 2021: $75,511)	67,725		79,791
Equity securities, at fair value (cost: March 31, 2022: $28,484; December 31, 2021: $29,478)	69,945		76,853
Short-term investments	58,555		45,930
Other investments	20,217		20,298
Total investments	216,442		222,872

Premiums and fees receivable	23,850		22,953
Accrued interest and dividends	1,000		817
Prepaid expenses and other receivables	11,618		11,721
Property, net	13,413		13,033
Goodwill and other intangible assets, net	15,621		15,951
Operating lease right-of-use assets	7,321		5,202
Other assets	1,822		1,771
Total Assets	$	328,397	$	331,488

Liabilities and Stockholders’ Equity
Liabilities:
Reserve for claims	$	36,366	$	36,754
Accounts payable and accrued liabilities	34,486		43,868
Operating lease liabilities	7,453		5,329
Current income taxes payable	6,164		3,329
Deferred income taxes, net	11,436		13,121
Total liabilities	95,905		102,401

Commitments and Contingencies	—		—

Stockholders’ Equity:
Preferred stock (1,000 authorized shares; no shares issued)	—		—
Common stock – no par value (10,000 authorized shares; 1,897 and 1,895 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively, excluding in each period 292 shares of common stock held by the Company)	—		—
Retained earnings	231,274		225,861
Accumulated other comprehensive income	1,218		3,226
Total stockholders' equity	232,492		229,087
Total Liabilities and Stockholders’ Equity	$	328,397	$	331,488

Refer to notes to the Consolidated Financial Statements.

Investors Title Company and Subsidiaries

Consolidated Statements of Operations

For the Three Months Ended March 31, 2022 and 2021

(in thousands, except per share amounts)

(unaudited)


	Three Months Ended March 31,
	2022		2021
Revenues:
Net premiums written	$	63,125	$	61,477
Escrow and other title-related fees	5,064		2,798
Non-title services	2,426		2,078
Interest and dividends	915		1,016
Other investment income	1,337		941
Net realized investment gains	1,747		321
Changes in the estimated fair value of equity security investments	(5,915)		3,239
Other	299		208
Total Revenues	68,998		72,078

Operating Expenses:
Commissions to agents	29,857		30,542
Provision for claims	176		1,591
Personnel expenses	21,254		16,153
Office and technology expenses	4,368		2,742
Other expenses	5,550		3,735
Total Operating Expenses	61,205		54,763

Income before Income Taxes	7,793		17,315

Provision for Income Taxes	1,608		3,492

Net Income	$	6,185	$	13,823

Basic Earnings per Common Share	$	3.26	$	7.30

Weighted Average Shares Outstanding – Basic	1,896		1,894

Diluted Earnings per Common Share	$	3.25	$	7.29

Weighted Average Shares Outstanding – Diluted	1,903		1,897

Refer to notes to the Consolidated Financial Statements.

Investors Title Company and Subsidiaries

Consolidated Statements of Comprehensive Income

For the Three Months Ended March 31, 2022 and 2021

(in thousands)

(unaudited)


	Three Months Ended March 31,
	2022		2021
Net income	$	6,185	$	13,823
Other comprehensive loss, before tax:
Accumulated postretirement benefit obligation adjustment	219		—
Net unrealized losses on investments arising during the period	(2,764)		(750)
Reclassification adjustment for sale of securities included in net income	—		(23)
Other comprehensive loss, before tax	(2,545)		(773)
Income tax expense related to postretirement health benefits	46		—
Income tax benefit related to net unrealized losses on investments arising during the period	(583)		(158)
Income tax benefit related to reclassification adjustment for sale of securities included in net income	—		(5)
Net income tax benefit on other comprehensive loss	(537)		(163)
Other comprehensive loss	(2,008)		(610)
Comprehensive Income	$	4,177	$	13,213

Refer to notes to the Consolidated Financial Statements.

Investors Title Company and Subsidiaries

Consolidated Statements of Stockholders’ Equity

For the Three Months Ended March 31, 2022 and 2021

(in thousands, except per share amounts)

(unaudited)


	Common Stock			Retained Earnings		Accumulated Other Comprehensive Income		Total Stockholders’ Equity
	Shares	Amount
Balance, December 31, 2020	1,892	$	—	$	196,096	$	4,326	$	200,422
Net income				13,823				13,823
Dividends paid ($0.44 per share)				(832)				(832)
Exercise of stock appreciation rights	2			(1)				(1)
Share-based compensation expense related to stock appreciation rights				71				71
Net unrealized loss on investments						(610)		(610)
Balance, March 31, 2021	1,894	$	—	$	209,157	$	3,716	$	212,873

Balance, December 31, 2021	1,895	$	—	$	225,861	$	3,226	$	229,087
Net income				6,185				6,185
Dividends paid ($0.46 per share)				(873)				(873)
Exercise of stock appreciation rights	2			(1)				(1)
Share-based compensation expense related to stock appreciation rights				102				102
Accumulated postretirement benefit obligation adjustment						173		173
Net unrealized loss on investments						(2,181)		(2,181)
Balance, March 31, 2022	1,897	$	—	$	231,274	$	1,218	$	232,492

Refer to notes to the Consolidated Financial Statements.

Investors Title Company and Subsidiaries

Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 2022 and 2021

(in thousands)

(unaudited)


	Three Months Ended March 31,
	2022		2021
Operating Activities
Net income	$	6,185	$	13,823
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	524		430
Amortization of investments, net	162		285
Amortization of other intangible assets, net	330		134
Share-based compensation expense related to stock appreciation rights	102		71
Net gain on disposals of property	(28)		(8)
Net realized investment gains	(1,747)		(321)
Net change in estimated fair value of equity security investments	5,915		(3,239)
Net earnings from other investments	(1,207)		(594)
Provision for claims	176		1,591
(Benefit) provision for deferred income taxes	(1,148)		753
Changes in assets and liabilities:
Increase in premium and fees receivable	(897)		(761)
Increase in other assets	(131)		(2,064)
(Increase) decrease in operating lease right-of-use assets	(2,119)		154
Decrease in accounts payable and accrued liabilities	(9,163)		(3,982)
Increase (decrease) in operating lease liabilities	2,124		(160)
Increase in current income taxes payable	2,835		2,739
Payments of claims, net of recoveries	(564)		(613)
Net cash provided by operating activities	1,349		8,238

Investing Activities
Purchases of equity securities	(102)		(976)
Purchases of short-term investments	(12,624)		(16,578)
Purchases of other investments	(275)		(286)
Proceeds from sales and maturities of fixed maturity securities	9,140		13,660
Proceeds from sales of equity securities	2,842		4,831
Proceeds from sales and maturities of short-term investments	—		1,251
Proceeds from sales and distributions of other investments	1,562		1,534
Purchases of property	(908)		(1,613)
Proceeds from the sale of property	32		13
Net (used in) provided by investing activities	(333)		1,836

Financing Activities
Exercise of stock appreciation rights	(1)		(1)
Dividends paid	(873)		(832)
Net cash used in financing activities	(874)		(833)

Net Increase in Cash and Cash Equivalents	142		9,241
Cash and Cash Equivalents, Beginning of Period	37,168		13,723
Cash and Cash Equivalents, End of Period	$	37,310	$	22,964


Consolidated Statements of Cash Flows, continued
	Three Months Ended March 31,
	2022		2021
Supplemental Disclosures:
Cash Paid During the Year for:
Income tax refund, net	$	(79)	$	—
Non-Cash Investing and Financing Activities:
Non-cash net unrealized loss on investments, net of deferred tax benefit of $583 and $163 for March 31, 2022 and 2021, respectively	$	2,181	$	610
Adjustments to postretirement benefits obligation, net of deferred tax expense of $(46) and $0 for March 31, 2022 and 2021, respectively	$	(173)	$	—

Refer to notes to the Consolidated Financial Statements.

INVESTORS TITLE COMPANY

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

March 31, 2022

(unaudited)

Note 1 – Basis of Presentation and Significant Accounting Policies

Reference should be made to the “Notes to Consolidated Financial Statements” appearing in the Annual Report on Form 10-K for the year ended December 31, 2021 of Investors Title Company (the “Company”) for a complete description of the Company’s significant accounting policies.

Principles of Consolidation – The accompanying unaudited Consolidated Financial Statements include the accounts and operations of Investors Title Company and its subsidiaries, and have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information, with the instructions to Form 10-Q and with Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in annual consolidated financial statements have been condensed or omitted. All intercompany balances and transactions have been eliminated in consolidation.

In the opinion of management, all adjustments considered necessary for a fair presentation of the financial position, results of operations and cash flows of the Company in the accompanying unaudited Consolidated Financial Statements have been included. All such adjustments are of a normal recurring nature. Operating results for the three-month period ended March 31, 2022 are not necessarily indicative of the financial condition and results that may be expected for the year ending December 31, 2022 or any other interim period.

Use of Estimates and Assumptions – The preparation of the Company’s unaudited Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, at the date of the unaudited Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions used.

Subsequent Events – The Company has evaluated and concluded that there were no material subsequent events requiring adjustment or disclosure to its unaudited Consolidated Financial Statements.

Note 2 – Reserve for Claims

Activity in the reserve for claims for the three-month period ended March 31, 2022 and the year ended December 31, 2021 are summarized as follows:


(in thousands)	March 31, 2022		December 31, 2021
Balance, beginning of period	$	36,754	$	33,584
Provision charged to operations	176		5,686
Payments of claims, net of recoveries	(564)		(2,516)
Balance, end of period	$	36,366	$	36,754

The total reserve for all reported and unreported losses the Company incurred through March 31, 2022 is represented by the reserve for claims on the unaudited Consolidated Balance Sheets. The Company's reserves for unpaid losses and loss adjustment expenses are established using estimated amounts required to settle claims for which notice has been received (reported) and the amount estimated to be required to satisfy claims that have been incurred but not yet reported (“IBNR”). Despite the variability of such estimates, management believes that the total reserve for claims is adequate to cover claim losses which might result from pending and future claims under title insurance policies issued through March 31, 2022. Management continually reviews and adjusts its reserve for claims estimates to reflect its loss experience and any new information that becomes available. Adjustments resulting from such reviews could be significant.

A summary of the Company’s reserve for claims, broken down into its components of known title claims and IBNR, follows:


(in thousands, except percentages)	March 31, 2022		%	December 31, 2021		%
Known title claims	$	3,910	10.8	$	3,317	9.0
IBNR	32,456		89.2	33,437		91.0
Total reserve for claims	$	36,366	100.0	$	36,754	100.0

Claims and losses paid are charged to the reserve for claims. Although claims losses are typically paid in cash, occasionally claims are settled by purchasing the interest of the insured or the claimant in the real property. When this event occurs, the Company carries assets at the lower of cost or estimated fair value, net of any indebtedness on the property.

Note 3 – Earnings Per Common Share and Share Awards

Basic earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per common share is computed by dividing net income by the combination of dilutive potential common stock, comprised of shares issuable under the Company’s share-based compensation plans, and the weighted average number of common shares outstanding during the reporting period. Dilutive common share equivalents include the dilutive effect of in-the-money share-based awards, which are calculated based on the average share price for each period using the treasury stock method. Under the treasury stock method, when share-based awards are assumed to be exercised, (a) the exercise price of a share-based award and (b) the amount of compensation cost, if any, for future services that the Company has not yet recognized, are assumed to be used to repurchase shares in the current period.

The following table sets forth the computation of basic and diluted earnings per share for the three-month periods ended March 31:


	Three Months Ended March 31,
(in thousands, except per share amounts)	2022		2021
Net income	$	6,185	$	13,823
Weighted average common shares outstanding – Basic	1,896		1,894
Incremental shares outstanding assuming the exercise of dilutive SARs (share-settled)	7		3
Weighted average common shares outstanding – Diluted	1,903		1,897
Basic earnings per common share	$	3.26	$	7.30
Diluted earnings per common share	$	3.25	$	7.29

There were 0 and 15 thousand potential shares excluded from the computation of diluted earnings per share for the three-month periods ended March 31, 2022 and 2021, respectively, due to the out-of-the-money status of the related share-based awards.

The Company historically has adopted employee stock award plans under which restricted stock, options or stock appreciation rights ("SARs") exercisable for the Company's stock may be granted to key employees or directors of the Company. There is currently one active plan from which the Company may grant share-based awards. The awards eligible to be granted under the active plan are limited to SARs, and the maximum aggregate number of shares of common stock of the Company available pursuant to the plan for the grant of SARs is 250 thousand shares.

As of March 31, 2022, the only outstanding awards under the plans were SARs, which expire within seven years or less from the date of grant. All outstanding SARs vest and are exercisable within five years or less from the date of grant, and all SARs issued to date have been share-settled only. There have been no stock options or SARs granted where the exercise price was less than the market price on the date of grant.

A summary of share-based award transactions for all share-based award plans follows:


(in thousands, except weighted average exercise price and average remaining contractual term)	Number Of Shares	Weighted Average Exercise Price		Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding as of January 1, 2021	36	$	139.16	4.38	$	903
SARs granted	5	184.26
SARs exercised	(6)	106.71
Outstanding as of December 31, 2021	35	$	150.36	3.96	$	1,643
SARs granted	—	—
SARs exercised	(4)	89.23
Outstanding as of March 31, 2022	31	$	158.22	4.02	$	1,400

Exercisable as of March 31, 2022	26	$	161.73	3.76	$	1,067

Unvested as of March 31, 2022	5	$	141.50	5.25	$	333

There was approximately $102 thousand and $71 thousand of compensation expense relating to SARs vesting on or before March 31, 2022 and 2021, respectively, included in personnel expenses in the unaudited Consolidated Statements of Operations. As of March 31, 2022, there was $206 thousand of unrecognized compensation expense related to unvested share-based compensation arrangements granted under the Company’s stock award plans.

Note 4 – Segment Information

The Company has one reportable segment, title insurance services. The remaining immaterial segments have been combined into a group called “All Other.”

The title insurance segment primarily issues title insurance policies through approved attorneys from underwriting offices and through independent issuing agents. Title insurance policies insure titles to real estate.

Provided below is selected financial information about the Company's operations by segment for the periods ended March 31, 2022 and 2021:


Three Months Ended March 31, 2022 (in thousands)	Title Insurance		All Other		Intersegment Eliminations		Total
Insurance and other services revenues	$	73,065	$	2,737	$	(4,888)	$	70,914
Investment loss	(1,628)		(2,035)		—		(3,663)
Net realized gain on investments	51		1,696		—		1,747
Total revenues	$	71,488	$	2,398	$	(4,888)	$	68,998
Operating expenses	63,188		2,753		(4,736)		61,205
Income (loss) before income taxes	$	8,300	$	(355)	$	(152)	$	7,793
Total assets	$	275,729	$	52,668	$	—	$	328,397


Three Months Ended March 31, 2021 (in thousands)	Title Insurance		All Other		Intersegment Eliminations		Total
Insurance and other services revenues	$	66,521	$	2,338	$	(2,298)	$	66,561
Investment income	4,396		800		—		5,196
Net realized gain on investments	232		89		—		321
Total revenues	$	71,149	$	3,227	$	(2,298)	$	72,078
Operating expenses	54,530		2,385		(2,152)		54,763
Income before income taxes	$	16,619	$	842	$	(146)	$	17,315
Total assets	$	237,082	$	58,458	$	—	$	295,540

Note 5 – Retirement Agreements and Other Postretirement Benefits

The Company’s subsidiary, Investors Title Insurance Company ("ITIC"), is a party to employment agreements with key executives that provide for the continuation of certain employee benefits and other payments due under the agreements upon retirement, estimated to total $14.2 million and $13.4 million as of March 31, 2022 and December 31, 2021, respectively. The executive employee benefits include health, dental, vision and life insurance and are unfunded. These amounts are classified as accounts payable and accrued liabilities in the unaudited Consolidated Balance Sheets. The following sets forth the net periodic benefit cost for the executive benefits for the periods ended March 31, 2022 and 2021:


	Three Months Ended March 31,
(in thousands)	2022		2021
Service cost – benefits earned during the year	$	—	$	—
Interest cost on the projected benefit obligation	6		7
Amortization of unrecognized losses	—		—
Net periodic benefit cost	$	6	$	7

Note 6 – Investments and Estimated Fair Value

Investments in Fixed Maturity Securities

The estimated fair value, gross unrealized holding gains, gross unrealized holding losses and amortized cost for fixed maturity securities by major classification are as follows:


As of March 31, 2022 (in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Fixed maturity securities, available-for-sale, at fair value:
General obligations of U.S. states, territories and political subdivisions	$	15,011	$	224	$	—	$	15,235
Special revenue issuer obligations of U.S. states, territories and political subdivisions	40,620		806		56		41,370
Corporate debt securities	10,578		707		165		11,120
Total	$	66,209	$	1,737	$	221	$	67,725


As of December 31, 2021 (in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Fixed maturity securities, available-for-sale, at fair value:
General obligations of U.S. states, territories and political subdivisions	$	16,669	$	922	$	—	$	17,591
Special revenue issuer obligations of U.S. states, territories and political subdivisions	41,753		2,453		2		44,204
Corporate debt securities	17,089		955		48		17,996
Total	$	75,511	$	4,330	$	50	$	79,791

The special revenue category for both periods presented includes approximately 45 individual fixed maturity securities with revenue sources from a variety of industry sectors.

The scheduled maturities of fixed maturity securities at March 31, 2022 are as follows:


	Available-for-Sale
(in thousands)	Amortized Cost		Estimated Fair Value
Due in one year or less	$	15,104	$	15,165
Due one year through five years	46,535		47,521
Due five years through ten years	3,747		3,811
Due after ten years	823		1,228
Total	$	66,209	$	67,725

Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without penalties.

The following table presents the gross unrealized losses on fixed maturity securities and the estimated fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous loss position at March 31, 2022 and December 31, 2021:


	Less than 12 Months				12 Months or Longer				Total
As of March 31, 2022 (in thousands)	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
Special revenue issuer obligations of U.S. states, territories and political subdivisions	$	2,383	$	(53)	$	1,101	$	(3)	$	3,484	$	(56)
Corporate debt securities	2,633		(69)		6,111		(96)		8,744		(165)
Total temporarily impaired securities	$	5,016	$	(122)	$	7,212	$	(99)	$	12,228	$	(221)


	Less than 12 Months				12 Months or Longer				Total
As of December 31, 2021 (in thousands)	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
Special revenue issuer obligations of U.S. states, territories and political subdivisions	$	—	$	—	$	1,102	$	(2)	$	1,102	$	(2)
Corporate debt securities	8,493		(13)		6,203		(35)		14,696		(48)
Total temporarily impaired securities	$	8,493	$	(13)	$	7,305	$	(37)	$	15,798	$	(50)

Management evaluates available-for-sale fixed maturity securities in unrealized loss positions to determine whether the impairment is due to credit-related factors or noncredit-related factors. Consideration is given to (1) the extent to which the fair value is less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value.

The decline in estimated fair value of the fixed maturity securities can be attributed primarily to changes in market interest rates and changes in credit spreads over Treasury securities. Because the Company does not intend to sell these securities and will likely not be compelled to sell them before it can recover its cost basis, the Company does not consider these investments to be other-than-temporarily impaired.

Factors considered in determining whether a loss is temporary include the length of time and extent to which the estimated fair value has been below cost, the financial condition and prospects of the issuer (including credit ratings and analyst reports) and macro-economic changes. A total of 13 and 9 fixed maturity securities had unrealized losses at March 31, 2022 and December 31, 2021, respectively. The Company does not intend to sell any of these securities and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost. The fair value is expected to recover as the securities approach their maturity date, or repricing date, or if market yields for such investments decline. The Company believes that the unrealized losses detailed in the previous table are due to noncredit-related factors, including changes in market interest rates and other market conditions, and therefore the unrealized loss is recorded in accumulated other comprehensive income.

Reviews of the values of fixed maturity securities are inherently uncertain and the value of the investment may not fully recover, or may decline in future periods, resulting in a realized loss. The Company has not recorded any other-than-temporary impairment charges related to fixed maturity securities for the three-month periods ended March 31, 2022 and 2021. Expenses related to other-than-temporary impairments are recorded in net realized investment gains in the unaudited Consolidated Statements of Operations when recognized.

Investments in Equity Securities

The cost and estimated fair value of equity securities are as follows:


As of March 31, 2022 (in thousands)	Cost		Estimated Fair Value
Equity securities, at fair value:
Common stocks	$	28,484	$	69,945
Total	$	28,484	$	69,945


As of December 31, 2021 (in thousands)	Cost		Estimated Fair Value
Equity securities, at fair value:
Common stocks	$	29,478	$	76,853
Total	$	29,478	$	76,853

Unrealized holding gains and losses are reported in the unaudited Consolidated Statements of Operations as changes in the estimated fair value of equity security investments.

Net Realized Investment Gains

Gross realized gains and losses on sales of investments for the three-month periods ended March 31, 2022 and 2021 are summarized as follows:


(in thousands)	2022		2021
Gross realized gains from securities:
Common stocks	$	1,747	$	940
Total	$	1,747	$	940
Gross realized losses from securities:
Corporate debt securities	$	—	(23)
Common stocks	—		(596)
Total	$	—	$	(619)
Net realized gains from securities	$	1,747	$	321
Gross realized gains (losses) on other investments:
Gains on other investments	$	—	$	—
Losses on other investments	—		—
Total	$	—	$	—
Net realized investment gains	$	1,747	$	321

Realized gains and losses are determined on the specific identification method.

Variable Interest Entities

The Company holds investments in variable interest entities ("VIEs") that are not consolidated in the Company's financial statements as the Company is not the primary beneficiary. These entities are considered VIEs as the equity investors at risk, including the Company, do not have the power over the activities that most significantly impact the economic performance of the entities; this power resides with a third-party general partner or managing member that cannot be removed except for cause. The following table sets forth details about the Company's variable interest investments in VIEs, which are structured either as limited partnerships ("LPs") or limited liability companies ("LLCs"), as of March 31, 2022:


(in thousands)	Balance Sheet Classification	Carrying Value		Estimated Fair Value		Maximum Potential Loss (a)
Tax credit LPs	Other investments	$	276	$	276	$	1,768
Real estate LLCs or LPs	Other investments	3,887		5,098		5,408
Small business investment LPs	Other investments	8,764		8,805		14,320
Total		$	12,927	$	14,179	$	21,496


(a)						Maximum potential loss is calculated as the total investment in the LLC or LP, including any capital commitments that may have not yet been called. The Company is not exposed to any loss beyond the total commitment of its investment.

Valuation of Financial Assets

The Financial Accounting Standards Board has established a valuation hierarchy for disclosure of the inputs used to measure estimated fair value of financial assets and liabilities, such as securities. This hierarchy categorizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value.

A financial instrument’s classification within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement – consequently, if there are multiple significant valuation inputs that are categorized in different levels of the hierarchy, the instrument’s hierarchy level is the lowest level (with Level 3 being the lowest level) within which any significant input falls.

The Level 1 category includes equity securities and U.S. Treasury securities that are measured at estimated fair value using quoted active market prices.

The Level 2 category includes fixed maturity securities such as corporate debt securities, U.S. government obligations, and obligations of U.S. states, territories, and political subdivisions. Estimated fair value is principally based on market values obtained from a third-party pricing service. Factors that are used in determining estimated fair market value include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. The Company receives one quote per security from a third-party pricing service, although as discussed below, the Company does consult other pricing resources when confirming that the prices it obtains reflect the fair values of the instruments in accordance with Accounting Standards Codification ("ASC") 820, Fair Value Measurement. Generally, quotes obtained from the pricing service for instruments classified as Level 2 are not adjusted and are not binding. As of March 31, 2022 and December 31, 2021, the Company did not adjust any Level 2 fair values.

A number of the Company’s investment grade corporate debt securities are frequently traded in active markets, and trading prices are consequently available for these securities. However, these securities are classified as Level 2 because the pricing service from which the Company has obtained estimated fair values for these instruments uses valuation models that use observable market inputs in addition to trading prices. Substantially all of the input assumptions used in the service’s model are observable in the marketplace or can be derived or supported by observable market data.

In the measurement of the estimated fair value of certain financial instruments, other valuation techniques were utilized if quoted market prices were not available. These derived fair value estimates are significantly affected by the assumptions used. Additionally, ASC 825, Financial Instruments, excludes from its scope certain financial instruments, including those related to insurance contracts, pension and other postretirement benefits, and equity method investments.

In estimating the fair value of the financial instruments presented, the Company used the following methods and assumptions:

Cash and cash equivalents

The carrying amount for cash and cash equivalents is a reasonable estimate of fair value due to the short-term maturity of these investments.

Investments in real estate

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

Measurement alternative equity investments

The measurement alternative method requires investments without readily determinable fair values to be recorded at cost, less impairments, and plus or minus any changes resulting from observable price changes. The Company monitors any events or changes in circumstances that may have had a significant adverse effect on the fair value of these investments and makes any necessary adjustments.

Accrued interest and dividends

The carrying amount for accrued interest and dividends is a reasonable estimate of fair value due to the short-term maturity of these assets.

The following table presents, by level, fixed maturity securities carried at estimated fair value as of March 31, 2022 and December 31, 2021:


As of March 31, 2022 (in thousands)	Level 1		Level 2 *		Level 3		Total
Fixed maturity securities:
Obligations of U.S. states, territories and political subdivisions	$	—	$	56,605	$	—	$	56,605
Corporate debt securities	—		11,120		—		11,120
Total	$	—	$	67,725	$	—	$	67,725


As of December 31, 2021 (in thousands)	Level 1		Level 2 *		Level 3		Total
Fixed maturity securities:
Obligations of U.S. states, territories and political subdivisions	$	—	$	61,795	$	—	$	61,795
Corporate debt securities	—		17,996		—		17,996
Total	$	—	$	79,791	$	—	$	79,791

*Denotes fair market value obtained from pricing services.

The following table presents, by level, estimated fair values of equity investments and other financial instruments as of March 31, 2022 and December 31, 2021:


As of March 31, 2022 (in thousands)	Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	37,310	$	—	$	—	$	37,310
Accrued interest and dividends	1,000		—		—		1,000
Equity securities, at fair value:
Common stocks	69,945		—		—		69,945
Short-term investments:
Money market funds	58,555		—		—		58,555
Other investments:
Equity investments in unconsolidated affiliates, measurement alternative	—		—		8,908		8,908
Total	$	166,810	$	—	$	8,908	$	175,718


As of December 31, 2021 (in thousands)	Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	37,168	$	—	$	—	$	37,168
Accrued interest and dividends	817		—		—		817
Equity securities, at fair value:
Common stocks	76,853		—		—		76,853
Short-term investments:
Money market funds	45,930		—		—		45,930
Other investments:
Equity investments in unconsolidated affiliates, measurement alternative	—		—		8,688		8,688
Total	$	160,768	$	—	$	8,688	$	169,456

The Company did not hold any Level 3 category debt or marketable equity investment securities as of March 31, 2022 or December 31, 2021.

There were no transfers into or out of Levels 1, 2 or 3 during the periods presented.

To help ensure that estimated fair value determinations are consistent with ASC 820, prices from our pricing services go through multiple review processes to ensure appropriate pricing. Pricing procedures and inputs used to price each security include, but are not limited to, the following: unadjusted quoted market prices for identical securities such as stock market closing prices; non-binding quoted prices for identical securities in markets that are not active; interest rates; yield curves observable at commonly quoted intervals; volatility; prepayment speeds; loss severity; credit risks; and default rates. The Company reviews the procedures and inputs used by its pricing services, and verifies a sample of the services’ quotes by comparing them to values obtained from other pricing resources. In the event the Company disagrees with a price provided by its pricing services, the respective service reevaluates the price to corroborate the market information and then reviews inputs to the evaluation in light of potentially new market data.

Certain equity investments under the measurement alternative and real estate investments are measured at estimated fair value on a non-recurring basis and are reviewed for impairment quarterly. If any such investment is determined to be other-than-temporarily impaired, an impairment charge is recorded against such investment and reflected in the unaudited Consolidated Statements of Operations. There were no impairments of such investments made during the three-month period ended March 31, 2022 or the twelve-month period ended December 31, 2021. The following table presents a rollforward of equity investments under the measurement alternative and real estate investments as of March 31, 2022 and December 31, 2021:

(in thousands)

Balance,
January 1, 2022

Amounts Impaired

Observable Changes

Purchases and
Additional
Commitments
Paid

Sales, Returns of Capital and Other Reductions

Balance,

March 31, 2022

Other investments:

Real Estate

4,987

—