STEWART INFORMATION SERVICES CORP [STC] Filings

10-Q 1 stc-20220930.htm Q3 2022 FORM 10-Q stc-20220930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 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 001-02658

STEWART INFORMATION SERVICES CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		74-1677330
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
1360 Post Oak Blvd.,	Suite 100
Houston,	Texas	77056
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (713) 625-8100

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $1 par value per share	STC	New York Stock Exchange

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 (§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

☐

Non-accelerated filer

☐

Emerging growth company

☐

Accelerated filer

☐

Smaller reporting 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 ☑

On November 1, 2022, there were 27,127,013 outstanding shares of the issuer's Common Stock.

FORM 10-Q QUARTERLY REPORT

QUARTER ENDED SEPTEMBER 30, 2022

TABLE OF CONTENTS


Item		Page
	PART I – FINANCIAL INFORMATION

1.	Financial Statements	3

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

3.	Quantitative and Qualitative Disclosures About Market Risk	28

4.	Controls and Procedures	29
	PART II – OTHER INFORMATION
1.	Legal Proceedings	30

1A.	Risk Factors	30

2.	Unregistered Sales of Equity Securities and Use of Proceeds	30

5.	Other Information	30

6.	Exhibits	31

	Signature	32

As used in this report, “we,” “us,” “our,” "Registrant," the “Company” and “Stewart” mean Stewart Information Services Corporation and our subsidiaries, unless the context indicates otherwise.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)


	Three Months Ended September 30,		Nine Months Ended September 30,
	2022	2021	2022	2021
	($000 omitted, except per share)
Revenues
Title revenues:
Direct operations	307,408	366,091	976,364	999,098
Agency operations	340,470	401,762	1,154,546	1,138,023
Real estate solutions and other	69,737	61,934	281,152	176,057
Operating revenues	717,615	829,787	2,412,062	2,313,178
Investment income	5,158	4,053	15,519	13,127
Net realized and unrealized (losses) gains	(6,374)	2,887	(14,194)	17,816
	716,399	836,727	2,413,387	2,344,121
Expenses
Amounts retained by agencies	280,517	329,906	951,555	935,861
Employee costs	195,057	197,587	610,286	555,451
Other operating expenses	151,208	152,587	502,966	415,864
Title losses and related claims	25,486	30,345	81,105	92,687
Depreciation and amortization	14,067	9,144	42,103	22,394
Interest	4,553	712	13,471	1,960
	670,888	720,281	2,201,486	2,024,217
Income before taxes and noncontrolling interests	45,511	116,446	211,901	319,904
Income tax expense	(10,783)	(23,051)	(48,376)	(70,547)
Net income	34,728	93,395	163,525	249,357
Less income attributable to noncontrolling interests	5,294	4,732	14,534	11,639
Net income attributable to Stewart	29,434	88,663	148,991	237,718

Net income	34,728	93,395	163,525	249,357
Other comprehensive loss, net of taxes:
Foreign currency translation adjustments	(15,300)	(4,243)	(22,861)	(997)
Change in net unrealized gains and losses on investments	(8,921)	(2,183)	(41,513)	(10,330)
Reclassification adjustments for realized gains and losses on investments	(385)	(355)	(687)	(918)
Other comprehensive loss, net of taxes:	(24,606)	(6,781)	(65,061)	(12,245)
Comprehensive income	10,122	86,614	98,464	237,112
Less income attributable to noncontrolling interests	5,294	4,732	14,534	11,639
Comprehensive income attributable to Stewart	4,828	81,882	83,930	225,473

Basic average shares outstanding (000)	27,113	26,873	27,031	26,803
Basic earnings per share attributable to Stewart	1.09	3.30	5.51	8.87
Diluted average shares outstanding (000)	27,371	27,238	27,359	27,090
Diluted earnings per share attributable to Stewart	1.08	3.26	5.45	8.78

See notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED BALANCE SHEETS


	September 30, 2022 (Unaudited)	December 31, 2021
	($000 omitted)
Assets
Cash and cash equivalents	320,933	485,919
Short-term investments	18,077	17,650
Investments, at fair value:
Debt securities (amortized cost of $624,272 and $578,165)	582,461	589,772
Equity securities	87,166	89,442
	669,627	679,214
Receivables:
Premiums from agencies	43,426	45,428
Trade and other	65,620	75,079
Income taxes	9,395	5,420
Notes	5,995	1,124
Allowance for uncollectible amounts	(7,577)	(7,711)
	116,859	119,340
Property and equipment:
Land	2,545	2,545
Buildings	18,553	19,303
Furniture and equipment	220,224	216,261
Accumulated depreciation	(160,715)	(165,653)
	80,607	72,456
Operating lease assets	130,316	134,578
Title plants, at cost	73,358	76,859
Investments on equity method basis	4,341	4,754
Goodwill	961,726	924,837
Intangible assets, net of amortization	174,430	229,804
Deferred tax assets	4,328	3,846
Other assets	150,858	64,105
	2,705,460	2,813,362
Liabilities
Notes payable	446,372	483,491
Accounts payable and accrued liabilities	184,065	287,326
Operating lease liabilities	146,309	149,417
Estimated title losses	547,214	549,614
Deferred tax liabilities	23,999	48,779
	1,347,959	1,518,627
Contingent liabilities and commitments
Stockholders’ equity
Common Stock ($1 par value) and additional paid-in capital	321,492	309,622
Retained earnings	1,090,938	974,800
Accumulated other comprehensive income (loss):
Foreign currency translation adjustments	(31,778)	(8,917)
Net unrealized (losses) gains on debt securities investments	(33,030)	9,170

Treasury stock – 352,161 common shares, at cost	(2,666)	(2,666)
Stockholders’ equity attributable to Stewart	1,344,956	1,282,009
Noncontrolling interests	12,545	12,726
Total stockholders’ equity (27,123,388 and 26,893,430 shares outstanding)	1,357,501	1,294,735
	2,705,460	2,813,362

See notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Nine Months Ended September 30,
	2022	2021
	($000 omitted)
Reconciliation of net income to cash provided by operating activities:
Net income	163,525	249,357
Add (deduct):
Depreciation and amortization	42,103	22,394
Adjustments for bad debt provisions	812	1,871
Net realized and unrealized losses (gains)	14,194	(17,816)
Amortization of net premium on debt securities investments	1,870	2,794
Payments for title losses less than provisions	10,950	39,761
Adjustments for insurance recoveries of title losses	220	—
Decrease (increase) in receivables – net	9,521	(20,771)
Increase in other assets – net	(4,343)	(3,725)
Decrease in accounts payable and other liabilities – net	(81,987)	(30,385)
Change in net deferred income taxes	25	7,024
Net income from equity method investments	(2,536)	(6,852)
Dividends received from equity method investments	3,135	5,496
Stock-based compensation expense	9,239	8,494
Other – net	312	(325)
Cash provided by operating activities	167,040	257,317
Investing activities:
Proceeds from sales of investments in securities	47,954	19,726
Proceeds from matured investments in debt securities	28,754	68,653
Purchases of investments in securities	(165,130)	(111,107)
Net (purchases) sales of short-term investments	(1,632)	2,734
Purchases of property and equipment, and real estate	(35,274)	(26,213)
Proceeds from sale of property and equipment and other assets	977	10,552
Cash paid for acquisition of businesses	(102,864)	(149,921)
Cash paid for acquisition of equity method investment	(69)	(16,080)
Other – net	1,941	988
Cash used by investing activities	(225,343)	(200,668)
Financing activities:
Proceeds from notes payable	38,012	331,755
Payments on notes payable	(75,505)	(158,031)
Distributions to noncontrolling interests	(14,863)	(11,683)


Repurchases of Common Stock	(3,168)	(2,145)
Proceeds from stock option and employee stock purchase plan exercises	5,799	2,715
Cash dividends paid	(32,464)	(26,558)
Payment of contingent consideration related to acquisitions	(15,997)	(9,489)
Purchase of remaining interest in consolidated subsidiaries	(72)	(5,616)
Other - net	115	(777)
Cash (used) provided by financing activities	(98,143)	120,171
Effects of changes in foreign currency exchange rates	(8,540)	(1,898)
Change in cash and cash equivalents	(164,986)	174,922
Cash and cash equivalents at beginning of period	485,919	432,683
Cash and cash equivalents at end of period	320,933	607,605

See notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)


	Common Stock	Additional paid-in capital	Retained earnings	Accumulated other comprehensive income (loss)	Treasury stock	Noncontrolling interests	Total
	($000 omitted)
Nine Months Ended September 30, 2022
Balance at December 31, 2021	27,246	282,376	974,800	253	(2,666)	12,726	1,294,735

Net income attributable to Stewart	—	—	148,991	—	—	—	148,991
Dividends on Common Stock ($1.20 per share)	—	—	(32,853)	—	—	—	(32,853)

Stock-based compensation	155	9,084	—	—	—	—	9,239
Stock repurchases	(49)	(3,119)	—	—	—	—	(3,168)
Stock option and employee stock purchase plan exercises	124	5,675	—	—	—	—	5,799
Purchase of remaining interest in consolidated subsidiaries	—	—	—	—	—	(72)	(72)
Change in net unrealized gains and losses on investments, net of taxes	—	—	—	(41,513)	—	—	(41,513)
Reclassification adjustment for realized gains and losses on investments, net of taxes	—	—	—	(687)	—	—	(687)
Foreign currency translation adjustments, net of taxes	—	—	—	(22,861)	—	—	(22,861)
Net income attributable to noncontrolling interests	—	—	—	—	—	14,534	14,534
Distributions to noncontrolling interests	—	—	—	—	—	(14,863)	(14,863)
Net effect of other changes in ownership	—	—	—	—	—	220	220
Balance at September 30, 2022	27,476	294,016	1,090,938	(64,808)	(2,666)	12,545	1,357,501

Nine Months Ended September 30, 2021
Balance at December 31, 2020	27,080	274,857	688,819	17,022	(2,666)	7,294	1,012,406

Net income attributable to Stewart	—	—	237,718	—	—	—	237,718
Dividends on Common Stock ($0.99 per share)	—	—	(27,009)	—	—	—	(27,009)

Stock-based compensation	139	8,355	—	—	—	—	8,494
Stock repurchases	(41)	(2,104)	—	—	—	—	(2,145)
Stock option and employee stock purchase plan exercises	64	2,651	—	—	—	—	2,715
Purchase of remaining interest in consolidated subsidiary	—	(4,744)	—	—	—	(872)	(5,616)
Change in net unrealized gains and losses on investments, net of taxes	—	—	—	(10,330)	—	—	(10,330)
Reclassification adjustment for realized gains and losses on investments, net of taxes, net of taxes	—	—	—	(918)	—	—	(918)
Foreign currency translation adjustments, net of taxes	—	—	—	(997)	—	—	(997)
Net income attributable to noncontrolling interests	—	—	—	—	—	11,639	11,639
Distributions to noncontrolling interests	—	—	—	—	—	(11,683)	(11,683)
Net effect of other changes in ownership	—	—	—	—	—	2,426	2,426
Balance at September 30, 2021	27,242	279,015	899,528	4,777	(2,666)	8,804	1,216,700

See notes to condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)


	Common Stock	Additional paid-in capital	Retained earnings	Accumulated other comprehensive income (loss)	Treasury stock	Noncontrolling interests	Total
	($000 omitted)
Three Months Ended September 30, 2022
Balances at June 30, 2022	27,390	288,834	1,073,788	(40,202)	(2,666)	12,677	1,359,821

Net income attributable to Stewart	—	—	29,434	—	—	—	29,434
Dividends on Common Stock ($0.45 per share)	—	—	(12,284)	—	—	—	(12,284)

Stock-based compensation	29	2,770	—	—	—	—	2,799
Stock repurchases	(12)	(605)	—	—	—	—	(617)
Stock option and employee stock purchase plan exercises	69	3,017	—	—	—	—	3,086
Purchase of remaining interest in consolidated subsidiaries	—	—	—	—	—	(72)	(72)
Change in net unrealized gains and losses on investments, net of taxes	—	—	—	(8,921)	—	—	(8,921)
Reclassification adjustment for realized gains and losses on investments, net of taxes	—	—	—	(385)	—	—	(385)
Foreign currency translation adjustments, net of taxes	—	—	—	(15,300)	—	—	(15,300)
Net income attributable to noncontrolling interests	—	—	—	—	—	5,294	5,294
Distributions to noncontrolling interests	—	—	—	—	—	(5,380)	(5,380)
Net effect of other changes in ownership	—	—	—	—	—	26	26
Balance at September 30, 2022	27,476	294,016	1,090,938	(64,808)	(2,666)	12,545	1,357,501

Three Months Ended September 30, 2021
Balances at June 30, 2021	27,177	274,074	819,834	11,558	(2,666)	6,096	1,136,073

Net income attributable to Stewart	—	—	88,663	—	—	—	88,663
Dividends on Common Stock ($0.33 per share)	—	—	(8,969)	—	—	—	(8,969)

Stock-based compensation	8	2,607	—	—	—	—	2,615
Stock repurchases	(2)	(141)	—	—	—	—	(143)
Stock option exercises	59	2,475					2,534

Change in net unrealized gains and losses on investments, net of taxes	—	—	—	(2,183)	—	—	(2,183)
Reclassification adjustment for realized gains and losses on investments, net of taxes, net of taxes	—	—	—	(355)	—	—	(355)
Foreign currency translation adjustments, net of taxes	—	—	—	(4,243)	—	—	(4,243)
Net income attributable to noncontrolling interests	—	—	—	—	—	4,732	4,732
Distributions to noncontrolling interests	—	—	—	—	—	(4,430)	(4,430)
Net effect of other changes in ownership	—	—	—	—	—	2,406	2,406
Balance at September 30, 2021	27,242	279,015	899,528	4,777	(2,666)	8,804	1,216,700

See notes to condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1

Interim financial statements. The financial information contained in this report for the three and nine months ended September 30, 2022 and 2021, and as of September 30, 2022, is unaudited. This report should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission on February 28, 2022 (2021 Form 10-K).

A. Management’s responsibility. The accompanying interim financial statements were prepared by management, who is responsible for their integrity and objectivity. These financial statements have been prepared in conformity with the United States (U.S.) generally accepted accounting principles (GAAP), including management’s best judgments and estimates. In the opinion of management, all adjustments necessary for a fair presentation of this information for all interim periods, consisting only of normal recurring accruals, have been made. The Company’s results of operations for interim periods are not necessarily indicative of results for a full year and actual results could differ.

B. Consolidation. The condensed consolidated financial statements include all subsidiaries in which the Company owns more than 50% voting rights in electing directors. All significant intercompany amounts and transactions have been eliminated and provisions have been made for noncontrolling interests. Unconsolidated investees, in which the Company typically owns from 20% to 50% of the voting stock, are accounted for using the equity method.

C. Restrictions on cash and investments. The Company maintains investments in accordance with certain statutory requirements for the funding of statutory premium reserves. Statutory reserve funds are required to be fully funded and invested in high-quality securities and short-term investments. Statutory reserve funds are not available for current claim payments, which must be funded from current operating cash flow. Included in investments in debt and equity securities are statutory reserve funds of approximately $541.0 million and $523.5 million at September 30, 2022 and December 31, 2021, respectively. In addition, included within cash and cash equivalents are statutory reserve funds of approximately $10.5 million and $41.4 million at September 30, 2022 and December 31, 2021, respectively. Although these cash statutory reserve funds are not restricted or segregated in depository accounts, they are required to be held pursuant to state statutes. If the Company fails to maintain minimum investments or cash and cash equivalents sufficient to meet statutory requirements, the Company may be subject to fines or other penalties, including potential revocation of its business license. These funds are not available for any other purpose. In the event that insurance regulators adjust the determination of the statutory premium reserves of the Company’s title insurers, these restricted funds as well as statutory surplus would correspondingly increase or decrease.

D. Recently enacted Inflation Reduction Act. On August 16, 2022, the U.S. government enacted the Inflation Reduction Act of 2022 (the Act) that includes, among other provisions, changes to the U.S. corporate income tax system, including a 15% minimum tax based on book income of certain large corporations for tax years beginning after December 31, 2022 and a 1% excise tax on net repurchases of stock starting in 2023. Management is still in the process of evaluating the Act and its requirements, however it does not believe that the Act will have a material impact on the Company's consolidated financial statements.

NOTE 2

Revenues. The Company's operating revenues, summarized by type, are as follows:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2022	2021	2022	2021
	($000 omitted)
Title insurance premiums:
Direct	209,477	248,738	646,760	687,369
Agency	340,470	401,762	1,154,546	1,138,023
Escrow fees	49,407	63,455	166,696	183,638
Real estate solutions and abstract fees	89,519	85,345	302,534	234,677
Other revenues	28,742	30,487	141,526	69,471
	717,615	829,787	2,412,062	2,313,178

NOTE 3

Investments in debt and equity securities. As of September 30, 2022 and December 31, 2021, the net unrealized investment gains relating to investments in equity securities held were $8.0 million and $21.1 million, respectively (refer to Note 5).

The amortized costs and fair values of investments in debt securities are as follows:


	September 30, 2022		December 31, 2021
	Amortized costs	Fair values	Amortized costs	Fair values
	($000 omitted)
Municipal	30,759	30,119	34,739	36,323
Corporate	279,392	257,575	249,757	258,102
Foreign	297,490	278,511	287,240	288,883
U.S. Treasury Bonds	16,631	16,256	6,429	6,464

	624,272	582,461	578,165	589,772

Foreign debt securities primarily consist of Canadian government, provincial and corporate bonds, United Kingdom treasury and corporate bonds, and Mexican government bonds.

Gross unrealized gains and losses on investments in debt securities are as follows:


	September 30, 2022		December 31, 2021
	Gains	Losses	Gains	Losses
	($000 omitted)
Municipal	2	642	1,585	1
Corporate	226	22,043	9,389	1,044
Foreign	92	19,071	3,285	1,642
U.S. Treasury Bonds	7	382	60	25

	327	42,138	14,319	2,712

Debt securities as of September 30, 2022 mature, according to their contractual terms, as follows (actual maturities may differ due to call or prepayment rights):


	Amortized costs	Fair values
	($000 omitted)
In one year or less	88,203	87,384
After one year through five years	355,367	333,584
After five years through ten years	155,555	140,592
After ten years	25,147	20,901
	624,272	582,461

Gross unrealized losses on investments in debt securities and the fair values of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2022, were:


	Less than 12 months		More than 12 months		Total
	Losses	Fair values	Losses	Fair values	Losses	Fair values
	($000 omitted)
Municipal	633	28,835	9	33	642	28,868
Corporate	17,822	224,128	4,221	29,888	22,043	254,016
Foreign	13,264	210,499	5,807	65,721	19,071	276,220
U.S. Treasury Bonds	323	13,116	59	951	382	14,067

	32,042	476,578	10,096	96,593	42,138	573,171

The number of specific debt investment holdings held in an unrealized loss position as of September 30, 2022 was 355. Of these securities, 49 were in unrealized loss positions for more than 12 months. Gross unrealized investment losses at September 30, 2022 increased compared to December 31, 2021, primarily due to the market volatility influenced by higher interest rates and credit spreads during 2022. Since the Company does not intend to sell and will more likely than not maintain each investment security until its maturity or anticipated recovery in value, and no significant credit risk is deemed to exist, these investments are not considered as credit-impaired. The Company believes its investment portfolio is diversified and expects no material loss to result from the failure to perform by issuers of the debt securities it holds. Investments made by the Company are not collateralized.


	Less than 12 months		More than 12 months		Total
	Losses	Fair values	Losses	Fair values	Losses	Fair values
	($000 omitted)
Municipal	1	130	—	—	1	130
Corporate	588	42,231	456	12,014	1,044	54,245
Foreign	1,502	118,943	140	3,394	1,642	122,337
U.S. Treasury Bonds	8	477	17	508	25	985

	2,099	161,781	613	15,916	2,712	177,697

NOTE 4

Fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal, or most advantageous, market for the asset or liability in an orderly transaction between market participants at the measurement date. Under U.S. GAAP, there is a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs when possible.

The three levels of inputs used to measure fair value are as follows:

•Level 1 – quoted prices in active markets for identical assets or liabilities;

•Level 2 – observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data; and

•Level 3 – unobservable inputs that are supported by little or no market activity and that are significant to the fair values of the assets or liabilities, including certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

As of September 30, 2022, financial instruments measured at fair value on a recurring basis are summarized below:


	Level 1	Level 2	Fair value measurements
	($000 omitted)
Investments in securities:
Debt securities:
Municipal	—	30,119	30,119
Corporate	—	257,575	257,575
Foreign	—	278,511	278,511
U.S. Treasury Bonds	—	16,256	16,256
Equity securities	87,166	—	87,166
	87,166	582,461	669,627

As of December 31, 2021, financial instruments measured at fair value on a recurring basis are summarized below:


	Level 1	Level 2	Fair value measurements
	($000 omitted)
Investments in securities:
Debt securities:
Municipal	—	36,323	36,323
Corporate	—	258,102	258,102
Foreign	—	288,883	288,883
U.S. Treasury Bonds	—	6,464	6,464
Equity securities	89,442	—	89,442
	89,442	589,772	679,214

As of September 30, 2022 and December 31, 2021, Level 1 financial instruments consist of equity securities. Level 2 financial instruments consist of municipal, governmental, and corporate bonds, both U.S. and foreign. In accordance with the Company’s policies and guidelines which incorporate relevant statutory requirements, the Company’s third-party registered investment manager invests only in securities rated as investment grade or higher by the major rating services, where observable valuation inputs are significant. The fair value of the Company's investments in debt and equity securities is primarily determined using a third-party pricing service provider. The third-party pricing service provider calculates the fair values using both market approach and model valuation methods, as well as pricing information obtained from brokers, dealers and custodians. Management ensures the reasonableness of the third-party service valuations by comparing them with pricing information from the Company's investment manager.

NOTE 5

Net realized and unrealized gains. Realized and unrealized gains and losses are detailed as follows:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2022	2021	2022	2021
	($000 omitted)
Realized gains	183	2,615	3,460	10,695
Realized losses	(65)	(47)	(3,904)	(2,516)
Net unrealized investment (losses) gains recognized on equity securities still held at end of period	(6,492)	319	(13,750)	9,637
	(6,374)	2,887	(14,194)	17,816

Realized gains and losses during the first nine months of 2022 included realized losses of $3.6 million from disposals of businesses, a $1.0 million gain from an acquisition contingent liability adjustment, and a $1.0 million realized gain related to a sale of a title plant copy.

Realized gains and losses during the third quarter 2021 included $2.5 million gain related to an acquisition contingent liability adjustment. Additionally, realized gains and losses for the first nine months of 2021 included $7.3 million of gains on sales of buildings and a $2.5 million loss related to a disposal of an equity method investment.

Investment gains and losses recognized related to investments in equity securities are as follows: