Groveland Capital Presentation On Investors Title Company (ITIC)
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 Company’s 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.
We request the opportunity to meet with Investors Title’s management team to engage in friendly, constructive, and value-enhancing dialogue.
Company Description
Investors Title Company (“Investors Title” or the “Company”) is a Regional Mortgage Title Insurance Underwriter based in Chapel Hill, North Carolina.
The Company was incorporated in 1973 in North Carolina & has two operating subsidiaries: Investors Title Insurance Company (“Investors”) and National Investors Title Insurance Company (“National”) and primarily writes mortgage title insurance in the Eastern US states.
J. Allen Fine is the founder and CEO. His two sons, Jim and Morris, now run the business with him.
Investors Title Financial Metrics Snapshot
Investors Title Business Operations
- 90%+ of Company revenue is derived from underwriting residential title insurance.
- Premiums have historically been concentrated within North Carolina, South Carolina, Texas, and Virginia.
- Insurance policies are written through direct branch agents or independent agents.
- In North Carolina, business is predominantly generated through direct agents with other states using independent agents to drive business.
- The Company also offers ancillary services including tax-deferred exchanges of like-kind property (“ITEC” & “ITAC”), investment management services (“Investors Trust”), and consulting services for operating a title insurance agency (“ITMS”).
Does Investors Title Have Excess Capital?
The following slides attempt to ascertain the following:
(1)What is a conservative asset base needed for Investors Title to conduct ongoing operations safely at an A.M. Best rating of ‘a’ at the insurance subsidiaries?
(2) Given this asset base, does Investors Title have excess capital? If so, how much?
(3) Given the excess capital amount, what is a reasonable amount for Investors Title to use for strategic options?
A.M. BEST Analysis
A.M. Best uses multiple factors to derive a positive credit rating
- Conservative underwriting leverage (premiums to surplus).
- Strong balance sheet and ample liquidity.
- Profitability, operating performance and expense management.
- Significant market share and geographic diversification.
The mortgage title industry has historically seen leverage underwriting ratios of 3.0x – 5.0x with the recent ratios trending towards 3.0x.
Note: some private title insurers have comfortably operated with leverage ratios in excess of 5.0x. (Source: A.M. Best)
Year End 2O14 Industry Metrics Premiums to Surplus
(1) Surplus is based off of Statutory Surplus at the Parent per Capital IQ.
(2) First American Average since 2008
As shown above, Investors Title is a highly conservative underwriter with more than ample financial cushion to offset geographic concentration
Historical Industry Premiums to Surplus
(1) 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.
See full presentation below.
