Hey Astral - I've stumbled over ITIC via some of my stock screens for cheap small caps.
ITIC is thinly traded and its hard to buy shares - but I think it might be undervalued.
My two bearish concerns are: 1) title insurance is heavily geared to home purchases and refi-s, and so like homebuilders, ITIC is tainted because it carries "housing bubble risk". 2) its investment portfolio is largely medium-term bonds which would fall in value in a rising interest rate environment. You'd think they could stretch for 100-200 more basis points in investing returns via corporate bonds.
However, it has two very positive factors - its underwriting profit is terrific (GEICO-like) and probably greater than what it actually reports and its historical track record in title insurance underwriting looks terrific. Also - it could be bought out by another title company or a BRK-like company that will try to generate better returns with the insurance float.
At $94 million in market cap and $10 million in 2004 profits it looks cheap. Add in maybe another $3 million in overreserving and it looks really cheap.
Long time no see. I have to agree with your concerns about ITIC. It is very thinly traded and difficult to accumulate. During past periods of rising rates, ITIC's earnings did drop considerably. And it has been happening again this time. Also ITIC's investment holdings would of course be affected as you describe. Finally the portion of portfolio held in equities has risen a little and that concerns me.
In the long run, the underwriting profit is a plus. But in the next year or two I think refis are likely to dry up and earnings will probably be hit hard.
Re buyout prospects, I'm less enthusiastic. A negotiated deal is always possible but unfortunately defenses against a hostile takeover are pretty discouraging.
I value ITIC in two pieces: (1) present value of estimated future operating earnings, plus (2) value of cash and securities. Because the company has a long record of over-reserving while successfully increasing its premium revenue, I don't deduct loss reserves from (2) but treat that part as "float". A big difference between ITIC and most companies is that ITIC still holds basically all its earnings since its founding, all in liquid form.
Still, I haven't bought any shares for about a year. I can't help thinking that it's due to get even cheaper as rates rise.
I tend to agree. The stock changed hands for less than 60% of cash and securities in 3 of the past 5 years. ITIC traded for 105% of cash & securities today. ( Cash and securities were about $38.69 per diluted share on 6/30/05. )
Watch your step. There's plenty of room to fall from here.