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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 1-13990
LANDAMERICA FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-1589611
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
101 Gateway Centre Parkway
Richmond, Virginia 23235-5153
(Address of principal executive offices) (Zip Code)
(804) 267-8000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Securities Name of Exchange on Which Registered
------------------- ------------------------------------
Common Stock, no par value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
7% Series B Cumulative Convertible Preferred Stock
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 X No
--- ---
The aggregate market value of voting stock held by non-affiliates of
the registrant on March 17, 2000 was approximately $149,192,000. Executive
officers and directors of the registrant and beneficial owners of more than 10%
of the Common Stock are considered affiliates for purposes of this calculation
but should not necessarily be deemed affiliates for any other purpose.
The number of shares of Common Stock, without par value, outstanding on
March 17, 2000 was 13,403,141.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K. [ ]
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the 2000 Annual Meeting
of Shareholders (to be filed) are incorporated by reference into Part III
hereof.
PART I
ITEM 1. BUSINESS
The Company
LandAmerica Financial Group, Inc. (the "Company") is a holding company
organized under the laws of the Commonwealth of Virginia on June 24, 1991. The
Company, through its subsidiaries, is engaged in the business of issuing title
insurance policies and performing other real estate-related services for both
residential and commercial real estate transactions. As a holding company, the
Company has greater flexibility in conducting certain operations, especially
with regard to capital transactions, while the operating title insurance
subsidiaries remain subject to regulation by the various states. See
"Regulation" below.
The Company has its principal executive offices at 101 Gateway Centre
Parkway, Richmond, Virginia 23235-5153. Its telephone number is (804) 267-8000.
Unless the context otherwise requires, the Company, as used herein, refers to
the Company and each of its subsidiaries.
Overview of the Company's Operations
Title Insurance. The Company issues title insurance policies through
its various title underwriting subsidiaries. The Company's three principal title
underwriting subsidiaries are Commonwealth Land Title Insurance Company
("Commonwealth"), Lawyers Title Insurance Corporation ("Lawyers Title") and
Transnation Title Insurance Company ("Transnation"). The Company also owns 11
other title insurance underwriters, including Commonwealth Land Title Insurance
Company of New Jersey, Oregon Title Insurance Company, Title Insurance Company
of America and Industrial Valley Title Insurance Company. The collective
operations of these subsidiaries cover the entire United States (with the
exception of Iowa, which does not recognize title insurance), certain
territories of the United States and Canada.
In connection with the issuance of title insurance policies, the
Company performs title search and examination services and also offers closing
protection letters to lenders and owners who purchase title insurance. The
Company also furnishes certificates of title and abstracts of title in some
states.
Escrow and Closing Services. In addition to the issuance of title
insurance policies, the Company provides escrow and closing services to a
broad-based customer group that includes lenders, developers, real estate
agents, attorneys and home buyers and sellers. In California and a number of
western states, it is a general practice, incident to the issuance of title
insurance policies, to hold funds and documents in escrow for delivery in real
estate transactions upon fulfillment of the conditions to such delivery. In the
mid-western states, Florida and some eastern cities, it is customary for the
title company to close the transaction and disburse the sale or loan proceeds.
Fees for such escrow and closing services are generally separate and distinct
from premiums paid for title insurance policies.
Ancillary Services. The Company offers a full range of residential real
estate services to the national and regional mortgage lending community through
its LandAmerica OneStop operation. The services of LandAmerica OneStop include
the coordination of title insurance orders, credit reporting, flood
certification, property appraisal and valuation, centralized closing and escrow
services, real estate tax services, document preparation and property
inspections. These services are available to national and regional mortgage
lenders through a single point of contact with the Company and are provided by
subsidiaries of the Company or through joint ventures or strategic alliances
with third parties.
-2-
The Company also is a provider of certain specialized services
associated with real estate transactions through Commonwealth Relocation
Services, Inc. ("Commonwealth Relocation") and through the Company's exchange
company subsidiaries. Commonwealth Relocation offers national employee
relocation services. LandAmerica Exchange Company and The National 1031 Exchange
Corporation facilitate property exchanges pursuant to Section 1031 of the
Internal Revenue Code by holding the sale proceeds from one transaction until a
second acquisition occurs, thereby assisting customers in deferring the
recognition of taxable income.
Technology Subsidiaries. The title insurance industry has become
increasingly automated. The Company has two wholly owned subsidiaries devoted to
computer automation of various aspects of the title insurance business. Elliptus
Technologies, Inc. ("Elliptus") develops and markets title production and escrow
software that automates policy issuance, escrow and closing documentation and
support functions. Datatrace Information Services Company, Inc. provides
automated title plant services. In addition, the Company has one subsidiary, Day
One, Inc., which develops and markets property valuation software to the
appraisal industry.
Principal Title Underwriting Subsidiaries
Commonwealth. Commonwealth was founded as a title insurance company in
1876 and was incorporated in the Commonwealth of Pennsylvania on April 1, 1944.
Commonwealth is licensed by the insurance departments of 49 states, the District
of Columbia, Puerto Rico and the U.S. Virgin Islands.
Lawyers Title. Lawyers Title, a Virginia corporation, has been engaged
primarily in the title insurance business since 1925. Lawyers Title conducts
business in 49 states and in the District of Columbia, the territories of Puerto
Rico and the U.S. Virgin Islands, the Bahamas and a number of Canadian
provinces.
Transnation. Transnation, an Arizona corporation, is the successor to
Transamerica Title Insurance Company, which commenced business on March 26,
1910. Transnation is licensed by the insurance departments of 40 states and the
District of Columbia.
Title Insurance and Underwriting
Title Insurance. Title insurance policies are insured statements of the
condition of title to real property. Such policies indemnify the insured from
losses resulting from certain outstanding liens, encumbrances and other defects
in title to real property that appear as matters of public record, and from
certain other matters not of public record. Title insurance is generally
accepted as the most efficient means of determining title to, and priority of
interests in, real estate in nearly all parts of the United States. Many of the
principal customers of title insurance companies buy insurance for the accuracy
and reliability of the title search as well as for the indemnity features of the
policy. The beneficiaries of title insurance policies are generally owners or
buyers of real property or parties who make loans on the security of real
property. An owner's policy protects the named insured against title defects,
liens and encumbrances existing as of the date of the policy and not
specifically excluded or excepted from its provisions, while a lender's policy,
in addition to the foregoing, insures against the invalidity of the lien of the
insured mortgage and insures the priority of the lien as stated in the title
policy.
While most other forms of insurance provide for the assumption of risk
of loss arising out of unforeseen future events, title insurance serves to
protect the policyholder from the risk of loss from events that predate the
issuance of the policy. This distinction underlies the low claims loss
experience of title insurers as compared to other insurance underwriters. Losses
generally result
-3-
either from judgment errors or mistakes made in the title search and examination
process or the escrow process or from hidden defects such as fraud, forgery,
incapacity or missing heirs. Operating expenses, on the other hand, are higher
for title insurance companies than for other companies in the insurance
industry. Most title insurers incur considerable costs relating to the personnel
required to process forms, search titles, collect information on specific
properties and prepare title insurance commitments and policies.
Underwriting. The Company issues title insurance policies on the basis
of a title report, which is prepared pursuant to underwriting guidelines
prescribed by the Company, after a search of the public records, maps and
documents to ascertain the existence of easements, restrictions, rights of way,
conditions, encumbrances, liens or other matters affecting the title to, or use
of, real property. In certain instances, a visual inspection of the property is
also made. Title examinations may be made by branch employees, agency personnel
or approved attorneys, whose reports are utilized by or rendered to a branch or
agent and are the basis for the issuance of policies by the Company. In the case
of difficult or unusual legal or underwriting issues involving potential title
risks, the branch office or agent is instructed to consult with a designated
supervising office. The Company's contracts with independent agents require that
the agent seek prior approval of the Company in order to commit the Company to
assume a risk over a stated dollar limit.
The Company owns a number of title plants and in some areas leases or
participates with other title insurance companies or agents in the cooperative
operation of such plants. Title plants are compilations of copies of public
records, maps and documents that are indexed to specific properties in an area,
and they serve to facilitate the preparation of title reports. In many of the
larger markets, the title plant and search procedures have been automated. To
maintain the value of the title plants, the Company continually updates its
records by regularly adding current information from the public records and
other sources. In this way, the Company maintains the ability to produce quickly
and at a reduced expense a statement of the instruments which constitute the
chain of title to a particular property.
Direct and Agency Operations
The Company issues title insurance policies through its direct
operations (which include branch offices of its title insurers and wholly owned
subsidiary agencies of the Company) or through independent title insurance
agents. Where the policy is issued through its direct operations, the search is
performed by or at the direction of the Company, and the premium is collected
and retained by the Company. Where the policy is issued through an independent
agent, the agent generally performs the search (in some areas searches are
performed by approved attorneys), examines the title, collects the premium and
retains a portion of the premium. The remainder of the premium is remitted to
the Company as compensation for bearing the risk of loss in the event a claim is
made under the policy. The percentage of the premium retained by an agent varies
from region to region and is sometimes regulated by the states. The Company is
obligated to pay title claims in accordance with the terms of its policies,
regardless of whether it issues policies through direct operations or
independent agents. In the fiscal year ended December 31, 1999, approximately
42.7% of total title insurance revenues were derived from direct operations and
57.3% came from independent agents.
The premium for title insurance is due in full when the real estate
transaction is closed. Title insurance premium revenues from direct operations
are recognized by the Company upon the closing of the transaction, whereas
premium revenues from agency operations are recognized by the Company upon
receipt of such premiums. Premiums from independent agents are typically
remitted to the Company an average of 90 days after the closing of the real
estate transaction.
-4-
Insured Risk on Policies in Force
The amount of the insured risk or "face amount" of insurance under a
title insurance policy is generally equal to either the purchase price of the
property or the amount of the loan secured by the property. The insurer is also
responsible for the cost of defending the insured title against covered claims.
The insurer's actual exposure at any time is significantly less than the total
face amount of policies in force because the risk on an owner's policy is often
reduced over time as a result of subsequent transfers of the property and the
reissuance of title insurance by other title insurance underwriters, and the
coverage of a lender's policy is reduced and eventually terminated as a result
of payment of the mortgage loan. Because of these factors, the total contingent
liability of a title underwriter on outstanding policies cannot be precisely
ascertained.
In the ordinary course of business, the Company's underwriting
subsidiaries represent and defend the interests of their insureds, and provide
on the Company's consolidated books for estimated losses and loss adjustment
expenses. Title insurers are sometimes subject to unusual claims (such as claims
of Indian tribes to land formerly inhabited by them) and to claims arising
outside the insurance contract, such as for alleged negligence in search,
examination or closing, alleged improper claims handling and alleged bad faith.
The damages alleged in such claims arising outside the insurance contract may
often exceed the stated liability limits of the policies involved. While the
Company in the ordinary course of its business has been subject from time to
time to these types of claims, the Company's losses to date on such claims have
not been significant in number or material in dollar amount to the Company's
financial condition.
Liabilities for estimated losses and loss adjustment expenses represent
the estimated ultimate net cost of all reported and unreported losses incurred
through December 31, 1999. The reserves for unpaid losses and loss adjustment
expenses are estimated using individual case-basis valuations and statistical
analyses. Those estimates are subject to the effects of trends in loss severity
and frequency. Although considerable variability is inherent in such estimates,
management believes that the reserves for losses and loss adjustment expenses
are adequate. Independent actuaries review the adequacy of reserves on an
interim basis and certify as to their adequacy on an annual basis. The reserve
estimates are continually reviewed and adjusted as the Company's loss experience
develops or new information becomes known. Any adjustments to loss reserve
estimates are included as a current operating expense. The provision for policy
and contract claims as a percentage of operating revenues for 1999 was 4.9%, for
1998 was 5.2%, and for 1997 was 5.4%. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Results of Operations."
The Company generally pays losses in cash; however, it sometimes
settles claims by purchasing the interest of the insured in the real property or
the interest of the claimant adverse to the insured. Assets acquired in this
manner are carried at the lower of cost or estimated realizable value, net of
any indebtedness thereon.
Standard & Poors Corporation ("S&P") has assigned a financial strength
rating of "A" to the title insurance operations of the Company. According to
S&P, an insurer rated "A" has strong financial security characteristics, but is
somewhat more likely to be affected by adverse business conditions than are
insurers with higher ratings. S&P assigns a ratings outlook along with its
letter ratings to indicate its expectations of trends that relate to the
financial strength rating for the rated company. The ratings outlook assigned by
S&P may be either "positive," "stable" or "negative." According to S&P, the
ratings outlook for the Company is "negative." A "negative" outlook means that
S&P may consider a downgrade of the Company's financial strength rating in the
future. Duff & Phelps Credit Rating Co. ("Duff & Phelps") has assigned an "A+"
rating to the claims-paying ability of the Company. According to Duff & Phelps,
an "A+" rating is assigned to those companies which have a high claims-paying
ability, protection factors are average and there is an expectation of
variability in risk over time due to economic and/or
-5-
underwriting conditions. Duff & Phelps also assigns a ratings outlook along with
its letter ratings to indicate its expectations of trends that relate to the
claims-paying ability rating for the rated company. The ratings outlook assigned
by Duff & Phelps may be either "positive," "stable" or "negative." According to
Duff & Phelps, the ratings outlook for the Company is "stable." The S&P and Duff
& Phelps ratings are not designed for the protection of investors and do not
constitute recommendations to buy, sell or hold any security.
The Company places a high priority on maintaining effective quality
assurance and claims administration programs. The Company's quality assurance
program focuses on quality control, claims prevention and product risk
assessment for its independent agencies. The claims administration program
focuses on improving liability analysis, prompt, fair and effective handling of
claims, prompt evaluation of settlement or litigation with first and third-party
claimants and appropriate use of ADR (Alternative Dispute Resolution) in claims
processing. In addition, to reduce the incidence of agency defalcations, the
Company has implemented due diligence requirements in connection with the
appointment of new agents, adopted procedures for renewing existing agents and
established an Agency Audit Program. The Company continues to refine its systems
for maintaining effective quality assurance and claims administration programs.
Reinsurance and Coinsurance
The Company distributes large title insurance risks through the
mechanisms of reinsurance and coinsurance. In reinsurance agreements, the
reinsurer accepts that part of the risk which the primary insurer (the "ceding
company" or "ceder") decides not to retain, in consideration for a portion of
the premium. A number of factors may enter into a company's decision to
reinsure, including retention limits imposed by state law, customer demands and
the risk retention philosophy of the company. The ceder, however, remains liable
to the insured for the total risk, whether or not the reinsurer meets its
obligation. The Company may reinsure from among its own title insurance
subsidiaries or may reinsure with unaffiliated reinsurers. As a general rule,
when the Company purchases reinsurance on a particular risk from unaffiliated
reinsurers, it will generally retain a primary risk of $5.0 million and may
participate with such reinsurers on liability amounts above the primary level on
a secondary level. Reinsurance is generally purchased from unaffiliated
reinsurers if the risk is greater than $150.0 million.
The Company assumes reinsurance from unaffiliated title insurance
underwriters pursuant to a standard reinsurance agreement concerning specific
title insurance risks for properties on which it assumes a portion of the
liability. The Company has entered into numerous reinsurance agreements with
other title insurance underwriters on specific transactions. The Company's
exposure on all reinsurance assumed is reduced due to retention of a substantial
amount of primary risk by the ceding company. In addition, exposure under these
agreements generally ceases upon a transfer of the insured properties and, with
respect to insured loans, is decreased by reductions in mortgage loan balances.
Because of this, the actual exposure is much less than the total reinsurance
which the Company has assumed. The Company provides loss reserves on assumed
reinsurance business on a basis consistent with reserves for direct business.
The Company utilizes coinsurance to enable it to provide coverage in
amounts greater than it would be willing or able to undertake individually. In
coinsurance transactions, each individual underwriting company issues a separate
policy and assumes a fraction of the overall total risk. Each coinsurer is
liable only for the particular fraction of the risk it assumes.
The Company enters into reinsurance and coinsurance arrangements with
most of the larger participants in the title insurance market and such
arrangements are not materially concentrated with any single title insurance
company. Revenues and claims from reinsurance are not material to the Company's
business as a whole.
-6-
Two of the Company's subsidiaries, Commonwealth and Transnation,
maintain excess-of-loss catastrophe reinsurance from Capital Title Reinsurance
Co. These policies cover losses of up to $40.0 million in excess of $10.0
million for single properties and up to $40.0 million in excess of $20.0 million
for multisite transactions.
Title Insurance Revenues
The table below sets forth, for the years ended December 31, 1999 and
1998, the approximate dollars and percentages of the Company's revenues on a pro
forma and historic basis for the ten states representing the largest percentages
of such revenues and for all other states combined:
Revenues by State
(Dollars in thousands)
Years Ended December 31,
---------------------------------------------------------------------------------------
1999 1998 (1) 1997 (1)
------------------------- ------------------------- -------------------------
Texas $ 275,271 13.8% $ 272,577 14.1% $ 209,382 14.1%
California 222,319 11.1% 224,062 11.6% 163,314 11.0%
Florida 168,808 8.4% 149,220 7.7% 121,569 8.2%
Pennsylvania 138,028 6.9% 118,819 6.1% 87,329 5.9%
Michigan 111,992 5.6% 107,954 5.6% 78,918 5.3%
New York 113,510 5.7% 105,135 5.4% 95,903 6.5%
New Jersey 76,897 3.8% 65,765 3.4% 51,131 3.4%
Washington 63,448 3.2% 65,332 3.4% 50,229 3.4%
Arizona 60,914 3.1% 61,112 3.2% 28,988 2.0%
Colorado 58,806 2.9% 58,348 3.0% 39,451 2.7%
Other 642,464 32.1% 623,041 32.1% 468,158 31.5%
------------ ---------- ------------- ---------- ------------ ----------
Total title revenues 1,932,457 96.6% 1,851,365 95.6% 1,394,372 94.0%
Non-title revenues 67,557 3.4% 87,301 4.4% 92,155 6.0%
------------ ---------- ------------- ---------- ------------ ----------
Total revenues $2,000,014 100.0% $1,938,666 100.0% $1,486,527 100.0%
============ ========== ============= ========== ============ ==========
______________________
(1) On February 27, 1998, the Company acquired all of the issued and
outstanding shares of capital stock of Commonwealth and Transnation. The amounts
included in the table for 1998 and 1997 are presented on a pro forma basis
assuming that the acquisition occurred at the beginning of 1998 and 1997,
respectively.
Sales and Marketing
The Title Insurance Market. For sales and marketing purposes, the
Company generally views residential real estate activities and commercial real
estate activities as two distinct sources of title insurance business.
Residential real estate business results from the construction, sale, resale and
refinancing of residential properties, while commercial real estate business
results from similar activities with respect to properties with a business or
commercial use. The Company has emphasized the development of its residential
real estate business during the 1990's, while maintaining a leadership position
in insuring commercial real estate transactions. Although precise data are not
available to compare the percentage of total premium revenues of the Company
derived from commercial versus residential real estate activities, approximately
80% of such revenues in 1999 resulted from policies providing coverage of $1.0
million or less
-7-
(which tend to be residential) and approximately 20% of such revenues resulted
from policies providing coverage in excess of $1.0 million.
Residential Transactions. The Company's primary source of residential
business is from the local real estate community, such as attorneys, real estate
brokers and developers, financial institutions, mortgage brokers and independent
escrow agents. Maintenance and expansion of these referral sources is integral
to the Company's marketing strategy for local residential business. Although
most of the Company's residential business arises from these local
relationships, large national and regional residential mortgage originators
continue to expand their role in the residential real estate market. These
lenders are attracted to title insurance providers who can offer a single source
for title insurance and a broad array of services related to residential real
estate transactions. The Company has responded to this developing trend in the
market by establishing LandAmerica OneStop as a single, convenient point of
contact through which national and regional mortgage lenders can place orders
for title insurance and other services related to real estate transactions. See
"Overview of the Company's Operations - Ancillary Services."
In 1999, the Company expanded its national affiliated agency
relationships which include builders, realtors, lenders and vendor managers.
There has been increased interest from lenders in forming new agency
relationships since the passage of the Gramm-Leach-Bliley Act (Financial
Services Modernization Act). In addition, each of the Company's principal
underwriting subsidiaries has developed brand name recognition in particular
markets. Using a multiple brand strategy in which each of these subsidiaries
markets and sells under its own name, the Company seeks to capitalize on
long-standing customer relationships and referral sources and to target
different market segments with different brand names.
Commercial Transactions. The Company is one of the leading providers of
title insurance for commercial transactions. The Company's National Commercial
Services ("NCS") division specializes in the sale and servicing of title
insurance for complex commercial and multi-property transactions. The Company
has NCS offices in 20 strategic metropolitan areas in the United States. Each of
these NCS offices markets title insurance products and services to large
commercial customers located in its sales territory and acts as a single point
of contact for the customer's title insurance needs throughout the country. The
Company also markets title insurance for commercial transactions through local
direct operations and independent agents.
In addition, the Company is one of the most strongly capitalized title
insurers in the industry, with an aggregate statutory surplus of $377.3 million
as of December 31, 1999. The financial strength of the Company is an important
factor in marketing the Company's commercial title business capabilities,
enabling it to underwrite larger title policies and retain higher levels of risk
without purchasing reinsurance from a third party. The Company's capital
position supports a rating of "A" from Standard & Poors (financial strength) and
a rating of "A+" from Duff & Phelps (claims-paying ability). These ratings are
important in competing for commercial title insurance business.
Customers
As of December 31, 1999, no single independent agent was responsible
for more than 5% of the title insurance revenues of any of the Company's
principal underwriting subsidiaries. In addition, the Company is not dependent
upon any single customer or any single group of customers. The loss of any one
customer would not have a material adverse effect on the Company.
-8-
Competition
The title insurance business is very competitive. Competition for
residential title business is based primarily on service and, to a lesser
extent, price. Service quality is based upon a number of factors, including
technological capabilities (resulting in a readily accessible, efficient and
reliable product) and the ability to respond quickly to customers. With respect
to national and regional mortgage lenders, service quality includes a large
distribution network and the ability to deliver a broad array of real estate
services quickly, efficiently and through a single point of contact. Competition
for commercial title business is based primarily on price, service, expertise in
complex transactions and the size and financial strength of the insurer. Title
insurance underwriters also compete for agents on the basis of service and
commission levels.
The Company is one of the largest title insurance underwriters in the
United States based on title premium revenues. Its principal competitors are
other major title insurance underwriters and their agency networks. The
Company's principal competitors during 1999 were Chicago Title Insurance
Company, First American Title Insurance Company, Stewart Title Guaranty Company,
Old Republic National Title Insurance Company and Fidelity National Title
Insurance Company. Of the more than one hundred title insurance underwriting
companies licensed in the United States, the top six companies account for
approximately 91.3% of the title insurance market.
The Company's title insurance subsidiaries are subject to regulation by
the insurance authorities of the states in which they do business. See
"Regulation." Within this regulatory framework, the Company competes with
respect to premium rates, coverage, risk evaluation, service and business
development.
State regulatory authorities impose underwriting limits on title
insurers based primarily on levels of available capital and surplus. The Company
has underwriting limits that are comparable to its competitors. While such
limits may theoretically hinder the Company's title insurance subsidiaries'
assumption of a particular large underwriting liability, in practice the Company
has established its own internal risk limits at levels substantially lower than
those allowed by state law. In addition, the Company may spread the risk of a
large underwriting liability over its three principal title underwriting
subsidiaries. Therefore, statutory capital-based risk limits are not considered
by the Company to be a significant factor in the amount or size of underwriting
it may undertake.
Regulation
The title insurance business is regulated by state regulatory
authorities who possess broad powers relating to the granting and revoking of
licenses, and the type and amount of investments which the Company's title
insurance subsidiaries may make. These state authorities also regulate insurance
rates, forms of policies, claims handling procedures and the form and content of
required annual statements, and have the power to audit and examine the
financial and other records of these companies. Some states require title
insurers to own or lease title plants. A substantial portion of the assets of
the Company's title underwriting subsidiaries consists of their portfolios of
investment securities. Each of these subsidiaries is required by the laws of its
state of domicile to maintain assets of a statutorily defined quality and
amount. See "Investment Policies" below. Under state laws, certain levels of
capital and surplus must be maintained and certain amounts of portfolio
securities must be segregated or deposited with appropriate state officials.
State regulatory policies also restrict the amount of dividends which insurance
companies may pay without prior regulatory approval. Generally, all of the title
underwriters that meet certain financial thresholds are required to engage
independent auditors to audit their statutory basis financial statements which,
along with the auditor's report, must be filed with the state insurance
regulators.
-9-
The National Association of Insurance Commissioners (the "NAIC") has
adopted model legislation which if enacted would regulate title insurers and
agents nationally and change certain statutory reporting requirements. The
proposed legislation also would require title insurers to audit agents
periodically and require licensed agents to maintain professional liability
insurance. A number of states have adopted legislation similar to some of the
provisions contained in the NAIC model legislation. The Company cannot predict
whether all or any portion of the proposed legislation or any similar
legislation will be adopted in any other states. Also, the NAIC has adopted an
instruction requiring an annual certification of reserve adequacy by a qualified
actuary. Because all of the states in which the Company's title insurance
subsidiaries are domiciled require adherence to NAIC filing procedures, each
such subsidiary, unless it qualifies for an exemption, must file an actuarial
opinion with respect to the adequacy of its reserves.
Many state insurance regulatory laws intended primarily for the
protection of policyholders contain provisions that require advance approval by
state agencies of any change in control of an insurance company or insurance
holding company that is domiciled (or, in some cases, doing business) in that
state. Under such current laws, any future transaction that would constitute a
change in control of the Company would generally require approval by the state
insurance departments of Virginia, California, Tennessee, Texas, Ohio, Oregon,
Pennsylvania, Arizona, New Jersey, New York, Florida, Alabama and Maryland. Such
requirement could have the effect of delaying or preventing certain transactions
affecting the control of the Company or the ownership of the Company's Common
Stock, including transactions that could be advantageous to the shareholders of
the Company.
Investment Policies
The Company earns investment income from its portfolio of
fixed-maturity debt securities issued principally by corporations and United
States, state and local jurisdictions, as well as by United States government
agencies. Substantially all of this portfolio is located in the Company's title
underwriting subsidiaries. At December 31, 1999, approximately 99% of the
Company's investment portfolio consisted of investment grade securities. The
Company's portfolio is managed to comply with the various state regulatory
requirements while maximizing net after-tax yield. The Company generally does
not invest in common stock issued by unaffiliated entities. The investment
portfolio is managed by professional investment advisors under guidelines which
govern the types of permissible investments, investment quality, maturity and
duration, and concentration of issuer. These guidelines, and the Company's
investment strategies, are established and periodically re-examined by the
Pension and Portfolio Committee of the Company's Board of Directors. This
Committee also reviews the performance of the investment advisors on a quarterly
basis. See Note 2 to the Consolidated Financial Statements.
Cyclicality and Seasonality
The title insurance business is closely related to the overall level of
residential and commercial real estate activity, which is generally affected by
the relative strength or weakness of the United States economy. In addition,
title insurance volumes fluctuate based on the effect of changes in interest
rates on the level of real estate activity. Economic downturns, or periods of
increasing interest rates, usually have an adverse impact on real estate
activity and therefore premium and fee revenues.
Historically, residential real estate activity has been generally
slower in the winter, when fewer families move, buy or sell homes, with
increased volumes in the spring and summer. Residential refinancing activity is
generally more uniform throughout the seasons, subject to interest rate
stability. The Company typically reports its lowest revenues in the first
quarter, with revenues increasing into the second quarter and through the third
quarter. The fourth quarter customarily may be as strong as the third quarter,
depending on the level of activity in the commercial real estate market.
-10-
In 1998, the typical seasonality of the title insurance business was
somewhat tempered by the high level of refinancing activity throughout the year.
Refinancing activity remained strong during the first quarter of 1999 but began
to decline in the second quarter and throughout the remainder of 1999 due to
market factors, including a rise in home mortgage interest rates.
Employees
As of December 31, 1999, the Company had 8,304 full time and 454 part
time employees. The Company's relationship with its employees is good. Except
for 13 employees in Pittsburgh, Pennsylvania, no employees of the Company are
covered by any collective bargaining agreements, and the Company is not aware of
any union organizing activity relating to its employees.
Environmental Matters
Recent title insurance policies specifically exclude any liability for
environmental risks or contamination. Older policies, while not specifically
addressing environmental risks, are not considered to provide any coverage for
such matters, and the Company does not expect any significant expenses related
to environmental claims.
The Company, through its subsidiaries, sometimes acts as a temporary
title holder to real estate under a nominee holding agreement and sometimes
participates in holding agreements involving tax-deferred exchanges. The
Company's customers in such situations generally are financially strong entities
from whom it secures indemnification for potential environmental and other
claims. In other situations where the Company might acquire title to real
estate, it will generally require that an appropriate environmental assessment
be made to evaluate and avoid any potential liability.
Business Strategy
In February 1998, the Company significantly expanded its operations by
acquiring Commonwealth and Transnation from Reliance Group Holdings, Inc. With
the acquisition, the Company became one of the largest title insurers in the
United States. The Company's long term objective is to strengthen its position
as a premier, low cost national provider of title insurance, information and
closing services for transactions involving the transfer and financing of real
estate. To accomplish this objective, the Company is pursuing various business
strategies designed to enhance growth and maximize profitability throughout the
real estate cycle.
Expand Distribution Capabilities. The Company seeks to increase its
share of the title insurance market by expanding and enhancing its distribution
channels through the hiring and retention of experienced industry professionals
with strong local relationships, the opening of new direct offices in markets
with the potential for significant transaction volume, appointing new agents and
selectively acquiring or engaging in joint ventures with title insurance
companies and agencies in order to strengthen the Company's presence in
particularly attractive markets. The Company also seeks to increase its share of
title insurance revenues through its multiple brand strategy of marketing
locally through its various title underwriting subsidiaries, which should enable
the Company to capitalize on brand identification, establish more direct offices
and agencies in designated markets and maintain and expand customer
relationships and referral sources. In the case of the acquisition of agencies
or small to medium-size underwriters, the Company reviews the agency's or
underwriter's profitability, location, growth potential in its existing market,
claims experience and, in the case of an underwriter, the adequacy of its
reserves.
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Provide Efficient, High Quality Services. Because the Company believes
that service quality is an important factor in competing for title insurance
business, the Company seeks to provide high quality market driven services in a
cost efficient manner. In this regard, the Company's strategy includes the
utilization of technology to further automate the title production process and
the delivery of related services. Through Elliptus, the Company has begun to
roll out Title Quest 2000, an internet-based title production and closing
software system. The Company's strategy also includes the increased development
and marketing of multiple products and services to large national and regional
mortgage lenders through the LandAmerica OneStop operation. See the description
of LandAmerica OneStop under "Overview of the Company's Operations - Ancillary
Services."
Increase Commercial Title Business. To enhance its position as a
leading provider of title insurance in commercial transactions, the Company
seeks to use its increased financial strength and claims-paying ability
resulting from the acquisition of Commonwealth and Transnation to underwrite
larger commercial policies and attract a greater share of the commercial title
business.
Improve Margins and Manage Costs. The Company expects to maintain its
focus on improving the Company's margins through revenue growth and management
of operating costs, including cost reductions through consolidation of back
office operations and the use of temporary or part-time employees to reduce the
Company's personnel costs, thereby enhancing the Company's responsiveness to
changes in levels of real estate activity.
ITEM 2. PROPERTIES
The Company owns an office building and adjacent real estate in
Richmond, Virginia which it uses for its corporate headquarters. This property
consists of approximately 128,000 square feet of office space and a parking
deck. The Company's title insurance subsidiaries conduct their business
operations primarily in leased office space. As of December 31, 1999, the
Company had numerous leases for its branch offices and subsidiaries throughout
the states in which it operates. In addition, it owns several other properties
which in aggregate are not material to its business taken as a whole.
The Company's title plants constitute a principal asset. Such plants
comprise copies of public records, maps, documents, previous reports and
policies which are indexed to specific properties in an area. The plants are
generally located at the office which serves a particular locality. They enable
title personnel to examine title matters relating to a specific parcel of real
property as reflected in the title plant, and eliminate or reduce the need for a
separate search of the public records. They contain material dating back a
number of years and are kept current on a daily or other frequent basis by the
addition of copies of documents filed of record which affect real property. The
Company maintains title plants covering many of the areas in which it operates,
although certain offices utilize jointly owned and maintained plants. The
Company capitalizes only the initial cost of title plants. The cost of
maintaining such plants is charged to expense as incurred.
The title plants and title examination procedures have been automated
and computerized to a large extent in many areas. To protect against casualty
loss, the Company's offices maintain duplicate files and backups of all title
plants.
On February 23, 1998, the Company entered into an Agreement Containing
Consent Order (the "Consent Order") with the Federal Trade Commission (the
"FTC") in connection with the acquisition of Commonwealth and Transnation. The
Consent Order required, and the Company completed, the divestiture of certain
title plants in 12 localities named in the Consent
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Order. Seven of such localities were in Florida, three were in Michigan, and one
each was in Washington, D.C. and St. Louis, Missouri. Pursuant to the terms of
the Consent Order, the Company may not acquire, without prior notice to the FTC,
any interest in a title plant in any of the named localities for a period of 10
years following the date of the Consent Order.
The Company believes that its properties are maintained in good
operating condition and are suitable and adequate for its purposes.
ITEM 3. LEGAL PROCEEDINGS
General
The Company and its subsidiaries are involved in certain litigation
arising in the ordinary course of their businesses, some of which involve claims
of substantial amounts. Although the ultimate outcome of these matters cannot be
ascertained at this time, and the results of legal proceedings cannot be
predicted with certainty, the Company believes, based on current knowledge, that
the resolution of these matters will not have a material adverse effect on the
Company's financial position or results of operations.
Litigation Not in the Ordinary Course of Business
Norwest Suit
Commonwealth and certain of its current or former employees are
defendants in a suit filed on November 3, 1998 by Norwest Mortgage, Inc. and
Norwest Funding, Inc. (together, "Norwest") in the Superior Court for the County
of Los Angeles, California (Case No. VC028084) (the "Norwest Suit"). Norwest
seeks to recover from defendants claimed losses in excess of $40 million plus
punitive damages and attorneys' fees. The complaint alleges that Norwest
suffered such losses as the result of a fraudulent mortgage loan scheme related
to loans originated by Allstate Mortgage Company ("Allstate"), a California
mortgage broker. It further alleges that approximately 254 fraudulent loans were
purchased by Norwest Funding, Inc. in 1996 and 1997 under a 1994 Purchase
Agreement between Norwest Funding and Allstate. Norwest contends that
Commonwealth issued title insurance policies and performed certain related
sub-escrow functions on a number of these loans. Commonwealth did not close any
of the transactions. The complaint asserts that by virtue of their alleged
knowledge of certain information and their alleged acts and omissions in the
title insurance transactions, certain of Commonwealth's employees conspired with
and aided and abetted Allstate and others in defrauding Norwest in the mortgage
loan scheme. The complaint further alleges that Commonwealth negligently
misrepresented the genuiness of the loan transactions and the absence of facts
adverse to Norwest and other purchasers, that Commonwealth and the individual
defendants were negligent in the performance of Commonwealth's sub-escrow
function and as a title insurer and that Commonwealth breached an alleged
fiduciary duty to Norwest.
On April 6, 1999, the court entered an order consolidating the Norwest
Suit with the case of Norwest Mortgage, Inc., et al. v. Allstate Mortgage Co.,
Inc., pending in the same court (Case No. VC025404).
On March 12, 1999, the court entered an order in favor of Commonwealth
sustaining without leave to amend Commonwealth's demurrer to Norwest's cause of
action for breach of fiduciary duty. On June 15, 1999, the court entered an
order in favor of Commonwealth sustaining without leave to amend Commonwealth's
and the other defendants' demurrers to Norwest's causes of action for negligent
misrepresentation and negligence.
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Commonwealth is continuing to investigate the plaintiffs' factual
allegations as to the remaining causes of action. Management is unable at this
time to make a meaningful estimate of the amount or range of loss that could
result from an unfavorable outcome on the remaining causes of action or
determine the amount of any potential offsetting recoveries that may be
available. Commonwealth intends to vigorously defend the remaining causes of
action and any attempt to shift to it mortgage lending business risks or
responsibilities outside the scope of the title insurance policy.
Baker Suit and State of California Suit
On November 10, 1999, Thelma Baker, Yolanda Altares, Andrew Linda,
Angela Gamburg, Harriette Unger, Dorothy Fanucchi and Kenneth Hirsch
(collectively, the "Plaintiffs") filed a putative class action suit (the "Baker
Suit") in the San Francisco Superior Court (Case No. 307827) against seventeen
named defendants, including LandAmerica Financial Group, Inc. and its
subsidiary, Commonwealth Land Title Company (collectively, the "LandAmerica
Defendants"). Also included as defendants are four other major title insurance
companies doing business in California, along with four major banks.
The complaint in the Baker Suit describes five plaintiff classes with
separate claims against the named defendants. With respect to the LandAmerica
Defendants, Ms. Fanucchi purports to represent a plaintiff class defined in the
complaint as "[a]ll persons or entities who, from 1980 to the present, incident
to purchase, sale or refinancing of real property located in California,
deposited funds in escrow accounts controlled by the LandAmerica Defendants and
were not paid interest on their funds and/or were charged fees for services not
rendered."
Plaintiffs allege in the complaint that the LandAmerica Defendants
unlawfully (i) charged fees to customers for services that they did not provide,
services they never intended to provide, and/or services for which they could
not legally retain the fees; (ii) swept or converted funds in escrow accounts
based upon contrived charges without returning the funds to the depositor prior
to the time the funds escheated or should have escheated to the State of
California pursuant to the Unclaimed Property Law; and (iii) participated in
schemes and conspiracies with the banks named in the lawsuit to receive
interest, or the functional equivalent of interest, earned on customer escrow
funds.
Based on the foregoing alleged conduct, Plaintiffs assert causes of
action "on behalf of the general public" against the LandAmerica Defendants for
violation of: (i) California's Unfair Business Practices Act, California
Business & Professions Code ss.ss. 17200, et seq.; and (ii) California's
Deceptive, False and Misleading Advertising Act, California Business &
Professions Code ss.ss. 17500, et seq. Ms. Fanucchi and the class she purports
to represent assert two additional purported class action claims against the
LandAmerica Defendants for: (i) violation of California's Consumers Legal
Remedies Act, California Civil Code ss.ss. 1750, et seq.; and (ii) breach of
fiduciary duty. Plaintiffs seek injunctive relief, restitution of improperly
collected charges and interest, damages according to proof, punitive damages,
costs and expenses in bringing the suit, attorneys' fees and pre-and-post
judgment interest.
The Baker Suit includes some but not all of the allegations contained
in a defendant class action suit filed on May 19, 1999 in the Sacramento
Superior Court by the People of the State of California, the Controller of the
State of California and the Insurance Commissioner of the State of California
against Fidelity National Title Insurance Company and others (Case No.
99AS02793) (the "State of California Suit"). While the subsidiaries of
LandAmerica Financial Group, Inc. that do business in California (the
"California Subsidiaries") were not named in the suit, they fall within the
putative defendant class definition. The State of California Suit alleges that
the defendants (i) failed to escheat unclaimed property to the Controller of the
State of California on a timely basis, (ii) charged California home buyers and
other escrow customers
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fees for services which were never performed, or which cost less than the amount
charged; and (iii) devised and carried out schemes with financial institutions
to receive interest, or monies in lieu of interest, on escrow funds deposited by
defendants with financial institutions in demand deposits.
The LandAmerica Defendants intend to vigorously defend the Baker Suit.
Although not parties to the State of California Suit, the California
Subsidiaries are cooperating with the Controller's Office in the conduct of
unclaimed property audits, and with the Department of Insurance in a limited
examination with respect to banking relationships. Both suits are still in their
initial stages, and at this time no estimate of the amount or range of loss that
could result from an unfavorable outcome can be made.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 1999.
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EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the persons who serve as executive officers of the
registrant, their ages and positions as of March 17, 2000, and their business
experience during the prior five years. There are no family relationships
between any of such persons and any director, executive officer, or person
nominated to become a director or executive officer.
Name Age Office and Experience
---- --- ---------------------
Charles H. Foster, Jr. 57 Chairman and Chief Executive Officer of
the Company since October 1991. Mr.
Foster also serves as Chairman and Chief
Executive Officer of Lawyers Title, a
position he has held for more than five
years. In addition, since June 1, 1999,
Mr. Foster has served as Chairman and
Chief Executive Officer of Commonwealth
and Transnation.
Janet A. Alpert 53 President of the Company since January
1993. Ms. Alpert also serves as
President of Lawyers Title, a position
she has held for more than five years.
In addition, since March 1, 1998, Ms.
Alpert has served as President of
Commonwealth and Transnation. Ms. Alpert
also served as Chief Operating Officer
of the Company and Lawyers Title from
January 1993 to February 27, 1998.
Theodore L. Chandler, Jr. 47 Senior Executive Vice President of the
Company since January 31, 2000. Mr.
Chandler also serves as Senior Executive
Vice President of Lawyers Title,
Commonwealth and Transnation, positions
he has held since February 23, 2000. Mr.
Chandler was a member of the law firm of
Williams, Mullen, Clark & Dobbins until
January 31, 2000, a position he held for
more than five years.
G. William Evans 45 Executive Vice President and Chief
Financial Officer of the Company since
September 15, 1999. Mr. Evans also
serves as Executive Vice President and
Chief Financial Officer of Lawyers
Title, Commonwealth and Transnation,
positions he has held since September
15, 1999. Mr. Evans served as Executive
Vice President - Information Technology
of the Company from February 27, 1998 to
September 15, 1999. He served as Vice
President and Treasurer of the Company
from October 1991 to February 1998. He
also served as Senior Vice President,
Chief Financial Officer and Treasurer of
Lawyers Title from October 1991 to
February 1998.
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Name Age Office and Experience
---- --- ---------------------
John M. Carter 44 Executive Vice President - Law and
Employee Relations of the Company since
February 27, 1998. Mr. Carter also
serves as Executive Vice President - Law
and Employee Relations of Commonwealth,
Lawyers Title and Transnation, positions
he has held since March 1, 1998. He
served as Assistant Secretary of the
Company from February 1995 to February
1998. He also served as Senior Vice
President - Law and Employee Relations
of Lawyers Title from April 1997 to
February 1998. Mr. Carter served as Vice
President, General Corporate Counsel and
Secretary of Lawyers Title from 1994 to
April 1997.
Jeffrey D. Vaughan 41 Executive Vice President - Real Estate
Services Group of the Company since
September 1, 1998. Mr. Vaughan also
serves as Executive Vice President of
Lawyers Title, Commonwealth and
Transnation, positions he has held since
April 15, 1999. Mr. Vaughan served as
Executive Vice President - Director of
National Commercial Services of the
Company from April 1, 1998 to September
1, 1998, and served as Executive Vice
President - Commercial and National
Residential Operations of Lawyers Title
from April 1, 1997 to April 1, 1998.
From 1991 to 1997, he was Senior Vice
President - National Division Manager of
Lawyers Title. Mr. Vaughan also serves
as President of LandAmerica OneStop, a
position he has held since September 1,
1998.
Jeffrey C. Selby 54 Executive Vice President - Director of
National Commercial Services and Manager
of National Agents and Affiliates of the
Company since February 17, 1999. Mr.
Selby has also served as Executive Vice
President of Lawyers Title since
February 17, 1999, and as Executive Vice
President of Commonwealth and
Transnation since March 25, 1999. Mr.
Selby served as Senior Vice President -
Manager of National Agents and
Affiliates of the Company from March 1,
1998 to February 17, 1999. He also
served as Senior Vice President -
National Accounts Manager of
Commonwealth from May 1996 to March 1,
1998 and as Senior Vice President -
Regional Manager of Commonwealth from
1993 to May 1996.
Russell W. Jordan, III 59 Senior Vice President, General Counsel
and Secretary of the Company since
February 27, 1998. Mr. Jordan also
serves as Senior Vice President and
General Counsel of Lawyers Title, a
position he has held for more than five
years. In addition, since March 1, 1998,
Mr. Jordan has served as Senior Vice
President and General Counsel of
Commonwealth and Transnation. Mr. Jordan
served as Secretary and General Counsel
of the Company from October 1991 to
February 1998.
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Name Age Office and Experience
---- --- ---------------------
John R. Blanchard 51 Senior Vice President - Corporate
Controller of the Company since February
27, 1998. Mr. Blanchard also serves as
Senior Vice President and Corporate
Controller of Commonwealth, Lawyers
Title and Transnation, positions he has
held since March 1, 1998. He served as
Controller of the Company from February
1992 to February 1998. He also served as
Senior Vice President and Controller of
Lawyers Title from October 1991 to
February 1998.
Christopher L. Rosati 40 Senior Vice President - Operations
Controller of the Company since February
27, 1998. Mr. Rosati also serves as
Senior Vice President and Operations
Controller of Commonwealth, Lawyers
Title and Transnation, positions he has
held since March 1, 1998. He served as
Vice President and Controller of
Commonwealth and Transnation from March
1996 to February 1998. Mr. Rosati also
served as Vice President and Assistant
Controller of Commonwealth and
Transnation from 1992 to March 1996.
H. Randolph Farmer 61 Senior Vice President - Corporate
Communications of the Company since
February 27, 1998. Mr. Farmer also
serves as Senior Vice President -
Corporate Communications of
Commonwealth, Lawyers Title and
Transnation, positions he has held since
March 1, 1998. He served as Senior Vice
President - Communications and
Advertising of Lawyers Title from April
1, 1991 to February 27, 1998.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
Market Price and Dividends
Effective March 2, 1998, the Common Stock of the Company began trading
on the New York Stock Exchange ("NYSE") under the symbol "LFG." From October
1995 through February 1998, the Common Stock traded on the NYSE under the symbol
"LTI."
The following table sets forth the reported high and low sales prices
per share of the Common Stock on the NYSE Composite Tape, based on published
financial sources, and the dividends per share declared on the Common Stock for
the calendar quarter indicated.
Market Price Dividends
------------ ---------
High Low
---- ---
Year Ended December 31, 1998
First quarter $46.56 $31.00 $0.05
Second quarter 59.63 44.00 0.05
Third quarter 65.00 48.00 0.05
Fourth quarter 61.75 44.00 0.05
Year Ended December 31, 1999
First quarter $58.94 $28.50 $0.05
Second quarter 33.56 27.13 0.05
Third quarter 30.50 19.13 0.05
Fourth quarter 21.75 15.56 0.05
As of March 17, 2000, there were approximately 2,202 shareholders of
record of the Company's Common Stock.
The Company's current dividend policy anticipates the payment of
quarterly dividends in the future. The declaration and payment of dividends to
holders of Common Stock will be in the discretion of the Board of Directors,
will be subject to contractual restrictions contained in a Company loan
agreement, as described below, and will be dependent upon the future earnings,
financial condition and capital requirements of the Company and other factors.
Because the Company is a holding company, its ability to pay dividends
will depend largely on the earnings of, and cash flow available from, its
subsidiaries. In a number of states, certain of the Company's insurance
subsidiaries are subject to regulations that require minimum amounts of
statutory surplus. Under these and other such statutory regulations,
approximately $58.7 million of the net assets of the Company's consolidated
subsidiaries are available for dividends, loans or advances to the Company
during 2000.
In addition to the minimum statutory surplus requirements described
above, these insurance subsidiaries are also subject to state regulations that
require that the payment of any extraordinary dividends receive prior approval
of the insurance regulators of such states. The following table summarizes the
insurance regulations that restrict the amount of dividends that Commonwealth,
Lawyers Title and Transnation can distribute to the Company in any 12-month
period without prior regulatory approval:
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Regulatory Financial
Subsidiary Agency Regulatory Limitation Limitation(1)
---------- ------ --------------------- -------------
Commonwealth Pennsylvania Payment of dividends or distributions $33.5 million
Department of may not exceed the greater of:
Insurance
(1) 10% of such insurer's surplus
as of the preceding year end,
or
(2) the net income of such insurer
for such preceding year.
Lawyers Title Virginia Payment of dividends or distributions $18.1 million
Bureau of is limited to the lesser of:
Insurance
(1) 10% of such insurer's surplus
as of the preceding December
31, or
(2) the net income, not including
realized capital gains, of such
insurer for the preceding
calendar year.
Transnation Arizona Payment of dividends or distributions $7.1 million
Department is limited to the lesser of:
of Insurance
(1) 10% of such insurer's surplus
as of the preceding December
31, or
(2) such insurer's net investment
income for the preceding
calendar year.
__________________
(1) Based on statutory financial results for the year ended December 31,
1999.
In addition to regulatory restrictions, the Company's ability to
declare dividends is subject to restrictions under a Revolving Credit Agreement,
dated as of November 7, 1997, between the Company and Bank of America National
Trust and Savings Association, as amended, which generally limits the aggregate
amount of all cash dividends and stock repurchases by the Company to 25% of its
cumulative consolidated net income arising after December 31, 1996. As of
December 31, 1999, approximately $21.5 million was available for the payment of
dividends by the Company under the Revolving Credit Agreement. Management does
not believe that the restrictions contained in the Revolving Credit Agreement
will, in the foreseeable future, adversely affect the Company's ability to pay
cash dividends at the current dividend rate.
-20-
ITEM 6. SELECTED FINANCIAL DATA
The information set forth in the following table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and Notes
thereto.
For the year ended
December 31: 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In thousands of dollars, except per common share amounts)
Revenues............... $2,048,013 $1,848,870 $639,099 $594,182 $482,832
Net income............. 54,317 93,028 26,157 36,519 17,051
Net income per
common share........... 3.21 6.13 2.93 4.11 1.92
Net income per
common share
assuming dilution...... 2.79 5.05 2.84 4.01 1.89
Dividends per
common share........... 0.20 0.20 0.20 0.20 0.18
At December 31:
Total assets........... 1,657,921 1,692,358 554,693 520,968 475,843
Shareholders'
equity................. 730,703 771,189 292,404 262,168 238,385
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
On February 27, 1998, the Company acquired all of the issued and
outstanding shares of capital stock of Commonwealth and Transnation from
Reliance Insurance Company, a subsidiary of Reliance Group Holdings, Inc. The
assets and liabilities of Commonwealth and Transnation have been revalued to
their respective fair market values as of that date. The financial statements of
the Company reflect the combined operations of the Company, including
Commonwealth and Transnation, from the closing date of the acquisition.
Overview
The following discussion includes, in addition to actual results of
operations, information on pro forma results of operations that assumes the
Commonwealth and Transnation acquisition was effective for the entire years of
1998 and 1997. The Company's primary business is the insurance of titles to real
property, which is greatly influenced by the real estate economy. During the
three year period from 1997 to 1999, the Company benefited from the execution of
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three distinct aspects of its business strategy. In addition to the Commonwealth
and Transnation acquisition, operations were expanded through the acquisition of
title insurance agents, expenses were tightly monitored and controlled, and
claims experience improved due to quality control efforts and an improved claims
environment. During 1998, the Company also benefited from the acquisition of
Commonwealth and Transnation and the strong national real estate economy.
Revenues
The Company's operating revenues, consisting of premiums, title search,
escrow and other fees, are dependent on overall levels of real estate and
mortgage refinance activity, which are influenced by a number of factors
including interest rates and the general state of the economy. In addition, the
Company's revenues are affected by the Company's sales and marketing efforts and
its strategic decisions based on the rate structure and claims environment in
particular markets.
Premiums and fees are determined both by competition and by state
regulation. Operating revenues from direct title operations are recognized at
the time real estate transactions close, which is generally 60 to 90 days after
the opening of a title order. Operating revenues from agents are recognized when
the issuance of a policy is reported to the Company by an agent. Although agents
generally report the issuance of policies on a monthly basis, heightened levels
of real estate activity may slow this reporting process. This typically results
in delays averaging 90 days from the closing of real estate transactions until
the recognition of revenues from agents. As a result, there can be a significant
lag between changes in general real estate activity and their impact on the
portion of the Company's revenues attributable to agents.
In addition to the premiums and related fees, the Company earns
investment income from its investment portfolio of primarily fixed-maturity
securities. Investment income includes dividends and interest as well as
realized capital gains or losses on the portfolio. The Company regularly
reexamines its portfolio strategies in light of changing earnings or tax
situations.
Factors Affecting Profit Margins and Pre-Tax Profits
The Company's profit margins are affected by several factors, including
the volume of real estate and mortgage refinance activity, policy amount and the
nature of real estate transactions. Volume is an important determinant of
profitability because the Company, like any other title insurance company, has a
significant level of fixed costs arising from personnel, occupancy costs and
maintenance of title plants. Because premiums are based on the face amount of
the policy, larger policies generate higher premiums although expenses of
issuance do not necessarily increase in proportion to policy size. Cancellations
affect profitability because costs incurred both in opening and in processing
orders typically are not offset by fees. Commercial transactions tend to be more
profitable than residential transactions.
The Company's principal expense is commissions paid to independent
agents. The Company regularly reviews the profitability of its agents, adjusting
commission levels or cancelling certain agents where profitability objectives
are not being met and expanding operations where acceptable levels of
profitability are available. The Company continually monitors its expense ratio,
which is the sum of salaries and employee benefits, agency commissions and other
expenses (exclusive of interest, goodwill and assimilation costs) expressed as a
percentage of operating revenues.
Claims
Generally, title insurance claim rates are lower than other types of
insurance because title insurance policies insure against prior events affecting
the quality of real estate titles, rather than
-22-
against unforeseen, and therefore less predictable, future events. A provision
is made for estimated future claim payments at the time revenue is recognized.
Both the Company's experience and industry data indicate that claims activity
occurs for more than 20 years after the policy is issued. Management uses
actuarial techniques to estimate future claims by analyzing past claim payment
patterns. Independent actuaries review the adequacy of reserves on an interim
basis and certify as to their adequacy on an annual basis. Management has
continued to emphasize and strengthen claims prevention and product quality
programs.
Seasonality
Historically, residential real estate activity has been generally
slower in the winter, when fewer families move, buy or sell homes, with
increased volumes in the spring and summer. Residential refinancing activity is
generally more uniform throughout the seasons but is highly subject to changes
in interest rates. The Company typically reports its lowest revenues in the
first quarter, with revenues increasing into the second quarter and through the
third quarter. The fourth quarter customarily may be as strong as the third
quarter, depending on the level of activity in the commercial real estate
market.
In 1998, the typical seasonality of the title insurance business was
influenced by changes in the levels of refinancing activity. For additional
information, see "Item 1 - Business - Cyclicality and Seasonality."
Contingencies
For a discussion of pending legal proceedings for the periods covered
by this discussion of the Company's financial condition and results of
operation, see "Item 3 - Legal Proceedings."
Results of Operations
Comparison of Years Ended December 31, 1999,
December 31, 1998 and December 31, 1997
Net Income
The Company reported net income of $54.3 million or $2.79 per share on
a diluted basis for 1999 compared to $93.0 million or $5.05 per share on a
diluted basis in 1998 and $26.2 million or $2.84 per share on a diluted basis in
1997. Exclusive of assimilation costs associated with the Commonwealth and
Transnation acquisition, net income was $100.5 million or $5.46 per share on a
diluted basis in 1998. Net operating income (which excludes realized investment
gains and losses) was $55.3 million, $91.2 million and $26.3 million for the
years ended 1999, 1998 and 1997, respectively.
On a pro forma basis and excluding assimilation costs net income would
have been $105.7 million or $5.22 per share on a diluted basis in 1998, and
$55.8 million or $2.79 per share on a diluted basis in 1997. On a pro forma
basis, and excluding assimilation costs, net operating income was $103.7 million
and $54.9 million for the years ended 1998 and 1997, respectively.
Operating Revenues
Operating revenues reported for 1999 were $2.00 billion compared to
$1.80 billion in 1998 and $622.8 million in 1997. On a pro forma basis,
operating revenues in 1998 were $1.94 billion compared to $1.49 billion in 1997.
In addition to the inclusion of Commonwealth and Transnation revenues in 1998,
the increase in 1998 was the result of increased volumes in residential and
commercial resale and refinancing transactions, reflecting the favorable
interest
-23-
rate environment and the general health of the national real estate markets.
During 1999 order volume in direct company offices decreased to 833,600 from
1,041,500 in 1998 as a result of the effect on the residential mortgage markets
of three interest rate increases initiated by the Federal Reserve in 1999. The
resulting decrease in direct revenues was offset by an increase in agency
revenues, principally the result of the timing effects of the industry's typical
time lag in business reported through independent agents.
Investment Income
The Company reported pre-tax investment income of $48.0 million, $49.3
million and $16.3 million in 1999, 1998 and 1997, respectively. Excluding
capital gains and losses, investment income was $49.6 million, $46.5 million and
$16.6 million in 1999, 1998 and 1997, respectively. The improvement in 1999 and
1998 was principally due to the addition of earnings from the investments
acquired in the Commonwealth and Transnation transaction.
Expenses
Operating Expenses. The Company's expense ratio was 92.2% in 1999
compared to 87.6% in 1998 and 90.1% in 1997. The expense ratio improved in 1998
compared to 1997 reflecting increased operating leverage resulting from the
growth in revenues, and the continuing focus on expense management. The increase
in the expense ratio in 1999 compared to 1998 resulted from an increase in the
amount of agency commissions as the mix of revenues shifted from direct
operations to independent agents.
Assimilation Costs. Assimilation costs on a pre-tax basis of
approximately $11.5 million were incurred in 1998 in connection with the
acquisition of Commonwealth and Transnation. No such costs were incurred in 1999
or 1997.
Salaries and Employee Benefits. Personnel-related expenses are a
significant portion of total operating expenses in the title insurance industry.
These expenses require intensive management through changing real estate cycles.
As a percentage of gross title revenues, salary and related expenses were 28.1%,
29.3% and 32.2% in 1999, 1998 and 1997, respectively. In response to the lower
level of orders received in direct operations, staffing levels had been
decreased to 8,500 by December 1999 from a peak level of 10,700 in December
1998.
Agents' Commissions. Commissions paid to title insurance agents are the
largest single expense incurred by the Company. The commission rate varies by
geographic area in which the commission was earned. Commissions as a percentage
of agency revenue were 77.8% in 1999, 77.6% in 1998 and 75.0% in 1997.
General, Administrative and Other Expenses. The most significant
components of other expenses are outside costs of title production, rent for
office space, communications, travel and taxes levied by states on premiums.
Provision for Policy and Contract Claims. The Company's claims
experience has shown improvement in recent years. The loss ratio (the provision
for policy and contract claims as a percentage of operating revenues) was 4.9%,
5.2% and 5.4% in 1999, 1998 and 1997, respectively. Claims paid as a percentage
of operating revenues were 3.2%, 2.8% and 4.4% in 1999, 1998 and 1997,
respectively.
-24-
Income Taxes
The Company pays U.S. federal and state income taxes based on laws in
the jurisdictions in which it operates. The effective tax rates reflected in the
income statement for 1999, 1998 and 1997 differ from the U.S. federal statutory
rate principally due to non-taxable interest, dividend deductions, travel and
entertainment and company-owned life insurance.
At December 31, 1999 the Company had recorded gross deferred tax assets
of $112.9 million related primarily to policy and contract claims and employee
benefit plans. A valuation allowance is provided for deferred tax assets if it
is more likely than not these items will either expire before the Company is
able to realize their benefit, or that future deductibility is uncertain.
At December 31, 1999, the Company recorded a valuation allowance of
$11.5 million related to the $11.5 million deferred tax asset created by the
unrealized losses associated with the Company's investment portfolio. No
valuation allowance was recorded at December 31, 1998.
The Company reassesses the realization of deferred assets quarterly
and, if necessary, adjusts its valuation allowance accordingly.
Liquidity and Capital Resources
Cash provided by operating activities for the years ended December 31,
1999, 1998 and 1997 was $97.6 million, $165.1 million and $18.8 million,
respectively. As of December 31, 1999, the Company held cash and invested cash
of $163.9 million and fixed-maturity securities of $735.1 million.
In 1999, the Board of Directors approved plans to repurchase 2.0
million of the Company's issued and outstanding common shares. By December 31,
1999, the Company had repurchased 1.7 million of such shares at a cost of $43.4
million. The additional authorized repurchases were completed in the first
quarter of 2000. Repurchases were funded from available corporate funds.
Upon closing the acquisition of Commonwealth and Transnation on
February 27, 1998, the Company incurred debt of $207.5 million under a credit
facility and issued 2.2 million shares of 7% Series B Cumulative Convertible
Preferred Stock. The Company estimates that servicing the debt and preferred
stock will require approximately $20.0 million per year, which management
expects to be funded largely from cash flow from operations. Additionally,
management believes that these cash requirements will be partially offset by
approximately $15.0 million of federal income tax benefits related to the tax
deductibility of interest expense, amortization of intangibles and amortization
of tax reserve discount. In view of the historical ability of the Company to
generate strong, positive cash flows, and the strong cash position and
relatively conservative capitalization structure of the Company, management
believes that the Company will have sufficient liquidity and adequate capital
resources to meet both its short- and long-term capital needs. In addition, the
Company has $30.0 million available under the credit facility which was unused
at December 31, 1999.
Year 2000 Issues
In prior years, the Company discussed the nature and progress of its
efforts to assure mission critical systems would function properly to and beyond
the Year 2000. In late 1999, the Company completed its remediation and testing
of systems. As a result of those planning and implementation efforts, the
Company experienced no significant disruptions in mission critical information
technology and non-information technology systems and believes those systems
successfully responded to the Year 2000 date change. The Company expensed
approximately
-25-
$8.3 million during 1999 and $4.8 million during 1998 in connection with
remediating its systems. The Company is not aware of any material problems
resulting from Year 2000 issues, either with its products, its mission critical
internal systems, or the products and services of third parties whose services
are critical to the operation of the Company. The Company will continue to
monitor its mission critical computer applications and those of its mission
critical suppliers and vendors throughout the year 2000 to ensure that any
latent Year 2000 matters that may arise are addressed promptly.
Interest Rate Risk
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates. For investment
securities, the table presents principal cash flows and related weighted-average
interest rates by expected maturity dates. Actual cash flows could differ from
the expected amounts.
Interest Rate Sensitivity
Principal Amount by Expected Maturity
Average Interest Rate
---------------------
(dollars in thousands)
2005 and Fair
2000 2001 2002 2003 2004 after Total Value
---- ---- ---- ---- ---- ----- ----- -----
Assets:
Taxable available-for-sale
securities:
Book value $9,733 $45,838 $41,660 $46,221 $23,928 $321,992 $489,372 $469,161
Average yield 7.5% 6.2% 6.2% 6.2% 7.0% 7.4% 7.0%
Non-taxable available-for-
sale securities:
Book value 572 3,327 7,533 11,874 18,881 174,651 216,838 209,008
Average yield 6.8% 3.9% 4.4% 4.1% 4.8% 4.8% 4.7%
Preferred stock:
Book value - - - - - 58,538 58,538 56,915
Average yield - - - - - 8.0% 8.0%
The Company also has long-term debt of $207.5 million bearing interest
at 6.42% at December 31, 1999. A 0.25% change in the interest rate would affect
income before income taxes by approximately $0.5 million annually.
Forward-Looking and Cautionary Statements
Certain information contained in this Annual Report on Form 10-K
includes "forward-looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. Among other things, these
statements relate to the financial condition, results of operation and business
of the Company. In addition, the Company and its representatives may from time
to time make written or oral forward-looking statements, including statements
contained in other filings with the Securities and Exchange Commission and in
its reports to shareholders. These forward-looking statements are generally
identified by phrases such as "the Company expects," "the Company believes" or
words of similar import. These forward-looking statements involve certain risks
and uncertainties and other factors that may cause the actual results,
performance or achievements to be materially different from any future results,
-26-
performance or achievements expressed or implied by such forward-looking
statements. Further, any such statement is specifically qualified in its
entirety by the following cautionary statements.
In connection with the title insurance industry in general, factors
that may cause actual results to differ materially from those contemplated by
such forward-looking statements include the following: (i) the costs of
producing title evidence are relatively high, whereas premium revenues are
subject to regulatory and competitive restraints; (ii) real estate activity
levels have historically been cyclical and are influenced by such factors as
interest rates and the condition of the overall economy; (iii) the value of the
Company's investment portfolio is subject to fluctuation based on similar
factors; (iv) the title insurance industry may be exposed to substantial claims
by large classes of claimants and (v) the industry is regulated by state laws
that require the maintenance of minimum levels of capital and surplus and that
restrict the amount of dividends that may be paid by the Company's insurance
subsidiaries without prior regulatory approval.
The Company cautions that the foregoing list of important factors is
not exclusive. The Company does not undertake to update any forward-looking
statement that may be made from time to time by or on behalf of the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this Item is set forth under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Interest Rate Risk" in Item 7 of this report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is submitted in a separate section of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no changes in the Company's independent accountants and
no disagreements on accounting and financial disclosure that are required to be
reported hereunder.
-27-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Except as to certain information regarding executive officers included
in Part I, the definitive proxy statement for the 2000 Annual Meeting of
Shareholders to be filed within 120 days after the end of the last fiscal year
is incorporated herein by reference for the information required by this item.
ITEM 11. EXECUTIVE COMPENSATION
The definitive proxy statement for the 2000 Annual Meeting of the
Shareholders to be filed within 120 days after the end of the last fiscal year
is incorporated herein by reference for the information required by this item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The definitive proxy statement for the 2000 Annual meeting of
Shareholders to be filed within 120 days after the end of the last fiscal year
is incorporated herein by reference for the information required by this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The definitive proxy statement for the 2000 Annual Meeting of
Shareholders to be filed within 120 days after the end of the last fiscal year
is incorporated herein by reference for the information required by this item.
-28-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) (1), (2) and (3). The response to this portion of Item 14 is
submitted as a separate section of this report.
(b) Reports on Form 8-K
-------------------
None.
(c) Exhibits - The response to this portion of Item 14 is submitted
as a separate section of this report.
(d) Financial Statement Schedules - The response to this portion of
Item 14 is submitted as a separate section of this report.
-29-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
LANDAMERICA FINANCIAL GROUP, INC.
By: /s/ Charles H. Foster, Jr.
---------------------------
Charles H. Foster, Jr.
March 24, 2000 Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Charles H. Foster, Jr. Chairman and Chief Executive March 24, 2000
- -------------------------------------------- Officer and Director
Charles H. Foster, Jr. (Principal Executive Officer)
/s/ Janet A. Alpert President and Director March 24, 2000
- --------------------------------------------
Janet A. Alpert
/s/ Theodore L. Chandler, Jr. Senior Executive Vice President and March 24, 2000
- -------------------------------------------- Director
Theodore L. Chandler, Jr.
/s/ G. William Evans Executive Vice President and March 24, 2000
- -------------------------------------------- Chief Financial Officer
G. William Evans (Principal Financial Officer)
/s/ John R. Blanchard Senior Vice President - Corporate March 24, 2000
- -------------------------------------------- Controller
John R. Blanchard (Principal Accounting Officer)
/s/ Herbert Wender Director March 24, 2000
- --------------------------------------------
Herbert Wender
-30-
Signature Title Date
--------- ----- ----
/s/ Michael Dinkins Director March 24, 2000
- --------------------------------------------
Michael Dinkins
/s/ James Ermer Director March 24, 2000
- --------------------------------------------
James Ermer
/s/ John P. McCann Director March 24, 2000
- --------------------------------------------
John P. McCann
/s/ Robert F. Norfleet, Jr. Director March 24, 2000
- --------------------------------------------
Robert F. Norfleet, Jr.
/s/ Eugene P. Trani Director March 24, 2000
- --------------------------------------------
Eugene P. Trani
/s/ Marshall B. Wishnack Director March 24, 2000
- --------------------------------------------
Marshall B. Wishnack
/s/ Lowell C. Freiberg Director March 24, 2000
- --------------------------------------------
Lowell C. Freiberg
/s/ George E. Bello Director March 24, 2000
- --------------------------------------------
George E. Bello
/s/ Howard E. Steinberg Director March 24, 2000
- --------------------------------------------
Howard E. Steinberg
-31-
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEMS 14 (a)(1), (2) AND (3), (c) AND (d)
INDEX OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
YEAR ENDED DECEMBER 31, 1999
LANDAMERICA FINANCIAL GROUP, INC.
RICHMOND, VIRGINIA
-32-
FORM 10-K ITEM 14 (a)(1), (2) AND (3)
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of LandAmerica Financial Group,
Inc. and subsidiaries are included in Item 8:
Page
----
Report of Independent Auditors..............................................F-1
Consolidated Balance Sheets, December 31, 1999 and 1998.....................F-2
Consolidated Statements of Operations,
Years Ended December 31, 1999, 1998 and 1997..............................F-4
Consolidated Statements of Cash Flows,
Years Ended December 31, 1999, 1998 and 1997..............................F-5
Consolidated Statements of Changes in Shareholders'
Equity, Years Ended December 31, 1999, 1998
and 1997..................................................................F-6
Notes to Consolidated Financial Statements,
December 31, 1999, 1998 and 1997..........................................F-7
The following consolidated financial statement schedules of LandAmerica
Financial Group, Inc. and subsidiaries are included in Item 14(d):
Schedule I Summary of Investments.................................F-33
Schedule II Condensed Financial Information of
Registrant ..........................................F-34
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore, have been omitted.
-33-
REPORT OF INDEPENDENT AUDITORS
------------------------------
The Board of Directors and Shareholders
LandAmerica Financial Group, Inc.
We have audited the accompanying consolidated balance sheets of LandAmerica
Financial Group, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, changes in shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1999. Our audits also included the financial statement schedules listed in the
Index at Item 14(a). These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of LandAmerica
Financial Group, Inc. and subsidiaries at December 31, 1999, and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
/s/ ERNST & YOUNG LLP
Richmond, Virginia
February 22, 2000
F-1
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------
CONSOLIDATED BALANCE SHEETS, DECEMBER 31
- ----------------------------------------
(In thousands of dollars)
ASSETS 1999 1998
- ------ ---- ----
INVESTMENTS (Note 2):
Fixed maturities available-for-sale - at fair value
(amortized cost: 1999 - $764,748; 1998 -
$756,608) $ 735,084 $ 774,856
Equity securities - at fair value (cost: 1999 - $3,278;
1998 - $3,426) 1,807 4,204
Mortgage loans (less allowance for doubtful
accounts: 1999 - $138; 1998 - $155) 7,124 11,613
Invested cash 109,045 104,792
------------- -------------
Total investments 853,060 895,465
CASH 54,939 69,235
NOTES AND ACCOUNTS RECEIVABLE:
Notes (less allowance for doubtful accounts: 1999
- $2,026; 1998 - $2,054) 12,701 7,340
Premiums (less allowance for doubtful accounts:
1999 - $9,525; 1998 - $8,179) 35,542 61,203
Income tax recoverable 4,256 -
------------- -------------
Total notes and accounts receivable 52,499 68,543
PROPERTY AND EQUIPMENT - at cost (less
accumulated depreciation and amortization: 1999 -
$81,907; 1998 - $86,767) 72,661 76,420
TITLE PLANTS 93,608 95,358
GOODWILL (less accumulated amortization: 1999 -
$33,208; 1998 - $24,630) 347,158 348,595
DEFERRED INCOME TAXES (Note 7) 80,980 80,557
OTHER ASSETS 103,016 58,185
------------- -------------
Total assets $ 1,657,921 $ 1,692,358
============= =============
F-2
LANDAMERICA FINANCIAL GROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------
CONSOLIDATED BALANCE SHEETS, DECEMBER 31
- ----------------------------------------
(In thousands of dollars)
LIABILITIES 1999 1998
- ----------- ---- ----
POLICY AND CONTRACT CLAIMS (Note 3)