1. Joseph L. Petrelli, Demotech, Inc. 614 -761- 8602

2. Incorporated in 1985, Demotech, Inc. is a financial analysis firm serving the P&C and Title insurance industries. In 1989, we became the first company to review and rate regional and specialty insurance companies. In 1992, we became the first company to review and rate Title underwriters. 2

3. 1. Title insurance coverage is retrospective, from the policy effective date. 2. P&C insurance coverage is prospective, from the policy effective date. 3. These timeframes of coverage in conjunction with cost containment activities have not been properly reflected in Title insurance financial reporting requirements. Although Demotech, Inc. first discussed this in 2006, regulatory authorities have not yet adopted procedures and practices to address the situation. A grass roots effort by title agents would be helpful.

4. Let’s take a fresh look at Title insurance and the coverage provided in a Title insurance policy. 4

5. The term “title insurance” means a contract of insurance against loss or damage on account of encumbrances upon or defects in the title to real estate. 5

6. The term “title search” means a search and examination of the public records sufficient to determine: 1. Ownership of; 2. Encumbrances on; 3. Liens on; and 4. Defects in the title to; the real estate that is the subject of the search. 6

7. Summary of some covered risks under the American Land Title Association (ALTA) Loan Policy – 2006 edition. 1. Title being vested other than as stated in Schedule A 2. Any defect in or lien or encumbrance on the Title. The Covered risk includes but is not limited to insurance against loss from … 7

8. A defect in Title caused by: 1. Forgery 2. Fraud 3. Undue influence 4. Duress 5. Incompetency 6. Incapacity 7. Impersonation 8

9. 8. Failure to authorize a transfer or conveyance 9. Improperly created, executed, witnessed, sealed, acknowledged, notarized or delivered document(s) 10. Documents executed under falsified, expired or otherwise invalid power(s) of attorney 11. Documents not properly filed, recorded or indexed in the Public Records 12. Defective judicial or administrative proceeding 9

10. 13. Lien of real estate taxes or assessments imposed on the Title by a government authority due or payable, but unpaid. 14. Encroachment, encumbrance, violation, variance or adverse circumstance affecting the Title that would be disclosed by an accurate and complete land survey 15. Unmarketable Title 16. No right of access to and from the land 10

11. Subject to the exclusions from coverage, the exceptions from coverage contained in Schedule B and the conditions and stipulations, the Title insurance company, as of the Date of Policy shown in Schedule A, against loss or damage… Coverage is Retrospective.

12. In Consideration of the Provisions and Stipulations herein, the Property and Casualty Insurance Company, for the term of this date at 12:01 a.m. to one year later at 12:01 a.m. at the location of the property involved, does insure… Coverage is Prospective.

13. Title is Retrospective Incident must have occurred prior to policy date to be considered covered P & C is Prospective Incident must occur within policy period to be considered covered Date of Policy 13

14. National Association of Insurance Companies (NAIC) Casualty Actuarial Task Force Recommendation to the NAIC’s Accounting Practices and Procedures (Ex4) Task Force. To eliminate confusion arising from the association of the term “allocated” with the ability to assign expenses to a specific claim, NAIC approved a Blanks proposal in 1999. Loss adjustment expenses were no longer “allocated” or “unallocated” rather “Defense and Cost Containment” or “Adjusting and Other.” 14

15. 1. Surveillance expense 2. Litigation management expense 3. Fees or salaries for appraisers 4. Fees or salaries for private investigators 5. Fees or Salaries for fraud investigators 6. Attorney fees incurred owing to a duty to defend, even when other coverage does not exist 7. Cost on engaging experts 15

16. 1. Fees of adjustors and settling agents 2. Attorneys fees incurred in the determination of coverage, including litigation between the insurer and policy-holder 3. Fees or salaries for appraisers, private investigators, hearing representatives, fraud investigators in the capacity of an adjustor 16

17.  An expense directly allocated to a particular claim or incident.  Addressing specific defects  Everything in Schedule B?

18. The profitability of title underwriters or Title agents will not change if curative and mitigation expenses are more accurately allocated from “agent retention” to “loss adjustment expense.” An initial study prepared by Demotech, Inc. suggests that the Title industry loss and LAE ratio, on this proposed basis, would increase by 70%, to about 78%, and the Title industry expense ratio would decline by 70%, to about 25%. The net effect? Title operating results are comparable to P&C results! 18

19. Regrettably, the financial reporting necessary to accomplish this has not been promulgated. Absent the financial information needed to silence critics of Title insurance, regulators remain focused on perceived excess profits in the Title insurance industry. Recent events indicate to me that agents are in the cross- hairs. 19

20. General Information 1Calendar year reporting 2State reporting for 3Agent/Agency/Firm Name a) d/b/a (if applicable) 4 Federal tax ID/SSN (for Underwriter Direct Operations: use NAIC Company Code) Parent Company EIN (if applicable) (for Underwriter Direct Operations: use NAIC Group Code) 5License number (for this state) 6Address (line 1) Address (line 2) City State Zip 7Contact person 8Contact phone 9Contact e-mail 20

21. Agency Information 10Independent 11Affiliated (owned by underwriter) 12Underwriter direct 13 Is reporting agent an Affiliated Business Arrangement (affiliated with real estate brokerage, mortgage company, etc.)? (Y)es/(N)o. If Yes, List affiliated business names on Appendix A 14Agency/Branch Type: Title & closing (full service) Title only Closing only Attorney title 21

22. Agency Information 15State of domicile/residence of Reporting Entity/Person 16 Number of states in which Reporting Entity operates (list all states on Appendix) A 17Date originally licensed (for this state) 18Percentage of business for this state (by premium) a) Percentage of law firm revenue 19 Number of underwriter appointments, contracts, or agreements. (List underwriters and percentage of business for each on Appendix A) 22

23. Agency Information 20No. of employees (total FTE - as of last date of reporting period) a) No. of FTE on March 31 (end of Q1) b) No. of FTE on June 30 (end of Q2) c) No. of FTE on September 30 (end of Q3) d) No. of FTE on December 31 (end of Q4) 21Licensed employees a) No. of licensed FTE on March 31 (end of Q1) b) No. of licensed FTE on June 30 (end of Q2) c) No. of licensed FTE on September 30 (end of Q3) d) No. of licensed FTE on December 31 (end of Q4) List licensed employees (both allocated and unallocated employees) accounted for in Lines 21(a), (b), (c), and (d) on Appendix A 22Unlicensed employees a) No. of unlicensed FTE on March 31 (end of Q1) b) No. of unlicensed FTE on June 30 (end of Q2) c) No. of unlicensed FTE on September 30 (end of Q3) d) No. of unlicensed FTE on December 31 (end of Q4) 23

24. Risk Assumption 23Open Title Orders 24Closed Title Orders in Which Policy Was Issued 25Total number of policies issued in reporting period a) Residential Policies b) Non-residential Policies 26a) Number of searches billed to 3rd parties b) Number of searches purchased from 3rd parties 27Number of non-insurance title products produced 28a) Total settlement/escrow/closing transactions conducted b) Number of line 28 that were sale/purchase settlement/escrow/closing transactions 29 Number of settlement/escrow/closing transactions conducted in which a title policy was not issued 24

25. Income 30Premium written 31Premium remitted to underwriters 32Settlement/closing/escrow income 33Title examination income 34Abstract/search income 35Income from cancelled orders 36Investment income 37All other income 38Total income (automatically totals) 25

26. Expenses 39Employee compensation 40a) Contract labor (1099) b) Temporary labor (non-1099) 41Payroll taxes 42Employee Benefits 43Rent, utilities, and repair 44Title plant maintenance/subscription expenses 45Abstract/search expenditures 46Computer/software a) Depreciation (if applicable) 47Business insurance 48Business legal 49Accounting 50Licenses, taxes, and fees 51Marketing/sales 52Travel and lodging 53Employee education 54Bank charges 55Charge offs 56Miscellaneous expense 57Total business expenses (automatically totals) 26

27. Loss, Loss Mitigation, and Underwriting Expenses 58Title losses paid and not reimbursed by underwriter or included in underwriter loss reserves a)Title Loss Files Opened b) Title Loss Files Paid c) Reimbursements paid to underwriter for title losses 59Closing/Escrow losses a) Number of Closing/Escrow Losses resulting from escrow shortages b) Total amount of funded shortages 60Abstract/search losses (from abstracts/searches sold) 61Title loss-related and Closing/Escrow loss-related legal expenses 62Deductibles paid 63E&O insurance premiums 64Fidelity/Surety bond premiums 65Total loss expenses (automatically totals) 66Total expenses (automatically totals) 67Net income before taxes (automatically totals) 68Federal income tax incurred 69Net income (automatically totals) 27

28. Risk Identification including Mitigation Schedule B – Part 1 Items Identified Schedule B – Part 2 Items Identified Items Identified Not on Schedule B – Part 1 or Part 2 Total Items Identified (33)+(34)+(35) 28

29. This proposal is not a statistical plan. It is a financial reporting plan. It measures financial outcomes only, it does not collect the data necessary to understand the activity that occurs at the policy level. Example: Pitchers versus all other baseball players. 29

30. StatePolicies in SampleIncidents in Schedule B Colorado83888 Florida43248 Louisiana114585 North Carolina2703,323 All Samples5105,044

31. Given the retrospective coverage in a Title insurance policy, loss adjustment expense is expended PRIOR to policy issuance. These efforts resolve matters that would manifest themselves subsequent to policy issuance. Financial reporting requirements are based upon P&C policies, which are prospective. This reporting overstates the Title expense ratio and understates the Title loss adjustment expense ratio. Unless and until the value proposition of Title insurance – curative efforts, mitigation, analysis, etc. is captured and reported to regulators, the failure to communicate will continue.