Note 14 - Uncertainties

3 Months Ended

Mar. 31, 2023

Notes to Financial Statements

Uncertainties [Text Block]

14. Uncertainties

The demand for the Company’s title insurance services is dependent primarily on the volume of residential and commercial real estate transactions. The volume of these transactions historically has been influenced by such factors as mortgage interest rates, inventory, affordability, availability of financing and the overall state of the economy. The Federal Reserve raised the federal funds rate a total of seven times throughout 2022, and three times in 2023 as of the filing date of this Quarterly Report on Form 10-Q, resulting in a current range from 5.00% to 5.25%. It is expected that the Federal Reserve may continue to increase the federal funds rate during 2023 to, among other things, control inflation. Should the Federal Reserve continue to raise rates in the future, this will likely result in further increases in market interest rates. Typically, when interest rates are increasing or when the economy is experiencing a downturn, real estate activity declines. As a result, the title insurance industry tends to experience decreased revenues and earnings, and potentially increased title claims experience.

A shortage in the supply of homes for sale, increasing home prices, rising mortgage interest rates, inflation and disrupted labor markets created some volatility in the residential real estate market in 2021 and 2022, which has continued into 2023. Additionally, geopolitical uncertainties associated with the war in Ukraine have created additional volatility in the global economy beginning in 2022. At this time, the Company is unable to predict the ultimate impact of such disruptions and geopolitical uncertainties.

The Company continues to evaluate the impact of these uncertainties on its operational and financial performance, specifically the impact on HC Realty, and NCTIC and Omega’s operations.

As of March 31, 2023, the Company has not experienced any adverse impacts to the payment of HC Common Stock and HC Series B Stock dividends.

The Company entered into a catastrophe reinsurance treaty as previously disclosed in the Company’s Annual Report on Form 10-K.  During the contract period, the counterparty to the treaty was ordered into liquidation by the State of Domicile.  While there is uncertainty related to the ultimate amount of premium earned from this treaty, the Company is in discussion with the liquidation trustee regarding a commutation agreement which will provide clarity to the ultimate amount of reinsurance premiums earned.  The Company anticipates receiving the trustee approval and execution of the commutation agreement after the filing of the accompanying financial statements; therefore, the Company has maintained a reserve related to this contingency as of March 31, 2023.  If the Company does not ultimately receive the commutation agreement from the liquidation trustee, there could be a material impact on the earned premium, net income and liquidity position of the Company as of March 31, 2023.