UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934for the fiscal year ended
December 31, 2008

[  ] TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934for the
transition period from __to __

Commission file number
0-11774

INVESTORS TITLE
COMPANY(Exact name of registrant as
specified in its charter)

|**North Carolina**              | **56-1110199**     
|------------------------------- | -------------------
|(State or other jurisdiction of | (I.R.S. Employer   
|incorporation or organization)  | Identification
No.)

121 North Columbia StreetChapel
Hill, North Carolina 27514(919) 968-2200(Address and telephone number of principal executive office)

|Securities
      registered pursuant to section 12(b) of the Act:      | Name of each
      exchange on which registered:
|---------------------------------------------------------------------- | ------------------------------------------------
|Common Stock,
      no par value                                       | NASDAQ Global
      Market                      
|Rights to
      Purchase Series A Junior Participating Preferred Stock | NASDAQ Global
      Market                      

Securities registered pursuant to
section 12(g) of the Act:None

Indicate by check mark whether the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act.


Yes [  
]     No [X]


Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Exchange Act.


Yes [  
]     No [X]  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 [   ] 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 or any amendment to this Form 10-K. [X] Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one): Large accelerated filer [  
]     Accelerated filer [X]    
Non-accelerated filer [   ]     Smaller reporting
company
 (Do not check if a smaller reporting
company)
 Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
[   ]     No [X] The aggregate market value of the
common shares held by non-affiliates was $82,336,510 based on the closing sales
price on the NASDAQ Global Market on the last business day of the registrants
most recently completed second fiscal quarter (June 30, 2008). As of February 20, 2009, there were
2,294,118 common shares of the registrant outstanding DOCUMENTS INCORPORATED BY
REFERENCE Portions of
Investors Title Companys definitive proxy statement for the Annual Meeting of
Shareholders to be held May 20, 2009 are incorporated by reference in Part III
hereof.


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SAFE HARBOR FOR FORWARD-LOOKING
STATEMENTS

This Annual
Report on Form 10-K, as well as information included in future filings by the
Company with the Securities and Exchange Commission and information contained in
written material, press releases and oral statements issued by or on behalf of
the Company, contains, or may contain, forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 that reflect
managements current outlook for future periods. These statements may be
identified by the use of words such as plan, expect, aim, believe,
project, anticipate, intend, estimate, should, could and other
expressions that indicate future events and trends. All statements that address
expectations or projections about the future, including statements about the
Companys strategy for growth, product and service development, market share
position, claims, expenditures, financial results and cash requirements, are
forward-looking statements. Forward-looking statements are based on certain
assumptions and expectations of future events that are subject to a number of
risks and uncertainties. Actual future results and trends may differ materially
from historical results or those projected in any such forward-looking
statements depending on a variety of factors, including, but not limited to, the
following:

- the level of real estate transactions, the level
  of mortgage origination volumes (including refinancing) and changes to the insurance requirements of the
  participants in the secondary mortgage market, and the effect of these factors on the demand for title
  insurance;
- changes in general economic conditions, including
  the performance of the credit and real estate markets;
- significant changes to applicable government
  regulations;
- the possible inadequacy of provisions for claims
  to cover actual claim losses;
- the incidence of fraud-related
  losses;
- heightened regulatory scrutiny;
- unanticipated adverse changes in securities
  markets, including interest rates, could result in material losses on the Companys investments;
- the Companys dependence on key management
  personnel, the loss of whom could have a material adverse affect on the Companys business;
- the Companys ability to develop and offer
  products and services that meet changing industry standards in a timely and cost-effective manner;
- statutory requirements applicable to the Companys
  insurance subsidiaries which require them to maintain minimum levels of capital, surplus and reserves and restrict the amount
  of dividends that they may pay to the Company
  without prior regulatory approval and
- the concentration of key accounting and
  information systems in a few locations.

For a
description of factors that may cause actual results to differ materially from
such forward-looking statements, see Item 1A, Risk Factors of this Annual
Report on Form 10-K.

These and
other risks and uncertainties may be described from time to time in the
Companys other reports and filings with the Securities and Exchange Commission.
The Company does not undertake to update any forward-looking statements to
reflect circumstances or events that occur after the date the forward-looking
statements are made.

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INVESTORS TITLE COMPANY AND
SUBSIDIARIES

TABLE OF CONTENTS

|PART I                                    |  |                                                                       |  | 4 
|----------------------------------------- |  | --------------------------------------------------------------------- |  | --
|ITEM 1.                                   |  | BUSINESS                                                              |  | 4 
|ITEM 1A.                                  |  | RISK FACTORS                                                          |  | 10
|ITEM 1B.                                  |  | UNRESOLVED STAFF
      COMMENTS                                       |  | 13
|ITEM 2.                                   |  | PROPERTIES                                                            |  | 13
|ITEM 3.                                   |  | LEGAL
      PROCEEDINGS                                               |  | 13
|ITEM 4.                                   |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                   |  | 14
|                                          |  | EXECUTIVE
      OFFICERS OF THE COMPANY                               |  | 14
|                                         
|PART II                                   |  |                                                                       |  | 15
|ITEM 5.                                   |  | MARKET FOR
      REGISTRANTS COMMON EQUITY; RELATED STOCKHOLDER      |  |   
|                                          |  | MATTERS AND
      ISSUER PURCHASES OF EQUITY SECURITIES               |  | 15
|ITEM 6.                                   |  | SELECTED FINANCIAL DATA                                               |  | 16
|ITEM 7.                                   |  | MANAGEMENTS
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND |  |   
|                                          |  | RESULTS OF
      OPERATIONS                                           |  | 17
|ITEM 7A.                                  |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK            |  | 29
|ITEM 8.                                   |  | FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA                     |  | 31
|ITEM 9.                                   |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
      AND |  |   
|                                          |  | FINANCIAL DISCLOSURE                                                  |  | 60
|ITEM 9A.                                  |  | CONTROLS AND
      PROCEDURES                                         |  | 60
|ITEM 9B.                                  |  | OTHER INFORMATION                                                     |  | 60
|                                         
|PART III                                  |  |                                                                       |  | 61
|ITEM 10.                                  |  | DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE          |  | 61
|ITEM 11.                                  |  | EXECUTIVE COMPENSATION                                                |  | 61
|ITEM 12.                                  |  | SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT  |  |   
|                                          |  | AND RELATED
      STOCKHOLDER MATTERS                                 |  | 61
|ITEM 13.                                  |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR          |  |   
|                                          |  | INDEPENDENCE                                                          |  | 61
|ITEM 14.                                  |  | PRINCIPAL
      ACCOUNTANT FEES AND SERVICES                          |  | 61
|                                         
|PART IV                                   |  |                                                                       |  | 62
|ITEM 15.                                  |  | EXHIBITS AND
      FINANCIAL STATEMENT SCHEDULES                      |  | 62
|                                         
|SIGNATURES                                |  | 63                                                                   
|INVESTORS TITLE COMPANY INDEX TO EXHIBITS |  | 72                                                                   

3

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PART I

ITEM 1. BUSINESS

GENERAL

Investors
Title Company (the Company) is a holding company that operates through its
subsidiaries and was incorporated in the state of North Carolina in February
1973. The Company became operational on June 24, 1976, when it acquired
Investors Title Insurance Company (ITIC) as a wholly owned subsidiary under a
plan of exchange of shares of common stock. On September 30, 1983, the Company
acquired Northeast Investors Title Insurance Company (NE-ITIC), formerly
Investors Title Insurance Company of South Carolina, as a wholly owned
subsidiary under a plan of exchange of shares of common stock. The Companys
executive offices are located at 121 North Columbia Street, Chapel Hill, North
Carolina 27514 and its telephone number is (919) 968-2200. The Company maintains
a website atwww.invtitle.com.

OVERVIEW OF THE BUSINESS

The Company
engages in several lines of business. Its primary business activity is the
issuance of residential and commercial title insurance through ITIC and NE-ITIC.
The second line of business provides tax-deferred real property exchange
services through its subsidiaries, Investors Title Exchange Corporation (ITEC)
and Investors Title Accommodation Corporation (ITAC). The Company entered into
the business of providing investment management and trust services to
individuals, trusts and other entities in 2003. The Company has two reportable
operating segments. The title insurance segment consists of the operations of
ITIC and NE-ITIC. The exchange services segment consists of the operations of
ITEC and ITAC. The Companys remaining lines of business are not currently
material enough to constitute reportable segments. See Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations, and
Note 13 of Notes to Consolidated Financial Statements in this Form 10-K Annual
Report for additional information related to the revenues, income and assets
attributable to the Companys primary operating segments.

Title Insurance

Through its
two wholly owned title underwriting subsidiaries, ITIC and NE-ITIC, the Company
underwrites land title insurance for owners and mortgagees as a primary insurer.
ITIC and NE-ITIC offer primary title insurance coverage to both owners and
mortgagees of real estate and also offers the reinsurance of title insurance
risks to other title insurance companies. Title insurance protects against loss
or damage resulting from title defects that affect real property. The commitment
and policies issued are predominantly the standard American Land Title
Association (ALTA) approved forms.

Upon a real
estate closing, the seller executes a deed to the new owner. When real property
is conveyed from one party to another, occasionally there is an undisclosed
defect in the title or a mistake or omission in a prior deed, will or mortgage
that may give a third party a legal claim against such property. If a claim is
made against real property, title insurance provides indemnification against
insured defects.

A title
defect is one of any number of things that could jeopardize the property owners
or mortgagees interest in the property defined in the title policy. Such risks
include title being vested in someone or some entity other than the insured,
unmarketable title, lack of a right of access to the property, invalidity or
unenforceability of the insured mortgage, or other defects, liens, or
encumbrances against the property. Examples of common types of covered risks
include defects arising from prior unsatisfied mortgages, tax liens or confirmed
assessments, judgments against the property or encumbrances against the property
arising through easements, restrictions or other existing covenants. Title
insurance also generally protects against deeds or mortgages that contain
inaccurate legal descriptions, that were forged or improperly acknowledged or
delivered, that were executed by spouses without the other spouses signature or
release of marital interest or that were conveyed by minors or
incompetents.

Title
Insurance Policies. There are two basic types
of title insurance policies - one for the mortgage lender and one for the real
estate owner. A lender often requires property owners to purchase title
insurance to protect its position as a holder of a mortgage loan, but the
lenders title insurance policy does not protect the property owner. The
property owner has to purchase a separate owners title insurance policy to
protect their investment. The Company issues title insurance policies on the
basis of a title report. The title report documents the current status of title
to the property.

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Insured
Risk on Policies in Force. Generally, the
amount of the insured risk or face amount of insurance on a title insurance
policy is equal to the lesser of the purchase price of the insured property or
the fair market value of the property. In the event that a claim is made against
the property, the insurer is responsible for paying the legal costs associated
with eliminating covered title defects or defending the insured party against
covered title defects affecting the property. The insurer may choose to pay the
policy limits to the insured or, if the loss is less than policy limits, the
amount of the insureds actual loss due to the title defect, at which time the
insurers duty to defend the claim and all other obligations of the insurer with
respect to the claim are satisfied.

At any given
time, the insurers actual risk of monetary loss under outstanding policies is
only a portion of the aggregate insured risk, or total face amount, of all
policies in force. The lower risk results primarily from the reissuance of title
insurance policies by other underwriters over time when the property is conveyed
or refinanced. The coverage on a lenders title insurance policy is reduced and
eventually terminated as the mortgage loan it secures is paid. An owners policy
is effective as long as the insured has an ownership interest in the property or
has liability under warranties of title. Due to the variability of these
factors, the aggregate contingent liability of a title underwriter on
outstanding policies of the Company and its subsidiaries cannot be determined
with any precision.

Losses
and Reserves. While most other forms of
insurance provide for the assumption of risk of loss arising out of unforeseen
events, title insurance is based upon a process of loss avoidance. Title
insurance generally serves to protect the policyholder from the risk of loss
from events that predate the issuance of the policy. Losses on policies
typically occur when a title defect is not discovered during the examination and
settlement process or the occurrence of certain hidden risks which cannot be
determined from an accurate search of public land records. The maximum amount of
liability under a title insurance policy is generally the face amount of the
policy plus the cost of defending the insureds title against an adverse claim.
Reserves for claim losses are established based upon known claims, as well as
estimated losses incurred but not yet reported to the Company, based upon
historical experience and other factors.

Title claims
can often be complex, vary greatly in dollar amounts, are affected by economic
and market conditions and may involve uncertainties as to ultimate exposure, and
therefore, reserve estimates are subject to variability. For a more complete
description of the Companys reserves for claims, see Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations in this
Form 10-K Annual Report.

Geographic Operations. ITIC was
incorporated in the State of North Carolina on January 28, 1972, and became
licensed to write title insurance in the State of North Carolina on February 1,
1972. At present, ITIC primarily writes land title insurance in 23 states,
mostly in the eastern half of the United States. ITIC is licensed to write
title insurance in 44 states and the District of Columbia.

NE-ITIC was
incorporated in the State of South Carolina on February 23, 1973, and became
licensed to write title insurance in that state on November 1, 1973. It
currently writes title insurance as a primary insurer and as a reinsurer in the
State of New York. NE-ITIC is also licensed to write title insurance in 19
additional states and the District of Columbia.

Premiums
from title insurance written in the state of North Carolina represent the
largest source of revenue for the title insurance segment. In the state of North
Carolina, ITIC primarily issues title insurance commitments and policies through
branch offices. Title policies are primarily issued through issuing agents in
other states. For a description of the level of net premiums written
geographically by state, refer to Item 7 Managements Discussion and Analysis
of Financial Condition and Results of Operations in this Annual Report on Form 10-K.

Each state
license authorizing ITIC or NE-ITIC to write title insurance must be renewed
annually. These licenses are necessary for the companies to operate as a title
insurer in each state in which they write premiums.

Ratings.The Companys title insurance
subsidiaries are regularly assigned ratings by independent agencies designed to
indicate their financial condition and/or their claims paying ability. The
rating agencies determine ratings primarily by analyzing financial data. ITIC
has been rated by two independent Fannie Mae-approved financial analysis firms,
Demotech, Inc. and LACE Financial Corporation (LACE), with financial stability
ratings of A (A Double Prime) and B, respectively. NE-ITICs financial
stability also has been recognized by Demotech, Inc. and LACE with ratings of A
(A Double Prime) and A, respectively. According to Demotech, title underwriters
earning a Financial Stability Rating of A (A Double Prime) possessUnsurpassedfinancial stability related to maintaining positive surplus as regards
policyholders, regardless of the severity of a general economic downturn or
deterioration

5

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in the title insurance cycle. A LACE
rating of A or B indicates that a title insurance company has a strong
overall financial condition that will allow it to meet its future claims, and
that, generally, the company has good operating earnings, is well capitalized
and has adequate reserves.

Reinsurance. The Company assumes and
cedes reinsurance with other insurance companies in the normal course of
business. Reinsurance is a contractual arrangement whereby one insurer assumes
some or all of the risk exposure written by another insurer. Ceded reinsurance
is comprised of excess of loss treaties, which protects against losses over
certain amounts.

In the
ordinary course of business, ITIC and NE-ITIC reinsure certain risks with other
title insurers for the purpose of limiting their risk exposure and to comply
with state insurance regulations. They also assume reinsurance for certain risks
of other title insurers for which they receive additional income. For the last
three years, revenues from reinsurance activities accounted for less than 1% of
total premium volume.

Exchange Services

In 1988, the
Company established Investors Title Exchange Corporation, a wholly owned
subsidiary (ITEC), to provide services in connection with tax-deferred
exchanges of like-kind property pursuant to Section 1031 of the Internal Revenue
Code. ITEC acts as an intermediary in tax-deferred exchanges of property held
for productive use in a trade or business or for investments, and its income is
derived from fees for handling exchange transactions and interest earned on
client deposits held by the Company.

Investors
Title Accommodation Corporation (ITAC) provides services for accomplishing
reverse exchanges when taxpayers decide to acquire replacement property before
selling the relinquished property.

The services
provided by the Companys exchange segment are pursuant to provisions in the
Internal Revenue Code. From time to time, these laws are subject to review and
changes, which may negatively affect the demand for tax-deferred exchanges in
general, and consequently the revenues and profitability of the Companys
exchange segment.

In July
2008, the Internal Revenue Service (IRS) finalized its proposed regulations
regarding treatment of funds held by qualified intermediaries. As originally
proposed, the rules would have negatively affected the ability of qualified
intermediaries to retain a portion of the interest earned on exchange funds held
during exchange transactions, which could have had a material adverse effect
upon the profitability of the Companys exchange segment. As adopted however,
the new regulations apply only to individual exchange account balances over $2
million.

In addition,
the final regulations clarify that qualified intermediaries may earn marketing
fees from financial institutions. The Company currently believes that any
marketing fees earned on deposits in the future would at least partially offset
the loss of interest spread retained on exchange deposits under prior business
practices. Consequently, the Company currently believes that the final
regulations should not have a material impact on the earnings of the exchange
services segment. The regulations however have only recently been adopted, and
therefore the Company has had only limited experience under this new regime; it
is possible that these new regulations may have unanticipated consequences that
will negatively affect tax-deferred exchanges, which could have an adverse
effect on the revenues and profitability of the Companys exchange services
segment. In addition, refer to Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations in this Form 10-K Annual Report
for additional information regarding IRS regulations.

Investment Management and Trust
Services

Other
services provided include those offered by Investors Trust Company (Investors
Trust), Investors Capital Management Company (ICMC), and Investors Title
Management Services, Inc. (ITMS), all wholly owned subsidiaries of the
Company. Investors Trust and ICMC work together to provide investment management
and trust services to individuals, companies, banks and trusts. ITMS offers
various consulting services to provide clients with the technical expertise to
start and successfully operate a title insurance agency. These subsidiaries are
not currently a reportable segment for which financial information is presented
in the Companys financial statements and are included and reported in the
category All Other.

6

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OPERATIONS OF
SUBSIDIARIES

Title Insurance

ITIC and
NE-ITIC issue title insurance coverage through direct operations or through
partially owned or independent title insurance agents who issue title policies
on behalf of ITIC or NE-ITIC. Title insurance premiums written reflect a
one-time premium payment, with no recurring premiums.

Generally,
premiums are recorded and recognized as revenue at the time of closing of the
related transaction as the earnings process is considered complete. Where the
policy is issued directly through a branch office, the premiums collected are
retained by the Company. Where the policy is issued through a title insurance
agent, the agent retains a majority of the premium as a commission. Title
insurance commissions earned by the Companys agents are recognized as expense
concurrently with premium recognition. The percentage of the premium retained by
agents varies by region to region and is sometimes regulated by the
states.

For a
description of the level of net premiums written by direct and agency
operations, refer to Item 7, Managements Discussion and Analysis of Financial
Condition and Results of Operations.

Exchange Services

ITEC and
ITAC provide customer services in connection with tax-deferred exchanges
pursuant to Section 1031 of the Internal Revenue Code. Acting as a qualified
intermediary, ITEC holds the proceeds from sales of relinquished properties
until the acquisition of identified replacement properties occurs. ITAC
facilitates reverse tax-deferred exchanges pursuant to IRS Revenue Procedure
2000-37.

CYCLICALITY AND
SEASONALITY

Title Insurance

Real estate
activity is cyclical in nature. Title insurance premiums are closely related to
the level of real estate activity and the volume of mortgage origination. A
number of general and economic factors influence demand for title insurance,
including changes in mortgage interest rates and the availability of mortgage
financing, consumer confidence, economic conditions, supply and demand and
family income levels.

The title
insurance business tends to be seasonal as well as cyclical. Historically, the
winter months have the least real estate activity because fewer real estate
transactions occur, while the remaining quarters are more active. Refinance
activity is generally less seasonal, but it is subject to interest rate
fluctuations. The Company anticipates that current market conditions, including
weakening home sales and falling home prices, rising foreclosures and the sub
prime lending crisis, will be the primary influences on the Companys operations
until some stabilization occurs.

Exchange Services

Seasonal and
other factors affecting the level of real estate activity and the volume of
title premiums written will also generally affect the demand for exchange
services.

MARKETING

Title Insurance

The Company
markets its title insurance services to a broad range of customers in the
residential and commercial market sectors of the real estate industry. Issuing
agents are typically real estate attorneys or subsidiaries of community and
regional mortgage lending institutions, depending on local customs and
regulations and the Companys marketing strategy in a particular
territory.

ITIC and
NE-ITIC strive to provide superior service to their customers and consider this
an important factor in attracting and retaining customers. Branch and corporate
personnel strive to develop new business and agency relationships to increase
market share and ITICs Commercial Services Division provides services to
commercial clients.

7

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Exchange Services

Marketing of
tax-deferred exchange services offered by ITEC and ITAC has been incorporated
into the marketing of the core title products offered by ITIC and NE-ITIC. The
Commercial Services Division of ITIC also markets the services offered by ITEC
and ITAC to its commercial clients.

REGULATION

Title Insurance

The Company
is an insurance holding company and therefore it is subject to regulation in the
states in which its insurance subsidiaries do business. These regulations, among
other things, require insurance holding companies to register and file certain
reports and require prior regulatory approval of the payment of dividends and
other intercompany distributions or transfers.

Title
insurance companies are extensively regulated under applicable state laws. All
states have requirements for admission to do business as an insurance company,
including minimum levels of capital and surplus and establishing reserves. State
regulatory authorities monitor the stability and service of insurance companies
and possess broad powers with respect to the licensing of title insurers and
agents, approving rate schedules and policy forms, financial reporting and
accounting practices, reserve requirements, investments and dividend
restrictions, as well as examinations and audits of title insurers. Both ITIC
and NE-ITIC meet the statutory premium reserve requirements and the minimum
capital and surplus requirements of the states in which they are licensed. A
substantial portion of the assets of the Companys title insurance subsidiaries
consists of their portfolios of investment securities. Both of these
subsidiaries are required by various states laws to maintain assets of a
defined quality and amount.

The
Companys two insurance subsidiaries are subject to examination at any time by
the insurance regulators in the states where they are licensed. These and other
governmental authorities have the power to enforce state and federal laws to
which the title insurance subsidiaries are subject, including but not limited
to, the Real Estate Settlement Procedures Act (RESPA).

The United
States Department of Housing and Urban Development (HUD) published final rules
regarding RESPA on November 17, 2008. The new rules became effective on January
16, 2009. Among other reforms, these new rules require lenders and mortgage
brokers to provide consumers with a standard good faith estimate that more
clearly discloses loan terms and closing costs, including title insurance
premiums and charges, and facilitates comparison shopping by home buyers. HUD
has also indicated that it intends to seek legislative changes to RESPA that
will complement the rules and provide HUD with enforcement mechanisms for some
of the most important consumer disclosures and protections.

Proposals to
change the laws and regulations governing insurance holding companies and the
title insurance industry are often introduced in Congress, in the state
legislatures and before the various insurance regulatory agencies. The Company
regularly monitors such proposals and legislation, although the likelihood and
timing of them and the impact they may have on the Company and its subsidiaries
cannot be determined at this time.

Any material change in the Companys
regulatory environment may have an adverse effect on its business.

Exchange Services

Intermediary
services are not federally regulated by any regulatory commissions, and neither
ITEC nor ITAC operate in any states that regulate this industry. ITEC and ITAC
both provide services to taxpayers pursuant to IRS regulations that provide
taxpayers a safe harbor by using a qualified intermediary to structure
tax-deferred exchanges of property and using an exchange accommodation
titleholder to hold property in reverse exchange transactions.

Investment Management and Trust
Services

Investors Trust is regulated by the
North Carolina Commissioner of Banks.

8

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COMPETITION

Title Insurance

The title
insurance industry is highly competitive. ITICs and NE-ITICs major competitors
together comprise a majority of the title insurance market on a national level.
The number and size of competing companies varies in the different geographic
areas in which the Company conducts business. Key factors that affect
competition in the title insurance industry are timeliness and quality of
service, price, expertise and the financial strength and size of the insurer.
Title insurance underwriters also compete for agents based upon service and
commission levels. Some title insurers currently have greater financial
resources, larger distribution networks and more extensive computerized
databases of property records and related information than the
Company.

In addition,
there are numerous industry-related regulations and statutes that set out
conditions and requirements to conduct business. Changes to or the removal of
such regulations and statutes could result in additional competition from
alternative title insurance products or new entrants into the industry that
could materially affect the Companys business operations and financial
condition.

Exchange Services

Competition
for ITEC and ITAC comes from other title insurance companies and agents, banks,
attorneys, and other independently-owned qualified intermediaries that offer
exchange services. Key elements that affect competition are price, expertise,
timeliness and quality of service and the financial strength and size of the
company. Exchange services are not a regulated industry; there is no market data
available regarding the Companys market position in this industry.

CUSTOMERS

The Company
is not dependent upon any single customer or a few customers, and the loss of
any single customer would not have a material adverse effect on the
Company.

INVESTMENT POLICIES

The Company
and its subsidiaries derive a substantial portion of their income from
investments in bonds (municipal and corporate) and equity securities. The
Companys investment policy is designed to maintain a high quality portfolio and
maximize income. The Company invests primarily in short-term investments,
federal and municipal governmental securities and investment grade debt
securities and equity securities. Some state laws impose restrictions upon the
types and amounts of investments that can be made by the Companys insurance
subsidiaries. The Company manages its investment portfolio and does not utilize
third party investment managers. The securities in the Companys portfolio are
subject to economic conditions and normal market risks.

See Note 3
of Notes to Consolidated Financial Statements in this Annual Report on Form 10-K
for the major categories of investments, scheduled maturities, amortized cost,
market values of investment securities and earnings by category.

ENVIRONMENTAL MATTERS

The title
insurance policies ITIC and NE-ITIC currently issue exclude any liability for
environmental risks and contamination. Although policies issued prior to 1992
may not specifically exclude such environmental risks, they generally do not
provide affirmative coverage for such risks. As a result, the Company has not
experienced and does not anticipate that it or its subsidiaries will incur any
significant expenses related to environmental claims.

In
connection with effecting tax-deferred exchanges of like-kind property, ITEC and
ITAC may temporarily hold title to property pursuant to an accommodation
titleholder agreement. In such situations, the person or entity for which title
is being held must execute an indemnification agreement pursuant to which it
agrees to indemnify ITEC or ITAC, as appropriate, for any environmental or other
claims which may arise as a result of the arrangement.

9

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EMPLOYEES

The Company
has no paid employees. Officers of the Company are full-time paid employees of
ITIC. The Companys subsidiaries had 218 full-time employees and 21 part-time
employees as of December 31, 2008. None of the employees are covered by any
collective bargaining agreements. Management considers its relationship with its
employees to be favorable.

ADDITIONAL
INFORMATION

The
Companys internet address iswww.invtitle.com, the contents of
which are not and shall not be deemed a part of this document or any other
Securities and Exchange Commission filing. The Company makes available free of
charge through its internet website its annual reports on Form 10-K, its
quarterly reports on Form 10-Q, its current reports on Form 8-K, and all
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable
after such materials are electronically filed with, or furnished to, the
Securities and Exchange Commission (SEC), and also makes available the Section
16 reports on Forms 3, 4 and 5 of its insiders no later than the end of the
business day following such filings. The information is free of charge and may
be reviewed and downloaded from the website at any time. The public may read any
material it has filed with the SEC at the SECs Public Reference Room at 100 F.
Street, N.E., Washington, D.C. 20549. The Investors section of the Companys
website also includes its code of business conduct and ethics and the charters
of the Audit, Compensation and Nominating Committees of its Board of
Directors.

ITEM 1A. RISK FACTORS

The risk
factors listed in this section and other factors noted herein could cause actual
results to differ materially from those contained in any forward-looking
statements.

The
Companys results of operations and financial condition are subject to cyclical
demand for title insurance, which depends upon the volume of residential and
commercial real estate transactions and mortgage refinancing transactions and
economic factors.

The demand
for the Companys title insurance and other real estate transaction products and
services varies over time and from year to year and is dependent upon, among
other things, the volume of commercial and residential real estate transactions
and mortgage refinancing transactions. The volume of these transactions has
historically been influenced by factors such as the state of the overall
economy, the availability of mortgage financing and mortgage interest rates.
During an economic downturn or recession, such as current conditions in the
United States, or when the availability of mortgage financing is limited or
mortgage interest rates are increasing, real estate activity typically declines.
The cyclical nature of the Companys business has caused fluctuations in revenue
and profitability in the past and is expected to do so in the future.

The real
estate and credit markets have been experiencing significant volatility and
disruption for more than 12 months. The value of residential real estate
property and the volume of new and existing home sales have significantly
declined since the market peak in 2005. If the current levels of real estate and
credit market disruption and volatility continue or worsen, there can be no
assurance that the Company will not experience adverse effects, which may be
material, to its results of operations.

The overall
demand for title insurance also depends in part upon the requirement by mortgage
lenders and participants in the secondary mortgage market that title insurance
policies be obtained on residential and commercial real property.

**The Company may experience
material losses resulting from fraud, defalcation or
misconduct.**

Fraud,
defalcation, regulatory noncompliance and other misconduct by the Companys
agents, approved attorneys and employees are risks inherent in the Companys
business. Agents and approved attorneys typically handle large sums of money in
trust pursuant to the closing of real estate transactions and misappropriation
of funds by any of these parties could result in large title claims.

The Company
has recently experienced an increase in its level of fraud-related losses. If
current economic conditions remain poor or deteriorate further, the Company may
continue to experience increases in the incidence of fraud, defalcation and
misconduct, which may have a material adverse effect on it.

10

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Differences between actual claims experience and underwriting and
reserving assumptions may adversely affect the Companys financial
results.

The
Companys net income is affected by the extent to which its actual claims
experience is consistent with the assumptions used in establishing reserves for
claims. Reserves for claims are established based on actuarial estimates of how
much the Company will need to pay for reported as well as incurred, but not yet
reported claims. In addition, management considers factors such as the Companys
historical claims experience, case reserve estimates on reported claims, large
claims and other relevant factors in determining loss provision rates and the
aggregate recorded expected liability for claims. Due to the nature of the
underlying risks and the high degree of uncertainty associated with the
determination of reserves for claims, the Company cannot determine precisely the
amounts which it will ultimately pay to settle its claims. Such amounts may vary
from the estimated amounts, particularly when those payments may not occur until
well into the future. To the extent that actual claims experience is less
favorable than the underlying assumptions used in establishing such liabilities,
the Company could be required to increase reserves. Title claims can often be
complex, vary greatly in dollar amounts and are affected by economic and market
conditions and may involve uncertainties as to ultimate exposure, and therefore,
reserve estimates are subject to variability. In addition, the Company may
experience unexpected large losses periodically which require it to increase its
title loss reserves.

Poor
economic conditions can lead to increased incidences of title insurance claims,
and consequently losses, due to increases in defaults and foreclosures upon
insured properties. The Company has experienced an increase in the incidence of
title claims and losses during the recent economic downturn. If the current
environment continues or deteriorates further, the Company may continue to
experience increased levels of claims and losses, which may have a material
negative effect on its financial condition and results of operations.

**Exposure to mechanic lien
claims increases during periods of declining home sales.**

The ongoing
and significant decline in new home sales has led to an increase in mechanic
liens being filed for unpaid construction work. Frequently, these liens do not
appear in the public record until significant time has lapsed from when the work
was performed. In many jurisdictions, these liens have priority as of the date
work commenced, therefore, making it difficult for title insurance companies to
underwrite. This hidden risk can cause significant increases in claims during
periods of declining new home sales. In the recent economic downturn, the
Company has experienced increased claims and losses related to this particular
risk. Although it has implemented procedures to mitigate against this risk in
the future, claims and losses related to this risk under existing policies may
continue to increase if current economic conditions continue or deteriorate
further.

A decline
in the performance of the Companys investments could materially adversely
affect net income and cash flows.

Changes in
general economic conditions, interest rates, activities in securities markets
and other external factors could adversely affect the value of the Companys
investment portfolio and, in turn, the Companys operating results and financial
condition. Recent declines in the capital markets have adversely affected the
Companys investment portfolio, resulting in declines in the sale value and
liquidity of securities.

**The Company and its
subsidiaries are subject to complex government regulations.**

The
Companys title insurance businesses are subject to extensive state laws and
regulations by state insurance authorities in each state in which they operate.
These laws and regulations are primarily intended for the protection of
policyholders and consumers. The nature and extent of these laws and regulations
typically involve, among other matters, licensing and renewal requirements and
trade and marketing practices, including, but not limited to:

- licensing of insurers and agents;
- capital and surplus requirements;
- approval of premium rates for
  insurance;
- limitations on types and amounts of
  investments;
- restrictions on the size of risks that may be
  insured by a single company;
- deposits of securities for the benefit of policy
  holders;
- filing of annual and other reports with respect to
  financial condition;
- approval of policy forms; and
- regulations regarding the use of personal
  information.

11

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These laws
and regulations are subject to change and may restrict the Companys ability to
implement rate increases or other actions that it may want to take to enhance
its operating results or have a negative impact on its ability to generate
revenue and earnings.

Some of the
Companys other businesses operate within state and federal guidelines. Any
changes in the applicable regulatory environment or changes in existing
regulations could restrict its existing or future operations. Revenues from the
Companys exchange services segment are closely related to the tax rate on
capital gains and other provisions in the Internal Revenue Code. The Companys
revenues in future periods will continue to be subject to these and other
factors which are beyond its control.

In addition,
the investment management and trust services division is regulated by the North
Carolina Commissioner of Banks.

**Competition in the Companys
business affects its revenues.**

The title
insurance industry is highly competitive. Key factors that affect competition in
the title insurance business are quality of service, price within regulatory
parameters, expertise, timeliness and the financial strength and size of the
insurer. Title companies compete for premiums by choosing various distribution
channels which may include company-owned operations and issuing agency
relationships with attorneys, lenders, realtors, builders and other settlement
service providers. Title insurance underwriters compete for agents on the basis
of service and commission levels. Some title insurers currently have greater
financial resources, larger distribution networks and more extensive
computerized databases of property records and information than the Company. The
number and size of competing companies varies in the different geographic areas
in which the Company operates. Competition among the major providers of title
insurance or the acceptance of new alternatives to traditional title products by
the marketplace could adversely affect the Companys operations and financial
condition.

**The Companys success relies
on its ability to attract and retain key personnel and
agents.**

Competition
for skilled and experienced personnel and agents in the Companys industry is
high. The Company may have difficulty hiring the necessary marketing and
management personnel to support any future growth. The loss of any key employee
or the failure of any key employee to perform in their current position could
prevent the Company from realizing future growth. Also, the Company cannot
provide assurance that it will succeed in attracting or retaining new agents.
Its results of operations and financial condition could be adversely affected if
it is unsuccessful in attracting and retaining agents.

A
downgrade or a potential downgrade in one of the Companys financial strength
ratings could result in a loss of business.

The
competitive positions of insurance companies rely in part on the independent
ratings of their financial strength and claims-paying ability. The Companys
financial strength is subject to continued periodic review by rating agencies. A
significant downgrade in the ratings of either of the Companys policy-issuing
subsidiaries could negatively impact its ability to compete for new business and
retain existing business and maintain licenses necessary to operate as title
insurance companies in various states.

**Insurance regulations limit
the ability of the Companys insurance subsidiaries to pay dividends to
it.**

The Company
is an insurance holding company and has no substantial operations of its own.
The Companys ability to pay dividends and meet its obligations is dependent,
among other things, on the ability of its subsidiaries to pay dividends or repay
funds to it. The Companys insurance subsidiaries are subject to insurance and
other regulations that limit the amount of dividends, loans or advances to it
based on the amount of adjusted unassigned surplus and net income and require
these subsidiaries to maintain minimum amounts of capital, surplus and reserves.
In general, dividends in excess of prescribed limits are deemed extraordinary
and require prior state insurance regulatory approval. These dividend
restrictions could limit the Companys ability to pay dividends to its
shareholders or grow its business. For further discussion of the regulation of
dividend payments and other transactions between affiliates, see Liquidity and
Capital Resources under Managements Discussion and Analysis of Financial
Condition and Results of Operations in Item 7 of this report.

12

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The
Company may encounter difficulties managing growth or technology changes, which
could adversely affect its results.

The Company
has historically achieved revenue growth in part through a combination of
developing related new products or services and increasing its market share for
existing products. A portion of the Companys growth may be in services or
geographic areas with which management is less familiar than with its core
business and geographic areas. The expansion of the Companys business,
particularly in new services or geographic areas, or significant changes in
technology may subject it to associated risks, such as the diversion of
managements attention, lack of substantial experience in operating such
businesses and a change in competitive position resulting from technology
changes.

**The Company relies upon
North Carolina for about 48% of its title insurance
premiums.**

North
Carolina is the largest source of revenue for the title insurance segment and,
in 2008, North Carolina-based premiums accounted for approximately 48% of
premiums earned by the Company. A decrease in North Carolina business would
negatively impact financial results.

**Key accounting and
information systems are concentrated in a few locations.**

The
Companys corporate headquarters, accounting and technology operations are
concentrated in North Carolina. These critical business operations are subject
to interruption by natural disasters, fire, power shortages and other events
beyond the Companys control. A catastrophic event that results in the
destruction or disruption of any of the Companys critical business operations
or systems could severely affect its ability to conduct normal business
operations and, as a result, there could be a material and adverse effect on the
Companys business, operating results and financial condition.

Failures
at financial institutions at which the Company deposits funds could adversely
affect the Company.

The Company
deposits substantial funds in financial institutions. These funds include
amounts owned by third parties, such as escrow deposits. Should one or more of
the financial institutions at which the Company maintains deposits fail, there
is no guarantee that the Company would recover the funds it has deposited,
whether through Federal Deposit Insurance Corporation coverage or
otherwise.

**Certain provisions of the
Companys shareholder rights plan may make a takeover of the Company difficult.**

The Company
has a shareholders rights plan which could discourage transactions involving
actual or potential changes of control, including transactions that otherwise
could involve payment of a premium over prevailing market prices to the
Companys shareholders for their common shares.

ITEM 1B. UNRESOLVED STAFF
COMMENTS

None

ITEM 2. PROPERTIES

The Company
owns two adjacent office buildings and property located on the corner of North
Columbia and West Rosemary Streets in Chapel Hill, North Carolina, which serve
as the Companys corporate headquarters. The main building contains
approximately 23,000 square feet and has on-site parking facilities. The
Companys principal subsidiary, ITIC, leases office space in 32 locations
throughout North Carolina, South Carolina, Michigan and Nebraska. NE-ITIC leases
office space in one location in New York. Each of the office facilities occupied
by the Company and its subsidiaries are in good condition and adequate for
present operations. In November 2005, the Company purchased approximately 7,000
square feet of additional office space in Chapel Hill, North Carolina that was
previously leased for ITEC, ITAC, ITICs Commercial Services Division and ITICs
Settlement Services Division.

ITEM 3. LEGAL
PROCEEDINGS

The Company
and its subsidiaries are involved in various legal proceedings that are
incidental to their business. In the Companys opinion, based on the present
status of these proceedings, any potential liability of the Company or its
subsidiaries with respect to these legal proceedings will not, in the aggregate,
be material to the Companys consolidated financial condition or results of
operations.

13

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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 the
fiscal year ended December 31, 2008.

EXECUTIVE OFFICERS OF THE COMPANY

Following is
information regarding the executive officers of the Company as of February 28,
2009. Each officer is appointed at the annual meeting of the Board of Directors
to serve until the next annual meeting of the Board or until his or her
respective successor has been elected and qualified.

|Name               |                      | Age |  | Position with Registrant                                             
|------------------ | -------------------- | --- |  | ---------------------------------------------------------------------
|J. Allen Fine      |                      | 74  |  | Chief Executive Officer and Chairman of the Board                    
|James A. Fine, Jr. |                      | 46  |  | President,
      Treasurer, Chief Financial Officer, Chief Accounting
|                   | Officer and Director
|W. Morris Fine     |                      | 42  |  | Executive Vice President, Secretary and Director                     

J. Allen Finehas been Chief Executive Officer and Chairman of the Board of
the Company since its incorporation in 1973. Mr. Fine also served as President
of the Company until May 1997. Mr. Fine is the father of James A. Fine, Jr.,
President, Treasurer and Director of the Company, and W. Morris Fine, Executive
Vice President, Secretary and Director of the Company.

James A. Fine, Jr.was named Vice President of the Company in 1987. In 1997, he
was named President and Treasurer and appointed as a Director of the Company. In
2002, he was appointed as Chief Financial Officer and Chief Accounting Officer.
He is the son of J. Allen Fine, Chief Executive Officer and Chairman of the
Board of the Company, and the brother of W. Morris Fine, Executive Vice
President, Secretary and Director of the Company.

W. Morris Finewas named Vice President of the Company in 1992. In 1993, he
was named Treasurer of the Company and served in that capacity until 1997. In
1997, he was named Executive Vice President and Secretary of the Company. In
1999, he was appointed as a Director of the Company. W. Morris Fine is the son
of J. Allen Fine, Chief Executive Officer and Chairman of the Board of the
Company, and the brother of James A. Fine, Jr., President, Treasurer and
Director of the Company.

14

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PART II



|ITEM 5. | **** | MARKET
      FOR REGISTRANTS COMMON EQUITY; RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES
|------- | ---- | ------------------------------------------------------------------------------------------------------------------------

Common Stock Data

The Common
Stock of the Company is traded under the symbol ITIC on the NASDAQ Global
Market. The number of record holders of common stock at December 31, 2008 was
435. The number of record holders is based upon the actual number of holders
registered on the books of the Company at such date and does not include holders
of shares in street names or persons, partnerships, associations, corporations
or other entities identified in security position listings maintained by
depository trust companies. The following table shows the high and low sales
prices reported on the NASDAQ Global Market.

|                     | 2008  |       | 2007
|-------------------- | ----- | ----- | ----
|                     | High  |       | Low 
|First Quarter        | **$** | 49.25 |     
|Second
      Quarter | $     | 50.88 |     
|Third Quarter        | $     | 49.50 |     
|Fourth
      Quarter | $     | 41.30 |     

The Company
paid cash dividends of $0.07 and $0.06 per share in each of the four quarters in
2008 and 2007, respectively.

The
Companys current dividend policy anticipates the payment of quarterly dividends
in the future. The declaration and payment of dividends will be in the
discretion of the Board of Directors and will be dependent upon the Companys
future earnings, financial condition and capital requirements. The payment of
dividends is subject to the restrictions described in Managements Discussion
and Analysis of Financial Condition and Results of Operations, Liquidity and
Capital Resources.

The following table provides
information about purchases by the Company (and all affiliated purchasers)
during the quarter ended December 31, 2008 of equity securities that are
registered by the Company pursuant to Section 12 of the Exchange Act:

|Issuer
      Purchases of Equity Securities
|-------------------------------------------
|                                           
|                                           
|                                           
|                                           
|Period                                     
|Beginning of period                        
|10/01/08
       10/31/08                  
|11/01/08  11/30/08                        
|12/01/08
       12/31/08                  
|Total                                      

For the
quarter ended December 31, 2008, the Company purchased an aggregate of 6,358
shares of the Companys common stock pursuant to the purchase plan (the Plan)
that was publicly announced on June 5, 2000. On November 10, 2008, the Board of
Directors of the Company approved the purchase of an additional 394,582 shares
pursuant to the Plan, such that there was authority remaining under the Plan to
purchase up to an aggregate of 500,000 shares of the Companys common stock
pursuant to the Plan immediately after this approval. Unless terminated earlier
by resolution of the Board of Directors, the Plan will expire when all shares
authorized for purchase under the Plan have been purchased. The Company intends
to make further purchases under this Plan.

15

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ITEM 6. SELECTED FINANCIAL
DATA
(dollars in thousands except per share data)

|For the Year                                         | 2008 |             | 2007 |   | 2006        |  | 2005 |             | 2004 |  
|---------------------------------------------------- | ---- | ----------- | ---- | - | ----------- |  | ---- | ----------- | ---- | -
|****Net premiums written                             | $    | 63,662      |      | $ | 69,984      |  | $    | 70,196      |      | $
|****Revenues                                         |      | 71,123      |      |   | 84,942      |  |      | 84,662      |      |  
|****Investment income                                |      | 4,559       |      |   | 5,197       |  |      | 4,326       |      |  
|****Net (loss) income                                | $    | (1,183)     |      | $ | 8,402       |  | $    | 13,185      |      | $
|                                                    
|Per Share Data                                       |      |             |      |   |             |  |      |             |      |  
|****Basic (loss) earnings per common share           | $    | (0.50)      |      | $ | 3.39        |  | $    | 5.22        |      | $
|****     Weighted average shares outstandingBasic   |      | 2,364       |      |   | 2,479       |  |      | 2,528       |      |  
|****Diluted (loss) earnings per common share         | $    | (0.50)      |      | $ | 3.35        |  | $    | 5.14        |      | $
|****     Weighted average shares outstandingDiluted |      | 2,364       |      |   | 2,509       |  |      | 2,564       |      |  
|****Cash dividends per share                         | $    | .28         |      | $ | .24         |  | $    | .24         |      | $
|                                                    
|At Year End                                          |      |             |      |   |             |  |      |             |      |  
|****Assets                                           | $    | **139,858** |      | $ | ****149,642 |  | $    | ****143,516 |      | $
|****Investments in securities                        |      | 115,892     |      |   | 129,026     |  |      | 121,580     |      |  
|****Stockholders equity                             |      | 89,858      |      |   | 99,276      |  |      | 95,276      |      |  
|****Book value/share                                 |      | 39.18       |      |   | 41.17       |  |      | 38.00       |      |  
|                                                    
|Performance Ratios                                   |      |             |      |   |             |  |      |             |      |  
|****Net (loss) income to:                            |      |             |      |   |             |  |      |             |      |  
|****     Average stockholders equity                |      | (1.25%)     |      |   | 8.64%       |  |      | 14.69%      |      |  
|****     Total revenues - (loss) profit margin       |      | (1.66%)     |      |   | 9.89%       |  |      | 15.57%      |      |  

16

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|ITEM 7. | **** | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
      RESULTS OF OPERATIONS
|------- | ---- | -------------------------------------------------------------------------------------------

The
following discussion should be read in conjunction with the consolidated
financial statements and the related notes in this report.

Overview

Title
Insurance:Investors Title Company (the
Company) is a holding company that engages primarily in two segments of
business: title insurance and exchange services. Its primary business activity
is the issuance of title insurance through two subsidiaries, Investors Title
Insurance Company (ITIC) and Northeast Investors Title Insurance Company
(NE-ITIC), which accounted for 94.3% of the Companys operating revenues in
2008. Through ITIC and NE-ITIC, the Company underwrites land title insurance for
owners and mortgagees as a primary insurer. Title insurance protects against
loss or damage resulting from title defects that affect real property.

There are
two basic types of title insurance policies - one for the mortgage lender and
one for the real estate owner. A lender often requires property owners to
purchase title insurance to protect its position as a holder of a mortgage loan,
but the lenders title insurance policy does not protect the property owner. The
property owner has to purchase a separate owners title insurance policy to
protect their investment. When real property is conveyed from one party to
another, occasionally there is an undisclosed defect in the title or a mistake
or omission in a prior deed, will or mortgage that may give a third party a
legal claim against such property. If a claim is made against real property,
title insurance provides indemnification against insured defects.

ITIC issues
title insurance policies through issuing agencies and also directly through home
and branch offices. Issuing agents are typically real estate attorneys or
subsidiaries of community and regional mortgage lending institutions, depending
on local customs and regulations and the Companys marketing strategy in a
particular territory. The ability to attract and retain issuing agents is a key
determinant of the Companys growth in premiums written.

Revenues for
this segment result from purchases of new and existing residential and
commercial real estate, refinance activity and certain other types of mortgage
lending such as home equity lines of credit.

Volume is a
factor in the Companys profitability due to the existence of fixed operating
costs. These expenses will be incurred by the Company regardless of the level of
premiums written. The resulting operating leverage has historically tended to
amplify the impact of changes in volume on the Companys profitability. The
Companys profitability also depends, in part, upon its ability to manage its
investment portfolio to maximize investment returns and minimize risks such as
interest rate changes or defaults or impairments of assets.

The
Companys volume of title insurance premiums is affected by the overall level of
residential and commercial real estate activity. In turn, real estate activity
is generally affected by a number of factors, including the availability of
mortgage credit, the cost of real estate, consumer confidence, employment and
family income levels and general United States economic conditions.

Another
important factor in the level of residential and commercial real estate activity
is the effect of changes in interest rates. According to data published by
Freddie Mac, the annual average 30-year fixed mortgage interest rates in the
United States were reported to be 6.03%, 6.34% and 6.41% for the years 2008,
2007 and 2006, respectively.

The cyclical
nature of the residential and commercial real estate markets  and consequently,
the land title insurance industry - has historically caused fluctuations in
revenues and profitability, and it is expected to continue to do so in the
future. Additionally, there are seasonal influences in real estate activity and
accordingly in revenue levels for title insurers.

Exchange
Services:The Companys second business
segment provides customer services in connection with tax-deferred real property
exchanges through its subsidiaries, Investors Title Exchange Corporation
(ITEC) and Investors Title Accommodation Corporation (ITAC). ITEC serves as
a qualified intermediary in like-kind exchanges of real or personal property
under Section 1031 of the Internal Revenue Code of 1986, as amended. In its role
as qualified intermediary, ITEC coordinates the exchange aspects of the real
estate transaction, and its duties include drafting standard exchange documents,
holding the exchange funds between the sale of the old property and the purchase
of the new property, and accepting the formal identification of the replacement
property within

17

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the required identification period. ITAC
serves as exchange accommodation titleholder in reverse exchanges. As exchange
accommodation titleholder, ITAC offers a vehicle for accommodating a reverse
exchange when the taxpayer must acquire replacement property before selling the
relinquished property.

Factors that
influence the title insurance industry will also generally affect the exchange
services industry. In addition, the services provided by the Companys exchange
services segment are pursuant to provisions in the Internal Revenue Code. From
time to time, these exchange provisions are subject to review and changes, which
may negatively affect the demand for tax-deferred exchanges in general, and
consequently the revenues and profitability of the Companys exchange segment.

Other
Services:Other operating business segments
not required to be reported separately are reported in a category called All
Other. Other services include those offered by the parent holding company and by
its wholly owned subsidiaries, Investors Trust Company (Investors Trust),
Investors Capital Management Company (ICMC) and Investors Title Management
Services, Inc. (ITMS). In conjunction with Investors Trust, ICMC provides
investment management and trust services to individuals, companies, banks and
trusts. ITMS offers consulting services to clients.

Business Trends and Recent
Conditions

The
continued downturn in U.S. economic activity and the ongoing decline in real
estate transactions were primary drivers behind the lower premiums written in
the title industry in 2008.

During the
real estate boom, many lenders loosened their underwriting guidelines,
particularly in the sub prime loan market. These lower underwriting standards,
when combined with new methods of financing loans created a supply of
inexpensive credit which led to a build up in mortgage loans to high risk
borrowers. As a result, there has been a substantial increase in loan defaults
and mortgage foreclosures. Lenders are now returning to stricter loan
underwriting standards, which results in lower overall loan volume. This lower
loan volume has, in turn, resulted in a lower level of title premiums generated
in the marketplace. In addition, the downturn in housing and related mortgage
finance industries has contributed to higher claims costs. An increase in
property foreclosures tends to reveal title defects. A slowing pace of real
estate activity also triggers the likelihood of certain types of title claims,
such as mechanics liens on newly constructed property. These factors have
historically caused title claims to increase in past real estate market cyclical
downturns and the Company has experienced such increases during the current
downturn.

Historically, activity in real estate markets has varied over the course
of market cycles in response to evolving economic factors. The Company
anticipates that current market conditions, including the sub prime lending
crisis, rising foreclosures, weakening home sales and falling home prices, will
be primary influences on the Companys operations until some stabilization
occurs. Operating results can vary from year to year based on cyclical market
conditions and do not necessarily indicate the Companys future operating
results and cash flows.

In addition,
the credit market disruptions in 2008 resulted in an increase in the Companys
realized capital losses, which are reflected in net income, and unrealized
capital losses, which are reflected in accumulated other comprehensive income.
The carrying amount, which approximates fair value, of investments at December
31, 2008 and 2007 was approximately $115.9 million and $129.0 million,
respectively.

Credit Ratings

ITIC has
been rated by two independent Fannie Mae-approved financial analysis firms,
Demotech, Inc. and LACE Financial Corporation (LACE), with financial stability
ratings of A (A Double Prime) and B, respectively. NE-ITICs financial
stability also has been recognized by Demotech, Inc. and LACE with ratings of A
(A Double Prime) and A, respectively. According to Demotech, title underwriters
earning a Financial Stability Rating of A (A Double Prime) possessUnsurpassedfinancial stability related to
maintaining positive surplus as regards policyholders, regardless of the
severity of a general economic downturn or deterioration in the title insurance
cycle. A LACE rating of A or B indicates that a title insurance company has
a strong overall financial condition that will allow it to meet its future
claims, and that, generally, the company has good operating earnings, is
well-capitalized and has adequate reserves.

18

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Critical Accounting Estimates and
Policies

This
discussion and analysis of the Companys financial condition and results of
operations is based upon the Companys accompanying Consolidated Financial
Statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The Companys management makes various
estimates and judgments when applying policies affecting the preparation of the
Consolidated Financial Statements. Actual results could differ from those
estimates. Significant accounting policies of the Company are discussed in Note
1 to the accompanying Consolidated Financial Statements. Following are those
accounting estimates and policies considered critical to the Company.

Reserves for Claim
Losses

The total
reserve for all reported and unreported losses the Company incurred through
December 31, 2008 is represented by the reserve for claims of $39,238,000 on the
accompanying consolidated balance sheet. Of that total, $6,447,345 was reserved
for specific claims, and $32,790,655 was reserved for claims for which the
Company had no notice. The Companys reserves for claims are established using
estimated amounts required to settle claims for which notice has been received
(reported) and the amount estimated to be required to satisfy incurred claims of
policyholders which may be reported in the future (incurred but not reported,
IBNR).

In
accordance with the requirements of paragraph 17 of Statement of Financial
Accounting Standards No. 60, a provision for estimated future claims payments is
recorded at the time policy revenue is recorded. The Company records the claims
provision as a percentage of premium income. By their nature, title claims can
often be complex, vary greatly in dollar amounts, vary in number due to economic
and market conditions such as an increase in mortgage foreclosures and involve
uncertainties as to ultimate exposure. In addition, some claims may require a
number of years to settle and determine the final liability for indemnity and
loss adjustment expense. The payment experience may extend for more than twenty
years after the issuance of a policy. Events such as fraud, defalcation and
multiple property defects can substantially and unexpectedly cause increases in
estimates of losses. Due to the length of time over which claim payments are
made and regularly occurring changes in underlying economic and market
conditions, these estimates are subject to variability.

Management
considers factors such as the Companys historical claims experience, case
reserve estimates on reported claims, large claims, actuarial projections and
other relevant factors in determining loss provision rates and the aggregate
recorded expected liability for claims. In establishing reserves, actuarial
projections are compared with recorded reserves to evaluate the adequacy of such
recorded claims reserves and any necessary adjustments are then recorded in
current operations. As the most recent claims experience develops and new
information becomes available, the loss reserve estimate related to prior
periods will change to more accurately reflect updated and improved emerging
data. The Company reflects any adjustments to reserves in the results of
operations in the period in which new information (principally claims
experience) becomes available.

The Company
initially reserves for each known claim based upon an assessment of specific
facts and updates the reserve amount as necessary over the course of
administering each claim. Loss ratios for earlier years tend to be more reliable
than recent policy years as they are more fully developed. In making loss
estimates, management determines a loss provision rate, which it then applies to
net premiums written.

There are
key assumptions that materially affect the reserve estimates. The Company
assumes the aggregate reported liability for known claims and IBNR, in the
aggregate, will be comparable to its historical claims experience unless
factors, such as loss experience, change significantly. The factors the Company
considered for the recently completed fiscal year did not cause any of its key
assumptions to change from assumptions used in the immediately preceding period.
Also affecting the Companys assumptions are large losses related to fraud and
defalcation, as these can cause significant variances in loss emergence
patterns. Management defines a large loss as one where incurred losses exceed
$250,000. Due to the small volume of large claims, the long-tail nature of title
insurance claims and the inherent uncertainty in loss emergence patterns, large
claim activity can vary significantly between policy years. The estimated
development of large claims by policy year is therefore subject to significant
changes as experience develops. The Company has generally followed the same
methodology for estimating loss reserves. The loss provision rate is set to
provide for losses on current year policies and to provide for estimated
positive or negative development on prior year loss estimates.

19

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Management
also considers actuarial analyses in evaluating claims reserves. The actuarial
methods used to evaluate reserves are loss development methods, expected loss
methods and Cape Cod methods, all of which are accepted actuarial methods for
estimating ultimate losses and, therefore, loss reserves. In the loss
development method, each policy years paid or incurred losses are projected to
an ultimate level using loss development factors. In the Cape Cod method,
expected losses for one policy year are estimated based on the loss results for
the other policy years, trended to the level of the policy year being estimated.
Expected loss methods produce more stable ultimate loss estimates than do loss
development methods, which are more responsive to the current loss data. The
Cape Cod method, a special case of the Bornhuetter-Ferguson method, blends the
results of the loss development and expected loss methods. For more recent
policy years, more weight is given to the results of the expected loss methods;
for older policy years, more weight is given to the loss development method
results.

The key
actuarial assumptions are principally loss development factors and expected loss
ratios. The selected loss development factors are based on a combination of the
Companys historical loss experience and title industry loss experience.
Expected loss ratios are estimated for each policy year based on the Companys
own experience and title industry loss ratios. When updated data is incorporated
into the actuarial models, the resulting loss development factors and expected
loss ratios will likely change from the prior values. Changes in these values
from 2006 through 2008 have been the result of actual Company and industry
experience during the calendar year and not changes in assumptions.

If one or
more of the variables or assumptions used changed such that the Companys
recorded loss ratio, or loss provision as a percentage of net title premiums,
increased or decreased two loss ratio percentage points, the impact on after-tax
income for the year ended December 31, 2008, would be as follows. Company
management believes that using a sensitivity of two loss percentage points for
the loss ratio provides a reasonable benchmark for analysis of the calendar year
loss provision of the Company based on historical loss ratios by
year.

Increase in Loss Ratio of two percentage points
    $
    (840,000
    )Decrease in Loss
      Ratio of two percentage points
    $
    840,000


Despite the
variability of such estimates, management believes based on historical claims
experience and actuarial analysis that the reserves are adequate to cover claim
losses resulting from pending and future claims for policies issued through
December 31, 2008. The ultimate settlement of policy and contract claims will
likely vary from the reserve estimates included in the Companys consolidated
financial statements. The Company continually reviews and adjusts its reserve
estimates to reflect its loss experience and any new information that becomes
available. There are no known claims that are expected to have a materially
adverse effect on the Companys financial position or operating results.

Premiums Written and Commissions to
Agents

Generally,
title insurance premiums are recorded and recognized as revenue at the time of
closing of the related transaction as the earnings process is then considered
complete. Policies or commitments are issued upon receipt of final certificates
or preliminary reports with respect to titles. Title insurance commissions
earned by the Companys agents are recognized as expense concurrently with
premium recognition.

Valuation and Impairment of Investments
in Securities

Securities
for which the Company has the intent and ability to hold to maturity are
classified as held-to-maturity and are reported at cost, adjusted for
amortization of premiums or accretion of discounts and other-than-temporary
declines in fair value. Securities held principally for resale in the near term
are classified as trading securities and recorded at fair values. Realized and
unrealized gains and losses on trading securities are included in other income.
Securities not classified as either trading or held-to-maturity are classified
as available-for-sale and reported at fair value, adjusted for
other-than-temporary declines in fair value, with unrealized gains and losses
reported as accumulated other comprehensive income. Securities are regularly
reviewed for differences between the cost and estimated fair value of each
security for factors that may indicate that a decline in fair value is
other-than-temporary. Some factors considered in evaluating whether or not a
decline in fair value is other-than-temporary include the duration and extent to
which the fair value has been less than cost and the Companys ability and
intent to retain the investment for a period of time sufficient to allow for a
recovery in value. These factors are reviewed quarterly and any material
degradation in the prospect for recovery will be considered in the
other-than-temporary impairment

20

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analysis. Such reviews are inherently
uncertain and the value of the investment may not fully recover or may decline
in future periods resulting in a realized loss. The fair values of the majority
of the Companys investments are based on quoted market prices from independent
pricing services. Over the past several months, the Company has seen credit
market disruption as the result of illiquid markets and widening spreads.
Auction rate securities, where quoted market prices are not available and the
Company relies on discounted cash flow models for valuation purposes, have been
particularly affected due to their thinly traded markets. All of the Companys
auction rate securities are rated investment grade and are substantially
guaranteed by government-sponsored enterprises. Management believes these values
reasonably reflect the fair value of these securities, but the key assumptions
do involve qualitative inputs. Realized gains and losses are determined on the
specific identification method.

Deferred Tax Asset

The Company
recorded net deferred tax assets at December 31, 2008 and 2007 related primarily
to reserves for claims, allowance for doubtful accounts and employee benefits.
Based upon the Companys historical results of operations, the existing
financial condition of the Company and managements assessment of all other
available information, management believes that it is more likely than not that
the benefit of these assets will be realized.

Results of Operations

Operating Revenues

Operating
revenues include net premiums written plus other fee income and exchange
services segment income. Investment income and realized investment gains and
losses are not included in operating revenues and are discussed separately
following operating revenues. Following is a summary of the Companys operating
revenues. Intersegment eliminations have been netted with each segment;
therefore, the individual segment amounts will not agree to Note 13 in the
accompanying Consolidated Financial Statements.

|                  | 2008 |            | 2007 |      | 2006
|----------------- | ---- | ---------- | ---- | ---- | ----
|Title Insurance   | $    | 65,507,644 |      | 94.3 | %   
|Exchange Services |      | 1,163,569  |      | 1.7  | %   
|All Other         |      | 2,815,689  |      | 4.0  | %   
|                  | $    | 69,486,902 |      | 100  | %   

Title Insurance

Net
Premiums:Net premiums written decreased 9.0%
in 2008 from 2007 and decreased 0.3% in 2007 from 2006. During 2008, the
decrease was primarily due to the weak housing market and ongoing general
declines in real estate activity and volatility and disruption of financial
markets.

Policies
and Commitments:The volume of business
decreased in 2008, as 200,791 policies and commitments were issued in 2008,
which is a decrease of 12.4% compared with 229,329 policies and commitments
issued in 2007. In 2007, policies and commitments issued declined 7.7% compared
with 248,341 policies and commitments issued in 2006.

Following is a breakdown between
branch and agency premiums for the years ended December 31:

Twelve Months Ended December, 312008
    
    %
    
    2007
    
    %
    
    2006
    
    %Branch
    
    $
    24,312,013
    
    38
    
    $
    30,144,691
    
    43
    
    $
    32,396,798
    
    46Agency
    
    
    39,350,174
    
    62
    
    
    39,839,298
    
    57
    
    
    37,799,669
    
    54Total
    
    **$**
    63,662,187
    
    100
    
    $
    ****69,983,989
    
    100
    
    $
    ****70,196,467
    
    100


Title
insurance premiums decreased 9.0% to $63,662,187 in 2008 compared with 2007. The
decrease in 2008 was made up of a $5,832,678 decrease in branch premiums and a
$489,124 decrease in premiums from agency operations.

Branch
Office Net Premiums:Branch office net
premiums written as a percentage of total net premiums written were 38.2%,
43.1%, and 46.1% in 2008, 2007 and 2006, respectively. The decreases since 2006
are due to an expansion of the Companys agency relationships. Net premiums
written from branch operations decreased 19.3%

21

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in 2008 compared with 2007 and 7.0% in
2007 compared with 2006. The decrease in 2008 reflects the economic downturn. Of
the Companys 29 branch locations that underwrite title insurance policies, 27
are located in North Carolina, and as a result, branch premiums written
primarily represent North Carolina business.

Agency
Net Premiums:Agency net premiums written as
a percentage of total net premiums written were 61.8%, 56.9% and 53.9% in 2008,
2007 and 2006, respectively. Net premiums written from agency operations
slightly decreased 1.2% in 2008 compared with 2007 and increased 5.4% in 2007
compared with 2006. The increase in 2007 is primarily due to additional business
written by the Companys agencies. The decrease in agency net premiums written
in 2008 can be attributed to the general slowdown in real estate activity,
offset by increasing agency relationships.

Following is
a schedule of net premiums written in all states where the Companys two
insurance subsidiaries ITIC and NE-ITIC currently underwrite title
insurance:

|State                 | 2008 |                | 2007 |   | 2006       | 
|--------------------- | ---- | -------------- | ---- | - | ---------- | 
|Illinois              | $    | 2,140,440      |      | $ | 1,653,518  | 
|Kentucky              |      | 2,957,744      |      |   | 2,563,039  | 
|Michigan              |      | 3,326,904      |      |   | 3,073,006  | 
|New
      York        |      | 2,106,033      |      |   | 2,412,625  | 
|North Carolina        |      | 30,527,923     |      |   | 34,544,366 | 
|Pennsylvania          |      | 1,762,444      |      |   | 1,512,745  | 
|South Carolina        |      | 7,556,153      |      |   | 7,637,330  | 
|Tennessee             |      | 2,063,411      |      |   | 2,599,686  | 
|Virginia              |      | 5,789,337      |      |   | 6,121,746  | 
|West
      Virginia   |      | 2,077,603      |      |   | 2,029,885  | 
|Other                 |      | 3,462,391      |      |   | 6,057,404  | 
|Direct
      Premiums |      | 63,770,383     |      |   | 70,205,350 | 
|Reinsurance Assumed   |      | 166,893        |      |   | 42,816     | 
|Reinsurance Ceded     |      | (275,089)      |      |   | (264,177)  | 
|Net Premiums Written  | $    | **63,662,187** |      | $ | 69,983,989 | 

Exchange Services

Operating
revenues from the Companys two subsidiaries that provide tax-deferred exchange
services (ITEC and ITAC) decreased 73.2% from 2007 to 2008 and 27.4% from 2006
to 2007. Demand for tax-deferred exchange services has declined significantly
due to weak appreciation or actual declines in value for many types of
investment property. The decline in 2008 and 2007 revenues compared with 2006
resulted primarily from decreases in transaction volume and related lower levels
of interest-spread income earned on exchange fund deposits held by the Company
due to declines in the average balances of deposits held during 2008.

In July
2008, the IRS finalized its proposed regulations regarding treatment of funds
held by qualified intermediaries. As originally proposed, these rules would have
negatively affected the ability of qualified intermediaries to retain a portion
of the interest income earned on exchange fund deposits held by the Company
during exchange transactions, which could have had a material adverse effect
upon the profitability of the Companys exchange segment. As adopted however,
the new regulations apply only to individual exchange account balances over $2
million. The regulations have only recently been adopted, and therefore the
Company has had only limited experience under this new regime; it is possible
that these new regulations may have unanticipated consequences on the revenues
and profitability of the Companys exchange services segment.

22

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Other Revenues

Other
revenues primarily include investment management fee income, income related to
the Companys equity method investments and agency service fees, as well as
search fee and other ancillary fees. Other revenues increased in 2008 and 2007
compared with 2006 primarily due to increases from investment management fee
income generated by the Companys trust division and equity in earnings of
unconsolidated affiliates. Other revenues also increased in 2007 compared with
2006 due to increases in search fee income.

Cyclicality and
Seasonality

Title Insurance

Title
insurance premiums are closely related to the level of real estate activity and
the average price of real estate sales. The availability of funds to finance
purchases directly affects real estate sales. Home sales and mortgage lending
are highly cyclical businesses. Other factors include mortgage interest rates,
consumer confidence, economic conditions, supply and demand, and family income
levels. Historically, residential real estate activity has been generally slower
in the winter because fewer real estate transactions occur, while the spring and
summer are more active. Refinance activity is generally less seasonal, but it is
subject to interest rate volatility. Fluctuations in mortgage interest rates, as
well as other economic factors, can cause shifts in real estate activity outside
of the normal seasonal pattern.

Exchange Services

Seasonal
factors affecting the level of real estate activity and the volume of title
premiums written will also affect the demand for exchange services. Slowing real
estate sales led to a decline in average balances of deposits held during the
year.

Nonoperating Revenues

Investment income and realized gains
and losses from investments are included in nonoperating revenues.

Investment Income

The Company
derives a substantial portion of its income from investments in bonds (municipal
and corporate) and equity securities. The Companys title insurance subsidiaries
are required by statute to maintain minimum levels of investments in order to
protect the interests of policyholders. Bonds totaling approximately $6,540,000
and $6,471,000 at December 31, 2008 and 2007, respectively, are deposited with
the insurance departments of the states in which business is conducted. In
formulating its investment strategy, the Company has emphasized after-tax
income. Investments in marketable securities have increased from Company
profits. The investments are primarily in fixed maturity securities and, to a
lesser extent, equity securities. The effective maturity of the majority of the
fixed income investments is within 15 years.

As new funds
become available, they are invested in accordance with the Companys investment
policy and corporate goals. Securities purchased may include a combination of
taxable fixed-income securities, tax-exempt securities and equities. The Company
strives to maintain a high quality investment portfolio. Interest and investment
income levels are primarily a function of general market performance, interest
rates and the amount of cash available for investment.

Investment
income was $4,558,735 in 2008 compared with $5,197,178 in 2007 and $4,326,335 in
2006. Investment income decreased 12.3% from 2007 to 2008 and increased 20.1%
from 2006 to 2007. The decline in investment income in 2008 was due to a decline
in the average investment portfolio and lower levels of interest earned on
short-term funds, as the capital markets experienced significant distress in the
second half of 2008. The increase in 2007 was primarily attributable to
increases in the average investment portfolio balance and higher rates of
interest earned on short-term investments. See Note 3 in the accompanying
Consolidated Financial Statements for the major categories of investments,
scheduled maturities, amortized cost, fair values of investment securities and
earnings by security category.

23

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Net Realized Gain (Loss) on
Investments

The
Companys investment policies have been designed to balance multiple investment
goals, including, to assure a stable source of income from interest and
dividends, protect capital, provide sufficient liquidity to meet insurance
underwriting and other obligations as they become payable in the future and
capital appreciation. Dispositions of equity securities at a realized gain or
loss reflect such factors as industry sector allocation decisions, ongoing
assessments of issuers business prospects and tax planning considerations.
Additionally, the amount of net realized investment gains and losses are
affected by assessments of securities valuation for other-than-temporary
impairment. As a result of the interaction of these factors and considerations,
net realized investment gains or losses can vary significantly from period to
period. The Company generally intends to hold securities in unrealized loss
positions until they mature or recover. However, the Company does sell
securities under certain circumstances, such as when it has evidence of a
significant deterioration in the issuers creditworthiness.

Net realized
loss on investments totaled $2,922,376 in 2008. Net realized gain on the sales
of investment securities totaled $921,871 and $551,058 in 2007 and 2006,
respectively. The 2008 net loss included impairment charges totaling $1,226,932
on certain equity and fixed income securities in the Companys portfolio that
were deemed to be other than temporarily impaired and net realized losses on
sales of investments of $1,695,444. Management has determined that the
unrealized losses from remaining fixed income and equity securities at December
31, 2008 are temporary in nature. The net realized gains in 2007 and 2006
resulted primarily from the sale of equity securities and other investments in
the Companys investment portfolio.

The
securities in the Companys portfolio are subject to economic conditions and
market risks. The Company considers relevant facts and circumstances in
evaluating whether a credit or interest-rate related impairment of a security is
other than temporary. Relevant facts and circumstances include the extent and
length of time the fair value of an investment has been below cost. Factors
considered in determining whether a loss is temporary include the length of time
and extent to which fair value has been below cost, the financial condition and
prospects of the issuer (including credit ratings and analyst reports) and
macro-economic changes. Reviews of the values of securities are inherently
uncertain and the value of the investment may not fully recover, or may decline
in future periods resulting in a realized loss.

There are a
number of risks and uncertainties inherent in the process of monitoring
impairments and determining if an impairment is other than temporary. These
risks and uncertainties include the risk that the economic outlook will be worse
than expected or have more of an impact on the issuer than anticipated, the risk
that the Companys assessment of an issuers ability to meet all of its
contractual obligations will change based on changes in the characteristics of
that issuer, the risk that information obtained by the Company or changes in
other facts and circumstances leads management to change its intent to hold the
security to maturity or until it recovers in value and the risk that management
is making decisions based on misstated information in the financial statements
provided by issuers.

Expenses

The
Companys operating expenses consist primarily of commissions to agents,
salaries, employee benefits and payroll taxes, provisions for claims and office
occupancy and operations. Operating expenses in 2008 increased 1.7% compared
with 2007 and 2007 increased 8.6% compared with 2006 primarily due to increases
in the provision for claims. Partially offsetting these increases in 2008 were
decreases in professional and contract labor fees, commissions to agents and
salaries, employee benefits and payroll taxes. Following is a summary of the
Companys operating expenses. Intersegment eliminations have been netted with
each segment; therefore, the individual segment amounts will not agree to Note
13 in the accompanying Consolidated Financial Statements.

|                  | 2008 |            | 2007 |      | 2006
|----------------- | ---- | ---------- | ---- | ---- | ----
|Title Insurance   | $    | 69,226,504 |      | 93.1 | %   
|Exchange Services |      | 1,160,070  |      | 1.6  | %   
|All
      Other   |      | 3,953,486  |      | 5.3  | %   
|                  | $    | 74,340,060 |      | 100  | %   

On a
combined basis, loss margin was (1.7%) in 2008 and profit margins were 9.9% and
15.6% in 2007 and 2006, respectively.

24

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Title Insurance

(Loss)
Profit Margin:The Companys title insurance
profit margin varies according to a number of factors, including the volume and
type of real estate activity. (Loss) profit margins for the title insurance
segment were (1.4%), 8.6% and 12.7% in 2008, 2007 and 2006, respectively. The net
margins for 2008 and 2007 were primarily affected by the increase in the
provision for claims.

Commissions:Agent commissions
represent the portion of premiums retained by agents pursuant to the terms of
their respective agency contracts. Commissions to agents decreased 2.5% from
2007 to 2008 primarily due to decreased premiums from agency operations in 2008
and increased 6.4% from 2006 to 2007 primarily due to an increasing percentage
of premiums originating from agency operations in 2007. Commission expense as a
percentage of net premiums written by agents was 70.4%, 71.3% and 70.6% in 2008,
2007 and 2006, respectively. Commission rates vary geographically.

Provisions for Claims:The provision
for claims as a percentage of net premiums written was 23.9% in 2008, 14.5% in
2007 and 10.5% in 2006. The change in the loss provision estimate for calendar
year 2008 compared with 2007 resulted from unfavorable experience for policy
year 2008 primarily due to two large claims related to fraud and one large
mechanics lien claim totaling in the aggregate approximately $6.8 million. In
addition, the Company incurred unfavorable experience during 2008 for claims
related to policy year 2006 totaling approximately $1.9 million. Partially
offsetting the change in the loss provision estimate for calendar year 2008 was
favorable experience for policy year 2007 because of a reduction in large claim
activity. The change in estimate for calendar year 2007 compared with 2006
resulted primarily from policy year 2006, which incurred two large claims
resulting from mortgage fraud and theft. The additional loss provision as a
result of these two claims, in addition to the Companys expected loss
provision, was approximately $2.3 million. The increase in the loss provision in
2008 from the 2007 level resulted in approximately $6.0 million more in reserves
than would have been recorded at the lower 2007 level. If material occurrences
of mortgage-related fraud, mechanic lien claims and other similar types of
claims continue, the Companys ultimate loss estimates for recent policy years
could increase.

Lower than
expected loss payment experience was the primary reason for the Companys loss
provision rate in 2006. In 2006, there was favorable experience primarily
because of a reduction in large claim activity for policy year 2005. Calendar
year 2006 also included an increase for policy year 2006 due to claims activity
late in the calendar year. Management considers the loss provision ratios for
2008, 2007 and 2006 to be appropriate given the small volume of large claims,
the long-tail nature of title insurance claims and the inherent uncertainty in
title insurance loss emergence patterns.

The
provision for claims reflects actual payments of claims, net of recovery
amounts, plus adjustments to the specific and incurred but not reported claims
reserves, the latter of which are actuarially determined based on historical
claims experience. Payments of claims, net of recoveries, were $12,943,637,
$10,065,719 and $5,356,211 in 2008, 2007 and 2006, respectively.

Reserves
for Claims:At December 31, 2008, the total
reserves for claims were $39,238,000. Of that total, $6,447,345 was reserved for
specific claims, and $32,790,655 was reserved for claims for which the Company
had no notice. Because of the uncertainty of future claims, changes in economic
conditions, and the fact that many claims do not materialize for several years,
reserve estimates are subject to variability. Changes in the expected liability
for claims for prior periods reflect the uncertainty of the claim environment,
as well as the limited predicting power of historical data. The Company
continually updates and refines its reserve estimates as current experience
develops and credible data emerges. Adjustments may be required as new
information develops which often varies from past experience.

Movements in
the reserves related to prior periods were primarily the result of changes to
estimates to better reflect the latest reported loss data, rather than as a
result of material changes to underlying key actuarial assumptions or
methodologies. Such changes include payments on claims closing during the year,
new details that emerge on still-open cases that cause claims adjusters to
increase or decrease the case reserve and the impact that these types of changes
have on the Companys total loss provision.

Salaries,
Employee Benefits and Payroll Taxes:Salaries, employee benefits and payroll taxes were $19,605,500, $20,819,094 and
$20,036,079 for 2008, 2007 and 2006, respectively. Salaries and related costs
decreased $1.2 million, or 5.8% in 2008 compared with 2007. The decrease in 2008
was primarily due to a decline in bonuses and amounts accrued under employment
agreements. The increase in these costs in 2007 was primarily attributable
to

25

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salary increases and additional personnel
costs related to staff hired by Investors Trust Company. On a consolidated
basis, salaries and employee benefits as a percentage of total revenues were
27.6%, 24.5% and 23.7% in 2008, 2007 and 2006, respectively. The increase in
salaries and employee benefits as a percentage of total revenues in 2008 was
primarily due to declining revenues outpacing cost reductions. The title
insurance segments total salaries and employee benefits accounted for 83.8%,
84.9% and 85.3% of total salaries for 2008, 2007, and 2006,
respectively.

*Office Occupancy and
Operations:*Overall office occupancy and
operations as a percentage of total revenues was 7.2%, 6.6% and 6.6% in 2008,
2007 and 2006, respectively. The title insurance segments total office
occupancy and operations expense accounted for 88.6%, 90.2% and 90.9% in 2008,
2007 and 2006, respectively, of total office occupancy and operations
expense.

Premium
and Retaliatory Taxes:Title insurance
companies are generally not subject to state income or franchise taxes. However,
in most states they are subject to premium and retaliatory taxes, as defined by
statute. Tax rates and bases vary from state to state. Premium and retaliatory
taxes as a percentage of net premiums written were 2.0%, 2.1% and 1.9% for the
years ended December 31, 2008, 2007 and 2006, respectively.

Professional and Contract Labor Fees:Professional and contract labor fees for 2008 decreased $1.1 million compared
with 2007 primarily due to decreases in contract labor fees incurred, associated
with investments in infrastructure and technology in 2007.

Other
Expenses:Other operating expenses primarily
include miscellaneous operating expenses of the trust division and other
miscellaneous expenses of the title segment. These amounts typically fluctuate
in relation with transaction volume of the title segment and the trust
division.

Exchange Services

The exchange
services segments total operating expenses as a percentage of the Companys
total expenses were 1.6%, 2.0% and 2.0% for 2008, 2007 and 2006, respectively.
The principal operating expenses of this segment are salaries, employee benefits
and payroll taxes.

Income Taxes

The benefit
for income taxes was $2,034,000 for the year ended December 31, 2008. The income
tax benefit in 2008 was a result of reflecting a lower effective tax rate,
primarily due to an increase in the proportion of tax-exempt investment income
to pre-tax loss. Income tax (benefit) expense as a percentage of (loss) earnings
before income taxes was 63.2%, 28.9% and 23.9% for the years ended December 31,
2008, 2007 and 2006, respectively.

During the
fourth quarter of 2007, management discovered certain understatements in the
provision for income taxes in its financial statements in 2006 and the first
three quarters of 2007 as a result of certain taxable municipal bonds that had
been previously misclassified as tax-exempt by the Companys custodian bank. The
additional amount of the increase in income taxes in the fourth quarter related
to the misclassification was approximately $425,000 related to the 2006 tax year
and approximately $325,000 related to the first three quarters of
2007.

The Company
monitors the realizability of recognized, impairment and unrecognized losses
recorded through December 31, 2008. The Company believes it is more likely than
not that the tax benefits associated with those losses will be realized.
However, this determination is a judgment and could be impacted by further
market fluctuations. Information regarding the components of the income tax
expense and items included in the reconciliation of the effective rate with the
federal statutory rate can be found in Note 8 to the accompanying Consolidated
Financial Statements.

Net (Loss) Income

The Company
reported net loss for 2008 of $1,182,799, or $0.50 per share on a diluted basis.
The Company reported net income for 2007 of $8,402,335, or $3.35 per share on a
diluted basis, compared to $13,185,434, or $5.14 per share on a diluted basis,
for 2006.

26

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Liquidity and Capital
Resources

Liquidity:Although cash flow
generated from operating activities declined from 2007 to 2008, primarily due to
the decrease in net income between periods, cash and cash equivalents at year
end increased 72% to approximately $5.2 million, due mainly to significant cash
provided by investing activities for 2008. The net increase in cash provided by
investing activities for 2008 was, in turn, due primarily to significantly
reduced purchases of investment securities. The Companys ability to offset
reductions in cash provided by operations by reducing securities investments,
however, is limited by the need to maintain adequate financial condition,
capital and claims-paying ability.

Due to the
Companys historical consistent ability to generate positive cash flows from its
consolidated operations and investment income, management believes that funds
generated from operations will enable the Company to adequately meet its current
operating needs for the foreseeable future. However, there can be no assurance
that future experience will be similar to historic experience, since they are
influenced by such factors as the interest rate environment, the Companys
claims-paying ability and its financial strength ratings. The Company is unaware
of any trend that is likely to result in material adverse liquidity changes, but
continually assesses its capital allocation strategy. The Companys cash
requirements include general operating expenses, income taxes, capital
expenditures, dividends on its common stock declared by the Board of Directors
and share repurchases. In addition to operational liquidity, the Company
maintains a high degree of liquidity within its investment portfolio in the form
of short-term investments and other readily marketable securities.

The majority
of the Companys investment portfolio is considered as available-for-sale. The
Company reviews the status of each of its securities quarterly to determine
whether an other-than-temporary impairment has occurred. The Companys criteria
generally includes the degree to which the fair value of a security is less than
80% of its amortized cost and the investment grade of the security, as well as
how long the security has been in an unrealized loss position. The Companys
securities that have had an unrealized loss in excess of one year are primarily
investment-grade, long-term bonds and equities that the Company has the ability
and intent to hold until a recovery of fair value, which may be until maturity
for fixed income securities.

Cash
Flows:Net cash flows provided by operating
activities were $1,309,473, $10,354,960 and $18,554,831 in 2008, 2007 and 2006,
respectively. Cash flows from operations have been the primary source of
financing for expanding operations, additions to property and equipment,
dividends to shareholders, and other requirements. The net decrease in cash flow
from operations in 2008 and 2007 was primarily the result of the decrease in net
income.

The
principal non-operating use of cash and cash equivalents in 2008 was for
repurchases of common stock. The principal non-operating uses of cash and cash
equivalents for the two-year period ended December 31, 2007 were primarily for
additions to the investment portfolio and, to a lesser extent, repurchases of
common stock and capital expenditures. The net effect of all activities on total
cash and cash equivalents was an increase of $2,154,284 for 2008, and decreases
of $457,670 for 2007 and $11,150,049 for 2006. As of December 31, 2008, the
Company held cash and cash equivalents of $5,155,046, short-term investments of
$15,725,513 and fixed maturities securities of $88,160,181.

As noted
previously, the Companys operating results and cash flows are heavily dependent
on the real estate market, particularly in the title insurance segment. The
Companys business has certain fixed costs such as personnel, and changes in the
real estate market are monitored closely and operating expenses such as staffing
levels are managed and adjusted accordingly. The Company believes that its
significant working capital position and management of operating expenses, along
with its product diversification efforts will aid its ability to manage cash
resources through declines in the real estate market.

Payment
of Dividends:The Company believes that all
anticipated cash requirements for current operations will be met from internally
generated funds, through cash dividends and distributions from subsidiaries and
cash generated by investment securities. The Companys significant sources of
funds are dividends and distributions from its subsidiaries. The holding company
receives cash from its subsidiaries in the form of dividends and as
reimbursements for operating and other administrative expenses. The
reimbursements are executed within the guidelines of management agreements
between the holding company and its subsidiaries. The Companys ability to pay
dividends and operating expenses is dependent on funds received from the
insurance subsidiaries, which are subject to regulation in the states in which
they do business. As of December 31, 2008, approximately $55,987,000 of the
consolidated stockholders equity represented net assets of the Companys
subsidiaries that cannot be transferred in the form of dividends, loans or
advances to the parent company under statutory regulations without prior
insurance

27

---

department approval. These regulations,
among other things, require prior regulatory approval of the payment of
dividends and other intercompany transfers. The Company believes, however, that
amounts available for transfer from the insurance and other subsidiaries are
adequate to meet the Companys operating needs.

Purchase
of Company Stock:On November 10, 2008, the
Board of Directors of the Company approved the purchase of an additional 394,582
shares pursuant to the Plan, such that there was authority remaining under the
Plan to purchase up to an aggregate of 500,000 shares of the Companys common
stock pursuant to the Plan immediately after the approval. Pursuant to this
approval, the Company purchased 130,450 shares in the twelve months ended
December 31, 2008, 111,437 shares in the twelve months ended December 31, 2007
and 51,949 shares in the twelve months ended December 31, 2006 at an average per
share price of $45.78, $41.82 and $43.85, respectively.

*Capital
Expenditures:*During 2009, the Company has
plans for various capital improvement projects, including hardware purchases and
several software development projects and are anticipated to be funded via cash
flows from operations. All material anticipated capital expenditures are subject
to periodic review and revision and may vary depending on a number of
factors.

Off-Balance Sheet Arrangements and
Contractual Obligations

As a service
to its customers, the Company, through ITIC, administers escrow and trust
deposits representing earnest money received under real estate contracts,
undisbursed amounts received for settlement of mortgage loans and indemnities
against specific title risks. Cash held by the Company for these purposes was
approximately $14,492,000 and $23,665,000 as of December 31, 2008 and 2007,
respectively. These amounts are not considered assets of the Company and,
therefore, are excluded from the accompanying consolidated balance sheets.
However, the Company remains contingently liable for the disposition of these
deposits.

In addition,
in administering tax-deferred property exchanges, ITEC serves as a qualified
intermediary for exchanges, holding the net sales proceeds from relinquished
property to be used for purchase of replacement property. ITAC serves as
exchange accommodation titleholder and, through limited liability companies that
are wholly owned subsidiaries of ITAC, holds property for exchangers in reverse
exchange transactions. Like-kind exchange deposits and reverse exchange property
held by the Company for the purpose of completing such transactions totaled
$88,124,000 and $115,515,000 as of December 31, 2008 and 2007, respectively.
These amounts are not considered assets of the Company for accounting purposes
and, therefore, are excluded from the accompanying consolidated balance sheets.
Exchange services revenues include earnings on these deposits; therefore,
investment income is shown as exchange services revenue, rather than investment
income. The Company remains contingently liable to customers for the transfers
of property, disbursements of proceeds, and the return on the proceeds at the
agreed upon rate.

External
assets managed by the Investors Trust Company totaled over $500,000,000 for the
years ended December 31, 2008 and 2007. These amounts are not considered assets
of the Company and, therefore, are excluded from the accompanying consolidated
balance sheets.

It is not
the general practice of the Company to enter into off-balance sheet
arrangements; nor is it the policy of the Company to issue guarantees to third
parties. Off-balance sheet arrangements are generally limited to the future
payments under noncancelable operating leases, payments due under various
agreements with third party service providers, and unaccrued obligations
pursuant to certain executive employment agreements.

The
following table summarizes the Companys future estimated cash payments under
existing contractual obligations at December 31, 2008, including payments due by
period:

|Contractual
      Obligations         |  |       |            |                   | Payments due by
      period |             |  |             |           
|------------------------------------- |  | ----- | ---------- | ----------------- | ---------------------------- | ----------- |  | ----------- | ----------
|                                      |  |       |            | Less
      than 1 |                              |             |  |             |           
|                                      |  | Total |            | year              |                              | 1 - 3 years |  | 3 - 5 years |           
|Operating lease obligations           |  | $     | 1,376,412  |                   | $                            | 710,419     |  | $           | 607,115   
|Reserves for claims                   |  |       | 39,238,000 |                   |                              | 7,613,000   |  |             | 12,275,000
|Other obligations                     |  |       | 588,775    |                   |                              | 438,300     |  |             | 150,475   
|Obligations under executive           |  |       |            |                   |                              |             |  |             |           
|employment
      plans and agreements |  |       | 6,574,000  |                   |                              | 2,455,701   |  |             | -         
|FIN48
      Liability                 |  |       | 86,502     |                   |                              | 87,646      |  |             | (1,144)   
|Total                                 |  | $     | 47,863,689 |                   | $                            | 11,305,066  |  | $           | 13,031,446

28

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As of
December 31, 2008, the Company had a claims reserve of $39,238,000. The amounts
and timing of these obligations are estimated and are not set contractually.
Nonetheless, based on historical insurance claim experience, the Company
anticipates the above payment patterns.

Recent Accounting
Standards

In December
2007, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 160, Noncontrolling Interests in
Consolidated Financial Statements  an amendment of ARB No. 51 (SFAS 160).
SFAS 160 amends Accounting Research Bulletin No. 51 to establish accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. SFAS 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2008, with earlier adoption prohibited. The Company is currently evaluating the
effect of adopting this new Statement and anticipates that the Statement will
not have a significant impact on the reporting of the Companys results of
operations.

In May 2008,
the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles (SFAS 162). This Statement identifies the sources of accounting
principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in accordance with GAAP. With the issuance of this Statement, the FASB
concluded that the GAAP hierarchy should be directed toward the entity and not
its auditor, and reside in the accounting literature established by the FASB.
This Statement is effective 60 days following the SECs approval of the Public
Company Accounting Oversight Board amendments to Audit Standards AU Section 411,
The Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles. The Company is currently evaluating the effect of adopting this new
Statement and anticipates that the Statement will not have a significant impact
on the reporting of the Companys results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK

In the
context of Item 7A, market risk refers to the risk of loss arising from adverse
changes in financial instrument market rates and prices, such as fluctuations in
interest rates and prices. The Companys primary exposure to market risk relates
to the impact of adverse changes in the fair value of financial instruments as a
result of changes in interest rates and equity market prices of its investment
portfolio. Increases in interest rates diminish the value of fixed income
securities and preferred stock, and decreases in stock market values diminish
the value of common stocks held. The fair value of the majority of marketable
securities is determined based on quoted market prices for those
securities.

Corporate Oversight

The Company
generates substantial investable funds from its two insurance subsidiaries. In
formulating and implementing policies for investing new and existing funds, the
Company has emphasized maximizing total after-tax return on capital and earnings
while ensuring the safety of funds under management and adequate liquidity. The
Companys Board of Directors oversees investment risk management processes. The
Company seeks to invest premiums and other income to create future cash flows
that will fund future claims, employee benefits and expenses, and earn stable
margins across a wide variety of interest rate and economic scenarios. The Board
of Directors has established specific investment policies that define the
overall framework for managing market and other investment risks, including the
accountabilities and controls over these activities. The Company may rebalance
its existing asset portfolios or change the character of future investments from
time to time to manage its exposure to market risk within defined tolerance
ranges. The Company also discusses risk management in various places throughout
this Annual Report on Form 10-K, including in Item 7.

29

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Interest Rate Risk

Interest
rate risk is the risk that the Company will incur economic losses due to adverse
changes in interest rates. This risk arises from the Companys investments in
interest-sensitive debt securities. These securities are primarily fixed rate
municipal bonds and corporate bonds. The Company does not purchase such
securities for trading purposes. At December 31, 2008, the Company had
approximately $76 million in fixed rate bonds. The Company manages the interest
rate risk inherent in its assets by monitoring its liquidity needs and by
targeting a specific range for the portfolios duration or weighted-average
maturity.

To determine
the potential effect of interest rate risk on interest-sensitive assets, the
Company calculates the effect of a 10% change in prevailing interest rates
(rate shock) on the fair market value of these securities considering stated
interest rates and time to maturity. Based upon the information and assumptions
the Company uses in its calculation, management estimates that a 10% immediate,
parallel increase in prevailing interest rates would decrease the net fair
market value of its fixed rate debt securities by approximately $1.6 million.
The selection of a 10% immediate parallel increase in prevailing interest rates
should not be construed as a prediction by the Companys management of future
market events, but rather, to illustrate the potential impact of such an event.
To the extent that actual results differ from the assumptions utilized, the
Companys rate shock measures could be significantly impacted. Additionally, the
Companys calculation assumes that the current relationship between short-term
and long-term interest rates (the term structure of interest rates) will remain
constant over time. As a result, these calculations may not fully capture the
impact of nonparallel changes in the term structure of interest rates and/or large changes in interest rates.

Equity Price Risk

The Company
also holds investments in marketable equity securities, which exposes it to
market volatility, as discussed in Note 3 to the accompanying consolidated
financial statements. The sensitivity analysis presented does not consider the
effects that such adverse changes may have on overall economic activity, nor
does it consider additional actions the Company may take to mitigate its
exposure. Equity price risk is the risk that the Company will incur economic
losses due to adverse changes in a particular common stock or stock index. At
December 31, 2008, the Company had approximately $9.5 million in common stocks.
Equity price risk is addressed in part by varying the specific allocation of
equity investments over time pursuant to managements assessment of market and
business conditions and ongoing liquidity needs analysis. The Companys largest
equity exposure is a decline in the S&P 500; its portfolio of equity
instruments is similar to those that comprise this index. Based upon the
information and assumptions the Company used in its calculation, management
estimates that an immediate decrease in the S&P 500 of 10% would decrease
the net fair value of the Companys assets identified above by approximately
$950,000.

The
selection of a 10% immediate decrease in the S&P 500 should not be construed
as a prediction by the Companys management of future market events, but rather,
to illustrate the potential impact of such an event. The Companys exposure will
change as a result of changes in its mix of common stocks. Since this
calculation is based on historical performance, projecting future price
volatility using this method involves an inherent assumption that historical
volatility and correlation relationships will remain stable. Therefore, the
results noted above may not reflect the Companys actual experience if future
volatility and correlation relationships differ from such historical
relationships.

30

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ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA

| | 1. |  | Report of Independent Registered Public Accounting Firm                | 32
| | -- |  | ---------------------------------------------------------------------- | --
| | 2. |  | Managements
      Report on Internal Control Over Financial Reporting | 33
| | 3. |  | Report of Independent Registered Public Accounting                     |   
| |    |  | Firm on
      Internal Control Over Financial Reporting                | 34
| | 4. |  | Consolidated
      Balance Sheets                                      | 35
| | 5. |  | Consolidated Statements of Income (Loss)                               | 36
| | 6. |  | Consolidated
      Statements of Stockholders Equity                  | 37
| | 7. |  | Consolidated Statements of Comprehensive Income (Loss)                 | 38
| | 8. |  | Consolidated
      Statements of Cash Flows                            | 39
| | 9. |  | Notes to Consolidated Financial Statements                             | 41

The
financial statements schedules meeting the requirements of Regulation S-X are
attached hereto as Schedules I, II, III, IV and V.

Selected Quarterly Financial
Data

|2008                                               |  | March 31 |            | June 30 |   | September 30 |  | December 31 | ****      
|-------------------------------------------------- |  | -------- | ---------- | ------- | - | ------------ |  | ----------- | ----------
|****Net premiums written                           |  | $        | 17,813,360 |         | $ | 18,127,982   |  | $           | 15,331,820
|****Net income (loss)                              |  |          | 2,124,380  |         |   | (273,934)    |  |             | 917,033   
|****Basic earnings (loss) per common
      share   |  |          | .88        |         |   | (.11)        |  |             | .39       
|****Diluted earnings (loss) per common
      share |  |          | .87        |         |   | (.11)        |  |             | .39       
|                                                  
|2007                                               |  | March 31 |            | June 30 |   | September 30 |  | December 31 |           
|****Net premiums written                           |  | $        | 16,792,542 |         | $ | 18,626,179   |  | $           | 18,994,453
|****Net income                                     |  |          | 2,322,214  |         |   | 1,154,149    |  |             | 3,857,892 
|****Basic earnings per common
    share            |  |          | .93        |         |   | .46          |  |             | 1.56      
|****Diluted earnings per common
      share        |  |          | .92        |         |   | .46          |  |             | 1.54      

31

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Report of Independent Registered Public
Accounting Firm

To the Board of Directors and
StockholdersInvestors Title CompanyChapel Hill, North
Carolina

We have audited the accompanying
consolidated balance sheets of Investors Title Company and Subsidiaries as of
December 31, 2008 and 2007, and the related consolidated statements of income
(loss), comprehensive income (loss), stockholders equity and cash flows for
each of the years in the three-year period ended December 31, 2008. These
consolidated financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (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 consolidated financial
statements referred to above present fairly, in all material respects, the
financial position of Investors Title Company and Subsidiaries as of December
31, 2008 and 2007, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 2008 in conformity
with accounting principles generally accepted in the United States of
America.

We have also audited, in accordance with
the standards of the Public Company Accounting Oversight Board (United States),
Investors Title Companys internal control over financial reporting as of
December 31, 2008, based on the criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission, and our report dated March 6, 2009 expressed an
unqualified opinion.

March 6, 2009High Point, North Carolina

32

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Managements Report on Internal Control
over Financial Reporting

Management of Investors Title Company is
responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in the Exchange Act Rules 13a-15(f)
and 15(d)-15-(f). The Companys internal control over financial reporting has
been designed to provide reasonable assurance regarding the reliability of the
Companys financial reporting and the preparation of published financial
statements in accordance with generally accepted accounting
principles.

The Companys internal control over
financial reporting includes policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
transactions and dispositions of assets of the Company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with accounting principles generally accepted
in the United States of America, and that receipts and expenditures are being
made only in accordance with authorization of management and directors of the
Company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the Companys
assets that could have a material effect on the Companys consolidated financial
statements.

Because of its inherent limitation,
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with policies or
procedures may deteriorate.

Management conducted an evaluation of the
effectiveness of the Companys internal control over financial reporting based
on the framework in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) and
concluded that internal controls over financial reporting are effective as of
December 31, 2008.

Managements assessment of the
effectiveness of the Companys internal control over financial reporting as of
December 31, 2008 has been audited by Dixon Hughes PLLC as independent
registered public accounting firm, as stated in their report which
follows.

33

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REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

To the Board of Directors and
StockholdersInvestors Title CompanyChapel Hill, North
Carolina

We have audited Investors Title Company
and Subsidiaries (the Company) internal control over financial reporting as
of December 31, 2008, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission. The Companys management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting
included in the accompanying Managements Report on Internal Controls over
Financial Reporting. Our responsibility is to express an opinion on the
Companys internal control over financial reporting based on our
audit.

We conducted our audit in accordance with
the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our
audit also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.

A companys internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles. A companys internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys
assets that could have a material effect on the financial statements.

Because of its inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

In our opinion, Investors Title Company
and Subsidiaries maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2008, based on criteria
established inInternal ControlIntegrated
Frameworkissued by the Committee of
Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with
the standards of the Public Company Accounting Oversight Board (United States),
the consolidated balance sheets of Investors Title Company and Subsidiaries as
of December 31, 2008 and the related consolidated statements of income
(loss), comprehensive income (loss), stockholders equity, and cash flows for
the year then ended and our report dated March 6, 2009, expressed an unqualified opinion on those
consolidated financial statements.

March 6, 2009High Point, North Carolina

34

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Investors Title Company and
Subsidiaries

Consolidated Balance
Sheets

|As of December
      31,                                                                                                      |  | 2008 |             | 2007 | ****
|----------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | ---- | ----
|Assets                                                                                                                        |  |      |             |      |     
|****      
      Investments in securities (Notes 2 and 3):                                                                   |  |      |             |      |     
|****             
      Fixed maturities                                                                                      |  |      |             |      |     
|****                    
      Held-to-maturity, at amortized cost (fair value: 2008:
      $462,580; 2007: $1,078,229)       |  | $    | 451,681     |      | $   
|****                    
      Available-for-sale, at fair value (amortized cost: 2008:
      $85,923,583; 2007: $89,228,010) |  |      | 87,708,500  |      |     
|****             
      Equity securities, available-for-sale at fair value
      (cost: 2008: $9,158,785; 2007: $10,283,458) |  |      | 9,965,297   |      |     
|****             
      Short-term investments                                                                                |  |      | 15,725,513  |      |     
|****             
      Other investments (Note 16)                                                                           |  |      | 2,040,962   |      |     
|****                           
      Total investments                                                                       |  |      | 115,891,953 |      |     
|                                                                                                                              | 
|****      
      Cash and cash equivalents (Note 15)                                                                          |  |      | 5,155,046   |      |     
|****      
      Premium and fees receivable (less allowance for doubtful
      accounts:                                     |  |      |             |      |     
|****             
      2008: $1,297,000; 2007: $2,170,000) (Note
      16)                                                   |  |      | 4,933,797   |      |     
|****      
      Accrued interest and dividends                                                                               |  |      | 1,225,070   |      |     
|****      
      Prepaid expenses and other assets                                                                            |  |      | 1,215,146   |      |     
|****      
      Property acquired in settlement of
claims                                                                    |  |      | 395,734     |      |     
|****      
      Property, net (Note 4)                                                                                       |  |      | 4,422,318   |      |     
|****      
      Current income taxes receivable (Note 8)                                                                     |  |      | 2,777,829   |      |     
|****      
      Deferred income taxes, net (Note 8)                                                                          |  |      | 3,841,295   |      |     
|Total
      Assets                                                                                                            |  | $    | 139,858,188 |      | $   
|                                                                                                                              | 
|Liabilities and Stockholders Equity                                                                                          |  |      |             |      |     
|Liabilities                                                                                                                   |  |      |             |      |     
|****      
      Reserves for claims (Note 6)                                                                                 |  | $    | 39,238,000  |      | $   
|****      
      Accounts payable and accrued liabilities (Note
      10)                                                     |  |      | 10,294,912  |      |     
|****      
      Commissions and reinsurance payable (Note
    5)                                                             |  |      | 467,388     |      |     
|****      
      Current income taxes payable (Note 8)                                                                        |  |      | -           |      |     
|****             
      Total liabilities                                                                                     |  |      | 50,000,300  |      |     
|                                                                                                                              | 
|Commitments and Contingencies (Notes 5, 9, 10 and
      11)                                                                   |  |      |             |      |     
|Stockholders Equity (Notes 2, 3, 7, 12 and 14)                                                                               |  |      |             |      |     
|****      
      Class A Junior Participating preferred stock (shares
      authorized 100,000; no shares issued)             |  |      | -           |      |     
|****      
      Common stock-no par value (shares authorized 10,000,000;
      2,293,268 and 2,411,318                       |  |      |             |      |     
|****             
      shares issued and outstanding 2008 and 2007,
      respectively, excluding 291,676 shares             |  |      |             |      |     
|****             
      for 2008 and 2007, respectively of common stock held by
      the Companys subsidiary)               |  |      | 1           |      |     
|****      
      Retained earnings                                                                                            |  |      | 88,248,452  |      |     
|****      
      Accumulated other comprehensive income (net unrealized
      gain on investments, Note 8;                    |  |      |             |      |     
|****             
      net unrealized loss on postretirement benefits, Note
      10)                                        |  |      | 1,609,435   |      |     
|****             
      Total stockholders equity                                                                            |  |      | 89,857,888  |      |     
|Total Liabilities and
      Stockholders Equity                                                                              |  | $    | 139,858,188 |      | $   

See notes to the Consolidated Financial
Statements.

35

---

Investors Title Company and
Subsidiaries

Consolidated Statements of Income
(Loss)

|For the Years Ended
      December 31,                                                |  | 2008 |                | 2007 |   | 2006       | ****
|------------------------------------------------------------------------------------- |  | ---- | -------------- | ---- | - | ---------- | ----
|Revenues                                                                              |  |      |                |      |   |            |     
|****      
      Underwriting income                                                  |  |      |                |      |   |            |     
|****             
      Premiums written (Note 5)                                     |  | $    | **63,937,276** |      | $ | 70,248,166 |     
|****             
      Less-premiums for reinsurance ceded (Note
    5)              |  |      | 275,089        |      |   | 264,177    |     
|****             
      Net premiums written                                          |  |      | 63,662,187     |      |   | 69,983,989 |     
|****      
      Investment income-interest and dividends (Note
      3)              |  |      | 4,558,735      |      |   | 5,197,178  |     
|****      
      Net realized (loss) gain on investments (Note
      3)               |  |      | (2,922,376)    |      |   | 921,871    |     
|****      
      Exchange services revenue                                            |  |      | 1,166,141      |      |   | 4,340,062  |     
|****      
      Other (Note 16)                                                      |  |      | 4,658,574      |      |   | 4,499,187  |     
|****             
      Total Revenues                                                |  |      | 71,123,261     |      |   | 84,942,287 |     
|                                                                                      | 
|Operating Expenses                                                                    |  |      |                |      |   |            |     
|****      
      Commissions to agents                                                |  |      | 27,717,807     |      |   | 28,424,960 |     
|****      
      Provision for claims (Note 6)                                        |  |      | 15,206,637     |      |   | 10,134,719 |     
|****      
      Salaries, employee benefits and payroll taxes (Notes 7
      and 10) |  |      | 19,605,500     |      |   | 20,819,094 |     
|****      
      Office occupancy and operations (Note 9)                             |  |      | 5,107,843      |      |   | 5,598,576  |     
|****      
      Business development                                                 |  |      | 2,104,935      |      |   | 2,183,853  |     
|****      
      Filing fees and taxes, other than payroll and
      income           |  |      | 587,235        |      |   | 531,777    |     
|****      
      Premium and retaliatory taxes                                        |  |      | 1,281,297      |      |   | 1,496,448  |     
|****      
      Professional and contract labor fees                                 |  |      | 1,684,208      |      |   | 2,789,878  |     
|****      
      Other                                                                |  |      | 1,044,598      |      |   | 1,138,647  |     
|****             
      Total Operating Expenses                                      |  |      | 74,340,060     |      |   | 73,117,952 |     
|****(Loss) Income before Income
      Taxes                                           |  |      | (3,216,799)    |      |   | 11,824,335 |     
|****(Benefit) Provision for Income Taxes (Note 8)                                     |  |      | (2,034,000)    |      |   | 3,422,000  |     
|Net (Loss)
      Income                                                               |  | $    | (1,182,799)    |      | $ | 8,402,335  |     
|Basic (Loss)
      Earnings per Common Share (Note 7)                                 |  | $    | (0.50)         |      | $ | 3.39       |     
|Weighted Average
      Shares Outstanding  Basic                                     |  |      | 2,364,361      |      |   | 2,479,321  |     
|Diluted (Loss)
      Earnings per Common Share (Note 7)                               |  | $    | (0.50)         |      | $ | 3.35       |     
|Weighted Average
      Shares Outstanding  Diluted                                   |  |      | 2,364,361      |      |   | 2,508,609  |     
|Cash Dividends
      Paid per Common Share                                            |  | $    | 0.28           |      | $ | 0.24       |     

See notes to the Consolidated Financial
Statements.

36

---

Investors Title Company and
Subsidiaries

Consolidated Statements of
Stockholders Equity

|                                                                |              |  |          |   |               |       |               |  | Accumulated |             |       |       |            
|--------------------------------------------------------------- | ------------ |  | -------- | - | ------------- | ----- | ------------- |  | ----------- | ----------- | ----- | ----- | -----------
|                                                                |              |  |          |   |               |       |               |  | Other       |             | Total |      
|                                                                | Common Stock |  | Retained |   | Comprehensive |       | Stockholders | 
|For
      the Years Ended December 31, 2006, 2007 and 2008      | Shares       |  | Amount   |   | Earnings      |       | Income        |  | Equity      |            
|**Balance, January 1, 2006**                                    | 2,549,434    |  | $        | 1 |               | $     | 81,477,022    |  | $           | 2,820,233   |       | $     | 84,297,256 
|Net income                                                      |              |  |          |   |               |       | 13,185,434    |  |             |             |       |       | 13,185,434 
|Dividends ($.24 per share)                                      |              |  |          |   |               |       | (606,423)     |  |             |             |       |       | (606,423)  
|Shares of common stock repurchased                              | (500)        |  |          |   |               |       | (22,445)      |  |             |             |       |       | (22,445)   
|Shares of common stock repurchased and retired                  | (51,449)     |  |          |   |               |       | (2,255,735)   |  |             |             |       |       | (2,255,735)
|Issuance of common stock in payment of bonuses and
      fees   | 500          |  |          |   |               |       | 21,826        |  |             |             |       |       | 21,826     
|Stock options exercised                                         | 9,340        |  |          |   |               |       | 219,342       |  |             |             |       |       | 219,342    
|Share-based compensation expense                                |              |  |          |   |               |       | 91,209        |  |             |             |       |       | 91,209     
|Change in investment accounting method                          |              |  |          |   |               |       | 24,378        |  |             |             |       |       | 24,378     
|Adjustment to initially apply FASB Statement No.
      158,     |              |  |          |   |               |       |               |  |             |             |       |       |            
|net
      of tax                                                |              |  |          |   |               |       |               |  |             | (40,810)    |       |       | (40,810)   
|Net
      unrealized gain on investments                        |              |  |          |   |               |       |               |  |             | 361,631     |       |       | 361,631    
|**Balance, December 31,
      2006**                            | 2,507,325    |  | $        | 1 |               | $     | 92,134,608    |  | $           | 3,141,054   |       | $     | 95,275,663 
|Net
      income                                                |              |  |          |   |               |       | 8,402,335     |  |             |             |       |       | 8,402,335  
|Dividends ($.24 per share)                                      |              |  |          |   |               |       | (595,808)     |  |             |             |       |       | (595,808)  
|Shares of common stock repurchased and retired                  | (111,437)    |  |          |   |               |       | (4,660,259)   |  |             |             |       |       | (4,660,259)
|Issuance of common stock in payment of bonuses and
      fees   | 40           |  |          |   |               |       | 1,998         |  |             |             |       |       | 1,998      
|Stock options exercised                                         | 15,390       |  |          |   |               |       | 365,284       |  |             |             |       |       | 365,284    
|Share-based compensation expense                                |              |  |          |   |               |       | 91,669        |  |             |             |       |       | 91,669     
|Amortization related to FASB Statement No. 158                  |              |  |          |   |               |       |               |  |             | 11,736      |       |       | 11,736     
|Accumulated post-retirement benefit obligation
      adjustment |              |  |          |   |               |       |               |  |             | (31,734)    |       |       | (31,734)   
|Net
      unrealized gain on investments                        |              |  |          |   |               |       |               |  |             | 414,956     |       |       | 414,956    
|**Balance, December 31,
      2007**                            | 2,411,318    |  | $        | 1 |               | **$** | 95,739,827    |  | $           | 3,536,012   |       | **$** | 99,275,840 
|Net
      loss                                                  |              |  |          |   |               |       | (1,182,799)   |  |             |             |       |       | (1,182,799)
|Dividends ($.28 per share)                                      |              |  |          |   |               |       | (661,862)     |  |             |             |       |       | (661,862)  
|Shares of common stock repurchased and retired                  | (130,450)    |  |          |   |               |       | (5,972,043)   |  |             |             |       |       | (5,972,043)
|Issuance of common stock in payment of bonuses and
      fees   | 40           |  |          |   |               |       | 1,946         |  |             |             |       |       | 1,946      
|Stock options exercised                                         | 12,360       |  |          |   |               |       | 230,801       |  |             |             |       |       | 230,801    
|Share-based compensation expense                                |              |  |          |   |               |       | 92,582        |  |             |             |       |       | 92,582     
|Amortization related to FASB Statement No. 158                  |              |  |          |   |               |       |               |  |             | 13,456      |       |       | 13,456     
|Accumulated post retirement benefit obligation
      adjustment |              |  |          |   |               |       |               |  |             | (67,221)    |       |       | (67,221)   
|Net
      unrealized loss on investments                        |              |  |          |   |               |       |               |  |             | (1,872,812) |       |       | (1,872,812)
|**Balance, December 31,
      2008**                            | 2,293,268    |  | $        | 1 |               | **$** | 88,248,452    |  | $           | 1,609,435   |       | $     | 89,857,888 

See notes to the Consolidated Financial
Statements.

37

---

Investors Title Company and
Subsidiaries

Consolidated Statements of
Comprehensive Income (Loss)

|**For the Years Ended December
      31,**                                    |  | 2008  |                 | 2007 |   | 2006      | 
|----------------------------------------------------------------------------- |  | ----- | --------------- | ---- | - | --------- | 
|Net (loss) income                                                             |  | **$** | **(1,182,799)** |      | $ | 8,402,335 | 
|Other comprehensive (loss) income, before
      tax:                          |  |       |                 |      |   |           | 
|Amortization related to prior year service cost                               |  |       | 20,388          |      |   | 20,388    | 
|Amortization of unrecognized gain                                             |  |       | -               |      |   | (2,604)   | 
|Accumulated post retirement benefit obligation adjustment                     |  |       | (101,850)       |      |   | (48,082)  | 
|Unrealized (losses) gains on investments arising during
      the year        |  |       | (5,782,291)     |      |   | 1,555,828 | 
|Less: reclassification adjustment for losses (gains) realized in
      net    |  |       |                 |      |   |           | 
|(loss) income                                                                 |  |       | 2,922,376       |      |   | (921,871) | 
|Other
      comprehensive (loss) income, before tax                           |  |       | (2,941,377)     |      |   | 603,659   | 
|Income tax benefit related to FASB Statement No. 158                          |  |       | (27,696)        |      |   | (10,300)  | 
|Income tax (benefit) expense related to unrealized
      (losses) gains on    |  |       |                 |      |   |           | 
|investments
      arising during the tax year                                 |  |       | (1,992,602)     |      |   | 551,029   | 
|Income tax (benefit) expense related to reclassification adjustment
      for |  |       |                 |      |   |           | 
|(losses) gains realized in net (loss) income                                  |  |       | 1,005,498       |      |   | (332,028) | 
|Net
      income tax (benefit) expense on other comprehensive (loss) income   |  |       | (1,014,800)     |      |   | 208,701   | 
|Other comprehensive (loss) income                                             |  |       | (1,926,577)     |      |   | 394,958   | 
|**Comprehensive (loss)
      income**                                         |  | **$** | (3,109,376)     |      | $ | 8,797,293 | 

See notes to the Consolidated Financial
Statements.

38

---

Investors Title Company and
Subsidiaries

Consolidated Statements of Cash
Flows

|**For the Years Ended December
      31,**                                  |  | **2008** |                  | 2007 |   | 2006         | 
|--------------------------------------------------------------------------- |  | -------- | ---------------- | ---- | - | ------------ | 
|**Operating
      Activities**                                              |  |          |                  |      |   |              | 
|Net (loss) income                                                           |  | **$**    | **(1,182,799)**  |      | $ | 8,402,335    | 
|Adjustments to reconcile net (loss)
      income to net cash provided by    |  |          |                  |      |   |              | 
|operating activities:                                                       |  |          |                  |      |   |              | 
|Depreciation                                                                |  |          | 920,840          |      |   | 1,183,155    | 
|Amortization, net                                                           |  |          | 313,377          |      |   | 274,944      | 
|Amortization related to FASB Statement No. 158                              |  |          | 20,388           |      |   | 17,784       | 
|Issuance of common stock in payment of bonuses and fees                     |  |          | 1,946            |      |   | 1,998        | 
|Share-based compensation expense related to stock
      options             |  |          | 92,582           |      |   | 91,669       | 
|Allowance for doubtful accounts on premiums receivable                      |  |          | (873,000)        |      |   | 42,000       | 
|Net loss (gain) on disposals of property                                    |  |          | 221,148          |      |   | (15,264)     | 
|Other property transactions                                                 |  |          | 200,000          |      |   | -            | 
|Net realized loss (gain) on investments                                     |  |          | 2,922,376        |      |   | (921,871)    | 
|Net
      earnings from other investments                                   |  |          | (694,570)        |      |   | (556,082)    | 
|Provision for claims                                                        |  |          | 15,206,637       |      |   | 10,134,719   | 
|Benefit for deferred income taxes                                           |  |          | (201,000)        |      |   | (304,000)    | 
|Changes in assets and
      liabilities:                                    |  |          |                  |      |   |              | 
|Decreasein receivables and other assets                                     |  |          | 2,761,823        |      |   | 60,509       | 
|(Increase) in current income taxes receivable                               |  |          | (2,777,829)      |      |   | -            | 
|(Decrease)
      increase in accounts payable and accrued
      liabilities |  |          | (991,398)        |      |   | 650,707      | 
|Increase (decrease) in commissions and
      reinsurance payable            |  |          | 60,466           |      |   | (63,546)     | 
|(Decrease)
      increase in current income taxes payable                   |  |          | (1,747,877)      |      |   | 1,421,622    | 
|Payments of claims, net of recoveries                                       |  |          | **(12,943,637)** |      |   | (10,065,719) | 
|Net cash provided by operating activities                                   |  |          | 1,309,473        |      |   | 10,354,960   | 
|                                                                            | 
|**Investing
      Activities**                                              |  |          |                  |      |   |              | 
|Purchases of available-for-sale securities                                  |  |          | **(17,461,053)** |      |   | (53,409,065) | 
|Purchases of short-term securities                                          |  |          | (2,396,338)      |      |   | (17,073,905) | 
|Purchases of other investments                                              |  |          | (565,271)        |      |   | (443,084)    | 
|Proceeds from sales and maturities of available-for-sale
      securities   |  |          | 18,764,347       |      |   | 63,607,086   | 
|Proceeds from maturities of held-to-maturity
      securities               |  |          | 611,000          |      |   | 149,000      | 
|Proceeds from sales and maturities of short-term securities                 |  |          | 7,893,358        |      |   | 312,282      | 
|Proceeds from sales and distributions of other
      investments            |  |          | 887,287          |      |   | 1,248,317    | 
|Other investment transactions                                               |  |          | -                |      |   | -            | 
|Purchases of property                                                       |  |          | (493,681)        |      |   | (463,828)    | 
|Proceeds from disposals of property                                         |  |          | 8,266            |      |   | 151,350      | 
|Other
      property transactions                                           |  |          | -                |      |   | -            | 
|Net cash provided by (used in) investing
      activities                   |  |          | 7,247,915        |      |   | (5,921,847)  | 
|                                                                            | 
|**Financing
      Activities**                                              |  |          |                  |      |   |              | 
|Repurchases of common stock                                                 |  |          | (5,972,043)      |      |   | (4,660,259)  | 
|Exercise of options                                                         |  |          | 230,801          |      |   | 365,284      | 
|Dividends paid                                                              |  |          | (661,862)        |      |   | (595,808)    | 
|Net cash used in financing activities                                       |  |          | (6,403,104)      |      |   | (4,890,783)  | 

39

---

|**Consolidated Statements of Cash Flows,
      continued**                          |  |       |               |      |   |           |  |   |              | 
|----------------------------------------------------------------------------------- |  | ----- | ------------- | ---- | - | --------- |  | - | ------------ | 
|**For the Years Ended December
      31,**                                          |  | 2008  |               | 2007 |   | 2006      | 
|**Net Increase (Decrease) in
      Cash and Cash Equivalents**                      |  | **$** | 2,154,284     |      | $ | (457,670) |  | $ | (11,150,049) | 
|**Cash and Cash Equivalents, Beginning of
      Year**                              |  |       | 3,000,762     |      |   | 3,458,432 |  |   | 14,608,481   | 
|**Cash and Cash Equivalents, End of
      Year**                                    |  | $     | 5,155,046     |      | $ | 3,000,762 |  | $ | 3,458,432    | 
|**Supplemental Disclosures**                                                        |  |       |               |      |   |           |  |   |              | 
|**Cash Paid During the Year
      for**                                             |  |       |               |      |   |           |  |   |              | 
|Income
      Taxes (net of refunds)                                                 |  | $     | **2,775,000** |      | $ | 2,288,000 |  | $ | 4,989,000    | 
|Non
      cash net unrealized (gain) loss on investments, net of deferred tax       |  |       |               |      |   |           |  |   |              | 
|benefit (provision) of $987,103, ($219,001) and
      ($185,475) for 2008, 2007 and |  |       |               |      |   |           |  |   |              | 
|2006, respectively                                                                  |  | $     | 1,872,812     |      | $ | (414,956) |  | $ | (361,631)    | 
|Adjustments to apply FASB Statement No. 158, net of
      deferred tax              |  |       |               |      |   |           |  |   |              | 
|provision of ($34,629), ($16,348) and ($21,024) for
      2008, 2007 and            |  |       |               |      |   |           |  |   |              | 
|2006, respectively                                                                  |  | $     | 101,850       |      | $ | 48,082    |  | $ | 61,834       | 

See notes to the Consolidated Financial
Statements.

40

---

Investors Title Company and
SubsidiariesNotes to Consolidated Financial Statements

1. Basis of Presentation and Summary of
Significant Accounting Policies

Description of BusinessInvestors
Title Companys (the Company) two primary business segments are title
insurance and exchange services. The Companys title insurance segment, through
its two subsidiaries, Investors Title Insurance Company (ITIC) and Northeast
Investors Title Insurance Company (NE-ITIC), is licensed to insure titles to
residential, institutional, commercial and industrial properties. The Company
issues title insurance policies primarily through approved attorneys from
underwriting offices and through independent issuing agents in 23 states and the
District of Columbia primarily in the eastern half of the United States. The
majority of the Companys business is concentrated in Illinois, Kentucky,
Michigan, New York, North Carolina, Pennsylvania, South Carolina, Tennessee,
Virginia and West Virginia. Investors Title Exchange Corporation (ITEC) acts
as an intermediary in tax-deferred exchanges of property held for productive use
in a trade or business or for investments, while Investors Title Accommodation
Corporation (ITAC) provides services for accomplishing reverse exchanges when
taxpayers decide to acquire replacement property before selling the relinquished
property.

Principles of Consolidation and Basis of PresentationThe accompanying consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.

ReclassificationCertain 2007 and 2006
amounts in the accompanying consolidated financial statements have been
reclassified to conform to the 2008 classifications. These reclassifications had
no effect on stockholders equity or net income as previously
reported.

Significant Accounting
PoliciesThe significant accounting policies
of the Company are summarized below.

Cash and Cash
Equivalents

For the
purpose of presentation in the Companys statements of cash flows, cash
equivalents are highly liquid instruments with original maturities of three
months or less. The carrying amount of cash and cash equivalents is a reasonable
estimate of fair value due to the short-term maturity of these
instruments.

Investments in
Securities

Securities
for which the Company has the intent and ability to hold to maturity are
classified as held-to-maturity and reported at cost, adjusted for amortization
of premiums or accretion of discounts, and other-than-temporary declines in fair
value. Securities held principally for resale in the near term are classified as
trading securities and recorded at fair values. Realized and unrealized gains
and losses on trading securities are included in other income. Securities not
classified as either trading or held-to-maturity are classified as
available-for-sale and reported at fair value, adjusted for other-than-temporary
declines in fair value, with unrealized gains and losses, net of tax, reported
as accumulated other comprehensive income. Securities are regularly reviewed for
differences between the cost and estimated fair value of each security for
factors that may indicate that a decline in fair value is other-than-temporary.
Some factors considered in evaluating whether or not a decline in fair value is
other-than-temporary include the duration and extent to which the fair value has
been less than cost and the Companys ability and intent to retain the
investment for a period of time sufficient to allow for a recovery in value.
Such reviews are inherently uncertain and the value of the investment may not
fully recover or may decline in future periods resulting in a realized loss.
Fair values of the majority of investments are based on quoted market prices.
Realized gains and losses are determined on the specific identification method.
Refer to Note 3.

Short-term
Investments

Short-term
investments comprise money market accounts which are invested in short-term
funds, time deposits with banks and savings and loan associations, and other
investments expected to have maturities or redemptions greater than three months
and less than twelve months. The Company monitors any events or changes in
circumstances that may have a significant adverse effect on the fair value of
these investments.

41

---

Other Investments

Other
investments consist primarily of investments through LLC structures, which are
accounted for under the equity or cost method of accounting. The aggregate cost
of the Companys cost method investments totaled $821,617 at December 31, 2008.
The Company monitors any events or changes in circumstances that may have had a
significant adverse effect on the fair value of these investments and makes any
necessary adjustments.

Property Acquired in Settlement of
Claims

Property
acquired in settlement of claims is held for sale and valued at the lower of
cost or market. Adjustments to reported estimated realizable values and realized
gains or losses on dispositions are recorded as increases or decreases in claim
costs.

Property and
Equipment

Property and
equipment are recorded at cost and are depreciated principally under the
straight-line method over the estimated useful lives (three to twenty-five
years) of the respective assets. Maintenance and repairs are charged to
operating expenses and improvements are capitalized.

Reserves for
Claims

The total
reserve for all reported and unreported losses the Company incurred through
December 31, 2008 is represented by the reserves for claims. The Companys
reserves for unpaid losses and loss adjustment expenses are established using
estimated amounts required to settle claims for which notice has been received
(reported) and the amount estimated to be required to satisfy incurred claims of
policyholders which may be reported in the future. Despite the variability of
such estimates, management believes that the reserves are adequate to cover
claim losses resulting from pending and future claims for policies issued
through December 31, 2008. The Company continually reviews and adjusts its
reserve estimates as necessary to reflect its loss experience and any new
information that becomes available. Adjustments resulting from such reviews may
be significant.

Claims and
losses paid are charged to the reserves for claims. Although claims losses are
typically paid in cash, occasionally claims are settled by purchasing the
interest of the insured or the claimant in the real property. When this event
occurs, the acquiring company carries assets at the lower of cost or estimated
realizable value, net of any indebtedness on the property.

Income Taxes

The Company
makes certain estimates and judgments in determining income tax expense for
financial statement purposes. These estimates and judgments occur in the
calculation of certain tax assets and liabilities which arise from differences
in the timing of recognition of revenue and expense for tax and financial
statement purposes. The Company provides for deferred income taxes (benefits)
for the tax consequences on future years on temporary differences between the
financial statements carrying values and the tax bases of assets and
liabilities using currently enacted tax rates. The Company establishes valuation
allowances if it believes that it is more likely than not that some or all of
its deferred tax assets will not be realized. Refer to Note 8.

Premiums Written and Commissions to
Agents

Premiums are
generally recorded and recognized as revenue at the time of closing of the
related transaction as the earnings process is considered complete. Title
insurance commissions earned by the Companys agents are recognized as expense
concurrently with premium recognition.

Exchange Services
Revenue

Fees are
recognized at the signing of a binding agreement and investment earnings are
recognized as they are earned.

42

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Fair Values of Financial
Instruments

The carrying
amounts reported in the consolidated balance sheets for cash and cash
equivalents, short-term investments, premiums receivable, accrued interest and
dividends, accounts payable, commissions and reinsurance payable and current
income taxes payable approximate cost, which is what is reflected on the
consolidated balance sheets due to the short-term nature of these assets and
liabilities. Fair values for the majority of investment securities are based on
quoted market prices. Auction Rate Securities, (ARS) are valued using
discounted cash flow models to determine the estimated fair value of these
investments. Some of the inputs to ARS model are unobservable in the market and
are significant.

In September
2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 157, Fair Value Measurements, (SFAS 157), which was effective for fiscal years beginning
after November 15, 2007 and for interim periods within those years. This
Statement defines fair value, establishes a framework for measuring fair value
and expands the related disclosure requirements. Relative to SFAS 157, the FASB
recently issued Financial Staff Position (FSP) 157-1, 157-2 and 157-3. FSP 157-1 amends SFAS 157 to exclude
SFAS No. 13, Accounting for Leases, and its related interpretive accounting
pronouncements that address leasing transactions, while FSP 157-2 delays the
effective date of the application of SFAS 157 to fiscal years beginning after
November 15, 2008 for all nonfinancial assets and nonfinancial liabilities,
except those that are recognized or disclosed at fair value in the financial
statements on a recurring basis. FSP 157-3 clarifies the application of SFAS 157
as it relates to the valuation of financial assets in a market that is not
active for those financial assets. This FSP is effective immediately and
includes those periods for which financial statements have not been issued. The
Company adopted SFAS 157 as of January 1, 2008.

Comprehensive
Income

The
Companys accumulated other comprehensive income is comprised of unrealized
holding gains on available-for-sale securities, net of tax, and unrecognized
prior service cost and unrealized gains/losses associated with FASB Statement
No. 158 related to postretirement benefit liabilities, net of tax.

Stock-Based Compensation

The Company
adopted the provisions of Statement of Financial Accounting Standards No. 123R
(SFAS 123R) on January 1, 2006, the first day of the Companys fiscal year
2006, using a modified prospective application, which provides for certain
changes to the method for valuing share-based compensation. Under the modified
prospective application, prior periods are not revised for comparative purposes.
The valuation provisions of SFAS 123R apply to new awards and to awards that are
outstanding on the effective date and subsequently modified or cancelled.
Estimated compensation expense for awards outstanding at the effective date are
recognized over their remaining service period using the compensation cost
calculated under FASB Statement No. 123, Accounting for Stock-Based
Compensation (SFAS 123). Under SFAS 123R, share-based compensation cost is
generally measured at the grant date, based on the estimated fair value of the
award, and is recognized as expense over the employees requisite service
period.

As
share-based compensation expense recognized in the consolidated statements of
income is based on awards ultimately expected to vest, it has been reduced for
estimated forfeitures. SFAS 123R requires forfeitures to be estimated at the
time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates.

Prior to
adopting the provisions of SFAS 123R, the Company recorded estimated
compensation expense for employee stock options based upon their intrinsic value
on the date of grant pursuant to Accounting Principles Board Opinion No. 25,
(APB 25), Accounting for Stock Issued to Employees, and provided the
required pro forma disclosures of SFAS 123. Because the Company established the
exercise price based on the fair market value of the Companys stock at the date
of grant, the stock options had no intrinsic value upon grant, and therefore no
estimated expense was recorded prior to adopting SFAS 123R. Each accounting
period, the Company reported the potential dilutive impact of stock options in
its diluted earnings per common share using the treasury-stock method.
Out-of-the-money stock options (i.e., the average stock price during the period
was below the exercise price of the stock option) were not included in diluted
earnings per common share as their effect was anti-dilutive.

43

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Recent Accounting
Standards

In December
2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statementsan amendment of Accounting Research Bulletin (ARB) No. 51 (SFAS 160). SFAS 160 amends
ARB 51 to establish accounting and reporting standards for the noncontrolling
interest in a subsidiary and for the deconsolidation of a subsidiary. This
Statement requires the recognition of a noncontrolling interest (minority
interest) as equity in the consolidated financial statements and separate from
the parents equity. The amount of net income attributable to the noncontrolling
interest will be included in consolidated net income on the face of the income
statement. It also amends certain of ARB No. 51s consolidation procedures for
consistency with the requirements of SFAS 141(R). SFAS 160 is effective for
fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008, with earlier adoption prohibited. The Company is
currently evaluating the effect of adopting this new Statement and anticipates
that the Statement will not have a significant impact on the reporting of the
Companys results of operations.

In May 2008,
the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles (SFAS 162). This Statement identifies the sources of accounting
principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in accordance with GAAP. With the issuance of this statement, the FASB
concluded that the GAAP hierarchy should be directed toward the entity and not
its auditor, and, reside in the accounting literature established by the FASB,
as opposed to the American Institute of Certified Public Accountants (AICPA)
Statement on Auditing Standards No. 69, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles. This Statement is
effective 60 days following the SECs approval of the Public Company Accounting
Oversight Board amendments to Audit Standards AU Section 411, The Meaning of
Present Fairly in Conformity With Generally Accepted Accounting Principles. The
Company is currently evaluating the effect of adopting this new Statement and
anticipates that the Statement will not have a significant impact on the
reporting of the Companys results of operations.

Use of Estimates and
Assumptions

The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosures of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period and accompanying notes. Actual results could differ
materially from those estimates and assumptions used.

Claims

The
Companys reserves for claims are established using estimated amounts required
to settle claims for which notice has been received (reported) and the amount
estimated to be required to satisfy incurred claims of policyholders which may
be reported in the future (incurred but not reported, (IBNR)). In accordance
with the requirements of paragraph 17 of Statement of Financial Accounting
Standards No. 60, a provision for estimated future claims payments is recorded
at the time policy revenue is recorded. The Company records the claims provision
as a percentage of premium income. By their nature, title claims can often be
complex, vary greatly in dollar amounts, vary in number due to economic and
market conditions such as an increase in mortgage foreclosures; and involve
uncertainties as to ultimate exposure. In addition, some claims may require a
number of years to settle and determine the final liability for indemnity and
loss adjustment expense. The payment experience may extend for more than twenty
years after the issuance of a policy. Events such as fraud, defalcation and
multiple property defects can substantially and unexpectedly cause increases in
estimates of losses. Due to the length of time over which claim payments are
made and regularly occurring changes in underlying economic and market
conditions, these estimates are subject to variability.

Management
considers factors such as the Companys historical claims experience, case
reserve estimates on reported claims, large claims, actuarial projections and
other relevant factors in determining loss provision rates and the aggregate
recorded expected liability for claims. In establishing reserves, actuarial
projections are compared with recorded reserves to evaluate the adequacy of such
recorded claims reserves and any necessary adjustments are then recorded in
current operations. As the most recent claims experience develops and new
information becomes

44

---

available, the loss reserve estimate
related to prior periods will change to more accurately reflect updated and
improved emerging data. The Company reflects any adjustments to reserves in the
results of operations in the period in which new information (principally claims
experience) becomes available.

Impairments

The Company
considers relevant facts and circumstances in evaluating whether a credit or
interest-rate related impairment of a security is other than temporary. Relevant
facts and circumstances include the extent and length of time the fair value of
an investment has been below cost.

There are a
number of risks and uncertainties inherent in the process of monitoring
impairments and determining if an impairment is other than temporary. These
risks and uncertainties include the risk that the economic outlook will be worse
than expected or have more of an impact on the issuer than anticipated, the risk
that the Companys assessment of an issuers ability to meet all of its
contractual obligations will change based on changes in the characteristics of
that issuer, the risk that information obtained by the Company or changes in
other facts and circumstances leads management to change its intent to hold the
security to maturity or until it recovers in value and the risk that management
is making decisions based on misstated information in the financial statements
provided by issuers.

2. Statutory Restrictions on
Consolidated Stockholders Equity and Investments

The Company
has designated approximately $40,638,016 and $39,879,000 of retained earnings as
of December 31, 2008 and 2007, respectively, as appropriated to reflect the
required statutory premium reserve. See Note 8 for the tax treatment of the
statutory premium reserve.

As of
December 31, 2008 and 2007 approximately $55,987,000 and $63,219,000,
respectively, of consolidated stockholders equity represents net assets of the
Companys subsidiaries that cannot be transferred in the form of dividends,
loans or advances to the parent company under statutory regulations without
prior insurance department approval.

Bonds
totaling approximately $6,540,000 and $6,471,000 at December 31, 2008 and 2007
respectively, are on deposit with the insurance departments of the states in
which business is conducted.

45

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3. Investments in
Securities

The
aggregate fair value, gross unrealized holding gains, gross unrealized holding
losses, and amortized cost for securities by major security type at December 31
were as follows:

|                                                                                                        |  |                    |                |                  | Gross |               | Gross |           | Estimated   | 
|------------------------------------------------------------------------------------------------------- |  | ------------------ | -------------- | ---------------- | ----- | ------------- | ----- | --------- | ----------- | 
|                                                                                                        |  | Amortized          |                | Unrealized       |       | Unrealized    |       | Fair      |            
|**December 31, 2008**                                                                                   |  | Cost               |                | Gains            |       | Losses        |       | Value     |            
|Fixed Maturities-                                                                                       |  |                    |                |                  |       |               |       |           |             | 
|Held-to-maturity, at amortized cost-                                                                    |  |                    |                |                  |       |               |       |           |             | 
|Obligations of states and political subdivisions                                                        |  | $                  | 451,681        |                  | $     | 10,899        |       | $         | -           | 
|Total                                                                                                   |  | $                  | 451,681        |                  | $     | 10,899        |       | $         | -           | 
|Fixed Maturities-                                                                                       |  |                    |                |                  |       |               |       |           |             | 
|Available-for-sale, at fair value:                                                                      |  |                    |                |                  |       |               |       |           |             | 
|Obligations of states and political subdivisions                                                        |  | $                  | **72,818,413** |                  | $     | **2,178,686** |       | $         | 986,503     | 
|Corporate debt securities                                                                               |  |                    | 13,105,170     |                  |       | 606,001       |       |           | 13,267      | 
|Total                                                                                                   |  | $                  | 85,923,583     |                  | $     | 2,784,687     |       | $         | **999,770** | 
|Equity Securities, available-for-sale at fair
      value-                                              |  |                    |                |                  |       |               |       |           |             | 
|Common stocks and nonredeemable preferred stocks                                                        |  | $                  | 9,158,785      |                  | $     | 1,446,389     |       | $         | 639,877     | 
|Total                                                                                                   |  | $                  | 9,158,785      |                  | $     | 1,446,389     |       | $         | 639,877     | 
|Short-term investments-                                                                                 |  |                    |                |                  |       |               |       |           |             | 
|Certificates of deposit and other                                                                       |  | $                  | 15,725,513     |                  | $     | -             |       | $         | -           | 
|Total                                                                                                   |  | $                  | 15,725,513     |                  | $     | -             |       | $         | -           | 
|                                                                                                        | 
|                                                                                                        |  |                    |                | Gross            |       | Gross         |       | Estimated |            
|                                                                                                        |  | Amortized          |                | Unrealized       |       | Unrealized    |       | Fair      |            
|December 31, 2007                                                                                       |  | Cost               |                | Gains            |       | Losses        |       | Value     |            
|Fixed Maturities-                                                                                       |  |                    |                |                  |       |               |       |           |             | 
|Held-to-maturity, at amortized cost-                                                                    |  |                    |                |                  |       |               |       |           |             | 
|Obligations of states and political subdivisions                                                        |  | $                  | 1,052,535      |                  | $     | 25,694        |       | $         | -           | 
|Total                                                                                                   |  | $                  | 1,052,535      |                  | $     | 25,694        |       | $         | -           | 
|Fixed Maturities-                                                                                       |  |                    |                |                  |       |               |       |           |             | 
|Available-for-sale, at fair value:                                                                      |  |                    |                |                  |       |               |       |           |             | 
|Obligations of states and political subdivisions                                                        |  | $                  | 85,019,914     |                  | $     | 1,158,282     |       | $         | 38,824      | 
|Corporate debt securities                                                                               |  |                    | 4,208,096      |                  |       | 183,478       |       |           | -           | 
|Total                                                                                                   |  | $                  | 89,228,010     |                  | $     | 1,341,760     |       | $         | 38,824      | 
|Equity Securities, available-for sale at fair
      value-                                              |  |                    |                |                  |       |               |       |           |             | 
|Common stocks and nonredeemable preferred stocks                                                        |  | $                  | 10,283,458     |                  | $     | 4,610,111     |       | $         | 461,703     | 
|Total                                                                                                   |  | $                  | 10,283,458     |                  | $     | 4,610,111     |       | $         | 461,703     | 
|Short-term investments-                                                                                 |  |                    |                |                  |       |               |       |           |             | 
|Certificates of deposit and other                                                                       |  | $                  | 21,222,533     |                  | $     | -             |       | $         | -           | 
|Total                                                                                                   |  | $                  | 21,222,533     |                  | $     | -             |       | $         | -           | 
|                                                                                                        | 
|The
      scheduled maturities of fixed maturity securities at December 31, 2008
      were as follows: |  |                    |                |                 
|                                                                                                        | 
|                                                                                                        |  | Available-for-Sale |                | Held-to-Maturity |      
|                                                                                                        |  | Amortized          |                | Fair             |       | Amortized     |       | Fair      |            
|                                                                                                        |  | Cost               |                | Value            |       | Cost          |       | Value     |            
|Due in one year or less                                                                                 |  | $                  | 4,956,056      |                  | $     | 4,985,818     |       | $         | -           | 
|Due after one year through five years                                                                   |  |                    | 24,670,000     |                  |       | 25,447,610    |       |           | 7,000       | 
|Due five years through ten
      years                                                                  |  |                    | 37,521,273     |                  |       | 38,916,390    |       |           | 444,681     | 
|Due
      after ten years                                                                               |  |                    | 18,776,254     |                  |       | 18,358,682    |       |           | -           | 
|Total                                                                                                   |  | $                  | 85,923,583     |                  | $     | 87,708,500    |       | $         | 451,681     | 

46

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Earnings on investments for the
years ended December 31 were as follows:

|                                                                                                                                                 | 2008  |                 | 2007 |      | 2006      | 
|------------------------------------------------------------------------------------------------------------------------------------------------ | ----- | --------------- | ---- | ---- | --------- | 
|Fixed maturities                                                                                                                                 | $     | 3,415,009       |      | $    | 4,241,522 | 
|Equity
      securities                                                                                                                          |       | 266,860         |      |      | 255,467   | 
|Invested cash and other short-term investments                                                                                                   |       | 779,468         |      |      | 643,654   | 
|Miscellaneous interest                                                                                                                           |       | 97,398          |      |      | 56,535    | 
|Investment income                                                                                                                                | $     | 4,558,735       |      | $    | 5,197,178 | 
|                                                                                                                                                 |      
|Gross realized gains and losses on sales of
      available-for-sale securities for the years ended December 31 are
      summarized as follows:
|                                                                                                                                                 |      
|                                                                                                                                                 |       | 2008            |      | 2007 |           | 
|Gross realized gains:                                                                                                                            |       |                 |      |      |           | 
|Obligations of states and political subdivisions                                                                                                 | **$** | 25,203          |      | $    | 23,926    | 
|Common stocks and nonredeemable preferred stocks                                                                                                 |       | 295,992         |      |      | 900,855   | 
|Total                                                                                                                                            |       | 321,195         |      |      | 924,781   | 
|Gross realized losses:                                                                                                                           |       |                 |      |      |           | 
|Obligations of states and political subdivisions                                                                                                 |       | (363,633)       |      |      | -         | 
|Common stocks and nonredeemable preferred stocks                                                                                                 |       | **(2,759,845)** |      |      | (413,058) | 
|Total                                                                                                                                            |       | **(3,123,478)** |      |      | (413,058) | 
|Net realized (loss)
      gain                                                                                                                   | **$** | **(2,802,283)** |      | $    | 511,723   | 

Also
included in net realized (loss) gain on sales of investments in the Consolidated
Statements of Income for the years ended December 31, 2008, 2007 and 2006 is
($120,093), $410,148 and $16,250, respectively, of gains (losses) from the sale
of other investments.

The
following table presents the gross unrealized losses on investment securities
and the fair value of the related securities, aggregated by investment category
and length of time that individual securities have been in a continuous loss
position at December 31, 2008 and 2007.

|                          |  | Less than
      12 Months |                | 12 Months
      or Longer |   | Total           | 
|------------------------- |  | ------------------------- | -------------- | ------------------------- | - | --------------- | 
|**December 31, 2008**     |  | Fair Value                |                | Unrealized loss           |   | Fair Value      | 
|Obligations of states and |  |                           |                |                           |   |                 | 
|political subdivisions    |  | **$**                     | 15,380,629     |                           | $ | (984,180)       | 
|Total Fixed Maturity      |  |                           |                |                           |   |                 | 
|Securities                |  | **$**                     | **15,380,629** |                           | $ | (984,180)       | 
|Equity Securities         |  |                           | 3,002,004      |                           |   | (559,410)       | 
|Total temporarily         |  |                           |                |                           |   |                 | 
|impaired securities       |  | **$**                     | 18,382,633     |                           | $ | **(1,543,590)** | 
|                          | 
|December 31, 2007         |  |                           |                |                           |   |                 | 
|Obligations of states and |  |                           |                |                           |   |                 | 
|political subdivisions    |  | $                         | 5,798,040      |                           | $ | (20,164)        | 
|Total Fixed Maturity      |  |                           |                |                           |   |                 | 
|Securities                |  | $                         | 5,798,040      |                           | $ | (20,164)        | 
|Equity Securities         |  |                           | 2,652,452      |                           |   | (425,176)       | 
|Total temporarily         |  |                           |                |                           |   |                 | 
|impaired securities       |  | $                         | 8,450,492      |                           | $ | (445,340)       | 

As of
December 31, 2008, the Company held $16,157,886 in fixed maturity securities
with unrealized losses of $999,770. Due to the disruption in 2008 which reduced
liquidity and led to wider spreads, the Company saw an increase in unrealized
losses in its securities portfolio. The maturity duration of the debt securities
range from less than one to more than ten years. The decline in fair value of
the fixed maturity securities can be attributed primarily to changes in market
interest rates and changes in spreads over treasury securities. Because the
Company has the intent and ability to hold these securities until a recovery of
fair value, which may be maturity, the Company does not consider these
investments to be other-than-temporarily impaired.

47

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The
unrealized losses related to holdings of equity securities were caused by market
changes that the Company considers to be temporary. Since the Company has the
intent and ability to hold these equity securities until a recovery of fair
value, the Company does not consider these investments other-than-temporarily
impaired at December 31, 2008.

Factors
considered in determining whether a loss is temporary include the length of time
and extent to which fair value has been below cost, the financial condition and
prospects of the issuer (including credit ratings and analyst reports) and
macro-economic changes. A total of 67 and 57 securities had unrealized losses at
December 31, 2008 and December 31, 2007, respectively. Reviews of the values of
securities are inherently uncertain and the value of the investment may not
fully recover, or may decline in future periods resulting in a realized loss.
During 2008, the Company recorded an other-than-temporary impairment charge in
the amount of approximately $1.2 million related to securities.

*Valuation Hierarchy*. SFAS 157 establishes a valuation hierarchy
for disclosure of the inputs to valuation used to measure fair value. This
hierarchy prioritizes the inputs into three broad levels as follows. Level 1
inputs to the valuation methodology are quoted prices (unadjusted) in active
markets for identical assets or liabilities. Level 2 inputs to the valuation
methodology are quoted prices for similar assets and liabilities in active
markets or inputs that are observable for the asset or liability, either
directly or indirectly through market corroboration, for substantially the full
term of the financial instrument. Level 3 inputs are unobservable inputs based
on the Companys own assumptions used to measure assets and liabilities at fair
value.

The
following table presents, by level, the financial assets carried at fair value
measured on a recurring basis as of December 31, 2008. The table does not
include cash on hand and also does not include assets which are measured at
historical cost or any basis other than fair value.

|Available-for-sale securities |  |  | Carrying
      Balance |            | Level 1 |   | Level 2   |  | Level 3 |           
|----------------------------- |  |  | ---------------------- | ---------- | ------- | - | --------- |  | ------- | ----------
|Fixed maturities              |  |  | $                      | 87,708,500 |         | $ | -         |  | $       | 80,111,580
|Equity                        |  |  |                        | 9,965,297  |         |   | 9,965,297 |  |         | -         
|Total                         |  |  | $                      | 97,673,797 |         | $ | 9,965,297 |  | $       | 80,111,580

The
following table presents a reconciliation of the Companys assets measured at
fair value using significant unobservable inputs (Level 3) as defined in SFAS
157 for the year ended December 31, 2008:

| | Changes in fair value during the year
      ended December 31, 2008: |  | Level 3 |          
| | -------------------------------------------------------------------- |  | ------- | ---------
| | Beginning balance at January 1, 2008                                 |  | $       | -        
| | Transfers into
      Level 3                                         |  |         | 8,087,630
| | Unrealized loss - included in other comprehensive income             |  |         | (490,710)
| | Ending balance at December 31,
      2008                            |  | $       | 7,596,920

*Valuation Techniques*. A financial instruments classification
within the valuation hierarchy is based upon the lowest level of input that is
significant to the fair value measurement.

Equity
securities are measured at fair value using quoted active market prices and are
classified within Level 1 of the valuation hierarchy. The fair value of fixed
maturity investments included in the Level 2 category was based on the market
values obtained from pricing services.

The Level 2
category generally includes corporate bonds, agency bonds and municipal bonds. A
number of the Companys investment grade corporate bonds are frequently traded
in markets that are not active or use valuation models, which use observable
market inputs, in addition to traded prices. Substantially all of these model
input assumptions are directly observable in the marketplace or can be derived
or supported by observable market data.

The
Companys investments in student loan auction rate securities (ARS) are its
only Level 3 assets, and were transferred from Level 2 because quoted prices
from broker-dealers were unavailable due to the failure of auctions. Valuations
using discounted cash flow models were used to determine the estimated fair
value of these investments as of December 31, 2008. Some of the inputs to this
model are unobservable in the market and are significant.

ARS were
structured to provide purchase and sale liquidity through a Dutch auction
process. Due to the increasingly stressed and liquidity-constrained environment
in money markets, the auction process for ARS began failing in February 2008 as
broker-dealers ceased supporting auctions with their own capital. All of the Companys
ARS are rated investment grade, comprised entirely of student loan ARS and are
substantially guaranteed by government-sponsored enterprises, and the Company
continues to receive interest income.

48

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4. Property and
Equipment

Property and equipment and estimated
useful lives at December 31 are summarized as follows:

|                                                        | 2008 |                 | 2007
|------------------------------------------------------- | ---- | --------------- | ----
|Land                                                    | $    | 1,107,582       |     
|Title plant                                             |      | -               |     
|Office buildings and improvements (25
      years)      |      | 3,173,432       |     
|Furniture, fixtures and equipment (3 to 10
      years) |      | 5,476,101       |     
|Automobiles (3 years)                                   |      | 667,659         |     
|Total                                                   |      | 10,424,774      |     
|Less
      accumulated depreciation                     |      | (6,002,456**)** |     
|Property
      and equipment, net                       | $    | 4,422,318       |     

5. Reinsurance

The Company
assumes and cedes reinsurance with other insurance companies in the normal
course of business. Premiums assumed and ceded were approximately $167,000 and
$275,000, respectively, for 2008, $43,000 and $264,000, respectively, for 2007
and $22,000 and $442,000, respectively, for 2006. Ceded reinsurance is comprised
of excess of loss treaties, which protects against losses over certain amounts.
The Company remains liable to the insured for claims under ceded insurance
policies in the event that the assuming insurance companies are unable to meet
their obligations under these contracts. The Company has not paid or recovered
any reinsured losses during the three years ended December 31, 2008.

6. Reserves for Claims

Changes in
the reserves for claims for the years ended December 31 are summarized as
follows based on the year in which the policies were written:

|                                                  | 2008 |                  | 2007 |   | 2006            
|------------------------------------------------- | ---- | ---------------- | ---- | - | ----------------
|Balance, beginning of
      year                  | $    | 36,975,000       |      | $ | 36,906,000      
|Provisions related to:                            |      |                  |      |   |                 
|Current year                                      |      | 15,564,722       |      |   | 9,787,529       
|Prior years                                       |      | (358,085**)**    |      |   | 347,190         
|Total provision charged to operations             |      | 15,206,637       |      |   | 10,134,719      
|Claims paid, net of recoveries,
      related to: |      |                  |      |   |                 
|Current year                                      |      | (5,937,616**)**  |      |   | (624,484)       
|Prior years                                       |      | (7,006,021**)**  |      |   | (9,441,235)     
|Total claims paid, net of recoveries              |      | (12,943,637**)** |      |   | ****(10,065,719)
|Balance, end of year                              | $    | 39,238,000       |      | $ | 36,975,000      

The Company
continually refines its reserve estimates as current loss experience develops
and credible data emerges. Movements in the reserves related to prior periods
were primarily the result of changes to estimates to better reflect the latest
reported loss data.

The
provision for claims as a percentage of net premiums written was 23.9%, 14.5%
and 10.5% in 2008, 2007 and 2006, respectively. The change in estimate for
calendar year 2008 resulted primarily from policy year 2008, which incurred
three large claims totaling approximately $6,800,000. In addition, the Company incurred
unfavorable experience during 2008 for claims related to policy year 2006. The change in estimate for
calendar year 2007 resulted primarily from policy year 2006, which incurred two
large fraud-related claims. The change in estimate for calendar year 2006
resulted primarily from lower than expected large claims payments for 2005. Due
to variances between actual and expected loss payments, loss development is
subject to significant variability. A large claim is defined as a claim with
incurred losses exceeding $250,000. Due to the small volume of large claims, the
long-tail nature of title insurance claims and the
inherent uncertainty in loss emergence patterns, large claim activity can vary
significantly between policy years. The estimated development of large claims by
policy year is therefore subject to significant changes as experience
develops.

49

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In
managements opinion, the reserves are adequate to cover claim losses which
might result from pending and future claims.

7. Earnings (Loss) Per Share and Stock
Options

Basic
earnings per common share is computed by dividing net income by the
weighted-average number of common shares outstanding during the reporting
period. Diluted earnings per common share is computed by dividing net income by
the combination of dilutive potential common stock, comprised of shares issuable
under the Companys share-based compensation plans and the weighted-average
number of common shares outstanding during the reporting period. Dilutive common
share equivalents includes the dilutive effect of in-the-money share-based
awards, which are calculated based on the average share price for each period
using the treasury stock method. Under the treasury stock method, the exercise
price of a share-based award, the amount of compensation cost, if any, for
future service that the Company has not yet recognized, and the amount of
estimated tax benefits that would be recorded in additional paid-in capital, if
any, when the share-based awards are exercised are assumed to be used to
repurchase shares in the current period. The incremental dilutive potential
common shares, calculated using the treasury stock method were 29,288, and
36,289 for 2007 and 2006, respectively.

The
following table sets forth the computation of basic and diluted earnings per
share for the years ended December 31:

|**For the Years Ended December 31,**                                  | 2008 |                     | 2007 |   | 2006     
|--------------------------------------------------------------------- | ---- | ------------------- | ---- | - | ---------
|Net (loss) income                                                     | $    | **(1,182,799****)** |      | $ | 8,402,335
|Weighted average common shares
      outstanding - Basic              |      | 2,364,361           |      |   | 2,479,321
|Incremental shares
      outstanding assuming                         |      |                     |      |   |          
|the exercise of dilutive stock options and SARS (share
      settled) |      | -                   |      |   | 29,288   
|Weighted average common shares outstanding - Diluted                  |      | 2,364,361           |      |   | 2,508,609
|Basic earnings per common share                                       | $    | (0.50**)**          |      | $ | 3.39     
|Diluted earnings per common share                                     | $    | (0.50**)**          |      | $ | 3.35     

Due to a net
loss in 2008, the treasury stock method for the calculation of diluted shares is
not appropriate. In 2007, 3,000 Stock Appreciation Rights
(SARS) were excluded from the computation of diluted earnings per share
because their exercise price was greater than the stock price and therefore
considered anti-dilutive. All outstanding options and SARS during 2006 were
included in the computation of diluted earnings per share because the options
exercise prices were less than or equal to the average market price of the
common shares.

The Company
has adopted Employee Stock Option Purchase Plans (the Plans) under which
options or SARS to purchase shares (not to exceed 500,000 shares) of the
Companys stock may be granted to key employees or directors of the Company at a
price not less than the market value on the date of grant. SARS and options,
which are predominantly incentive stock options, are exercisable and vest
immediately or within one year or at 10% to 20% per year beginning on the date
of grant and generally expire in five to ten years. All SARS issued to date have
been share settled only. There were not any shares issued from SARS exercised in
2008, 2007 or 2006.

50

---

A summary of share-based award
transactions for all share-based award plans follows:

|                                          |           |  |          | Weighted |              | **Average** |           |           |      
|----------------------------------------- | --------- |  | -------- | -------- | ------------ | ----------- | --------- | --------- | -----
|                                          |           |  |          | Average  |              | Remaining   |           | Aggregate
|                                          | Number    |  | Exercise |          | Contractual  |             | Intrinsic
|                                          | of Shares |  | Price    |          | Term (years) |             | Value    
|Outstanding as of January 1, 2006         | 82,001    |  |          | $        | 20.50        |             |           |           |      
|SARS
      granted                        | 3,000     |  |          |          | 43.78        |             |           |           |      
|Options exercised                         | (9,340)   |  |          |          | 17.21        |             |           |           |      
|Options
      cancelled/forfeited/expired | (1,610)   |  |          |          | 22.12        |             |           |           |      
|Outstanding as of December 31, 2006       | 74,051    |  |          | $        | 21.82        |             | 4.34      |           | **$**
|SARS
      granted                        | 3,000     |  |          |          | 49.04        |             |           |           |      
|Options exercised                         | (15,390)  |  |          |          | 23.74        |             |           |           |      
|Options
      cancelled/forfeited/expired | (1,181)   |  |          |          | 17.38        |             |           |           |      
|Outstanding as of December 31, 2007       | 60,480    |  |          | $        | 22.77        |             | 4.11      |           | $    
|SARS
      granted                        | 3,000     |  |          |          | 47.88        |             |           |           |      
|Options exercised                         | (12,360)  |  |          |          | 18.67        |             |           |           |      
|Options
      cancelled/forfeited/expired | (4,050)   |  |          |          | 29.96        |             |           |           |      
|Outstanding as of December 31, 2008       | 47,070    |  |          | $        | **24.83**    |             | 3.67      |           | $    
|                                         
|Exercisable as of December 31, 2008       | 33,475    |  |          | $        | 26.29        |             | 3.72      |           | $    
|                                         
|Unvested as of December 31, 2008          | 13,595    |  |          | $        | 21.26        |             | **3.53**  |           | $    

The
aggregate intrinsic value is calculated as the difference between the exercise
price of the underlying awards and the quoted price of the Companys common
stock at December 31, 2008. In 2006 and 2007, there were no options or SARS excluded from the
calculation as all options and SARS were in the money. The intrinsic value of
options exercised during 2008 was approximately $327,000.

The following tables summarize
information about fixed stock options outstanding at December 31, 2008:

|                         |       |             |   |                  |   |       |  | Options
      Outstanding at Year-End |  | Options Exercisable at Year-End
|------------------------ | ----- | ----------- | - | ---------------- | - | ----- |  | ------------------------------------- |  | -------------------------------
|                         |       |             |   |                  |   |       |  |                                       |  | Weighted                       
|                         |       |             |   |                  |   |       |  |                                       |  | Average                        
|                         |       |             |   |                  |   |       |  | Number                                |  | Remaining                      
|Range of Exercise Prices |       | Outstanding |   | Contractual Life |   | Price |  | Exercisable                           |  | Price                          
|$                        | 10.00 |             | - |                  | $ | 12.00 |  | 8,870                                 |  | 1.4                            
|                         | 13.06 |             | - |                  |   | 15.58 |  | 5,350                                 |  | 2.2                            
|                         | 17.25 |             | - |                  |   | 19.35 |  | 2,150                                 |  | 3.2                            
|                         | 20.00 |             | - |                  |   | 22.75 |  | 13,500                                |  | 3.5                            
|                         | 25.28 |             | - |                  |   | 36.79 |  | 9,200                                 |  | 5.5                            
|$                        | 10.00 |             | - |                  | $ | 36.79 |  | 39,070                                |  | 3.3                            
|                         |      
|                         |       |             |   |                  |   |       |  | SARS Outstanding at Year-End          |  | SARS Exercisable at Year-End   
|                         |       |             |   |                  |   |       |  |                                       |  | Weighted                       
|                         |       |             |   |                  |   |       |  |                                       |  | Average                        
|                         |       |             |   |                  |   |       |  | Number                                |  | Remaining                      
|Range of Exercise Prices |       | Outstanding |   | Contractual Life |   | Price |  | Exercisable                           |  | Price                          
|$                        | 43.78 |             | - |                  | $ | 49.04 |  | 8,000                                 |  | 5.4                            

In 2008, 9,365 options and SARS
vested with a fair value of approximately $91,000.

During the
second quarter of 2008, the Company issued 3,000 share settled SARS to the
directors of the Company. SARS give the holder the right to receive stock in the
appreciation in the value of shares of stock from the grant date for a specified
period of time, and as a result, are accounted for as equity instruments. As
such, these were valued using the Black-Scholes option valuation model. The fair
value of each award is estimated on the date of grant

51

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using the Black-Scholes option valuation
model with the weighted-average assumptions noted in the following table.
Expected volatilities are based on both the implied and historical volatility of
the Companys stock. The Company uses historical data to estimate option
exercise and employee termination within the valuation model. The expected term
of awards represents the period of time that options granted are expected to be
outstanding. The interest rate for periods during the expected life of the award
is based on the U.S. Treasury yield curve in effect at the time of the grant.
The weighted-average fair value for the SARS issued was $12.263 and was
estimated using the following weighted-average assumptions:

| |                        | **2008**  
| | ---------------------- | ----------
| | Expected Life in Years | 5.0       
| | Volatility             | 24.17**%**
| | Interest Rate          | 3.09**%** 
| | Yield
      Rate       | 0.60**%** 

The fair
value of each SAR granted is estimated on the date of grant using the
Black-Scholes option pricing method with the following weighted-average
assumptions:

| |                        |  | 2008     |  | 2007 |  | 2006 | 
| | ---------------------- |  | -------- |  | ---- |  | ---- | 
| | Expected Life in Years |  | 5.0      |  | 5.0  |  | 5.0  | 
| | Volatility             |  | 24**%**  |  | 25%  |  | 27%  | 
| | Interest Rate          |  | 3.1**%** |  | 4.6% |  | 5.0% | 
| | Yield
      Rate       |  | 0.6**%** |  | 0.5% |  | 0.6% | 

There was
approximately $93,000 of compensation expense relating to shares vesting on or
before December 31, 2008 included in salaries, employee benefits and payroll
taxes of the consolidated statements of income (loss). As of December 31, 2008,
there was approximately $155,000 of total unrecognized compensation cost related
to unvested share-based compensation arrangements granted under the Companys
stock awards plans. That cost is expected to be recognized over a
weighted-average period of 1.2 years.

The
estimated weighted-average grant-date fair value of SARS granted for the years
ended December 31 was as follows:

|**For
      the Years Ended December 31,**                   |  | 2008 |           | 2007 |   | 2006  | 
|------------------------------------------------------------ |  | ---- | --------- | ---- | - | ----- | 
|Exercise price equal to market price on
      date of grant: |  |      |           |      |   |       | 
|Weighted-average market price                                |  | $    | **47.88** |      | $ | 49.04 | 
|Weighted-average grant-date fair value                       |  |      | 12.26     |      |   | 14.68 | 

There are no
stock options or SARS granted where the exercise price is less than the market
price on the date of grant.

8. Income Taxes

The components of income tax
(benefit) expense for the years ended December 31 are summarized as
follows:

|**For the Years Ended December 31,** |  | 2008 |                     | 2007 |   | 2006     
|------------------------------------ |  | ---- | ------------------- | ---- | - | ---------
|Current:                             |  |      |                     |      |   |          
|Federal                              |  | $    | (1,857,000**)**     |      | $ | 3,489,000
|State                                |  |      | 24,000              |      |   | 237,000  
|Total                                |  |      | (1,833,000**)**     |      |   | 3,726,000
|Deferred (benefit)
      expense:    |  |      |                     |      |   |          
|Federal                              |  |      | (147,097**)**       |      |   | (315,518)
|State                                |  |      | (53,903**)**        |      |   | 11,518   
|Total                                |  |      | (201,000**)**       |      |   | (304,000)
|Total                                |  | $    | **(2,034,000****)** |      | $ | 3,422,000

For state
income tax purposes, ITIC and NE-ITIC generally pay only a gross premium tax
found in premium and retaliatory taxes in the consolidated statements of income
(loss).

52

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At December
31, the approximate tax effect of each component of deferred income tax assets
and liabilities is summarized as follows:

|For
      the Years Ended December 31,                                | 2008 |               | 2007
|--------------------------------------------------------------------- | ---- | ------------- | ----
|Deferred income tax assets:                                           |      |               |     
|Recorded reserves for claims, net of statutory premium
      reserves | $    | 847,755       |     
|Accrued benefits and retirement services                              |      | 2,568,958     |     
|FASB Statement No. 158                                                |      | 59,022        |     
|Other-than-temporary impairment of assets                             |      | 428,609       |     
|Reinsurance and commissions payable                                   |      | 18,263        |     
|Allowance for doubtful accounts                                       |      | 440,980       |     
|Net operating loss carryforward                                       |      | 83,000        |     
|Excess of book over tax depreciation                                  |      | 73,594        |     
|Other                                                                 |      | 260,205       |     
|Total                                                                 |      | 4,780,386     |     
|Deferred income tax liabilities:                                      |      |               |     
|Net unrealized gain on investments                                    |      | 867,044       |     
|Discount accretion on tax-exempt obligations                          |      | 18,984        |     
|Other                                                                 |      | 53,063        |     
|Total                                                                 |      | 939,091       |     
|Net deferred income tax assets                                        | $    | **3,841,295** |     

At December
31, 2008 and 2007, no valuation allowance was recorded. Based upon the Companys
historical results of operations, the existing financial condition of the
Company and managements assessment of all other available information,
management believes that it is more likely than not that the benefit of these
net deferred income tax assets will be realized.

A
reconciliation of income tax as computed for the years ended December 31 at the
U.S. federal statutory income tax rate (34%) to income tax expense
follows:

|**For the Years Ended December
      31,**                     | 2008 |                     | 2007 |   | 2006       
|-------------------------------------------------------------- | ---- | ------------------- | ---- | - | -----------
|Anticipated income tax
      (benefit) expense                 | $    | (1,093,712**)**     |      | $ | 4,020,274  
|Increase (reduction) related
      to:                         |      |                     |      |   |            
|State income taxes, net of federal income tax benefit          |      | 15,840              |      |   | 156,420    
|Tax-exempt interest income (net of amortization)               |      | (970,303**)**       |      |   | (1,247,536)
|Misclassified tax-exempt interest related to prior
      years |      | -                   |      |   | 425,000    
|Other, net                                                     |      | 14,175              |      |   | 67,842     
|(Benefit) provision for income taxes                           | $    | **(2,034,000****)** |      | $ | 3,422,000  

During the
fourth quarter of 2007, the Company discovered certain understatements in the
provision for income taxes in its financial statements in 2006 and the first
three quarters of 2007 relating to taxable municipal bonds that had been
previously misclassified as tax exempt by the Companys custodian
bank.

The Company
adopted the provisions of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109,
(FIN 48) on January 1, 2007. This interpretation requires that the Company
recognize in its financial statements the impact of a tax position if that
position is more likely than not of being sustained on an audit, based on the
technical merits of the position. As a result of the implementation of FIN 48,
the Company made a comprehensive review of its uncertain tax positions in
accordance with recognition standards established by FIN 48. In this regard, an
uncertain tax position represents the Companys expected treatment of a tax
position taken in a filed tax return, or planned to be taken in a future tax
return, that has not been reflected in measuring income tax expense for
financial reporting purposes.

The amount
of unrecognized tax benefit or liability may increase or decrease in the future
for various reasons, including adding amounts for current tax year positions,
expiration of open income tax returns due to the statute of limitation, changes
in managements judgment about the level of uncertainty, status of examinations,
litigation and legislative activity and the additions or eliminations of
uncertain tax positions.

53

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The
Companys policy is to report interest and penalties related to unrecognized tax
benefits or liabilities in the Consolidated Statements of Income. As of December
31, 2008, there was $14,710 related to interest and $10,258 related to penalties
recorded in other operating expenses.

The Company,
or one of its subsidiaries, files income tax returns in the U.S. federal
jurisdiction and various states. With few exceptions, the Company is no longer
subject to U.S. federal or state and local examinations by taxing authorities
for years before 2005.

The following table sets forth the
total amounts of unrecognized tax benefits.

|Balance as of January 1,
      2008     | $ | 123,605 
|--------------------------------------- | - | --------
|Additions related to prior years        |   | 10,437  
|Reductions related to prior
      years |   | (47,540)
|Settlements                             |   | -       
|Balance as of December 31,
      2008   | $ | 86,502  

In the
balance of unrecognized tax benefits at December 31, 2008, approximately $87,000
relates to tax positions and interest for which the statute of limitations will
expire within the next 12 months. Of the total unrecognized tax benefits,
approximately $62,000 represents the amount that if recognized, would favorably
affect the effective tax rate in future periods. Included in the $87,000 are
penalties and interest in the amount of approximately $25,000.

9. Leases

The Company
leases certain office facilities and equipment under operating leases. Rental
expense also includes occasional rental of automobiles. Rent expense totaled
approximately $964,000, $930,000 and $889,000 in 2008, 2007 and 2006,
respectively. The future minimum lease payments under operating leases that have
initial or remaining noncancelable lease terms in excess of one year as of
December 31, 2008, are summarized as follows:

|Year Ended: |   |          
|----------- | - | ---------
|2009        | $ | 710,419  
|2010        |   | 422,292  
|2011        |   | 184,823  
|2012        |   | 58,878   
|2013        |   | -        
|Total       | $ | 1,376,412

10. Retirement Agreements and Other
Postretirement Benefit Plan

In 2008, the
Company adopted a 401(k) savings plan. To participate, individuals must be
employed for one full year and work at least 1,000 hours annually. The Company
makes a 3% Safe Harbor contribution and also has the option annually to make a
discretionary profit share contribution. Individuals may elect to make
contributions up to the maximum deductible amount as determined by the Internal
Revenue Code. Expenses related to the 401(k) for 2008 were approximately
$513,000. Prior to 2008, the company had a Simplified Employee Pension Plan,
where after three years of service, employees were eligible to participate.
Contributions, which were made at the discretion of the Company, were based on
the employees salary, but in no case did such contribution exceed $45,000
annually per employee. All contributions were deposited in Individual Retirement
Accounts for participants. Contributions expensed under this plan were
approximately $878,000, $712,000 for 2007 and 2006, respectively.

In November
2003, ITIC, a wholly owned subsidiary of the Company, entered into employment
agreements with the Chief Executive Officer, Chief Financial Officer and the
Chief Operating Officer of ITIC. These individuals also serve as the Chief
Executive Officer, President and Executive Vice President, respectively, of the
Company. The agreements provide compensation and life, health, dental and vision
benefits upon the occurrence of specific events, including death, disability,
retirement, termination without cause or upon a change in control. The
agreements provide for annual salaries to be fixed by the Compensation Committee
and, among other benefits, ITIC shall make quarterly contributions pursuant to a
supplemental executive retirement account on behalf of each executive equal to
22% of the base salary and bonus paid to each during such quarter through
September 30, 2008. The obligation to make contributions to thesupplemental executive
retirement agreements has expired and has been removed from

54

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the amended and restated employment
agreement effective January 1, 2009. The employment agreements also prohibit each
of these executives from competing with ITIC and its parent, subsidiaries and
affiliates in the state of North Carolina while employed by ITIC and for a
period of two years following termination of their employment. In addition,
during the second quarter of 2004, ITIC entered into nonqualified deferred
compensation plan agreements with these executives. The amount accrued for these
agreements at December 31, 2008 and 2007 was approximately $6,574,000 and
$5,496,000, respectively, which includes postretirement compensation and health
benefits, and was calculated based on the terms of the contract. These executive
contracts are accounted for on an individual contract basis. On December 24,
2008, the executive contracts were amended effective January, 1, 2009 to bring
them into compliance with Section 409A of the Internal Revenue Code, and to
permit a special 2008 distribution election as permitted under Section 409A. The
special distribution election provided that each participant may elect, no later
than December 31, 2008, to receive a one-time lump sum distribution on January
15, 2009 of all amounts in the participants account. Payouts in January 2009
associated with this distribution were approximately $2,456,000. In addition,
the nonqualified deferred compensation agreement was amended and restated to
terminate all company contributions to this plan beginning January 1, 2009. In
connection with such termination, the employment agreements were amended and
restated to provide for an annual cash payment to the officers equal to the
amounts the Company would have contributed to their accounts under its 401(k)
Plan if such contributions were not limited by the federal tax laws, less the
amount of any contributions that the Company actually make to their accounts
under the Companys 401(k) Plan.

On November
17, 2003, ITIC entered into employment agreements with key executives that
provide for the continuation of certain employee benefits upon retirement. The
executive employee benefits include health insurance, dental insurance, vision
insurance and life insurance. The plan is unfunded. Estimated future benefit
payouts expected to be paid for each of the next five years are $3,226 in 2009,
$3,441 in 2010, $3,646 in 2011, $4,530 in 2012, $5,600 in 2013 and $53,481 in
the next five years thereafter.

Cost of the Companys postretirement
benefit plan included the following components:

|                                                | 2008 |            | 2007 |   | 2006   
|----------------------------------------------- | ---- | ---------- | ---- | - | -------
|**Net periodic benefit
      cost**             |      |            |      |   |        
|Service cost  benefits earned during the year  | $    | 17,335     |      | $ | 13,974 
|Interest cost on projected benefit obligation   |      | 19,044     |      |   | 14,646 
|Amortization of unrecognized prior service cost |      | 20,388     |      |   | 20,388 
|Amortization of unrecognized gains              |      | -          |      |   | (2,604)
|Net periodic benefit cost at end of year        | $    | **56,767** |      | $ | 46,404 

Under the
disclosure provisions of SFAS 158, the Company is required to recognize the
funded status (i.e., the difference between the fair value of the plan assets
and the accumulated postretirement benefit obligations of its benefit plan in
its consolidated balance sheet, with a corresponding adjustment to accumulated
other comprehensive income, net of tax. The net amount in accumulated other
comprehensive income is $ 173,594 ($114,573 net of tax) and $92,132 ($60,808 net
of tax) for December 31 2008 and 2007, respectively, and represents the net
unrecognized actuarial losses and unrecognized prior service costs. The effects
of adopting the provisions of SFAS 158 on the Companys consolidated balance
sheets at December 31, 2008 and 2007 are presented in the following
table:

|                                                                                    | 2008 |                   | 2007
|----------------------------------------------------------------------------------- | ---- | ----------------- | ----
|**Funded
      status**                                                             |      |                   |     
|Actuarial present value of future
      benefits:                                   |      |                   |     
|Fully eligible active employee                                                      | $    | (41,001**)**      |     
|Non-eligible active employees                                                       |      | **(429,648****)** |     
|Plan assets                                                                         |      | -                 |     
|Funded status of accumulated postretirement benefit
      obligation, recognized in |      |                   |     
|other liabilities                                                                   | $    | (470,649**)**     |     

55

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Development
of the accumulated postretirement benefit obligation for the years ended
December 31, 2008 and 2007 includes the following:

|                                                                                                                                                        | 2008      |                   | 2007
|------------------------------------------------------------------------------------------------------------------------------------------------------- | --------- | ----------------- | ----
|Accrued postretirement benefit
      obligation at beginning of year                                                                                    | $         | **(240,288****)** |     
|Service cost  benefits earned during the year                                                                                                          |           | (17,335**)**      |     
|Interest cost on projected benefit
      obligation                                                                                                     |           | (19,044**)**      |     
|Amortization cost, net                                                                                                                                  |           | (20,388**)**      |     
|Unrecognized prior service
      cost                                                                                                                   |           | (93,963**)**      |     
|Unrecognized loss
      (gain)                                                                                                                          |           | (79,631**)**      |     
|Funded status
      of accumulated postretirement benefit obligation at end of
      year                                                               | $         | (470,649**)**     |     
|                                                                                                                                                        |           |                   |     
|The changes in amounts related
      to accumulated other comprehensive income, pre-tax, is as
    follows:                                            
|                                                                                                                                                        |           |                   |     
|                                                                                                                                                        | 2008      |                   | 2007
|Balance at beginning of year                                                                                                                            | $         | 92,132            |     
|Components of Accumulated Other Comprehensive Income                                                                                                    |           |                   |     
|Unrecognized prior service cost                                                                                                                         |           | **(20,388****)**  |     
|Unrecognized gain                                                                                                                                       |           | 101,850           |     
|Balance at end of
      year                                                                                                                            | $         | 173,594           |     
|                                                                                                                                                        |           |                   |     
|For 2009, the amounts in
      accumulated other comprehensive income, pre-tax, to be recognized as
      components of net periodic benefit costs are:
|                                                                                                                                                        |           |                   |     
|                                                                                                                                                        | Projected |                   |     
|                                                                                                                                                        | 2009      |                   |     
|Amortization of unrecognized prior service
      cost                                                                                                   | $         | 20,388            |     
|Amortization of unrecognized
      loss                                                                                                                 |           | 2,014             |     
|Net periodic benefit cost at
      end of year                                                                                                          | $         | 22,402            |     

Weighted-average
actuarial assumptions used to determine benefit obligations at December 31 were:

Assumed health care cost trend rates
do have an effect on the amounts reported for the postretirement benefit plan.
The following illustrates the effects on the net periodic postretirement benefit
cost and the accumulated postretirement benefit obligation of a one percentage
point increase and one percentage point decrease in the assumed health care cost
trend rate as of December 31, 2008:

|   |                                                                           | One-       |             | One-      
|-- | ------------------------------------------------------------------------- | ---------- | ----------- | ----------
|   |                                                                           | Percentage |             | Percentage
|   |                                                                           | Point      |             | Point     
|   |                                                                           | Increase   |             | Decrease  
|1. | Net periodic postretirement benefit cost                                  |            |             |           
|   | Effect on the
      service cost component                                | $          | 6,084       |           
|   | Effect on interest
      cost                                             |            | 6,328       |           
|   | Total effect on the net periodic
      postretirement benefit cost        | $          | 12,412      |           
|2. | Accumulated postretirement benefit obligation (including
      active     |            |             |           
|   | employees who are not fully eligible)                                     |            |             |           
|   | Effect on those
      currently receiving benefits (retirees and spouses) | $          | -           |           
|   | Effect on active fully eligible                                           |            | 2,896       |           
|   | Effect on actives not yet
      eligible                                  |            | 107,156     |           
|   | Total effect on the accumulated
      postretirement benefit obligation   | $          | **110,052** |           

11. Commitments and Contingencies

The Company
and its subsidiaries are involved in various routine legal proceedings that are
incidental to their business. In the Companys opinion, based on the present
status of these proceedings, any potential liability of the Company or its
subsidiaries with respect to these legal proceedings, will not, in the
aggregate, be material to the Companys consolidated financial condition or
operations.

56

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Escrows and Like-Kind
Exchanges

As a service
to its customers, the Company, through ITIC, administers escrow and trust
deposits representing earnest money received under real estate contracts,
undisbursed amounts received for settlement of mortgage loans and indemnities
against specific title risks. Cash held by the Company for these purposes was
approximately $14,492,000 and $23,665,000 as of December 31, 2008 and 2007,
respectively. In administering tax-deferred property exchanges, the Companys
subsidiary, ITEC, serves as a qualified intermediary for exchanges, holding the
net proceeds from sales transactions from relinquished property to be used for
purchase of replacement property. Another Company subsidiary, ITAC, serves as
exchange accommodation titleholder and, through limited liability companiesthat are wholly owned subsidiaries of ITAC, holds
property for exchangers in reverse exchange transactions. Like-kind exchange
deposits and reverse exchange property totaled approximately $88,124,000 and
$115,515,000 as of December 31, 2008 and 2007, respectively. These amounts are
not considered assets of the Company and, therefore, are excluded from the
accompanying consolidated balance sheets. Exchange services revenues include
earnings on these deposits; therefore, investment income is shown as exchange
services revenue, rather than investment income. The Company remains
contingently liable for the disposition of these deposits and for the transfers
of property, disbursements of proceeds and the return on the proceeds at the
agreed upon rate. These like-kind exchange funds are primarily invested in money
market and other short-term investments, including $4.4 million of auction rate
securities (ARS), at December 31, 2008. At December 31, 2008, ITEC had
recorded a liability of approximately $209,000 as a result of impairment of
assets specifically related to funds held. The Company does not believe the
current illiquidity of these securities will impact its operations, as it
believes it has sufficient capital to provide continuous and immediate liquidity
as necessary.

12. Statutory Accounting

The
consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America which
differ in some respects from statutory accounting practices prescribed or
permitted in the preparation of financial statements for submission to insurance
regulatory authorities.

Consolidated
stockholders equity on a statutory basis was $82,305,151 and $93,079,819 as of
December 31, 2008 and 2007, respectively. Net (loss) income on a statutory basis
was $(3,148,117), $7,980,954 and $11,684,065 for the twelve months ended
December 31, 2008, 2007 and 2006.

13. Segment Information

Consistent
with SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, the Company has aggregated its operating segments into two reportable
segments: 1) title insurance services; and 2) tax-deferred exchange services.
The remaining immaterial segments have been combined into a group called All
Other.

The title
insurance segment primarily issues title insurance policies through approved
attorneys from underwriting offices and through independent issuing agents.
Title insurance policies insure titles to residential, institutional, commercial
and industrial properties.

The
tax-deferred exchange services segment acts as an intermediary in tax-deferred
exchanges of property held for productive use in a trade or business or for
investments and serves as exchange accommodation titleholder, holding property
for exchangers in reverse exchange transactions. Revenues are derived from fees
for handling exchange transactions.

57

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Provided
below is selected financial information about the Companys operations by
segment for the three years ended December 31, 2008, 2007 and 2006:

|                                 | Title     |                 | Exchange |   | All           |  | Intersegment |                |       |      
|-------------------------------- | --------- | --------------- | -------- | - | ------------- |  | ------------ | -------------- | ----- | -----
|**2008**                         | Insurance |                 | Services |   | Other         |  | Elimination  |                | Total
|Operating
      revenues         | $         | 65,507,644      |          | $ | 1,163,569     |  | $            | 3,594,694      |       | $    
|Investment income                |           | 3,576,758       |          |   | 37,839        |  |              | 1,025,807      |       |      
|Net realized loss on investments |           | (2,661,018**)** |          |   | -             |  |              | (261,358**)**  |       |      
|Total revenues                   | $         | 66,423,384      |          | $ | **1,201,408** |  | $            | 4,359,143      |       | $    
|Operating expenses               |           | 69,901,591      |          |   | 1,214,363     |  |              | 4,003,111      |       |      
|(Loss) income before taxes       | $         | (3,478,207**)** |          | $ | (12,955**)**  |  | $            | 356,032        |       | $    
|Assets                           | $         | **102,408,285** |          | $ | 480,159       |  | $            | **36,969,744** |       | **$**
|                                
|2007                             |           |                 |          |   |               |  |              |                |       |      
|Operating
      revenues         | $         | 71,827,793      |          | $ | 4,340,062     |  | $            | 3,485,281      |       | $    
|Investment
      income          |           | 4,024,900       |          |   | 29,501        |  |              | 1,212,779      |       |      
|Net realized gain on investments |           | 513,252         |          |   | -             |  |              | 408,619        |       |      
|Total revenues                   | $         | 76,365,945      |          | $ | 4,369,563     |  | $            | 5,106,679      |       | $    
|Operating expenses               |           | 68,896,939      |          |   | 1,546,437     |  |              | 3,504,474      |       |      
|Income before taxes              | $         | 7,469,006       |          | $ | 2,823,126     |  | $            | 1,602,205      |       | $    
|Assets                           | $         | 111,384,663     |          | $ | 1,210,438     |  | $            | 37,047,319     |       | $    
|                                
|2006                             |           |                 |          |   |               |  |              |                |       |      
|Operating
      revenues         | $         | 71,733,764      |          | $ | 5,980,027     |  | $            | 2,915,065      |       | $    
|Investment
      income          |           | 3,759,367       |          |   | 18,138        |  |              | 619,231        |       |      
|Net realized gain on investments |           | 551,058         |          |   | -             |  |              | -              |       |      
|Total revenues                   | $         | 76,044,189      |          | $ | 5,998,165     |  | $            | 3,534,296      |       | $    
|Operating expenses               |           | 63,667,391      |          |   | 1,419,923     |  |              | 3,089,501      |       |      
|Income before taxes              | $         | 12,376,798      |          | $ | 4,578,242     |  | $            | 444,795        |       | $    
|Assets                           | $         | 114,599,621     |          | $ | 1,087,383     |  | $            | 27,829,374     |       | $    

For 2008,
operating revenues in the Exchange Services Segment includes a loss of $2,572
related to the disposal of assets.

14. Stockholders Equity

On November
12, 2002, the Companys Board of Directors amended the Companys Articles of
Incorporation, creating a series of Class A Junior Participating Preferred Stock
(the Class A Preferred Stock). There are 1,000,000 shares of Preferred Stock
authorized and 100,000 of these shares have been designated Class A Junior
Participating Preferred Stock. The Class A Junior Participating Preferred Stock
is senior to common stock in dividends or distributions of assets upon
liquidations, dissolutions or winding up of the Company. Dividends on the Class
A Preferred Stock are cumulative and accrue from the quarterly dividend payment
date. Each share of Class A Preferred Stock entitles the holder thereof to 100
votes on all matters submitted to a vote of shareholders of the Company. These
shares were reserved for issuance under the Shareholder Rights Plan (the
Plan), which was adopted on November 21, 2002, by the Companys Board of
Directors. Under the terms of the Plan, the Companys common stock acquired by a
person or a group buying 15% or more of the Companys common stock would be
diluted, except in transactions approved by the Board of Directors.

In
connection with the Plan, the Companys Board of Directors declared a dividend
distribution of one right (a Right) for each outstanding share of the
Companys common stock paid on December 16, 2002, to shareholders of record at
the close of business on December 2, 2002. Each Right entitles the registered
holder to purchase from the Company a unit (a Unit) consisting of one
one-hundredth of a share of Class A Preferred Stock at a purchase price of $80
per Unit. Under the Plan, the Rights detach and become exercisable upon the
earlier of (a) ten (10) days following public announcement that a person or
group of affiliated or associated persons has acquired, or obtained the right to
acquire, beneficial ownership of 15% or more of the outstanding shares of the
Companys common stock, or (b) ten (10) business days following the commencement
of, or first public announcement of the intent of a person or

58

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group to commence, a tender offer or
exchange offer that would result in a person or group beneficially owning 15% or
more of such outstanding shares of the Companys common stock. The exercise
price, the kind and the number of shares covered by each right are subject to
adjustment upon the occurrence of certain events described in the
Plan.

If the
Company is acquired in a merger or consolidation in which the Company is not the
surviving corporation, or the Company engages in a merger or consolidation in
which the Company is the surviving corporation and the Companys common stock is
changed or exchanged, or more than 50% of the Companys assets or earning power
is sold or transferred, the Rights entitle a holder (other than the acquiring
person or group) to buy, at the exercise price, stock of the acquiring company
having a market value equal to twice the exercise price. Following an
acquisition by such person or group of 50% or more of the outstanding common
stock, the Companys Board of Directors may exchange the Rights (other than the
Rights owned by such person or group), in whole or in part, at an exchange ratio
of one share of the Companys common stock, or one one-hundredth of a share of
Preferred Stock, per Right.

The Rights
expire on November 11, 2012, and are redeemable upon action by the Board of
Directors at a price of $0.01 per right at any time before they become
exercisable. Until the Rights become exercisable, they are evidenced only by the
common stock certificates and are transferred with and only with such
certificates.

15. Concentration of
Risk

Financial
instruments that potentially subject the Company to concentrations of credit
risk consist primarily of cash and cash equivalents. The Company invests its
cash and cash equivalents into high credit quality security instruments.
Deposits which exceed $250,000 at each institution are not insured by the
Federal Deposit Insurance Corporation. Of the $5.2 million in cash and cash
equivalents on the Consolidated Balance Sheets at December 31, 2008, $5.4
million was not insured by the Federal Deposit Insurance Corporation. The total
amount not insured is higher than cash and cash equivalents due to larger bank
than book balances.

The Company
generates a significant amount of title insurance premiums in North Carolina. In
2008, 2007 and 2006, North Carolina accounted for 47.9%, 49.2% and 49.8% of
total direct title premiums, respectively.

16. Related Party
Transactions

During 2008,
the Company repurchased 106,000 shares of common stock at a value of
approximately $4,922,000 from a non-employee director and family member of that
director. The shares were repurchased in three separate transactions pursuant to
the purchase plan that was publicly announced on June 5, 2000. The shares were
purchased at the current bid price on the day of each transaction.

The Company
has investments in unconsolidated affiliates in limited liability companies that
are accounted for under the equity method of accounting. The following table
sets forth the approximate values by year found within each financial statement
classification:

|Financial
      Statement Classification,      |  |      |               |      |   |         |  |   |        
|---------------------------------------------- |  | ---- | ------------- | ---- | - | ------- |  | - | -------
|Consolidated Balance
      Sheets              |  | 2008 |               | 2007 |   |         | 
|Other investments                              |  | $    | 1,146,000     |      | $ | 841,000 |  |   |        
|Premium and fees
      receivable              |  |      | 432,000       |      |   | 401,000 |  |   |        
|                                              
|Financial
      Statement Classification,      |  |      |               |      |   |         |  |   |        
|Consolidated Statements of Income
      (Loss) |  | 2008 |               | 2007 |   | 2006   
|Other income                                   |  | $    | **1,175,000** |      | $ | 953,000 |  | $ | 633,000

59

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|ITEM 9. |  | CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
|------- |  | ------------------------------------------------------------------------------------------------

None

ITEM 9A. CONTROLS AND
PROCEDURES

Disclosure Controls and
Procedures

An
evaluation was performed by the Companys management, including its Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Companys disclosure controls and procedures. Based
on that evaluation, the Companys Chief Executive Officer and Chief Financial
Officer concluded that the Companys disclosure controls and procedures were
effective as of December 31, 2008 for the purpose of providing reasonable
assurance that the information required to be disclosed in the reports the
Company files or submits under the Securities Exchange Act of 1934 (the Act)
(i) is recorded, processed, summarized and reported within the time periods
specified in the SECs rules and forms and (ii) is accumulated and communicated
to the Companys management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosures.

Changes in Internal Control Over
Financial Reporting

During the
quarter ended December 31, 2008, there were no changes in the Companys internal
control over financial reporting that have materially affected, or are
reasonably likely to materially affect, the Companys internal control over
financial reporting.

Reports of Management and Independent
Registered Public Accounting Firm on Internal Control Over Financial
Reporting

Management
has assessed, and the Companys independent registered public accounting firm,
Dixon Hughes PLLC, has audited, the Companys internal control over financial
reporting as of December 31, 2008. The unqualified reports of management and
Dixon Hughes PLLC thereon are included in Item 8 of this Annual Report on Form
10-K and are incorporated by reference herein.

ITEM 9B. OTHER
INFORMATION

There was no
information required to be disclosed in a report on Form 8-K during the fourth
quarter of the year that has not been reported.

60

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS
AND CORPORATE GOVERNANCE

The
information called for by this item is incorporated by reference to the material
under the captions Proposals Requiring Your Vote, General Information -
Section 16(a) Beneficial Ownership Reporting Compliance, Corporate Governance
 Board of Directors and Committees  The Audit Committee and Corporate
Governance  Code of Business Conduct and Ethics in the Companys definitive
Proxy Statement for the Annual Meeting of Shareholders to be held on May 20,
2009. Other information with respect to the executive officers of the Company is
included at the end of Part I of this Form 10-K Annual Report under the separate
caption Executive Officers of the Company.

ITEM 11. EXECUTIVE
COMPENSATION

The
information called for by this item is set forth under the captions Executive
Compensation, Compensation of Directors, Corporate Governance  Compensation
Committee Interlocks and Insider Participation and Compensation Committee
Report in the Companys definitive Proxy Statement relating to the Annual
Meeting of Shareholders to be held on May 20, 2009 and is incorporated by
reference in this Form 10-K Annual Report.

|ITEM 12. | **** | SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
|-------- | ---- | ----------------------------------------------------------------------------------------------------------

The
information pertaining to securities ownership of certain beneficial owners and
management is set forth under the caption Stock Ownership of Certain Beneficial
Owners and Management in the Companys definitive Proxy Statement relating to
the Annual Meeting of Shareholders to be held on May 20, 2009 and is
incorporated by reference in this Form 10-K Annual Report.

The
following table provides information about the Companys compensation plans
under which equity securities are authorized for issuance as of December 31,
2008. The Company does not have any equity compensation plans that have not been
approved by its shareholders.

Equity Compensation Plan
Information

|                                          |  |                         |        |                      |  |                     |       |  |  | Number of Securities
|----------------------------------------- |  | ----------------------- | ------ | -------------------- |  | ------------------- | ----- |  |  | --------------------
|                                          |  | Number of Securities to |        | Weighted-Average     |  | Remaining Available
|                                          |  | be Issued Upon Exercise |        | Exercise Price of    |  | for Future Issuance
|                                          |  | of Outstanding Options, |        | Outstanding Options, |  | Under Equity       
|Plan Category                             |  | Warrants and Rights     |        | Warrants and Rights  |  | Compensation Plans 
|Equity compensation plans approved by     |  |                         |        |                      |  |                     |       |  |  |                     
|shareholders                              |  |                         | 47,070 |                      |  | $                   | 24.83 |  |  |                     
|Equity compensation plans not approved by |  |                         |        |                      |  |                     |       |  |  |                     
|shareholders                              |  |                         | -      |                      |  |                     | -     |  |  |                     
|Total                                     |  |                         | 47,070 |                      |  | $                   | 24.83 |  |  |                     

|ITEM 13. | **** | CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
      INDEPENDENCE
|-------- | ---- | ------------------------------------------------------------------------------------

The
information called for by this item is set forth under the captions Certain
Relationships and Related Transactions and Corporate Governance  Independent
Directors set forth in the Companys definitive Proxy Statement relating to the
Annual Meeting of Shareholders to be held on May 20, 2009 and is incorporated by
reference in this Form 10-K Annual Report.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND
SERVICES

The
information pertaining to principal accountant fees and services is set forth
under the caption Independent Registered Public Accounting Firm in the
Companys definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on May 20, 2009 is incorporated by reference in this
Form 10-K Annual Report.

61

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL
STATEMENT SCHEDULES

(a)(1)Financial Statements.

The
following financial statements are filed under Item 8 of this Form 10-K Annual
Report:Report of Independent Registered
Public Accounting FirmManagements
Report on Internal Control Over Financial Reporting Report of Independent Registered
Public Accounting Firm on Internal Control Over Financial ReportingConsolidated Balance Sheets as of
December 31, 2008 and 2007Consolidated Statements of Income
(Loss) for the Years Ended December 31, 2008, 2007 and 2006Consolidated Statements of
Stockholders Equity for the Years Ended December 31, 2008, 2007 and
2006Consolidated
Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2008,
2007 and 2006Consolidated
Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and
2006Notes to Consolidated
Financial Statements

(a)(2)Financial Statement Schedules.

Following is a list of financial
statement schedules filed as part of this Form 10-K Annual Report:

Schedule
      Number
    
    DescriptionI
    
    Summary of
      Investments - Other Than Investments in Related PartiesII
    
    Condensed
      Financial Information of RegistrantIII
    
    Supplementary
      Insurance InformationIV
    
    ReinsuranceV
    
    Valuation and
      Qualifying Accounts


All other
schedules are omitted, as the required information either is not applicable, is
not required, or is presented in the consolidated financial statements or the
notes thereto.

(a)(3)Exhibits.

The exhibits
filed as a part of this report and incorporated herein by reference to other
documents are listed in the Index to Exhibits to this Annual Report on Form
10-K.

62

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SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

**INVESTORS TITLE
      COMPANY**(Registrant)


By:
    /s/ J. Allen
      FineJ.
      Allen Fine, Chairman and Chief ExecutiveOfficer(Principal Executive
      Officer)


March 9, 2009

Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities indicated on
the 9th day of March, 2009.

|/s/ J.
      Allen Fine                              |  | /s/ James R.
      Morton           | 
|---------------------------------------------------- |  | ----------------------------------- | 
|J. Allen Fine,
      Chairman of the Board and Chief |  | James R. Morton,
      Director     | 
|Executive
      Officer                              |  |                                     | 
|(Principal
      Executive Officer)                  |  |                                     | 
|                                                     | 
|/s/
      James A. Fine, Jr.                         |  | /s/ A.
      Scott Parker III       | 
|James A. Fine,
      Jr., President, Treasurer and   |  | A. Scott Parker
      III, Director | 
|Director(Principal Financial Officer
      and       |  |                                     | 
|Principal
      Accounting Officer)                  |  |                                     | 
|                                                     | 
|/s/ W.
      Morris Fine                             |  | /s/ H.
      Joe King, Jr.          | 
|W. Morris Fine,
      Executive Vice President,      |  | H. Joe King,
      Jr., Director    | 
|Secretary and
      Director                         |  |                                     | 
|                                                     | 
|                                                     | 
|/s/
      David L. Francis                           |  | /s/ R.
      Horace Johnson         | 
|David L.
      Francis, Director                     |  | R. Horace
      Johnson, Director   | 
|                                                     | 
|/s/
      Richard M. Hutson, II                      |  |                                     | 
|Richard M.
      Hutson, II, Director                |  |                                     | 

63

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SCHEDULE I

INVESTORS TITLE COMPANY AND
SUBSIDIARIESSUMMARY OF INVESTMENTS 
OTHER THAN INVESTMENTS IN RELATED PARTIESAS OF DECEMBER 31,
2008

|                                                         |  |          |             |              |  |           |             |  |  | Amount at           
|-------------------------------------------------------- |  | -------- | ----------- | ------------ |  | --------- | ----------- |  |  | --------------------
|                                                         |  |          |             |              |  |           |             |  |  | which
      shown in
|                                                         |  |          |             |              |  |           |             |  |  | the
      Balance   
|Type of
    Investment                                   |  | Cost (1) |             | Market Value |  | Sheet (2)
|Fixed Maturities:                                        |  |          |             |              |  |           |             |  |  |                     
|Bonds:                                                   |  |          |             |              |  |           |             |  |  |                     
|States, municipalities & political
    subs              |  | $        | 73,270,094  |              |  | $         | 74,473,176  |  |  | $                   
|All other corporate bonds                                |  |          | 13,105,170  |              |  |           | 13,697,904  |  |  |                     
|Short-term investments                                   |  |          | 15,725,513  |              |  |           | 15,725,513  |  |  |                     
|Total fixed maturities                                   |  |          | 102,100,777 |              |  |           | 103,896,593 |  |  |                     
|                                                        
|Equity Securities:                                       |  |          |             |              |  |           |             |  |  |                     
|Common Stocks:                                           |  |          |             |              |  |           |             |  |  |                     
|Public utilities                                         |  |          | 540,630     |              |  |           | 529,741     |  |  |                     
|Banks, trust and insurance companies                     |  |          | 34,884      |              |  |           | 86,100      |  |  |                     
|Industrial, miscellaneous and all other                  |  |          | 8,165,246   |              |  |           | 8,886,081   |  |  |                     
|Nonredeemable preferred stocks                           |  |          | 418,025     |              |  |           | 463,375     |  |  |                     
|Total equity securities                                  |  |          | 9,158,785   |              |  |           | 9,965,297   |  |  |                     
|                                                        
|Other Investments                                        |  |          | 895,173     |              |  |           | 895,173     |  |  |                     
|Total investments per the consolidated balance sheet (3) |  | $        | 112,154,735 |              |  | $         | 114,757,063 |  |  | $                   

| | (1) |  | Fixed maturities are
      shown at amortized cost and equity securities are shown at original
      cost                                                                                                                 
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) |  | Bonds of states,
      municipalities and political subdivisions are shown at amortized cost for
      held-to-maturity bonds and fair value for available-for-sale bonds. Equity
      securities are shown at fair value
| | (3) |  | The above summary
      of investments does not include investments in related parties accounted
      for under the equity method of accounting in the amount of
      $1,145,789.                                       

64

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SCHEDULE II

INVESTORS TITLE COMPANY (PARENT
COMPANY)CONDENSED FINANCIAL INFORMATION OF REGISTRANTBALANCE SHEETSAS OF
DECEMBER 31, 2008 AND 2007

|                                                                   |  | 2008  |            | 2007
|------------------------------------------------------------------ |  | ----- | ---------- | ----
|Assets                                                             |  |       |            |     
|Cash and cash
      equivalents                                    |  | ****$ | 1,476,574  | ****
|Investments
      in fixed maturities, available-for-sale          |  |       | 13,975,353 |     
|Investments
      in equity securities, available-for-sale         |  |       | 89,100     |     
|Short-term
      investments                                       |  |       | 14,391,860 |     
|Investments
      in affiliated companies                          |  |       | 55,363,938 |     
|Other
      investments                                            |  |       | 470,481    |     
|Other
      receivables                                            |  |       | 710,860    |     
|Income taxes
      receivable                                      |  |       | 1,054,569  |     
|Accrued
      interest and dividends                               |  |       | 218,070    |     
|Property,
      net                                                |  |       | 2,914,630  |     
|Deferred
      income taxes, net                                   |  |       | 243,298    |     
|Total Assets                                                       |  | $     | 90,908,733 |     
|                                                                   | 
|Liabilities and Stockholders Equity                               |  |       |            |     
|Liabilities:                                                       |  |       |            |     
|Accounts
      payable and accrued liabilities                     |  | $     | 1,050,845  |     
|Total liabilities                                                  |  |       | 1,050,845  |     
|                                                                   | 
|Stockholders Equity:                                              |  |       |            |     
|Class A
      Junior Participating preferred stock - no par value  |  |       |            |     
|(shares authorized 100,000; no shares
      issued)                |  |       | -          |     
|Common
      stock-no par (shares authorized 10,000,000; 2,293,268 |  |       |            |     
|and 2,411,318 shares issued and outstanding 2008 and
      2007,   |  |       |            |     
|respectively, excluding 291,676 shares for 2008
      and          |  |       |            |     
|2007 of common stock held by the Companys
      subsidiary)       |  |       | 1          |     
|Retained
      earnings                                            |  |       | 88,248,452 |     
|Accumulated
      other comprehensive income                       |  |       | 1,609,435  |     
|Total stockholders equity                                         |  |       | 89,857,888 |     
|Total Liabilities and Stockholders Equity                         |  | $     | 90,908,733 |     

See notes to condensed financial
statements.

65

---

SCHEDULE II

INVESTORS TITLE COMPANY (PARENT
COMPANY)CONDENSED FINANCIAL INFORMATION OF REGISTRANTSTATEMENTS OF INCOME (LOSS)FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006

|                                                     |  | 2008 |             | 2007 |  | 2006
|---------------------------------------------------- |  | ---- | ----------- | ---- |  | ----
|Revenues:                                            |  |      |             |      |  |     
|Investment
      income-interest and dividends       |  | $    | 985,277     |      |  | $   
|Net realized (loss) gain on investments              |  |      | (120,093)   |      |  |     
|Rental
      income                                  |  |      | 717,044     |      |  |     
|Miscellaneous income (loss)                          |  |      | 37,139      |      |  |     
|Total                                                |  |      | 1,619,367   |      |  |     
|Operating Expenses:                                  |  |      |             |      |  |     
|Salaries,
      employee benefits, and payroll taxes |  |      | 320,258     |      |  |     
|Office occupancy and operations                      |  |      | 356,072     |      |  |     
|Business
      development                           |  |      | 46,130      |      |  |     
|Taxes-other than payroll and income                  |  |      | 155,510     |      |  |     
|Professional
      fees                              |  |      | 243,394     |      |  |     
|Other expenses                                       |  |      | 98,236      |      |  |     
|Total                                                |  |      | 1,219,600   |      |  |     
|                                                    
|Equity in Net (Loss) Income of Affiliated Cos.       |  |      | (1,634,566) |      |  |     
|(Loss) Income
      Before Income Taxes              |  |      | (1,234,799) |      |  |     
|(Benefit) Provision for Income Taxes                 |  |      | (52,000)    |      |  |     
|Net (Loss)
      Income                              |  | $    | (1,182,799) |      |  | $   
|Basic (Loss) Earnings per Common Share               |  | $    | (0.50)      |      |  | $   
|Weighted
      Average Shares Outstanding-Basic      |  |      | 2,364,361   |      |  |     
|Diluted (Loss) Earnings Per Common Share             |  | $    | (0.50)      |      |  | $   
|Weighted
      Average Shares Outstanding-Diluted    |  |      | 2,364,361   |      |  |     

See notes to condensed financial
statements.

66

---

SCHEDULE II

INVESTORS TITLE COMPANY (PARENT
COMPANY)CONDENSED FINANCIAL INFORMATION OF REGISTRANTSTATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006

|                                                                               |  | 2008 |             | 2007 |  | 2006
|------------------------------------------------------------------------------ |  | ---- | ----------- | ---- |  | ----
|Operating Activities:                                                          |  |      |             |      |  |     
|Net (loss) income                                                              |  | $    | (1,182,799) |      |  | $   
|Adjustments
      to reconcile net (loss) income to net cash provided          |  |      |             |      |  |     
|by operating activities:                                                       |  |      |             |      |  |     
|Equity in net loss (earnings) of
      subsidiaries                            |  |      | 1,634,566   |      |  |     
|Depreciation                                                                   |  |      | 124,334     |      |  |     
|Amortization, net                                                              |  |      | 12,582      |      |  |     
|Issuance of common stock in payment of bonuses and
      fees                  |  |      | 1,946       |      |  |     
|Net realized loss (gain) on investments                                        |  |      | 120,093     |      |  |     
|(Benefit) provision for deferred income
      taxes                            |  |      | (119,000)   |      |  |     
|(Increase) decrease in receivables                                             |  |      | (419,469)   |      |  |     
|Decrease (increase) in income taxes
      receivable-current                   |  |      | 200,588     |      |  |     
|(Increase) decrease in other assets                                            |  |      | (4,002)     |      |  |     
|Increase in accounts payable and accrued
      liabilities                     |  |      | 126,398     |      |  |     
|Net cash provided by operating activities                                      |  |      | 495,237     |      |  |     
|                                                                              
|Investing Activities:                                                          |  |      |             |      |  |     
|Capital
      contribution to subsidiaries                                     |  |      | (125,000)   |      |  |     
|Return of
      capital contributions from subsidiaries                        |  |      | -           |      |  |     
|Dividends
      received from subsidiaries                                     |  |      | 5,083,607   |      |  |     
|Purchases of
      available-for-sale securities                               |  |      | (7,437,280) |      |  |     
|Purchases of
      short-term securities                                       |  |      | (2,006,477) |      |  |     
|Purchases of
      and net earnings from other investments                     |  |      | (15,789)    |      |  |     
|Proceeds from
      sales and maturities of available-for-sale securities      |  |      | 10,900,000  |      |  |     
|Proceeds from
      sales of short-term securities                             |  |      | 736,694     |      |  |     
|Proceeds from
      sales and distributions from other investments             |  |      | 41,250      |      |  |     
|Purchases of
      property                                                    |  |      | -           |      |  |     
|Net cash provided by investing activities                                      |  |      | 7,177,005   |      |  |     
|                                                                              
|Financing Activities:                                                          |  |      |             |      |  |     
|Retirement of
      common stock                                               |  |      | (5,972,043) |      |  |     
|Exercise of
      options                                                      |  |      | 230,801     |      |  |     
|Dividends
      paid (net dividends paid to subsidiary of $81,669,             |  |      |             |      |  |     
|$70,002 and $70,401 in 2008, 2007 and 2006,
      respectively)                |  |      | (661,862)   |      |  |     
|Net cash used in financing activities                                          |  |      | (6,403,104) |      |  |     
|                                                                              
|Net Increase (Decrease) in Cash and Cash Equivalents                           |  |      | 1,269,138   |      |  |     
|Cash and Cash
      Equivalents, Beginning of Year                             |  |      | 207,436     |      |  |     
|Cash and Cash Equivalents, End of Year                                         |  | $    | 1,476,574   |      |  | $   
|                                                                              
|Supplemental Disclosures:                                                      |  |      |             |      |  |     
|Cash Paid
      (Refunded) During the Year For                                 |  |      |             |      |  |     
|Income Taxes
      (net of refunds)                                            |  | $    | (473,000)   |      |  | $   
|                                                                              
|Non cash net
      unrealized loss (gain) on investments, net of deferred      |  |      |             |      |  |     
|tax (benefit) provision of $987,103, ($219,001) and
      ($185,475) for 2008, |  |      |             |      |  |     
|2007 and 2006, respectively                                                    |  | $    | 1,872,812   |      |  | $   

See notes to condensed financial
statements.

67

---

SCHEDULE II

INVESTORS TITLE COMPANY AND
SUBSIDIARIESCONDENSED FINANCIAL
INFORMATION OF REGISTRANTNOTES TO THE CONDENSED FINANCIAL
STATEMENTS

|1. |  | The accompanying
      condensed financial statements should be read in conjunction with the
      consolidated financial statements and notes thereto of Investors Title
      Company and Subsidiaries.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Cash dividends paid to
      Investors Title Company by its wholly owned subsidiaries were as
      follows:                                                                                             

|Subsidiaries                                    |  | 2008 |           | 2007 |  | 2006
|----------------------------------------------- |  | ---- | --------- | ---- |  | ----
|Investors Title Insurance Company, net*         |  | $    | 4,928,607 |      |  | $   
|Investors Title
      Exchange Corporation      |  |      | -         |      |  |     
|Investors Title Accommodation Corporation       |  |      | 5,000     |      |  |     
|Investors Title
      Management Services, Inc. |  |      | -         |      |  |     
|Investors Title Capital Management Corporation  |  |      | 35,000    |      |  |     
|Investors Title
      Commercial Agency         |  |      | 115,000   |      |  |     
|                                                |  | $    | 5,083,607 |      |  | $   

|* |  | Total dividends of $5,010,276,
      $10,732,722 and $5,047,351 paid to the Parent Company in 2008, 2007 and
      2006, respectively, netted with dividends of $81,669, $70,002 and $70,401
      received from the Parent in 2008, 2007 and 2006,
  respectively.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

68

---

SCHEDULE III

INVESTORS TITLE COMPANY AND
SUBSIDIARIESSUPPLEMENTARY INSURANCE
INFORMATIONFOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND
2006

|                                   |  |             |  | Future     |            |          |  |          |  |         |         |            |  |            |            |             |  |                 |           |                 |  |   |            |  |  |   |  |   |            | 
|---------------------------------- |  | ----------- |  | ---------- | ---------- | -------- |  | -------- |  | ------- | ------- | ---------- |  | ---------- | ---------- | ----------- |  | --------------- | --------- | --------------- |  | - | ---------- |  |  | - |  | - | ---------- | 
|                                   |  |             |  | Policy     |            |          |  | Other    |  |         |         |            |  |            |            |             |  |                 |           |                 |  |   |            |  |  |   |  |  
|                                   |  |             |  | Benefits   |            |          |  | Policy   |  |         |         |            |  |            |            |             |  | Benefit         |           |                 |  |   |            |  |  |  
|                                   |  | Deferred    |  | Losses,    |            |          |  | Claims   |  |         |         |            |  |            |            |             |  | Claims,         |           | Amortization of |  |   |            |  |  |  
|                                   |  | Policy      |  | Claims and |            |          |  | and      |  |         |         |            |  | Net        |            | Losses and  |  | Deferred Policy |           | Other           |  |  
|                                   |  | Acquisition |  | Loss       |            | Unearned |  | Benefits |  | Premium |         | Investment |  | Settlement |            | Acquisition |  | Operating       |           | Premiums       
|Segment                            |  | Cost        |  | Expenses   |            | Premiums |  | Payable  |  | Revenue |         | Income     |  | Expenses   |            | Costs       |  | Expenses        |           | Written        
|Year Ended
      December 31, 2008 |  |             |  |            |            |          |  |          |  |         |         |            |  |            |            |             |  |                 |           |                 |  |   |            |  |  |   |  |   |            | 
|Title Insurance                    |  | -           |  | $          | 39,238,000 |          |  | -        |  | $       | 467,388 |            |  | $          | 63,662,187 |             |  | $               | 3,495,088 |                 |  | $ | 15,206,637 |  |  | - |  | $ | 54,019,867 | 
|Exchange
      Services            |  | -           |  |            | -          |          |  | -        |  |         | -       |            |  |            | -          |             |  |                 | 37,840    |                 |  |   | -          |  |  | - |  |   | 1,160,070  | 
|All Other                          |  | -           |  |            | -          |          |  | -        |  |         | -       |            |  |            | -          |             |  |                 | 1,025,807 |                 |  |   | -          |  |  | - |  |   | 3,953,486  | 
|                                   |  | -           |  | $          | 39,238,000 |          |  | -        |  | $       | 467,388 |            |  | $          | 63,662,187 |             |  | $               | 4,558,735 |                 |  | $ | 15,206,637 |  |  | - |  | $ | 59,133,423 | 
|                                  
|Year Ended
      December 31, 2007 |  |             |  |            |            |          |  |          |  |         |         |            |  |            |            |             |  |                 |           |                 |  |   |            |  |  |   |  |   |            | 
|Title Insurance                    |  | -           |  | $          | 36,975,000 |          |  | -        |  | $       | 406,922 |            |  | $          | 69,983,989 |             |  | $               | 3,954,898 |                 |  | $ | 10,134,719 |  |  | - |  | $ | 58,034,137 | 
|Exchange
      Services            |  | -           |  |            | -          |          |  | -        |  |         | -       |            |  |            | -          |             |  |                 | 29,501    |                 |  |   | -          |  |  | - |  |   | 1,480,094  | 
|All Other                          |  | -           |  |            | -          |          |  | -        |  |         | -       |            |  |            | -          |             |  |                 | 1,212,779 |                 |  |   | -          |  |  | - |  |   | 3,469,002  | 
|                                   |  | -           |  | $          | 36,975,000 |          |  | -        |  | $       | 406,922 |            |  | $          | 69,983,989 |             |  | $               | 5,197,178 |                 |  | $ | 10,134,719 |  |  | - |  | $ | 62,983,233 | 
|                                  
|Year Ended
      December 31, 2006 |  |             |  |            |            |          |  |          |  |         |         |            |  |            |            |             |  |                 |           |                 |  |   |            |  |  |   |  |   |            | 
|Title Insurance                    |  | -           |  | $          | 36,906,000 |          |  | -        |  | $       | 470,468 |            |  | $          | 70,196,467 |             |  | $               | 3,688,966 |                 |  | $ | 7,405,211  |  |  | - |  | $ | 55,557,492 | 
|Exchange
      Services            |  | -           |  |            | -          |          |  | -        |  |         | -       |            |  |            | -          |             |  |                 | 18,138    |                 |  |   | -          |  |  | - |  |   | 1,346,743  | 
|All Other                          |  | -           |  |            | -          |          |  | -        |  |         | -       |            |  |            | -          |             |  |                 | 619,231   |                 |  |   | -          |  |  | - |  |   | 3,022,836  | 
|                                   |  | -           |  | $          | 36,906,000 |          |  | -        |  | $       | 470,648 |            |  | $          | 70,196,467 |             |  | $               | 4,326,335 |                 |  | $ | 7,405,211  |  |  | - |  | $ | 59,927,071 | 

69

---

SCHEDULE IV

INVESTORS TITLE COMPANY AND
SUBSIDIARIESREINSURANCEFOR THE YEARS ENDED
DECEMBER 31, 2008, 2007 AND 2006

|                             |  |              |            |           |  |                |         |            |  | Assumed |         |  |                      |   |           
|---------------------------- |  | ------------ | ---------- | --------- |  | -------------- | ------- | ---------- |  | ------- | ------- |  | -------------------- | - | ----------
|                             |  |              |            |           |  | Ceded
      to |         | from       |  |         |         |  | Percentage
      of 
|                             |  |              |            |           |  | Other          |         | Other      |  |         |         |  | Amount
      Assumed
|                             |  | Gross Amount |            | Companies |  | Companies      |         | Net Amount |  | to Net 
|Year Ended December 31, 2008 |  |              |            |           |  |                |         |            |  |         |         |  |                      |   |           
|Title
      Insurance        |  | $            | 63,770,383 |           |  | $              | 275,089 |            |  | $       | 166,893 |  |                      | $ | 63,662,187
|                            
|Year Ended December 31, 2007 |  |              |            |           |  |                |         |            |  |         |         |  |                      |   |           
|Title
      Insurance        |  | $            | 70,205,350 |           |  | $              | 264,177 |            |  | $       | 42,816  |  |                      | $ | 69,983,989
|                            
|Year Ended December 31, 2006 |  |              |            |           |  |                |         |            |  |         |         |  |                      |   |           
|Title
      Insurance        |  | $            | 70,615,891 |           |  | $              | 441,582 |            |  | $       | 22,158  |  |                      | $ | 70,196,467

70

---

SCHEDULE V

INVESTORS TITLE COMPANY AND
SUBSIDIARIESVALUATION AND QUALIFYING
ACCOUNTSFOR THE YEARS ENDED DECEMBER
31, 2008, 2007 AND 2006

|                          |  |              |            |                 | Additions |                        | Additions |              |  |                |              |     |  |   |           
|------------------------- |  | ------------ | ---------- | --------------- | --------- | ---------------------- | --------- | ------------ |  | -------------- | ------------ | --- |  | - | ----------
|                          |  | Balance at   |            | Charged to      |           | Charged
      to       |           |              |  |                |              |     |  |  
|                          |  | Beginning of |            | Costs
      and |           | Other Accounts
       |           | Deductions  |  | Balance at End
|Description               |  | Period       |            | Expenses        |           | Describe               |           | Describe*    |  | of Period     
|2008                      |  |              |            |                 |           |                        |           |              |  |                |              |     |  |   |           
|Premium
      Receivable  |  |              |            |                 |           |                        |           |              |  |                |              |     |  |   |           
|Valuation Provision       |  | $            | 2,170,000  |                 | $         | 7,397,511              |           | $       -    |  | $              | (8,270,511)  | (a) |  | $ | 1,297,000 
|Reserves for
      Claims |  | $            | 36,975,000 |                 | $         | 15,206,637             |           | $       -    |  | $              | (12,943,637) | (b) |  | $ | 39,238,000
|                          | 
|2007                      |  |              |            |                 |           |                        |           |              |  |                |              |     |  |   |           
|Premium
      Receivable  |  |              |            |                 |           |                        |           |              |  |                |              |     |  |   |           
|Valuation
      Provision |  | $            | 2,128,000  |                 | $         | 5,298,809              |           | $       -    |  | $              | (5,256,809)  | (a) |  | $ | 2,170,000 
|Reserves for
      Claims |  | $            | 36,906,000 |                 | $         | 10,134,719             |           | $       -    |  | $              | (10,065,719) | (b) |  | $ | 36,975,000
|                          | 
|2006                      |  |              |            |                 |           |                        |           |              |  |                |              |     |  |   |           
|Premium
      Receivable  |  |              |            |                 |           |                        |           |              |  |                |              |     |  |   |           
|Valuation
      Provision |  | $            | 2,444,000  |                 | $         | 4,927,691              |           | $       -    |  | $              | (5,243,691)  | (a) |  | $ | 2,128,000 
|Reserves for
      Claims |  | $            | 34,857,000 |                 | $         | 7,405,211              |           | $       -    |  | $              | (5,356,211)  | (b) |  | $ | 36,906,000

| | (a) |  | Cancelled
      premiums                   
| | --- |  | -------------------------------------------
| | (b) |  | Payments of claims,
      net of recoveries

71

---

INDEX TO EXHIBITS

|Exhibit  |  |                                                                                                                                                                                                                                                               
|-------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number   |  | Description                                                                                                                                                                                                                                                   
|3(i)     |  | Articles of Incorporation dated January 22, 1973,
      incorporated by reference to Exhibit 1 to Form 10 dated June 12,
      1984                                                                                                                           
|         |  |                                                                                                                                                                                                                                                               
|3(ii)    |  | Bylaws  (amended and restated November 12, 2007),
      incorporated by reference to Exhibit 3.1 to the Registrants Current
      Report on Form 8-K dated November 12, 2007, File No. 0-11774                                                              
|         |  |                                                                                                                                                                                                                                                               
|4        |  | Rights Agreement, dated as of November 12, 2002, between
      Investors Title Company and Central Carolina Bank, a division of National
      Bank of Commerce, incorporated by reference to Exhibit 1 to Form 8-A filed
      November 15, 2002             
|         |  |                                                                                                                                                                                                                                                               
|10(i)    |  | 1997 Stock Option and Restricted Stock Plan,
      incorporated by reference to Exhibit 10(viii) to Form 10-K for the year
      ended December 31, 1996                                                                                                      
|         |  |                                                                                                                                                                                                                                                               
|10(ii)   |  | Form of Nonqualified Stock Option Agreement to
      Non-employee Directors dated May 13, 1997 under the 1997 Stock Option and
      Restricted Stock Plan, incorporated by reference to Exhibit 10(ix) to Form
      10-Q for the quarter ended June 30, 1997
|         |  |                                                                                                                                                                                                                                                               
|10(iii)  |  | Form of Nonqualified Stock Option Agreement under 1997
      Stock Option and Restricted Stock Plan, incorporated by reference to
      Exhibit 10(x) to Form 10-K for the year ended December 31,
  1997                                                     
|         |  |                                                                                                                                                                                                                                                               
|10(iv)   |  | Form of Incentive Stock Option Agreement under 1997
      Stock Option and Restricted Stock Plan, incorporated by reference to
      Exhibit 10(xi) to Form 10-K for the year ended December 31,
  1997                                                       
|         |  |                                                                                                                                                                                                                                                               
|10(v)    |  | Form of Amendment to Incentive Stock Option Agreement
      between Investors Title Company and George Abbitt Snead incorporated by
      reference to Exhibit 10(xii) to Form 10-Q for the quarter ended June 30,
      2000                                 
|         |  |                                                                                                                                                                                                                                                               
|10(vi)   |  | 2001 Stock Option and Restricted Stock Plan,
      incorporated by reference to Exhibit 10(xiii) to Form 10-K for the year
      ended December 31, 2000                                                                                                      
|         |  |                                                                                                                                                                                                                                                               
|10(vii)  |  | Amended and Restated Employment Agreement effective
      January 1, 2009 for J. Allen Fine                                                                                                                                                                   
|         |  |                                                                                                                                                                                                                                                               
|10(viii) |  | Amended and Restated Employment Agreement effective
      January 1, 2009 for James A. Fine, Jr.                                                                                                                                                              
|         |  |                                                                                                                                                                                                                                                               
|10(ix)   |  | Amended and Restated Employment Agreement effective
      January 1, 2009 for W. Morris Fine                                                                                                                                                                  
|         |  |                                                                                                                                                                                                                                                               
|10(x)    |  | Amended and Restated Death Benefit Plan Agreement
      effective January 1, 2009 for J. Allen Fine                                                                                                                                                           
|         |  |                                                                                                                                                                                                                                                               
|10(xi)   |  | Amended and Restated Death Benefit Plan Agreement
      effective January 1, 2009 for James A. Fine, Jr.                                                                                                                                                      
|         |  |                                                                                                                                                                                                                                                               
|10(xii)  |  | Death Benefit Plan Agreement effective January 1, 2009
      for W. Morris Fine                                                                                                                                                                               
|         |  |                                                                                                                                                                                                                                                               
|10(xiii) |  | Amended and Restated Nonqualified Deferred Compensation
      Plan effective January 1, 2009                                                                                                                                                                  
|         |  |                                                                                                                                                                                                                                                               
|10(xiv)  |  | Amended and Restated Nonqualified Supplemental
      Retirement Benefit Plan effective January 1, 2009                                                                                                                                                        
|         |  |                                                                                                                                                                                                                                                               
|21       |  | Subsidiaries of Registrant, incorporated by reference to
      Exhibit 21 to Form 10-K for the year ended December 31, 2003                                                                                                                                   
|         |  |                                                                                                                                                                                                                                                               
|23       |  | Consent of Independent Registered Public Accounting
      Firm                                                                                                                                                                                                
|         |  |                                                                                                                                                                                                                                                               
|31(i)    |  | Certification of Chief Executive Officer pursuant to
      Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                      
|         |  |                                                                                                                                                                                                                                                               
|31(ii)   |  | Certification of Chief Financial Officer pursuant to
      Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                      
|         |  |                                                                                                                                                                                                                                                               
|32       |  | Certification of Chief Executive Officer and Chief
      Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002                                                                                                                    

72

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