RISKS AND UNCERTAINTIES EXIST THAT MAY CAUSE RESULTS TO DIFFER MATERIALLY FROM THOSE SET FORTH IN THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE THE ANTICIPATED RESULTS TO DIFFER FROM THOSE DESCRIBED IN THE FORWARD-LOOKING STATEMENTS INCLUDE THE FACTORS SET FORTH ON PAGES 3-4 OF THIS ANNUAL REPORT. THE FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE THEY ARE MADE. THE COMPANY DOES NOT UNDERTAKE TO UPDATE FORWARD-LOOKING STATEMENTS TO REFLECT CIRCUMSTANCES OR EVENTS THAT OCCUR AFTER THE DATE THE FORWARD-LOOKING STATEMENTS ARE MADE.
During the second quarter of 2019, the Company initiated an investigation regarding potential unauthorized access to non-public personal information as a result of a vulnerability in one of the Company's applications. This investigation concluded during the third quarter of 2019. The investigation identified imaged documents containing non-public personal information pertaining to 32 consumers that likely were accessed without authorization. These 32 consumers were notified and offered complimentary credit monitoring services. This incident triggered numerous federal and state governmental inquiries as well as private lawsuits against the Company. Costs incurred during the year ended December 31, 2019 related to this incident were immaterial to the Company’s results of operations and financial condition. While, consistent with recent years, the Company expects to increase expenditures on its information security program, costs related specifically to this incident for future periods are expected to be immaterial to the Company’s results of operations and financial condition. Furthermore, the Company has insurance that may cover certain costs associated with this incident. Similarly, this incident’s impact on the Company’s business is expected to be immaterial.
The Company is increasingly utilizing decision science and other innovative technologies, processes and techniques to speed the delivery of its products, increase efficiency and otherwise improve the customer experience. These efforts include streamlining the closing process by converting certain manual processes into digital ones, which improves the customer experience by simplifying and reducing the time it takes to close a transaction, reducing the risk of fraud and improving communication. These efforts also include the automation of many of the tasks required to build and update title plants and to search and examine title records, among others. While many of these initiatives are also designed to decrease risk, they present risks of their own. The degree to which these innovative efforts will be successful, and their ultimate impact on the Company’s results of operations, is uncertain.
Net investment income increased $59.6 million, or 26.7%, in 2019 from 2018 and $85.9 million, or 62.5%, in 2018 from 2017. The increases were primarily attributable to higher average balances due primarily to strength in the Company’s commercial business and higher short-term interest rates, which drove higher income from the Company’s cash and investment portfolio, tax-deferred property exchange business and escrow balances.
A large part of the revenues for the specialty insurance businesses are generated by renewals and are not dependent on the level of real estate activity in the year of renewal. With the exception of loss expense, the majority of the expenses for this segment are variable in nature and therefore generally fluctuate consistent with revenue fluctuations. Accordingly, profit margins for this segment (before loss expense) are relatively constant, although as a result of some fixed expenses, profit margins (before loss expense) should nominally improve as premium revenues increase. Specialty insurance profit margins are also impacted by the segment’s net investment income and net realized investment gains or losses, which may not move in the same direction as premium revenues. Pre-tax margins were 13.2%, 5.8% and 7.9% for the years ended December 31, 2019, 2018 and 2017, respectively.
Cash provided by operating activities totaled $913.1 million, $793.2 million and $632.1 million for the years ended December 31, 2019, 2018 and 2017, respectively, after claim payments, net of recoveries, of $415.3 million, $450.8 million and $472.0 million, respectively. The principal nonoperating uses of cash and cash equivalents for the years ended December 31, 2019, 2018 and 2017 were purchases of debt and equity securities, dividends to common stockholders, capital expenditures and business acquisitions, and for the years ended December 31, 2019 and 2018, advances and repayments under secured financing agreements. The most significant nonoperating sources of cash and cash equivalents for the years ended December 31, 2019, 2018 and 2017 were proceeds from the sales and maturities of debt and equity securities, and, for the years ended December 31, 2019 and 2018, borrowings and collections under secured financing agreements. In addition, the decrease in deposits at the Company’s banking operations for the year ended December 31, 2019, reflected a nonoperating use of cash and cash equivalents, and the increases in deposits for the years ended December 31, 2018 and 2017, reflected nonoperating sources of cash and cash equivalents. The net effect of all activities on total cash and cash equivalents were increases of $18.8 million, $79.9 million and $381.1 million for the years ended December 31, 2019, 2018 and 2017, respectively.
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017
Management uses estimated future cash flows (undiscounted and excluding interest) to measure the recoverability of property and equipment whenever events or changes in circumstances indicate that the carrying value may not be fully recoverable. If the undiscounted cash flow analysis indicates that the carrying amount is not recoverable, an impairment loss is recorded for the excess of the carrying amount over its fair value. Impairment losses on property and equipment primarily related to impairments of internally developed software of $6.0 million for the year ended December 31, 2019. Impairment losses on property and equipment were not material for the years ended December 31, 2018 and 2017.
In December 2019, the FASB issued updated guidance intended to simplify and improve the accounting for income taxes. The updated guidance eliminates certain exceptions and clarifies and amends certain areas of the guidance. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2020, with early adoption permitted. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
Included in debt securities at December 31, 2019, were bank loans totaling $80.7 million, of which $72.1 million were non-investment grade; high yield corporate debt securities totaling $35.3 million, all of which were non-investment grade; and emerging market debt securities totaling $80.2 million, of which $8.1 million were non-investment grade.
Other notes and contracts payable with maturities through 2024, weighted-average interest rate of 4.02% and 4.49% at December 31, 2019 and 2018, respectively
Net periodic benefit costs related to the Company’s unfunded supplemental benefit and funded defined benefit pension plans included the following components:
The weighted-average discount rate assumptions used to determine net periodic benefit costs for the Company’s unfunded supplemental benefits plans for the years ended December 31, 2019, 2018 and 2017, were as follows:
The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments not measured at fair value as of December 31, 2019 and 2018:
Most of the non-ordinary course lawsuits to which the Company and its subsidiaries are parties challenge practices in the Company’s title insurance business, though a limited number of cases also pertain to the Company’s other businesses. These lawsuits include, among others, cases alleging, among other assertions, that the Company or one of its subsidiaries improperly charged fees for products and services, improperly handled property and casualty claims and gave items of value to builders as inducements to refer business in violation of certain laws, such as consumer protection laws and laws generally prohibiting unfair business practices, and certain obligations, including:
As other investments are not publicly traded, estimates of fair value could not be made without incurring excessive costs.