The Company’s volume of title insurance premiums is affected by the overall level of residential and commercial real estate activity, which includes sales, mortgage financing and mortgage refinancing. In turn, real estate activity is 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. Interest rate volatility is also an important factor in the level of residential and commercial real estate activity.
A provision for estimated future claims payments is recorded at the time the related policy revenue is recorded. The Company records the claims provision as a percentage of net premiums written. This provisional rate is set to provide for losses on current year policies. 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.
Commissions: Agent commissions represent the portion of premiums retained by agents pursuant to the terms of their respective agency contracts. Commissions to agents increased 13.0% in 2013 to $67,150,810 compared with $59,427,070 in 2012 and increased 19.8% in 2012 compared with $49,596,250 in 2011. The 2013 and 2012 increases were primarily due to increased real estate activity. Commission expense as a percentage of net premiums written by agents was 75.4%, 75.6% and 76.3% in 2013, 2012 and 2011, respectively. Commission rates may vary due to geographic locations, different levels of premium rate structures and state regulations.
Salaries, Employee Benefits and Payroll Taxes: Personnel costs include base salaries, benefits and bonuses paid to employees. Salaries, employee benefits and payroll taxes were $25,386,511, $21,881,540 and $18,556,802 for 2013, 2012 and 2011, respectively. Salaries and related costs increased by approximately 16.0% in 2013 from 2012 and 17.9% in 2012 from 2011. The increases were primarily due to higher staffing levels to support increased business and ongoing software development, and increased benefits and incentive compensation. On a consolidated basis, salaries and employee benefits as a percentage of total revenues were 20.1%, 19.0% and 20.5% in 2013, 2012 and 2011, respectively.
Professional and Contract Labor Fees: Professional and contract labor fees were $2,171,606 in 2013 compared with $2,420,387 in 2012 and $1,507,368 in 2011. The decrease in 2013 compared with 2012 primarily related to replacing contract labor resources with salaried personnel. The increase in 2012 primarily related to increases in contract labor expenses associated with technology and system development initiatives and increased staffing needs.
The scheduled maturities of fixed maturity securities at December 31, 2013 were as follows:
In accounting for uncertainty in income taxes, the Company is required to 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. 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. There were no unrecognized tax benefits or liabilities as of December 31, 2013.