GENERAL. Our primary business is title insurance. We close transactions and issue policies on homes and other real property located in all 50 states, the District of Columbia and several foreign countries through more than 6,400 issuing locations. Our direct operations include affiliated agencies while agency operations include nonaffiliated agencies that have underwriting contracts with us. We also sell electronically delivered real estate services and information, as well as mapping products and geographic information systems, to domestic and foreign governments and private entities.
- a higher ratio of commercial transactions that, although relatively few in number, typically yield higher premiums.
Premium revenues on title insurance written by our direct title operations are recognized as revenue at the time of the closing of the related real estate transaction. Premium revenues on title insurance policies written by agencies are recognized primarily when policies are reported to us. Revenues are recorded on a total premium basis versus net to the underwriter. We accrue for unreported policies where reasonable estimates can be made based on historical reporting patterns of agencies, current trends and known information about agencies.
OPERATING ENVIRONMENT. According to published industry data, interest rates for 30-year fixed rate mortgages, excluding points, for the year 2002 averaged 6.5% as compared to 7.0% in 2001. Comparable rates averaged 8.1% in 2000.
In 2000 interest rates were on an upward trend, with rates reaching a peak of 8.5% in May. Rates then declined for seven consecutive months. In 2001 rates held steady at close to 7% for most of the year. In 2002 rates continued to hold steady at close to 7% until April. Rates then declined through December 2002, reaching a low of 5.9%.
Operating in these mortgage interest rate environments, real estate activity was strong in 2002 and 2001. Nationwide, refinancing transactions remained strong in 2002. The ratio of refinancings to total loan applications was 58.8% for 2002, 56.8% for 2001 and 21.3% for 2000. Refinancings usually have lower title insurance premium rates than real property sales. Existing home sales increased 5.0% in 2002 over 2001 and 2.8% in 2001 from 2000.
TITLE REVENUES. Our revenues from title increased 41.9% in 2002 over 2001 and 37.2% in 2001 from 2000.
Revenues from direct operations increased 31.2% in 2002 and 41.7% in 2001. The number of direct closings we handled increased 31.8% in 2002 and 55.7% in 2001. The largest revenue increases in both years were primarily in California, Texas and Florida. Direct closings relate only to files closed by our underwriters and subsidiaries and do not include closings by agencies. The average revenue per closing decreased 0.8% in 2002 and 9.3% in 2001 due to the higher ratio of refinancings in those years. In 2000 other revenues included $1.6 million in losses in an equity investee startup operation.
Premium revenues from agencies increased 50.4% to $995.3 million in 2002 and 33.8% to $661.9 million in 2001 from $494.6 million in 2000. The increases in 2002 and 2001 were primarily due to the increases in both refinancings and property sales. The largest revenue increases in both years were primarily in California, Pennsylvania, New York, Virginia and Texas.
AGENCY RETENTION. The amounts retained by agencies, as a percentage of revenues from agency operations, were 81.9%, 81.5% and 81.2% in the years 2002, 2001 and 2000, respectively. Amounts retained by title agencies are based on contracts between agencies and our title underwriters. The percentage that amounts retained by agencies bears to agency revenues may vary from year to year because of the geographical mix of agency operations and the volume of title revenues.
Our employee costs and certain other operating costs are sensitive to inflation. To the extent inflation causes increases in the prices of homes and other real estate, premium revenues are also increased. Premiums are determined in part by the insured values of the transactions we handle.
TITLE LOSSES. Provisions for title losses, as a percentage of title operating revenues, were 4.5%, 4.3% and 4.5% in 2002, 2001 and 2000, respectively. The continued improvement in industry trends in claims and increases in refinancing transactions, which generally result in lower loss exposure, have led to lower loss ratios.
INCOME TAXES. The provisions for federal, state and foreign income taxes represented effective tax rates of 38.6%, 39.6% and 47.1% in 2002, 2001 and 2000, respectively. The 2000 effective rate was higher primarily due to state income taxes, which were proportionately higher in relation to taxable income.
Cash provided by operations was $162.6 million, $108.2 million and $31.9 million in 2002, 2001 and 2000, respectively. Cash flow from operations has been the primary source of financing for additions to property and equipment, expanding operations and other requirements. This source may be supplemented by bank borrowings. We do not have any material source of liquidity or financing that involves off-balance sheet arrangements.
Our liquidity, excluding Guaranty and its subsidiaries, is comprised of cash and investments aggregating $10.9 million and short-term liabilities of $1.6 million at December 31, 2002. We know of no commitments or uncertainties that are likely to materially affect our ability to fund cash needs. See Note 17 to the consolidated financial statements.