We consider all buildings and equipment that we own or lease to be well maintained, adequately insured and generally sufficient for our purposes.
CRITICAL ACCOUNTING ESTIMATES. Actual results can differ from the estimates we report. However, we believe there is no material risk of a change in our accounting estimates that is likely to have a material impact on our reported financial condition and operating performance for the three years ended December 31, 2003.
Our most critical accounting estimate is providing title loss reserves. Estimating future policy loss payments is difficult because claims, by their nature, are complex and paid over long periods of time. We base our estimates on reported claims, historical loss experience and industry averages. Independent actuaries have reviewed and found our reserves adequate at each year end.
These factors may override the seasonal nature of the title business.
OPERATING ENVIRONMENT. According to published industry data, interest rates for 30-year fixed-rate mortgages, excluding points, for the year 2003 averaged 5.8% compared to 6.5% in 2002. Comparable rates averaged 7.0% in 2001.
In 2001 rates held steady at close to 7% for most of the year and continued to hold steady at that level until April 2002. Rates then declined through December 2002, reaching a low of 5.9%. In 2003, rates remained relatively steady, just below 6% for the first quarter, reaching a low of 5.6% in mid March. Rates fluctuated in the second quarter but decreased to 5.2% in June. Rates increased in the third quarter to 6.4% in September and then decreased to 5.8% in December.
AGENCY RETENTION. The amounts retained by agencies, as a percentage of revenues from agency operations, were 82.0%, 81.9% and 81.5% in the years 2003, 2002 and 2001, respectively. Amounts retained by title agencies are based on agreements 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.
SELECTED COST RATIOS (BY SEGMENT). The following table shows employee costs and other operating expenses as a percentage of related title and real estate information operating revenues for the last three years.
These two categories of expenses are discussed below in terms of year-to-year monetary increases.
In our REI segment, employee costs increased in 2003 and 2002 primarily due to our focus to provide more post-closing services to lenders. These services are considerably more labor intensive than other REI services.
OTHER OPERATING EXPENSES. Other operating expenses for the combined business segments increased 24.2% in 2003 and 24.0% in 2002. The increase in other operating expenses in 2003 was primarily in new offices, search fees, premium taxes and business promotion. In 2002 the increase was primarily in search fees, premium taxes, new offices and business promotion.
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 also increase. 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 4.4%, 4.5% and 4.3% in 2003, 2002 and 2001, respectively.
The most significant non-operating sources of cash were from proceeds of investments matured and sold in the amount of $264.3 million, $163.7 million and $70.1 million in 2003, 2002 and 2001, respectively. We used cash for the purchases of investments in the amount of $416.3 million, $197.7 million and $135.6 million in 2003, 2002 and 2001, respectively.