The Company's 2008 Annual Report on Form 10-K should be read in conjunction with the following discussion since they contain important information for evaluating the Company's operating results and financial condition.

Overview

Investors Title Company (the "Company") is a holding company that engages primarily in two segments of business: title insurance and exchange services. These segments are described below.

Title Insurance: 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 94.8% of the Company's operating revenues in the first quarter of 2009. 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 quarterly average 30-year fixed mortgage interest rates in the United States decreased to 5.06% for the quarter ended March 31, 2009, compared with 5.88% for the quarter ended March 31, 2008.

The cyclical nature of the residential and commercial real estate markets - and consequently, the land title 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 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 during 2008 and in the first quarter of 2009.

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.

Critical Accounting Estimates and Policies

The preparation of the Company's financial statements requires management to make estimates and judgments that affect the reported amounts of certain assets, liabilities, revenue, expenses and related disclosures surrounding contingencies and commitments. Actual results could differ from these estimates. During the quarter ended March 31, 2009, the Company made no material changes in its critical accounting policies as previously disclosed in Management's Discussion and Analysis in the Company's Annual Report on Form 10-K for the year ended December 31, 2008 as filed with the Securities and Exchange Commission ("SEC").

Results of Operations

For the quarter ended March 31, 2009, net premiums written decreased 7.9% to $16,409,820, investment income decreased 22.6% to $989,635, total revenues decreased 10.4% to $18,682,409 and net income decreased 32.5% to $1,434,963, all compared with the same quarter in 2008. Net income per basic and diluted common share decreased 28.4% and 28.7% to $0.63 and $0.62, respectively, compared with the same prior year period.

Total revenues decreased from the prior year period primarily due to decreases in net premiums written and investment income, and an increase in realized investment losses.

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.

Although net premiums written in the first quarter of 2009 decreased over the same period in 2008, the volume or total number of title orders issued increased in the first quarter of 2009 to 59,370, which is an increase of 6.2% compared with 55,908 title orders in the same period in 2008. The Company believes volume received a boost from an increase in mortgage refinancing during the first quarter. The Company believes that the weak housing market and ongoing general decline in real estate activity was the primary reason for the decline in net premiums written.

Following is a breakdown between branch and agency premiums for the quarter ended March 31:

                               2009           %           2008           %
                  Branch   $  6,043,004        37     $  7,364,830        41
                  Agency     10,366,816        63       10,448,530        59
                  Total    $ 16,409,820       100     $ 17,813,360       100

Title insurance premiums decreased 7.9% to $16,409,820 in the first quarter of 2009 compared with the comparable period in 2008. Total premiums written were negatively impacted primarily by a decrease in the Company's branch premiums and the downturn in the real estate market in particular, the economy in general.

The decreases in branch office net premiums written as a percentage of total net premiums written was due primarily to an expansion of the Company's agency relationships. Net premiums written from branch operations decreased 17.9% and increased 3.1% for the quarters ended March 31, 2009 and 2008, respectively, as compared with the same period in the prior years. Of the Company's 29 branch locations that underwrite title insurance policies, 27 are located in North Carolina and, as a result, branch net premiums written primarily represent North Carolina business.

Agency net premiums written decreased 0.8% and increased 8.3% for the three months ended March 31, 2009 and 2008, respectively, compared with the prior years. Additional business was written by the Company's agencies in 2008.

Following is a schedule of net premiums written for the three months ended March 31, 2009 and 2008 in all states in which the Company's two insurance subsidiaries ITIC and NE-ITIC currently underwrite insurance:

                 State                     2009             2008
                 Illinois              $  1,091,590     $    589,969
                 Kentucky                   870,303          816,810
                 Michigan                   852,273        1,045,827
                 New York                   955,437          512,198
                 North Carolina           7,564,207        8,948,667
                 Pennsylvania               609,185          443,129
                 South Carolina           1,185,930        1,903,380
                 Tennessee                  565,768          541,674
                 Virginia                 1,227,764        1,521,794
                 West Virginia              547,581          470,898
                 Other States               939,759        1,013,072
                   Direct Premiums       16,409,797       17,807,418
                 Reinsurance Assumed            800           96,344
                 Reinsurance Ceded             (777 )        (90,402 )
                   Net Premiums        $ 16,409,820     $ 17,813,360

Operating revenues from the Company's two subsidiaries that provide tax-deferred exchange services (ITEC and ITAC) decreased 20.0% in the first quarter of 2009 compared with the first quarter of 2008. 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 decrease in 2009 revenues compared with 2008 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 and declines in interest rates.

In July 2008, the Internal Revenue Service ("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.

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 were $1,259,127 for the first quarter of 2009 compared with $1,244,933 in the prior year quarter.

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

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. In formulating its investment strategy, the Company has emphasized after-tax income. The investments are primarily in fixed maturity securities and, to a lesser extent, equity securities.

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 decreased 22.6% to $989,635 in the first quarter of 2009, compared with $1,279,359 in the same period in 2008. The decline in investment income in 2009 was due primarily to lower levels of interest earned on short-term funds, as the capital markets experienced significant distress beginning in the second quarter of 2008.

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 investment securities totaled $299,937 for the three months ended March 31, 2009, compared with net realized gain of $118,569 for the corresponding period in 2008. The 2009 net loss, which included impairment charges totaling $344,578 on certain equity and equity method investments in the Company's portfolio that were deemed to be other than temporarily impaired, and was partially offset by net realized gains on sales of investments of $44,641. Management has determined that the unrealized losses from remaining fixed income and equity securities at March 31, 2009 are temporary in nature. The net realized gains in 2008 resulted primarily from the sale of equity securities and other investments in the Company's investment portfolio.

Operating 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. Total operating expenses decreased 6.3% for the three-month period ended March 31, 2009 compared with the same period in 2008. The total decrease in operating expenses resulted primarily from decreases in salaries, employee benefits and payroll taxes, office occupancy and operations and other expenses. 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 5 in the accompanying Consolidated Financial Statements.

                                    2009           %           2008           %
            Title insurance     $ 16,008,849        95     $ 16,663,993        92
            Exchange services         39,293         -          299,167         2
            All other                855,304         5        1,072,379         6
                                $ 16,903,446       100     $ 18,035,539       100

On a combined basis, profit margins were 7.7% and 10.2% in the first quarters of 2009 and 2008, respectively. Total revenues decreased 10.4% in 2009, while operating expenses decreased 6.3%, contributing to a less favorable combined profit margin for the March 31, 2009 quarter.

Agent commissions represent the portion of premiums retained by agents pursuant to the terms of their respective agency contracts. Commissions to agents increased 2.9% from the prior year first quarter. Commission expense as a percentage of net premiums written by agents was 72.7% and 70.1% for the first quarter 2009 and 2008, respectively. Commission rates vary by the geographic area in which the commission is paid and may be influenced by state regulations.

The provision for claims as a percentage of net premiums written was 12.5% for the three months ended March 31, 2009, versus 11.5% for the same period in 2008. Loss provision ratios are subject to variability and are reviewed and adjusted as experience develops. Declining economic conditions and/or declines in transaction volumes have historically been drivers of increased claim expenses due to increased mechanics liens, defalcations and other matters which may be discovered during property foreclosures. The increase in the loss provision for the first quarter of 2009 from the 2008 level resulted in approximately $160,000 more in reserves than would have been recorded at the lower 2008 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, which could result in an increase in the provision for claims in current operations.

Paid claims and specific case reserves were greater than expected during the first quarter of 2009. The unfavorable loss emergence in the first quarter of 2009 is concentrated in the 2008 and 2006 policy years. Management considers the loss provision ratios for the first quarter of 2009 and 2008 to be appropriate given the long-tail nature of title insurance claims, the small volume of large claims and the inherent uncertainty in title insurance claims emergence patterns.

Title claims are typically reported and paid within the first several years of policy issuance. 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, among other factors. Actual payments of claims, net of recoveries, were $2,297,126 and $1,944,596 in the first quarter of 2009 and 2008, respectively.

At March 31, 2009, the total reserves for claims were $38,988,000. Of that total, $6,452,644 was reserved for specific claims, and $32,535,356 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 claims 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 closed during the quarter, 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 were $5,138,176 and $5,497,936 for the first quarters of 2009 and 2008, respectively. Salaries and related costs decreased about $360,000 for the March 31, 2009 quarter. On a consolidated basis, salaries, employee benefits and payroll taxes as a percentage of total revenues were 27.5% and 26.4% for the three months ended March 31, 2009 and 2008, respectively. The title insurance segment's total salaries, employee benefits and payroll taxes accounted for 85.7% and 84.0% of the total consolidated amount for the three months ended March 31, 2009 and 2008, respectively.

Overall office occupancy and operations as a percentage of total revenues was 5.9% and 6.5% for the three months ended March 31, 2009 and 2008, respectively. The decrease in office occupancy and operations expense in 2009 compared with 2008 was due to a decrease in various items, including maintenance, depreciation, postage, telecommunications and printing costs.

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. Tax rates and bases vary from state to state. Premium and retaliatory taxes as a percentage of net premiums written were 2.2% and 2.1% for the three months ended March 31, 2009 and 2008, respectively.

Professional and contract labor fees for the three months ended March 31, 2009 compared with the same period in 2008 decreased about $219,000, primarily due to decreases in contract labor fees incurred, associated with investments in infrastructure and technology in the first quarter 2008.

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.

Income Taxes: The provision for income taxes was 19.3% and 24.8% of income before income taxes for the quarters ended March 31, 2009 and 2008, respectively. The effective tax rates for the quarters were below the U.S. federal statutory income tax rate (34%) primarily due to a change in the proportion of tax-exempt investment income to pre-tax income.

Recent Accounting Pronouncements

For a description of the Company's recent accounting pronouncements, please refer to Note 1 to the Notes to Consolidated Financial Statements included elsewhere herein.

Liquidity and Capital Resources

Liquidity: 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 cash needs for the foreseeable future. However, there can be no assurance that future experience will be similar to historical 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 . . .