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HG Holdings (STLY)
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HG Holdings (STLY) Risk Analysis

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Public companies are required to disclose risks that can affect the business and impact the stock. These disclosures are known as “Risk Factors”. Companies disclose these risks in their yearly (Form 10-K), quarterly earnings (Form 10-Q), or “foreign private issuer” reports (Form 20-F). Risk factors show the challenges a company faces. Investors can consider the worst-case scenarios before making an investment. TipRanks’ Risk Analysis categorizes risks based on proprietary classification algorithms and machine learning.

HG Holdings disclosed 27 risk factors in its most recent earnings report. HG Holdings reported the most risks in the “Finance & Corporate” category.

Risk Overview Q4, 2023

Risk Distribution
27Risks
44% Finance & Corporate
26% Production
11% Macro & Political
7% Legal & Regulatory
7% Ability to Sell
4% Tech & Innovation
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
This chart displays the stock's most recent risk distribution according to category. TipRanks has identified 6 major categories: Finance & corporate, legal & regulatory, macro & political, production, tech & innovation, and ability to sell.

Risk Change Over Time

2022
Q4
S&P500 Average
Sector Average
Risks removed
Risks added
Risks changed
HG Holdings Risk Factors
New Risk (0)
Risk Changed (0)
Risk Removed (0)
No changes from previous report
The chart shows the number of risks a company has disclosed. You can compare this to the sector average or S&P 500 average.

The quarters shown in the chart are according to the calendar year (January to December). Businesses set their own financial calendar, known as a fiscal year. For example, Walmart ends their financial year at the end of January to accommodate the holiday season.

Risk Highlights Q4, 2023

Main Risk Category
Finance & Corporate
With 12 Risks
Finance & Corporate
With 12 Risks
Number of Disclosed Risks
27
+1
From last report
S&P 500 Average: 31
27
+1
From last report
S&P 500 Average: 31
Recent Changes
5Risks added
4Risks removed
12Risks changed
Since Dec 2023
5Risks added
4Risks removed
12Risks changed
Since Dec 2023
Number of Risk Changed
12
+5
From last report
S&P 500 Average: 3
12
+5
From last report
S&P 500 Average: 3
See the risk highlights of HG Holdings in the last period.

Risk Word Cloud

The most common phrases about risk factors from the most recent report. Larger texts indicate more widely used phrases.

Risk Factors Full Breakdown - Total Risks 27

Finance & Corporate
Total Risks: 12/27 (44%)Below Sector Average
Share Price & Shareholder Rights2 | 7.4%
Share Price & Shareholder Rights - Risk 1
Our executive officers, directors and 10% stockholders have significant voting power and may vote their shares in a manner that is not in the best interest of other stockholders.
Our current executive officers, directors and 10% stockholders control approximately 76.0% of the voting power represented by our outstanding common stock. If these stockholders act together, they may be able to exert significant control over our management and affairs requiring stockholder approval, such as the election of directors or our dissolution. This concentration of ownership may have the effect of delaying or preventing a change in control and might adversely affect the market price of our common stock. This concentration of ownership may not be in the best interests of all our stockholders.
Share Price & Shareholder Rights - Risk 2
Our common stock is traded on the OTCQB and there may be limited ability to trade our common stock.
Trading of our common stock is currently conducted in the over-the-counter market on the OTCQB, which is generally a less active, and therefore a less liquid, trading market than other types of markets such as national stock exchanges. As a result, an investor may find it more difficult to dispose of, or obtain accurate quotations for the price of, our common stock than if our shares of common stock were traded on other markets.
Accounting & Financial Operations3 | 11.1%
Accounting & Financial Operations - Risk 1
An "ownership change" could limit the use of our net operating loss carryforwards and our potential to derive a benefit from our net operating loss carryforwards.
If an ownership change (as described below) occurs pursuant to applicable statutory regulations, we are potentially subject to limitations on the use of our net operating loss carryforwards which in turn could adversely impact our potential to derive a benefit from our net operating loss carryforwards. In general, an ownership change would occur if the percentage of our common stock held by one or more 5% shareholders increases by more than 50% over the lowest percentage of our common stock owned by such shareholder during a three-year test period.
Accounting & Financial Operations - Risk 2
Changed
We have recorded goodwill as a result of prior acquisitions, and an economic or business downturn could cause these balances to become impaired, requiring write-downs that would reduce our operating income.
Goodwill aggregated approximately $6.5 million, or approximately 15% of our total assets as of December 31, 2023. Current accounting rules require that goodwill be assessed for impairment at least annually or whenever changes in circumstances indicate that the carrying amount may not be recoverable from estimated future cash flows. Factors that may be considered a change in circumstance indicating the carrying value of our goodwill may not be recoverable include, but are not limited to, significant underperformance relative to historical or projected future operating results, a significant decline in our stock price and market capitalization, and negative industry or economic trends. As of December 31, 2023, management has deemed there is no impairment of our recorded goodwill. However, if there is an economic downturn in the future, the carrying amount of our goodwill may no longer be recoverable, and we may be required to record an impairment charge, which would have a negative impact on our results of operations and financial condition. Management will continue to monitor our operating results, our market capitalization, and the impact of the economy to determine if there is an impairment of goodwill in future periods.
Accounting & Financial Operations - Risk 3
Changed
Losses associated with our reinsurance business could reduce our liquidity and adversely affect our results from operations.
Our reinsurance business exposes us to risks arising from catastrophes. Catastrophes can be caused by various natural events, including but not limited to hurricanes, tropical storms, tornadoes, windstorms, earthquakes, hail, and other severe weather events. The frequency and severity of weather conditions are inherently unpredictable, but the frequency and severity of property claims generally increase when severe weather conditions occur. In addition, longer-term natural catastrophe trends may be changing and new types of catastrophe losses may be developing due to climate change, its associated extreme weather events linked to rising temperatures and its effects on global weather patterns, greenhouse gases, sea, land and air temperatures, sea levels, rain, hail and snow. Climate studies by government agencies, academic institutions, catastrophe modeling organizations and other groups indicate that climate change may be altering the frequency and/or severity of catastrophic weather events, such as hurricanes, tornadoes, windstorms, floods and other natural disasters. As a result, catastrophes could be more frequent or severe than contemplated in our pricing and risk management models and may have a material adverse effect on our results from operations during any reporting period due to increases in the losses and loss adjustment expenses ceded to us. Catastrophe losses, in excess of the reinsurance premium received, may reduce liquidity and adversely affect our results from operations in any reporting period. We will continue to pursue opportunities to provide reinsurance to other carriers and limit risks related to catastrophe losses by pricing risks adequately and limiting triggering loss events through policy language.
Debt & Financing6 | 22.2%
Debt & Financing - Risk 1
Changed
The value of our investment in HC Realty would be adversely affected if HC Realty failed to qualify as a REIT.
HC Realty has elected to be treated as a REIT for U.S. federal income tax purposes. HC Realty's continued qualification as a REIT depends on its satisfaction of certain asset, income, organizational, distribution and stockholder ownership requirements on a continuing basis. HC Realty's ability to satisfy some of the asset tests depends upon the fair market values of its assets, some of which are not able to be precisely determined and for which HC Realty has indicated it will not obtain independent appraisals. If HC Realty fails to qualify as a REIT in any taxable year, and certain statutory relief provisions are not available, HC Realty would be subject to U.S. federal income tax on its taxable income at regular corporate rates and distributions to stockholders would not be deductible by it in computing its taxable income. Any such corporate tax liability could be substantial and would reduce the amount of cash available for distribution. Unless entitled to relief under certain provisions of the Internal Revenue Code of 1986, as amended, HC Realty also would be disqualified from taxation as a REIT for the four taxable years following the year during which HC Realty ceased to qualify as a REIT. In addition, if HC Realty fails to qualify as a REIT, HC Realty will no longer be required to make distributions. As a result of all these factors, HC Realty's failure to qualify as a REIT could impair its ability to expand business and raise capital and could adversely affect the value of our investment in HC Common Stock and HC Series B Stock.
Debt & Financing - Risk 2
Changed
A downgrade by ratings agencies, reductions in statutory capital and surplus maintained by NCTIC, our title insurance underwriter, or a deterioration in other measures of financial strength could adversely affect our business.
The financial strength of NCTIC may be measured by ratings provided by ratings agencies. Demotech, Inc. currently rates NCTIC's operations. NCTIC's financial strength ratings are "Exceptional" or "A" by Demotech, Inc. This rating provides the ratings agency's perspective on NCTIC's financial strength, operating performance and cash generating ability. The ratings agency will continually review these ratings and the ratings are subject to change. If NCTIC's ratings are downgraded from current levels by Demotech, Inc. or any other ratings agencies, NCTIC's ability to retain existing customers and develop new customer relationships may be negatively impacted, which could result in a material adverse impact on our consolidated financial condition or results of operations. Statutory capital and surplus, or the amount by which statutory assets exceed statutory liabilities, is also a measure of financial strength of an insurance company. Accordingly, if the statutory capital and surplus of NCTIC is reduced from the current level, or if there is a deterioration in other measures of financial strength, NCTIC's results of operations, competitive position and liquidity could be adversely affected.
Debt & Financing - Risk 3
Added
We hold our cash and restricted cash in depository accounts that could be adversely affected if the financial institutions holding such deposits fail.
In March and April 2023, certain specialized banking institutions with elevated concentrations of uninsured deposits experienced large deposit outflows coupled with insufficient liquidity to meet withdrawal demands, resulting in the institutions being placed into Federal Deposit Insurance Corporation ("FDIC") receiverships. We maintain our cash and restricted cash at insured financial institutions. The account balances at each institution periodically substantially exceed the FDIC insurance coverage of $250,000, and, as a result, there is a concentration of credit risk related to amounts in excess of FDIC insurance coverage. If a bank in which we hold funds fails or is subject to adverse conditions in the financial or credit markets, we may be subject to a risk of loss or delay in accessing all or a portion of our funds exceeding the FDIC insurance coverage, which could adversely impact our short-term liquidity, ability to operate our business, and financial performance. To date, we have not experienced any material loss as a result of the failure of any financial institution in which we hold cash or restricted cash in depository accounts.
Debt & Financing - Risk 4
Our investment in HC Realty may lose value.
We owned approximately 27.4% of the voting interest in HC Realty as of December 31, 2023. There is no guarantee that HC Realty will be successful implementing its business strategy for the acquisition, development, financing, ownership and management of Government Properties and, as a result, our investment in HC Common Stock and HC Series B Stock may lose value.
Debt & Financing - Risk 5
Changed
Changes in our relationships with large mortgage lenders or government–sponsored enterprises could adversely affect our business.
Large mortgage lenders and government-sponsored enterprises, because of their significant role in the mortgage process, have significant influence over our title insurance and title agency subsidiaries and other service providers. Changes in our relationship with any of these lenders or government-sponsored enterprises, the loss of all or a portion of the business we derive from these parties, any refusal of these parties to accept our products and services, the modification of the government-sponsored enterprises' requirement for title insurance in connection with mortgages they purchase or the use of alternatives to our products and services, could have a material adverse effect on our business.
Debt & Financing - Risk 6
Changed
Errors and fraud involving the transfer of funds may adversely affect our title insurance and title agency subsidiaries.
Our title insurance and title agency subsidiaries rely on their systems, employees and domestic banks to transfer funds on behalf of our title insurance and title agency subsidiaries as well as title agents that are not affiliates of ours. These transfers are susceptible to user input error, fraud, system interruptions, incorrect processing and similar errors that from time-to-time result in lost funds or delayed transactions. Our title insurance and title agency subsidiaries' email and computer systems and systems used by their agents, customers and other parties involved in a transaction may be subject to, and may continue to be the target of, fraudulent attacks, including attempts to cause our title insurance and title agency subsidiaries or their agents to improperly transfer funds. Funds transferred to a fraudulent recipient are often not recoverable. In certain instances, our title insurance and title agency subsidiaries may be liable for those unrecovered funds. The controls and procedures used by our title insurance and title agency subsidiaries to prevent transfer errors and fraud may prove inadequate, resulting in financial losses, reputational harm, loss of customers or other adverse consequences which could be material.
Corporate Activity and Growth1 | 3.7%
Corporate Activity and Growth - Risk 1
Resources may be expended in researching potential acquisitions that might not be consummated.
The investigation of additional businesses or assets to acquire and the negotiation, drafting and execution of relevant agreements and other documents will require substantial management time and attention in addition to potentially incurring legal and other professional expenses. If a decision is made not to complete a specific acquisition, the costs incurred up to that point for the proposed transaction likely would not be recoverable. Furthermore, even if an agreement is reached relating to a specific acquisition, we may fail to consummate the acquisition for any number of reasons including those beyond our control.
Production
Total Risks: 7/27 (26%)Above Sector Average
Employment / Personnel3 | 11.1%
Employment / Personnel - Risk 1
Our Chief Executive Officer, who will be employed on a part-time basis for the foreseeable future, currently has outside business interests that will require his time and attention and may interfere with his ability to devote all of his time to our business, which may adversely affect our business and operations.
Mr. Hale, our Chief Executive Officer, will be employed for the foreseeable future on a part-time basis and has outside business interests that could require substantial time and attention. Mr. Hale is also associated with HPCM and HC Realty and devotes significant time to their affairs. We cannot accurately predict the amount of time and attention that will be required of Mr. Hale to perform his ongoing duties related to outside business interests. The inability of Mr. Hale to devote sufficient time to managing our business could have a material adverse effect on our business and operations.
Employment / Personnel - Risk 2
Our Chairman and Chief Executive Officer, who is also a director, may have potential or actual conflicts of interest because of his positions with HPCM and HC Realty.
Steven A. Hale II, our Chairman and Chief Executive Officer, is the sole manager of HPCM which serves as the investment adviser for the Hale Partnership Fund, L.P. and related entities (collectively, the "Hale Funds") and certain holders of HC Series B Stock other than us. The Hale Funds own approximately 35.0% of our outstanding common stock. We also own HC Series B Stock and HC Common Stock. Mr. Hale also serves as Chairman and Chief Executive Officer and a director of HC Realty. Mr. Hale owes fiduciary duties to (i) us, (ii) HC Realty as a result of his position with HC Realty and (iii) the Hale Funds and certain holders of HC Series B Stock other than us as a result of his position with HPCM, the investment adviser to these parties. As a result, Mr. Hale may have potential or actual conflicts of interest when faced with decisions that could have different implications for us and HC Realty. In addition, Mr. Hale may have potential or actual conflicts of interest when faced with decisions that could have different implications for us and the Hale Funds or the other holders of HC Series B Stock advised by HPCM. For example, these potential conflicts could arise over matters such as funding and capital matters.
Employment / Personnel - Risk 3
Added
We depend on our ability to attract and retain key personnel and agents, and our inability to do so could adversely affect our business.
Competition for skilled and experienced personnel in our industry is high, and our success is substantially dependent on our ability to attract and retain such personnel. We may have difficulty hiring and retaining the necessary marketing and management personnel to support future growth plans. Also, our results of operations and financial condition could be adversely affected if we are unsuccessful in attracting and retaining new agents.
Costs4 | 14.8%
Costs - Risk 1
Changed
Our title insurance business may be adversely affected by business or regulatory conditions that disproportionately affect Florida.
Our title insurance subsidiaries currently operate primarily in the state of Florida. As a result of the significant income derived from customers in this state, our title insurance business is exposed to adverse business or regulatory conditions that significantly or disproportionally affect Florida. For example, a declining business climate or real estate market that is localized in Florida could have an adverse effect on the title insurance segment's results of operations. Adverse regulatory developments, including reductions in rates or increased regulatory or capital requirements in Florida could similarly adversely affect the title insurance segment's business, financial condition and results of operations. Changes in certain laws and regulations, and in the regulatory environment in which we operate, could adversely affect our business.   Federal and state officials are discussing various potential changes to laws and regulations that could impact our businesses, including the reform of government-sponsored enterprises such as the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation (Freddie Mac) and additional data privacy regulations, among others. Changes in these areas, and more generally in the regulatory environment in which our title insurance and title agency subsidiaries and their customers operate, could adversely impact the volume of mortgage originations in the United States and our title insurance and title agency subsidiaries competitive position and results of operations.     Actual claims experience could materially vary from the expected claims experience reflected in NCTIC' s reserve for incurred but not reported claims. NCTIC maintains a reserve for IBNR claims pertaining to its title insurance products. The majority of this reserve pertains to title insurance policies, which are long-duration contracts with the majority of the claims reported within the first few years following the issuance of the policy. Generally, 70% to 80% of claim amounts become known in the first six years of the policy life, and the majority of IBNR reserves relate to the six most recent policy years. Changes in expected ultimate losses and corresponding loss rates for recent policy years are considered likely and could result in a material adjustment to the IBNR reserves. Loss rates for recent policy years, positive or negative, may vary significantly given the long duration nature of a title insurance policy. In uncertain economic times, such as those experienced as a result of the COVID-19 pandemic, rising inflation and rising interest rates, larger changes may be more likely. Material changes in expected ultimate losses and corresponding loss rates for older policy years are also possible, particularly for policy years with loss ratios exceeding historical norms. The estimates made in determining the appropriate level of IBNR reserves could ultimately prove to be materially different from actual claims experience. Changes in laws or regulations impacting real estate, particularly when applied retroactively, may cause a material change in expected ultimate losses and corresponding loss rates for recent and/or older policy years.
Costs - Risk 2
We have limited operating history in the title insurance and title agency businesses, and therefore, with respect to certain assets, we will be subject to the risks inherent in establishing a new line of business.
Since the Asset Sale on March 2, 2018, we completed the acquisitions of NCTIC, through which we provide title insurance, and NCTG, TAV, ONTA, ONF and ONP, through which we provide title agency services. Therefore, we have limited operating history in the title insurance and title agency lines of business. Accordingly, our future success may in part be subject to the risks, expenses, problems and delays inherent in establishing a new line of business and the ultimate success of such new line of business cannot be assured. Additionally, we may seek to acquire other assets in the title insurance and title agency businesses. If we are not successful in identifying, acquiring and operating such assets, our results of operations and cash flows may be adversely affected and our stock price may decline.
Costs - Risk 3
Changed
The issuance of title insurance policies and related activities by title agents, some of which operate with substantial independence from us, could adversely affect our business.
Our title insurance subsidiaries issue a significant portion of their policies through title agents, some that may operate largely independent of us. There is no guarantee that these title agents will fulfill their contractual obligations to our title insurance subsidiaries, which contracts include limitations that are designed to limit our title insurance subsidiaries' risk with respect to the title agents' activities. In addition, regulators are increasingly seeking to hold companies such as our title insurance subsidiaries responsible for the actions of these title agents and, under certain circumstances, our title insurance subsidiaries may be held liable directly to third parties for actions (including defalcations) or omissions of these title agents. As a result, the use of title agents by our title insurance subsidiaries could result in increased claims on the policies issued through title agents and an increase in other costs and expenses.
Costs - Risk 4
Changed
Regulation of title insurance rates could adversely affect our business.
Title insurance rates are subject to extensive regulation, which varies from state to state. Our title insurance subsidiaries currently operate primarily in the state of Florida. In Florida, rates are promulgated by the state insurance regulator. Our insurance subsidiaries' ability to promptly adapt to changing market dynamics through price adjustments may be limited due to the rates promulgated by the state's insurance regulator, particularly in a declining market.
Macro & Political
Total Risks: 3/27 (11%)Above Sector Average
Economy & Political Environment1 | 3.7%
Economy & Political Environment - Risk 1
Changed
Unfavorable economic conditions may adversely affect our title insurance and title agency subsidiaries' businesses.
Historically, uncertainty and negative trends in general economic conditions in the United States and abroad, including significant tightening of credit markets and a general decline in the value of real property, have created a difficult operating environment for our title insurance and title agency subsidiaries' core title and settlement businesses. The demand for our title insurance and title agency services is dependent primarily on the volume of residential and commercial real estate transactions. The volume of these transactions historically has been influenced by such factors as mortgage interest rates, inventory, affordability, availability of financing and the overall state of the economy. The Federal Reserve raised the federal funds rate a total of seven times in 2022 and four times in 2023 to control inflation, resulting in a range from 5.25% to 5.50% as of December 31, 2023. Although there are expectations that the Federal Reserve will begin reducing the federal funds rate in 2024, these expectations may not materialize. Should the Federal Reserve continue to raise rates in the future, this will likely result in further increases in market interest rates. In a rising interest rate environment, any leverage that we incur may bear a higher interest rate than may currently be available. There may not, however, be a corresponding increase in our revenues. Further, when interest rates are increasing or when the economy is experiencing a downturn, real estate activity declines. As a result, the title insurance and title agency industry tends to experience decreased revenues and earnings, and potentially increased title claims experience. Additionally, any increase in inflation could have an adverse impact on our general and administrative expenses, as these costs could increase at a rate higher than our revenue. Unfavorable economic conditions also tend to negatively impact the amount of funds NCTIC receives from third parties to be held in trust pending the closing of commercial and residential real estate transactions. During periods of unfavorable economic conditions, the return on these funds deposited with third party financial institutions tends to decline. Our revenues and results of operations have been and may in the future be adversely affected by a decline in real estate prices, real estate activity and the availability of financing alternatives. Deterioration in the macroeconomic environment generally causes weakness or adverse changes in the level of real estate activity, which could have a material adverse effect on our consolidated financial condition or results of operations. Also, we may not be able to accurately predict the effects of periods or expectations of high or rapidly rising inflation rates, and governmental responses thereto, and may not respond in a timely or adequate manner to mitigate the negative effects of such inflation, such as decreases in the demand for our products and services and higher labor and other expenses. Depending upon the ultimate severity and duration of any economic downturn, the resulting effects on our title insurance and title agency subsidiaries' businesses could be materially adverse, including a significant reduction in revenues, earnings and cash flows, deterioration in the value of or return on their investments and increased credit risk from customers and others with obligations to our title insurance and title agency subsidiaries.
Natural and Human Disruptions2 | 7.4%
Natural and Human Disruptions - Risk 1
Added
Climate change, severe weather or other catastrophic events could have a material adverse impact on our financial performance and results of operations.
Climate change, extreme weather conditions and catastrophic events, such as public health crises, natural disasters, geopolitical concerns (including the war between Russia and Ukraine and the current escalating Israel-Hamas conflict) and terrorist attacks, could result in increased volatility in, or damage to, real estate prices and the United States and the worldwide financial markets and economy more generally, all of which could have a material adverse effect on our results of operations and financial condition. Given the unpredictable nature of these events with respect to size, severity, duration and geographic location, it is not currently possible to quantify the ultimate impact that they may have on our business.
Natural and Human Disruptions - Risk 2
Added
The long-term macroeconomic effects of the COVID-19 pandemic and any future pandemic or epidemic could have a material adverse impact on our financial performance and results of operations.
While many of the direct impacts of the COVID-19 pandemic have eased, the longer-term macroeconomic effects on global supply chains, inflation, labor shortages and wage increases continue to impact many industries. Moreover, with the potential for new variants of COVID-19 to emerge, governments and businesses may re-impose aggressive measures to help slow its spread in the future. For this reason, among others, the potential global impacts are uncertain and difficult to assess.  While we believe that our business is well-positioned for the post-COVID environment, long-term macroeconomic effects, including supply and labor shortages, of the COVID-19 pandemic may in the future have an adverse impact on the value of our common stock, results of operations and cash flows, and may have an adverse impact on our ability to obtain financing, among other factors. The full extent of the impact and effects of COVID-19 will depend on future developments, including, among other factors, future variants of the virus, availability, acceptance and effectiveness of vaccines along with related travel advisories, quarantines and restrictions, the recovery time of the disrupted supply chains and industries, the impact of labor market interruptions, the impact of government interventions, and uncertainty with respect to the duration of the global economic slowdown. COVID-19, or any future pandemics or epidemics, and resulting impacts on the financial, economic and capital markets environment, and future developments in these and other areas present uncertainty and risk with respect to our performance and results of operations.
Legal & Regulatory
Total Risks: 2/27 (7%)Below Sector Average
Regulation2 | 7.4%
Regulation - Risk 1
Changed
Regulatory oversight and changes in government regulation could prohibit or limit our title insurance and title agency subsidiaries' operations, make it more costly or burdensome to conduct such operations or result in decreased demand for their products and services.
Our title insurance business is regulated by various federal, state, and local governmental agencies and operates within statutory guidelines. The industry in which our title insurance business operates and the markets into which it sells its products are also regulated and subject to statutory guidelines. In general, our title insurance business may be subject to increasing regulatory oversight and increasingly complex statutory guidelines. This may be due, among other factors, to the passing of, and significant changes in, laws and regulations pertaining to privacy and data protection.   For instance, the Consumer Financial Protection Bureau ("CFPB") is charged with protecting consumers by enforcing federal consumer protection laws and regulations. The CFPB is an independent agency and funded by the United States Federal Reserve System. Its jurisdiction includes banks, credit unions, securities firms, payday lenders, mortgage servicing operations, foreclosure relief services, debt collectors and other financial companies. The nature and extent of these regulations include, but are not limited to: conducting rule-making, supervision, and enforcement of federal consumer protection laws; restricting unfair, deceptive, or abusive acts or practices; marshalling consumer complaints; promoting financial education; researching consumer behavior; monitoring financial markets for new risks to consumers; and enforcing laws that outlaw discrimination and other unfair treatment in consumer finance. Governmental authorities regulate our insurance subsidiaries in the states in which we do business. These regulations generally are intended for the protection of policyholders rather than stockholders. The nature and extent of these regulations vary from jurisdiction to jurisdiction, but typically involve: - approving or setting of insurance premium rates;- standards of solvency and minimum amounts of statutory capital and surplus that must be maintained;- limitations on types and amounts of investments;- establishing reserves, including statutory premium reserves, for losses and loss adjustment expenses;- regulating underwriting and marketing practices;- regulating dividend payments and other transactions among affiliates;- prior approval for the acquisition and control of an insurance company or of any company controlling an insurance company;- licensing of insurers, agencies and, in certain states, escrow officers;- regulation of reinsurance;- restrictions on the size of risks that may be insured by a single company;- deposits of securities for the benefit of policyholders;- approval of policy forms;- methods of accounting; and - filing of annual and other reports with respect to financial condition and other matters. These regulations may impede or impose burdensome conditions on rate increases or other actions that we might want to take to enhance our operating results. In addition, state regulators perform periodic examinations of insurance companies, which could result in increased compliance or legal expenses. Regulatory oversight could require us to raise capital, and/or make it more difficult to deploy capital. For example, our regulatory capital requirements have historically applied only at the subsidiary level, specifically our insurance underwriter subsidiaries. However, the National Association of Insurance Commissioners has adopted an approach to assess group risks and capital adequacy and assist in the regulation of insurer solvency using the Group Capital Calculation (the "GCC"), which uses an aggregation methodology for all entities within an insurance holding company system. The adoption of the GCC could increase our prescribed capital requirements, the level at which regulatory scrutiny intensifies, as well as significantly increase our cost of regulatory compliance. In addition, changes in the applicable regulatory environment, statutory guidelines or interpretations of existing regulations or statutes, enhanced governmental oversight or efforts by governmental agencies to cause customers to refrain from using our title insurance and title agency subsidiaries' products or services could prohibit or limit their future operations or make it more costly or burdensome to conduct such operations or result in decreased demand for their products and services or a change in their competitive position. The impact of these changes would be more significant if they involve the Florida jurisdiction, as a majority of our title premiums are currently generated in the state of Florida. These changes may restrict our ability to acquire assets or businesses, may limit the manner in which we conduct our business or otherwise may have a negative impact on our ability to generate revenues, earnings and cash flows. Additionally, in jurisdictions where rates are not promulgated by the state insurance regulator, these changes may compel us to reduce our prices and may restrict our ability to implement price increases.
Regulation - Risk 2
We may be required to register under the Investment Company Act of 1940, as amended (the "1940 Act").
Under Section 3(a)(l) of the 1940 Act, an issuer is deemed to be an investment company if it is engaged in or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in securities, and owns or proposes to acquire "investment securities" having a value exceeding 40% of the value of the issuer's total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. The 1940 Act defines "investment securities" broadly to include virtually all securities except U.S. government securities and securities issued by majority-owned subsidiaries that are not themselves regulated or exempt investment companies. Consequently, the securities of HC Realty we hold may be considered investment securities and we may fall within the scope of Section 3(a)(1)(C) of the 1940 Act. A company that falls within the scope of Section 3(a)(1)(C) of the 1940 Act can avoid being regulated as an investment company if it can rely on certain of the exclusions or exemptions under the 1940 Act. One such exclusion is set forth in Rule 3a-1 under the 1940 Act, which provides a safe harbor from investment company registration for an issuer if no more than 45% of the value of its total assets consists of, and no more than 45% of its net income after taxes is derived from, securities, other than, among other limited types of securities, those issued by companies which are controlled primarily by such issuer. We acquired an equity interest in HC Realty on March 19, 2019. On April 3, 2020, April 29, 2020, and June 29, 2020, we purchased an aggregate of 825,000 additional shares of HC Series B Stock for an aggregate purchase price of $8.25 million. As a result of these purchases, we now own approximately 27.4% of the voting interest in HC Realty. We believe that these additional purchases allow us to rely on the safe harbor from investment company registration set forth in Rule 3a-1 of the 1940 Act because we own (i) at least 25% of the voting securities of HC Realty, resulting in us being presumed to control HC Realty within the meaning of Section 2(a)(9) of the 1940 Act and (ii) a sufficient number of shares of HC Series B Stock so that we primarily control HC Realty within the meaning of Rule 3a-1 of the 1940 Act. We have not sought or obtained an exemptive order, no-action letter or any other assurances from the SEC or its staff regarding our ability to rely on Rule 3a-1 of the 1940 Act, nor has the SEC or its staff provided any such order, no-action letter or other assurances. If we are required to register under the 1940 Act, compliance with these additional regulatory burdens would significantly increase our operating expenses. Registered investment companies are subject to extensive, restrictive and potentially adverse regulation relating to, among other things, operating methods, management, capital structure, dividends and transactions with affiliates.
Ability to Sell
Total Risks: 2/27 (7%)Above Sector Average
Competition1 | 3.7%
Competition - Risk 1
Competition in the title insurance industry may affect our revenues.
Competition in the title insurance industry is intense, particularly with respect to price, service and expertise. Larger commercial customers and mortgage originators also look to the size and financial strength of a title insurer. The four largest title insurance companies typically maintain greater than 80% of the market for title insurance in the United States. In our principal market, competitors include other major title underwriters such as Fidelity National Financial, Inc., First American Financial Corporation, Old Republic International Corporation, Stewart Information Services Corporation, Westcor Land Title Insurance Company, and WFG National Title Insurance Company, as well as other regional title insurance companies, underwritten title companies and independent agency operations. Although we are not aware of any current initiatives to reduce regulatory barriers to entering our industry, any such reduction could result in new competitors, including financial services firms or institutions, entering the title insurance business. From time-to-time, new entrants enter the marketplace with alternative products to traditional title insurance, although many of these alternative products have been disallowed by title insurance regulators. Further, advances in technologies could, over time, significantly disrupt the traditional business model of financial services and real estate-related companies, including title insurance companies. These alternative products or disruptive technologies, if permitted by regulators, could have a material adverse effect on our revenues and earnings.
Demand1 | 3.7%
Demand - Risk 1
Changed
Conditions in the real estate market generally impact the demand for a substantial portion of our title insurance and title agency subsidiaries' products and services and NCTIC's title claims experience.
Demand for a substantial portion of our title insurance and title agency subsidiaries' products and services generally decreases as real estate activity, such as sales, mortgage financing and mortgage refinancing, decreases. We have found that real estate activity and, as a result, the demand for our title insurance and title agency subsidiaries' products and services, generally decreases in the following situations: - When mortgage interest rates are high or rising;- When the availability of credit, including commercial and residential mortgage funding, is limited; and - When real estate affordability is declining. National inventory levels for residential real estate have declined over the past several years and remain below historical average levels. The number of residential purchase transactions has also declined, particularly as a result of decreased demand due to rising mortgage interest rates during 2022 and 2023. Residential refinance activity is also strongly correlated with changes in mortgage interest rates, and rising mortgage interest rates during 2022 and 2023 have, expectedly, had an adverse impact on our refinance business, which is expected to continue for so long as mortgage interest rates remain high relative to the interest rates of outstanding mortgages. Higher interest rates also negatively impacted commercial transactions in the latter half of 2022 and throughout 2023. Additionally, these situations, particularly when combined with declining real estate values and the increase in foreclosures that often results therefrom, may adversely impact NCTIC's title claims experience. Historically, increasing foreclosure activity has led to an increase in claims.
Tech & Innovation
Total Risks: 1/27 (4%)Below Sector Average
Cyber Security1 | 3.7%
Cyber Security - Risk 1
Added
Cybersecurity risks and cyber incidents may adversely affect our business in the event we or any other party that provides us with essential services experiences cyber incidents.
We and any other party that provides us with services essential to our operations (including, but not limited to, our title insurance and title agency subsidiaries) are vulnerable to service interruptions or damages from any number of sources, including computer viruses, malware, unauthorized access, energy blackouts, natural disasters, terrorism, war and telecommunication failures. Any system failure or accident that causes interruptions in our operations could result in a material disruption to our business. A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of our information resources. These incidents may be an intentional attack or an unintentional event and could involve gaining unauthorized access to our information systems for purposes of misappropriating assets, stealing confidential information, corrupting data or causing operational disruption. The risk of a security breach or disruption, particularly through cyberattacks or cyber intrusions, including by computer hackers, nation-state affiliated actors, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased, and will likely continue to increase in the future. Such threats are prevalent and continue to rise, are increasingly difficult to detect, and come from a variety of sources, including traditional computer "hackers," threat actors, "hacktivists," organized criminal threat actors, personnel (such as through theft or misuse), sophisticated nation states, and nation-state-supported actors. Some actors now engage and are expected to continue to engage in cyberattacks, including, without limitation, nation-state actors for geopolitical reasons and in conjunction with military conflicts and defense activities. During times of war and other major conflicts, we and the third-party service providers upon which we may rely may be vulnerable to a heightened risk of these attacks, including retaliatory cyberattacks. The result of these incidents may include disrupted operations, misstated or unreliable financial data, liability for stolen assets or information, increased cybersecurity protection and insurance costs, litigation and damage to our stockholder relationships. As we and the parties that provide essential services to us increase our and their reliance on technology, the risks posed to the information systems of such persons have also increased. We have implemented processes, procedures and internal controls to help mitigate cyber incidents, but these measures do not guarantee that a cyber-incident will not occur or that attempted security breaches or disruptions would not be successful or damaging. A cyber incident could materially adversely impact our business, financial condition, results of operations, cash flows, or our ability to satisfy our debt service obligations. There also may be liability for any stolen assets or misappropriated Company funds or confidential information. Any material adverse effect experienced by us or other parties that provide us with services essential to our operations could, in turn, have an adverse impact on us.
See a full breakdown of risk according to category and subcategory. The list starts with the category with the most risk. Click on subcategories to read relevant extracts from the most recent report.

FAQ

What are “Risk Factors”?
Risk factors are any situations or occurrences that could make investing in a company risky.
    The Securities and Exchange Commission (SEC) requires that publicly traded companies disclose their most significant risk factors. This is so that potential investors can consider any risks before they make an investment.
      They also offer companies protection, as a company can use risk factors as liability protection. This could happen if a company underperforms and investors take legal action as a result.
        It is worth noting that smaller companies, that is those with a public float of under $75 million on the last business day, do not have to include risk factors in their 10-K and 10-Q forms, although some may choose to do so.
          How do companies disclose their risk factors?
          Publicly traded companies initially disclose their risk factors to the SEC through their S-1 filings as part of the IPO process.
            Additionally, companies must provide a complete list of risk factors in their Annual Reports (Form 10-K) or (Form 20-F) for “foreign private issuers”.
              Quarterly Reports also include a section on risk factors (Form 10-Q) where companies are only required to update any changes since the previous report.
                According to the SEC, risk factors should be reported concisely, logically and in “plain English” so investors can understand them.
                  How can I use TipRanks risk factors in my stock research?
                  Use the Risk Factors tab to get data about the risk factors of any company in which you are considering investing.
                    You can easily see the most significant risks a company is facing. Additionally, you can find out which risk factors a company has added, removed or adjusted since its previous disclosure. You can also see how a company’s risk factors compare to others in its sector.
                      Without reading company reports or participating in conference calls, you would most likely not have access to this sort of information, which is usually not included in press releases or other public announcements.
                        A simplified analysis of risk factors is unique to TipRanks.
                          What are all the risk factor categories?
                          TipRanks has identified 6 major categories of risk factors and a number of subcategories for each. You can see how these categories are broken down in the list below.
                          1. Financial & Corporate
                          • Accounting & Financial Operations - risks related to accounting loss, value of intangible assets, financial statements, value of intangible assets, financial reporting, estimates, guidance, company profitability, dividends, fluctuating results.
                          • Share Price & Shareholder Rights – risks related to things that impact share prices and the rights of shareholders, including analyst ratings, major shareholder activity, trade volatility, liquidity of shares, anti-takeover provisions, international listing, dual listing.
                          • Debt & Financing – risks related to debt, funding, financing and interest rates, financial investments.
                          • Corporate Activity and Growth – risks related to restructuring, M&As, joint ventures, execution of corporate strategy, strategic alliances.
                          2. Legal & Regulatory
                          • Litigation and Legal Liabilities – risks related to litigation/ lawsuits against the company.
                          • Regulation – risks related to compliance, GDPR, and new legislation.
                          • Environmental / Social – risks related to environmental regulation and to data privacy.
                          • Taxation & Government Incentives – risks related to taxation and changes in government incentives.
                          3. Production
                          • Costs – risks related to costs of production including commodity prices, future contracts, inventory.
                          • Supply Chain – risks related to the company’s suppliers.
                          • Manufacturing – risks related to the company’s manufacturing process including product quality and product recalls.
                          • Human Capital – risks related to recruitment, training and retention of key employees, employee relationships & unions labor disputes, pension, and post retirement benefits, medical, health and welfare benefits, employee misconduct, employee litigation.
                          4. Technology & Innovation
                          • Innovation / R&D – risks related to innovation and new product development.
                          • Technology – risks related to the company’s reliance on technology.
                          • Cyber Security – risks related to securing the company’s digital assets and from cyber attacks.
                          • Trade Secrets & Patents – risks related to the company’s ability to protect its intellectual property and to infringement claims against the company as well as piracy and unlicensed copying.
                          5. Ability to Sell
                          • Demand – risks related to the demand of the company’s goods and services including seasonality, reliance on key customers.
                          • Competition – risks related to the company’s competition including substitutes.
                          • Sales & Marketing – risks related to sales, marketing, and distribution channels, pricing, and market penetration.
                          • Brand & Reputation – risks related to the company’s brand and reputation.
                          6. Macro & Political
                          • Economy & Political Environment – risks related to changes in economic and political conditions.
                          • Natural and Human Disruptions – risks related to catastrophes, floods, storms, terror, earthquakes, coronavirus pandemic/COVID-19.
                          • International Operations – risks related to the global nature of the company.
                          • Capital Markets – risks related to exchange rates and trade, cryptocurrency.
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