INTEREST RATE RISK Interest rate risk is the risk that the Company will incur economic losses due to adverse changes  in interest rates. This risk arises from the Company' s investments in interest sensitive debt  securities. These securities are primarily fixed rate municipal bonds and corporate bonds. The  Company does not purchase such securities for trading purposes. At December 31, 2000, the  Company had approximately $36 million in fixed rate bonds. The Company manages the interest  rate risk inherent in its assets by monitoring its liquidity needs and by targeting a specific range  for the portfolio' s duration or weighted average maturity.  To determine the potential effect of interest rate risk on interest sensitive assets, the Company  calculates the effect of a 10% change in prevailing interest rates ("rate shock") on the fair market  value of these securities considering stated interest rates and time to maturity. Based upon the  information and assumptions the Company uses in its calculation, management estimates that a  10% immediate, parallel increase in prevailing interest rates would decrease the net fair market  value of its debt securities by approximately $1.3 million. The selection of a 10% immediate  parallel increase in prevailing interest rates should not be construed as a prediction by the  Company' s management of future market events, but rather, to illustrate the potential impact of  such an event. To the extent that actual results differ from the assumptions utilized, the  Company' s rate shock measures could be significantly impacted. Additionally, the Company' s  calculation assumes that the current relationship between short-term and long-term interest rates  (the term structure of interest rates) will remain constant over time. As a result, these calculations  may not fully capture the impact of nonparallel changes in the term structure of interest rates  and/or large changes in interest rates.  $^{ }$EQUITY PRICE RISK Equity price risk is the risk that the Company will incur economic losses due to adverse changes  in a particular stock or stock index. At December 31, 2000, the Company had approximately  $4.2 million in common stocks. By statutory policy, the Company' s maximum exposure to the  equity market is limited to 20% of the Company' s statutorily admitted assets. Equity price risk is  addressed in part by varying the specific allocation of equity investments over time pursuant to  management’ s assessment of market and business conditions and ongoing liquidity needs  analysis. The Company' s largest equity exposure is declines in the S&P 500; its portfolio of  equity instruments is similar to those that comprise this index. Based upon the information and  assumptions the Company used in its calculation, management estimates that an immediate  decrease in the S&P 500 of 10% would decrease the net fair value of the Company' s assets  identified above by approximately $425,000. The selection of a 10% immediate decrease in the  S&P 500 should not be construed as a prediction by the Company' s management of future  market events, but rather, to illustrate the potential impact of such an event. Since this calculation  is based on historical performance, projecting future price volatility using this method involves  an inherent assumption that historical volatility and correlation relationships will remain stable.  Therefore, the results noted above may not reflect the Company' s actual experience if future  volatility and correlation relationships differ from such historical relationships.  17 © Investors Title Company 