Company Quick10K Filing
Independence Holding
Price38.86 EPS1
Shares15 P/E26
MCap582 P/FCF19
Net Debt-22 EBIT28
TEV560 TEV/EBIT20
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-08
10-K 2019-12-31 Filed 2020-03-16
10-Q 2019-09-30 Filed 2019-11-08
10-Q 2019-06-30 Filed 2019-08-08
10-Q 2019-03-31 Filed 2019-05-08
10-K 2018-12-31 Filed 2019-03-15
10-Q 2018-09-30 Filed 2018-11-08
10-Q 2018-06-30 Filed 2018-08-09
10-Q 2018-03-31 Filed 2018-05-10
10-K 2017-12-31 Filed 2018-03-26
10-Q 2017-09-30 Filed 2017-11-09
10-Q 2017-06-30 Filed 2017-08-09
10-Q 2017-03-31 Filed 2017-06-16
10-K 2016-12-31 Filed 2017-05-22
10-Q 2016-09-30 Filed 2016-11-09
10-Q 2016-06-30 Filed 2016-08-15
10-Q 2016-03-31 Filed 2016-08-01
10-K 2015-12-31 Filed 2016-06-06
10-Q 2015-09-30 Filed 2015-11-09
10-Q 2015-06-30 Filed 2015-08-07
10-Q 2015-03-31 Filed 2015-05-08
10-K 2014-12-31 Filed 2015-03-16
10-Q 2014-09-30 Filed 2014-11-07
10-Q 2014-06-30 Filed 2014-08-08
10-Q 2014-03-31 Filed 2014-05-09
10-K 2013-12-31 Filed 2014-03-14
10-Q 2013-09-30 Filed 2013-11-07
10-Q 2013-06-30 Filed 2013-08-08
10-Q 2013-03-31 Filed 2013-05-09
10-K 2012-12-31 Filed 2013-03-15
10-Q 2012-06-30 Filed 2012-08-09
10-Q 2012-03-31 Filed 2012-05-10
10-K 2011-12-31 Filed 2012-03-15
10-Q 2011-09-30 Filed 2011-11-10
10-Q 2011-06-30 Filed 2011-08-11
10-Q 2011-03-31 Filed 2011-05-12
10-K 2010-12-31 Filed 2011-03-17
10-Q 2010-09-30 Filed 2010-11-09
10-Q 2010-06-30 Filed 2010-08-12
10-Q 2010-03-31 Filed 2010-05-17
10-K 2009-12-31 Filed 2010-03-25
8-K 2020-05-07
8-K 2020-04-24
8-K 2020-04-17
8-K 2020-03-24
8-K 2020-03-12
8-K 2019-11-12
8-K 2019-11-12
8-K 2019-11-07
8-K 2019-08-06
8-K 2019-05-07
8-K 2019-03-18
8-K 2018-11-13
8-K 2018-11-12
8-K 2018-11-06
8-K 2018-09-24
8-K 2018-08-07
8-K 2018-05-09
8-K 2018-03-16
8-K 2018-03-16
8-K 2018-03-12

IHC 10Q Quarterly Report

Part I - Financial Information
Item 1.Financial Statements
Note 1.Organization, Consolidation, Basis of Presentation and Accounting Policies
Note 2.Income per Common Share
Note 3.Cash, Cash Equivalents and Restricted Cash
Note 4.Investment Securities
Note 5.Fair Value Disclosures
Note 6.Other Investments, Including Variable Interest Entities
Note 7.Acquisition
Note 8.Goodwill and Other Intangible Assets
Note 9.Income Taxes
Note 10.Policy Benefits and Claims
Note 11.Stockholders' Equity
Note 12.Supplemental Disclosures of Cash Flow Information
Note 13.Contingencies
Note 14.Segment Reporting
Note 15.Subsequent Events
Item 2.Management's Discussion and Analysis of Financial
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ihc1q2020_ex31z1.htm
EX-31.2 ihc1q2020_ex31z2.htm
EX-32.1 ihc1q2020_ex32z1.htm
EX-32.2 ihc1q2020_ex32z2.htm

Independence Holding Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
1.41.10.80.60.30.02012201420172020
Assets, Equity
0.20.20.10.10.00.02012201420172020
Rev, G Profit, Net Income
0.30.20.1-0.1-0.2-0.32012201420172020
Ops, Inv, Fin

INDEPENDENCE HOLDING COMPANY - Form 10-Q SEC filing
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________________________________

FORM 10-Q

 

  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the quarterly period ended March 31, 2020.

 

  Transition Report under Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the transition period from: ________ to _________  

 

Commission File Number: 001-32244

 

INDEPENDENCE HOLDING COMPANY

(Exact name of registrant as specified in its charter)

 

Delaware

 

58-1407235

(State or other jurisdiction of incorporation or organization) 

(I.R.S. Employer Identification No.)

 

96 CUMMINGS POINT ROAD, STAMFORD, CT                      06902

                                        (Address of principal executive offices)                                          (Zip Code)

 

Registrant's telephone number, including area code: (203) 358-8000

 

NOT APPLICABLE

Former name, former address and former fiscal year, if changed since last report.

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $1.00 par value

IHC

NYSE

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]   No [   ]

 

Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes   [X]   No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer [    ]

Accelerated Filer  [X]

Non-Accelerated Filer   [    ]

Smaller Reporting Company  

Emerging Growth Company   

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  [   ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   

Yes      No  [X]

 

As of May 8, 2020, the registrant had 14,785,565 shares of Common Stock outstanding.


1


 

INDEPENDENCE HOLDING COMPANY

 

INDEX

 

PART I – FINANCIAL INFORMATION

PAGE

 

 

NO.

 

 

 

Item 1. Financial Statements

 

 

 

 

 

Condensed Consolidated Balance Sheets

4

 

 

 

Condensed Consolidated Statements of Income

5

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss)

6

 

 

 

Condensed Consolidated Statements of Changes in Equity

7

 

 

 

Condensed Consolidated Statements of Cash Flows

8

 

 

 

Notes to Condensed Consolidated Financial Statements

9

 

 

 

Item 2. Management's Discussion and Analysis of Financial Condition

 

 

and Results of Operations

27

 

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

38

 

 

 

Item 4. Controls and Procedures

38

 

 

PART II - OTHER INFORMATION

 

 

 

 

Item 1.    Legal Proceedings

38

 

 

 

 

Item 1A. Risk Factors

40

 

 

 

 

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

41

 

 

 

 

Item 3.   Defaults Upon Senior Securities

41

 

 

 

 

Item 4.    Mine Safety Disclosures

41

 

 

 

 

Item 5.    Other Information

41

 

 

 

Item 6.    Exhibits

42

 

 

 

Signatures

44

 

 

 

 

 

 

Copies of the Company’s SEC filings can be found on its website at www.ihcgroup.com.


2


 

Forward-Looking Statements

 

This report on Form 10−Q contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbors created by those laws. We have based our forward-looking statements on our current expectations and projections about future events. Our forward-looking statements include information about possible or assumed future results of our operations. All statements, other than statements of historical facts, included or incorporated by reference in this report that address activities, events or developments that we expect or anticipate may occur in the future, including such things as the growth of our business and operations, our business strategy, competitive strengths, goals, plans, future capital expenditures and references to future successes may be considered forward-looking statements. Also, when we use words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “probably” or similar expressions, we are making forward-looking statements.

 

Numerous risks and uncertainties may impact the matters addressed by our forward-looking statements, any of which could negatively and materially affect our future financial results and performance.  We describe some of these risks and uncertainties in greater detail in Item 1A, Risk Factors, of IHC’s Annual Report on Form 10-K as filed with Securities and Exchange Commission. The only significant changes to our risk factors relate to the 2019 Novel Coronavirus (“COVID-19”) pandemic, see Item 1A of this document for details

 

Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of these assumptions, and, therefore, also the forward-looking statements based on these assumptions, could themselves prove to be inaccurate. In light of the significant uncertainties inherent in the forward-looking statements that are included in this report, our inclusion of this information is not a representation by us or any other person that our objectives and plans will be achieved. Our forward-looking statements speak only as of the date made, and we will not update these forward-looking statements unless the securities laws require us to do so. In light of these risks, uncertainties and assumptions, any forward-looking event discussed in this report may not occur.


3


PART I - FINANCIAL INFORMATION

Item 1.Financial Statements     

 

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data)

 

 

 

 

March 31, 2020

 

 

December 31, 2019

 

 

(Unaudited)

 

 

ASSETS:

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

Short-term investments

 

$

74,029  

 

$

50  

Securities purchased under agreements to resell

 

 

18,377  

 

 

107,157  

Fixed maturities, available-for-sale

 

 

414,004  

 

 

384,974  

Equity securities

 

 

2,959  

 

 

3,747  

Other investments

 

 

14,743  

 

 

15,208  

Total investments

 

 

524,112  

 

 

511,136  

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

23,048  

 

 

21,094  

Due and unpaid premiums

 

 

32,621  

 

 

26,244  

Due from reinsurers

 

 

362,301  

 

 

362,969  

Goodwill

 

 

64,827  

 

 

60,165  

Other assets

 

 

72,926  

 

 

72,695  

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

1,079,835  

 

$

1,054,303  

 

 

 

 

 

 

 

LIABILITIES AND  EQUITY:

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

 

Policy benefits and claims

 

$

170,836  

 

$

164,802  

Future policy benefits

 

 

200,986  

 

 

201,205  

Funds on deposit

 

 

140,837  

 

 

140,951  

Unearned premiums

 

 

27,403  

 

 

7,282  

Other policyholders' funds

 

 

11,965  

 

 

12,049  

Due to reinsurers

 

 

4,114  

 

 

5,016  

Accounts payable, accruals and other liabilities

 

 

61,506  

 

 

61,049  

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

 

617,647  

 

 

592,354  

 

 

 

 

 

 

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

Redeemable noncontrolling interest

 

 

2,290  

 

 

2,237  

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

Preferred stock $1.00 par value, 100,000 shares authorized;

 

 

 

 

 

 

none issued or outstanding

 

 

-  

 

 

-  

Common stock $1.00 par value, 23,000,000 shares authorized;

 

 

 

 

 

 

18,625,458 shares issued; and 14,818,839 and

 

 

 

 

 

 

14,864,941 shares outstanding

 

 

18,625  

 

 

18,625  

Paid-in capital

 

 

123,260  

 

 

122,717  

Accumulated other comprehensive gain

 

 

1,101  

 

 

1,212  

Treasury stock, at cost; 3,806,619 and 3,760,517 shares

 

 

(71,196) 

 

 

(69,724) 

Retained earnings

 

 

388,102  

 

 

386,864  

 

 

 

 

 

 

 

TOTAL IHC STOCKHOLDERS’ EQUITY

 

 

459,892  

 

 

459,694  

NONREDEEMABLE NONCONTROLLING INTERESTS

 

 

6  

 

 

18  

 

 

 

 

 

 

 

TOTAL EQUITY

 

 

459,898  

 

 

459,712  

 

 

 

 

 

 

 

TOTAL LIABILITIES AND EQUITY

 

$

1,079,835  

 

$

1,054,303  

 

See the accompanying Notes to Condensed Consolidated Financial Statements.


4


 

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(In thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31,

 

2020

 

 

2019

REVENUES:

 

 

 

 

 

Premiums earned

$

96,050  

 

$

82,789  

Net investment income

 

3,240  

 

 

3,996  

Fee income

 

3,942  

 

 

4,188  

Other income

 

477  

 

 

3,684  

Net investment gains

 

288  

 

 

171  

Other-than-temporary impairment losses, available-for-sale securities:

 

 

 

 

 

Total other-than-temporary impairment losses

 

-  

 

 

(646) 

Portion of losses recognized in other comprehensive income (loss)

 

-  

 

 

-  

Net impairment losses recognized in earnings

 

-  

 

 

(646) 

 

 

 

 

 

 

 

103,997  

 

 

94,182  

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

Insurance benefits, claims and reserves

 

54,058  

 

 

43,119  

Selling, general and administrative expenses

 

44,574  

 

 

40,529  

 

 

 

 

 

 

 

98,632  

 

 

83,648  

 

 

 

 

 

 

Income before income taxes

 

5,365  

 

 

10,534  

Income taxes

 

1,043  

 

 

1,644  

 

 

 

 

 

 

Net income

 

4,322  

 

 

8,890  

(Income) loss from nonredeemable noncontrolling interests

 

9  

 

 

(117) 

(Income) from redeemable noncontrolling interests

 

(53) 

 

 

(46) 

 

 

 

 

 

 

NET INCOME ATTRIBUTABLE TO IHC

$

4,278  

 

$

8,727  

 

 

 

 

 

 

Basic income per common share

$

0.29 

 

$

0.58 

 

 

 

 

 

 

WEIGHTED AVERAGE SHARES OUTSTANDING

 

14,856  

 

 

14,948 

 

 

 

 

 

 

Diluted income per common share

$

0.29 

 

$

0.58 

 

 

 

 

 

 

WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING

 

14,911  

 

 

15,066 

 

 

 

 

 

 

 

 

 

 

 

 

 

See the accompanying Notes to Condensed Consolidated Financial Statements.


5


 

 

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

March  31,

 

 

2020

 

2019

 

 

 

Net income

$

4,322  

$

8,890  

Other comprehensive income (loss):

 

 

 

 

Available-for-sale securities:

 

 

 

 

Unrealized gains (losses) on available-for-sale securities, pre-tax

 

(134) 

 

7,194  

Tax expense (benefit) on unrealized gains on available-for-sale securities

 

(23) 

 

1,525  

Unrealized gains (losses) on available-for-sale securities, net of taxes

 

(111) 

 

5,669  

 

 

 

 

 

Other comprehensive income (loss), net of tax

 

(111) 

 

5,669  

 

 

 

 

 

COMPREHENSIVE INCOME, NET OF TAX

 

4,211  

 

14,559  

 

 

 

 

 

Comprehensive income, net of tax, attributable to noncontrolling interests:

 

 

 

 

Income from noncontrolling interests in subsidiaries

 

(44) 

 

(163) 

Other comprehensive income, net of tax, attributable to noncontrolling interests

 

-  

 

-  

 

 

 

 

 

COMPREHENSIVE INCOME, NET OF TAX,

 

 

 

 

   ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

(44) 

 

(163) 

 

 

 

 

 

COMPREHENSIVE INCOME, NET OF TAX,

 

 

 

 

   ATTRIBUTABLE TO IHC

$

4,167  

$

14,396  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See the accompanying Notes to Condensed Consolidated Financial Statements.


6


 

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Unaudited) (In thousands)

Three Months Ended March 31, 2020 and 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ACCUMULATED

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER

 

TREASURY

 

 

 

TOTAL IHC

 

NONREDEEMABLE

 

 

 

 

COMMON

 

PAID-IN

 

COMPREHENSIVE

 

STOCK,

 

RETAINED

 

STOCKHOLDERS'

 

NONCONTROLLING

 

TOTAL

 

STOCK

 

CAPITAL

 

LOSS

 

AT COST

 

EARNINGS

 

EQUITY

 

INTERESTS

 

EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DECEMBER 31, 2019

$

18,625 

$

122,717  

$

1,212  

$

(69,724) 

$

386,864  

$

459,694  

$

18  

$

459,712  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

4,278  

 

4,278  

 

(9) 

 

4,269  

Other comprehensive

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

income, net of tax

 

 

 

 

 

(111) 

 

 

 

 

 

(111) 

 

-  

 

(111) 

Repurchases of common stock

 

 

 

 

 

 

 

(1,472) 

 

 

 

(1,472) 

 

-  

 

(1,472) 

Common stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    ($0.22 per share)

 

 

 

 

 

 

 

 

 

(3,040) 

 

(3,040) 

 

-  

 

(3,040) 

Distributions to noncontrolling

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

interests

 

 

 

 

 

 

 

 

 

 

 

-  

 

(3) 

 

(3) 

Share-based compensation

 

 

 

543  

 

 

 

  

 

 

 

543  

 

-  

 

543  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MARCH 31, 2020

$

18,625 

$

123,260  

$

1,101  

$

(71,196) 

$

388,102  

$

459,892  

$

6  

$

459,898  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DECEMBER 31, 2018

$

18,625 

$

124,395 

$

(8,310) 

$

(66,392) 

$

380,431  

$

448,749  

$

2,682 

$

451,431  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

8,727  

 

8,727  

 

117 

 

8,844  

Other comprehensive

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

income, net of tax

 

 

 

 

 

5,669  

 

 

 

 

 

5,669  

 

- 

 

5,669  

Repurchases of common stock

 

 

 

 

 

 

 

(91) 

 

 

 

(91) 

 

- 

 

(91) 

Common stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    ($0.20 per share)

 

 

 

 

 

 

 

 

 

(2,994) 

 

(2,994) 

 

- 

 

(2,994) 

Share-based compensation

 

 

 

(2,340) 

 

 

 

557  

 

 

 

(1,783) 

 

- 

 

(1,783) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MARCH 31, 2019

$

18,625 

$

122,055 

$

(2,641) 

$

(65,926) 

$

386,164  

$

458,277  

$

2,799 

$

461,076  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See the accompanying Notes to Condensed Consolidated Financial Statements.


7


 

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

 

 

 

Three Months Ended March 31,

 

2020

 

 

2019

CASH FLOWS PROVIDED BY (USED BY) OPERATING ACTIVITIES:

 

 

 

 

 

Net income

$

4,322  

 

$

8,890  

Adjustments to reconcile net income to net change in cash from

 

 

 

 

 

operating  activities:

 

 

 

 

 

Amortization of deferred acquisition costs

 

120  

 

 

389  

Net investment (gains)

 

(288) 

 

 

(171) 

(Gain) on sale of investment

 

-  

 

 

(3,589) 

Other than-temporary-impairment losses, net

 

-  

 

 

646  

Equity (income) loss from equity method investments

 

(328) 

 

 

371  

Depreciation and amortization

 

908  

 

 

799  

Other

 

1,593  

 

 

3,233  

 Changes in assets and liabilities:

 

 

 

 

 

Change in insurance liabilities

 

25,009  

 

 

13,254  

Change in  amounts due from reinsurers

 

668  

 

 

1,660  

Change in claim fund balances

 

58  

 

 

2,004  

Change in due and unpaid premiums

 

(6,377) 

 

 

(2,196) 

Other operating activities

 

(7,858) 

 

 

(7,639) 

 

 

 

 

 

Net change in cash from operating activities

 

17,827  

 

 

17,651  

 

 

 

 

 

 

CASH FLOWS PROVIDED BY (USED BY) INVESTING ACTIVITIES:

 

 

 

 

 

Net (purchases) sales and maturities of short-term investments

 

(73,952) 

 

 

1,000  

Net (purchases) sales of securities under resale agreements

 

88,780  

 

 

(23,303) 

Sales of fixed maturities

 

33,328  

 

 

15,833  

Maturities and other repayments of fixed maturities

 

11,208  

 

 

25,687  

Purchases of fixed maturities

 

(66,621) 

 

 

(36,291) 

Payments to acquire business, net of cash acquired

 

(2,597) 

 

 

(4,434) 

Proceeds from sales, distributions and returns of capital from investments

 

-  

 

 

4,617  

Payments to acquire other investments

 

(1,250) 

 

 

-  

Other investing activities

 

(719) 

 

 

(906) 

 

 

 

 

 

Net change in cash from investing activities

 

(11,823) 

 

 

(17,797) 

 

 

 

 

 

 

CASH FLOWS PROVIDED BY (USED BY)  FINANCING ACTIVITIES:

 

 

 

 

 

Repurchases of common stock

 

(1,335) 

 

 

(50) 

Withdrawals of investment-type insurance contracts

 

(173) 

 

 

(913) 

Dividends paid

 

(2,973) 

 

 

(2,242) 

Proceeds from stock options exercised

 

-  

 

 

44  

Payments related to tax withholdings for sharebased compensation

 

-  

 

 

(2,384) 

Other financing activities

 

(3

 

 

-  

 

 

 

 

 

 

Net change in cash from financing activities

 

(4,484) 

 

 

(5,545) 

 

 

 

 

 

 

Net change in cash, cash equivalents and restricted cash

 

1,520  

 

 

(5,691) 

Cash, cash equivalents and restricted cash, beginning of year

 

24,631  

 

 

30,807  

 

 

 

 

 

 

Cash, cash equivalents and restricted cash, end of period

$

26,151  

 

$

25,116  

 

 

 

 

 

 

 

 

 

 

 

 

See the accompanying Notes to Condensed Consolidated Financial Statements.


8


INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Note 1.Organization, Consolidation, Basis of Presentation and Accounting Policies 

 

(A)    Business and Organization 

 

Independence Holding Company, a Delaware corporation (“IHC”), is a holding company principally engaged in the life and health insurance business through: (i) its insurance companies, Standard Security Life Insurance Company of New York ("Standard Security Life"),  Madison National Life Insurance Company, Inc. ("Madison National Life"), and Independence American Insurance Company (“Independence American”); and (ii) its marketing and administrative companies, including IHC Specialty Benefits Inc., IHC Brokerage Group, Inc., My1HR, Inc. (“My1HR”) and a majority interest in PetPartners, Standard Security Life, Madison National Life and Independence American are sometimes collectively referred to as the “Insurance Group”. IHC and its subsidiaries (including the Insurance Group) are sometimes collectively referred to as the "Company", or “IHC”, or are implicit in the terms “we”, “us” and “our”. 

 

Geneve Corporation, a financial holding company, and its affiliated entities, held approximately 62% of IHC's outstanding common stock at March 31, 2020.  

 

(B)     Basis of Presentation 

 

The unaudited Condensed Consolidated Financial Statements have been prepared in conformity with U.S. generally accepted accounting principles ("GAAP") for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited Condensed Consolidated Financial Statements include the accounts of IHC and its consolidated subsidiaries. All significant intercompany transactions have been eliminated in consolidation. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect: (i) the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements; and (ii) the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. IHC’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission should be read in conjunction with the accompanying unaudited Condensed Consolidated Financial Statements.

 

In March 2020, the World Health Organization declared the outbreak of COVID-19 a global health pandemic and the United States declared a national health emergency. COVID-19 has led to largescale disruption in the global economy, market instability and widespread unemployment in the United States. The COVID-19 outbreak is a fluid situation and as it evolves, the duration of COVID-19 and its potential effects on our business cannot be certain. Regulatory mandates have affected, and we anticipate will continue to impact, the insurance industry. We currently cannot predict if there will be a material impact to our business, results of operations or financial condition in future reporting periods. Consequently, future changes in market conditions may impact estimates used in the preparation of our financial statements associated with evaluations of goodwill and other intangible assets for impairment, estimates associated with the determination of valuation allowances related to net operating loss carryforwards, and estimates of certain losses under insurance contracts. These estimates may all be subject to substantial adjustments in future periods.  In addition, volatile market conditions may result in further declines in the fair value of our investment portfolio and possible impairments of certain securities.

 


9


In the opinion of management, all adjustments (consisting only of normal recurring accruals) that are necessary for a fair presentation of the consolidated financial position and results of operations for the interim periods have been included. The condensed consolidated results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results to be anticipated for the entire year.

 

(C)   Reclassifications 

 

Certain amounts in prior year’s consolidated financial statements and Notes thereto have been reclassified to conform to the 2020 presentation.

 

(D)   Revenue Recognition 

 

Insurance premiums are recognized as revenue over the period insurance protection is provided. For additional information about our policies regarding the recognition of premium revenues, see Note 1 of the Notes to Consolidated Financial Statements included in our 2019 Annual Report on Form 10-K as filed with the Securities and Exchange Commission.

 

Fee income includes fees and commissions for various sales, marketing and administrative services provided by our marketing and administrative companies. Revenue is recognized as these services are performed for most products. For these administrative service and other contracts, we have no material contract assets or contract liabilities on our consolidated balance sheet at March 31, 2020.  Revenue recognized from performance obligations related to prior periods, and revenue expected to be recognized in future periods related to unfulfilled contractual performance obligations and contracts with variable consideration, is not material.

 

Life Time  value – The Company uses expected constrained life time value’s (“LTV”) representing the expected commissions to be received over the lifetime of certain policies sold, primarily Medicare Advantage and Medicare Supplement products, on behalf of unaffiliated insurance carriers by IHC’s marketing agencies.

 

Expected future commission revenue over the lifetime of the policies sold is recorded in the period the performance obligation is satisfied. No significant additional performance obligation occurs with renewal of the initial policy. IHC records substantially all anticipated revenue on these policies on the date a completed insurance application is submitted to the unaffiliated insurance carrier; adjusted for certain constraints including policyholder acceptance rates, cancellations and non-renewals. Increased sales of the aforementioned products to unaffiliated insurance carriers began in 2020 as a result of new contracts with those carriers and increased distribution channels.

 

(E)   Recent Accounting Pronouncements 

 

Recently Adopted Accounting Standards

 

In October 2018, the FASB issued guidance for determining whether a decision making fee is a variable interest and requires reporting entities to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

 

In August 2018, the FASB issued guidance to improve the effectiveness of disclosures in the notes to financial statements regarding fair value measurements. The amendments in this guidance are effective for all entities for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

 

In January 2017, the FASB issued guidance to simplify the test for goodwill impairment by eliminating Step 2 in the goodwill impairment test. Instead, under the amendments in this guidance, an entity should


10


perform its annual or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The amendments in this guidance are effective for public business entities for annual, or any interim, goodwill impairment tests in fiscal years beginning after December 15, 2019. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

 

Recently Issued Accounting Standards Not Yet Adopted 

 

In December 2019, the FASB issued guidance to simplify the accounting for income taxes. The guidance eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities related to changes in ownership of equity method investments and foreign subsidiaries. The guidance also simplifies aspects of accounting for franchise taxes, the requirement to allocate current and deferred tax expense to legal entities not subject to tax in its separate financial statements, enacted changes in tax laws or rates, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The amendments in this guidance are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.

 

In August 2018, the FASB issued guidance to improve existing measurements, presentation and disclosure requirements for long-duration contracts issued by insurance entities. The amendments in this guidance requires an entity to (1) review and update assumptions used to measure cash flows at least annually as well as update the discount rate assumption at each reporting date; (2) measure market risk benefits associated with deposit contracts at fair value; (3) disclose liability rollforwards and information about significant inputs, judgements assumptions, and methods used in measurement. Additionally, it simplifies the amortization of deferred acquisition costs and other balances on a constant level basis over the expected term of the related contracts. In 2019, the FASB delayed the original effective dates. For smaller reporting companies, the amendments in this guidance are now effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. Upon adoption, the amendments in this guidance should be applied to contracts in-force as of the beginning of the earliest period presented with a cumulative adjustment to beginning retained earnings. Management is evaluating the requirements and potential impact that the adoption of this guidance will have on the Company’s consolidated financial statements.

 

In June 2016, the FASB issued guidance requiring financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. An allowance for credit losses will be deducted from the amortized cost basis to present the net carrying value at the amount expected to be collected with changes in the allowance recorded in earnings. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses rather than the currently applied U.S. GAAP method of taking a permanent impairment of the security, which would be limited to the amount by which fair value is below the amortized cost. Certain existing requirements used to evaluate credit losses have been removed. In 2019, the FASB provided transition relief by providing entities with an option to irrevocably elect the fair value option on an instrument-by-instrument basis for eligible instruments upon adoption and delayed the original effective dates. For smaller reporting companies, the amendments in this guidance are now effective for fiscal years beginning after December 15, 2022, including interim periods within those years. Early adoption is permitted. The amendments in this guidance should be applied through a cumulative effect adjustment to retained earnings upon adoption as of the beginning of the first reporting period in which the guidance is effective. Management is evaluating the requirements and potential impact that the adoption of this guidance will have on the Company’s consolidated financial statements.


11


 

 

Note 2.Income Per Common Share 

 

Diluted income per share was computed using the treasury stock method and includes incremental common shares, primarily from the dilutive effect of share-based payment awards, amounting to 55,000 and 118,000 shares for the three months ended March 31, 2020 and 2019, respectively.

 

Note 3.Cash, Cash Equivalents and Restricted Cash 

 

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets to the amounts shown in the Condensed Consolidated Statements of Cash Flows for the periods indicated (in thousands): 

 

 

 

March 31,

 

 

2020

 

2019

 

 

Cash and cash equivalents

$

23,048 

$

20,560 

Restricted cash included in other assets

 

3,103 

 

4,556 

 

 

 

 

 

Total cash, cash equivalents and restricted cash

$

26,151 

$

25,116 

 

 

 

 

 

 

Restricted cash includes insurance premiums collected from insureds that are pending remittance to insurance carriers and/or payment of insurance claims and commissions to third party administrators. These amounts are required to be set aside by contractual agreements with the insurance carriers and are included in other assets on the Condensed Consolidated Balance Sheets.

 

Note 4.Investment Securities 

 

The cost (amortized cost with respect to certain fixed maturities), gross unrealized gains, gross unrealized losses and fair value of fixed maturities available-for-sale are as follows for the periods indicated (in thousands):

 

 

March 31, 2020 

 

 

 

 

GROSS 

 

GROSS 

 

 

 

 

AMORTIZED

 

UNREALIZED

 

UNREALIZED

 

FAIR 

 

COST

 

GAINS

 

LOSSES

 

VALUE

 

 

 

 

FIXED MATURITIES

 

 

 

 

 

 

 

 

AVAILABLE-FOR-SALE:

 

 

 

 

 

 

 

 

Corporate securities

$

139,487  

$

1,476  

$

(2,993) 

$

137,970  

CMOs – residential (1)

 

5,143  

 

223  

 

-  

 

5,366  

U.S. Government obligations

 

50,348  

 

1,175  

 

-  

 

51,523  

GSEs (2)

 

6,137  

 

1  

 

(271) 

 

5,867  

States and political subdivisions

 

204,836  

 

2,252  

 

(751) 

 

206,337  

Foreign government obligations

 

6,638  

 

303  

 

-  

 

6,941  

 

 

 

 

 

 

 

 

 

Total fixed maturities

$

412,589  

$

5,430  

$

(4,015) 

$

414,004  

 


12


 

 

 

December 31, 2019

 

 

 

 

GROSS 

 

GROSS 

 

 

 

 

AMORTIZED

 

UNREALIZED

 

UNREALIZED

 

FAIR 

 

COST

 

GAINS

 

LOSSES

 

VALUE

 

 

 

 

FIXED MATURITIES

 

 

 

 

 

 

 

 

AVAILABLE-FOR-SALE:

 

 

 

 

 

 

 

 

Corporate securities

$

161,369 

$

1,832 

$

(1,178) 

$

162,023 

CMOs – residential (1)

 

5,328 

 

54 

 

- 

 

5,382 

U.S. Government obligations

 

50,340 

 

257 

 

(48) 

 

50,549 

GSEs (2)

 

6,230 

 

- 

 

(107) 

 

6,123 

States and political subdivisions

 

153,439 

 

1,512 

 

(943) 

 

154,008 

Foreign government obligations

 

6,719 

 

172 

 

(2) 

 

6,889 

 

 

 

 

 

 

 

 

 

Total fixed maturities

$

383,425 

$

3,827 

$

(2,278) 

$

384,974 

 

(1)Collateralized mortgage obligations (“CMOs”). 

(2)Government-sponsored enterprises (“GSEs”) are private enterprises established and chartered by the Federal Government or its various insurance and lease programs which carry the full faith and credit obligation of the U.S. Government. 

 

The amortized cost and fair value of fixed maturities available-for-sale at March 31, 2020, by contractual maturity, are shown below (in thousands). Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

 

 

 

AMORTIZED

 

 

FAIR

 

 

 

COST

 

 

VALUE

 

 

 

 

Due in one year or less

 

$

34,214

 

$

34,512

Due after one year through five years

 

 

154,997

 

 

156,861

Due after five years through ten years

 

 

105,604

 

 

105,585

Due after ten years

 

 

106,494

 

 

105,814

Fixed maturities with no single maturity date

 

 

11,280

 

 

11,232

 

 

 

 

 

 

 

 

 

$

412,589

 

$

414,004

 


13


 

The following tables summarize, for all fixed maturities available-for-sale in an unrealized loss position, the aggregate fair value and gross unrealized loss by length of time those securities that have continuously been in an unrealized loss position for the periods indicated (in thousands):

 

 

March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

Less than 12 Months

 

 

12 Months or Longer

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

Unrealized

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

Losses

 

 

 

 

 

 

 

 

 

 

Corporate securities

$

45,248

 

$

1,981 

 

$

21,897

 

$

1,012 

 

$

67,145

$

2,993 

GSEs

 

-

 

 

- 

 

 

5,861

 

 

271 

 

 

5,861

 

271 

States and political subdivisions

 

9,318

 

 

31 

 

 

23,498

 

 

720 

 

 

32,816

 

751 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Fixed maturities in an

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      unrealized loss position

$

54,566

 

$

2,012 

 

$

51,256

 

$

2,003 

 

$

105,822

$

4,015 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of fixed maturities in an

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  unrealized loss position

 

35

 

 

 

 

 

29

 

 

 

 

 

64

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

Less than 12 Months

 

 

12 Months or Longer

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

Unrealized

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

Losses

 

 

 

 

 

 

 

 

 

 

Corporate securities

$

18,151

 

$

455 

 

$

32,301

 

$

723 

 

$

50,452

$

1,178 

U.S. Government obligations

 

-

 

 

- 

 

 

7,167

 

 

48 

 

 

7,167

 

48 

GSEs

 

-

 

 

- 

 

 

6,173

 

 

107 

 

 

6,173

 

107 

States and political subdivisions

 

29,872

 

 

114 

 

 

29,462

 

 

829 

 

 

59,334

 

943 

Foreign government obligations

 

-

 

 

- 

 

 

1,603

 

 

2 

 

 

1,603

 

2 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Fixed maturities in an

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      unrealized loss position

$

48,023

 

$

569 

 

$

76,706

 

$

1,709 

 

$

124,729

$

2,278 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of fixed maturities in an

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  unrealized loss position

 

18

 

 

 

 

 

43

 

 

 

 

 

61

 

 

 

Substantially all of the unrealized losses on fixed maturities available-for-sale at March 31, 2020 and December 31, 2019 relate to investment grade securities. Management does not intend to sell, and it is likely that management will not be required to sell these securities prior to their anticipated recovery. The unrealized losses on the Company's fixed maturity securities are related to general market changes in interest rates, and/or the levels of credit spreads largely due to current market conditions relating to the COVID-19 pandemic rather than specific concerns with the issuer's ability to pay interest and repay principal. We have evaluated each corporate security’s credit rating as well as industry risk factors associated with the securities. The fair value of these securities is expected to recover as they approach maturity and therefore the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2020.

 


14


 

Net investment gains are as follows for periods indicated (in thousands):

 

 

 

Three Months Ended

 

 

March 31,

 

 

2020

 

2019

 

 

Realized gains (losses):

 

 

 

 

  Fixed maturities available-for-sale

$

1,070  

$

(22) 

 

 

 

 

 

     Total realized gains (losses) on debt and equity securities

 

1,070  

 

(22) 

Unrealized gains (losses) on equity securities

 

(787) 

 

193  

 

 

 

 

 

Gains (losses) on debt and equity securities

 

283  

 

171  

Gains (losses) on other investments

 

5  

 

-  

 

 

 

 

 

Net investment gains

$

288  

$

171  

 

For the three months ended March 31, 2020 and 2019, the Company realized gross gains of $1,091,000 and $38,000, respectively, and gross losses of $21,000 and $60,000, respectively, from sales, maturities and prepayments of fixed maturities available-for-sale.

 

Other-Than-Temporary Impairment Evaluations

 

We recognize other-than-temporary impairment losses in earnings in the period that we determine: 1) we intend to sell the security; 2) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis; or 3) the security has a credit loss. Any non-credit portion of the other-than-temporary impairment loss is recognized in other comprehensive income (loss). See Note 1F(v) to the Consolidated Financial Statements in the 2019 Annual Report on Form 10-K for further discussion of the factors considered by management in its regular review to identify and recognize other-than-temporary impairments on fixed maturities available-for-sale.  The Company did not recognize any other-than-temporary impairments on available-for-sale securities in the first three months of 2020. The Company recognized an other-than-temporary impairment loss of $646,000 on certain fixed maturities available-for-sale in the first three months of 2019. The Company determined that it was more likely than not that we would sell the securities before the recovery of their amortized cost basis

 

Note 5.Fair Value Disclosures  

 

For all financial and non-financial assets and liabilities accounted for at fair value on a recurring basis, the Company utilizes valuation techniques based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market expectations. These two types of inputs create the following fair value hierarchy:

 

Level 1 - Quoted prices for identical instruments in active markets.

 

Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

 

Level 3 - Instruments where significant value drivers are unobservable.

 

The following section describes the valuation methodologies we use to measure different assets at fair value.

 


15


 

Fixed maturities available-for-sale:

 

Fixed maturities available-for-sale included in Level 2 are comprised of our portfolio of government securities, agency mortgage-backed securities, corporate fixed income securities, foreign government obligations, collateralized mortgage obligations, municipals and GSEs that were priced with observable market inputs. Level 3 debt securities consist of municipal tax credit strips.  The valuation method used to determine the fair value of municipal tax credit strips is the present value of the remaining future tax credits (at the original issue discount rate) as presented in the redemption tables in the Municipal Prospectuses.   This original issue discount is accreted into income on a constant yield basis over the term of the debt instrument. Further, we retain independent pricing vendors to assist in valuing certain instruments.

 

Equity securities:

 

Equity securities included in Level 1 are equity securities with quoted market prices. 

 

The following tables present our financial assets measured at fair value on a recurring basis for the periods indicated (in thousands):

 

 

 

March 31, 2020

 

 

Level 1

 

 

Level 2

 

Level 3

 

Total

 

 

 

 

 

FINANCIAL ASSETS:

 

 

 

 

 

 

 

 

 

Fixed maturities available-for-sale:

 

 

 

 

 

 

 

 

 

  Corporate securities

$

- 

 

$

137,970 

$

- 

$

137,970 

  CMOs - residential

 

- 

 

 

5,366 

 

- 

 

5,366 

  US Government obligations

 

- 

 

 

51,523 

 

- 

 

51,523 

  GSEs

 

- 

 

 

5,867 

 

- 

 

5,867 

  States and political subdivisions

 

- 

 

 

204,856 

 

1,481 

 

206,337 

  Foreign government obligations

 

- 

 

 

6,941 

 

- 

 

6,941 

     Total fixed maturities

 

- 

 

 

412,523 

 

1,481 

 

414,004 

 

 

 

 

 

 

 

 

 

 

Equity securities:

 

 

 

 

 

 

 

 

 

  Common stocks

 

2,128 

 

 

- 

 

- 

 

2,128 

  Nonredeemable preferred stocks

 

831 

 

 

- 

 

- 

 

831 

     Total equity securities

 

2,959 

 

 

- 

 

- 

 

2,959 

 

 

 

 

 

 

 

 

 

 

Total Financial Assets

$

2,959 

 

$

412,523 

$

1,481 

$

416,963 

 

 

 

December 31, 2019

 

 

Level 1

 

 

Level 2

 

Level 3

 

Total

 

 

 

 

 

FINANCIAL ASSETS:

 

 

 

 

 

 

 

 

 

Fixed maturities available-for-sale:

 

 

 

 

 

 

 

 

 

  Corporate securities

$

- 

 

$

162,023 

$

- 

$

162,023 

  CMOs - residential

 

- 

 

 

5,382 

 

- 

 

5,382 

  US Government obligations

 

- 

 

 

50,549 

 

- 

 

50,549 

  GSEs

 

- 

 

 

6,123 

 

- 

 

6,123 

  States and political subdivisions

 

- 

 

 

152,479 

 

1,529 

 

154,008 

  Foreign government obligations

 

- 

 

 

6,889 

 

- 

 

6,889 

     Total fixed maturities

 

- 

 

 

383,445 

 

1,529 

 

384,974 

 

 

 

 

 

 

 

 

 

 

Equity securities:

 

 

 

 

 

 

 

 

 

  Common stocks

 

2,864 

 

 

- 

 

- 

 

2,864 

  Nonredeemable preferred stocks

 

883 

 

 

- 

 

- 

 

883 

     Total equity securities

 

3,747 

 

 

- 

 

- 

 

3,747 

 

 

 

 

 

 

 

 

 

 

Total Financial Assets

$

3,747 

 

$

383,445 

$

1,529 

$

388,721 


16


 

The following table presents the changes in fair value of our Level 3 financial assets for the periods indicated (in thousands):

 

 

 

Three Months Ended March 31,

 

 

2020

 

 

2019

 

 

States and

 

Total

 

 

States and

 

Total

 

 

Political

 

Level 3

 

 

Political

 

Level 3

 

Subdivisions

 

Assets

 

 

Subdivisions

 

Assets

 

Beginning balance

$

1,529  

$

1,529  

 

$

1,709  

$

1,709  

 

 

 

 

 

 

 

 

 

 

Increases (decreases) recognized in earnings:

 

 

 

 

 

 

 

 

 

   Net investment gains

 

-  

 

-  

 

 

-  

 

-  

 

 

 

 

 

 

 

 

 

 

Gains (losses) included in other

 

 

 

 

 

 

 

 

 

  comprehensive income (loss):

 

 

 

 

 

 

 

 

 

    Net unrealized gains (losses)

 

(6) 

 

(6) 

 

 

(8) 

 

(8) 

 

 

 

 

 

 

 

 

 

 

Repayments and amortization of

 

 

 

 

 

 

 

 

 

   fixed maturities

 

(42) 

 

(42) 

 

 

(37) 

 

(37) 

 

 

 

 

 

 

 

 

 

 

Balance at end of period

$

1,481  

$

1,481  

 

$

1,664  

$

1,664  

 

Included in unrealized gains (losses) on available-for-sale securities, pre-tax, on the Condensed Consolidated Statement of Comprehensive Income for the three months ended March 31, 2020 are $(6,000) of unrealized gains(losses) attributable to the change in unrealized gains (losses) related to Level 3 securities held at March 31, 2020.

 

The following table provides carrying values, fair values and classification in the fair value hierarchy of the Company’s financial instruments, that are not carried at fair value but are subject to fair value disclosure requirements, for the periods indicated (in thousands):

 

 

 

March 31, 2020

 

December 31, 2019

 

 

Level 1

 

Level 2

 

 

 

Level 1

 

Level 2

 

 

 

 

Fair

 

Fair

 

Carrying

 

Fair

 

Fair

 

Carrying

 

 

Value

 

Value

 

Value

 

Value

 

Value

 

Value

 

 

 

 

 

 

FINANCIAL ASSETS:

 

 

 

 

 

 

 

 

  Short-term investments

$

74,029 

$

- 

$

74,029 

$

50 

$

- 

$

50 

  Securities purchased under

 

 

 

 

 

 

 

 

     agreements to resell

 

18,377 

 

- 

 

18,377 

 

107,157 

 

-

 

107,157 

 

 

 

 

 

 

 

 

 

FINANCIAL LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

 

  Funds on deposit

$

- 

$

140,888 

$

140,837 

$

- 

$

141,010 

$

140,951 

  Other policyholders’ funds

 

- 

 

11,965 

 

11,965 

 

- 

 

12,049 

 

12,049 

 

The following methods and assumptions were used to estimate the fair value of the financial instruments that are not carried at fair value in the Condensed Consolidated Financial Statements:

 

Securities purchased under agreements to resell

 

Securities purchased under agreements to resell are carried at the amounts at which the securities will be subsequently resold, which approximates fair value.

 


17


 

Short-term Investments

 

Investments with original maturities of 91 days to one year are considered short-term investments and are carried at cost, which approximates fair value.

 

Funds on Deposit

 

The Company has two types of funds on deposit. The first type is credited with a current market interest rate, resulting in a fair value which approximates the carrying amount. The second type carries fixed interest rates which are higher than current market interest rates. The fair value of these deposits was estimated by discounting the payments using current market interest rates. The Company's universal life policies are also credited with current market interest rates, resulting in a fair value which approximates the carrying amount. Both types of funds on deposit are included in Level 2 of the fair value hierarchy.

 

Other Policyholders’ Funds

 

Other policyholders’ funds are primarily credited with current market interest rates resulting in a fair value which approximates the carrying amount.

 

Note 6.Other Investments, Including Variable Interest Entities 

 

Equity Method Investments

 

In the fourth quarter of 2019, the Company impaired its investment in Ebix Health Exchange, which administers various lines of health insurance for IHC’s insurance subsidiaries. The carrying value of the Company’s equity investment is $0 at both March 31, 2020 and December 31, 2019. The Company discontinued applying the equity method with regards to recording any additional equity losses beginning in the first quarter of 2020.  The Company recorded $0 and $(542,000), respectively, of equity income (loss) from its investment for the three months ended March 31, 2020 and 2019.

 

In January 2020, the Company acquired the remaining membership units it did not already own in the Abacus Group, LLC., which was previously accounted for under the equity method. See Note 7 for more information.  

 

Equity Investments Carried at Cost Less Impairments

 

In February 2020, the Company made an additional $1,250,000 equity investment in FIGO Pet Insurance LLC (“FIGO”), a leading insuretech brand company in the pet insurance space focused on referral partners as well as direct-to-consumer and employer benefit channels.

 

Variable Interest Entities

 

The Company has a minority interest in certain limited partnerships that we have determined to be Variable Interest Entities (“VIEs”).  The aforementioned VIEs are not required to be consolidated in the Company’s condensed consolidated financial statements as we are not the primary beneficiary since we do not have the power to direct the activities that most significantly impact the VIEs’ economic performance.

 

The Company will periodically reassess whether we are the primary beneficiary in any of these investments. The reassessment process will consider whether we have acquired the power to direct the most significant activities of the VIE through changes in governing documents or other circumstances. Our maximum loss exposure is limited to our combined $5,028,000 carrying value in these equity investments which is included in other investments in the Condensed Consolidated Balance Sheet as of March 31, 2020.

 


18


 

Related Party Transactions

 

At March 31, 2020 and December 31, 2019, the Company’s Condensed Consolidated Balance Sheets include $0 and $5,000, respectively, of notes and other amounts receivable from Ebix Health Exchange, and include $163,000 and $250,000, respectively, of administrative fees and other expenses payable to Ebix Health Exchange, which are included in other assets and accounts payable, accruals and other liabilities, respectively.  For the three months ended March 31, 2020, and 2019, the Company’s Condensed Consolidated Statements of Income include $476,000 and $462,000, respectively, of administrative fee expenses to Ebix Health Exchange, which are included in selling, general and administrative expenses.

 

The Condensed Consolidated Statement of Income for the three months ended March31, 2020 includes premiums earned and selling, general and administrative expense of $1,097,000 and $333,000, respectively, related to pet insurance business produced by FIGO. Selling, general and administrative expense for the three months ended March 31, 2020 and 2019 includes approximately $1,507,000 and $443,000, respectively, of expense related to the purchase of leads from an affiliated lead generation company. This entity was not an affiliate of the Company in the first quarter of 2019. 

 

Note 7.Acquisition 

 

The Abacus Group, LLC.

 

On January 1, 2020 (the "Abacus Acquisition Date"), the Company acquired the remaining 56% membership units of The Abacus Group, LLC, (“Abacus”) for a purchase price of $2,599,000, Abacus is an agency group that writes worksite business for Madison National Life and other carriers and receives commissions and other fees. The Company acquired Abacus to further the Company’s position in the worksite marketplace. The Company accounted for its prior ownership interest using the equity method. Immediately preceding the transaction, the Company determined the fair value of its equity interest to be $1,838,000 using a market approach and, as a result, recorded a loss of $163,000, which is included in other income on the Condensed Consolidated Statement of Income.

 

Upon the acquisition, the Company consolidated the assets and liabilities of Abacus. The following table presents the identifiable assets acquired and liabilities assumed in the acquisition of Abacus on the Abacus Acquisition Date based on their respective fair values (in thousands):

 

Other assets

 

 

350  

 

 

 

 

Total identifiable assets

 

 

350  

 

 

 

 

Other liabilities

 

 

575  

 

 

 

 

Total liabilities

 

 

575  

 

 

 

 

Net identifiable assets (liabilities) acquired

 

$

(225) 

 

 

 

 


19


 

In connection with the acquisition, the Company recorded $4,662,000 of goodwill (see Note 8). The amount of goodwill entitled to an amortization deduction for income tax purposes will be determined upon a mutually agreeable asset allocation of the acquisition consideration with the respective acquirees.

 

Goodwill represents the synergies with our insurance carriers. Abacus has an existing distribution network and offers increased distribution sources for IHC carriers’ existing products and developing products through its enrollment platform designed specifically for producers in the worksite marketplace. Goodwill was calculated as the sum of (i) the acquisition date fair value of total cash consideration transferred of $2,599,000, (ii) the aggregate acquisition-date fair value of equity interests immediately before the acquisition of $1,838,000, and (iii) the net identifiable liabilities of $225,000 that were assumed. The enterprise value of Abacus was determined by a market approach net of any control premium. Acquisition-related costs, primarily legal and consulting fees, were not material and are included in selling, general and administrative expenses in the Condensed Consolidated Statement of Income.

 

Revenue and net income from Abacus for the period from the Abacus Acquisition Date to March 31, 2020, is not material as most of their agency fee income is derived from Madison National Life and is now eliminated in consolidation. The amount of fee income earned from other carriers in 2020 is not material and will reduce over time as the business either runs-off or is transitioned to Madison National Life.

 

Pro forma adjustments to present the Company’s consolidated revenues and net income as if the acquisition date was January 1, 2019 are not material and accordingly are omitted.

 

Note 8.Goodwill and Other Intangible Assets 

 

The carrying amount of goodwill is $64,827,000 and $60,165,000 at March 31, 2020 and December 31, 2019, respectively, of which $60,165,000 is attributable to the Specialty Health Segment at both March 31, 2020 and December 31, 2019, and $4,662,000 and $0, is attributable to the Group disability, life, DBL and PFL segment for the same periods, respectively.

 

The Company has net other intangible assets of $13,091,000 and $13,379,000 at March 31, 2020 and December 31, 2019, respectively, which are included in other assets in the Condensed Consolidated Balance Sheets. These intangible assets consist of: (i) finite-lived intangible assets, principally the fair value of acquired agent and broker relationships, which are subject to amortization; and (ii) indefinite-lived intangible assets which consist of the estimated fair value of insurance licenses that are not subject to amortization.

 

The gross carrying amounts of these other intangible assets are as follows for the periods indicated (in thousands):

 

 

 

March 31, 2020

 

December 31, 2019

 

 

Gross

 

 

 

Gross

 

 

 

 

Carrying

 

Accumulated

 

Carrying

 

Accumulated

 

 

Amount

 

Amortization

 

Amount

 

Amortization

 

 

 

 

Finite-lived Intangible Assets:

 

 

 

 

 

 

 

 

  Agent and broker relationships

$

11,753 

$

7,704 

$

18,753 

$

14,474 

  Domain

 

1,000 

 

350 

 

1,000 

 

325 

  Software systems

 

780 

 

365 

 

780 

 

332 

     Total finite-lived

$

13,533 

$

8,419 

$

20,533 

$

15,131 

 

 

 

 

 

 

 

 

 

 


20


 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

 

 

 

2020

 

2019

Indefinite-lived Intangible Assets:

 

 

 

 

 

 

   Insurance licenses

 

 

 

 

$

7,977 

$

7,977 

     Total indefinite-lived

 

 

 

 

$

7,977 

$

7,977 

 

As discussed in Note 7, in connection with the acquisition of Abacus in the first quarter of 2020, the Company recorded $4,662,000 of goodwill associated with the Group disability, life, DBL and PFL segment.

 

Amortization expense is $288,000 and $359,000 for the three months ended March 31, 2020 and 2019, respectively. 

 

Note 9.Income Taxes 

 

The provisions for income taxes shown in the Condensed Consolidated Statements of Income were computed by applying the effective tax rate expected to be applicable for the reporting periods. Differences between the Federal statutory income tax rate and the Company’s effective income tax rate are principally from the dividends received deduction and tax-exempt interest income, state and local income taxes, and compensation related tax provisions.

 

At December 31, 2019, AMIC and its subsidiaries had Federal net operating loss carryforwards of approximately $114,531,000, which expire in varying amounts through the year 2034, with a significant portion expiring in 2020, and are limited in their utilization to future taxable income earned on a separate company basis. At December 31, 2019, AMIC’s valuation allowance was $17,212,000 and is related to net operating loss carryforwards that, in the judgment of management, are not considered realizable. No change in the valuation allowance was necessary in the three months ended March 31, 2020.

 

On March 27, 2020, as part of the business stimulus package in response to the COVID-19 pandemic, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security ("CARES") Act.  The CARES Act established new tax provisions including, but not limited to: (1) five-year carryback of net operating losses ("NOLs") generated in 2018, 2019 and 2020; (2) accelerated refund of alternative minimum tax (AMT) credit carryforwards; and (3) retroactive changes to allow accelerated depreciation for certain depreciable property. At this time, the legislation does not have a material impact on the Company due to the lack of taxable losses in the stated carryback eligible tax years and the fact that the Company was already expecting to receive a cash benefit for the remaining AMT credits in the fiscal 2018 tax year return.

 

The New York State Department of Taxation and Finance has selected the Company’s 2015 and 2016 NYS returns for audit.


21


 

 

Note 10.Policy Benefits and Claims 

 

Policy benefits and claims is the liability for unpaid loss and loss adjustment expenses. It is comprised of unpaid claims and estimated incurred but not reported (“IBNR”) reserves. Summarized below are the changes in the total liability for policy benefits and claims for the periods indicated (in thousands).

 

 

 

Three Months Ended

 

 

March 31,

 

 

2020

 

 

2019

 

 

 

Balance at beginning of year

$

164,802 

 

$

160,115  

Less: reinsurance recoverable

 

36,993  

 

 

38,122  

Net balance at beginning of year

 

127,809  

 

 

121,993  

 

 

 

 

 

 

Amount incurred, related to:

 

 

 

 

 

  Current year

 

61,159  

 

 

46,775  

  Prior years

 

(7,123) 

 

 

(3,000) 

 

 

 

 

 

 

  Total incurred

 

54,036  

 

 

43,775  

 

 

 

 

 

 

Amount paid, related to:

 

 

 

 

 

  Current year

 

14,168  

 

 

12,658  

  Prior years

 

33,681  

 

 

26,080  

 

 

 

 

 

 

  Total paid

 

47,849  

 

 

38,738  

 

 

 

 

 

 

Net balance at end of period

 

133,996  

 

 

127,030  

Plus:  reinsurance recoverable

 

36,840  

 

 

37,880  

Balance at end of period

$

170,836  

 

$

164,910  

 

Since unpaid loss and loss adjustment expenses are estimates, actual losses incurred may be more or less than the Company’s previously developed estimates and is referred to as either unfavorable or favorable development, respectively. The overall net favorable development of $7,123,000 in 2020 related to prior years consists of favorable developments of $2,057,000 in Specialty Health reserves, $2,681,000 in the group disability reserves, and $2,385,000 in the other individual life, annuities and other reserves. Specialty Health net favorable development occurred primarily in the short term medical (“STM”), group gap, pets, fixed indemnity limited benefit and occupational accident lines of business.  Group Disability net favorable development was primarily due to favorable premium refund reserve adjustments in the DBL line of business partially offset by unfavorable development in the STD and LTD lines due to higher claims severity. The overall net favorable development of $3,000,000 in 2019 related to prior years consists of favorable developments of $1,510,000 in Specialty Health reserves, $