Company Quick10K Filing
Quick10K
Independence Holding
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$35.03 15 $523
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-07 Earnings, Exhibits
8-K 2019-03-18 Regulation FD, Exhibits
8-K 2018-11-13
8-K 2018-09-24
8-K 2018-08-07
8-K 2018-03-16
8-K 2018-03-12 Earnings, Exhibits
SPG Simon Property Group 53,690
CLVS Clovis Oncology 1,030
HMST Homestreet 764
GLP Global Partners 652
ROX Castle Brands 101
AAME Atlantic American 47
MCEP Mid-Con Energy Partners 22
NAO Nordic American Offshore 0
BCTCV Boston Capital Tax Credit Fund V 0
BOJA Bojangles' 0
IHC 2019-03-31
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. Leases
Note 11.Policy Benefits and Claims
Note 12.Stockholders' Equity
Note 13.Share-Based Compensation
Note 14.Supplemental Disclosures of Cash Flow Information
Note 15.Contingencies
Note 16.Segment Reporting
Note 17.Subsequent Event
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 ihc1q2019_ex31z1.htm
EX-31.2 ihc1q2019_ex31z2.htm
EX-32.1 ihc1q2019_ex32z1.htm
EX-32.2 ihc1q2019_ex32z2.htm

Independence Holding Earnings 2019-03-31

IHC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

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

 

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

For the quarterly period ended March 31, 2019.

 

[   ]   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

 

581407235

(State or other jurisdiction of incorporation or organization)

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

 

96 CUMMINGS POINT ROAD, STAMFORD, CONNECTICUT                      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.

 

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 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  [ X ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   [  ]   No   [X]

 

Class

Outstanding at May 3, 2019

Common stock, $ 1.00  par value

14,936,543 Shares



 

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 Statement 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

37

 

 

 

Item 4. Controls and Procedures

38

 

 

PART II - OTHER INFORMATION

 

 

 

 

Item 1.    Legal Proceedings

38

 

 

 

 

Item 1A. Risk Factors

39

 

 

 

 

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

39

 

 

 

 

Item 3.   Defaults Upon Senior Securities

39

 

 

 

 

Item 4.    Mine Safety Disclosures

39

 

 

 

 

Item 5.    Other Information

39

 

 

 

Item 6.    Exhibits

40

 

 

 

Signatures

42

 

 

 

 

 

 

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.

 

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, 2019

 

 

December 31, 2018

 

 

 

(Unaudited)

 

 

 

ASSETS:

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

Short-term investments

 

$

50  

 

$

1,050  

Securities purchased under agreements to resell

 

 

35,366  

 

 

12,063  

Fixed maturities, available-for-sale

 

 

456,260  

 

 

453,464  

Equity securities

 

 

5,359  

 

 

5,166  

Other investments

 

 

11,014  

 

 

13,192  

Total investments

 

 

508,049  

 

 

484,935  

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

20,560  

 

 

26,173  

Due and unpaid premiums

 

 

26,608  

 

 

24,412  

Due from reinsurers

 

 

367,071  

 

 

368,731  

Goodwill

 

 

52,998  

 

 

50,697  

Other assets

 

 

87,061  

 

 

82,568  

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

1,062,347  

 

$

1,037,516  

 

 

 

 

 

 

 

LIABILITIES AND  EQUITY:

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

 

Policy benefits and claims

 

$

164,910  

 

$

160,115  

Future policy benefits

 

 

206,199  

 

 

208,910  

Funds on deposit

 

 

141,061  

 

 

141,635  

Unearned premiums

 

 

17,599  

 

 

5,557  

Other policyholders' funds

 

 

10,989  

 

 

10,939  

Due to reinsurers

 

 

2,352  

 

 

3,613  

Accounts payable, accruals and other liabilities

 

 

55,932  

 

 

53,133  

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

 

599,042  

 

 

583,902  

 

 

 

 

 

 

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

Redeemable noncontrolling interest

 

 

2,229  

 

 

2,183  

 

 

 

 

 

 

 

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 14,949,826 and

 

 

 

 

 

 

14,878,248 shares outstanding

 

 

18,625  

 

 

18,625  

Paid-in capital

 

 

122,055  

 

 

124,395  

Accumulated other comprehensive loss

 

 

(2,641) 

 

 

(8,310) 

Treasury stock, at cost; 3,675,632 and 3,747,210 shares

 

 

(65,926) 

 

 

(66,392) 

Retained earnings

 

 

386,164  

 

 

380,431  

 

 

 

 

 

 

 

TOTAL IHC STOCKHOLDERS’ EQUITY

 

 

458,277  

 

 

448,749  

NONREDEEMABLE NONCONTROLLING INTERESTS

 

 

2,799  

 

 

2,682  

 

 

 

 

 

 

 

TOTAL EQUITY

 

 

461,076  

 

 

451,431  

 

 

 

 

 

 

 

TOTAL LIABILITIES AND EQUITY

 

$

1,062,347  

 

$

1,037,516  

 

 

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,

 

 

2019

 

 

2018

REVENUES:

 

 

 

 

 

Premiums earned

$

82,789  

 

$

79,492  

Net investment income

 

3,996  

 

 

3,681  

Fee income

 

4,188  

 

 

5,211  

Other income (loss)

 

3,684  

 

 

(151) 

Net investment gains

 

171  

 

 

71  

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) 

 

 

-  

 

 

 

 

 

 

 

 

94,182  

 

 

88,304  

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

Insurance benefits, claims and reserves

 

43,119  

 

 

35,907  

Selling, general and administrative expenses

 

40,529  

 

 

43,343  

 

 

 

 

 

 

 

 

83,648  

 

 

79,250  

 

 

 

 

 

 

Income before income taxes

 

10,534  

 

 

9,054  

Income taxes

 

1,644  

 

 

2,006  

 

 

 

 

 

 

Net income

 

8,890  

 

 

7,048  

(Income) from nonredeemable noncontrolling interests

 

(117) 

 

 

(16) 

(Income) from redeemable noncontrolling interests

 

(46) 

 

 

(71) 

 

 

 

 

 

 

NET INCOME ATTRIBUTABLE TO IHC

$

8,727  

 

$

6,961  

 

 

 

 

 

 

Basic income per common share

$

0.58 

 

$

0.47 

 

 

 

 

 

 

WEIGHTED AVERAGE SHARES OUTSTANDING

 

14,948  

 

 

14,832 

 

 

 

 

 

 

Diluted income per common share

$

0.58 

 

$

0.46 

 

 

 

 

 

 

WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING

 

15,066  

 

 

15,074 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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,

 

 

2019

 

2018

 

 

 

 

 

 

Net income

$

8,890  

$

7,048  

Other comprehensive income (loss):

 

 

 

 

Available-for-sale securities:

 

 

 

 

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

 

7,194  

 

(5,128) 

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

 

1,525  

 

(1,091) 

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

 

5,669  

 

(4,037) 

 

 

 

 

 

Other comprehensive income (loss), net of tax

 

5,669  

 

(4,037) 

 

 

 

 

 

COMPREHENSIVE INCOME, NET OF TAX

 

14,559  

 

3,011  

 

 

 

 

 

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

 

 

 

 

Income from noncontrolling interests in subsidiaries

 

(163) 

 

(87) 

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

 

-  

 

-  

 

 

 

 

 

COMPREHENSIVE INCOME, NET OF TAX,

 

 

 

 

   ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

(163) 

 

(87) 

 

 

 

 

 

COMPREHENSIVE INCOME, NET OF TAX,

 

 

 

 

   ATTRIBUTABLE TO IHC

$

14,396  

$

2,924  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, 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  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DECEMBER 31, 2017

$

18,625 

$

124,538 

$

(4,598) 

$

(63,404) 

$

356,383 

$

431,544  

$

2,699  

$

434,243  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative effects of new

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

accounting principles

 

 

 

 

 

(350) 

 

 

 

34 

 

(316) 

 

(97) 

 

(413) 

Net income

 

 

 

 

 

 

 

 

 

6,961 

 

6,961  

 

16  

 

6,977  

Other comprehensive

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

income, net of tax

 

 

 

 

 

(4,037) 

 

 

 

 

 

(4,037) 

 

-  

 

(4,037) 

Repurchases of common stock

 

 

 

 

 

 

 

(2,642) 

 

 

 

(2,642) 

 

-  

 

(2,642) 

Share-based compensation

 

 

 

236 

 

 

 

50  

 

 

 

286  

 

-  

 

286  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MARCH 31, 2018

$

18,625 

$

124,774 

$

(8,985) 

$

(65,996) 

$

363,378 

$

431,796  

$

2,618  

$

434,414  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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,

 

 

2019

 

 

2018

CASH FLOWS PROVIDED BY (USED BY) OPERATING ACTIVITIES:

 

 

 

 

 

Net income

$

8,890  

 

$

7,048  

Adjustments to reconcile net income to net change in cash from

 

 

 

 

 

operating  activities:

 

 

 

 

 

Amortization of deferred acquisition costs

 

389  

 

 

40  

Net investment (gains)

 

(171) 

 

 

(71) 

(Gain) on sale of investment

 

(3,589) 

 

 

-  

Other than-temporary-impairment losses, net

 

646  

 

 

-  

Equity (income) from equity method investments

 

371  

 

 

495  

Depreciation and amortization

 

799  

 

 

602  

Deferred tax expense (benefit)

 

1,287  

 

 

(26) 

Other

 

1,946  

 

 

1,652  

 Changes in assets and liabilities:

 

 

 

 

 

Change in insurance liabilities

 

13,254  

 

 

2,576  

Change in  amounts due from reinsurers

 

1,660  

 

 

6,235  

Change in claim fund balances

 

2,004  

 

 

(44) 

Change in current income tax liability

 

(374) 

 

 

557  

Change in due and unpaid premiums

 

(2,196) 

 

 

(10,063) 

Other operating activities

 

(7,265) 

 

 

(5,585) 

 

 

 

 

 

 

Net change in cash from operating activities

 

17,651  

 

 

3,416  

 

 

 

 

 

 

CASH FLOWS PROVIDED BY (USED BY) INVESTING ACTIVITIES:

 

 

 

 

 

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

 

1,000  

 

 

-  

Net (purchases) sales of securities under resale agreements

 

(23,303) 

 

 

672  

Sales of fixed maturities

 

15,833  

 

 

12,692  

Maturities and other repayments of fixed maturities

 

25,687  

 

 

4,630  

Purchases of fixed maturities

 

(36,291) 

 

 

(22,882) 

Payments to acquire business, net of cash acquired

 

(4,434) 

 

 

-  

Proceeds from sales, distributions and returns of capital from investments

 

4,617  

 

 

-  

Other investing activities

 

(906) 

 

 

(42) 

 

 

 

 

 

 

Net change in cash from investing activities

 

(17,797) 

 

 

(4,930) 

 

 

 

 

 

 

CASH FLOWS PROVIDED BY (USED BY)  FINANCING ACTIVITIES:

 

 

 

 

 

Repurchases of common stock

 

(50) 

 

 

(2,768) 

Withdrawals of investment-type insurance contracts

 

(913) 

 

 

(388) 

Dividends paid

 

(2,242) 

 

 

(1,489) 

Proceeds from stock options exercised

 

44  

 

 

60  

Payments related to tax withholdings for sharebased compensation

 

(2,384) 

 

 

-  

 

 

 

 

 

 

Net change in cash from financing activities

 

(5,545) 

 

 

(4,585) 

 

 

 

 

 

 

Net change in cash, cash equivalents and restricted cash

 

(5,691) 

 

 

(6,099) 

Cash, cash equivalents and restricted cash, beginning of year

 

30,807  

 

 

32,197  

 

 

 

 

 

 

Cash, cash equivalents and restricted cash, end of period

$

25,116  

 

$

26,098  

 

 

 

 

 

 

 

 

 

 

 

 

 

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 Carrier Solutions, Inc., My1HR, Inc. (“My1HR”) and a majority interest in PetPartners, Inc. IHC also owns a significant equity interest in Ebix Health Exchange Holdings, LLC (“Ebix Health Exchange”), an administration exchange for health insurance. 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 diversified financial holding company, and its affiliated entities, held approximately 61% of IHC's outstanding common stock at March 31, 2019.  

 

(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 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, 2019 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 2019 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 2018 Annual Report on Form 10-K as filed with the Securities and Exchange Commission.


9


 

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 these administrative service and other contracts, we have no material contract assets or contract liabilities on our consolidated balance sheet at March 31, 2019. 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.

 

 

(E)   Recent Accounting Pronouncements 

 

Recently Adopted Accounting Standards

 

In July 2018, the FASB issued guidance to simplify several aspects of accounting for nonemployee share-based compensation. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

 

In March 2017, the FASB issued guidance requiring premium amortization on callable debt securities to be amortized to the earliest call date to more closely align the amortization period with expectations incorporated in market pricing of the underlying securities. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

 

In February 2016, the FASB issued guidance that requires lessees to recognize the assets and liabilities that arise from leases, including operating leases, on the statement of financial position. The Company elected the following practical expedients permitted within the new standard:

an accounting policy election to recognize the lease payments for short-term leases in profit or loss on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred; 

practical expedients for leases that commenced before the effective date to not reassess: (i) whether any expired or existing contracts are or contain leases; (ii) the lease classification for any expired or existing leases; and (iii) initial direct costs for any existing leases; 

a practical expedient to use hindsight in determining the lease term and in assessing impairment of the entity’s right-of-use assets. 

an accounting policy election to not separate non-lease components from lease components and instead to account for them together as a single lease component. 

The Company selected the new transition method by applying the new lease requirements on January 1, 2019, without adjustment to the financial statements for periods prior to adoption. As a result, on January 1, 2019, the Company recognized right-of-use assets of $7,010,000 for operating leases, reduced other liabilities by $687,000 to reclassify the unamortized balances of previously deferred operating lease incentives, and recognized operating lease liabilities of $7,697,000 in its Condensed Consolidated Balance Sheet. The adoption of this guidance did not have a material effect on the Company’s consolidated results of operations or cash flows.

 

Recently Issued Accounting Standards Not Yet Adopted 

 

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 amendments in this guidance are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments in this guidance should be applied retrospectively through a cumulative effect adjustment to retained earnings at the beginning of the earliest period presented. 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


10


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. The amendments in this guidance are effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods within that fiscal year. 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 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. Certain amendments should be applied prospectively for the most recent interim or annual period presented in the initial fiscal year of adoption while other amendments should be applied retrospectively to all periods presented upon the effective date. The adoption of this guidance is not expected to 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 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 is not expected to have a material effect 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. For public entities that are SEC filers, the amendments in this guidance are effective for fiscal years beginning after December 15, 2019, including interim periods within those years. Early adoption is permitted for fiscal years beginning after December 15, 2018. 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.

 

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 118,000 and 242,000 shares for the three months ended March 31, 2019 and 2018, respectively.


11


 

 

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,

 

 

2019

 

2018

 

 

 

 

 

Cash and cash equivalents

$

20,560 

$

19,897 

Restricted cash included in other assets

 

4,556 

 

6,201 

 

 

 

 

 

Total cash, cash equivalents and restricted cash

$

25,116 

$

26,098 

 

 

 

 

 

 

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, 2019 

 

 

 

 

GROSS 

 

GROSS 

 

 

 

 

AMORTIZED

 

UNREALIZED

 

UNREALIZED

 

FAIR 

 

 

COST 

 

GAINS 

 

LOSSES 

 

VALUE 

 

 

 

 

 

 

 

 

 

FIXED MATURITIES

 

 

 

 

 

 

 

 

AVAILABLE-FOR-SALE:

 

 

 

 

 

 

 

 

Corporate securities

$

219,136 

$

2,377 

$

(3,406) 

$

218,107 

CMOs – residential (1)

 

5,942 

 

- 

 

(149) 

 

5,793 

U.S. Government obligations

 

44,440 

 

93 

 

(250) 

 

44,283 

Agency MBS – residential (2)

 

1 

 

- 

 

- 

 

1 

GSEs (3)

 

6,505 

 

- 

 

(110) 

 

6,395 

States and political subdivisions

 

170,633 

 

623 

 

(2,639) 

 

168,617 

Foreign government obligations

 

6,960 

 

88 

 

(28) 

 

7,020 

Redeemable preferred stocks

 

5,970 

 

74 

 

- 

 

6,044 

 

 

 

 

 

 

 

 

 

Total fixed maturities

$

459,587 

$

3,255 

$

(6,582) 

$

456,260 

 


12


 

 

 

 

December 31, 2018 

 

 

 

 

GROSS 

 

GROSS 

 

 

 

 

AMORTIZED

 

UNREALIZED

 

UNREALIZED

 

FAIR 

 

 

COST 

 

GAINS 

 

LOSSES 

 

VALUE 

 

 

 

 

 

 

 

 

 

FIXED MATURITIES

 

 

 

 

 

 

 

 

AVAILABLE-FOR-SALE:

 

 

 

 

 

 

 

 

Corporate securities

$

202,194 

$

701 

$

(5,406) 

$

197,489 

CMOs - residential (1)

 

6,092 

 

- 

 

(252) 

 

5,840 

U.S. Government obligations

 

63,231 

 

1 

 

(423) 

 

62,809 

Agency MBS - residential (2)

 

3 

 

- 

 

-  

 

3 

GSEs (3)

 

6,596 

 

- 

 

(110) 

 

6,486 

States and political subdivisions

 

172,860 

 

302 

 

(5,228) 

 

167,934 

Foreign government obligations

 

7,039 

 

51 

 

(46) 

 

7,044 

Redeemable preferred stocks

 

5,970 

 

- 

 

(111) 

 

5,859 

 

 

 

 

 

 

 

 

 

Total fixed maturities

$

463,985 

$

1,055 

$

(11,576) 

$

453,464 

 

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

(2) Mortgage-backed securities (“MBS”). 

(3)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, 2019, 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

 

$

47,355

 

$

47,242

Due after one year through five years

 

 

174,298

 

 

174,254

Due after five years through ten years

 

 

138,614

 

 

137,820

Due after ten years

 

 

86,872

 

 

84,755

Fixed maturities with no single maturity date

 

 

12,448

 

 

12,189

 

 

 

 

 

 

 

 

 

$

459,587

 

$

456,260

 

 


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, 2019

 

 

 

 

 

 

 

 

 

 

 

Less than 12 Months

 

 

12 Months or Longer

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

Unrealized

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate securities

$

13,124

 

$

38 

 

$

118,442

 

$

3,368 

 

$

131,566

$

3,406 

CMOs - residential

 

-

 

 

- 

 

 

5,793

 

 

149 

 

 

5,793

 

149 

U.S. Government obligations

 

-

 

 

- 

 

 

36,035

 

 

250 

 

 

36,035

 

250 

GSEs

 

-

 

 

- 

 

 

6,388

 

 

110 

 

 

6,388

 

110 

States and political subdivisions

 

20,208

 

 

229 

 

 

103,933

 

 

2,410 

 

 

124,141

 

2,639 

Foreign government obligations

 

-

 

 

- 

 

 

2,810

 

 

28 

 

 

2,810

 

28 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Fixed maturities in an

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      unrealized loss position

$

33,332

 

$

267 

 

$

273,401

 

$

6,315 

 

$

306,733

$

6,582 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of fixed maturities in an

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  unrealized loss position

 

10

 

 

 

 

 

121

 

 

 

 

 

131

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

Less than 12 Months

 

 

12 Months or Longer

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

Unrealized

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate securities

$

46,988

 

$

1,045 

 

$

108,738

 

$

4,361 

 

$

155,726

$

5,406 

CMOs - residential

 

847

 

 

37 

 

 

4,993

 

 

215 

 

 

5,840

 

252 

U.S. Government obligations

 

6,138

 

 

15 

 

 

31,693

 

 

408 

 

 

37,831

 

423 

GSEs

 

-

 

 

- 

 

 

6,478

 

 

110 

 

 

6,478

 

110 

States and political subdivisions

 

33,021

 

 

522 

 

 

113,297

 

 

4,706 

 

 

146,318

 

5,228 

Foreign government obligations

 

-

 

 

- 

 

 

2,835

 

 

46 

 

 

2,835

 

46 

Redeemable preferred stocks

 

5,859

 

 

111 

 

 

-

 

 

- 

 

 

5,859

 

111 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Fixed maturities in an

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      unrealized loss position

$

92,853

 

$

1,730 

 

$

268,034

 

$

9,846 

 

$

360,887

$

11,576 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of fixed maturities in an

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  unrealized loss position

 

47

 

 

 

 

 

115

 

 

 

 

 

162

 

 

 

Substantially all of the unrealized losses on fixed maturities available-for-sale at March 31, 2019 and December 31, 2018 relate to investment grade securities and are attributable to changes in market interest rates. Because the Company does not intend to sell, nor is it more likely than not that the Company will have to sell such investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2019.

 


14


 

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

 

 

 

 

Three Months Ended

 

 

March 31,

 

 

2019

 

2018

 

 

 

 

 

Realized gains (losses):

 

 

 

 

  Fixed maturities available-for-sale

$

(22) 

$

171  

 

 

 

 

 

     Total realized gains (losses) on debt and equity securities

 

(22) 

 

171  

Unrealized gains (losses) on equity securities

 

193  

 

(100) 

 

 

 

 

 

Gains (losses) on debt and equity securities

 

171  

 

71  

Gains (losses) on other investments

 

-  

 

-  

 

 

 

 

 

Net investment gains

$

171  

$

71  

 

 

For the three months ended March 31, 2019 and 2018, the Company realized gross gains of $38,000 and $246,000, respectively, and gross losses of $60,000 and $75,000, 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 2018 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 recognized an other-than-temporary impairment loss of $646,000 on certain fixed maturities available-for-sale securities 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. The Company did not recognize any other-than-temporary impairments on available for sale securities in the first three months of 2018.

 

 

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, 2019

 

 

Level 1

 

 

Level 2

 

Level 3

 

Total

 

 

 

 

 

 

 

 

 

 

FINANCIAL ASSETS:

 

 

 

 

 

 

 

 

 

Fixed maturities available-for-sale:

 

 

 

 

 

 

 

 

 

  Corporate securities

$

- 

 

$

218,107 

$

- 

$

218,107 

  CMOs - residential

 

- 

 

 

5,793 

 

- 

 

5,793 

  US Government obligations

 

- 

 

 

44,283 

 

- 

 

44,283 

  Agency MBS - residential

 

- 

 

 

1 

 

- 

 

1 

  GSEs

 

- 

 

 

6,395 

 

- 

 

6,395 

  States and political subdivisions

 

- 

 

 

166,953 

 

1,664 

 

168,617 

  Foreign government obligations

 

- 

 

 

7,020 

 

- 

 

7,020 

  Redeemable preferred stocks

 

6,044 

 

 

- 

 

- 

 

6,044 

     Total fixed maturities

 

6,044 

 

 

448,552 

 

1,664 

 

456,260 

 

 

 

 

 

 

 

 

 

 

Equity securities:

 

 

 

 

 

 

 

 

 

  Common stocks

 

2,484 

 

 

- 

 

- 

 

2,484 

  Nonredeemable preferred stocks

 

2,875 

 

 

- 

 

- 

 

2,875 

     Total equity securities

 

5,359 

 

 

- 

 

- 

 

5,359 

 

 

 

 

 

 

 

 

 

 

Total Financial Assets

$

11,403 

 

$

448,552 

$

1,664 

$

461,619 

 

 

 

December 31, 2018

 

 

Level 1

 

 

Level 2

 

Level 3

 

Total

 

 

 

 

 

 

 

 

 

 

FINANCIAL ASSETS:

 

 

 

 

 

 

 

 

 

Fixed maturities available-for-sale:

 

 

 

 

 

 

 

 

 

  Corporate securities

$

- 

 

$

197,489 

$

- 

$

197,489 

  CMOs - residential

 

- 

 

 

5,840 

 

- 

 

5,840 

  US Government obligations

 

- 

 

 

62,809 

 

- 

 

62,809 

  Agency MBS - residential

 

- 

 

 

3 

 

- 

 

3 

  GSEs

 

- 

 

 

6,486 

 

- 

 

6,486 

  States and political subdivisions

 

- 

 

 

166,225 

 

1,709 

 

167,934 

  Foreign government obligations

 

- 

 

 

7,044 

 

- 

 

7,044 

  Redeemable preferred stocks

 

5,859 

 

 

- 

 

- 

 

5,859 

     Total fixed maturities

 

5,859 

 

 

445,896 

 

1,709 

 

453,464 

 

 

 

 

 

 

 

 

 

 

Equity securities:

 

 

 

 

 

 

 

 

 

  Common stocks

 

2,366 

 

 

- 

 

- 

 

2,366 

  Nonredeemable preferred stocks

 

2,800 

 

 

- 

 

- 

 

2,800 

     Total equity securities

 

5,166 

 

 

- 

 

- 

 

5,166 

 

 

 

 

 

 

 

 

 

 

Total Financial Assets

$

11,025 

 

$

445,896 

$

1,709 

$

458,630 


16


 

 

It is the Company’s policy to recognize transfers of assets and liabilities between levels of the fair value hierarchy at the end of a reporting period. The Company does not transfer out of Level 3 and into Level 2 until such time as observable inputs become available and reliable or the range of available independent prices narrow. The Company did not transfer any securities between Level 1, Level 2 or Level 3 in either 2019 or 2018.

 

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,

 

 

2019

 

 

2018

 

 

States and

 

Total

 

 

States and

 

Total

 

 

Political

 

Level 3

 

 

Political

 

Level 3

 

 

Subdivisions

 

Assets

 

 

Subdivisions

 

Assets

 

 

 

 

 

 

 

 

 

 

Beginning balance

$

1,709  

$

1,709  

 

$

1,876  

$

1,876  

 

 

 

 

 

 

 

 

 

 

Increases (decreases) recognized in earnings:

 

 

 

 

 

 

 

 

 

   Net investment gains

 

-  

 

-  

 

 

-  

 

-  

 

 

 

 

 

 

 

 

 

 

Gains (losses) included in other

 

 

 

 

 

 

 

 

 

  comprehensive income (loss):

 

 

 

 

 

 

 

 

 

    Net unrealized gains (losses)

 

(8) 

 

(8) 

 

 

(7) 

 

(7) 

 

 

 

 

 

 

 

 

 

 

Repayments and amortization of

 

 

 

 

 

 

 

 

 

   fixed maturities

 

(37) 

 

(37) 

 

 

(33) 

 

(33) 

Sales

 

-  

 

-  

 

 

-  

 

-  

 

 

 

 

 

 

 

 

 

 

Balance at end of period

$

1,664  

$

1,664  

 

$

1,836  

$

1,836  

 

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, 2019

 

December 31, 2018

 

 

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

$

50 

$

- 

$

50 

$

1,050 

$

- 

$

1,050 

 

 

 

 

 

 

 

 

 

 

 

 

 

FINANCIAL LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

 

  Funds on deposit

$

- 

$

141,081 

$

141,061 

$

- 

$

141,662 

$

141,635 

  Other policyholders’ funds

 

- 

 

10,989 

 

10,989 

 

- 

 

10,939 

 

10,939 

 

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:

 

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


17


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 

 

Included in other investments is our 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 in Ebix Health Exchange is $5,883,000 and $6,425,000 at March 31, 2019 and December 31, 2018, respectively, and the Company recorded $(542,000) and $(516,000), respectively, of equity income (loss) from its investment for the three months ended March 31, 2019 and 2018.

 

At March 31, 2019 and December 31, 2018, the Company’s Condensed Consolidated Balance Sheets include $1,788,000 and $1,842,000, respectively, of notes and other amounts receivable from Ebix Health Exchange, and include $504,000 and $910,000, 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, 2019, and 2018, the Company’s Condensed Consolidated Statements of Income include $462,000 and $2,547,000, respectively, of administrative fee expenses to Ebix Health Exchange, which are included in selling, general and administrative expenses.

 

In March 2019, the Company’s equity investment in Pets Best, that was carried at a cost of $500,000, was acquired by an unaffiliated entity and the Company realized a gain of $3,589,000 on the sale, which is included in Other Income in the Condensed Consolidated Statement of Income for the three months ended March 31, 2019.

 

 

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 $1,532,000 carrying value in these equity investments which is included in other investments in the Condensed Consolidated Balance Sheet as of March 31, 2019.

 

 

Note 7.Acquisition 

 

My1HR, Inc.

 

On January 4, 2019 (the "Acquisition Date"), the Company acquired all of the stock of My1HR, a web-based entity with state-of-the-art insurance quoting and cloud-based enrollment platform, for a purchase price of $4,534,000, net of certain post-closing adjustments. In general, companies that provide insurance through user-centric platforms, or create efficiencies in the insurance industry through technological advances, are referred to as “insuretech” companies. The Company acquired My1HR for its quoting and cloud-based


18


enrollment platforms as part of an effort to expand our “insuretech” footprint through our agencies, which generate leads and sell our products through our owned call center and career advisors.

 

Upon the acquisition, the Company consolidated the assets and liabilities of My1HR. The following table presents the identifiable assets acquired and liabilities assumed in the acquisition of My1HR on the Acquisition Date based on their respective fair values (in thousands):

 

 

Cash

 

$

100 

Intangible assets

 

 

1,500 

Other assets

 

 

911 

 

 

 

 

Total identifiable assets

 

 

2,511 

 

 

 

 

Other liabilities

 

 

278 

 

 

 

 

Total liabilities

 

 

278 

 

 

 

 

Net identifiable assets acquired

 

$

2,233 

 

 

 

 

 

In connection with the acquisition, the Company recorded $2,301,000 of goodwill and $1,500,000 of intangible assets (see Note 8). Goodwill reflects the synergies between My1HR and our insurance carriers as My1HR has an existing distribution network and offers increased distribution sources for IHC carrier products through its quoting and cloud based enrollment platforms designed specifically for producers in the small group employer market and individual Affordable Care Act (“ACA”) and ancillary market. This new quoting and enrollment system will support group and individual products for all IHC carriers as well as select group ACA and level funded health coverages from leading national health plans. Goodwill was calculated as the excess of the acquisition date fair value of total cash consideration transferred of $4,534,000 on the acquisition date; over the net identifiable assets of $2,233,000 that were acquired. The enterprise value of My1HR was determined by an independent appraisal using a discounted cash flow model based upon the projected future earnings of My1HR. Acquisition-related costs, primarily legal and consulting fees, were expensed and are included in selling, general and administrative expenses in the Consolidated Statement of Income.

 

For the period from the Acquisition Date to March 31, 2019, the Company’s Consolidated Statement of Income includes revenues and net income of $508,000 and $23,000, respectively, from My1HR.

 

Pro forma adjustments to present the Company’s consolidated revenues and net income as if the acquisition date was January 1, 2018 are not material and accordingly are omitted.

 

 

Note 8.Goodwill and Other Intangible Assets 

 

The carrying amount of goodwill is $52,998,000 and $50,697,000 at March 31, 2019 and December 31, 2018, respectively, all of which is attributable to the Specialty health Segment.

 

The Company has net other intangible assets of $14,304,000 and $13,163,000 at March 31, 2019 and December 31, 2018, 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.

 


19


 

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

 

 

 

 

March 31, 2019

 

December 31, 2018

 

 

Gross

 

 

 

Gross

 

 

 

 

Carrying

 

Accumulated

 

Carrying

 

Accumulated

 

 

Amount

 

Amortization

 

Amount

 

Amortization

 

 

 

 

 

 

 

 

 

Finite-lived Intangible Assets:

 

 

 

 

 

 

 

 

  Agent and broker relationships

$

18,753 

$

13,720 

$

17,253 

$

13,419 

  Domain

 

1,000 

 

250 

 

1,000 

 

225 

  Software systems

 

780 

 

236 

 

780 

 

203 

     Total finite-lived

$

20,533 

$

14,206 

$

19,033 

$

13,847 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

 

 

 

 

2019

 

2018

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 My1HR in the first quarter of 2019,  the Company recorded $2,301,000 of goodwill and $1,500,000 of intangible assets associated with the Specialty Health segment. None of the goodwill is deductible for income tax purposes. The intangible assets primarily represent the fair value of customer relationships and are being amortized over a weighted average period of 17 years.

 

Amortization expense is $359,000 and $361,000 for the three months ended March 31, 2019 and 2018, 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. In 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted. The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, reducing the Federal corporate income tax rate to 21% effective January 1, 2018. As a result of IHC’s June 30 fiscal tax year, the Tax Act subjects IHC to a blended tax rate of 28% for its fiscal tax year ended June 30, 2018. Other 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.

 

The Internal Revenue Service has completed its review of the Company’s 2015 consolidated income tax return with no changes in the Company’s reported tax, however, the New York State Department of Taxation and Finance has recently selected the Company’s 2015 and 2016 NYS returns for audit.

 

Note 10. Leases 

 

Certain subsidiaries of the Company are obligated under operating lease agreements for office space and office equipment.

 

The Company had right-of-use assets amounting to $6,655,000 and corresponding lease liabilities of $7,273,000 related to its operating leases, which are included in other assets and other liabilities, respectively, in the Condensed Consolidated Balance Sheet on March 31, 2019. The leases have remaining lease terms of 1 to 8 years, some of which include options to extend the leases for up to 5 years. Variable lease costs consist primarily of the Company’s proportionate share of real estate taxes and operating expenses related to leased  


20


premises. The following table summarizes information pertaining to our lease obligations for the period indicated (in thousands):

 

 

 

 

Three Months

 

 

 

Ended

 

 

 

March 31, 2019

 

 

 

 

Operating lease costs

 

$

536  

Short-term lease costs

 

 

24  

Variable lease costs

 

 

74  

 

 

 

 

  Total lease costs

 

$

634  

 

 

 

 

Other information:

 

 

 

 Operating cash flows from operating leases

 

$

(605) 

 Right-of-use assets obtained for operating leases

 

$

56  

 Weighted average remaining lease term-operating leases

 

 

5 years

 Weighted average discount rate-operating leases

 

 

6.79%

 

 

 

 

 

The Company assumed $56,000 of right-of-use assets in connection with the acquisition of My1HR in January 2019, as discussed in Note 7. 

 

Maturities of operating lease liabilities at March 31, 2019 were as follows: 

 

Due in the next year

$

2,199  

Due in two years

 

1,869  

Due in three years

 

1,460  

Due in four years

 

1,229  

Due in five years

 

492  

Due in remaining years

 

1,337  

   Total payments due

 

8,586  

 

 

 

Present value discount

 

(1,313) 

    Operating lease liability

$

7,273  

 

 

 


21


 

Note 11.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,

 

 

2019

 

 

2018

 

 

 

 

 

 

Balance at beginning of year

$

160,115  

 

$

168,683  

Less: reinsurance recoverable

 

38,122  

 

 

42,136  

Net balance at beginning of year

 

121,993  

 

 

126,547  

 

 

 

 

 

 

Amount incurred, related to:

 

 

 

 

 

  Current year

 

46,775  

 

 

42,761  

  Prior years

 

(3,000) 

 

 

(5,659) 

 

 

 

 

 

 

  Total incurred

 

43,775  

 

 

37,102  

 

 

 

 

 

 

Amount paid, related to:

 

 

 

 

 

  Current year

 

12,658  

 

 

10,527  

  Prior years

 

26,080  

 

 

26,690  

 

 

 

 

 

 

  Total paid

 

38,738  

 

 

37,217  

 

 

 

 

 

 

Net balance at end of year

 

127,030  

 

 

126,432  

Plus:  reinsurance recoverable

 

37,880  

 

 

39,491  

Balance at end of year

$

164,910  

 

$

165,923  

 

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 $3,000,000 in 2019 related to prior years consists of favorable developments of $1,510,000 in Specialty Health reserves, $1,369,000 in the group disability reserves, $113,000 in the other individual life, annuities and other reserves, and $8,000 in Medical Stop-Loss reserves.  Specialty Health net favorable development occurred primarily in the group gap, dental, pets, fixed indemnity limited benefit and occupational accident lines of business.  Group Disability net favorable development was primarily due to favorable claim experience in the DBL line of business.  The overall net favorable development of $5,659,000 in 2018 related to prior years primarily consists of favorable developments of $3,778,000 in the Specialty Health reserves, $1,612,000 in the group disability reserves, and $112,000 in the other individual life, annuities and other reserves, and $157,000 in Medical Stop-Loss reserves.

 


22


 

Included in the preceding rollforward of the Company’s liability for policy benefits and claims are the policy benefits and claims activity associated with the Company’s health insurance lines. These are embedded within the Specialty Health segment. The table below summarizes the components of the change in the liability for policy benefits and claims that are specific to health insurance claims for the periods indicated (in thousands).

 

 

 

 

 

Specialty Health Segment

 

 

Health Insurance Claims

 

 

Three Months Ended

 

 

March 31,

 

 

2019

 

 

2018

 

 

 

 

 

 

Balance at beginning of year

$

26,068  

 

$

32,904  

Less: reinsurance recoverable

 

851  

 

 

762  

Net balance at beginning of year

 

25,217  

 

 

32,142  

 

 

 

 

 

 

Amount incurred, related to:

 

 

 

 

 

  Current year

 

13,416  

 

 

14,472  

  Prior years

 

(930) 

 

 

(2,584) 

 

 

 

 

 

 

  Total incurred

 

12,486  

 

 

11,888  

 

 

 

 

 

 

Amount paid, related to:

 

 

 

 

 

  Current year

 

1,695  

 

 

1,420  

  Prior years

 

8,398  

 

 

10,170  

 

 

 

 

 

 

  Total paid

 

10,093  

 

 

11,590  

 

 

 

 

 

 

Net balance at end of year

 

27,610  

 

 

32,440  

Plus:  reinsurance recoverable

 

499  

 

 

698  

Balance at end of year

$

28,109  

 

$

33,138  

 

 

The liability for the IBNR plus expected development on reported claims associated with the Company’s health insurance claims is $27,610,000 at March 31, 2019.

 

Note 12.Stockholders’ Equity 

 

 

Accumulated Other Comprehensive Income (Loss)

 

Other comprehensive income (loss) includes the after-tax net unrealized gains and losses on investment securities available-for-sale, including the subsequent increases and decreases in fair value of available-for-sale securities previously impaired and the non-credit related component of other-than-temporary impairments of fixed maturities.


23


Changes in the balances of accumulated other comprehensive income, shown net of taxes, for the periods indicated are as follows (in thousands):