INDEPENDENCE HOLDING COMPANY - Form 10-Q SEC filing
0000701869 --12-31 IHC Yes No No false 2018 Q1 0000701869 2018-01-01 2018-03-31 0000701869 2018-03-31 0000701869 2018-05-03 0000701869 2017-12-31 0000701869 2017-01-01 2017-03-31 0000701869 us-gaap:AdditionalPaidInCapitalMember 2018-01-01 2018-03-31 0000701869 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-01-01 2018-03-31 0000701869 us-gaap:TreasuryStockMember 2018-01-01 2018-03-31 0000701869 us-gaap:RetainedEarningsMember 2018-01-01 2018-03-31 0000701869 us-gaap:ParentMember 2018-01-01 2018-03-31 0000701869 us-gaap:NoncontrollingInterestMember 2018-01-01 2018-03-31 0000701869 us-gaap:CommonStockMember 2017-12-31 0000701869 us-gaap:AdditionalPaidInCapitalMember 2017-12-31 0000701869 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2017-12-31 0000701869 us-gaap:TreasuryStockMember 2017-12-31 0000701869 us-gaap:RetainedEarningsMember 2017-12-31 0000701869 us-gaap:ParentMember 2017-12-31 0000701869 us-gaap:NoncontrollingInterestMember 2017-12-31 0000701869 us-gaap:CommonStockMember 2018-03-31 0000701869 us-gaap:AdditionalPaidInCapitalMember 2018-03-31 0000701869 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-03-31 0000701869 us-gaap:TreasuryStockMember 2018-03-31 0000701869 us-gaap:RetainedEarningsMember 2018-03-31 0000701869 us-gaap:ParentMember 2018-03-31 0000701869 us-gaap:NoncontrollingInterestMember 2018-03-31 0000701869 2016-12-31 0000701869 2017-03-31 0000701869 fil:GeneveAffiliatedEntityMember 2018-03-31 0000701869 us-gaap:AccountingStandardsUpdate201601Memberus-gaap:RetainedEarningsMember 2018-01-31 0000701869 us-gaap:AccountingStandardsUpdate201409Memberus-gaap:OtherAssetsMember 2018-01-31 0000701869 us-gaap:AccountingStandardsUpdate201409Memberus-gaap:AccountsPayableAndAccruedLiabilitiesMember 2018-01-31 0000701869 us-gaap:AccountingStandardsUpdate201409Memberus-gaap:RetainedEarningsMember 2018-01-31 0000701869 us-gaap:OtherAssetsMember 2018-03-31 0000701869 us-gaap:OtherAssetsMember 2017-03-31 0000701869 us-gaap:CorporateDebtSecuritiesMember 2018-03-31 0000701869 us-gaap:MortgageBackedSecuritiesMember 2018-03-31 0000701869 us-gaap:USTreasurySecuritiesMember 2018-03-31 0000701869 us-gaap:USGovernmentAgenciesDebtSecuritiesMember 2018-03-31 0000701869 us-gaap:USGovernmentSponsoredEnterprisesDebtSecuritiesMember 2018-03-31 0000701869 us-gaap:USStatesAndPoliticalSubdivisionsMember 2018-03-31 0000701869 us-gaap:ForeignGovernmentDebtSecuritiesMember 2018-03-31 0000701869 us-gaap:RedeemablePreferredStockMember 2018-03-31 0000701869 us-gaap:CorporateDebtSecuritiesMember 2017-12-31 0000701869 us-gaap:MortgageBackedSecuritiesMember 2017-12-31 0000701869 us-gaap:USTreasurySecuritiesMember 2017-12-31 0000701869 us-gaap:USGovernmentAgenciesDebtSecuritiesMember 2017-12-31 0000701869 us-gaap:USGovernmentSponsoredEnterprisesDebtSecuritiesMember 2017-12-31 0000701869 us-gaap:USStatesAndPoliticalSubdivisionsMember 2017-12-31 0000701869 us-gaap:ForeignGovernmentDebtSecuritiesMember 2017-12-31 0000701869 us-gaap:RedeemablePreferredStockMember 2017-12-31 0000701869 us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember 2018-03-31 0000701869 us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember 2018-03-31 0000701869 us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember 2018-03-31 0000701869 us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember 2018-03-31 0000701869 us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesMember 2018-03-31 0000701869 us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesMember 2018-03-31 0000701869 us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesMember 2018-03-31 0000701869 us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesMember 2018-03-31 0000701869 us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember 2018-03-31 0000701869 us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember 2018-03-31 0000701869 us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember 2018-03-31 0000701869 us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember 2018-03-31 0000701869 us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember 2018-03-31 0000701869 us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember 2018-03-31 0000701869 us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember 2018-03-31 0000701869 us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember 2018-03-31 0000701869 us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentSponsoredEnterprisesDebtSecuritiesMember 2018-03-31 0000701869 us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentSponsoredEnterprisesDebtSecuritiesMember 2018-03-31 0000701869 us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentSponsoredEnterprisesDebtSecuritiesMember 2018-03-31 0000701869 us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentSponsoredEnterprisesDebtSecuritiesMember 2018-03-31 0000701869 us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USStatesAndPoliticalSubdivisionsMember 2018-03-31 0000701869 us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USStatesAndPoliticalSubdivisionsMember 2018-03-31 0000701869 us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USStatesAndPoliticalSubdivisionsMember 2018-03-31 0000701869 us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USStatesAndPoliticalSubdivisionsMember 2018-03-31 0000701869 us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:ForeignGovernmentDebtSecuritiesMember 2018-03-31 0000701869 us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:ForeignGovernmentDebtSecuritiesMember 2018-03-31 0000701869 us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:ForeignGovernmentDebtSecuritiesMember 2018-03-31 0000701869 us-gaap:FairValueMeasurementsRecurringMemberus-gaap:ForeignGovernmentDebtSecuritiesMember 2018-03-31 0000701869 us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:RedeemablePreferredStockMember 2018-03-31 0000701869 us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:RedeemablePreferredStockMember 2018-03-31 0000701869 us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:RedeemablePreferredStockMember 2018-03-31 0000701869 us-gaap:FairValueMeasurementsRecurringMemberus-gaap:RedeemablePreferredStockMember 2018-03-31 0000701869 us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember 2018-03-31 0000701869 us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember 2018-03-31 0000701869 us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember 2018-03-31 0000701869 us-gaap:FairValueMeasurementsRecurringMember 2018-03-31 0000701869 us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommonStockMember 2018-03-31 0000701869 us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommonStockMember 2018-03-31 0000701869 us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommonStockMember 2018-03-31 0000701869 us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommonStockMember 2018-03-31 0000701869 us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:NonredeemablePreferredStockMember 2018-03-31 0000701869 us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:NonredeemablePreferredStockMember 2018-03-31 0000701869 us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:NonredeemablePreferredStockMember 2018-03-31 0000701869 us-gaap:FairValueMeasurementsRecurringMemberus-gaap:NonredeemablePreferredStockMember 2018-03-31 0000701869 us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember 2017-12-31 0000701869 us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember 2017-12-31 0000701869 us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember 2017-12-31 0000701869 us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember 2017-12-31 0000701869 us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesMember 2017-12-31 0000701869 us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesMember 2017-12-31 0000701869 us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesMember 2017-12-31 0000701869 us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MortgageBackedSecuritiesMember 2017-12-31 0000701869 us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember 2017-12-31 0000701869 us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember 2017-12-31 0000701869 us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember 2017-12-31 0000701869 us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USTreasurySecuritiesMember 2017-12-31 0000701869 us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember 2017-12-31 0000701869 us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember 2017-12-31 0000701869 us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember 2017-12-31 0000701869 us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentAgenciesDebtSecuritiesMember 2017-12-31 0000701869 us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentSponsoredEnterprisesDebtSecuritiesMember 2017-12-31 0000701869 us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentSponsoredEnterprisesDebtSecuritiesMember 2017-12-31 0000701869 us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentSponsoredEnterprisesDebtSecuritiesMember 2017-12-31 0000701869 us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentSponsoredEnterprisesDebtSecuritiesMember 2017-12-31 0000701869 us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USStatesAndPoliticalSubdivisionsMember 2017-12-31 0000701869 us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USStatesAndPoliticalSubdivisionsMember 2017-12-31 0000701869 us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USStatesAndPoliticalSubdivisionsMember 2017-12-31 0000701869 us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USStatesAndPoliticalSubdivisionsMember 2017-12-31 0000701869 us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:ForeignGovernmentDebtSecuritiesMember 2017-12-31 0000701869 us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:ForeignGovernmentDebtSecuritiesMember 2017-12-31 0000701869 us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:ForeignGovernmentDebtSecuritiesMember 2017-12-31 0000701869 us-gaap:FairValueMeasurementsRecurringMemberus-gaap:ForeignGovernmentDebtSecuritiesMember 2017-12-31 0000701869 us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:RedeemablePreferredStockMember 2017-12-31 0000701869 us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:RedeemablePreferredStockMember 2017-12-31 0000701869 us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:RedeemablePreferredStockMember 2017-12-31 0000701869 us-gaap:FairValueMeasurementsRecurringMemberus-gaap:RedeemablePreferredStockMember 2017-12-31 0000701869 us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember 2017-12-31 0000701869 us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember 2017-12-31 0000701869 us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember 2017-12-31 0000701869 us-gaap:FairValueMeasurementsRecurringMember 2017-12-31 0000701869 us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommonStockMember 2017-12-31 0000701869 us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommonStockMember 2017-12-31 0000701869 us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommonStockMember 2017-12-31 0000701869 us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CommonStockMember 2017-12-31 0000701869 us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:NonredeemablePreferredStockMember 2017-12-31 0000701869 us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:NonredeemablePreferredStockMember 2017-12-31 0000701869 us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:NonredeemablePreferredStockMember 2017-12-31 0000701869 us-gaap:FairValueMeasurementsRecurringMemberus-gaap:NonredeemablePreferredStockMember 2017-12-31 0000701869 us-gaap:USStatesAndPoliticalSubdivisionsMember 2017-12-31 0000701869 us-gaap:USStatesAndPoliticalSubdivisionsMember 2016-12-31 0000701869 us-gaap:USStatesAndPoliticalSubdivisionsMemberus-gaap:GainLossOnInvestmentsMember1 2018-01-01 2018-03-31 0000701869 us-gaap:GainLossOnInvestmentsMember1 2018-01-01 2018-03-31 0000701869 us-gaap:USStatesAndPoliticalSubdivisionsMemberus-gaap:GainLossOnInvestmentsMember1 2017-01-01 2017-03-31 0000701869 us-gaap:GainLossOnInvestmentsMember1 2017-01-01 2017-03-31 0000701869 us-gaap:USStatesAndPoliticalSubdivisionsMember 2018-01-01 2018-03-31 0000701869 us-gaap:USStatesAndPoliticalSubdivisionsMember 2017-01-01 2017-03-31 0000701869 us-gaap:USStatesAndPoliticalSubdivisionsMember 2018-03-31 0000701869 us-gaap:USStatesAndPoliticalSubdivisionsMember 2017-03-31 0000701869 us-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember 2018-03-31 0000701869 us-gaap:FairValueInputsLevel2Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember 2018-03-31 0000701869 us-gaap:CarryingReportedAmountFairValueDisclosureMember 2018-03-31 0000701869 us-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember 2017-12-31 0000701869 us-gaap:FairValueInputsLevel2Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember 2017-12-31 0000701869 us-gaap:CarryingReportedAmountFairValueDisclosureMember 2017-12-31 0000701869 fil:EbixHealthExchangeHoldingsMember1Member 2018-03-31 0000701869 fil:EbixHealthExchangeHoldingsMember1Member 2017-12-31 0000701869 fil:EbixHealthExchangeHoldingsMember1Member 2018-01-01 2018-03-31 0000701869 fil:EbixHealthExchangeHoldingsMember1Member 2017-01-01 2017-03-31 0000701869 us-gaap:OtherAssetsMemberfil:EbixHealthExchangeMember 2018-03-31 0000701869 us-gaap:OtherAssetsMemberfil:EbixHealthExchangeMember 2017-12-31 0000701869 us-gaap:AccountsPayableAndAccruedLiabilitiesMemberfil:EbixHealthExchangeMember 2018-03-31 0000701869 us-gaap:AccountsPayableAndAccruedLiabilitiesMemberfil:EbixHealthExchangeMember 2017-12-31 0000701869 us-gaap:SellingGeneralAndAdministrativeExpensesMemberfil:EbixHealthExchangeMember 2018-01-01 2018-03-31 0000701869 us-gaap:SellingGeneralAndAdministrativeExpensesMemberfil:EbixHealthExchangeMember 2017-01-01 2017-03-31 0000701869 us-gaap:VariableInterestEntityNotPrimaryBeneficiaryAggregatedDisclosureMemberus-gaap:OtherInvestmentsMember 2018-03-31 0000701869 us-gaap:CustomerRelationshipsMember 2018-03-31 0000701869 us-gaap:CustomerRelationshipsMember 2017-12-31 0000701869 us-gaap:InternetDomainNamesMember 2018-03-31 0000701869 us-gaap:InternetDomainNamesMember 2017-12-31 0000701869 us-gaap:ComputerSoftwareIntangibleAssetMember 2018-03-31 0000701869 us-gaap:ComputerSoftwareIntangibleAssetMember 2017-12-31 0000701869 us-gaap:LicensingAgreementsMember 2018-03-31 0000701869 us-gaap:LicensingAgreementsMember 2017-12-31 0000701869 2018-01-01 2018-06-30 0000701869 fil:SpecialtyHealthSegmentMember 2018-01-01 2018-03-31 0000701869 fil:GroupDisabilityLifeDBLAndPFLSegmentMember 2018-01-01 2018-03-31 0000701869 fil:IndividualLifeAnnuitiesAndOtherSegmentMember 2018-01-01 2018-03-31 0000701869 fil:MedicalStopLossSegmentMember 2018-01-01 2018-03-31 0000701869 fil:SpecialtyHealthSegmentMember 2017-01-01 2017-03-31 0000701869 fil:GroupDisabilityLifeDBLAndPFLSegmentMember 2017-01-01 2017-03-31 0000701869 fil:IndividualLifeAnnuitiesAndOtherSegmentMember 2017-01-01 2017-03-31 0000701869 fil:MedicalStopLossSegmentMember 2017-01-01 2017-03-31 0000701869 us-gaap:HealthInsuranceProductLineMemberfil:SpecialtyHealthSegmentMember 2018-01-01 2018-03-31 0000701869 us-gaap:HealthInsuranceProductLineMemberfil:SpecialtyHealthSegmentMember 2017-01-01 2017-03-31 0000701869 us-gaap:HealthInsuranceProductLineMemberfil:SpecialtyHealthSegmentMember 2017-12-31 0000701869 us-gaap:HealthInsuranceProductLineMemberfil:SpecialtyHealthSegmentMember 2016-12-31 0000701869 us-gaap:HealthInsuranceProductLineMemberfil:SpecialtyHealthSegmentMember 2018-03-31 0000701869 us-gaap:HealthInsuranceProductLineMemberfil:SpecialtyHealthSegmentMember 2017-03-31 0000701869 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2018-01-01 2018-03-31 0000701869 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2017-01-01 2017-03-31 0000701869 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2017-12-31 0000701869 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2016-12-31 0000701869 us-gaap:AccountingStandardsUpdate201601Memberus-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2018-03-31 0000701869 us-gaap:AccountingStandardsUpdate201601Memberus-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2017-03-31 0000701869 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2018-03-31 0000701869 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2017-03-31 0000701869 us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2018-01-01 2018-03-31 0000701869 us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2017-01-01 2017-03-31 0000701869 srt:MaximumMemberus-gaap:EmployeeStockOptionMemberfil:IndependenceHoldingCompanyShareBasedPlansTotalMember 2018-01-01 2018-03-31 0000701869 srt:MaximumMemberus-gaap:StockAppreciationRightsSARSMemberfil:IndependenceHoldingCompanyShareBasedPlansTotalMember 2018-01-01 2018-03-31 0000701869 us-gaap:EmployeeStockOptionMemberfil:IndependenceHoldingCompanyShareBasedPlansTotalMember 2018-01-01 2018-03-31 0000701869 us-gaap:RestrictedStockUnitsRSUMemberfil:IndependenceHoldingCompanyShareBasedPlansTotalMember 2018-01-01 2018-03-31 0000701869 fil:IndependenceHoldingCompanyShareBasedPlansTotalMember 2018-03-31 0000701869 fil:IndependenceHoldingCompanyShareBasedPlansTotalMember 2018-01-01 2018-03-31 0000701869 us-gaap:EmployeeStockOptionMemberus-gaap:SellingGeneralAndAdministrativeExpensesMemberfil:IndependenceHoldingCompanyShareBasedPlansTotalMember 2018-01-01 2018-03-31 0000701869 us-gaap:EmployeeStockOptionMemberus-gaap:SellingGeneralAndAdministrativeExpensesMemberfil:IndependenceHoldingCompanyShareBasedPlansTotalMember 2017-01-01 2017-03-31 0000701869 us-gaap:RestrictedStockUnitsRSUMemberus-gaap:SellingGeneralAndAdministrativeExpensesMemberfil:IndependenceHoldingCompanyShareBasedPlansTotalMember 2018-01-01 2018-03-31 0000701869 us-gaap:RestrictedStockUnitsRSUMemberus-gaap:SellingGeneralAndAdministrativeExpensesMemberfil:IndependenceHoldingCompanyShareBasedPlansTotalMember 2017-01-01 2017-03-31 0000701869 us-gaap:StockAppreciationRightsSARSMemberus-gaap:SellingGeneralAndAdministrativeExpensesMemberfil:IndependenceHoldingCompanyShareBasedPlansTotalMember 2018-01-01 2018-03-31 0000701869 us-gaap:StockAppreciationRightsSARSMemberus-gaap:SellingGeneralAndAdministrativeExpensesMemberfil:IndependenceHoldingCompanyShareBasedPlansTotalMember 2017-01-01 2017-03-31 0000701869 us-gaap:SellingGeneralAndAdministrativeExpensesMemberfil:IndependenceHoldingCompanyShareBasedPlansTotalMember 2018-01-01 2018-03-31 0000701869 us-gaap:SellingGeneralAndAdministrativeExpensesMemberfil:IndependenceHoldingCompanyShareBasedPlansTotalMember 2017-01-01 2017-03-31 0000701869 fil:IndependenceHoldingCompanyShareBasedPlansTotalMember 2017-01-01 2017-03-31 0000701869 us-gaap:EmployeeStockOptionMemberfil:IndependenceHoldingCompanyShareBasedPlansTotalMember 2017-12-31 0000701869 us-gaap:EmployeeStockOptionMemberfil:IndependenceHoldingCompanyShareBasedPlansTotalMember 2018-03-31 0000701869 us-gaap:EmployeeStockOptionMemberfil:IndependenceHoldingCompanyShareBasedPlansTotalMember 2017-01-01 2017-03-31 0000701869 us-gaap:RestrictedStockUnitsRSUMemberfil:IndependenceHoldingCompanyShareBasedPlansTotalMember 2018-03-31 0000701869 us-gaap:RestrictedStockUnitsRSUMemberfil:IndependenceHoldingCompanyShareBasedPlansTotalMember 2017-12-31 0000701869 us-gaap:StockAppreciationRightsSARSMemberfil:IndependenceHoldingCompanyShareBasedPlansTotalMember 2018-03-31 0000701869 us-gaap:StockAppreciationRightsSARSMemberfil:IndependenceHoldingCompanyShareBasedPlansTotalMember 2017-12-31 0000701869 us-gaap:StockAppreciationRightsSARSMemberus-gaap:AccountsPayableAndAccruedLiabilitiesMemberfil:IndependenceHoldingCompanyShareBasedPlansTotalMember 2018-03-31 0000701869 us-gaap:StockAppreciationRightsSARSMemberus-gaap:AccountsPayableAndAccruedLiabilitiesMemberfil:IndependenceHoldingCompanyShareBasedPlansTotalMember 2017-12-31 0000701869 us-gaap:PendingLitigationMemberfil:LossContingencyNatureInjunctiveReliefAndDamagesMember 2017-05-01 2017-05-31 0000701869 us-gaap:PendingLitigationMemberfil:LossContingencyNatureAmountsAllegedlyOwedToPlaintiffMember 2017-05-01 2017-05-31 0000701869 us-gaap:CorporateMember 2018-01-01 2018-03-31 0000701869 us-gaap:CorporateMember 2017-01-01 2017-03-31 0000701869 us-gaap:OperatingSegmentsMember 2018-01-01 2018-03-31 0000701869 us-gaap:OperatingSegmentsMember 2017-01-01 2017-03-31 0000701869 us-gaap:MaterialReconcilingItemsMemberus-gaap:GainLossOnInvestmentsMember1 2018-01-01 2018-03-31 0000701869 us-gaap:MaterialReconcilingItemsMemberus-gaap:GainLossOnInvestmentsMember1 2017-01-01 2017-03-31 xbrli:pure iso4217:USD xbrli:shares iso4217:USD xbrli:shares

 

 

 

 

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, 2018.

 

[   ]   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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).   Yes   [X] No [  ]

 

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

 

Large Accelerated Filer [    ]

Accelerated Filer   [ X ]

Non-Accelerated Filer   [   ]

Smaller Reporting Company   [     ]

 

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, 2018

Common stock, $ 1.00  par value

14,795,049 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

26

 

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

35

 

 

 

Item 4. Controls and Procedures

36

 

 

PART II - OTHER INFORMATION

 

 

 

 

Item 1.    Legal Proceedings

36

 

 

 

 

Item 1A. Risk Factors

37

 

 

 

 

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

37

 

 

 

 

Item 3.   Defaults Upon Senior Securities

37

 

 

 

 

Item 4.    Mine Safety Disclosures

37

 

 

 

 

Item 5.    Other Information

37

 

 

 

Item 6.    Exhibits

38

 

 

 

Signatures

40

 

 

 

 

 

 

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, 2018

 

 

December 31, 2017

 

 

 

(Unaudited)

 

 

 

ASSETS:

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

Short-term investments

 

$

50  

 

$

50 

Securities purchased under agreements to resell

 

 

9,597  

 

 

10,269 

Fixed maturities, available-for-sale

 

 

443,190  

 

 

441,912 

Equity securities

 

 

6,019  

 

 

6,120 

Other investments

 

 

18,033  

 

 

18,547 

Total investments

 

 

476,889  

 

 

476,898 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

19,897  

 

 

26,465 

Due and unpaid premiums

 

 

32,013  

 

 

21,950 

Due from reinsurers

 

 

374,358  

 

 

380,593 

Goodwill

 

 

50,697  

 

 

50,697 

Other assets

 

 

86,387  

 

 

84,020 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

1,040,241  

 

$

1,040,623 

 

 

 

 

 

 

 

LIABILITIES AND  EQUITY:

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

 

Policy benefits and claims

 

$

165,923  

 

$

168,683  

Future policy benefits

 

 

212,174  

 

 

214,766  

Funds on deposit

 

 

143,802  

 

 

143,537  

Unearned premiums

 

 

15,678  

 

 

6,666  

Other policyholders' funds

 

 

10,314  

 

 

10,402  

Due to reinsurers

 

 

2,159  

 

 

3,808  

Accounts payable, accruals and other liabilities

 

 

53,629  

 

 

56,453  

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

 

603,679  

 

 

604,315  

 

 

 

 

 

 

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

Redeemable noncontrolling interest

 

 

2,148  

 

 

2,065  

 

 

 

 

 

 

 

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 and 18,625,458 shares issued; and 14,801,622 and

 

 

 

 

 

 

14,890,285 shares outstanding

 

 

18,625  

 

 

18,625  

Paid-in capital

 

 

124,774  

 

 

124,538  

Accumulated other comprehensive loss

 

 

(8,985) 

 

 

(4,598) 

Treasury stock, at cost; 3,823,836 and 3,735,173 shares

 

 

(65,996) 

 

 

(63,404) 

Retained earnings

 

 

363,378  

 

 

356,383  

 

 

 

 

 

 

 

TOTAL IHC STOCKHOLDERS’ EQUITY

 

 

431,796  

 

 

431,544  

NONREDEEMABLE NONCONTROLLING INTERESTS

 

 

2,618  

 

 

2,699  

 

 

 

 

 

 

 

TOTAL EQUITY

 

 

434,414  

 

 

434,243  

 

 

 

 

 

 

 

TOTAL LIABILITIES AND EQUITY

 

$

1,040,241  

 

$

1,040,623  

 

 

 

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,

 

 

2018

 

2017

REVENUES:

 

 

 

 

Premiums earned

$

79,492  

$

62,941  

Net investment income

 

3,186  

 

3,911  

Fee income

 

5,211  

 

3,225  

Other income

 

344  

 

1,591  

Net investment gains

 

71  

 

172  

 

 

 

 

 

 

 

88,304  

 

71,840  

EXPENSES:

 

 

 

 

Insurance benefits, claims and reserves

 

35,907  

 

32,211  

Selling, general and administrative expenses

 

43,343  

 

32,082  

 

 

 

 

 

 

 

79,250  

 

64,293  

 

 

 

 

 

Income before income taxes

 

9,054  

 

7,547  

Income taxes

 

2,006  

 

2,538  

 

 

 

 

 

Net income

 

7,048  

 

5,009  

(Income) from nonredeemable noncontrolling interests

 

(16) 

 

(70) 

(Income) from redeemable noncontrolling interests

 

(71) 

 

(3) 

 

 

 

 

 

NET INCOME ATTRIBUTABLE TO IHC

$

6,961  

$

4,936  

 

 

 

 

 

Basic income per common share

$

0.47 

$

0.30  

 

 

 

 

 

WEIGHTED AVERAGE SHARES OUTSTANDING

 

14,832 

 

16,701  

 

 

 

 

 

Diluted income per common share

$

0.46 

$

0.29  

 

 

 

 

 

WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING

 

15,074 

 

16,978  

 

 

 

 

 

 

 

 

 

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,

 

 

2018

 

2017

 

 

 

 

 

 

Net income

$

7,048  

$

5,009  

Other comprehensive income (loss):

 

 

 

 

Available-for-sale securities:

 

 

 

 

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

 

(5,128) 

 

3,981  

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

 

(1,091) 

 

1,460  

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

 

(4,037) 

 

2,521  

 

 

 

 

 

Other comprehensive income (loss), net of tax

 

(4,037) 

 

2,521  

 

 

 

 

 

COMPREHENSIVE INCOME, NET OF TAX

 

3,011  

 

7,530  

 

 

 

 

 

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

 

 

 

 

Income from noncontrolling interests in subsidiaries

 

(87) 

 

(73) 

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

 

-  

 

-  

 

 

 

 

 

COMPREHENSIVE INCOME, NET OF TAX,

 

 

 

 

   ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

(87) 

 

(73) 

 

 

 

 

 

COMPREHENSIVE INCOME, NET OF TAX,

 

 

 

 

   ATTRIBUTABLE TO IHC

$

2,924  

$

7,457  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NONREDEEMABLE

 

 

 

 

 

 

 

 

ACCUMULATED

 

 

 

 

 

 

 

NON-

 

 

 

 

 

 

 

 

OTHER

 

TREASURY

 

 

 

TOTAL IHC

 

CONTROLLING

 

 

 

 

COMMON

 

PAID-IN

 

COMPREHENSIVE

 

STOCK,

 

RETAINED

 

STOCKHOLDERS'

 

INTERESTS IN

 

TOTAL

 

 

STOCK

 

CAPITAL

 

INCOME

 

AT COST

 

EARNINGS

 

EQUITY

 

SUBSIDIARIES

 

EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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,

 

 

2018

 

 

2017

CASH FLOWS PROVIDED BY (USED BY) OPERATING ACTIVITIES:

 

 

 

 

 

Net income

$

7,048  

 

$

5,009  

Adjustments to reconcile net income to net change in cash from

 

 

 

 

 

operating  activities:

 

 

 

 

 

Amortization of deferred acquisition costs

 

40  

 

 

91  

Net investment gains

 

(71) 

 

 

(172) 

Equity (income) loss from equity method investments

 

495  

 

 

(201) 

Depreciation and amortization

 

602  

 

 

299  

Deferred tax expense (benefit)

 

(26) 

 

 

889  

Other

 

1,652  

 

 

1,285  

 Changes in assets and liabilities:

 

 

 

 

 

Change in insurance liabilities

 

2,576  

 

 

(59,880) 

Change in  amounts due from reinsurers

 

6,235  

 

 

30,479  

Change in claim fund balances

 

(44) 

 

 

9,245  

Change in current income tax liability

 

557  

 

 

1,087  

Change in due and unpaid premiums

 

(10,063) 

 

 

17,474  

Other operating activities

 

(5,585) 

 

 

(5,666) 

 

 

 

 

 

 

Net change in cash from operating activities

 

3,416  

 

 

(61) 

 

 

 

 

 

 

CASH FLOWS PROVIDED BY (USED BY) INVESTING ACTIVITIES:

 

 

 

 

 

Net sales and maturities of short-term investments

 

-  

 

 

6,099  

Net sales of securities under resale agreements

 

672  

 

 

10,741  

Sales of fixed maturities

 

12,692  

 

 

78,313  

Maturities and other repayments of fixed maturities

 

4,630  

 

 

4,132  

Purchases of fixed maturities

 

(22,882) 

 

 

(41,741) 

Payments to acquire business, net of cash acquired

 

-  

 

 

(12,287) 

Other investing activities

 

(42) 

 

 

(157) 

 

 

 

 

 

 

Net change in cash from investing activities

 

(4,930) 

 

 

45,100  

 

 

 

 

 

 

CASH FLOWS PROVIDED BY (USED BY) FINANCING ACTIVITIES:

 

 

 

 

 

Repurchases of common stock

 

(2,768) 

 

 

(14,402) 

Withdrawals of investment-type insurance contracts

 

(388) 

 

 

(433) 

Dividends paid

 

(1,489) 

 

 

(1,026) 

Other financing activities

 

60  

 

 

-  

 

 

 

 

 

 

Net change in cash from financing activities

 

(4,585) 

 

 

(15,861) 

 

 

 

 

 

 

Net change in cash, cash equivalents and restricted cash

 

(6,099) 

 

 

29,178  

Cash, cash equivalents and restricted cash, beginning of year

 

32,197  

 

 

23,718  

 

 

 

 

 

 

Cash, cash equivalents and restricted cash, end of period

$

26,098  

 

$

52,896  

 

 

 

 

 

 

 

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. 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 62% of IHC's outstanding common stock at March 31, 2018.  

 

(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, 2018 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 2018 presentation primarily as a result of new accounting principles adopted in the current year.

 

(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 2017 Annual Report on Form 10-K as filed with


9


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 these administrative service and other contracts, we have no material contract assets or contract liabilities on our consolidated balance sheet at March 31, 2018. 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 May 2017, the Financial Accounting Standards Board (the “FASB”) issued guidance to provide clarity and reduce both (i) diversity in practice; and (ii) cost and complexity when accounting for a change in the terms or conditions of a share-based payment award. The amendments in this guidance will be applied prospectively. 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 that clarifies the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The amendments in this guidance will be applied prospectively. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

 

In November 2016, the FASB issued guidance requiring entities to show the changes in the total cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. The amendments in this guidance were applied retrospectively. The adoption of this guidance did not have a material effect on the Company’s Statements of Cash Flows and had no effect on the Company’s consolidated financial position or results of operations.

 

In October 2016, the FASB issued guidance requiring an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments in this guidance were applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the January 1, 2018. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

 

In August 2016, the FASB issued guidance that changes how certain cash receipts and cash payments are presented and classified in the cash flows statement. The Company has elected to classify distributions received from equity method investees using the cumulative earnings approach. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

 

In January 2016, the FASB issued guidance that eliminates the requirement to classify equity securities with readily determinable fair values as trading or available-for-sale. The guidance requires equity securities, other than those that result in consolidation or are accounted for under the equity method (including other ownership interests, such as partnerships, unincorporated joint ventures, and limited liability companies), to be measured at fair value with changes in the fair value recognized through net income, simplifies the impairment assessment of equity securities without readily determinable fair values and requires changes in disclosure requirements. The amendments in this guidance were applied by means of a cumulative-effect adjustment of $340,000 credit to retained earnings as of January 1, 2018. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) will be applied prospectively to equity investments that existed as of January 1, 2018. The adoption of this guidance did not have a material effect on the Company’s Consolidated Balance Sheet or IHC’s stockholders’ equity.

 

In May 2014, the FASB issued revenue recognition guidance for entities that either enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of nonfinancial assets unless


10


those contracts are within the scope of other standards such as insurance contracts or lease contracts. The amendment provides specific steps that an entity should apply in order to achieve its main objective which is recognizing revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Substantially all of the Company’s revenue sources are excluded from the scope of the standard. For those revenue sources within the scope of the standard (included in the Fee income line of the Condensed Consolidated Statement of Income), there were no material changes in the timing or measurement of revenues. The amendments in this guidance were applied retrospectively with a cumulative effect adjustment on January 1, 2018, and as such, the Company recorded $552,000 of contract assets and $1,094,000 of deferred revenues, which are included on the Condensed Consolidated Balance Sheet in other assets and accounts payable, accruals and other liabilities. The overall net impact on retained earnings was a charge of $306,000, after the effects of taxes and noncontrolling interests.

 

Recently Issued Accounting Standards Not Yet Adopted 

 

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 amendments in this guidance should be applied using a modified retrospective approach for annual periods beginning after December 15, 2018, including interim periods within those periods. Additional disclosures are required in the period of adoption. Early adoption is permitted. 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.

 

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 amendments in this guidance are effective for fiscal years beginning after December 31, 2018, including interim periods within those fiscal years, using a modified retrospective approach. The adoption of this guidance is not expected to have a material effect 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 242,000 and 277,000 shares for the three months ended March 31, 2018 and 2017, 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,

 

 

2018

 

2017

 

 

 

 

 

Cash and cash equivalents

$

19,897 

$

51,160 

Restricted cash included in other assets

 

6,201 

 

1,736 

 

 

 

 

 

Total cash, cash equivalents and restricted cash

$

26,098 

$

52,896 

 

 

 

 

 

 

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, 2018 

 

 

 

 

GROSS 

 

GROSS 

 

 

 

 

AMORTIZED

 

UNREALIZED

 

UNREALIZED

 

FAIR 

 

 

COST 

 

GAINS 

 

LOSSES 

 

VALUE 

 

 

 

 

 

 

 

 

 

FIXED MATURITIES

 

 

 

 

 

 

 

 

AVAILABLE-FOR-SALE:

 

 

 

 

 

 

 

 

Corporate securities

$

160,659 

$

106 

$

(5,244) 

$

155,521 

CMOs – residential (1)

 

6,691 

 

2 

 

(327) 

 

6,366 

U.S. Government obligations

 

81,583 

 

- 

 

(808) 

 

80,775 

Agency MBS – residential (2)

 

11 

 

- 

 

- 

 

11 

GSEs (3)

 

9,812 

 

- 

 

(219) 

 

9,593 

States and political subdivisions

 

181,626 

 

349 

 

(5,203) 

 

176,772 

Foreign government obligations

 

4,179 

 

- 

 

(102) 

 

4,077 

Redeemable preferred stocks

 

10,006 

 

180 

 

(111) 

 

10,075 

 

 

 

 

 

 

 

 

 

Total fixed maturities

$

454,567 

$

637 

$

(12,014) 

$

443,190 

 


12


 

 

 

 

December 31, 2017 

 

 

 

 

GROSS 

 

GROSS 

 

 

 

 

AMORTIZED

 

UNREALIZED

 

UNREALIZED

 

FAIR 

 

 

COST 

 

GAINS 

 

LOSSES 

 

VALUE 

 

 

 

 

 

 

 

 

 

FIXED MATURITIES

 

 

 

 

 

 

 

 

AVAILABLE-FOR-SALE:

 

 

 

 

 

 

 

 

Corporate securities

$

148,996 

$

298 

$

(2,847) 

$

146,447 

CMOs - residential (1)

 

6,857 

 

- 

 

(180) 

 

6,677 

U.S. Government obligations

 

85,510 

 

- 

 

(396) 

 

85,114 

Agency MBS - residential (2)

 

14 

 

- 

 

-  

 

14 

GSEs (3)

 

9,887 

 

- 

 

(205) 

 

9,682 

States and political subdivisions

 

182,664 

 

598 

 

(3,619) 

 

179,643 

Foreign government obligations

 

4,227 

 

13 

 

(90) 

 

4,150 

Redeemable preferred stocks

 

10,006 

 

179 

 

- 

 

10,185 

 

 

 

 

 

 

 

 

 

Total fixed maturities

$

448,161 

$

1,088 

$

(7,337) 

$

441,912 

 

(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, 2018, 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

 

$

38,884

 

$

38,617

Due after one year through five years

 

 

159,599

 

 

156,585

Due after five years through ten years

 

 

138,694

 

 

135,032

Due after ten years

 

 

100,876

 

 

96,986

Fixed maturities with no single maturity date

 

 

16,514

 

 

15,970

 

 

 

 

 

 

 

 

 

$

454,567

 

$

443,190

 

 


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, 2018

 

 

 

 

 

 

 

 

 

 

 

Less than 12 Months

 

 

12 Months or Longer

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

Unrealized

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate securities

$

71,323

 

$

1,933 

 

$

75,976

 

$

3,311 

 

$

147,299

$

5,244 

CMOs - residential

 

48

 

 

- 

 

 

6,318

 

 

327 

 

 

6,366

 

327 

U.S. Government obligations

 

71,743

 

 

454 

 

 

9,032

 

 

354 

 

 

80,775

 

808 

GSEs

 

-

 

 

- 

 

 

9,583

 

 

219 

 

 

9,583

 

219 

States and political subdivisions

 

69,540

 

 

1,363 

 

 

84,881

 

 

3,840 

 

 

154,421

 

5,203 

Foreign government obligations

 

1,168

 

 

3 

 

 

2,909

 

 

99 

 

 

4,077

 

102 

Redeemable preferred stocks

 

5,859

 

 

111 

 

 

-

 

 

- 

 

 

5,859

 

111 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Fixed maturities in an

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      unrealized loss position

$

219,681

 

$

3,864 

 

$

188,699

 

$

8,150 

 

$

408,380

$

12,014 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of fixed maturities in an

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  unrealized loss position

 

79

 

 

 

 

 

86

 

 

 

 

 

165

 

 

 

 

 

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

Less than 12 Months

 

 

12 Months or Longer

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

Unrealized

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

Losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate securities

$

85,642

 

$

1,250 

 

$

44,640

 

$

1,597 

 

$

130,282

$

2,847 

CMOs - residential

 

1,381

 

 

45 

 

 

5,237

 

 

135 

 

 

6,618

 

180 

U.S. Government obligations

 

75,811

 

 

198 

 

 

9,302

 

 

198 

 

 

85,113

 

396 

GSEs

 

-

 

 

- 

 

 

9,669

 

 

205 

 

 

9,669

 

205 

States and political subdivisions

 

83,682

 

 

1,348 

 

 

66,617

 

 

2,271 

 

 

150,299

 

3,619 

Foreign government obligations

 

2,959

 

 

90 

 

 

-

 

 

- 

 

 

2,959

 

90 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Fixed maturities in an

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      unrealized loss position

$

249,475

 

$

2,931 

 

$

135,465

 

$

4,406 

 

$

384,940

$

7,337 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of fixed maturities in an

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  unrealized loss position

 

60

 

 

 

 

 

76

 

 

 

 

 

136

 

 

 

Substantially all of the unrealized losses on fixed maturities available-for-sale at March 31, 2018 and December 31, 2017 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, 2018.

 


14


 

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

 

 

 

 

Three Months Ended

 

 

March 31,

 

 

2018

 

2017

 

 

 

 

 

Realized gains (losses):

 

 

 

 

  Fixed maturities available-for-sale

$

171  

$

197  

  Equity securities

 

-  

 

-  

 

 

 

 

 

     Total realized gains on debt and equity securities

 

171  

 

197  

Unrealized gains (losses) on equity securities

 

(100) 

 

(25) 

 

 

 

 

 

Gains (losses) on debt and equity securities

 

71  

 

172  

Gains (losses) on other investments

 

-  

 

-  

 

 

 

 

 

Net investment gains (losses)

$

71  

$

172  

 

 

For the three months ended March 31, 2018 and 2017, the Company realized gross gains of $246,000 and $973,000, respectively, and gross losses of $75,000 and $776,000, 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(iv) to the Consolidated Financial Statements in the 2017 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 fixed maturities available-for-sale securities in the first three months of 2018 or 2017.

 

 

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.

 

Fixed maturities available-for-sale:

 

Fixed maturities available-for-sale included in Level 2 are comprised of our portfolio of government


15


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, 2018

 

 

Level 1

 

 

Level 2

 

Level 3

 

Total

 

 

 

 

 

 

 

 

 

 

FINANCIAL ASSETS:

 

 

 

 

 

 

 

 

 

Fixed maturities available-for-sale:

 

 

 

 

 

 

 

 

 

  Corporate securities

$

- 

 

$

155,521 

$

- 

$

155,521 

  CMOs - residential

 

- 

 

 

6,366 

 

- 

 

6,366 

  US Government obligations

 

- 

 

 

80,775 

 

- 

 

80,775 

  Agency MBS - residential

 

- 

 

 

11 

 

- 

 

11 

  GSEs

 

- 

 

 

9,593 

 

- 

 

9,593 

  States and political subdivisions

 

- 

 

 

174,936 

 

1,836 

 

176,772 

  Foreign government obligations

 

- 

 

 

4,077 

 

- 

 

4,077 

  Redeemable preferred stocks

 

10,075 

 

 

- 

 

- 

 

10,075 

     Total fixed maturities

 

10,075 

 

 

431,279 

 

1,836 

 

443,190 

 

 

 

 

 

 

 

 

 

 

Equity securities:

 

 

 

 

 

 

 

 

 

  Common stocks

 

4,971 

 

 

- 

 

- 

 

4,971 

  Nonredeemable preferred stocks

 

1,048 

 

 

- 

 

- 

 

1,048 

     Total equity securities

 

6,019 

 

 

- 

 

- 

 

6,019 

 

 

 

 

 

 

 

 

 

 

Total Financial Assets

$

16,094 

 

$

431,279 

$

1,836 

$

449,209 

 

 

 

December 31, 2017

 

 

Level 1

 

 

Level 2

 

Level 3

 

Total

 

 

 

 

 

 

 

 

 

 

FINANCIAL ASSETS:

 

 

 

 

 

 

 

 

 

Fixed maturities available-for-sale:

 

 

 

 

 

 

 

 

 

  Corporate securities

$

- 

 

$

146,447 

$

- 

$

146,447 

  CMOs - residential

 

- 

 

 

6,677 

 

- 

 

6,677 

  US Government obligations

 

- 

 

 

85,114 

 

- 

 

85,114 

  Agency MBS - residential

 

- 

 

 

14 

 

- 

 

14 

  GSEs

 

- 

 

 

9,682 

 

- 

 

9,682 

  States and political subdivisions

 

- 

 

 

177,767 

 

1,876 

 

179,643 

  Foreign government obligations

 

- 

 

 

4,150 

 

- 

 

4,150 

  Redeemable preferred stocks

 

10,185 

 

 

- 

 

- 

 

10,185 

     Total fixed maturities

 

10,185 

 

 

429,851 

 

1,876 

 

441,912 

 

 

 

 

 

 

 

 

 

 

Equity securities:

 

 

 

 

 

 

 

 

 

  Common stocks

 

2,490 

 

 

- 

 

- 

 

2,490 

  Nonredeemable preferred stocks

 

3,630 

 

 

- 

 

- 

 

3,630 

     Total equity securities

 

6,120 

 

 

- 

 

- 

 

6,120 

 

 

 

 

 

 

 

 

 

 

Total Financial Assets

$

16,305 

 

$

429,851 

$

1,876 

$

448,032 


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 2018 or 2017.

 

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,

 

 

2018

 

 

2017

 

 

States and

 

Total

 

 

States and

 

Total

 

 

Political

 

Level 3

 

 

Political

 

Level 3

 

 

Subdivisions

 

Assets

 

 

Subdivisions

 

Assets

 

 

 

 

 

 

 

 

 

 

Beginning balance

$

1,876  

$

1,876  

 

$

2,033  

$

2,033  

 

 

 

 

 

 

 

 

 

 

Increases (decreases) recognized in earnings:

 

 

 

 

 

 

 

 

 

   Net investment gains

 

-  

 

-  

 

 

-  

 

-  

 

 

 

 

 

 

 

 

 

 

Gains (losses) included in other

 

 

 

 

 

 

 

 

 

  comprehensive income (loss):

 

 

 

 

 

 

 

 

 

    Net unrealized gains (losses)

 

(7) 

 

(7) 

 

 

(9) 

 

(9) 

 

 

 

 

 

 

 

 

 

 

Repayments and amortization of

 

 

 

 

 

 

 

 

 

   fixed maturities

 

(33) 

 

(33) 

 

 

(29) 

 

(29) 

Sales

 

-  

 

-  

 

 

-  

 

-  

 

 

 

 

 

 

 

 

 

 

Balance at end of period

$

1,836  

$

1,836  

 

$

1,995  

$

1,995  

 

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, 2018

 

December 31, 2017

 

 

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 

$

50 

$

- 

$

50 

 

 

 

 

 

 

 

 

 

 

 

 

 

FINANCIAL LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

 

  Funds on deposit

$

- 

$

143,954 

$

143,802 

$

- 

$

143,702 

$

143,537 

 

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.

 

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 $7,672,000 and $8,188,000 at March 31, 2018 and December 31, 2017, respectively, and the Company recorded $(516,000) and $(96,000), respectively, of equity income (loss) from its investment for the three months ended March 31, 2018 and 2017.

 

At March 31, 2018 and December 31, 2017, the Company’s Consolidated Balance Sheets include $1,928,000 and $1,859,000, respectively, of notes and other amounts receivable from Ebix Health Exchange, and include $1,559,000 and $1,139,000, 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, 2018, and 2017, the Company’s Consolidated Statements of Income include $2,547,000 and $2,368,000, respectively, of administrative fee expenses to Ebix Health Exchange, which are included in selling, general and administrative expenses.

 

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 $3,981,000 carrying value in these equity investments which is included in other investments in the Condensed Consolidated Balance Sheet as of March 31, 2018.

 

Note 7.Goodwill and Other Intangible Assets 

 

The carrying amount of goodwill is $50,697,000 at both March 31, 2018 and December 31, 2017.

 

The Company has net other intangible assets of $14,308,000 and $14,669,000 at March 31, 2018 and December 31, 2017, 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.

 


18


 

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

 

 

 

 

March 31, 2018

 

December 31, 2017

 

 

Gross

 

 

 

Gross

 

 

 

 

Carrying

 

Accumulated

 

Carrying

 

Accumulated

 

 

Amount

 

Amortization

 

Amount

 

Amortization

 

 

 

 

 

 

 

 

 

Finite-lived Intangible Assets:

 

 

 

 

 

 

 

 

  Agent and broker relationships

$

17,253 

$

12,450 

$

17,253 

$

12,140 

  Domain

 

1,000 

 

150 

 

1,000 

 

125 

  Software systems

 

780 

 

102 

 

780 

 

76 

     Total finite-lived

$

19,033 

$

12,702 

$

19,033 

$

12,341 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

 

 

 

 

2018

 

2017

Indefinite-lived Intangible Assets:

 

 

 

 

 

 

 

 

   Insurance licenses

 

 

 

 

$

7,977 

$

7,977 

     Total indefinite-lived

 

 

 

 

$

7,977 

$

7,977 

 

Amortization expense is $361,000 and $154,000 for the three months ended March 31, 2018 and 2017, respectively. 

 

Note 8.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, President Trump enacted tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). 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%. 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.


19


Note 9.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 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,

 

 

2018

 

 

2017

 

 

 

 

 

 

Balance at beginning of year

$

168,683  

 

$

219,113  

Less: reinsurance recoverable

 

42,136  

 

 

88,853  

Net balance at beginning of year

 

126,547  

 

 

130,260  

 

 

 

 

 

 

Amount incurred, related to:

 

 

 

 

 

  Current year

 

42,761  

 

 

38,882  

  Prior years

 

(5,659) 

 

 

(5,756) 

 

 

 

 

 

 

  Total incurred

 

37,102  

 

 

33,126  

 

 

 

 

 

 

Amount paid, related to:

 

 

 

 

 

  Current year

 

10,527  

 

 

7,258  

  Prior years

 

26,690  

 

 

30,081  

 

 

 

 

 

 

  Total paid

 

37,217  

 

 

37,339  

 

 

 

 

 

 

Net balance at end of year

 

126,432  

 

 

126,047  

Plus:  reinsurance recoverable

 

39,491  

 

 

56,245  

Balance at end of year

$

165,923  

 

$

182,292  

 

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 $5,659,000 in 2018 related to prior years 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. Specialty Health had net favorable development primarily from: (i) the release of reserves due to emerging favorable experience on hospital indemnity plan business written in 2017 on increased sales volume of this product; (ii) short term medical business as inventory levels came down this past quarter and paid claim activity was below the levels anticipated; and, (iii) the reinsured international line in run out, which experienced favorable development during the quarter as reported by the carrier. The overall net favorable development of $5,756,000 in 2017 related to prior years primarily consists of favorable developments of $1,636,000 in the Specialty Health reserves, $2,896,000 in the group disability reserves, and $2,048,000 in the other individual life, annuities and other reserves, partially offset by an unfavorable development of $824,000 in Medical Stop-Loss reserves.

 

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).

 


20


 

 

 

 

 

Specialty Health Segment

 

 

Health Insurance Claims

 

 

Three Months Ended

 

 

March 31,

 

 

2018

 

 

2017

 

 

 

 

 

 

Balance at beginning of year

$

32,904  

 

$

27,183  

Less: reinsurance recoverable

 

762  

 

 

1,179  

Net balance at beginning of year

 

32,142  

 

 

26,004  

 

 

 

 

 

 

Amount incurred, related to:

 

 

 

 

 

  Current year

 

14,472  

 

 

11,776  

  Prior years

 

(2,584) 

 

 

(1,200) 

 

 

 

 

 

 

  Total incurred

 

11,888  

 

 

10,576  

 

 

 

 

 

 

Amount paid, related to:

 

 

 

 

 

  Current year

 

1,420  

 

 

153  

  Prior years

 

10,170  

 

 

10,338  

 

 

 

 

 

 

  Total paid

 

11,590  

 

 

10,491  

 

 

 

 

 

 

Net balance at end of year

 

32,440  

 

 

26,089  

Plus:  reinsurance recoverable

 

698  

 

 

427  

Balance at end of year

$

33,138  

 

$

26,516  

 

 

The liability for the IBNR plus expected development on reported claims associated with the Company’s health insurance claims is $32,440,000 at March 31, 2018.

 

Note 10.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. In 2018, investment securities available-for-sale consist of only fixed maturities. Prior to January 1, 2018, the Company classified certain equity securities as available-for-sale. Changes to the fair value of those equity securities classified as available-for-sale were recorded in other comprehensive income (loss) for the corresponding periods in 2017 and prior. Upon the adoption of new accounting guidance on January 1, 2018, the Company: (i) recorded a cumulative-effect adjustment to reclassify the existing amounts reported in accumulated other comprehensive income on that date for equity securities previously classified as available-for-sale, to retained earnings; and (ii) recorded the subsequent changes in the fair value of those equity securities in net income.

 


21


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

 

 

 

 

Three Months Ended

 

 

March 31,

 

 

2018

 

 

2017

 

 

 

 

 

 

Beginning balance

$

(4,598) 

 

$

(6,964) 

 

 

 

 

 

 

Cumulative-effect of new accounting principles

 

(350) 

 

 

-  

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

  Other comprehensive income (loss) before reclassifications

 

(3,901) 

 

 

2,669  

  Amounts reclassified from accumulated OCI

 

(136) 

 

 

(148) 

     Net other comprehensive income

 

(4,037) 

 

 

2,521  

 

 

 

 

 

 

Ending balance

$

(8,985) 

 

$

(4,443) 

 

 

Presented below are the amounts reclassified out of accumulated other comprehensive income (loss) and recognized in earnings for each of the periods indicated (in thousands):

 

 

 

 

Three Months Ended

 

 

March 31,

 

 

2018

 

 

2017

 

 

 

 

 

 

Unrealized gains (losses) on available-for-sale securities

 

 

 

 

 

  reclassified during the period to the following income

 

 

 

 

 

  statement line items:

 

 

 

 

 

     Net investment gains

$

171 

 

$

197 

 

 

 

 

 

 

     Income before income tax

 

171 

 

 

197 

     Tax effect

 

35 

 

 

49 

 

 

 

 

 

 

     Net income

$

136 

 

$

148 

 

 

 

Note 11.Share-Based Compensation 

 

Under the terms of IHC’s share-based compensation plans: (i) the exercise price of an option may not be less than the fair market value of an IHC share on the grant date, and the terms of an option may not exceed 10 years from the grant date; and (ii) the exercise price of a SAR may not be less than the fair market value of an IHC share on the grant date and SAR terms may not exceed 10 years from the date of grant.

 

The fair value of an option award is estimated on the date of grant using the Black-Scholes option valuation model. In general, the vesting period for an option grant is 3 years. Restricted share units are valued at the quoted market price of the shares at the date of grant and generally vest over 3 years. Compensation costs for options and restricted share units are recognized over the stated vesting periods on a straight-line basis. The fair value of a SAR is calculated using the Black-Scholes valuation model at the grant date and each subsequent reporting period until settlement. Compensation cost is based on the proportionate amount of the requisite service that has been rendered to date. Once fully vested, changes in the fair value of a SAR continue to be recognized as compensation expense in the period of the change until settlement. The Company accounts for forfeitures of share-based compensation awards in the period that they occur.

 

At March 31, 2018, there were 846,300 shares available for future stock-based compensation grants under IHC’s stock incentive plans. The following table summarizes share-based compensation expense, which is included in selling, general and administrative expenses on the Condensed Consolidated Statements of


22


Income, applicable to the IHC plans, by award type for each of the periods indicated (in thousands):

 

 

 

 

Three Months Ended

 

 

March 31,

 

 

2018

 

2017

IHC’s Share-based Compensation Plan:

 

 

 

 

Stock options

$

180 

$

35  

Restricted stock units

 

46 

 

31  

SARs

 

86 

 

(65) 

 

 

 

 

 

Share-based compensation expense, pre-tax

 

312 

 

1  

Tax benefits

 

104 

 

-  

 

 

 

 

 

Share-based compensation expense, net

$

208 

$

1  

 

 

Stock Options

 

The IHC’s stock option activity during 2018 was as follows:

 

 

 

 

Shares

 

Weighted- Average

 

 

Under Option

 

Exercise Price

 

 

 

 

 

December 31, 2017

 

692,380   

 

$

16.62

Granted

 

13,000  

 

 

31.30

Exercised

 

(6,600) 

 

 

9.09

March 31, 2018

 

698,780  

 

$

16.96

 

The weighted average grant date fair value of options granted during the three months ended March 31, 2018 was $9.77. No options were granted in the comparable period of 2017. The assumptions set forth in the table below were used to value the stock options granted during the period indicated:

 

 

 

2018

 

 

Weighted-average risk-free interest rate

2.64% 

Expected annual dividend rate per share

0.95% 

Expected volatility factor of the Company's common stock

35.80% 

Weighted-average expected term of options

4.5 years

 

In 2018, IHC received $60,000 in cash from the exercise of stock options with an aggregate intrinsic value of $119,000 and recognized $21,000 of tax benefits.

 

The following table summarizes information regarding IHC’s outstanding and exercisable options:

 

 

 

 

March 31, 2018

 

 

Outstanding

 

Exercisable

 

 

 

 

 

Number of options

 

698,780

 

382,113

Weighted average exercise price per share

$

16.96

$

10.58

Aggregate intrinsic value for all options (in thousands)

$

13,057

$

9,580

Weighted average contractual term remaining

 

2.6 years

 

1.1 years

 

At March 31, 2018, the total unrecognized compensation cost related to IHC’s non-vested stock options was $1,851,000 and it is expected to be recognized as compensation expense over a weighted average period of 2.2 years.

 


23


 

Restricted Stock

 

At both March 31, 2018 and December 31, 2017, there were 18,975 unvested restricted stock units outstanding with a weighted average grant-date fair value of $22.91 per share.

 

At March 31, 2018, the total unrecognized compensation cost related to non-vested restricted stock unit awards was $352,000 and is expected to be recognized as compensation expense over a weighted average period of 2.0 years.

 

SARs

 

IHC had 64,900 SAR awards outstanding at both March 31, 2018 and December 31, 2017 with corresponding liabilities of $108,000 and $22,000 for those periods, respectively, that are included in Other Liabilities in the Company’s Condensed Consolidated Balance Sheets.

 

 

Note 12.Supplemental Disclosures of Cash Flow Information 

 

Net cash payments for income taxes were $611,000 and $222,000 during the three months ended March 31, 2018 and 2017.

 

 

Note 13.Contingencies 

 

A third party administrator with whom we formerly did business (“Plaintiff”) filed a Complaint dated May 17, 2017 in the United States District Court, Northern District of Texas, Dallas Division, naming IHC, Madison National Life, Standard Security Life, and IHC Carrier Solutions, Inc. (collectively referred to as “Defendants”). “Plaintiff” and “Defendants” are collectively referred to herein as the “Parties”. The Complaint concerns agreements entered into by Standard Security Life and Madison National Life with Plaintiff, as well as other allegations made by Plaintiff against Defendants. The Complaint seeks injunctive relief and damages in an amount exceeding $50,000,000, profit share payments allegedly owed to Plaintiff under the agreements totaling at least $3,082,000 through 2014, plus additional amounts for 2015 and 2016, and exemplary and punitive damages as allowed by law and fees and costs.  Defendants believe these claims to be without merit.  Defendants moved to Compel Arbitration and Dismiss or Stay the original Complaint.  Plaintiff filed an Amended Complaint on August 18, 2017.  Defendants filed a Motion to Compel Arbitration or Stay the Amended Complaint. The Parties agreed to enter into an Order staying the action filed in Texas and are currently engaged in discovery.  Arbitration is set for the third quarter of 2018.


24


Note 14.Segment Reporting 

 

The Insurance Group principally engages in the life and health insurance business. Interest expense, taxes, and general expenses associated with parent company activities are included in Corporate. Identifiable assets by segment are those assets that are utilized in each segment and are allocated based upon the mean reserves and liabilities of each such segment. Corporate assets are composed principally of cash equivalents, resale agreements, fixed maturities, equity securities, partnership interests and certain other investments. Effective January 1, 2018, Standard Security Life began selling a new rider (“Paid Family Leave” or “PFL”) as part of our New York short-term disability (“DBL”) policies.  

 

Information by business segment is presented below for the periods indicated (in thousands):

 

 

 

 

Three Months Ended

 

 

March 31,

 

 

2018

 

2017

Revenues:

 

 

 

 

Specialty Health

$

50,764  

$

42,217  

Group disability, life, DBL and PFL

 

36,459  

 

26,406  

Individual life, annuities and other (A)

 

467  

 

530  

Medical Stop-Loss (A)

 

32  

 

1,859  

Corporate

 

511  

 

656  

 

 

88,233  

 

71,668  

Net investment gains

 

71  

 

172  

   Total revenues

$

88,304  

$

71,840  

 

 

 

 

 

Income before income taxes

 

 

 

 

Specialty Health (B)

$

5,469  

$

2,643  

Group disability, life, DBL and PFL

 

5,946  

 

5,482  

Individual life, annuities and other  (A) (C)

 

(168) 

 

(230) 

Medical Stop-Loss (A)

 

114  

 

825  

Corporate

 

(2,378) 

 

(1,345) 

 

 

8,983  

 

7,375  

Net investment gains

 

71  

 

172  

 

 

 

 

 

   Income before income taxes

$

9,054  

$

7,547  

 

(A)Substantially all of the business in the segment is coinsured. Activity in this segment primarily reflects income or expenses related to the coinsurance and the run-off of any remaining blocks that were not coinsured.  

 

(B)The Specialty Health segment includes amortization of intangible assets. Total amortization expense was $361,000 and $154,000 for the three months ended March 31, 2018 and 2017, respectively. 

 

(C)For the three months ended March 31, 2018 and 2017, the Individual life, annuities and other segment includes $237,000 and $284,000 of amortization of deferred charges in connection with the assumptions of certain ceded life and annuity policies. 

 


25


ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 

CONDITION AND RESULTS OF OPERATIONS

 

The following discussion of the financial condition and results of operations of Independence Holding Company ("IHC") and its subsidiaries (collectively, the "Company") should be read in conjunction with, and is qualified in its entirety by reference to, the Consolidated Financial Statements of the Company and the related Notes thereto appearing in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as filed with the Securities and Exchange Commission, and our unaudited Condensed Consolidated Financial Statements and related Notes thereto appearing elsewhere in this quarterly report.

 

Overview

 

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. and a majority interest in PetPartners, Inc. (“PetPartners”). 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”.   

 

While management considers a wide range of factors in its strategic planning and decision-making, underwriting profit is consistently emphasized as the primary goal in all decisions as to whether or not to increase our retention in a core line, expand into new products, acquire an entity or a block of business, or otherwise change our business model.  Management's assessment of trends in healthcare and morbidity, with respect to specialty health, disability, New York short-term disability (“DBL”) and Paid Family Leave (“PFL”), mortality rates with respect to life insurance, and changes in market conditions in general play a significant role in determining the rates charged, deductibles and attachment points quoted, and the percentage of business retained. Management has always focused on managing the costs of its operations.


26


The following is a summary of key performance information and events:

 

Results of operations are summarized as follows for the periods indicated (in thousands):

 

 

Three Months Ended

 

 

March 31,

 

 

2018

 

2017

 

 

 

 

 

Revenues

$

88,304  

$

71,840  

Expenses

 

79,250  

 

64,293  

 

 

 

 

 

Income before income taxes

 

9,054  

 

7,547  

Income taxes

 

2,006  

 

2,538  

 

 

 

 

 

  Net income

 

7,048  

 

5,009  

 

 

 

 

 

  (Income) from noncontrolling interests

 

(87) 

 

(73) 

 

 

 

 

 

 

Net income attributable to IHC

$

6,961  

$

4,936  

 

 

 

 

 

 

Income from operations of $.46 per share, diluted, for the three months ended March 31, 2018 compared to $.29 per share, diluted, for the same period in 2017.  

 

Consolidated investment yields (on an annualized basis) of 2.5% for the three months ended March 31, 2018 compared to 2.9% for the comparable period in 2017; 

 

Book value of $29.17 per common share at March 31, 2018 compared to $28.98 at December 31, 2017.  

 

The following is a summary of key performance information by segment:

 

The Specialty Health segment reported $5.5 million of income before taxes for the three months ended March 31, 2018 as compared to $2.6 million for the comparable period in 2017; 

 

oPremiums earned increased $6.9 million for the three months ended March 31, 2018 over the comparable period in 2017. Fixed indemnity limited benefit premiums increased $14.5 million as a result of growing demand and new significant distribution relationships, partially offset by shorter duration in short term medical business due to a regulatory change in 2017 and reduced premiums in occupational accident and other lines of business in run-off.   

 

oUnderwriting experience, as indicated by its U.S. GAAP Combined Ratios, for the Specialty Health segment are as follows for the periods indicated (in thousands): 

 

 

 

Three Months Ended

 

 

March 31,

 

 

2018

 

2017

 

 

 

 

 

Premiums Earned

$

44,856   

$

37,982   

Insurance Benefits, Claims & Reserves

 

15,902   

 

18,078   

Expenses

 

24,337   

 

18,673   

 

 

 

 

 

Loss Ratio (A)

 

35.5% 

 

47.6% 

Expense Ratio (B)

 

54.3% 

 

49.2% 

Combined Ratio (C)

 

89.8% 

 

96.8% 


27


(A)Loss ratio represents insurance benefits, claims and reserves divided by premiums earned. 

(B)Expense ratio represents commissions, administrative fees, premium taxes and other underwriting expenses divided by premiums earned. 

(C)The combined ratio is equal to the sum of the loss ratio and the expense ratio. 

 

oAlthough the loss ratio in 2018 was lower than in 2017, the expense ratio is higher in 2018 because of changes in the mix of products within the Specialty Health segment. 

 

Income before taxes from the Group disability, life, DBL and PFL segment increased $.5 million for the three months ended March 31, 2018 compared to the same period in 2017. The increase in the first-quarter results primarily reflects the new Paid Family Leave or “PFL” rider on New York DBL policies and lower claims in the LTD line of business in the first quarter of 2018, partially offset by higher claims in the DBL business and by higher commissions and profit sharing expenses on the LTD line of business; 

 

The Individual life, annuities and other segment reported losses before income taxes of $.2 million in both the three months ended March 31, 2018 and 2017.   

 

The Medical Stop-Loss segment reported income before taxes of $.1 million for the three months ended March 31, 2018 as compared to $.8 million for the comparable period in 2017. Amounts recorded for investment income, and benefits, claims and reserves in the Medical Stop-Loss segment represent the activity of the remaining blocks of medical stop-loss business in run-off; 

 

Losses before tax from the Corporate segment increased $1.1 million in the three months ended March 31, 2018 over the same period of 2017 primarily due to changes in compensation and related expenses; and 

 

Premiums by principal product for the periods indicated are as follows (in thousands): 

 

 

 

Three Months Ended

 

 

March 31,

Gross Direct and Assumed