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

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________________________________

FORM 10-Q

 

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

For the quarterly period ended June 30, 2021.

 

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

For the transition period from: ________ to _________  

 

Commission File Number: 001-32244

 

INDEPENDENCE HOLDING COMPANY

(Exact name of registrant as specified in its charter)

 

Delaware

 

58-1407235

(State or other jurisdiction of incorporation or organization) 

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

 

96 CUMMINGS POINT ROAD, STAMFORD, CT                      06902

                                        (Address of principal executive offices)                                          (Zip Code)

 

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

 

NOT APPLICABLE

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

 

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $1.00 par value

IHC

NYSE

 

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

 

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

 

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

 

Large Accelerated Filer [    ]

Accelerated Filer  [X]

Non-Accelerated Filer   [    ]

Smaller Reporting Company  

Emerging Growth Company   

 

 

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

 

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

Yes      No  [X]

 

As of August 7, 2021, the registrant had 14,644,389 shares of Common Stock outstanding.


1


 

INDEPENDENCE HOLDING COMPANY

 

INDEX

 

PART I FINANCIAL INFORMATION

PAGE

 

 

NO.

 

 

 

Item 1. Financial Statements

 

 

 

 

 

Condensed Consolidated Balance Sheets

4

 

 

 

Condensed Consolidated Statements of Income

5

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss)

6

 

 

 

Condensed Consolidated Statements of Changes in Equity

7

 

 

 

Condensed Consolidated Statements of Cash Flows

9

 

 

 

Notes to Condensed Consolidated Financial Statements

10

 

 

 

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

 

 

and Results of Operations

36

 

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

50

 

 

 

Item 4. Controls and Procedures

50

 

 

PART II - OTHER INFORMATION

 

 

 

 

Item 1.    Legal Proceedings

51

 

 

 

 

Item 1A. Risk Factors

52

 

 

 

 

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

52

 

 

 

 

Item 3.   Defaults Upon Senior Securities

52

 

 

 

 

Item 4.    Mine Safety Disclosures

52

 

 

 

 

Item 5.    Other Information

52

 

 

 

Item 6.    Exhibits

53

 

 

 

Signatures

56

 

 

 

 

 

 

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,” “project”, “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)

 

 

 

 

 

June 30, 2021

 

 

December 31, 2020

 

 

(Unaudited)

 

 

ASSETS:

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

Short-term investments

 

$

1,550 

 

$

1,568 

Securities purchased under agreements to resell

 

 

70,323 

 

 

33,038 

Fixed maturities, available-for-sale

 

 

183,709 

 

 

210,719 

Equity securities

 

 

- 

 

 

1,753 

Other investments

 

 

2,022 

 

 

1,928 

Total investments

 

 

257,604 

 

 

249,006 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

22,834 

 

 

31,923 

Investment in Iguana Capital, Inc. (“Iguana Capital”) (Note 2)

 

 

33,762 

 

 

- 

Due and unpaid premiums

 

 

10,950 

 

 

9,981 

Due from reinsurers

 

 

354,735 

 

 

357,237 

Goodwill

 

 

12,486 

 

 

12,486 

Funds held in escrow

 

 

78,779 

 

 

- 

Other assets

 

 

29,864 

 

 

46,832 

Assets attributable to discontinued operations (Note 2)

 

 

416,162 

 

 

375,691 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

1,217,176 

 

$

1,083,156 

 

 

 

 

 

 

 

LIABILITIES AND  EQUITY:

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

 

Policy benefits and claims

 

$

127,815 

 

$

132,957 

Future policy benefits

 

 

196,026 

 

 

198,086 

Funds on deposit

 

 

142,155 

 

 

141,376 

Unearned premiums

 

 

1,763 

 

 

1,952 

Other policyholders' funds

 

 

11,988 

 

 

12,001 

Due to reinsurers

 

 

2,242 

 

 

3,872 

Accounts payable, accruals and other liabilities

 

 

66,519 

 

 

44,855 

Liabilities attributable to discontinued operations (Note 2)

 

 

120,180 

 

 

75,939 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

 

668,688 

 

 

611,038 

 

 

 

 

 

 

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

Redeemable noncontrolling interest

 

 

-  

 

 

2,312  

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

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

 

 

 

 

 

 

none issued or outstanding

 

 

-  

 

 

-  

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

 

 

 

 

 

 

18,625,458 shares issued; and 14,644,389 and

 

 

 

 

 

 

14,643,047 shares outstanding

 

 

18,625  

 

 

18,625  

Paid-in capital

 

 

125,653  

 

 

124,757  

Accumulated other comprehensive income

 

 

3,220  

 

 

4,197  

Treasury stock, at cost; 3,981,069 and 3,982,411 shares

 

 

(77,189) 

 

 

(77,088) 

Retained earnings

 

 

478,139  

 

 

399,273  

 

 

 

 

 

 

 

TOTAL IHC STOCKHOLDERS’ EQUITY

 

 

548,448  

 

 

469,764  

NONREDEEMABLE NONCONTROLLING INTERESTS

 

 

40  

 

 

42  

 

 

 

 

 

 

 

TOTAL EQUITY

 

 

548,488  

 

 

469,806  

 

 

 

 

 

 

 

TOTAL LIABILITIES AND EQUITY

 

$

1,217,176  

 

$

1,083,156  

 

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

 

Six Months Ended

 

 

June 30,

 

June 30,

 

2021

 

2020

 

2021

 

2020

REVENUES:

 

 

 

 

 

 

 

 

Premiums earned

$

42,451  

$

49,138  

$

86,023  

$

99,804  

Net investment income

 

1,651  

 

2,329  

 

3,452  

 

4,828  

Fee income

 

4,944  

 

3,907  

 

11,079  

 

7,341  

Other income

 

410  

 

807  

 

1,026  

 

1,432  

Net investment gains (losses)

 

(126) 

 

274  

 

91  

 

117  

 

 

 

 

 

 

 

 

 

 

49,330  

 

56,455  

 

101,671  

 

113,522  

 

 

 

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

 

 

 

Insurance benefits, claims and reserves

 

17,192  

 

21,339  

 

39,113  

 

47,628  

Selling, general and administrative expenses

 

32,842  

 

37,974  

 

63,602  

 

69,034  

 

 

 

 

 

 

 

 

 

 

50,034  

 

59,313  

 

102,715  

 

116,662  

 

 

 

 

 

 

 

 

 

Loss from continuing operations before income taxes

 

(704) 

 

(2,858) 

 

(1,044) 

 

(3,140) 

Income tax benefits

 

(267) 

 

(1,066) 

 

(430) 

 

(1,187) 

 

 

 

 

 

 

 

 

 

Loss from continuing operations, net of tax

 

(437) 

 

(1,792) 

 

(614) 

 

(1,953) 

 

 

 

 

 

 

 

 

 

Discontinued operations (Note 2):

 

 

 

 

 

 

 

 

Total pretax income from discontinued operations

 

92,375  

 

3,594  

 

99,574  

 

9,243  

Income tax expense on discontinued operations

 

15,570  

 

1,264  

 

17,026  

 

2,430  

Income from discontinued operations, net of tax

 

76,805  

 

2,330  

 

82,548  

 

6,813  

 

 

 

 

 

 

 

 

 

Net income

 

76,368  

 

538  

 

81,934  

 

4,860  

(Income) loss from nonredeemable noncontrolling interests

 

1  

 

(43) 

 

2  

 

(34) 

(Income) loss from redeemable noncontrolling interests

 

102  

 

(74) 

 

156  

 

(127) 

 

 

 

 

 

 

 

 

 

NET INCOME ATTRIBUTABLE TO IHC

$

76,471  

$

421  

$

82,092  

$

4,699  

 

 

 

 

 

 

 

 

 

Basic income per common share

 

 

 

 

 

 

 

 

Loss from continuing operations

$

(0.03) 

$

(0.12) 

$

(0.04) 

$

(0.13) 

Income from discontinued operations

 

5.25 

 

0.15 

 

5.65 

 

0.45 

Basic income per common share

$

5.22 

$

0.03 

$

5.61 

$

0.32 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE SHARES OUTSTANDING

 

14,642  

 

14,765  

 

14,641  

 

14,811 

 

 

 

 

 

 

 

 

 

Diluted income per common share

 

 

 

 

 

 

 

 

Loss from continuing operations

$

(0.03) 

$

(0.12) 

$

(0.04) 

$

(0.13) 

Income from discontinued operations

 

5.25 

 

0.15 

 

5.65 

 

0.45 

Diluted income per common share

$

5.22 

$

0.03 

$

5.61 

$

0.32 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING

 

14,642  

 

14,765  

 

14,641  

 

14,811 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Six Months Ended

 

 

June 30,

 

June 30,

 

 

2021

 

2020

 

2021

 

2021

 

 

 

 

 

Net income

$

76,368  

$

538  

$

81,934 

$

4,860  

Other comprehensive income:

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

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

 

1,212 

 

2,227  

 

(1,248)

 

2,093  

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

 

260 

 

474  

 

(271)

 

451  

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

 

952 

 

1,753  

 

(977)

 

1,642  

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax

 

952 

 

1,753  

 

(977)

 

1,642  

 

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME, NET OF TAX

 

77,320  

 

2,291  

 

80,957 

 

6,502  

 

 

 

 

 

 

 

 

 

Comprehensive (income) loss, net of tax, attributable to noncontrolling interests:

 

 

 

 

 

 

 

 

(Income) loss from noncontrolling interests in subsidiaries

 

103  

 

(117) 

 

158 

 

(161) 

Other comprehensive (income) loss, net of tax, attributable to

 

 

 

 

 

 

 

 

noncontrolling interests

 

-  

 

-  

 

- 

 

-  

 

 

 

 

 

 

 

 

 

COMPREHENSIVE (INCOME) LOSS, NET OF TAX,

 

 

 

 

 

 

 

 

   ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

103  

 

(117) 

 

158 

 

(161) 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME, NET OF TAX,

 

 

 

 

 

 

 

 

   ATTRIBUTABLE TO IHC

$

77,423  

$

2,174  

$

81,115 

$

6,341  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See the accompanying Notes to Condensed Consolidated Financial Statements.


6


 

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

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

Three Months Ended June 30, 2021 and 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ACCUMULATED

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER

 

TREASURY

 

 

 

TOTAL IHC

 

NONREDEEMABLE

 

 

 

 

COMMON

 

PAID-IN

 

COMPREHENSIVE

 

STOCK,

 

RETAINED

 

STOCKHOLDERS'

 

NONCONTROLLING

 

TOTAL

 

STOCK

 

CAPITAL

 

INCOME

 

AT COST

 

EARNINGS

 

EQUITY

 

INTERESTS

 

EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MARCH 31, 2021

$

18,625 

$

125,189  

$

2,268  

$

(77,228) 

$

404,894  

$

473,748  

$

41  

$

473,789  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

76,471  

 

76,471  

 

(1) 

 

76,470  

Other comprehensive

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

loss, net of tax

 

 

 

 

 

952  

 

 

 

 

 

952  

 

-  

 

952  

Common stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    ($0.22 per share)

 

 

 

 

 

 

 

 

 

(3,226) 

 

(3,226) 

 

-  

 

(3,226) 

Share-based compensation

 

 

 

464  

 

 

 

39  

 

 

 

503  

 

-  

 

503  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

JUNE 30, 2021

$

18,625 

$

125,653  

$

3,220  

$

(77,189) 

$

478,139  

$

548,448  

$

40  

$

548,488  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MARCH 31, 2020

$

18,625 

$

123,260 

$

1,101  

$

(71,196) 

$

388,102  

$

459,892  

$

6  

$

459,898  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

421  

 

421  

 

43  

 

464  

Other comprehensive

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

income, net of tax

 

 

 

 

 

1,753  

 

 

 

 

 

1,753  

 

- 

 

1,753  

Repurchases of common stock

 

 

 

 

 

 

 

(3,129) 

 

 

 

(3,129) 

 

- 

 

(3,129) 

Common stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    ($0.22 per share)

 

 

 

 

 

 

 

 

 

(206) 

 

(206) 

 

- 

 

(206) 

Share-based compensation

 

 

 

544 

 

 

 

  

 

 

 

544  

 

- 

 

544  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

JUNE 30, 2020

$

18,625 

$

123,804 

$

2,854  

$

(74,325) 

$

388,317  

$

459,275  

$

49 

$

459,324  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


7


 

 

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

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

Six Months Ended June 30, 2021 and 2020

 

 

 

 

 

 

 

 

 

ACCUMULATED

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER

 

TREASURY

 

 

 

TOTAL IHC

 

NONREDEEMABLE

 

 

 

 

COMMON

 

PAID-IN

 

COMPREHENSIVE

 

STOCK,

 

RETAINED

 

STOCKHOLDERS'

 

NONCONTROLLING

 

TOTAL

 

STOCK

 

CAPITAL

 

INCOME (LOSS)

 

AT COST

 

EARNINGS

 

EQUITY

 

INTERESTS

 

EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DECEMBER 31, 2020

$

18,625 

$

124,757 

$

4,197  

$

(77,088) 

$

399,273  

$

469,764  

$

42  

$

469,806  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

82,092  

 

82,092  

 

(2) 

 

82,090  

Other comprehensive

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

loss, net of tax

 

 

 

 

 

(977) 

 

 

 

 

 

(977) 

 

-  

 

(977) 

Repurchases of common stock

 

 

 

 

 

 

 

(140) 

 

 

 

(140) 

 

-  

 

(140) 

Common stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    ($0.22 per share)

 

 

 

 

 

 

 

 

 

(3,226) 

 

(3,226) 

 

-  

 

(3,226) 

Share-based compensation

 

 

 

896 

 

 

 

39  

 

 

 

935  

 

-  

 

935  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

JUNE 30, 2021

$

18,625 

$

125,653 

$

3,220  

$

(77,189) 

$

478,139  

$

548,448  

$

40  

$

548,488  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DECEMBER 31, 2019

$

18,625 

$

122,717 

$

1,212  

$

(69,724) 

$

386,864 

$

459,694  

$

18  

$

459,712  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

4,699 

 

4,699  

 

34  

 

4,733  

Other comprehensive

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

income, net of tax

 

 

 

 

 

1,642  

 

 

 

 

 

1,642  

 

-  

 

1,642  

Repurchases of common stock

 

 

 

 

 

 

 

(4,601) 

 

 

 

(4,601) 

 

-  

 

(4,601) 

Distributions to noncontrolling

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

interests

 

 

 

 

 

 

 

 

 

 

 

-  

 

(3) 

 

(3) 

Common stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    ($0.22 per share)

 

 

 

 

 

 

 

 

 

(3,246) 

 

(3,246) 

 

-  

 

(3,246) 

Share-based compensation

 

 

 

1,087 

 

 

 

 

 

 

 

1,087  

 

-  

 

1,087  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

JUNE 30, 2020

$

18,625 

$

123,804 

$

2,854  

$

(74,325) 

$

388,317 

$

459,275  

$

49  

$

459,324  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See the accompanying Notes to Condensed Consolidated Financial Statements.


8


 

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

 

 

 

Six Months Ended June 30,

 

2021

 

 

2020

CASH FLOWS PROVIDED BY (USED BY) OPERATING ACTIVITIES:

 

 

 

 

 

Net income

$

81,934  

 

$

4,860  

Adjustments to reconcile net income to net change in cash from

 

 

 

 

 

operating  activities:

 

 

 

 

 

Gain on disposal of discontinued operations

 

(74,534) 

 

 

-  

Pretax provision for loss on disposal

 

812  

 

 

-  

Amortization of deferred acquisition costs

 

425  

 

 

166  

Net amortization of purchased premium and discount in net investment income

 

1,139  

 

 

1,218  

Net investment (gains)

 

(91) 

 

 

(117) 

Depreciation and amortization

 

908  

 

 

759  

Other

 

17,107  

 

 

2,393  

 Changes in assets and liabilities:

 

 

 

 

 

Change in insurance liabilities

 

37,333  

 

 

27,057  

Change in  amounts due from reinsurers

 

2,663  

 

 

3,725  

Change in claim fund balances

 

(1,022) 

 

 

574  

Change in due and unpaid premiums

 

(15,141) 

 

 

(8,253) 

Change in contract asset

 

(1,006) 

 

 

-  

Other operating activities

 

3,008  

 

 

(4,135) 

 

 

 

 

 

 

Net change in cash from operating activities

 

53,535  

 

 

28,247  

 

 

 

 

 

 

CASH FLOWS PROVIDED BY (USED BY) INVESTING ACTIVITIES:

 

 

 

 

 

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

 

1,060  

 

 

(1,049) 

Net (purchases) sales of securities under resale agreements

 

(139,647) 

 

 

5,740  

Sales of equity securities

 

3,494  

 

 

-  

Sales of fixed maturities

 

10,366  

 

 

36,413  

Maturities and other repayments of fixed maturities

 

44,520  

 

 

55,936  

Purchases of fixed maturities

 

(8,343) 

 

 

(96,353) 

Cash divested from deconsolidation of subsidiary

 

(4,878) 

 

 

-  

Payments to acquire business, net of cash acquired

 

-  

 

 

(13,707) 

Payments to acquire other investments

 

(2,500) 

 

 

(1,250) 

Other investing activities

 

(1,870) 

 

 

(3,372) 

 

 

 

 

 

 

Net change in cash from investing activities

 

(97,798) 

 

 

(17,642) 

 

 

 

 

 

 

CASH FLOWS PROVIDED BY (USED BY)  FINANCING ACTIVITIES:

 

 

 

 

 

Repurchases of common stock

 

(140) 

 

 

(4,489) 

Withdrawals of investment-type insurance contracts

 

(112) 

 

 

(326) 

Dividends paid

 

(3,221) 

 

 

(6,215) 

Other financing activities

 

(32) 

 

 

(3) 

 

 

 

 

 

 

Net change in cash from financing activities

 

(3,505) 

 

 

(11,033) 

 

 

 

 

 

 

Net change in cash, cash equivalents and restricted cash

 

(47,768) 

 

 

(428) 

Cash, cash equivalents and restricted cash, beginning of year, including discontinued operations

 

74,793  

 

 

24,631  

 

 

 

 

 

 

Cash, cash equivalents and restricted cash, end of period, including discontinued operations

$

27,025  

 

$

24,203  

 

 

 

 

 

 

NON-CASH ACTIVITY:

 

 

 

 

 

Proceeds from sale of subsidiary – funds held in escrow

$

78,779  

 

$

-  

 

 

 

 

 

 

 

 

 

 

 

 

See the accompanying Notes to Condensed Consolidated Financial Statements.


9


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 underwriting, administering and/or distributing group and individual specialty benefit products, including disability, supplemental health, pet, and group life insurance 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; and (ii) its marketing and administrative companies, including IHC Specialty Benefits Inc. (“IHCSB”), IHC Brokerage Group, Inc. (“IBG”), INSXCloud, Inc. (“INSXCloud”) (formerly My1HR, Inc.), collectively the “IHC Agencies” and its lead generation company, Torchlight Technology Group LLC., (“Torchlight”). On June 30, 2021, the Company sold its majority interest in PetPartners, Inc. (“PetPartners”), a major distributor and administrator of pet insurance underwritten by Independence American Insurance Company and an unaffiliated insurer. Standard Security Life, Madison National Life and Independence American Insurance Company are sometimes collectively referred to as the “Insurance Group”. IHC and its subsidiaries (including the Insurance Group) are sometimes collectively referred to as the "Company", or “IHC”, or are implicit in the terms “we”, “us” and “our”. 

 

Geneve Corporation, a financial holding company, and its affiliated entities, held approximately 62% of IHC's outstanding common stock at June 30, 2021.  

 

(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.

 

During the second quarter of 2021, the Board of Directors committed to various plans for the disposal of several business operations (see Note 2). Each plan represents a strategic shift that will have a major effect on the Company’s operations and financial results and as such, they each qualify for reporting as discontinued operations in the second quarter 2021. The assets, liabilities, and related income and expenses associated with each disposal group are presented as discontinued operations in the accompanying condensed consolidated financial statements and Notes thereto for all periods presented.

 

In March 2020, the World Health Organization declared the outbreak of COVID-19 a global health pandemic and the United States declared a national health emergency. COVID-19 has led to largescale disruption in the global economy, market instability and widespread unemployment in the United States. The COVID-19 outbreak continues to be a fluid situation and as it evolves, the duration of COVID-19 and its potential effects on our business cannot be certain. Regulatory mandates have affected, and we anticipate will continue to impact, the insurance industry. We currently cannot predict if there will be a material impact to


10


our business, results of operations or financial condition in future reporting periods. Consequently, future changes in market conditions may impact estimates used in the preparation of our financial statements associated with evaluations of goodwill and other intangible assets for impairment, estimates associated with the determination of valuation allowances related to net operating loss carryforwards, and estimates of certain losses under insurance contracts. These estimates may all be subject to substantial adjustments in future periods.  In addition, volatile market conditions may result in declines in the fair value of our investment portfolio and possible impairments of certain securities.

 

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 and six months ended June 30, 2021 are not necessarily indicative of the results to be anticipated for the entire year.

 

(C)  Reclassifications 

 

Certain amounts in prior year’s condensed consolidated financial statements and Notes thereto have been reclassified to conform to the 2021 presentation, primarily for the effects of discontinued operations.

 

(D)   Recent Accounting Pronouncements 

 

Recently Adopted Accounting Standards

 

In December 2019, the Financial Accounting Standard Board (“FASB”) issued guidance to simplify the accounting for income taxes. The guidance eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities related to changes in ownership of equity method investments and foreign subsidiaries. The guidance also simplifies aspects of accounting for franchise taxes, the requirement to allocate current and deferred tax expense to legal entities not subject to tax in its separate financial statements, enacted changes in tax laws or rates, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

 

Recently Issued Accounting Standards Not Yet Adopted 

 

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

 

In June 2016, the FASB issued guidance requiring financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. An allowance for credit losses will be deducted from the amortized cost basis to present the net carrying value at the amount expected to be collected with changes in the allowance recorded in earnings. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses rather than the currently applied U.S. GAAP method


11


of taking a permanent impairment of the security, which would be limited to the amount by which fair value is below the amortized cost. Certain existing requirements used to evaluate credit losses have been removed. In 2019, the FASB provided transition relief by providing entities with an option to irrevocably elect the fair value option on an instrument-by-instrument basis for eligible instruments upon adoption and delayed the original effective dates. For smaller reporting companies, the amendments in this guidance are now effective for fiscal years beginning after December 15, 2022, including interim periods within those years. Early adoption is permitted. The amendments in this guidance should be applied through a cumulative effect adjustment to retained earnings upon adoption as of the beginning of the first reporting period in which the guidance is effective. Management is evaluating the requirements and potential impact that the adoption of this guidance will have on the Company’s consolidated financial statements.

 

Note 2.Discontinued Operations 

(A)Sale of Standard Security Life 

 

On April 14, 2021, IHC and its wholly owned subsidiary, Independence Capital Corp. (“ICC”), entered into a Stock Purchase Agreement (the “SSL Purchase Agreement”) with Reliance Standard Life Insurance Company (“Reliance Standard”) to sell all of the issued and outstanding capital stock of Standard Security Life, a wholly owned subsidiary of ICC, for an aggregate purchase price of $180,000,000 in cash.  In addition, at closing, the Company will receive a dividend from Standard Security Life equal to the excess of aggregate statutory capital and surplus over $53,000,000 as of the closing date. Standard Security Life had statutory capital and surplus of $82,091,000 at June 30, 2021.  The closing of the transaction, the closing dividend and certain other items are subject to customary closing conditions including applicable regulatory approvals, one of which is the approval of the New York State Department of Financial Services. Standard Security Life currently cedes a portion of its New York short-term disability (“DBL”) and paid family leave rider (“PFL”) business to Independence American Insurance Company. We filed notice to cancel this reinsurance contract in accordance with the terms of the SSL Purchase Agreement. Under the terms of the SSL Purchase Agreement, the sale transaction will include all of Standard Security Life’s DBL and PFL business (including the DBL and PFL business previously ceded to Independence American Insurance Company) and will exclude other lines of business which will be reinsured prior to the closing. The DBL and PFL business being sold was part of the Company’s Group disability, life, DBL and PFL segment. The aforementioned transaction, consisting of the sale of Standard Security Life, the closing dividend and other closing conditions, is collectively referred to as the “SSL Sale” transaction or disposal group. DBL and PFL are major product lines for the Company. The sale of Standard Security Life and resulting exit from DBL and PFL business represents a strategic shift that will have a major effect on the Company’s operations and financial results. The SSL Sale transaction qualified for reporting as discontinued operations in the second quarter of 2021 upon the Board of Director’s commitment to a plan for its disposal in April 2021, and the subsequent execution of the SSL Purchase Agreement. Provided that all regulatory approvals and other closing conditions are met, the Company expects to complete the SSL Sale transaction by the end of 2021.

 

On July 29, 2021, the SSL Purchase Agreement was amended and restated to: (i) include in the disposal group, the business lines that were previously excluded from the transaction; (ii) remove the reinsurance requirement for the previously excluded business lines; and (iii) increase the target statutory capital and surplus to $57,000,000. As a result of this change in the disposal plan, the Company will include the assets, liabilities and results of operations for those business lines affected in discontinued operations for all periods presented, beginning in the third quarter of 2021.

 

Aside from customary transition services, there will be no continuing involvement with Standard Security Life after its disposal.

(B)Sale of Pet Division and Independence American Insurance Company (“Pets Sale”) 

 

On May 17, 2021, IHC and certain subsidiaries entered into agreements to sell a 70% controlling interest in its pet division, including all of the issued and outstanding capital stock of Independence American


12


Insurance Company to a subsidiary of Iguana Capital, Inc. (“Iguana Capital”), an investment company specifically formed to facilitate this transaction as follows:  

 

(i)IHC and its wholly owned subsidiary, IHC SB Holdings LLC (“SBH”), entered into a Stock Purchase Agreement (the “PPI Purchase Agreement”) with Iguana Capital to sell its 85% interest in PetPartners for $77,000,000 in cash (subject to working capital adjustments);  

(ii)IHC and its wholly owned subsidiary, AMIC Holdings, Inc. (“AMIC”), entered into a Stock Purchase Agreement (the “IAHC Purchase Agreement”) with Iguana Capital to sell all of the stock of Independence American Holdings Corp. (“IAHC”), which owns all of the stock of Independence American Insurance Company and other pet assets, for $190,400,000 in cash (subject to adjustments for targeted statutory capital and surplus): and  

(iii)Following each of the above, IHC will retain a 30% interest in the form of an equity investment in Iguana Capital. 

 

Both agreements are subject to customary closing conditions. The closing of the IAHC Purchase Agreement however is also subject to certain regulatory approvals, one of which is the approval of the Delaware Insurance Department.  For this reason, the transaction was structured as two agreements such that the sale of PetPartners occurred on June 30, 2021, and the closing of the transactions contemplated in the IAHC Purchase Agreement will follow at a later date upon receipt of applicable regulatory approvals. Provided that all regulatory approvals and other closing conditions are met, the Company expects to complete the IAHC sale transaction by the end of 2021.

 

Under the terms of the IAHC Purchase Agreement, the transaction includes the sale of all Independence American Insurance Company’s pet business and excludes other business lines. These excluded business lines will be retained by the Company through a reinsurance agreement with Madison National Life prior to closing. The reinsurance agreement will remain in effect until the underlying business is either transferred to Madison National Life or the business runs out. The aforementioned transaction, consisting of the sale of PetPartners, IAHC and Independence American Insurance Company, and other closing conditions, is collectively referred to as the “Pets Sale” transaction or disposal group. The pet business being sold was part of the Company’s Specialty Health segment. Because the pet business is a major product line for the Company, and the Company will no longer actively engage in the sales and marketing of pet insurance, the Pets Sale transaction represents a strategic shift that will have a major effect on the Company’s operations and financial results. The Pets Sale transaction qualified for reporting as discontinued operations in the second quarter of 2021 as a result of the Board of Directors’ commitment to a plan for the disposal of a controlling interest in its pet business in May 2021, and the execution of both the PPI Purchase Agreement and the IAHC Purchase Agreement on May 17, 2021.

 

On June 30, 2021, the Company completed the sale of its majority interest in PetPartners and, as a result, the Company ceased to have a controlling financial interest in PetPartners. Upon closing, the Company received proceeds of $78,779,000 (consisting of the purchase price and certain initial working capital adjustments), recognized an initial equity investment in Iguana Capital valued at $33,762,000, and recorded a $62,693,000 gain on the disposal, net of transaction costs and income taxes. Transaction costs consisting of transaction bonuses, legal expenses and financial advisor expenses amounted to an aggregate of $6,070,000. The PPI Purchase Agreement includes a waiver and consent to offer The American Kennel Club (“AKC”), PetPartners’ minority shareholder, until December 31, 2021, the right to sell their shares at the same price and terms as in the PPI Purchase Agreement. In the event AKC desires to sell such its shares, Iguana Capital and SBH will equally finance the cash payment to AKC. In connection with the PPI Sale transaction, the Company recorded a $6,800,000 contingent liability (the maximum amount required) based on its belief that AKC will exercise this right. If for any reason the IAHC Purchase Agreement is terminated, then at the option of either SBH or an affiliate of Iguana Capital, IAHC may reacquire the Company’s interest in PetPartners (the “PPI Put/Call Option”). The value of the PPI Put/Call Option was deemed to be negligible due to the structure of the put and call features, the short time horizon and the Company’s belief that there is a low probability that the deal would be terminated. The proceeds received from the sale of PetPartners were deposited into an escrow


13


account owned by SBH and treated as a security deposit. The funds will be released from escrow upon either the consummation of the IAHC sale transaction or upon the exercise of the PPI Put/Call Option. At June 30, 2021, the security deposit is presented as funds held in escrow on the Condensed Consolidated Balance Sheet.

 

Continuing involvement with the Pets Sale disposal group will consist of customary transition services, the reinsurance of retained business lines, the PPI Put/Call Option, and the equity investment in Iguana Capital.

 

The following is a reconciliation, by disposal group, of the carrying amounts of major classes of assets and liabilities included in discontinued operations on the Condensed Consolidated Balance Sheets for the periods indicated (in thousands):

 

 

 

June 30, 2021

 

 

SSL Sale

 

Pets Sale

 

Total

 

 

 

Major classes of assets:

 

 

 

 

 

 

Investments and cash

$

164,346 

$

144,688 

$

309,034 

Goodwill

 

- 

 

41,716 

 

41,716 

Other assets

 

30,020 

 

35,392 

 

65,412 

 

 

 

 

 

 

 

Assets attributable to discontinued operations

$

194,366 

$

221,796 

$

416,162 

 

 

 

 

 

 

 

Major classes of liabilities:

 

 

 

 

 

 

Policy benefits and claims

$

56,987 

$

12,743 

$

69,730 

Unearned premiums

 

26,778 

 

6,080 

 

32,858 

Other liabilities

 

12,500 

 

5,092 

 

17,592 

 

 

 

 

 

 

 

Liabilities attributable to discontinued operations

$

96,265 

$

23,915 

$

120,180 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

 

 

SSL Sale

 

Pets Sale

 

Total

 

 

 

Major classes of assets included in discontinued operations:

 

 

 

 

 

 

Investments and cash

$

114,916 

$

149,844 

$

264,760 

Goodwill

 

- 

 

62,414 

 

62,414 

Other assets

 

18,787 

 

29,730 

 

48,517 

 

 

 

 

 

 

 

Assets attributable to discontinued operations

$

133,703 

$

241,988 

$

375,691 

 

 

 

 

 

 

 

Major classes of liabilities included in discontinued operations:

 

 

 

 

 

 

Policy benefits and claims

$

34,500 

$

11,775 

$

46,275 

Unearned premiums

 

5,208 

 

5,629 

 

10,837 

Other liabilities

 

9,316 

 

9,511 

 

18,827 

 

 

 

 

 

 

 

Liabilities attributable to discontinued operations

$

49,024 

$

26,915 

$

75,939 

 

 

 

 

 

 

 

 


14


 

The following is a reconciliation, by disposal group, of the major line items constituting the pretax profit of discontinued operations to the income from discontinued operations, net of tax, as shown on the Condensed Consolidated Statements of Income for the periods indicated (in thousands):

 

 

 

For the Three Months Ended June 30, 2021

 

 

SSL Sale

 

Pets Sale

 

Total

 

 

 

Revenues

$

50,342  

$

33,080  

$

83,422  

Expenses:

 

 

 

 

 

 

Insurance benefits, claims and reserves

 

24,341  

 

18,442  

 

42,783  

Selling, general and administrative expenses

 

7,394  

 

14,592  

 

21,986  

 

 

 

 

 

 

 

Pretax income of discontinued operations during phase-out

 

18,607  

 

46  

 

18,653  

Pretax provision for loss on disposal

 

(402) 

 

(410) 

 

(812) 

Pretax gain on disposal of discontinued operations

 

-  

 

74,534  

 

74,534  

Total pretax income from discontinued operations

 

18,205  

 

74,170  

 

92,375  

Income tax expense on discontinued operations

 

3,836  

 

11,734  

 

15,570  

 

 

 

 

 

 

 

Income from discontinued operations, net of tax

$

14,369  

$

62,436  

$

76,805  

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended June 30, 2020

 

 

SSL Sale

 

Pets Sale

 

Total

 

 

 

Revenues

$

30,442 

$

20,407 

$

50,849 

Expenses:

 

 

 

 

 

 

Insurance benefits, claims and reserves

 

22,152 

 

11,098 

 

33,250 

Selling, general and administrative expenses

 

6,150 

 

7,855 

 

14,005 

 

 

 

 

 

 

 

Pretax income of discontinued operations during phase-out

 

2,140 

 

1,454 

 

3,594 

Pretax provision for loss on disposal

 

- 

 

- 

 

- 

Pretax gain on disposal of discontinued operations

 

- 

 

- 

 

- 

Total pretax income from discontinued operations

 

2,140 

 

1,454 

 

3,594 

Income tax expense on discontinued operations

 

822 

 

442 

 

1,264 

 

 

 

 

 

 

 

Income from discontinued operations, net of tax

$

1,318 

$

1,012 

$

2,330 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended June 30, 2021

 

 

SSL Sale

 

Pets Sale

 

Total

 

 

 

Revenues

$

93,738  

$

61,999  

$

155,737  

Expenses:

 

 

 

 

 

 

Insurance benefits, claims and reserves

 

53,865  

 

34,374  

 

88,239  

Selling, general and administrative expenses

 

14,850  

 

26,796  

 

41,646  

 

 

 

 

 

 

 

Pretax income of discontinued operations during phase-out

 

25,023  

 

829  

 

25,852  

Pretax provision for loss on disposal

 

(402) 

 

(410) 

 

(812) 

Pretax gain on disposal of discontinued operations

 

-  

 

74,534  

 

74,534  

Total pretax income from discontinued operations

 

24,621  

 

74,953  

 

99,574  

Income tax expense on discontinued operations

 

5,151  

 

11,875  

 

17,026  

 

 

 

 

 

 

 

Income from discontinued operations, net of tax

$

19,470  

$

63,078  

$

82,548  

 

 

 

 

 

 

 

 


15


 

 

 

For the Six Months Ended June 30, 2020

 

 

SSL Sale

 

Pets Sale

 

Total

 

 

 

Revenue

$

59,943 

$

37,838 

$

97,781 

Expenses:

 

 

 

 

 

 

Insurance benefits, claims and reserves

 

40,560 

 

20,459 

 

61,019 

Selling, general and administrative expenses

 

13,004 

 

14,515 

 

27,519 

 

 

 

 

 

 

 

Pretax income of discontinued operations during phase-out

 

6,379 

 

2,864 

 

9,243 

Pretax provision for loss on disposal

 

- 

 

- 

 

- 

Pretax gain on disposal of discontinued operations

 

- 

 

- 

 

- 

Total pretax income from discontinued operations

 

6,379 

 

2,864 

 

9,243 

Income tax expense on discontinued operations

 

1,689 

 

741 

 

2,430 

 

 

 

 

 

 

 

Income from discontinued operations, net of tax

$

4,690 

$

2,123 

$

6,813 

 

 

 

 

 

 

 

 

The assets and liabilities in discontinued operations are measured at the lower of their carry value or fair value less cost to sell. During the three months and six months ended June 30, 2021, it was not necessary to write-down any assets or liabilities attributable to the disposal groups in discontinued operations to fair value, less costs to sell. The Company expects to recognize gains from the sales of these disposal groups, therefore, any costs to sell the disposal groups, primarily legal expenses, incurred prior to the actual disposal of the discontinued operation, are expensed when incurred and presented in pretax provision for loss on disposal in the tables above.

 

Pretax income (loss) from discontinued operations during phase-out attributable to IHC was $18,653,000 and $25,852,000 for the three and six months ended June 30, 2021, respectively, and was $3,594,000 and $9,243,000 for the three and six months ended June 30, 2020, respectively.

 

Total cash flows from operating activities of discontinued operations were $45,917,000 and $26,813,000 for the six months ended June 30, 2021 and 2020, respectively. Total cash flows from investing activities of discontinued operations were $(88,501,000) and $(29,753,000) for the six months ended June 30, 2021 and 2020, respectively.

 

On a consolidated basis, the Company recorded $15,570,000 and $1,264,000 of income taxes related to pretax income from discontinued operations for the three months ended June 30, 2021 and 2020, respectively, and $17,026,000 and $2,430,000 for the six months ended June 30, 2021 and 2020, respectively. In 2021, these amounts include $11,841,000 of income taxes related to the pretax gain on disposal of discontinued operations. In connection with the sale of PetPartners, AMIC decreased its valuation allowance on existing deferred tax assets by $8,281,000 and utilized approximately $46,116,000 of its outstanding Federal net operating loss carryforwards (See Note 11). Differences between the Federal statutory income tax rate on discontinued operations and the Company’s effective income tax rate on pretax income from discontinued operations are primarily the result of AMIC’s decrease in its valuation allowance, state and local income taxes, nondeductible goodwill and other expenses.

 


16


 

 

Note 3.Income Per Common Share 

 

Diluted income per share was computed using the treasury stock method. As a result of losses from continuing operations for the three months and six months ended June 30, 2021 and 2020, such shares were deemed anti-dilutive.

 

The following is a reconciliation of income available to common shareholders used to calculate income per share for the periods indicated (in thousands):

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30,

 

 

2021

 

2020

 

2021

 

2020

 

 

 

 

Income from continuing operations attributable to IHC

$

(436 

$

(1,835) 

$

(612 

$

(1,987) 

Income from discontinued operations attributable to IHC

$

76,907  

$

2,256  

$

82,704  

$

6,686  

 

 

 

 

 

 

 

 

 

  Net income attributable to IHC

$

76,471  

$

421  

$

82,092  

$

4,699  

 

 

 

 

 

 

 

 

 

 

Note 4.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): 

 

 

 

June 30,

 

 

2021

 

2020

 

 

Cash and cash equivalents

$

22,834 

$

11,655 

Restricted cash in other assets

 

418 

 

985 

Cash, cash equivalents and restricted cash in discontinued operations

 

3,773 

 

11,563 

 

 

 

 

 

Total cash, cash equivalents and restricted cash including discontinued operations

$

27,025 

$

24,203 

 

 

 

 

 

 

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.


17


 

 

Note 5.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):

 

 

 

June 30, 2021 

 

 

 

 

GROSS 

 

GROSS 

 

 

 

 

AMORTIZED

 

UNREALIZED

 

UNREALIZED

 

FAIR 

 

 

COST 

 

GAINS 

 

LOSSES 

 

VALUE 

 

 

 

 

FIXED MATURITIES

 

 

 

 

 

 

 

 

AVAILABLE-FOR-SALE:

 

 

 

 

 

 

 

 

Corporate securities

$

75,245  

$

1,583  

$

(779) 

$

76,049  

CMOs – residential (1)

 

3,071  

 

118  

 

(5) 

 

3,184  

U.S. Government obligations

 

23,029  

 

273  

 

- 

 

23,302  

Agency MBS - residential (2)

 

35  

 

-  

 

(4) 

 

31  

GSEs (3)

 

2,969  

 

-  

 

(84) 

 

2,885  

States and political subdivisions

 

74,086  

 

1,261  

 

(384) 

 

74,963  

Foreign government obligations

 

3,144  

 

151  

 

-  

 

3,295  

 

 

 

 

 

 

 

 

 

Total fixed maturities

$

181,579  

$

3,386  

$

(1,256) 

$

183,709  

 

 

 

December 31, 2020

 

 

 

 

GROSS 

 

GROSS 

 

 

 

 

AMORTIZED

 

UNREALIZED

 

UNREALIZED

 

FAIR 

 

 

COST 

 

GAINS 

 

LOSSES 

 

VALUE 

 

 

 

 

FIXED MATURITIES

 

 

 

 

 

 

 

 

AVAILABLE-FOR-SALE:

 

 

 

 

 

 

 

 

Corporate securities

$

91,802 

$

2,174 

$

(1,302) 

$

92,674 

CMOs – residential (1)

 

3,439 

 

146 

 

(2) 

 

3,583 

U.S. Government obligations

 

23,397 

 

414 

 

-  

 

23,811 

Agency MBS - residential (2)

 

39 

 

- 

 

(5) 

 

34 

GSEs (3)

 

3,055 

 

- 

 

(81) 

 

2,974 

States and political subdivisions

 

82,910 

 

1,768 

 

(452) 

 

84,226 

Foreign government obligations

 

3,211 

 

206 

 

-  

 

3,417 

 

 

 

 

 

 

 

 

 

Total fixed maturities

$

207,853 

$

4,708 

$

(1,842) 

$

210,719 

 

(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 June 30, 2021, 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

 

$

36,481

 

$

36,938

Due after one year through five years

 

 

87,377

 

 

89,128

Due after five years through ten years

 

 

20,124

 

 

20,292

Due after ten years

 

 

31,522

 

 

31,252

Fixed maturities with no single maturity date

 

 

6,075

 

 

6,099

 

 

 

 

 

 

 

 

 

$

181,579

 

$

183,709


18


 

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):

 

 

 

June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

Less than 12 Months

 

 

12 Months or Longer

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

Unrealized

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

Losses

 

 

 

 

 

 

 

 

 

 

Corporate securities

$

19,962

 

$

740 

 

$

4,503

 

$

39 

 

$

24,465

$

779 

CMOs-residential

 

707

 

 

5 

 

 

-

 

 

- 

 

 

707

 

5 

Agency MBS - residential

 

31

 

 

4 

 

 

-

 

 

- 

 

 

31

 

4 

GSEs

 

-

 

 

- 

 

 

2,886

 

 

84 

 

 

2,886

 

84 

States and political subdivisions

 

10,319

 

 

76 

 

 

8,813

 

 

308 

 

 

19,132

 

384 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Fixed maturities in an

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      unrealized loss position

$

31,019

 

$

825 

 

$

16,202

 

$

431 

 

$

47,221

$

1,256 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of fixed maturities in an

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  unrealized loss position

 

9

 

 

 

 

 

14

 

 

 

 

 

23

 

 

 

 

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

Less than 12 Months

 

 

12 Months or Longer

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

Unrealized