UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________________________________

~~WASHINGTON, D.C. 20549~~FORM

~~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 ~~September~~June 30, ~~2017.~~2020.

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

For the transition period from: ________ to _________

Commission File Number: 001-32244

INDEPENDENCE HOLDING COMPANY

(Exact name of registrant as specified in its charter)

Delaware		~~581407235~~58-1407235
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

96 CUMMINGS POINT ROAD, STAMFORD ~~CONNECTICUT~~, CT 06902

~~(Address~~(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: ~~(203)~~ (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 ]~~[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 or an emerging growth company. See definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and ~~"smaller reporting~~"emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer [ ]	Accelerated Filer ~~[ X ]~~[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 3, 2020, the registrant had 14,668,481 shares of Common Stock outstanding.

~~Class~~
~~Outstanding at November 3, 2017~~
~~Common stock, $ 1.00 par value~~
~~14,862,346 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~~Statements of Changes in Equity
7

Condensed Consolidated Statements of Cash Flows
89

Notes to Condensed Consolidated Financial Statements
910

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

and Results of Operations
31

Item 3. Quantitative and Qualitative Disclosures about Market Risk
44

Item 4. Controls and Procedures
44

PART II - OTHER INFORMATION

Item 1. Legal Proceedings
45

Item 1A. Risk Factors
46

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
4647

Item 3. Defaults Upon Senior Securities
4648

Item 4. Mine Safety Disclosures
4648

Item 5. Other Information
4648

Item 6.    Exhibits
4749

Signatures
4951

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~~Annual Report on Form 10-K as filed with Securities and Exchange Commission. The only significant changes to our risk factors relate to the 2019 Novel Coronavirus (“COVID-19”) pandemic, see Item 1A of this document for details

Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of these assumptions, and, therefore, also the forward-looking statements based on these assumptions, could themselves prove to be inaccurate. In light of the significant uncertainties inherent in the forward-looking statements that are included in this report, our inclusion of this information is not a representation by us or any other person that our objectives and plans will be achieved. Our forward-looking statements speak only as of the date made, and we will not update these forward-looking statements unless the securities laws require us to do so. In light of these risks, uncertainties and assumptions, any forward-looking event discussed in this report may not occur.
3

PART I - FINANCIAL INFORMATION
Item 1.Financial Statements


INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

~~September~~June 30, ~~2017~~2020

December 31, ~~2016~~2019

~~(Unaudited)~~(Unaudited)

ASSETS:

Investments:

Short-term investments

$
501,149

$
6,91250
Securities purchased under agreements to resell

20,597101,417

28,962
~~Trading securities~~
516
592107,157
Fixed maturities, available-for-sale

426,000384,245

449,487384,974
Equity securities ~~available-for-sale~~

5,4603,449

5,3333,747
Other investments

18,33811,327

23,53415,208
Total investments

470,961501,587

514,820511,136

Cash and cash equivalents

26,56521,224

22,01021,094
Due and unpaid premiums

32,67834,497

42,89626,244
Due from reinsurers

383,192359,244

440,285
~~Premium and claim funds~~
13,665
17,952362,969
Goodwill

50,69775,949

41,57360,165
Other assets

61,47288,792

54,92872,695

TOTAL ASSETS

$
1,039,2301,081,293

$
1,134,4641,054,303

LIABILITIES AND EQUITY:

LIABILITIES:

Policy benefits and claims

$
169,547179,777

$
219,113164,802
Future policy benefits

217,415199,775

219,450201,205
Funds on deposit

143,637141,597

145,749140,951
Unearned premiums

7,99321,601

9,7867,282
Other policyholders' funds

10,24911,646

9,76912,049
Due to reinsurers

5,7153,640

35,7965,016
Accounts payable, accruals and other liabilities

59,74761,569

55,477
~~Liabilities attributable to discontinued operations~~
-
6861,049

TOTAL LIABILITIES

614,303619,605

695,208592,354

Commitments and contingencies (Note ~~14)~~13)

Redeemable noncontrolling interest

2,0352,364

-2,237

STOCKHOLDERS’ EQUITY:

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

none issued or outstanding

-

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

18,625,458 ~~and 18,620,508~~ shares issued; and ~~14,908,517~~14,705,442 and

~~17,102,525~~14,864,941 shares outstanding

18,625

18,62018,625
Paid-in capital

126,135123,804

126,468122,717
Accumulated other comprehensive ~~loss~~gain

(2,344)2,854

(6,964)1,212
Treasury stock, at cost; ~~3,716,941~~3,920,016 and ~~1,517,983~~3,760,517 shares

(61,712)(74,325)

(17,483)(69,724)
Retained earnings

339,512388,317

315,918386,864

TOTAL IHC STOCKHOLDERS’ EQUITY

420,216459,275

436,559459,694
NONREDEEMABLE NONCONTROLLING INTERESTS

2,67649

2,69718

TOTAL EQUITY

422,892459,324

439,256459,712

TOTAL LIABILITIES AND EQUITY

$
1,039,2301,081,293

$
1,134,4641,054,303

See the accompanying Notes to Condensed Consolidated Financial Statements.

4

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share data)

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016
REVENUES:

Premiums earned
$
75,639
$
67,335
$
210,507
$
195,524
Net investment income

4,403

4,004

12,414

12,700
Fee income

2,634

4,050

11,556

12,541
Other income

361

2,261

2,365

8,898
Net realized investment gains

715

2,367

987

3,945
Other-than-temporary impairment losses:

Total other-than-temporary impairment losses

-

(1,475)

-

(1,475)
Portion of losses recognized in other comprehensive income (loss)

-

-

-

-
Net impairment losses recognized in earnings

-

(1,475)

-

(1,475)

83,752

78,542

237,829

232,133
EXPENSES:

Insurance benefits, claims and reserves

33,536

38,277

103,071

109,497
Selling, general and administrative expenses

42,337

32,823

115,404

97,947
Interest expense on debt

-

440

-

1,366

75,873

71,540

218,475

208,810

Income from continuing operations, before income taxes

7,879

7,002

19,354

23,323
Income taxes (benefits)

2,666

2,636

(5,175)

8,566

Income from continuing operations, net of tax

5,213

4,366

24,529

14,757

Discontinued operations:

Income from discontinued operations, before income taxes

-

-

-

117,636
Income taxes on discontinued operations

-

-

-

7,724
Income from discontinued operations, net of tax

-

-

-

109,912

Net income

5,213

4,366

24,529

124,669
(Income) loss from nonredeemable noncontrolling interests

32

(43)

(4)

(9,900)
(Income) loss from redeemable noncontrolling interests

(16)

-

(29)

-

NET INCOME ATTRIBUTABLE TO IHC
$
5,229
$
4,323
$
24,496
$
114,769

Basic income per common share:

Income from continuing operations
$
0.35
$
0.25
$
1.53
$
0.84
Income from discontinued operations

-

-

-

5.84
Basic income per common share
$
0.35
$
0.25
$
1.53
$
6.68

WEIGHTED AVERAGE SHARES OUTSTANDING

14,965

17,120

15,999

17,189

Diluted income per common share:

Income from continuing operations
$
0.34
$
0.25
$
1.50
$
0.83
Income from discontinued operations

-

-

-

5.77
Diluted income per common share
$
0.34
$
0.25
$
1.50
$
6.60

WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING

15,274

17,340

16,287

17,402
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,

2020

2019

2020

2019
REVENUES:

Premiums earned
$
98,691
$
84,947
$
194,741
$
167,736
Net investment income

3,139

4,134

6,379

8,130
Fee income

4,248

3,707

8,190

7,895
Other income

652

879

1,129

4,563
Net investment gains

575

1,455

863

1,626
Other-than-temporary impairment losses, available-for-sale securities:

Total other-than-temporary impairment losses

-

-

-

(646)
Portion of losses recognized in other comprehensive income (loss)

-

-

-

-
Net impairment losses recognized in earnings

-

-

-

(646)

107,305

95,122

211,302

189,304

EXPENSES:

Insurance benefits, claims and reserves

54,589

44,410

108,647

87,529
Selling, general and administrative expenses

51,979

42,206

96,553

82,735

106,568

86,616

205,200

170,264

Income before income taxes

737

8,506

6,102

19,040
Income taxes

199

1,590

1,242

3,234

Net income

538

6,916

4,860

15,806
(Income) from nonredeemable noncontrolling interests

(43)

(27)

(34)

(144)
(Income) from redeemable noncontrolling interests

(74)

(42)

(127)

(88)

NET INCOME ATTRIBUTABLE TO IHC
$
421
$
6,847
$
4,699
$
15,574

Basic income per common share
$
0.03
$
0.46
$
0.32
$
1.04

WEIGHTED AVERAGE SHARES OUTSTANDING

14,765

14,929

14,811

14,939

Diluted income per common share
$
0.03
$
0.46
$
0.32
$
1.04

WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING

14,767

14,948

14,839

15,007

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

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Net income
$
5,213
$
4,366
$
24,529
$
124,669
Other comprehensive income:

Available-for-sale securities:

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

250

(1,173)

7,219

10,734
Tax expense (benefit) on unrealized gains on available-for-sale securities

90

(418)

2,599

3,830
Unrealized gains (losses) on available-for-sale securities, net of taxes

160

(755)

4,620

6,904

Other comprehensive income (loss), net of tax

160

(755)

4,620

6,904

COMPREHENSIVE INCOME, NET OF TAX

5,373

3,611

29,149

131,573

Comprehensive (income) loss, net of tax, attributable to

noncontrolling interests:

(Income) loss from noncontrolling interests in subsidiaries

16

(43)

(33)

(9,900)
Other comprehensive income, net of tax, attributable to

noncontrolling interests:

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

-

47

-

(118)
Other comprehensive (income) loss, net of tax, attributable to

   noncontrolling interests

-

47

-

(118)

COMPREHENSIVE (INCOME) LOSS, NET OF TAX,

   ATTRIBUTABLE TO NONCONTROLLING INTERESTS

16

4

(33)

(10,018)

COMPREHENSIVE INCOME, NET OF TAX,

   ATTRIBUTABLE TO IHC
$
5,389
$
3,615
$
29,116
$
121,555

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(In thousands)

Three Months Ended

Six Months Ended

June 30,

June 30,

2020

2019

2020

2019

Net income
$
538
$
6,916
$
4,860
$
15,806
Other comprehensive income:

Available-for-sale securities:

Unrealized gains on available-for-sale securities, pre-tax

2,227

6,250

2,093

13,444
Tax expense on unrealized gains on available-for-sale securities

474

1,311

451

2,836
Unrealized gains on available-for-sale securities, net of taxes

1,753

4,939

1,642

10,608

Other comprehensive income, net of tax

1,753

4,939

1,642

10,608

COMPREHENSIVE INCOME, NET OF TAX

2,291

11,855

6,502

26,414

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

(Income) from noncontrolling interests in subsidiaries

(117)

(69)

(161)

(232)
Other comprehensive income, net of tax, attributable to

noncontrolling interests

-

-

-

-

COMPREHENSIVE INCOME, NET OF TAX,

   ATTRIBUTABLE TO NONCONTROLLING INTERESTS

(117)

(69)

(161)

(232)

COMPREHENSIVE INCOME, NET OF TAX,

   ATTRIBUTABLE TO IHC
$
2,174
$
11,786
$
6,341
$
26,182

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 31, 2020 and 2019
ACCUMULATED
OTHER
TREASURY
TOTAL IHC
NONREDEEMABLE
COMMON
PAID-IN
COMPREHENSIVE
STOCK,
RETAINED
STOCKHOLDERS'
NONCONTROLLING
TOTAL
STOCK
CAPITAL
LOSS
AT COST
EARNINGS
EQUITY
INTERESTS
EQUITY
BALANCE AT
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

~~NON-~~
BALANCE AT
MARCH 31, 2019
$
18,625
$
122,055
$
(2,641)
$
(65,926)
$
386,164
$
458,277
$
2,799
$
461,076
Net income
6,847
6,847
27
6,874
Other comprehensive
income, net of tax
4,939
4,939
-
4,939
Repurchases of common stock
(1,508)
(1,508)
-
(1,508)
Purchase noncontrolling interests
(1,012)
(1,012)
(2,380)
(3,392)
Distributions to noncontrolling
interests
-
(403)
(403)
Common stock dividends
7
7
-
7
Share-based compensation
543
6
549
-
549
BALANCE AT
JUNE 30, 2019
$
18,625
$
121,586
$
2,298
$
(67,428)
$
393,018
$
468,099
$
43
$
468,142

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited) (In thousands)
Six Months Ended June 30, 2020 and 2019

ACCUMULATED

~~REDEEMABLE~~

OTHER

TREASURY

TOTAL IHC

~~NON-~~NONREDEEMABLE

COMMON

PAID-IN

COMPREHENSIVE

STOCK,

RETAINED

STOCKHOLDERS'

~~CONTROLLING~~NONCONTROLLING

TOTAL

STOCK

CAPITAL

INCOME (LOSS)

AT COST

EARNINGS

EQUITY

~~INTERESTS~~INTERESTS

EQUITY

BALANCE AT

DECEMBER 31, ~~2016~~2019
$
18,62018,625
$
126,468122,717
$
(6,964)1,212
$
(17,483)(69,724)
$
315,918386,864
$
436,559459,694
$
2,69718
$
439,256459,712

Net income

24,4964,699

24,4964,699

434

24,5004,733
Other comprehensive

income, net of tax

4,6201,642

4,6201,642

-

4,6201,642
Repurchases of common stock

(44,442)(4,601)

(44,442)(4,601)

-

(44,442)
~~Common stock dividend ($0.06 per share)~~
(902)
(902)
(902)(4,601)
Distributions to noncontrolling ~~interests~~

(25)

(25)
~~Share-based compensation~~interests

5

(333)

213-
(3)
(3)
Common stock dividends
    ($0.22 per share)

(115) (3,246)
(3,246)

-

(115)(3,246)
Share-based compensation
1,087
1,087
-
1,087

BALANCE AT

~~September~~JUNE 30, ~~2017~~2020
$
18,625
$
126,135123,804
$
(2,344)2,854
$
(61,712)(74,325)
$
339,512388,317
$
420,216459,275
$
2,67649
$
422,892459,324
BALANCE AT
DECEMBER 31, 2018
$
18,625
$
124,395
$
(8,310)
$
(66,392)
$
380,431
$
448,749
$
2,682
$
451,431
Net income
15,574
15,574
144
15,718
Other comprehensive
loss, net of tax
10,608
10,608
-
10,608
Repurchases of common stock
(1,599)
(1,599)
-
(1,599)
Purchase noncontrolling interests
(1,012)
(1,012)
(2,380)
(3,392)
Distributions to noncontrolling
interests
-
(403)
(403)
Common stock dividends
    ($0.20 per share)
(2,987)
(2,987)
-
(2,987)
Share-based compensation
(1,797)
563
(1,234)
-
(1,234)
BALANCE AT
JUNE 30, 2019
$
18,625
$
121,586
$
2,298
$
(67,428)
$
393,018
$
468,099
$
43
$
468,142

See the accompanying Notes to Condensed Consolidated Financial Statements.

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)

Six Months Ended June 30,

2020

2019
CASH FLOWS PROVIDED BY (USED BY) OPERATING ACTIVITIES:

Net income
$
4,860

$
15,806
Adjustments to reconcile net income to net change in cash from

operating activities:

Amortization of deferred acquisition costs

338

682
Net amortization of purchased premium and discount in net investment income

2,175

1,767
Net investment (gains)

(863)

(1,626)
(Gain) on sale of investment

-

(3,589)
Other than-temporary-impairment losses, net

-

646
Depreciation and amortization

2,162

1,598
Other

607

3,989
Changes in assets and liabilities:

Change in insurance liabilities

27,057

16,474
Change in amounts due from reinsurers

3,725

1,490
Change in claim fund balances

574

1,788
Change in due and unpaid premiums

(8,253)

(602)
Other operating activities

(4,135)

(8,684)

Net change in cash from operating activities

28,247

29,739

CASH FLOWS PROVIDED BY (USED BY) INVESTING ACTIVITIES:

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

(1,049)

1,000
Net (purchases) sales of securities under resale agreements

5,740

(26,801)
Sales of fixed maturities

36,413

68,459
Maturities and other repayments of fixed maturities

55,936

43,034
Purchases of fixed maturities

(96,353)

(108,934)
Payments to acquire business, net of cash acquired

(13,707)

(7,952)
Proceeds from sales, distributions and returns of capital from investments

87

5,117
Payments to acquire other investments

(1,250)

(3,000)
Other investing activities

(3,459)

(1,084)

Net change in cash from investing activities

(17,642)

(30,161)

CASH FLOWS PROVIDED BY (USED BY) FINANCING ACTIVITIES:

Repurchases of common stock

(4,489)

(1,560)
Withdrawals of investment-type insurance contracts

(326)

(1,151)
Dividends paid

(6,215)

(2,242)
Purchase of noncontrolling interest

-

(4,400)
Proceeds from stock options exercised

-

44
Payments related to tax withholdings for sharebased compensation

-

(2,397)
Other financing activities

(3)

(403)

Net change in cash from financing activities

(11,033)

(12,109)

Net change in cash, cash equivalents and restricted cash

(428)

(12,531)
Cash, cash equivalents and restricted cash, beginning of year

24,631

30,807

Cash, cash equivalents and restricted cash, end of period
$
24,203

$
18,276

See the accompanying Notes to Condensed Consolidated Financial Statements.
7

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)

Nine Months Ended September 30,

2017

2016
CASH FLOWS PROVIDED BY (USED BY) OPERATING ACTIVITIES:

Net income
$
24,529

$
124,669
Adjustments to reconcile net income to net change in cash from

operating activities:

Gain on disposal of discontinued operations, net of tax

-

(109,447)
Amortization of deferred acquisition costs

269

245
Net realized investment gains

(987)

(3,945)
Other-than-temporary impairment losses

-

1,475
Equity (income) loss from equity method investments

(1,412)

7
Depreciation and amortization

1,379

1,482
Deferred tax expense

1,853

2,565
Other

4,852

6,683
Changes in assets and liabilities:

Net sales of trading securities

-

3,180
Change in insurance liabilities

(83,750)

(41,713)
Change in amounts due from reinsurers

57,094

4,227
Change in premium and claim funds

4,287

(4,835)
Change in current income tax liability

(8,604)

(6,550)
Change in due and unpaid premiums

10,218

11,621
Other operating activities

6,302

(6,417)

Net change in cash from operating activities

16,030

(16,753)

CASH FLOWS PROVIDED BY (USED BY) INVESTING ACTIVITIES:

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

6,849

(8,104)
Net sales of securities under resale agreements

8,365

17,003
Sales of equity securities

-

2,429
Sales of fixed maturities

158,062

335,562
Maturities and other repayments of fixed maturities

16,841

35,505
Purchases of fixed maturities

(145,444)

(406,348)
Proceeds on sales of subsidiaries, net of cash divested

-

137,115
Payments to acquire business, net of cash acquired

(12,323)

-
Distributions from other investments

5,246

-
Proceeds on sales of other investments

-

2,064
Purchases of other investments

(602)

(3,371)
Other investing activities

(565)

(3,433)

Net change in cash from investing activities

36,429

108,422

CASH FLOWS PROVIDED BY (USED BY) FINANCING ACTIVITIES:

Repurchases of common stock

(44,290)

(3,522)
Cash paid in acquisitions of noncontrolling interests

-

(18,141)
Withdrawals of investment-type insurance contracts

(1,359)

(1,447)
Repayments of debt

-

(4,789)
Dividends paid

(1,927)

(1,588)
Other financing activities

(328)

(474)

Net change in cash from financing activities

(47,904)

(29,961)

Net change in cash and cash equivalents

4,555

61,708
Cash and cash equivalents, beginning of year

22,010

17,500

Cash and cash equivalents, end of period
$
26,565

$
79,208
~~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~~underwriting, administering and/or distributing group and individual specialty benefit products, including disability, supplemental health, pet, and group 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,~~Independence Brokerage Group, Inc., My1HR, Inc. (“My1HR”), Torchlight Technology Group LLC (“Torchlight”) and a majority interest in PetPartners, Inc. ~~IHC also owns a significant equity interest in Ebix Health Exchange Holdings, LLC~~ (“~~Ebix Health Exchange”~~PetPartners”), ~~an administration exchange for health insurance.~~ Standard Security Life, Madison National Life and Independence American are sometimes collectively referred to as the “Insurance Group”. IHC and its subsidiaries (including the Insurance Group) are sometimes collectively referred to as the "Company", or “IHC”, or are implicit in the terms “we”, “us” and “our”.

Geneve Corporation, a ~~diversified~~ financial holding company, and its affiliated entities, held approximately ~~61%~~62% of IHC's outstanding common stock at ~~September~~June 30, ~~2017.~~2020.

(B)     ~~Consolidation~~
On August 31, 2016, IHC took AMIC Holdings, Inc. (“AMIC”) private by way of a statutory “short-form” merger. The company paid $18,141,000 for the remaining shares of AMIC common stock owned by noncontrolling interests and as a result, the Company now owns all of the outstanding common stock of AMIC. In connection with the transaction, $2,230,000 was charged to paid-in capital representing: (i) the difference between the fair value of the consideration paid for the shares and the carrying amount of noncontrolling interests; plus (ii) specific, direct costs of the transaction.
(C)     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~~Annual Report on Form 10-K as filed with the Securities and Exchange Commission should be read in conjunction with the accompanying unaudited Condensed Consolidated Financial Statements.

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

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 nine months~~ ended ~~September~~June 30, ~~2017~~2020 are not necessarily indicative of the results to be anticipated for the entire year.

9(C)Consolidation

In June 2020, the Company recognized a pre-tax gain of $158,000 on the sale of a wholly owned subsidiary, Cook & Company Insurance Services, Inc., that is included in other income on the Condensed Consolidated Statement of Income.

(D)Reclassifications
Certain amounts in prior year’s consolidated financial statements and Notes thereto have been reclassified to conform to the 2020 presentation.
(E)Revenue Recognition
Insurance premiums are recognized as revenue over the period insurance protection is provided. For additional information about our policies regarding the recognition of premium revenues, see Note 1 of the Notes to Consolidated Financial Statements included in our 2019 Annual Report on Form 10-K as filed with the Securities and Exchange Commission.
Fee income includes fees and commissions for various sales, marketing and administrative services provided by our marketing and administrative companies. Revenue is recognized as these services are performed for most products. For these administrative service and other contracts, we have no material contract assets or contract liabilities on our consolidated balance sheet at June 30, 2020. Revenue recognized from performance obligations related to prior periods, and revenue expected to be recognized in future periods related to unfulfilled contractual performance obligations and contracts with variable consideration, is not material.
Life Time value:The Company uses expected constrained life time values (“LTV”) representing the expected commissions to be received over the lifetime of certain policies sold, primarily Medicare Advantage products, on behalf of unaffiliated insurance carriers by IHC’s marketing agencies.
Expected future commission revenue over the lifetime of the policies sold is recorded in the period the performance obligation is satisfied. No significant additional performance obligation occurs with renewal of the initial policy. IHC records substantially all anticipated revenue on these policies on the date a completed insurance application is submitted to the unaffiliated insurance carrier; adjusted for certain constraints including policyholder acceptance rates, cancellations and non-renewals. Increased sales of the aforementioned products to unaffiliated insurance carriers began in 2020 as a result of new contracts with those carriers and increased distribution channels.
(F)Recent Accounting Pronouncements

Recently Adopted Accounting Standards

In October ~~2016,~~2018, the Financial Accounting Standards Board (“FASB”) issued guidance ~~that amends the consolidation analysis~~ for determining whether a ~~reporting entity that~~decision making fee is ~~the single decision maker of~~ a variable interest ~~entity. The amendments in this guidance require the decision maker’s evaluation of its~~and requires reporting entities to consider indirect interests held through related parties ~~that are~~ under common control on a ~~proportionate~~proportional basis rather than ~~in their entirety when determining whether it is~~as the ~~primary beneficiary~~equivalent of ~~that variable interest entity.~~a direct interest. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

In ~~March 2016,~~August 2018, the FASB issued guidance ~~that simplify several aspects~~to improve the effectiveness of ~~accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification~~disclosures in the ~~statement of cash flows. New~~notes to financial statements regarding fair value measurements. The amendments in this guidance ~~related to the classifications in the statement of cash flows were applied on a prospective transition basis.~~are effective for all entities for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year. The adoption of this guidance did not ~~have a material effect on the Company’s consolidated financial statements.~~
In March 2016, the FASB issued guidance that eliminates the requirement for retroactive adjustments on the date that a previously held investment qualifies for the equity method of accounting as a result of an increase in ownership interest or degree of influence. 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 May 2017, 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 should be applied prospectively in annual periods beginning after December 15, 2017, including interim periods within those periods, with early adoption permitted. The adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.
In 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 February 2017, the FASB issued guidance to simplify the accounting for sales of nonfinancial assets by clarifying the definition of nonfinancial assets and adding guidance pertaining to partial sales of nonfinancial assets. The amendments in this guidance can be applied using either a retrospective approach or a modified retrospective approach in annual periods beginning after December 15, 2017, including interim periods within those periods. 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 ~~Update,~~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

10

guidance isdid not ~~expected to~~ have a material effect on the Company’s consolidated financial statements.
Recently Issued Accounting Standards Not Yet Adopted

In ~~January 2017,~~December 2019, the FASB issued guidance ~~that~~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 ~~definition~~accounting for transactions that result in a step-up in the tax basis of ~~a business to assist entities with evaluating when a set of transferred assets and activities is a business.~~goodwill. The amendments in this guidance ~~should be applied prospectively in annual~~are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2017, including interim periods within those periods,~~2020, with early adoption permitted. The adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.

In ~~November 2016,~~August 2018, the FASB issued guidance ~~requiring entities~~ to ~~show~~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 ~~changes~~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 ~~total cash, cash equivalents, restricted cash~~amortization of deferred acquisition costs and ~~restricted cash equivalent~~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 ~~statement of cash flows. The~~ amendments in this guidance should be applied retrospectively and is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted. The adoption of this guidance is not expected to ~~have a material effect on the Company’s consolidated financial statements.~~
In 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 should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earningscontracts in-force as of the beginning of the earliest period ~~of adoption~~presented with a cumulative adjustment to beginning retained earnings. Management is evaluating the requirements and ~~are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. The~~potential impact that the adoption of this guidance ~~is not expected to~~will 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 amendments in this Update are effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. 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. 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 ~~public entities that are SEC filers,~~smaller reporting companies, the amendments in this ~~Update~~guidance are now effective

for fiscal years beginning after December 15, ~~2019,~~2022, including interim periods within those years. Early adoption is ~~permitted for fiscal years beginning after December 15, 2018.~~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.
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.
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

11

assessment of equity securities without readily determinable fair values and requires changes in disclosure requirements. For public entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted in certain circumstances. The amendments in this Update should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) should be applied prospectively to equity investments that exist as of the date of adoption of the guidance. The adoption of this guidance is not expected to 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 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. In 2016, additional guidance and technical corrections were issued to clarify certain aspects of the implementation guidance and to clarify the identification of performance obligations. In August 2015, the effective date of this guidance has been deferred. For public entities, this guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, and requires one of two specified retrospective methods of application. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company anticipates that any impact will only relate to contracts with customers outside the scope of Accounting Standards Codification Topic 944, Financial Services - Insurance. Our administrative and other service contracts that will be subject to the amendments in this Update are recorded in the Fee Income line item of the Condensed Consolidated Statement of Income and represent approximately 5% of our consolidated revenues for the nine months ended September 30, 2017. The guidance will be applied retrospectively with a cumulative effect adjustment on the date of initial application. Management is still in the process of evaluating the impact that the adoption of this guidance will have on the Company’s consolidated financial statements and does not anticipate any significant changes in internal controls over financial reporting as a result of its implementation.

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 ~~309,000~~2,000 and ~~288,000~~28,000 shares for the three ~~months~~ and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020 respectively, and ~~220,000~~19,000 and ~~213,000~~69,000 shares for the three ~~months~~ and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2019, respectively.

12Note 3.Cash, Cash Equivalents and Restricted Cash

The following istable provides a reconciliation of ~~income available~~cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets to ~~common shareholders used to calculate income per share~~the amounts shown in the Condensed Consolidated Statements of Cash Flows for the periods indicated (in thousands):

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Income from continuing operations, net of tax
$
5,213
$
4,366
$
24,529
$
14,757
Less: (Income) loss from continuing operations attributable to

     noncontrolling interests

16

(43)

(33)

(348)

   Income from continuing operations attributable to IHC

     common shareholders
$
5,229
$
4,323
$
24,496
$
14,409

Income from discontinued operations, net of tax
$
-
$
-
$
-
$
109,912
Less: Income from discontinued operations attributable to

     noncontrolling interests

-

-

-

(9,552)

   Income from discontinued operations attributable to IHC

     common shareholders
$
-
$
-
$
-
$
100,360

  Net income attributable to IHC
$
5,229
$
4,323
$
24,496
$
114,769

June 30,

2020

2019

Cash and cash equivalents
$
21,224
$
14,982
Restricted cash included in other assets

2,979

3,294

Total cash, cash equivalents and restricted cash
$
24,203
$
18,276

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 3.   4.~~Discontinued Operations~~
On March 31, 2016, IHC and a subsidiary of AMIC, sold the stock of IHC Risk Solutions, LLC (“Risk Solutions”) to Swiss Re Corporate Solutions, a division of Swiss Re (“Swiss Re”). In addition, under the purchase and sale agreement, all of the in-force stop-loss business of Standard Security Life and Independence American produced by Risk Solutions is co-insured by Westport Insurance Corporation (“Westport”), Swiss Re’s largest US carrier, as of January 1, 2016. The aggregate purchase price, prior to closing adjustments, was $152,500,000 in cash. Approximately 89% of the purchase price was allocated to AMIC, with the balance being paid to Standard Security Life and other IHC subsidiaries. The Company recorded a gain of $99,934,000, net of taxes and amounts attributable to noncontrolling interests, as a result of the transaction. The aforementioned transaction, which includes the sale of Risk Solutions and the corresponding coinsurance agreement, is collectively referred to as the “Risk Solutions Sale and Coinsurance Transaction”. IHC’s block of Medical Stop-Loss business is in run-off. The sale of Risk Solutions and exit from the medical stop-loss business represented a strategic shift that has had a major effect on the Company’s operations and financial results. The disposal transaction qualified for reporting as a discontinued operation in the first quarter of 2016 as a result of the Board of Directors commitment to a plan for its disposal in January 2016. Aside from reinsurance and marketing of Westport small group stop-loss, there has been no further involvement with the discontinued operation.

13

The following is a reconciliation of the major line items constituting the pretax profit of discontinued operations included in the Condensed Consolidated Statement of Income for the periods indicated (in thousands):

Three Months Ended

Nine Months Ended

September 30,

September 30,

2016

2016
Revenue
$
-
$
6,406
Selling, general and administrative expenses

-

5,689

Pretax profit of discontinued operations

-

717
Gain on disposal of discontinued operations, pretax

-

116,919

    Income from discontinued operations, before income taxes

-

117,636
     Income taxes (benefits) on discontinued operations

-

7,724

      Income from discontinued operations
$
-
$
109,912
~~Liabilities attributable to discontinued operations at September 30, 2017 and December 31, 2016 consist of $0 and $68,000, respectively, of accounts payable and accrued liabilities.~~
Total operating cash flows from discontinued operations for the three months and nine months ended September 30, 2016 were $0 and $339,000, respectively. The Company elected to classify the proceeds received from the sale of discontinued operations in the investing activities section of Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2016.
In connection with the Risk Solutions Sale and Coinsurance Transaction in March 2016, AMIC utilized a significant amount of its Federal NOL carryforwards and made a corresponding adjustment to its valuation allowance. On a consolidated basis, the Company recorded income taxes on discontinued operations of $7,724,000 for the nine months ended September 30, 2016, consisting of $5,777,000 of state taxes and $1,947,000 of Federal taxes, net of a $38,419,000 decrease in AMIC’s valuation allowance.

14

Note 4.   Investment Securities

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

~~September~~June 30, ~~2017~~2020

GROSS

GROSS

AMORTIZED

UNREALIZED

UNREALIZED

FAIR

COST

GAINS

LOSSES

VALUE

FIXED MATURITIES

AVAILABLE-FOR-SALE:

Corporate securities
$
159,753134,543
$
8943,204
$
(2,471)(3,002)
$
158,176134,745
CMOs -– residential (1)

7,0114,977

-
(106)
6,905
~~U.S. Government obligations~~
44,077
57
(257)
43,877
~~Agency MBS - residential(2)~~
16
-268

-

165,245
~~GSEs(3)~~U.S. Government obligations

9,99250,357
1,081
-
51,438
GSEs (2)
6,043

1

(211)(229)

9,7825,815
States and political subdivisions

194,724179,672

1,1432,853

(2,828)(830)

193,039181,695
Foreign government obligations

4,2765,011

22296

(85)-

4,213
~~Redeemable preferred stocks~~
10,008
116
(132)
9,9925,307

Total fixed maturities
$
429,857380,603
$
2,2337,703
$
(6,090)(4,061)
$
426,000384,245

~~EQUITY SECURITIES~~

~~AVAILABLE-FOR-SALE:~~
~~Common stocks~~
$
1,612
$
191
$
(18)
$
1,785
~~Nonredeemable preferred stocks~~
3,587
88
-
3,675
~~Total equity securities~~
$
5,199
$
279
$
(18)
$
5,460
December 31, ~~2016~~2019

GROSS

GROSS

AMORTIZED

UNREALIZED

UNREALIZED

FAIR

COST

GAINS

LOSSES

VALUE

FIXED MATURITIES

AVAILABLE-FOR-SALE:

Corporate securities
$
192,976161,369
$
2091,832
$
(5,490)(1,178)
$
187,695162,023
CMOs -– residential (1)

6,0215,328

854

(116)-

5,9135,382
U.S. Government obligations

43,41750,340

133257

(441)(48)

43,10950,549
~~Agency MBS - residential~~GSEs (2)

22
16,230

-

23
~~GSEs(3)~~
10,301(107)

1
(422)
9,8806,123
States and political subdivisions

191,146153,439

7801,512

(5,115)(943)

186,811154,008
Foreign government obligations

5,0986,719

13172

(157)(2)

4,954
~~Redeemable preferred stocks~~
11,454
96
(448)
11,1026,889

Total fixed maturities
$
460,435383,425
$
1,2413,827
$
(12,189)(2,278)
$
449,487
~~EQUITY SECURITIES~~
~~AVAILABLE-FOR-SALE:~~
~~Common stocks~~
$
1,612
$
178
$
-
$
1,790
~~Nonredeemable preferred stocks~~
3,588
30
(75)
3,543
~~Total equity securities~~
$
5,200
$
208
$
(75)
$
5,333384,974

(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.

15

The amortized cost and fair value of fixed maturities available-for-sale at ~~September~~June 30, ~~2017,~~2020, by contractual maturity, are shown below (in thousands). Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

AMORTIZED

FAIR

COST

VALUE

Due in one year or less

$
29,686

$
29,631
Due after one year through five years

113,190

112,572
Due after five years through ten years

145,877

145,322
Due after ten years

124,085

121,772
Fixed maturities with no single maturity date

17,019

16,703

$
429,857

$
426,000

AMORTIZED

FAIR

COST

VALUE

Due in one year or less

$
35,810

$
36,215
Due after one year through five years

146,860

150,512
Due after five years through ten years

102,592

102,726
Due after ten years

84,322

83,733
Fixed maturities with no single maturity date

11,019

11,059

$
380,603

$
384,245

The following tables summarize, for all fixed maturities available-for-sale ~~securities~~ 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):

September 30, 2017

Less than 12 Months

12 Months or Longer

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Value

Losses

Value

Losses

Value

Losses

Corporate securities
$
84,636

$
1,087

$
25,563

$
1,384

$
110,199
$
2,471
CMOs - residential

4,730

101

2,105

5

6,835

106
U.S. Government obligations

18,021

80

12,619

177

30,640

257
GSEs

3,286

65

6,480

146

9,766

211
States and political subdivisions

88,326

1,413

35,771

1,415

124,097

2,828
Foreign government obligations

-

-

3,006

85

3,006

85
Redeemable preferred stocks

-

-

3,631

132

3,631

132
  Total fixed maturities

198,999

2,746

89,175

3,344

288,174

6,090

Common stocks

485

18

-

-

485

18
  Total equity securities

485

18

-

-

485

18

  Total temporarily impaired

      securities
$
199,484

$
2,764

$
89,175

$
3,344

$
288,659
$
6,108

Number of securities in an

  unrealized loss position

107

44

151

June 30, 2020

Less than 12 Months

12 Months or Longer

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Value

Losses

Value

Losses

Value

Losses

Corporate securities
$
22,615

$
1,928

$
18,208

$
1,074

$
40,823
$
3,002
GSEs

-

-

5,809

229

5,809

229
States and political subdivisions

20,491

121

13,725

709

34,216

830

  Fixed maturities in an

      unrealized loss position
$
43,106

$
2,049

$
37,742

$
2,012

$
80,848
$
4,061

Number of fixed maturities in an

  unrealized loss position

18

26

44

16

December 31, 2016

Less than 12 Months

12 Months or Longer

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Value

Losses

Value

Losses

Value

Losses

Corporate securities
$
145,205

$
3,818

$
19,841

$
1,672

$
165,046
$
5,490
CMO’s - residential

5,038

116

-

-

5,038

116
U.S. Government obligations

28,406

441

-

-

28,406

441
GSEs

3,640

166

6,220

256

9,860

422
States and political subdivisions

144,357

4,561

18,132

554

162,489

5,115
Foreign government obligations

3,738

157

-

-

3,738

157
Redeemable preferred stocks

-

-

3,315

448

3,315

448
  Total fixed maturities

330,384

9,259

47,508

2,930

377,892

12,189

Nonredeemable preferred stocks

826

25

1,277

50

2,103

75
  Total equity securities

826

25

1,277

50

2,103

75

  Total temporarily impaired

      securities
$
331,210

$
9,284

$
48,785

$
2,980

$
379,995
$
12,264

Number of securities in an

  unrealized loss position

156

23

179

December 31, 2019

Less than 12 Months

12 Months or Longer

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Value

Losses

Value

Losses

Value

Losses

Corporate securities
$
18,151

$
455

$
32,301

$
723

$
50,452
$
1,178
U.S. Government obligations

-

-

7,167

48

7,167

48
GSEs

-

-

6,173

107

6,173

107
States and political subdivisions

29,872

114

29,462

829

59,334

943
Foreign government obligations

-

-

1,603

2

1,603

2

  Fixed maturities in an

      unrealized loss position
$
48,023

$
569

$
76,706

$
1,709

$
124,729
$
2,278

Number of fixed maturities in an

  unrealized loss position

18

43

61

Substantially all of the unrealized losses on fixed maturities available-for-sale at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 relate to investment grade ~~securities and are attributable to changes in market interest rates. Because the Company~~securities. Management does not intend to sell, ~~nor~~and it is ~~it more~~ likely ~~than~~that management will not ~~that the Company will have~~be required to sell ~~such investments before recovery~~these securities prior to their anticipated recovery. The unrealized losses on the Company's fixed maturity securities are related to general market changes in interest rates, and/or the levels of ~~their amortized cost bases, which may be~~credit spreads largely due to current market conditions relating to the COVID-19 pandemic rather than specific concerns with the issuer's ability to pay interest and repay principal. We have evaluated each corporate security’s credit rating as well as industry risk factors associated with the securities. The fair value of these securities is expected to recover as they approach maturity and therefore the Company does not consider these investments to be other-than-temporarily impaired at ~~September~~June 30, ~~2017~~2020..

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

Three Months Ended

Six Months Ended

June 30,

June 30,

2020

2019

2020

2019

Realized gains (losses):

  Fixed maturities available-for-sale
$
72
$
1,271
$
1,142
$
1,249

   Total realized gains (losses) on debt and equity securities

72

1,271

1,142

1,249
Unrealized gains (losses) on equity securities

490

184

(297)

377

Gains (losses) on debt and equity securities

562

1,455

845

1,626
Gains (losses) on other investments

13

-

18

-

Net investment gains
$
575
$
1,455
$
863
$
1,626

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Available-for-sale securities:

  Fixed maturities
$
719
$
2,226
$
1,062
$
3,847
  Common stocks

-

220

-

220
     Total available-for-sale securities

719

2,446

1,062

4,067

Trading securities

-

-

-

-
     Total realized gains

719

2,446

1,062

4,067

Unrealized gains (losses) on trading securities:

  Change in unrealized gains (losses) on trading securities

(4)

(80)

(76)

(124)
     Total unrealized gains (losses) on trading securities

(4)

(80)

(76)

(124)

Gains (losses) on other investments

-

1

1

2

Net realized investment gains
$
715
$
2,367
$
987
$
3,945

For the three ~~months~~ and ~~nine~~six months ended ~~September~~June 30, ~~2017, proceeds from sales of available-for-sale securities, excluding paydowns and maturities, were $29,564,000 and $157,541,000, respectively, and~~2020, the Company realized gross gains of ~~$747,000~~$216,000 and ~~$2,052,000,~~$1,307,000, respectively, and gross losses of $0$144,000 and ~~$844,000,~~$165,000, respectively, ~~on those sales.~~from sales, maturities and prepayments of fixed maturities available-for-sale. For the three ~~months~~ and ~~nine~~six months ended ~~September~~June 30, ~~2016, proceeds from sales of available-for-sale securities, excluding paydowns and maturities, were $179,735,000~~

17

~~and $339,171,000, respectively, and~~2019, the Company realized gross gains of ~~$2,668,000~~$1,855,000 and ~~$4,521,000,~~$1,892,000, respectively, and gross losses of ~~$94,000~~$584,000 and ~~$275,000,~~$643,000, respectively, ~~on those sales.~~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 ~~1G(iv)~~1F(v) to the Consolidated Financial Statements in the ~~2016~~2019 Annual Report on Form 10-K for further discussion of the factors considered by management in its regular review to identify and recognize other-than-temporary impairments on ~~available-for-sale securities.~~fixed maturities available-for-sale. The Company did not recognize any other-than-temporary impairments on available-for-sale securities in the first ~~nine~~six months of ~~2017. In the three months and nine months ended September 30, 2016, the~~2020. The Company recognized an other-than-temporary impairment ~~loss~~losses of ~~$1,475,000~~$0 and $646,000 on certain fixed maturities available-for-sale ~~due to credit losses.~~in the three months and six months ended June 30, 2019. The Company determined that it was more likely than not that we would sell the securities ~~would be sold~~ before the recovery of their amortized cost ~~basis.~~
Credit losses were recognized on certain fixed maturities for which each security also had an impairment loss recognized in other comprehensive income (loss). The rollforward of these credit losses were as follows for the periods indicated (in thousands):

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Balance at beginning of year
$
-
$
-
$
-
$
473
Securities sold

-

-

-

(473)

Balance at end of period
$
-
$
-
$
-
$
-
basis

Note 5.Fair Value Disclosures

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

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

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

Level 3 - Instruments where significant value drivers are unobservable.

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

~~Investments in fixed~~Fixed maturities ~~and equity securities:~~available-for-sale:

~~Available-for-sale securities~~Fixed maturities available-for-sale included in Level 12 are ~~equities with quoted market prices. Level 2 is primarily~~ comprised of our portfolio of government securities, agency mortgage-backed securities, corporate fixed income securities, foreign government obligations, collateralized mortgage obligations, municipals and GSEs that were priced with observable market inputs. Level 3 debt securities consist of municipal tax credit strips.

18

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.

~~Trading~~Equity securities:

~~Trading~~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):

~~September~~June 30, ~~2017~~2020

Level 1

Level 2

Level 3

Total

FINANCIAL ASSETS:

Fixed maturities available-for-sale:

  Corporate securities
$
-

$
158,176134,745
$
-
$
158,176134,745
  CMOs - residential

-

6,9055,245

-

6,9055,245
  US Government obligations

-

43,87751,438

-

43,877
  ~~Agency MBS - residential~~
-
16
-
1651,438
  GSEs

-

9,7825,815

-

9,7825,815
  States and political subdivisions

-

191,124180,262

1,9171,433

193,041181,695
  Foreign government obligations

-

4,2135,307

-

4,213
  ~~Redeemable preferred stocks~~
9,990
-
-
9,9905,307
     Total fixed maturities

9,990-

414,093382,812

1,9171,433

426,000384,245

Equity ~~securities available-for-sale:~~securities:

  Common stocks

1,7852,558

-

-

1,7852,558
  Nonredeemable preferred stocks

3,675891

-

-

3,675891
     Total equity securities

5,4603,449

-

-

5,460
~~Trading securities - equities~~
516
-
-
516
      ~~Total trading securities~~
516
-
-
5163,449

Total Financial Assets
$
15,9663,449

$
414,093382,812
$
1,9171,433
$
431,976387,694

December 31, 2016

Level 1

Level 2

Level 3

Total

FINANCIAL ASSETS:

Fixed maturities available-for-sale:

  Corporate securities
$
-

$
187,695
$
-
$
187,695
  CMOs - residential

-

5,913

-

5,913
  US Government obligations

-

43,109

-

43,109
  Agency MBS - residential

-

23

-

23
  GSEs

-

9,880

-

9,880
  States and political subdivisions

-

184,778

2,033

186,811
  Foreign government obligations

-

4,954

-

4,954
  Redeemable preferred stocks

11,102

-

-

11,102
     Total fixed maturities

11,102

436,352

2,033

449,487

Equity securities available-for-sale:

  Common stocks

1,790

-

-

1,790
  Nonredeemable preferred stocks

3,543

-

-

3,543
     Total equity securities

5,333

-

-

5,333

Trading securities - equities

592

-

-

592
      Total trading securities

592

-

-

592

Total Financial Assets
$
17,027

$
436,352
$
2,033
$
455,412
19

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 2017 or 2016.
~~The following table presents the changes in fair value of our Level 3 financial assets for the periods indicated (in thousands):~~

Three Months Ended September 30,

2017

2016

States and

Total

States and

Total

Political

Level 3

Political

Level 3

Subdivisions

Assets

Subdivisions

Assets

Beginning balance
$
1,956
$
1,956

$
2,107
$
2,107

Increases (decreases) recognized in earnings:

   Net realized investment gains

-

-

-

-

Gains (losses) included in other

  comprehensive income (loss):

    Net unrealized gains (losses)

(8)

(8)

(10)

(10)

Repayments and amortization of

   fixed maturities

(31)

(31)

(27)

(27)
Sales

-

-

-

-

Balance at end of period
$
1,917
$
1,917

$
2,070
$
2,070

Nine Months Ended September 30,

2017

2016

States and

Total

States and

Total

Political

Level 3

CMOs

Political

Level 3

Subdivisions

Assets

Commercial

Subdivisions

Assets

Beginning balance
$
2,033
$
2,033
$
1,195
$
2,179
$
3,374

Gains (losses) included in earnings:

   Net realized investment gains

-

-

141

-

141

Gains (losses) included in other

  comprehensive income (loss):

    Net unrealized gains (losses)

(26)

(26)

(296)

(31)

(327)

Repayments and amortization of

   fixed maturities

(90)

(90)

(74)

(78)

(152)
Sales

-

-

(966)

-

(966)

Balance at end of period
$
1,917
$
1,917
$
-
$
2,070
$
2,070

20

During 2016, the Company had contingent liabilities classified in Level 3 of the fair value hierarchy. These liabilities were paid out by December 31, 2016; there were no comparable amounts in 2017. The following table presents the changes in fair value of our Level 3 financial liabilities for the periods indicated (in thousands):

~~Three Months Ended~~
~~Nine Months Ended~~December 31, 2019

~~September 30, 2016~~Level 1

~~September 30, 2016~~
Level 2
Level 3
Total
FINANCIAL ASSETS:
Fixed maturities available-for-sale:
  Corporate securities
$
-
$
162,023
$
-
$
162,023
  CMOs - residential
-
5,382
-
5,382
  US Government obligations
-
50,549
-
50,549
  GSEs
-
6,123
-
6,123
  States and political subdivisions
-
152,479
1,529
154,008
  Foreign government obligations
-
6,889
-
6,889
     Total fixed maturities
-
383,445
1,529
384,974

~~Total~~

~~Total~~
Equity securities:

~~Contingent~~
~~Level 3~~
~~Contingent~~
~~Level 3~~

~~Liabilities~~

~~Liabilities~~
  Common stocks

~~Liabilities~~2,864

~~Liabilities~~
-
-
2,864
  Nonredeemable preferred stocks
883
-
-
883
     Total equity securities
3,747
-
-
3,747

~~Beginning balance~~Total Financial Assets
$
1,445 3,747
$
383,445
$
1,445 1,529
$
1,650
$
1,650
~~Gains (losses) included in earnings:~~
   ~~Net investment income~~
(204)
(204)
(947)
(947)
   ~~Other income~~
(185)
(185)
353
353
~~Payment of contingent liability~~
(700)
(700)
(700)
(700)
~~Balance at end of period~~
$
356
$
356
$
356
$
356 388,721

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

Three Months Ended June 30,

2020

2019

States and

Total

States and

Total

Political

Level 3

Political

Level 3

Subdivisions

Assets

Subdivisions

Assets

Beginning balance
$
1,481
$
1,481

$
1,664
$
1,664

Increases (decreases) recognized in earnings:

   Net investment gains

-

-

-

-

Gains (losses) included in other

  comprehensive income (loss):

    Net unrealized gains (losses)

(6)

(6)

(6)

(6)

Repayments and amortization of

   fixed maturities

(42)

(42)

(38)

(38)

Balance at end of period
$
1,433
$
1,433

$
1,620
$
1,620

Six Months Ended June 30,

2020

2019

States and

Total

States and

Total

Political

Level 3

Political

Level 3

Subdivisions

Assets

Subdivisions

Assets

Beginning balance
$
1,529
$
1,529

$
1,709
$
1,709

Increases (decreases) recognized in earnings:

   Net investment gains

-

-

-

-

Gains (losses) included in other

  comprehensive income (loss):

    Net unrealized gains (losses)

(12)

(12)

(14)

(14)

Repayments and amortization of

   fixed maturities

(84)

(84)

(75)

(75)

Balance at end of period
$
1,433
$
1,433

$
1,620
$
1,620
Included in unrealized gains (losses) on available-for-sale securities, pre-tax, on the Condensed Consolidated Statement of Comprehensive Income for the three months and six months ended June 30, 2020 are $(6,000) and $(12,000), respectively, of unrealized gains(losses) attributable to the change in unrealized gains (losses) related to Level 3 securities held at June 30, 2020.

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

~~September~~June 30, ~~2017~~2020

December 31, ~~2016~~2019

Level 1

Level 2

Level 1

Level 2

Fair

Fair

Carrying

Fair

Fair

Carrying

Value

Value

Value

Value

Value

Value

FINANCIAL ASSETS:

  Short-term investments
$
1,149
$
-
$
1,149
$
50
$
-
$
50
$  Securities purchased under
     agreements to resell
6,912101,417
$
-
$
6,912101,417
107,157
-
107,157

FINANCIAL LIABILITIES:

  Funds on deposit
$
-
$
143,911141,641
$
143,637141,597
$
-
$
146,098141,010
$
145,749140,951
  Other policyholders’ funds
-
11,646
11,646
-
12,049
12,049

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

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

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

Funds on Deposit

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

21Other Policyholders’ Funds

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

Note 6.Other Investments, Including Variable Interest Entities

Equity Method Investments
Equity income (loss) from equity method investments for the three months and six months ended June 30, 2020 was $(356,000) and $(28,000), respectively; and was $886,000 and $515,000 for the three and six months ended June 30, 2019, respectively.
In the fourth quarter of 2019, the Company impaired its investment in Ebix Health Exchange, which administers various lines of health insurance for IHC’s insurance subsidiaries. The carrying value of the

Company’s equity investment is $0 at both June 30, 2020 and December 31, 2019. In 2020, the Company discontinued applying the equity method with regards to recording any additional equity losses. In 2019, the Company recorded $(1,121,000) and $(1,663,000), respectively, of equity income (loss) from its investment for the three months and six months ended June 30, 2019.
In 2020, the Company acquired the remaining membership units it did not already own in both the Abacus Group, LLC and in Torchlight Technology Group, both of which were previously accounted for under the equity method. See Note 7 for more information about these acquisitions.
In July 2020, the Company received a cash distribution in the amount of $3,462,000 from an equity method investment representing a final return of capital.
Equity Investments Carried at Cost Less Impairments
In February 2020, the Company made an additional $1,250,000 equity investment in FIGO Pet Insurance LLC (“FIGO”), a leading insuretech brand company in the pet insurance space focused on referral partners as well as direct-to-consumer and employer benefit channels. In general, companies that provide insurance through user-centric platforms, or create efficiencies in the insurance industry through technological advances, are referred to as “insuretech” companies.
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 ~~VIEs~~VIE through changes in governing documents or other circumstances. Our maximum loss exposure is limited to our combined ~~$4,141,000~~$5,045,000 carrying value in these equity investments ~~that are~~which is included in other investments in the Condensed Consolidated Balance Sheet as of ~~September~~June 30, ~~2017.~~2020.
Related Party Transactions
At June 30, 2020 and December 31, 2019, the Company’s Condensed Consolidated Balance Sheets include $0 and $5,000, respectively, of notes and other amounts receivable from Ebix Health Exchange, and include $152,000 and $250,000, respectively, of administrative fees and other expenses payable to Ebix Health Exchange, which are included in other assets and accounts payable, accruals and other liabilities, respectively. The Company’s Condensed Consolidated Statements of Income include administrative fee expenses to Ebix Health Exchange, which are included in selling, general and administrative expenses of $423,000 and $899,000, for the three months and six months ended June 30, 2020, respectively, and $525,000 and $987,000, respectively, for the same periods in 2019.

The Condensed Consolidated Statement of Income for the three months and six months ended June 30, 2020 includes premiums earned of $2,865,000 and $3,962,000, respectively, and includes and selling, general and administrative expense $864,000 and $1,197,000 respectively, related to pet insurance business produced by FIGO. Selling, general and administrative expense for the three and six months ended June 30, 2020 includes approximately $0 and $1,507,000 of expense related to the purchase of leads from an affiliated lead generation company. The affiliated company was acquired in April 2020, see Note 7. Lead costs subsequent to the acquisition are eliminated in consolidation. The three and six months ended June 30, 2019 include approximately $995,000 and $1,438,000, respectively, of expense related to the purchase of leads from this lead generation company although this entity was not an affiliate of the Company until June 2019.

Note 7.~~Acquisition of PetPartners, Inc.~~Acquisitions

The Abacus Group, LLC.
On ~~March 24, 2017~~January 1, 2020 (the ~~"Acquisition~~"Abacus Acquisition Date"), the Company acquired ~~85%~~the remaining 56% membership units of ~~the stock of PetPartners, Inc.~~The Abacus Group, LLC, (“~~PetPartners”~~Abacus”)~~, a pet insurance marketing and administration company,~~ for a purchase price of ~~$12,713,000, subject to certain post-closing adjustments.~~$2,599,000, Abacus is an agency group that writes worksite business for Madison National Life and other carriers and receives commissions and other fees. The Company acquired ~~PetPartners for~~Abacus to further the ~~purpose of owning additional distribution and administration sources~~Company’s position in the worksite marketplace. The Company accounted for its ~~pet insurance. Any time after March 24, 2019, shares owned by~~prior ownership interest using the ~~noncontrolling interest are putable to~~equity method. Immediately preceding the transaction, the Company atdetermined the fair value of its equity interest to be $1,838,000 using a market approach and, ~~are therefore presented~~as a result, recorded a loss of $163,000, which is included in other income on the ~~balance sheet as a redeemable noncontrolling interest.~~Condensed Consolidated Statement of Income.

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

~~Cash~~
$
390
~~Intangible assets~~
5,880
Other assets

$
567350

Total identifiable assets

6,837350

Other liabilities

174
~~Deferred tax liability~~
1,069575

Total liabilities

1,243575
Net identifiable assets (liabilities) acquired
$
(225)
In connection with the acquisition, the Company recorded $4,662,000 of goodwill (see Note 8). The amount of goodwill entitled to an amortization deduction for income tax purposes will be determined upon a mutually agreeable asset allocation of the acquisition consideration with the respective sellers.
Goodwill represents the synergies with our insurance carriers. Abacus has an existing distribution network and offers increased distribution sources for IHC carriers’ existing products and developing products through its enrollment platform designed specifically for producers in the worksite marketplace. Goodwill was calculated as the sum of (i) the acquisition date fair value of total cash consideration transferred of $2,599,000, (ii) the aggregate acquisition-date fair value of equity interests immediately before the acquisition of $1,838,000, and (iii) the net identifiable liabilities of $225,000 that were assumed. The enterprise value of Abacus was determined by a market approach net of any control premium. Acquisition-related costs, primarily legal and consulting fees, were not material and are included in selling, general and administrative expenses in the Condensed Consolidated Statement of Income.
Revenue and net income from Abacus for the period from the Abacus Acquisition Date to March 31, 2020, is not material as most of their agency fee income is derived from Madison National Life and is now eliminated in consolidation. The amount of fee income earned from other carriers in 2020 is not material and will reduce over time as the business either runs-off or is transitioned to Madison National Life.
Pro forma adjustments to present the Company’s consolidated revenues and net income as if the acquisition date was January 1, 2019 are not material and accordingly are omitted.

Torchlight Technology Group LLC.
On April 15, 2020 (the "Torchlight Acquisition Date"), the Company acquired the remaining 77% membership units of Torchlight Technology Group LLC, (“Torchlight”) for a purchase price of $11,443,000 in cash and other consideration valued at $185,000. In accordance with the purchase and sale agreement, the Company will also make future incentive payments to the former owners based on the future market appreciation of IHC. These payments will be accounted for as compensation for post-combination services. The Company purchased Torchlight for its marketing technology (“MarTech”), artificial data intelligence, and consumer lead generation capabilities. In an effort to further expand our InsureTech division (comprised of Torchlight, our call centers, field and career agents, and web domains), the Company wants to be able to internally develop and deliver lead traffic opportunities in an affordable and controlled environment. The Company accounted for its prior ownership interest using the equity method. Immediately preceding the transaction, the Company determined the fair value of its equity interest to be $3,432,000 using the income approach and, as a result, recorded a gain of $519,000, which is included in other income on the Condensed Consolidated Statement of Income.
Upon the acquisition, the Company consolidated the assets and liabilities of Torchlight. The following table presents the identifiable assets acquired and liabilities assumed in the acquisition of Torchlight on the Torchlight Acquisition Date based on their respective fair values (in thousands):
Cash
$
333
Intangible assets
2,700
Other assets
2,132
Total identifiable assets
5,165
Other liabilities
1,227
Total liabilities
1,227

Net identifiable assets acquired

$
5,5943,938

~~Redeemable noncontrolling interest~~
$
2,005

In connection with the acquisition, the Company recorded ~~$9,124,000~~$11,122,000 of goodwill and ~~$5,880,000~~$2,700,000 of intangible assets (see Note 8). Goodwill reflects the synergies between PetPartners and Independence American as PetPartners will provide Independence American with increased distribution sources for its pet insurance business through its marketing relationship with the American Kennel Club. Goodwill was calculated as the excess of the sum of: (i) the acquisition date fair value of total cash consideration transferred of $12,713,000; and (ii) the fair value of the redeemable noncontrolling interest in PetPartners of $2,005,000 on the acquisition date; over (iii) the net identifiable assets of $5,594,000 that were acquired. The enterprise value of PetPartners was determined by an independent appraisal using a discounted cash flow model based upon the projected future earnings of PetPartners including a control premium. The fair value of the redeemable noncontrolling interest was determined based upon their percentage of the PetPartners enterprise value discounted for a lack of control. The fair value of the acquired identifiable intangible assets ~~and deferred taxes are provisional~~is pending receipt of the final valuations for those assets and liabilities. The ~~Company~~

22

~~expects~~amount of goodwill and intangibles entitled to ~~finalize~~an amortization deduction for income tax purposes will be determined upon a mutually agreeable asset allocation of the ~~preliminary estimates~~acquisition consideration with the respective sellers.
Goodwill represents the synergies with our agencies. With a significant dependence on consumer and small business opportunities, our agencies require a consistent and predictable flow of lead traffic, and as a result, have meaningful synergies with the functions and deliverables that are developed at Torchlight. Before the acquisition of Torchlight, our agency was fully dependent on market traffic, which was both unpredictable in price and availability. Such restrictions would not allow for coordinated or scheduled growth. Goodwill was calculated as the sum of (i) the acquisition date fair value of total aggregate consideration transferred of $11,628,000; and (ii) the ~~intangible~~aggregate acquisition-date fair value of equity interests immediately before the acquisition of $3,432,000; over (iii) the net identifiable assets ~~and deferred taxes~~of $3,938,000 that were acquired. The enterprise value of Torchlight was determined by ~~the end of this year.~~an independent appraisal using a discounted cash flow model. Acquisition-related costs, primarily legal and consulting fees, were ~~expensed~~not material and are included in selling, general and administrative expenses in the Condensed Consolidated Statement of Income.

~~For~~Revenue and net loss from Torchlight for the period from the Torchlight Acquisition Date to ~~September~~June 30, ~~2017,~~2020 is $1,828,000 and $(564,000), respectively. The net loss is primarily related to the integration of Torchlight with the Company’s Condensed Consolidated Statement of Income includes revenues of $1,416,000 and $2,869,000, respectively, for the three months and nine months ended September 30, 2017, and net income of $112,000 and $199,000, respectively, for the three months and nine months ended September 30, 2017 from PetPartners.other operations.

Pro forma adjustments to present the Company’s consolidated revenues and net income as if the acquisition date was January 1, ~~2016~~2019 are not material and accordingly are omitted.

Note 8.Goodwill and Other Intangible Assets

The carrying amount of goodwill ~~was $50,697,000 and $41,573,000~~ at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019 was $75,949,000 and $60,165,000, respectively. ~~Goodwill is reviewed for impairment annually~~Of these amounts, the portion attributable to the Specialty Health segment, which includes our InsureTech division, was $71,287,000 and $60,165,000 at June 30, 2020 and December 31, 2019, respectively, and ~~evaluated~~the portion attributable to the Group disability, life, DBL and PFL segment was $4,662,000 and $0, for ~~triggering events that may indicate a potential impairment quarterly.~~ the same periods, respectively.
As discussed in Note 7, in connection with the acquisitions of ~~September 30, 2017, no impairment indicators were identified.~~Abacus and Torchlight in 2020, the Company recorded $4,662,000 of goodwill associated with the Group disability, life, DBL and PFL segment and $11,122,000 of goodwill associated with the Specialty Health segment.

The Company has net other intangible assets of ~~$15,062,000~~$15,970,000 and ~~$10,122,000~~$13,379,000 at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively, which are included in other assets in the Condensed Consolidated Balance Sheets. These intangible assets consist of: (i) finite-lived intangible assets, principally the fair value of acquired agent and broker relationships, which are subject to amortization; and (ii) indefinite-lived intangible assets which consist of the estimated fair value of insurance licenses that are not subject to amortization.

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

~~September~~June 30, ~~2017~~2020

December 31, ~~2016~~2019

Gross

Gross

Carrying

Accumulated

Carrying

Accumulated

Amount

Amortization

Amount

Amortization

Finite-lived Intangible Assets:

  Agent and broker relationships
$
17,25312,683
$
11,7977,777
$
13,05218,753
$
11,88214,474
  Domain

1,000

100375

1,000

25325
  Software systems

2,930
468
780

51
-
-332
     Total finite-lived
$
19,03316,613
$
11,9488,620
$
14,05220,533
$
11,90715,131

September 30,

December 31,

June 30,

December 31,

2017

2016

2020

2019
Indefinite-lived Intangible Assets:

Insurance licenses

$
7,977
$
7,977

$
7,977
$
7,977
Total indefinite-lived

$
7,977
$
7,977

$
7,977
$
7,977

InAs discussed in Note 7, in connection with the acquisition of ~~PetPartners in the first quarter of 2017 discussed in Note 7,~~Torchlight, the Company recorded ~~$9,124,000 of goodwill and $5,880,000~~$2,700,000 of intangible assets associated with the Specialty Health ~~segment. None~~segment, of ~~the goodwill is deductible for income tax purposes. The intangible assets primarily represent~~which $1,200,000 represents the fair value of customer relationships ~~and are~~ being amortized over a weighted average period of ~~9.6~~10 years, and $1,500,000 represents software technology being amortized over a weighted average period of 8 years.
In June 2020, the Company acquired TailTrax, which is an Android and IOS app that contains features valued by pet parents for $650,000 and is being amortized over a weighted average period of 3 years.

Amortization expense was ~~$393,000~~$383,000 and ~~$941,000~~$671,000 for the three ~~months~~ and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, respectively, and was ~~$366,000~~$309,000 and ~~$1,057,000~~$668,000 for the three and six months ~~and nine months~~

23

ended ~~September~~June 30, ~~2016,~~2019, respectively.

Note 9.Income Taxes

The provisions for income taxes shown in the Condensed Consolidated Statements of Income were computed ~~based on the Company's actual results, which approximate~~by applying the effective tax rate expected to be applicable for the balance of the current fiscal year in accordance with consolidated life/non-life group income tax regulations. Such regulations adopt a subgroup method in determining consolidated taxable income, whereby taxable income is determined separately for the life insurance company group and the non-life insurance company group.
As a result of the winding down of operations and dissolution of IHC Administrative Services, Inc. (“IHC AS”), a subsidiary of IHC, in the quarter ended June 30, 2017, the Company recognized an estimated $11,589,000 income tax benefit on a worthless stock deduction of $33,110,000 representing the Company’s tax basis related to its unrecovered investment in IHC AS. Management believes that it is more likely than not that the Company will realize the income tax benefit of this worthless stock deduction. Excluding this tax benefit, the differencesreporting periods. Differences between the Federal statutory income tax rate ~~of 35%~~ and the Company’s effective income tax rate ~~resulted~~are principally from the dividends received deduction and ~~tax exempt~~tax-exempt interest income, state and local income taxes, and ~~health insurer specific~~compensation related tax provisions. In addition, the effective rate for 2020 was negatively impacted by the non-deductibility of certain expenses recorded in connection with the Regulatory Settlement Agreement discussed in Note 13, partially offset by the benefit of capital losses attributable to the sale of a subsidiary in 2020.
At December 31, 2019, AMIC Holdings, Inc. (“AMIC”) and its subsidiaries had Federal net operating loss carryforwards of approximately $114,531,000, which expire in varying amounts through the year 2034, with a significant portion expiring in 2020, and are limited in their utilization to future taxable income earned on a separate company basis. At December 31, 2019, AMIC’s valuation allowance was $17,212,000 and is related to net operating loss carryforwards that, in the judgment of management, are not considered realizable. No change in the valuation allowance was necessary in the three months or six months ended June 30, 2020.
On March 27, 2020, as part of the business stimulus package in response to the COVID-19 pandemic, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security ("CARES") Act. The CARES Act established new tax provisions including, but not limited to: (1) five-year carryback of net operating losses ("NOLs") generated in 2018, 2019 and 2020; (2) accelerated refund of alternative minimum tax (AMT) credit carryforwards; and (3) retroactive changes to allow accelerated depreciation for certain depreciable property. At this time, the legislation does not have a material impact on the Company due to the lack of taxable losses in the stated carryback eligible tax years and the fact that the Company was already expecting to receive a cash benefit for the remaining AMT credits in the fiscal 2018 tax year return.
The New York State Department of Taxation and Finance has selected the Company’s 2015 and 2016 NYS returns for audit.

Note 10.Policy Benefits and Claims

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

Nine Months Ended

September 30,

2017

2016

Balance at beginning of year
$
219,113
$
245,443
Less: reinsurance recoverable

88,853

65,362
Net balance at beginning of year

130,260

180,081

Amount incurred, related to:

  Current year

114,795

111,526
  Prior years

(9,236)

(7,048)

  Total incurred

105,559

104,478

Amount paid, related to:

  Current year

52,822

46,997
  Prior years

56,452

109,819

  Total paid

109,274

156,816

Net balance at end of period

126,545

127,743
Plus: reinsurance recoverable

43,002

115,076
Balance at end of period
$
169,547
$
242,819
Six Months Ended June 30, 2020
Specialty
DBL and
Group
All Other
Health
PFL
Disability
Lines
Total
Balance at beginning of year
$
42,228
$
23,438
$
80,079
$
19,057
$
164,802
Less: reinsurance recoverable
1,717
664
23,322
11,290
36,993
Net balance at beginning of year
40,511
22,774
56,757
7,767
127,809
Amount incurred, related to:
  Current year
45,430
43,970
19,093
11,182
119,675
  Prior years
(2,422)
(3,451)
(1,553)
(3,207)
(10,633)
  Total incurred
43,008
40,519
17,540
7,975
109,042
Amount paid, related to:
  Current year
18,722
19,252
4,010
4,979
46,963
  Prior years
23,360
7,818
12,125
2,147
45,450
  Total paid
42,082
27,070
16,135
7,126
92,413
Net balance at end of period
41,437
36,223
58,162
8,616
144,438
Plus: reinsurance recoverable
1,802
647
22,463
10,427
35,339
Balance at end of period
$
43,239
$
36,870
$
80,625
$
19,043
$
179,777
Six Months Ended June 30, 2019
Specialty
DBL and
Group
All Other
Health
PFL
Disability
Lines
Total
Balance at beginning of year
$
38,363
$
21,080
$
82,222
$
18,450
$
160,115
Less: reinsurance recoverable
1,335
719
24,712
11,356
38,122
Net balance at beginning of year
37,028
20,361
57,510
7,094
121,993
Amount incurred, related to:
  Current year
40,873
29,941
17,152
8,770
96,736
  Prior years
(3,158)
(1,186)
(3,053)
(744)
(8,141)
  Total incurred
37,715
28,755
14,099
8,026
88,595
Amount paid, related to:
  Current year
17,666
16,188
3,340
4,450
41,644
  Prior years
19,092
5,930
9,697
2,523
37,242
  Total paid
36,758
22,118
13,037
6,973
78,886
Net balance at end of period
37,985
26,998
58,572
8,147
131,702
Plus: reinsurance recoverable
1,244
691
24,197
11,150
37,282
Balance at end of period
$
39,229
$
27,689
$
82,769
$
19,297
$
168,984

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 (unfavorable) development in the Specialty Health segment, as depicted in the tables above, is comprised of the following lines of business for the period indicated (in thousands):

Six Months Ended

June 30,
Specialty Health segment:

2020

2019
Short-term Medical
$
286
$
(29)
Occupational Accident

798

1,421
Limited Medical

241

472
Critical Illness

397

185
Group Gap

513

198
Fixed Indemnity Limited Benefit

(736)

166
Pet

450

170
All other specialty health lines

473

575

    Total Specialty Health segment
$
2,422
$
3,158
In 2020, net favorable development ~~of $9,236,000 in 2017 related to prior years consists of favorable developments of $2,420,000~~ in the ~~Medical Stop-Loss reserves, $5,406,000~~various lines of the Specialty Health segment shown above is primarily due to better than expected claim development. Unfavorable development in the Fixed Indemnity Limited Benefit line in 2020 is primarily due to higher than expected claim severity on a small number of policies. In 2019, favorable development in the occupational accident line, in run-off, is mainly due to some claims settling for amounts less than anticipated and due to a lower level of employer liability claims than anticipated in relation to historical levels. Net favorable development in the other lines of Specialty Health business in 2019 is primarily due to better than expected claim development.
In 2020, the net favorable development in the DBL and PFL business is mainly due to due to favorable premium refund reserve adjustments in the DBL line of business. In 2019, net favorable development is primarily due to favorable DBL claims experience.
In 2020, favorable development in the group

24

disability ~~reserves and $2,714,000~~business is primarily due to a reduction in open claims, specifically, new claims, in the ~~other individual life, annuities and other reserves,~~LTD line, partially offset by an ~~unfavorable development~~increase in the overall frequency and severity of ~~$1,304,000~~claims in ~~Specialty Health reserves. The overall net~~the STD line. In 2019, favorable development ~~of $7,048,000 in 2016 related to prior years primarily consists of favorable developments of $2,916,000~~ in the group disability ~~reserves, $494,000~~business is primarily due to better than expected claim development in ~~Medical Stop-Loss reserves,~~terms of duration and ~~$3,769,000~~net payments in ~~Specialty~~the LTD business.
All other lines, primarily life and other individual health ~~reserves.~~products and including our medical stop-loss business in run-off, experienced favorable development in 2020 and 2019 that is primarily related to the group term life business due to continued improvements in experience and updated assumptions for the Paid-Up Life business.

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

Specialty Health Segment

Health Insurance Claims

Nine Months Ended

September 30,

2017

2016

Balance at beginning of year
$
27,183
$
23,425
Less: reinsurance recoverable

1,179

1,362
Net balance at beginning of year

26,004

22,063

Amount incurred, related to:

  Current year

40,836

34,598
  Prior years

1,144

(6,845)

  Total incurred

41,980

27,753

Amount paid, related to:

  Current year

13,528

9,541
  Prior years

23,797

13,105

  Total paid

37,325

22,646

Net balance at end of period

30,659

27,170
Plus: reinsurance recoverable

814

848
Balance at end of period
$
31,473
$
28,018

Specialty Health Segment

Health Insurance Claims

Six Months Ended

June 30,

2020

2019

Balance at beginning of year
$
31,259

$
26,068
Less: reinsurance recoverable

1,113

851
Net balance at beginning of year

30,146

25,217

Amount incurred, related to:

  Current year

23,627

25,855
  Prior years

(1,184)

(1,622)

  Total incurred

22,443

24,233

Amount paid, related to:

  Current year

8,260

7,838
  Prior years

16,382

13,157

  Total paid

24,642

20,995

Net balance at end of period

27,947

28,455
Plus: reinsurance recoverable

1,406

445
Balance at end of period
$
29,353

$
28,900

The $27,947,000 net balance of the Company’s health insurance claims liability ~~for~~at June 30, 2020 shown in the table above is all IBNR plus expected development on reported ~~claims associated with the Company’s health insurance claims was $30,659,000 at September 30, 2017.~~claims.

Note 11.Stockholders’ Equity

Treasury Stock

In ~~2017,~~2020, the Company repurchased ~~2,211,629~~159,499 shares of its common stock for an aggregate cost of ~~$44,442,000. Of~~$4,601,000 and of that amount, ~~703,000 shares were repurchased in private transactions for an aggregate cost of $13,975,000; 1,385,118~~36,377 shares were repurchased for an aggregate cost of ~~$27,702,000~~$982,000 pursuant to the terms of a tender ~~offer; and the remaining shares were repurchased in the open market.~~ offer.
~~In 2017, the Company reissued 12,671 shares previously held in treasury to satisfy the net-share settlement of option exercises during the period.~~

25

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.

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

Three Months Ended

Nine Months Ended

Three Months Ended

Six Months Ended

September 30,

September 30,

June 30,

June 30,

2017

2016

2017

2016

2020

2019

2020

2019

Beginning balance
$
(2,504)
$
4,054
$
(6,964)
$
(3,440)
$
1,101
$
(2,641)
$
1,212
$
(8,310)

Other comprehensive income (loss):

Other comprehensive income (loss) before reclassifications

627

(182)

5,305

8,522

1,810

5,935

2,544

11,077
Amounts reclassified from accumulated OCI

(467)

(573)

(685)

(1,618)

(57)

(996)

(902)

(469)
Net other comprehensive income

160

(755)

4,620

6,904

1,753

4,939

1,642

10,608

Less: Other comprehensive income attributable

to noncontrolling interests

-

47

-

(118)
Acquired from noncontrolling interests

-

102

-

102

Ending balance
$
(2,344)
$
3,448
$
(2,344)
$
3,448
$
2,854
$
2,298
$
2,854
$
2,298

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

Six Months Ended

June 30,

June 30,

2020

2019

2020

2019

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

  reclassified during the period to the following income

  statement line items:

     Net investment gains (losses)
$
72
$
1,271
$
1,142
$
1,249
     Net impairment losses recognized in earnings

-

-

-

(646)

     Income (loss) before income tax

72

1,271

1,142

603
     Income tax expense (benefit)

15

275

240

134

     Net income (loss)
$
57
$
996
$
902
$
469

Note 12.~~Share-Based Compensation~~

~~IHC has a share-based compensation plan. AMIC had a plan, which has now been terminated. The following is a summary of the activity pertaining to each of these plans.~~

~~A) IHC Share-Based Compensation Plans~~

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.

26

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 3years. Restricted share units are valued at the quoted market price of the shares at the date of grant and generally vest over 3years. 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 September 30, 2017, there were 1,099,100 shares available for future stock-based compensation grants under IHC’s stock incentive plan. The following table summarizes share-based compensation expense, which is included in selling, general and administrative expenses on the Condensed Consolidated Statements of Income, applicable to the IHC plans, by award type for each of the periods indicated (in thousands):

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016
IHC’s Share-based Compensation Plan:

Stock options
$
36
$
-
$
106
$
170
Restricted stock units

23

16

81

60
SARs

305

(57)

359

410

Share-based compensation expense, pre-tax

364

(41)

546

640
Tax benefits

145

16

218

255

Share-based compensation expense, net
$
219
$
(25)
$
328
$
385
~~Stock Options~~
~~The IHC’s stock option activity during 2017 was as follows:~~

The weighted average grant date fair value of options granted during the period ended September 30, 2017 was $7.01. No options were granted in the comparable period of 2016. The assumptions set forth in the table below were used to value the stock options granted during the period indicated:

~~In 2017, IHC received no cash from the exercise of stock options, as option exercises were net settled~~

27

in IHC shares. As part of the net-share settlements in 2017, cash outflows to satisfy employees’ income tax withholding obligations amounted to $303,000. Stock options exercised in 2017 had an aggregate intrinsic value of $621,000 and IHC realized $180,000 of tax benefits. In 2016, option agreements affecting 13 employees were modified to extend the expirations of their terms from 2017 to 2019 and, as a result, the Company recorded incremental compensation costs of $170,000. In 2016, IHC received $84,000 in cash from the exercise of stock options with an aggregate intrinsic value of $67,000 and realized $15,000 of tax benefits.
~~The following table summarizes information regarding IHC’s outstanding and exercisable options:~~

At September 30, 2017, the total unrecognized compensation cost related to IHC’s non-vested stock options was $537,000 and it is expected to be recognized as compensation expense over a weighted average period of 2.3 years.

~~Restricted Stock~~

~~The following table summarizes restricted stock activity for the nine months ended September 30, 2017:~~

The total fair value of restricted stock units that vested during the first nine months of 2017 and 2016 was $94,000 and $120,000, respectively. IHC granted no restricted stock awards during the nine months ended September 30, 2017 and 2016.

At September 30, 2017, the total unrecognized compensation cost related to non-vested restricted stock unit awards was $153,000 which is expected to be recognized as compensation expense over a weighted average period of 1.8 years.

~~SARs~~

IHC had 30,800 and 71,500 of SAR awards outstanding at September 30, 2017 and December 31, 2016, respectively. In the first nine months of 2017, 40,700 SARs were exercised with an aggregate intrinsic value of $676,000. Included in Other Liabilities in the Company’s Condensed Consolidated Balance Sheets at September 30, 2017 and December 31, 2016 are liabilities of $559,000 and $876,000, respectively, pertaining to SARs.

28

~~B) AMIC Share-Based Compensation Plan~~
~~AMIC’s share-based compensation plan was terminated in 2016~~. AMIC recorded $7,000 and $14,000 of share-based compensation expense net of tax benefits of $4,000, and $7,000, respectively, for the three months and nine months ended September 30, 2016. Additionally,
~~AMIC received $262,000 in cash from the exercise of stock options with an intrinsic value of $212,000.~~
Note 13.   Supplemental Disclosures of Cash Flow Information

Net cash payments for income taxes were ~~$292,000~~$55,000 and ~~$11,312,000~~$388,000 during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016.~~
~~Cash payments for interest were $0 and $1,422,000 during the nine months ended September 30, 2017 and 2016,~~2019, respectively.

Note 14.   13.Contingencies
Third Party Administrator

A third party administrator with whom we formerly did business (“Plaintiff” or “TPA”) 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 Independence Brokerage Group, Inc. (formerly 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 ~~the~~ 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. ~~The~~Defendants believe these claims to be without merit. Defendants moved to Compel Arbitration and Dismiss or Stay the original Complaint. ~~The~~ Plaintiff filed an Amended Complaint on August 18, 2017. ~~The~~ Defendants filed a Motion to Compel Arbitration or Stay the Amended ~~Complaint, which is still pending. In~~Complaint. The Parties agreed to enter

into an Order staying the ~~fourth quarter of 2017,~~action filed in Texas. The Parties’ disputed claims moved in part to arbitration.
Standard Security Life and Madison National Life ~~agreed~~demanded arbitration against this TPA. The Arbitration Panel issued an Order splitting the hearing into two phases. Standard Security Life and Madison National Life successfully presented their claims in Phase I on September 25 through September 28, 2018 and were awarded $5,641,000 (“Arbitration Award”). The TPA’s counterclaims were heard during Phase II held on February 11, 2019 through February 15, 2019. Standard Security Life and Madison National Life successfully opposed the counterclaims asserted by the TPA as the Arbitration Panel denied all claims against Standard Security Life and Madison National Life. Standard Security Life and Madison National Life filed the Petition to ~~pay fines~~Confirm the Arbitration Award. The TPA opposed this Motion. On June 17, 2019, the Court entered its Final Judgment and Order Confirming the Arbitration Award. On July 15, 2019, the TPA filed a Notice of Appeal to the United States Court of Appeals for the Seventh Circuit from the judgment entered on June 17, 2019. The TPA has filed its appeal and was required to file a bond for the awarded amount in order to proceed. Standard Security Life and Madison National Life submitted a response. Oral argument was held on May 28, 2020 and on July 28, 2020, the 7th Circuit upheld the district court’s decision confirming the arbitration award. The Company will actively pursue payment of the judgement in the ~~state~~third quarter, barring any further motions by the TPA. Upon final notice of the award, the Company will recognize its impact in earnings.
Since the arbitration is complete, the stay in the Texas ~~primarily~~litigation has been lifted. Defendants filed a Motion to Dismiss. On October 16, 2019, the Court granted in part and denied in part our Motion to Dismiss. Count I, which relates to the breach of contract, was denied without prejudice. Counts II-VI were granted in part. The Court found that an arbitration agreement, including an arbitration provision, exists between Plaintiff and Defendants. The arbitration provision incorporates the AAA Rules, evincing clear and unmistakable evidence of the parties’ intent to have the arbitrator decide whether a given claim must be arbitrated. Therefore, Counts II-VI were dismissed, without prejudice. The parties were directed to proceed with arbitration. In light of this holding, the action relating to Count I, breach of Contract, was stayed and administratively closed pending the outcome of another arbitration. On February 2, 2020, we received the TPA’s Demand for Arbitration. We responded and the parties are engaged in discovery. It is the Defendants' position that this demand for a new arbitration has no impact on the Arbitration Award discussed above.
Multistate Market Conduct Examination
As previously disclosed, our subsidiaries Standard Security Life, Madison National Life and Independence American have been selected for a multistate market conduct exam ("MCE") related to our STM, limited medical and fixed indemnity limited health insurance products for the ~~claims payment practices~~period of January 1, 2014 through September 30, 2017. The insurance departments of five jurisdictions (Delaware, Wisconsin, District of Columbia, Kansas and South Dakota) are serving as lead states, and the District of Columbia Department of Insurance, Securities and Banking and the Delaware Department of Insurance are serving as the managing lead states of the ~~Plaintiff.~~MCE. In addition to the five lead states, 36 other states are participating in the MCE. Each of Standard Security Life, Madison National Life and Independence American responded to inquiries and document production requests in the MCE and proactively communicated and cooperated with the applicable regulatory agencies for the MCE. Each of these subsidiaries also provided a detailed action plan to regulators that summarizes its enhanced compliance and control mechanisms.

In an effort to avoid long‐term litigation and/or administrative proceedings that would be required to resolve disputes between Standard Security Life, Madison National Life and Independence American and the states involved in the MCE, the Lead States and Standard Security Life, Madison National Life and Independence American entered into separate Regulatory Settlement Agreements ("RSAs") on July 14, 2020. The RSAs require the implementation of a compliance plan, impose certain requirements related to specified business practices and monetary payments. The Company has accrued $3,660,000 for compliance with the examination as outlined in the RSAs. For the RSAs to be effective, an additional twenty-five of the thirty‐six participating states must agree and adopt the RSAs. The managing lead states are in the process of obtaining such approvals. As set forth in the RSAs, the Company denies any wrongdoing or violation of any applicable laws or regulations, and the entry into the RSAs is not an admission or acknowledgment by the Company of

any wrongdoing or liability.

Note 15.   14.Segment Reporting

The Insurance Group principally ~~engages~~engaged in ~~the~~underwriting, administering and/or distributing group and individual specialty benefit products, including disability, supplemental health, pet, and group life ~~and health insurance business. Interest expense, taxes,~~insurance. 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.

29

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

~~Three Months Ended~~
~~Nine Months Ended~~
~~September 30,~~
~~September 30,~~
2017
2016
2017
2016
~~Revenues:~~
~~Specialty Health~~
$
55,502
$
44,684
$
152,292
$
126,454
~~Group disability; life and DBL~~
26,112
26,196
78,985
77,409
~~Individual life, annuities and other~~ ~~(A)~~
455
717
1,494
2,053
~~Medical Stop-Loss~~ ~~(A)~~
576
5,433
2,549
21,397
~~Corporate~~
392
620
1,522
2,350
83,037
77,650
236,842
229,663
~~Net realized investment gains~~
715
2,367
987
3,945
~~Net impairment losses recognized in earnings~~
-
(1,475)
-
(1,475)
   ~~Total revenues~~
$
83,752
$
78,542
$
237,829
$
232,133
~~Income from continuing operations~~
  ~~before income taxes:~~
~~Specialty Health~~ ~~(B)~~
$
5,238
$
1,369
$
9,412
$
3,754
~~Group disability; life and DBL~~
5,144
5,323
12,777
13,533
~~Individual life, annuities and other~~ ~~(A) (C)~~
(385)
(410)
(532)
(1,888)
~~Medical Stop-Loss~~ ~~(A)~~
(538)
2,176
2,752
13,926
~~Corporate~~
(2,295)
(1,908)
(6,042)
(7,106)
7,164
6,550
18,367
22,219
~~Net realized investment gains~~
715
2,367
987
3,945
~~Net impairment losses recognized in earnings~~
-
(1,475)
-
(1,475)
~~Interest expense~~
-
(440)
-
(1,366)
   ~~Income from continuing operations~~
      ~~before income taxes~~
$
7,879
$
7,002
$
19,354
$
23,323

Three Months Ended

Six Months Ended

June 30,

June 30,

2020

2019

2020

2019
Revenues:

Specialty Health
$
51,179
$
47,743
$
100,185
$
101,182
Group disability, life, DBL and PFL

54,324

42,914

108,242

83,043
Individual life, annuities and other (A)

490

406

808

826
Corporate

737

2,604

1,204

3,273

106,730

93,667

210,439

188,324
Net investment gains

575

1,455

863

1,626
Net impairment losses recognized in earnings

-

-

-

(646)
   Total revenues
$
107,305
$
95,122
$
211,302
$
189,304

Income before income taxes

Specialty Health (C)
$
(3,876)
$
2,823
$
(3,724)
$
12,481
Group disability, life, DBL and PFL

6,253

5,038

12,783

9,202
Individual life, annuities and other (A) (B)

(139)

(101)

(282)

(482)
Corporate

(2,076)

(709)

(3,538)

(3,141)

162

7,051

5,239

18,060
Net investment gains

575

1,455

863

1,626
Net impairment losses recognized in earnings

-

-

-

(646)
   Income before income taxes
$
737
$
8,506
$
6,102
$
19,040

(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 $393,000 and $366,000 for the three months ended September 30, 2017 and 2016, respectively, and was $941,000 and $1,057,000, respectively, for the nine months ended September 30, 2017 and 2016.
(C)The Individual life, annuities and other segment includes amortization of deferred charges in connection with the assumptions of certain ceded life and annuity policies ~~amounting to $368,000~~of $176,000 and ~~$296,000~~$197,000, for the three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively, and ~~$937,000~~$364,000 and ~~$1,949,000~~$402,000, for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively.

(C)The Specialty Health segment includes a charge of $3,660,000 for both the three months and six months ended June 30, 2020 related to the MCE as described in Note 13.

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~~Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016,~~2019, 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~~underwriting, administering and/or distributing group and individual specialty benefit products, including disability, supplemental health, pet, and group 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”);~~American; and (ii) its marketing and administrative companies, including IHC Specialty Benefits Inc., ~~IHC Carrier Solutions,~~Independence Brokerage Group, Inc., My1HR, Torchlight, 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.~~PetPartners. Standard Security Life, Madison National Life and Independence American are sometimes collectively referred to as the “Insurance Group”. IHC and its subsidiaries (including the Insurance Group) are sometimes collectively referred to as the "Company", or “IHC”, or are implicit in the terms “we”, “us” and “our”.

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 ~~medical,~~health, disability, ~~and~~ New York short-term disability (“DBL”); and Paid Family Leave (“PFL”), mortality rates with respect to life ~~insurance;~~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. IHC also seeks transactions that permit it to leverage its vertically integrated organizational structure by generating fee income from production and administrative operating companies as well as risk income for its carriers. Management has always focused on managing the costs of its operations.

31
COVID-19
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. Most states have issued stay-at-home orders, requiring non-essential businesses to close their offices. COVID-19 has led to largescale disruption in the global economy, market instability and widespread unemployment in the United States.
The COVID-19 outbreak is a fluid situation. We have implemented business continuity and emergency response plans to continue to provide service to our customers and support our everyday business needs. To help protect the safety and wellbeing of our employees and mitigate the spread of COVID-19, we have limited travel and directed our employees to work remotely whenever possible. As the COVID-19 outbreak evolves, the duration of COVID-19 and its potential effects on our business cannot be certain. Regulatory mandates have affected, and we anticipate will continue to impact, the insurance industry. We currently cannot predict if there will be a material impact to our business, results of operations or financial condition in future reporting periods. For more information, see the risk factor under the heading “We face risks related to health epidemics, like the Coronavirus (COVID-19) that could impact our sales, operating results and financial condition” in Item 1A. Risk Factors in this Quarterly Report on Form 10-Q.

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

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Revenues
$
83,752
$
78,542
$
237,829
$
232,133
Expenses

75,873

71,540

218,475

208,810

Income from continuing operations before income taxes

7,879

7,002

19,354

23,323
Income taxes (benefits)

2,666

2,636

(5,175)

8,566

  Income from continuing operations, net of tax

5,213

4,366

24,529

14,757

  Income from discontinued operations

-

-

-

109,912

  Net income

5,213

4,366

24,529

124,669

  Less: (Income) loss from noncontrolling interests in subsidiaries

16

(43)

(33)

(9,900)

Net income attributable to IHC
$
5,229
$
4,323
$
24,496
$
114,769

Three Months Ended

Six Months Ended

June 30,

June 30,

2020

2019

2020

2019

Revenues
$
107,305
$
95,122
$
211,302
$
189,304
Expenses

106,568

86,616

205,200

170,264

Income before income taxes

737

8,506

6,102

19,040
Income taxes

199

1,590

1,242

3,234

  Net income

538

6,916

4,860

15,806

  (Income) from noncontrolling interests

(117)

(69)

(161)

(232)

Net income attributable to IHC
$
421
$
6,847
$
4,699
$
15,574

·Income from ~~continuing~~ operations of ~~$.34~~$.03 per share, diluted, for the three months ended ~~September~~June 30, ~~2017~~2020 compared to ~~$.25~~$.46 per share, diluted, for the same period in ~~2016.~~2019. Income from ~~continuing~~ operations of ~~$1.50~~$.32 per share, diluted, for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 compared to ~~$.83~~$1.04 per share, diluted for the same period in ~~2016.~~2019.

o~~Income taxes~~Net income for the ~~nine~~for the three and six months ended June 30, 2020 includes $3.7 million in expenses for compliance with the MCE related to our STM, limited medical and fixed indemnity limited benefit health insurance products for the period of January 1, 2014 through September 30, 2017, ~~include an income tax benefit of $11.6 million on the tax basis~~as discussed in ~~an unrecovered investment in a subsidiary.~~Note 13.

oNet income for the six months ended June 30, 2019 includes $2.6 million of gain, net of tax, related to the sale of an equity investment.

·Consolidated investment yields (on an annualized basis) of ~~3.6%~~2.5% for the three and six months ended June 30, 2020, compared to 3.2% for the three ~~months~~ and ~~nine months ended September 30, 2017, respectively, compared to 2.5% and 2.7% for the comparable three and nine~~six month periods in ~~2016, respectively;~~2019.

·Book value of ~~$28.19~~$31.23 per common share at ~~September~~June 30, ~~2017~~2020 compared to ~~$25.53~~$30.92 at December 31, ~~2016.~~2019.

·Results for the first half of 2020 were not materially impacted by COVID-19. Evolving regulatory mandates for testing and treatment coverage, the length and severity of the outbreak, increased claims activity, and impacts on payment of premiums have not had a significant impact on first half results, however, we may incur additional expenses for the balance of the year relating to possible COVID-19 related claims activity and possible delayed premium payments as the full effects of the outbreak continue to unfold.

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

·The Specialty Health segment reported ~~$5.2 million of income~~losses before taxes of $3.9 million for the three months ended ~~September~~June 30, ~~2017~~2020 as compared to ~~$1.4~~$2.8 million of income for the comparable period in ~~2016;~~2019; and reported ~~$9.4~~$3.7 million ~~of income~~in losses before taxes for the ~~nine months~~six-month period ended ~~September~~June 30, ~~2017~~2020 compared to ~~$3.8~~$12.5 million of income for the same period in ~~2016.~~ 2019. The decrease in 2020 when compared to 2019 is primarily due to: (i) $3.7 million of expenses accrued for compliance with the MCE; (ii) lower premium volume in the fixed indemnity limited benefit line, which has lower loss ratios than other

lines of business; (iii) increased costs related to overall infrastructure improvements in lead generation capabilities and sales automation platforms at IHC Specialty Benefits, Inc. with no meaningful increase in sales yet, and (iv) results for the comparable period in 2019 include a pre-tax gain of $3.6 million on the sale of an equity method investment;

oPremiums earned increased ~~$11.1~~$2.2 million and ~~$23.5~~$1.5 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, respectively, ~~over~~compared to the ~~comparable~~same periods in ~~2016. For~~2019. Increases in premiums from the ~~three months~~pet and nine months ended September 30, 2017, short term medical premiums increased $3.6 million and $11.3 million, respectively, and fixed indemnity limited benefit premiums increased $14.3 million and $23.1 million, respectively, as a result of the growing demand for these products and new significant distribution relationships. Premium increases in theseSTM lines were partially offset by ~~reduced premium volume~~decreases in premiums from fixed indemnity limited benefit, occupational accident ~~business following~~

32

~~the sale of Accident Insurance Services, Inc., our primary producer of occupational accident business, in 2016, other lines in run-off,~~ and ~~dental~~group gap business.

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

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Premiums Earned
$
51,390
$
40,275
$
136,539
$
112,981
Insurance Benefits, Claims & Reserves

22,162

21,849

64,935

60,497
Expenses

25,354

17,629

67,134

50,159

Loss Ratio (A)

43.1%

54.2%

47.6%

53.5%
Expense Ratio (B)

49.3%

43.8%

49.2%

44.4%
Combined Ratio (C)

92.4%

98.0%

96.8%

97.9%

Three Months Ended

Six Months Ended

June 30,

June 30,

2020

2019

2020

2019

Premiums Earned
$
46,359
$
44,173
$
90,455
$
89,005
Insurance Benefits, Claims & Reserves

21,566

18,084

42,257

36,749
Expenses

25,535

20,833

47,086

41,453

Loss Ratio (A)

46.5%

40.9%

46.7%

41.3%
Expense Ratio (B)

55.1%

47.2%

52.1%

46.6%
Combined Ratio (C)

101.6%

88.1%

98.8%

87.9%

(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.

o~~Although the~~The higher loss ratios in 2020 primarily reflect the broadening of the mix of business, with a higher concentration of more stable product lines with lower profit margins. The higher expense ratios in 2020 are primarily due to $3.7 million of expenses accrued for compliance with the ~~three months and nine months in 2017 are lower than~~MCE in the ~~comparable periods in 2016, the expense ratios are higher in 2017 because~~second quarter of 2020 as well as changes in the mix of products ~~within~~in the Specialty Health ~~segment and as a result of~~segment. Excluding the ~~reallocation of certain fixed costs from~~expenses accrued in connection with the ~~Medical Stop-Loss segment to~~MCE, the Specialty Health segment as the premium volume of one segment shrinks and the other one grows. In addition, the Company continues to experience poor performance on the runout business underwritten by its occupational accident agency sold in the third quarter of 2016. Excluding this business, the Companycombined ratio would have ~~reported a Combined Ratio of 91.6%~~been 93.7% and ~~95.3%~~94.7% for the three months and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, respectively.

o~~Specialty Health earned premiums increased 27.6% and 20.9% for the three months and nine months in 2017, respectively, as compared with the same periods in 2016.~~

·Income before taxes from the Group disability, life, ~~annuities~~DBL and ~~DBL~~PFL segment ~~decreased $0.2~~was $6.3 million and $12.8 million for the three months and six months ended ~~September~~June 30, ~~2017~~2020, respectively, compared to $5.0 million and ~~$0.7~~$9.2 million for ~~the nine months ended September 30, 2017 compared to~~ the same periods in ~~2016.~~2019, respectively. The ~~decrease~~increase in the ~~in the three and nine-month~~first six months results primarily reflects ~~a decrease~~an increase in PFL profitability due to increased premium rates and favorable premium reserve adjustments in DBL, which were partially offset by higher loss ratios and unfavorable loss development in the ~~group term life lines due to higher claims in 2017 and lower income from the international line due to run-off of that~~STD line of ~~business.~~business;

·The Individual life, annuities and other segment in run-off reported losses before income taxes of ~~$0.4~~$.1 million and $.3 million for the three months and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, respectively, compared with losses of ~~$0.4~~$.1 million and $1.9 million for the comparable periods ended September 30, 2016. The losses in 2016 were related to the accelerated amortization of deferred costs in connection with the assumption of certain ceded life and annuity policies for which there are no comparable amounts in 2017.

~~The Medical Stop-Loss segment reported a loss before taxes of $0.5~~$.5 million for the three months and the six months ended June 30, 2019 respectively;

·The Corporate segment reported losses before taxes of $2.1 million and ~~income of $2.8~~$3.5 million for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017 as~~2020, respectively, compared ~~to income~~with losses of ~~$2.2 million and $13.9 million for the comparable periods in 2016. The reduction in income in 2017~~

33

in the Medical Stop-loss segment is principally due to the sale of Risk Solutions and exit from the medical stop-loss business. Premiums earned and amounts recorded for 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 $0.4~~$.7 million in the three months and ~~decreased $1.1~~$3.1 million in the ~~nine~~six months ended ~~September 30, 2017 over~~2019. Results for the ~~comparable periods~~second quarter of ~~2016 primarily due~~2019 include higher amounts of partnership income compared to ~~changes in share-based compensation, consulting, legal and accounting expenses;~~the second quarter of 2020; and

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

Three Months Ended

Nine Months Ended

September 30,

September 30,
Gross Direct and Assumed

Earned Premiums:

2017

2016

2017

2016

Specialty Health
$
52,888
$
42,629
$
141,730
$
120,318
Group disability, life and DBL

31,299

31,057

95,211

91,760
Individual, life, annuities and other

6,306

3,898

19,911

12,605
Medical Stop-Loss

371

64,684

10,683

223,609

$
90,864
$
142,268
$
267,535
$
448,292

Three Months Ended

Six Months Ended

June 30,

June 30,
Gross Direct and Assumed

Earned Premiums:

2020

2019

2020

2019

Specialty Health
$
48,104
$
45,732
$
93,773
$
91,273
Group disability, life, DBL and PFL

58,588

48,090

116,829

93,144
Individual life, annuities and other

4,788

5,781

9,630

11,122

$
111,480
$
99,603
$
220,232
$
195,539

Three Months Ended

Six Months Ended

June 30,

June 30,
Net Direct and Assumed

Earned Premiums:

2020

2019

2020

2019

Specialty Health
$
46,359
$
44,173
$
90,455
$
89,005
Group disability, life, DBL and PFL

52,319

40,763

104,265

78,706
Individual life, annuities and other

13

11

21

25

$
98,691
$
84,947
$
194,741
$
167,736

Three Months Ended

Nine Months Ended

September 30,

September 30,
Net Direct and Assumed

Earned Premiums:

2017

2016

2017

2016

Specialty Health
$
51,390
$
40,275
$
136,539
$
112,981
Group disability, life and DBL

24,296

24,373

73,713

71,842
Individual, life, annuities and other

(45)

19

8

30
Medical Stop-Loss

(2)

2,668

247

10,671

$
75,639
$
67,335
$
210,507
$
195,524

CRITICAL ACCOUNTING POLICIES

The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principles ("GAAP"). The preparation of the Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires the Company's management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. A summary of the Company's significant accounting policies and practices is provided in Note 1 of the Notes to the Consolidated Financial Statements included in Item 8 of the Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016.~~2019. Management has identified the accounting policies related to Insurance Premium Revenue Recognition and Policy Charges, Insurance Liabilities, Investments, Goodwill and Other Intangible Assets, and Deferred Income Taxes as those that, due to the judgments, estimates and assumptions inherent in those policies, are critical to an understanding of the Company's Consolidated Financial Statements and this Management's Discussion and Analysis. A full discussion of these policies is included under the heading, “Critical Accounting Policies” in Item 7 of the Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016.~~2019. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, there were no additions to or changes in the critical accounting policies disclosed in the ~~2016~~2019 Form 10-K except for the recently adopted accounting

34

standards discussed in Note ~~1(E)~~1(F) of the Notes to Condensed Consolidated Financial Statements.

Results of Operations for the Three Months Ended ~~September~~June 30, ~~2017~~2020 Compared to the Three Months Ended ~~September~~June 30, ~~2016~~2019

Information by business segment for the periods indicated is as follows:

Benefits,
Selling,

Net
Fee and
Claims
General

~~September 30, 2017~~June 30, 2020
Premiums
Investment
Other
and
and

(In thousands)
Earned
Income
Income
Reserves
Administrative
Total

Specialty Health
$
51,390 46,359
1,299746
2,8134,074
22,162 21,566
28,10233,489
$
5,238 (3,876)
Group disability,

   life, DBL and ~~DBL~~PFL

24,296
1,729
87
11,249
9,71952,319

5,1441,867
138
32,864
15,207
6,253
Individual life,

   annuities and other

(45)
405
95
(149)
98913

(385)
~~Medical Stop-Loss~~
(2)
578
-
274
840202

(538)275
159
470
(139)
Corporate

-
392324
413

-
-
2,6872,813

(2,295)(2,076)
Sub total
$
75,63998,691
$
4,4033,139
$
2,9954,900
$
33,53654,589
$
42,33751,979

7,164162

Net ~~realized~~ investment gains

715575
Income ~~from continuing operations~~ before income taxes

7,879737
Income taxes

2,666199
Net Income ~~from continuing operations, net of tax~~
$
5,213538

Benefits,
Selling,

Net
Fee and
Claims
General

~~September 30, 2016~~June 30, 2019
Premiums
Investment
Other
and
and

(In thousands)
Earned
Income
Income
Reserves
Administrative
Total

Specialty Health
$
40,275 44,173
1,1901,162
3,2192,408
21,84918,084
21,466 26,836
$
1,3692,823
Group disability,

   life, DBL and ~~DBL~~PFL

24,373
1,680
143
12,652
8,221 40,763

5,3232,011
140
26,026
11,850
5,038
Individual life,

   annuities and other

19
810
(112)
268
85911

(410)
~~Medical Stop-Loss~~
2,668
(296)
3,061
3,508
(251)319

2,176 76
300
207
(101)
Corporate

-
620642
1,962

-
-
2,528 3,313

(1,908)(709)
Sub total
$
67,33584,947
$
4,0044,134
$
6,3114,586
$
38,27744,410
$
32,823 42,206

6,5507,051

Net ~~realized~~ investment gains

2,3671,455
~~Net impairment losses recognized in earnings~~
(1,475)
~~Interest expense on debt~~
(440)
Income ~~from continuing operations~~ before income taxes

7,0028,506
Income taxes

2,6361,590
Net Income ~~from continuing operations, net of tax~~
$
4,3666,916

Premiums Earned

In the ~~third~~second quarter of ~~2017,~~2020, premiums earned increased ~~$8.3~~$13.8 million over the comparable period ~~of 2016.~~in 2019. The increase is primarily due to: (i) an $11.6 million increase in earned premiums from the Group disability, life, DBL and PFL segment primarily as a result of ~~$11.1~~a $9.4 million increase in PFL premiums due to an increase in rates, a $1.0 million increase in group term life business due to increased retentions, and a $1.2 million increase in the STD/LTD lines due to new STD business and increased LTD premium volume; and (ii) $2.2 million in increased premiums in the Specialty Health segment ~~principally as a result~~primarily due to increases in earned premiums from the pet and STM lines of ~~a $14.3~~$7.4 million ~~increase~~and $2.3 million, respectively; partially offset by decreases of $6.1 million in the fixed indemnity limited benefit ~~a $3.6~~line, $.4 million ~~increase in premiums from the short-term medical line of business, partially offset by a $3.2 million decrease~~ in occupational accident ~~premiums due to the run-off of this line following the sale of our primary producer of this~~ business, ~~in the third quarter of 2016, a decrease of $1.3~~and $.7 million in the dental line of business and $2.1 million in lower international premiums; partially offset by (ii) a $2.7 million decrease in the Medical Stop-Loss segment as a result of the sale of Risk Solutions and exit from the medical stop-loss business, as further described in Note 3.run off lines.

Net Investment Income

Total net investment income ~~increased $0.4 million over the comparable period in 2016.~~decreased $1.0 million. The overall annualized investment yields were ~~3.6%~~2.5% and ~~2.5%~~3.2% in the ~~third~~second quarter of ~~2017~~2020 and ~~2016,~~2019, respectively. ~~The increase in 2017 is primarily due to higher returns on partnership investment partially offset by a decrease in~~

35

~~net investment income from bonds, equities and short-term investments as a result of lower average invested assets in 2017 largely due to the retirement of debt in the fourth quarter of 2016.~~
The annualized investment yields on bonds, equities and short-term investments were 3.2% and 2.7% in the third quarter of 2017 and 2016, respectively. IHC has approximately $152.3 million in highly rated shorter duration securities earning on average 1.7%. A portfolio that is shorter in duration enables us, if we deem prudent, the flexibility to reinvest in much higher yielding longer-term securities, which would significantly increase investment income.

Net ~~Realized~~ Investment Gains ~~and Net Impairment Losses~~

The Company had net ~~realized~~ investment gains of ~~$0.7~~$.6 million in ~~2017~~2020 compared to ~~$2.4~~$1.5 million in ~~2016.~~2019. These amounts include gains and losses from sales of fixed maturities ~~and~~available-for-sale, equity securities ~~available-for-sale~~ and

other investments. Decisions to sell securities are based on management's ongoing evaluation of investment opportunities and economic and market conditions, thus creating fluctuations in gains and losses from period to period.
The Company recognized $1.5 million of other-than-temporary impairment losses on certain fixed maturities available-for-sale during the nine months ended September 30, 2016 due to credit losses. The Company determined that it was more likely than not that the securities would be sold before the recovery of their amortized cost basis.

Fee Income and Other Income

Fee income ~~decreased $1.4~~increased $.5 million for the three-month period ended ~~September~~June 30, ~~2017~~2020 compared to the three-month period ended ~~September~~June 30, 2016 primarily due to the lack of agency fees in 2017 from Accident Insurance Services, Inc., our primary producer of the Occupational Accident line of business, which was sold in the third quarter of 2016; partially offset by fee income earned by PetPartners, our recently acquired subsidiary, with no comparable amounts in 2016, and increased fee income as a result of higher premium volume in certain lines of the specialty health business.2020.

Other income indecreased $.2 million for the ~~third quarter of 2017 decreased $1.9 million~~three months ended June 30, 2020 from the ~~same~~comparable period in ~~2016 primarily due to the run-off of fees received in conjunction with the diminished administration of the Medical Stop-Loss segment.~~2019.

Insurance Benefits, Claims and Reserves

In the ~~third~~second quarter of ~~2017,~~2020, insurance benefits, claims and reserves ~~decreased $4.8~~increased $10.2 million over the comparable period in ~~2016.~~2019. The ~~decrease~~increase is primarily attributable to: (i) ~~a decrease~~an increase of ~~$3.2~~$6.8 million in benefits, claims and reserves in the ~~Medical Stop-Loss~~Group disability, life, DBL and PFL segment primarily as a result of ~~the sale of Risk Solutions and exit from the medical stop-loss business, further described~~a $7.2 million increase in ~~Note 3; and (ii) decreased~~PFL benefits ~~claims and reserves of $1.5~~to policyholders (including a $5.3 million increase in the ~~Group disability, life, annuities and DBL segment, primarily due to lower loss ratios on group term life and LTD lines, and (iii)~~accrual for a potential risk adjustment payment associated with the New York State Department of Financial Services risk adjustment program), partially offset by a decrease of ~~$0.4~~$.4 million in ~~the Individual life, annuity~~DBL due to premium refund reserve adjustments; and ~~other segment; partially offset by (iv)~~(ii) an increase of ~~$.3~~$3.5 million in the Specialty Health segment primarily due to increases of ~~$3.9~~$3.6 million and ~~$2.0~~$2.3 million in pet and STM claims, ~~from~~respectively, on higher premium volume; partially offset by decreases of $1.3 million in the group gap line on lower loss ratios as well as favorable prior year loss development, $.4 million in group health modified indemnity reserves on lower premium, $.3 million in lower claims on dental business, and a $.3 million decrease in the fixed indemnity limited benefit ~~and short term medical products as a result of increased~~line due to lower premium volume ~~partially~~largely offset by decreases of $2.6 million in dental on reduced premium volume, $1.4 million in Occupational Accident lines sold in the third quarter of 2016, $1.3 million in international and $.3 million in small group major medical business.less favorable prior year loss development.

Selling, General and Administrative Expenses

Total selling, general and administrative expenses increased ~~$9.5~~$9.8 million over the comparable period in ~~2016.~~2019. The increase is ~~primarily attributable~~principally due to: (i) ~~a $6.6~~an increase of $6.7 million ~~increase~~ in the Specialty Health segment primarily due to ~~administrative and commission~~$3.7 million of expenses ~~associated~~accrued for compliance with the ~~increased premium volume in~~

36

~~the short term medical~~MCE related to our STM, limited benefit and fixed indemnity limited benefit ~~lines,~~products, as well as other increases in commissions, administrative fees and ~~agency expenses from PetPartners with no comparable~~other general expenses in the ~~prior year;~~STM and pet lines of business from increased premium volume, in addition increased lead generation expenses, compensation and system development related expenses in our marketing and administrative companies, partially offset by decreases in commission and administrative expenses related to decreased volume in the fixed indemnity limited benefit line; and (ii) an increase of ~~$1.1 million in the Medical Stop-Loss segment primarily due to a credit in premium taxes in 2016 with no comparable amount for 2017; (iii) an increase of $1.5~~$3.3 million in the Group disability, life, ~~annuities~~DBL and ~~DBL~~PFL segment ~~and (iii) an increase of $0.2 million in Corporate~~primarily due to ~~an increase in audit, legal, share-based compensation~~increased commission expenses and ~~consulting fees.~~other general expenses on PFL, group term life and LTD lines of business on increased premium volume.

Income Taxes

The effective tax rate for the three months ended ~~September~~June 30, ~~2017~~2020 was ~~33.8%~~27.0% compared to ~~37.6%~~18.7% for the three months ended ~~2016.~~2019. The ~~lower~~effective rate for the second quarter of 2020 was negatively impacted by the non-deductibility of certain expenses recorded in connection with the RSA discussed in Note 13, partially offset by the benefit of capital losses attributable to the sale of a subsidiary. The effective rate in 2019 reflects the positive impact of state and local tax ~~rate is primarily due to: (i) an increase~~benefits.
AMIC and its subsidiaries have Federal net operating loss carryforwards which expire in ~~benefits from tax-advantaged securities as~~varying amounts through the year 2034, with a ~~percentage~~significant portion expiring in 2020, and are limited in their utilization to future taxable income earned on a separate company basis. AMIC has a valuation allowance related to these net operating loss carryforwards that, in the judgment of ~~income~~management, are not considered realizable. No change in ~~2017; (ii) a decrease~~the valuation allowance was necessary in ~~state taxes as a percentage of income; and (iii) a decrease in non-deductible expenses.~~the three months ended June 30, 2020.

Results of Operations for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2020 Compared to the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016~~2019

Information by business segment for the periods indicated is as follows:

Benefits,
Selling,

Net
Fee and
Claims
General

~~September 30, 2017~~June 30, 2020
Premiums
Investment
Other
and
and

(In thousands)
Earned
Income
Income
Reserves
Administrative
Total

Specialty Health
$
136,53990,455
3,7251,489
12,0288,241
64,935 42,257
77,94561,652
$
9,412 (3,724)
Group disability,

   life, DBL and ~~DBL~~PFL

73,713
4,921
351
40,146
26,062104,265

12,7773,689
288
66,094
29,365
12,783
Individual life,

   annuities and other

8
1,188
298
172
1,85421

(532)
~~Medical Stop-Loss~~
247
1,058
1,244
(2,182)
1,979411

2,752 376
296
794
(282)
Corporate

-
1,522790
414

-
-
7,5644,742

(6,042)(3,538)
Sub total
$
210,507194,741
$
12,4146,379
$
13,9219,319
$
103,071108,647
$
115,40496,553

18,3675,239

Net ~~realized~~ investment gains

987863
Income ~~from continuing operations~~ before income taxes

19,3546,102
Income ~~tax benefits~~taxes

(5,175)1,242
Net Income ~~from continuing operations, net of tax~~
$
24,5294,860

Benefits,
Selling,

Net
Fee and
Claims
General

~~September 30, 2016~~June 30, 2019
Premiums
Investment
Other
and
and

(In thousands)
Earned
Income
Income
Reserves
Administrative
Total

Specialty Health
$
112,98189,005
2,2531,984
11,22010,193
60,49736,749
62,203 51,952
$
3,75412,481
Group disability,

   life, DBL and ~~DBL~~PFL

71,842
4,926
641
38,203
25,673 78,706

13,5334,030
307
50,268
23,573
9,202
Individual life,

   annuities and other

30
1,677
346
922
3,019 25

(1,888)
~~Medical Stop-Loss~~
10,671
1,544
9,182
9,875
(2,404)639

13,926 162
512
796
(482)
Corporate

-
2,3001,477
501,796

-
9,456 6,414

(7,106)(3,141)
Sub total
$
195,524167,736
$
12,7008,130
$
21,43912,458
$
109,49787,529
$
97,947 82,735

22,21918,060

Net ~~realized~~ investment gains

3,9451,626
Net impairment losses recognized in earnings

(1,475)
~~Interest expense on debt~~
(1,366)(646)
Income ~~from continuing operations~~ before income taxes

23,32319,040
Income taxes

8,5663,234
Net Income ~~from continuing operations, net of tax~~
$
14,75715,806

Premiums Earned

In the first ~~nine~~six months of ~~2017,~~2020, premiums earned increased ~~$15.0~~$27.0 million over the comparable period ~~of 2016.~~in 2019. The increase is primarily due to: (i) ~~an increase of $23.5 million in the Specialty Health segment principally as~~ a ~~result of a $23.1 million increase in the fixed indemnity limited benefit line, a $11.3 million~~

37

increase in premiums from the short term medical line of business, and a $1.5 million increase in the pet line of business, partially offset by a decrease of $6.1 million in occupational accident business premiums due to the run-off of this line following the sale of our primary producer of this business, in the third quarter of 2016, a decrease of $3.5 million in the dental line of business and a $2.9 million decline in international premiums; and (ii) a $1.9$25.6 million increase in earned premiums from the Group disability, life, ~~annuities~~DBL and ~~DBL~~PFL segment primarily as a result of a $19.6 million increase in PFL premiums due to an increase in rates, a $2.1 million increase in group term life business due to increased retentions, a $3.1 million increase in the STD/LTD lines due to new STD business and increased LTD premium volume, and   $1.1 million in new premiums in other group life business; as well as (ii) an increase of $1.5 million in the Specialty Health segment primarily due to ~~increased volume~~increases in earned premiums from the ~~LTD, DBL~~pet and ~~group term life~~STM lines of $12.2 million and $3.6 million, respectively; partially offset by ~~(iii) a decrease~~decreases of ~~$10.4~~$12.3 million in the ~~Medical Stop-Loss segment as a result of~~fixed indemnity limited benefit line, $.6 million in group gap, $.8 million in occupational accident business and $.4 million in the ~~sale of Risk Solutions and exit from the medical stop-loss business, further described in Note 3.~~group health modified indemnity line.

Net Investment Income

Total net investment income decreased ~~$0.3 million over the comparable period in 2016.~~$1.8 million. The overall annualized investment yields were ~~3.2%~~2.5% and ~~2.7%~~3.2% in the first ~~nine~~six months of ~~2017~~2020 and ~~2016,~~2019, respectively. The overall decrease was primarily the result of lower average invested assets in 2017 largely due to the retirement of debt in the fourth quarter of 2016 partially offset by higher returns on partnership investment.
The annualized investment yields on bonds, equities and short-term investments were 3.1% and 2.8% in the first nine months of 2017 and 2016, respectively. IHC has approximately $152.3 million in highly rated shorter duration securities earning on average 1.7%. A portfolio that is shorter in duration enables us, if we deem prudent, the flexibility to reinvest in much higher yielding longer-term securities, which would significantly increase investment income.

Net ~~Realized~~ Investment Gains and Net Impairment Losses Recognized in Earnings

The Company had net ~~realized~~ investment gains of ~~$1.0~~$.9 million in ~~the first nine months of 2017~~2020 compared to ~~$3.9~~$1.6 million in ~~2016.~~2019. These amounts include gains and losses from sales of fixed maturities ~~and~~available-for-sale, equity securities ~~available-for-sale~~ and other investments. Decisions to sell securities are based on management's ongoing evaluation of investment opportunities and economic and market conditions, thus creating fluctuations in gains and losses from period to period.

~~The~~In 2020, the Company did not recognize any other-than-temporary impairment losses on fixed maturities available-for-sale. In the first six months of 2019, the Company recognized ~~$1.5~~$.6 million of other-than-temporary impairment losses on ~~certain~~ fixed maturities available-for-sale ~~during~~as the ~~nine months ended September 30, 2016 due to credit losses. The~~ Company determined that it was more likely than not that we would sell the securities ~~would be sold~~ before the recovery of their amortized cost basis.

Fee Income and Other Income

Fee income ~~decreased $1.0~~increased $.3 million for the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2017~~2020 compared to the ~~nine-month~~six-month period ended ~~September~~June 30, 2016 primarily due to the lack of agency fees in 2017 from Accident Insurance Services, Inc., our primary producer of the Occupational Accident line of business, which was sold in the third quarter of 2016; partially offset by fee income earned by PetPartners, our recently acquired subsidiary, with no comparable amounts in 2016, and increased fee income as a result of higher premium volume in certain lines of the specialty health business.2019.

Other income indecreased $3.5 million for the ~~first nine~~six months ~~of 2017 decreased $6.5 million~~ended June 30, 2020 from the ~~same~~comparable period in ~~2016~~ 2019. This isprimarily due to a $3.6 million pretax gain recognized on the ~~run-off~~sale of ~~fees received~~an equity investment in ~~conjunction~~2019 with ~~the diminished administration of the Medical Stop-Loss segment.~~no comparable amount in 2020.

Insurance Benefits, Claims and Reserves

In the first ~~nine months~~half of ~~2017,~~2020, insurance benefits, claims and reserves ~~decreased $6.4~~increased $21.1 million over the comparable period in ~~2016.~~2019. The ~~decrease~~increase is ~~primarily~~principally attributable to: (i) a decrease of $12.0 million in the Medical Stop-Loss segment primarily as a result of the sale of Risk Solutions and exit from the medical stop-loss business, further described in Note 3; (ii) a decrease of $0.7 million in the Individual life, annuity and

38

~~other segment; partially offset by (iii)~~ an increase of $4.4 million in the Specialty Health segment, primarily due to an increase of $3.3 million in the small group major medical line of business due to favorable development of this line in 2016 with no comparable amount in 2017, and increases of $6.2 million, $4.6 million and $1.3 million in the benefits and claims of short term medical, fixed indemnity limited benefit and pet lines of business, respectively, due to increases in volume, partially offset by a $6.3 million decrease in benefits, claims and reserves related to the run-off of the occupational accident line of business and decreases of $3.5 million and $0.9 million in the dental and international lines, respectively, due to lower premiums; and (iv) an increase of $1.9$15.8 million in benefits, claims and reserves in the Group disability, life, ~~annuities~~DBL and PFL segment primarily as a result of a $14.8 million increase in PFL benefits to policyholders on increased premiums (including an $8.6 million increase in the accrual for a potential risk adjustment payment associated with the New York State Department of Financial Services risk adjustment program), a $5.0 million increase in benefits and claims as a result of new STD business, partially offset by $1.6 million in decreased claims on lower loss ratios in the LTD line, and $2.7 million in reductions on DBL reserves primarily due to premium refund reserve adjustments; and (ii) an increase of $5.5 million in the Specialty Health segment primarily due to ~~growth~~increases of $6.5 million and $1.7 million in ~~this line~~pet and ~~increased~~STM claims, respectively, on higher premium volume; partially offset by decreases of $1.4 million in group gap on lower loss ratios onand favorable prior year loss development, $.9 million in the fixed indemnity limited benefit line due to lower premium volume partially offset by less favorable prior year loss development, and $.4 million in the group ~~term life and LTD lines of business.~~health modified indemnity business which is in runoff.

Selling, General and Administrative Expenses

Total selling, general and administrative expenses increased ~~$17.5~~$13.8 million over the comparable period in ~~2016.~~2019. The increase is ~~primarily attributable~~principally due to: (i) ~~a $15.7~~an increase of $9.7 million ~~increase~~ in the Specialty Health ~~segment~~line of business primarily due to ~~administrative and commission~~the $3.7 million of expenses ~~associated~~accrued for compliance with the ~~increased premium volume in the short term medical~~MCE related to our STM, limited benefit and fixed indemnity limited benefit ~~lines,~~products as well increases in commissions, administrative fees and ~~agency expenses from PetPartners with no comparable~~other general expenses in the ~~prior year,~~STM and pet lines of business from increased premium volume, in addition increased lead generation expenses, compensation and system development related expenses in our marketing and administrative companies, partially offset by ~~a decrease~~decreases in commission and administrative expenses ~~in 2017 from Accident Insurance Services, Inc., our primary producer of Occupational Accident line of business, which was sold~~related to decreased volume in the ~~third quarter of 2016;~~fixed indemnity limited benefit line; and (ii) an increase of ~~$4.4~~$5.8 million in the ~~Medical Stop-Loss~~Group disability, life, DBL and PFL segment primarily due to ~~a credit in~~increased commission expenses and other general expenses on PFL, group term life and LTD lines of business on increased premium ~~taxes in 2016 with no comparable amount for 2017;~~volume; partially offset by (iii) a decrease of ~~$1.2~~$1.7 million in the ~~Individual life, annuity and other~~Corporate segment ~~largely~~primarily due to ~~lower amortization of deferred costs and general expenses from business in run-off; and (v) a decrease of $1.8 million in Corporate due to a decrease in audit and consulting fees.~~compensation related expenses.

Income Taxes

In 2017, the Company wound down the operations and dissolved a subsidiary recognizing an estimated $11.6 million income tax benefit on a worthless stock deduction of $33.1 million, representing the Company’s tax basis related to its unrecovered investment in that subsidiary. Excluding these tax benefits, theThe effective tax rate for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 was ~~33.1%~~20.4% compared to ~~36.7%~~17.0% for the ~~nine~~six months ended ~~2016.~~2019. The effective rate for 2020 was negatively impacted by state and local income taxes and the non-deductibility of certain expenses recorded in connection with the RSA on the MCE discussed in Note 13, partially offset by the benefit of capital losses attributable to the sale of a subsidiary in 2020. The lower effective rate in 2019 reflects the positive impact of tax ~~rate is primarily due to: (i) an increase~~benefits associated with exercises of sharebased compensation.
AMIC and its subsidiaries have Federal net operating loss carryforwards which expire in ~~benefits from tax-advantaged securities as~~varying amounts through the year 2034, with a ~~percentage~~significant portion expiring in 2020, and are limited in their utilization to future taxable income earned on a separate company basis. AMIC has a valuation allowance related to these net operating loss carryforwards that, in the judgment of ~~income~~management, are not considered realizable. No change in ~~2017; (ii) a decrease~~the valuation allowance was necessary in ~~state taxes as a percentage of income; and (iii) a decrease in non-deductible expenses.~~the six months ended June 30, 2020.

LIQUIDITY

Insurance Group

The Insurance Group normally provides cash flow from: (i) operations; (ii) the receipt of scheduled principal payments on its portfolio of fixed maturities; and (iii) earnings on investments. Such cash flow is partially used to fund liabilities for insurance policy benefits. These liabilities represent long-term and short-term obligations.

Corporate

Corporate derives its funds principally from: (i) dividends from the Insurance Group; (ii) management fees from its subsidiaries; and (iii) investment income from Corporate liquidity. Regulatory constraints historically have not affected the Company's consolidated liquidity, although state insurance laws have provisions relating to the ability of the parent company to use cash generated by the Insurance Group. ~~The~~No dividends were declared or paid by the Insurance Group ~~declared and paid $7.0 million and $17.8 million of dividends~~ during the ~~nine~~six months ended ~~September~~June 30, ~~2017 and 2016, respectively.~~2020 or 2019.

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Cash Flows

The Company had ~~$26.6~~$24.2 million and ~~$22.0~~$24.6 million of cash, ~~and~~ cash equivalents and restricted cash as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively.

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, operating activities provided $28.2 million of cash and investment activities ~~provided $36.4~~utilized $17.6 million of cash, primarily the result of ~~sales~~purchases of investment securities ~~partially offset by $12.3~~and $13.7 million ~~net cash outflow to acquire PetPartners.~~utilized for business acquisitions. Financing activities utilized ~~$47.9~~$11.0 million of cash, of which ~~$44.3~~$4.5 million was utilized for treasury ~~share purchases.~~stock purchases and $6.2 million for dividend payments.

On ~~May 26, 2017,~~April 24, 2020, IHC commenced a tender offer to purchase up to ~~2,000,000~~1,000,000 shares of its common stock at a price per share of ~~$20.00,~~$27.00, net, to the seller in cash. On ~~June 26, 2017,~~May 21, 2020, at the close of business, the offer expired and the Company accepted for purchase ~~1,385,118~~36,377 shares of its common stock at ~~$20.00~~$27.00 per share, for an aggregate purchase price of ~~$27.7 million.~~$982,000. The tender offer was fully funded through corporate liquidity.

The Company ~~has $387.0~~had $379.6 million of liabilities for future policy benefits and policy benefits and claims as of June 30, 2020 that it expects to ultimately pay out of current assets and cash flows from future business. If necessary, the Company could utilize the cash received from maturities and repayments of its fixed maturity investments if the timing of claim payments associated with the Company's insurance resources does not coincide with future cash flows. For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, cash received from the maturities and other repayments of fixed maturities was ~~$16.8~~$55.9 million.

The Company believes it has sufficient cash to meet its currently anticipated business requirements over the next twelve months including working capital requirements and capital investments.

There were no material negative impacts on the Company’s cash flows or liquidity with regards to COVID-19 during the first half of 2020. Depending on the length and severity of the outbreak, it is possible that cash flows may be negatively impacted due to increased claim activity as a result of mandated testing and treatment coverage, as well as delayed policy payments or an increase in cancelled policies due to non- payment in future reporting periods of 2020.
BALANCE SHEET

The Company had receivables due from reinsurers of ~~$383.2~~$359.2 million at ~~September~~June 30, ~~2017~~2020 compared to ~~$440.3~~$363.0 million at December 31, ~~2016. The decrease is primarily attributable to the decrease in medical stop-loss reserves that are 100% coinsured.~~2019. All of such reinsurance receivables are from highly rated companies or are adequately secured. No allowance for doubtful accounts was necessary at ~~September~~June 30, ~~2017.~~2020.

The Company's liability for policy benefits and claims by segment are as follows (in thousands):

Policy Benefits and Claims

Policy Benefits and Claims

September 30,

December 31,

June 30,

December 31,

2017

2016

2020

2019

Specialty Health
$
52,157
$
50,237
$
43,238
$
42,228
Group Disability

103,933

104,428

126,554

112,623
Individual A&H and Other

8,527

9,688

9,985

9,951
Medical Stop-Loss

4,930

54,760

$
169,547
$
219,113
$
179,777
$
164,802

For the Specialty Health business, incurred but not reported (“IBNR”) claims liabilities plus expected development on reported claims are calculated using standard actuarial methods and practices. The ~~primary~~“primary” assumption in the determination of Specialty Health reserves is that historical ~~claim development patterns~~Claim Development Patterns are representative of future ~~claim development patterns.~~Claim Development Patterns. Factors that may affect this assumption include changes in claim payment processing times and procedures, changes in time delay in submission of claims, and the incidence of unusually large claims. Liabilities for policy benefits and claims for specialty health medical and disability coverage are computed using completion factors and expected Net Loss Ratios derived from actual historical premium and claim data. The reserving analysis includes a review of claim processing statistical measures and large claim early notifications; the potential impacts of any changes in these factors are not material. The Company has business that is serviced by third-party administrators.

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From time to time, there are changes in the timing of claims processing due to any number of factors including, but not limited to, system conversions and staffing changes during the year. These changes are monitored by the Company and the effects of these changes are taken into consideration during the claim reserving process. Other than these considerations, there have been no significant changes to methodologies and assumptions from the prior year.
While these calculations are based on standard methodologies, they are estimates based on historical patterns. To the extent that actual claim payment patterns differ from historical patterns, such estimated reserves may be redundant or inadequate. The effects of such deviations are evaluated by considering claim backlog statistics and reviewing the reasonableness of projected claim ratios. Other factors which may affect the accuracy of policy benefits and claim estimates include the proportion of large claims which may take longer to adjudicate, changes in billing patterns by providers and changes in claim management practices such as hospital bill audits.
Since our analysis considered a variety of outcomes related to these factors, the Company does not believe that any reasonably likely change in these factors will have a ~~material effect on the Company’s financial condition, results of operations, or liquidity.~~Material Effect.

The Company’s disability business is comprised of group disability and DBL. The two “primary”

assumptions on which disability policy benefits and claims are based are: (i) morbidity levels; and (ii) recovery rates. If morbidity levels increase, for example due to an epidemic or a recessionary environment, the Company would increase reserves because there would be more new claims than expected. In regard to the assumed recovery rate, if disabled lives recover more quickly than anticipated then the existing claims reserves would be reduced; if less quickly, the existing claims reserves would be increased. Advancements in medical treatments could affect future recovery, termination, and mortality rates. T~~he Company does not believe that reasonably likely changes in its “primary” assumptions would have a material effect on the Company’s financial condition, results of operations, or liquidity.~~

The ~~$16.4~~$.4 million decrease in IHC’s stockholders' equity in the first ~~nine~~six months of ~~2017~~2020 is primarily due to ~~$44.4~~$4.6 million of treasury stock purchases and ~~$0.9 in~~$3.2 million of common stock dividends, partially offset by ~~$24.5~~$4.7 million of net income attributable to IHC and ~~$4.6~~$1.6 million of other comprehensive income attributable to IHC.

Asset Quality and Investment Impairments

The nature and quality of insurance company investments must comply with all applicable statutes and regulations, which have been promulgated primarily for the protection of policyholders. ~~Although the Company's~~The Company has gross unrealized gains of $7.7 million and gross unrealized losses of $4.1 million on its fixed maturities available-for-sale securities ~~totaled $6.1 million~~ at ~~September~~June 30, ~~2017, 100%~~2020. All of the Company’s fixed maturities were investment grade and continue to be rated on average AA. The Company marks all of its fixed maturities available-for-sale ~~securities~~ to fair value through accumulated other comprehensive income or loss. These investments tend to carry less default risk and, therefore, lower interest rates than other types of fixed maturity investments. The Company ~~does~~did not have any non-performing fixed maturities at ~~September~~June 30, ~~2017.~~2020.

The Company reviews its investments regularly and monitors its investments continually for impairments. The Company did not record any other-than-temporary impairment losses in the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2020. The Company recognized ~~$1.5~~$.6 million of other-than-temporary impairment losses on certain fixed maturities ~~available-for-sale~~available for sale during the ~~nine~~six months ended ~~September~~June 30, ~~2016 due to credit losses. The~~2019, as the Company determined that it iswas more likely than not that wethe company would sell the securities before the recovery of their amortized cost basis.

The following table summarizes the carrying value of securities with fair values less than 80% of their amortized cost at ~~September~~June 30, ~~2017~~2020 by the length of time the fair values of those securities were below 80% of their amortized cost (in thousands):

Greater than

Greater than

3 months,

6 months,

Less than

less than

less than

Greater than

3 months

6 months

12 months

12 months

Total

Fixed maturities
$
4,345
$
-
$
-
$
-
$
4,345

Greater than

Greater than

3 months,

6 months,

Less than

less than

less than

Greater than

3 months

6 months

12 months

12 months

Total

Fixed maturities
$
442
$
1,360
$
-
$
-
$
1,782

The unrealized losses on ~~all~~fixed maturities available-for-sale ~~securities have been~~were evaluated in accordance with the Company's impairment policy and were determined to be temporary in nature at ~~September~~June 30, ~~2017. In 2017, the Company recorded $8.3 million of net unrealized gains on available-for sale securities, pre-tax, in other~~

41

~~comprehensive income (loss) prior to reclassification adjustments.~~2020. From time to time, as warranted, the Company may employ investment strategies to mitigate interest rate and other market exposures. Further deterioration in credit quality of the companies backing the securities, further deterioration in the condition of the financial services industry, ~~a continuation of the current~~ imbalances in liquidity that exist in the marketplace, a ~~continuation or~~ worsening of the current economic recession, or ~~additional~~ declines in real estate values may further affect the fair value of these securities and increase the potential that certain unrealized losses be designated as other-than-temporary in future periods ~~and~~which may cause the Company ~~may~~to incur additional write-downs.

CAPITAL RESOURCES

Due to its strong capital ratios, broad licensing and excellent asset quality and credit-worthiness, the Insurance Group remains well positioned to increase or diversify its current activities. It is anticipated that future acquisitions or other expansion of operations will be funded internally from existing capital and surplus and parent company liquidity. In the event additional funds are required, it is expected that they would be borrowed or raised in the public or private capital markets to the extent determined to be necessary or desirable.

IHC enters into a variety of contractual obligations with third parties in the ordinary course of its operations, including liabilities for insurance reserves, funds on deposit, debt and operating lease obligations. However, IHC does not believe that its cash flow requirements can be fully assessed based solely upon an analysis of these obligations. Future cash outflows, whether they are contractual obligations or not, also will vary based upon IHC’s future needs. Although some outflows are fixed, others depend on future events. The maturity distribution of the Company’s obligations, as of September 30, 2017, is not materially different from that reported in the schedule of such obligations at December 31, 2016 which was included in Item 7~~of the Company’s Annual Report on Form 10-K.~~

OUTLOOK

For the balance of ~~2017 and 2018,~~2020, the Company anticipates that ~~we will:~~it will continue to:

·~~Continue~~Invest both our capital and efforts in continuing to ~~show significant increases in specialty health premiums (including hospital indemnity, group limited medical~~develop a fully integrated direct-to-consumer (“D2C”) division, which can generate leads, has reporting systems and ~~group gap~~sales automation platforms, and licensed agents servicing products underwritten both by IHC’s carriers and other ~~supplemental health products, such~~nationally recognized insurers.

·Expand our in-house capabilities through the “MarTech” acquisition we made in April, which will accelerate proprietary lead generation and direct to consumer growth. We have rapidly expanded our portfolio of consumer touchpoints across all of our distribution channels, including web domains (www.healthinsurance.org, www.medicareresources.org, www.healthedeals.com, www.petplace.com, call centers, field agents, and social media). This should improve our cost of sale by: (i) harnessing an in-house marketing team to drive media efficiency and effectiveness, (ii) deploying data science and artificial intelligence (“AI”) to improve lead quality and intent; and (iii) leveraging a proprietary lead marketplace to salvage unused leads and recoup costs.

·Expand the insurance division by generating at least $100 million of gross annualized pet insurance premiums or over 170,000 pets by the end of 2020 with accelerating growth beyond. We continue to see very strong demand for pet insurance resulting from record adoptions and breeder sales as ~~accident medical, gap~~pet parents are seeking the comfort of dog and ~~critical illness products). IHC has begun~~cat companions in these difficult times. To this end, PetPartners continues to package its hospital indemnity, accident and critical illness plans in order to provide affordable ways for insureds to finance high deductibles and co-pays. These packages are largely purchased in conjunction with STM for qualified purchasers who do not receive subsidies for ACA plans, and purchased together with Bronze plans for those who receive subsidies but cannot afford to finance the high Bronze deductibles through savings. We are also very well positioned for the expectedexperience a significant increase in ~~the duration of short-term medical plans~~sales as a result of increased registrations with its exclusive relationship with American Kennel Club (“AKC”) and PetPartners’ efforts to increase insurance conversions through enhanced technology and direct marketing. PetPartners has purchased the ~~Trump Administration’s executive order directing federal agencies~~TailTrax app and remains on track to ~~extend the duration~~relaunch this state-of-the-art technology with a full suite of ~~these products to 364 days, subject to state law. In anticipation of this growth we have begun to make material enhancements to our systems and infrastructure and will contribute additional capital~~insurance self-service capabilities to the ~~insurance companies if needed. For all the preceding reasons,~~Android and IOS app stores by September 1st. This app will also contain features that we believe ~~that we~~will be very attractive to AKC breeders and pet parents who wish to keep in touch with their breeder and litter mates. PetPartners is also coming to market with several white label distribution deals and has significantly increased its investment in marketing outreach to pet parents under the PetParners brand. We believe these initiatives will continue ~~the solid sales~~to accelerate PetPartners’ insured pets. Our other pet distributors continue to show accelerating growth ~~we have been experiencing for the balance~~as they move business to one of ~~2017, and will report significantly higher earned premiums and income~~our carriers, Independence American. www.petplace.com continues to see meaningful growth in ~~this segment in 2018.~~website traffic.

·Experience meaningful growth in our other pet distribution where Independence American services as the underwriter. As previously reported, we now own a five percent equity interest in FIGO and are its exclusive underwriter. FIGO has entered into a marketing agreement with a nationally recognized health insurer. Through this relationship, FIGO expects to make Independence American’s pet insurance available as a benefit option to such carrier’s business customers and their millions of employees. MetLife, which recently acquired PetFirst, has also announced that it expects to focus on pet insurance as an employee benefit. Since Independence American is the exclusive underwriter for new MetLife sales, we anticipate that Independence American will become a leading issuer of pet insurance in this rapidly expanding space.

·Build on our entry, in the fourth quarter of 2019, into the very large market for senior products by selling Medicare products underwritten by leading national insurance companies with respect to the 2020 Annual Enrollment Period (“AEP”). We have invested a considerable amount of capital entering the senior market, which is growing by an estimated 10,000 people per day. We have enhanced our SalesForce CRM platform, as well as our producer licensing, consumer and web-based enrollment systems. We continue to build our MarTech infrastructure through AI data science, and automated remarketing among other capabilities to generate high-intent leads. In conjunction with continuously increasing our proficiency in efficiently generating leads, we are actively working to hire, train and license additional senior-focused customer care center agents. We currently have 141 licensed agents focused primarily on the senior market, and we are striving to increase that number by the 2021 AEP, which commences October 15, 2020. Since these agents are working remotely, the work-from-home model will allow us to significantly ramp up the number of agents by the 2022 AEP, and our MarTech platform can be readily scaled to supply all of the necessary leads. In addition, Independence American has either launched, or will soon launch, its Medicare Supplement product in twenty-nine states (with at least 30 states expected by the 2021 AEP). This will be a compelling proprietary product offering in our impressive portfolio of senior products. We expect this product to be priced very competitively as we deployed a series of a sophisticated buyer propensity, lifetime value and health models to develop it through collaboration among Independence American, our MarTech division and a leading Med Supp carrier and reinsurer.
·Increasingly emphasize sales by IHC Agencies of policies underwritten by non-affiliated carriers, including small group stop-loss, Affordable Care Act (“ACA”) plans and Medicare Advantage and Medicare Supplement; for which, they will receive commissions and fees for selling these products and will not bear any of the insurance risk. When they sell products for these other carriers, the IHC Agencies will record revenue based on estimated constrained lifetime values (“LTV”) representing the expected commissions to be received over the lifetime of the policies sold. As these products generally renew for multiple years, and the IHC Agencies do not have any future performance obligations with regards to the renewal process, they will record revenue at the time of sale based on our expected policy duration. Therefore, due to the change in focus to sales of non-IHC products in 2020, particularly during AEP, we expect a significant increase in commission revenues in the fourth quarter of 2020. When we do sell our products instead of ACA, we are focusing on our “cover me to open enrollment” Short-Term Medical product (which provides up to 36 months of coverage in many states), which provides coverage from the day of sale to January 1st of the following year. This allows insureds the option of moving to an ACA plan during an open enrollment period without having to pay for days of coverage they don’t need.
·Grow the number of agents using on our wholly owned Web Based Entity (“WBE”), INSX Cloud to do individual ACA enrollments. When agents utilize the INSX Cloud for enrollments we earn fee income and commission. Additionally, we have specialty health plans on the site that can be enrolled at the same time as the ACA plans which earn underwriting profit for IHC carriers and commission override for the agency.
•Continue to increase ~~IHC’s emphasis on lead generation for its direct-to-consumer and career advisor distribution initiatives, as well as expanding~~ our controlled sales through our call center, career model and transactional websites as a result of the acquisition of PetPlace.com, IHC’s ownership of HealtheDeals.com, and AspiraAmas and its investment in HealthInsurance.org.
Expand sales of our specialty health products as a result of private-label and white-label distribution arrangements with large national partners and our equity investments last year in two call center agencies

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~~and a worksite marketing company. We recently announced at partnership with eHealth to sell packages of specialty health products.~~
~~Diversify the distribution and administration of our pet insurance as a result of the acquisition of Pet Partners Inc.~~
~~Experience increases in short-term disability premiums in~~DBL/PFL premiums. Effective January 1, 2018, ~~generated from a relatively new distribution partnership, which will expand long-term disability opportunities for growth.~~
Continue to evaluate strategic transactions. We plan to continue to deploy some of our cash to make additional investments and acquisitions that will continue to bolster existing or new lines of business.
~~Continue to focus on administrative efficiencies.~~
~~Sell~~Standard Security Life began selling a new PFL rider ~~(“Paid Family Leave” or “PFL”)~~ as part of our New York DBL ~~policies in 2018. Effective January 1, 2018,~~policies. This is a result of New York State ~~will require~~requiring employers to provide PFL, which would cover job-protected paid leave to care for a new child or sick family member or to assist when someone is called to active military service. ~~Standard Security Life anticipates~~The New York State insurance department increased the PFL premium rate by 76% for 2020, which should increase the profitability of PFL for 2020.
·Achieve increases in both long-term and short-term disability premiums generated from new distribution relationships.
·Accomplish increases in life and disability premium by developing additional strategic functional and distribution partnerships, broaden worksite portfolio, and enhance Business to Business and Business to Consumer website functionality.

·Continue to evaluate strategic transactions. We plan to deploy some of our cash to make additional investments and acquisitions that will bolster existing or new lines of business.
·Continue to focus on administrative efficiencies.
·Continue to monitor the COVID-19 outbreak as it evolves. The duration of COVID-19 and its potential effects on our business cannot be certain, we currently cannot predict if there will be a material impact to our business, results of operations or financial condition in future reporting periods of 2020. During unprecedented times of uncertainty and high unemployment surrounding the COVID-19 pandemic, we have fully transitioned our existing sales teams to work from home. Our customer facing agents have transitioned to a full-time work at home model, and with the implementation of this coverage is expected to more than double our current $30 million DBL block. The rates for PFL are set by New York State and as this is a new product the underwriting profitability is unclear at this point.
On March 31, 2016, IHC and a subsidiary of AMIC sold the stock of Risk Solutions. In addition, under the purchase and sale agreement, all of the in-force stop-loss business of Standard Security Life and Independence American produced by Risk Solutions was co-insured by Westport as of January 1, 2016. The aggregate purchase price was $152.5 million in cash, subject to adjustments and settlements. This transaction resulted in a gain of $100.8 million for the year ended December 31, 2016, net of taxes and amounts attributable to noncontrolling interests.
~~As a result of the sale of Risk Solutions, IHC remains highly liquid with excess capital; however,~~enhanced technology solutions, we have ~~used some~~not identified any material impact to agent productivity. In fact, our accelerated deployment of ~~this capital to make equity investments, retire debt and purchase IHC stock. If the Specialty Health business were to grow exponentially as a result of the turmoil~~technology improvements in the ~~major medical markets, IHC may need~~areas of training, CRM, and prospect scoring, has positioned us to ~~contribute additional capital to one or more of its carriers. While~~gain efficiencies during the ~~run-off of the Medical Stop-Loss line of business has had a negative impact on future earnings, the growth in our other lines of business are expected to offset this reduction in earnings.~~upcoming annual enrollment periods.

Subject to making additional repurchases, acquisitions ~~investments~~ and ~~capital contributions to support growth,~~investments, the Company will remain highly liquid ~~in 2017~~ as a result of the continuing shorter duration of the investment portfolio. ~~IHC has approximately $152.3 million in highly rated shorter duration securities earning on average 1.7%; our portfolio as a whole is rated, on average, AA.~~ The ~~low~~short duration of our portfolio enables us, if we deem prudent, the flexibility to reinvest in much higher yielding longer-term securities, which would significantly increase investment income in the future. A low duration portfolio such as ours also mitigates the adverse impact of potential inflation. IHC will continue to monitor the financial markets and invest accordingly.

On ~~June 26, 2017,~~May 21, 2020, IHC purchased ~~1,385,118~~36,377 shares pursuant to a tender offer to purchase up to ~~2,000,000~~1,000,000 shares of its common stock at a price per share of ~~$20.00,~~$27.00, net, to the seller in cash. The number of shares purchased in the tender offer represented approximately ~~8.5%~~.2% of the ~~16,377,756~~14,785,565 shares of IHC common stock outstanding prior to the commencement of the tender offer and a gross aggregate purchase price of ~~$27.7~~$1.0 million. The tender offer was fully funded out of corporate liquidity.

Our results depend on the adequacy of our product pricing, our underwriting, the accuracy of our reserving methodology, returns on our invested assets, and our ability to manage expenses. We will also need to be diligent with increased rate review scrutiny to effect timely rate changes and will need to stay focused

43

on the management of medical cost drivers asin the event medical trend levels cause margin pressures. Factors affecting these items, as well as unemployment and global financial markets, may have a material adverse effect on our results of operations and financial condition.

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company manages interest rate risk by seeking to maintain an investment portfolio with a duration and average life that falls within the band of the duration and average life of the applicable liabilities. Options and other derivatives may be utilized to modify the duration and average life of such assets.Not required for smaller reporting companies.

The Company monitors its investment portfolio on a continuous basis and believes that the liquidity of the Insurance Group will not be adversely affected by its current investments. This monitoring includes the maintenance of an asset-liability model that matches current insurance liability cash flows with current investment cash flows. This is accomplished by first creating an insurance model of the Company's in-force policies using current assumptions on mortality, lapses and expenses. Then, current investments are assigned to specific insurance blocks in the model using appropriate prepayment schedules and future reinvestment patterns.
The results of the model specify whether the investments and their related cash flows can support the related current insurance cash flows. Additionally, various scenarios are developed changing interest rates and other related assumptions. These scenarios help evaluate the market risk due to changing interest rates in relation to the business of the Insurance Group.
The expected change in fair value as a percentage of the Company's fixed income portfolio at September 30, 2017 given a 100 to 200 basis point rise or decline in interest rates is not materially different than the expected change at December 31, 2016 included in Item 7A of the Company’s Annual Report on Form 10-K.
In the Company's analysis of the asset-liability model, a 100 to 200 basis point change in interest rates on the Insurance Group's liabilities would not be expected to have a material adverse effect on the Company. With respect to its liabilities, if interest rates were to increase, the risk to the Company is that policies would be surrendered and assets would need to be sold. This is not a material exposure to the Company since a large portion of the Insurance Group's interest sensitive policies are burial policies that are not subject to the typical surrender patterns of other interest sensitive policies, and many of the Insurance Group's universal life and annuity policies were acquired from liquidated companies which tend to exhibit lower surrender rates than such policies of continuing companies. Additionally, there are charges to help offset the benefits being surrendered. If interest rates were to decrease substantially, the risk to the Company is that some of its investment assets would be subject to early redemption. This is not a material exposure because the Company would have additional unrealized gains in its investment portfolio to help offset the future reduction of investment income. With respect to its investments, the Company employs (from time to time as warranted) investment strategies to mitigate interest rate and other market exposures.

ITEM 4.   CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and procedures

IHC’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) supervised and participated in IHC’s evaluation of its disclosure controls and procedures as of the end of the period covered by this report. Disclosure controls and procedures are controls and procedures designed to ensure that information required to be disclosed in IHC’s periodic reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

44

~~As previously disclosed in Item 9A of our Form 10-K for the year ended December 31, 2016, management~~Based upon that evaluation, IHC’S CEO and CFO concluded that ~~there~~IHC’s disclosure controls and procedures were material weaknesses in internal control over financial reporting for income taxes. Management determined that we did not maintain effective controls over the accounting for and disclosures of technical accounting matters as they relate to income taxes.effective.

A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
~~Remediation of Material Weakness~~
The Company has made significant progress in remediating its material weaknesses in internal control over financial reporting for income taxes, specifically (i) strengthening existing tax staff with consulting tax accounting resources. Additionally, financial reporting staff attended training related to the design and operation of tax related financial reporting and corresponding internal controls; (ii) implementing enhanced risk assessment processes over accounting for income taxes, with a focus on tax accounting and disclosure for unusual and complex transactions; and (iii) improving existing or establishing new processes and controls to measure and record transactions related to tax accounting to enhance the effectiveness of the design and operation of those controls.
While the Company has made significant progress in implementing the remediation efforts described above; until those actions are fully implemented and the operational effectiveness of related internal controls validated through testing, the material weaknesses described above will continue to exist. Management anticipates that all remediation efforts will be fully implemented and validated by the fourth quarter of 2017.
~~Changes in Internal Control Over Financial Reporting~~
~~Except as noted above, our~~ Management, including the CEO and CFO, identified no change in our internal control over financial reporting that occurred during our fiscal quarter ended ~~September~~June 30, ~~2017,~~2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

We are involved in legal proceedings and claims that arise in the ordinary course of our businesses. We have established reserves that we believe are sufficient given information presently available related to our outstanding legal proceedings and claims. We do not anticipate that the result of any pending legal proceeding or claim will have a material adverse effect on our financial condition or cash flows, although there could be such an effect on our results of operations for any particular period.

Third Party Administrator
A third party administrator with whom we formerly did business (“Plaintiff” or “TPA”)) 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 Independence Brokerage Group, Inc. (formerly IHC Carrier Solutions, Inc.) (collectively referred to as “Defendants”). “Plaintiff” and “Defendants” are collectively referred to herein as the “Parties”. The Complaint ~~concerns~~concerned agreements entered into by Standard Security Life and Madison National Life with Plaintiff, as well as other allegations made by Plaintiff against ~~the~~ Defendants. The Complaint seeks injunctive relief and damages in an amount exceeding ~~$50.0 million, profit share~~$50,000,000, payments allegedly owed to Plaintiff under the agreements totaling at least ~~$3.1 million~~$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. ~~The~~Defendants believe these claims to be without merit. Defendants moved to Compel Arbitration and Dismiss or Stay the original Complaint. ~~The~~ Plaintiff filed an Amended Complaint on August 18, 2017. ~~The~~ Defendants filed a Motion to Compel Arbitration or Stay the Amended ~~Complaint, which is still pending. In~~Complaint. The Parties agreed to enter into an Order staying the ~~fourth quarter of 2017,~~action filed in Texas. The Parties’ disputed claims moved in part to arbitration.
Standard Security Life and Madison National Life ~~agreed~~demanded arbitration against this TPA. The Arbitration Panel issued an Order splitting the hearing into two phases. Standard Security Life and Madison National Life successfully presented their claims in Phase I on September 25 through September 28, 2018 and were awarded $5,641,000 (“Arbitration Award”). The TPA’s counterclaims were heard during Phase II held on February 11, 2019 through February 15, 2019. Standard Security Life and Madison National Life successfully opposed the counterclaims asserted by the TPA as the Arbitration Panel denied all claims against Standard Security Life and Madison National Life. Standard Security Life and Madison National Life filed the Petition to ~~pay fines~~Confirm the Arbitration Award. The TPA opposed this Motion. On June 17, 2019, the Court entered its Final Judgment and Order Confirming the Arbitration Award. On July 15, 2019, the TPA filed a Notice of Appeal to the United States Court of Appeals for the Seventh Circuit from the judgment entered on June 17, 2019. The TPA has filed its appeal and was required to file a bond for the awarded amount in order to proceed. Standard Security Life and Madison National Life submitted a response.   Oral argument was held on May 28, 2020 and on July 28, 2020, the 7th Circuit upheld the district court’s decision confirming the arbitration award. The Company will actively pursue payment of the judgement in the ~~state~~third quarter, barring any further motions by the TPA. Upon final notice of the award, the Company will recognize its impact in earnings.
Since the arbitration is complete, the stay in the Texas ~~primarily~~litigation has been lifted. Defendants filed a Motion to Dismiss. On October 16, 2019, the Court granted in part and denied in part our Motion to Dismiss. Count I, which relates to the breach of contract, was denied without prejudice. Counts II-VI were granted in part. The Court found that an arbitration agreement, including an arbitration provision, exists between Plaintiff and Defendants. The arbitration provision incorporates the AAA Rules, evincing clear and unmistakable evidence of the parties’ intent to have the arbitrator decide whether a given claim must be arbitrated. Therefore, Counts II-VI were dismissed, without prejudice. The parties were directed to proceed with arbitration. In light

of this holding, the action relating to Count I, breach of Contract, was stayed and administratively closed pending the outcome of another arbitration. On February 2, 2020, we received the TPA’s Demand for Arbitration. We responded and the parties are engaged in discovery. It is the Defendants' position that this demand for a new arbitration has no impact on the Arbitration Award discussed above.
Multistate Market Conduct Examination
As previously disclosed, our subsidiaries Standard Security Life, Madison National Life and Independence American have been selected for a multistate market conduct exam ("MCE") related to our STM, limited medical and fixed indemnity limited health insurance products for the ~~claims payment practices~~period of January 1, 2014 through September 30, 2017. The insurance departments of five jurisdictions (Delaware, Wisconsin, District of Columbia, Kansas and South Dakota) are serving as lead states, and the District of Columbia Department of Insurance, Securities and Banking and the Delaware Department of Insurance are serving as the managing lead states of the ~~Plaintiff.~~MCE. In addition to the five lead states, 36 other states are participating in the MCE. Each of Standard Security Life, Madison National Life and Independence American responded to inquiries and document production requests in the MCE and proactively communicated and cooperated with the applicable regulatory agencies for the MCE. Each of these subsidiaries also provided a detailed action plan to regulators that summarizes its enhanced compliance and control mechanisms.

45

In an effort to avoid long‐term litigation and/or administrative proceedings that would be required to resolve disputes between Standard Security Life, Madison National Life and Independence American and the states involved in the MCE, the Lead States and Standard Security Life, Madison National Life and Independence American entered into separate Regulatory Settlement Agreements ("RSAs") on July 14, 2020. The RSAs require the implementation of a compliance plan, impose certain requirements related to specified business practices and monetary payments. The Company has accrued $3,660,000 for compliance with the examination as outlined in the RSAs. For the RSAs to be effective, an additional twenty-five of the thirty‐six participating states must agree and adopt the RSAs. The managing lead states are in the process of obtaining such approvals. As set forth in the RSAs, the Company denies any wrongdoing or violation of any applicable laws or regulations, and the entry into the RSAs is not an admission or acknowledgment by the Company of any wrongdoing or liability.
ITEM 1A.   RISK FACTORS

~~There were no material changes from the~~Material risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016~~2019 in Item 1A to Part 1 of Form ~~10-K.~~10-K have not significantly changed except for the following additional risk:
We face risks related to health epidemics, like the Coronavirus (COVID-19) that could impact our sales, operating results and financial condition.
Sales of our healthcare products, results of operations, and the overall financial condition of the Company could be adversely affected to the extent that the COVID-19 or any other epidemic or health care emergency harms the economy, our industry or the Company specifically. The COVID-19 outbreak situation is very fluid and we are closely monitoring its impact on our operations, specifically:
·Many regulators have mandated that insurers cover COVID-19 testing costs, and in some cases costs for related treatment and vaccines once they are available, as well as waiving any applicable deductible and coinsurance member payments. These mandates are primarily directed at major medical carriers, but a minority include STM insurance products. Attempts to extend these mandates beyond STM will likely not impact our supplemental products. Additionally, some states are requiring coverage for telehealth services. Mandated extended coverage of COVID-19 claims may negatively impact the Company’s operating results, cash flows and financial condition as such extended coverage was not contemplated in the initial product pricing.

·Widespread unemployment due to the unprecedented state-mandated shutdowns of businesses could mean that policyholders may be unable to meet their obligations to pay premiums on our health, disability and pet policies. Additionally, some regulators have mandated that insurers provide an extended grace period for premium collection and some require payment of claims during the grace period. Some states have limited the impact to major medical insurance, while others have applied it to all policies in their states. These mandates may negatively impact the Company’s operating results and cash flows.
·Our marketing companies hiring and licensing of sales agents who sell Medicare advantage and Medicare supplement as well as other products may be delayed, as many state regulators are closed and unable to provide licensing services. This may impact the growth of the Company’s call centers and career agents, and negatively impact expected sales of these products and our financial results.
·Slower growth in STM sales as policyholders focus on acquiring coverage under special enrollments for ACA policies may temporarily negatively impact our sales of such products and our operating results.
·Higher unemployment could adversely affect our disability lines of business.
·Possible mandated coverages by regulators for other lines of business could adversely increase benefits with no increase in premiums.
·We will incur additional expenses to help expand the safety of our employees or incur additional expense to allow employees to work remotely.
·COVID-19 or any similar pandemic could increase mortality in our life products.
·The COVID-19 pandemic has also contributed to significant volatility in financial markets, including declines in equity markets, changes in interest rates and overall reduced liquidity in the investment markets.

ITEM 2.   ~~UNREGISTERED SALES~~ UNREGISTERED SALESOF ~~EQUITY SECURITIES~~ EQUITY SECURITIESAND ~~USE~~ USEOF ~~PROCEEDS~~ PROCEEDS

Tender Offer

On ~~May 26, 2017,~~April 24, 2020, IHC commenced a tender offer to purchase up to ~~2,000,000~~1,000,000 shares of its common stock at a price per share of ~~$20.00,~~$27.00, net, to the seller in cash. On ~~June 26, 2017,~~May 21, 2020, at the close of business, the offer expired and the Company accepted for purchase ~~1,385,118~~36,377 shares of its common stock at ~~$20.00~~$27.00 per share, for an aggregate purchase price of ~~$27.7 million.~~$982,000.

Share Repurchase Program

IHC has a program, initiated in 1991, under which it repurchases shares of its common stock. In August 2016, the Board of Directors increased the number of shares that can be repurchased to 3,000,000 shares of IHC common stock, excluding the shares under the aforementioned tender offer. As of ~~September~~June 30, ~~2017, 2,068,931~~2020, 1,623,979 shares were still authorized to be repurchased.

Share repurchases during the ~~third~~second quarter of ~~2017~~2020 are summarized as follows:

2020

Maximum Number

Average Price
of Shares Which
Month of
Shares
of Repurchased
Can be
Repurchase

Repurchased

Shares

Repurchased

April
33,274
$
25.49
1,700,999
May
-
$
-
1,667,725
June

43,746
$
29.70
1,623,979

2017

Maximum Number

Average Price
of Shares which
Month of
Shares
of Repurchased
can be
Repurchase
Repurchased
Shares
Repurchased

July
16,327
$
21.42
2,154,346
August
27,704
$
21.61
2,126,642
September
57,711
$
24.06
2,068,931
ITEM 3.   ~~DEFAULTS~~ DEFAULTSUPON ~~SENIOR SECURITIES~~ SENIOR SECURITIES

Not applicable.

ITEM 4.   MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.   OTHER INFORMATION

Not applicable.
46

ITEM 6.   EXHIBITS

Exhibit Number
3.1   Restated Certificate of Incorporation of Independence Holding Company (Filed as Exhibit 3(i) to our Quarterly Report on Form 10-Q for the quarter ended June 30, 1996 and incorporated herein by reference).
3.2   Certificate of Amendment of Restated Certificate of Incorporation of Independence Holding Company (Filed as Exhibit 3.1 to our Current Report on Form 8-K filed with the SEC on July 29, 2004 and incorporated herein by reference).
3.3   By-Laws of Independence Holding Company (Filed as Exhibit 3.3 to our Annual Report on Form 10-K for the year ended December 31, 2006 and incorporated herein by reference), as amended by Amendment to By-Laws of Independence Holding Company (Filed as Exhibit 3.2 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 and incorporated herein by reference).
10.1 Officer Employment Agreement, made as of April 18, 2011, by and among Independence Holding Company, Standard Security Life Insurance Company of New York and Mr. David T. Kettig (Filed as Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on April 22, 2011 and incorporated herein by reference).
10.2 Officer Employment Agreement, made as of April 18, 2011, by and among Independence Holding Company, Madison National Life Insurance Company, Inc. and Mr. Larry R. Graber (Filed as Exhibit 10.2 to our Current Report on Form 8-K filed with the SEC on April 22, 2011 and incorporated herein by reference).
10.3 Officer Employment Agreement, made as of April 18, 2011, by and between Independence Holding Company and Ms. Teresa A. Herbert (Filed as Exhibit 10.5 to our Current Report on Form 8-K filed with the SEC on April 22, 2011 and incorporated herein by reference).
10.4 Officer Employment Agreement, made as of May 11, 2011, by and between Independence Holding Company and Mr. Roy T.K. Thung (Filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the period ended March 31, 2011 ~~that was~~ filed with the SEC on May 12, 2011, and incorporated herein by reference).
10.5 Officer Employment Agreement, by and among Independence Holding Company, IHC Risk Solutions, LLC and Mr. Michael A. Kemp, dated as of May 22, 2012 (Filed as Exhibit 10.3 to our Current Report on Form 8-K filed with the SEC on May 29, 2012, and incorporated herein by reference).
10.6 Retirement Benefit Agreement, dated as of September 30, 1991, between Independence Holding Company and Mr. Roy T.K. Thung, as amended. (Filed as an Exhibit to our Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated herein by reference; Amendment No. 1 filed as Exhibit 10(iii)(A)(4a) to our Annual Report on Form 10-K for the year ended December 31, 2003 and incorporated herein by ~~reference;~~ reference; Amendment No. 2 filed as Exhibit 10(iii)(4)(b) to our Current Report on Form 8-K filed with the SEC on June 22, 2005 and incorporated herein by ~~reference;~~ reference; Amendment No. 3 filed as Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on January 7, 2009 and incorporated herein by reference.)
10.710.6 Purchase Agreement, made and entered into on June 15, 2015, by and among Madison National Life Insurance Company, Inc., Standard Security Life Insurance Company of New York and National Guardian Life Insurance Company (Filed as Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on June 16, 2015, and incorporated herein by reference).

47

10.810.7 Sale Bonus Agreement, dated November 7, 2016, by and between Independence American Holdings Corp. and David T. Kettig (Filed as Exhibit 10.8 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 and incorporated herein by reference).

10.910.8 Officer Employment Agreement, made as of May 25, 2011, by and among Independence Holding Company, Standard Security Life and Mr. Gary J. ~~Balzofiore.~~Balzofiore (Filed as Exhibit 10.9 to our Annual Report on Form 10-K for the year ended December 31, 2016 and incorporated herein by reference).
10.9Officer Employment Agreement, made as of June 22, 2015, by and among Independence Holding Company, Standard Security Life and Mr. Vincent Furfaro, as amended by the Assignment and Assumption with Novation and Amendment of Officer Employment Agreement dated January 1, 2017 by and among Standard Security Life, AMIC Holdings, Inc. and Mr. Vincent Furfaro (Filed as Exhibit 10.9 to our Annual Report on Form 10-K for the year ended December 31, 2018 and incorporated herein by reference).
10.10Amended and Restated Officer Employment Agreement, dated as of March 24, 2020, by and between AMIC Holdings, Inc. and Vincent Furfaro (filed as Exhibit 10.1 to our Current Report on Form 8-K/A filed with the SEC on April 9, 2020 and incorporated herein by reference).
10.11Sale Bonus Agreement, dated July 25, 2018, by and between Independence American Holdings Corp. and Vincent Furfaro (Filed as Exhibit 10.10 to our Annual Report on Form 10-K for the year ended December 31, 2018 and incorporated herein by reference).
10.12Assignment and Assumption with Novation and Amendment of Officer Employment Agreement dated January 1, 2017 by and among Standard Security Life, AMIC Holdings, Inc. and Mr. David T. Kettig (Filed as Exhibit 10.11 to our Annual Report on Form 10-K for the year ended December 31, 2018 and incorporated herein by reference).
10.13Sale Bonus Agreement, dated October 15, 2019, by and between Independence American Holdings Corp. and Gary J. Balzofiore (Filed as Exhibit 10.12 to our Annual Report on Form 10-K for the year ended December 31, 2019 and incorporated herein by reference).
31.1 Certification of the Chief Executive Officer and President Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

31.2 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

32.1 Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

32.2 Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

101.INS   XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH   XBRL Taxonomy Extension Schema Document. *
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document. *
101.LAB   XBRL Taxonomy Extension Label Linkbase Document. *
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document. *
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document. *

104Cover page formatted as inline XBRL and contained in Exhibit 101.

* Filed herewith.
48

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

INDEPENDENCE HOLDING COMPANY
(REGISTRANT)

By: /s/Roy T. K. Thung                                    Date:~~November 9, 2017~~August 7, 2020
Roy T.K. Thung
Chief Executive Officer, and Chairman
of the Board of Directors

By:/s/Teresa A. Herbert                                    Date:~~November 9, 2017~~August 7, 2020
            Teresa A. Herbert
Senior Vice President and
  Chief Financial Officer
4951

	Shares	Weighted- Average
	Under Option	Exercise Price

December 31, 2016	`697,180`	$	11.75
Granted	`34,000`		22.20
Exercised	`(38,800)`		9.09
September 30, 2017	`692,380`	$	12.41

	~~2017~~

~~Weighted-average risk-free interest rate~~	`1.71%`
~~Expected annual dividend rate per share~~	`0.79%`
~~Expected volatility factor of the Company's common stock~~	`37.57%`
~~Weighted-average expected term of options~~	~~4.5 years~~

		September 30, 2017
		Outstanding		Exercisable

Number of options		692,380		501,380
Weighted average exercise price per share	$	12.41	$	9.39
Aggregate intrinsic value for all options (in thousands)	$	8,889	$	7,953
Weighted average contractual term remaining		1.9 years		1.0 years

	No. of	Weighted-Average
	Non-vested	Grant-Date
	Shares	Fair Value

December 31, 2016	`17,325`	$	16.20
Vested	`(4,950)`		12.53

September 30, 2017	`12,375`	$	17.68

~~Class~~	~~Outstanding at November 3, 2017~~
~~Common stock, $ 1.00 par value~~	~~14,862,346 Shares~~

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~~Statements of Changes in Equity	7

			Condensed Consolidated Statements of Cash Flows	89

			Notes to Condensed Consolidated Financial Statements	910

		Item 2. Management's Discussion and Analysis of Financial Condition
			and Results of Operations	31

		Item 3. Quantitative and Qualitative Disclosures about Market Risk		44

		Item 4. Controls and Procedures		44

PART II - OTHER INFORMATION

		Item 1. Legal Proceedings		45

		Item 1A. Risk Factors		46

		Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		4647

		Item 3. Defaults Upon Senior Securities		4648

		Item 4. Mine Safety Disclosures		4648

		Item 5. Other Information		4648

		Item 6. Exhibits		4749

	Signatures			4951

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)


		~~September~~June 30, ~~2017~~2020		December 31, ~~2016~~2019
		~~(Unaudited)~~(Unaudited)
ASSETS:
Investments:
Short-term investments	$	`501,149`	$	`6,91250`
Securities purchased under agreements to resell		`20,597101,417`		`28,962`
~~Trading securities~~		`516`		`592107,157`
Fixed maturities, available-for-sale		`426,000384,245`		`449,487384,974`
Equity securities ~~available-for-sale~~		`5,4603,449`		`5,3333,747`
Other investments		`18,33811,327`		`23,53415,208`
Total investments		`470,961501,587`		`514,820511,136`

Cash and cash equivalents		`26,56521,224`		`22,01021,094`
Due and unpaid premiums		`32,67834,497`		`42,89626,244`
Due from reinsurers		`383,192359,244`		`440,285`
~~Premium and claim funds~~		`13,665`		`17,952362,969`
Goodwill		`50,69775,949`		`41,57360,165`
Other assets		`61,47288,792`		`54,92872,695`

TOTAL ASSETS	$	`1,039,2301,081,293`	$	`1,134,4641,054,303`

LIABILITIES AND EQUITY:
LIABILITIES:
Policy benefits and claims	$	`169,547179,777`	$	`219,113164,802`
Future policy benefits		`217,415199,775`		`219,450201,205`
Funds on deposit		`143,637141,597`		`145,749140,951`
Unearned premiums		`7,99321,601`		`9,7867,282`
Other policyholders' funds		`10,24911,646`		`9,76912,049`
Due to reinsurers		`5,7153,640`		`35,7965,016`
Accounts payable, accruals and other liabilities		`59,74761,569`		`55,477`
~~Liabilities attributable to discontinued operations~~		`-`		`6861,049`

TOTAL LIABILITIES		`614,303619,605`		`695,208592,354`

Commitments and contingencies (Note ~~14)~~13)
Redeemable noncontrolling interest		`2,0352,364`		`-2,237`

STOCKHOLDERS’ EQUITY:
Preferred stock $1.00 par value, 100,000 shares authorized;
none issued or outstanding		`-`		`-`
Common stock $1.00 par value, 23,000,000 shares authorized;
18,625,458 ~~and 18,620,508~~ shares issued; and ~~14,908,517~~14,705,442 and
~~17,102,525~~14,864,941 shares outstanding		`18,625`		`18,62018,625`
Paid-in capital		`126,135123,804`		`126,468122,717`
Accumulated other comprehensive ~~loss~~gain		`(2,344)2,854`		`(6,964)1,212`
Treasury stock, at cost; ~~3,716,941~~3,920,016 and ~~1,517,983~~3,760,517 shares		`(61,712)(74,325)`		`(17,483)(69,724)`
Retained earnings		`339,512388,317`		`315,918386,864`

TOTAL IHC STOCKHOLDERS’ EQUITY		`420,216459,275`		`436,559459,694`
NONREDEEMABLE NONCONTROLLING INTERESTS		`2,67649`		`2,69718`

TOTAL EQUITY		`422,892459,324`		`439,256459,712`

TOTAL LIABILITIES AND EQUITY	$	`1,039,2301,081,293`	$	`1,134,4641,054,303`

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share data)

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
		2017		2016		2017		2016
REVENUES:
Premiums earned	$	`75,639`	$	`67,335`	$	`210,507`	$	`195,524`
Net investment income		`4,403`		`4,004`		`12,414`		`12,700`
Fee income		`2,634`		`4,050`		`11,556`		`12,541`
Other income		`361`		`2,261`		`2,365`		`8,898`
Net realized investment gains		`715`		`2,367`		`987`		`3,945`
Other-than-temporary impairment losses:
Total other-than-temporary impairment losses		`-`		`(1,475)`		`-`		`(1,475)`
Portion of losses recognized in other comprehensive income (loss)		`-`		`-`		`-`		`-`
Net impairment losses recognized in earnings		`-`		`(1,475)`		`-`		`(1,475)`

		`83,752`		`78,542`		`237,829`		`232,133`
EXPENSES:
Insurance benefits, claims and reserves		`33,536`		`38,277`		`103,071`		`109,497`
Selling, general and administrative expenses		`42,337`		`32,823`		`115,404`		`97,947`
Interest expense on debt		`-`		`440`		`-`		`1,366`

		`75,873`		`71,540`		`218,475`		`208,810`

Income from continuing operations, before income taxes		`7,879`		`7,002`		`19,354`		`23,323`
Income taxes (benefits)		`2,666`		`2,636`		`(5,175)`		`8,566`

Income from continuing operations, net of tax		`5,213`		`4,366`		`24,529`		`14,757`

Discontinued operations:
Income from discontinued operations, before income taxes		`-`		`-`		`-`		`117,636`
Income taxes on discontinued operations		`-`		`-`		`-`		`7,724`
Income from discontinued operations, net of tax		`-`		`-`		`-`		`109,912`

Net income		`5,213`		`4,366`		`24,529`		`124,669`
(Income) loss from nonredeemable noncontrolling interests		`32`		`(43)`		`(4)`		`(9,900)`
(Income) loss from redeemable noncontrolling interests		`(16)`		`-`		`(29)`		`-`

NET INCOME ATTRIBUTABLE TO IHC	$	`5,229`	$	`4,323`	$	`24,496`	$	`114,769`

Basic income per common share:
Income from continuing operations	$	`0.35`	$	`0.25`	$	`1.53`	$	`0.84`
Income from discontinued operations		`-`		`-`		`-`		`5.84`
Basic income per common share	$	`0.35`	$	`0.25`	$	`1.53`	$	`6.68`

WEIGHTED AVERAGE SHARES OUTSTANDING		`14,965`		`17,120`		`15,999`		`17,189`

Diluted income per common share:
Income from continuing operations	$	`0.34`	$	`0.25`	$	`1.50`	$	`0.83`
Income from discontinued operations		`-`		`-`		`-`		`5.77`
Diluted income per common share	$	`0.34`	$	`0.25`	$	`1.50`	$	`6.60`

WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING		`15,274`		`17,340`		`16,287`		`17,402`

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,
		2020		2019		2020		2019
REVENUES:
Premiums earned	$	`98,691`	$	`84,947`	$	`194,741`	$	`167,736`
Net investment income		`3,139`		`4,134`		`6,379`		`8,130`
Fee income		`4,248`		`3,707`		`8,190`		`7,895`
Other income		`652`		`879`		`1,129`		`4,563`
Net investment gains		`575`		`1,455`		`863`		`1,626`
Other-than-temporary impairment losses, available-for-sale securities:
Total other-than-temporary impairment losses		`-`		`-`		`-`		`(646)`
Portion of losses recognized in other comprehensive income (loss)		`-`		`-`		`-`		`-`
Net impairment losses recognized in earnings		`-`		`-`		`-`		`(646)`

		`107,305`		`95,122`		`211,302`		`189,304`

EXPENSES:
Insurance benefits, claims and reserves		`54,589`		`44,410`		`108,647`		`87,529`
Selling, general and administrative expenses		`51,979`		`42,206`		`96,553`		`82,735`

		`106,568`		`86,616`		`205,200`		`170,264`

Income before income taxes		`737`		`8,506`		`6,102`		`19,040`
Income taxes		`199`		`1,590`		`1,242`		`3,234`

Net income		`538`		`6,916`		`4,860`		`15,806`
(Income) from nonredeemable noncontrolling interests		`(43)`		`(27)`		`(34)`		`(144)`
(Income) from redeemable noncontrolling interests		`(74)`		`(42)`		`(127)`		`(88)`

NET INCOME ATTRIBUTABLE TO IHC	$	`421`	$	`6,847`	$	`4,699`	$	`15,574`

Basic income per common share	$	`0.03`	$	`0.46`	$	`0.32`	$	`1.04`

WEIGHTED AVERAGE SHARES OUTSTANDING		`14,765`		`14,929`		`14,811`		`14,939`

Diluted income per common share	$	`0.03`	$	`0.46`	$	`0.32`	$	`1.04`

WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING		`14,767`		`14,948`		`14,839`		`15,007`

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(In thousands)

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
		2017		2016		2017		2016

Net income	$	`5,213`	$	`4,366`	$	`24,529`	$	`124,669`
Other comprehensive income:
Available-for-sale securities:
Unrealized gains (losses) on available-for-sale securities, pre-tax		`250`		`(1,173)`		`7,219`		`10,734`
Tax expense (benefit) on unrealized gains on available-for-sale securities		`90`		`(418)`		`2,599`		`3,830`
Unrealized gains (losses) on available-for-sale securities, net of taxes		`160`		`(755)`		`4,620`		`6,904`

Other comprehensive income (loss), net of tax		`160`		`(755)`		`4,620`		`6,904`

COMPREHENSIVE INCOME, NET OF TAX		`5,373`		`3,611`		`29,149`		`131,573`

Comprehensive (income) loss, net of tax, attributable to
noncontrolling interests:
(Income) loss from noncontrolling interests in subsidiaries		`16`		`(43)`		`(33)`		`(9,900)`
Other comprehensive income, net of tax, attributable to
noncontrolling interests:
Unrealized (gains) losses on available-for-sale securities, net of tax		`-`		`47`		`-`		`(118)`
Other comprehensive (income) loss, net of tax, attributable to
noncontrolling interests		`-`		`47`		`-`		`(118)`

COMPREHENSIVE (INCOME) LOSS, NET OF TAX,
ATTRIBUTABLE TO NONCONTROLLING INTERESTS		`16`		`4`		`(33)`		`(10,018)`

COMPREHENSIVE INCOME, NET OF TAX,
ATTRIBUTABLE TO IHC	$	`5,389`	$	`3,615`	$	`29,116`	$	`121,555`

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)

		Six Months Ended June 30,
		2020		2019
CASH FLOWS PROVIDED BY (USED BY) OPERATING ACTIVITIES:
Net income	$	`4,860`	$	`15,806`
Adjustments to reconcile net income to net change in cash from
operating activities:
Amortization of deferred acquisition costs		`338`		`682`
Net amortization of purchased premium and discount in net investment income		`2,175`		`1,767`
Net investment (gains)		`(863)`		`(1,626)`
(Gain) on sale of investment		`-`		`(3,589)`
Other than-temporary-impairment losses, net		`-`		`646`
Depreciation and amortization		`2,162`		`1,598`
Other		`607`		`3,989`
Changes in assets and liabilities:
Change in insurance liabilities		`27,057`		`16,474`
Change in amounts due from reinsurers		`3,725`		`1,490`
Change in claim fund balances		`574`		`1,788`
Change in due and unpaid premiums		`(8,253)`		`(602)`
Other operating activities		`(4,135)`		`(8,684)`

Net change in cash from operating activities		`28,247`		`29,739`

CASH FLOWS PROVIDED BY (USED BY) INVESTING ACTIVITIES:
Net (purchases) sales and maturities of short-term investments		`(1,049)`		`1,000`
Net (purchases) sales of securities under resale agreements		`5,740`		`(26,801)`
Sales of fixed maturities		`36,413`		`68,459`
Maturities and other repayments of fixed maturities		`55,936`		`43,034`
Purchases of fixed maturities		`(96,353)`		`(108,934)`
Payments to acquire business, net of cash acquired		`(13,707)`		`(7,952)`
Proceeds from sales, distributions and returns of capital from investments		`87`		`5,117`
Payments to acquire other investments		`(1,250)`		`(3,000)`
Other investing activities		`(3,459)`		`(1,084)`

Net change in cash from investing activities		`(17,642)`		`(30,161)`

CASH FLOWS PROVIDED BY (USED BY) FINANCING ACTIVITIES:
Repurchases of common stock		`(4,489)`		`(1,560)`
Withdrawals of investment-type insurance contracts		`(326)`		`(1,151)`
Dividends paid		`(6,215)`		`(2,242)`
Purchase of noncontrolling interest		`-`		`(4,400)`
Proceeds from stock options exercised		`-`		`44`
Payments related to tax withholdings for sharebased compensation		`-`		`(2,397)`
Other financing activities		`(3)`		`(403)`

Net change in cash from financing activities		`(11,033)`		`(12,109)`

Net change in cash, cash equivalents and restricted cash		`(428)`		`(12,531)`
Cash, cash equivalents and restricted cash, beginning of year		`24,631`		`30,807`

Cash, cash equivalents and restricted cash, end of period	$	`24,203`	$	`18,276`

		Three Months Ended		Nine Months Ended
		September 30,		September 30,
		2016		2016
Revenue	$	`-`	$	`6,406`
Selling, general and administrative expenses		`-`		`5,689`

Pretax profit of discontinued operations		`-`		`717`
Gain on disposal of discontinued operations, pretax		`-`		`116,919`

Income from discontinued operations, before income taxes		`-`		`117,636`
Income taxes (benefits) on discontinued operations		`-`		`7,724`

Income from discontinued operations	$	`-`	$	`109,912`

		~~September~~June 30, ~~2017~~2020
				GROSS		GROSS
		AMORTIZED		UNREALIZED		UNREALIZED		FAIR
		COST		GAINS		LOSSES		VALUE

FIXED MATURITIES
AVAILABLE-FOR-SALE:
Corporate securities	$	`159,753134,543`	$	`8943,204`	$	`(2,471)(3,002)`	$	`158,176134,745`
CMOs -– residential (1)		`7,0114,977`		`-`		`(106)`		`6,905`
~~U.S. Government obligations~~		`44,077`		`57`		`(257)`		`43,877`
~~Agency MBS - residential(2)~~		`16`		`-268`		`-`		`165,245`
~~GSEs(3)~~U.S. Government obligations		`9,99250,357`		`1,081`		`-`		`51,438`
GSEs (2)		`6,043`		`1`		`(211)(229)`		`9,7825,815`
States and political subdivisions		`194,724179,672`		`1,1432,853`		`(2,828)(830)`		`193,039181,695`
Foreign government obligations		`4,2765,011`		`22296`		`(85)-`		`4,213`
~~Redeemable preferred stocks~~		`10,008`		`116`		`(132)`		`9,9925,307`

Total fixed maturities	$	`429,857380,603`	$	`2,2337,703`	$	`(6,090)(4,061)`	$	`426,000384,245`

		December 31, ~~2016~~2019
				GROSS		GROSS
		AMORTIZED		UNREALIZED		UNREALIZED		FAIR
		COST		GAINS		LOSSES		VALUE

FIXED MATURITIES
AVAILABLE-FOR-SALE:
Corporate securities	$	`192,976161,369`	$	`2091,832`	$	`(5,490)(1,178)`	$	`187,695162,023`
CMOs -– residential (1)		`6,0215,328`		`854`		`(116)-`		`5,9135,382`
U.S. Government obligations		`43,41750,340`		`133257`		`(441)(48)`		`43,10950,549`
~~Agency MBS - residential~~GSEs (2)		`22`		`16,230`		`-`		`23`
~~GSEs(3)~~		`10,301(107)`		`1`		`(422)`		`9,8806,123`
States and political subdivisions		`191,146153,439`		`7801,512`		`(5,115)(943)`		`186,811154,008`
Foreign government obligations		`5,0986,719`		`13172`		`(157)(2)`		`4,954`
~~Redeemable preferred stocks~~		`11,454`		`96`		`(448)`		`11,1026,889`

Total fixed maturities	$	`460,435383,425`	$	`1,2413,827`	$	`(12,189)(2,278)`	$	`449,487`

~~EQUITY SECURITIES~~
~~AVAILABLE-FOR-SALE:~~
~~Common stocks~~	$	`1,612`	$	`178`	$	`-`	$	`1,790`
~~Nonredeemable preferred stocks~~		`3,588`		`30`		`(75)`		`3,543`

~~Total equity securities~~	$	`5,200`	$	`208`	$	`(75)`	$	`5,333384,974`

		AMORTIZED		FAIR
		COST		VALUE

Due in one year or less	$	29,686	$	29,631
Due after one year through five years		113,190		112,572
Due after five years through ten years		145,877		145,322
Due after ten years		124,085		121,772
Fixed maturities with no single maturity date		17,019		16,703

	$	429,857	$	426,000

		June 30, 2020

		Less than 12 Months				12 Months or Longer				Total

		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
		Value		Losses		Value		Losses		Value		Losses

Corporate securities	$	22,615	$	`1,928`	$	18,208	$	`1,074`	$	40,823	$	`3,002`
GSEs		-		`-`		5,809		`229`		5,809		`229`
States and political subdivisions		20,491		`121`		13,725		`709`		34,216		`830`

Fixed maturities in an
unrealized loss position	$	43,106	$	`2,049`	$	37,742	$	`2,012`	$	80,848	$	`4,061`

Number of fixed maturities in an
unrealized loss position		18				26				44

		December 31, 2019

		Less than 12 Months				12 Months or Longer				Total

		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
		Value		Losses		Value		Losses		Value		Losses

Corporate securities	$	18,151	$	`455`	$	32,301	$	`723`	$	50,452	$	`1,178`
U.S. Government obligations		-		`-`		7,167		`48`		7,167		`48`
GSEs		-		`-`		6,173		`107`		6,173		`107`
States and political subdivisions		29,872		`114`		29,462		`829`		59,334		`943`
Foreign government obligations		-		`-`		1,603		`2`		1,603		`2`

Fixed maturities in an
unrealized loss position	$	48,023	$	`569`	$	76,706	$	`1,709`	$	124,729	$	`2,278`

Number of fixed maturities in an
unrealized loss position		18				43				61

		~~September~~June 30, ~~2017~~2020
		Level 1		Level 2		Level 3		Total

FINANCIAL ASSETS:
Fixed maturities available-for-sale:
Corporate securities	$	`-`	$	`158,176134,745`	$	`-`	$	`158,176134,745`
CMOs - residential		`-`		`6,9055,245`		`-`		`6,9055,245`
US Government obligations		`-`		`43,87751,438`		`-`		`43,877`
~~Agency MBS - residential~~		`-`		`16`		`-`		`1651,438`
GSEs		`-`		`9,7825,815`		`-`		`9,7825,815`
States and political subdivisions		`-`		`191,124180,262`		`1,9171,433`		`193,041181,695`
Foreign government obligations		`-`		`4,2135,307`		`-`		`4,213`
~~Redeemable preferred stocks~~		`9,990`		`-`		`-`		`9,9905,307`
Total fixed maturities		`9,990-`		`414,093382,812`		`1,9171,433`		`426,000384,245`

Equity ~~securities available-for-sale:~~securities:
Common stocks		`1,7852,558`		`-`		`-`		`1,7852,558`
Nonredeemable preferred stocks		`3,675891`		`-`		`-`		`3,675891`
Total equity securities		`5,4603,449`		`-`		`-`		`5,460`

~~Trading securities - equities~~		`516`		`-`		`-`		`516`
~~Total trading securities~~		`516`		`-`		`-`		`5163,449`

Total Financial Assets	$	`15,9663,449`	$	`414,093382,812`	$	`1,9171,433`	$	`431,976387,694`

		December 31, 2016
		Level 1		Level 2		Level 3		Total

FINANCIAL ASSETS:
Fixed maturities available-for-sale:
Corporate securities	$	-	$	187,695	$	-	$	187,695
CMOs - residential		-		5,913		-		5,913
US Government obligations		-		43,109		-		43,109
Agency MBS - residential		-		23		-		23
GSEs		-		9,880		-		9,880
States and political subdivisions		-		184,778		2,033		186,811
Foreign government obligations		-		4,954		-		4,954
Redeemable preferred stocks		11,102		-		-		11,102
Total fixed maturities		11,102		436,352		2,033		449,487

Equity securities available-for-sale:
Common stocks		1,790		-		-		1,790
Nonredeemable preferred stocks		3,543		-		-		3,543
Total equity securities		5,333		-		-		5,333

Trading securities - equities		592		-		-		592
Total trading securities		592		-		-		592

Total Financial Assets	$	17,027	$	436,352	$	2,033	$	455,412

		Three Months Ended September 30,
		2017			2016
		States and		Total		States and		Total
		Political		Level 3		Political		Level 3
		Subdivisions		Assets		Subdivisions		Assets

Beginning balance	$	`1,956`	$	`1,956`	$	`2,107`	$	`2,107`

Increases (decreases) recognized in earnings:
Net realized investment gains		`-`		`-`		`-`		`-`

Gains (losses) included in other
comprehensive income (loss):
Net unrealized gains (losses)		`(8)`		`(8)`		`(10)`		`(10)`

Repayments and amortization of
fixed maturities		`(31)`		`(31)`		`(27)`		`(27)`
Sales		`-`		`-`		`-`		`-`

Balance at end of period	$	`1,917`	$	`1,917`	$	`2,070`	$	`2,070`

		Nine Months Ended September 30,
		2017					2016
		States and		Total					States and		Total
		Political		Level 3		CMOs			Political		Level 3
		Subdivisions		Assets		Commercial			Subdivisions		Assets

Beginning balance	$	`2,033`	$	`2,033`	$	`1,195`		$	`2,179`	$	`3,374`

Gains (losses) included in earnings:
Net realized investment gains		`-`		`-`		`141`			`-`		`141`

Gains (losses) included in other
comprehensive income (loss):
Net unrealized gains (losses)		`(26)`		`(26)`		`(296)`			`(31)`		`(327)`

Repayments and amortization of
fixed maturities		`(90)`		`(90)`		`(74)`			`(78)`		`(152)`
Sales		`-`		`-`		`(966)`			`-`		`(966)`

Balance at end of period	$	`1,917`	$	`1,917`	$	`-`		$	`2,070`	$	`2,070`

		Three Months Ended June 30,
		2020				2019
		States and		Total		States and		Total
		Political		Level 3		Political		Level 3
		Subdivisions		Assets		Subdivisions		Assets

Beginning balance	$	`1,481`	$	`1,481`	$	`1,664`	$	`1,664`

Increases (decreases) recognized in earnings:
Net investment gains		`-`		`-`		`-`		`-`

Gains (losses) included in other
comprehensive income (loss):
Net unrealized gains (losses)		`(6)`		`(6)`		`(6)`		`(6)`

Repayments and amortization of
fixed maturities		`(42)`		`(42)`		`(38)`		`(38)`

Balance at end of period	$	`1,433`	$	`1,433`	$	`1,620`	$	`1,620`

~~Cash~~	$	`390`
~~Intangible assets~~		`5,880`
Other assets	$	`567350`

Total identifiable assets		`6,837350`

Other liabilities		`174`
~~Deferred tax liability~~		`1,069575`

Total liabilities		`1,243575`

Net identifiable assets (liabilities) acquired	$	`(225)`

Cash	$	`333`
Intangible assets		`2,700`
Other assets		`2,132`

Total identifiable assets		`5,165`

Other liabilities		`1,227`

Total liabilities		`1,227`

Net identifiable assets acquired	$	`5,5943,938`

~~Redeemable noncontrolling interest~~	$	`2,005`

		September 30,		December 31,		June 30,		December 31,
		2017		2016		2020		2019
Indefinite-lived Intangible Assets:
Insurance licenses	$	`7,977`	$	`7,977`	$	`7,977`	$	`7,977`
Total indefinite-lived	$	`7,977`	$	`7,977`	$	`7,977`	$	`7,977`

		Six Months Ended June 30, 2020
		Specialty		DBL and		Group		All Other
		Health		PFL		Disability		Lines		Total

Balance at beginning of year	$	`42,228`	$	`23,438`	$	`80,079`	$	`19,057`	$	`164,802`
Less: reinsurance recoverable		`1,717`		`664`		`23,322`		`11,290`		`36,993`
Net balance at beginning of year		`40,511`		`22,774`		`56,757`		`7,767`		`127,809`

Amount incurred, related to:
Current year		`45,430`		`43,970`		`19,093`		`11,182`		`119,675`
Prior years		`(2,422)`		`(3,451)`		`(1,553)`		`(3,207)`		`(10,633)`

Total incurred		`43,008`		`40,519`		`17,540`		`7,975`		`109,042`

Amount paid, related to:
Current year		`18,722`		`19,252`		`4,010`		`4,979`		`46,963`
Prior years		`23,360`		`7,818`		`12,125`		`2,147`		`45,450`

Total paid		`42,082`		`27,070`		`16,135`		`7,126`		`92,413`

Net balance at end of period		`41,437`		`36,223`		`58,162`		`8,616`		`144,438`
Plus: reinsurance recoverable		`1,802`		`647`		`22,463`		`10,427`		`35,339`
Balance at end of period	$	`43,239`	$	`36,870`	$	`80,625`	$	`19,043`	$	`179,777`

		Six Months Ended June 30, 2019
		Specialty		DBL and		Group		All Other
		Health		PFL		Disability		Lines		Total

Balance at beginning of year	$	`38,363`	$	`21,080`	$	`82,222`	$	`18,450`	$	`160,115`
Less: reinsurance recoverable		`1,335`		`719`		`24,712`		`11,356`		`38,122`
Net balance at beginning of year		`37,028`		`20,361`		`57,510`		`7,094`		`121,993`

Amount incurred, related to:
Current year		`40,873`		`29,941`		`17,152`		`8,770`		`96,736`
Prior years		`(3,158)`		`(1,186)`		`(3,053)`		`(744)`		`(8,141)`

Total incurred		`37,715`		`28,755`		`14,099`		`8,026`		`88,595`

Amount paid, related to:
Current year		`17,666`		`16,188`		`3,340`		`4,450`		`41,644`
Prior years		`19,092`		`5,930`		`9,697`		`2,523`		`37,242`

Total paid		`36,758`		`22,118`		`13,037`		`6,973`		`78,886`

Net balance at end of period		`37,985`		`26,998`		`58,572`		`8,147`		`131,702`
Plus: reinsurance recoverable		`1,244`		`691`		`24,197`		`11,150`		`37,282`
Balance at end of period	$	`39,229`	$	`27,689`	$	`82,769`	$	`19,297`	$	`168,984`

		Six Months Ended
		June 30,
Specialty Health segment:		2020		2019
Short-term Medical	$	`286`	$	`(29)`
Occupational Accident		`798`		`1,421`
Limited Medical		`241`		`472`
Critical Illness		`397`		`185`
Group Gap		`513`		`198`
Fixed Indemnity Limited Benefit		`(736)`		`166`
Pet		`450`		`170`
All other specialty health lines		`473`		`575`

Total Specialty Health segment	$	`2,422`	$	`3,158`

		Specialty Health Segment
		Health Insurance Claims
		Nine Months Ended
		September 30,
		2017		2016

Balance at beginning of year	$	`27,183`	$	`23,425`
Less: reinsurance recoverable		`1,179`		`1,362`
Net balance at beginning of year		`26,004`		`22,063`

Amount incurred, related to:
Current year		`40,836`		`34,598`
Prior years		`1,144`		`(6,845)`

Total incurred		`41,980`		`27,753`

Amount paid, related to:
Current year		`13,528`		`9,541`
Prior years		`23,797`		`13,105`

Total paid		`37,325`		`22,646`

Net balance at end of period		`30,659`		`27,170`
Plus: reinsurance recoverable		`814`		`848`
Balance at end of period	$	`31,473`	$	`28,018`

		~~Three Months Ended~~				~~Nine Months Ended~~
		~~September 30,~~				~~September 30,~~
		`2017`		`2016`		`2017`		`2016`
~~Revenues:~~
~~Specialty Health~~	$	`55,502`	$	`44,684`	$	`152,292`	$	`126,454`
~~Group disability; life and DBL~~		`26,112`		`26,196`		`78,985`		`77,409`
~~Individual life, annuities and other~~ ~~(A)~~		`455`		`717`		`1,494`		`2,053`
~~Medical Stop-Loss~~ ~~(A)~~		`576`		`5,433`		`2,549`		`21,397`
~~Corporate~~		`392`		`620`		`1,522`		`2,350`
		`83,037`		`77,650`		`236,842`		`229,663`
~~Net realized investment gains~~		`715`		`2,367`		`987`		`3,945`
~~Net impairment losses recognized in earnings~~		`-`		`(1,475)`		`-`		`(1,475)`
~~Total revenues~~	$	`83,752`	$	`78,542`	$	`237,829`	$	`232,133`

~~Income from continuing operations~~
~~before income taxes:~~
~~Specialty Health~~ ~~(B)~~	$	`5,238`	$	`1,369`	$	`9,412`	$	`3,754`
~~Group disability; life and DBL~~		`5,144`		`5,323`		`12,777`		`13,533`
~~Individual life, annuities and other~~ ~~(A) (C)~~		`(385)`		`(410)`		`(532)`		`(1,888)`
~~Medical Stop-Loss~~ ~~(A)~~		`(538)`		`2,176`		`2,752`		`13,926`
~~Corporate~~		`(2,295)`		`(1,908)`		`(6,042)`		`(7,106)`
		`7,164`		`6,550`		`18,367`		`22,219`
~~Net realized investment gains~~		`715`		`2,367`		`987`		`3,945`
~~Net impairment losses recognized in earnings~~		`-`		`(1,475)`		`-`		`(1,475)`
~~Interest expense~~		`-`		`(440)`		`-`		`(1,366)`
~~Income from continuing operations~~
~~before income taxes~~	$	`7,879`	$	`7,002`	$	`19,354`	$	`23,323`

				Greater than		Greater than
				3 months,		6 months,
		Less than		less than		less than		Greater than
		3 months		6 months		12 months		12 months		Total

Fixed maturities	$	4,345	$	-	$	-	$	-	$	4,345

2020
					Maximum Number
			Average Price		of Shares Which
Month of	Shares		of Repurchased		Can be
Repurchase		Repurchased		Shares		Repurchased

April	33,274		$	25.49	1,700,999
May	-		$	-	1,667,725
June		43,746	$	29.70	1,623,979