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.~~2021.

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

For the transition period from: ________ to _________

Commission File Number: 001-32244

INDEPENDENCE HOLDING COMPANY

(Exact name of registrant as specified in its charter)

Delaware		~~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 7, 2021, the registrant had 14,644,389 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
3136

Item 3. Quantitative and Qualitative Disclosures about Market Risk
4450

Item 4. Controls and Procedures
4450

PART II - OTHER INFORMATION

Item 1. Legal Proceedings
4551

Item 1A. Risk Factors
4652

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
4652

Item 3. Defaults Upon Senior Securities
4652

Item 4. Mine Safety Disclosures
4652

Item 5. Other Information
4652

Item 6.    Exhibits
4753

Signatures
4956

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

2

Forward-Looking Statements

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

Numerous risks and uncertainties may impact the matters addressed by our forward-looking statements, any of which could negatively and materially affect our future financial results and performance. We describe some of these risks and uncertainties in greater detail in Item 1A, Risk ~~Factors~~Factors, of IHC’s ~~annual report~~Annual Report on Form 10-K as filed with Securities and Exchange Commission.

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

PART I - FINANCIAL INFORMATION
Item 1.Financial Statements


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

~~September~~June 30, ~~2017~~2021

December 31, ~~2016~~2020

~~(Unaudited)~~(Unaudited)

ASSETS:

Investments:

Short-term investments

$
50 1,550

$
6,9121,568
Securities purchased under agreements to resell

20,597 70,323

28,962
~~Trading securities~~
516
59233,038
Fixed maturities, available-for-sale

426,000 183,709

449,487210,719
Equity securities ~~available-for-sale~~

5,460 -

5,3331,753
Other investments

18,338 2,022

23,5341,928
Total investments

470,961 257,604

514,820249,006

Cash and cash equivalents

26,565 22,834

22,01031,923
Investment in Iguana Capital, Inc. (“Iguana Capital”) (Note 2)
33,762
-
Due and unpaid premiums

32,678 10,950

42,8969,981
Due from reinsurers

383,192 354,735

440,285
~~Premium and claim funds~~
13,665
17,952357,237
Goodwill

50,697 12,486

41,57312,486
Funds held in escrow
78,779
-
Other assets

61,472 29,864

54,92846,832
Assets attributable to discontinued operations (Note 2)
416,162
375,691

TOTAL ASSETS

$
1,039,230 1,217,176

$
1,134,4641,083,156

LIABILITIES AND EQUITY:

LIABILITIES:

Policy benefits and claims

$
169,547 127,815

$
219,113 132,957
Future policy benefits

217,415 196,026

219,450 198,086
Funds on deposit

143,637 142,155

145,749 141,376
Unearned premiums

7,993 1,763

9,786 1,952
Other policyholders' funds

10,249 11,988

9,769 12,001
Due to reinsurers

5,715 2,242

35,796 3,872
Accounts payable, accruals and other liabilities

59,747 66,519

55,477 44,855
Liabilities attributable to discontinued operations (Note 2)

- 120,180

68 75,939

TOTAL LIABILITIES

614,303 668,688

695,208 611,038

Commitments and contingencies (Note ~~14)~~15)

Redeemable noncontrolling interest

2,035-

-2,312

STOCKHOLDERS’ EQUITY:

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

none issued or outstanding

-

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

18,625,458 ~~and 18,620,508~~ shares issued; and ~~14,908,517~~14,644,389 and

~~17,102,525~~14,643,047 shares outstanding

18,625

18,62018,625
Paid-in capital

126,135125,653

126,468124,757
Accumulated other comprehensive ~~loss~~income

(2,344)3,220

(6,964)4,197
Treasury stock, at cost; ~~3,716,941~~3,981,069 and ~~1,517,983~~3,982,411 shares

(61,712)(77,189)

(17,483)(77,088)
Retained earnings

339,512478,139

315,918399,273

TOTAL IHC STOCKHOLDERS’ EQUITY

420,216548,448

436,559469,764
NONREDEEMABLE NONCONTROLLING INTERESTS

2,67640

2,69742

TOTAL EQUITY

422,892548,488

439,256469,806

TOTAL LIABILITIES AND EQUITY

$
1,039,2301,217,176

$
1,134,4641,083,156

See the accompanying Notes to Condensed Consolidated Financial Statements.

4

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

Three Months Ended

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,

2021

2020

2021

2020
REVENUES:

Premiums earned
$
42,451
$
49,138
$
86,023
$
99,804
Net investment income

1,651

2,329

3,452

4,828
Fee income

4,944

3,907

11,079

7,341
Other income

410

807

1,026

1,432
Net investment gains (losses)

(126)

274

91

117

49,330

56,455

101,671

113,522

EXPENSES:

Insurance benefits, claims and reserves

17,192

21,339

39,113

47,628
Selling, general and administrative expenses

32,842

37,974

63,602

69,034

50,034

59,313

102,715

116,662

Loss from continuing operations before income taxes

(704)

(2,858)

(1,044)

(3,140)
Income tax benefits

(267)

(1,066)

(430)

(1,187)

Loss from continuing operations, net of tax

(437)

(1,792)

(614)

(1,953)

Discontinued operations (Note 2):

Total pretax income from discontinued operations

92,375

3,594

99,574

9,243
Income tax expense on discontinued operations

15,570

1,264

17,026

2,430
Income from discontinued operations, net of tax

76,805

2,330

82,548

6,813

Net income

76,368

538

81,934

4,860
(Income) loss from nonredeemable noncontrolling interests

1

(43)

2

(34)
(Income) loss from redeemable noncontrolling interests

102

(74)

156

(127)

NET INCOME ATTRIBUTABLE TO IHC
$
76,471
$
421
$
82,092
$
4,699

Basic income per common share

Loss from continuing operations
$
(0.03)
$
(0.12)
$
(0.04)
$
(0.13)
Income from discontinued operations

5.25

0.15

5.65

0.45
Basic income per common share
$
5.22
$
0.03
$
5.61
$
0.32

WEIGHTED AVERAGE SHARES OUTSTANDING

14,642

14,765

14,641

14,811

Diluted income per common share

Loss from continuing operations
$
(0.03)
$
(0.12)
$
(0.04)
$
(0.13)
Income from discontinued operations

5.25

0.15

5.65

0.45
Diluted income per common share
$
5.22
$
0.03
$
5.61
$
0.32

WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING

14,642

14,765

14,641

14,811

See the accompanying Notes to Condensed Consolidated Financial Statements.
5

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

Three Months Ended

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,

2021

2020

2021

2021

Net income
$
76,368
$
538
$
81,934
$
4,860
Other comprehensive income:

Available-for-sale securities:

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

1,212

2,227

(1,248)

2,093
Tax expense (benefit) on unrealized gains (losses) on available-for-sale securities

260

474

(271)

451
Unrealized gains (losses) on available-for-sale securities, net of taxes

952

1,753

(977)

1,642

Other comprehensive income (loss), net of tax

952

1,753

(977)

1,642

COMPREHENSIVE INCOME, NET OF TAX

77,320

2,291

80,957

6,502

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

(Income) loss from noncontrolling interests in subsidiaries

103

(117)

158

(161)
Other comprehensive (income) loss, net of tax, attributable to

noncontrolling interests

-

-

-

-

COMPREHENSIVE (INCOME) LOSS, NET OF TAX,

   ATTRIBUTABLE TO NONCONTROLLING INTERESTS

103

(117)

158

(161)

COMPREHENSIVE INCOME, NET OF TAX,

   ATTRIBUTABLE TO IHC
$
77,423
$
2,174
$
81,115
$
6,341

See the accompanying Notes to Condensed Consolidated Financial Statements.
6

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Unaudited) (In thousands)
Three Months Ended June 30, 2021 and 2020
ACCUMULATED
OTHER
TREASURY
TOTAL IHC
NONREDEEMABLE
COMMON
PAID-IN
COMPREHENSIVE
STOCK,
RETAINED
STOCKHOLDERS'
NONCONTROLLING
TOTAL
STOCK
CAPITAL
INCOME
AT COST
EARNINGS
EQUITY
INTERESTS
EQUITY
BALANCE AT
MARCH 31, 2021
$
18,625
$
125,189
$
2,268
$
(77,228)
$
404,894
$
473,748
$
41
$
473,789
Net income
76,471
76,471
(1)
76,470
Other comprehensive
loss, net of tax
952
952
-
952
Common stock dividends
    ($0.22 per share)
(3,226)
(3,226)
-
(3,226)
Share-based compensation
464
39
503
-
503
BALANCE AT
JUNE 30, 2021
$
18,625
$
125,653
$
3,220
$
(77,189)
$
478,139
$
548,448
$
40
$
548,488

~~NON-~~
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

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited) (In thousands)
Six Months Ended June 30, 2021 and 2020

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~~2020
$
18,62018,625
$
126,468124,757
$
(6,964)4,197
$
(17,483)(77,088)
$
315,918399,273
$
436,559469,764
$
2,69742
$
439,256469,806

Net income

24,49682,092

24,49682,092

4 (2)

24,50082,090
Other comprehensive

~~income,~~loss, net of tax

4,620 (977)

4,620 (977)

-

4,620 (977)
Repurchases of common stock

(44,442)(140)

(44,442)(140)

-

(44,442)(140)
Common stock ~~dividend ($0.06 per share)~~
(902)
(902)
(902)
~~Distributions to noncontrolling interests~~dividends

(25)

(25)
~~Share-based compensation~~    ($0.22 per share)

5

(333)

213(3,226)

(115) (3,226)

-

(115)(3,226)
Share-based compensation
896
39
935
-
935

BALANCE AT

~~September~~JUNE 30, ~~2017~~2021
$
18,625
$
126,135125,653
$
(2,344)3,220
$
(61,712)(77,189)
$
339,512478,139
$
420,216548,448
$
2,67640
$
422,892548,488
BALANCE AT
DECEMBER 31, 2019
$
18,625
$
122,717
$
1,212
$
(69,724)
$
386,864
$
459,694
$
18
$
459,712
Net income
4,699
4,699
34
4,733
Other comprehensive
income, net of tax
1,642
1,642
-
1,642
Repurchases of common stock
(4,601)
(4,601)
-
(4,601)
Distributions to noncontrolling
interests
-
(3)
(3)
Common stock dividends
    ($0.22 per share)
(3,246)
(3,246)
-
(3,246)
Share-based compensation
1,087
1,087
-
1,087
BALANCE AT
JUNE 30, 2020
$
18,625
$
123,804
$
2,854
$
(74,325)
$
388,317
$
459,275
$
49
$
459,324

See the accompanying Notes to Condensed Consolidated Financial Statements.

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

Six Months Ended June 30,

2021

2020
CASH FLOWS PROVIDED BY (USED BY) OPERATING ACTIVITIES:

Net income
$
81,934

$
4,860
Adjustments to reconcile net income to net change in cash from

operating activities:

Gain on disposal of discontinued operations

(74,534)

-
Pretax provision for loss on disposal

812

-
Amortization of deferred acquisition costs

425

166
Net amortization of purchased premium and discount in net investment income

1,139

1,218
Net investment (gains)

(91)

(117)
Depreciation and amortization

908

759
Other

17,107

2,393
Changes in assets and liabilities:

Change in insurance liabilities

37,333

27,057
Change in amounts due from reinsurers

2,663

3,725
Change in claim fund balances

(1,022)

574
Change in due and unpaid premiums

(15,141)

(8,253)
Change in contract asset

(1,006)

-
Other operating activities

3,008

(4,135)

Net change in cash from operating activities

53,535

28,247

CASH FLOWS PROVIDED BY (USED BY) INVESTING ACTIVITIES:

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

1,060

(1,049)
Net (purchases) sales of securities under resale agreements

(139,647)

5,740
Sales of equity securities

3,494

-
Sales of fixed maturities

10,366

36,413
Maturities and other repayments of fixed maturities

44,520

55,936
Purchases of fixed maturities

(8,343)

(96,353)
Cash divested from deconsolidation of subsidiary

(4,878)

-
Payments to acquire business, net of cash acquired

-

(13,707)
Payments to acquire other investments

(2,500)

(1,250)
Other investing activities

(1,870)

(3,372)

Net change in cash from investing activities

(97,798)

(17,642)

CASH FLOWS PROVIDED BY (USED BY) FINANCING ACTIVITIES:

Repurchases of common stock

(140)

(4,489)
Withdrawals of investment-type insurance contracts

(112)

(326)
Dividends paid

(3,221)

(6,215)
Other financing activities

(32)

(3)

Net change in cash from financing activities

(3,505)

(11,033)

Net change in cash, cash equivalents and restricted cash

(47,768)

(428)
Cash, cash equivalents and restricted cash, beginning of year, including discontinued operations

74,793

24,631

Cash, cash equivalents and restricted cash, end of period, including discontinued operations
$
27,025

$
24,203

NON-CASH ACTIVITY:

Proceeds from sale of subsidiary – funds held in escrow
$
78,779

$
-

See the accompanying Notes to Condensed Consolidated Financial Statements.
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”);~~Company; and (ii) its marketing and administrative companies, including IHC Specialty Benefits Inc. (“IHCSB”), IHC ~~Carrier Solutions,~~Brokerage Group, Inc. (“IBG”), INSXCloud, Inc. (“INSXCloud”) (formerly My1HR, Inc.), collectively the “IHC Agencies” and aits lead generation company, Torchlight Technology Group LLC., (“Torchlight”). On June 30, 2021, the Company sold its majority interest in PetPartners, Inc. ~~IHC also owns~~(“PetPartners”), a ~~significant equity interest in Ebix Health Exchange Holdings, LLC (“Ebix Health Exchange”),~~major distributor and administrator of pet insurance underwritten by Independence American Insurance Company and an ~~administration exchange for health insurance.~~unaffiliated insurer. Standard Security Life, Madison National Life and Independence American Insurance Company are sometimes collectively referred to as the “Insurance Group”. IHC and its subsidiaries (including the Insurance Group) are sometimes collectively referred to as the "Company", or “IHC”, or are implicit in the terms “we”, “us” and “our”.

Geneve Corporation, a ~~diversified~~ financial holding company, and its affiliated entities, held approximately ~~61%~~62% of IHC's outstanding common stock at ~~September~~June 30, ~~2017.~~2021.

(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.
During the second quarter of 2021, the Board of Directors committed to various plans for the disposal of several business operations (see Note 2). Each plan represents a strategic shift that will have a major effect on the Company’s operations and financial results and as such, they each qualify for reporting as discontinued operations in the second quarter 2021. The assets, liabilities, and related income and expenses associated with each disposal group are presented as discontinued operations in the accompanying condensed consolidated financial statements and Notes thereto for all periods presented.
In March 2020, the World Health Organization declared the outbreak of COVID-19 a global health pandemic and the United States declared a national health emergency. COVID-19 has led to largescale disruption in the global economy, market instability and widespread unemployment in the United States. The COVID-19 outbreak continues to be a fluid situation and as it evolves, the duration of COVID-19 and its potential effects on our business cannot be certain. Regulatory mandates have affected, and we anticipate will continue to impact, the insurance industry. We currently cannot predict if there will be a material impact to

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

In the opinion of management, all adjustments (consisting only of normal recurring accruals) that are necessary for a fair presentation of the consolidated financial position and results of operations for the interim periods have been included. The condensed consolidated results of operations for the three months and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 are not necessarily indicative of the results to be anticipated for the entire year.

9(C)Reclassifications

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

(D)Recent Accounting Pronouncements

Recently Adopted Accounting Standards

In ~~October 2016,~~December 2019, the Financial Accounting ~~Standards~~Standard Board (“FASB”) issued guidance to simplify the accounting for income taxes. The guidance eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities related to changes in ownership of equity method investments and foreign subsidiaries. The guidance also simplifies aspects of accounting for franchise taxes, the requirement to allocate current and deferred tax expense to legal entities not subject to tax in its separate financial statements, enacted changes in tax laws or rates, and clarifies the accounting for transactions that ~~amends~~result in a step-up in the ~~consolidation analysis for a reporting entity that is the single decision maker~~tax basis of a variable interest entity. The amendments in this guidance require the decision maker’s evaluation of its interests held through related parties that are under common control on a proportionate basis rather than in their entirety when determining whether it is the primary beneficiary of that variable interest entity.goodwill. 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 simplify several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification in the statement of cash flows. New guidance related to the classifications in the statement of cash flows were applied on a prospective transition basis. 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,~~August 2018, the FASB issued guidance to ~~provide clarity~~improve existing measurements, presentation and ~~reduce both (i) diversity~~disclosure requirements for long-duration contracts issued by insurance entities. The amendments in ~~practice;~~this guidance requires an entity to (1) review and ~~(ii) cost~~update assumptions used to measure cash flows at least annually as well as update the discount rate assumption at each reporting date; (2) measure market risk benefits associated with deposit contracts at fair value; (3) disclose liability rollforwards and ~~complexity when accounting~~information about significant inputs, judgements assumptions, and methods used in measurement. Additionally, it simplifies the amortization of deferred acquisition costs and other balances on a constant level basis over the expected term of the related contracts. In 2019, the FASB delayed the original effective dates. For smaller reporting companies, the amendments in this guidance are now effective for ~~a change in~~fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. Upon adoption, 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, 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 is not expected to have a material effect on the Company’s consolidated financial statements.~~
In January 2017, the FASB issued guidance that clarifies the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The amendments in this guidance 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 November 2016, the FASB issued guidance requiring entities to show the changes in the total cash, cash equivalents, restricted cash and restricted cash equivalent in 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.Discontinued Operations
(A)Sale of Standard Security Life
On April 14, 2021, IHC and its wholly owned subsidiary, Independence Capital Corp. (“ICC”), entered into a Stock Purchase Agreement (the “SSL Purchase Agreement”) with Reliance Standard Life Insurance Company (“Reliance Standard”) to sell all of the issued and outstanding capital stock of Standard Security Life, a wholly owned subsidiary of ICC, for an aggregate purchase price of $180,000,000 in cash. In addition, at closing, the Company will receive a dividend from Standard Security Life equal to the excess of aggregate statutory capital and surplus over $53,000,000 as of the closing date. Standard Security Life had statutory capital and surplus of $82,091,000 at June 30, 2021. The closing of the transaction, the closing dividend and certain other items are subject to customary closing conditions including applicable regulatory approvals, one of which is the approval of the New York State Department of Financial Services. Standard Security Life currently cedes a portion of its New York short-term disability (“DBL”) and paid family leave rider (“PFL”) business to Independence American Insurance Company. We filed notice to cancel this reinsurance contract in accordance with the terms of the SSL Purchase Agreement. Under the terms of the SSL Purchase Agreement, the sale transaction will include all of Standard Security Life’s DBL and PFL business (including the DBL and PFL business previously ceded to Independence American Insurance Company) and will exclude other lines of business which will be reinsured prior to the closing. The DBL and PFL business being sold was part of the Company’s Group disability, life, DBL and PFL segment. The aforementioned transaction, consisting of the sale of Standard Security Life, the closing dividend and other closing conditions, is collectively referred to as the “SSL Sale” transaction or disposal group. DBL and PFL are major product lines for the Company. The sale of Standard Security Life and resulting exit from DBL and PFL business represents a strategic shift that will have a major effect on the Company’s operations and financial results. The SSL Sale transaction qualified for reporting as discontinued operations in the second quarter of 2021 upon the Board of Director’s commitment to a plan for its disposal in April 2021, and the subsequent execution of the SSL Purchase Agreement. Provided that all regulatory approvals and other closing conditions are met, the Company expects to complete the SSL Sale transaction by the end of 2021.
On July 29, 2021, the SSL Purchase Agreement was amended and restated to: (i) include in the disposal group, the business lines that were previously excluded from the transaction; (ii) remove the reinsurance requirement for the previously excluded business lines; and (iii) increase the target statutory capital and surplus to $57,000,000. As a result of this change in the disposal plan, the Company will include the assets, liabilities and results of operations for those business lines affected in discontinued operations for all periods presented, beginning in the third quarter of 2021.
Aside from customary transition services, there will be no continuing involvement with Standard Security Life after its disposal.
(B)Sale of Pet Division and Independence American Insurance Company (“Pets Sale”)
On May 17, 2021, IHC and certain subsidiaries entered into agreements to sell a 70% controlling interest in its pet division, including all of the issued and outstanding capital stock of Independence American

Insurance Company to a subsidiary of Iguana Capital, Inc. (“Iguana Capital”), an investment company specifically formed to facilitate this transaction as follows:
(i)IHC and its wholly owned subsidiary, IHC SB Holdings LLC (“SBH”), entered into a Stock Purchase Agreement (the “PPI Purchase Agreement”) with Iguana Capital to sell its 85% interest in PetPartners for $77,000,000 in cash (subject to working capital adjustments);
(ii)IHC and its wholly owned subsidiary, AMIC Holdings, Inc. (“AMIC”), entered into a Stock Purchase Agreement (the “IAHC Purchase Agreement”) with Iguana Capital to sell all of the stock of Independence American Holdings Corp. (“IAHC”), which owns all of the stock of Independence American Insurance Company and other pet assets, for $190,400,000 in cash (subject to adjustments for targeted statutory capital and surplus): and
(iii)Following each of the above, IHC will retain a 30% interest in the form of an equity investment in Iguana Capital.
Both agreements are subject to customary closing conditions. The closing of the IAHC Purchase Agreement however is also subject to certain regulatory approvals, one of which is the approval of the Delaware Insurance Department. For this reason, the transaction was structured as two agreements such that the sale of PetPartners occurred on June 30, 2021, and the closing of the transactions contemplated in the IAHC Purchase Agreement will follow at a later date upon receipt of applicable regulatory approvals. Provided that all regulatory approvals and other closing conditions are met, the Company expects to complete the IAHC sale transaction by the end of 2021.
Under the terms of the IAHC Purchase Agreement, the transaction includes the sale of all Independence American Insurance Company’s pet business and excludes other business lines. These excluded business lines will be retained by the Company through a reinsurance agreement with Madison National Life prior to closing. The reinsurance agreement will remain in effect until the underlying business is either transferred to Madison National Life or the business runs out. The aforementioned transaction, consisting of the sale of PetPartners, IAHC and Independence American Insurance Company, and other closing conditions, is collectively referred to as the “Pets Sale” transaction or disposal group. The pet business being sold was part of the Company’s Specialty Health segment. Because the pet business is a major product line for the Company, and the Company will no longer actively engage in the sales and marketing of pet insurance, the Pets Sale transaction represents a strategic shift that will have a major effect on the Company’s operations and financial results. The Pets Sale transaction qualified for reporting as discontinued operations in the second quarter of 2021 as a result of the Board of Directors’ commitment to a plan for the disposal of a controlling interest in its pet business in May 2021, and the execution of both the PPI Purchase Agreement and the IAHC Purchase Agreement on May 17, 2021.
On June 30, 2021, the Company completed the sale of its majority interest in PetPartners and, as a result, the Company ceased to have a controlling financial interest in PetPartners. Upon closing, the Company received proceeds of $78,779,000 (consisting of the purchase price and certain initial working capital adjustments), recognized an initial equity investment in Iguana Capital valued at $33,762,000, and recorded a $62,693,000 gain on the disposal, net of transaction costs and income taxes. Transaction costs consisting of transaction bonuses, legal expenses and financial advisor expenses amounted to an aggregate of $6,070,000. The PPI Purchase Agreement includes a waiver and consent to offer The American Kennel Club (“AKC”), PetPartners’ minority shareholder, until December 31, 2021, the right to sell their shares at the same price and terms as in the PPI Purchase Agreement. In the event AKC desires to sell such its shares, Iguana Capital and SBH will equally finance the cash payment to AKC. In connection with the PPI Sale transaction, the Company recorded a $6,800,000 contingent liability (the maximum amount required) based on its belief that AKC will exercise this right. If for any reason the IAHC Purchase Agreement is terminated, then at the option of either SBH or an affiliate of Iguana Capital, IAHC may reacquire the Company’s interest in PetPartners (the “PPI Put/Call Option”). The value of the PPI Put/Call Option was deemed to be negligible due to the structure of the put and call features, the short time horizon and the Company’s belief that there is a low probability that the deal would be terminated. The proceeds received from the sale of PetPartners were deposited into an escrow

account owned by SBH and treated as a security deposit. The funds will be released from escrow upon either the consummation of the IAHC sale transaction or upon the exercise of the PPI Put/Call Option. At June 30, 2021, the security deposit is presented as funds held in escrow on the Condensed Consolidated Balance Sheet.
Continuing involvement with the Pets Sale disposal group will consist of customary transition services, the reinsurance of retained business lines, the PPI Put/Call Option, and the equity investment in Iguana Capital.
The following is a reconciliation, by disposal group, of the carrying amounts of major classes of assets and liabilities included in discontinued operations on the Condensed Consolidated Balance Sheets for the periods indicated (in thousands):
June 30, 2021
SSL Sale
Pets Sale
Total
Major classes of assets:
Investments and cash
$
164,346
$
144,688
$
309,034
Goodwill
-
41,716
41,716
Other assets
30,020
35,392
65,412
Assets attributable to discontinued operations
$
194,366
$
221,796
$
416,162
Major classes of liabilities:
Policy benefits and claims
$
56,987
$
12,743
$
69,730
Unearned premiums
26,778
6,080
32,858
Other liabilities
12,500
5,092
17,592
Liabilities attributable to discontinued operations
$
96,265
$
23,915
$
120,180
December 31, 2020
SSL Sale
Pets Sale
Total
Major classes of assets included in discontinued operations:
Investments and cash
$
114,916
$
149,844
$
264,760
Goodwill
-
62,414
62,414
Other assets
18,787
29,730
48,517
Assets attributable to discontinued operations
$
133,703
$
241,988
$
375,691
Major classes of liabilities included in discontinued operations:
Policy benefits and claims
$
34,500
$
11,775
$
46,275
Unearned premiums
5,208
5,629
10,837
Other liabilities
9,316
9,511
18,827
Liabilities attributable to discontinued operations
$
49,024
$
26,915
$
75,939

The following is a reconciliation, by disposal group, of the major line items constituting the pretax profit of discontinued operations to the income from discontinued operations, net of tax, as shown on the Condensed Consolidated Statements of Income for the periods indicated (in thousands):
For the Three Months Ended June 30, 2021
SSL Sale
Pets Sale
Total
Revenues
$
50,342
$
33,080
$
83,422
Expenses:
Insurance benefits, claims and reserves
24,341
18,442
42,783
Selling, general and administrative expenses
7,394
14,592
21,986
Pretax income of discontinued operations during phase-out
18,607
46
18,653
Pretax provision for loss on disposal
(402)
(410)
(812)
Pretax gain on disposal of discontinued operations
-
74,534
74,534
Total pretax income from discontinued operations
18,205
74,170
92,375
Income tax expense on discontinued operations
3,836
11,734
15,570
Income from discontinued operations, net of tax
$
14,369
$
62,436
$
76,805
For the Three Months Ended June 30, 2020
SSL Sale
Pets Sale
Total
Revenues
$
30,442
$
20,407
$
50,849
Expenses:
Insurance benefits, claims and reserves
22,152
11,098
33,250
Selling, general and administrative expenses
6,150
7,855
14,005
Pretax income of discontinued operations during phase-out
2,140
1,454
3,594
Pretax provision for loss on disposal
-
-
-
Pretax gain on disposal of discontinued operations
-
-
-
Total pretax income from discontinued operations
2,140
1,454
3,594
Income tax expense on discontinued operations
822
442
1,264
Income from discontinued operations, net of tax
$
1,318
$
1,012
$
2,330
For the Six Months Ended June 30, 2021
SSL Sale
Pets Sale
Total
Revenues
$
93,738
$
61,999
$
155,737
Expenses:
Insurance benefits, claims and reserves
53,865
34,374
88,239
Selling, general and administrative expenses
14,850
26,796
41,646
Pretax income of discontinued operations during phase-out
25,023
829
25,852
Pretax provision for loss on disposal
(402)
(410)
(812)
Pretax gain on disposal of discontinued operations
-
74,534
74,534
Total pretax income from discontinued operations
24,621
74,953
99,574
Income tax expense on discontinued operations
5,151
11,875
17,026
Income from discontinued operations, net of tax
$
19,470
$
63,078
$
82,548

For the Six Months Ended June 30, 2020
SSL Sale
Pets Sale
Total
Revenue
$
59,943
$
37,838
$
97,781
Expenses:
Insurance benefits, claims and reserves
40,560
20,459
61,019
Selling, general and administrative expenses
13,004
14,515
27,519
Pretax income of discontinued operations during phase-out
6,379
2,864
9,243
Pretax provision for loss on disposal
-
-
-
Pretax gain on disposal of discontinued operations
-
-
-
Total pretax income from discontinued operations
6,379
2,864
9,243
Income tax expense on discontinued operations
1,689
741
2,430
Income from discontinued operations, net of tax
$
4,690
$
2,123
$
6,813
The assets and liabilities in discontinued operations are measured at the lower of their carry value or fair value less cost to sell. During the three months and six months ended June 30, 2021, it was not necessary to write-down any assets or liabilities attributable to the disposal groups in discontinued operations to fair value, less costs to sell. The Company expects to recognize gains from the sales of these disposal groups, therefore, any costs to sell the disposal groups, primarily legal expenses, incurred prior to the actual disposal of the discontinued operation, are expensed when incurred and presented in pretax provision for loss on disposal in the tables above.
Pretax income (loss) from discontinued operations during phase-out attributable to IHC was $18,653,000 and $25,852,000 for the three and six months ended June 30, 2021, respectively, and was $3,594,000 and $9,243,000 for the three and six months ended June 30, 2020, respectively.
Total cash flows from operating activities of discontinued operations were $45,917,000 and $26,813,000 for the six months ended June 30, 2021 and 2020, respectively. Total cash flows from investing activities of discontinued operations were $(88,501,000) and $(29,753,000) for the six months ended June 30, 2021 and 2020, respectively.
On a consolidated basis, the Company recorded $15,570,000 and $1,264,000 of income taxes related to pretax income from discontinued operations for the three months ended June 30, 2021 and 2020, respectively, and $17,026,000 and $2,430,000 for the six months ended June 30, 2021 and 2020, respectively. In 2021, these amounts include $11,841,000 of income taxes related to the pretax gain on disposal of discontinued operations. In connection with the sale of PetPartners, AMIC decreased its valuation allowance on existing deferred tax assets by $8,281,000 and utilized approximately $46,116,000 of its outstanding Federal net operating loss carryforwards (See Note 11). Differences between the Federal statutory income tax rate on discontinued operations and the Company’s effective income tax rate on pretax income from discontinued operations are primarily the result of AMIC’s decrease in its valuation allowance, state and local income taxes, nondeductible goodwill and other expenses.

Note 3.Income Per Common Share

Diluted income per share was computed using the treasury stock ~~method and includes incremental common shares, primarily~~method. As a result of losses from ~~the dilutive effect of share-based payment awards, amounting to 309,000 and 288,000 shares~~continuing operations for the three months and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively,~~2021 and ~~220,000 and 213,000~~2020, such shares ~~for the three months and nine months ended September 30, 2016, respectively.~~were deemed anti-dilutive.

12

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

Three Months Ended

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

Three Months Ended

Six Months Ended

June 30,

June 30,

2021

2020

2021

2020

Income from continuing operations attributable to IHC
$
(436)
$
(1,835)
$
(612)
$
(1,987)
Income from discontinued operations attributable to IHC
$
76,907
$
2,256
$
82,704
$
6,686

  Net income attributable to IHC
$
76,471
$
421
$
82,092
$
4,699

Note 3.   4.~~Discontinued Operations~~Cash, Cash Equivalents and Restricted Cash

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 istable provides a reconciliation of cash, cash equivalents and restricted cash reported within the ~~major line items constituting~~Condensed Consolidated Balance Sheets to the ~~pretax profit of discontinued operations included~~amounts shown in the Condensed Consolidated ~~Statement~~Statements of ~~Income~~Cash Flows 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

June 30,

2021

2020

Cash and cash equivalents
$
22,834
$
11,655
Restricted cash in other assets

418

985
Cash, cash equivalents and restricted cash in discontinued operations

3,773

11,563

Total cash, cash equivalents and restricted cash including discontinued operations
$
27,025
$
24,203

~~Liabilities attributable~~Restricted cash includes insurance premiums collected from insureds that are pending remittance to ~~discontinued operations at September 30, 2017~~insurance carriers and/or payment of insurance claims and ~~December 31, 2016 consist of $0~~commissions to third party administrators. These amounts are required to be set aside by contractual agreements with the insurance carriers and ~~$68,000, respectively, of accounts payable and accrued liabilities.~~are included in other assets on the Condensed Consolidated Balance Sheets.

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.   5.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~~2021

GROSS

GROSS

AMORTIZED

UNREALIZED

UNREALIZED

FAIR

COST

GAINS

LOSSES

VALUE

FIXED MATURITIES

AVAILABLE-FOR-SALE:

Corporate securities
$
159,75375,245
$
8941,583
$
(2,471)(779)
$
158,17676,049
CMOs -– residential (1)

7,0113,071
118
(5)
3,184
U.S. Government obligations
23,029
273

-

(106)
6,90523,302
~~U.S. Government obligations~~
44,077
57
(257)
43,877
Agency MBS - residential(2)

16
-35

-

16(4)
31
GSEs (3)

9,9922,969

1-

(211)(84)

9,7822,885
States and political subdivisions

194,72474,086

1,1431,261

(2,828)(384)

193,03974,963
Foreign government obligations

4,2763,144

22151

(85)-

4,213
~~Redeemable preferred stocks~~
10,008
116
(132)
9,9923,295

Total fixed maturities
$
429,857181,579
$
2,2333,386
$
(6,090)(1,256)
$
426,000
~~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)
$
5,460183,709

December 31, ~~2016~~2020

GROSS

GROSS

AMORTIZED

UNREALIZED

UNREALIZED

FAIR

COST

GAINS

LOSSES

VALUE

FIXED MATURITIES

AVAILABLE-FOR-SALE:

Corporate securities
$
192,97691,802
$
2092,174
$
(5,490)(1,302)
$
187,69592,674
CMOs -– residential (1)

6,0213,439

8146

(116)(2)

5,9133,583
U.S. Government obligations

43,41723,397

133414

(441)-

43,10923,811
Agency MBS - residential(2)

22
139

-

23(5)
34
GSEs (3)

10,3013,055

1-

(422)(81)

9,8802,974
States and political subdivisions

191,14682,910

7801,768

(5,115)(452)

186,81184,226
Foreign government obligations

5,0983,211

13206

(157)-

4,954
~~Redeemable preferred stocks~~
11,454
96
(448)
11,1023,417

Total fixed maturities
$
460,435207,853
$
1,2414,708
$
(12,189)(1,842)
$
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)
$
5,333210,719

(1)Collateralized mortgage obligations (“CMOs”).
(2)Mortgage-backed securities (“MBS”).
(3)Government-sponsored enterprises (“GSEs”) are private enterprises established and chartered by the Federal Government or its various insurance and lease programs which carry the full faith and credit obligation of the U.S. Government.

15

The amortized cost and fair value of fixed maturities available-for-sale at ~~September~~June 30, ~~2017,~~2021, by contractual maturity, are shown below (in thousands). Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

AMORTIZED

FAIR

COST

VALUE

Due in one year or less

$
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

$
36,481

$
36,938
Due after one year through five years

87,377

89,128
Due after five years through ten years

20,124

20,292
Due after ten years

31,522

31,252
Fixed maturities with no single maturity date

6,075

6,099

$
181,579

$
183,709

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):

June 30, 2021

Less than 12 Months

12 Months or Longer

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Value

Losses

Value

Losses

Value

Losses

Corporate securities
$
19,962

$
740

$
4,503

$
39

$
24,465
$
779
CMOs-residential

707

5

-

-

707

5
Agency MBS - residential

31

4

-

-

31

4
GSEs

-

-

2,886

84

2,886

84
States and political subdivisions

10,319

76

8,813

308

19,132

384

  Fixed maturities in an

      unrealized loss position
$
31,019

$
825

$
16,202

$
431

$
47,221
$
1,256

Number of fixed maturities in an

  unrealized loss position

9

14

23

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

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, 2020

Less than 12 Months

12 Months or Longer

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Value

Losses

Value

Losses

Value

Losses

Corporate securities
$
23,591

$
458

$
8,845

$
844

$
32,436
$
1,302
CMOs-residential

748

2

-

-

748

2
Agency MBS - residential

34

5

-

-

34

5
GSEs

-

-

2,974

81

2,974

81
States and political subdivisions

16,983

150

6,108

302

23,091

452

  Fixed maturities in an

      unrealized loss position
$
41,356

$
615

$
17,927

$
1,227

$
59,283
$
1,842

Number of fixed maturities in an

  unrealized loss position

20

13

33

Substantially all of the unrealized losses on fixed maturities available-for-sale at ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016~~2020 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~~2021..

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

Three Months Ended

Six Months Ended

June 30,

June 30,

2021

2020

2021

2020

Realized gains (losses):

Fixed maturities available-for-sale
$
(126)
$
50
$
46
$
284
Equity securities

-

-

292

-

Total realized gains (losses) on debt and equity securities

(126)

50

338

284
Unrealized gains (losses) on equity securities

-

214

(247)

(184)

Gains (losses) on debt and equity securities

(126)

264

91

100
Gains (losses) on other investments

-

10

-

17

Net investment gains
$
(126)
$
274
$
91
$
117

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~~2021, the Company realized gross gains of ~~$747,000~~$61,000 and ~~$2,052,000,~~$254,000, respectively, and gross losses of $0$187,000 and ~~$844,000,~~$206,000, 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~~2020, the Company realized gross gains of ~~$2,668,000~~$97,000 and ~~$4,521,000,~~$346,000, respectively, and gross losses of ~~$94,000~~$47,000 and ~~$275,000,~~$62,000, 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)~~1G(v) to the Consolidated Financial Statements in the ~~2016~~2020 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 Company recognized an other-than-temporary impairment loss of $1,475,000 on certain fixed maturities available-for-sale due to credit losses. The Company determined it was more likely than not that 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
$
-
$
-
$
-
$
-
2021 or 2020.

Note 5.6.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~~2021

Level 1

Level 2

Level 3

Total

FINANCIAL ASSETS:

Fixed maturities available-for-sale:

  Corporate securities
$
-

$
158,17676,049
$
-
$
158,17676,049
  CMOs - residential

-

6,9053,184

-

6,9053,184
  US Government obligations

-

43,87723,302

-

43,87723,302
  Agency MBS - residential

-

1631

-

1631
  GSEs

-

9,7822,885

-

9,7822,885
  States and political subdivisions

-

191,12473,949

1,9171,014

193,04174,963
  Foreign government obligations

-

4,2133,295

-

4,213
  ~~Redeemable preferred stocks~~
9,990
-
-
9,9903,295
     Total fixed maturities

9,990-

414,093182,695

1,9171,014

426,000
~~Equity securities available-for-sale:~~
  ~~Common stocks~~
1,785
-
-
1,785
  ~~Nonredeemable preferred stocks~~
3,675
-
-
3,675
     ~~Total equity securities~~
5,460
-
-
5,460
~~Trading securities - equities~~
516
-
-
516
      ~~Total trading securities~~
516
-
-
516183,709

Total Financial Assets
$
15,966-

$
414,093182,695
$
1,9171,014
$
431,976183,709

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, 2020

~~September 30, 2016~~Level 1

~~September 30, 2016~~
Level 2
Level 3
Total
FINANCIAL ASSETS:
Fixed maturities available-for-sale:
  Corporate securities
$
-
$
92,674
$
-
$
92,674
  CMOs - residential
-
3,583
-
3,583
  US Government obligations
-
23,811
-
23,811
  Agency MBS - residential
-
34
-
34
  GSEs
-
2,974
-
2,974
  States and political subdivisions
-
83,130
1,096
84,226
  Foreign government obligations
-
3,417
-
3,417
     Total fixed maturities
-
209,623
1,096
210,719

~~Total~~

~~Total~~
Equity securities:

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

~~Liabilities~~

~~Liabilities~~
  Common stocks

~~Liabilities~~1,753

~~Liabilities~~
-
-
1,753
     Total equity securities
1,753
-
-
1,753

~~Beginning balance~~Total Financial Assets
$
1,445 1,753
$
209,623
$
1,445 1,096
$
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
$
356 212,472

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,

2021

2020

States and

Total

States and

Total

Political

Level 3

Political

Level 3

Subdivisions

Assets

Subdivisions

Assets

Beginning balance
$
1,055
$
1,055

$
1,214
$
1,214

Increases (decreases) recognized in earnings:

   Net investment gains

-

-

-

-

Gains (losses) included in other

  comprehensive income (loss):

    Net unrealized gains (losses)

(4)

(4)

(5)

(5)

Repayments and amortization of

   fixed maturities

(37)

(37)

(34)

(34)

Balance at end of period
$
1,014
$
1,014

$
1,175
$
1,175

Six Months Ended June 30,

2021

2020

States and

Total

States and

Total

Political

Level 3

Political

Level 3

Subdivisions

Assets

Subdivisions

Assets

Beginning balance
$
1,096
$
1,096

$
1,251
$
1,251

Increases (decreases) recognized in earnings:

   Net investment gains

-

-

-

-

Gains (losses) included in other

  comprehensive income (loss):

    Net unrealized gains (losses)

(8)

(8)

(9)

(9)

Repayments and amortization of

   fixed maturities

(74)

(74)

(67)

(67)

Balance at end of period
$
1,014
$
1,014

$
1,175
$
1,175
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, 2021 are $(4,000) and $(8,000) of unrealized gains (losses) attributable to the change in unrealized gains (losses) related to Level 3 securities held at June 30, 2021.

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~~2021

December 31, ~~2016~~2020

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
$
501,550
$
-
$
501,550
$
6,9121,568
$
-
$
6,9121,568
  Securities purchased under
     agreements to resell
70,323
-
70,323
33,038
-
33,038

FINANCIAL LIABILITIES:

  Funds on deposit
$
-
$
143,911142,155
$
143,637142,155
$
-
$
146,098141,376
$
145,749141,376
  Other policyholders’ funds
-
11,988
11,988
-
12,001
12,001

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.   7.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, 2021 was $4,000 and $64,000 respectively; and was $(356,000) and $(28,000) for the three months and six months ended June 30, 2020, respectively.

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~~$2,022,000 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.~~2021.
Related Party Transactions
At June 30, 2021 and December 31, 2020, the Company’s Condensed Consolidated Balance Sheets include $94,000 and $163,000, respectively, of administrative fees and other expenses payable to Ebix Health Exchange Holdings, LLC (“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 $361,000 and $762,000, respectively, for the three months and six months ended June 30, 2021; and include $423,000 and $899,000, respectively, for the same periods in 2020.
Selling, general and administrative expense for the three months ended March 31, 2020 includes approximately $1,507,000 of expense related to the purchase of leads from an affiliated lead generation company, Torchlight, which was acquired in April of 2020. Lead costs subsequent to acquisition are eliminated in consolidation.

Note 7.   8.~~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 of which $2,725,000 is deductible for income tax purposes.
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 June 30, 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, of which $7,976,000 is deductible for income tax purposes, and ~~$5,880,000~~$2,700,000 of intangible ~~assets (see Note 8).~~ assets. In 2021, a portion of this goodwill was allocated to the Pets Sale disposal group presented in discontinued operations.
Goodwill ~~reflects~~represents the synergies ~~between PetPartners~~with our agencies. With a significant dependence on consumer and ~~Independence American~~small business opportunities, our agencies require a consistent and predictable flow of lead traffic, and as ~~PetPartners will provide Independence American with increased distribution sources for its pet insurance business through its marketing relationship~~a result, have meaningful synergies with the ~~American Kennel Club.~~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 ~~excess~~sum of ~~the sum of:~~ (i) the acquisition date fair value of total ~~cash~~aggregate consideration transferred of ~~$12,713,000;~~$11,628,000; and (ii) the aggregate acquisition-date fair value of ~~the redeemable noncontrolling interest in PetPartners of $2,005,000 on~~equity interests immediately before the acquisition ~~date;~~of $3,432,000; over (iii) the net identifiable assets of ~~$5,594,000~~$3,938,000 that were acquired. The enterprise value of ~~PetPartners~~Torchlight 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 pending receipt of the final valuations for those assets and liabilities. The Company

22

~~expects to finalize the preliminary estimates of the fair value of the intangible assets and deferred taxes by the end of this year.~~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.   9.Goodwill and Other Intangible Assets

The carrying amount of goodwill ~~was $50,697,000 and $41,573,000~~is $12,486,000 at ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016, respectively. Goodwill~~2020, of which $8,263,000 is ~~reviewed for impairment annually~~attributable to the Specialty Health Segment at both June 30, 2021 and December 31, 2020, and ~~evaluated~~$4,223,000 is attributable to the Group disability and life segment for ~~triggering events that may indicate a potential impairment quarterly. As of September 30, 2017, no impairment indicators were identified.~~the same periods.

The Company has net other intangible assets of ~~$15,062,000~~$3,667,000 and ~~$10,122,000~~$4,008,000 at ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016,~~2020, 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~~2021

December 31, ~~2016~~2020

Gross

Gross

Carrying

Accumulated

Carrying

Accumulated

Amount

Amortization

Amount

Amortization

Finite-lived Intangible Assets:

  Agent and broker relationships
$
17,2536,583
$
11,7974,599
$
13,0527,583
$
11,882
  ~~Domain~~
1,000
100
1,000
255,385
  Software systems

7801,500

51294

-1,500

-167
     Total finite-lived
$
19,0338,083
$
11,9484,893
$
14,0529,083
$
11,9075,552

September 30,

December 31,

June 30,

December 31,

2017

2016

2021

2020
Indefinite-lived Intangible Assets:

Insurance licenses

$
7,977
$
7,977

$
477
$
477
Total indefinite-lived

$
7,977
$
7,977

$
477
$
477

In connection with the acquisition of PetPartners in the first quarter of 2017 discussed in Note 7, the Company recorded $9,124,000 of goodwill and $5,880,000 of intangible assets associated with the Specialty Health segment. None of the goodwill is deductible for income tax purposes. The intangible assets primarily represent the fair value of customer relationships and are being amortized over a weighted average period of 9.6 years.
Amortization expense was ~~$393,000~~$179,000 and ~~$941,000~~$341,000 for the three months and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively,~~2021, respectively; and was ~~$366,000~~$171,000 and ~~$1,057,000~~$224,000 for the three months and ~~nine~~six months ended June 30, 2020, respectively.
Note 10.Fee Income
Substantially all of the fee income recorded by the IHC Agencies and lead generation company relate to our Specialty Health segment. The following table presents fee income disaggregated by type for the periods indicated (in thousands).

Three Months Ended

Six Months Ended

June 30,

June 30,

2021

2020

2021

2020

Commissions
$
1,416

1,932

4,297
$
3,672
Administrative Fees

80

581

177

1,069
Marketing Fees

254

292

559

643
Enrollment Platform Fees

529

455

1,029

973
Lead and Referral Fees

2,633

588

4,945

854
Payment Plan, Application and Other Fees

32

59

72

130

Total Fee Income
$
4,944

3,907

11,079
$
7,341
Commission Revenues
Commission revenues result from the sales of certain policies by the IHC Agencies on behalf of multiple unaffiliated insurance carriers. Increased sales of products to these unaffiliated insurance carriers began in 2020 as a result of new contracts with the carriers and increased distribution channels. These policies primarily consist of senior products, such as Medicare Advantage, Medicare Part D prescription drug plans and Medicare Supplement plans, as well as Affordable Care Act (“ACA”) plans. A significant portion of our commission revenues are recorded at a point in time upon the issuance of a policy by the unaffiliated insurance carrier based on expected constrained lifetime value (“LTV”). Constrained LTV represents expected commissions to be received over the lifetime of the policies sold. The Company analyzes various factors, such as commission rates, carrier mix, contract amendments and terminations, estimated average plan durations, cancellations and non-renewals, to estimate the LTV. Constraints are applied to help ensure that the total estimated lifetime commissions expected to be collected are recognized as revenue only to the extent that it is

23probable that a significant reversal in the amount of cumulative revenue recognized will not occur.
We evaluate the appropriateness of our constraints on a quarterly basis and update the LTV assumptions if we observe evidence that suggests a change in the underlying long-term expectations. In doing this, we apply significant judgement in assessing historical cash collections and changes in circumstances that would impact future cash collections such as, but not limited to, commission rates, carrier mix, plan durations, plan cancellations and non-renewals. Changes in LTV result in an increase or decrease to fee income revenue and a corresponding increase or decrease to contract assets. Any significant impact due to changes in the LTV assumptions are recognized in revenue (i) in the period of the change; and (ii) to the extent we do not believe a significant reversal is probable.
Costs to Fulfill a Contract
Costs to fulfill a contract include commissions owed to independent licensed agents or affinity partners that are contracted by the IHC Agencies. Upon the submission of a completed insurance application, the sales and marketing performance obligation is complete and the resultant estimated lifetime commission costs incurred are expensed and a corresponding commission liability is recorded on the Condensed Consolidated Balance Sheet. As policyholders continue their policy and remit monthly premium payments, the Company receives its commissions from the insurance carrier. Commissions owed to the agent or affinity partner are then paid and the corresponding liability is reduced. Judgement is required to estimate total expected lifetime commissions based on policy duration assumptions. At June 30, 2021 and December 31, 2020, the aforementioned commission liability was $2,858,000 and $2,362,000, respectively, and is included in accounts payable, accruals and other liabilities on the Condensed Consolidated Balance Sheet.
Contract Asset
Contract assets primarily relate to our commission revenues for the sales of senior products, such as Medicare Advantage and Medicare Supplement plans and ACA plans, which began in 2020. When commission revenue for the sales of these products is recognized, a corresponding contract asset is recorded in other assets on the Condensed Consolidated Balance Sheet. The timing of revenue differs from the collection of commissions. As policyholders continue their policy and remit monthly premium payments, the Company receives its commissions from the insurance carrier and the contract asset is reduced.
The following table summarizes the contract asset activity for the period indicated (in thousands).
Six Months Ended
June 30, 2021
Beginning Balance
$
7,760
Commissions recognized during the period
4,708
Commission adjustments related to prior periods
(418)
Cash receipts
(3,251)
Ending Balance
$
8,799
Remaining Performance Obligations
Deferred revenues are recorded in connection with certain terminable contracts and the right to use our INSX enrollment platform. At June 30, 2021 and December 31, 2020, deferred revenues are immaterial and expected to be fully recognized within the next 12 months.
~~ended September 30, 2016, respectively.~~

Note 9.   11.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~~reporting periods. Differences between the ~~current fiscal year in accordance with consolidated life/non-life group~~Federal statutory 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~~rate and the ~~non-life insurance company group.~~Company’s effective income tax rate are principally from the dividends received deduction and tax-exempt interest income, state and local income taxes, and compensation related tax provisions.

December 31, 2020, AMIC had Federal net operating loss carryforwards of approximately $46,116,000 and a corresponding valuation allowance of $8,281,000 related to those net operating loss carryforwards that, in the judgment of management, were not considered realizable. On June 30, 2021, the Company sold PetPartners and recorded a pretax gain of $74,534,000 (See Note 2). As a result, AMIC decreased its valuation allowance by $8,281,000 and utilized the $46,116,000 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 $11,589,000its outstanding Federal net operating loss carryforwards. Total income tax ~~benefit on a worthless stock deduction of $33,110,000 representing the Company’s tax basis~~expense 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~~pretax gain on disposal of ~~this worthless stock deduction. Excluding this tax benefit, the~~discontinued operations was $11,841,000. The primary differences between the Federal statutory income tax rate ~~of 35%~~ and the Company’s effective income tax rate ~~resulted principally~~related to the gain on disposal of discontinued operations are the result of AMIC’s decrease in its valuation allowance, partially offset by the non-deductibility of goodwill and other expenses related to the disposal.
The effective income tax rates related to losses from ~~the dividends received deduction~~continuing operations in 2021 were impacted by tax benefits from exercises of share-based compensation and ~~tax exempt interest income,~~ state and local income ~~taxes,~~tax benefits on certain subsidiaries. In 2020, the effective income tax rates related to losses from continuing operations reflect a benefit from capital losses attributable to the sale of a subsidiary, partially offset by certain non-deductible expenses recorded in connection with a Regulatory Settlement Agreement.
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 ~~health insurer specific~~Economic Security ("CARES") Act. The CARES Act established new tax ~~provisions.~~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.   12.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). Amounts incurred below do not include expenses for policy benefits and costs incurred for the Company’s life, annuity and other long-duration contracts. In addition, certain loss adjustment expenses related to short-duration contracts that are included in amounts incurred below are classified as selling general and administrative expenses on the Condensed Consolidated Statements of Income.

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
For the Six Months Ended June 30, 2021
Specialty
Group
All Other
Health
Disability
Lines
Total
Balance at beginning of year
$
31,680
$
80,976
$
20,301
$
132,957
Less: reinsurance recoverable
1,776
22,472
11,878
36,126
Net balance at beginning of year
29,904
58,504
8,423
96,831
Amount incurred, related to:
  Current year
16,631
20,031
11,947
48,609
  Prior years
(4,634)
(4,033)
(1,132)
(9,799)
  Total incurred
11,997
15,998
10,815
38,810
Amount paid, related to:
  Current year
4,461
3,922
6,885
15,268
  Prior years
12,080
11,488
3,667
27,235
  Total paid
16,541
15,410
10,552
42,503
Net balance at end of period
25,360
59,092
8,686
93,138
Plus: reinsurance recoverable
1,161
22,492
11,024
34,677
Balance at end of period
$
26,521
$
81,584
$
19,710
$
127,815

For the Six Months Ended June 30, 2020
Specialty
Group
All Other
Health
Disability
Lines
Total
Balance at beginning of year
$
35,530
$
80,079
$
19,874
$
135,483
Less: reinsurance recoverable
1,717
23,322
11,954
36,993
Net balance at beginning of year
33,813
56,757
7,920
98,490
Amount incurred, related to:
  Current year
24,522
19,093
11,182
54,797
  Prior years
(1,972)
(1,553)
(3,201)
(6,726)
  Total incurred
22,550
17,540
7,981
48,071
Amount paid, related to:
  Current year
7,064
4,010
4,979
16,053
  Prior years
17,530
12,125
2,155
31,810
  Total paid
24,594
16,135
7,134
47,863
Net balance at end of period
31,769
58,162
8,767
98,698
Plus: reinsurance recoverable
1,802
22,463
11,074
35,339
Balance at end of period
$
33,571
$
80,625
$
19,841
$
134,037

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 years indicated (in thousands):

Six Months Ended

June 30,
Specialty Health segment:

2021

2020
Short-term Medical (“STM”)
$
1,676
$
286
Occupational Accident

963

798
Fixed Indemnity Limited Benefit

862

(736)
Limited Medical

197

241
Critical Illness

196

397
Group Gap

356

513
All other specialty health lines

384

473

��

    Total Specialty Health segment
$
4,634
$
1,972
In both 2021 and 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 are primarily due to better than expected claim development. In 2021, experience in STM continues to be better than expected and severity has been relatively low.
In 2021, favorable development of $4,033,000 in the group

24

disability ~~reserves~~business is primarily due to lower frequency and ~~$2,714,000~~severity in both the short-term disability (“STD”) and the long-term disability (“LTD”) lines. In 2020, favorable development in the ~~other individual life, annuities and other reserves,~~group disability business is primarily due to a reduction in open claims, specifically new claims, in the 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.
All other lines, primarily life and other individual health products and including our medical stop-loss business in run-off, experienced favorable development ~~of $7,048,000~~ in ~~2016~~2021 and 2020. The favorable development in 2020 is primarily related to ~~prior years primarily consists of favorable developments of $2,916,000 in~~ the group ~~disability reserves, $494,000~~term life business due to continued improvements in ~~Medical Stop-Loss reserves,~~experience and ~~$3,769,000 in Specialty health reserves.~~updated assumptions for the Paid-Up Life business.

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

Specialty Health Segment

Health Insurance Claims

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,

2021

2020

Balance at beginning of year
$
28,295

$
31,259
Less: reinsurance recoverable

1,766

1,113
Net balance at beginning of year

26,529

30,146

Amount incurred, related to:

  Current year

15,818

23,627
  Prior years

(3,658)

(1,184)

  Total incurred

12,160

22,443

Amount paid, related to:

  Current year

4,319

8,260
  Prior years

11,992

16,382

  Total paid

16,311

24,642

Net balance at end of period

22,378

27,947
Plus: reinsurance recoverable

1,158

1,406
Balance at end of period
$
23,536

$
29,353

The liability for the IBNR plus expected development on reported claims associated with the Company’s health insurance claims ~~was $30,659,000~~is $22,378,000 at ~~September~~June 30, ~~2017.~~2021.

Note 11.   13.Stockholders’ Equity
~~Treasury Stock~~
In 2017, the Company repurchased 2,211,629 shares of its common stock for an aggregate cost of $44,442,000. Of that amount, 703,000 shares were repurchased in private transactions for an aggregate cost of $13,975,000; 1,385,118 shares were repurchased for an aggregate cost of $27,702,000 pursuant to the terms of a tender offer; and the remaining shares were repurchased in the open market.
~~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

2021

2020

2021

2020

Beginning balance
$
(2,504)
$
4,054
$
(6,964)
$
(3,440)
$
2,268
$
1,101
$
4,197
$
1,212

Other comprehensive income (loss):

Other comprehensive income (loss) before reclassifications

627

(182)

5,305

8,522

784

1,810

(1,013)

2,544
Amounts reclassified from accumulated OCI

(467)

(573)

(685)

(1,618)

168

(57)

36

(902)
Net other comprehensive income

160

(755)

4,620

6,904

Less: Other comprehensive income attributable

to noncontrolling interests

-

47

-

(118)
Acquired from noncontrolling interests

-

102

-

102
Net other comprehensive income (loss)

952

1,753

(977)

1,642

Ending balance
$
(2,344)
$
3,448
$
(2,344)
$
3,448
$
3,220
$
2,854
$
3,220
$
2,854

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

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

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

  reclassified during the period to the following income

  statement line items:

     Net realized investment gains
$
719
$
2,446
$
1,062
$
4,067
     Net impairment losses recognized in earnings

-

(1,475)

-

(1,475)

     Income before income tax

719

971

1,062

2,592
     Tax effect

252

398

377

974

     Net income
$
467
$
573
$
685
$
1,618

Three Months Ended

Six Months Ended

June 30,

June 30,

2021

2020

2021

2020

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

  reclassified during the period to the following income

  statement line items:

Net investment gains (losses)
$
(125)
$
47
$
47
$
284

Income (loss) from continuing operations before income taxes

(125)

47

47

284
Income tax expense (benefit)

(28)

10

9

60
Income (loss) from continuing operations, net of tax

(97)

37

38

224

Total pretax income (loss) from discontinued operations

(90)

25

(94)

858
Income tax expense (benefit) on discontinued operations

(19)

5

(20)

180
Income from discontinued operations, net of tax

(71)

20

(74)

678

Net income (loss)
$
(168)
$
57
$
(36)
$
902

Note 12. 14.~~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~~$59,000 and ~~$11,312,000~~$55,000 during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016.~~2020, respectively.
~~Cash payments for interest were $0 and $1,422,000 during the nine months ended September 30, 2017 and 2016, respectively.~~

Note 14.   15.Contingencies
Third Party Administrator

A third party administrator with whom we formerly did business (“Plaintiff” or “TPA”) ~~filed a Complaint dated~~commenced an action on May 17, 2017 in the United States District Court, Northern District of Texas, Dallas Division (the “Texas Action”), naming IHC, Madison National Life, Standard Security Life, and Independence Brokerage Group, Inc. (formerly IHC Carrier Solutions, Inc. ~~(collectively referred to~~) as ~~“Defendants”~~defendants (“Defendants”). 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~~contractual payments allegedly owed ~~to Plaintiff under~~by the ~~agreements~~Defendants 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 moved to Compel Arbitration~~court had previously stayed the proceedings during the pendency of two arbitrations. The first arbitration resulted in a judicially-confirmed award in favor of Standard Security Life 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 the fourth quarter of 2017, Madison National Life ~~agreed to pay fines~~ in the ~~state~~amount of ~~Texas primarily~~$5,641,000, which the Plaintiff has satisfied. The Company received payment on September 9, 2020 and recorded it in other income on the Consolidated Statement of Income in the third quarter of 2020. The second arbitration resulted in no monetary obligations owed by any of the parties. The Plaintiff has filed a motion for leave to file a Second Amended Complaint. The Defendants have until August 9, 2021 to file an opposition to the motion for leave to amend.
Multistate Market Conduct Examination (“MCE”)
As previously disclosed, our subsidiaries Standard Security Life, Madison National Life and Independence American Insurance Company were selected for MCE related to our short-term medical (“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) served as lead states, and the District of Columbia Department of Insurance, Securities and Banking and the Delaware Department of Insurance served as the managing lead states of the ~~Plaintiff.~~MCE. In addition to the five lead states, 37 other states participated in the MCE. Each of Standard Security Life, Madison National Life and Independence American Insurance Company 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 summarized 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 Insurance Company and the states involved in the MCE, the Lead States and Standard Security Life, Madison National Life and Independence American Insurance Company entered into separate 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 thirty-seven participating states adopted the RSAs. The Company accrued $3,660,000 in accounts payable, accruals and other liabilities on the Consolidated Balance Sheet in the second quarter of 2020 and processed payment in October 2020. As set forth in the RSAs, Standard Security Life, Madison National Life and Independence American Insurance Company deny any wrongdoing or violation of any applicable laws or regulations, and the entry into the RSAs is not an admission or acknowledgment of any wrongdoing or liability. In accordance with the RSAs, the Monitoring Period commenced and Standard Security Life, Madison National Life and Independence American Insurance Company continue to comply.

Note 15.   16.Segment Reporting

The Insurance Group principally engages in the life and health insurance business. ~~Interest expense, taxes,~~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,

2021

2020

2021

2020
Revenues:

Specialty Health
$
23,862
$
30,718
$
50,133
$
62,924
Group disability and life

25,143

24,076

50,264

48,161
Individual life, annuities and other (A)

183

490

392

808
Corporate

268

897

791

1,512

49,456

56,181

101,580

113,405
Net investment gains (losses)

(126)

274

91

117
   Total revenues
$
49,330
$
56,455
$
101,671
$
113,522

Income before income taxes

Specialty Health (C)
$
(841)
$
(5,329)
$
(2,732)
$
(5,935)
Group disability and life

3,770

4,353

6,900

6,190
Individual life, annuities and other (A) (B)

(263)

(140)

(247)

(283)
Corporate

(3,244)

(2,016)

(5,056)

(3,229)

(578)

(3,132)

(1,135)

(3,257)
Net investment gains (losses)

(126)

274

91

117
   Loss from continuing operations before income taxes
$
(704)
$
(2,858)
$
(1,044)
$
(3,140)

(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~~$153,000 and ~~$296,000~~$176,000, for the three months ended ~~September~~June 30, ~~2017~~2021 and ~~2016,~~2020, respectively, and ~~$937,000~~$310,000 and ~~$1,949,000~~$364,000, for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016,~~2020, respectively.

30(C)In both 2021 and 2020, significant costs associated with hiring, training and licensing a significant number of new agents, as well as costs for system development in our marketing and administrative companies.
Note 17.Subsequent Events
On July 14, 2021, IHC and its wholly owned subsidiary ICC entered into a Stock Purchase Agreement with Horace Mann Educators Corporation to sell all of the issued and outstanding capital stock of Madison National Life, a Wisconsin insurance company wholly owned by ICC, for an aggregate purchase price of $172,500,000 in cash. In addition, if Madison National Life reaches specified financial targets in 2023, IHC will receive an additional purchase price of up to $12,500,000. The transaction has been approved by the Board of Directors of IHC, and IHC’s majority stockholders have entered into a voting agreement under which such majority stockholders agreed to approve the transaction. The closing is expected no earlier than January 1, 2022. The transaction is subject to customary closing conditions, including applicable regulatory approvals, one of which is the approval by the Wisconsin Office of the Commissioner of Insurance. The aforementioned disposal plan represents a strategic shift that will have a major effect on the Company’s operations and financial results and as such, will qualify for reporting as discontinued operations in the third quarter 2021.

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,~~2020, 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”);~~Company; and (ii) its marketing and administrative companies ~~including IHC Specialty Benefits Inc., IHC Carrier Solutions, Inc.~~consisting of IHCSB, IBG, INSXCloud (collectively the “IHC Agencies”) and aits lead generation company, Torchlight. On June 30, 2021, the Company sold its majority interest in PetPartners, ~~Inc. IHC also owns~~ a ~~significant equity interest in Ebix Health Exchange Holdings, LLC (“Ebix Health Exchange”),~~major distributor and administrator of pet insurance underwritten by Independence American Insurance Company and an ~~administration exchange for health insurance.~~unaffiliated insurer. Standard Security Life, Madison National Life and Independence American Insurance Company are sometimes collectively referred to as the “Insurance Group”. IHC and its subsidiaries (including the Insurance Group) are sometimes collectively referred to as the "Company", or “IHC”, or are implicit in the terms “we”, “us” and “our”.

~~While management considers~~During the second quarter of 2021, the Board of Directors committed to the following plans for the disposal of several business operations. Each disposal plan below represents a ~~wide range~~strategic shift that will have a major effect on the Company’s operations and financial results and as such, they each qualify for reporting as discontinued operations in the second quarter 2021.
(A)On April 14, 2021, IHC and its wholly owned subsidiary ICC entered into a purchase agreement with Reliance Standard (“SSL Purchase Agreement”) to sell all of ~~factors~~the issued and outstanding capital stock of Standard Security Life, a wholly owned subsidiary of ICC, for an aggregate purchase price of $180 million in ~~its strategic planning~~cash. In addition, at closing, the Company will receive a dividend from Standard Security Life equal to the excess of aggregate statutory capital and ~~decision-making, underwriting profit~~surplus over $53 million as of the closing date. Standard Security Life had statutory capital and surplus of $82.1 million at June 30, 2021. The closing of the transaction, the closing dividend and certain other items are subject to customary closing conditions including applicable regulatory approvals, one of which is ~~consistently emphasized~~the approval of the New York State Department of Financial Services. Under the terms of the SSL Purchase Agreement, the transaction includes all of Standard Security Life’s DBL and PFL business and excluded all other lines of business, which will be reinsured prior to the closing. The aforementioned transaction, consisting of the sale of Standard Security Life, the closing dividend, the reinsurance of excluded business and other closing conditions, is collectively referred to as the ~~primary goal~~“Standard Security Life Sale Transaction”.
On July 29, 2021, the SSL Purchase Agreement was amended and restated to: (i) include in the disposal group, the business lines that were previously excluded from the transaction; (ii) remove the reinsurance requirement for the previously excluded business lines; and (iii) increase the target statutory capital and surplus to $57 million. As a result of this change in the disposal plan, the Company will include the assets, liabilities and results of operations for those business lines affected in discontinued operations for all ~~decisions as~~periods presented, beginning in the third quarter of 2021.
(B)On May 17, 2021, IHC and its wholly owned subsidiary SBH entered into a stock purchase

agreement with a subsidiary of Iguana Capital to ~~whether or not~~sell its 85% interest in PetPartners, a major distributor and administrator of pet insurance underwritten by Independence American Insurance Company and an unaffiliated insurer. In addition, IHC and its wholly owned subsidiary, AMIC, entered into a stock purchase agreement with Iguana Capital to ~~increase our retention~~sell all of the issued and outstanding capital stock of IAHC (“IAHC Purchase Agreement”), which owns all of the issued and outstanding common stock of Independence American Insurance Company and other pet assets including the Company’s equity investments in ~~a core line, expand into new products, acquire an entity or a block~~FIGO Pet Insurance, LLC and Pet Assistant Holdings, LLC. Under the terms of the IAHC Purchase Agreement, the transaction includes all of Independence American Insurance Company’s pet business and excludes all other lines of business which will be reinsured prior to the closing. The impact of these two agreements, taken in the aggregate, represents the sale of 70% of the Company’s pet business. The Company will retain a 30% interest in the form of an equity investment in the buyer, Iguana Capital. On June 30, 2021, the sale of PetPartners closed and in exchange for its shares of PetPartners, the Company received $78.8 million in cash, retained a 30% equity investment valued at $33.7 million and recorded a $74.5 million pretax gain on sale of discontinued operations, net of transaction costs. The cash is held in escrow until such time as the IAHC sale transaction closes. In connection with the pending sale of IAHC, the Company will receive approximately $190.4 million in cash and retain a 30% equity investment valued at approximately $81.6 million. The closing of the transactions contemplated by the IAHC Purchase Agreement is subject to customary closing conditions, including applicable regulatory approvals, one of which is the approval of the Delaware Insurance Department. The aforementioned transaction, consisting of the sale of PetPartners, IAHC and Independence American Insurance Company, the reinsurance of excluded business, and other closing conditions, is collectively referred to as the “Pets Sale Transaction”.
On July 14, 2021, IHC and its wholly owned subsidiary Independence Capital Corp. (“ICC”) entered into a Stock Purchase Agreement with Horace Mann Educators Corporation to sell all of the issued and outstanding capital stock of Madison National Life, a Wisconsin insurance company wholly owned by ICC, for an aggregate purchase price of $172.5 million in cash; in addition, if Madison National Life reaches specified financial targets in 2023, IHC will receive an additional purchase price of up to $12.5 million. The transaction has been approved by the Board of Directors of IHC, and IHC’s majority stockholders have entered into a voting agreement under which such majority shareholders agreed to approve the transaction. The closing is expected no earlier than January 1, 2022; and the transaction is subject to customary closing conditions, including applicable regulatory approvals, one of which is the approval by the Wisconsin Office of the Commissioner of Insurance. The aforementioned transaction is referred to as the “MNL Sale” transaction or ~~otherwise change~~disposal group.
The MNL Sale transaction also represents a strategic shift that will have a major effect on the Company’s operations and financial results and as such, will qualify for reporting as discontinued operations in the third quarter 2021.

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. COVID-19 has led to large scale disruption in the global economy, market instability and widespread unemployment in the United States.
The COVID-19 outbreak continues to be a fluid situation. The business continuity and emergency response plans we implemented during 2020 continue to ensure we provide a high level of 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 continues to evolve, the duration of COVID-19 and its potential effects on our business ~~model. Management's assessment~~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 ~~trends~~operations or financial condition in ~~healthcare~~future reporting periods. For more information, see the risk factor under the heading “We continue to face risks related to the ongoing Coronavirus (COVID-19) pandemic that could impact our sales, operating results and ~~morbidity, with respect to specialty medical, disability and New York short-term disability (“DBL”); mortality rates with respect to life insurance; and changes~~financial condition” in ~~market conditions in general play a significant role in determining~~Item 1A. Risk Factors of our Annual Report on Form 10-K for the ~~rates charged, deductibles and attachment points quoted, and the percentage of business retained. Management has always focused on managing the costs of its operations.~~fiscal year ended December 31, 2020.

31

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

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

·~~Income~~Loss from continuing operations of ~~$.34~~$.03 per share, diluted, for the three months ended ~~September~~June 30, ~~2017~~2021 compared to ~~$.25~~$.12 per share, diluted, for the same period in ~~2016. Income~~2020. Loss from continuing operations of ~~$1.50~~$.04 per share, diluted, for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 compared to ~~$.83~~$.13 per share, diluted, for the same period in ~~2016.~~2020.

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 15.

·Consolidated investment yields (on an annualized basis) of ~~3.6%~~2.0% for both the three and ~~3.2%~~six months ended June 30, 2021, respectively, compared to 2.4% and 2.5% for the three month and six month periods, respectively, in 2020;

·Book value of $37.45 per common share at June 30, 2021 compared to $32.08 at December 31, 2020.
·Income from discontinued operations for both the three and six months ended June 30, 2021 includes an after tax gain of $62.7 million on the sale of PetPartners. Excluding this gain, income from discontinued operations for the three months and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021 and 2020 were $14.1 million and $19.8 million, respectively compared ~~to 2.5%~~with income of $2.3 million and ~~2.7% for~~$6.8 million in the comparable ~~three and nine month~~2020 periods, ~~in 2016, respectively;~~respectively.

·~~Book value~~Results for the first half of ~~$28.19 per common share~~2021 were both positively and negatively impacted by COVID-19.
oSales at ~~September 30, 2017 compared~~our agency were lower than expected in the first half of 2021, impacted by lower short-term medical (“STM”) sales, as consumers, especially those over the age of 50 who often purchased STM coverage took advantage of Special Enrollment Periods for ACA coverage and the increased Advanced Premium Tax Credits, also known as subsidies, as well as employers continuing to ~~$25.53 at December 31, 2016.~~offer employer sponsored coverage to furloughed workers. The agency is seeing an increase in fee and commission income from the sale of ACA plans. Certain lines of business that are sold with ACA coverage, such as dental and accident plans exceeded expectations but due to lower commission on these products did not fully offset the commission lost through lower STM sales. We are shifting our call center focus to the ACA market for this period.
oEvolving regulatory mandates for testing and treatment coverage, the length and severity of the outbreak, claims activity, and impacts on payment of premiums have not had a significant impact on the 2021 results to date, however, we may incur additional expenses in the future relating to possible COVID-19 related claims activity and possible non-payment of premiums as the full effects of the outbreak continue to unfold. To date, we have experienced lower utilization related to the deferral of services which more than offset the extra incurred costs mentioned previously. It is still unpredictable how this level of deferred utilization will reverse or not in the future but emerging results will continue to be monitored.
oResults for the Group disability and life segment were not materially impacted by COVID-19 from an aggregate claims standpoint. The life incidence rate was higher than expected in the first half of 2021 partially due to COVID-19 reported deaths.

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

oThe Specialty Health segment reported ~~$5.2~~$0.8 million of ~~income~~losses before taxes for the three months ended ~~September~~June 30, ~~2017 as~~2021 compared to ~~$1.4~~$5.3 million of losses before taxes for the comparable period in ~~2016;~~2020; and reported ~~$9.4~~$2.7 million ~~of income~~in losses before taxes for the ~~nine months~~six-month period ended ~~September~~June 30, ~~2017~~2021 compared to ~~$3.8~~$5.9 million of losses for the same period in ~~2016.~~2020. 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. Excluding the MCE compliance expense, losses in the three and six months of 2020 were $1.6 million and $2.2 million, respectively.

oPremiums earned ~~increased $11.1~~for the three months and six months ended June 30, 2021 decreased $7.8 million and ~~$23.5~~$15.9 million, respectively, as compared to the same periods in 2020. Decreases in premiums occurred in the STM, fixed indemnity limited benefit and group gap lines.

oIHC’s agencies produced operating losses of $4.8 million and $8.7 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively, over the comparable periods in 2016. For~~2021 compared with operating losses of $4.2 million and $7.2 million for the three ~~months~~ and ~~nine~~six months ended ~~September~~June 30, ~~2017, short term medical premiums increased $3.6 million~~2020. These amounts exclude purchase related incentive compensation 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 these lines were partially offset by reduced premium volume in 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 business.~~intangible asset amortization.

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,

2021

2020

2021

2020

Premiums Earned
$
18,639
$
26,440
$
38,465
$
54,413
Insurance Benefits, Claims & Reserves

4,036

10,468

11,906

21,798
Expenses

9,306

16,675

18,862

30,812

Loss Ratio (A)

21.7%

39.6%

31.0%

40.1%
Expense Ratio (B)

49.9%

63.1%

49.0%

56.6%
Combined Ratio (C)

71.6%

102.7%

80.0%

96.7%

(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 lower loss ~~ratios for the three months and nine months~~ratio in ~~2017 are lower than~~2021 is primarily due to favorable reserve experience in the ~~comparable periods~~short term medical and fixed indemnity lines. The lower expense ratio in 2016, the expense ratios are higher in 2017 because of changes in the mix of products within the Specialty Health segment and as a result of the reallocation of certain fixed costs from the Medical Stop-Loss segment2021 is primarily due to 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 soldchange in ~~the third quarter of 2016. Excluding this business, the Company would~~product lines which have ~~reported~~ a ~~Combined Ratio of 91.6% and 95.3% for the three months and nine months ended September 30, 2017, respectively.~~lower expense structure.

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~~ and ~~DBL~~life segment decreased ~~$0.2~~$.6 million for the three months ended ~~September~~June 30, ~~2017 and $0.7 million for the nine months ended September 30, 2017~~2021 compared to the same ~~periods~~period in ~~2016.~~2020 and increased $.7 million for the six months ended June 30, 2021 compared with the comparable period in 2020. The decrease in ~~the in the three and nine-month results~~second quarter 2021 income was primarily ~~reflects a decrease~~due to higher loss ratios in the group term life ~~lines~~business. The increased income in the six-month period of 2021 was as a result of lower loss ratios in the STD line of business; partially offset by higher loss ratios in the LTD line and higher loss ratios in the group term life business partially due to ~~higher claims in 2017 and lower income from the international line due to run-off of that line of business.~~Covid-19 related claims.

·~~The~~Income and loss before taxes from the Individual life, annuities and other segment in run-off were not significant for the three or six months ended June 30, 2021 and 2020;
·The Corporate segment reported losses before ~~income~~ taxes of ~~$0.4~~$3.2 million and $5.1 million for the three months and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, respectively, compared ~~with~~to losses of ~~$0.4~~$2.0 million and ~~$1.9~~$3.2 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 million for the three months ended and income of $2.8 million for the nine months ended September 30, 2017 as compared to income 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 million in the three months and decreased $1.1 million in the nine months ended September 30, 2017 over the comparable periods of 2016~~2020, primarily due to ~~changes in~~higher share-based ~~compensation, consulting, legal~~ and ~~accounting~~incentive compensation expenses; 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:

2021

2020

2021

2020

Specialty Health
$
19,734
$
28,185
$
40,623
$
57,731
Group disability and life

29,887

28,954

59,687

57,934
Individual life, annuities and other

4,090

4,788

8,857

9,630

$
53,711
$
61,927
$
109,167
$
125,295

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

Three Months Ended

Six Months Ended

June 30,

June 30,
Net Direct and Assumed

Earned Premiums:

2021

2020

2021

2020

Specialty Health
$
18,639

26,440

38,465
$
54,413
Group disability and life

23,808

22,685

47,542

45,370
Individual life, annuities and other

4

13

16

21

$
42,451

49,138

86,023
$
99,804

CRITICAL ACCOUNTING POLICIES

The accounting and reporting policies of the Company conform to U.S. ~~generally accepted accounting principles ("GAAP").~~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.~~2020. Management has identified the accounting policies related to Insurance Premium Revenue Recognition and Policy Charges, Fee Income Revenue Recognition, 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.~~2020. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, there were no additions to or changes in the critical accounting policies disclosed in the ~~2016~~2020 Form 10-K except for the recently adopted accounting

34

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

Results of Operations for the Three Months Ended ~~September~~June 30, ~~2017~~2021 Compared to the Three Months Ended ~~September~~June 30, ~~2016~~2020

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

Benefits,
Selling,

Net
Fee and
Claims
General

~~September~~June 30, ~~2017~~2021
Premiums
Investment
Other
and
and

(In thousands)
Earned
Income
Income
Reserves
Administrative
Total

~~Specialty Health~~
$
51,390
1,299
2,813
22,162
28,102
$
5,238
~~Group disability,~~

   ~~life and DBL~~Specialty Health
$
24,296
1,729
87
11,249
9,71918,639

5,144295
4,928
4,036
20,667
$
(841)
Group disability and life
23,808
1,085
250
13,010
8,363
3,770
Individual life,

   annuities and other

(45)
405
95
(149)
9894

(385)
~~Medical Stop-Loss~~
(2)
578
-
274
840122

(538)57
146
300
(263)
Corporate

-
392149
119

-
-
2,6873,512

(2,295)(3,244)
Sub total
$
75,63942,451
$
4,4031,651
$
2,9955,354
$
33,53617,192
$
42,33732,842

7,164 (578)

Net ~~realized~~ investment gains (losses)

715 (126)
~~Income~~Loss from continuing operations before income taxes

7,879 (704)
Income taxes (benefits)

2,666 (267)
~~Income~~Loss from continuing operations, net of tax
$
5,213 (437)

Benefits,
Selling,

Net
Fee and
Claims
General

~~September~~June 30, ~~2016~~2020
Premiums
Investment
Other
and
and

(In thousands)
Earned
Income
Income
Reserves
Administrative
Total

~~Specialty Health~~
$
40,275
1,190
3,219
21,849
21,466
$
1,369
~~Group disability,~~

   ~~life and DBL~~Specialty Health
$
24,373
1,680
143
12,652
8,221 26,440

5,323550
3,728
10,468
25,579
$
(5,329)
Group disability and life
22,685
1,254
137
10,713
9,010
4,353
Individual life,

   annuities and other

19
810
(112)
268
85913

(410)
~~Medical Stop-Loss~~
2,668
(296)
3,061
3,508
(251)202

2,176 275
158
472
(140)
Corporate

-
620323
574

-
-
2,528 2,913

(1,908)(2,016)
Sub total
$
67,33549,138
$
4,0042,329
$
6,3114,714
$
38,27721,339
$
32,823 37,974

6,550 (3,132)

Net ~~realized~~ investment gains

2,367274
~~Net impairment losses recognized in earnings~~
(1,475)
~~Interest expense on debt~~
(440)
~~Income~~Loss from continuing operations before income taxes

7,002 (2,858)
Income taxes (benefits)

2,636 (1,066)
~~Income~~Loss from continuing operations, net of tax
$
4,366 (1,792)

Premiums Earned

In the ~~third~~second quarter of ~~2017,~~2021, premiums earned ~~increased $8.3~~decreased $6.7 million over the comparable period ~~of 2016.~~in 2020. The ~~increase~~decrease is primarily due ~~to: (i) an increase of $11.1~~to a $7.8 million decrease in earned premiums from the Specialty Health segment ~~principally~~primarily as a result of ~~a $14.3~~decreases of $4.3 million ~~increase~~in STM premiums, $2.6 million in the fixed indemnity limited benefit ~~a $3.6~~line, and $1.4 million ~~increase~~ in ~~premiums from the short-term medical line of business,~~group gap business; partially offset by ~~a $3.2 million decrease~~an increase in ~~occupational accident~~dental premiums ~~due to the run-off~~ of ~~this line following the sale of our primary producer of this business~~$.4 million. Earned premiums in the ~~third quarter of 2016, a decrease of $1.3~~Group disability and life segment increased $1.1 million primarily 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.STD/LTD lines.

Net Investment Income

Total net investment income ~~increased $0.4 million over the comparable period in 2016.~~decreased $.7 million. The overall annualized investment yields were ~~3.6%~~2.0% and ~~2.5%~~2.4% in the ~~third~~second quarter of ~~2017~~2021 and ~~2016,~~2020, 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 losses of $.1 million in 2021 compared to net investment gains of ~~$0.7~~$.3 million in ~~2017 compared to $2.4 million in 2016.~~2020. 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 $1.0 million for the three-month period ended ~~September~~June 30, ~~2017~~2021 compared to the three-month period ended ~~September~~June 30, ~~2016~~2020 primarily due to ~~the lack of agency~~an increase in lead generating 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~~decreases in lifetime value commission accruals principally on Medicare advantage products 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.~~IHC Agencies for multiple unaffiliated insurance carriers.

Other income in the ~~third~~second quarter of ~~2017 decreased $1.9 million from the same period in 2016 primarily due to the run-off of fees received in conjunction with the diminished administration of the Medical Stop-Loss segment.~~both 2021 and 2020 was not significant.

Insurance Benefits, Claims and Reserves

In the ~~third~~second quarter of ~~2017,~~2021, insurance benefits, claims and reserves decreased ~~$4.8~~$4.1 million over the comparable period in ~~2016.~~2020. The decrease is primarily attributable to: (i) a decrease of ~~$3.2~~$6.4 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; and (ii) decreased benefits, claims and~~ reserves of $1.5 million in the Group disability, life, annuities and DBL segment, primarily due to lower loss ratios on group term life and LTD lines, and (iii) a decrease of $0.4 million in the Individual life, annuity and other segment; partially offset by (iv) an increase of $.3 million in the Specialty Health segment primarily due to ~~increases~~a decrease of ~~$3.9 million and $2.0~~$3.8 million in ~~claims from~~the STM line and $1.8 million in the fixed indemnity limited benefit line due to lower premium volume and ~~short term medical products as a result of increased volume,~~lower loss ratios, and $.9 million in the group gap line on lower premium volume; partially offset by ~~decreases~~(ii) an increase of ~~$2.6~~$2.3 million in ~~dental~~the Group disability and life segment primarily due higher loss ratios 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.~~term life business partially due to COVID-19 related claims.

Selling, General and Administrative Expenses

Total selling, general and administrative expenses ~~increased $9.5~~decreased $5.1 million over the comparable period in ~~2016.~~2020. The ~~increase~~decrease is ~~primarily attributable~~principally due to: (i) a ~~$6.6~~decrease of $4.9 million ~~increase~~ in the Specialty Health ~~segment~~line of business primarily due to ~~administrative and commission~~the second quarter of 2020 results including $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, and agency expenses from PetPartners~~products with no comparable expenses in ~~the prior year; (ii) an increase of $1.1 million~~2021, as well as decreases in commission and administrative expenses related to decreased volume in the ~~Medical Stop-Loss segment primarily due to~~fixed indemnity limited benefit, STM and group gap lines partially offset by increased lead generation expenses, compensation and system development related expenses in our marketing and administrative companies; (ii) a ~~credit in premium taxes in 2016 with no comparable amount for 2017; (iii) an increase~~decrease of ~~$1.5~~$.7 million in the Group disability and life ~~annuities~~segment primarily due to increased commission expenses and ~~DBL segment~~other general expenses on group term life and LTD/STD lines of business on increased premium volume; and (iii) an increase of ~~$0.2~~$.6 million in the Corporate segment primarily due to ~~an increase in audit, legal, share-based~~ compensation ~~and consulting fees.~~related expenses.

Income ~~Taxes~~Taxes

The effective tax rate for the three months ended ~~September~~June 30, ~~2017~~2021 was ~~33.8%~~(37.9)% compared to ~~37.6%~~(37.3)% for the three months ended ~~2016.~~June 30, 2020. The ~~lower~~effective income tax ~~rate is primarily due to: (i) an increase~~rates related to losses from continuing operations in 2021 were impacted by tax benefits from ~~tax-advantaged securities as~~exercises of share-based compensation and state and local income tax benefits on certain subsidiaries. In 2020, the effective income tax rates related to losses from continuing operations reflect a ~~percentage~~benefit from capital losses attributable to the sale of ~~income~~a subsidiary, partially offset by certain non-deductible expenses recorded in ~~2017; (ii)~~connection with a ~~decrease in state taxes as a percentage of income; and (iii) a decrease in non-deductible expenses.~~Regulatory Settlement Agreement.

Results of Operations for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2021 Compared to the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016~~2020

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

Benefits,
Selling,

Net
Fee and
Claims
General

~~September~~June 30, ~~2017~~2021
Premiums
Investment
Other
and
and

(In thousands)
Earned
Income
Income
Reserves
Administrative
Total

~~Specialty Health~~
$
136,539
3,725
12,028
64,935
77,945
$
9,412
~~Group disability,~~

   ~~life and DBL~~Specialty Health
$
73,713
4,921
351
40,146
26,06238,465

12,777638
11,030
11,906
40,959
$
(2,732)
Group disability and life
47,542
2,208
514
26,901
16,463
6,900
Individual life,

   annuities and other

8
1,188
298
172
1,85416

(532)
~~Medical Stop-Loss~~
247
1,058
1,244
(2,182)
1,979257

2,752 119
306
333
(247)
Corporate

-
1,522349
442

-
-
7,5645,847

(6,042)(5,056)
Sub total
$
210,50786,023
$
12,4143,452
$
13,92112,105
$
103,07139,113
$
115,40463,602

18,367 (1,135)

Net ~~realized~~ investment gains

98791
~~Income~~Loss from continuing operations before income taxes

19,354 (1,044)
Income ~~tax benefits~~taxes (benefit)

(5,175)(430)
~~Income~~Loss from continuing operations, net of tax
$
24,529 (614)

Benefits,
Selling,

Net
Fee and
Claims
General

~~September~~June 30, ~~2016~~2020
Premiums
Investment
Other
and
and

(In thousands)
Earned
Income
Income
Reserves
Administrative
Total

~~Specialty Health~~
$
112,981
2,253
11,220
60,497
62,203
$
3,754
~~Group disability,~~

   ~~life and DBL~~Specialty Health
$
71,842
4,926
641
38,203
25,673 54,413

13,5331,122
7,389
21,798
47,061
$
(5,935)
Group disability and life
45,370
2,505
286
25,534
16,437
6,190
Individual life,

   annuities and other

30
1,677
346
922
3,019 21

(1,888)
~~Medical Stop-Loss~~
10,671
1,544
9,182
9,875
(2,404)411

13,926 376
296
795
(283)
Corporate

-
2,300790
50722

-
9,456 4,741

(7,106)(3,229)
Sub total
$
195,52499,804
$
12,7004,828
$
21,4398,773
$
109,49747,628
$
97,947 69,034

22,219 (3,257)

Net ~~realized~~ investment gains

3,945117
~~Net impairment losses recognized in earnings~~
(1,475)
~~Interest expense on debt~~
(1,366)
~~Income~~Loss from continuing operations before income taxes

23,323 (3,140)
Income taxes (benefit)

8,566 (1,187)
~~Income~~Loss from continuing operations, net of tax
$
14,757 (1,953)

Premiums Earned

In the first ~~nine~~six months of ~~2017,~~2021, premiums earned ~~increased $15.0~~decreased $13.8 million over the comparable period ~~of 2016.~~in 2020. The ~~increase~~decrease is primarily due ~~to: (i) an increase of $23.5~~to a $15.9 million decrease in earned premiums from the Specialty Health segment principally as a result of ~~a $23.1~~decreased premiums of $7.1 million ~~increase~~in STM, $6.2 million in the fixed indemnity limited benefit line ~~a $11.3~~and $2.9 million

37

~~increase~~ in ~~premiums from the short term medical line of business, and a $1.5 million increase in the pet line of~~group gap business, partially offset by ~~a decrease~~increased premium 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 $3.5~~$.4 million in the dental ~~line of business and a $2.9 million decline~~line. Earned premiums in ~~international premiums; and (ii) a $1.9 million increase in earned premiums from~~ the Group disability and life ~~annuities and DBL~~ segment ~~primarily due to~~ increased ~~volume in the LTD, DBL and group term life lines, partially offset by (iii) a decrease of $10.4~~$2.1 million ~~in the Medical Stop-Loss segment~~primarily as a result of ~~the sale of Risk Solutions~~$1.5 million on increased premiums in both STD and ~~exit from the medical stop-loss~~LTD business, ~~further described~~as well as $.5 million in ~~Note 3.~~higher premiums on group term life business.

Net Investment Income

Total net investment income decreased ~~$0.3 million over the comparable period in 2016.~~$1.4 million. The overall annualized investment yields were ~~3.2%~~2.0% and ~~2.7%~~2.5% in the first ~~nine~~six months of ~~2017~~2021 and ~~2016,~~2020, 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~~

The Company had net ~~realized~~ investment gains of ~~$1.0~~$.1 million in ~~the first nine months of 2017 compared to $3.9 million in 2016.~~both 2021 and 2020. 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 that the securities would be sold before the recovery of their amortized cost basis.

Fee Income and Other Income

Fee income ~~decreased $1.0~~increased $3.7 million for the ~~nine-month period~~six months ended ~~September~~June 30, ~~2017~~2021 compared to the ~~nine-month period~~six months ended ~~September~~June 30, ~~2016~~2020 primarily due ~~to the lack of agency~~an increase in lead generating 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~~decreases in lifetime value commission accruals principally on Medicare advantage products by ~~PetPartners, our recently acquired subsidiary, with no comparable amounts in 2016, and increased fee income~~the IHC Agencies for multiple unaffiliated insurance carriers as ~~a result of higher premium volume in certain lines of the specialty health business.~~well as lower commissions on lower STM policy sales for IHC carriers.

Other income in the first ~~nine~~six months of ~~2017 decreased $6.5 million from the same period in 2016 primarily due to the run-off of fees received in conjunction with the diminished administration of the Medical Stop-Loss segment.~~both 2021 and 2020 was not significant.

Insurance Benefits, Claims and Reserves

In the first ~~nine~~six months of ~~2017,~~2021, insurance benefits, claims and reserves decreased ~~$6.4~~$8.5 million over the comparable period in ~~2016.~~2020. The decrease is primarily 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~~$9.9 million in the Specialty Health segment primarily due to ~~an increase~~a decrease of ~~$3.3~~$4.4 million in the ~~small group major medical~~STM 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~~$2.9 million in the ~~benefits and claims of short term medical,~~ fixed indemnity limited benefit ~~and pet lines of business, respectively,~~line due to ~~increases~~lower premium volume and lower loss ratios, $1.9 million in the group gap line on lower premium volume, $.5 million in the occupational accident line on favorable claim development and $.3 million on dental lines due to lower loss ratios; partially offset by (ii) an increase of $1.4 million in the Group disability and life segment primarily as a result of a $2.8 million increase in group term life benefits and claims as result of higher loss ratios partially due to COVID-19 related claims; partially offset by a ~~$6.3~~$1.4 million decrease in LTD/STD benefits and claims ~~and reserves related~~as a result of lower loss ratios due in part to ~~the run-off of the occupational accident line of business and decreases of $3.5 million and $0.9 million~~favorable loss development in the ~~dental and international lines, respectively, due to lower premiums; and (iv) an increase of $1.9 million in benefits, claims and reserves~~STD line, partially offset by higher loss ratios in the ~~Group disability, life, annuities and DBL segment, primarily due to growth in this line and increased loss ratios on group term life and~~ LTD ~~lines of business.~~line.

Selling, General and Administrative Expenses

Total selling, general and administrative expenses ~~increased $17.5~~decreased $5.4 million over the comparable period in ~~2016.~~2020. The ~~increase~~decrease is ~~primarily attributable~~principally due to: (i) a ~~$15.7~~decrease of $6.1 million ~~increase~~ in the Specialty Health ~~segment~~line of business primarily due to ~~administrative and commission~~2020 results including $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, and agency expenses from PetPartners~~products with no comparable expenses in 2021, as well as decreases in commission and administrative expenses related to decreased volume in the ~~prior year,~~fixed indemnity limited benefit, STM and group gap lines partially offset by ~~a decrease in administrative~~increased lead generation expenses, compensation and system development related expenses in ~~2017 from Accident Insurance Services, Inc.,~~ our ~~primary producer of Occupational Accident line of business, which was sold in the third quarter of 2016;~~marketing and administrative companies; partially offset by (ii) an increase of ~~$4.4~~$1.1 million in the ~~Medical Stop-Loss~~Corporate segment primarily due to a credit in premium taxes in 2016 with no comparable amount for 2017; partially offset by (iii) a decrease of $1.2 million in the Individual life, annuity and other segment largely 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~~2021 was ~~33.1%~~(41.2)% compared to ~~36.7%~~(37.8)% for the ~~nine~~six months ended ~~2016.~~June 30, 2020. The ~~lower~~effective income tax ~~rate is primarily due to: (i) an increase~~rates related to losses from continuing operations in 2021 were impacted by tax benefits from ~~tax-advantaged securities as~~exercises of share-based compensation and state and local income tax benefits on certain subsidiaries. In 2020, the effective income tax rates related to losses from continuing operations reflect a ~~percentage~~benefit from capital losses attributable to the sale of ~~income~~a subsidiary, partially offset by certain non-deductible expenses recorded in ~~2017; (ii)~~connection with a ~~decrease in state taxes as a percentage of income; and (iii) a decrease in non-deductible expenses.~~Regulatory Settlement Agreement.

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~~2021 or 2020.
It is anticipated that cash flows to be received upon the close of the disposal transactions will provide sources of corporate liquidity to offset the loss of cash flows previously derived from the insurance operations currently held in discontinued operations. The Company is evaluating the best use of liquidity derived from the disposal transactions.
The proceeds received from the sale of PetPartners were deposited into an escrow account owned by SBH and ~~2016, respectively.~~ treated as a security deposit. The funds will be released from escrow upon either the consummation of the IAHC purchase or upon the exercise of the PPI Put/Call Option. At June 30, 2021, the security deposit is presented as funds held in escrow on the Condensed Consolidated Balance Sheet.

39

Cash Flows

The Company had ~~$26.6~~$27.0 million and ~~$22.0~~$74.8 million of cash, ~~and~~ cash equivalents and restricted cash from continuing and discontinued operations as of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016,~~2020, respectively.

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, operating activities provided $53.5 million of cash and investment activities ~~provided $36.4~~utilized $97.8 million of cash, primarily the result of ~~sales~~the investment of ~~investment securities, partially offset by $12.3 million net~~ cash ~~outflow to acquire PetPartners.~~and cash equivalents in resale agreements. Financing activities utilized ~~$47.9~~$3.5 million of cash, of which ~~$44.3~~$3.2 million was utilized ~~for treasury share purchases.~~
~~On May 26, 2017, IHC commenced a tender offer~~ to ~~purchase up to 2,000,000 shares of its~~pay common stock ~~at a price per share~~dividends. For the six months ended June 30, 2021, cash flows from the operating and investing activities of ~~$20.00, net, to the seller in cash. On June 26, 2017, at the close of business, the offer expired~~discontinued operations were $45.9 million and the Company accepted for purchase 1,385,118 shares of its common stock at $20.00 per share, for an aggregate purchase price of $27.7 million. The tender offer was fully funded through corporate liquidity.$(88.5) million, respectively.

The Company ~~has $387.0~~had $328.8 million of liabilities for future policy benefits and policy benefits and claims as of June 30, 2021 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,~~2021, cash received from the maturities and other repayments of fixed maturities was ~~$16.8~~$44.5 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 six months of 2021. 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 the future.

BALANCE SHEET

The Company had receivables due from reinsurers of ~~$383.2~~$354.7 million at ~~September~~June 30, ~~2017~~2021 compared to ~~$440.3~~$357.2 million at December 31, ~~2016. The decrease is primarily attributable to the decrease in medical stop-loss reserves that are 100% coinsured.~~2020. 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.~~2021.

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

2021

2020

Specialty Health
$
52,157
$
50,237
$
26,521
$
31,680
Group Disability

103,933

104,428

90,790

89,902
Individual A&H and Other

8,527

9,688

10,504

11,375
Medical Stop-Loss

4,930

54,760

$
169,547
$
219,113
$
127,815
$
132,957

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.

40

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.~~effect.

The Company’s disability business is comprised of group ~~disability and DBL.~~disability. 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~~$78.7 million ~~decrease~~increase in IHC’s stockholders' equity in the first ~~nine~~six months of ~~2017~~2021 is primarily due to ~~$44.4 million of treasury stock purchases and $0.9 in common stock dividends, partially offset by $24.5~~$82.5 million of net income attributable to IHC ~~and $4.6~~from discontinued operations, primarily $62.7 million in after tax gains on the sale of PetPartners; reduced by $3.2 million of ~~other comprehensive income attributable to IHC.~~common stock dividends.

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 $3.4 million and gross unrealized losses of $1.3 million on its fixed maturities available-for-sale securities ~~totaled $6.1 million~~ at ~~September~~June 30, ~~2017, 100%~~2021. 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.~~2021.

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. 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 is more likely than not that we would sell the securities before the recovery of their amortized cost basis.2021 or 2020.

The following table summarizes the carrying value of securities with fair values less than 80% of their amortized cost at ~~September~~June 30, ~~2017~~2021 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
$
-
$
-
$
-
$
641
$
641

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.~~2021. 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~~with its current activities. It is anticipated that any future acquisitions or other expansion of operations at the remaining entities of IHC 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~~remainder of ~~2017~~2021, and ~~2018,~~continuing in 2022, the Company anticipates that weit will:

·~~Continue~~Close on the sale of all of the issued and outstanding capital stock of Standard Security Life to ~~show significant increases~~Reliance Standard pursuant to the SSL Purchase Agreement signed on April 14, 2021 and amended on July 29, 2021. Reliance Standard believes that this transaction, which is subject to various regulatory approvals, will close in ~~specialty~~the second half of this year. Standard Security Life will dividend statutory surplus in excess of $57 million to its parent at closing so earnings prior to closing will be retained by IHC.
·Close on the sale of all of the issued and outstanding capital stock of IAHC to Iguana Capital pursuant to the IAHC Purchase Agreement signed on May 17, 2021. We believe this transaction, which is subject to various regulatory approvals, will close in the second half of this year.
·Close on the sale of the stock of Madison National Life to Horace Mann Educators Corporation pursuant to the MNL Purchase Agreement signed on July 14, 2021. This transaction, subject to various regulatory approvals, is expected to close no earlier than January 1, 2022.
·Focus on the transition and consummation of all transactions entered into in 2021. The consummation of these transactions shall be the entire focus of the Company for the remainder of 2021. After all the transactions are consummated, IHC projects that it will hold approximately $560 million in cash and investments, net of liabilities; a 30% interest in Iguana Capital with a carrying value of approximately $115 million; and our health ~~premiums (including hospital indemnity, group limited medical and group gap~~insurance agency and other ~~supplemental health products, such as accident medical, gap~~assets with an aggregate carrying value of approximately $20 million, resulting in an estimated book value of approximately $47.00 per share which is calculated assuming the transactions occurred on June 30, 2021. These projections are based on information currently known to management and ~~critical illness products).~~include the use of estimates and assumptions with regards to anticipated transaction costs, estimated tax rates and other potential changes.
·Improve the profitability and better integrate all of our agencies. IHC has ~~begun to package~~experienced many changes in its ~~hospital indemnity, accident and critical illness plans~~agency model 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 expected increase in the duration of short-term medical plans2021 as a result of the Trump Administration’s executive order directing federal agencies to extend the duration of these products to 364 days, subject to state law. In anticipation of this growth we have begun to make material enhancements to our systemsa changing market and ~~infrastructure and will contribute additional capital~~due to the ~~insurance companies if needed. For~~decision to sell all three of IHC’s carriers. Although we continue to record losses in our agency business, we expect that to improve in the ~~preceding reasons,~~future. IHC has re-evaluated and made significant changes to the direction of the Company.   As we ~~believe that we~~progress, our agency operations will ~~continue~~be centered around INSXcloud.com (INSX), our CMS approved Web Broker. INSX provides an agent with the ~~solid sales growth we have been experiencing for~~ability to quote, directly enroll and track applications on the ~~balance~~Federally Facilitated Marketplace, plus much more. Specifically, brokers can quickly generate quotes, create PDF’s of ~~2017,~~plan comparisons, enroll customers in plans, and ~~will report significantly higher earned premiums~~invite customers to enroll themselves – all through an easy-to-use cloud-based web portal. IHC is expanding INSX to directly serve the consumer and ~~income in this segment in 2018.~~
~~Continue to increase IHC’s emphasis on lead generation for its direct-to-consumer and career advisor distribution initiatives,~~partner market, as well as expanding ~~our controlled sales through our call center, career model and transactional websites as a result of~~product offerings on the ~~acquisition of PetPlace.com, IHC’s ownership of HealtheDeals.com, and AspiraAmas and its investment in HealthInsurance.org.~~platform.

·~~Expand sales~~Continue to expand on our IHCSB agency. The balance of IHCSB includes our W-2 Call Centers and our captive independent Advisors unit, both of which sell into the under/over age 65 health insurance markets, as well as our Independence Brokerage Group (IBG) which recruits independent agents and agencies to sell via our platforms and contracts. We are refocusing a portion of our ~~specialty health products as a result~~over 65 division into the under 65 market in order to take advantage of ~~private-label~~the positioning of INSX, IHCSB, our lead generation capabilities, and ~~white-label distribution arrangements with large national partners and our equity investments last year in two call center agencies~~

42

~~and a worksite marketing company. We recently announced at partnership with eHealth to sell packages of specialty health products.~~the market growth resulting from the American Rescue Plan Act.

~~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 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 a new rider (“Paid Family Leave” or “PFL”) as part of our New York DBL policies in 2018. Effective January 1, 2018, New York State will require 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 thatefficiencies and 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~~transition of the ~~in-force stop-loss~~three insurance carriers as we progress towards closing on all three sales in the next few quarters

·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, so we currently cannot predict if there will be a material impact to our business, results 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~~operations or financial condition in ~~cash, subject to adjustments and settlements. This transaction resulted in a gain of $100.8 million for~~2021. During 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,~~COVID-19 pandemic, we have ~~used some of this capital~~fully transitioned our existing sales teams to ~~make equity investments, retire debt~~work from home. Our customer facing agents have transitioned to a full-time work at home model, and ~~purchase IHC stock. If the Specialty Health business were~~although we have implemented enhanced technology solutions, sales may be impacted as COVID-19 continues to grow exponentially as a result of the turmoil in the major medical markets, IHC may need to contribute additional capital to one or more of its carriers. While 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.develop.

Subject to making additional repurchases acquisitions, investments and capital contributions to support growth, the Company will remain highly liquid in 2017 as a result of the continuing shorter duration of the 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 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, IHC purchased 1,385,118 shares pursuant to a tender offer to purchase up to 2,000,000 shares of its common stock at a price per share of $20.00, net, to the seller in cash. The number of shares purchased in the tender offer represented approximately 8.5% of the 16,377,756 shares of IHC common stock, ~~outstanding prior~~dividends to shareholders and various investments, the ~~commencement of the tender offer~~Company will maintain a highly liquid and ~~a gross aggregate purchase price of $27.7 million. The tender offer was fully funded out of corporate liquidity.~~high quality portfolio.

Our financial results in the future will depend ~~on the adequacy of our product pricing, our underwriting, the accuracy of our reserving methodology, returns on our invested assets, and~~on: (i) our ability to ~~manage expenses. We will also need to be diligent with increased rate review scrutiny to effect timely rate changes~~execute on our revised agency model and ~~will need to stay focused~~

43

develop the agencies into a much larger and profitable operation; and (ii) any increase in the value of our minority interest in Iguana Capital where we participate on the ~~management~~board of medical cost drivers as 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.directors.

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,~~2021 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~~commenced an action on May 17, 2017 in the United States District Court, Northern District of Texas, Dallas Division (the “Texas Action”), naming IHC, Madison National Life, Standard Security Life, and Independence Brokerage Group, Inc. (formerly IHC Carrier Solutions, Inc. ~~(collectively referred to~~) as ~~“Defendants”~~defendants (“Defendants”). 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 $50.0 million, profit share~~contractual payments allegedly owed ~~to Plaintiff under~~by the ~~agreements~~Defendants 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 moved to Compel Arbitration~~court had previously stayed the proceedings during the pendency of two arbitrations. The first arbitration resulted in a judicially-confirmed award in favor of Standard Security Life 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 the fourth quarter of 2017, Madison National Life ~~agreed to pay fines~~ in the ~~state~~amount of ~~Texas primarily~~$5,641,000, which the Plaintiff has satisfied. The Company received payment on September 9, 2020 and recorded it in other income on the Consolidated Statement of Income in the third quarter of 2020. The second arbitration resulted in no monetary obligations owed by any of the parties. The Plaintiff has filed a motion for leave to file a Second Amended Complaint. The Defendants have until August 9, 2021 to file an opposition to the motion for leave to amend.
Multistate Market Conduct Examination
As previously disclosed, our subsidiaries Standard Security Life, Madison National Life and Independence American Insurance Company were selected for 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) served as lead states, and the District of Columbia Department of Insurance, Securities and Banking and the Delaware Department of Insurance served as the managing lead states of the ~~Plaintiff.~~MCE. In addition to the five lead states, 37 other states participated in the MCE. Each of Standard Security Life, Madison National Life and Independence American Insurance Company 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 summarized 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 Insurance Company and the states involved in the MCE, the Lead States and Standard Security Life, Madison National Life and Independence American Insurance Company entered into separate 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 thirty-seven participating states adopted the RSAs. The Company accrued $3,660,000 in accounts payable, accruals and other liabilities on the Consolidated Balance Sheet in the second quarter of 2020 and processed payment in October 2020. As set forth in the RSAs, Standard Security Life, Madison National Life and Independence American Insurance Company deny any wrongdoing or violation of any applicable laws or regulations, and the entry into the RSAs is not an admission or acknowledgment of any wrongdoing or liability. In accordance with the RSAs, the Monitoring Period commenced and Standard Security Life, Madison National Life and Independence American Insurance Company continue to comply.
45

ITEM 1A.   RISK FACTORS

There were no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016~~2020 in Item 1A to Part 1 of Form 10-K.

ITEM 2.   ~~UNREGISTERED SALES~~ UNREGISTERED SALESOF ~~EQUITY SECURITIES~~ EQUITY SECURITIESAND ~~USE~~ USEOF ~~PROCEEDS~~ PROCEEDS
~~Tender Offer~~
On May 26, 2017, IHC commenced a tender offer to purchase up to 2,000,000 shares of its common stock at a price per share of $20.00, net, to the seller in cash. On June 26, 2017, at the close of business, the offer expired and the Company accepted for purchase 1,385,118 shares of its common stock at $20.00 per share, for an aggregate purchase price of $27.7 million.

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.~~stock. As of ~~September~~June 30, ~~2017, 2,068,931~~2021, 1,535,393 shares were still authorized to be repurchased.

Share repurchases during the ~~third~~second quarter of ~~2017~~2021 are summarized as follows:

2021
					Maximum Number
			Average Price		of Shares Which
Month of	Shares		of Repurchased		Can be
Repurchase		Repurchased		Shares		Repurchased

April	-		$	-	1,535,393
May	-		$	-	1,535,393
June	-		$	-	1,535,393

ITEM 3. ~~DEFAULTS~~ DEFAULTSUPON ~~SENIOR SECURITIES~~ SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

~~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	3136

		Item 3. Quantitative and Qualitative Disclosures about Market Risk		4450

		Item 4. Controls and Procedures		4450

PART II - OTHER INFORMATION

		Item 1. Legal Proceedings		4551

		Item 1A. Risk Factors		4652

		Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		4652

		Item 3. Defaults Upon Senior Securities		4652

		Item 4. Mine Safety Disclosures		4652

		Item 5. Other Information		4652

		Item 6. Exhibits		4753

	Signatures			4956

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


		~~September~~June 30, ~~2017~~2021		December 31, ~~2016~~2020
		~~(Unaudited)~~(Unaudited)
ASSETS:
Investments:
Short-term investments	$	`50 1,550`	$	`6,9121,568`
Securities purchased under agreements to resell		`20,597 70,323`		`28,962`
~~Trading securities~~		`516`		`59233,038`
Fixed maturities, available-for-sale		`426,000 183,709`		`449,487210,719`
Equity securities ~~available-for-sale~~		`5,460 -`		`5,3331,753`
Other investments		`18,338 2,022`		`23,5341,928`
Total investments		`470,961 257,604`		`514,820249,006`

Cash and cash equivalents		`26,565 22,834`		`22,01031,923`
Investment in Iguana Capital, Inc. (“Iguana Capital”) (Note 2)		`33,762`		`-`
Due and unpaid premiums		`32,678 10,950`		`42,8969,981`
Due from reinsurers		`383,192 354,735`		`440,285`
~~Premium and claim funds~~		`13,665`		`17,952357,237`
Goodwill		`50,697 12,486`		`41,57312,486`
Funds held in escrow		`78,779`		`-`
Other assets		`61,472 29,864`		`54,92846,832`
Assets attributable to discontinued operations (Note 2)		`416,162`		`375,691`

TOTAL ASSETS	$	`1,039,230 1,217,176`	$	`1,134,4641,083,156`

LIABILITIES AND EQUITY:
LIABILITIES:
Policy benefits and claims	$	`169,547 127,815`	$	`219,113 132,957`
Future policy benefits		`217,415 196,026`		`219,450 198,086`
Funds on deposit		`143,637 142,155`		`145,749 141,376`
Unearned premiums		`7,993 1,763`		`9,786 1,952`
Other policyholders' funds		`10,249 11,988`		`9,769 12,001`
Due to reinsurers		`5,715 2,242`		`35,796 3,872`
Accounts payable, accruals and other liabilities		`59,747 66,519`		`55,477 44,855`
Liabilities attributable to discontinued operations (Note 2)		`- 120,180`		`68 75,939`

TOTAL LIABILITIES		`614,303 668,688`		`695,208 611,038`

Commitments and contingencies (Note ~~14)~~15)
Redeemable noncontrolling interest		`2,035-`		`-2,312`

STOCKHOLDERS’ EQUITY:
Preferred stock $1.00 par value, 100,000 shares authorized;
none issued or outstanding		`-`		`-`
Common stock $1.00 par value, 23,000,000 shares authorized;
18,625,458 ~~and 18,620,508~~ shares issued; and ~~14,908,517~~14,644,389 and
~~17,102,525~~14,643,047 shares outstanding		`18,625`		`18,62018,625`
Paid-in capital		`126,135125,653`		`126,468124,757`
Accumulated other comprehensive ~~loss~~income		`(2,344)3,220`		`(6,964)4,197`
Treasury stock, at cost; ~~3,716,941~~3,981,069 and ~~1,517,983~~3,982,411 shares		`(61,712)(77,189)`		`(17,483)(77,088)`
Retained earnings		`339,512478,139`		`315,918399,273`

TOTAL IHC STOCKHOLDERS’ EQUITY		`420,216548,448`		`436,559469,764`
NONREDEEMABLE NONCONTROLLING INTERESTS		`2,67640`		`2,69742`

TOTAL EQUITY		`422,892548,488`		`439,256469,806`

TOTAL LIABILITIES AND EQUITY	$	`1,039,2301,217,176`	$	`1,134,4641,083,156`

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,
		2021		2020		2021		2020
REVENUES:
Premiums earned	$	`42,451`	$	`49,138`	$	`86,023`	$	`99,804`
Net investment income		`1,651`		`2,329`		`3,452`		`4,828`
Fee income		`4,944`		`3,907`		`11,079`		`7,341`
Other income		`410`		`807`		`1,026`		`1,432`
Net investment gains (losses)		`(126)`		`274`		`91`		`117`

		`49,330`		`56,455`		`101,671`		`113,522`

EXPENSES:
Insurance benefits, claims and reserves		`17,192`		`21,339`		`39,113`		`47,628`
Selling, general and administrative expenses		`32,842`		`37,974`		`63,602`		`69,034`

		`50,034`		`59,313`		`102,715`		`116,662`

Loss from continuing operations before income taxes		`(704)`		`(2,858)`		`(1,044)`		`(3,140)`
Income tax benefits		`(267)`		`(1,066)`		`(430)`		`(1,187)`

Loss from continuing operations, net of tax		`(437)`		`(1,792)`		`(614)`		`(1,953)`

Discontinued operations (Note 2):
Total pretax income from discontinued operations		`92,375`		`3,594`		`99,574`		`9,243`
Income tax expense on discontinued operations		`15,570`		`1,264`		`17,026`		`2,430`
Income from discontinued operations, net of tax		`76,805`		`2,330`		`82,548`		`6,813`

Net income		`76,368`		`538`		`81,934`		`4,860`
(Income) loss from nonredeemable noncontrolling interests		`1`		`(43)`		`2`		`(34)`
(Income) loss from redeemable noncontrolling interests		`102`		`(74)`		`156`		`(127)`

NET INCOME ATTRIBUTABLE TO IHC	$	`76,471`	$	`421`	$	`82,092`	$	`4,699`

Basic income per common share
Loss from continuing operations	$	`(0.03)`	$	`(0.12)`	$	`(0.04)`	$	`(0.13)`
Income from discontinued operations		`5.25`		`0.15`		`5.65`		`0.45`
Basic income per common share	$	`5.22`	$	`0.03`	$	`5.61`	$	`0.32`

WEIGHTED AVERAGE SHARES OUTSTANDING		`14,642`		`14,765`		`14,641`		`14,811`

Diluted income per common share
Loss from continuing operations	$	`(0.03)`	$	`(0.12)`	$	`(0.04)`	$	`(0.13)`
Income from discontinued operations		`5.25`		`0.15`		`5.65`		`0.45`
Diluted income per common share	$	`5.22`	$	`0.03`	$	`5.61`	$	`0.32`

WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING		`14,642`		`14,765`		`14,641`		`14,811`

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,
		2021		2020
CASH FLOWS PROVIDED BY (USED BY) OPERATING ACTIVITIES:
Net income	$	`81,934`	$	`4,860`
Adjustments to reconcile net income to net change in cash from
operating activities:
Gain on disposal of discontinued operations		`(74,534)`		`-`
Pretax provision for loss on disposal		`812`		`-`
Amortization of deferred acquisition costs		`425`		`166`
Net amortization of purchased premium and discount in net investment income		`1,139`		`1,218`
Net investment (gains)		`(91)`		`(117)`
Depreciation and amortization		`908`		`759`
Other		`17,107`		`2,393`
Changes in assets and liabilities:
Change in insurance liabilities		`37,333`		`27,057`
Change in amounts due from reinsurers		`2,663`		`3,725`
Change in claim fund balances		`(1,022)`		`574`
Change in due and unpaid premiums		`(15,141)`		`(8,253)`
Change in contract asset		`(1,006)`		`-`
Other operating activities		`3,008`		`(4,135)`

Net change in cash from operating activities		`53,535`		`28,247`

CASH FLOWS PROVIDED BY (USED BY) INVESTING ACTIVITIES:
Net (purchases) sales and maturities of short-term investments		`1,060`		`(1,049)`
Net (purchases) sales of securities under resale agreements		`(139,647)`		`5,740`
Sales of equity securities		`3,494`		`-`
Sales of fixed maturities		`10,366`		`36,413`
Maturities and other repayments of fixed maturities		`44,520`		`55,936`
Purchases of fixed maturities		`(8,343)`		`(96,353)`
Cash divested from deconsolidation of subsidiary		`(4,878)`		`-`
Payments to acquire business, net of cash acquired		`-`		`(13,707)`
Payments to acquire other investments		`(2,500)`		`(1,250)`
Other investing activities		`(1,870)`		`(3,372)`

Net change in cash from investing activities		`(97,798)`		`(17,642)`

CASH FLOWS PROVIDED BY (USED BY) FINANCING ACTIVITIES:
Repurchases of common stock		`(140)`		`(4,489)`
Withdrawals of investment-type insurance contracts		`(112)`		`(326)`
Dividends paid		`(3,221)`		`(6,215)`
Other financing activities		`(32)`		`(3)`

Net change in cash from financing activities		`(3,505)`		`(11,033)`

Net change in cash, cash equivalents and restricted cash		`(47,768)`		`(428)`
Cash, cash equivalents and restricted cash, beginning of year, including discontinued operations		`74,793`		`24,631`

Cash, cash equivalents and restricted cash, end of period, including discontinued operations	$	`27,025`	$	`24,203`

NON-CASH ACTIVITY:
Proceeds from sale of subsidiary – funds held in escrow	$	`78,779`	$	`-`

		June 30, 2021
		SSL Sale		Pets Sale		Total

Major classes of assets:
Investments and cash	$	`164,346`	$	`144,688`	$	`309,034`
Goodwill		`-`		`41,716`		`41,716`
Other assets		`30,020`		`35,392`		`65,412`

Assets attributable to discontinued operations	$	`194,366`	$	`221,796`	$	`416,162`

Major classes of liabilities:
Policy benefits and claims	$	`56,987`	$	`12,743`	$	`69,730`
Unearned premiums		`26,778`		`6,080`		`32,858`
Other liabilities		`12,500`		`5,092`		`17,592`

Liabilities attributable to discontinued operations	$	`96,265`	$	`23,915`	$	`120,180`

		December 31, 2020
		SSL Sale		Pets Sale		Total

Major classes of assets included in discontinued operations:
Investments and cash	$	`114,916`	$	`149,844`	$	`264,760`
Goodwill		`-`		`62,414`		`62,414`
Other assets		`18,787`		`29,730`		`48,517`

Assets attributable to discontinued operations	$	`133,703`	$	`241,988`	$	`375,691`

Major classes of liabilities included in discontinued operations:
Policy benefits and claims	$	`34,500`	$	`11,775`	$	`46,275`
Unearned premiums		`5,208`		`5,629`		`10,837`
Other liabilities		`9,316`		`9,511`		`18,827`

Liabilities attributable to discontinued operations	$	`49,024`	$	`26,915`	$	`75,939`

		For the Three Months Ended June 30, 2021
		SSL Sale		Pets Sale		Total

Revenues	$	`50,342`	$	`33,080`	$	`83,422`
Expenses:
Insurance benefits, claims and reserves		`24,341`		`18,442`		`42,783`
Selling, general and administrative expenses		`7,394`		`14,592`		`21,986`

Pretax income of discontinued operations during phase-out		`18,607`		`46`		`18,653`
Pretax provision for loss on disposal		`(402)`		`(410)`		`(812)`
Pretax gain on disposal of discontinued operations		`-`		`74,534`		`74,534`
Total pretax income from discontinued operations		`18,205`		`74,170`		`92,375`
Income tax expense on discontinued operations		`3,836`		`11,734`		`15,570`

Income from discontinued operations, net of tax	$	`14,369`	$	`62,436`	$	`76,805`

		For the Three Months Ended June 30, 2020
		SSL Sale		Pets Sale		Total

Revenues	$	`30,442`	$	`20,407`	$	`50,849`
Expenses:
Insurance benefits, claims and reserves		`22,152`		`11,098`		`33,250`
Selling, general and administrative expenses		`6,150`		`7,855`		`14,005`

Pretax income of discontinued operations during phase-out		`2,140`		`1,454`		`3,594`
Pretax provision for loss on disposal		`-`		`-`		`-`
Pretax gain on disposal of discontinued operations		`-`		`-`		`-`
Total pretax income from discontinued operations		`2,140`		`1,454`		`3,594`
Income tax expense on discontinued operations		`822`		`442`		`1,264`

Income from discontinued operations, net of tax	$	`1,318`	$	`1,012`	$	`2,330`

		For the Six Months Ended June 30, 2021
		SSL Sale		Pets Sale		Total

Revenues	$	`93,738`	$	`61,999`	$	`155,737`
Expenses:
Insurance benefits, claims and reserves		`53,865`		`34,374`		`88,239`
Selling, general and administrative expenses		`14,850`		`26,796`		`41,646`

Pretax income of discontinued operations during phase-out		`25,023`		`829`		`25,852`
Pretax provision for loss on disposal		`(402)`		`(410)`		`(812)`
Pretax gain on disposal of discontinued operations		`-`		`74,534`		`74,534`
Total pretax income from discontinued operations		`24,621`		`74,953`		`99,574`
Income tax expense on discontinued operations		`5,151`		`11,875`		`17,026`

Income from discontinued operations, net of tax	$	`19,470`	$	`63,078`	$	`82,548`

		For the Six Months Ended June 30, 2020
		SSL Sale		Pets Sale		Total

Revenue	$	`59,943`	$	`37,838`	$	`97,781`
Expenses:
Insurance benefits, claims and reserves		`40,560`		`20,459`		`61,019`
Selling, general and administrative expenses		`13,004`		`14,515`		`27,519`

Pretax income of discontinued operations during phase-out		`6,379`		`2,864`		`9,243`
Pretax provision for loss on disposal		`-`		`-`		`-`
Pretax gain on disposal of discontinued operations		`-`		`-`		`-`
Total pretax income from discontinued operations		`6,379`		`2,864`		`9,243`
Income tax expense on discontinued operations		`1,689`		`741`		`2,430`

Income from discontinued operations, net of tax	$	`4,690`	$	`2,123`	$	`6,813`

		Three Months Ended				Six Months Ended
		June 30,				June 30,
		2021		2020		2021		2020

Income from continuing operations attributable to IHC	$	`(436)`	$	`(1,835)`	$	`(612)`	$	`(1,987)`
Income from discontinued operations attributable to IHC	$	`76,907`	$	`2,256`	$	`82,704`	$	`6,686`

Net income attributable to IHC	$	`76,471`	$	`421`	$	`82,092`	$	`4,699`

		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~~2021
				GROSS		GROSS
		AMORTIZED		UNREALIZED		UNREALIZED		FAIR
		COST		GAINS		LOSSES		VALUE

FIXED MATURITIES
AVAILABLE-FOR-SALE:
Corporate securities	$	`159,75375,245`	$	`8941,583`	$	`(2,471)(779)`	$	`158,17676,049`
CMOs -– residential (1)		`7,0113,071`		`118`		`(5)`		`3,184`
U.S. Government obligations		`23,029`		`273`		`-`		`(106)`	`6,90523,302`
~~U.S. Government obligations~~		`44,077`		`57`		`(257)`		`43,877`
Agency MBS - residential(2)		`16`		`-35`		`-`		`16(4)`	`31`
GSEs (3)		`9,9922,969`		`1-`		`(211)(84)`		`9,7822,885`
States and political subdivisions		`194,72474,086`		`1,1431,261`		`(2,828)(384)`		`193,03974,963`
Foreign government obligations		`4,2763,144`		`22151`		`(85)-`		`4,213`
~~Redeemable preferred stocks~~		`10,008`		`116`		`(132)`		`9,9923,295`

Total fixed maturities	$	`429,857181,579`	$	`2,2333,386`	$	`(6,090)(1,256)`	$	`426,000`

~~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)`	$	`5,460183,709`

		December 31, ~~2016~~2020
				GROSS		GROSS
		AMORTIZED		UNREALIZED		UNREALIZED		FAIR
		COST		GAINS		LOSSES		VALUE

FIXED MATURITIES
AVAILABLE-FOR-SALE:
Corporate securities	$	`192,97691,802`	$	`2092,174`	$	`(5,490)(1,302)`	$	`187,69592,674`
CMOs -– residential (1)		`6,0213,439`		`8146`		`(116)(2)`		`5,9133,583`
U.S. Government obligations		`43,41723,397`		`133414`		`(441)-`		`43,10923,811`
Agency MBS - residential(2)		`22`		`139`		`-`		`23(5)`	`34`
GSEs (3)		`10,3013,055`		`1-`		`(422)(81)`		`9,8802,974`
States and political subdivisions		`191,14682,910`		`7801,768`		`(5,115)(452)`		`186,81184,226`
Foreign government obligations		`5,0983,211`		`13206`		`(157)-`		`4,954`
~~Redeemable preferred stocks~~		`11,454`		`96`		`(448)`		`11,1023,417`

Total fixed maturities	$	`460,435207,853`	$	`1,2414,708`	$	`(12,189)(1,842)`	$	`449,487`

		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, 2021

		Less than 12 Months				12 Months or Longer				Total

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

Corporate securities	$	19,962	$	`740`	$	4,503	$	`39`	$	24,465	$	`779`
CMOs-residential		707		`5`		-		`-`		707		`5`
Agency MBS - residential		31		`4`		-		`-`		31		`4`
GSEs		-		-		2,886		`84`		2,886		`84`
States and political subdivisions		10,319		`76`		8,813		`308`		19,132		`384`

Fixed maturities in an
unrealized loss position	$	31,019	$	`825`	$	16,202	$	`431`	$	47,221	$	`1,256`

Number of fixed maturities in an
unrealized loss position		9				14				23

		~~September~~June 30, ~~2017~~2021
		Level 1		Level 2		Level 3		Total

FINANCIAL ASSETS:
Fixed maturities available-for-sale:
Corporate securities	$	`-`	$	`158,17676,049`	$	`-`	$	`158,17676,049`
CMOs - residential		`-`		`6,9053,184`		`-`		`6,9053,184`
US Government obligations		`-`		`43,87723,302`		`-`		`43,87723,302`
Agency MBS - residential		`-`		`1631`		`-`		`1631`
GSEs		`-`		`9,7822,885`		`-`		`9,7822,885`
States and political subdivisions		`-`		`191,12473,949`		`1,9171,014`		`193,04174,963`
Foreign government obligations		`-`		`4,2133,295`		`-`		`4,213`
~~Redeemable preferred stocks~~		`9,990`		`-`		`-`		`9,9903,295`
Total fixed maturities		`9,990-`		`414,093182,695`		`1,9171,014`		`426,000`

~~Equity securities available-for-sale:~~
~~Common stocks~~		`1,785`		`-`		`-`		`1,785`
~~Nonredeemable preferred stocks~~		`3,675`		`-`		`-`		`3,675`
~~Total equity securities~~		`5,460`		`-`		`-`		`5,460`

~~Trading securities - equities~~		`516`		`-`		`-`		`516`
~~Total trading securities~~		`516`		`-`		`-`		`516183,709`

Total Financial Assets	$	`15,966-`	$	`414,093182,695`	$	`1,9171,014`	$	`431,976183,709`

		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,
		2021				2020
		States and		Total		States and		Total
		Political		Level 3		Political		Level 3
		Subdivisions		Assets		Subdivisions		Assets

Beginning balance	$	`1,055`	$	`1,055`	$	`1,214`	$	`1,214`

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

Gains (losses) included in other
comprehensive income (loss):
Net unrealized gains (losses)		`(4)`		`(4)`		`(5)`		`(5)`

Repayments and amortization of
fixed maturities		`(37)`		`(37)`		`(34)`		`(34)`

Balance at end of period	$	`1,014`	$	`1,014`	$	`1,175`	$	`1,175`

~~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~~June 30, ~~2017~~2021				December 31, ~~2016~~2020
		Gross				Gross
		Carrying		Accumulated		Carrying		Accumulated
		Amount		Amortization		Amount		Amortization

Finite-lived Intangible Assets:
Agent and broker relationships	$	`17,2536,583`	$	`11,7974,599`	$	`13,0527,583`	$	`11,882`
~~Domain~~		`1,000`		`100`		`1,000`		`255,385`
Software systems		`7801,500`		`51294`		`-1,500`		`-167`
Total finite-lived	$	`19,0338,083`	$	`11,9484,893`	$	`14,0529,083`	$	`11,9075,552`

		September 30,		December 31,		June 30,		December 31,
		2017		2016		2021		2020
Indefinite-lived Intangible Assets:
Insurance licenses	$	`7,977`	$	`7,977`	$	`477`	$	`477`
Total indefinite-lived	$	`7,977`	$	`7,977`	$	`477`	$	`477`

		For the Six Months Ended June 30, 2021
		Specialty		Group		All Other
		Health		Disability		Lines		Total

Balance at beginning of year	$	`31,680`	$	`80,976`	$	`20,301`	$	`132,957`
Less: reinsurance recoverable		`1,776`		`22,472`		`11,878`		`36,126`
Net balance at beginning of year		`29,904`		`58,504`		`8,423`		`96,831`

Amount incurred, related to:
Current year		`16,631`		`20,031`		`11,947`		`48,609`
Prior years		`(4,634)`		`(4,033)`		`(1,132)`		`(9,799)`

Total incurred		`11,997`		`15,998`		`10,815`		`38,810`

Amount paid, related to:
Current year		`4,461`		`3,922`		`6,885`		`15,268`
Prior years		`12,080`		`11,488`		`3,667`		`27,235`

Total paid		`16,541`		`15,410`		`10,552`		`42,503`

Net balance at end of period		`25,360`		`59,092`		`8,686`		`93,138`
Plus: reinsurance recoverable		`1,161`		`22,492`		`11,024`		`34,677`
Balance at end of period	$	`26,521`	$	`81,584`	$	`19,710`	$	`127,815`