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 November 9, 2021, the registrant had 14,674,936 shares of Common Stock outstanding.

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

INDEPENDENCE HOLDING COMPANY

INDEX

PART I – FINANCIAL INFORMATION
PAGE

NO.

Item 1. Financial Statements

Condensed Consolidated Balance Sheets
4

Condensed Consolidated Statements of Income
5

Condensed Consolidated Statements of Comprehensive Income (Loss)
6

Condensed Consolidated ~~Statement~~Statements of Changes in Equity
7

Condensed Consolidated Statements of Cash Flows
89

Notes to Condensed Consolidated Financial Statements
910

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

and Results of Operations
31

Item 3. Quantitative and Qualitative Disclosures about Market Risk
4441

Item 4. Controls and Procedures
4441

PART II - OTHER INFORMATION

Item 1. Legal Proceedings
4541

Item 1A. Risk Factors
4642

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
4643

Item 3. Defaults Upon Senior Securities
4643

Item 4. Mine Safety Disclosures
4643

Item 5. Other Information
4643

Item 6.    Exhibits
4744

Signatures
4947

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 30, ~~2017~~2021

December 31, ~~2016~~2020

~~(Unaudited)~~(Unaudited)

ASSETS:

Investments:

~~Short-term investments~~
$
50
$
6,912
Securities purchased under agreements to resell

$
20,59725,458

$
28,962
~~Trading securities~~
516
59223,962
Fixed maturities, available-for-sale

426,00029,070

449,487
~~Equity securities, available-for-sale~~
5,460
5,33344,003
Other investments

18,3382,050

23,5341,928
Total investments

470,96156,578

514,82069,893

Cash and cash equivalents

26,5657,946

22,01017,215
~~Due and unpaid premiums~~Investment in Iguana Capital, Inc. (“Iguana Capital”) (Note 2)

32,67833,475

42,896-
~~Due from reinsurers~~Funds held in escrow

383,19278,263

440,285
~~Premium and claim funds~~
13,665
17,952
~~Goodwill~~
50,697
41,573-
Other assets

61,47233,975

54,92849,475
Assets attributable to discontinued operations (Note 2)
995,383
946,573

TOTAL ASSETS

$
1,039,2301,205,620

$
1,134,4641,083,156

LIABILITIES AND EQUITY:

LIABILITIES:

~~Policy benefits and claims~~
$
169,547
$
219,113
~~Future policy benefits~~
217,415
219,450
~~Funds on deposit~~
143,637
145,749
~~Unearned premiums~~
7,993
9,786
~~Other policyholders' funds~~
10,249
9,769
~~Due to reinsurers~~
5,715
35,796
Accounts payable, accruals and other liabilities

$
59,74739,817
$
28,387
Liabilities attributable to discontinued operations (Note 2)
601,253

55,477
~~Liabilities attributable to discontinued operations~~
-
68582,651

TOTAL LIABILITIES

614,303641,070

695,208611,038

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~~14,674,936 and

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

18,625

18,62018,625
Paid-in capital

126,135125,357

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

(2,344)2,320

(6,964)4,197
Treasury stock, at cost; ~~3,716,941~~3,950,522 and ~~1,517,983~~3,982,411 shares

(61,712)(77,247)

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

339,512495,498

315,918399,273

TOTAL IHC STOCKHOLDERS’ EQUITY

420,216564,553

436,559469,764
NONREDEEMABLE NONCONTROLLING INTERESTS

2,676 (3)

2,69742

TOTAL EQUITY

422,892564,550

439,256469,806

TOTAL LIABILITIES AND EQUITY

$
1,039,2301,205,620

$
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

Nine Months Ended

September 30,

September 30,

2021

2020

2021

2020
REVENUES:

Net investment income
$
119
$
170
$
430
$
916
Fee income

5,569

6,113

20,291

18,465
Other income

873

615

1,660

1,739
Net investment gains (losses)

(48)

(53)

105

122

6,513

6,845

22,486

21,242

EXPENSES:

Selling, general and administrative expenses

21,592

16,431

53,028

43,221

Loss from continuing operations before income taxes

(15,079)

(9,586)

(30,542)

(21,979)
Income tax benefits

(3,567)

(2,241)

(7,026)

(5,617)

Loss from continuing operations, net of tax

(11,512)

(7,345)

(23,516)

(16,362)

Discontinued operations (Note 2):

Total pretax income from discontinued operations

36,383

20,295

150,376

38,790
Income tax expense on discontinued operations

7,512

4,218

27,567

8,836
Income from discontinued operations, net of tax

28,871

16,077

122,809

29,954

Net income

17,359

8,732

99,293

13,592
(Income) loss from nonredeemable noncontrolling interests

-

5

2

(29)
(Income) loss from redeemable noncontrolling interests

-

(49)

156

(176)

NET INCOME ATTRIBUTABLE TO IHC
$
17,359
$
8,688
$
99,451
$
13,387

Basic income per common share

Loss from continuing operations
$
(0.79)
$
(0.50)
$
(1.61)
$
(1.11)
Income from discontinued operations

1.97

1.09

8.40

2.02
Basic income per common share
$
1.18
$
0.59
$
6.79
$
0.91

WEIGHTED AVERAGE SHARES OUTSTANDING

14,654

14,670

14,645

14,763

Diluted income per common share

Loss from continuing operations
$
(0.79)
$
(0.50)
$
(1.61)
$
(1.11)
Income from discontinued operations

1.97

1.09

8.40

2.02
Diluted income per common share
$
1.18
$
0.59
$
6.79
$
0.91

WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING

14,654

14,670

14,645

14,763

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

Nine Months Ended

September 30,

September 30,

2021

2020

2021

2020

Net income
$
17,359
$
8,732
$
99,293
$
13,592
Other comprehensive income (loss):

Available-for-sale securities:

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

(1,139)

1,351

(2,387)

3,444
Tax expense (benefit) on unrealized gains (losses) on available-for-sale securities

(239)

287

(510)

738
Unrealized gains (losses) on available-for-sale securities, net of taxes

(900)

1,064

(1,877)

2,706

Other comprehensive income (loss), net of tax

(900)

1,064

(1,877)

2,706

COMPREHENSIVE INCOME, NET OF TAX

16,459

9,796

97,416

16,298

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

(Income) loss from noncontrolling interests in subsidiaries

-

(44)

158

(205)
Other comprehensive (income) loss, net of tax, attributable to

noncontrolling interests

-

-

-

-

COMPREHENSIVE (INCOME) LOSS, NET OF TAX,

   ATTRIBUTABLE TO NONCONTROLLING INTERESTS

-

(44)

158

(205)

COMPREHENSIVE INCOME, NET OF TAX,

   ATTRIBUTABLE TO IHC
$
16,459
$
9,752
$
97,574
$
16,093

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 September 30, 2021 and 2020
ACCUMULATED
OTHER
TREASURY
TOTAL IHC
NONREDEEMABLE
COMMON
PAID-IN
COMPREHENSIVE
STOCK,
RETAINED
STOCKHOLDERS'
NONCONTROLLING
TOTAL
STOCK
CAPITAL
INCOME (LOSS)
AT COST
EARNINGS
EQUITY
INTERESTS
EQUITY
BALANCE AT
JUNE 30, 2021
$
18,625
$
125,653
$
3,220
$
(77,189)
$
478,139
$
548,448
$
40
$
548,488
Net income
17,359
17,359
-
17,359
Other comprehensive
loss, net of tax
(900)
(900)
-
(900)
Repurchases of common stock
(381)
(381)
-
(381)
Share-based compensation
(233)
323
90
-
90
Distributions to noncontrolling
interests
(63)
(63)
(43)
(106)
BALANCE AT
SEPTEMBER 30, 2021
$
18,625
$
125,357
$
2,320
$
(77,247)
$
495,498
$
564,553
$
(3)
$
564,550

~~NON-~~
BALANCE AT
JUNE 30, 2020
$
18,625
$
123,804
$
2,854
$
(74,325)
$
388,317
$
459,275
$
49
$
459,324
Net income
8,688
8,688
(5)
8,683
Other comprehensive
income, net of tax
1,064
1,064
-
1,064
Repurchases of common stock
(2,452)
(2,452)
-
(2,452)
Share-based compensation
550
91
641
-
641
BALANCE AT
SEPTEMBER 30, 2020
$
18,625
$
124,354
$
3,918
$
(76,686)
$
397,005
$
467,216
$
44
$
467,260
See the accompanying Notes to Condensed Consolidated Financial Statements.

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited) (In thousands)
Nine Months Ended September 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

24,49699,451

24,49699,451

4 (2)

24,50099,449
Other comprehensive

~~income,~~loss, net of tax

4,620 (1,877)

4,620 (1,877)

-

4,620 (1,877)
Repurchases of common stock

(44,442)(521)

(44,442)(521)

-

(44,442)(521)
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
663
362
1,025
-
1,025
Distributions to noncontrolling
interests
(63)
(63)
(43)
(106)

BALANCE AT

~~September 30, 2017~~SEPTEMBER30, 2021
$
18,625
$
126,135125,357
$
(2,344)2,320
$
(61,712)(77,247)
$
339,512495,498
$
420,216564,553
$
2,676 (3)
$
422,892564,550
BALANCE AT
DECEMBER 31, 2019
$
18,625
$
122,717
$
1,212
$
(69,724)
$
386,864
$
459,694
$
18
$
459,712
Net income
13,387
13,387
29
13,416
Other comprehensive
income, net of tax
2,706
2,706
-
2,706
Repurchases of common stock
(7,053)
(7,053)
-
(7,053)
Distributions to noncontrolling
interests
-
(3)
(3)
Common stock dividends
    ($0.22 per share)
(3,246)
(3,246)
-
(3,246)
Share-based compensation
1,637
91
1,728
-
1,728
BALANCE AT
SEPTEMBER 30, 2020
$
18,625
$
124,354
$
3,918
$
(76,686)
$
397,005
$
467,216
$
44
$
467,260

See the accompanying Notes to Condensed Consolidated Financial Statements.

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

Nine Months Ended September 30,

2021

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

Net income
$
99,293

$
13,592
Adjustments to reconcile net income to net change in cash from

operating activities:

Gain on disposal of discontinued operations

(74,008)

-
Pretax provision for loss on disposal

1,021

-
Deferred and sharebased compensation

7,001

2,929
Net amortization of purchased premium and discount in net investment income

408

481
Net investment (gains)

(105)

(122)
Depreciation and amortization

977

800
Other

13,975

4,710
Changes in assets and liabilities:

Change in insurance liabilities

2,048

14,670
Change in amounts due from reinsurers

4,279

5,334
Change in claim fund balances

(1,133)

751
Change in due and unpaid premiums

(14,577)

(2,852)
Change in contract asset

(332)

-
Other operating activities

2,836

(2,508)

Net change in cash from operating activities

41,683

37,785

CASH FLOWS PROVIDED BY (USED BY) INVESTING ACTIVITIES:

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

2,560

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

(145,314)

28,844
Sales of equity securities

3,494

-
Sales of fixed maturities

10,351

39,388
Maturities and other repayments of fixed maturities

56,634

96,964
Purchases of fixed maturities

(8,343)

(170,088)
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

(2,418)

(3,998)

Net change in cash from investing activities

(90,414)

(24,896)

CASH FLOWS PROVIDED BY (USED BY) FINANCING ACTIVITIES:

Repurchases of common stock

(521)

(6,882)
Withdrawals of investment-type insurance contracts

(144)

(464)
Dividends paid

(6,443)

(6,215)
Other financing activities

(431)

94

Net change in cash from financing activities

(7,539)

(13,467)

Net change in cash, cash equivalents and restricted cash

(56,270)

(578)
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
$
18,523

$
24,053

NON-CASH ACTIVITY:

Proceeds from sale of subsidiary – funds held in escrow
$
78,263

$
-

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,~~Holdings, Inc., a ~~diversified~~ financial holding company, ~~and~~through its ~~affiliated entities,~~wholly-owned subsidiaries (collectively “Geneve”), held approximately ~~61%~~62% of IHC's outstanding common stock atas of September 30, ~~2017.~~2021. In August 2021, IHC’s Board of Directors received a preliminary, non-binding proposal from Geneve to acquire all of the outstanding shares of common stock of IHC that are not already beneficially owned by Geneve in a going-private transaction (“Going Private Transaction”). Geneve’s proposed purchase price at that time was $50 per share, payable in cash. The Board of Directors formed a Special Committee of independent and disinterested directors to consider the proposal and to review, evaluate, negotiate and recommend the approval or disapproval of the proposal and consider alternatives. On November 9, 2021, the Special Committee concluded unanimously that a Going Private Transaction with a purchase price of $57 per share on the terms negotiated was fair and in the best interests of IHC’s stockholders other than Geneve. Upon its approval by the Board of Directors, IHC, Geneve Holdings, Inc. and Geneve Acquisition Corp., a wholly owned subsidiary of Geneve Holdings, Inc., entered into a merger agreement (“Merger Agreement”) pursuant to which holders of IHC’s outstanding shares of common stock, excluding shares held by Geneve, will receive $57 per share in cash. The consummation of the Going Private Transaction is subject to certain closing conditions, including approval by the holders of a majority of IHC’s outstanding shares of common stock that are not held by Geneve and its affiliates and the consummation of the pending sales of IHC’s subsidiaries, Independence American Holdings Corp. and Standard Security Life discussed in Note 2. Further information regarding the terms and conditions in the Merger Agreement is contained in the Current Report on Form 8-K filed by IHC with the SEC on November 9, 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 and third quarters 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 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 months ended September 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,~~October 2021, the FASB issued guidance to ~~provide clarity~~improve comparability after a business combination by providing consistent recognition and ~~reduce both (i) diversity~~ measurement guidance for revenue contracts with customers acquired

in ~~practice;~~a business combination. The guidance requires an acquirer to recognize and ~~(ii) cost~~measure contract assets and ~~complexity when accounting for~~contract liabilities acquired in a ~~change~~business combination in the terms or conditions of a share-based payment award. The amendments in this guidance should be applied prospectively in annual periods beginning after December 15, 2017, including interim periods within those periods, with early adoption permitted. The adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.
In March 2017, the FASB issued guidance requiring premium amortization on callable debt securities to be amortized to the earliest call date to more closely align the amortization period with expectations incorporated in market pricing of the underlying securities. The amendments in this guidance should be applied using a modified retrospective approach for annual periods beginning after December 15, 2018, including interim periods within those periods. Additional disclosures are requiredsame manner that they were recognized and measured in the ~~period of adoption. Early adoption is permitted. The adoption of this guidance is not expected to have a material effect on~~acquiree’s financial statements before the ~~Company’s consolidated financial statements.~~
~~In February 2017,~~acquisition. For public companies, 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.~~2022, and for interim periods within those fiscal years, with early implementation permitted, and should be applied prospectively to business combinations occurring on or after the effective date of the amendments. The ~~adoption of~~amendments in this

10

guidance is not expected to have a material effect on the Company’s consolidated financial statements.

In ~~January 2017,~~August 2018, the FASB issued guidance ~~that clarifies~~to improve existing measurements, presentation and disclosure requirements for long-duration contracts issued by insurance entities. The amendments in this guidance requires an entity to (1) review and update assumptions used to measure cash flows at least annually as well as update the ~~definition~~discount rate assumption at each reporting date; (2) measure market risk benefits associated with deposit contracts at fair value; (3) disclose liability rollforwards and information about significant inputs, judgements assumptions, and methods used in measurement. Additionally, it simplifies the amortization of deferred acquisition costs and other balances on a ~~business to assist entities with evaluating when a set~~constant level basis over the expected term of ~~transferred assets~~the related contracts. In 2019, the FASB delayed the original effective dates. For smaller reporting companies, the amendments in this guidance are now effective for fiscal years beginning after December 15, 2023, and ~~activities is a business. The~~for interim periods within fiscal years beginning after December 15, 2024. Upon adoption, 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.

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 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. On July 29, 2021, the stock purchase agreement was amended and restated (the “SSL Amended Purchase Agreement”). In ~~February 2016,~~accordance with the ~~FASB issued guidance that requires lessees~~SSL Amended Purchase Agreement, the Company will receive the excess of aggregate statutory capital and surplus, calculated as of the closing date, over $57,000,000. The closing of the transaction, the closing distribution and certain other items are subject to ~~recognize~~customary closing conditions including applicable regulatory approvals, one of which is the ~~assets~~approval of the New York State Department of Financial Services (”NYSDFS”). Standard Security Life focuses on underwriting 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, usingselling its New York short-term disability (“DBL”) and paid family leave rider (“PFL”) products and ceded a ~~modified retrospective approach. The adoption~~portion of this ~~guidance~~business to Independence American Insurance

Company. We filed notice and received approval to cancel this reinsurance contract in accordance with the terms of the SSL Amended Purchase Agreement effective June 30, 2021. Under the terms of the SSL Amended 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) in addition to all its other lines of business. 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 distribution and other closing conditions, is ~~not expected~~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 ~~material~~major effect on the Company’s ~~consolidated~~operations and financial ~~statements.~~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. 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.

~~In January 2016,~~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 ~~FASB~~ issued ~~guidance that eliminates~~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 ~~requirement~~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 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 accountedadjustments for ~~under~~targeted statutory capital and surplus): and
(iii)Following each of 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~~above, IHC will retain a 30% interest in the ~~fair value recognized through net income, simplifies~~business sold in the ~~impairment~~

11

~~assessment~~form of an equity ~~securities without readily determinable fair values and requires changes~~investment in ~~disclosure requirements. For public entities,~~Iguana Capital. IHC’s equity interest in Iguana Capital will become diluted in the ~~amendments in this Update~~future as a result additional investments made by Iguana Capital unless IHC invests its pro rata share.
Both agreements are ~~effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted in certain circumstances.~~subject to customary closing conditions. The ~~amendments in this Update should be applied by means of a cumulative-effect adjustment to the balance sheet as~~closing of the ~~beginning~~IAHC Purchase Agreement however is also subject to certain regulatory approvals, one of which is the approval of the ~~fiscal year~~Delaware Insurance Department. For this reason, the transaction was structured as two agreements such that the sale 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~~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 ~~adoption~~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 ~~guidance.~~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 reinsured by Madison National Life prior to closing. The ~~adoption~~reinsurance agreement will remain in effect until the underlying business runs out. The aforementioned transaction, consisting of ~~this guidance~~the sale of PetPartners, IAHC and Independence American Insurance Company, and other closing conditions, is ~~not expected~~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 ~~material~~major effect on the Company’s ~~Consolidated Balance Sheet or IHC’s stockholders’ equity.~~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.

~~In May 2014,~~On June 30, 2021, the ~~FASB issued revenue recognition guidance for entities that either enter into contracts with customers~~Company completed the sale of its majority interest in PetPartners and, as a result, the Company ceased to ~~transfer goods or services or enter into contracts for~~have a controlling financial interest in PetPartners. Upon closing, the ~~transfer~~Company received proceeds 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$78,263,000 (consisting of the ~~implementation guidance~~purchase price and ~~to clarify~~certain initial working capital adjustments), recognized an initial equity investment in Iguana Capital valued at $33,762,000, and recorded a $62,229,000 gain on the ~~identification~~disposal, net 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,transaction costs 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 revenuesincome taxes for the nine months ended September 30, ~~2017.~~2021. Transaction costs consisting of transaction bonuses, legal expenses and financial advisor expenses amounted to an aggregate of $6,079,000. The ~~guidance~~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 ~~applied retrospectively with a cumulative effect adjustment~~released from escrow upon either the consummation of the IAHC sale transaction or upon the exercise of the PPI Put/Call Option. At September 30, 2021, the security deposit is presented as funds held in escrow on the ~~date~~Condensed Consolidated Balance Sheet.
Continuing involvement with the Pets Sale disposal group will consist of ~~initial application. Management is still~~customary transition services, the PPI Put/Call Option and the equity investment in Iguana Capital. At September 30, 2021, the ~~process~~carrying value of ~~evaluating the impact that the adoption of this guidance will have on~~ the Company’s ~~consolidated financial statements~~30% equity interest in Iguana Capital is $33,475,000. The investment is accounted for using the equity method of accounting, and ~~does not anticipate any significant changes~~for the three months and nine months ended September 30, 2021, the Company recorded an equity loss of $(287,000) on its investment in ~~internal controls over financial reporting~~Iguana Capital. In the fourth quarter of 2021, the Company committed to invest an additional $3,200,000 to Iguana Capital, but as a result of the magnitude of other investments being made by Iguana Capital, the Company expects its ~~implementation.~~equity interest in Iguana Capital will be diluted.
(C)Sale of Madison National Life
On July 14, 2021, IHC and its wholly owned subsidiary ICC entered into a stock purchase agreement (the “MNL Purchase Agreement”) with Horace Mann Educators Corporation to sell all of the issued and outstanding capital stock of Madison National Life, which is 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. In accordance with the MNL Stock Purchase agreement and prior to closing, Madison National Life will enter into a reinsurance agreement with Independence American Insurance Company to reinsure all of Independence American Insurance Company’s non-pet business, primarily specialty health products, that are excluded from the Pets Sale transaction discussed above. 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. IHC’s majority stockholders approved the transaction by written consent on October 18, 2021. 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, which includes the reinsured specialty health business of Independence American Insurance Company, is referred to as the “MNL Sale” transaction or disposal group and qualifies for reporting as discontinued operations in the third quarter of 2021 upon the

Board of Director’s commitment to the disposal plan in July 2021.
In addition to customary transition services, there will be some continuing involvement with Madison National Life after its disposal with regards to the runout of the reinsured specialty health lines of business.
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):
September 30, 2021
SSL Sale
Pets Sale
MNL Sale
Total
Major classes of assets:
Investments and cash
$
154,902
$
151,036
$
195,993
$
501,931
Due from reinsurers
13,237
-
339,689
352,926
Goodwill
-
41,716
12,486
54,202
Other assets
36,431
16,663
33,230
86,324
Assets attributable to discontinued operations
$
204,570
$
209,415
$
581,398
$
995,383
Major classes of liabilities:
Policy benefits and claims
$
43,576
$
13,727
$
117,352
$
174,655
Future policy benefits
20,650
-
174,534
195,184
Funds on deposit
593
-
141,935
142,528
Unearned premiums
13,956
6,497
1,791
22,244
Other liabilities
19,656
2,508
44,478
66,642
Liabilities attributable to discontinued operations
$
98,431
$
22,732
$
480,090
$
601,253
December 31, 2020
SSL Sale
Pets Sale
MNL Sale
Total
Major classes of assets:
Investments and cash
$
114,916
$
149,844
$
193,821
$
458,581
Due from reinsurers
13,188
-
344,017
357,205
Goodwill
-
62,414
12,486
74,900
Other assets
19,015
22,389
14,483
55,887
Assets attributable to discontinued operations
$
147,119
$
234,647
$
564,807
$
946,573
Major classes of liabilities:
Policy benefits and claims
$
39,296
$
11,775
$
128,161
$
179,232
Future policy benefits
21,236
-
176,850
198,086
Funds on deposit
710
-
140,666
141,376
Unearned premiums
5,394
5,629
1,766
12,789
Other liabilities
10,382
8,012
32,774
51,168
Liabilities attributable to discontinued operations
$
77,018
$
25,416
$
480,217
$
582,651

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 September 30, 2021
SSL Sale
Pets Sale
MNL Sale
Total
Revenues
$
51,274
$
32,138
$
41,838
$
125,250
Expenses:
Insurance benefits, claims and reserves
20,214
19,301
12,974
52,489
Selling, general and administrative expenses
8,166
11,466
16,011
35,643
Pretax income of discontinued operations during phase-out
22,894
1,371
12,853
37,118
Pretax provision for loss on disposal
(59)
(86)
(64)
(209)
Pretax gain (loss) on disposal of discontinued operations
-
(526)
-
(526)
Total pretax income from discontinued operations
22,835
759
12,789
36,383
Income tax expense on discontinued operations
4,721
103
2,688
7,512
Income from discontinued operations, net of tax
$
18,114
$
656
$
10,101
$
28,871
For the Three Months Ended September 30, 2020
SSL Sale
Pets Sale
MNL Sale
Total
Revenues
$
30,222
$
22,117
$
54,036
$
106,375
Expenses:
Insurance benefits, claims and reserves
18,795
12,426
18,606
49,827
Selling, general and administrative expenses
6,398
7,766
22,089
36,253
Pretax income of discontinued operations during phase-out
5,029
1,925
13,341
20,295
Pretax provision for loss on disposal
-
-
-
-
Pretax gain on disposal of discontinued operations
-
-
-
-
Total pretax income from discontinued operations
5,029
1,925
13,341
20,295
Income tax expense on discontinued operations
1,031
402
2,785
4,218
Income from discontinued operations, net of tax
$
3,998
$
1,523
$
10,556
$
16,077
For the Nine Months Ended September 30, 2021
SSL Sale
Pets Sale
MNL Sale
Total
Revenues
$
146,915
$
90,913
$
128,857
$
366,685
Expenses:
Insurance benefits, claims and reserves
74,812
53,675
51,354
179,841
Selling, general and administrative expenses
23,365
35,038
51,052
109,455
Pretax income of discontinued operations during phase-out
48,738
2,200
26,451
77,389
Pretax provision for loss on disposal
(461)
(480)
(80)
(1,021)
Pretax gain on disposal of discontinued operations
-
74,008
-
74,008
Total pretax income from discontinued operations
48,277
75,728
26,371
150,376
Income tax expense on discontinued operations
10,046
11,982
5,539
27,567
Income from discontinued operations, net of tax
$
38,231
$
63,746
$
20,832
$
122,809

For the Nine Months Ended September 30, 2020
SSL Sale
Pets Sale
MNL Sale
Total
Revenue
$
92,419
$
55,589
$
155,272
$
303,280
Expenses:
Insurance benefits, claims and reserves
59,216
32,885
66,373
158,474
Selling, general and administrative expenses
22,895
17,915
65,206
106,016
Pretax income of discontinued operations during phase-out
10,308
4,789
23,693
38,790
Pretax provision for loss on disposal
-
-
-
-
Pretax gain on disposal of discontinued operations
-
-
-
-
Total pretax income from discontinued operations
10,308
4,789
23,693
38,790
Income tax expense on discontinued operations
2,488
1,143
5,205
8,836
Income from discontinued operations, net of tax
$
7,820
$
3,646
$
18,488
$
29,954
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 nine months ended September 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 $37,118,000 and $77,389,000 for the three and nine months ended September 30, 2021, respectively, and was $20,295,000 and $38,790,000 for the three and nine months ended September 30, 2020, respectively.
Total cash flows from operating activities of discontinued operations were $54,693,000 and $52,019,000 for the nine months ended September 30, 2021 and 2020, respectively. Total cash flows from investing activities of discontinued operations were $(100,302,000) and $(44,836,000) for the nine months ended September 30, 2021 and 2020, respectively.
On a consolidated basis, the Company recorded $7,512,000 and $4,218,000 of income taxes related to pretax income from discontinued operations for the three months ended September 30, 2021 and 2020, respectively, and $27,567,000 and $8,836,000 for the nine months ended September 30, 2021 and 2020, respectively. In 2021, the amounts for the nine months period include $11,675,000 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 12). 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 2.   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 months ended September 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

Nine Months Ended

September 30,

September 30,

2021

2020

2021

2020

Loss from continuing operations attributable to IHC
$
(11,512)
$
(7,340)
$
(23,514)
$
(16,391)
Income from discontinued operations attributable to IHC

28,871

16,028

122,965

29,778

  Net income attributable to IHC
$
17,359
$
8,688
$
99,451
$
13,387

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

September 30,

2021

2020

Cash and cash equivalents
$
7,946
$
7,750
Restricted cash in other assets

362

681
Cash, cash equivalents and restricted cash in discontinued operations

10,215

15,622

Total cash, cash equivalents and restricted cash including discontinued operations
$
18,523
$
24,053

~~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 30, ~~2017~~2021

GROSS

GROSS

AMORTIZED

UNREALIZED

UNREALIZED

FAIR

COST

GAINS

LOSSES

VALUE

FIXED MATURITIES

AVAILABLE-FOR-SALE:

Corporate securities
$
159,75317,435
$
894177
$
(2,471)(92)
$
158,17617,520
CMOs -– residential (1)

7,011576
30

-

(106)
6,905606
U.S. Government obligations

44,077
57
(257)
43,877
~~Agency MBS - residential(2)~~
16
-4,814

-

16
~~GSEs(3)~~
9,992-

14,814
Agency MBS - residential (2)
33

(211)-

9,782(4)
29
States and political subdivisions

194,7245,075

1,14329

(2,828)(31)

193,0395,073
Foreign government obligations

4,2761,009

2219

(85)-

4,213
~~Redeemable preferred stocks~~
10,008
116
(132)
9,9921,028

Total fixed maturities
$
429,85728,942
$
2,233255
$
(6,090)(127)
$
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)
$
5,46029,070

December 31, ~~2016~~2020

GROSS

GROSS

AMORTIZED

UNREALIZED

UNREALIZED

FAIR

COST

GAINS

LOSSES

VALUE

FIXED MATURITIES

AVAILABLE-FOR-SALE:

Corporate securities
$
192,97626,898
$
209394
$
(5,490)(193)
$
187,69527,099
CMOs -– residential (1)

6,021914

850

(116)-

5,913964
U.S. Government obligations

43,4174,958

133-

(441)-

43,1094,958
Agency MBS - residential(2)

22
139

-

23
~~GSEs(3)~~
10,301(5)

1
(422)
9,88034
States and political subdivisions

191,1469,845

78065

(5,115)(45)

186,8119,865
Foreign government obligations

5,0981,050

1333

(157)-

4,954
~~Redeemable preferred stocks~~
11,454
96
(448)
11,1021,083

Total fixed maturities
$
460,43543,704
$
1,241542
$
(12,189)(243)
$
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)
$
5,33344,003

(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 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

$
1,111

$
1,111
Due after one year through five years

13,840

13,824
Due after five years through ten years

1,931

2,015
Due after ten years

11,451

11,485
Fixed maturities with no single maturity date

609

635

$
28,942

$
29,070

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

The following tables summarize, for all fixed maturities available-for-sale ~~securities~~ in an unrealized loss position, the aggregate fair value and gross unrealized loss by length of time those securities that have continuously been in an unrealized loss position for the periods indicated (in thousands):

September 30, 2021

Less than 12 Months

12 Months or Longer

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Value

Losses

Value

Losses

Value

Losses

Corporate securities
$
-

$
-

$
10,720

$
92

$
10,720
$
92
Agency MBS - residential

29

4

-

-

29

4
States and political subdivisions

401

8

1,095

23

1,496

31

  Fixed maturities in an

      unrealized loss position
$
430

$
12

$
11,815

$
115

$
12,245
$
127

Number of fixed maturities in an

  unrealized loss position

2

2

4

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
$
10,998

$
96

$
4,453

$
97

$
15,451
$
193
Agency MBS - residential

34

5

-

-

34

5
States and political subdivisions

4,269

14

1,124

31

5,393

45

  Fixed maturities in an

      unrealized loss position
$
15,301

$
115

$
5,577

$
128

$
20,878
$
243

Number of fixed maturities in an

  unrealized loss position

5

2

7

Substantially all of the unrealized losses on fixed maturities available-for-sale at September 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 30, ~~2017~~2021..

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

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

Three Months Ended

Nine Months Ended

September 30,

September 30,

2021

2020

2021

2020

Realized gains (losses):

Fixed maturities available-for-sale
$
(48)
$
(53)
$
105
$
105

Total realized gains (losses) on debt and equity securities

(48)

(53)

105

105
Gains (losses) on other investments

-

-

-

17

Net investment gains (losses)
$
(48)
$
(53)
$
105
$
122

For the three months and nine months ended September 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~~$0 and ~~$2,052,000,~~$188,000, respectively, and gross losses of $0$48,000 and ~~$844,000,~~$83,000, respectively, ~~on those sales.~~from sales, maturities and prepayments of fixed maturities available-for-sale. For the three months and nine months ended September 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~~$0 and ~~$4,521,000,~~$162,000, respectively, and gross losses of ~~$94,000~~$53,000 and ~~$275,000,~~$57,000, 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 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~~municipals that were priced with observable market

inputs. ~~Level~~The Company does not have any level 3 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.continuing operations at September 30, 2021 or December 31, 2020.
~~Trading securities:~~
~~Trading 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 30, ~~2017~~2021

Level 1

Level 2

Level 3

Total

FINANCIAL ASSETS:

Fixed maturities available-for-sale:

  Corporate securities
$
-

$
158,17617,520
$
-
$
158,17617,520
  CMOs - residential

-

6,905606

-

6,905606
  US Government obligations

-

43,8774,814

-

43,8774,814
  Agency MBS - residential

-

1629

-

16
  ~~GSEs~~
-
9,782
-
9,78229
  States and political subdivisions

-

191,1245,073

1,917-

193,0415,073
  Foreign government obligations

-

4,2131,028

-

4,213
  ~~Redeemable preferred stocks~~
9,990
-
-
9,9901,028
     Total fixed maturities

9,990-

414,093
1,917
426,000
~~Equity securities available-for-sale:~~
  ~~Common stocks~~
1,785
-29,070

-

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
-
-
51629,070

Total Financial Assets
$
15,966-

$
414,09329,070
$
1,917-
$
431,97629,070

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:

~~Total~~

~~Total~~
Fixed maturities available-for-sale:

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

~~Liabilities~~

~~Liabilities~~
  Corporate securities
$
-

~~Liabilities~~$
27,099
$
-
$
27,099
  CMOs - residential

~~Liabilities~~-
964
-
964
  US Government obligations
-
4,958
-
4,958
  Agency MBS - residential
-
34
-
34
  States and political subdivisions
-
9,865
-
9,865
  Foreign government obligations
-
1,083
-
1,083
     Total fixed maturities
-
44,003
-
44,003

~~Beginning balance~~Total Financial Assets
$
1,445 -
$
44,003
$
1,445 -
$
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 44,003

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 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~~  Securities purchased under
     agreements to resell
$
5025,458
$
-
$
5025,458
$
6,91223,962
$
-
$
6,91223,962

~~FINANCIAL LIABILITIES:~~
  ~~Funds on deposit~~
$
-
$
143,911
$
143,637
$
-
$
146,098
$
145,749

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

~~Short-term Investments~~Securities purchased under agreements to resell

~~Investments with original maturities of 91 days~~Securities purchased under agreements to ~~one year are considered short-term investments and~~resell are carried at ~~cost,~~the amounts at which the securities will be subsequently resold, 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.
21

Note 6.   7.Variable Interest Entities

The Company has a minority interest in ~~certain~~a limited ~~partnerships~~partnership that we have determined to be a Variable Interest ~~Entities~~Entity (“~~VIEs”~~VIE”). The aforementioned ~~VIEs are~~VIE is 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’~~VIE’s economic performance.

The Company will periodically reassess whether we are the primary beneficiary in ~~any of these investments.~~this investment. 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~~$2,050,000 carrying value in ~~these~~this equity ~~investments that are~~investment, which is included in other investments in the Condensed Consolidated Balance Sheet as of September 30, ~~2017.~~2021.

Note 7.   8.~~Acquisition of PetPartners, Inc.~~Related Party Transactions

At September 30, 2021 and December 31, 2020, the Company’s Condensed Consolidated Balance Sheets include $85,000 and $163,000, respectively, of administrative fees and other expenses payable to Ebix Health Exchange Holdings, LLC (“Ebix Health Exchange”), which are included in liabilities attributable to discontinued operations. The Company’s Condensed Consolidated Statements of Income include administrative fee expenses to Ebix Health Exchange, which are included in pretax income from discontinued operations, of $349,000 and $1,111,000, respectively, for the three months and nine months ended September 30, 2021; and include $407,000 and $1,306,000, 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 9.Acquisition
Torchlight Technology Group LLC.
On ~~March 24, 2017~~April 15, 2020 (the ~~"Acquisition~~"Torchlight Acquisition Date"), the Company acquired ~~85%~~the remaining 77% membership units of ~~the stock of PetPartners, Inc.~~Torchlight Technology Group LLC, (“~~PetPartners”~~Torchlight”)~~, a pet insurance marketing and administration company,~~ for a purchase price of ~~$12,713,000, subject~~$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 ~~certain post-closing adjustments.~~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 ~~acquired PetPartners for the purpose of owning additional distribution and administration sources~~purchased Torchlight for its ~~pet insurance. Any time after March 24, 2019, shares owned by the noncontrolling interest are putable~~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 atwants 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, ~~are therefore presented~~as a result, recorded a gain of $519,000, 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.~~Torchlight. The following table presents the identifiable assets acquired and liabilities assumed in the acquisition of ~~PetPartners~~Torchlight on the Torchlight Acquisition Date based on their respective fair values (in thousands):

Cash

$
390333
Intangible assets

5,8802,700
Other assets

5672,132

Total identifiable assets

6,8375,165

Other liabilities

174
~~Deferred tax liability~~
1,0691,227

Total liabilities

1,2431,227

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. In 2021, this goodwill was allocated among the Pets Sale and MNL Sale disposal groups and is included in assets ~~(see Note 8).~~ attributable to discontinued operations on the Condensed Consolidated Balance Sheets.
Goodwill ~~reflects~~for Torchlight represented 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 30, ~~2017,~~2020 is $3,920,000 and $(1,815,000), 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.   10.~~Goodwill and Other~~ Intangible Assets
The carrying amount of goodwill was $50,697,000 and $41,573,000 at September 30, 2017 and December 31, 2016, respectively. Goodwill is reviewed for impairment annually at December 31, and evaluated for triggering events that may indicate a potential impairment quarterly. As of September 30, 2017, no impairment indicators were identified.

The Company has net ~~other~~ intangible assets of ~~$15,062,000~~$3,012,000 and ~~$10,122,000~~$3,531,000 at September 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)~~of 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 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
$
11,7974,707
$
13,0527,583
$
11,882
  ~~Domain~~
1,000
100
1,000
255,385
  Software systems

7801,500

51364

-1,500

-167
     Total finite-lived
$
19,0338,083
$
11,9485,071
$
14,0529,083
$
11,9075,552

September 30,

December 31,

2017

2016
Indefinite-lived Intangible Assets:

   Insurance licenses

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

$
7,977
$
7,977
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~~$178,000 and ~~$941,000~~$519,000 for the three months and nine months ended September 30, ~~2017, respectively,~~2021, respectively; and was ~~$366,000~~$162,000 and ~~$1,057,000~~$386,000 for the three months and nine months

23

ended September 30, ~~2016,~~2020, respectively.

Note 9.   11.Fee Income
All of the fee income recorded by the IHC Agencies and its 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

Nine Months Ended

September 30,

September 30,

2021

2020

2021

2020

Commissions
$
1,372
$
1,684
$
5,662
$
5,346
Commissions from affiliates

1,820

2,410

5,572

7,602
Administrative Fees

-

-

-

875
Marketing Fees

198

290

757

933
Enrollment Platform Fees

454

502

1,539

1,476
Lead and Referral Fees

1,681

1,111

6,627

1,964
Application and Other Fees

44

116

134

269

Total Fee Income
$
5,569
$
6,113
$
20,291
$
18,465
Commissions
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 probable 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.
Commissions from Affiliates
Commissions from affiliates represent commission revenues from the sales of certain insurance policies by the IHC Agencies on behalf of the Company’s wholly owned insurance carriers. These amounts were previously eliminated in consolidation. In 2021, the Company committed to various plans to sell these insurance carriers (see Note 2) and as a result, the insurance carrier operations are now presented as discontinued operations in the accompanying financial statements. In the Condensed Consolidated Statements of Income, commission revenues from affiliates are included in fee income as presented in continuing operations; and the carriers’ corresponding commission expense is included in pretax income from discontinued operations.
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 September 30, 2021 and December 31, 2020, the aforementioned commission liability was $2,750,000 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).
Nine Months Ended
September 30, 2021
Beginning Balance
$
7,760
Commissions recognized during the period
6,950
Commission adjustments related to prior periods
(1,295)
Cash receipts
(5,291)
Ending Balance
$
8,124

Remaining Performance Obligations
Deferred revenues are recorded in connection with the right to use our INSX enrollment platform. At September 30, 2021 and December 31, 2020, deferred revenues are immaterial and expected to be fully recognized within the next 12 months.
Note 12.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.

On 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 $74,008,000 (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 $11,675,000. 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 and ~~health insurer specific~~state and local income tax ~~provisions.~~benefits on certain subsidiaries.
On March 27, 2020, as part of the business stimulus package in response to the COVID-19 pandemic, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security ("CARES") Act. The CARES Act established new tax provisions including, but not limited to: (1) five-year carryback of net operating losses ("NOLs") generated in 2018, 2019 and 2020; (2) accelerated refund of alternative minimum tax (AMT) credit carryforwards; and (3) retroactive changes to allow accelerated depreciation for certain depreciable property. At this time, the legislation does not have a material impact on the Company due to the lack of taxable losses in the stated carryback eligible tax years and the fact that the Company was already expecting to receive a cash benefit for the remaining AMT credits in the fiscal 2018 tax year return.
The New York State Department of Taxation and Finance has selected the Company’s 2015 and 2016 NYS returns for audit.

Note 10.   ~~Policy Benefits and Claims~~
Policy benefits and claims is the liability for unpaid loss and loss adjustment expenses. It is comprised of unpaid claims and estimated incurred but not reported (“IBNR”) reserves. Summarized below are the changes in the total liability for policy benefits and claims for the periods indicated (in thousands).

Nine Months Ended

September 30,

2017

2016

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

88,853

65,362
Net balance at beginning of year

130,260

180,081

Amount incurred, related to:

  Current year

114,795

111,526
  Prior years

(9,236)

(7,048)

  Total incurred

105,559

104,478

Amount paid, related to:

  Current year

52,822

46,997
  Prior years

56,452

109,819

  Total paid

109,274

156,816

Net balance at end of period

126,545

127,743
Plus: reinsurance recoverable

43,002

115,076
Balance at end of period
$
169,547
$
242,819
Since unpaid loss and loss adjustment expenses are estimates, actual losses incurred may be more or less than the Company’s previously developed estimates and is referred to as either unfavorable or favorable development, respectively. The overall net favorable development of $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 in the group

24

disability reserves and $2,714,000 in the other individual life, annuities and other reserves, partially offset by an unfavorable development of $1,304,000 in Specialty Health reserves. The overall net favorable development of $7,048,000 in 2016 related to prior years primarily consists of favorable developments of $2,916,000 in the group disability reserves, $494,000 in Medical Stop-Loss reserves, and $3,769,000 in Specialty health reserves.
Included in the preceding rollforward of the Company’s liability for policy benefits and claims are the policy benefits and claims activity associated with the Company’s health insurance lines. These are embedded within the Specialty Health segment. The table below summarizes the components of the change in the liability for policy benefits and claims that are specific to health insurance claims for the periods indicated (in thousands).

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

Nine Months Ended

September 30,

September 30,

September 30,

September 30,

2017

2016

2017

2016

2021

2020

2021

2020

Beginning balance
$
(2,504)
$
4,054
$
(6,964)
$
(3,440)
$
3,220
$
2,854
$
4,197
$
1,212

Other comprehensive income (loss):

Other comprehensive income (loss) before reclassifications

627

(182)

5,305

8,522

(999)

873

(2,012)

3,417
Amounts reclassified from accumulated OCI

(467)

(573)

(685)

(1,618)

99

191

135

(711)
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)

(900)

1,064

(1,877)

2,706

Ending balance
$
(2,344)
$
3,448
$
(2,344)
$
3,448
$
2,320
$
3,918
$
2,320
$
3,918

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

Nine Months Ended

September 30,

September 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)
$
(48)
$
(53)
$
106
$
105

Income (loss) from continuing operations before income taxes

(48)

(53)

106

105
Income tax expense (benefit)

(11)

(10)

20

23
Income (loss) from continuing operations, net of tax

(37)

(43)

86

82

Total pretax income (loss) from discontinued operations

(79)

(188)

(280)

796
Income tax expense (benefit) on discontinued operations

(17)

(40)

(59)

167
Income from discontinued operations, net of tax

(62)

(148)

(221)

629

Net income (loss)
$
(99)
$
(191)
$
(135)
$
711

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:~~

Shares

Weighted- Average

Under Option

Exercise Price

December 31, 2016

697,180

$
11.75
Granted

34,000

22.20
Exercised

(38,800)

9.09
September 30, 2017

692,380

$
12.41
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:
~~2017~~
~~Weighted-average risk-free interest rate~~
1.71%
~~Expected annual dividend rate per share~~
0.79%
~~Expected volatility factor of the Company's common stock~~
37.57%
~~Weighted-average expected term of options~~
~~4.5 years~~
~~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:~~

September 30, 2017

Outstanding

Exercisable

Number of options

692,380

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

1.9 years

1.0 years
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:~~

No. of

Weighted-Average

Non-vested

  Grant-Date

Shares

Fair Value

December 31, 2016

17,325

$
16.20

Vested

(4,950)

12.53

September 30, 2017

12,375

$
17.68

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~~$10,131,000 and ~~$11,312,000~~$436,000 during the nine months ended September 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~~Madison National Life in the ~~original Complaint.~~amount of $5,641,000, which the Plaintiff has satisfied. The Company received payment on September 9, 2020. The resultant income is included in income from discontinued operations in the Condensed Consolidated Statements of Income for the three months and nine months ended September 30, 2020. The second arbitration resulted in no monetary obligations owed by any of the parties. The Plaintiff has filed ana motion for leave to file a Second Amended ~~Complaint on August 18, 2017.~~Complaint. The Defendants filed a Motion to ~~Compel Arbitration or Stay~~Dismiss Plaintiff’s Second Amended Complaint. This motion is fully briefed and we are awaiting the ~~Amended Complaint, which is still pending. In the fourth quarter of 2017,~~Court’s decision.
Multistate Market Conduct Examination (“MCE”)
As previously disclosed, our subsidiaries Standard Security Life, Madison National Life ~~agreed~~and Independence American Insurance Company were selected for MCE related to ~~pay fines~~our short-term medical (“STM”), limited medical and fixed indemnity limited health insurance products for the 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 MCE. In addition to the five lead states, 37 other states participated in the ~~state~~MCE. Each of ~~Texas primarily~~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 ~~claims~~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 ~~practices~~in October 2020. The corresponding expense is included in income from discontinued operations in the Condensed Consolidated Statements of Income for the ~~Plaintiff.~~nine months ended September 30, 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,~~As a result of the pending sales discussed in Note 2, the operations of the Insurance Group, and certain other pet assets, are presented in discontinued operations. Continuing operations consist primarily of the IHC Agencies which are in the Specialty Health segment. 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. Management will re-assess the Company’s reportable segments based on its new organizational structure after the pending sale transactions discussed in Note 2 are consummated.

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

Nine Months Ended

September 30,

September 30,

2021

2020

2021

2020
Revenues:

Specialty Health
$
5,520
$
6,749
$
20,204
$
19,188
Group disability and life

-

-

-

-
Individual life, annuities and other

-

-

-

-
Corporate

1,041

149

2,177

1,932

6,561

6,898

22,381

21,120
Net investment gains (losses)

(48)

(53)

105

122
   Total revenues
$
6,513
$
6,845
$
22,486
$
21,242

Income before income taxes

Specialty Health (A)
$
(7,022)
$
(6,969)
$
(17,921)
$
(16,579)
Group disability and life

-

-

-

-
Individual life, annuities and other

-

-

-

-
Corporate (B)

(8,009)

(2,564)

(12,726)

(5,522)

(15,031)

(9,533)

(30,647)

(22,101)
Net investment gains (losses)

(48)

(53)

105

122
   Loss from continuing operations before income taxes
$
(15,079)
$
(9,586)
$
(30,542)
$
(21,979)

(A)   ~~Substantially all~~In both 2021 and 2020, we incurred significant costs associated with hiring, training and licensing a significant number of ~~the business~~new agents, as well as costs for system development in ~~the segment is coinsured. Activity in this segment primarily reflects income or expenses related to the coinsurance~~our marketing and ~~the run-off of any remaining blocks that were not coinsured.~~
administrative companies.
(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~~2021 include legal and ~~2016.~~
(C)   ~~The Individual life, annuities and other segment includes amortization of deferred charges~~investment bank fees recorded in connection with the ~~assumptions~~Going Private Transaction (see Note 1) and the obligations of ~~certain ceded life~~the Special Committee of independent directors to consider the proposal, and ~~annuity policies amounting~~ to ~~$368,000~~review, evaluate, negotiate and ~~$296,000 for~~approve or disapprove the ~~three months ended September 30, 2017~~proposal and ~~2016, respectively, and $937,000 and $1,949,000 for the nine months ended September 30, 2017 and 2016, respectively.~~alternatives.

30

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 and third quarters 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.
(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 cash. On July 29, 2021, the SSL Purchase Agreement was amended and restated (the “SSL Amended Purchase Agreement”). In accordance with the SSL Amended Purchase Agreement, the Company will receive the excess of aggregate statutory capital and surplus, calculated as of the closing date, over $57 million. The closing of the transaction, the closing distribution and certain other items are subject to customary closing conditions including applicable regulatory approvals, one of which is the approval of the NYSDFS. Under the terms of the SSL Amended Purchase Agreement, the transaction includes all of Standard Security Life’s DBL and PFL business in addition to all its ~~strategic planning~~other lines of business. The aforementioned transaction, consisting of the sale of Standard Security Life, the closing distribution and ~~decision-making, underwriting profit~~other closing conditions, is ~~consistently emphasized~~collectively referred to as the ~~primary goal~~“SSL Sale” transaction or disposal group.
(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 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 sell all ~~decisions as to whether or not to increase our retention~~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 by Madison National Life 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 business sold 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 $78.3 million in cash, retained a 30% equity investment valued at $33.8 million and recorded a $74.0 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 interest in the business sold 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 or ~~otherwise change our~~disposal group.
(C)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, which is 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. In accordance with the stock purchase agreement and prior to closing, Madison National Life will enter into a reinsurance agreement with Independence American Insurance Company to reinsure all of Independence American Insurance Company’s non-pet business, ~~model. Management's assessment~~primarily specialty health products, that are excluded from the Pets Sale transaction discussed above. The transaction has been approved by the Board of ~~trends in healthcare~~Directors of IHC, and ~~morbidity, with respect~~IHC’s majority stockholders have entered into a voting agreement under which such majority shareholders agreed to specialty medical, disability and New York short-term disability (“DBL”); mortality rates with respect to life insurance; and changes in market conditions in general play a significant role in determiningapprove the ~~rates charged, deductibles and attachment points quoted,~~transaction. IHC’s majority stockholders approved the transaction by written consent on October 18, 2021. The closing is expected no earlier than January 1, 2022; and the ~~percentage~~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, which includes the reinsured specialty health business ~~retained. Management has always focused on managing~~of Independence American Insurance Company, is referred to as the ~~costs of its operations.~~“MNL Sale” transaction or disposal group.

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):

Three Months Ended

Nine Months Ended

For the Three Months Ended

For the Nine Months Ended

September 30,

September 30,

September 30,

September 30,

2017

2016

2017

2016

2021

2020

2021

2020

Revenues
Revenues
$
83,752
$
78,542
$
237,829
$
232,133
$
6,513
$
6,845
$
22,486
$
21,242
Expenses
Expenses

75,873

71,540

218,475

208,810

21,592

16,431

53,028

43,221

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
Loss from continuing operations before income taxes

(15,079)

(9,586)

(30,542)

(21,979)
Income tax benefit

(3,567)

(2,241)

(7,026)

(5,617)

Income from continuing operations, net of tax

5,213

4,366

24,529

14,757

Loss from continuing operations

(11,512)

(7,345)

(23,516)

(16,362)
Income from discontinued operations
Income from discontinued operations

-

-

-

109,912

28,871

16,077

122,809

29,954

Net income
Net income

5,213

4,366

24,529

124,669

17,359

8,732

99,293

13,592
(Income) loss from noncontrolling interests

-

(44)

158

(205)

Less: (Income) loss from noncontrolling interests in subsidiaries

16

(43)

(33)

(9,900)
Net income attributable to IHC
$
17,359
$
8,688
$
99,451
$
13,387

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

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

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $1.00 par value	IHC	NYSE

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

PART I – FINANCIAL INFORMATION				PAGE
					NO.

		Item 1. Financial Statements

			Condensed Consolidated Balance Sheets	4

			Condensed Consolidated Statements of Income	5

			Condensed Consolidated Statements of Comprehensive Income (Loss)	6

			Condensed Consolidated ~~Statement~~Statements of Changes in Equity	7

			Condensed Consolidated Statements of Cash Flows	89

			Notes to Condensed Consolidated Financial Statements	910

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

		Item 3. Quantitative and Qualitative Disclosures about Market Risk		4441

		Item 4. Controls and Procedures		4441

PART II - OTHER INFORMATION

		Item 1. Legal Proceedings		4541

		Item 1A. Risk Factors		4642

		Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		4643

		Item 3. Defaults Upon Senior Securities		4643

		Item 4. Mine Safety Disclosures		4643

		Item 5. Other Information		4643

		Item 6. Exhibits		4744

	Signatures			4947

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


		September 30, ~~2017~~2021		December 31, ~~2016~~2020
		~~(Unaudited)~~(Unaudited)
ASSETS:
Investments:
~~Short-term investments~~	$	`50`	$	`6,912`
Securities purchased under agreements to resell	$	`20,59725,458`	$	`28,962`
~~Trading securities~~		`516`		`59223,962`
Fixed maturities, available-for-sale		`426,00029,070`		`449,487`
~~Equity securities, available-for-sale~~		`5,460`		`5,33344,003`
Other investments		`18,3382,050`		`23,5341,928`
Total investments		`470,96156,578`		`514,82069,893`

Cash and cash equivalents		`26,5657,946`		`22,01017,215`
~~Due and unpaid premiums~~Investment in Iguana Capital, Inc. (“Iguana Capital”) (Note 2)		`32,67833,475`		`42,896-`
~~Due from reinsurers~~Funds held in escrow		`383,19278,263`		`440,285`
~~Premium and claim funds~~		`13,665`		`17,952`
~~Goodwill~~		`50,697`		`41,573-`
Other assets		`61,47233,975`		`54,92849,475`
Assets attributable to discontinued operations (Note 2)		`995,383`		`946,573`

TOTAL ASSETS	$	`1,039,2301,205,620`	$	`1,134,4641,083,156`

LIABILITIES AND EQUITY:
LIABILITIES:
~~Policy benefits and claims~~	$	`169,547`	$	`219,113`
~~Future policy benefits~~		`217,415`		`219,450`
~~Funds on deposit~~		`143,637`		`145,749`
~~Unearned premiums~~		`7,993`		`9,786`
~~Other policyholders' funds~~		`10,249`		`9,769`
~~Due to reinsurers~~		`5,715`		`35,796`
Accounts payable, accruals and other liabilities	$	`59,74739,817`	$	`28,387`
Liabilities attributable to discontinued operations (Note 2)		`601,253`		`55,477`
~~Liabilities attributable to discontinued operations~~		`-`		`68582,651`

TOTAL LIABILITIES		`614,303641,070`		`695,208611,038`

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~~14,674,936 and
~~17,102,525~~14,643,047 shares outstanding		`18,625`		`18,62018,625`
Paid-in capital		`126,135125,357`		`126,468124,757`
Accumulated other comprehensive ~~loss~~income		`(2,344)2,320`		`(6,964)4,197`
Treasury stock, at cost; ~~3,716,941~~3,950,522 and ~~1,517,983~~3,982,411 shares		`(61,712)(77,247)`		`(17,483)(77,088)`
Retained earnings		`339,512495,498`		`315,918399,273`

TOTAL IHC STOCKHOLDERS’ EQUITY		`420,216564,553`		`436,559469,764`
NONREDEEMABLE NONCONTROLLING INTERESTS		`2,676 (3)`		`2,69742`

TOTAL EQUITY		`422,892564,550`		`439,256469,806`

TOTAL LIABILITIES AND EQUITY	$	`1,039,2301,205,620`	$	`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				Nine Months Ended
		September 30,				September 30,
		2021		2020		2021		2020
REVENUES:
Net investment income	$	`119`	$	`170`	$	`430`	$	`916`
Fee income		`5,569`		`6,113`		`20,291`		`18,465`
Other income		`873`		`615`		`1,660`		`1,739`
Net investment gains (losses)		`(48)`		`(53)`		`105`		`122`

		`6,513`		`6,845`		`22,486`		`21,242`

EXPENSES:
Selling, general and administrative expenses		`21,592`		`16,431`		`53,028`		`43,221`

Loss from continuing operations before income taxes		`(15,079)`		`(9,586)`		`(30,542)`		`(21,979)`
Income tax benefits		`(3,567)`		`(2,241)`		`(7,026)`		`(5,617)`

Loss from continuing operations, net of tax		`(11,512)`		`(7,345)`		`(23,516)`		`(16,362)`

Discontinued operations (Note 2):
Total pretax income from discontinued operations		`36,383`		`20,295`		`150,376`		`38,790`
Income tax expense on discontinued operations		`7,512`		`4,218`		`27,567`		`8,836`
Income from discontinued operations, net of tax		`28,871`		`16,077`		`122,809`		`29,954`

Net income		`17,359`		`8,732`		`99,293`		`13,592`
(Income) loss from nonredeemable noncontrolling interests		`-`		`5`		`2`		`(29)`
(Income) loss from redeemable noncontrolling interests		`-`		`(49)`		`156`		`(176)`

NET INCOME ATTRIBUTABLE TO IHC	$	`17,359`	$	`8,688`	$	`99,451`	$	`13,387`

Basic income per common share
Loss from continuing operations	$	`(0.79)`	$	`(0.50)`	$	`(1.61)`	$	`(1.11)`
Income from discontinued operations		`1.97`		`1.09`		`8.40`		`2.02`
Basic income per common share	$	`1.18`	$	`0.59`	$	`6.79`	$	`0.91`

WEIGHTED AVERAGE SHARES OUTSTANDING		`14,654`		`14,670`		`14,645`		`14,763`

Diluted income per common share
Loss from continuing operations	$	`(0.79)`	$	`(0.50)`	$	`(1.61)`	$	`(1.11)`
Income from discontinued operations		`1.97`		`1.09`		`8.40`		`2.02`
Diluted income per common share	$	`1.18`	$	`0.59`	$	`6.79`	$	`0.91`

WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING		`14,654`		`14,670`		`14,645`		`14,763`

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)

		Nine Months Ended September 30,
		2021		2020
CASH FLOWS PROVIDED BY (USED BY) OPERATING ACTIVITIES:
Net income	$	`99,293`	$	`13,592`
Adjustments to reconcile net income to net change in cash from
operating activities:
Gain on disposal of discontinued operations		`(74,008)`		`-`
Pretax provision for loss on disposal		`1,021`		`-`
Deferred and sharebased compensation		`7,001`		`2,929`
Net amortization of purchased premium and discount in net investment income		`408`		`481`
Net investment (gains)		`(105)`		`(122)`
Depreciation and amortization		`977`		`800`
Other		`13,975`		`4,710`
Changes in assets and liabilities:
Change in insurance liabilities		`2,048`		`14,670`
Change in amounts due from reinsurers		`4,279`		`5,334`
Change in claim fund balances		`(1,133)`		`751`
Change in due and unpaid premiums		`(14,577)`		`(2,852)`
Change in contract asset		`(332)`		`-`
Other operating activities		`2,836`		`(2,508)`

Net change in cash from operating activities		`41,683`		`37,785`

CASH FLOWS PROVIDED BY (USED BY) INVESTING ACTIVITIES:
Net (purchases) sales and maturities of short-term investments		`2,560`		`(1,049)`
Net (purchases) sales of securities under resale agreements		`(145,314)`		`28,844`
Sales of equity securities		`3,494`		`-`
Sales of fixed maturities		`10,351`		`39,388`
Maturities and other repayments of fixed maturities		`56,634`		`96,964`
Purchases of fixed maturities		`(8,343)`		`(170,088)`
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		`(2,418)`		`(3,998)`

Net change in cash from investing activities		`(90,414)`		`(24,896)`

CASH FLOWS PROVIDED BY (USED BY) FINANCING ACTIVITIES:
Repurchases of common stock		`(521)`		`(6,882)`
Withdrawals of investment-type insurance contracts		`(144)`		`(464)`
Dividends paid		`(6,443)`		`(6,215)`
Other financing activities		`(431)`		`94`

Net change in cash from financing activities		`(7,539)`		`(13,467)`

Net change in cash, cash equivalents and restricted cash		`(56,270)`		`(578)`
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	$	`18,523`	$	`24,053`

NON-CASH ACTIVITY:
Proceeds from sale of subsidiary – funds held in escrow	$	`78,263`	$	`-`

		September 30, 2021
		SSL Sale		Pets Sale		MNL Sale		Total

Major classes of assets:
Investments and cash	$	`154,902`	$	`151,036`	$	`195,993`	$	`501,931`
Due from reinsurers		`13,237`		`-`		`339,689`		`352,926`
Goodwill		`-`		`41,716`		`12,486`		`54,202`
Other assets		`36,431`		`16,663`		`33,230`		`86,324`

Assets attributable to discontinued operations	$	`204,570`	$	`209,415`	$	`581,398`	$	`995,383`

Major classes of liabilities:
Policy benefits and claims	$	`43,576`	$	`13,727`	$	`117,352`	$	`174,655`
Future policy benefits		`20,650`		`-`		`174,534`		`195,184`
Funds on deposit		`593`		`-`		`141,935`		`142,528`
Unearned premiums		`13,956`		`6,497`		`1,791`		`22,244`
Other liabilities		`19,656`		`2,508`		`44,478`		`66,642`

Liabilities attributable to discontinued operations	$	`98,431`	$	`22,732`	$	`480,090`	$	`601,253`

		December 31, 2020
		SSL Sale		Pets Sale		MNL Sale		Total

Major classes of assets:
Investments and cash	$	`114,916`	$	`149,844`	$	`193,821`	$	`458,581`
Due from reinsurers		`13,188`		`-`		`344,017`		`357,205`
Goodwill		`-`		`62,414`		`12,486`		`74,900`
Other assets		`19,015`		`22,389`		`14,483`		`55,887`

Assets attributable to discontinued operations	$	`147,119`	$	`234,647`	$	`564,807`	$	`946,573`

Major classes of liabilities:
Policy benefits and claims	$	`39,296`	$	`11,775`	$	`128,161`	$	`179,232`
Future policy benefits		`21,236`		`-`		`176,850`		`198,086`
Funds on deposit		`710`		`-`		`140,666`		`141,376`
Unearned premiums		`5,394`		`5,629`		`1,766`		`12,789`
Other liabilities		`10,382`		`8,012`		`32,774`		`51,168`

Liabilities attributable to discontinued operations	$	`77,018`	$	`25,416`	$	`480,217`	$	`582,651`

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

Revenues	$	`51,274`	$	`32,138`	$	`41,838`	$	`125,250`
Expenses:
Insurance benefits, claims and reserves		`20,214`		`19,301`		`12,974`		`52,489`
Selling, general and administrative expenses		`8,166`		`11,466`		`16,011`		`35,643`

Pretax income of discontinued operations during phase-out		`22,894`		`1,371`		`12,853`		`37,118`
Pretax provision for loss on disposal		`(59)`		`(86)`		`(64)`		`(209)`
Pretax gain (loss) on disposal of discontinued operations		`-`		`(526)`		`-`		`(526)`
Total pretax income from discontinued operations		`22,835`		`759`		`12,789`		`36,383`
Income tax expense on discontinued operations		`4,721`		`103`		`2,688`		`7,512`

Income from discontinued operations, net of tax	$	`18,114`	$	`656`	$	`10,101`	$	`28,871`

		For the Nine Months Ended September 30, 2021
		SSL Sale		Pets Sale		MNL Sale		Total

Revenues	$	`146,915`	$	`90,913`	$	`128,857`	$	`366,685`
Expenses:
Insurance benefits, claims and reserves		`74,812`		`53,675`		`51,354`		`179,841`
Selling, general and administrative expenses		`23,365`		`35,038`		`51,052`		`109,455`

Pretax income of discontinued operations during phase-out		`48,738`		`2,200`		`26,451`		`77,389`
Pretax provision for loss on disposal		`(461)`		`(480)`		`(80)`		`(1,021)`
Pretax gain on disposal of discontinued operations		`-`		`74,008`		`-`		`74,008`
Total pretax income from discontinued operations		`48,277`		`75,728`		`26,371`		`150,376`
Income tax expense on discontinued operations		`10,046`		`11,982`		`5,539`		`27,567`

Income from discontinued operations, net of tax	$	`38,231`	$	`63,746`	$	`20,832`	$	`122,809`

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
		2021		2020		2021		2020

Loss from continuing operations attributable to IHC	$	`(11,512)`	$	`(7,340)`	$	(23,514)	$	`(16,391)`
Income from discontinued operations attributable to IHC		`28,871`		`16,028`		122,965		`29,778`

Net income attributable to IHC	$	`17,359`	$	`8,688`	$	99,451	$	`13,387`

		September 30, ~~2017~~2021
				GROSS		GROSS
		AMORTIZED		UNREALIZED		UNREALIZED		FAIR
		COST		GAINS		LOSSES		VALUE

FIXED MATURITIES
AVAILABLE-FOR-SALE:
Corporate securities	$	`159,75317,435`	$	`894177`	$	`(2,471)(92)`	$	`158,17617,520`
CMOs -– residential (1)		`7,011576`		`30`		`-`		`(106)`	`6,905606`
U.S. Government obligations		`44,077`		`57`		`(257)`		`43,877`
~~Agency MBS - residential(2)~~		`16`		`-4,814`		`-`		`16`
~~GSEs(3)~~		`9,992-`		`14,814`
Agency MBS - residential (2)		`33`		`(211)-`		`9,782(4)`		`29`
States and political subdivisions		`194,7245,075`		`1,14329`		`(2,828)(31)`		`193,0395,073`
Foreign government obligations		`4,2761,009`		`2219`		`(85)-`		`4,213`
~~Redeemable preferred stocks~~		`10,008`		`116`		`(132)`		`9,9921,028`

Total fixed maturities	$	`429,85728,942`	$	`2,233255`	$	`(6,090)(127)`	$	`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)`	$	`5,46029,070`

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

FIXED MATURITIES
AVAILABLE-FOR-SALE:
Corporate securities	$	`192,97626,898`	$	`209394`	$	`(5,490)(193)`	$	`187,69527,099`
CMOs -– residential (1)		`6,021914`		`850`		`(116)-`		`5,913964`
U.S. Government obligations		`43,4174,958`		`133-`		`(441)-`		`43,1094,958`
Agency MBS - residential(2)		`22`		`139`		`-`		`23`
~~GSEs(3)~~		`10,301(5)`		`1`		`(422)`		`9,88034`
States and political subdivisions		`191,1469,845`		`78065`		`(5,115)(45)`		`186,8119,865`
Foreign government obligations		`5,0981,050`		`1333`		`(157)-`		`4,954`
~~Redeemable preferred stocks~~		`11,454`		`96`		`(448)`		`11,1021,083`

Total fixed maturities	$	`460,43543,704`	$	`1,241542`	$	`(12,189)(243)`	$	`449,487`

		AMORTIZED		FAIR
		COST		VALUE

Due in one year or less	$	1,111	$	1,111
Due after one year through five years		13,840		13,824
Due after five years through ten years		1,931		2,015
Due after ten years		11,451		11,485
Fixed maturities with no single maturity date		609		635

	$	28,942	$	29,070

		September 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	$	-	$	`-`	$	10,720	$	`92`	$	10,720	$	`92`
Agency MBS - residential		29		`4`		-		`-`		29		`4`
States and political subdivisions		401		`8`		1,095		`23`		1,496		`31`

Fixed maturities in an
unrealized loss position	$	430	$	`12`	$	11,815	$	`115`	$	12,245	$	`127`

Number of fixed maturities in an
unrealized loss position		2				2				4

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

FINANCIAL ASSETS:
Fixed maturities available-for-sale:
Corporate securities	$	`-`	$	`158,17617,520`	$	`-`	$	`158,17617,520`
CMOs - residential		`-`		`6,905606`		`-`		`6,905606`
US Government obligations		`-`		`43,8774,814`		`-`		`43,8774,814`
Agency MBS - residential		`-`		`1629`		`-`		`16`
~~GSEs~~		`-`		`9,782`		`-`		`9,78229`
States and political subdivisions		`-`		`191,1245,073`		`1,917-`		`193,0415,073`
Foreign government obligations		`-`		`4,2131,028`		`-`		`4,213`
~~Redeemable preferred stocks~~		`9,990`		`-`		`-`		`9,9901,028`
Total fixed maturities		`9,990-`		`414,093`		`1,917`		`426,000`

~~Equity securities available-for-sale:~~
~~Common stocks~~		`1,785`		`-29,070`		`-`		`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`		`-`		`-`		`51629,070`

Total Financial Assets	$	`15,966-`	$	`414,09329,070`	$	`1,917-`	$	`431,97629,070`

		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`

Cash	$	`390333`
Intangible assets		`5,8802,700`
Other assets		`5672,132`

Total identifiable assets		`6,8375,165`

Other liabilities		`174`
~~Deferred tax liability~~		`1,0691,227`

Total liabilities		`1,2431,227`

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

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

		September 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`	$	`11,7974,707`	$	`13,0527,583`	$	`11,882`
~~Domain~~		`1,000`		`100`		`1,000`		`255,385`
Software systems		`7801,500`		`51364`		`-1,500`		`-167`
Total finite-lived	$	`19,0338,083`	$	`11,9485,071`	$	`14,0529,083`	$	`11,9075,552`

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

		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`

	Shares	Weighted- Average
	Under Option	Exercise Price

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

	~~2017~~

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

		September 30, 2017
		Outstanding		Exercisable

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

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

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

September 30, 2017	`12,375`	$	17.68

		~~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				Nine Months Ended				For the Three Months Ended				For the Nine Months Ended
			September 30,				September 30,				September 30,				September 30,
			2017		2016		2017		2016		2021		2020		2021		2020

Revenues	Revenues	$	`83,752`	$	78,542	$	237,829	$	232,133	$	`6,513`	$	`6,845`	$	`22,486`	$	`21,242`
Expenses	Expenses		`75,873`		71,540		218,475		208,810		`21,592`		`16,431`		`53,028`		`43,221`

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
Loss from continuing operations before income taxes											`(15,079)`		`(9,586)`		`(30,542)`		`(21,979)`
Income tax benefit											`(3,567)`		`(2,241)`		`(7,026)`		`(5,617)`

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

Loss from continuing operations											`(11,512)`		`(7,345)`		`(23,516)`		`(16,362)`
Income from discontinued operations	Income from discontinued operations		`-`		-		-		109,912		`28,871`		`16,077`		`122,809`		`29,954`

Net income	Net income		`5,213`		4,366		24,529		124,669		`17,359`		`8,732`		`99,293`		`13,592`
(Income) loss from noncontrolling interests											`-`		`(44)`		`158`		`(205)`

Less: (Income) loss from noncontrolling interests in subsidiaries			`16`		(43)		(33)		(9,900)
Net income attributable to IHC										$	`17,359`	$	`8,688`	$	`99,451`	$	`13,387`

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