Independence Holding Company (NYSE: IHC) today reported 2018
fourth-quarter and annual results and 33% increase in annual cash
dividend.
Financial Results
Net income attributable to IHC per share
amounted to $0.32 per share, diluted, or $4,829,000, for the three
months ended December 31, 2018 compared to $1.16 per share,
diluted, or $17,546,000, for the three months ended December 31,
2017. Net income attributable to IHC of $28,482,000, or $1.89 per
share diluted, for the year ended December 31, 2018 decreased from
$42,042,000, or $2.63 per share diluted, in the same period of
2017. Net income attributable to IHC in 2017 includes the following
with no comparable amounts in 2018:
- $11,589,000 of tax benefits from a worthless stock deduction
recognized as a result of the winding down and dissolution of a
subsidiary— (which had a positive impact in 2017 of $.72 per
share, diluted),
- a $20,261,000 credit to federal income taxes as a result of the
reduction in AMIC Holdings’ valuation allowance for increased
income projections and associated utilization of federal net
operating loss carryforwards— (which had a positive impact of
$1.27 per share, diluted) and
- a deferred income tax expense of $9,402,000 due to the
re-measurement of deferred tax assets, liabilities and related
valuation allowance recorded as a result of the Tax Cuts and Jobs
Act— (which had a negative impact of $.59 per share,
diluted).
Subsequent to year-end, IHC sold two equity
investments for a net gain of $970,000, one for an estimated loss
of $1,797,000, net of tax, and one for an estimated gain of
$2,767,000, after tax. In accordance with accounting rules, the
Company recognized the loss in the fourth quarter of 2018 and will
realize the gain in the first quarter of 2019.
The Company reported an increase in revenues to
$87,648,000 for the three months ended December 31, 2018 compared
to revenues for the three months ended December 31, 2017 of
$82,665,000. The Company reported an increase in revenues to
$350,775,000 for the year ended December 31, 2018 compared to
revenues for the year ended December 31, 2017 of $320,494,000.
Revenues in 2017 include the run out of the Company’s stop-loss
segment with no comparable amounts in 2018.
Increase in Annual Dividend
IHC has also announced that the Board of
Directors has voted to increase the cash dividend by 33% to $.40
per share annually, effective with the next semi-annual dividend
payable in July 2019.
Chief Executive Officer’s Comments
Roy T. K. Thung, Chief Executive Officer,
commented, “We are pleased with our fourth quarter and 2018 annual
results. Our annual earnings are significantly improved over the
prior year after excluding the aforementioned one-time discreet tax
items in 2017. We are also happy to announce another increase in
the annual dividend of the Company to $.40 per share. This is the
fifth annual increase since December 2014 when the annual dividend
paid to the stockholders was $.07 per share.
Historically, IHC has concentrated on generating
underwriting profits for its carriers in the under-65 market
through sales by independent agents, national accounts and a
company-owned general agency. This is still the case for our group
LTD, life and New York DBL lines of business, but has changed for
our agency, Specialty Benefits (SB). In 2018, SB produced earned
premiums of over $180 million, almost solely for IHC’s carriers,
and an increasing portion came from SB’s direct-to-consumer
distribution (i.e. transactional website, www.healthedeals.com,
call centers and career agency). Much of this growth was fueled by
our opening two new call centers in order to service USAA members
seeking health insurance. The growth of these call centers has
opened the door to our vision of transforming SB into an agency
producing for multiple insurers, in a variety of business lines,
and across all demographics. While IHC is recognized as a leader in
the underwriting and sale of short-term medical (STM), hospital
indemnity (HIP), pet and ancillary products (both group and
individual), including dental, vision, critical illness, accident,
and gap policies, we have sold primarily our own products and have
had only a small presence in the senior market. That has now
changed.
While we will always emphasize writing
profitable business through our statutory companies and will always
value and provide great service to our independent agents, we are
now in the process of positioning SB for significant growth as a
much larger vertically integrated enterprise that generates leads,
sells products from multiple insurance companies (including health,
disability, life and property & casualty (P&C)) and
accessing all age groups. In this way, we believe SB will be
positioned for accelerated growth in 2019 and beyond. We will
achieve this: (i) by growing our direct-to-consumer (D2C)
distribution through www.healthedeals.com, our controlled call
center and career agent distribution channels, (ii) by expanding
our lead generation capabilities, (iii) by broadening our product
portfolio to include policies underwritten by other carriers,
including those focused on the senior market, and (iv) through
cloud-based quoting and enrollment comparison tools (featuring
products from both IHC’s carriers and other insurers) that are
designed to be used both for individual coverages and for the small
group employer market to shop, get quotes and bind coverage
online.
Direct-to-Consumer (D2C) Distribution and Lead
Generation. We believe our direct-to-consumer distributions
are highly scalable as long as we can continue to generate
sufficient leads at an affordable price. We are now planning to
double our number of call center seats this year. To this end, we
have signed a letter of intent to acquire an existing call center
that would bring us to a total of 100 licensed employee agents. In
addition, we have reorganized our career agency (i.e. independent
contract agents selling exclusively the products on the platform we
provide) under new leadership, and we expect to quickly ramp up
this distribution team. In order to meet the needs of our expanding
D2C distribution, we have been increasing our lead generation
capabilities – both organic and paid. We believe that, through a
recent relationship, affinity groups will be a very good source of
leads going forward. In addition, we are contemplating purchasing
or making an investment in a lead generator.
Product Portfolio. In 2019, we will more fully
leverage the capacity in our call centers and career agency to sell
products that we currently do not have available on IHC paper. We
will greatly expand our presence in the senior market by giving our
sales agents access to products designed for the over-65 market,
including Medicare Supplement, Medicare Advantage and (through
IHC’s carriers) dental, vision and HIP products. We also expect to
sell simplified issue and underwritten term life and final expense
products through other carriers, and have begun to obtain P&C
licenses, which will help us in selling pet insurance and other
property and casualty products.
Technology Developments. In January 2019, we
acquired My1HR, a fully digital consumer-direct quoting and
cloud-based enrollment platform. As a Web Based Entity (WBE), the
My1HR platform allows users to generate side-by-side comparisons of
insurance quotes, and enroll on-line in Affordable Care Act (ACA)
plans as well as IHC’s STM, HIP, and ancillary coverages. In
addition, My1HR is in the final stage of launching a cloud-based
quoting and enrollment comparison tool that is specifically
designed for producers in the small group employer market (under
100 lives) to shop, get quotes and bind coverage online. The small
group market is much larger than the individual commercial market,
and is estimated to cover approximately 40 million lives nationally
according to the U.S. Small Business Administration 2018 Small
Business Profile. In summary, SB, which already produces over $180
million of premiums, is a standalone vertically integrated agency
that generates leads, sells products from multiple insurance
companies (including health, disability, life and property &
casualty (P&C)), and services all age groups, which has
cloud-based quoting and enrollment comparison tools. For all these
reasons, we believe it is poised for significant growth in the
coming years.”
Mr. Thung added, “Our book value increased from
$28.98 at December 31, 2017 to $30.16 per share at December 31,
2018 despite the charge to stockholders’ equity due to the impact
on our bond portfolio of the sharp increase in interest rates. Our
overall investment portfolio continues to be very highly rated (on
average, AA) and has an effective duration of approximately four
years. Finally, IHC has no indebtedness and a substantial amount of
free cash at the corporate level and excess capital in our
insurance companies. This capital is available to support the
expected growth in our specialty health business, make strategic
investments, and will otherwise continue to grow due to the
substantial positive cash flow of the Company.”
About The IHC Group
Independence Holding Company (NYSE: IHC), formed
in 1980, is a holding company that is principally engaged in
underwriting, administering and/or distributing group and
individual specialty benefit products, including disability,
supplemental health, pet, and group life insurance through its
subsidiaries (Independence Holding Company and its subsidiaries
collectively referred to as “The IHC Group”). The IHC Group
consists of three insurance companies (Standard Security Life
Insurance Company of New York, Madison National Life Insurance
Company, Inc. and Independence American Insurance Company), and IHC
Specialty Benefits, Inc., a technology-driven full-service
marketing and distribution company that focuses on small employer
and individual consumer products through general agents,
telebrokerage, call centers, private label arrangements, and
through the following brands: www.HealtheDeals.com; Health eDeals
Advisors; www.PetPartners.com; and www.PetPlace.com.
Forward-looking Statements
Certain statements and information contained in
this release may be considered “forward-looking statements,” such
as statements relating to management's views with respect to future
events and financial performance. Such forward-looking
statements are subject to risks, uncertainties and other factors
that could cause actual results to differ materially from
historical experience or from future results expressed or implied
by such forward-looking statements. Potential risks and
uncertainties include, but are not limited to, economic conditions
in the markets in which IHC operates, new federal or state
governmental regulation, IHC’s ability to effectively operate,
integrate and leverage any past or future strategic acquisition,
and other factors which can be found in IHC’s other news releases
and filings with the Securities and Exchange Commission. IHC
expressly disclaims any duty to update its forward-looking
statements unless required by applicable law.
|
INDEPENDENCE HOLDING COMPANY |
|
CONSOLIDATED STATEMENTS OF
INCOME |
December 31, 2018 |
(In Thousands, Except Shares and Per Share
Data) |
|
|
|
Three Months Ended |
|
Year Ended |
|
|
December 31, |
|
December 31, |
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
REVENUES: |
|
|
|
|
|
|
|
|
Premiums earned |
$ |
82,665 |
|
$ |
71,759 |
|
$ |
321,248 |
|
$ |
282,266 |
|
Net investment
income |
|
3,831 |
|
|
3,428 |
|
|
15,021 |
|
|
14,430 |
|
Fee income |
|
4,707 |
|
|
5,209 |
|
|
18,900 |
|
|
16,765 |
|
Other income
(loss) |
|
(2,857 |
) |
|
717 |
|
|
(3,361 |
) |
|
4,494 |
|
Net investment gains
(losses) |
|
(698 |
) |
|
1,552 |
|
|
(1,033 |
) |
|
2,539 |
|
|
|
|
|
|
|
|
|
|
|
|
87,648 |
|
|
82,665 |
|
|
350,775 |
|
|
320,494 |
|
|
|
|
|
|
|
|
|
|
EXPENSES: |
|
|
|
|
|
|
|
|
Insurance benefits,
claims and reserves |
|
38,587 |
|
|
31,983 |
|
|
144,206 |
|
|
135,054 |
|
Selling, general and
administrative expenses |
|
42,971 |
|
|
41,700 |
|
|
169,028 |
|
|
157,104 |
|
|
|
|
|
|
|
|
|
|
|
|
81,558 |
|
|
73,683 |
|
|
313,234 |
|
|
292,158 |
|
|
|
|
|
|
|
|
|
|
Income before income
taxes |
|
6,090 |
|
|
8,982 |
|
|
37,541 |
|
|
28,336 |
|
Income taxes
(benefits) |
|
970 |
|
|
(8,619 |
) |
|
8,488 |
|
|
(13,794 |
) |
|
|
|
|
|
|
|
|
|
Net
income |
|
5,120 |
|
|
17,601 |
|
|
29,053 |
|
|
42,130 |
|
(Income) loss from
noncontrolling interests in subsidiaries |
|
(291 |
) |
|
(55 |
) |
|
(571 |
) |
|
(88 |
) |
|
|
|
|
|
|
|
|
|
NET INCOME
ATTRIBUTABLE TO IHC |
$ |
4,829 |
|
$ |
17,546 |
|
$ |
28,482 |
|
$ |
42,042 |
|
|
|
|
|
|
|
|
|
|
Basic income
per common share |
$ |
.33 |
|
$ |
1.18 |
|
$ |
1.92 |
|
$ |
2.67 |
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE SHARES OUTSTANDING |
|
14,822 |
|
|
14,884 |
|
|
14,812 |
|
|
15,718 |
|
|
|
|
|
|
|
|
|
|
Diluted income
per common share |
$ |
.32 |
|
$ |
1.16 |
|
$ |
1.89 |
|
$ |
2.63 |
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE DILUTED SHARES OUTSTANDING |
|
15,102 |
|
|
15,178 |
|
|
15,104 |
|
|
16,008 |
|
|
|
|
|
|
|
|
|
|
As of March 08, 2019, there were 14,949,149
common shares outstanding, net of treasury shares. |
INDEPENDENCE HOLDING COMPANY |
|
CONSOLIDATED BALANCE SHEETS |
(In Thousands) |
|
|
|
|
December
31, |
|
|
|
December
31, |
|
|
|
|
2018 |
|
|
|
2017 |
|
|
|
|
|
|
|
|
ASSETS: |
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
Short-term investments |
|
$ |
1,050 |
|
|
$ |
50 |
|
Securities purchased under agreements to resell |
|
|
12,063 |
|
|
|
10,269 |
|
Fixed
maturities, available-for-sale |
|
|
453,464 |
|
|
|
441,912 |
|
Equity
securities |
|
|
5,166 |
|
|
|
6,120 |
|
Other
investments |
|
|
13,192 |
|
|
|
18,547 |
|
Total
investments |
|
|
484,935 |
|
|
|
476,898 |
|
|
|
|
|
|
|
|
Cash and
cash equivalents |
|
|
26,173 |
|
|
|
26,465 |
|
Due and
unpaid premiums |
|
|
24,412 |
|
|
|
21,950 |
|
Due from
reinsurers |
|
|
368,731 |
|
|
|
380,593 |
|
Goodwill |
|
|
50,697 |
|
|
|
50,697 |
|
Other
assets |
|
|
82,568 |
|
|
|
84,020 |
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
1,037,516 |
|
|
$ |
1,040,623 |
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY: |
|
|
|
|
|
|
LIABILITIES: |
|
|
|
|
|
|
Policy
benefits and claims |
|
$ |
160,115 |
|
|
$ |
168,683 |
|
Future
policy benefits |
|
|
208,910 |
|
|
|
214,766 |
|
Funds on
deposit |
|
|
141,635 |
|
|
|
143,537 |
|
Unearned
premiums |
|
|
5,557 |
|
|
|
6,666 |
|
Other
policyholders' funds |
|
|
10,939 |
|
|
|
10,402 |
|
Due to
reinsurers |
|
|
3,613 |
|
|
|
3,808 |
|
Accounts
payable, accruals and other liabilities |
|
|
53,133 |
|
|
|
56,453 |
|
|
|
|
|
|
|
|
TOTAL LIABILITIES |
|
|
583,902 |
|
|
|
604,315 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and
contingencies |
|
|
|
|
|
|
Redeemable
noncontrolling interest |
|
|
2,183 |
|
|
|
2,065 |
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY: |
|
|
|
|
|
|
Preferred
stock (none issued) |
|
|
- |
|
|
|
- |
|
Common
stock |
|
|
18,625 |
|
|
|
18,625 |
|
Paid-in
capital |
|
|
124,395 |
|
|
|
124,538 |
|
Accumulated other comprehensive loss |
|
|
(8,310 |
) |
|
|
(4,598 |
) |
Treasury
stock, at cost |
|
|
(66,392 |
) |
|
|
(63,404 |
) |
Retained
earnings |
|
|
380,431 |
|
|
|
356,383 |
|
|
|
|
|
|
|
|
TOTAL IHC STOCKHOLDERS’ EQUITY |
|
|
448,749 |
|
|
|
431,544 |
|
NONREDEEMABLE NONCONTROLLING INTERESTS |
|
|
2,682 |
|
|
|
2,699 |
|
|
|
|
|
|
|
|
TOTAL EQUITY |
|
|
451,431 |
|
|
|
434,243 |
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY |
|
$ |
1,037,516 |
|
|
$ |
1,040,623 |
|
CONTACT: Loan Nisser |
(646) 509-2107 |
www.IHCGroup.com |
|
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