Stamford, Connecticut, August 6, 2020. Independence Holding Company
(NYSE: IHC) today reported 2020 second-quarter and six-month
results.
Financial Results
Net income of $421,000, or $.03 per share for
the three months ended June 30, 2020 compared to $6,847,000 or $.46
per share, diluted, for the three months ended June 30, 2019.
Net income was $4,699,000 or $.32 per share, diluted, for the
six months ended June 30, 2020 compared to $15,574,000 or $1.04 per
share, diluted, for the six months ended June 30, 2019.
Net income in 2020 is lower primarily because of
the following two factors. First, we have experienced a
material increase in expenses related to the significant increase
in hiring, licensing and training a large number of call center
agents, all of whom are employees, and in connection with the
recent acquisition of a marketing technology (“MarTech”) company.
Currently, we have 143 call center agents primarily selling senior
products, but do not yet have any meaningful sales from these new
agents. This scaling up of expenses will continue until the 2021
Annual Enrollment Period (AEP) begins, which is when we will
realize a large majority of our senior sales for the year.
Beginning with AEP, which commences October 15, 2020, we expect to
realize profits and reap the benefits of this ramp up.
Second, we were affected by two non-recurring items: (i) 2020 net
income includes expenses of $3,660,000, or $.25 per share, diluted,
for compliance with the regulatory settlement agreements with our
three insurance carriers resulting from a multistate market conduct
examination with respect to several of our specialty health
products for the period January 1, 2014 through September 30, 2017,
and (ii) the 2019 six months’ net income includes a $2.6 million
gain, net of tax, or $.17 per share, diluted, on the sale of an
equity method investment with no corresponding gain this year.
On July 28, 2020, the United States Court of
Appeals for the Seventh Circuit affirmed the District Court’s
confirmation of an arbitration award in favor of the Company.
As previously disclosed, the Company was awarded $5,641,000 in an
arbitration proceeding against a third party administrator with
which we formerly did business (“TPA”). The TPA filed a
bond for the awarded amount in order to proceed. IHC has not
yet recorded this award, and only upon final determination will IHC
be able to recognize the award in its earnings.
The Company reported revenues of $107,305,000
for the three months ended June 30, 2020 compared to revenues for
the three months ended June 30, 2019 of $95,122,000. The Company
reported revenues of $211,302,000 for the six months ended June 30,
2020 compared to revenues for the six months ended June 30, 2019 of
$189,304,000. The increase in revenues primarily relates to an
increase in rates for the Paid Family Leave business and higher
premium volume in our pet insurance business
Chief Executive Officer’s
Comments
Roy T. K. Thung, Chief Executive Officer,
commented, “Although net income is lower for 2020 due to the
reasons stated above and sales of certain products would have been
higher if not for the COVID-19 pandemic, we are pleased with our
sales and underwriting results for the first six months of
2020. We have implemented business continuity and emergency
response plans to continue to provide service to our customers and
to protect the health and wellbeing of our employees whether they
are working from home or once they return to offices that have been
modified to protect them. Our customer facing agents have
transitioned to a full-time work at home model, and with the
implementation of enhanced technology solutions, we have not
identified any material impact to agent productivity. In fact, our
accelerated deployment of technology improvements in the areas of
training, CRM, and prospect scoring, has positioned us to gain
efficiencies during the upcoming annual enrollment periods.
Once agents are able to return to work, we expect to continue to
allow some agents to work remotely. The success we are currently
experiencing with the work-from-home model will allow us to
significantly ramp up the number of agents by the 2021 and 2022
AEPs, and our MarTech platform can be readily scaled to supply all
of the necessary leads.
Mr. Thung continued, “We are particularly
excited by the prospects for two of our lines of business: pet
insurance and senior market sales. I would like to first update you
on the prospects of our pet division. We continue to see very
strong demand for pet insurance resulting from record adoptions and
breeder sales as pet parents are seeking the comfort of dog and cat
companions in these difficult times. To this end, Pet Partners,
Inc. (PPI) continues to experience a significant increase in sales
as a result of increased registrations with its exclusive
relationship with American Kennel Club (AKC) and PPI’s efforts to
increase insurance conversions through enhanced technology and
direct marketing. PPI has developed an app with
state-of-the-art technology (including a full suite of insurance
self-service capabilities), which will be available in Android and
IOS app stores by September 1st. We will distribute this app with
current sales channels and market it through other large partners
that want to distribute pet insurance to their clients. This app
will also contain features that we believe will be very attractive
to AKC breeders and pet parents who wish to remain in touch with
their breeder and litter mates. PPI is also coming to market
with several white label distribution deals and has significantly
increased its investment in marketing outreach to pet parents under
the PPI brand. We believe these initiatives will continue to
accelerate PPI’s insured pets. Our other pet distributors
continue to show accelerating growth as they move business to one
of our carriers, Independence American Insurance Company
(IAIC). We now believe we will exceed $100 million of gross
annualized pet insurance premium or over 170,000 pet lives by the
end of this year, and will be significantly higher by the end of
2021.
We have invested a considerable amount of
capital entering the senior market. We have enhanced our
SalesForce CRM platform, as well as our producer licensing,
consumer and web-based enrollment systems. We continue to build our
MarTech infrastructure through artificial intelligence data
science, and automated remarketing among other capabilities to
generate high-intent leads. In conjunction with continuously
increasing our proficiency in efficiently generating leads, we are
actively working to hire, train and license additional
senior-focused customer care center agents. We currently have 143
licensed agents focused primarily on the senior market, and we are
striving to have 200 agents by the 2021 AEP, which commences
October 15, 2020. In addition, IAIC has approval of its
Medicare Supplement product in twenty-nine states, and expect to
add a 30th state by the 2021 AEP. This will be a compelling
proprietary product offering in our impressive portfolio of senior
products.
In conclusion, while we have made significant
investments in growing these two lines of business which has
impacted quarterly earnings, we strongly believe that we have
created significant shareholder value. We have the necessary
tools in place for material growth in the senior and pet markets,
which will benefit us in the fourth quarter and in the
future.”
Mr. Thung added, “IHC has a very strong balance
sheet with no indebtedness and a very substantial amount of free
cash at the corporate level and significant excess capital in our
insurance companies. Our book value was $31.23 per share at June
30, 2020. IHC increased its annual dividend to $.44 per share
in 2020, which is the sixth increase since December 2014 when the
annual dividend paid to the stockholders was $.07 per share. Our
overall investment portfolio continues to be very highly rated (on
average, AA) and has an effective duration under three years. In
May 2020, the Company repurchased 36,377 shares of IHC common stock
in connection with a tender offer to its stockholders by permitting
them the opportunity to tender shares of IHC common stock for cash.
Year to date the Company has repurchased 200,110 shares including
the aforementioned tender offer and is still repurchasing shares on
a daily basis up to the maximum allowable, so as to provide
liquidity to the market.”
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). We also
own the following agencies: (i) PetPartners, Inc., our pet
insurance administrator; (ii) IHC Specialty Benefits, Inc., a
technology-driven full-service marketing and distribution company
that focuses on small employer and individual consumer products
through its call center, career agents, and Independence Brokerage
Group; and (iii) The INSX Cloud Platform through My1HR, our wholly
owned Web Based Entity. Our InsureTech division is comprised of our
call centers, field and career agents, in-house MarTech artificial
intelligence capabilities and domains, including
www.healthedeals.com; www.healthinsurance.org;
www.medicareresources.org; www.petplace.com; and
www.mypetinsurance.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
CONDENSED CONSOLIDATED STATEMENTS OF
INCOMEJune 30, 2020
(In Thousands, Except Shares and Per
Share Data)
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
REVENUES: |
|
|
|
|
|
|
|
|
Premiums earned |
$ |
98,691 |
|
$ |
84,947 |
|
$ |
194,741 |
|
$ |
167,736 |
|
Net investment income |
|
3,139 |
|
|
4,134 |
|
|
6,379 |
|
|
8,130 |
|
Fee income |
|
4,248 |
|
|
3,707 |
|
|
8,190 |
|
|
7,895 |
|
Other income |
|
652 |
|
|
879 |
|
|
1,129 |
|
|
4,563 |
|
Net investment gains |
|
575 |
|
|
1,455 |
|
|
863 |
|
|
1,626 |
|
Net impairment losses recognized
in earnings |
|
- |
|
|
- |
|
|
- |
|
|
(646 |
) |
|
|
107,305 |
|
|
95,122 |
|
|
211,302 |
|
|
189,304 |
|
|
|
|
|
|
|
|
|
|
EXPENSES: |
|
|
|
|
|
|
|
|
Insurance benefits, claims and
reserves |
|
54,589 |
|
|
44,410 |
|
|
108,647 |
|
|
87,529 |
|
Selling, general and
administrative expenses |
|
51,979 |
|
|
42,206 |
|
|
96,553 |
|
|
82,735 |
|
|
|
|
|
|
|
|
|
|
|
|
106,568 |
|
|
86,616 |
|
|
205,200 |
|
|
170,264 |
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
737 |
|
|
8,506 |
|
|
6,102 |
|
|
19,040 |
|
Income taxes |
|
199 |
|
|
1,590 |
|
|
1,242 |
|
|
3,234 |
|
|
|
|
|
|
|
|
|
|
Net income |
|
538 |
|
|
6,916 |
|
|
4,860 |
|
|
15,806 |
|
(Income) from noncontrolling
interests |
|
(117 |
) |
|
(69 |
) |
|
(161 |
) |
|
(232 |
) |
|
|
|
|
|
|
|
|
|
NET INCOME ATTRIBUTABLE
TO IHC |
$ |
421 |
|
$ |
6,847 |
|
$ |
4,699 |
|
$ |
15,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per common
share |
$ |
.03 |
|
$ |
.46 |
|
$ |
.32 |
|
$ |
1.04 |
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES
OUTSTANDING |
|
14,765 |
|
|
14,929 |
|
|
14,811 |
|
|
14,939 |
|
|
|
|
|
|
|
|
|
|
Diluted income per common
share |
$ |
.03 |
|
$ |
.46 |
|
$ |
.32 |
|
$ |
1.04 |
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE DILUTED
SHARES OUTSTANDING |
|
14,767 |
|
|
14,948 |
|
|
14,839 |
|
|
15,007 |
|
|
|
|
|
|
|
|
|
|
As of August 3, 2020, there were
14,668,481 common shares outstanding, net of treasury
shares.
INDEPENDENCE HOLDING COMPANY
CONDENSED CONSOLIDATED BALANCE
SHEETS(In Thousands)
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2020 |
|
|
2019 |
|
|
|
|
|
|
|
ASSETS: |
|
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
|
Short-term
investments |
|
$ |
1,149 |
|
|
$ |
50 |
|
|
Securities purchased
under agreements to resell |
|
|
101,417 |
|
|
|
107,157 |
|
|
Fixed maturities,
available-for-sale |
|
|
384,245 |
|
|
|
384,974 |
|
|
Equity
securities |
|
|
3,449 |
|
|
|
3,747 |
|
|
Other
investments |
|
|
11,327 |
|
|
|
15,208 |
|
|
Total investments |
|
|
501,587 |
|
|
|
511,136 |
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents |
|
|
21,224 |
|
|
|
21,094 |
|
|
Due and unpaid
premiums |
|
|
34,497 |
|
|
|
26,244 |
|
|
Due from
reinsurers |
|
|
359,244 |
|
|
|
362,969 |
|
|
Goodwill |
|
|
75,949 |
|
|
|
60,165 |
|
|
Other assets |
|
|
88,792 |
|
|
|
72,695 |
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
1,081,293 |
|
|
$ |
1,054,303 |
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY: |
|
|
|
|
|
|
LIABILITIES: |
|
|
|
|
|
|
|
Policy benefits and
claims |
|
$ |
179,777 |
|
|
$ |
164,802 |
|
|
Future policy
benefits |
|
|
199,775 |
|
|
|
201,205 |
|
|
Funds on deposit |
|
|
141,597 |
|
|
|
140,951 |
|
|
Unearned
premiums |
|
|
21,601 |
|
|
|
7,282 |
|
|
Other policyholders'
funds |
|
|
11,646 |
|
|
|
12,049 |
|
|
Due to
reinsurers |
|
|
3,640 |
|
|
|
5,016 |
|
|
Accounts payable,
accruals and other liabilities |
|
|
61,569 |
|
|
|
61,049 |
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES |
|
|
619,605 |
|
|
|
592,354 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and
contingencies |
|
|
|
|
|
|
Redeemable
noncontrolling interest |
|
|
2,364 |
|
|
|
2,237 |
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY: |
|
|
|
|
|
|
|
Preferred stock (none
issued) |
|
|
- |
|
|
|
- |
|
|
Common stock |
|
|
18,625 |
|
|
|
18,625 |
|
|
Paid-in capital |
|
|
123,804 |
|
|
|
122,717 |
|
|
Accumulated other
comprehensive income |
|
|
2,854 |
|
|
|
1,212 |
|
|
Treasury stock, at
cost |
|
|
(74,325 |
) |
|
|
(69,724 |
) |
|
Retained
earnings |
|
|
388,317 |
|
|
|
386,864 |
|
|
|
|
|
|
|
|
TOTAL IHC STOCKHOLDERS’ EQUITY |
|
|
459,275 |
|
|
|
459,694 |
|
NONREDEEMABLE NONCONTROLLING INTERESTS |
|
|
49 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
TOTAL EQUITY |
|
|
459,324 |
|
|
|
459,712 |
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY |
|
$ |
1,081,293 |
|
|
$ |
1,054,303 |
|
|
|
|
|
|
|
|
|
CONTACT: Loan Nisser (646)
509-2107 www.IHCGroup.com
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