Independence Holding Company Announces 2020 Second-Quarter and Six-Month Results

Rhea-AI Summary

Independence Holding Company (NYSE: IHC) reported its 2020 Q2 and six-month financial results, showing a net income drop to $421,000 ($0.03/share) from $6.8 million ($0.46/share) in Q2 2019. Year-to-date net income also fell to $4.7 million ($0.32/share) from $15.6 million ($1.04/share) in 2019. Factors affecting income include increased expenses for hiring call center agents and compliance costs. Despite lower net income, revenues increased to $107.3 million for Q2 2020, attributed to higher rates in Paid Family Leave and pet insurance. The company expects benefits from these investments by the upcoming annual enrollment period.

Positive

• Revenue increased to $107.3 million in Q2 2020 from $95.1 million in Q2 2019.
• Strong demand for pet insurance, with expectations to exceed $100 million in gross annualized premiums.
• Ongoing investment in technology and agent training to improve efficiency and outreach.

Negative

• Net income fell significantly to $421,000 in Q2 2020 from $6.8 million in Q2 2019.
• Increased expenses from hiring 143 call center agents without meaningful sales yet.
• Compliance expenses amounting to $3.66 million impacted net income.

STAMFORD, Conn., Aug. 06, 2020 (GLOBE NEWSWIRE) -- 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 1^st. 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 30^th 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 INCOME
June 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

FAQ

What were Independence Holding Company's net income results for Q2 2020?

Independence Holding Company reported a net income of $421,000 or $0.03 per share for Q2 2020.

How did revenues perform for IHC in the second quarter of 2020?

Revenues increased to $107.3 million for Q2 2020, up from $95.1 million in Q2 2019.

What factors contributed to the drop in net income for IHC in 2020?

The drop in net income was primarily due to increased hiring expenses and compliance-related costs.

What is IHC's expectation for pet insurance growth?

IHC expects to exceed $100 million in gross annualized pet insurance premiums by the end of 2020.

When does the annual enrollment period for IHC begin?

The annual enrollment period for Independence Holding Company begins on October 15, 2020.