UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________________________________

FORM 10-Q

~~[X]~~☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the quarterly period endedSeptember 30, ~~2018~~.2019.

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

For the transition period from: ________ to _________

Commission File Number: 001-32244

INDEPENDENCE HOLDING COMPANY

(Exact name of registrant as specified in its charter)

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

96 CUMMINGS POINT ROAD, STAMFORD, ~~CONNECTICUT~~CT 06902

(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (203) 358-8000

NOT APPLICABLE

Former name, former address and former fiscal year, if changed since last report.

Securities registered pursuant to Section 12(b) of the Act:

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ~~[ X ]~~[X] No [ ]

Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted 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 such files). Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and ~~“emerging~~"emerging growth ~~company”~~company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer [ ]	Accelerated Filer ~~[ X ]~~[X]
Non-Accelerated Filer [ ]	Smaller Reporting Company ~~[ X ]~~☒
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]

~~Class~~

As of November 5, 2019, the registrant had 14,849,707 shares of Common Stock outstanding.

~~Outstanding at November 2, 2018~~

~~Common stock, $~~~~1.00~~~~par value~~

~~14,795,106~~~~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 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		28
			and Results of Operations	30

		Item 3. Quantitative and Qualitative Disclosures about Market Risk		42

		Item 4. Controls and Procedures		42

PART II - OTHER INFORMATION

		Item 1. Legal Proceedings		42

		Item 1A. Risk Factors		4344

		Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		4344

		Item 3. Defaults Upon Senior Securities		4344

		Item 4. Mine Safety Disclosures		44

		Item 5. Other Information		44

		Item 6. Exhibits		4445

	Signatures			4647

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

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,” “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, of IHC’s 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.

PART I - FINANCIAL INFORMATION

Item 1.Financial Statements

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


		September 30, ~~2018~~2019		December 31, ~~2017~~2018
		(Unaudited)
ASSETS:
Investments:
Short-term investments	$	`1,04750`	$	`501,050`
Securities purchased under agreements to resell		`18,02556,878`		`10,26912,063`
Fixed maturities, available-for-sale		`432,950440,289`		`441,912453,464`
Equity securities		`5,5285,577`		`6,1205,166`
Other investments		`17,51113,889`		`18,54713,192`
Total investments		`475,061516,683`		`476,898484,935`

Cash and cash equivalents		`25,62017,824`		`26,46526,173`
Due and unpaid premiums		`29,10024,523`		`21,95024,412`
Due from reinsurers		`371,540364,673`		`380,593368,731`
Goodwill		`50,69760,205`		`50,697`
Other assets		`83,92879,730`		`84,02082,568`

TOTAL ASSETS	$	`1,035,9461,063,638`	$	`1,040,6231,037,516`

LIABILITIES AND EQUITY:
LIABILITIES:
Policy benefits and claims	$	`158,168161,429`	$	`168,683160,115`
Future policy benefits		`209,588204,155`		`214,766208,910`
Funds on deposit		`141,685140,724`		`143,537141,635`
Unearned premiums		`9,4529,899`		`6,6665,557`
Other policyholders' funds		`10,90012,042`		`10,40210,939`
Due to reinsurers		`4,8554,655`		`3,8083,613`
Accounts payable, accruals and other liabilities		`53,75254,501`		`56,45353,133`

TOTAL LIABILITIES		`588,400587,405`		`604,315583,902`

Commitments and contingencies (Note ~~13)~~15)
Redeemable noncontrolling interest		`2,1462,315`		`2,0652,183`

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 18,625,458~~ shares issued; and ~~14,799,672~~14,853,244 and
~~14,890,285~~14,878,248 shares outstanding		`18,625`		`18,625`
Paid-in capital		`125,279122,221`		`124,538124,395`
Accumulated other comprehensive ~~loss~~income (loss)		`(11,963)3,587`		`(4,598)(8,310)`
Treasury stock, at cost; ~~3,825,786~~3,772,214 and ~~3,735,173~~3,747,210 shares		`(66,918)(69,704)`		`(63,404)(66,392)`
Retained earnings		`377,848399,160`		`356,383380,431`

TOTAL IHC STOCKHOLDERS’ EQUITY		`442,871473,889`		`431,544448,749`
NONREDEEMABLE NONCONTROLLING INTERESTS		`2,52929`		`2,6992,682`

TOTAL EQUITY		`445,400473,918`		`434,243451,431`

TOTAL LIABILITIES AND EQUITY	$	`1,035,9461,063,638`	$	`1,040,6231,037,516`

See the accompanying Notes to Condensed Consolidated Financial Statements.

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,

2018

2017

2018

2017
REVENUES:

Premiums earned
$
81,757
$
75,639
$
238,583
$
210,507
Net investment income

3,611

4,403

10,214

12,414
Fee income

4,397

2,634

14,193

11,556
Other income

153

361

472

2,365
Net investment gains (losses)

17

715

(335)

987

89,935

83,752

263,127

237,829
EXPENSES:

Insurance benefits, claims and reserves

36,011

33,536

105,619

103,071
Selling, general and administrative expenses

41,021

42,337

126,057

115,404

77,032

75,873

231,676

218,475

Income before income taxes

12,903

7,879

31,451

19,354
Income taxes (benefits)

2,860

2,666

7,518

(5,175)

Net income

10,043

5,213

23,933

24,529
(Income) loss from nonredeemable noncontrolling interests

(59)

32

(99)

(4)
(Income) from redeemable noncontrolling interests

(49)

(16)

(181)

(29)

NET INCOME ATTRIBUTABLE TO IHC
$
9,935
$
5,229
$
23,653
$
24,496

Basic income per common share
$
0.67
$
0.35
$
1.60
$
1.53

WEIGHTED AVERAGE SHARES OUTSTANDING

14,795

14,965

14,808

15,999

Diluted income per common share
$
0.66
$
0.34
$
1.57
$
1.50

WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING

15,109

15,274

15,104

16,287

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,
		2019		2018		2019		2018
REVENUES:
Premiums earned	$	`86,453`	$	`81,757`	$	`254,189`	$	`238,583`
Net investment income		`3,964`		`3,822`		`12,094`		`11,190`
Fee income		`2,938`		`4,397`		`10,833`		`14,193`
Other income (loss)		`880`		`(58)`		`5,443`		`(504)`
Net investment gains (losses)		`930`		`17`		`2,556`		`(335)`
Other-than-temporary impairment losses, available-for-sale securities:
Total other-than-temporary impairment losses		`-`		`-`		`(646)`		`-`
Portion of losses recognized in other comprehensive income (loss)		`-`		`-`		`-`		`-`
Net impairment losses recognized in earnings		`-`		`-`		`(646)`		`-`

		`95,165`		`89,935`		`284,469`		`263,127`

EXPENSES:
Insurance benefits, claims and reserves		`41,398`		`36,011`		`128,927`		`105,619`
Selling, general and administrative expenses		`44,348`		`41,021`		`127,083`		`126,057`

		`85,746`		`77,032`		`256,010`		`231,676`

Income before income taxes		`9,419`		`12,903`		`28,459`		`31,451`
Income taxes		`3,248`		`2,860`		`6,482`		`7,518`

Net income		`6,171`		`10,043`		`21,977`		`23,933`
(Income) loss from nonredeemable noncontrolling interests		`14`		`(59)`		`(130)`		`(99)`
(Income) from redeemable noncontrolling interests		`(43)`		`(49)`		`(131)`		`(181)`

NET INCOME ATTRIBUTABLE TO IHC	$	`6,142`	$	`9,935`	$	`21,716`	$	`23,653`

Basic income per common share	$	`0.41`	$	`0.67`	$	`1.46`	$	`1.60`

WEIGHTED AVERAGE SHARES OUTSTANDING		`14,879`		`14,795`		`14,919`		`14,808`

Diluted income per common share	$	`0.41`	$	`0.66`	$	`1.45`	$	`10.57`

WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING		`14,941`		`15,109`		`14,985`		`15,104`

See the accompanying Notes to Condensed Consolidated Financial Statements.

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(In thousands)

Three Months Ended

Nine Months Ended

Three Months Ended

Nine Months Ended

September 30,

2018

2017

2018

2017

2019

2018

2019

2018

Net income

10,043

5,213

23,933

24,529

6,171

10,043

21,977

23,933

Other comprehensive income (loss):

Available-for-sale securities:

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

(925)

250

(8,908)

7,219

1,636

(925)

15,080

(8,908)

Tax expense (benefit) on unrealized gains on available-for-sale securities

(199)

90

(1,893)

2,599

347

(199)

3,183

(1,893)

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

(726)

160

(7,015)

4,620

1,289

(726)

11,897

(7,015)

Other comprehensive income (loss), net of tax

(726)

160

(7,015)

4,620

1,289

(726)

11,897

(7,015)

COMPREHENSIVE INCOME, NET OF TAX

9,317

5,373

16,918

29,149

7,460

9,317

33,874

16,918

Comprehensive (income) loss, net of tax, attributable to

noncontrolling interests:

(Income) loss from noncontrolling interests in subsidiaries

(108)

16

(280)

(33)

Comprehensive income, net of tax, attributable to noncontrolling interests:

(Income) from noncontrolling interests in subsidiaries

(29)

(108)

(261)

(280)

Other comprehensive income, net of tax, attributable to

noncontrolling interests

-

COMPREHENSIVE (INCOME) LOSS, NET OF TAX,

COMPREHENSIVE INCOME, NET OF TAX,

ATTRIBUTABLE TO NONCONTROLLING INTERESTS

(108)

16

(280)

(33)

(29)

(108)

(261)

(280)

COMPREHENSIVE INCOME, NET OF TAX,

ATTRIBUTABLE TO IHC

9,209

5,389

16,638

29,116

7,431

9,209

33,613

16,638

See the accompanying Notes to Condensed Consolidated Financial Statements.

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED ~~STATEMENT~~STATEMENTS OF CHANGES IN EQUITY (Unaudited) (In thousands)

Three Months Ended September 30, 2019 and 2018

ACCUMULATED

OTHER

TREASURY

TOTAL IHC

NONREDEEMABLE

COMMON

PAID-IN

COMPREHENSIVE

STOCK,

RETAINED

STOCKHOLDERS'

NONCONTROLLING

TOTAL

STOCK

CAPITAL

LOSS

AT COST

EARNINGS

EQUITY

INTERESTS

EQUITY

BALANCE AT

JUNE 30, 2019

18,625

121,586

2,298

(67,428)

393,018

468,099

43

468,142

Net income

6,142

(14)

6,128

Other comprehensive

income, net of tax

1,289

-

1,289

Repurchases of common stock

(2,318)

-

(2,318)

Share-based compensation

635

42

677

-

677

BALANCE AT

SEPTEMBER 30, 2019

18,625

122,221

3,587

(69,704)

399,160

473,889

29

473,918

BALANCE AT

JUNE 30, 2018

18,625

125,018

(11,237)

(66,440)

367,913

433,879

2,617

436,496

Net income

9,935

59

9,994

Other comprehensive

loss, net of tax

(726)

-

(726)

Repurchases of common stock

(670)

-

(670)

Distributions to noncontrolling

interests

-

(147)

Share-based compensation

261

192

453

-

453

BALANCE AT

SEPTEMBER 30, 2018

18,625

125,279

(11,963)

(66,918)

377,848

442,871

2,529

445,400

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited) (In thousands)

Nine Months Ended September 30, 2019 and 2018

ACCUMULATED

~~NONREDEEMABLE~~

OTHER

TREASURY

TOTAL IHC

~~NON-~~NONREDEEMABLE

COMMON

PAID-IN

COMPREHENSIVE

STOCK,

RETAINED

STOCKHOLDERS'

~~CONTROLLING~~NONCONTROLLING

TOTAL

STOCK

CAPITAL

~~LOSS~~INCOME (LOSS)

AT COST

EARNINGS

EQUITY

INTERESTS

EQUITY

BALANCE AT

DECEMBER 31, 2018

18,625

124,395

(8,310)

(66,392)

380,431

448,749

2,682

451,431

Net income

21,716

130

21,846

Other comprehensive

income, net of tax

11,897

-

11,897

Repurchases of common stock

(3,917)

-

(3,917)

Purchase noncontrolling interests

(1,012)

(2,380)

(3,392)

Distributions to noncontrolling

interests

-

(403)

Common stock dividend

($0.20 per share)

(2,987)

-

(2,987)

Share-based compensation

(1,162)

605

(557)

-

(557)

BALANCE AT

SEPTEMBER 30, 2019

18,625

122,221

3,587

(69,704)

399,160

473,889

29

473,918

BALANCE AT

DECEMBER 31, 2017

18,625

124,538

(4,598)

(63,404)

356,383

431,544

2,699

434,243

Cumulative effects of new

accounting principles

(350)

34

(316)

(97)

(413)

Net income

23,653

99

23,752

Other comprehensive

~~income (loss),~~loss, net of tax

(7,015)

-

(7,015)

Repurchases of common stock

(3,817)

-

(3,817)

Distributions to noncontrolling

interests

-

(172)

Common stock dividend ~~( $0.15~~

($0.15 per share)

(2,222)

-

(2,222)

~~Distributions to noncontrolling interests~~

-

(172)

Share-based compensation

741

303

1,044

-

1,044

BALANCE AT

~~September~~SEPTEMBER 30, 2018

18,625

125,279

(11,963)

(66,918)

377,848

442,871

2,529

445,400

See the accompanying Notes to Condensed Consolidated Financial Statements.

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

		Nine Months Ended September 30,				Nine Months Ended September 30,
		2018		2017		2019		2018
CASH FLOWS PROVIDED BY (USED BY) OPERATING ACTIVITIES:
Net income	$	`23,933`	$	`24,529`	$	`21,977`	$	`23,933`
Adjustments to reconcile net income to net change in cash from
operating activities:
Amortization of deferred acquisition costs		`681`		`269`		`894`		`681`
Net investment (gains) losses		`335`		`(987)`		`(2,556)`		`335`
(Gain) on sale of investment						`(3,589)`		`-`
Other than-temporary-impairment losses, net						`646`		`-`
Equity (income) loss from equity method investments		`976`		`(1,412)`		`(1,171)`		`976`
Depreciation and amortization		`1,953`		`1,379`		`2,386`		`1,953`
Deferred tax expense		`3,535`		`1,853`
Provision for bad debt on note receivable						`1,214`		`-`
Other		`4,808`		`4,852`		`9,387`		`8,343`
Changes in assets and liabilities:
Change in insurance liabilities		`(12,181)`		`(83,750)`		`3,511`		`(12,181)`
Change in amounts due from reinsurers		`9,053`		`57,094`		`4,058`		`9,053`
Change in claim fund balances		`294`		`8,463`		`1,577`		`294`
Change in current income tax liability		`1,031`		`(8,604)`
Change in due and unpaid premiums		`(7,150)`		`10,218`		`(111)`		`(7,150)`
Other operating activities		`(6,630)`		`6,302`		`(6,816)`		`(5,599)`

Net change in cash from operating activities		`20,638`		`20,206`		`31,407`		`20,638`

CASH FLOWS PROVIDED BY (USED BY) INVESTING ACTIVITIES:
Net (purchases) sales and maturities of short-term investments		`(999)`		`6,849`		`1,000`		`(999)`
Net (purchases) sales of securities under resale agreements		`(7,756)`		`8,365`
Net (purchases) of securities under resale agreements						`(44,815)`		`(7,756)`
Sales of equity securities		`698`		`-`		`-`		`698`
Sales of fixed maturities		`55,338`		`158,062`		`111,695`		`55,338`
Maturities and other repayments of fixed maturities		`21,992`		`16,841`		`57,087`		`21,992`
Purchases of fixed maturities		`(79,374)`		`(145,444)`		`(139,531)`		`(79,374)`
Payments to acquire business, net of cash acquired		`-`		`(12,323)`		`(7,952)`		`-`
Distributions from other investments		`-`		`5,246`
Purchases of other investments		`-`		`(602)`
Proceeds from sales, distributions and returns of capital from investments						`5,117`		`-`
Payments to acquire other investments						`(3,000)`		`-`
Other investing activities		`(3,709)`		`(565)`		`(2,393)`		`(3,709)`

Net change in cash from investing activities		`(13,810)`		`36,429`		`(22,792)`		`(13,810)`

CASH FLOWS PROVIDED BY (USED BY) FINANCING ACTIVITIES:
Repurchases of common stock		`(3,943)`		`(44,290)`		`(3,923)`		`(3,943)`
Withdrawals of investment-type insurance contracts		`(1,033)`		`(1,359)`		`(1,376)`		`(1,033)`
Dividends paid		`(3,710)`		`(1,927)`		`(5,225)`		`(3,710)`
Purchase of noncontrolling interest						`(4,400)`		`-`
Proceeds from stock options exercised						`163`		`357`
Payments related to tax withholdings for sharebased compensation						`(2,397)`		`-`
Other financing activities		`72`		`(328)`		`(403)`		`(285)`

Net change in cash from financing activities		`(8,614)`		`(47,904)`		`(17,561)`		`(8,614)`

Net change in cash, cash equivalents and restricted cash		`(1,786)`		`8,731`		`(8,946)`		`(1,786)`
Cash, cash equivalents and restricted cash, beginning of year		`32,197`		`23,718`		`30,807`		`32,197`

Cash, cash equivalents and restricted cash, end of period	$	`30,411`	$	`32,449`	$	`21,861`	$	`30,411`

See the accompanying Notes to Condensed Consolidated Financial Statements.

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 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”); and (ii) its marketing and administrative companies, including IHC Specialty Benefits Inc., IHC Carrier Solutions, Inc., My1HR, Inc. (“My1HR”) and a majority interest in PetPartners, Inc. IHC also owns a significant equity interest in Ebix Health Exchange Holdings, LLC (“Ebix Health Exchange”), an administration exchange for health insurance. Standard Security Life, Madison National Life and Independence American are sometimes collectively referred to as the “Insurance Group”. IHC and its subsidiaries (including the Insurance Group) are sometimes collectively referred to as the "Company", or “IHC”, or are implicit in the terms “we”, “us” and “our”.

Geneve Corporation, a diversified financial holding company, and its affiliated entities, held approximately 62% of IHC's outstanding common stock at September 30, ~~2018.~~2019.

(B)Consolidation

In May 2019, IHC purchased the remaining issued and outstanding units of HealthInsurance.org, LLC (“HIO”) from noncontrolling interests for total consideration valued at $4,700,000 making HIO a wholly owned subsidiary. The carrying value of the noncontrolling interest on the transaction date was $2,380,000. As a result of the equity transaction, $1,012,000 was charged to paid-in capital representing the difference between the fair value of the consideration paid and the carrying amount of noncontrolling interest on the transaction date, net of a deferred tax benefit.

(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 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.

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, ~~2018~~2019 are not necessarily indicative of the results to be anticipated for the entire year.

(C)(D) Reclassifications

Certain amounts in prior year’s consolidated financial statements and Notes thereto have been reclassified to conform to the ~~2018 presentation primarily as a result of new accounting principles adopted in the current year.~~2019 presentation.

(D)(E) Revenue Recognition

Insurance premiums are recognized as revenue over the period insurance protection is provided. For additional information about our policies regarding the recognition of premium revenues, see Note 1 of the Notes to Consolidated Financial Statements included in our ~~2017~~2018 Annual Report on Form 10-K as filed with the Securities and Exchange Commission.

Fee income includes fees and commissions for various sales, marketing and administrative services provided by our marketing and administrative companies. Revenue is recognized as these services are performed. For these administrative service and other contracts, we have no material contract assets or contract liabilities on our consolidated balance sheet at September 30, ~~2018.~~2019. Revenue recognized from performance obligations related to prior periods, and revenue expected to be recognized in future periods related to unfulfilled contractual performance obligations and contracts with variable consideration, is not material.

(E)(F) Recent Accounting Pronouncements

Recently Adopted Accounting Standards

In ~~May 2017,~~July 2018, the ~~Financial Accounting Standards Board (the “FASB”)~~FASB issued guidance to ~~provide clarity and reduce both (i) diversity in practice; and (ii) cost and complexity when~~simplify several aspects of accounting for ~~a change in the terms or conditions of a~~nonemployee share-based ~~payment award. The amendments in this guidance will be applied prospectively.~~compensation. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

In ~~January~~March 2017, the FASB issued guidance ~~that clarifies~~requiring premium amortization on callable debt securities to be amortized to the ~~definition~~earliest call date to more closely align the amortization period with expectations incorporated in market pricing of ~~a business to assist entities with evaluating when a set of transferred assets and activities is a business. The amendments in this guidance will be applied prospectively.~~the underlying securities. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

In ~~November~~February 2016, the FASB issued guidance ~~requiring entities~~that requires lessees to ~~show~~recognize the ~~changes in the total cash, cash equivalents, restricted cash~~assets and ~~restricted cash equivalents in~~liabilities that arise from leases, including operating leases, on the statement of ~~cash flows.~~financial position. The ~~amendments in this guidance were applied retrospectively. The adoption of this guidance did not have a material effect on~~Company elected the ~~Company’s Statements of Cash Flows and had no effect on~~following practical expedients permitted within the ~~Company’s consolidated financial position or results of operations.~~new standard:

~~In October 2016, the FASB issued guidance requiring~~ an ~~entity~~accounting policy election to recognize the ~~income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments~~lease payments for short-term leases in ~~this guidance were applied~~profit or loss on a ~~modified retrospective~~straight-line basis ~~through~~ over the lease term and variable lease payments in the period in which the obligation for those payments is incurred;

practical expedients for leases that commenced before the effective date to not reassess: (i) whether any expired or existing contracts are or contain leases; (ii) the lease classification for any expired or existing leases; and (iii) initial direct costs for any existing leases;

a ~~cumulative-effect adjustment directly~~practical expedient to ~~retained earnings as~~use hindsight in determining the lease term and in assessing impairment of the entity’s right-of-use assets.

an accounting policy election to not separate non-lease components from lease components and instead to account for them together as a single lease component.

The Company selected the new transition method by applying the new lease requirements on January 1, ~~2018.~~2019, without adjustment to the financial statements for periods prior to adoption. As a result, on January 1, 2019, the Company recognized right-of-use assets of $7,010,000 for operating leases, reduced other liabilities by $687,000 to reclassify the unamortized balances of previously deferred operating lease incentives, and recognized operating lease liabilities of $7,697,000 in its Condensed Consolidated Balance Sheet. The adoption of this guidance did not have a material effect on the Company’s consolidated ~~financial statements.~~results of operations or cash flows.

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 Company has elected to classify distributions received from equity method investees using the cumulative earnings approach. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

In January 2016, the FASB issued guidance that eliminates the requirement to classify equity securities with readily determinable fair values as trading or available-for-sale. The guidance requires equity securities, other than those that result in consolidation or are accounted for under the equity method (including other ownership interests, such as partnerships, unincorporated joint ventures, and limited liability companies), to be measured at fair value with changes in the fair value recognized through net income, simplifies the

impairment assessment of equity securities without readily determinable fair values and requires changes in disclosure requirements. The amendments in this guidance were applied by means of a cumulative-effect adjustment of $340,000 credit to retained earnings as of January 1, 2018. The amendments related to equity securities without readily determinable fair values (including disclosure requirements) will be applied prospectively to equity investments that existed as of January 1, 2018. The adoption of this guidance did not have a material effect on the Company’s Consolidated Balance Sheet or IHC’s stockholders’ equity.

In May 2014, the FASB issued revenue recognition guidance for entities that either enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards such as insurance contracts or lease contracts. The amendment provides specific steps that an entity should apply in order to achieve its main objective which is recognizing revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Substantially all of the Company’s revenue sources are excluded from the scope of the standard. For those revenue sources within the scope of the standard (included in the Fee income line of the Condensed Consolidated Statement of Income), there were no material changes in the timing or measurement of revenues. The amendments in this guidance were applied retrospectively with a cumulative effect adjustment on January 1, 2018, and as such, the Company recorded $552,000 of contract assets and $1,094,000 of deferred revenues, which are included on the Condensed Consolidated Balance Sheet in other assets and accounts payable, accruals and other liabilities. The overall net impact on retained earnings was a charge of $306,000, after the effects of taxes and noncontrolling interests.

Recently Issued Accounting Standards Not Yet Adopted

In October 2018, the FASB issued guidance for determining whether a decision making fee is a variable interest and requires reporting entities to consider indirect interests held through related parties under common control on a proportional basis rather than as the equivalent of a direct interest. The amendments in this guidance are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments in this guidance should be applied retrospectively through a cumulative effect adjustment to retained earnings at the beginning of the earliest period presented. The adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.

In August 2018, the FASB issued guidance 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 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 constant level basis over the expected term of the related contracts. The amendments in this guidance are effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods within that fiscal year. Upon adoption, the amendments in this guidance should be applied to contracts in-force as of the beginning of the earliest period presented with a cumulative adjustment to beginning retained earnings. Management is evaluating the requirements and potential impact that the adoption of this guidance will have on the Company’s consolidated financial statements.

In August 2018, the FASB issued guidance to improve the effectiveness of disclosures in the notes to financial statements regarding fair value measurements. The amendments in this guidance are effective for all entities for fiscal years beginning after December 15, 2019, including interim periods within that fiscal year. Certain amendments should be applied prospectively for the most recent interim or annual period presented in the initial fiscal year of adoption while other amendments should be applied retrospectively to all periods presented upon the effective date. The adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.

In July 2018, the FASB issued guidance to simplify several aspects of accounting for nonemployee share-based compensation. The amendments in this guidance are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.

In March 2017, the FASB issued guidance requiring premium amortization on callable debt securities to be amortized to the earliest call date to more closely align the amortization period with expectations incorporated in market pricing of the underlying securities. The amendments in this guidance should be applied using a modified retrospective approach for annual periods beginning after December 15, 2018, including interim periods within those periods. Additional disclosures are required in the period of adoption. Early adoption is permitted. The adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.

In 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 guidance, an entity should perform its annual or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The amendments in this guidance are effective for public business entities for annual, or any interim, goodwill impairment tests in fiscal years beginning after December 15, 2019. The adoption of this 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. For public entities that are SEC filers, the amendments in this guidance are effective for fiscal years beginning after December

15, 2019, including interim periods within those years. Early adoption is permitted for fiscal years beginning after December 15, 2018. The amendments in this guidance should be applied through a cumulative effect adjustment to retained earnings upon adoption as of the beginning of the first reporting period in which the guidance is effective. Management is evaluating the requirements and potential impact that the adoption of this guidance will have on the Company’s consolidated financial statements.

In February 2016, the FASB issued guidance that requires lessees to recognize the assets and liabilities that arise from leases, including operating leases, on the statement of financial position. The amendments in this guidance are effective for fiscal years beginning after December 31, 2018, including interim periods within those fiscal years. In July 2018, the FASB issued additional guidance that allows entities the option to either recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption or to use a modified retrospective approach. The Company is in the process of analyzing its lease portfolio. This process includes the evaluation of policies, processes and internal controls that will be required to comply with this new guidance. The Company plans to elect the practical expedients permitted within the new standard, which among other things, allows us to carryforward the historical lease classification. In addition, the Company plans to select the new transition method and apply the new lease requirements in the period of adoption without adjustment to the financial statements for periods prior to adoption. The Company expects the adoption of this new standard to result in an increase on its consolidated balance sheet for right-of-use assets and corresponding lease liabilities. The adoption of this guidance is not expected to have a material effect on the Company’s consolidated results of operations or cash flows.

Note 2.Income Per Common Share

Diluted income per share was computed using the treasury stock method and includes incremental common shares, primarily from the dilutive effect of share-based payment awards, amounting to 62,000 and 66,000 shares for the three and nine months ended September 30, 2019, respectively, and 314,000 and 296,000 shares for the three and nine months ended September 30, 2018, ~~respectively, and 309,000 and 288,000 shares for the three months and nine months ended September 30, 2017.~~respectively.

Note 3.Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets to the amounts shown in the Condensed Consolidated Statements of Cash Flows for the periods indicated (in thousands):

		September 30,					September 30,
		2018		2017		2019		2018

Cash and cash equivalents	$	`25,620`	$	`26,565`	$	`17,824`	$	`25,620`
Restricted cash included in other assets		`4,791`		`5,884`		`4,037`		`4,791`

Total cash, cash equivalents and restricted cash	$	`30,411`	$	`32,449`	$	`21,861`	$	`30,411`

Restricted cash includes insurance premiums collected from insureds that are pending remittance to insurance carriers and/or payment of insurance claims and commissions to third party administrators. These amounts are required to be set aside by contractual agreements with the insurance carriers and are included in other assets on the Condensed Consolidated Balance Sheets.

Note 4.Investment Securities

The cost (amortized cost with respect to certain fixed maturities), gross unrealized gains, gross unrealized losses and fair value of fixed maturities available-for-sale are as follows for the periods indicated (in thousands):

		September 30, 2019
				GROSS		GROSS
		AMORTIZED		UNREALIZED		UNREALIZED		FAIR
		COST		GAINS		LOSSES		VALUE

FIXED MATURITIES
AVAILABLE-FOR-SALE:
Corporate securities	$	`205,770`	$	`3,326`	$	`(1,107)`	$	`207,989`
CMOs – residential (1)		`5,522`		`49`		`-`		`5,571`
U.S. Government obligations		`39,852`		`294`		`(69)`		`40,077`
GSEs (3)		`6,323`		`-`		`(114)`		`6,209`
States and political subdivisions		`165,493`		`2,552`		`(731)`		`167,314`
Foreign government obligations		`6,800`		`165`		`(3)`		`6,962`
Redeemable preferred stocks		`5,970`		`197`		`-`		`6,167`

Total fixed maturities	$	`435,730`	$	`6,583`	$	`(2,024)`	$	`440,289`

		December 31, 2018
				GROSS		GROSS
		AMORTIZED		UNREALIZED		UNREALIZED		FAIR
		COST		GAINS		LOSSES		VALUE

FIXED MATURITIES
AVAILABLE-FOR-SALE:
Corporate securities	$	`200,252202,194`	$	`537701`	$	`(6,882)(5,406)`	$	`193,907197,489`
CMOs –- residential (1)		`6,2666,092`		`2-`		`(388)(252)`		`5,8805,840`
U.S. Government obligations		`48,85763,231`		`-1`		`(730)(423)`		`48,12762,809`
Agency MBS –- residential (2)		`63`		`-`		`-`		`63`
GSEs (3)		`9,5666,596`		`-`		`(347)(110)`		`9,2196,486`
States and political subdivisions		`173,109172,860`		`129302`		`(7,186)(5,228)`		`166,052167,934`
Foreign government obligations		`4,0817,039`		`-51`		`(119)(46)`		`3,9627,044`
Redeemable preferred stocks		`5,970`		`-`		`(173)(111)`		`5,7975,859`

Total fixed maturities	$	`448,107463,985`	$	`6681,055`	$	`(15,825)(11,576)`	$	`432,950`

		~~December 31, 2017~~
				~~GROSS~~		~~GROSS~~
		~~AMORTIZED~~		~~UNREALIZED~~		~~UNREALIZED~~		~~FAIR~~
		~~COST~~		~~GAINS~~		~~LOSSES~~		~~VALUE~~

~~FIXED MATURITIES~~
~~AVAILABLE-FOR-SALE:~~
~~Corporate securities~~	$	`148,996`	$	`298`	$	`(2,847)`	$	`146,447`
~~CMOs - residential(1)~~		`6,857`		`-`		`(180)`		`6,677`
~~U.S. Government obligations~~		`85,510`		`-`		`(396)`		`85,114`
~~Agency MBS - residential(2)~~		`14`		`-`		`-`		`14`
~~GSEs(3)~~		`9,887`		`-`		`(205)`		`9,682`
~~States and political subdivisions~~		`182,664`		`598`		`(3,619)`		`179,643`
~~Foreign government obligations~~		`4,227`		`13`		`(90)`		`4,150`
~~Redeemable preferred stocks~~		`10,006`		`179`		`-`		`10,185`

~~Total fixed maturities~~	$	`448,161`	$	`1,088`	$	`(7,337)`	$	`441,912453,464`

(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.

The amortized cost and fair value of fixed maturities available-for-sale at September 30, ~~2018,~~2019, 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		AMORTIZED		FAIR
		COST		VALUE		COST		VALUE

Due in one year or less	$	27,898	$	27,734	$	33,408	$	33,481
Due after one year through five years		174,430		170,503		173,009		175,175
Due after five years through ten years		138,042		132,762		139,594		142,102
Due after ten years		91,899		86,846		77,874		77,751
Fixed maturities with no single maturity date		15,838		15,105		11,845		11,780

	$	448,107	$	432,950	$	435,730	$	440,289

The following tables summarize, for all fixed maturities available-for-sale 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, 2018												September 30, 2019

		Less than 12 Months				12 Months or Longer				Total				Less than 12 Months				12 Months or Longer				Total

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

Corporate securities	$	98,623	$	`2,949`	$	88,261	$	`3,933`	$	186,884	$	`6,882`	$	7,050	$	`13`	$	44,766	$	`1,094`	$	51,816	$	`1,107`
CMOs - residential		859		`57`		5,106		`331`		5,965		`388`		-		`-`		5		`-`		5		`-`
U.S. Government obligations		39,740		`328`		8,388		`402`		48,128		`730`		-		`-`		23,621		`69`		23,621		`69`
GSEs		-		`-`		9,318		`347`		9,318		`347`		-		`-`		6,203		`114`		6,203		`114`
States and political subdivisions		59,619		`1,753`		99,307		`5,433`		158,926		`7,186`		14,789		`47`		36,544		`684`		51,333		`731`
Foreign government obligations		1,145		`12`		2,816		`107`		3,961		`119`		-		`-`		1,632		`3`		1,632		`3`
Redeemable preferred stocks		5,797		`173`		-		`-`		5,797		`173`

Fixed maturities in an
unrealized loss position	$	205,783	$	`5,272`	$	213,196	$	`10,553`	$	418,979	$	`15,825`	$	21,839	$	`60`	$	112,771	$	`1,964`	$	134,610	$	`2,024`

Number of fixed maturities in an
unrealized loss position		99				96				195				14				48				62

		December 31, 2017												December 31, 2018

		Less than 12 Months				12 Months or Longer				Total				Less than 12 Months				12 Months or Longer				Total

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

Corporate securities	$	85,642	$	`1,250`	$	44,640	$	`1,597`	$	130,282	$	`2,847`	$	46,988	$	`1,045`	$	108,738	$	`4,361`	$	155,726	$	`5,406`
CMOs - residential		1,381		`45`		5,237		`135`		6,618		`180`		847		`37`		4,993		`215`		5,840		`252`
U.S. Government obligations		75,811		`198`		9,302		`198`		85,113		`396`		6,138		`15`		31,693		`408`		37,831		`423`
GSEs		-		`-`		9,669		`205`		9,669		`205`		-		`-`		6,478		`110`		6,478		`110`
States and political subdivisions		83,682		`1,348`		66,617		`2,271`		150,299		`3,619`		33,021		`522`		113,297		`4,706`		146,318		`5,228`
Foreign government obligations		2,959		`90`		-		`-`		2,959		`90`		-		`-`		2,835		`46`		2,835		`46`
Redeemable preferred stocks														5,859		`111`		-		`-`		5,859		`111`

Fixed maturities in an
unrealized loss position	$	249,475	$	`2,931`	$	135,465	$	`4,406`	$	384,940	$	`7,337`	$	92,853	$	`1,730`	$	268,034	$	`9,846`	$	360,887	$	`11,576`

Number of fixed maturities in an
unrealized loss position		60				76				136				47				115				162

Substantially all of the unrealized losses on fixed maturities available-for-sale at September 30, ~~2018~~2019 and December 31, ~~2017~~2018 relate to investment grade securities and are attributable to changes in market interest rates. Because the Company does not intend to sell, nor is it more likely than not that the Company will have to sell such investments before recovery of their amortized cost bases, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at September 30, ~~2018~~2019.

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

Three Months Ended

Nine Months Ended

Three Months Ended

Nine Months Ended

September 30,

2018

2017

2018

2017

2019

2018

2019

2018

Realized gains (losses):

Fixed maturities available-for-sale

(247)

719

(442)

1,062

895

(247)

2,144

(442)

Equity securities

(2)

-

(7)

-

(2)

-

(7)

Total realized gains (losses) on debt and equity securities

(249)

719

(449)

1,062

895

(249)

2,144

(449)

Unrealized gains (losses) on equity securities

266

(4)

114

(76)

35

266

412

114

Gains (losses) on debt and equity securities

17

715

(335)

986

930

17

2,556

(335)

Gains (losses) on other investments

-

1

-

Net investment gains (losses)

17

715

(335)

987

930

17

2,556

(335)

For the three and nine months ended September 30, 2019, the Company realized gross gains of $1,143,000 and $3,035,000, respectively, and gross losses of $248,000 and $891,000, respectively, from sales, maturities and prepayments of fixed maturities available-for-sale. For the three months and nine months ended September 30, 2018, the ~~Company~~company realized gross gains of $130,000 and $449,000, respectively, and gross losses of $377,000 and $891,000, respectively, from sales, maturities and prepayments of fixed maturities available-for-sale. For the three months and nine months ended September 30, 2017, the company realized gross gains of $780,000 and $2,119,000, respectively, and gross losses of $61,000 and $1,057,000, respectively, 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 ~~1F(iv)~~1F(v) to the Consolidated Financial Statements in the ~~2017~~2018 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 fixed maturities available-for-sale. The Company recognized other-than-temporary impairment losses of $0 and $646,000 on certain fixed maturities available-for-sale securities in the three months and nine months ended September 30, 2019, respectively. The Company determined that it was more likely than not that we would sell the securities before the recovery of their amortized cost basis. The Company did not recognize any other-than-temporary impairments on ~~fixed maturities available-for-sale~~available for sale securities in the first nine months of ~~2018 or 2017.~~2018.

Note 5.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.

Fixed maturities available-for-sale:

Fixed maturities available-for-sale included in Level 2 are comprised of our portfolio of government securities, agency mortgage-backed securities, corporate fixed income securities, foreign government obligations, collateralized mortgage obligations, municipals and GSEs that were priced with observable market inputs. Level 3 debt securities consist of municipal tax credit strips. 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.

Equity securities:

Equity securities included in Level 1 are equity securities with quoted market prices.

The following tables present our financial assets measured at fair value on a recurring basis for the periods indicated (in thousands):

		September 30, 2019
		Level 1		Level 2		Level 3		Total

FINANCIAL ASSETS:
Fixed maturities available-for-sale:
Corporate securities	$	`-`	$	`207,989`	$	`-`	$	`207,989`
CMOs - residential		`-`		`5,571`		`-`		`5,571`
US Government obligations		`-`		`40,077`		`-`		`40,077`
GSEs		`-`		`6,209`		`-`		`6,209`
States and political subdivisions		`-`		`165,739`		`1,575`		`167,314`
Foreign government obligations		`-`		`6,962`		`-`		`6,962`
Redeemable preferred stocks		`6,167`		`-`		`-`		`6,167`
Total fixed maturities		`6,167`		`432,547`		`1,575`		`440,289`

Equity securities:
Common stocks		`2,633`		`-`		`-`		`2,633`
Nonredeemable preferred stocks		`2,944`		`-`		`-`		`2,944`
Total equity securities		`5,577`		`-`		`-`		`5,577`

Total Financial Assets	$	`11,744`	$	`432,547`	$	`1,575`	$	`445,866`

		December 31, 2018
		Level 1		Level 2		Level 3		Total

FINANCIAL ASSETS:
Fixed maturities available-for-sale:
Corporate securities	$	`-`	$	`193,907197,489`	$	`-`	$	`193,907197,489`
CMOs - residential		`-`		`5,8805,840`		`-`		`5,8805,840`
US Government obligations		`-`		`48,12762,809`		`-`		`48,12762,809`
Agency MBS - residential		`-`		`63`		`-`		`63`
GSEs		`-`		`9,2196,486`		`-`		`9,2196,486`
States and political subdivisions		`-`		`164,300166,225`		`1,7521,709`		`166,052167,934`
Foreign government obligations		`-`		`3,9627,044`		`-`		`3,9627,044`
Redeemable preferred stocks		`5,7975,859`		`-`		`-`		`5,7975,859`
Total fixed maturities		`5,7975,859`		`425,401445,896`		`1,7521,709`		`432,950453,464`

Equity securities:
Common stocks		`2,6912,366`		`-`		`-`		`2,6912,366`
Nonredeemable preferred stocks		`2,8372,800`		`-`		`-`		`2,8372,800`
Total equity securities		`5,5285,166`		`-`		`-`		`5,5285,166`

Total Financial Assets	$	`11,32511,025`	$	`425,401445,896`	$	`1,7521,709`	$	`438,478`

		~~December 31, 2017~~
		~~Level 1~~		~~Level 2~~	��	~~Level 3~~		~~Total~~

~~FINANCIAL ASSETS:~~
~~Fixed maturities available-for-sale:~~
~~Corporate securities~~	$	`-`	$	`146,447`	$	`-`	$	`146,447`
~~CMOs - residential~~		`-`		`6,677`		`-`		`6,677`
~~US Government obligations~~		`-`		`85,114`		`-`		`85,114`
~~Agency MBS - residential~~		`-`		`14`		`-`		`14`
~~GSEs~~		`-`		`9,682`		`-`		`9,682`
~~States and political subdivisions~~		`-`		`177,767`		`1,876`		`179,643`
~~Foreign government obligations~~		`-`		`4,150`		`-`		`4,150`
~~Redeemable preferred stocks~~		`10,185`		`-`		`-`		`10,185`
~~Total fixed maturities~~		`10,185`		`429,851`		`1,876`		`441,912`

~~Equity securities:~~
~~Common stocks~~		`2,490`		`-`		`-`		`2,490`
~~Nonredeemable preferred stocks~~		`3,630`		`-`		`-`		`3,630`
~~Total equity securities~~		`6,120`		`-`		`-`		`6,120`

~~Total Financial Assets~~	$	`16,305`	$	`429,851`	$	`1,876`	$	`448,032458,630`

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 ~~2018~~2019 or ~~2017.~~2018.

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,

2018

2017

2019

2018

States and

Total

States and

Total

States and

Total

States and

Total

Political

Level 3

Political

Level 3

Political

Level 3

Political

Level 3

Subdivisions

Assets

Subdivisions

Assets

Subdivisions

Assets

Subdivisions

Assets

Beginning balance

1,794

1,956

1,620

1,794

Increases (decreases) recognized in earnings:

Net investment gains

-

Gains (losses) included in other

comprehensive income (loss):

Net unrealized gains (losses)

(8)

(6)

(8)

Repayments and amortization of

fixed maturities

(34)

(31)

(39)

(34)

Sales

-

Balance at end of period

1,752

1,917

1,575

1,752

Nine Months Ended September 30,

2018

2017

States and

Total

States and

Total

Political

Level 3

Political

Level 3

Subdivisions

Assets

Subdivisions

Assets

Beginning balance
$
1,876
$
1,876
$
2,033
$
2,033

Increases (decreases) recognized in earnings:

   Net investment gains

-

-

-

-

Gains (losses) included in other

comprehensive income (loss):

    Net unrealized gains (losses)

(23)

(23)

(26)

(26)

Repayments and amortization of

fixed maturities

(101)

(101)

(90)

(90)
Sales

-

-

-

-

Balance at end of period
$
1,752
$
1,752
$
1,917
$
1,917

		Nine Months Ended September 30,
		2019				2018
		States and		Total		States and		Total
		Political		Level 3		Political		Level 3
		Subdivisions		Assets		Subdivisions		Assets

Beginning balance	$	`1,709`	$	`1,709`	$	`1,876`	$	`1,876`

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

Gains (losses) included in other
comprehensive income (loss):
Net unrealized gains (losses)		`(20)`		`(20)`		`(23)`		`(23)`

Repayments and amortization of
fixed maturities		`(114)`		`(114)`		`(101)`		`(101)`
Sales		`-`		`-`		`-`		`-`

Balance at end of period	$	`1,575`	$	`1,575`	$	`1,752`	$	`1,752`

The following table provides carrying values, fair values and classification in the fair value hierarchy of the Company’s financial instruments, that are not carried at fair value but are subject to fair value disclosure requirements, for the periods indicated (in thousands):

September 30, ~~2018~~2019

December 31, ~~2017~~2018

Level 1

Level 2

Level 1

Level 2

Fair

Carrying

Fair

Carrying

Value

FINANCIAL ASSETS:

Short-term investments

1,047

-

1,047

50

-

50

1,050

-

1,050

FINANCIAL LIABILITIES:

Funds on deposit

-

141,813140,739

141,685140,724

-

143,702141,662

143,537141,635

Other policyholders’ funds

-

12,042

-

10,939

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

Investments with original maturities of 91 days to one year are considered short-term investments and are carried at cost, which approximates fair value.

Funds on Deposit

The Company has two types of funds on deposit. The first type is credited with a current market interest rate, resulting in a fair value which approximates the carrying amount. The second type carries fixed interest rates which are higher than current market interest rates. The fair value of these deposits was estimated by discounting the payments using current market interest rates. The Company's universal life policies are also credited with current market interest rates, resulting in a fair value which approximates the carrying amount. Both types of funds on deposit are included in Level 2 of the fair value hierarchy.

Other Policyholders’ Funds

Other policyholders’ funds are primarily credited with current market interest rates resulting in a fair

value which approximates the carrying amount.

Note 6.Other Investments, Including Variable Interest Entities

Included in other investments is our investment in Ebix Health Exchange which administers various lines of health insurance for IHC’s insurance subsidiaries. The carrying value of the Company’s equity investment in Ebix Health Exchange is ~~$6,973,000~~$4,356,000 and ~~$8,188,000~~$6,425,000 at September 30, ~~2018~~2019 and December 31, ~~2017, respectively. The~~2018, respectively, and the Company recorded $(406,000) and $(2,069,000), respectively, of equity income (loss) from its investment for the three and nine months ended September 30, 2019 and $(445,000) and $(1,216,000), respectively, of equity income (loss) from its investment for the ~~three months and nine months ended September 30, 2018 and $(19,000) and $228,000, respectively, of equity income (loss) for the~~ same periods ~~ended September 30, 2017.~~of 2018.

At September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Company’s Condensed Consolidated Balance Sheets include ~~$1,886,000~~$1,824,000 and ~~$1,859,000,~~$1,842,000, respectively, of notes and other amounts receivable from Ebix Health Exchange, and include ~~$1,086,000~~$203,000 and ~~$1,139,000,~~$910,000, respectively, of administrative fees and other expenses payable to Ebix Health Exchange, which are included in other assets and accounts payable, accruals and other liabilities, respectively. The Company’s Condensed Consolidated Statements of Income include administrative fee expenses to Ebix Health Exchange, which are included in selling, general and administrative expenses of ~~$1,796,000~~$621,000 and ~~$6,269,000~~$1,608,000, for the three and nine months ended September 30, ~~2018,~~2019, respectively, and ~~$2,613,000~~$1,796,000 and ~~$8,017,000,~~$6,269,000, respectively, for the same periods of ~~2017.~~2018.

In June 2019, the Company paid $3,000,000 for an equity interest in a lead generation company that will be accounted for as an equity method investment.

In March 2019, the Company’s equity investment in Pets Best, that was carried at a cost of $500,000, was acquired by an unaffiliated entity and the Company realized a gain of $3,589,000 on the sale, which is included in Other Income in the Condensed Consolidated Statement of Income for the nine months ended September 30, 2019.

Variable Interest Entities

The Company has a minority interest in certain limited partnerships that we have determined to be Variable Interest Entities (“VIEs”). The aforementioned VIEs are not required to be consolidated in the Company’s condensed consolidated financial statements as we are not the primary beneficiary since we do not have the power to direct the activities that most significantly impact the VIEs’ economic performance.

The Company will periodically reassess whether we are the primary beneficiary in any of these investments. The reassessment process will consider whether we have acquired the power to direct the most significant activities of the VIE through changes in governing documents or other circumstances. Our maximum loss exposure is limited to our combined ~~$4,131,000~~$4,423,000 carrying value in these equity investments which is included in other investments in the Condensed Consolidated Balance Sheet as of September 30, ~~2018.~~2019

Note 7.Acquisitions

In 2019 the Company made several business acquisitions as follows:

In January 2019, the Company acquired all of the stock of My1HR, a web-based entity with a state-of-the-art insurance quoting and cloud-based enrollment platform. In general, companies that provide insurance through user-centric platforms, or create efficiencies in the insurance industry through technological advances, are referred to as “insuretech” companies. The Company acquired My1HR for its quoting and cloud-based enrollment platforms as part of an effort to expand our “insuretech” footprint through our agencies, which generate leads and sell our products through our owned call center and career advisors.

In April 2019, the Company purchased substantially all of the assets and liabilities of a sales and

customer service call center. The Company acquired the call center in order to capitalize on technology-driven trends in the purchase of health insurance directly by consumers. Prior to the purchase, the Company owned an equity interest in the call center. Immediately preceding the transaction, the Company determined the fair value of its equity interest to be $720,000 using a market approach and, as a result, recorded a loss of $237,000 which is included in other income on the Condensed Consolidated Statement of Income.

The aggregate fair value of consideration transferred for these acquisitions was $8,534,000 cash. The following table presents the aggregate acquisition-date fair values of the identifiable assets acquired and liabilities assumed in these transactions (in thousands):

Cash	$	`582`
Intangible assets		`1,500`
Other assets		`1,301`

Total identifiable assets		`3,383`

Other liabilities		`3,637`

Total liabilities		`3,637`

Net identifiable assets (liabilities) acquired	$	`(254)`

In connection with these acquisitions, the Company recorded $9,508,000 of goodwill and $1,500,000 of intangible assets (see Note 8). The fair value of the acquired identifiable intangible assets is provisional pending receipt of the final valuations for those assets and liabilities. The amount of goodwill and intangibles entitled to an amortization deduction for income tax purposes will be determined upon a mutually agreeable asset allocation of the acquisition consideration with the respective acquirees.

Goodwill reflects the synergies with our insurance carriers. My1HR has an existing distribution network and offers increased distribution sources for IHC carrier products through its quoting and cloud based enrollment platforms designed specifically for producers in the small group employer marketand individual Affordable Care Act (“ACA”) and ancillary market.This new quoting and enrollment system will support group and individual products for all IHC carriers as well as select group ACA and level funded health coverages from leading national health plans. The acquisition of the call center is expected to expand our existing call center reach and increase sales of IHC-underwritten health insurance. Goodwill was calculated as the sum of (i) the aggregate acquisition-date fair value of total cash consideration transferred of $8,534,000 , (ii) the aggregate acquisition-date fair value of equity interests immediately before the acquisition of $720,000; and (iii) the net identifiable liabilities of $254,000 assumed. Enterprise values were determined either by an independent appraisal using a discounted cash flow model based upon the projected future earnings or by a market approach net of any control premiums.

Acquisition-related costs, primarily legal and consulting fees, were not material and are included in selling, general and administrative expenses in the Consolidated Statement of Income.

For the three months ended September 30, 2019, the Company’s Consolidated Statement of Income includes revenues and net income of $1,907,000 and $332,000, respectively, from these acquisitions. For the period from the acquisition dates to September 30, 2019, the Company’s Consolidated Statement of Income includes revenues and net income of $3,331,000 and $(51,000), respectively, from these acquisitions.

Pro forma adjustments to present the Company’s consolidated revenues and net income as if the acquisition dates were January 1, 2018 are not material and accordingly are omitted.

Note 8.Goodwill and Other Intangible Assets

The carrying amount of goodwill is $60,205,000 and $50,697,000 at ~~both~~ September 30, ~~2018~~2019 and December 31, ~~2017.~~2018, respectively, all of which is attributable to the Specialty Health segment.

The Company has net other intangible assets of ~~$13,545,000~~$13,687,000 and ~~$14,669,000~~$13,163,000 at September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively, which are included in other assets in the Condensed Consolidated Balance Sheets. These intangible assets consist of: (i) finite-lived intangible assets, principally the fair value of acquired agent and broker relationships, which are subject to amortization; and (ii) indefinite-lived intangible assets which consist of the estimated fair value of insurance licenses that are not subject to amortization.

The gross carrying amounts of these other intangible assets are as follows for the periods indicated (in thousands):

		September 30, ~~2018~~2019				December 31, ~~2017~~2018
		Gross				Gross
		Carrying		Accumulated		Carrying		Accumulated
		Amount		Amortization		Amount		Amortization

Finite-lived Intangible Assets:
Agent and broker relationships	$	`17,25318,753`	$	`13,09614,223`	$	`17,253`	$	`12,14013,419`
Domain		`1,000`		`200300`		`1,000`		`125225`
Software systems		`780`		`169300`		`780`		`76203`
Total finite-lived	$	`19,03320,533`	$	`13,46514,823`	$	`19,033`	$	`12,34113,847`

		September 30,		December 31,		September 30,		December 31,
		2018		2017		2019		2018
Indefinite-lived Intangible Assets:
Insurance licenses	$	`7,977`	$	`7,977`	$	`7,977`	$	`7,977`
Total indefinite-lived	$	`7,977`	$	`7,977`	$	`7,977`	$	`7,977`

As discussed in Note 7, in connection with business acquisitions in 2019, the Company recorded $9,508,000 of goodwill and $1,500,000 of intangible assets associated with the Specialty Health segment. The intangible assets primarily represent the fair value of customer relationships and are being amortized over a weighted average period of 17 years.

Amortization expense was $308,000 and $976,000 for the three and nine months ended September 30, 2019, respectively, and was $381,000 and $1,124,000 for the three and nine months ended September 30, 2018, ~~respectively, and was $393,000 and $941,000 for the three months and nine months ended September 30, 2017,~~ respectively.

Note 8.9.Income Taxes

The provisions for income taxes shown in the Condensed Consolidated Statements of Income were computed by applying the effective tax rate expected to be applicable for the reporting periods. In 2017, ~~President Trump signed tax legislation commonly referred to as~~ the Tax Cuts and Jobs Act (the “Tax Act”). was enacted. The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, reducing the Federal corporate income tax rate to 21%. effective January 1, 2018. As a result of IHC’s June 30 fiscal tax year, the Tax Act subjects IHC to a blended tax rate of 28% for its fiscal tax year ended June 30, 2018. Other differences between the Federal statutory income tax rate and the 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.~~provisions, and the expected current year utilization of AMIC’s net operating loss carryforwards.

Income taxes for the three months and nine months ended September 30, 2019 includes additional tax

expense of $1,600,000 associated with the reduction of estimated tax benefits from the expected current year utilization of AMIC’s net operating loss carryforwards.

The Internal Revenue Service has completed its review of the Company’s 2015 consolidated income tax return with no changes in the Company’s reported tax, however, the New York State Department of Taxation and Finance has recently selected the Company’s 2015 and 2016 income tax returns for audit.

Note 9.10. Leases

Certain subsidiaries of the Company are obligated under operating lease agreements for office space and office equipment.

The Company had right-of-use assets amounting to $7,251,000 and corresponding lease liabilities of $7,871,000 related to its operating leases, which are included in other assets and other liabilities, respectively, in the Condensed Consolidated Balance Sheet on September 30, 2019. The weighted average discount rate used to measure lease liabilities was 6.70%. The leases have remaining lease terms of 1 to 8 years, some of which include options to extend the leases for up to 5 years. The weighted average remaining lease term is 5 years. Variable lease costs consist primarily of the Company’s proportionate share of real estate taxes and operating expenses related to leased premises. The following table summarizes information pertaining to our lease obligations for the periods indicated (in thousands):

		Three Months		Nine Months
		Ended		Ended
		September 30, 2019		September 30, 2019

Operating lease costs	$	`599`	$	`1,710`
Short-term lease costs		`65`		`139`
Variable lease costs		`127`		`333`

Total lease costs	$	`791`	$	`2,182`

Other information:
Operating cash flows from operating leases	$	`(603)`	$	`(1,776)`
Right-of-use assets obtained for operating leases	$	`1,049`	$	`1,688`

The Company assumed $435,000 of right-of-use assets in connection with acquisitions in 2019, as discussed in Note 7.

Maturities of operating lease liabilities at September 30, 2019 were as follows:

Due in the next year	$	`2,490`
Due in two years		`1,893`
Due in three years		`1,786`
Due in four years		`1,136`
Due in five years		`699`
Due in remaining years		`1,200`
Total payments due		`9,204`

Present value discount		`(1,333)`
Operating lease liability	$	`7,871`

Note 11.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 ~~IBNR~~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				Nine Months Ended
		September 30,				September 30,
		2018		2017		2019		2018

Balance at beginning of year	$	`168,683`	$	`219,113`	$	`160,115`	$	`168,683`
Less: reinsurance recoverable		`42,136`		`88,853`		`38,122`		`42,136`
Net balance at beginning of year		`126,547`		`130,260`		`121,993`		`126,547`

Amount incurred, related to:
Current year		`127,544`		`114,795`		`145,938`		`127,544`
Prior years		`(19,152)`		`(9,236)`		`(15,950)`		`(19,152)`

Total incurred		`108,392`		`105,559`		`129,988`		`108,392`

Amount paid, related to:
Current year		`65,380`		`52,822`		`76,395`		`65,380`
Prior years		`49,916`		`56,452`		`51,326`		`49,916`

Total paid		`115,296`		`109,274`		`127,721`		`115,296`

Net balance at end of period		`119,643`		`126,545`
Net balance at end of year						`124,260`		`119,643`
Plus: reinsurance recoverable		`38,525`		`43,002`		`37,169`		`38,525`
Balance at end of period	$	`158,168`	$	`169,547`
Balance at end of year					$	`161,429`	$	`158,168`

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 $15,950,000 in 2019 related to prior years consists of favorable developments of $4,370,000 in Specialty Health reserves, $10,132,000 in the group disability reserves, $1,291,000 in the other individual life, annuities and other reserves, and $157,000 in Medical Stop-Loss reserves. Specialty Health net favorable development occurred primarily in the fixed indemnity limited benefit, short-term medical, occupational accident and dental lines of business. Group Disability net favorable development was primarily due to favorable claim experience in the New York short-term disability (“DBL”) and group long-term disability ("LTD") lines of business. The net favorable development of the DBL line is mainly due to the reversal of potential policyholders’ premium refund for prior years for better than expected claim experience. The Company settled the Paid Family Leave (“PFL”) risk adjustment payment for the 2018 year with no adjustment to the DBL line of business. The overall net favorable development of $19,152,000 in 2018 related to prior years primarily consists of favorable developments of $9,729,000 in the Specialty Health reserves, $7,862,000 in the group disability reserves, $1,346,000 in the other individual life, annuities and other reserves, and $215,000 in Medical Stop-Loss reserves. Specialty Health had net favorable development primarily from: (i) the release of reserves due to emerging favorable experience on hospital indemnity plan business written in 2017 on increased sales volume of this product; (ii) short-term medical business as inventory levels decreased during 2018 and paid claim activity was below the levels anticipated; and, (iii) favorable development in other lines of Specialty Health business. Group disability had net favorable development primarily as a result of a lower number of expected claims and greater number of expected terminations in our LTD business. The overall net favorable development of $9,236,000 in 2017 related to prior years primarily consists of favorable developments of $2,420,000 in the Medical Stop-Loss reserves, $5,406,000 in the group 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.

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				Specialty Health Segment
		Health Insurance Claims				Health Insurance Claims
		Nine Months Ended				Nine Months Ended
		September 30,				September 30,
		2018		2017		2019		2018

Balance at beginning of year	$	`32,904`	$	`27,183`	$	`26,068`	$	`32,904`
Less: reinsurance recoverable		`762`		`1,179`		`851`		`762`
Net balance at beginning of year		`32,142`		`26,004`		`25,217`		`32,142`

Amount incurred, related to:
Current year		`37,099`		`40,836`		`38,950`		`37,099`
Prior years		`(8,266)`		`1,144`		`(2,370)`		`(8,266)`

Total incurred		`28,833`		`41,980`		`36,580`		`28,833`

Amount paid, related to:
Current year		`14,880`		`13,528`		`15,630`		`14,880`
Prior years		`19,507`		`23,797`		`15,357`		`19,507`

Total paid		`34,387`		`37,325`		`30,987`		`34,387`

Net balance at end of period		`26,588`		`30,659`
Net balance at end of year						`30,810`		`26,588`
Plus: reinsurance recoverable		`865`		`814`		`919`		`865`
Balance at end of period	$	`27,453`	$	`31,473`
Balance at end of year					$	`31,729`	$	`27,453`

The liability for the IBNR plus expected development on reported claims associated with the Company’s health insurance claims is ~~$27,453,000~~$30,810,000 at September 30, ~~2018.~~2019.

Note 10.12.Stockholders’ Equity

~~Treasury Stock~~

In 2018, the Company repurchased 129,521 shares of its common stock for an aggregate cost of $3,817,000. In 2018 all shares were purchased in the open market. 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.

During the nine months ended September 30, 2018 and 2017, the Company reissued 38,908 and 12,671 shares, respectively, that were previously held in treasury. In 2017, the 12,671 shares were reissued to satisfy net-share settlements of option exercises during the period.

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. In 2018, investment securities available-for-sale consist of only fixed maturities. Prior to January 1, 2018, the Company classified certain equity securities as available-for-sale. Changes to the fair value of those equity securities classified as available-for-sale were recorded in other comprehensive income (loss) for the corresponding periods in 2017 and prior. Upon the adoption of new accounting guidance on January 1, 2018, the Company: (i) recorded a cumulative-effect adjustment to reclassify the existing amounts reported in accumulated other comprehensive income on that date for equity securities previously classified as available-for-sale, to retained earnings; and (ii) recorded the subsequent changes in the fair value of those equity securities in net income.

Changes in the balances of accumulated other comprehensive ~~loss,~~income, shown net of taxes, for the periods indicated are as follows (in thousands):

Three Months Ended

Nine Months Ended

Three Months Ended

Nine Months Ended

September 30,

2018

2017

2018

2017

2019

2018

2019

2018

Beginning balance

(11,237)

(2,504)

(4,598)

(6,964)

2,298

(11,237)

(8,310)

(4,598)

Cumulative-effect of new accounting principles

-

(350)

-

(350)

Other comprehensive income (loss):

Other comprehensive income (loss) before reclassifications

(922)

627

(7,364)

5,305

1,995

(922)

13,072

(7,364)

Amounts reclassified from accumulated OCI

196

(467)

349

(685)

(706)

196

(1,175)

349

Net other comprehensive income (loss)

(726)

160

(7,015)

4,620

Net other comprehensive income

1,289

(726)

11,897

(7,015)

Ending balance

(11,963)

(2,344)

(11,963)

(2,344)

3,587

(11,963)

3,587

(11,963)

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,

2018

2017

2018

2017

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

  reclassified during the period to the following income

  statement line items:

     Net investment gains (losses)
$
(247)
$
719
$
(442)
$
1,062

     Income (loss) before income tax

(247)

719

(442)

1,062
     Tax effect

(51)

252

(93)

377

     Net income (loss)
$
(196)
$
467
$
(349)
$
685

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
		2019		2018		2019		2018

Unrealized gains (losses) on available-for-sale securities
reclassified during the period to the following income
statement line items:
Net investment gains (losses)	$	`895`	$	`(247)`	$	`2,144`	$	`(442)`
Net impairment losses recognized in earnings		`-`		`-`		`(646)`		`-`

Income (loss) before income tax		`895`		`(247)`		`1,498`		`(442)`
Tax effect		`189`		`(51)`		`323`		`(93)`

Net income (loss)	$	`706`	$	`(196)`	$	`1,175`	$	`(349)`

Note 11.13.Share-Based Compensation

~~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.

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 3 years. Restricted share units are valued at the quoted market price of the shares at the date of grant and generally vest over 3 years. 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, 2018, there were 846,300 shares available for future stock-based compensation grants under IHC’s stock incentive plans. 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,

2018

2017

2018

2017
IHC’s Share-based Compensation Plan:

Stock options
$
189
$
36
$
558
$
106
Restricted stock units

39

23

129

81
SARs

93

305

218

359

Share-based compensation expense, pre-tax

321

364

905

546
Tax benefits

86

145

281

218

Share-based compensation expense, net
$
235
$
219
$
624
$
328

~~Stock Options~~

~~The IHC’s~~ stock option activity during ~~2018~~the first nine months of 2019 was as follows:

	Shares	Weighted- Average		Shares	Weighted- Average
	Under Option	Exercise Price		Under Option	Exercise Price

December 31, 2017	`692,380`	$	16.62
December 31, 2018				`567,384`	$	19.40
Granted	`13,000`		31.30	`424,380`		37.38
Exercised	`(36,433)`		9.79	`(197,383)`		9.69
September 30, 2018	`668,947`	$	17.28
Forfeited				`(4,000)`		22.20
September 30, 2019				`790,381`	$	31.46

The weighted average grant date fair ~~values~~value of options granted during the nine months ended September 30, ~~2018 and 2017 were $9.77 and $7.01, respectively. The assumptions set forth in the table below were used to value the stock options granted during the periods indicated:~~2019 was $8.31.

2018
2017

Weighted-average risk-free interest rate
2.64%
1.71%
Expected annual dividend rate per share
0.95%
0.79%
Expected volatility factor of the Company's common stock
35.80%
37.57%
Weighted-average expected term of options
4.5 years
4.5 years

In ~~2018,~~2019, IHC received ~~$357,000~~$163,000 in cash from the exercise of stock options with an aggregate intrinsic value of ~~$886,000~~$5,091,000 and recognized ~~$165,000~~$748,000 of tax benefits. ~~In 2017, IHC received no cash from the exercise of stock options, as option exercises were net settled~~Cash outflows in ~~IHC shares. As part of the net-share settlements in 2017, cash outflows~~2019 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.~~

~~The following table summarizes information regarding IHC’s outstanding and exercisable options:~~

September 30, 2018

Outstanding

Exercisable

Number of options

668,947

363,612
Weighted average exercise price per share
$
17.28
$
10.99
Aggregate intrinsic value for all options (in thousands)
$
12,458
$
9,057
Weighted average contractual term remaining

2.2 years

0.8 years

At September 30, 2018, the total unrecognized compensation cost related to IHC’s non-vested stock options was $1,473,000 and it is expected to be recognized as compensation expense over a weighted average period of 1.7 years.

~~Restricted Stock~~$2,397,000.

~~The following table summarized restricted stock activity for the nine months ended September 30, 2018:~~

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

~~December 31, 2017~~	`18,975`	$	`22.91`
~~Vested~~	`(2,475)`		`11.78`

~~September 30, 2018~~	`16,500`	$	`24.58`

The total fair value of restricted stock that vested during the first nine months of 2018 and 2017 was $92,000 and $94,000, respectively. IHC granted no restricted stock awards during the nine months ended September 30, 2018 and 2017.

~~At September 30, 2018, the total unrecognized compensation cost related to non-vested restricted stock~~

~~unit awards was $269,000 and is expected to be recognized as compensation expense over a weighted average period of 1.7 years.~~

~~SARs~~

IHC had 64,900 SAR awards outstanding at both September 30, 2018 and December 31, 2017 with corresponding liabilities of $240,000 and $22,000 for those periods, respectively, that are included in Other Liabilities in the Company’s Condensed Consolidated Balance Sheets.

Note 12.14.Supplemental Disclosures of Cash Flow Information

Net cash payments for income taxes were ~~$1,169,000~~$783,000 and ~~$292,000~~$1,169,000 during the nine months ended September 30, 2019 and 2018, ~~and 2017.~~respectively.

Note 13.15.Contingencies

Third Party Administrator

A third party administrator with whom we formerly did business (“Plaintiff” or “TPA”)) filed a Complaint dated May 17, 2017 in the United States District Court, Northern District of Texas, Dallas Division, naming IHC, Madison National Life, Standard Security Life, and IHC Carrier Solutions, Inc. (collectively referred to as “Defendants”). “Plaintiff” and “Defendants” are collectively referred to herein as the “Parties”. The Complaint ~~concerns~~concerned agreements entered into by Standard Security Life and Madison National Life with Plaintiff, as well as other allegations made by Plaintiff against Defendants. The Complaint ~~seeks~~sought injunctive relief and damages in an amount exceeding $50,000,000, ~~profit share~~ payments allegedly owed to Plaintiff under the agreements 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. ~~Defendants believe these claims to be without merit.~~ Defendants moved to Compel Arbitration and Dismiss or Stay the original Complaint. Plaintiff filed an Amended Complaint on August 18, 2017. Defendants filed a Motion to Compel Arbitration or Stay the Amended Complaint. The Parties agreed to enter into an Order staying the action filed in Texas. The Parties’ disputed claims ~~have~~ moved in part to arbitration.

Standard Security Life and Madison National Life ~~will strongly pursue~~demanded arbitration against this TPA. The Arbitration Panel issued an Order splitting the hearing into two phases. Standard Security Life and Madison National Life successfully presented their claims in Phase I on September 25 through September 28, 2018. The TPA’s counterclaims were heard during Phase II held on February 11, 2019 through February 15, 2019. Standard Security Life and ~~vigorously oppose~~Madison National Life successfully opposed the counterclaims asserted by the ~~TPA.~~TPA as the Arbitration Panel denied all claims against Standard Security Life and Madison National Life.Standard Security Life and Madison National Life filed the Petition to Confirm the Arbitration Award. The TPA opposed this Motion. On June 17, 2019, the Court entered its Final Judgment and Order Confirming the Arbitration Award (the “Final Judgment”). On July 15, 2019, Plaintiff filed a Notice of Appeal to the United States Court of Appeals for the Seventh Circuit from the judgment entered on June 17, 2019.

Since the arbitration ~~will likely conclude~~is complete, the stay in the ~~first half~~Texas litigation was lifted, and Defendants filed a Motion to Dismiss. On October 16, 2019, the Court granted in part and denied in part Defendants’ Motion to Dismiss. The Court found that an arbitration agreement, including an arbitration provision, exists between the parties and therefore, the parties were directed to proceed with arbitration. In light of ~~2019.~~this holding, the Court stayed and administratively closed the action pending the outcome of another arbitration. On October 29, 2019, the Plaintiff demanded arbitration against Standard Security Life, Madison National Life, and Independence Holding Company seeking a declaration by a new arbitration panel that the claims alleged in the complaint in the dismissed Texas litigation are not arbitrable. This demand for a new arbitration has no impact on the Final Judgment.

Multistate Market Conduct Examination

As previously disclosed, our subsidiaries Standard Security Life, Madison National Life and Independence American have been selected for a multistate market conduct exam ("MCE") related to our short term medical, limited medical and fixed indemnity 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) are serving as leads, and the District of Columbia Department of Insurance, Securities and Banking and the Delaware Department of Insurance are serving as the managing lead states of the MCE. In addition to the five lead states, 36 other states are participating in the MCE. Each of Standard Security Life, Madison National Life and Independence American responded to inquiries and

document production requests in the MCE and has proactively communicated and cooperated with the applicable regulatory agencies for the MCE. Each of these subsidiaries has also provided a detailed action plan to regulators that summarizes its enhanced compliance and control mechanisms.

On July 18, 2019, each of Standard Security Life, Madison National Life and Independence American received a proposed Regulatory Settlement Agreement ("RSA") to resolve the MCE with respect to such company. The proposed RSAs provide for monetary penalties as well as requirements related to such subsidiaries' marketing activities and periodic reporting to regulators.Standard Security Life, Madison National Life and Independence American have preliminarily responded to the proposed RSAs and anticipate entering into confidential discussions with the insurance departments of the lead jurisdictions once they have reviewed. At this time, the Company is not able to reasonably estimate any settlement amount or range of settlement amounts that may result from such discussions.

Note 14.16.Segment Reporting

The Insurance Group principally engages in the life and health insurance business. ~~Interest expense, taxes,~~Taxes and general expenses associated with parent company activities are included in Corporate. Identifiable assets by segment are those assets that are utilized in each segment and are allocated based upon the mean reserves and liabilities of each such segment. Corporate assets are composed principally of cash equivalents, resale agreements, fixed maturities, equity securities, partnership interests and certain other investments. ~~Effective January 1, 2018, Standard Security Life began selling a new rider (“Paid Family Leave” or “PFL”) as part of our New York short-term disability (“DBL”) policies.~~

Information by business segment is presented below for the periods indicated (in thousands):

Three Months Ended

Nine Months Ended

Three Months Ended

Nine Months Ended

September 30,

2018

2017

2018

2017

2019

2018

2019

2018

Revenues:

Specialty Health

53,108

55,502

152,959

152,292

48,237

53,108

149,419

152,959

Group disability, life, DBL and PFL

35,599

26,112

107,280

78,985

44,025

35,599

127,068

107,280

Individual life, annuities and other (A)

520

455

1,432

1,494

457

520

1,279

1,432

Medical Stop-Loss (A)

13

576

36

2,549

2

13

6

36

Corporate

678

392

1,755

1,522

1,514

678

4,787

1,755

89,918

83,037

263,462

236,842

94,235

89,918

282,559

263,462

Net investment gains (losses)

17

715

(335)

987

930

17

2,556

(335)

Net impairment losses recognized in earnings

-

(646)

-

Total revenues

89,935

83,752

263,127

237,829

95,165

89,935

284,469

263,127

Income before income taxes

Specialty Health (B)

10,595

5,238

23,319

9,412

1,127

10,595

13,608

23,319

Group disability, life, DBL and PFL

4,267

5,144

14,912

12,777

9,985

4,267

19,187

14,912

Individual life, annuities and other (A) (C)

(63)

(385)

(357)

(532)

(607)

(63)

(1,374)

(357)

Medical Stop-Loss (A)

(64)

(538)

100

2,752

(33)

(64)

252

100

Corporate

(1,849)

(2,295)

(6,188)

(6,042)

(1,983)

(1,849)

(5,124)

(6,188)

12,886

7,164

31,786

18,367

8,489

12,886

26,549

31,786

Net investment gains (losses)

17

715

(335)

987

930

17

2,556

(335)

Net impairment losses recognized in earnings

-

(646)

-

Income before income taxes

12,903

7,879

31,451

19,354

9,419

12,903

28,459

31,451

(A)Substantially all of the business in the segment is coinsured. Activity in this segment primarily reflects income or expenses related to the coinsurance and the run-off of any remaining blocks that were not coinsured.

(B)The Specialty Health segment includes amortization of intangible assets. Total amortization expense was ~~$381,000~~$308,000 and ~~$393,000~~$381,000 for the three months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and was ~~$1,124,000~~$976,000 and ~~$941,000, respectively,~~$1,124,000 for the nine months ended September 30, 2019 and 2018, ~~and 2017.~~respectively.

(C)The Individual life, annuities and other segment includes amortization of deferred charges in connection with the assumptions of certain ceded life and annuity policies of ~~$220,000~~$198,000 and ~~$368,000~~$220,000 for the three months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and ~~$675,000~~$600,000 and ~~$937,000~~$675,000 for the nine months ended September 30, 2019 and 2018 ~~and 2017,~~, respectively.

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 on Form 10-K for the fiscal year ended December 31, ~~2017,~~2018, 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 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”); and (ii) its marketing and administrative companies, including IHC Specialty Benefits Inc., IHC Carrier Solutions, Inc., My1HR, Inc. (“My1HR”) and a majority interest in PetPartners, Inc. (“PetPartners”). IHC also owns a significant equity interest in Ebix Health Exchange Holdings, LLC (“Ebix Health Exchange”), an administration exchange for health insurance. Standard Security Life, Madison National Life and Independence American 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 a wide range of factors in its strategic planning and decision-making, underwriting profit is consistently emphasized as the primary goal in all decisions as to whether or not to increase our retention in a core line, expand into new products, acquire an entity or a block of business, or otherwise change our business model. Management's assessment of trends in healthcare and morbidity, with respect to specialty health, disability, New York short-term disability (“DBL”) and Paid Family Leave (“PFL”), mortality rates with respect to life insurance, and changes in market conditions in general play a significant role in determining the rates charged, deductibles and attachment points quoted, and the percentage of business retained. IHC also seeks transactions that permit it to leverage its vertically integrated organizational structure by generating fee income from production and administrative operating companies as well as risk income for its carriers.Management has always focused on managing the costs of its operations.

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

Three Months Ended

Nine Months Ended

September 30,

2018

2017

2018

2017

2019

2018

2019

2018

Revenues

89,935

83,752

263,127

237,829

Revenues

95,165

89,935

284,469

263,127

Expenses

77,032

75,873

231,676

218,475

Expenses

85,746

77,032

256,010

231,676

Income before income taxes

12,903

7,879

31,451

19,354

Income before income taxes

9,419

12,903

28,459

31,451

Income taxes (benefits)

2,860

2,666

7,518

(5,175)

Income taxes

3,248

2,860

6,482

7,518

Net income

10,043

5,213

23,933

24,529

Net income

6,171

10,043

21,977

23,933

(Income) loss from noncontrolling interests

(108)

16

(280)

(33)

(Income) from noncontrolling interests

(29)

(108)

(261)

(280)

Net income attributable to IHC

9,935

5,229

23,653

24,496

Net income attributable to IHC

6,142

9,935

21,716

23,653

Income from operations of ~~$.66~~$.41 per share, diluted, for the three months ended September 30, ~~2018~~2019 compared to ~~$.34~~$.66 per share, diluted, for the same period in ~~2017.~~2018. Income from operations of ~~$1.57~~$1.45 per share, diluted, for the nine months ended September 30, ~~2018~~2019 compared to ~~$1.50~~$1.57 per share, diluted for the same period in ~~2017.~~2018.

o~~Income taxes~~Net income for the nine months ended September 30, ~~2017 include~~2019 includes $2.6 million of gain, net of tax, related to the sale of an equity investment.

oNet income for the three and nine months ended September 30, 2019 includes additional tax ~~benefit~~expense of ~~$11.6~~$1.6 million onassociated with the reduction of estimated tax ~~basis in an unrecovered investment in a subsidiary.~~benefits from the expected current year utilization of AMIC’s net operating loss carryforwards.

Consolidated investment yields (on an annualized basis) of ~~2.8% and 2.7%~~3.1% for the three months and nine months ended September 30, ~~2018, respectively,~~2019, compared to ~~3.6%~~2.8% and ~~3.2%~~2.7% for the comparable periods in ~~2017.~~2018, respectively;

Book value of ~~$29.92~~$31.90 per common share at September 30, ~~2018~~2019 compared to ~~$28.98~~$30.16 at December 31, ~~2017.~~2018.

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

The Specialty Health segment reported ~~$10.6~~$1.1 million of income before taxes for the three months ended September 30, ~~2018~~2019 as compared to ~~$5.2~~$10.6 million for the comparable period in ~~2017;~~2018; and reported ~~$23.3~~$13.6 million of income before taxes for the nine months ended September 30, ~~2018~~2019 compared to ~~$9.4~~$23.3 million for the same period in ~~2017.~~2018. The ~~increase~~decrease in ~~income before taxes~~2019 when compared to 2018 is primarily due to ~~better claims experience on 2018~~lower premium volume in the fixed indemnity limited benefit line, less favorable prior year loss development in the short-term medical and fixed indemnity limited benefit lines of business and bad debt expense. Results for comparable 2018 periods included more favorable development from prior periods mostly on ~~2017 reserves primarily related to hospital indemnity and~~ short term medical ~~business. In addition, 2017 results included unfavorable developments related to 2016 reserves.~~and fixed indemnity limited benefit business;

oPremiums earned decreased $3.3 million for the three months ended September 30, 2018 over the comparable period in 2017 and increased $.4 million for the nine months ended September 30, 2018 over the comparable period in 2017. Hospital indemnity premiums increased $2.1$3.6 million and ~~$24.3~~$3.5 million ~~respectively, for~~ the three ~~months~~ and nine months ended September 30, ~~2018 primarily due to increased demand for this product as a result of~~2019, respectively, compared with the ~~federal regulation limiting~~same periods in 2018. Increased premiums from the ~~duration of short-term medical (“STM”) products from April 1,~~pet business were more than offset by decreased premiums in fixed indemnity limited benefit business.

2017 through September 30, 2018 offset by a corresponding decrease in STM premium during this period as a result of the shorter duration and reduced premiums in occupational accident and other lines of business in run-off.

oUnderwriting experience, as indicated by its U.S. GAAP Combined Ratios, for the Specialty Health segment are as follows for the periods indicated (in thousands):

Three Months Ended

Nine Months Ended

Three Months Ended

Nine Months Ended

September 30,

2018

2017

2018

2017

2019

2018

2019

2018

Premiums Earned

48,111

51,390

136,960

136,539

44,462

48,111

133,467

136,960

Insurance Benefits, Claims & Reserves

15,382

22,162

44,975

64,935

19,585

15,382

56,334

44,975

Expenses

22,285

25,354

70,045

67,134

20,972

22,285

62,424

70,045

Loss Ratio (A)

32.0%

43.1%

32.8%

47.6%

44.0%

32.0%

42.2%

32.8%

Expense Ratio (B)

46.3%

49.3%

51.1%

49.2%

47.2%

46.3%

46.8%

51.1%

Combined Ratio (C)

78.3%

92.4%

83.9%

96.8%

91.2%

78.3%

89.0%

83.9%

(A)Loss ratio represents insurance benefits, claims and reserves divided by premiums earned.

(B)Expense ratio represents commissions, administrative fees, premium taxes and other underwriting expenses divided by premiums earned.

(C)The combined ratio is equal to the sum of the loss ratio and the expense ratio.

oThe higher loss ~~ratio~~ratios in ~~2018 was lower~~2019 were as a result of less favorable prior period development than in 2017 due to better experience on 2018 business and favorable development on 2017 reserves primarily related to hospital indemnity and short term medical business. In addition, 2017 included unfavorable developments related to 2016 reserves.

o2018. The lower expense ratio ~~is higher~~ for the first nine months of ~~2018~~2019 is primarily due to changes in the mix of products ~~within~~in the Specialty Health ~~segment as hospital indemnity and accident medical premiums tend to have lower loss ratios and higher expense ratios than STM policies.~~segment.

Income before taxes from the Group disability, life, DBL and PFL segment was ~~$4.3~~$10.0 million and ~~$14.9~~$19.2 million for the three months and nine months ended September 30, ~~2018,~~2019, respectively, compared to ~~$5.1~~$4.3 million and ~~$12.8~~$14.9 million for the same periods in ~~2017,~~2018, respectively. The increase in ~~2018~~the results for the first nine months is primarily ~~reflects the new Paid Family Leave or “PFL” rider on New York~~due a decrease in DBL ~~policies and lower claims in the LTD line of business, partially offset by higher losses and other expenses in the DBL line of business;~~claim reserves;

The Individual life, annuities and other segment ~~in run-off~~ reported losses before income taxes of $.6 million and $1.4 million for the three months and nine months ended September 30, 2019, respectively, compared with losses of $.1 million and $.4 million for the three months and the nine months ended September 30, 2018 ~~respectively, compared with losses~~respectively.

The Medical Stop-Loss segment reported an insignificant amount of ~~$.4 million and $.5 million~~income before taxes for the three and nine months ended September 30, ~~2017, respectively;~~

~~The Medical Stop-Loss segment reported a loss before taxes of $.1 million for the three months ended September 30,~~2019 and 2018, ~~and income before taxes of $.1 million for the nine months ended September 30, 2018 as compared to a loss of $.5 million and income of $2.8 million, respectively, for the comparable periods in 2017.~~respectively. Amounts recorded for investment income, and benefits, claims and reserves in the

Medical Stop-Loss segment represent the activity of the remaining ~~blocks~~reserves of medical stop-loss business in ~~run-off due to the sale of this segment in 2016 ;~~run-off;

~~Losses before tax from the~~The Corporate segment ~~(decreased) by $(.5)~~reported losses before taxes of $2.0 million and ~~increased by $.2~~$5.1 million for the three and nine months ended September 30, 2019, respectively, compared with losses of $1.8 million in the three months and $6.2 million in the nine months ended ~~September 30, 2018, respectively, over the comparable periods of 2017 primarily due to changes in compensation~~2018; and ~~related expenses; and~~

Premiums by principal product for the periods indicated are as follows (in thousands):

Three Months Ended

Nine Months Ended

Three Months Ended

Nine Months Ended

September 30,

Gross Direct and Assumed

Earned Premiums:

2018

2017

2018

2017

Earned Premiums:

2019

2018

2019

2018

Specialty Health

48,741

52,888

138,652

141,730

Specialty Health

46,203

48,741

137,476

138,652

Group disability, life, DBL and PFL

41,845

31,299

126,097

95,211

Group disability, life, DBL and PFL

49,073

41,845

142,217

126,097

Individual life, annuities and other

5,574

6,306

17,587

19,911

Individual life, annuities and other

4,862

5,574

15,984

17,587

Medical Stop-Loss

-

371

-

10,683

96,160

90,864

282,336

267,535

100,138

96,160

295,677

282,336

Three Months Ended

Nine Months Ended

Three Months Ended

Nine Months Ended

September 30,

Net Direct and Assumed

Earned Premiums:

2018

2017

2018

2017

Earned Premiums:

2019

2018

2019

2018

Specialty Health

48,111

51,390

136,960

136,539

Specialty Health

44,462

48,111

133,467

136,960

Group disability, life, DBL and PFL

33,631

24,296

101,605

73,713

Group disability, life, DBL and PFL

41,977

33,631

120,683

101,605

Individual life, annuities and other

15

(45)

18

8

Individual life, annuities and other

14

15

39

18

Medical Stop-Loss

-

(2)

-

247

81,757

75,639

238,583

210,507

86,453

81,757

254,189

238,583

CRITICAL ACCOUNTING POLICIES

The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principles ("GAAP"). The preparation of the Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires the Company's management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. A summary of the Company's significant accounting policies and practices is provided in Note 1 of the Notes to the Consolidated Financial Statements included in Item 8 of the Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017.~~2018. Management has identified the accounting policies related to Insurance Premium Revenue Recognition and Policy Charges, Insurance Liabilities, Investments, Goodwill and Other Intangible Assets, and Deferred Income Taxes as those that, due to the judgments, estimates and assumptions inherent in those policies, are critical to an understanding of the Company's Consolidated Financial Statements and this Management's Discussion and Analysis. A full discussion of these policies is included under the heading, “Critical Accounting Policies” in Item 7 of the Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017.~~2018. During the nine months ended September 30, ~~2018,~~2019, there were no additions to or changes in the critical accounting policies disclosed in the ~~2017~~2018 Form 10-K except for the recently adopted accounting standards discussed in Note 1(E) of the Notes to Condensed Consolidated Financial Statements.

Results of Operations for the Three Months Ended September 30, ~~2018~~2019 Compared to the Three Months Ended September 30, ~~2017~~2018

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

Benefits,

Selling,

Net

Fee and

Claims

General

September 30, ~~2018~~2019

Premiums

Investment

Other

and

(In thousands)

Earned

Income

Reserves

Administrative

Total

Specialty Health

48,111 44,462

7731,132

4,2242,643

15,38219,585

27,13127,525

10,5951,127

Group disability,

life, DBL and PFL

33,631 41,977

1,7881,928

180120

20,21621,396

11,11612,644

4,2679,985

Individual life,

annuities and other

15 14

402367

10376

186411

397653

(63)(607)

Medical Stop-Loss

-

122

1-

2276

(150)29

(64)(33)

Corporate

-

636535

42979

-

2,5273,497

(1,849)(1,983)

Sub total

81,75786,453

3,6113,964

4,5503,818

36,01141,398

41,02144,348

8,489 ~~12,886~~

Net investment gains

17930

Income before income taxes

12,9039,419

Income taxes

2,8603,248

Net ~~income~~Income

10,0436,171

Benefits,

Selling,

Net

Fee and

Claims

General

September 30, 2018

Premiums

Investment

Other

and

(In thousands)

Earned

Income

Reserves

Administrative

Total

Specialty Health

48,111

1,109

3,888

15,382

27,131

10,595

Group disability,

life, DBL and PFL

33,631

1,788

180

20,216

11,116

4,267

Individual life,

annuities and other

15

402

103

186

397

(63)

Medical Stop-Loss

-

12

1

227

(150)

(64)

Corporate

-

511

167

2,527

(1,849)

Sub total

81,757

3,822

4,339

36,011

41,021

12,886

Net investment gains

17

Income before income taxes

12,903

Income taxes

2,860

Net Income

10,043

Premiums Earned

In the third quarter of 2019, premiums earned increased $4.7 million over the comparable period of 2018. The increase in earned premiums is primarily due to: (i) an $8.3 million increase in earned premiums from the Group disability, life, DBL and PFL segment as a result of $5.1 million in increased PFL and DBL premiums, $2.1 million in increased group long-term disability ("LTD") and short-term disability ("STD") business and $1.1 million in increased group term and other life business; partially offset by (ii) a $3.6 million decrease in premiums from the Specialty Health segment primarily as a result of decreased premiums in the fixed indemnity limited benefit business line of $6.3 million and a $.3 million decrease in earned premiums from the dental line, partially offset by increases of $2.5 million and $.6 million, respectively, in the pet and short term medical lines of business.

Net Investment Income

Total net investment income increased $.2 million. The overall annualized investment yields were 3.1% in both the third quarter of 2019 and 2018.

The annualized investment yields on bonds, equities and short-term investments were 3.1% in the third quarter of 2019 and 3.2% for the comparable 2018 period.

Net Investment Gains

The Company had net investment gains of $.9 million in the three-month period ended September 30, 2019. Net investment gains were insignificant in 2018. These amounts include gains and losses from sales of fixed maturities available-for-sale, equity securities and other investments. Decisions to sell securities are based on management's ongoing evaluation of investment opportunities and economic and market conditions, thus creating fluctuations in gains and losses from period to period.

Fee Income and Other Income

Fee income decreased $1.5 million for the three-month period ended September 30, 2019 compared to the three-month period ended September 30, 2018. The decrease is primarily due to more business being written on IHC carrier paper in 2019.

Other income increased $1.0 million for the three months ended September 30, 2019 from the comparable period in 2018 due to higher income from equity partnerships in 2019.

Insurance Benefits, Claims and Reserves

In the third quarter of 2019, insurance benefits, claims and reserves increased $5.4 million over the comparable period in 2018. The increase is primarily attributable to: (i) an increase of $1.2 million in benefits, claims and reserves in the Group disability, life, DBL and PFL segment, primarily as a result of an increase of $3.2 million in the PFL line due to increased premiums, $1.8 million in the combined LTD and STD lines due to higher loss ratios, partially offset by a decrease of $3.6 million in DBL claim reserves; and (ii) an increase of $4.2 million in the Specialty Health segment, primarily from an increase of $2.1 million in the short term medical line due to less favorable prior year loss development in 2019, an increase of $1.3 million in the pet line due to increased premium volume, and an increase of $.7 million in the fixed indemnity limited benefit line due to less favorable prior year loss development in 2019 than in the prior year.

Selling, General and Administrative Expenses

Total selling, general and administrative expenses increased $3.3 million over the comparable period in 2018. The increase is primarily a result of: (i) an increase of $1.5 million in the Group disability, life, DBL and PFL segment primarily due to increased commission expense and other general expenses due to increased premium volume; (ii) an increase of $.4 million in the Specialty Health segment primarily due to an increase in commissions, administrative fees and other general expenses in the pets business due to increased premium volume, as well as increased lead generation, compensation, system development related expenses and bad debt expense in our marketing and administrative companies, partially offset by a decrease in commission and administrative expenses related to decreased premium volume in the fixed indemnity limited benefit line of business; and (iii) an increase of $1.0 million in the Corporate segment due to compensation associated expenses.

Income Taxes

The effective tax rate for the three months ended September 30, 2019 was 34.5% compared to 22.2% for the three months ended 2018. The higher effective tax rate in 2019 is primarily due to tax provisions associated with the reduction of estimated tax benefits from the expected current year utilization of AMIC’s net operating loss carryforwards.

Results of Operations for the Nine Months Ended September 30, 2019 Compared to the Nine Months Ended September 30, 2018

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

Benefits,

Selling,

Net

Fee and

Claims

General

September 30, ~~2017~~2019

Premiums

Investment

Other

and

(In thousands)

Earned

Income

Reserves

Administrative

Total

Specialty Health

51,390 133,467

1,2993,116

2,81312,836

22,16256,334

28,10279,477

5,23813,608

Group disability,

life, DBL and PFL

24,296 120,683

1,7295,958

87427

11,24971,664

9,71936,217

5,14419,187

Individual life,

annuities and other

(45)39

4051,002

95238

(149)932

9891,721

(385)(1,374)

Medical Stop-Loss

(2)-

5786

-

274 (3)

840(243)

(538)252

Corporate

-

3922,012

-2,775

-

2,6879,911

(2,295)(5,124)

Sub total

75,639254,189

4,40312,094

2,99516,276

33,536128,927

42,337127,083

7,16426,549

Net investment gains

715 2,556

Net impairment losses recognized in earnings

(646)

Income before income taxes

7,87928,459

Income taxes

2,6666,482

Net ~~income~~Income

5,21321,977

~~Premiums Earned~~

In the third quarter of 2018, premiums earned increased $6.1 million over the comparable period of 2017. The increase is primarily due to: (i) a $9.3 million increase in earned premiums from the Group disability, life, DBL and PFL segment primarily due to $8.2 million in premiums from the new PFL rider on DBL policies, an increase of $.5 million in DBL premiums and $.5 million increase in LTD premiums; partially offset by (ii) a decrease of $3.3 million in the Specialty Health segment primarily as a result of decreases of $6.8 million in the STM line of business, $.7 million in the dental line of business, and $.8 million in occupational accident and $1.0 million in the international medical business premiums both due to run-off, partially offset by a $2.1 million increase in premiums from the hospital indemnity line as a result of higher demand for this product, a $2.6 million increase in the group gap line of business, and a $1.0 million increase in pet insurance premiums.

~~Net Investment Income~~

~~Total net investment income decreased $.8 million. The overall annualized investment yields were~~

~~2.8% and 3.6% in the third quarter of 2018 and 2017, respectively. The overall decrease was primarily the result of a decrease in partnership returns.~~

The annualized investment yields on bonds, equities and short-term investments were 3.2% in both the third quarter of 2018 and 2017, respectively. IHC has approximately $140.8 million in highly rated shorter duration securities earning on average 1.9%. A portfolio that is shorter in duration enables us, if we deem prudent, the flexibility to reinvest in much higher yielding longer-term securities, which would significantly increase investment income.

~~Net Investment Gains~~

Net investment gains were insignificant in 2018 compared to $.7 million in 2017. These amounts include gains and losses from sales of fixed maturities available-for-sale, equity securities and other investments. Decisions to sell securities are based on management's ongoing evaluation of investment opportunities and economic and market conditions, thus creating fluctuations in gains and losses from period to period.

~~Fee Income and Other Income~~

Fee income increased $1.8 million for the three-month period ended September 30, 2018 compared to the three-month period ended September 30, 2017 primarily from the Specialty Health segment, due to increased premium produced by Specialty Benefits.

~~Other income was not significant in the third quarter of 2018 or 2017.~~

~~Insurance Benefits, Claims and Reserves~~

In the third quarter of 2018, insurance benefits, claims and reserves increased $2.5 million over the comparable period in 2017. The increase is primarily attributable to: (i) a increase of $9.0 million in benefits, claims and reserves in the Group disability, life, DBL and PFL segment, primarily due to $7.1 million of reserves associated with the new PFL rider, an increase of $2.2 million in DBL reserves due to state mandates and an increase of $.8 million in Group Term life due to increased loss ratios, partially offset by a decrease of $1.3 million in LTD reserves primarily due to lower loss ratios in 2018; and (ii) an increase of $.3 million in the individual life, annuities and other segment; partially offset by (iii) a decrease of $6.8 million in the Specialty Health segment, as a result of a decrease of $6.0 million in the STM line of business due to decreased premium volume and lower loss ratios, a decrease of $2.4 million in the hospital indemnity line due to lower loss ratios, a decrease in benefits, claims and reserves related to the run-off of certain occupational accident and international lines of business of $1.1 million and $.5 million, respectively; partially offset by an increase of $.9 million in the dental line, an increase of $.8 million in the pets line and an increase of $1.5 million in the group gap lines of business due to increased premium volume.

~~Selling, General and Administrative Expenses~~

Total selling, general and administrative expenses decreased $1.3 million over the comparable period in 2017. The decrease is primarily attributable to: (i) a decrease of $1.0 million in the Specialty Health line of business due to a decrease in commissions and administrative fees in the STM line on lower premium volume and decreases in group major medical and certain occupational accident and international lines of business in run-off; partially offset by an increase in administrative and commission expenses related to increased premium volume in hospital indemnity and group gap lines of business; (ii) a $1.0 million decrease in expenses related to the Medical Stop Loss segment as a result of the exit from this line of business; and (iii) a decrease of $.6 million in the individual life, annuities and other segment from lower expenses in discontinued lines;

partially offset by (iv) an increase of $1.4 million in the Group disability, life, DBL and PFL segment primarily due to increased commission expense and premium taxes on PFL, DBL and LTD lines of business.

~~Income Taxes~~

The effective tax rate for the three months ended September 30, 2018 was 22.2% compared to an effective tax rate for the three months ended September 30, 2017 of 33.8%. The lower tax rate is primarily due to the reduction in the federal corporate tax rate from 35% in 2017 to a 28% blended tax rate through the first six months of 2018, and further to a 21% tax rate beginning with the third quarter of 2018, as a result of the 2017 Tax Act, partially offset by an increase in state taxes as a percentage of income.

~~Results of Operations for the Nine Months Ended September 30, 2018 Compared to the Nine Months Ended September 30, 2017~~

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

Benefits,

Selling,

Net

Fee and

Claims

General

September 30, 2018

Premiums

Investment

Other

and

(In thousands)

Earned

Income

Reserves

Administrative

Total

Specialty Health

136,960

2,1803,290

13,81912,709

44,975

84,665

23,319

Group disability,

life, DBL and PFL

101,605

5,203

472

60,278

32,090

14,912

Individual life,

annuities and other

18

1,130

284

585

1,204

(357)

Medical Stop-Loss

-

35

1

(219)

155

100

Corporate

-

1,6661,532

89223

-

7,943

(6,188)

Sub total

238,583

10,21411,190

14,66513,689

105,619

126,057

31,786

Net investment losses

(335)

Income before income taxes

31,451

Income ~~taxes~~tax benefits

7,518

Net Income

23,933

~~Benefits,~~

~~Selling,~~

~~Net~~

~~Fee and~~

~~Claims~~

~~General~~

~~September 30, 2017~~

~~Premiums~~

~~Investment~~

~~Other~~

~~and~~

~~(In thousands)~~

~~Earned~~

~~Income~~

~~Reserves~~

~~Administrative~~

~~Total~~

~~Specialty Health~~

136,539

3,725

12,028

64,935

77,945

9,412

~~Group disability,~~

~~life, DBL and PFL~~

73,713

4,921

351

40,146

26,062

12,777

~~Individual life,~~

~~annuities and other~~

8

1,188

298

172

1,854

(532)

~~Medical Stop-Loss~~

247

1,058

1,244

(2,182)

1,979

2,752

~~Corporate~~

-

1,522

-

7,564

(6,042)

~~Sub total~~

210,507

12,414

13,921

103,071

115,404

18,367

~~Net investment gains~~

987

~~Income before income taxes~~

19,354

~~Income tax benefits~~

(5,175)

~~Net Income~~

24,529

Premiums Earned

In the first nine months of ~~2018,~~2019, premiums earned increased ~~$28.1~~$15.6 million over the comparable period of ~~2017.~~2018. The increase in earned premiums is primarily due to: (i) a ~~$27.9~~$19.1 million increase ~~in earned premiums~~ from the Group disability, life, DBL and PFL segment ~~primarily due to premiums from the new PFL rider on DBL policies;~~

~~and (ii) an increase of $.4 million in the Specialty Health segment principally~~ as a result of $11.1 million in increased DBL and PFL premiums, a ~~$24.3~~$4.6 million increase in combined LTD/STD premiums primarily from ~~the hospital indemnity line~~new STD business and increased retentions, a $2.8 million increase in group term life premiums as a result of ~~higher demand; a $6.0~~increased retentions, and $.6 million ~~increase in the~~of other group ~~gap line of~~life business due to new ~~distribution, $.7 million in increased pet premiums, and $.5 million in increased premiums from other ancillary lines;~~product sales; partially offset by ~~decreases~~(ii) a $3.5 million decrease in Specialty Health segment premiums, principally due to decreased premiums of ~~$16.6~~$13.5 million in ~~the STM line of~~fixed indemnity limited benefit business ~~$2.7~~and $1.2 million in the dental line partially offset by increased premium volume of ~~business, and $5.1~~$6.4 million from pet lines, $2.1 million in group gap lines, $1.1 million in occupational accident business and ~~$6.8~~$.6 million in ~~the international~~short term medical ~~business premiums both due to run-off; partially offset by (iii) a decrease of $.2 million in the Medical Stop Loss segment as a result of the exit from this line of~~ business.

Net Investment Income

Total net investment income ~~decreased $2.2~~increased $.9 million. The overall annualized investment yields were ~~2.7%~~3.1% and ~~3.2% in~~3.0% for the first nine months of 2019 and 2018, ~~and 2017,~~ respectively. ~~The overall decrease was primarily the result of a decrease in partnership returns.~~

The annualized investment yields on bonds, equities and short-term investments were ~~3.1%~~3.2% in ~~both~~ the first

nine months of 2019 and 3.1% for the comparable 2018 and 2017. IHC has approximately $140.8 million in highly rated shorter duration securities earning on average 1.9%. A portfolio that is shorter in duration enables us, if we deem prudent, the flexibility to reinvest in much higher yielding longer-term securities, which would significantly increase investment income.period.

Net Investment Gains (Losses) and Net Impairment Losses Recognized in Earnings

The Company had net investment ~~losses~~gains of $2.6 million in the nine months ended September 30, 2019 compared to $.3 million of investment losses for the same period in ~~2018 compared to net investment gains of $1.0 million in 2017.~~2018. These amounts include gains and losses from sales of fixed maturities available-for-sale, equity securities and other investments. Decisions to sell securities are based on management's ongoing evaluation of investment opportunities and economic and market conditions, thus creating fluctuations in gains and losses from period to period.

The Company recognized $.6 million of other-than-temporary impairment losses on fixed maturities available-for-sale securities in 2019, as the Company determined that it was more likely than not that we would sell the securities before the recovery of their amortized cost basis.

Fee Income and Other Income

Fee income ~~increased $2.6~~decreased $3.4 million for the ~~nine-month period~~nine months ended September 30, ~~2018~~2019 compared to the ~~nine-month period~~nine months ended September 30, ~~2017~~2018. The decrease is primarily due to ~~increased fee income from the Specialty Health segment, including Pet Partners which was acquired~~more business being written on IHC carrier paper in ~~late March of 2017.~~2019.

Other income ~~decreased $1.9~~increased $5.9 million for the nine months ended September 30, 2019 from the comparable period in 2018 primarily due to $3.6 million in ~~the first nine months of 2018 compared to the same period in 2017 as a result of fees received in 2017 related to~~pretax gain on the sale of an equity investment in Pets Best and ~~exit of the Medical Stop-Loss business with no comparable amounts~~higher income from equity partnerships in ~~2018.~~2019.

Insurance Benefits, Claims and Reserves

In the first nine months of ~~2018,~~2019, insurance benefits, claims and reserves increased ~~$2.5~~$23.3 million over the comparable period in ~~2017.~~2018. The increase is primarily attributable to: (i) an increase of ~~$20.1~~$11.4 million in benefits, claims and reserves in the Group disability, life, DBL and PFL segment primarily as a result of an $8.7 million increase in PFL line due to ~~$21.2~~increased premium volume, a $5.1 million increase in ~~reserves associated with~~ the ~~new PFL rider, as well as $2.7 million in increased DBL reserves~~combined LTD/STD line due to ~~state mandates,~~higher loss ratios on certain LTD business and increased retention on STD business, an increase of $1.0 million in group term life business due to higher premium volume and increased ~~Group Term Life incurred benefits on higher~~retention partially offset by lower loss ~~ratios;~~ratios, and an increase of $.4 million in other group term life lines due to new business, partially offset by a decrease of ~~$4.9~~$3.8 million in ~~LTD reserves~~DBL claim reserves; and (ii) an increase of $11.3 million in the Specialty Health segment, primarily from an increase of $6.2 million in the short term medical line due to less favorable prior year loss development, an increase of $3.3 million and $2.6 million in the pet and group gap lines, respectively, due to increased premium volume, partially offset by a decrease of $.5 million in the fixed indemnity limited benefit line due to lower premium volume, and $.6 million in dental due to lower loss ~~ratios in 2018; (ii)~~ratios; and (iii) an increase of ~~$2.0~~$.2 million in the Medical Stop Loss segment as a result of better experience on the run-out business in 2017 with no corresponding amount in 2018; and (iii) an increase of $.4 million in the individual life, annuities and other lines; partially offset by (iv) a decrease of $20.0 million in the Specialty Health segment primarily as a result of a decrease of $15.7 million in the STM line of business due to decreased premiumlower positive reserve run-off volume ~~and lower loss ratios, a decrease in benefits, claims and reserves related~~when compared to the ~~run-off of~~

~~certain occupational accident and international lines of business of $4.8 million and $4.3 million, respectively, and a decrease of $1.3 million~~same period in the dental line due to lower premiums; partially offset by increases of $3.5 million in the group gap lines of business due to increased premium volume and $1.8 million in the hospital indemnity and $.4 million in the pet lines.2018.

Selling, General and Administrative Expenses

Total selling, general and administrative expenses increased ~~$10.7~~$1.0 million over the comparable period in ~~2017.~~2018. The increase is ~~primarily attributable~~principally due to: (i) an increase of $6.7 million in the Specialty Health line of business due to an increase in administrative and commission expenses related to increased premium volume in hospital indemnity and group gap lines of business, increased agency expenses from PetPartners with only three months of comparable expenses in 2017, and increased expenses at IHC Specialty Benefits Inc. related to call center expansion costs; partially offset by a decrease in commissions and administrative fees in the STM line on lower premium volume and in certain occupational accident and international lines of business in run-off; (ii) an increase of $6.0$4.1 million in the Group disability, life, DBL and PFL segment primarily due to increased commission expense and other general expenses due to increased premium ~~taxes on PFL, DBL~~volume; and ~~LTD lines of business; and (iii) an~~(ii) a $2.0 million increase ~~of $.4 million~~ in the Corporate segment ~~largely~~ due to ~~changes in~~ compensation ~~and related~~associated expenses; partially offset by ~~(iv)~~(iii) a ~~$1.8~~decrease of $5.2 million in the Specialty Health line of business due to a decrease in commission and administrative expenses related to ~~the Medical Stop Loss segment as a result of exiting this line of business~~decreased premium volume in fixed indemnity limited benefit and ~~a decrease of (v) $.6~~lower administrative fees and loss adjustment expenses in the ~~individual life, annuities~~short term medical line, partially offset by an increase in commissions and administrative fees and other ~~segment.~~general expenses in the pets and group gap lines due to increased premium volume as well as increased lead generation, compensation and system development related expenses and bad debt expense in our marketing and administrative companies.

Income Taxes

The effective tax rate for the nine months ended September 30, ~~2018~~2019 was 23.9%. In 2017, the Company wound down the operations and dissolved a subsidiary recognizing an estimated $11.6 million income tax benefit on a worthless stock deduction of $33.1 million, representing the Company’s tax basis related22.8% compared to ~~its unrecovered investment in that subsidiary. Excluding these tax benefits, the effective tax rate~~23.9% for the nine months ended ~~September 30, 2017 was 33.1%.~~2018. The ~~lower~~effective tax rate in ~~2018~~2019 is primarily due to tax provisions associated with the reduction inof estimated tax benefits from the ~~federal corporate~~expected current year utilization of AMIC’s net operating loss carryforwards partially offset by tax ~~rate~~benefits resulting from ~~35% in 2017 to a 28% blended tax rate through the first six months~~exercises of ~~2018, and further to a 21% tax rate beginning with the third quarter of 2018, as~~certain shared based compensation. As a result of the 2017 Tax Act, ~~partially offset~~the Company’s tax rate in 2018 reflects a blended 28% tax rate for the first six months of 2018 followed by ~~an increase~~a 21% tax rate beginning in ~~state taxes as a percentage~~the third quarter of ~~income.~~2018.

LIQUIDITY

Insurance Group

The Insurance Group normally provides cash flow from: (i) operations; (ii) the receipt of scheduled principal payments on its portfolio of fixed maturities; and (iii) earnings on investments. Such cash flow is partially used to fund liabilities for insurance policy benefits. These liabilities represent long-term and short-term obligations.

Corporate

Corporate derives its funds principally from: (i) dividends from the Insurance Group; (ii) management fees from its subsidiaries; and (iii) investment income from Corporate liquidity. Regulatory constraints historically have not affected the Company's consolidated liquidity, although state insurance laws have provisions relating to the ability of the parent company to use cash generated by the Insurance Group. No cash dividends were declared or paid by the Insurance Group during the nine months ended September 30, ~~2018~~2019 or ~~2017.~~2018.

Cash Flows

The Company had ~~$30.4~~$21.9 million and ~~$32.2~~$30.8 million of cash, cash equivalents and restricted cash as of September 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively.

For the nine months ended September 30, ~~2018,~~2019, operating activities provided ~~$20.6~~$31.4 million of cash and investment activities utilized ~~$13.8~~$22.8 million of cash, primarily ~~for net~~the result of purchases of investment securities, and ~~financing~~$8.0 million utilized for business acquisitions. Financing activities utilized ~~$8.6~~$17.6 million of cash, ~~primarily for purchases~~ of ~~treasury shares and~~which $ 5.2 million related to common stock dividend ~~payments.~~payments, $4.4 million was utilized to acquire noncontrolling interests in subsidiaries, $3.9 million was utilized for treasury share purchases, and $2.4 million related to payments for tax withholdings on sharebased compensation.

The Company had ~~$367.8~~$365.6 million of liabilities for future policy benefits and policy benefits and claims as of September 30, ~~2018~~2019 that it expects to ultimately pay out of current assets and cash flows from future business. If necessary, the Company could utilize the cash received from maturities and repayments of its fixed maturity investments if the timing of claim payments associated with the Company's insurance resources does not coincide with future cash flows. For the nine months ended September 30, ~~2018,~~2019, cash received from the maturities and other repayments of fixed maturities was ~~$22.0~~$57.1 million.

The Company believes it has sufficient cash to meet its currently anticipated business requirements over the next twelve months including working capital requirements and capital investments.

BALANCE SHEET

The Company had receivables due from reinsurers of ~~$371.5~~$364.7 million at September 30, ~~2018~~2019 compared to ~~$380.6~~$368.7 million at December 31, ~~2017.~~2018. All of such reinsurance receivables are from highly rated companies

or are adequately secured. No allowance for doubtful accounts was necessary at September 30, ~~2018.~~2019.

The Company's liability for policy benefits and claims by segment are as follows (in thousands):

		Policy Benefits and Claims				Policy Benefits and Claims
		September 30,		December 31,		September 30,		December 31,
		2018		2017		2019		2018

Specialty Health	$	`40,060`	$	`53,531`	$	41,682	$	38,114
Group Disability		`107,925`		`103,948`		110,709		112,616
Individual A&H and Other		`8,608`		`8,650`		8,727		8,954
Medical Stop-Loss		`1,575`		`2,554`		311		431

	$	`158,168`	$	`168,683`	$	161,429	$	160,115

~~Policy claims and reserves in~~For the Specialty Health ~~segment decreased since December 31, 2017. During the first nine months of 2018, pending inventory levels have come down causing more~~business, IBNR claims ~~to be known rather than estimated~~liabilities plus expected development on reported claims are calculated using standard actuarial methods and ~~this has revealed more favorable experience than previously expected. This has changed some of our thoughts around experience expectations and has resulted in some favorable reserve adjustments.~~practices. The ~~primary~~“primary” assumption in the determination of Specialty Health reserves is that historical ~~claim development patterns~~Claim Development Patterns are representative of future ~~claim development patterns.~~Claim Development Patterns. Factors that may affect this assumption include changes in claim payment processing times and procedures, changes in time delay in submission of claims, and the incidence of unusually large claims. Liabilities for policy benefits and claims for ~~specialty health~~Specialty Health medical and disability coverage are computed using completion factors and expected Net Loss Ratios derived from actual historical premium and claim data. The reserving analysis includes a review of claim processing statistical measures and large claim early notifications; the potential impacts of any changes in these factors are not material. The Company has business that is serviced by third-party

administrators. From time to time, there are changes in the timing of claims processing due to any number of factors including, but not limited to, system conversions and staffing changes during the year. These changes are monitored by the Company and the effects of these changes are taken into consideration during the claim reserving process. Other than these considerations, there have been no significant changes to methodologies and assumptions from the prior year.

While these calculations are based on standard methodologies, they are estimates based on historical patterns. To the extent that actual claim payment patterns differ from historical patterns, such estimated reserves may be redundant or inadequate. The effects of such deviations are evaluated by considering claim backlog statistics and reviewing the reasonableness of projected claim ratios. Other factors which may affect the accuracy of policy benefits and claim estimates include the proportion of large claims which may take longer to adjudicate, changes in billing patterns by providers and changes in claim management practices such as hospital bill audits.

Since our analysis considered a variety of outcomes related to these factors, the Company does not believe that any reasonably likely change in these factors will have a Material Effect.

The Company’s disability business is comprised of group disability, DBL and PFL. The two “primary” assumptions on which disability policy benefits and claims are based are: (i) morbidity levels; and (ii) recovery rates. If morbidity levels increase, for example due to an epidemic or a recessionary environment, the Company would increase reserves because there would be more new claims than expected. In regard to the assumed recovery rate, if disabled lives recover more quickly than anticipated then the existing claims reserves would be reduced; if less quickly, the existing claims reserves would be increased. Advancements in medical treatments could affect future recovery, termination, and mortality rates. The Company does not believe that reasonably likely changes in its “primary” assumptions would have a material effect on the Company’s financial condition, results of operations, or liquidity.

The ~~$11.3~~$25.2 million increase in IHC’s stockholders' equity in the first nine months of ~~2018~~2019 is primarily due to ~~$23.7~~$21.7 million of net income attributable to IHC ~~reduced by $7.0~~and $11.9 million of other comprehensive income attributable to IHC reduced by ~~$3.8 million of treasury stock purchases and by $2.2~~$3.0 million of common stock dividends declared ~~in 2018.~~and $3.9 million for treasury

stock purchases.

Asset Quality and Investment Impairments

The nature and quality of insurance company investments must comply with all applicable statutes and regulations, which have been promulgated primarily for the protection of policyholders. ~~Although the Company's~~The Company has gross unrealized gains of $6.6 million and gross unrealized losses of $2.0 million on its fixed maturities available-for-sale securities ~~totaled $15.8 million~~ at September 30, ~~2018, 99.3%~~2019. All of the Company’s fixed maturities were investment grade and continue to be rated on average AA. The Company marks all of its fixed maturities available-for-sale to fair value through accumulated other comprehensive income or loss. These investments tend to carry less default risk and, therefore, lower interest rates than other types of fixed maturity investments. The Company did not have any non-performing fixed maturities at September 30, ~~2018.~~2019.

The Company reviews its investments regularly and monitors its investments continually for impairments. The Company recognized $.6 million of other-than-temporary impairment losses on certain fixed maturities available for sale during the nine months ended September 30, 2019, as the Company determined that it was more likely than not that the company would sell the securities before the recovery of their amortized cost basis. The Company did not record any other-than-temporary impairment losses in the nine months ended September 30, ~~2018 or 2017.~~

~~The Company does not have any~~2018. There were no securities with fair values less than 80% of their amortized cost at September 30, ~~2018.~~2019.

The unrealized losses on fixed maturities available-for-sale were evaluated in accordance with the Company's impairment policy and were determined to be temporary in nature at September 30, ~~2018.~~2019. From time to time, as warranted, the Company may employ investment strategies to mitigate interest rate and other market exposures. Further deterioration in credit quality of the companies backing the securities, further deterioration in the condition of the financial services industry, imbalances in liquidity that exist in the marketplace, a worsening of the current economic ~~conditions,~~recession, or declines in real estate values may further affect the fair value of these securities and increase the potential that certain unrealized losses be designated as other-than-temporary in future periods which may cause the Company to incur additional write-downs.

CAPITAL RESOURCES

Due to its strong capital ratios, broad licensing and excellent asset quality and credit-worthiness, the Insurance Group remains well positioned to increase or diversify its current activities. It is anticipated that future acquisitions or other expansion of operations will be funded internally from existing capital and surplus and parent company liquidity. In the event additional funds are required, it is expected that they would be borrowed or raised in the public or private capital markets to the extent determined to be necessary or desirable.

IHC enters into a variety of contractual obligations with third parties in the ordinary course of its operations, including liabilities for insurance reserves, funds on deposit, debt and operating lease obligations. However, IHC does not believe that its cash flow requirements can be fully assessed based solely upon an analysis of these obligations. Future cash outflows, whether they are contractual obligations or not, also will vary based upon IHC’s future needs. Although some outflows are fixed, others depend on future events. The maturity distribution of the Company’s obligations, as of September 30, 2018, is not materially different from that reported in the schedule of such obligations at December 31, 2017 which was included in Item 7~~of the Company’s Annual Report on Form 10-K.~~

OUTLOOK

For the remainder of ~~2018,~~2019, the Company anticipates ~~that:~~that it will:

Continue to expand our direct to consumer (D2C) owned call center and career agent channels. Our ~~STM~~D2C channels have grown to nearly 200 agents, and ~~ancillary sales will increase as~~we expect robust growth to continue into 2020. This is a ~~result of: (i) Open Enrollment, which begins November 1, 2018 and ends December 15, 2018 in most states; (ii) expected sales by IHC’s carriers~~highly scalable model subject to continued generation of STM with durations of 364 days in 16 states, and STM with durations of 6 months in 12 additional states, as of November 15, 2018; and (iii) beginning January 1, 2019, there will no longer be a tax penalty for individuals who do not have ACA compliant plans, which will make purchasesquality leads at an affordable price. One of our products more attractive during this Open Enrollment. Because STM policies are medically underwritten and do not cover all essential health benefits, they are often significantly less expensive than Affordable Care Act (“ACA”) plans. For these reasons and the expected continuing increase in the pricing of ACA policies, we are very optimistic that our STM sales will increase materially. In addition, we believe that we will realize an increase in sales of our bundled offerings, including: MetalGap (affordable coverage for claims due to both accidents and critical illnesses), dental, vision, Rx discount card and telemedicine. We are particularly excited about the opportunity to increase sales of our Fusion product, coupling a hospital indemnity policy with a high deductible STM product, which provides both first dollar coverage for hospitalizations and peace of mind for large expenditures. We also recently introduced Connect Plus, whichcall center’s key relationships is ~~a first-of-its-kind temporary medical plan providing coverage for certain pre-existing conditions up to $25,000 to consumers who qualify, subject to a deductible and coinsurance.~~

IHC is recognized for our development of medical insurance packages, including STM and hospital indemnity products that provide affordable coverage alternatives for consumers who cannot afford ACA policies or need our supplemental products to cover their high deductibles on their ACA plans. Since adoption of an executive order in 2017, consumers have only been able under federal law to purchase STM policies with durations up to 90 days. On August 1, 2018, the departments of Health and Human Services, Labor and Treasury (the “Agencies”) issued an order (the “Order”) that, effective October 1, 2018, returns the duration of STM policies to a period of up to 364 days, subject to state law; the Order also allows for extensions so long as the maximum duration is not longer than 36 months in total. The Order validates the importance of temporary coverage as an affordable alternative for many Americans who cannot afford expensive, high deductible ACA plans by once again allowing states the ability to approve policy durations of up to 364 days or longer with extensions.

In October 2018, Agencies proposed a rule that, if adopted, will provide a new way for employers to provide health insurance to their employees using health reimbursement arrangements (“HRA”). The proposal would allow employers of any size to utilize a tax-advantaged HRA to relieve the administrative burden of offering group benefits to employees. Employees could use the funds to purchase individual medical coverage, including STM. In addition, the federal government has provided guidance that grants state governments ~~more freedom, as a result~~ ~~of the expansion of the 1332 waiver programs,~~ ~~to implement new coverages that are alternatives to ACA plans.~~ IHC’s insurance companies are very well positioned to capture additional market share as a result both of the proposal to allow HRA funds to be used to purchase STM policies and the guidance on expansion of 1332 waivers. We have expertise both in STM and in the small group space as well as multiple distribution sources, including our Healthedeals call centers and over 5,000 advisors and contracted producers nationally who can assist consumers in determining which coverage is best for them. In addition, we look forward to working with state regulators to use STM or develop new IHC products to meet the innovative ideas arisingsupporting inquiries received from ~~the expanded 1332 waiver process.~~

~~In October 2018, the HealtheDeals division of IHC Specialty Benefits began supporting the~~ members of USAA, an insurance, banking, and investment services provider serving millions of military members and their ~~families, in selecting among~~families. We are also ramping up our organic lead generation capabilities and sources of paid leads, and making inroads into large affinity groups that will make our products available to their members. In each case, our D2C agents are able to offer a number of quality health insurance ~~choices. In order to support USAA members, HealtheDeals has opened a new call center with licensed agents in Minneapolis, Minnesota~~choices, including STM, hospital indemnity (“HIP”), dental and Milwaukee, Wisconsin. USAA will direct its members seeking either ACA or alternative health coverages to this call center. This arrangement generates leads for Independence American Insurance Company’s alternative coveragesgap plans underwritten by IHC’s carriers as well as ~~generating commission income for HealtheDeals.~~Affordable Care Act (“ACA”) and other products available through nationally recognized insurance companies.

~~In addition~~Enter the senior market, which covers approximately 60 million people, and is estimated to ~~our two newly opened~~be growing by

10,000 people per day, and by 2040 is expected to cover 87 million people. Given the expansion of call centers, we have enhanced our Direct-to-Consumer transactional website, www.HealtheDeals.com, and significantly increased our lead generation capabilities. We will continue to emphasize lead generation for our direct-to-consumercenter representatives and career ~~advisor distribution initiatives through hiring additional management experienced~~agents, we will expand our offerings to serve the rapidly expanding senior market. Initially, we will import Medicare Supplement, Medicare Advantage, term life and final expense products from other carriers to supplement dental, vision and HIP products underwritten by IHC’s insurance companies. During the first quarter of 2020, we anticipate being in ~~organic~~the market with a portfolio of timely and acquired lead generation. We are striving to maximize organic leads through our numerous owned domains. We are also seeking to recruit additional HealtheDeals career advisors as many consumers prefer to meet with an agentcompetitive Medicare Supplement plans in ~~person rather than over the phone or via the web. We expect that a growing percentage~~light of ~~our sales will be produced by our owned distribution channels.~~ regulatory changes taking effect January 1, 2020

~~We continue~~Incorporate our new cloud-based technology platforms and quoting and enrollment tools into our various distribution channels. In January 2019, we acquired My1HR, a state-of-the-art quoting and cloud-based enrollment platform utilized by approximately 4,000 active users to manage the health insurance needs of their clients. As a web-based entity, this includes quoting and enrolling individuals in ACA plans as well as ancillary coverages. In addition, My1HR is in the final stage of launching a cloud-based quoting and enrollment tool that is specifically designed for producers in the small group employer market. This new quoting and enrollment system will support group products for all IHC carriers as well as select group ACA and level funded health coverages from leading national health plans. It also positions us to take advantage of the expansion of Health Reimbursement Arrangements (HRAs) effective January 1, 2020 as a result of new federal regulations.

Continue to diversify our sources of pet insurance premium through (i) the expansion of marketing efforts by our subsidiary, PetPartners, (ii) increased white-label distribution opportunities (such as ~~a result of~~ our ~~acquisition of Pet Partners, Inc.~~arrangement with ~~growing focus on~~ the ~~veterinarian~~American Kennel Club) where PetPartners acts as administrator and ~~independent agent channels. We’ve also partnered with a new pet marketing company, Toto Pet Insurance,~~Independence American is the risk taker, and ~~we began underwriting~~(iii) increased premium for Independence American through our relationships as an underwriter for PetFirst, a company focused on shelters, rescues and animal welfare marketing ~~space. Further, we’ve expanded our partnership with~~space, Pets Best, ~~utilizing our acquisition of PetPlace.com to grow our block of business with them through a cooperative marketing initiative.~~which excels on affiliate and veterinarian sales channels, and Figo Pet Insurance, an insuretech brand in the pet insurance space focused on D2C, referral partners, and employer benefits channels.

In 2020, IHC will be uniquely situated, through its vertically integrated structure, to better serve the growing demand for health insurance options by delivering an end-to-end experience to the consumer, including a broad base of products across the entire spectrum of age groups and needs. We will provide state-of-the-art on-line and mobile tools linking individuals and families in need of insurance coverage to highly rated insurance companies. Our enterprise will include: (i) digital marketing and website domains that will drive exclusive lead traffic for ancillary health and pet insurance, (ii) exchanges that will permit individuals to perform side-by-side comparisons of various employee benefit and pet insurance coverages, (iii) sales and customer service centers with licensed employee agents available to respond to consumer questions; (iv) a wholly owned insurance company, licensed in all 50 states, which will have the broadest mix of ancillary health and pet insurance in the country, and (v) access to other highly rated insurers for life, senior and P&C products.

Continue to increase our DBL/PFL premiums. Effective January 1, 2018, Standard Security Life began selling a new PFL rider ~~(“Paid Family Leave” or “PFL”)~~ as part of our New York DBL policies. This is a result of New York State requiring employers to provide PFL, which would cover job-protected paid leave to care for a new child or sick family member or to assist when someone is called to active military service. ~~Standard Security Life anticipates that the implementation of this coverage will~~This has more than ~~double~~doubled our ~~current $30 million~~ DBL block. The ~~rates for~~ PFL ~~are~~product rate is set by the New York ~~State. As this~~State Department of Financial Services and provides for a potential risk adjustment payment in the event the company has better experience than the industry.The PFL rate is scheduled to increase by 76% for 2020. This increase, along with a modest increase in new ~~product, with no historical experience, there~~premium writings, is ~~no certainty as~~expected to ~~the adequacy of the rate and therefore underwriting profitability.~~increase our combined DBL/PFL premium by approximately 46%.

~~Experience~~Achieve increases in both long-term and short-term disability premiums ~~in 2018~~ generated from new distribution relationships.

Accomplish increases in life and disability premium by developing additional strategic functional and

distribution partnerships, broaden worksite portfolio, and enhance Business to Business and Business to Consumer website functionality.

Continue to evaluate strategic transactions. We plan to deploy some of our cash to make additional investments and acquisitions that will bolster existing or new lines of business.

Continue to focus on administrative efficiencies.

Subject to making additional repurchases, acquisitions and investments, the Company will remain highly liquid ~~in 2018~~ as a result of the continuing shorter duration of the portfolio. ~~IHC has approximately $140.8 million in highly rated shorter duration securities earning on average 1.9%; our portfolio as a whole is rated, on average, AA.~~ The low duration of our portfolio enables us, if we deem prudent, the flexibility to reinvest in much higher yielding longer-term securities, which would significantly increase investment income in the future. A low duration portfolio such as ours also mitigates the adverse impact of potential inflation. IHC will continue to monitor the financial markets and invest accordingly.

Our results depend on the adequacy of our product pricing, our underwriting, the accuracy of our reserving methodology, returns on our invested assets, and our ability to manage expenses. We will also need to be diligent with increased rate review scrutiny to effect timely rate changes and will need to stay focused on the management of medical cost drivers in the event medical trend levels cause margin pressures. Factors affecting these items, as well as unemployment and global financial markets, may have a material adverse effect on our results of operations and financial condition.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

~~The Company is not~~Not required ~~to provide the information required by this Item as it is a "smaller~~for smaller reporting ~~company".~~companies.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and procedures

IHC’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) supervised and participated in IHC’s evaluation of its disclosure controls and procedures as of the end of the period covered by this report. Disclosure controls and procedures are controls and procedures designed to ensure that information required to be disclosed in IHC’s periodic reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Based upon that evaluation, IHC’S CEO and CFO concluded that IHC’s disclosure controls and procedures were effective.

Management, including the CEO and CFO, identified no change in our internal control over financial reporting that occurred during our fiscal quarter ended September 30, ~~2018~~2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are involved in legal proceedings and claims that arise in the ordinary course of our businesses. We have established reserves that we believe are sufficient given information presently available related to our outstanding legal proceedings and claims. We do not anticipate that the result of any pending legal proceeding or claim will have a material adverse effect on our financial condition or cash flows, although there could be such an effect on our results of operations for any particular period.

Third Party Administrator

Standard Security Life and Madison National Life ~~will strongly pursue~~demanded arbitration against this TPA. The Arbitration Panel issued an Order splitting the hearing into two phases. Standard Security Life and Madison National Life successfully presented their claims in Phase I on September 25 through September 28, 2018. The TPA’s counterclaims were heard during Phase II held on February 11, 2019 through February 15, 2019. Standard Security Life and ~~vigorously oppose~~Madison National Life successfully opposed the counterclaims asserted by the ~~TPA.~~TPA as the Arbitration Panel denied all claims against Standard Security Life and Madison National Life. Standard Security Life and Madison National Life filed the Petition to Confirm the Arbitration Award. The TPA opposed this Motion. On June 17, 2019, the Court entered its Final Judgment and Order Confirming the Arbitration Award (the “Final Judgment”). On July 15, 2019, Plaintiff filed a Notice of Appeal to the United States Court of Appeals for the Seventh Circuit from the judgment entered on June 17, 2019.

Multistate Market Conduct Examination

On July 18, 2019, each of Standard Security Life, Madison National Life and Independence American

received a proposed Regulatory Settlement Agreement ("RSA") to resolve the MCE with respect to such company. The proposed RSAs provide for monetary penalties as well as requirements related to such subsidiaries' marketing activities and periodic reporting to regulators. Standard Security Life, Madison National Life and Independence American have preliminarily responded to the proposed RSAs and anticipate entering into confidential discussions with the insurance departments of the lead jurisdictions once they have reviewed. At this time, the Company is not able to reasonably estimate any settlement amount or range of settlement amounts that may result from such discussions.

ITEM 1A. RISK FACTORS

~~Not applicable.~~There were no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 in Item 1A to Part 1 of Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Share Repurchase Program

IHC has a program, initiated in 1991, under which it repurchases shares of its common stock. In August 2016, the Board of Directors increased the number of shares that can be repurchased to 3,000,000 shares of IHC common stock. As of September 30, ~~2018, 1,861,537~~2019, 1,750,638 shares were still authorized to be repurchased.

Share repurchases during the third quarter of ~~2018~~2019 are summarized as follows:

2018
2019							2019
					Maximum Number						Maximum Number
			Average Price		of Shares Which				Average Price		of Shares Which
Month of	Shares		of Repurchased		Can be		Shares		of Repurchased		Can be
Repurchase		Repurchased		Shares		Repurchased		Repurchased		Shares		Repurchased

July	6,171		$	33.86	1,874,924		15,934		$	37.66	1,796,558
August	-		$	-	1,874,924		31,642		$	37.51	1,764,916
September		13,387	$	34.37	1,861,537			14,278	$	37.23	1,750,638

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

Exhibit Number

3.1 Restated Certificate of Incorporation of Independence Holding Company (Filed as Exhibit 3(i) to our Quarterly Report on Form 10-Q for the quarter ended June 30, 1996 and incorporated herein by reference).

3.2 Certificate of Amendment of Restated Certificate of Incorporation of Independence Holding Company (Filed as Exhibit 3.1 to our Current Report on Form 8-K filed with the SEC on July 29, 2004 and incorporated herein by reference).

3.3 By-Laws of Independence Holding Company (Filed as Exhibit 3.3 to our Annual Report on Form 10-K for the year ended December 31, 2006 and incorporated herein by reference), as amended by Amendment to By-Laws of Independence Holding Company (Filed as Exhibit 3.2 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 and incorporated herein by reference).

10.1 Officer Employment Agreement, made as of April 18, 2011, by and among Independence Holding Company, Standard Security Life Insurance Company of New York and Mr. David T. Kettig (Filed as Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on April 22, 2011 and incorporated herein by reference).

10.2 Officer Employment Agreement, made as of April 18, 2011, by and among Independence Holding Company, Madison National Life Insurance Company, Inc. and Mr. Larry R. Graber (Filed as Exhibit 10.2 to our Current Report on Form 8-K filed with the SEC on April 22, 2011 and incorporated herein by reference).

10.3 Officer Employment Agreement, made as of April 18, 2011, by and between Independence Holding Company and Ms. Teresa A. Herbert (Filed as Exhibit 10.5 to our Current Report on Form 8-K filed with the SEC on April 22, 2011 and incorporated herein by reference).

10.4 Officer Employment Agreement, made as of May 11, 2011, by and between Independence Holding Company and Mr. Roy T.K. Thung (Filed as Exhibit 10.1 to our Quarterly Report on Form 10-Q for the period ended March 31, 2011 filed with the SEC on May 12, 2011, and incorporated herein by reference).

10.5 Retirement Benefit Agreement, dated as of September 30, 1991, between Independence Holding Company and Mr. Roy T.K. Thung, as amended. (Filed as an Exhibit to our Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated herein by reference; Amendment No. 1 filed as Exhibit 10(iii)(A)(4a) to our Annual Report on Form 10-K for the year ended December 31, 2003 and incorporated herein by reference;

Amendment No. 2 filed as Exhibit 10(iii)(4)(b) to our

Current Report on Form 8-K filed with the SEC on June 22, 2005 and incorporated herein by reference; Amendment No. 3 filed as Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on January 7, 2009 and incorporated herein by reference.)

10.6 Purchase Agreement, made and entered into on June 15, 2015, by and among Madison National Life Insurance Company, Inc., Standard Security Life Insurance Company of New York and National Guardian Life Insurance Company (Filed as Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on June 16, 2015, and incorporated herein by reference).

10.7 Sale Bonus Agreement, dated November 7, 2016, by and between Independence American Holdings Corp. and David T. Kettig (Filed as Exhibit 10.8 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 and incorporated herein by reference).

10.8 Officer Employment Agreement, made as of May 25, 2011, by and among Independence Holding Company, Standard Security Life and Mr. Gary J. Balzofiore (Filed as Exhibit 10.9 to our Annual Report on Form 10-K for the year ended December 31, 2016 and incorporated herein by reference).

10.9Officer Employment Agreement, made as of June 22, 2015, by and among Independence Holding Company, Standard Security Life and Mr. Vincent Furfaro, as amended by the Assignment and Assumption with Novation and Amendment of Officer Employment Agreement dated January 1, 2017 by and among Standard Security Life, AMIC Holdings, Inc. and Mr. Vincent Furfaro (Filed as Exhibit 10.9 to our Annual Report on Form 10-K for the year ended December 31, 2018 and incorporated herein by reference).

10.10Sale Bonus Agreement, dated July 25, 2018, by and between Independence American Holdings Corp. and Vincent Furfaro (Filed as Exhibit 10.10 to our Annual Report on Form 10-K for the year ended December 31, 2018 and incorporated herein by reference).

10.11Assignment and Assumption with Novation and Amendment of Officer Employment Agreement dated January 1, 2017 by and among Standard Security Life, AMIC Holdings, Inc. and Mr. David T. Kettig (Filed as Exhibit 10.11 to our Annual Report on Form 10-K for the year ended December 31, 2018 and incorporated herein by reference).

31.1 Certification of the Chief Executive Officer and President Pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002.~~2002. *

31.2 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

32.1 Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

32.2 Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

101.INS XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH XBRL Taxonomy Extension Schema Document. *

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. *

101.LAB XBRL Taxonomy Extension Label Linkbase Document. *

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. *

101.DEF XBRL Taxonomy Extension Definition Linkbase Document. *

* Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

INDEPENDENCE HOLDING COMPANY

(REGISTRANT)

By: /s/Roy T. K. Thung Date:November 8, ~~2018~~2019

Roy T.K. Thung

Chief Executive Officer, and Chairman

of the Board of Directors

By:/s/Teresa A. Herbert Date:November 8, ~~2018~~2019

Teresa A. Herbert

Senior Vice President and

Chief Financial Officer

4647

	2018	2017

Weighted-average risk-free interest rate	`2.64%`	`1.71%`
Expected annual dividend rate per share	`0.95%`	`0.79%`
Expected volatility factor of the Company's common stock	`35.80%`	`37.57%`
Weighted-average expected term of options	4.5 years	4.5 years

		September 30, 2018
		Outstanding		Exercisable

Number of options		668,947		363,612
Weighted average exercise price per share	$	17.28	$	10.99
Aggregate intrinsic value for all options (in thousands)	$	12,458	$	9,057
Weighted average contractual term remaining		2.2 years		0.8 years