UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________________________________

FORM 10-Q

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

For the quarterly period ended September 30, ~~2020~~2021.

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

96 CUMMINGS POINT ROAD, STAMFORD, 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] 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 growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer [ ]	Accelerated Filer [X]
Non-Accelerated Filer [ ]	Smaller Reporting Company ☒
Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No [X]

As of November ~~4, 2020,~~9, 2021, the registrant had ~~14,637,850~~14,674,936 shares of Common Stock outstanding.

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 Statements of Changes in Equity	7

			Condensed Consolidated Statements of Cash Flows	9

			Notes to Condensed Consolidated Financial Statements	10

		Item 2. Management's Discussion and Analysis of Financial Condition
			and Results of Operations	3231

		Item 3. Quantitative and Qualitative Disclosures about Market Risk		4641

		Item 4. Controls and Procedures		4641

PART II - OTHER INFORMATION

		Item 1. Legal Proceedings		4641

		Item 1A. Risk Factors		4742

		Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		4843

		Item 3. Defaults Upon Senior Securities		4943

		Item 4. Mine Safety Disclosures		4943

		Item 5. Other Information		4943

		Item 6. Exhibits		5044

	Signatures			5247

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,” “project”, “believe,” “estimate,” “expect,” “intend,” “plan,” “probably” or similar expressions, we are making forward-looking statements.

Numerous risks and uncertainties may impact the matters addressed by our forward-looking statements, any of which could negatively and materially affect our future financial results and performance. We describe some of these risks and uncertainties in greater detail in Item 1A, Risk ~~Factors~~Factors, of IHC’s Annual Report on Form 10-K as filed with Securities and Exchange Commission. ~~The only significant changes to our risk factors relate to the 2019 Novel Coronavirus (“COVID-19”) pandemic, see Item 1A of this document for details~~

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, ~~2020~~2021		December 31, ~~2019~~2020
		~~(Unaudited)~~ (Unaudited)
ASSETS:
Investments:
~~Short-term investments~~	$	`1,133`	$	`50`
Securities purchased under agreements to resell	$	`78,31325,458`	$	`107,15723,962`
Fixed maturities, available-for-sale		`419,28429,070`		`384,974`
~~Equity securities~~		`3,760`		`3,74744,003`
Other investments		`8,0682,050`		`15,2081,928`
Total investments		`510,55856,578`		`511,13669,893`

Cash and cash equivalents		`21,6777,946`		`21,09417,215`
~~Due and unpaid premiums~~Investment in Iguana Capital, Inc. (“Iguana Capital”) (Note 2)		`29,09633,475`		`26,244-`
~~Due from reinsurers~~Funds held in escrow		`357,63578,263`		`362,969`
~~Goodwill~~		`75,891`		`60,165-`
Other assets		`84,73033,975`		`72,69549,475`
Assets attributable to discontinued operations (Note 2)		`995,383`		`946,573`

TOTAL ASSETS	$	`1,079,5871,205,620`	$	`1,054,3031,083,156`

LIABILITIES AND EQUITY:
LIABILITIES:
~~Policy benefits and claims~~	$	`174,114`	$	`164,802`
~~Future policy benefits~~		`199,195`		`201,205`
~~Funds on deposit~~		`141,212`		`140,951`
~~Unearned premiums~~		`15,865`		`7,282`
~~Other policyholders' funds~~		`11,693`		`12,049`
~~Due to reinsurers~~		`3,432`		`5,016`
Accounts payable, accruals and other liabilities	$	`64,40339,817`	$	`28,387`
Liabilities attributable to discontinued operations (Note 2)		`601,253`		`61,049582,651`

TOTAL LIABILITIES		`609,914641,070`		`592,354611,038`

Commitments and contingencies (Note ~~13)~~15)
Redeemable noncontrolling interest		`2,413-`		`2,2372,312`

STOCKHOLDERS’ EQUITY:
Preferred stock $1.00 par value, 100,000 shares authorized;
none issued or outstanding		`-`		`-`
Common stock $1.00 par value, 23,000,000 shares authorized;
18,625,458 shares issued; and ~~14,645,658~~14,674,936 and
~~14,864,941~~ 14,643,047 shares outstanding		`18,625`		`18,625`
Paid-in capital		`124,354125,357`		`122,717124,757`
Accumulated other comprehensive ~~gain~~income		`3,9182,320`		`1,2124,197`
Treasury stock, at cost; ~~3,979,800~~3,950,522 and ~~3,760,517~~3,982,411 shares		`(76,686)(77,247)`		`(69,724)(77,088)`
Retained earnings		`397,005495,498`		`386,864399,273`

TOTAL IHC STOCKHOLDERS’ EQUITY		`467,216564,553`		`459,694469,764`
NONREDEEMABLE NONCONTROLLING INTERESTS		`44 (3)`		`1842`

TOTAL EQUITY		`467,260564,550`		`459,712469,806`

TOTAL LIABILITIES AND EQUITY	$	`1,079,5871,205,620`	$	`1,054,3031,083,156`

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

Three Months Ended

Nine Months Ended

September 30,

2020

2019

2020

2019

2021

2020

2021

2020

REVENUES:

Premiums earned

100,124

86,453

294,865

254,189

Net investment income

2,793

3,964

9,172

12,094

119

170

430

916

Fee income

3,872

2,938

12,062

10,833

5,569

6,113

20,291

18,465

Other income

6,361

880

7,490

5,443

873

615

1,660

1,739

Net investment gains

70

930

933

2,556

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)

Net investment gains (losses)

(48)

(53)

105

122

113,220

95,165

324,522

284,469

6,513

6,845

22,486

21,242

EXPENSES:

Insurance benefits, claims and reserves

49,827

41,398

158,474

128,927

Selling, general and administrative expenses

52,684

44,348

149,237

127,083

21,592

16,431

53,028

43,221

Loss from continuing operations before income taxes

(15,079)

(9,586)

(30,542)

(21,979)

Income tax benefits

(3,567)

(2,241)

(7,026)

(5,617)

102,511

85,746

307,711

256,010

Loss from continuing operations, net of tax

(11,512)

(7,345)

(23,516)

(16,362)

Income before income taxes

10,709

9,419

16,811

28,459

Income taxes

1,977

3,248

3,219

6,482

Discontinued operations (Note 2):

Total pretax income from discontinued operations

36,383

20,295

150,376

38,790

Income tax expense on discontinued operations

7,512

4,218

27,567

8,836

Income from discontinued operations, net of tax

28,871

16,077

122,809

29,954

Net income

8,732

6,171

13,592

21,977

17,359

8,732

99,293

13,592

(Income) loss from nonredeemable noncontrolling interests

5

14

(29)

(130)

-

5

2

(29)

(Income) from redeemable noncontrolling interests

(49)

(43)

(176)

(131)

(Income) loss from redeemable noncontrolling interests

-

(49)

156

(176)

NET INCOME ATTRIBUTABLE TO IHC

8,688

6,142

13,387

21,716

17,359

8,688

99,451

13,387

Basic income per common share

Loss from continuing operations

(0.79)

(0.50)

(1.61)

(1.11)

Income from discontinued operations

1.97

1.09

8.40

2.02

Basic income per common share

0.59

0.41

0.91

1.46

1.18

0.59

6.79

0.91

WEIGHTED AVERAGE SHARES OUTSTANDING

14,670

14,879

14,763

14,919

14,654

14,670

14,645

14,763

Diluted income per common share

0.59

0.41

0.90

1.45

Loss from continuing operations

(0.79)

(0.50)

(1.61)

(1.11)

Income from discontinued operations

1.97

1.09

8.40

2.02

Diluted income per common share

1.18

0.59

6.79

0.91

WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING

14,720

14,941

14,799

14,985

14,654

14,670

14,645

14,763

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,

2020

2019

2020

2019

2021

2020

2021

2020

Net income

8,732

6,171

13,592

21,977

17,359

8,732

99,293

13,592

Other comprehensive income:

Other comprehensive income (loss):

Available-for-sale securities:

Unrealized gains on available-for-sale securities, pre-tax

1,351

1,636

3,444

15,080

Tax expense on unrealized gains on available-for-sale securities

287

347

738

3,183

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

1,064

1,289

2,706

11,897

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

(1,139)

1,351

(2,387)

3,444

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

(239)

287

(510)

738

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

(900)

1,064

(1,877)

2,706

Other comprehensive income, net of tax

1,064

1,289

2,706

11,897

Other comprehensive income (loss), net of tax

(900)

1,064

(1,877)

2,706

COMPREHENSIVE INCOME, NET OF TAX

9,796

7,460

16,298

33,874

16,459

9,796

97,416

16,298

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

(Income) from noncontrolling interests in subsidiaries

(44)

(29)

(205)

(261)

Other comprehensive income, net of tax, attributable to

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

(Income) loss from noncontrolling interests in subsidiaries

-

(44)

158

(205)

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

noncontrolling interests

-

COMPREHENSIVE INCOME, NET OF TAX,

COMPREHENSIVE (INCOME) LOSS, NET OF TAX,

ATTRIBUTABLE TO NONCONTROLLING INTERESTS

(44)

(29)

(205)

(261)

-

(44)

158

(205)

COMPREHENSIVE INCOME, NET OF TAX,

ATTRIBUTABLE TO IHC

9,752

7,431

16,093

33,613

16,459

9,752

97,574

16,093

See the accompanying Notes to Condensed Consolidated Financial Statements.

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

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

Three Months Ended September 30, ~~2020~~2021 and ~~2019~~2020

ACCUMULATED

OTHER

TREASURY

TOTAL IHC

NONREDEEMABLE

COMMON

PAID-IN

COMPREHENSIVE

STOCK,

RETAINED

STOCKHOLDERS'

NONCONTROLLING

TOTAL

STOCK

CAPITAL

~~LOSS~~

INCOME (LOSS)

AT COST

EARNINGS

EQUITY

~~INTERESTS~~

INTERESTS

EQUITY

BALANCE AT

JUNE 30, 2021

18,625

125,653

3,220

(77,189)

478,139

548,448

40

548,488

Net income

17,359

-

17,359

Other comprehensive

loss, net of tax

(900)

-

(900)

Repurchases of common stock

(381)

-

(381)

Share-based compensation

(233)

323

90

-

90

Distributions to noncontrolling

interests

(63)

(43)

(106)

BALANCE AT

SEPTEMBER 30, 2021

18,625

125,357

2,320

(77,247)

495,498

564,553

(3)

564,550

BALANCE AT

JUNE 30, 2020

18,625

123,804

2,854

(74,325)

388,317

459,275

49

459,324

Net income

8,688

(5)

8,683

Other comprehensive

income, net of tax

1,064

-

1,064

Repurchases of common stock

(2,452)

-

(2,452)

Share-based compensation

550

91

641

-

641

BALANCE AT

SEPTEMBER 30, 2020

18,625

124,354

3,918

(76,686)

397,005

467,216

44

467,260

~~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

See the accompanying Notes to Condensed Consolidated Financial Statements.

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

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

Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020

ACCUMULATED

OTHER

TREASURY

TOTAL IHC

NONREDEEMABLE

COMMON

PAID-IN

COMPREHENSIVE

STOCK,

RETAINED

STOCKHOLDERS'

NONCONTROLLING

TOTAL

STOCK

CAPITAL

INCOME (LOSS)

AT COST

EARNINGS

EQUITY

~~INTERESTS~~

INTERESTS

EQUITY

BALANCE AT

DECEMBER 31, 2020

18,625

124,757

4,197

(77,088)

399,273

469,764

42

469,806

Net income

99,451

(2)

99,449

Other comprehensive

loss, net of tax

(1,877)

-

(1,877)

Repurchases of common stock

(521)

-

(521)

Common stock dividends

($0.22 per share)

(3,226)

-

(3,226)

Share-based compensation

663

362

1,025

-

1,025

Distributions to noncontrolling

interests

(63)

(43)

(106)

BALANCE AT

SEPTEMBER30, 2021

18,625

125,357

2,320

(77,247)

495,498

564,553

(3)

564,550

BALANCE AT

DECEMBER 31, 2019

18,625

122,717

1,212

(69,724)

386,864

459,694

18

459,712

Net income

13,387

29

13,416

Other comprehensive

income, net of tax

2,706

-

2,706

Repurchases of common stock

(7,053)

-

(7,053)

Distributions to noncontrolling

interests

-

(3)

Common stock dividends

($0.22 per share)

(3,246)

-

(3,246)

Share-based compensation

1,637

91

1,728

-

1,728

BALANCE AT

SEPTEMBER 30, 2020

18,625

124,354

3,918

(76,686)

397,005

467,216

44

467,260

~~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~~

~~loss, 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 dividends~~

~~($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

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,
		2020		2019		2021		2020
CASH FLOWS PROVIDED BY (USED BY) OPERATING ACTIVITIES:
Net income	$	`13,592`	$	`21,977`	$	`99,293`	$	`13,592`
Adjustments to reconcile net income to net change in cash from
operating activities:
Amortization of deferred acquisition costs		`900`		`894`
Gain on disposal of discontinued operations						`(74,008)`		`-`
Pretax provision for loss on disposal						`1,021`		`-`
Deferred and sharebased compensation						`7,001`		`2,929`
Net amortization of purchased premium and discount in net investment income		`3,402`		`2,640`		`408`		`481`
Net investment gains		`(933)`		`(2,556)`
Gain on sale of investment		`-`		`(3,589)`
Other than-temporary-impairment losses, net		`-`		`646`
Net investment (gains)						`(105)`		`(122)`
Depreciation and amortization		`3,359`		`2,386`		`977`		`800`
Provision for bad debt on note receivable		`-`		`1,214`
Other		`2,070`		`5,576`		`13,975`		`4,710`
Changes in assets and liabilities:
Change in insurance liabilities		`14,670`		`3,511`		`2,048`		`14,670`
Change in amounts due from reinsurers		`5,334`		`4,058`		`4,279`		`5,334`
Change in claim fund balances		`751`		`1,577`		`(1,133)`		`751`
Change in due and unpaid premiums		`(2,852)`		`(111)`		`(14,577)`		`(2,852)`
Change in contract asset						`(332)`		`-`
Other operating activities		`(2,508)`		`(6,816)`		`2,836`		`(2,508)`

Net change in cash from operating activities		`37,785`		`31,407`		`41,683`		`37,785`

CASH FLOWS PROVIDED BY (USED BY) INVESTING ACTIVITIES:
Net (purchases) sales and maturities of short-term investments		`(1,049)`		`1,000`		`2,560`		`(1,049)`
Net (purchases) sales of securities under resale agreements		`28,844`		`(44,815)`		`(145,314)`		`28,844`
Sales of equity securities						`3,494`		`-`
Sales of fixed maturities		`39,388`		`111,695`		`10,351`		`39,388`
Maturities and other repayments of fixed maturities		`96,964`		`57,087`		`56,634`		`96,964`
Purchases of fixed maturities		`(170,088)`		`(139,531)`		`(8,343)`		`(170,088)`
Cash divested from deconsolidation of subsidiary						`(4,878)`		`-`
Payments to acquire business, net of cash acquired		`(13,707)`		`(7,952)`		`-`		`(13,707)`
Proceeds from sales, distributions and returns of capital from investments		`87`		`5,117`
Payments to acquire other investments		`(1,250)`		`(3,000)`		`(2,500)`		`(1,250)`
Other investing activities		`(4,085)`		`(2,393)`		`(2,418)`		`(3,998)`

Net change in cash from investing activities		`(24,896)`		`(22,792)`		`(90,414)`		`(24,896)`

CASH FLOWS PROVIDED BY (USED BY) FINANCING ACTIVITIES:
Repurchases of common stock		`(6,882)`		`(3,923)`		`(521)`		`(6,882)`
Withdrawals of investment-type insurance contracts		`(464)`		`(1,376)`		`(144)`		`(464)`
Dividends paid		`(6,215)`		`(5,225)`		`(6,443)`		`(6,215)`
Purchase of noncontrolling interest		`-`		`(4,400)`
Proceeds from stock options exercised		`179`		`163`
Payments related to tax withholdings for sharebased compensation		`(81)`		`(2,397)`
Other financing activities		`(4)`		`(403)`		`(431)`		`94`

Net change in cash from financing activities		`(13,467)`		`(17,561)`		`(7,539)`		`(13,467)`

Net change in cash, cash equivalents and restricted cash		`(578)`		`(8,946)`		`(56,270)`		`(578)`
Cash, cash equivalents and restricted cash, beginning of year		`24,631`		`30,807`
Cash, cash equivalents and restricted cash, beginning of year, including discontinued operations						`74,793`		`24,631`

Cash, cash equivalents and restricted cash, end of period	$	`24,053`	$	`21,861`
Cash, cash equivalents and restricted cash, end of period, including discontinued operations					$	`18,523`	$	`24,053`

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

See the accompanying Notes to Condensed Consolidated Financial Statements.

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 underwriting, administering and/or distributing group and individual specialty benefit products, including disability, supplemental health, pet, and group life insurance through: (i) its insurance companies, Standard Security Life Insurance Company of New York ("Standard Security Life"), Madison National Life Insurance Company, Inc. ("Madison National Life"), and Independence American Insurance ~~Company (“Independence American”);~~Company; and (ii) its marketing and administrative companies, including IHC Specialty Benefits Inc. (“IHCSB”), ~~Independence~~IHC Brokerage Group, Inc. (“IBG”), INSXCloud, Inc. (“INSXCloud”) (formerly My1HR, Inc. ~~(“My1HR”~~), collectively the “IHC Agencies” and its lead generation company, Torchlight Technology Group ~~LLC~~LLC., (“Torchlight”) ~~and a~~. On June 30, 2021, the Company sold its majority interest in PetPartners, Inc. (“PetPartners”), a major distributor and administrator of pet insurance underwritten by Independence American Insurance Company and an unaffiliated insurer. Standard Security Life, Madison National Life and Independence American Insurance Company are sometimes collectively referred to as the “Insurance Group”. IHC and its subsidiaries (including the Insurance Group) are sometimes collectively referred to as the "Company", or “IHC”, or are implicit in the terms “we”, “us” and “our”.

Geneve ~~Corporation,~~Holdings, Inc., a financial holding company, ~~and~~through its ~~affiliated entities,~~wholly-owned subsidiaries (collectively “Geneve”), held approximately 62% of IHC's outstanding common stock atas of September 30, ~~2020.~~2021. In August 2021, IHC’s Board of Directors received a preliminary, non-binding proposal from Geneve to acquire all of the outstanding shares of common stock of IHC that are not already beneficially owned by Geneve in a going-private transaction (“Going Private Transaction”). Geneve’s proposed purchase price at that time was $50 per share, payable in cash. The Board of Directors formed a Special Committee of independent and disinterested directors to consider the proposal and to review, evaluate, negotiate and recommend the approval or disapproval of the proposal and consider alternatives. On November 9, 2021, the Special Committee concluded unanimously that a Going Private Transaction with a purchase price of $57 per share on the terms negotiated was fair and in the best interests of IHC’s stockholders other than Geneve. Upon its approval by the Board of Directors, IHC, Geneve Holdings, Inc. and Geneve Acquisition Corp., a wholly owned subsidiary of Geneve Holdings, Inc., entered into a merger agreement (“Merger Agreement”) pursuant to which holders of IHC’s outstanding shares of common stock, excluding shares held by Geneve, will receive $57 per share in cash. The consummation of the Going Private Transaction is subject to certain closing conditions, including approval by the holders of a majority of IHC’s outstanding shares of common stock that are not held by Geneve and its affiliates and the consummation of the pending sales of IHC’s subsidiaries, Independence American Holdings Corp. and Standard Security Life discussed in Note 2. Further information regarding the terms and conditions in the Merger Agreement is contained in the Current Report on Form 8-K filed by IHC with the SEC on November 9, 2021.

(B) 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.

During the second and third quarters of 2021, the Board of Directors committed to various plans for the disposal of several business operations (see Note 2). Each plan represents a strategic shift that will have a major effect on the Company’s operations and financial results and as such, they each qualify for reporting as discontinued operations in 2021. The assets, liabilities, and related income and expenses associated with each disposal group are presented as discontinued operations in the accompanying condensed consolidated financial statements and Notes thereto for all periods presented.

In March 2020, the World Health Organization declared the outbreak of COVID-19 a global health pandemic and the United States declared a national health emergency. COVID-19 has led to largescale disruption in the global economy, market instability and widespread unemployment in the United States. The COVID-19 outbreak iscontinues to be a fluid situation and as it evolves, the duration of COVID-19 and its potential effects on our business cannot be certain. Regulatory mandates have affected, and we anticipate will continue to impact, the insurance industry. We currently cannot predict if there will be a material impact to our business, results of operations or financial condition in future reporting periods. Consequently, future changes in market conditions may impact estimates used in the preparation of our financial statements associated with evaluations of goodwill and other intangible assets for impairment, estimates associated with the determination of valuation allowances related to net operating loss carryforwards, and estimates of certain losses under insurance contracts. These estimates may all be subject to substantial adjustments in future periods. In addition, volatile market conditions may result in ~~further~~ declines in the fair value of our investment portfolio and possible impairments of certain securities.

In the opinion of management, all adjustments (consisting only of normal recurring accruals) that are necessary for a fair presentation of the consolidated financial position and results of operations for the interim periods have been included. The condensed consolidated results of operations for the three months and nine months ended September 30, ~~2020~~2021 are not necessarily indicative of the results to be anticipated for the entire year.

(C) ~~Consolidation~~

In June 2020, the Company recognized a pre-tax gain of $158,000 on the sale of a wholly owned subsidiary, Cook & Company Insurance Services, Inc., that is included in other income on the Condensed Consolidated Statement of Income.

(D)Reclassifications

Certain amounts in prior year’s condensed consolidated financial statements and Notes thereto have been reclassified to conform to the ~~2020 presentation.~~ 2021 presentation, primarily for the effects of discontinued operations.

(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 2019 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 most products. For these administrative service and other contracts, we have no material contract assets or contract liabilities on our consolidated balance sheet at September 30, 2020. 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.

~~Life Time value:~~The Company uses expected constrained life time values (“LTV”) representing the expected commissions to be received over the lifetime of certain policies sold, primarily Medicare Advantage products, on behalf of unaffiliated insurance carriers by IHC’s marketing agencies.

Expected future commission revenue over the lifetime of the policies sold is recorded in the period the performance obligation is satisfied. No significant additional performance obligation occurs with renewal of the initial policy. IHC records substantially all anticipated revenue on these policies on the date a completed insurance application is submitted to the unaffiliated insurance carrier; adjusted for certain constraints including policyholder acceptance rates, cancellations and non-renewals. Increased sales of the aforementioned products to unaffiliated insurance carriers began in 2020 as a result of new contracts with those carriers and increased distribution channels.

(F)(D) Recent Accounting Pronouncements

Recently Adopted Accounting Standards

In ~~October 2018,~~December 2019, the Financial Accounting ~~Standards~~Standard Board (“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 adoption of this guidance did not have a material effect 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. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

~~In January 2017, the FASB issued guidance~~ to simplify the ~~test~~accounting for ~~goodwill impairment by eliminating Step 2~~income taxes. The guidance eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities related to changes in ownership of equity method investments and foreign subsidiaries. The guidance also simplifies aspects of accounting for franchise taxes, the requirement to allocate current and deferred tax expense to legal entities not subject to tax in its separate financial statements, enacted changes in tax laws or rates, and clarifies the accounting for transactions that result in a step-up 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~~tax basis 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.goodwill. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

Recently Issued Accounting Standards Not Yet Adopted

In October ~~2020,~~2021, the FASB issued guidance to ~~clarify~~improve comparability after a business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired

in a business combination. The guidance requires an acquirer to recognize and measure contract assets and contract liabilities acquired in a business combination in the same manner that ~~when determining~~they were recognized and measured in the ~~premium amortization period~~acquiree’s financial statements before the acquisition. For public companies, the amendments in this guidance are effective for fiscal years beginning after December 15, 2022, and for interim periods within those fiscal years, with early implementation permitted, and should be applied prospectively to business combinations occurring on ~~purchased callable debt securities, an entity should reevaluate callable debt securities that have multiple call dates each reporting period.~~or after the effective date of the amendments. The ~~adoption of~~amendments in this guidance is not expected to have a material effect on the Company’s consolidated financial statements.

In December 2019, the FASB issued guidance to simplify the accounting for income taxes. The guidance eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities related to changes in ownership of equity method investments and foreign subsidiaries. The guidance also simplifies aspects of accounting for franchise taxes, the requirement to allocate current and deferred tax expense to legal entities not subject to tax in its separate financial statements, enacted changes in tax laws or rates, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. 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, 2020, with early adoption permitted. The adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.

In 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. In 2019, the FASB delayed the original effective dates. For smaller reporting companies, the amendments in this guidance are now effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. 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 June 2016, the FASB issued guidance requiring financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. An allowance for credit losses will be deducted from the amortized cost basis to present the net carrying value at the amount expected to be collected with changes in the allowance recorded in earnings. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses rather than the currently applied U.S. GAAP method

of taking a permanent impairment of the security, which would be limited to the amount by which fair value is below the amortized cost. Certain existing requirements used to evaluate credit losses have been removed. In 2019, the FASB provided transition relief by providing entities with an option to irrevocably elect the fair value option on an instrument-by-instrument basis for eligible instruments upon adoption and delayed the original effective dates. For smaller reporting companies, the amendments in this guidance are now effective for fiscal years beginning after December 15, 2022, including interim periods within those years. Early adoption is permitted. The amendments in this guidance should be applied through a cumulative effect adjustment to retained earnings upon adoption as of the beginning of the first reporting period in which the guidance is effective. Management is evaluating the requirements and potential impact that the adoption of this guidance will have on the Company’s consolidated financial statements.

Note 2.Discontinued Operations

(A)Sale of Standard Security Life

On April 14, 2021, IHC and its wholly owned subsidiary, Independence Capital Corp. (“ICC”), entered into a Stock Purchase Agreement with Reliance Standard Life Insurance Company (“Reliance Standard”) to sell all of the issued and outstanding capital stock of Standard Security Life, a wholly owned subsidiary of ICC, for an aggregate purchase price of $180,000,000 in cash. On July 29, 2021, the stock purchase agreement was amended and restated (the “SSL Amended Purchase Agreement”). In accordance with the SSL Amended Purchase Agreement, the Company will receive the excess of aggregate statutory capital and surplus, calculated as of the closing date, over $57,000,000. The closing of the transaction, the closing distribution and certain other items are subject to customary closing conditions including applicable regulatory approvals, one of which is the approval of the New York State Department of Financial Services (”NYSDFS”). Standard Security Life focuses on underwriting and selling its New York short-term disability (“DBL”) and paid family leave rider (“PFL”) products and ceded a portion of this business to Independence American Insurance

Company. We filed notice and received approval to cancel this reinsurance contract in accordance with the terms of the SSL Amended Purchase Agreement effective June 30, 2021. Under the terms of the SSL Amended Purchase Agreement, the sale transaction will include all of Standard Security Life’s DBL and PFL business (including the DBL and PFL business previously ceded to Independence American Insurance Company) in addition to all its other lines of business. The DBL and PFL business being sold was part of the Company’s Group disability, life, DBL and PFL segment. The aforementioned transaction, consisting of the sale of Standard Security Life, the closing distribution and other closing conditions, is collectively referred to as the “SSL Sale” transaction or disposal group. DBL and PFL are major product lines for the Company. The sale of Standard Security Life and resulting exit from DBL and PFL business represents a strategic shift that will have a major effect on the Company’s operations and financial results. The SSL Sale transaction qualified for reporting as discontinued operations in the second quarter of 2021 upon the Board of Director’s commitment to a plan for its disposal in April 2021. Provided that all regulatory approvals and other closing conditions are met, the Company expects to complete the SSL Sale transaction by the end of 2021.

Aside from customary transition services, there will be no continuing involvement with Standard Security Life after its disposal.

(B)Sale of Pet Division and Independence American Insurance Company (“Pets Sale”)

On May 17, 2021, IHC and certain subsidiaries entered into agreements to sell a 70% controlling interest in its pet division, including all of the issued and outstanding capital stock of Independence American Insurance Company to a subsidiary of Iguana Capital, Inc. (“Iguana Capital”), an investment company specifically formed to facilitate this transaction as follows:

(i)IHC and its wholly owned subsidiary, IHC SB Holdings LLC (“SBH”), entered into a Stock Purchase Agreement (the “PPI Purchase Agreement”) with Iguana Capital to sell its 85% interest in PetPartners for $77,000,000 in cash (subject to working capital adjustments);

(ii)IHC and its wholly owned subsidiary, AMIC Holdings, Inc. (“AMIC”), entered into a Stock Purchase Agreement (the “IAHC Purchase Agreement”) with Iguana Capital to sell all of the stock of Independence American Holdings Corp. (“IAHC”), which owns all of the stock of Independence American Insurance Company and other pet assets, for $190,400,000 in cash (subject to adjustments for targeted statutory capital and surplus): and

(iii)Following each of the above, IHC will retain a 30% interest in the business sold in the form of an equity investment in Iguana Capital. IHC’s equity interest in Iguana Capital will become diluted in the future as a result additional investments made by Iguana Capital unless IHC invests its pro rata share.

Both agreements are subject to customary closing conditions. The closing of the IAHC Purchase Agreement however is also subject to certain regulatory approvals, one of which is the approval of the Delaware Insurance Department. For this reason, the transaction was structured as two agreements such that the sale of PetPartners occurred on June 30, 2021, and the closing of the transactions contemplated in the IAHC Purchase Agreement will follow at a later date upon receipt of applicable regulatory approvals. Provided that all regulatory approvals and other closing conditions are met, the Company expects to complete the IAHC sale transaction by the end of 2021.

Under the terms of the IAHC Purchase Agreement, the transaction includes the sale of all Independence American Insurance Company’s pet business and excludes other business lines. These excluded business lines will be reinsured by Madison National Life prior to closing. The reinsurance agreement will remain in effect until the underlying business runs out. The aforementioned transaction, consisting of the sale of PetPartners, IAHC and Independence American Insurance Company, and other closing conditions, is collectively referred to as the “Pets Sale” transaction or disposal group. The pet business being sold was part of the Company’s Specialty Health segment. Because the pet business is a major product line for the Company, and the Company will no longer actively engage in the sales and marketing of pet insurance, the Pets Sale

transaction represents a strategic shift that will have a major effect on the Company’s operations and financial results. The Pets Sale transaction qualified for reporting as discontinued operations in the second quarter of 2021 as a result of the Board of Directors’ commitment to a plan for the disposal of a controlling interest in its pet business in May 2021, and the execution of both the PPI Purchase Agreement and the IAHC Purchase Agreement on May 17, 2021.

On June 30, 2021, the Company completed the sale of its majority interest in PetPartners and, as a result, the Company ceased to have a controlling financial interest in PetPartners. Upon closing, the Company received proceeds of $78,263,000 (consisting of the purchase price and certain initial working capital adjustments), recognized an initial equity investment in Iguana Capital valued at $33,762,000, and recorded a $62,229,000 gain on the disposal, net of transaction costs and income taxes for the nine months ended September 30, 2021. Transaction costs consisting of transaction bonuses, legal expenses and financial advisor expenses amounted to an aggregate of $6,079,000. The PPI Purchase Agreement includes a waiver and consent to offer The American Kennel Club (“AKC”), PetPartners’ minority shareholder, until December 31, 2021, the right to sell their shares at the same price and terms as in the PPI Purchase Agreement. In the event AKC desires to sell such its shares, Iguana Capital and SBH will equally finance the cash payment to AKC. In connection with the PPI Sale transaction, the Company recorded a $6,800,000 contingent liability (the maximum amount required) based on its belief that AKC will exercise this right. If for any reason the IAHC Purchase Agreement is terminated, then at the option of either SBH or an affiliate of Iguana Capital, IAHC may reacquire the Company’s interest in PetPartners (the “PPI Put/Call Option”). The value of the PPI Put/Call Option was deemed to be negligible due to the structure of the put and call features, the short time horizon and the Company’s belief that there is a low probability that the deal would be terminated. The proceeds received from the sale of PetPartners were deposited into an escrow account owned by SBH and treated as a security deposit. The funds will be released from escrow upon either the consummation of the IAHC sale transaction or upon the exercise of the PPI Put/Call Option. At September 30, 2021, the security deposit is presented as funds held in escrow on the Condensed Consolidated Balance Sheet.

Continuing involvement with the Pets Sale disposal group will consist of customary transition services, the PPI Put/Call Option and the equity investment in Iguana Capital. At September 30, 2021, the carrying value of the Company’s 30% equity interest in Iguana Capital is $33,475,000. The investment is accounted for using the equity method of accounting, and for the three months and nine months ended September 30, 2021, the Company recorded an equity loss of $(287,000) on its investment in Iguana Capital. In the fourth quarter of 2021, the Company committed to invest an additional $3,200,000 to Iguana Capital, but as a result of the magnitude of other investments being made by Iguana Capital, the Company expects its equity interest in Iguana Capital will be diluted.

(C)Sale of Madison National Life

On July 14, 2021, IHC and its wholly owned subsidiary ICC entered into a stock purchase agreement (the “MNL Purchase Agreement”) with Horace Mann Educators Corporation to sell all of the issued and outstanding capital stock of Madison National Life, which is wholly owned by ICC, for an aggregate purchase price of $172,500,000 in cash; in addition, if Madison National Life reaches specified financial targets in 2023, IHC will receive an additional purchase price of up to $12,500,000. In accordance with the MNL Stock Purchase agreement and prior to closing, Madison National Life will enter into a reinsurance agreement with Independence American Insurance Company to reinsure all of Independence American Insurance Company’s non-pet business, primarily specialty health products, that are excluded from the Pets Sale transaction discussed above. The transaction has been approved by the Board of Directors of IHC, and IHC’s majority stockholders have entered into a voting agreement under which such majority stockholders agreed to approve the transaction. IHC’s majority stockholders approved the transaction by written consent on October 18, 2021. The closing is expected no earlier than January 1, 2022; and the transaction is subject to customary closing conditions, including applicable regulatory approvals, one of which is the approval by the Wisconsin Office of the Commissioner of Insurance. The aforementioned transaction, which includes the reinsured specialty health business of Independence American Insurance Company, is referred to as the “MNL Sale” transaction or disposal group and qualifies for reporting as discontinued operations in the third quarter of 2021 upon the

Board of Director’s commitment to the disposal plan in July 2021.

In addition to customary transition services, there will be some continuing involvement with Madison National Life after its disposal with regards to the runout of the reinsured specialty health lines of business.

The following is a reconciliation, by disposal group, of the carrying amounts of major classes of assets and liabilities included in discontinued operations on the Condensed Consolidated Balance Sheets for the periods indicated (in thousands):

		September 30, 2021
		SSL Sale		Pets Sale		MNL Sale		Total

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

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

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

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

		December 31, 2020
		SSL Sale		Pets Sale		MNL Sale		Total

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

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

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

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

The following is a reconciliation, by disposal group, of the major line items constituting the pretax profit of discontinued operations to the income from discontinued operations, net of tax, as shown on the Condensed Consolidated Statements of Income for the periods indicated (in thousands):

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

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

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

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

		For the Three Months Ended September 30, 2020
		SSL Sale		Pets Sale		MNL Sale		Total

Revenues	$	`30,222`	$	`22,117`	$	`54,036`	$	`106,375`
Expenses:
Insurance benefits, claims and reserves		`18,795`		`12,426`		`18,606`		`49,827`
Selling, general and administrative expenses		`6,398`		`7,766`		`22,089`		`36,253`

Pretax income of discontinued operations during phase-out		`5,029`		`1,925`		`13,341`		`20,295`
Pretax provision for loss on disposal		`-`		`-`		`-`		`-`
Pretax gain on disposal of discontinued operations		`-`		`-`		`-`		`-`
Total pretax income from discontinued operations		`5,029`		`1,925`		`13,341`		`20,295`
Income tax expense on discontinued operations		`1,031`		`402`		`2,785`		`4,218`

Income from discontinued operations, net of tax	$	`3,998`	$	`1,523`	$	`10,556`	$	`16,077`

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

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

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

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

		For the Nine Months Ended September 30, 2020
		SSL Sale		Pets Sale		MNL Sale		Total

Revenue	$	`92,419`	$	`55,589`	$	`155,272`	$	`303,280`
Expenses:
Insurance benefits, claims and reserves		`59,216`		`32,885`		`66,373`		`158,474`
Selling, general and administrative expenses		`22,895`		`17,915`		`65,206`		`106,016`

Pretax income of discontinued operations during phase-out		`10,308`		`4,789`		`23,693`		`38,790`
Pretax provision for loss on disposal		`-`		`-`		`-`		`-`
Pretax gain on disposal of discontinued operations		`-`		`-`		`-`		`-`
Total pretax income from discontinued operations		`10,308`		`4,789`		`23,693`		`38,790`
Income tax expense on discontinued operations		`2,488`		`1,143`		`5,205`		`8,836`

Income from discontinued operations, net of tax	$	`7,820`	$	`3,646`	$	`18,488`	$	`29,954`

The assets and liabilities in discontinued operations are measured at the lower of their carry value or fair value less cost to sell. During the three months and nine months ended September 30, 2021, it was not necessary to write-down any assets or liabilities attributable to the disposal groups in discontinued operations to fair value, less costs to sell. The Company expects to recognize gains from the sales of these disposal groups, therefore, any costs to sell the disposal groups, primarily legal expenses, incurred prior to the actual disposal of the discontinued operation, are expensed when incurred and presented in pretax provision for loss on disposal in the tables above.

Pretax income (loss) from discontinued operations during phase-out attributable to IHC was $37,118,000 and $77,389,000 for the three and nine months ended September 30, 2021, respectively, and was $20,295,000 and $38,790,000 for the three and nine months ended September 30, 2020, respectively.

Total cash flows from operating activities of discontinued operations were $54,693,000 and $52,019,000 for the nine months ended September 30, 2021 and 2020, respectively. Total cash flows from investing activities of discontinued operations were $(100,302,000) and $(44,836,000) for the nine months ended September 30, 2021 and 2020, respectively.

On a consolidated basis, the Company recorded $7,512,000 and $4,218,000 of income taxes related to pretax income from discontinued operations for the three months ended September 30, 2021 and 2020, respectively, and $27,567,000 and $8,836,000 for the nine months ended September 30, 2021 and 2020, respectively. In 2021, the amounts for the nine months period include $11,675,000 of income taxes related to the pretax gain on disposal of discontinued operations. In connection with the sale of PetPartners, AMIC decreased its valuation allowance on existing deferred tax assets by $8,281,000 and utilized approximately $46,116,000 of its outstanding Federal net operating loss carryforwards (See Note 12). Differences between the Federal statutory income tax rate on discontinued operations and the Company’s effective income tax rate on pretax income from discontinued operations are primarily the result of AMIC’s decrease in its valuation allowance, state and local income taxes, nondeductible goodwill and other expenses.

Note 3.Income Per Common Share

Diluted income per share was computed using the treasury stock ~~method and includes incremental common shares, primarily~~method. As a result of losses from ~~the dilutive effect of share-based payment awards, amounting to 50,000 and 36,000 shares~~continuing operations for the three months and nine months ended September 30, 2021 and 2020, ~~respectively, and 62,000 and 66,000~~such shares were deemed anti-dilutive.

The following is a reconciliation of income available to common shareholders used to calculate income per share for the ~~three and nine months ended September 30, 2019, respectively.~~periods indicated (in thousands):

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

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

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

Note 3.4.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,

2020

2019

Cash and cash equivalents
$
21,677
$
17,824
Restricted cash included in other assets

2,376

4,037

Total cash, cash equivalents and restricted cash
$
24,053
$
21,861

		September 30,
		2021		2020

Cash and cash equivalents	$	`7,946`	$	`7,750`
Restricted cash in other assets		`362`		`681`
Cash, cash equivalents and restricted cash in discontinued operations		`10,215`		`15,622`

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

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 4.5.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, ~~2020~~2021
				GROSS		GROSS
		AMORTIZED		UNREALIZED		UNREALIZED		FAIR
		COST		GAINS		LOSSES		VALUE

FIXED MATURITIES
AVAILABLE-FOR-SALE:
Corporate securities	$	`175,26917,435`	$	`3,625177`	$	`(3,020)(92)`	$	`175,87417,520`
CMOs – residential (1)		`4,718576`		`27530`		`-`		`606`
U.S. Government obligations		`4,814`		`-`		`4,993`
~~U.S. Government obligations~~		`50,365 -`		`9674,814`
Agency MBS - residential (2)		`33`		`-`		`51,332`
~~GSEs (2)~~		`5,948 (4)`		`-29`
States and political subdivisions		`5,075`		`(152)29`		`5,796`
~~States and political subdivisions~~		`173,032 (31)`		`3,6325,073`
Foreign government obligations		`(608)`		`176,056`
~~Foreign government obligations~~		`4,9591,009`		`27419`		`-`		`5,2331,028`

Total fixed maturities	$	`414,29128,942`	$	`8,773255`	$	`(3,780)(127)`	$	`419,28429,070`

		December 31, ~~2019~~2020
				GROSS		GROSS
		AMORTIZED		UNREALIZED		UNREALIZED		FAIR
		COST		GAINS		LOSSES		VALUE

FIXED MATURITIES
AVAILABLE-FOR-SALE:
Corporate securities	$	`161,36926,898`	$	`1,832394`	$	`(1,178)(193)`	$	`162,02327,099`
CMOs – residential (1)		`5,328914`		`54`		`-`		`5,382`
~~U.S. Government obligations~~		`50,340`		`257`		`(48)`		`50,549`
~~GSEs (2)~~		`6,23050`		`-`		`(107)964`
U.S. Government obligations		`4,958`		`6,123`
~~States and political subdivisions~~		`153,439-`		`1,512-`		`(943)4,958`
Agency MBS - residential (2)		`39`		`154,008`
~~Foreign government obligations~~		`6,719-`		`172(5)`		`(2)34`
States and political subdivisions		`9,845`		`6,88965`		`(45)`		`9,865`
Foreign government obligations		`1,050`		`33`		`-`		`1,083`

Total fixed maturities	$	`383,42543,704`	$	`3,827542`	$	`(2,278)(243)`	$	`384,97444,003`

(1)Collateralized mortgage obligations (“CMOs”).

(2)~~Government-sponsored enterprises~~Mortgage-backed securities (“~~GSEs”~~MBS”) ~~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, ~~2020,~~2021, by contractual maturity, are shown below (in thousands). Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

		AMORTIZED		FAIR		AMORTIZED		FAIR
		COST		VALUE		COST		VALUE

Due in one year or less	$	35,343	$	35,734	$	1,111	$	1,111
Due after one year through five years		182,202		186,854		13,840		13,824
Due after five years through ten years		114,132		114,533		1,931		2,015
Due after ten years		71,949		71,375		11,451		11,485
Fixed maturities with no single maturity date		10,665		10,788		609		635

	$	414,291	$	419,284	$	28,942	$	29,070

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, 2020												September 30, 2021

		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	$	59,414	$	`2,040`	$	12,971	$	`980`	$	72,385	$	`3,020`	$	-	$	`-`	$	10,720	$	`92`	$	10,720	$	`92`
GSEs		-		`-`		5,791		`152`		5,791		`152`
Agency MBS - residential														29		`4`		-		`-`		29		`4`
States and political subdivisions		16,110		`168`		10,132		`440`		26,242		`608`		401		`8`		1,095		`23`		1,496		`31`

Fixed maturities in an
unrealized loss position	$	75,524	$	`2,208`	$	28,894	$	`1,572`	$	104,418	$	`3,780`	$	430	$	`12`	$	11,815	$	`115`	$	12,245	$	`127`

Number of fixed maturities in an
unrealized loss position		27				20				47				2				2				4

		December 31, 2019												December 31, 2020

		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	$	18,151	$	`455`	$	32,301	$	`723`	$	50,452	$	`1,178`	$	10,998	$	`96`	$	4,453	$	`97`	$	15,451	$	`193`
U.S. Government obligations		-		`-`		7,167		`48`		7,167		`48`
GSEs		-		`-`		6,173		`107`		6,173		`107`
Agency MBS - residential														34		`5`		-		`-`		34		`5`
States and political subdivisions		29,872		`114`		29,462		`829`		59,334		`943`		4,269		`14`		1,124		`31`		5,393		`45`
Foreign government obligations		-		`-`		1,603		`2`		1,603		`2`

Fixed maturities in an
unrealized loss position	$	48,023	$	`569`	$	76,706	$	`1,709`	$	124,729	$	`2,278`	$	15,301	$	`115`	$	5,577	$	`128`	$	20,878	$	`243`

Number of fixed maturities in an
unrealized loss position		18				43				61				5				2				7

Substantially all of the unrealized losses on fixed maturities available-for-sale at September 30, ~~2020~~2021 and December 31, ~~2019~~2020 relate to investment grade securities. Management does not intend to sell, and it is likely that management will not be required to sell these securities prior to their anticipated recovery. The unrealized losses on the Company's fixed maturity securities are related to general market changes in interest rates, and/or the levels of credit spreads largely due to current market conditions relating to the COVID-19 pandemic rather than specific concerns with the issuer's ability to pay interest and repay principal. We have evaluated each corporate security’s credit rating as well as industry risk factors associated with the securities. The fair value of these securities is expected to recover as they approach maturity and therefore the Company does not consider these investments to be other-than-temporarily impaired at September 30, ~~2020.~~2021.

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

Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

Realized gains (losses):

  Fixed maturities available-for-sale
$
(241)
$
895
$
901
$
2,144

   Total realized gains (losses) on debt and equity securities

(241)

895

901

2,144
Unrealized gains (losses) on equity securities

311

35

14

412

Gains (losses) on debt and equity securities

70

930

915

2,556
Gains (losses) on other investments

-

-

18

-

Net investment gains
$
70
$
930
$
933
$
2,556

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

Realized gains (losses):
Fixed maturities available-for-sale	$	`(48)`	$	`(53)`	$	`105`	$	`105`

Total realized gains (losses) on debt and equity securities		`(48)`		`(53)`		`105`		`105`
Gains (losses) on other investments		`-`		`-`		`-`		`17`

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

For the three months and nine months ended September 30, 2021, the Company realized gross gains of $0 and $188,000, respectively, and gross losses of $48,000 and $83,000, respectively, from sales, maturities and prepayments of fixed maturities available-for-sale. For the three months and nine months ended September 30, 2020, the Company realized gross gains of ~~$47,000~~$0 and ~~$1,354,000,~~$162,000, respectively, and gross losses of ~~$288,000~~$53,000 and $453,000, respectively, from sales, maturities and prepayments of fixed maturities available-for-sale. 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,$57,000, 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(v)~~1G(v) to the Consolidated Financial Statements in the ~~2019~~2020 Annual Report on Form 10-K for further discussion of the factors considered by management in its regular review to identify and recognize other-than-temporary impairments on fixed maturities available-for-sale. The Company did not recognize any other-than-temporary impairments on available-for-sale securities in the first nine months of 2021 or 2020. The Company recognized other-than-temporary impairment losses of $0 and $646,000 on certain fixed maturities available-for-sale in the three months and nine months ended September 30, 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.

Note 5.6.Fair Value Disclosures

For all financial and non-financial assets and liabilities accounted for at fair value on a recurring basis, the Company utilizes valuation techniques based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market expectations. These two types of inputs create the following fair value hierarchy:

Level 1 - Quoted prices for identical instruments in active markets.

Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 - Instruments where significant value drivers are unobservable.

The following section describes the valuation methodologies we use to measure different assets at fair

value.

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~~municipals that were priced with observable market

inputs. ~~Level~~The Company does not have any 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.~~ continuing operations at September 30, 2021 or December 31, 2020.

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

		September 30, 2021
		Level 1		Level 2		Level 3		Total

FINANCIAL ASSETS:
Fixed maturities available-for-sale:
Corporate securities	$	`-`	$	`17,520`	$	`-`	$	`17,520`
CMOs - residential		`-`		`606`		`-`		`606`
US Government obligations		`-`		`4,814`		`-`		`4,814`
Agency MBS - residential		`-`		`29`		`-`		`29`
States and political subdivisions		`-`		`5,073`		`-`		`5,073`
Foreign government obligations		`-`		`1,028`		`-`		`1,028`
Total fixed maturities		`-`		`29,070`		`-`		`29,070`

Total Financial Assets	$	`-`	$	`29,070`	$	`-`	$	`29,070`

		December 31, 2020
		Level 1		Level 2		Level 3		Total

FINANCIAL ASSETS:
Fixed maturities available-for-sale:
Corporate securities	$	`-`	$	`175,87427,099`	$	`-`	$	`175,87427,099`
CMOs - residential		`-`		`4,993964`		`-`		`4,993964`
US Government obligations		`-`		`51,3324,958`		`-`		`51,3324,958`
~~GSEs~~ Agency MBS - residential		`-`		`5,79634`		`-`		`5,79634`
States and political subdivisions		`-`		`174,6719,865`		`1,385-`		`176,0569,865`
Foreign government obligations		`-`		`5,2331,083`		`-`		`5,2331,083`
Total fixed maturities		`-`		`417,89944,003`		`1,385-`		`419,28444,003`

~~Equity securities:~~
~~Common stocks~~		`2,907`		`-`		`-`		`2,907`
~~Nonredeemable preferred stocks~~		`853`		`-`		`-`		`853`
~~Total equity securities~~		`3,760`		`-`		`-`		`3,760`

Total Financial Assets	$	`3,760`	$	`417,899`	$	`1,385`	$	`423,044`

		~~December 31, 2019~~
		~~Level 1~~		~~Level 2~~		~~Level 3~~		~~Total~~

~~FINANCIAL ASSETS:~~
~~Fixed maturities available-for-sale:~~
~~Corporate securities~~	$	`-`	$	`162,02344,003`	$	`-`	$	`162,023`
~~CMOs - residential~~		`-`		`5,382`		`-`		`5,382`
~~US Government obligations~~		`-`		`50,549`		`-`		`50,549`
~~GSEs~~		`-`		`6,123`		`-`		`6,123`
~~States and political subdivisions~~		`-`		`152,479`		`1,529`		`154,008`
~~Foreign government obligations~~		`-`		`6,889`		`-`		`6,889`
~~Total fixed maturities~~		`-`		`383,445`		`1,529`		`384,974`

~~Equity securities:~~
~~Common stocks~~		`2,864`		`-`		`-`		`2,864`
~~Nonredeemable preferred stocks~~		`883`		`-`		`-`		`883`
~~Total equity securities~~		`3,747`		`-`		`-`		`3,747`

~~Total Financial Assets~~	$	`3,747`	$	`383,445`	$	`1,529`	$	`388,72144,003`

~~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,

2020

2019

States and

Total

States and

Total

Political

Level 3

Political

Level 3

Subdivisions

Assets

Subdivisions

Assets

Beginning balance
$
1,433
$
1,433

$
1,620
$
1,620

Increases (decreases) recognized in earnings:

   Net investment gains

-

-

-

-

Gains (losses) included in other

  comprehensive income (loss):

    Net unrealized gains (losses)

(5)

(5)

(6)

(6)

Repayments and amortization of

   fixed maturities

(43)

(43)

(39)

(39)

Balance at end of period
$
1,385
$
1,385

$
1,575
$
1,575

Nine Months Ended September 30,

2020

2019

States and

Total

States and

Total

Political

Level 3

Political

Level 3

Subdivisions

Assets

Subdivisions

Assets

Beginning balance
$
1,529
$
1,529

$
1,709
$
1,709

Increases (decreases) recognized in earnings:

   Net investment gains

-

-

-

-

Gains (losses) included in other

  comprehensive income (loss):

    Net unrealized gains (losses)

(17)

(17)

(20)

(20)

Repayments and amortization of

   fixed maturities

(127)

(127)

(114)

(114)

Balance at end of period
$
1,385
$
1,385

$
1,575
$
1,575

Included in unrealized gains (losses) on available-for-sale securities, pre-tax, on the Condensed Consolidated Statement of Comprehensive Income for the three months and nine months ended September 30, 2020 are $(5,000) and $(17,000), respectively, of unrealized gains(losses) attributable to the change in unrealized gains (losses) related to Level 3 securities held at September 30, 2020.

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, ~~2020~~2021

December 31, ~~2019~~2020

Level 1

Level 2

Level 1

Level 2

Fair

Carrying

Fair

Carrying

Value

FINANCIAL ASSETS:

~~Short-term investments~~

1,133

-

1,133

50

-

50

~~Securities purchased under~~

~~agreements to resell~~

78,313

-

78,313

107,157

-

107,157

~~FINANCIAL LIABILITIES:~~ Securities purchased under

~~Funds on deposit~~

- agreements to resell

141,251

141,21225,458

-

141,01025,458

140,95123,962

-

23,962

~~Other policyholders’ funds~~

-

11,693

-

12,049

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:

Securities purchased under agreements to resell

Securities purchased under agreements to resell are carried at the amounts at which the securities will be subsequently resold, which approximates fair value.

~~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 6.7.~~Other Investments, Including~~ Variable Interest Entities

~~Equity Method Investments~~

Equity income (loss) from equity method investments for the three months and nine months ended September 30, 2020 was $204,000 and $176,000, respectively; and was $656,000 and $1,171,000 for the three and nine months ended September 30, 2019, respectively.

In the fourth quarter of 2019, the Company impaired its 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 is $0 at both September 30, 2020 and December 31, 2019. In 2020, the Company discontinued applying the equity method with regards to recording any additional equity losses. In 2019, the Company recorded $(406,000) and $(2,069,000), respectively, of equity income (loss) from its investment for the three months and nine months ended September 30, 2019.

In 2020, the Company acquired the remaining membership units it did not already own in both the Abacus Group, LLC and in Torchlight Technology Group, both of which were previously accounted for under the equity method. See Note 7 for more information about these acquisitions.

~~In July 2020, the Company received a cash distribution in the amount of $3,462,000 from an equity method investment representing a final return on investment.~~

~~Equity Investments Carried at Cost Less Impairments~~

In February 2020, the Company made an additional $1,250,000 equity investment in FIGO Pet Insurance LLC (“FIGO”), a leading insuretech brand company in the pet insurance space focused on referral partners as well as direct-to-consumer and employer benefit channels. 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.

~~Variable Interest Entities~~

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

The Company will periodically reassess whether we are the primary beneficiary in ~~any of these investments.~~this investment. The reassessment process will consider whether we have acquired the power to direct the most significant activities of the VIE through changes in governing documents or other circumstances. Our maximum loss exposure is limited to our ~~combined $1,788,000~~$2,050,000 carrying value in ~~these~~this equity ~~investments~~investment, which is included in other investments in the Condensed Consolidated Balance Sheet as of September 30, ~~2020.~~2021.

Note 8.Related Party Transactions

At September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the Company’s Condensed Consolidated Balance Sheets include $0$85,000 and ~~$5,000, respectively, of notes and other amounts receivable from Ebix Health Exchange, and include $131,000 and $250,000,~~$163,000, respectively, of administrative fees and other expenses payable to Ebix Health Exchange Holdings, LLC (“Ebix Health Exchange”), which are included in ~~other assets and accounts payable, accruals and other~~ liabilities ~~respectively.~~attributable to discontinued operations. The Company’s Condensed Consolidated Statements of Income include administrative fee expenses to Ebix Health Exchange, which are included in ~~selling, general~~pretax income from discontinued operations, of $349,000 and ~~administrative expenses of $407,000 and $1,306,000,~~$1,111,000, respectively, for the three months and nine months ended September 30, ~~2020, respectively,~~2021; and ~~$621,000~~include $407,000 and ~~$1,608,000,~~$1,306,000, respectively, for the same periods in ~~2019.~~2020.

The Condensed Consolidated Statement of Income for the three months and nine months ended September 30, 2020 includes premiums earned of $4,873,000 and $8,835,000, respectively, and includes and selling, general and administrative expense $1,472,000 and $2,669,000 respectively, related to pet insurance business produced by FIGO. Selling, general and administrative expense for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 ~~also~~ includes approximately ~~$0 and~~ $1,507,000 of expense related to the purchase of leads from an affiliated lead generation ~~company. The affiliated lead generation~~ company, Torchlight, which was acquired in April ~~2020, see Note 7.~~of 2020. Lead costs subsequent to ~~the~~ acquisition are eliminated in consolidation. The three and nine months ended September 30, 2019 include approximately $3,104,000 and $4,542,000, respectively, of expense related to the purchase of leads from this lead generation company although this entity was not an affiliate of

~~the Company until June 2019.~~

Note 7.9.~~Acquisitions~~Acquisition

~~The Abacus Group, LLC~~.

On January 1, 2020 (the "Abacus Acquisition Date"), the Company acquired the remaining 56% membership units of The Abacus Group, LLC, (“Abacus”) for a purchase price of $2,599,000, Abacus is an agency group that writes worksite business for Madison National Life and other carriers and receives commissions and other fees. The Company acquired Abacus to further the Company’s position in the worksite marketplace. The Company accounted for its prior ownership interest using the equity method. Immediately preceding the transaction, the Company determined the fair value of its equity interest to be $1,838,000 using a market approach and, as a result, recorded a loss of $163,000, which is included in other income on the Condensed Consolidated Statement of Income.

Upon the acquisition, the Company consolidated the assets and liabilities of Abacus. The following table presents the identifiable assets acquired and liabilities assumed in the acquisition of Abacus on the Abacus Acquisition Date based on their respective fair values (in thousands):

~~Other assets~~	$	`350`

~~Total identifiable assets~~		`350`

~~Other liabilities~~		`575`

~~Total liabilities~~		`575`

~~Net identifiable assets (liabilities) acquired~~	$	`(225)`

In connection with the acquisition, the Company recorded $4,662,000 of goodwill (see Note 8). The amount of goodwill 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 sellers.

Goodwill represents the synergies with our insurance carriers. Abacus has an existing distribution network and offers increased distribution sources for IHC carriers’ existing products and developing products through its enrollment platform designed specifically for producers in the worksite marketplace. Goodwill was calculated as the sum of (i) the acquisition date fair value of total cash consideration transferred of $2,599,000, (ii) the aggregate acquisition-date fair value of equity interests immediately before the acquisition of $1,838,000, and (iii) the net identifiable liabilities of $225,000 that were assumed. The enterprise value of Abacus was determined by a market approach net of any control premium. Acquisition-related costs, primarily legal and consulting fees, were not material and are included in selling, general and administrative expenses in the Condensed Consolidated Statement of Income.

Revenue and net income from Abacus for the period from the Abacus Acquisition Date to March 31, 2020, is not material as most of their agency fee income is derived from Madison National Life and is now eliminated in consolidation. The amount of fee income earned from other carriers in 2020 is not material and will reduce over time as the business either runs-off or is transitioned to Madison National Life.

~~Pro forma adjustments to present the Company’s consolidated revenues and net income as if the acquisition date was January 1, 2019 are not material and accordingly are omitted.~~

Torchlight Technology Group LLC.

On April 15, 2020 (the "Torchlight Acquisition Date"), the Company acquired the remaining 77% membership units of Torchlight Technology Group LLC, (“Torchlight”) for a purchase price of $11,443,000 in ~~cash.~~cash and other consideration valued at $185,000. In accordance with the purchase and sale agreement, the Company will also make future incentive payments to the former owners ~~and certain employees~~ based on the future market appreciation of IHC. These payments will be accounted for as compensation for post-combination services. The Company purchased Torchlight for its marketing technology (“MarTech”), artificial data intelligence, and consumer lead generation capabilities. In an effort to further expand our InsureTech division (comprised of Torchlight, our call centers, field and career agents, and web domains), the Company wants to be able to internally develop and deliver lead traffic opportunities in an affordable and controlled environment. The Company accounted for its prior ownership interest using the equity method. Immediately preceding the transaction, the Company determined the fair value of its equity interest to be $3,432,000 using the income approach and, as a result, recorded a gain of $519,000, which is included in other income on the Condensed Consolidated Statement of Income.

Upon the acquisition, the Company consolidated the assets and liabilities of Torchlight. The following table presents the identifiable assets acquired and liabilities assumed in the acquisition of Torchlight on the Torchlight Acquisition Date based on their respective fair values (in thousands):

Cash	$	`333`
Intangible assets		`2,700`
Other assets		`2,132`

Total identifiable assets		`5,165`

Other liabilities		`1,3541,227`

Total liabilities		`1,3541,227`

Net identifiable assets acquired	$	`3,8113,938`

In connection with the acquisition, the Company recorded ~~$11,064,000~~$11,122,000 of goodwill, of which $7,976,000 is deductible for income tax purposes, and $2,700,000 of intangible assets. In 2021, this goodwill was allocated among the Pets Sale and MNL Sale disposal groups and is included in assets ~~(see Note 8). The fair value of~~attributable to discontinued operations on the acquired identifiable intangible assets is 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 sellers.Condensed Consolidated Balance Sheets.

Goodwill ~~represents~~for Torchlight represented the synergies with our agencies. With a significant dependence on consumer and small business opportunities, our agencies require a consistent and predictable flow of lead traffic, and as a result, have meaningful synergies with the functions and deliverables that are developed at Torchlight. Before the acquisition of Torchlight, our agency was fully dependent on market traffic, which was both unpredictable in price and availability. Such restrictions would not allow for coordinated or scheduled growth. Goodwill was calculated as the sum of (i) the acquisition date fair value of total aggregate consideration transferred of ~~$11,443,000;~~$11,628,000; and (ii) the aggregate acquisition-date fair value of equity interests immediately before the acquisition of $3,432,000; over (iii) the net identifiable assets of ~~$3,811,000~~$3,938,000 that were acquired. The enterprise value of Torchlight was determined by an independent appraisal using a discounted cash flow model. Acquisition-related costs, primarily legal and consulting fees, were not material and are included in selling, general and administrative expenses in the Condensed Consolidated Statement of Income.

Revenue and net loss from Torchlight for the period from the Torchlight Acquisition Date to September 30, 2020 is $3,920,000 and $(1,815,000), respectively. The net loss is primarily related to the integration of Torchlight with the Company’s other operations.

Pro forma adjustments to present the Company’s consolidated revenues and net income as if the acquisition date was January 1, 2019 are not material and accordingly are omitted.

Note 8.10.~~Goodwill and Other~~ Intangible Assets

The carrying amount of goodwill at September 30, 2020 and December 31, 2019 was $75,891,000 and $60,165,000, respectively. Of these amounts, the portion attributable to the Specialty Health segment, which includes our InsureTech division, was $71,229,000 and $60,165,000 at September 30, 2020 and December 31, 2019, respectively, and the portion attributable to the Group disability, life, DBL and PFL segment was $4,662,000 and $0, for the same periods, respectively.

As discussed in Note 7, in connection with the acquisitions of Abacus and Torchlight in 2020, the Company recorded $4,662,000 of goodwill associated with the Group disability, life, DBL and PFL segment and $11,064,000 of goodwill associated with the Specialty Health segment.

The Company has net ~~other~~ intangible assets of ~~$15,558,000~~$3,012,000 and ~~$13,379,000~~$3,531,000 at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, which are included in other assets in the Condensed Consolidated Balance Sheets. These intangible assets consist ~~of: (i)~~of finite-lived intangible assets, principally the fair value of acquired agent and broker relationships, which are subject to ~~amortization; and (ii) indefinite-lived intangible assets which consist of the estimated fair value of insurance licenses that are not subject to~~ amortization.

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

		September 30, ~~2020~~2021				December 31, ~~2019~~2020
		Gross				Gross
		Carrying		Accumulated		Carrying		Accumulated
		Amount		Amortization		Amount		Amortization

Finite-lived Intangible Assets:
Agent and broker relationships	$	`12,6836,583`	$	`8,0254,707`	$	`18,7537,583`	$	`14,4745,385`
~~Domain~~ Software systems		`1,0001,500`		`400364`		`1,0001,500`		`325167`
~~Software systems~~		`2,930`		`607`		`780`		`332`
Total finite-lived	$	`16,6138,083`	$	`9,0325,071`	$	`20,5339,083`	$	`15,1315,552`

September 30,

December 31,

2020

2019
Indefinite-lived Intangible Assets:

Insurance licenses

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

$
7,977
$
7,977

As discussed in Note 7, in connection with the acquisition of Torchlight, the Company recorded $2,700,000 of intangible assets associated with the Specialty Health segment, of which $1,200,000 represents the fair value of customer relationships being amortized over a weighted average period of 10 years, and $1,500,000 represents software technology being amortized over a weighted average period of 8 years.

~~In June 2020, the Company acquired TailTrax, which is an Android and IOS app that contains features~~

~~valued by pet parents for $650,000 and is being amortized over a weighted average period of 3 years.~~

Amortization expense was ~~$412,000~~$178,000 and ~~$1,083,000~~$519,000 for the three months and nine months ended September 30, 2021, respectively; and was $162,000 and $386,000 for the three months and nine months ended September 30, 2020, ~~respectively, and was $308,000 and $976,000 for the three and nine months ended September 30, 2019,~~ respectively.

Note 9.11.Fee Income

All of the fee income recorded by the IHC Agencies and its lead generation company relate to our Specialty Health segment. The following table presents fee income disaggregated by type for the periods indicated (in thousands).

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

Commissions	$	`1,372`	$	`1,684`	$	`5,662`	$	`5,346`
Commissions from affiliates		`1,820`		`2,410`		`5,572`		`7,602`
Administrative Fees		`-`		`-`		`-`		`875`
Marketing Fees		`198`		`290`		`757`		`933`
Enrollment Platform Fees		`454`		`502`		`1,539`		`1,476`
Lead and Referral Fees		`1,681`		`1,111`		`6,627`		`1,964`
Application and Other Fees		`44`		`116`		`134`		`269`

Total Fee Income	$	`5,569`	$	`6,113`	$	`20,291`	$	`18,465`

Commissions

Commission revenues result from the sales of certain policies by the IHC Agencies on behalf of multiple unaffiliated insurance carriers. Increased sales of products to these unaffiliated insurance carriers began in 2020 as a result of new contracts with the carriers and increased distribution channels. These policies primarily consist of senior products, such as Medicare Advantage, Medicare Part D prescription drug plans and Medicare Supplement plans, as well as Affordable Care Act (“ACA”) plans. A significant portion of our commission revenues are recorded at a point in time upon the issuance of a policy by the unaffiliated insurance carrier based on expected constrained lifetime value (“LTV”). Constrained LTV represents expected commissions to be received over the lifetime of the policies sold. The Company analyzes various factors, such as commission rates, carrier mix, contract amendments and terminations, estimated average plan durations, cancellations and non-renewals, to estimate the LTV. Constraints are applied to help ensure that the total estimated lifetime commissions expected to be collected are recognized as revenue only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur.

We evaluate the appropriateness of our constraints on a quarterly basis and update the LTV assumptions if we observe evidence that suggests a change in the underlying long-term expectations. In doing this, we apply significant judgement in assessing historical cash collections and changes in circumstances that would impact future cash collections such as, but not limited to, commission rates, carrier mix, plan durations, plan cancellations and non-renewals. Changes in LTV result in an increase or decrease to fee income revenue and a corresponding increase or decrease to contract assets. Any significant impact due to changes in the LTV assumptions are recognized in revenue (i) in the period of the change; and (ii) to the extent we do not believe a significant reversal is probable.

Commissions from Affiliates

Commissions from affiliates represent commission revenues from the sales of certain insurance policies by the IHC Agencies on behalf of the Company’s wholly owned insurance carriers. These amounts were previously eliminated in consolidation. In 2021, the Company committed to various plans to sell these insurance carriers (see Note 2) and as a result, the insurance carrier operations are now presented as discontinued operations in the accompanying financial statements. In the Condensed Consolidated Statements of Income, commission revenues from affiliates are included in fee income as presented in continuing operations; and the carriers’ corresponding commission expense is included in pretax income from discontinued operations.

Costs to Fulfill a Contract

Costs to fulfill a contract include commissions owed to independent licensed agents or affinity partners that are contracted by the IHC Agencies. Upon the submission of a completed insurance application, the sales and marketing performance obligation is complete and the resultant estimated lifetime commission costs incurred are expensed and a corresponding commission liability is recorded on the Condensed Consolidated Balance Sheet. As policyholders continue their policy and remit monthly premium payments, the Company receives its commissions from the insurance carrier. Commissions owed to the agent or affinity partner are then paid and the corresponding liability is reduced. Judgement is required to estimate total expected lifetime commissions based on policy duration assumptions. At September 30, 2021 and December 31, 2020, the aforementioned commission liability was $2,750,000 and $2,362,000, respectively, and is included in accounts payable, accruals and other liabilities on the Condensed Consolidated Balance Sheet.

Contract Asset

Contract assets primarily relate to our commission revenues for the sales of senior products, such as Medicare Advantage and Medicare Supplement plans and ACA plans, which began in 2020. When commission revenue for the sales of these products is recognized, a corresponding contract asset is recorded in other assets on the Condensed Consolidated Balance Sheet. The timing of revenue differs from the collection of commissions. As policyholders continue their policy and remit monthly premium payments, the Company receives its commissions from the insurance carrier and the contract asset is reduced.

The following table summarizes the contract asset activity for the period indicated (in thousands).

		Nine Months Ended
		September 30, 2021

Beginning Balance	$	`7,760`
Commissions recognized during the period		`6,950`
Commission adjustments related to prior periods		`(1,295)`
Cash receipts		`(5,291)`

Ending Balance	$	`8,124`

Remaining Performance Obligations

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

Note 12.Income Taxes

The provisions for income taxes shown in the Condensed Consolidated Statements of Income were computed by applying the effective tax rate expected to be applicable for the reporting periods. 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. In addition, the effective rate for 2020 was negatively impacted by the non-deductibility of certain expenses recorded in connection with the Regulatory Settlement Agreement discussed in Note 13, partially offset by the benefit of capital losses attributable to the sale of a subsidiary in 2020.

AtOn December 31, ~~2019,~~2020, AMIC ~~Holdings, Inc. (“AMIC”) and its subsidiaries~~ had Federal net operating loss carryforwards of approximately ~~$114,531,000, expiring in varying amounts through the year 2034,~~$46,116,000 and a ~~significant portion if which expired in 2020, and were limited in their utilization to future taxable income earned on a separate company basis. At December 31, 2019, AMIC’s~~corresponding valuation allowance ~~was $17,212,000 and was~~of $8,281,000 related to those net operating loss carryforwards that, in the judgment of management, were not considered realizable. ~~A significant portion~~On June 30, 2021, the Company sold PetPartners and recorded a pretax gain of ~~these~~$74,008,000 (See Note 2). As a result, AMIC decreased its valuation allowance by $8,281,000 and utilized the $46,116,000 of its outstanding Federal net operating loss ~~carryforwards,~~carryforwards. Total income tax expense related to the pretax gain on disposal of discontinued operations was $11,675,000. The primary differences between the Federal statutory income tax rate and the ~~corresponding~~Company’s effective income tax rate related to the gain on disposal of discontinued operations are the result of AMIC’s decrease in its valuation ~~allowances, expired~~allowance, partially offset by the non-deductibility of goodwill and other expenses related to the disposal.

The effective income tax rates related to losses from continuing operations in ~~2020. At September 30,~~2021 were impacted by tax benefits from exercises of share-based compensation and state and local income tax benefits on certain subsidiaries. In 2020, ~~AMIC~~the effective income tax rates related to losses from continuing operations reflect a benefit from capital losses attributable to the sale of a subsidiary and ~~its subsidiaries have available Federal net operating loss carryforwards of approximately $45,584,000 that primarily expire in 2021.~~state and local income tax benefits on certain subsidiaries.

On March 27, 2020, as part of the business stimulus package in response to the COVID-19 pandemic, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security ("CARES") Act. The CARES Act established new tax provisions including, but not limited to: (1) five-year carryback of net operating losses ("NOLs") generated in 2018, 2019 and 2020; (2) accelerated refund of alternative minimum tax (AMT) credit carryforwards; and (3) retroactive changes to allow accelerated depreciation for certain depreciable property. At this time, the legislation does not have a material impact on the Company due to the lack of taxable losses in the stated carryback eligible tax years and the fact that the Company was already expecting to receive a cash benefit for the remaining AMT credits in the fiscal 2018 tax year return.

The New York State Department of Taxation and Finance has selected the Company’s 2015 and 2016 NYS returns for audit.

Note 10.~~Policy Benefits and Claims~~

Policy benefits and claims is the liability for unpaid loss and loss adjustment expenses. It is comprised of unpaid claims and estimated incurred but not reported (“IBNR”) reserves related to the Company’s short-duration contracts. Summarized below are the changes in the total liability for policy benefits and claims for the periods indicated (in thousands). Amounts incurred below do not include expenses for policy benefits and costs incurred for the Company’s life, annuity and other long-duration contracts. In addition, certain loss adjustment expenses related to short-duration contracts that are included in amounts incurred below are classified as selling general and administrative expenses on the Condensed Consolidated Statements of Income.

		~~Nine Months Ended September 30, 2020~~
		~~Specialty~~		~~DBL and~~		~~Group~~		~~All Other~~
		~~Health~~		~~PFL~~		~~Disability~~		~~Lines~~		~~Total~~

~~Balance at beginning of year~~	$	`42,228`	$	`23,438`	$	`80,079`	$	`19,057`	$	`164,802`
~~Less: reinsurance recoverable~~		`1,717`		`664`		`23,322`		`11,290`		`36,993`
~~Net balance at beginning of year~~		`40,511`		`22,774`		`56,757`		`7,767`		`127,809`

~~Amount incurred, related to:~~
~~Current year~~		`67,352`		`62,204`		`26,865`		`15,494`		`171,915`
~~Prior years~~		`(4,009)`		`(3,467)`		`(2,998)`		`(3,284)`		`(13,758)`

~~Total incurred~~		`63,343`		`58,737`		`23,867`		`12,210`		`158,157`

~~Amount paid, related to:~~
~~Current year~~		`36,780`		`31,040`		`7,787`		`9,227`		`84,834`
~~Prior years~~		`25,554`		`18,974`		`15,630`		`2,256`		`62,414`

~~Total paid~~		`62,334`		`50,014`		`23,417`		`11,483`		`147,248`

~~Net balance at end of period~~		`41,520`		`31,497`		`57,207`		`8,494`		`138,718`
~~Plus: reinsurance recoverable~~		`2,106`		`595`		`21,890`		`10,805`		`35,396`
~~Balance at end of period~~	$	`43,626`	$	`32,092`	$	`79,097`	$	`19,299`	$	`174,114`

		~~Nine Months Ended September 30, 2019~~
		~~Specialty~~		~~DBL and~~		~~Group~~		~~All Other~~
		~~Health~~		~~PFL~~		~~Disability~~		~~Lines~~		~~Total~~

~~Balance at beginning of year~~	$	`38,363`	$	`21,080`	$	`82,222`	$	`18,450`	$	`160,115`
~~Less: reinsurance recoverable~~		`1,335`		`719`		`24,712`		`11,356`		`38,122`
~~Net balance at beginning of year~~		`37,028`		`20,361`		`57,510`		`7,094`		`121,993`

~~Amount incurred, related to:~~
~~Current year~~		`61,866`		`48,594`		`22,957`		`12,521`		`145,938`
~~Prior years~~		`(4,370)`		`(6,424)`		`(3,699)`		`(1,457)`		`(15,950)`

~~Total incurred~~		`57,496`		`42,170`		`19,258`		`11,064`		`129,988`

~~Amount paid, related to:~~
~~Current year~~		`32,806`		`29,760`		`6,852`		`6,977`		`76,395`
~~Prior years~~		`21,873`		`13,772`		`12,623`		`3,058`		`51,326`

~~Total paid~~		`54,679`		`43,532`		`19,475`		`10,035`		`127,721`

~~Net balance at end of period~~		`39,845`		`18,999`		`57,293`		`8,123`		`124,260`
~~Plus: reinsurance recoverable~~		`1,837`		`677`		`23,712`		`10,943`		`37,169`
~~Balance at end of period~~	$	`41,682`	$	`19,676`	$	`81,005`	$	`19,066`	$	`161,429`

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.

~~Net favorable (unfavorable) development in the Specialty Health segment, as depicted in the tables above, is comprised of the following lines of business for the period indicated (in thousands):~~

Nine Months Ended

September 30,
Specialty Health segment:

2020

2019
Short-term Medical
$
1,001
$
471
Occupational Accident

1,075

1,921
Limited Medical

349

507
Critical Illness

429

269
Group Gap

575

98
Fixed Indemnity Limited Benefit

(626)

327
Pet

646

127
All other specialty health lines

560

650

    Total Specialty Health segment
$
4,009
$
4,370

In 2020, net favorable development in the various lines of the Specialty Health segment shown above is primarily due to better than expected claim development. Unfavorable development in the Fixed Indemnity Limited Benefit line in 2020 is primarily due to higher than expected claim severity on a small number of policies. In 2019, favorable development in the occupational accident line, in run-off, is mainly due to some claims settling for amounts less than anticipated and due to a lower level of employer liability claims than anticipated in relation to historical levels. Net favorable development in the other lines of Specialty Health business in 2019 is primarily due to better than expected claim development.

In 2020, the net favorable development in the DBL and PFL business is mainly due to favorable premium refund reserve adjustments in the DBL line of business. In 2019, net favorable development is primarily due to favorable DBL claims experience.

In 2020, favorable development in the group disability business is primarily due to a reduction in the number of open claims and a reduction in the severity of new claims, specifically, new claims in the LTD line, partially offset by an increase in the overall frequency and severity of claims in the STD line. In 2019, favorable development in the group disability business is primarily due to better than expected claim development in terms of duration and net payments in the LTD business.

All other lines, primarily life and other individual health products and including our medical stop-loss business in run-off, experienced favorable development in 2020 and 2019 that is primarily related to the group term life business due to continued improvements in experience.

Included in the preceding rollforwards of the Company’s liability for policy benefits and claims are the policy benefits and claims activity associated with the Company’s health insurance lines. These are embedded within the Specialty Health segment. The table below summarizes the components of the change in the liability for policy benefits and claims that are specific to health insurance claims for the periods indicated (in thousands).

Specialty Health Segment

Health Insurance Claims

Nine Months Ended

September 30,

2020

2019

Balance at beginning of year
$
31,259

$
26,068
Less: reinsurance recoverable

1,113

851
Net balance at beginning of year

30,146

25,217

Amount incurred, related to:

  Current year

32,574

38,950
  Prior years

(2,292)

(2,370)

  Total incurred

30,282

36,580

Amount paid, related to:

  Current year

14,610

15,630
  Prior years

18,331

15,357

  Total paid

32,941

30,987

Net balance at end of period

27,487

30,810
Plus: reinsurance recoverable

2,106

919
Balance at end of period
$
29,593

$
31,729

~~The $27,487,000 net balance of the Company’s health insurance claims liability at September 30, 2020 shown in the table above is all IBNR plus expected development on reported claims.~~

Note 11.13.Stockholders’ Equity

~~Treasury Stock~~

In 2020, the Company repurchased 231,976 shares of its common stock for an aggregate cost of $7,053,000 and of that amount, 36,377 shares were repurchased for an aggregate cost of $982,000 pursuant to the terms of a tender offer.

Accumulated Other Comprehensive Income (Loss)

Other comprehensive income (loss) includes the after-tax net unrealized gains and losses on investment securities available-for-sale, including the subsequent increases and decreases in fair value of available-for-sale securities previously impaired and the non-credit related component of other-than-temporary impairments of fixed maturities.

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

		Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
		September 30,				September 30,				September 30,				September 30,
		2020		2019		2020		2019		2021		2020		2021		2020

Beginning balance	$	`2,854`	$	2,298	$	`1,212`	$	`(8,310)`	$	`3,220`	$	`2,854`	$	4,197	$	`1,212`

Other comprehensive income (loss):
Other comprehensive income (loss) before reclassifications		`873`		1,995		`3,417`		`13,072`		`(999)`		`873`		(2,012)		`3,417`
Amounts reclassified from accumulated OCI		`191`		(706)		`(711)`		`(1,175)`		`99`		`191`		135		`(711)`
Net other comprehensive income		`1,064`		1,289		`2,706`		`11,897`
Net other comprehensive income (loss)										`(900)`		`1,064`		(1,877)		`2,706`

Ending balance	$	`3,918`	$	3,587	$	`3,918`	$	`3,587`	$	`2,320`	$	`3,918`	$	2,320	$	`3,918`

Presented below are the amounts reclassified out of accumulated other comprehensive income (loss) and recognized in earnings for each of the periods indicated (in thousands):

Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

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

  reclassified during the period to the following income

  statement line items:

     Net investment gains (losses)
$
(241)
$
895
$
901
$
2,144
     Net impairment losses recognized in earnings

-

-

-

(646)

     Income (loss) before income tax

(241)

895

901

1,498
     Income tax expense (benefit)

(50)

189

190

323

     Net income (loss)
$
(191)
$
706
$
711
$
1,175

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

Unrealized gains (losses) on available-for-sale securities
reclassified during the period to the following income
statement line items:
Net investment gains (losses)	$	`(48)`	$	`(53)`	$	`106`	$	`105`

Income (loss) from continuing operations before income taxes		`(48)`		`(53)`		`106`		`105`
Income tax expense (benefit)		`(11)`		`(10)`		`20`		`23`
Income (loss) from continuing operations, net of tax		`(37)`		`(43)`		`86`		`82`

Total pretax income (loss) from discontinued operations		`(79)`		`(188)`		`(280)`		`796`
Income tax expense (benefit) on discontinued operations		`(17)`		`(40)`		`(59)`		`167`
Income from discontinued operations, net of tax		`(62)`		`(148)`		`(221)`		`629`

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

Note 12.14.Supplemental Disclosures of Cash Flow Information

Net cash payments for income taxes were ~~$436,000~~$10,131,000 and ~~$783,000~~$436,000 during the nine months ended September 30, 2021 and 2020, ~~and 2019,~~ 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~~commenced an action on May 17, 2017 in the United States District Court, Northern District of Texas, Dallas Division (the “Texas Action”), naming IHC, Madison National Life, Standard Security Life, and Independence Brokerage Group, Inc. (formerly IHC Carrier Solutions, Inc.) ~~(collectively referred to~~ as ~~“Defendants”~~defendants (“Defendants”)~~. “Plaintiff” and “Defendants” are collectively referred to herein as the “Parties”~~. The ~~Complaint concerns agreements entered into by Standard Security Life and Madison National Life with~~ Plaintiff ~~as well as other allegations made by Plaintiff against Defendants. The Complaint~~ seeks ~~injunctive relief and damages in an amount exceeding $50,000,000,~~contractual payments allegedly owed ~~to Plaintiff under~~by the ~~agreements~~Defendants totaling at least $3,082,000 through 2014, plus additional amounts for 2015 and 2016, and exemplary and punitive damages as allowed by law and fees and costs. ~~Defendants believe these claims to be without merit. Defendants moved to Compel Arbitration and Dismiss or Stay~~The court had previously stayed the ~~original Complaint. Plaintiff filed an Amended Complaint on August 18, 2017. Defendants filed~~proceedings during the pendency of two arbitrations. The first arbitration resulted in a ~~Motion to Compel Arbitration or Stay the Amended Complaint. The Parties agreed to enter into an Order staying the action filed~~judicially-confirmed award in ~~Texas. The Parties’ disputed claims moved in part to arbitration.~~

favor of Standard Security Life and Madison National Life ~~demanded arbitration against this TPA. The Arbitration Panel issued an Order splitting~~in 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 and were awarded~~amount of $5,641,000, (“Arbitration Award”). The TPA’s counterclaims were heard during Phase II held on February 11, 2019 through February 15, 2019. Standard Security Life and Madison National Life successfully opposedwhich the counterclaims asserted by the 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. On July 15, 2019, the TPA filed a Notice of Appeal to the United States Court of Appeals for the Seventh Circuit from the judgment entered on June 17, 2019. The TPAPlaintiff has filed its appeal and was required to file a bond for the awarded amount in order to proceed. Standard Security Life and Madison National Life submitted a response. Oral argument was held on May 28, 2020 and on July 28, 2020, the 7th ~~Circuit upheld the district court’s decision confirming the arbitration award.~~satisfied. The Company received payment on September 9, ~~2020 and recorded it~~2020. The resultant income is included in ~~other~~ income onfrom discontinued operations in the Condensed Consolidated ~~Statement~~Statements of Income for the three months and nine months ended September 30, 2020. The second arbitration resulted in no monetary obligations owed by any of the ~~third quarter.~~

~~Since the arbitration is complete, the stay in the Texas litigation~~parties. The Plaintiff has ~~been lifted.~~filed a motion for leave to file a Second Amended Complaint. The Defendants filed a Motion to ~~Dismiss. On October 16, 2019,~~Dismiss Plaintiff’s Second Amended Complaint. This motion is fully briefed and we are awaiting the Court granted in part and denied in part our Motion to Dismiss. Count I, which relates to the breach of contract, was denied without prejudice. Counts II-VI were granted in part. The Court found that an arbitration agreement, including an arbitration provision, exists between Plaintiff and Defendants. The arbitration provision incorporates the AAA Rules, evincing clear and unmistakable evidence of the parties’ intent to have the arbitrator decide whether a given claim must be arbitrated. Therefore, Counts II-VI were dismissed, without prejudice. The parties were directed to proceed with arbitration. In light of this holding, the action relating to Count I, breach of Contract, was stayed and administratively closed pending the outcome of another arbitration. On February 2, 2020, we received the TPA’s Demand for Arbitration. We responded and the parties are engaged in discovery.Court’s decision.

Multistate Market Conduct Examination (“MCE”)

lead states of the MCE. In addition to the five lead states, 37 other states ~~are participating~~participated in the MCE. Each of Standard Security Life, Madison National Life and Independence American Insurance Company responded to inquiries and document production requests in the MCE and proactively communicated and cooperated with the applicable regulatory agencies for the MCE. Each of these subsidiaries also provided a detailed action plan to regulators that ~~summarizes~~summarized its enhanced compliance and control mechanisms.

In an effort to avoid long‐term litigation and/or administrative proceedings that would be required to resolve disputes between Standard Security Life, Madison National Life and Independence American Insurance Company and the states involved in the MCE, the Lead States and Standard Security Life, Madison National Life and Independence American Insurance Company entered into separate ~~Regulatory Settlement Agreements ("RSAs")~~RSAs on July 14, 2020. The RSAs require the implementation of a compliance plan, impose certain requirements related to specified business practices and monetary payments. The thirty-seven participating states ~~have~~ adopted the RSAs. The Company accrued $3,660,000 in accounts payable, accruals and other liabilities on the ~~Condensed~~ Consolidated Balance Sheet in the second quarter of 2020 and processed payment in ~~October.~~October 2020. The corresponding expense is included in income from discontinued operations in the Condensed Consolidated Statements of Income for the nine months ended September 30, 2020. As set forth in the RSAs, ~~the~~Standard Security Life, Madison National Life and Independence American Insurance Company ~~denies~~deny any wrongdoing or violation of any applicable laws or regulations, and the entry into the RSAs is not an admission or acknowledgment ~~by the Company~~ of any wrongdoing or liability. In accordance with the RSAs, the Monitoring Period commenced and Standard Security Life, Madison National Life and Independence American Insurance Company continue to comply.

Note 14.16.Segment Reporting

The Insurance Group principally ~~engaged~~engages in ~~underwriting, administering and/or distributing group~~the life and ~~individual specialty benefit products, including disability, supplemental~~ health insurance business. As a result of the pending sales discussed in Note 2, the operations of the Insurance Group, and certain other pet ~~and group life insurance.~~assets, are presented in discontinued operations. Continuing operations consist primarily of the IHC Agencies which are in the Specialty Health segment. Taxes and general expenses associated with parent company activities are included in Corporate. Identifiable assets by segment are those assets that are utilized in each segment and are allocated based upon the mean reserves and liabilities of each such segment. Corporate assets are composed principally of cash equivalents, resale agreements, fixed maturities, ~~equity securities,~~ partnership interests and certain other investments. Management will re-assess the Company’s reportable segments based on its new organizational structure after the pending sale transactions discussed in Note 2 are consummated.

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,

2020

2019

2020

2019

2021

2020

2021

2020

Revenues:

Specialty Health ~~(A)~~

60,069

48,237

160,254

149,419

5,520

6,749

20,204

19,188

Group disability, life, DBL and PFL

52,728

44,025

160,970

127,068

Group disability and life

-

Individual life, annuities and other ~~(B)~~

502

459

1,310

1,285

-

Corporate

(149)

1,514

1,055

4,787

1,041

149

2,177

1,932

113,150

94,235

323,589

282,559

6,561

6,898

22,381

21,120

Net investment gains

70

930

933

2,556

Net impairment losses recognized in earnings

-

(646)

Net investment gains (losses)

(48)

(53)

105

122

Total revenues

113,220

95,165

324,522

284,469

6,513

6,845

22,486

21,242

Income before income taxes

Specialty Health (A)(C)

4,897

1,127

1,173

13,608

Group disability, life, DBL and PFL

8,786

9,985

21,569

19,187

Individual life, annuities and other (B)(D)

(184)

(640)

(466)

(1,122)

Corporate

(2,860)

(1,983)

(6,398)

(5,124)

Specialty Health (A)

(7,022)

(6,969)

(17,921)

(16,579)

Group disability and life

-

Individual life, annuities and other

-

Corporate (B)

(8,009)

(2,564)

(12,726)

(5,522)

10,639

8,489

15,878

26,549

(15,031)

(9,533)

(30,647)

(22,101)

Net investment gains

70

930

933

2,556

Net impairment losses recognized in earnings

-

(646)

Income before income taxes

10,709

9,419

16,811

28,459

Net investment gains (losses)

(48)

(53)

105

122

Loss from continuing operations before income taxes

(15,079)

(9,586)

(30,542)

(21,979)

(A)~~For the~~In both 2021 and 2020, we incurred significant costs associated with hiring, training and licensing a significant number of new agents, as well as costs for system development in our marketing and administrative companies.

(B)The three months and nine months ended September 30, ~~2020, the Specialty Health segment includes $5,641,000 of pretax income recognized upon the receipt of an arbitration award with a former TPA discussed in Note 13.~~

(B)~~Substantially all of the business in the segment is coinsured. Activity in this segment primarily reflects income or expenses related to the coinsurance~~2021 include legal and ~~the run-off of any remaining blocks that were not coinsured.~~

(C)~~The Specialty Health segment includes a charge of $0 and $3,660,000 for the three and nine months ended September 30, 2020 related to the MCE described in Note 13.~~

(D)~~The Individual life, annuities and other segment includes amortization of deferred charges~~investment bank fees recorded in connection with the ~~assumptions~~Going Private Transaction (see Note 1) and the obligations of ~~certain ceded life~~the Special Committee of independent directors to consider the proposal, and ~~annuity policies of $189,000~~to review, evaluate, negotiate and ~~$198,000, for~~approve or disapprove the ~~three months ended September 30, 2020~~proposal and ~~2019, respectively, and $553,000 and $600,000, for the nine months ended September 30, 2020 and 2019, respectively.~~alternatives.

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, ~~2019,~~2020, as filed with the Securities and Exchange Commission, and our unaudited Condensed Consolidated Financial Statements and related Notes thereto appearing elsewhere in this quarterly report.

Overview

Independence Holding Company, a Delaware corporation, is a holding company principally engaged in underwriting, administering and/or distributing group and individual specialty benefit products, including disability, supplemental health, pet, and group life insurance through: (i) its insurance companies, Standard Security Life, Madison National Life, and Independence ~~American;~~American Insurance Company; and (ii) its marketing and administrative companies ~~including IHC Specialty Benefits Inc., Independence Brokerage Group, Inc., My1HR, Torchlight,~~consisting of IHCSB, IBG, INSXCloud (collectively the “IHC Agencies”) and aits lead generation company, Torchlight. On June 30, 2021, the Company sold its majority interest in ~~PetPartners.~~PetPartners, a major distributor and administrator of pet insurance underwritten by Independence American Insurance Company and an unaffiliated insurer. Standard Security Life, Madison National Life and Independence American Insurance Company are sometimes collectively referred to as the “Insurance Group”. IHC and its subsidiaries (including the Insurance Group) are sometimes collectively referred to as the "Company", or “IHC”, or are implicit in the terms “we”, “us” and “our”.

~~While management considers~~During the second and third quarters of 2021, the Board of Directors committed to the following plans for the disposal of several business operations. Each disposal plan below represents a ~~wide range~~strategic shift that will have a major effect on the Company’s operations and financial results and as such, they each qualify for reporting as discontinued operations.

(A)On April 14, 2021, IHC and its wholly owned subsidiary ICC entered into a purchase agreement with Reliance Standard (“SSL Purchase Agreement”) to sell all of ~~factors~~the issued and outstanding capital stock of Standard Security Life, a wholly owned subsidiary of ICC, for an aggregate purchase price of $180 million in cash. On July 29, 2021, the SSL Purchase Agreement was amended and restated (the “SSL Amended Purchase Agreement”). In accordance with the SSL Amended Purchase Agreement, the Company will receive the excess of aggregate statutory capital and surplus, calculated as of the closing date, over $57 million. The closing of the transaction, the closing distribution and certain other items are subject to customary closing conditions including applicable regulatory approvals, one of which is the approval of the NYSDFS. Under the terms of the SSL Amended Purchase Agreement, the transaction includes all of Standard Security Life’s DBL and PFL business in addition to all its ~~strategic planning~~other lines of business. The aforementioned transaction, consisting of the sale of Standard Security Life, the closing distribution and ~~decision-making, underwriting profit~~other closing conditions, is ~~consistently emphasized~~collectively referred to as the ~~primary goal~~“SSL Sale” transaction or disposal group.

(B)On May 17, 2021, IHC and its wholly owned subsidiary SBH entered into a stock purchase agreement with a subsidiary of Iguana Capital to sell its 85% interest in PetPartners, a major distributor and administrator of pet insurance underwritten by Independence American Insurance Company and an unaffiliated insurer. In addition, IHC and its wholly owned subsidiary, AMIC, entered into a stock purchase agreement with Iguana Capital to sell all ~~decisions as to whether or not to increase our retention~~of the issued and outstanding capital stock of IAHC (“IAHC Purchase Agreement”), which owns all of the issued and outstanding common stock of Independence American Insurance Company and other pet assets including the Company’s equity investments in ~~a core line, expand into new products, acquire an entity or a block~~FIGO Pet Insurance, LLC and Pet Assistant Holdings, LLC. Under the terms of the IAHC Purchase Agreement, the transaction includes all of Independence American Insurance Company’s pet

business and excludes all other lines of business which will be reinsured by Madison National Life prior to the closing. The impact of these two agreements, taken in the aggregate, represents the sale of 70% of the Company’s pet business. The Company will retain a 30% interest in the business sold in the form of an equity investment in the buyer, Iguana Capital. On June 30, 2021, the sale of PetPartners closed and in exchange for its shares of PetPartners, the Company received $78.3 million in cash, retained a 30% equity investment valued at $33.8 million and recorded a $74.0 million pretax gain on sale of discontinued operations, net of transaction costs. The cash is held in escrow until such time as the IAHC sale transaction closes. In connection with the pending sale of IAHC, the Company will receive approximately $190.4 million in cash and retain a 30% equity interest in the business sold valued at approximately $81.6 million. The closing of the transactions contemplated by the IAHC Purchase Agreement is subject to customary closing conditions, including applicable regulatory approvals, one of which is the approval of the Delaware Insurance Department. The aforementioned transaction, consisting of the sale of PetPartners, IAHC and Independence American Insurance Company, the reinsurance of excluded business, and other closing conditions, is collectively referred to as the “Pets Sale” transaction or ~~otherwise change our~~disposal group.

(C)On July 14, 2021, IHC and its wholly owned subsidiary ICC entered into a stock purchase agreement with Horace Mann Educators Corporation to sell all of the issued and outstanding capital stock of Madison National Life, which is wholly owned by ICC, for an aggregate purchase price of $172.5 million in cash; in addition, if Madison National Life reaches specified financial targets in 2023, IHC will receive an additional purchase price of up to $12.5 million. In accordance with the stock purchase agreement and prior to closing, Madison National Life will enter into a reinsurance agreement with Independence American Insurance Company to reinsure all of Independence American Insurance Company’s non-pet business, ~~model. Management's assessment of trends in healthcare and morbidity, with respect to~~primarily specialty health ~~disability, New York short-term disability (“DBL”)~~products, that are excluded from the Pets Sale transaction discussed above. The transaction has been approved by the Board of Directors of IHC, and ~~Paid Family Leave (“PFL”), mortality rates with respect~~IHC’s majority stockholders have entered into a voting agreement under which such majority shareholders agreed to ~~life insurance, and changes in market conditions in general play a significant role in determining~~approve the ~~rates charged, deductibles and attachment points quoted,~~transaction. IHC’s majority stockholders approved the transaction by written consent on October 18, 2021. The closing is expected no earlier than January 1, 2022; and the ~~percentage~~transaction is subject to customary closing conditions, including applicable regulatory approvals, one of which is the approval by the Wisconsin Office of the Commissioner of Insurance. The aforementioned transaction, which includes the reinsured specialty health business ~~retained. IHC also seeks transactions that permit it~~of Independence American Insurance Company, is referred to ~~leverage its vertically integrated organizational structure by generating fee~~as the “MNL Sale” transaction or disposal group.

The following is a summary of key performance information and events:

Results of operations are summarized as follows for the periods indicated (in thousands):

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

Revenues	$	`6,513`	$	`6,845`	$	`22,486`	$	`21,242`
Expenses		`21,592`		`16,431`		`53,028`		`43,221`

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

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

Net income		`17,359`		`8,732`		`99,293`		`13,592`
(Income) loss from noncontrolling interests		`-`		`(44)`		`158`		`(205)`

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

·Loss from continuing operations of $.79 per share, diluted, for the three months ended September 30, 2021 compared to $.50 per share, diluted, for the same period in 2020. Loss from continuing operations of $1.61 per share, diluted, for the nine months ended September 30, 2021 compared to $1.11 per share, diluted, for the same period in 2020.

·Consolidated investment yields (on an annualized basis) of 0.8% for both the three and nine months ended September 30, 2021, respectively, compared to 0.9% and 1.5% for the three month and nine month periods, respectively, in 2020;

·Book value of $38.47 per common share at September 30, 2021 compared to $32.08 at December 31, 2020.

·Income from discontinued operations for the three months and nine months ended September 30, 2021 includes an after tax gain (loss) of $(.5) and $62.2 million on the sale of PetPartners. Excluding this gain (loss), income from ~~production~~discontinued operations for the three months and ~~administrative operating companies~~nine months ended September 30, 2021 were $29.4 million and $60.6 million, respectively, compared with income of $16.1 million and $30.0 million in the comparable 2020 periods, respectively.

·Results for the first nine months of 2021 were negatively impacted by COVID-19. Sales at our agency were lower than expected in the first half of 2021, impacted by lower short-term medical (“STM”) sales, as consumers, especially those over the age of 50 who often purchased STM coverage took advantage of Special Enrollment Periods for ACA coverage and the increased Advanced Premium Tax Credits, also known as subsidies, as well as ~~risk~~employers continuing to offer employer sponsored coverage to furloughed workers. The agency is seeing an increase in fee and commission income from the sale of ACA plans. Certain lines of business that are sold with ACA coverage, such as dental and accident plans exceeded expectations but due to lower commission on these products did not fully offset the commission lost through lower STM sales. We are shifting our call center focus to the ACA market for this period.

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

As a result of the pending sales discussed above and in Note 2 to the Condensed Consolidated Financial Statements, the operations of the Insurance Group, and certain other pet assets, are presented in discontinued operations. Continuing operations consist primarily of the IHC Agencies which are in the Specialty Health segment. Taxes and general expenses associated with parent company activities are included in Corporate. Management will re-assess the Company’s reportable segments based on its ~~carriers. Management has always focused on managing~~new organizational structure after the ~~costs~~pending sale transactions discussed in Note 2 are consummated.

·The Specialty Health segment reported $7.0 million of ~~its operations.~~losses before taxes for both the three months ended September 30, 2021 and 2020; and reported $17.9 million in losses before taxes for the nine-month period ended September 30, 2021 compared to $16.6 million of losses for the same period in 2020.

·The Corporate segment reported losses before taxes of $8.0 million and $2.6 million for the three months ended September 30, 2021 and 2020, respectively; and reported losses of $12.7 million for the nine-month period ended September 30, 2021 compared to losses of $5.5 million for the same period in 2020, primarily due to legal and investment bank fees recorded in connection with the Going Private Transaction (see Note 1) and the formation of the Special Committee of independent directors to consider the proposal, and to review, evaluate, negotiate and approve or disapprove the proposal and alternatives.

COVID-19

In March 2020, the World Health Organization declared the outbreak of COVID-19, a global health pandemic, and the United States declared a national health emergency. COVID-19 has led to ~~largescale~~large scale disruption in the global economy, market instability and widespread unemployment in the United States.

The COVID-19 outbreak continues to be a fluid situation. The business continuity and emergency response plans we implemented ~~in March~~during 2020 continue to ensure we provide a high level of service to our customers and support our everyday business needs. To help protect the safety and wellbeing of our employees and mitigate the spread of COVID-19, we have limited travel and directed our employees to work remotely whenever possible. As the COVID-19 outbreak continues to evolve, the duration of COVID-19 and its potential effects on our business cannot be certain. Regulatory mandates have affected, and we anticipate will continue to impact, the insurance industry. We currently cannot predict if there will be a material impact to our business, results of operations or financial condition in future reporting periods. For more information, see the risk factor under the heading “We continue to face risks related to ~~health epidemics, like~~ the ongoing Coronavirus (COVID-19) pandemic that could impact our sales, operating results and financial condition” in Item 1A. Risk Factors ~~in this Quarterly~~of our Annual Report on Form ~~10-Q.~~10-K for the fiscal year ended December 31, 2020.

~~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

September 30,

September 30,

2020

2019

2020

2019

Revenues
$
113,220
$
95,165
$
324,522
$
284,469
Expenses

102,511

85,746

307,711

256,010

Income before income taxes

10,709

9,419

16,811

28,459
Income taxes

1,977

3,248

3,219

6,482

  Net income

8,732

6,171

13,592

21,977

  (Income) from noncontrolling interests

(44)

(29)

(205)

(261)

Net income attributable to IHC
$
8,688
$
6,142
$
13,387
$
21,716

·Income from operations of $.59 per share, diluted, for the three months ended September 30, 2020 compared to $.41 per share, diluted, for the same period in 2019. Income from operations of $.90 per share, diluted, for the nine months ended September 30, 2020 compared to $1.45 per share, diluted for the same period in 2019.

oNet income for the three and nine months ended September 30, 2020 includes the recognition of an Arbitration Award with a former TPA (as described in Note 13) amounting to $3.7 million, net of associated legal expenses and income taxes. Net income for the nine monthsended September 30, 2020 also includes $3.7 million of expenses, net of taxes, for compliance with the MCE related to our STM, limited medical and fixed indemnity limited benefit health insurance products for the period of January 1, 2014 through September 30, 2017, also discussed in Note 13.

oNet income for the nine months ended September 30, 2019 includes a $2.6 million gain, net of tax, related to the sale of an equity investment. Results for the three months and nine months of 2019 also include additional tax expense of $1.6 million associated with the reduction of estimated tax benefits from the expected utilization of AMIC’s net operating loss carryforwards.

·Consolidated investment yields (on an annualized basis) of 2.2% and 2.4% for the three and nine months ended September 30, 2020, respectively, compared to 3.1% for the three and nine month periods in 2019.

·~~Book value of $31.90 per common share at September 30, 2020 compared to $30.92 at December 31, 2019.~~

·Results for the first nine months of 2020 were not materially impacted by COVID-19 although sales of Short Term Medical (“STM”) might have grown more if not for displaced workers taking advantage of Special Enrollment Periods for Affordable Care Act (“ACA”) coverage, and the subsidies provided through Advanced Premium Tax Credits, as well as employers continuing to offer employer sponsored coverage to furloughed workers. Evolving regulatory mandates for testing and treatment coverage, the length and severity of the outbreak, claims activity, and impacts on payment of premiums have not

had a significant impact on the 2020 results to date, however, we may incur additional expenses for the balance of the year relating to possible COVID-19 related claims activity and possible non-payment of premiums as the full effects of the outbreak continue to unfold.

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

·The Specialty Health segment reported income before taxes of $4.9 million for the three months ended September 30, 2020 as compared to $1.1 million for the comparable period in 2019; and reported $1.2 million in income before taxes for the nine-month period ended September 30, 2020 compared to $13.6 million for the same period in 2019. The increase in the third quarter of 2020 compared to 2019 is primarily due to the recognition of a $4.6 million arbitration award received, net of legal expenses. The decrease in the first nine months of 2020 when compared to 2019 is primarily due to: (i) $3.7 million of expenses accrued for compliance with the MCE; (ii) shift in product mix in 2020 to higher earned premium from somewhat higher loss ratio products than those impacting 2019; (iii) increased costs related to overall infrastructure improvements in lead generation capabilities and sales automation platforms at IHC Specialty Benefits, Inc. with no meaningful increase in sales yet, and (iv) results for the comparable period in 2019 include a pre-tax gain of $3.6 million on the sale of an equity method investment;

oPremiums earned increased $4.7 million and $6.2 million for the three and nine months ended September 30, 2020, respectively, compared to the same periods in 2019. Increases in premiums from the pet and STM lines were partially offset by decreases in premiums from fixed indemnity limited benefit, occupational accident and group gap business.

o~~Underwriting 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

September 30,

September 30,

2020

2019

2020

2019

Premiums Earned
$
49,209
$
44,462
$
139,664
$
133,467
Insurance Benefits, Claims & Reserves

20,295

19,585

62,552

56,334
Expenses

24,910

20,972

71,996

62,424

Loss Ratio (A)

41.2%

44.0%

44.8%

42.2%
Expense Ratio (B)

50.6%

47.2%

51.5%

46.8%
Combined Ratio (C)

91.8%

91.2%

96.3%

89.0%

(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 in the first nine months of 2020 primarily reflects the broadening of the mix of business, with a higher concentration of more stable product lines with lower profit margins. The higher expense ratio in the first nine months of 2020 is primarily due to $3.7 million of expenses accrued for compliance with the MCE as well as changes in the mix of products in the Specialty Health segment. Excluding the expenses accrued in connection with

~~the MCE, the combined ratio would have been 93.7% for the nine months ended September 30, 2020.~~

·Income before taxes from the Group disability, life, DBL and PFL segment was $8.8 million and $21.6 million for the three months and nine months ended September 30, 2020, respectively, compared to $10.0 million and $19.2 million for the same periods in 2019, respectively. The increase in the first nine months results primarily reflects an increase in PFL profitability due to increased premium rates and favorable premium reserve adjustments in DBL, which were partially offset by higher loss ratios and unfavorable loss development in the Group STD line of business and, beginning in third quarter 2020, a decrease in DBL business as a result of higher unemployment due to COVID-19;

·The Individual life, annuities and other segment in run-off reported losses before income taxes of $.2 million and $.5 million for the three months and nine months ended September 30, 2020, respectively, compared with losses of $.6 million and $1.1 million for the three months and the nine months ended September 30, 2019 respectively;

·The Corporate segment reported losses before taxes of $2.9 million and $6.4 million for the three and nine months ended September 30, 2020, respectively, compared with losses of $2.0 million in the three months and $5.1 million in the nine months ended 2019. Results for 2019 include higher amounts of partnership income compared to 2020; and

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

Three Months Ended

Nine Months Ended

September 30,

September 30,
Gross Direct and Assumed

Earned Premiums:

2020

2019

2020

2019

Specialty Health
$
51,201
$
46,203
$
144,974
$
137,476
Group disability, life, DBL and PFL

57,175

49,073

174,004

142,217
Individual life, annuities and other

4,894

4,862

14,524

15,984

$
113,270
$
100,138
$
333,502
$
295,677

Three Months Ended

Nine Months Ended

September 30,

September 30,
Net Direct and Assumed

Earned Premiums:

2020

2019

2020

2019

Specialty Health
$
49,209
$
44,462
$
139,664
$
133,467
Group disability, life, DBL and PFL

50,908

41,977

155,173

120,683
Individual life, annuities and other

7

14

28

39

$
100,124
$
86,453
$
294,865
$
254,189

CRITICAL ACCOUNTING POLICIES

The accounting and reporting policies of the Company conform to U.S. ~~generally accepted accounting principles ("GAAP").~~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, ~~2019.~~2020. Management has identified the accounting policies related to Insurance Premium Revenue Recognition and Policy Charges, Fee Income Revenue Recognition, 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, ~~2019.~~2020. During the nine months ended September 30, ~~2020,~~2021, there were no additions to or changes in the critical accounting policies disclosed in the ~~2019~~2020 Form 10-K except for the recently adopted accounting standards discussed in Note ~~1(F)~~1(D) of the Notes to Condensed Consolidated Financial Statements.

Results of Operations for the Three Months Ended September 30, ~~2020~~2021 Compared to the Three Months Ended September 30, ~~2019~~2020

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

~~Benefits,~~

Selling,

Net

~~Fee and~~

~~Claims~~

General

September 30, ~~2020~~2021

~~Premiums~~

Investment

~~Other~~Fee

~~and~~Other

and

(In thousands)

~~Earned~~Income

Income

~~Reserves~~

Administrative

Total

Specialty Health

49,209

609

10,251

20,295

34,877(13)

4,897

~~Group disability,~~

~~life, DBL and PFL~~

50,9085,569

1,713(36)

107 12,542

29,380

14,562

8,786

~~Individual life,~~

~~annuities and other~~

7

281

214

152

534

(184)(7,022)

Corporate

-

190

(339)132

-

2,711909

(2,860)9,050

(8,009)

Sub total

100,124119

2,7935,569

10,233 873

49,827

52,68421,592

10,639 (15,031)

Net investment ~~gains~~losses

70 (48)

~~Income~~Loss from continuing operations before income taxes

10,709 (15,079)

Income ~~taxes~~tax benefit

1,977 (3,567)

~~Net Income~~Loss from continuing operations, net of tax

8,732 (11,512)

~~Benefits,~~

Selling,

Net

~~Fee and~~

~~Claims~~

General

September 30, ~~2019~~2020

~~Premiums~~

Investment

~~Other~~Fee

~~and~~Other

and

(In thousands)

~~Earned~~Income

Income

~~Reserves~~

Administrative

Total

Specialty Health

44,462

1,132

2,643

19,585

27,525(20)

1,127

~~Group disability,~~

~~life, DBL and PFL~~

41,9776,113

1,928656

120 13,718

21,396

12,644

9,985

~~Individual life,~~

~~annuities and other~~

14

369

76

417

682

(640)(6,969)

Corporate

-

535

979190

-

3,497(41)

(1,983)2,713

(2,564)

Sub total

86,453170

3,9646,113

3,818615

41,398

44,34816,431

8,489 (9,533)

Net investment ~~gains~~losses

930(53)

~~Income~~Loss from continuing operations before income taxes

9,419 (9,586)

Income ~~taxes~~tax benefit

3,248 (2,241)

~~Net Income~~Loss from continuing operations, net of tax

6,171 (7,345)

~~Premiums Earned~~

In the third quarter of 2020, premiums earned increased $13.6 million over the comparable period in 2019. The increase is primarily due to: (i) an $8.9 million increase in earned premiums from the Group disability, life, DBL and PFL segment primarily as a result of a $7.4 million increase in PFL premiums due to an increase in rates, a $1.1 million increase in group term life business due to increased retentions, a $.9 million increase in the STD/LTD lines primarily due to higher LTD premium volume, $.7 million in new premiums

in other group life business, partially offset by a $1.2 million decrease in DBL premiums as a result of higher unemployment due to COVID-19; and (ii) $4.7 million in increased premiums in the Specialty Health segment primarily due to $10.9 million increase in earned premiums from the pet line; partially offset by decreases of $5.2 million in the fixed indemnity limited benefit line, $.7 million in group gap and $.3 million in the group health modified indemnity line.

Net Investment Income

~~Total net investment income decreased $1.2 million.~~ The overall annualized investment yields were ~~2.2%~~0.8% and ~~3.1%~~0.9% in the third quarter of ~~2020~~2021 and ~~2019,~~2020, respectively.

Net Investment Gains

~~The Company had net~~Net investment gains ~~of $.1 million in~~include the ~~third quarter of 2020 compared to $.9 million in 2019. 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 $.9~~decreased $.5 million for the three-month period ended September 30, ~~2020~~2021 compared to the three-month period ended September 30, ~~2019.~~ 2020. The decrease is primarily due to lower STM sales in 2021 and decreases in commission accruals principally on Medicare advantage products, partially offset by an increase in lead generation fees.

Other Income

Other income ~~increased $5.5 million for~~in the ~~three months ended September 30, 2020~~2021 primarily relates to equity losses on equity method investments offset by income from the ~~comparable period~~sale of an investment asset; and, in ~~2019. In the third quarter of~~ 2020, other income includes the ~~recognition~~gain on the sale of a ~~$5.6 million arbitration award received with no comparable amount in 2019.~~

~~Insurance Benefits, Claims and Reserves~~

In the third quarter of 2020, insurance benefits, claims and reserves increased $8.4 million over the comparable period in 2019. The increase is primarily attributable to: (i) an increase of $8.0 million in benefits, claims and reserves in the Group disability, life, DBL and PFL segment primarily as a result of a $4.7 million increase in PFL benefits to policyholders (including a $5.5 million increase in the accrual for a potential risk adjustment payment associated with the New York State Department of Financial Services risk adjustment program), a $1.3 million increase in group term life due to higher loss ratios and a $1.3 million increase in the STD/LTD line primarily due to an increase in STD claims; and (ii) an increase of $.7 million in the Specialty Health segment primarily due to an increase of $4.5 million in pet claims on higher premium volume; partially offset by decreases of $1.3 million in the group gap line on lower loss ratios as well as favorable prior year loss development, $.3 million in group health modified indemnity reserves on lower premium, $.6 million in lower claims on dental business, $.6 million decrease in STM line due to lower loss ratios and a $1.2 million decrease in the fixed indemnity limited benefit line due to lower premium volume.wholly owned agency that administered occupational accident plans.

Selling, General and Administrative Expenses

Total selling, general and administrative expenses increased ~~$8.4~~$5.2 million over the comparable period in ~~2019.~~2020. The increase is ~~principally due to: (i) an increase of $7.4 million in the Specialty Health segment~~ primarily due to ~~$3.7~~$6.4 million ~~of expenses accrued for compliance~~increase in the Corporate segment, primarily legal and investment bank fees recorded in in connection with the ~~MCE related~~formation of a Special Committee of independent directors to ~~our STM, limited benefit and fixed indemnity limited benefit products, as well as other increases in commissions, administrative fees and other general expenses in~~consider the STM and pet lines of business from increased premium volume, in addition increased lead generation expenses, compensation and system development related expenses in our marketing and administrative companies, partially offset by decreases in commission and administrative expenses related to decreased volume in the fixed indemnity limited benefit line; and (ii) an increase of $2.0 million in the Group disability, life, DBL and PFL segment primarily due to increased commission expenses

~~and other general expenses on PFL, group term life and LTD lines of business all due to increased premium volume.~~proposed Going Private Transaction.

Income ~~Taxes~~Taxes

The effective tax rate for the three months ended September 30, ~~2020 was 18.5%~~2021 is (23.7)% compared to ~~34.5%~~(23.4)% for the three months ended ~~2019.~~September 30, 2020. The effective income tax rate ~~for the third quarter~~in 2021 relates to losses from continuing operations and are impacted by tax benefits from exercises of ~~2020 was reduced by~~share-based compensation and state and local income tax benefits ~~associated with non-insurance operations. The high~~on certain subsidiaries. In 2020, the effective income tax rate ~~in 2019 is primarily due~~relates to ~~tax provisions associated with the reduction of estimated~~losses from continuing operations and includes state and local income tax benefits ~~from the expected utilization of AMIC’s net operating loss carryforwards. A significant portion of these net operating loss carryforwards expired in 2020.~~on certain subsidiaries.

Results of Operations for the Nine Months Ended September 30, ~~2020~~2021 Compared to the Nine Months Ended September 30, ~~2019~~2020

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

~~Benefits,~~

Selling,

Net

~~Fee and~~

~~Claims~~

General

September 30, ~~2020~~2021

~~Premiums~~

Investment

~~Other~~Fee

~~and~~Other

and

(In thousands)

~~Earned~~Income

Income

~~Reserves~~

Administrative

Total

Specialty Health

139,664

2,098

18,492

62,552

96,529(51)

1,173

~~Group disability,~~

~~life, DBL and PFL~~

155,17320,291

5,402(36)

395 38,125

95,474

43,927

21,569

~~Individual life,~~

~~annuities and other~~

28

692

590

448

1,328

(466)(17,921)

Corporate

-

980

75 481

-

7,4531,696

(6,398)14,903

(12,726)

Sub total

294,865430

9,17220,291

19,552 1,660

158,474

149,23753,028

15,878 (30,647)

Net investment gains

933105

~~Income~~Loss from continuing operations before income taxes

16,811 (30,542)

Income ~~taxes~~tax benefit

3,219 (7,026)

~~Net Income~~Loss from continuing operations, net of tax

13,592 (23,516)

~~Benefits,~~

Selling,

Net

~~Fee and~~

~~Claims~~

General

September 30, ~~2019~~2020

~~Premiums~~

Investment

~~Other~~Fee

~~and~~Other

and

(In thousands)

~~Earned~~Income

Income

~~Reserves~~

Administrative

Total

Specialty Health

133,467

3,116

12,836

56,334

79,477(64)

13,608

~~Group disability,~~

~~life, DBL and PFL~~

120,68318,465

5,958787

427 35,767

71,664

36,217

19,187

~~Individual life,~~

~~annuities and other~~

39

1,008

238

929

1,478

(1,122)(16,579)

Corporate

-

2,012

2,775980

-

9,911952

(5,124)7,454

(5,522)

Sub total

254,189916

12,09418,465

16,276 1,739

128,927

127,08343,221

26,549 (22,101)

Net investment gains

2,556122

~~Net impairment losses recognized in earnings~~

(646)

~~Income~~Loss from continuing operations before income taxes

28,459 (21,979)

Income ~~taxes~~tax benefit

6,482 (5,617)

~~Net Income~~Loss from continuing operations, net of tax

21,977 (16,362)

~~Premiums Earned~~

In the first nine months of 2020, premiums earned increased $40.7 million over the comparable period in 2019. The increase is primarily due to: (i) a $34.5 million increase in earned premiums from the Group disability, life, DBL and PFL segment primarily as a result of a $27.0 million increase in PFL premiums due to an increase in rates, a $3.2 million increase in group term life business due to increased retentions, a $4.0 million increase in the STD/LTD lines due to new STD business and increased LTD premium volume, $1.8 million in new premiums in other group life business, partially offset by a $1.5 million decrease in DBL premiums as a result of higher unemployment due to COVID-19; as well as (ii) an increase of $6.2 million in the Specialty Health segment primarily due to increases in earned premiums from the pet and STM lines of $23.1 million and $3.8 million, respectively; partially offset by decreases of $17.5 million in the fixed indemnity limited benefit line, $1.4 million in group gap, $.9 million in occupational accident business and $.7 million in the group health modified indemnity line.

Net Investment Income

~~Total net investment income decreased $2.9 million.~~ The overall annualized investment yields were ~~2.4%~~0.8% and ~~3.1%~~1.5% in the first nine months of ~~2020~~2021 and ~~2019,~~2020, respectively.

Net Investment Gains~~and Net Impairment Losses Recognized in Earnings~~

~~The Company had net~~Net investment gains ~~of $.9 million in 2020 compared to $2.6 million in 2019. These amounts~~ include the 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.

In 2020, the Company did not recognize any other-than-temporary impairment losses on fixed maturities available-for-sale. In the first nine months of 2019, the Company recognized $.6 million of other-than-temporary impairment losses on fixed maturities available-for-sale 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 ~~$1.2~~$1.8 million for the nine-month period ended September 30, ~~2020~~2021 compared to the nine-month period ended September 30, ~~2019.~~ 2020. The increase is primarily due to an increase in lead generation fees, partially offset by a decrease in administrative fee income as a result of the sale, in June 2020, of a wholly owned agency that administered occupational accident plans, lower STM and fixed indemnity limited benefit plan sales, and a decrease in commission accruals principally on Medicare advantage products.

Other Income

Other income ~~increased $2.1 million for~~in the ~~nine months ended September 30, 2020~~2021 primarily relates to income from the ~~comparable period~~sale of an investment asset partially offset by equity losses from equity method investments; and, in ~~2019. In~~ 2020, other income includes a gain recorded in connection with the ~~recognition~~step-acquisition of Torchlight and a ~~$5.6 million arbitration award received in the third quarter. Other income in 2019 includes a $3.6 million pretax~~ gain ~~recognized~~ on the sale of ~~an equity investment.~~

~~Insurance Benefits, Claims and Reserves~~

In the first nine months of 2020, insurance benefits, claims and reserves increased $29.6 million over the comparable period in 2019. The increase is principally attributable to: (i) an increase of $23.8 million in benefits, claims and reserves in the Group disability, life, DBL and PFL segment primarily as a result of a $19.6 million increase in PFL benefits to policyholders on increased premiums (including a $14.2 million increase in the accrual for a potential risk adjustment payment associated with the New York State Department of Financial Services risk adjustment program), a $6.3 million increase in benefits and claims as a result of new STD business, partially offset by $1.6 million in decreased claims on lower loss ratios in the LTD line, and $2.7 million in reductions on DBL reserves primarily due to lower premium volume and premium refund reserve adjustments; and (ii) an increase of $6.3 million in the Specialty Health segment primarily due to increases of $11.0 million and $1.0 million in pet and STM claims, respectively, on higher premium volume;wholly owned agency that administered occupational accident plans.

partially offset by decreases of $2.7 million in group gap on lower loss ratios and favorable prior year loss development, $2.1 million in the fixed indemnity limited benefit line due to lower premium volume partially offset by higher loss ratios and a $.9 million unfavorable change in prior year loss development, and $.7 million in the group health modified indemnity business which is in runoff.

Selling, General and Administrative Expenses

Total selling, general and administrative expenses increased ~~$22.1~~$9.8 million over the comparable period in ~~2019.~~2020. The increase is ~~principally~~primarily due to: (i) an$7.4 million increase in the Corporate segment, primarily legal and investment bank fees recorded in connection with the formation of a Special Committee of independent directors to consider the proposed Going Private Transaction; and (ii) and increase of ~~$17.0~~$2.3 million in the Specialty Health ~~line of business primarily~~segment due to the $3.7 million of expenses accrued for compliance with the MCE related to our STM, limited benefit and fixed indemnity limited benefit products as well increases in commissions, administrative fees and other general expenses in the STM and pet lines of business from increased premium volume, in addition increased lead generation expenses, compensation and system development related expenses in our marketing and administrative companies, partially offset by decreases in commission and administrative expenses related to decreased volume in the fixed indemnity limited benefit line; and (ii) an increase of $7.7 million in the Group disability, life, DBL and PFL segment primarily due to increased commission expenses and other general expenses on PFL, group term life and STD/LTD lines of business on increased premium volume; partially offset by (iii) a decrease of $2.5 million in the Corporate segment primarily due to compensation related expenses.companies.

Income Taxes

The effective tax rate for the nine months ended September 30, ~~2020 was 19.1%~~2021 is (23.0)% compared to ~~22.8%~~(25.6)% for the nine months ended ~~2019.~~September 30, 2020. The effective income tax rate for ~~2020 was reduced~~2021 relates to losses from continuing operations and are impacted by tax benefits from exercises of share-based compensation and state and local income ~~taxes associated with non-insurance~~tax benefits on certain subsidiaries. In 2020, the effective income tax rate relates to losses from continuing operations ~~and the~~plus a benefit offrom capital losses attributable to the sale of a subsidiary in 2020, partially offset by the non-deductibility of certain expenses recorded in connection with the RSA on the MCE discussed in Note 13. The higher effective rate in 2019 is primarily due to tax provisions associated with the reduction of estimated tax benefits from the expected utilization of AMIC’s net operating loss carryforwards partially offset by the positive impact of tax benefits associated with exercises of sharebased compensation. A significant portion of these net operating loss carryforwards expired in 2020.subsidiary.

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. ~~The~~No dividends were declared or paid by the Insurance Group ~~declared and paid $5.2 million and $0 dividends~~ during the nine months ended September 30, 2021.The Insurance Group declared and paid dividends of $0 and $5.2 million during the nine months ended September 30, 2021 and 2020, respectively.

It is anticipated that cash flows to be received upon the close of the disposal transactions will provide sources of corporate liquidity to offset the loss of cash flows previously derived from the insurance operations currently held in discontinued operations. The Company is evaluating the best use of liquidity derived from the disposal transactions.

The proceeds received from the sale of PetPartners were deposited into an escrow account owned by SBH and ~~2019, respectively.~~ treated as a security deposit. The funds will be released from escrow upon either the consummation of the IAHC purchase or upon the exercise of the PPI Put/Call Option. At September 30, 2021, the security deposit is presented as funds held in escrow on the Condensed Consolidated Balance Sheet.

Cash Flows

The Company had ~~$24.1~~$18.5 million and ~~$24.6~~$74.8 million ~~respectively,~~ of cash, cash equivalents and restricted cash from continuing and discontinued operations as of September 30, ~~2020~~2021 and December 31, ~~2019.~~2020, respectively.

For the nine months ended September 30, ~~2020,~~2021, operating activities provided ~~$37.8~~$41.7 million of cash and investment activities utilized ~~$24.9~~$90.4 million of cash, primarily ~~for net purchases~~the result of the investment ~~securities~~of cash and ~~$13.7 million utilized for business acquisitions.~~cash equivalents in resale agreements. Financing activities utilized ~~$13.5~~$7.5 million of cash, of which ~~$6.9~~$6.4 million was utilized ~~for treasury stock purchases and $6.2 million for dividend payments.~~

~~On April 24, 2020, IHC commenced a tender offer~~ to ~~purchase up to 1 million shares of its~~pay common stock at a price per share of $27.00, net, to the seller in cash. On May 21, 2020, at the close of business, the offer expired and the Company accepted for purchase 36,377 shares of its common stock at $27.00 per share, for an aggregate purchase price of $1.0 million. The tender offer was fully funded through corporate liquidity.

The Company had $373.3 million of liabilities for future policy benefits and policy benefits and claims as of September 30, 2020 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.dividends. For the nine months ended September 30, ~~2020,~~2021, cash ~~received~~flows from the ~~maturities~~operating and ~~other repayments~~investing activities of ~~fixed maturities was $97.0 million.~~discontinued operations were $54.7 million and $(100.3) million, respectively.

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.

There were no material negative impacts on the Company’s cash flows or liquidity with regards to COVID-19 during the first nine months of 2020. Depending on the length and severity of the outbreak, it is possible that cash flows may be negatively impacted due to increased claim activity as a result of mandated testing and treatment coverage, as well as delayed policy payments or an increase in cancelled policies due to non- payment in the remainder of 2020.2021.

BALANCE SHEET

~~The~~In connection with the sale of PetPartners in June 2021, the Company ~~had receivables due from reinsurers~~received proceeds of ~~$357.6~~$78.3 million which was deposited into an escrow account and a 30% interest in Iguana Capital Corp valued at September 30, 2020 compared to $363.0 million at December 31, 2019. All of such reinsurance receivables are from highly rated companies or are adequately secured. No allowance for doubtful accounts was necessary at September 30, 2020.$33.8 million.

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

Policy Benefits and Claims

September 30,

December 31,

2020

2019

Specialty Health
$
38,879
$
42,228
Group Disability

120,109

112,623
Individual A&H and Other

15,126

9,951

$
174,114
$
164,802

For the Specialty Health business, incurred but not reported (“IBNR”) claims liabilities plus expected development on reported claims are calculated using standard actuarial methods and practices. The “primary” assumption in the determination of Specialty Health reserves is that historical Claim Development Patterns are representative of future 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 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 and DBL. 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 $7.5~~$94.8 million increase in IHC’s stockholders' equity in the first nine months of ~~2020~~2021 is primarily due to ~~$13.4~~$99.5 million of net income attributable to IHC, ~~and $2.7~~which includes a $62.2 million after tax gain on the sale of ~~other comprehensive income attributable to IHC partially offset~~PetPartners; reduced by ~~$7.1 million of treasury stock purchases and~~ $3.2 million of common stock dividends.

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. The~~ Company has gross unrealized gains of ~~$8.8~~$0.3 million and gross unrealized losses of ~~$3.8~~$0.1 million on its fixed maturities available-for-sale securities at September 30, ~~2020.~~2021. 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, ~~2020.~~2021.

The Company reviews its investments regularly and monitors its investments continually for impairments. The Company did not record any other-than-temporary impairment losses in the nine months ended September 30, 2020. 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 than2021 or 2020 and does not ~~that the company would sell the securities before the recovery of their amortized cost basis.~~

~~The following table summarizes the carrying value of~~have any securities with fair values less than 80% of their amortized cost at September 30, ~~2020 by the length of time the fair values of those securities were below 80% of their amortized cost (in thousands):~~2021.

Greater than

Greater than

3 months,

6 months,

Less than

less than

less than

Greater than

3 months

6 months

12 months

12 months

Total

Fixed maturities
$
-
$
-
$
1,503
$
-
$
1,503

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, ~~2020.~~2021. 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 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~~with its current activities. It is anticipated that any future acquisitions or other expansion of operations at the remaining entities of IHC will be funded internally from ~~existing capital and surplus and parent company liquidity.~~anticipated cash flows to be received upon the close of the disposal transactions. 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.

OUTLOOK

For the ~~balance~~remainder of ~~this year~~2021, and ~~for 2021,~~continuing in 2022, the Company anticipates that it will:

·~~Continue~~Close on the sale of all of the issued and outstanding capital stock of Standard Security Life to ~~invest in~~Reliance Standard pursuant to the ~~growth of our pet division,~~SSL Purchase Agreement signed on April 14, 2021 and amended on July 29, 2021. Reliance Standard believes that this transaction, which is subject to various regulatory approvals, will ~~have underwritten $117 million of premium (approximately 200,000 dogs and cats)~~close by the end of this ~~year, which is a compound annual growth rate~~year. Under the terms of ~~48% from 2018~~the SSL Amended Purchase Agreement, Standard Security Life will receive the excess of statutory capital and surplus, calculated as of the closing date, over $57 million so earnings prior to ~~2020. We would highlight the following pet initiatives:~~

·~~Investment in our administrator, PetPartners, which has an exclusive relationship with the American Kennel Club and unique access to the breeder channel.~~

·Pet insurance has now become a highly requested employee benefit, which has led us to make it available through work-site marketing. This trend has been amplified by a partnership between United Healthcare with FIGO and the acquisition last year by MetLife, Inc. (“MetLife”) of PetFirst Healthcare, LLC (both of which use Independence American as their underwriter). We currently have agreements in place or are negotiating to partner with well-known financial brands (commonly referred to as “white-labeling”) to offer PetPartners’ pet insurance through their distribution. In order to prepare for this potentially material growth, we are making significant investments in our pet infrastructure to handle the expected volume, and developing whatclosing will be ~~the first true group product in the pet insurance space.~~

·~~Independence American will continue to act as underwriter for three well-known companies:~~

~~MetLife, FIGO and Pets Best Insurance Services, LLC.~~

·We will also accelerate the generation of non-risk revenue through the pet division’s newest brand asset, TailTrax, an all-inclusive subscription-based app with Tele-Vet and other high-touch engagement features. This app will be available without charge to insureds of PetPartners. In addition, we will begin in 2021 to generate advertising and lead revenues from Petplace.com, which is one of the leading sites for veterinarian-curated pet information with one million visitors per month.

·Invest both our capital and efforts in continuing to develop a fully integrated direct-to-consumer (“D2C”) division, which can generate leads, has reporting systems and sales automation platforms, and licensed agents servicing products underwritten bothretained by ~~IHC’s carriers and other nationally recognized insurers.~~IHC.

·~~Expand in-house capabilities through~~Close on the ~~“MarTech” acquisition we made in April, which will accelerate proprietary lead generation and direct to consumer growth. We have rapidly expanded our portfolio~~sale of ~~consumer touchpoints across~~ all of ~~our distribution channels, including web domains (www.healthinsurance.org, www.medicareresources.org, www.healthedeals.com, www.petplace.com, call centers, field agents,~~the issued and ~~social media). This should improve our cost~~outstanding capital stock of ~~sale by: (i) harnessing an in-house marketing team~~IAHC to ~~drive media efficiency and effectiveness, (ii) deploying data science and artificial intelligence (“AI”)~~Iguana Capital pursuant to ~~improve lead quality and intent; and (iii) leveraging a proprietary lead marketplace~~the IAHC Purchase Agreement signed on May 17, 2021. We believe this transaction, which is subject to ~~salvage unused leads and recoup costs.~~various regulatory approvals, will close by the end of this year.

·~~Build~~Close on ~~our entry,~~the sale of the stock of Madison National Life to Horace Mann Educators Corporation pursuant to the MNL Purchase Agreement signed on July 14, 2021. This transaction, subject to various regulatory approvals, is expected to close no earlier than January 1, 2022.

·Focus on the transition and consummation of all transactions entered into in 2021. The consummation of these transactions shall be the entire focus of the Company for the remainder of 2021. After all the transactions are consummated, the Company will have the IHC Agency operations, hold a substantial amount of cash and investments, net of liabilities, and an equity interest in Iguana Capital. As a result of additional investments being made by Iguana Capital, and the approval by IHC’s Board of Directors to contribute an additional $3.2 million to Iguana Capital in the fourth quarter ~~of 2019, into~~2021, the very large market for senior products by selling Medicare products underwritten by leading national insurance companies, including United Healthcare, Aetna, Humana, Anthem and others. We have invested a considerable amount of capital entering this market, and with an estimated 10,000 people aging into Medicare every day, thereCompany expects that is ~~a significant opportunity to build a formidable footprint~~equity interest in this space. We have enhanced our SalesForce CRM platform, as well as our producer licensing, and consumer and web-based enrollment systems. We continue to build our MarTech infrastructure by developing new brands, through AI data science, and via automated remarketing efforts, all intended to allow us to generate a significant volume of high-intent consumer leads. In conjunction with continuously increasing our proficiency in efficiently generating leads, we will continue to train and license additional senior-focused customer care center agents for future enrollment periods. At the start of the 2021 Annual Enrollment Period (“AEP”) (which began on October 15th, 2020) we had 141 licensed agents focused exclusively in the Medicare related product space. As a result of the pandemic, our agents are currently deployed in a work-from-home model, and although we do expect a majority of our agents to return to our physical call centers when possible, we believe that the work-from-home model has proven to be both safe and reliable, and we expect to be able to hire experienced agents that will work within that model moving forward. This will allow us to recruit talent outside of the geographic confines of our three physical call center locations (Tampa, FL; Milwaukee, WI; St Louis Park, MN), and will help to further accelerate what we believeIguana Capital will be meaningful growth in this line of business. In addition, Independence American has launched its Medicare Supplement product in twenty-nine states, although we do not anticipate substantial sales during the current 2021 AEP as agents are primarily focused on selling Medicare Advantage at this time.

·~~Increasingly emphasize sales~~diluted to approximately 18% by IHC Agencies of policies underwritten by non-affiliated carriers, including small group stop-loss, ACA plans and Medicare Advantage and Medicare Supplement; for which, they will receive commissions and fees for selling these products and will not bear any of the insurance risk. When they sell products for these other carriers, the IHC Agencies will record revenue based on estimated constrained lifetime values (“LTV”) representing the expected commissions to be received over the lifetime of the policies sold. As these products generally renew for multiple years, and the IHC Agencies do not have any future performance obligations with regards to the renewal process, they will record revenue at the time of sale based on our expected policy duration. Therefore, due to the change in focus to sales of non-IHC products in 2020, particularly during AEP, we expect a significant increase in commission revenues in the fourth quarter of 2020. When we do sell our products instead of

ACA, we are focusing on our “cover me to open enrollment” Short-Term Medical product (which provides up to 36 months of coverage in many states), which provides coverage from the day of sale to January 1st ~~of the following year. This allows insureds the option of moving to an ACA plan during an open enrollment period without having to pay for days of coverage they don’t need.~~

·Grow the number of agents using our wholly owned Web Based Entity (“WBE”), INSX Cloud to do individual ACA enrollments. When agents utilize the INSX Cloud for enrollments we earn fee income and commission. Additionally, we have specialty health plans on the site that can be enrolled at the same time as the ACA plans which earn underwriting profit for IHC carriers and in certain instances a commission override for the agency.

•Continue to increase our DBL/PFL premiums. Effective January 1, 2018, Standard Security Life began selling a new PFL rider 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. The New York Department of Financial Services increased the PFL premium rate by 76% for 2020, and further increased the rate by 89% forDecember 31, 2021.

·~~Achieve increases~~Improve the profitability and better integrate all of our agencies. IHC has experienced many changes in ~~both long-term~~its agency model in 2021 as a result of a changing market and ~~short-term disability premiums generated from new distribution relationships.~~due to the decision to sell all three of IHC’s carriers. Although we continue to record losses in our agency business, we expect that to improve in the future. IHC has re-evaluated and made significant changes to the direction of the Company. As we progress, our agency operations will be centered around INSXcloud.com (INSX), our CMS approved Web Broker. INSX provides an agent with the ability to quote, directly enroll and track applications on the Federally Facilitated Marketplace, plus much more. Specifically, brokers can quickly generate quotes, create PDF’s of plan comparisons, enroll customers in plans, and invite customers to enroll themselves – all through an easy-to-use cloud-based web portal. IHC is expanding INSX to directly serve the consumer and partner market, as well as expanding product offerings on the platform.

·~~Accomplish increases~~Continue to expand on our IHCSB agency. The balance of IHCSB includes our W-2 Call Centers and our captive independent Advisors unit, both of which sell into the under/over age 65 health insurance markets, as well as our Independence Brokerage Group (IBG) which recruits independent agents and agencies to sell via our platforms and contracts. We are refocusing a portion of our over 65 division into the under 65 market in ~~life~~order to take advantage of the positioning of INSX, IHCSB, our lead generation capabilities, 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.the market growth resulting from the American Rescue Plan Act.

·~~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.~~efficiencies and the transition of the three insurance carriers as we progress towards closing on all three sales in the next few quarters

·Continue to monitor the COVID-19 outbreak as it evolves. The duration of COVID-19 and its potential effects on our business cannot be certain, so we currently cannot predict if there will be a material impact to our business, results of operations or financial condition in ~~the remainder of 2020.~~2021. During ~~unprecedented times of uncertainty and high unemployment surrounding~~ the COVID-19

pandemic, we have fully transitioned our existing sales teams to work from home. Our customer facing agents have transitioned to a full-time work at home model, and although we have implemented enhanced technology solutions, sales may be impacted as COVID-19 continues to develop.

Subject to making additional repurchases ~~acquisitions~~of IHC common stock, dividends to shareholders and various investments, the Company will ~~remain~~maintain a highly liquid ~~as a result of the continuing shorter duration of the investment~~and high quality portfolio. ~~The short 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~~

Our financial results in the ~~future. A low duration portfolio such as ours also mitigates the adverse impact of potential inflation. IHC~~future 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~~on: (i) our ability to ~~manage expenses. We will also need to be diligent with increased rate review scrutiny to effect timely rate changes~~execute on our revised agency model and ~~will need to stay focused~~develop the agencies into a profitable operation; and (ii) any increase in the value of our minority interest in Iguana Capital where we participate on the ~~management~~board 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.directors.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required for smaller reporting 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, ~~2020~~2021 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

A third party administrator with whom we formerly did business (“Plaintiff” or “TPA”)~~) filed a Complaint dated~~ commenced an action on May 17, 2017 in the United States District Court, Northern District of Texas, Dallas Division (the “Texas Action”), naming IHC, Madison National Life, Standard Security Life, and Independence Brokerage Group, Inc. (formerly IHC Carrier Solutions, Inc.) ~~(collectively referred to~~ as ~~“Defendants”~~defendants (“Defendants”)~~. “Plaintiff” and “Defendants” are collectively referred to herein as the “Parties”~~. The ~~Complaint 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 ~~injunctive relief and damages in an amount exceeding $50,000,000,~~contractual payments allegedly owed ~~to Plaintiff under~~by the ~~agreements~~Defendants totaling at least $3,082,000 through 2014, plus additional amounts for 2015 and 2016, and exemplary and punitive damages as allowed by law and fees and costs. ~~Defendants believe these claims to be without merit. Defendants moved to Compel Arbitration and Dismiss or Stay~~The court had previously stayed the ~~original Complaint. Plaintiff filed an Amended Complaint on August 18, 2017. Defendants filed~~proceedings during the pendency of two arbitrations. The first

arbitration resulted in a ~~Motion to Compel Arbitration or Stay the Amended Complaint. The Parties agreed to enter into an Order staying the action filed~~judicially-confirmed award in ~~Texas. The Parties’ disputed claims moved in part to arbitration.~~

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. On July 15, 2019, the TPA filed a Notice of Appeal to the United States Court of Appeals for the Seventh Circuit from the judgment entered on June 17, 2019. The TPAPlaintiff has filed its appeal and was required to file a bond for the awarded amount in order to proceed. Standard Security Life and Madison National Life submitted a response. Oral argument was held on May 28, 2020 and on July 28, 2020, the 7th ~~Circuit upheld the district court’s decision confirming the arbitration award.~~satisfied. The Company received payment on September 9, ~~2020 and recorded it~~2020. The resultant income is included in ~~other~~ income onfrom discontinued operations in the Condensed Consolidated ~~Statement~~Statements of Income for the three months and nine months ended September 30, 2020. The second arbitration resulted in no monetary obligations owed by any of the ~~third quarter.~~

Court’s decision.

Multistate Market Conduct Examination

As previously disclosed, our subsidiaries Standard Security Life, Madison National Life and Independence American ~~have been~~Insurance Company were selected for ~~a multistate market conduct exam ("MCE")~~MCE related to our STM, limited medical and fixed indemnity limited health insurance products for the period of January 1, 2014 through September 30, 2017. The insurance departments of five jurisdictions (Delaware, Wisconsin, District of Columbia, Kansas and South Dakota) ~~are serving~~served as lead states, and the District of Columbia Department of Insurance, Securities and Banking and the Delaware Department of Insurance ~~are serving~~served as the managing lead states of the MCE. In addition to the five lead states, 37 other states ~~are participating~~participated in the MCE. Each of Standard Security Life, Madison National Life and Independence American Insurance Company responded to inquiries and document production requests in the MCE and proactively communicated and cooperated with the applicable regulatory agencies for the MCE. Each of these subsidiaries also provided a detailed action plan to regulators that ~~summarizes~~summarized its enhanced compliance and control mechanisms.

In accordance with the RSAs, the Monitoring Period commenced and Standard Security Life, Madison National Life and Independence American Insurance Company continue to comply.

ITEM 1A. RISK FACTORS

~~Material~~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, ~~2019~~2020 in Item 1A to Part 1 of Form ~~10-K have not significantly changed except for the following additional risk:~~10-K.

~~We face risks related to health epidemics, like the Coronavirus (COVID-19) that could impact our sales, operating results and financial condition~~.

Sales of our healthcare products, results of operations, and the overall financial condition of the Company could be adversely affected to the extent that the COVID-19 or any other epidemic or health care emergency harms the economy, our industry or the Company specifically. The COVID-19 outbreak situation is very fluid and we are closely monitoring its impact on our operations, specifically:

·Many regulators have mandated that insurers cover COVID-19 testing costs, and in some cases costs for related treatment and vaccines once they are available, as well as waiving any applicable deductible and coinsurance member payments. These mandates are primarily directed at major medical carriers, but a minority include STM insurance products. Attempts to extend these mandates beyond STM will likely not impact our supplemental products. Additionally, some states are requiring coverage for telehealth services. Mandated extended coverage of COVID-19 claims may negatively impact the Company’s operating results, cash flows and financial condition as such extended coverage was not contemplated in the initial product pricing. So far we have experienced lower overall utilization for non-COVID related expenses within our STM block that is enough to absorb expected cost increases related to COVID related claims, however, this may change in the future depending on the further outcome of the virus impacts and other related regulatory actions.

·Widespread unemployment due to the unprecedented state-mandated shutdowns of businesses could mean that policyholders may be unable to meet their obligations to pay premiums on our health, disability and pet policies. Additionally, some regulators have mandated that insurers provide an extended grace period for premium collection and some require payment of claims during the grace period. Some states have limited the impact to major medical insurance, while others have applied it to all policies in their states. These mandates may negatively impact the Company’s operating results and cash flows.

·Our marketing companies hiring and licensing of sales agents who sell Medicare advantage and Medicare supplement as well as other products may be delayed, as many state regulators have limited licensing services. This may impact any future growth of the Company’s call centers and career agents, and negatively impact expected sales of these products and our financial results.

·Slower growth in STM sales as policyholders focus on acquiring coverage under special enrollments for ACA policies may temporarily negatively impact our sales of such products and our operating results.

·~~Higher unemployment could adversely affect our disability lines of business.~~

·~~Continued mandatory shut down orders may cause smaller companies to go out of business, impacting our DBL and PFL lines.~~

·~~Possible mandated coverages by regulators for other lines of business could adversely increase benefits with no increase in premiums.~~

·~~We will incur additional expenses to help expand the safety of our employees or incur additional expense to allow employees to work remotely.~~

·~~COVID-19 or any similar pandemic could increase mortality in our life products.~~

·The COVID-19 pandemic has also contributed to significant volatility in financial markets, including declines in equity markets, changes in interest rates and overall reduced liquidity in the investment markets.

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

~~Tender Offer~~

On April 24, 2020, IHC commenced a tender offer to purchase up to 1,000,000 shares of its common stock at a price per share of $27.00, net, to the seller in cash. On May 21, 2020, at the close of business, the offer expired and the Company accepted for purchase 36,377 shares of its common stock at $27.00 per share, for an aggregate purchase price of $982,000.

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, excluding the shares under the aforementioned tender offer.~~stock. As of September 30, ~~2020, 1,551,502~~2021, 1,526,393 shares were still authorized to be repurchased.

Share repurchases during the third quarter of ~~2020~~2021 are summarized as follows:

2020
2021							2021
					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	35,041		$	31.30	1,588,938		-		$	-	1,535,393
August	13,970		$	34.83	1,574,968		9,000		$	42.38	1,526,393
September		23,466	$	37.00	1,551,502		-		$	-	1,526,393

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).

4.1 Description of the registrant’s securities registered pursuant to Section 12 of the Securities and Exchange Act of 1934, as amended (Filed as Exhibit 4.1 to our Annual Report on Form 10-K for the year ended December 31, 2020 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~~(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).

10.10Amended and Restated Officer Employment Agreement, dated as of March 24, 2020, by and between AMIC Holdings, Inc. and Vincent Furfaro (filed as Exhibit 10.1 to our Current Report on Form 8-K/A filed with the SEC on April 9, 2020 and incorporated herein by reference).

10.11Sale 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).

10.12Assignment 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).

10.13Sale Bonus Agreement, dated October 15, 2019, by and between Independence American Holdings Corp. and Gary J. Balzofiore (Filed as Exhibit 10.12 to our Annual Report on Form 10-K for the year ended December 31, 2019 and incorporated herein by reference).

10.14Stock Purchase Agreement, dated April 14, 2021, by and among Reliance Standard Life Insurance Company, Independence Capital Corp. and Independence Holding Company (Filed as Exhibit 10.14 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 and incorporated herein by reference).

10.15Stock Purchase Agreement, dated as of May 17, 2021, by and among Independence American Holdings Corp., IHC SB Holdings, LLC, Iguana PP Holdings, Inc., Iguana Capital, Inc. and JAB Holdings B.V. (Filed as Exhibit 10.15 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 and incorporated herein by reference).

10.16Stock Purchase Agreement, dated as of May 17, 2021, by and among Independence Holding Company, Madison Investors Corp., AMIC Holdings Inc., Iguana Acquisition LLC, and JAB Holdings B.V. (Filed as Exhibit 10.16 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 and incorporated herein by reference).

10.17Transaction Bonus Agreement, made and entered into effective as of June 30, 2021, by and among AMIC Holdings Inc., Independence Holding Company, Independence American Holdings Corp., and David T. Kettig (Filed as Exhibit 10.17 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 and incorporated herein by reference).

10.18Officer Employment Agreement, made as of May 20, 2011, by and between Independence Holding Company and Colleen P. Maggi (Filed as Exhibit 10.18 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 and incorporated herein by reference).

10.19First Amendment to the Stock Purchase Agreement, dated as of June 28, 2021, by and among Independence American Holdings Corp., IHC SB Holdings, LLC, Iguana PP Holdings, Inc., Iguana Capital, Inc., and JAB Holdings B.V. (Filed as Exhibit 10.19 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 and incorporated herein by reference).

10.20Stockholders Agreement, made and entered into as of June 30, 2021, by and among Iguana Capital, Inc., Iguana Holdings Ltd., Iguana Acquisition, LLC and IHC SB Holdings, LLC. (Filed as Exhibit 10.20 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 and incorporated herein by reference).

10.21 Stock Purchase Agreement, dated as of July 14, 2021, by and among Independence Capital Corp., Independence Holding Company and Horace Mann Educators Corporation (Filed as Annex A to our Preliminary Information Statement on Schedule 14C filed on November 1, 2021 and incorporated herein by reference). **

10.22Amended and Restated Stock Purchase Agreement, dated July 29, 2021, by and among Reliance Standard Life Insurance Company, Independence Capital Corp., and Independence Holding Company. *

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

104Cover page formatted as inline XBRL and contained in Exhibit 101.

* Filed herewith.

** Certain portions of this exhibit have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company hereby undertakes to furnish supplemental copies of any of the omitted portions upon request by the SEC; provided, however, that Company may request confidential treatment pursuant to Rule 24b-2 of the Exchange Act for any portions so furnished.

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 ~~6, 2020~~9, 2021

Roy T.K. Thung

Chief Executive Officer, and Chairman

of the Board of Directors

By:/s/Teresa A. HerbertColleen P. Maggi Date:November ~~6, 2020~~9, 2021

~~Teresa A. Herbert~~Colleen P. Maggi

~~Senior~~Corporate Vice President and

Chief Financial Officer

5247

		Three Months Ended September 30,
		2020				2019
		States and		Total		States and		Total
		Political		Level 3		Political		Level 3
		Subdivisions		Assets		Subdivisions		Assets

Beginning balance	$	`1,433`	$	`1,433`	$	`1,620`	$	`1,620`

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

Gains (losses) included in other
comprehensive income (loss):
Net unrealized gains (losses)		`(5)`		`(5)`		`(6)`		`(6)`

Repayments and amortization of
fixed maturities		`(43)`		`(43)`		`(39)`		`(39)`

Balance at end of period	$	`1,385`	$	`1,385`	$	`1,575`	$	`1,575`

		September 30,		December 31,
		2020		2019
Indefinite-lived Intangible Assets:
Insurance licenses	$	`7,977`	$	`7,977`
Total indefinite-lived	$	`7,977`	$	`7,977`

		Nine Months Ended
		September 30,
Specialty Health segment:		2020		2019
Short-term Medical	$	`1,001`	$	`471`
Occupational Accident		`1,075`		`1,921`
Limited Medical		`349`		`507`
Critical Illness		`429`		`269`
Group Gap		`575`		`98`
Fixed Indemnity Limited Benefit		`(626)`		`327`
Pet		`646`		`127`
All other specialty health lines		`560`		`650`

Total Specialty Health segment	$	`4,009`	$	`4,370`

		Specialty Health Segment
		Health Insurance Claims
		Nine Months Ended
		September 30,
		2020		2019

Balance at beginning of year	$	`31,259`	$	`26,068`
Less: reinsurance recoverable		`1,113`		`851`
Net balance at beginning of year		`30,146`		`25,217`

Amount incurred, related to:
Current year		`32,574`		`38,950`
Prior years		`(2,292)`		`(2,370)`

Total incurred		`30,282`		`36,580`

Amount paid, related to:
Current year		`14,610`		`15,630`
Prior years		`18,331`		`15,357`

Total paid		`32,941`		`30,987`

Net balance at end of period		`27,487`		`30,810`
Plus: reinsurance recoverable		`2,106`		`919`
Balance at end of period	$	`29,593`	$	`31,729`

				Greater than		Greater than
				3 months,		6 months,
		Less than		less than		less than		Greater than
		3 months		6 months		12 months		12 months		Total

Fixed maturities	$	-	$	-	$	1,503	$	-	$	1,503