FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended:MARCH 31, 2001
Commission File Number:0-10306
INDEPENDENCE HOLDING COMPANY
(Exact name of registrant as specified in its charter)
Delaware | 58-1407235 |
(State of Incorporation) | (I.R.S. Employer Identification No.) |
96 CUMMINGS POINT ROAD, STAMFORD, CONNECTICUT 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.
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. YesX. No.
7,872,813 SHARES OF COMMON STOCK, $1.00 PAR VALUE
Common stock outstanding as of May 11, 2001
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION | PAGE NO. |
| | |
| | Consolidated Balance Sheets - | |
| | March 31, 2001 (unaudited) and December 31, 2000 | | 3 |
| | |
| | Consolidated Statements of Operations - | |
| | Three Months Ended March 31, 2001 and 2000 (unaudited) | | 4 |
| | |
| | Consolidated Statements of Cash Flows - | |
| | Three Months Ended March 31, 2001 and 2000 (unaudited) | | 5 |
| | |
| | Notes to Consolidated Financial Statements (unaudited) | | 6 - 9 |
| | |
| | Management's Discussion and Analysis of Results of Operations and | |
| | Financial Condition | | 10 - 13 |
| | |
PART II - OTHER INFORMATION | |
| | |
| | Item 6 - Exhibits and Reports on Form 8-K | | 14 |
| | |
| | Signatures | | 15 |
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS | MARCH 31, | DECEMBER 31, |
| 2001 | 2000 |
| (UNAUDITED) | |
ASSETS: | | |
| Investments: | | |
| Short-term investments | $ | 6,630,000 | $ | 5,455,000 |
| Securities purchased under agreements | | |
| to resell | 7,859,000 | 22,253,000 |
| Fixed maturities | 413,984,000 | 378,745,000 |
| Equity securities | 27,134,000 | 18,770,000 |
| Other investments | | 68,317,000 | | 65,284,000 |
| | Total investments | 523,924,000 | 490,507,000 |
| Cash and cash equivalents | 8,312,000 | 18,024,000 |
| Due from brokers | 1,510,000 | 2,187,000 |
| Deferred acquisition costs | 25,222,000 | 26,731,000 |
| Due and unpaid premiums | 8,260,000 | 7,977,000 |
| Due from reinsurers | 144,782,000 | 152,872,000 |
| Notes and other receivables | 5,823,000 | 15,601,000 |
| Other assets | | 12,852,000 | | 10,729,000 |
| | |
| $ | 730,685,000 | $ | 724,628,000 |
| | |
LIABILITIES AND STOCKHOLDERS' EQUITY: | | |
| LIABILITIES: | | |
| Future insurance policy benefits | $ | 303,819,000 | $ | 308,145,000 |
| Unearned premiums | 20,087,000 | 20,485,000 |
| Funds on deposit | 186,070,000 | 185,696,000 |
| Policy claims | 6,657,000 | 7,224,000 |
| Other policyholders' funds | 4,616,000 | 4,642,000 |
| Financial instruments sold, but not | | |
| yet purchased | 104,000 | - |
| Due to brokers | 30,693,000 | 24,597,000 |
| Due to reinsurers | 9,596,000 | 8,853,000 |
| Accounts payable, accruals and other | | |
| | Liabilities | 17,343,000 | 20,311,000 |
| Income taxes | 4,658,000 | 3,142,000 |
| Long-term debt | | 15,000,000 | | 15,000,000 |
| | |
| TOTAL LIABILITIES | | 598,643,000 | | 598,095,000 |
| | |
STOCKHOLDERS' EQUITY: | | |
| Preferred stock (none issued) | - | - |
| Common stock, 7,876,513 and | | |
| 7,878,813 shares issued and outstanding, | | |
| respectively, net of 1,787,206 and | | |
| 1,784,906 shares in treasury, respectively | 7,877,000 | 7,879,000 |
| Paid-in-capital | 80,053,000 | 80,099,000 |
| Accumulated other comprehensive income: | | |
| Unrealized gains on investments, net | 2,733,000 | 1,237,000 |
| Retained earnings | | 41,379,000 | | 37,318,000 |
| | |
| TOTAL STOCKHOLDERS' EQUITY | | 132,042,000 | | 126,533,000 |
| TOTAL LIABILITIES AND | | |
| STOCKHOLDERS' EQUITY | $ | 730,685,000 | $ | 724,628,000 |
See Accompanying Notes to Consolidated Financial Statements.
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, | 2001 | 2000 |
| | |
REVENUES | | |
| Premiums earned | $ | 25,172,000 | $ | 22,063,000 |
| Net investment income | 9,563,000 | 9,540,000 |
| Net realized and unrealized gains (losses) | 1,643,000 | (1,145,000) |
| Other income (expense) | | 1,159,000 | | (1,348,000) |
| | |
| | 37,537,000 | | 29,110,000 |
| | |
EXPENSES: | | |
| Insurance benefits, claims and reserves | 20,848,000 | 16,333,000 |
| Amortization of deferred acquisition costs | 1,461,000 | 1,228,000 |
| Selling, general and administrative | | |
| Expenses | | 8,581,000 | | 7,547,000 |
| Interest expense on long-term debt | | 291,000 | | 301,000 |
| | |
| | 31,181,000 | | 25,409,000 |
| | | |
| Income from operations before | | |
| | income taxes | 6,356,000 | 3,701,000 |
| Income tax expense | | 2,295,000 | | 1,343,000 |
| | |
NET INCOME | $ | 4,061,000 | $ | 2,358,000 |
| | |
Basic income per common share | $ | .52 | $ | .30 |
| | |
WEIGHTED AVERAGE COMMON SHARES | | |
| OUTSTANDING | | 7,878,000 | | 7,898,000 |
| | |
Diluted income per common share | $ | .51 | $ | .30 |
| | |
WEIGHTED AVERAGE DILUTIVE SHARES | | |
| OUTSTANDING | | 8,002,000 | | 7,975,000 |
See Accompanying Notes to Consolidated Financial Statements.
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, | 2001 | 2000 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
| Net income | $ | 4,061,000 | $ | 2,358,000 |
| Adjustments to reconcile net income to net cash | | |
| provided (used) by operating activities: | | |
| Amortization of deferred policy acquisition costs | 1,461,000 | 1,228,000 |
| Realized (gains) losses on sales of | | |
| | investments | (1,607,000) | 75,000 |
| Unrealized (gains) losses on trading securities | (36,000) | 1,070,000 |
| Depreciation | 303,000 | 157,000 |
| Deferred tax benefit | (588,000) | (232,000) |
| Other | (275,000) | (187,000) |
| Changes in assets and liabilities: | | |
| Net sales of trading securities | (85,000) | 255,000 |
| Increase in insurance liabilities | (4,675,000) | (2,692,000) |
| Additions to deferred acquisition costs | (392,000) | (444,000) |
| Change in net amounts due from and to | | |
| | reinsurers | 8,833,000 | 4,726,000 |
| Change in income tax liability | 721,000 | (658,000) |
| Change in due and unpaid premiums | (283,000) | (4,658,000) |
| Other | | (2,941,000) | | (2,860,000) |
| | | | |
| Net cash provided (used) by operating | | | | |
| | activities | | 4,497,000 | | (1,862,000) |
| | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | |
| Change in net amount due from and to brokers | 6,773,000 | 5,517,000 |
| Sales and maturities of short-term investments | 5,270,000 | 34,362,000 |
| Purchases of short-term investments | (6,396,000) | (33,606,000) |
| Net sales (purchases) of resale agreements | 14,394,000 | 190,000 |
| Sales of fixed maturities | 317,969,000 | 63,700,000 |
| Purchases of fixed maturities | (347,706,000) | (71,950,000) |
| Sales of equity securities | 13,771,000 | 21,274,000 |
| Purchases of equity securities | (22,360,000) | (21,499,000) |
| Proceeds on sale of other investments | 3,000,000 | 2,236,000 |
| Additional investments in other investments, net | | |
| | of distributions | (5,985,000) | (6,234,000) |
| Acquisition of companies | (1,756,000) | - |
| Net change in notes receivable | 10,698,000 | 8,311,000 |
| Other | | (1,171,000) | | 736,000 |
| | |
| Net cash (used) provided by investing | | |
| activities | | (13,499,000) | | 3,037,000 |
| | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | |
| Payments of investment-type insurance | | |
| | contracts | (268,000) | (268,000) |
| Repurchase of common stock and warrants | (48,000) | - |
| Dividends paid | | (394,000) | | (357,000) |
| | |
| Net cash used by financing activities | | (710,000) | | (625,000) |
| | | | | |
| (Decrease) increase in cash and cash | | |
| | equivalents | (9,712,000) | 550,000 |
| Cash and cash equivalents, beginning of year | | 18,024,000 | | 6,689,000 |
| Cash and cash equivalents, end of period | $ | 8,312,000 | $ | 7,239,000 |
See Accompanying Notes to Consolidated Financial Statements.
5
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(A) BUSINESS AND ORGANIZATION
Independence Holding Company ("IHC") is a holding company engaged principally in the life and health insurance business through its wholly-owned subsidiaries, Standard Security Life Insurance Company of New York ("Standard Life"), Madison National Life Insurance Company, Inc. ("Madison Life"), First Standard Security Insurance Company ("First Standard") and IndependenceCare Holdings L.L.C. ("IndependenceCare") and their subsidiaries (collectively, the "Insurance Group"). IHC and its subsidiaries (including the Insurance Group) are collectively referred to as the "Company".
Geneve Corporation, a diversified financial holding company, and its affiliated entities hold approximately 57% of IHC's outstanding common stock.
(B) PRINCIPLES OF CONSOLIDATION AND PREPARATION OF
FINANCIAL STATEMENTS
The consolidated financial statements have been prepared in accordance with the requirements for quarterly reports on Form 10-Q. In the opinion of management, all adjustments (consisting only of normal recurring accruals) that are necessary for a fair presentation of the consolidated results of operations for the interim periods have been included. The consolidated results of operations for the three months ended March 31, 2001 are not necessarily indicative of the results to be anticipated for the entire year. The consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes included in IHC's Annual Report on Form 10-K for the year ended December 31, 2000. Certain amounts in the prior year's consolidated financial statements and have been restated to conform to the 2001 presentation.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect: (i) the reported amounts of assets and liabilities; (ii) the disclosure of contingent assets and liabilities at the date of the financial statements; and (iii) the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 2. INCOME PER COMMON SHARE
Included in the diluted earnings per share calculation for 2001 and 2000, respectively, are 124,000 and 77,000 shares from the assumed exercise of options using the treasury stock method. Net income does not change as a result of the assumed dilution of options. Warrants to purchase 2,074,058 shares of common stock at $14.89 per share were not included in the computation of diluted earnings per share because the warrants' strike price was greater than the average market price of the common shares during the first quarter of 2001 and 2000.
NOTE 3. INCOME TAXES
The provision for income taxes shown in the consolidated statements of operations was computed based on the Company's estimate of the effective tax rates expected to be applicable for the current year, including the expected tax impact of the life/nonlife consolidation.
The income tax expense for the three months ended March 31, 2001 allocated to stockholders' equity for unrealized gains on investment securities was $925,000, representing the change in the deferred tax liability of $1,658,000 at March 31, 2001 from $733,000 at December 31, 2000.
NOTE 4. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for income taxes were $2,010,000 and $2,125,000 for the three months ended March 31, 2001 and 2000, respectively. Cash payments for interest were $299,000 and $5,000 for the three months ended March 31, 2001 and 2000, respectively.
NOTE 5. COMPREHENSIVE INCOME
The components of comprehensive income include net income and certain amounts previously reported directly in equity. Comprehensive income for the three months ended March 31, 2001 and 2000 is as follows:
| | 2001 | 2000 |
| | (IN THOUSANDS) |
| | | | | |
Net income | $ | 4,061 | $ | 2,358 |
Unrealized gains, on available-for-sale | | |
| | securities | | 1,496 | | 1,474 |
Comprehensive income | $ | 5,557 | $ | 3,832 |
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 6. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The requirements for SFAS No. 133 were delayed by SFAS No. 137, "Deferral of the effective date of SFAS Statement No. 133," and are effective for financial statements for periods beginning after June 15, 2000. The adoption of SFAS No. 133 did not have a material impact on the Company.
NOTE 7. SEGMENT REPORTING
The Insurance Group engages principally in the life and health insurance business. Interest expense, taxes, and general expenses associated with parent company activities are included in Corporate. Information by business segment for the three months ended March 31, 2001 and 2000 is as follows:
| 2001 | 2000 |
| (IN THOUSANDS) |
| | |
Revenues: | | |
| | | | |
Medical Stop-Loss | $ | 6,441 | $ | 4,934 |
DBL | 5,144 | 4,973 |
Group Term Disability and Term Life | | |
| and Annuities | 5,737 | 5,409 |
Credit Life and Disability | 3,218 | 4,140 |
Managed Health Care | 2,995 | 1,467 |
Special Disability | 102 | 73 |
Individual Life and Annuities | 10,368 | 7,446 |
Other Business | 1,423 | 1,120 |
Corporate | | 466 | | 693 |
| 35,894 | 30,255 |
Net Realized and Unrealized | | |
| (Losses) Gains | | 1,643 | | (1,145) |
| $ | 37,537 | $ | 29,110 |
| | |
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 7. SEGMENT REPORTING (CONTINUED)
| 2001 | 2000 |
| (IN THOUSANDS) |
| | |
Operating Income (Loss): | | |
| | | | |
Medical Stop-Loss | $ | 1,450 | $ | 1,197 |
DBL | 771 | 531 |
Group Term Disability and Term Life | | |
| and Annuities | 37 | 1,085 |
Credit Life and Disability | 20 | (305) |
Managed Health Care | 390 | 79 |
Special Disability | 173 | 74 |
Individual Life and Annuities | 2,131 | 2,265 |
Other Business | 502 | 455 |
Corporate | | (470) | | (234) |
| 5,004 | 5,147 |
| | |
Interest Expense | (291) | (301) |
Net Realized and Unrealized | | |
| Gains (Losses) | | 1,643 | | (1,145) |
| $ | 6,356 | $ | 3,701 |
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Independence Holding Company, a Delaware corporation ("IHC"), is a holding company engaged principally in the life and health insurance business through its wholly-owned subsidiaries, Standard Security Life Insurance Company of New York ("Standard Life"), Madison National Life Insurance Company, Inc. ("Madison Life"), First Standard Security Insurance Company ("First Standard") and IndependenceCare Holdings L.L.C. ("IndependenceCare") and their subsidiaries (collectively, the "Insurance Group"). IHC and its subsidiaries (including the Insurance Group) are collectively referred to as the "Company." All remaining expenses and income, principally income from parent company liquidity are included in Corporate.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000
The Company's operating income was $6.4 million, for the period ended March 31, 2001 compared to $3.7 million for the same period of 2000. The Company had net realized and unrealized gains of $1.6 million in 2001 and losses of $1.1 million in 2000. Decisions to sell securities are based on cash flow needs, investment opportunities and economic and market conditions, thus creating fluctuations in gains (losses) from year to year. Excluding net realized and unrealized gains, operating income decreased slightly to $4.7 million in 2001 as compared to $4.8 million in 2000 (see Note 8 of Notes to Consolidated Financial Statements). Net income was $4.1 million, or $.51 per share, diluted, for the quarter ended March 31, 2001 versus $2.4 million, or $.30 per share, diluted, in 2000.
Insurance Group
The Insurance Group's operating income increased $2.9 million to $7.1 million in 2001 from $4.2 million in 2000. Operating income includes net realized and unrealized gains of $1.6 million in 2001 compared to losses of $1.1 million in 2000. Operating income excluding net realized and unrealized gains was $5.5 million in 2001 compared to $5.3 million in 2000.
Premium revenues increased $3.1 million to $25.2 million in 2001 from $22.1 million in 2000; premium revenues remained constant at Madison Life and increased $3.1 million at Standard Life. The change at Madison Life is comprised of: a $.5 million increase in long-term disability ("LTD") premiums as a result of an increase in premiums written in 2001; and a $.3 million increase in ordinary life and individual accident and health premiums due to the December 31, 2000 acquisition; such increases were offset by: a $.8 million decrease in the credit lines of business, primarily due to the runoff of acquisitions of two single premium blocks of business effective in 1997. The increase at Standard Life is comprised of: a $1.9 million increase in stop-loss premiums due to higher retention and increased volume in 2001; a $1.1 million increase in HMO reinsurance due to an increase in volume and a $.1 million increase in all other lines.
Total net investment income increased $.3 million. An increase in assets was partially offset by a slight decrease in the annualized return. The annualized return on investments of the Insurance Group in the first quarter of 2001 was 7.4% compared to 7.5% in the first quarter of 2000.
Other income increased $2.6 million due to $.3 million less fee income earned by Madison Life's majority owned managing general underwriter ("MGU"); offset by; a $2.5 million increase at Standard Life due to a decrease in coinsurance reserves due to the surrender by a large group of policyholders in a modified coinsurance treaty in 2000 with no corresponding amount in 2001 (such increase in other income is offset by an increase in insurance benefits and claims) and a $.4 million increase in fee income at IndependenceCare.
Insurance benefits, claims and reserves increased $4.5 million, reflecting an increase of $.5 million at Madison Life and an increase of $4.0 million at Standard Life. Madison Life's increase resulted from: a $.2 million increase in ordinary life and individual accident and health reserves and claims; a $.9 million increase in LTD claims due to the increase in premiums and higher loss ratios; and a $.3 million increase in claims and reserves in other life and health lines of business; such increases were offset by a $.9 million decrease in the credit line of business due to the decrease in volume. The change at Standard Life is comprised of: a $.8 million increase in stop-loss reserves due to the increase in premiums offset by lower loss ratios; and a $2.0 million increase in the closed block of ordinary life business due to the surrender by a large group of policyholders in 2000 offsetting the increase in other income; a $.3 million increase in DBL claims and reserves due to higher claims; a $.6 million increase in the HMO Reinsurance line due to the increase in volume; and a $.3 million increase in all other lines.
Amortization of deferred acquisition costs and general and administrative expenses for the Insurance Group increased $1.3 million. Madison Life's expenses remained constant and Standard Life's increased $1.0 million due to a $.7 million increase in commissions due to the higher level of premiums and a $.3 million increase in general expenses due to higher administrative fees from the increase in volume. IndependenceCare's expenses increased $.3 million.
Corporate
Operating income for the quarter ended March 31, 2001 decreased by $.3 million from 2000 to a loss of $.7 million due to lower investment income from partnerships in 2001.
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 income securities; and (iii) earnings on investments. Such cash flow is used partially to finance liabilities for insurance policy benefits. These liabilities represent long-term and short-term obligations which are calculated using certain assumed interest rates.
In the first quarter of 2001, the Insurance Group purchased all of the assets of two managed care MGU's and acquired an equity interest in a medical stop-loss MGU.
Asset Quality
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. Of the aggregate carrying value of the Insurance Group's investment assets, approximately 85.0% was invested in investment grade fixed income securities, resale agreements, policy loans and cash and cash equivalents at March 31, 2001. Also at such date, approximately 97.6% of the Insurance Group's fixed maturities were investment grade. These investments carry less risk and, therefore, lower interest rates than other types of fixed maturity investments. At March 31, 2001, approximately 2.4% of the carrying value of fixed maturities was invested in diversified non-investment grade fixed income securities (investments in such securities have different risks than investment grade securities, including greater risk of loss upon default, and thinner trading markets). Less than .1% of the carrying value of the Company's total investments was represented by real estate and mortgage loans. The Company has no non-performing fixed maturities.
Risk Management
The Company manages interest rate risk by seeking to maintain a portfolio with a duration and average life that falls within the band of the duration and average life of the applicable liabilities, and may utilize options to modify the duration and average life of such assets.
The Company monitors its investment portfolio on a continuous basis and believes that the liquidity of the Insurance Group will not be adversely affected by its current investments. This monitoring includes the maintenance of an asset-liability model that matches current insurance liability cash flows with current investment cash flows.
The expected change in fair value of the Company's fixed income portfolio at March 31, 2001 given a 100 to 300 basis point rise or decline in interest rates is not materially different than the expected change at December 31, 2000. In the Company's analysis of the asset-liability model, a 100 to 300 basis point change in interest rates on the Insurance Group's liabilities would not be expected to have a material adverse effect on the Company. With respect to its liabilities, if interest rates were to increase, the risk to the Company is that policies would be surrendered and assets would need to be sold. This is not a material exposure to the Company since a large portion of the Insurance Group's interest sensitive policies are burial policies that are not subject to the typical surrender patterns of other interest sensitive policies, and many of the Insurance Group's universal life and annuity policies come from liquidated companies which tend to exhibit lower surrender rates than such policies of continuing companies. Additionally, there are charges to help offset the benefits being surrendered. If interest rates were to decrease substantially, the risk to the Company is that some of its investment assets would be subject to early redemption. This is not a material exposure because the Company would have additional gains in its portfolio to help offset the future reduction of investment income. With respect to its investments, the Company employs (from time to time as warranted) investment strategies to mitigate interest rate and other market exposures.
Balance Sheet
The increase in fixed maturities is offset by a decrease in cash and an increase in due to brokers due to the timing of securities trades that settled after March 31, 2001 and due to the final payment of the notes receivable from acquisitions in the first quarter of 2001.
The Company had net receivables from reinsurers of $135.2 million at March 31, 2001. Substantially all of the business ceded to such reinsurers is of short duration. All of such receivables are either due from highly rated companies or are adequately secured. Accordingly, no allowance for doubtful accounts was necessary at March 31, 2001.
Corporate
Corporate derives its funds principally from: (i) dividends and interest income 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.
Total corporate liquidity (cash, cash equivalents, resale agreements and marketable securities) amounted to $12.8 million at March 31, 2001.
Capital Resources
Due to its good capital ratios, broad licensing and excellent asset quality and credit-worthiness, the Insurance Group remains well positioned to increase or diversify its current activities. It is anticipated that future acquisitions or other expansion of operations will be funded internally from existing capital and surplus and parent company liquidity, including the remaining $15.0 million availability under its credit facility. 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.
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 115, the Company may carry its portfolio of fixed income securities either as held to maturity (carried at amortized cost), as trading securities (carried at fair market value) or as available-for-sale (carried at fair market value); the Company has chosen to carry all of its debt securities as available-for-sale. The Company experienced an increase in unrealized gains of $1.5 million, net of deferred tax expense and deferred policy acquisition costs, in total stockholders' equity, reflecting unrealized gains of $2.7 million at March 31, 2001 versus $1.2 million at December 31, 2000. From time to time, as warranted, the Company employs investment strategies to mitigate interest rate and other market exposures.
Some of the statements included within Management's Discussion and Analysis may be considered to be forward looking statements which are subject to certain risks and uncertainties. Factors which could cause the actual results to differ materially from those suggested by such statements are described from time to time in the Company's Annual Report on Form 10-K and other filings with the Securities and Exchange Commission.
PART II. OTHER INFORMATION
Item 6.Exhibits and Reports on Form 8-K
a) Exhibit 11. Statement re: computation of per share earnings.
b) No report on Form 8-K was filed during the quarter ended March 31, 2001.
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
(THE REGISTRANT)
Dated: May 15, 2001 By:/s/ Teresa A. Herbert
Teresa A. Herbert
Vice President and
Chief Financial Officer
