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, 1998
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Commission File Number: 0-10306
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INDEPENDENCE HOLDING COMPANY
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(Exact name of registrant as specified in its charter)
DELAWARE 58-1407235
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(State of Incorporation) (I.R.S. Employer Identification No.)
96 CUMMINGS POINT ROAD, STAMFORD, CONNECTICUT 06902
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203)358-8000
NOT APPLICABLE
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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. Yes X. No .
7,435,669 SHARES OF COMMON STOCK, $1.00 PAR VALUE
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Common stock outstanding as of May 4, 1998
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
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Consolidated Balance Sheets -
March 31, 1998(unaudited)and December 31, 1997.. 3
Consolidated Statements of Operations -
Three Months Ended March 31, 1998
and 1997(unaudited)............................. 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1998
and 1997(unaudited)............................. 5
Notes to Consolidated Financial Statements
(unaudited)...................................... 6 - 9
Management's Discussion and Analysis of Results
of Operations and Financial Condition........... 10 - 14
PART II - OTHER INFORMATION
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Item 6 - Exhibits and Reports on Form 8-K........ 15
Signatures....................................... 16
2
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS MARCH 31, DECEMBER 31,
1998 1997
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ASSETS: (UNAUDITED)
Cash and cash equivalents..................$ 650,000 $ 23,028,000
Investments:
Short-term investments.................... 21,914,000 18,265,000
Securities purchased under
agreements to resell..................... 11,542,000 25,469,000
Fixed maturities.......................... 201,581,000 201,324,000
Equity securities......................... 20,235,000 13,496,000
Other investments......................... 50,659,000 50,459,000
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Total investments...................... 305,931,000 309,013,000
Deferred policy acquisition costs.......... 12,979,000 13,611,000
Due and unpaid premiums.................... 13,031,000 6,448,000
Due from reinsurers........................ 105,828,000 92,990,000
Notes and other receivables................ 2,935,000 3,292,000
Other assets............................... 7,036,000 6,356,000
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TOTAL ASSETS...........................$448,390,000 $454,738,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES:
Future policy liabilities..................$183,006,000 $169,082,000
Unearned premiums.......................... 27,387,000 27,893,000
Funds on deposit........................... 69,167,000 72,187,000
Insurance policy claims.................... 6,117,000 6,279,000
Other policyholders' funds................. 2,513,000 2,651,000
Financial instruments sold, but
not yet purchased......................... 90,000 -
Due to brokers............................. 19,672,000 43,356,000
Due to reinsurers.......................... 11,477,000 4,349,000
Accounts payable, accruals and
other liabilities......................... 20,587,000 23,516,000
Liability for business transferred......... 7,905,000 7,905,000
Income taxes............................... 6,783,000 6,515,000
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TOTAL LIABILITIES...................... 354,704,000 363,733,000
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STOCKHOLDERS' EQUITY:
Preferred stock (none issued).............. - -
Common stock, 7,430,669 and 7,430,169
shares issued and outstanding, net
of 2,188,950 shares in treasury........... 7,431,000 7,430,000
Paid-in capital............................ 76,051,000 76,046,000
Accumulated other comprehensive income:
Unrealized gains on investments,
net of taxes (Notes 5 and 7)............. 2,076,000 1,892,000
Retained earnings ......................... 8,128,000 5,637,000
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TOTAL STOCKHOLDERS' EQUITY............. 93,686,000 91,005,000
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY..................$448,390,000 $454,738,000
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See Accompanying Notes to Consolidated Financial Statements.
3
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998 1997
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REVENUES:
Insurance premiums..................$ 21,059,000 $ 18,749,000
Net investment income............... 5,921,000 4,182,000
Net realized and unrealized gains... 213,000 143,000
Equity (loss) income................ (67,000) 77,000
Other income........................ 1,152,000 1,253,000
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28,278,000 24,404,000
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EXPENSES:
Insurance benefits, claims and
reserves........................... 16,387,000 14,064,000
Amortization of deferred policy
acquisition costs.................. 1,192,000 711,000
Selling, general and administrative
expenses........................... 7,605,000 7,067,000
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25,184,000 21,842,000
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Operating income before
income taxes....................... 3,094,000 2,562,000
Income tax expense.................. 603,000 302,000
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Net income...........................$ 2,491,000 $ 2,260,000
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BASIC INCOME PER COMMON SHARE........$ .34 $ .30
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WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING......................... 7,430,000 7,432,000
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DILUTED INCOME PER COMMON SHARE......$ .33 $ .30
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WEIGHTED AVERAGE DILUTED SHARES
OUTSTANDING......................... 7,553,000 7,475,000
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See Accompanying Notes to Consolidated Financial Statements.
4
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...............................$ 2,491,000 $ 2,260,000
Adjustments to reconcile net income to
net cash used by operating activities:
Amortization of deferred policy
acquisition costs...................... 1,192,000 711,000
Realized gains on sales of investments.. (18,000) (322,000)
Unrealized (gains) losses on trading
securities............................. (195,000) 179,000
Equity loss (income).................... 67,000 (77,000)
Depreciation............................ 110,000 100,000
Deferred tax expense.................... 103,000 13,000
Other................................... 4,000 20,000
Changes in assets and liabilities:
Net purchases of trading securities..... (171,000) (2,148,000)
Increase in future policy liabilities,
claims and other policy liabilities.... 10,367,000 8,519,000
Additions to deferred policy
acquisition costs...................... (560,000) (948,000)
Change in net amounts due from and to
reinsurers............................. (5,710,000) (7,069,000)
Change in income tax liability.......... 61,000 25,000
Change in due and unpaid premiums....... (6,583,000) (681,000)
Other................................... (3,570,000) (3,060,000)
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Net cash used by operating
activities......................... (2,412,000) (2,478,000)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Change in net amount due from and to
brokers................................. (23,637,000) 512,000
Sales and maturities of short-term
investments............................. 22,159,000 10,453,000
Purchases of short-term investments...... (25,776,000) (11,752,000)
Net sales of resale agreements........... 13,928,000 15,072,000
Sales and maturities of fixed maturities. 39,547,000 6,476,000
Purchases of fixed maturities............ (39,998,000) (19,443,000)
Sales of equity securities............... 6,979,000 5,659,000
Purchases of equity securities........... (12,767,000) (8,352,000)
Proceeds on sales of other investments... 3,807,000 530,000
Additional investments in other
investments, net of distributions....... (4,073,000) (4,219,000)
Other.................................... 499,000 45,000
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Net cash used by investing
activities......................... (19,332,000) (5,019,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of common stock options......... 6,000 -
Payments of investment-type insurance
contracts............................... (268,000) (268,000)
Dividends paid........................... (372,000) (372,000)
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Net cash used by financing
activities........................ (634,000) (640,000)
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Decrease in cash and cash equivalents.... (22,378,000) (8,137,000)
Cash and cash equivalents, beginning
of year................................. 23,028,000 10,361,000
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Cash and cash equivalents, end of period.$ 650,000 $ 2,224,000
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See Accompanying Notes to Consolidated Financial Statements.
5
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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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") and First Standard
Security Insurance Company ("First Standard") 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 55% 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, 1998 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, 1997. Certain amounts in the prior
year's consolidated financial statements and notes thereto have
been restated to conform to the 1998 presentation.
The preparation of financial statements in conformity with
generally accepted accounting principles 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.
6
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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NOTE 2. DISCONTINUED OPERATIONS
On December 31, 1996, IHC consummated the distribution of
the common stock of Zimmerman Sign Company ("Zimmerman") on a pro
rata basis to holders of record of IHC's common stock as of
December 20, 1996. In connection with the distribution of
Zimmerman, a subsidiary of the Company has guaranteed $10,000,000
of subordinated debt of Zimmerman. Accordingly, the credit to
stockholders' equity of $7,905,000, or $1.06 per share, that
would have been recorded upon consummation of the distribution of
Zimmerman has been deferred until such time as the subordinated
debt is repaid or the guarantee is eliminated.
NOTE 3. OTHER INVESTMENTS
The Company had invested $16,710,000 and $15,848,000 at
March 31, 1998 and 1997, respectively, in Dolphin Limited
Partnership-A ("Dolphin"), a limited partnership which invests in
relatively "market neutral" strategies, such as risk arbitrage,
convertible arbitrage and distressed situations. The condensed
statements of operations for Dolphin for the three months ended
March 31, 1998 and 1997 are as follows:
1998 1997
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(IN THOUSANDS)
Revenues..................................$ 2,168 $ 1,720
Net income................................$ 1,501 $ 1,191
IHC's share of
net income...............................$ 653 $ 457
NOTE 4. INCOME PER COMMON SHARE
In December 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share."
SFAS No. 128 establishes standards for computing and presenting
earnings per share. Accordingly, all prior earnings per share
calculations have been restated to reflect the new standard.
Included in the diluted earnings per share calculation for 1998
and 1997, respectively, are 123,000 and 43,000 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 1,965,697 shares of common stock at
$16.37 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 1998 and 1997.
7
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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NOTE 5. 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,
1998 allocated to stockholders' equity for unrealized gains on
investment securities was $104,000, representing the change in
deferred tax liability of $1,148,000 at March 31, 1998 from
$1,044,000 at December 31, 1997.
NOTE 6. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for income taxes were $439,000 and $271,000
for the three months ended March 31, 1998 and 1997, respectively.
NOTE 7. COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, "Reporting Comprehensive
Income, effective January 1, 1998. SFAS No. 130 establishes
standards for the reporting and display of comprehensive income
and its components. The components of comprehensive income
include net income and certain amounts previously reported
directly in equity.
Disclosures related to comprehensive income (loss) for the
three months ended March 31, 1998 and 1997 are as follows:
1998 1997
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(IN THOUSANDS)
(A)COMPREHENSIVE INCOME
Net income..................................$ 2,491 $ 2,260
Unrealized gains (losses), on
securities, net of reclassification........ 184 (3,426)
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Comprehensive income (loss)............$ 2,675 $ (1,166)
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(B)RECLASSIFICATION
Unrealized gains (losses) net...............$ 379 $ (3,605)
Less: reclassification for unrealized
gains (losses) included in net income...... 195 (179)
------ -------
Net unrealized gains (losses)
on investments.............................$ 184 $ (3,426)
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8
INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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1998 1997
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(IN THOUSANDS)
(C)ACCUMULATED OTHER COMPREHENSIVE INCOME
Beginning balance...........................$ 1,892 $ (1,466)
Net unrealized gains (losses) on
investments................................ 184 (3,426)
------ -------
Ending balance..............................$ 2,076 $ (4,892)
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NOTE 8. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board
issued SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information." The requirements for SFAS No. 131 are
effective for financial statements for periods ending after
December 15, 1997 but need not be applied to interim financial
statements in the initial year of its application. The Company
is currently evaluating the impact of SFAS No. 131 on the
disclosures required to be made concerning its operating
segments.
In January 1998, the Company adopted the remaining
provisions of SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities,"
as deferred by SFAS No. 127 "Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125." The adoption of
the remaining provisions of SFAS No. 125 had no material impact
on the Company.
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL 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") and First Standard Security Insurance Company ("First
Standard") and their subsidiaries (collectively, the "Insurance
Group"). IHC and its subsidiaries (including the Insurance Group)
are collectively referred to as the "Company." All remaining
income, principally income from parent company liquidity (cash,
cash equivalents, resale agreements, marketable securities and
partnership investments) and expense items associated with parent
company activities, the Company's remaining real estate holdings
and certain other investments of the Company, are included in
Corporate.
RESULTS OF OPERATIONS
---------------------
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED
MARCH 31, 1997
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The Company's operating income increased $.5 million, or
20.7%, to $3.1 million for the period ended March 31, 1998 from
$2.6 million for the same period in 1997. The Company had net
realized and unrealized gains of $.2 million in 1998 and $.1
million in 1997. Excluding net realized and unrealized gains, the
Company had operating income of $2.9 million in 1998 as compared
to $2.4 million in 1997. Net income was $2.5 million, or $.33
per share, diluted, for the quarter ended March 31, 1998 compared
to $2.3 million, or $.30 per share, diluted, for the quarter
ended March 31, 1997. Income tax expense increased to $.6
million in 1998 from $.3 million in 1997 (see Capital Resources).
Insurance Group
- ---------------
The Insurance Group's operating income increased $.2
million, or 5.3%, to $3.1 million in 1998 from $2.9 million in
1997. Operating income includes net realized and unrealized gains
of $.2 million in 1998 compared to $.1 million in 1997.
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.
Operating income excluding net realized and unrealized gains was
$2.9 million in 1998 compared to $2.7 million in 1997.
Premium revenues increased $2.3 million, or 12.3%, to $21.0
million in 1998 from $18.7 million in 1997; premium revenues at
Madison Life increased $3.0 million while Standard Life had a $.7
million decrease in premiums. The increase at Madison Life is
comprised of: a $2.6 million increase in the credit lines of
business primarily due to the acquisitions of two single premium
10
blocks of business, effective April 1 and October 1, 1997; a $.1
million increase in long-term disability premiums; a $.1 million
increase in group term life premiums; a $.1 million increase in
dental premiums; and a $.1 million increase in other life and
health lines of business. The change at Standard Life is
comprised of: a $.2 million increase in its DBL line due to
acquisitions; and a $.5 million increase in HMO premiums; such
increases were offset by: a $.4 million decrease in stop-loss
premiums, due to decreased retention with respect to several
managing general underwriters; a $.6 million decrease in the
closed blocks of life, annuity and individual and group accident
and health lines of business; and a $.4 million decrease in point
of service premiums.
Total net investment income increased $1.4 million primarily
due to an increase in assets at Madison Life related to
acquisitions, and higher returns on certain equity investments.
The annualized return on investments of the Insurance Group in
the first quarter of 1998 was 7.3% compared to 6.9% in the first
quarter of 1997.
Other income decreased $.1 million and equity income from
partnerships decreased $.1 million from 1997 to 1998.
Insurance benefits, claims and reserves increased $2.3
million, or 16.6%, reflecting an increase of $2.5 million at
Madison Life and a $.2 million decrease at Standard Life.
Madison Life's increase resulted from: a $1.4 million increase in
the credit line of business due to the acquisition of a block of
business and due to new accounts; a $.2 million increase in
interest credited to universal life and annuity products; a $.5
million increase in ordinary life and individual A & H reserves
and claims; a $.2 million increase in group term life claims; and
a $.2 million increase in claims and reserves in other life and
health lines of business. The change at Standard Life is
comprised of: a $.5 million increase in HMO reinsurance reserves;
and a $.1 million increase in additional DBL claims and reserves
due to increased volume; such increases were offset by: a $.4
million decrease in reserves in the closed blocks of life,
annuity and individual and group accident and health lines of
business; a $.2 million decrease in stop-loss reserves; and a $.2
million decrease in point of service claims.
Amortization of deferred acquisition costs and general and
administrative expenses for the Insurance Group increased $1.0
million. Madison Life's expenses increased $1.4 million and
Standard Life's expenses decreased $.4 million. The increase at
Madison Life is primarily due to increases in commissions of $1.0
million and other general expenses of $.4 million related to the
increase in premium volume and the acquisition of new blocks of
business. The decrease at Standard Life is primarily due to a
reduction in net commission expense attributable to the increase
in expense allowances received from reinsurers on its HMO line of
business as a result of the increase in premiums.
11
Corporate
- ---------
Operating income for the quarter ended March 31, 1998
increased by $.3 million from 1997. Investment income increased
$.3 million from 1997 due to higher returns from certain hedged
equity investments and an increase in corporate liquidity in
1998. Selling, general and administrative expenses remained
constant.
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 obligations which are calculated using
certain assumed interest rates.
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 81.0% was invested in investment
grade fixed income securities, resale agreements, policy loans
and cash and cash equivalents at March 31, 1998. Also at such
date, approximately 97.7% 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, 1998, approximately 2.3%
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 in real
estate and mortgage loans. The Company has no non-performing
fixed maturities.
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.
The Company had net receivables from reinsurers of $94.4
million at March 31, 1998. Substantially all of the business
ceded to such reinsurers is of short duration. All of such
receivables are current and are either due from highly rated
companies or are adequately secured. Accordingly, no allowance
for doubtful accounts was necessary at March 31, 1998.
12
Corporate
- ---------
Corporate derives its funds principally from: (i) dividends
and interest income from the Insurance Group; (ii) tax payments
pursuant to tax sharing agreements and 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 to fund
operating expenses and dividend payments at Corporate. The
Company remains contingently liable in connection with the
guarantee of $10.0 million of subordinated indebtedness of
Zimmerman Sign Company (see Note 2 of Notes of Consolidated
Financial Statements).
Total corporate liquidity (cash, cash equivalents, resale
agreements and marketable securities) amounted to $18.9 million
at March 31, 1998. At the present time, the Company is not in
need of any long-term financing.
Capital Resources
- -----------------
Due to its superior capital ratios, broad licensing and
excellent asset quality and credit-worthiness, the Insurance
Group remains well positioned to increase or diversify its
current activities, and to raise additional capital in the public
or private markets to the extent determined to be necessary or
desirable, in order to pursue acquisitions or otherwise expand
its operations.
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 a change in
unrealized gains of $.2 million, net of deferred tax expense, in
total stockholders' equity, reflecting unrealized gains of $2.1
million at March 31, 1998 versus $1.9 million at December 31,
1997. From time to time, as warranted, the Company employs
investment strategies to mitigate interest rate and other market
exposures.
The results of the 1998 first quarter reflect a higher
effective tax rate than in the 1997 first quarter due to reduced
benefits associated with the utilization of net operating loss
carryforwards. As previously reported, IHC expects that its
future results will continue to reflect a higher effective tax
rate.
13
The Company has continued and will continue to take all
steps necessary to address Year 2000 compliance issues. Since the
Company has updated and enhanced many of its primary systems in
the past two years, it does not believe that the Year 2000
problem will pose operational difficulties. The cost of updating
the Company's remaining systems is not expected to have a
material effect on the Company or its results of operations, and
is expected to be completed by the beginning of 1999. The Company
has requested information from, among others, its managing
general underwriters, managing general agents, HMOs, agents and
reinsurers regarding the status of their Year 2000 compliance
programs, and is in the process of evaluating any possible impact
on the Company.
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.
14
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) 1) Exhibit 11. Statement re: computation
of per share earnings.
2) Exhibit 27. Financial Data Schedule.
b) No report on Form 8-K was filed during the quarter
ended March 31, 1998.
15
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 6, 1998 By:/s/ Roy T.K. Thung
-------------------------
Roy T.K. Thung
Executive Vice President,
Chief Financial Officer
and Treasurer
Dated: May 6, 1998 By:/s/ Teresa A. Herbert
-------------------------
Teresa A. Herbert
Vice President and
Controller
16