Add
AMIC to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| AMIC > SEC Filings for AMIC > Form 10-Q on 10-Aug-2009 | All Recent SEC Filings |
10-Aug-2009
Quarterly Report
The following discussion of the financial condition and results of operations of American Independence Corp. ("AMIC") 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 year ended December 31, 2008, as filed with the Securities and Exchange Commission, and our condensed consolidated financial statements and related Notes thereto appearing elsewhere in this quarterly report.
Overview
We are an insurance holding company engaged in the insurance and reinsurance business through our wholly owned insurance company, Independence American Insurance Company ("Independence American"), our marketing organizations, including our three medical stop-loss managing general underwriter subsidiaries ("our MGUs"), our two insurance and marketing agencies IPA and HIO, and our claims administration company, ECA. Since November 2002, AMIC has been affiliated with Independence Holding Company ("IHC"), which currently owns 49.7% of AMIC's stock, and IHC's senior management has provided direction to us through service agreements between us and IHC. As of June 30, 2009, the majority of Independence American's revenue was reinsurance premiums. The majority of these premiums are ceded to Independence American from IHC under long-term reinsurance treaties to cede its gross medical stop-loss premiums written to Independence American. In addition, Independence American assumes fully insured health premiums and New York State short-term statutory disability benefit law ("DBL") premiums from IHC, and assumes medical stop-loss premiums from unaffiliated carriers. Independence American also writes group major medical, medical stop-loss, major medical plans for individuals and families, and short-term medical.
While management considers a wide range of factors in its strategic planning, the overriding consideration is underwriting profitability. Management's assessment of trends in healthcare and in the medical stop-loss market play a significant role in determining whether to expand Independence American's health insurance premiums. Since Independence American reinsures a portion of all of the business produced by our MGUs, and since these companies are also eligible to earn profit sharing commissions based on the profitability of the business they place, our MGUs also emphasize underwriting profitability. In addition, management focuses on controlling operating costs. By sharing employees with IHC and sharing resources among our subsidiaries, we strive to maximize our earnings.
Independence American Insurance Company
Independence American, which is domiciled in Delaware, is licensed to write property and/or casualty insurance in 49 states and the District of Columbia, and has an A- (Excellent) rating from A.M. Best. An A.M. Best rating is assigned after an extensive quantitative and qualitative evaluation of a company's financial condition and operating performance, and is also based upon factors relevant to policyholders, agents, and intermediaries, and is not directed toward protection of investors. A.M. Best's ratings are not recommendations to buy, sell or hold securities of the Company. Independence American's unaudited statutory capital and surplus as of June 30, 2009 was $43,084,000.
Managing General Underwriters
IndependenceCare, which is headquartered in Minneapolis, Minnesota, markets and
underwrites employer medical stop-loss, provider excess loss, HMO Reinsurance
and ancillary products for Standard Security Life Insurance Company of New York
("Standard Security Life"), Madison National Life Insurance Company, Inc.
("Madison National Life"), Independence American and another carrier.
IndependenceCare's 6 employees are responsible for marketing, underwriting,
billing and collecting premiums, and administrative services. RAS, which is
headquartered near Hartford, Connecticut, markets and underwrites employer
medical stop-loss and group life for Standard Security Life, Madison National
Life, Independence American and another carrier. RAS has 6 employees who are
responsible for marketing, underwriting, billing and collecting premiums, and
administrative services. Marlton, which is headquartered near Philadelphia,
Pennsylvania, markets and underwrites employer medical stop-loss and group life
for Standard Security Life, Independence American and two other carriers.
Marlton has 18 employees who are responsible for marketing, underwriting,
billing and collecting premiums, and administrative services. The Company has a
23% interest in Majestic, an employer medical stop-loss MGU for Standard
Security Life and another carrier. The Company accounts for this investment
using the equity method of accounting. Majestic, which is headquartered in
Troy, Michigan, has 18 employees who are responsible for marketing,
underwriting, billing and collecting premiums, and administrative services.
Agencies
In the fourth quarter of 2008, the Company formed ECA to administer, adjudicate, and process claims and perform medical management services for our MGUs, Majestic and third parties. These functions, which were previously performed by each MGU separately, were consolidated in order to generate cost savings through economies of scale and provide more uniform results among the MGUs. ECA, which is headquartered near Philadelphia, Pennsylvania, has 11 employees. The Company has a 51% interest in
both HIO and IPA. HIO, which is headquartered in Minneapolis, Minnesota, is an insurance and marketing agency through its well-established internet domain address: www.healthinsurance.org. This domain generates hundreds of daily leads from individuals and small employers seeking affordable health insurance solutions. IPA, which is headquartered in Tampa, Florida, is a national, career agent marketing organization. IPA operates under a controlled career agent distribution model in which independent producers sell products approved by IPA and AMIC.
The following is a summary of key performance information and events:
·
Net income per share was $.22, diluted, or $1.9 million for the six months ended June 30, 2009, compared to net income per share of $.19, diluted, or $1.6 million for the six months June 30, 2008. Net income per share decreased to $.06, diluted, or $0.5 million for the three months ended June 30, 2009, compared to net income per share of $.09, diluted, or $0.8 million for the three months June 30, 2008.
·
The book value of the Company shareholders' equity increased to $10.15 per share at June 30, 2009 compared to $9.75 per share at December 31, 2008.
·
Of the aggregate carrying value of the Company's investment assets, approximately 94.2% was invested in investment grade fixed maturities, securities purchased under resale agreements, and cash and cash equivalents at June 30, 2009. Also at such date, 99.1% of the Company's fixed maturities were investment grade.
·
Consolidated investment yields (on an annualized basis) were 4.6% and 5.2% for the six months ended June 30, 2009 and 2008, respectively.
·
Premiums earned decreased 12% from $50.0 million for the six months ended June 30, 2008 to $44.1 million for the six months ended June 30, 2009, primarily due to lower assumed medical stop-loss premiums.
·
For the six months ended June 30, 2009, Independence American wrote $4.8 million of individual health business produced by our marketing organization IPA.
·
Underwriting experience, as indicated by its GAAP Combined Ratios on our three lines of business for the three months and six months ended June 30, 2009 and 2008, are as follows (in thousands):
§
Medical Stop-Loss Three Months Ended Six Months Ended
June 30, June 30,
2009 2008 2009 2008
Premiums Earned $ 12,234 $ 14,252 $ 24,115 $ 28,953
Insurance Benefits Claims and Reserves 8,070 9,795 14,881 19,368
Expenses 4,017 4,387 7,935 9,202
Loss Ratio(A) 66.0% 68.7% 61.7% 66.9%
Expense Ratio (B) 32.8% 30.8% 32.9% 31.8%
Combined Ratio (C) 98.8% 99.5% 94.6% 98.7%
§
Fully Insured Health Three Months Ended Six Months Ended
June 30, June 30,
2009 2008 2009 2008
Premiums Earned $ 9,115 $ 9,629 $ 18,305 $ 19,289
Insurance Benefits Claims and Reserves 7,007 6,647 13,517 14,108
Expenses 1,908 2,706 4,113 5,005
Loss Ratio(A) 76.9% 69.0% 73.8% 73.1%
Expense Ratio (B) 20.9% 28.1% 22.5% 25.9%
Combined Ratio (C) 97.8% 97.1% 96.3% 99.0%
|
§
DBL Three Months Ended Six Months Ended
June 30, June 30,
2009 2008 2009 2008
Premiums Earned $ 780 $ 840 $ 1,656 $ 1,723
Insurance Benefits Claims and Reserves 464 476 989 994
Expenses 239 274 519 524
Loss Ratio(A) 59.5% 56.7% 59.7% 57.7%
Expense Ratio (B) 30.6% 32.6% 31.3% 30.4%
Combined Ratio (C) 90.1% 89.3% 91.0% 88.1%
|
(A)
Loss ratio represents insurance benefits claims and reserves divided by premiums earned.
(B)
Expense ratio represents net commissions (including profit 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.
·
For the six months ended June 30, 2009, our MGUs and Agencies generated revenues of $7.7 million compared to $6.6 million for the six months ended June 30, 2008, an increase of 17%, primarily due to higher revenue at HIO and additional revenue at IPA and ECA, partially offset by lower revenue at our MGUs.
The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principles ("GAAP"). The preparation of the condensed consolidated financial statements in conformity with 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 Condensed Consolidated Financial Statements included in Item 8 of the Annual Report on Form 10-K for the year ended December 31, 2008. Management has identified the accounting policies related to Insurance Reserves, Premium and MGU Fee income Revenue Recognition, Reinsurance, Income Taxes, Investments, Goodwill and Other Intangibles as those that, due to the judgments, estimates and assumptions inherent in those policies, are critical to an understanding of the Company's condensed consolidated financial statements and this Management's Discussion and Analysis. A full discussion of these policies is included under Critical Accounting Policies in Item 7 of the Annual Report on Form 10-K for the year ended December 31, 2008. During the six months ended June 30, 2009, there were no additions to or changes in the critical accounting policies disclosed in the Form 10-K for the year ended December 31, 2008 except for the recently adopted accounting standards discussed in Note 1(C) of the Notes to the Condensed Consolidated Financial Statements.
Results of Operations for the Three Months Ended June 30, 2009, Compared to the
Three Months Ended June 30, 2008
Benefits, Selling,
Fees and Net Claims General Amortization
June 30, Premiums Other Investment and and and
2009 Earned Income Income Reserves Admin Depreciation Total
(In thousands)
Independence
American:
Medical stop-loss $ 12,234 18 504 8,070 3,981 36 $ 669
Fully Insured Health 9,115 69 141 7,007 1,782 126 411
DBL 780 - 18 464 239 - 95
Total Independence
American 22,129 87 663 15,541 6,001 162 1,175
MGU Subs and
Agencies - 3,738 101 - 3,632 48 159
Corporate - - 1 - 411 - (410)
Subtotal $ 22,129 3,825 765 15,541 10,044 210 924
Net realized investment gains 35
Other-than-temporary impairment losses -
Income before income taxes 959
Income taxes (281)
Net income 678
Less: Net income attributable to the
noncontrolling interest (207)
Net income attributable to American Independence Corp. $ 471
Benefits, Selling,
Fees and Net Claims General Amortization
June 30, Premiums Other Investment and and and
2008 Earned Income Income Reserves Admin Depreciation Total
(In thousands)
Independence
American:
Medical stop-loss $ 14,252 (43) 533 9,795 4,350 37 $ 560
Fully Insured Health 9,629 (194) 201 6,647 2,581 125 283
DBL 840 - 18 476 274 - 108
Total Independence
American 24,721 (237) 752 16,918 7,205 162 951
MGU Subs and
Agencies - 4,059 110 - 3,174 23 972
Corporate - - 16 - 367 - (351)
Subtotal $ 24,721 3,822 878 16,918 10,746 185 1,572
Net realized investment gains 114
Other-than-temporary impairment losses (372)
Income before income taxes 1,314
Income taxes (443)
Net income 871
Less: Net income attributable to the
noncontrolling interest (87)
Net income attributable to American Independence Corp. $ 784
|
Premiums Earned. Premiums earned decreased 10%, or $2,592,000, to $22,129,000
for the three months ended June 30, 2009, compared to $24,721,000 for the three
months ended June 30, 2008. The Company currently has three lines of business.
Premiums relating to medical stop-loss business were $12,234,000 and
$14,252,000 for the three months ended June 30, 2009 and 2008, respectively.
This is due to a decrease in medical stop-loss premiums assumed by Independence
American ($2,435,000), partially offset by an increase in medical stop-loss
written by Independence American ($441,000). Premiums relating to fully insured
health consisting of group major medical, STM, dental, and individual health
were $9,115,000 and $9,629,000 for the three months ended June 30, 2009 and
2008, respectively. The decrease is primarily due to a decrease in group major
medical premiums written by Independence American. Premiums relating to DBL
were $780,000 and $840,000 for the three months ended June 30, 2009 and 2008,
respectively. For the three months ended June 30, 2009, Independence American
assumed 10% of IHC's STM business, 9.3% of certain of IHC's group major medical
business, 20% of IHC's DBL business and approximately 24% of IHC's medical
stop-loss business. There were no significant changes to these percentages from
the prior year.
MGU and Agency Income. MGU and agency income decreased $371,000 to $3,684,000 for the three months ended June 30, 2009, compared to $4,055,000 for the three months ended June 30, 2008. MGU fee income-administration decreased $622,000 to
$1,401,000 for the three months ended June 30, 2009, compared to $2,023,000 for the three months ended June 30, 2008, as our MGUs have decreased their volume of business as a result of stricter underwriting guidelines. MGU fee income-profit commission decreased $225,000 to $223,000 for the three months ended June 30, 2009, compared to $448,000 for the three months ended June 30, 2008 as a result of less favorable loss ratios experienced at certain of our MGUs. Profit commissions for a given year are based primarily on the performance of business written during portions of the three preceding years. Therefore, profit commissions for 2009 are based on business written during portions of 2006, 2007 and 2008. For the three months ended June 30, 2009, income from our Agencies consisted of commission income and other fees of $1,594,000 from IPA, revenue of $347,000 from HIO, and $119,000 of claims administration fees from ECA. For the three months ended June 30, 2008, income from our Agencies consisted of commission income and other fees of $1,387,000 from IPA and revenue of $197,000 from HIO. ECA commenced operations in the fourth quarter of 2008.
Net Investment Income. Net investment income decreased $113,000 to $765,000 for
the three months ended June 30, 2009, compared to $878,000 for the three months
ended June 30, 2008. The overall annualized investment yields were 4.7% for the
three months ended June 30, 2009 and 5.4% for the comparable period in 2008.
The lower yield is due to an increase in more liquid assets which bear lower
interest rates.
Net Realized Investment Gains and Other-Than-Temporary Impairment Losses. The Company recorded a net realized investment gain of $35,000 for the three months ended June 30, 2009, compared to a gain of $114,000 for the three months ended June 30, 2008. For the three months ended June 30, 2009 and 2008, the Company recorded a realized loss of $0 and $372,000, respectively, for other-than-temporary impairments. The loss of $372,000 as of June 30, 2008 represents a loss on preferred stock that the Company determined to be other-than-temporary due to the severity of the decrease in market values and the length of time that these securities were in a loss position. The Company's decision as to whether to sell securities is based on management's ongoing evaluation of investment opportunities and economic market conditions, thus creating fluctuations in realized gains or losses from period to period.
Other Income (Loss). Other income was $141,000 for the three months ended June 30, 2009 compared to a loss of $233,000 for the three months ended June 30, 2008. Included in the three months ended June 30, 2009 is income of $85,000 representing a decrease in the fair value of the derivative liability relating to the agreement with Employers Direct Health, Inc. ("EDH") (see Note 13 of Notes to Condensed Consolidated Financial Statements). Included in the three months ended June 30, 2008 is a loss of $237,000 representing an increase in the fair value of the derivative liability relating to the agreement with EDH. The unrealized gain for 2009 reflects the lower probability of EDH business meeting target benchmarks.
Insurance Benefits, Claims and Reserves. Insurance benefits claims and reserves decreased 8%, or $1,377,000, to $15,541,000 for the three months ended June 30, 2009, compared to $16,918,000 for the three months ended June 30, 2008. The decrease of $1,377,000 is primarily comprised of a decrease in assumed medical stop-loss of $1,836,000 due to lower premiums partially offset by an increase in assumed fully insured of $195,000 and an increase in direct fully insured of $164,000.
Selling, General and Administrative. Selling, general and administrative expenses decreased $702,000 to $10,044,000 for the three months ended June 30, 2009, compared to $10,746,000 for the three months ended June 30, 2008. This decrease is primarily due to a decrease in commission expense of $1,054,000 incurred by Independence American primarily resulting from a decrease in premiums assumed in medical stop-loss business, and lower expenses at Marlton and IndependenceCare of $181,000 and $177,000, respectively primarily due to lower payroll expenses, offset by additional expenses at IPA of $391,000 and $274,000 at ECA, which was formed in the fourth quarter of 2008.
Amortization and Depreciation. Amortization and depreciation expense increased $25,000 to $210,000 for the three months ended June 30, 2009, compared to $185,000 for the three months ended June 30, 2008. The increase in amortization is primarily due to the acquisition of the remaining 20% interest in Marlton and the acquisition of 51% of IPA in 2008.
Income Taxes. The provision for income taxes decreased $162,000 to $281,000, an
effective rate of 37.4%, for the three months ended June 30, 2009, compared to
$443,000, an effective rate of 36.1%, for the three months ended June 30, 2008.
Net income for the three months ended June 30, 2009 and 2008 includes a
non-cash provision for federal income taxes of $235,000 and $380,000,
respectively. The state tax effective rate increased to 5.5% for the three
months ended June 30, 2009, compared to 3.0% for the three months ended June 30,
2008. An adjustment for additional state taxes of $28,000 contributed to the
rate increase. For as long as AMIC utilizes its NOL carryforwards, it will not
pay any income taxes, except for federal alternative minimum taxes and state
income taxes.
Net Income attributable to the noncontrolling interest. The Company recorded net income attributable to the noncontrolling interest of $207,000 and $87,000 for the three months ended June 30, 2009 and 2008, respectively. The net income for the three months ended June 30, 2009 and 2008 relates to the 49% noncontrolling interest in IPA and the 49% noncontrolling interest in HIO.
Net Income attributable to American Independence Corp. The net income attributable to the Company decreased 40% to
$471,000, or $.06 per share, diluted, for the three months ended June 30, 2009, compared to $784,000, or $.09 per share, diluted, for the three months ended June 30, 2008.
Results of Operations for the Six Months Ended June 30, 2009, Compared to the
Six Months Ended June 30, 2008
Benefits, Selling,
Fees and Net Claims General Amortization
June 30, Premiums Other Investment and and and
2009 Earned Income Income Reserves Admin Depreciation Total
(In thousands)
Independence
American:
Medical stop-loss $ 24,115 29 976 14,881 7,862 73 $ 2,304
Fully Insured Health 18,305 101 271 13,517 3,862 251 1,048
DBL 1,656 - 35 989 519 - 183
Total Independence
American 44,076 130 1,282 29,387 12,243 324 3,534
MGU Subs and
Agencies - 7,491 195 - 7,502 95 89
Corporate - - 1 - 725 - (724)
Subtotal $ 44,076 7,621 1,478 29,387 20,470 419 2,899
Net realized investment gains 261
Other-than-temporary impairment losses -
Income (loss) before income taxes 3,160
Income taxes (1,027)
Net income 2,133
Less: Net income attributable to the
noncontrolling interest (267)
Net income attributable to American Independence Corp. $ 1,866
Benefits, Selling,
Fees and Net Claims General Amortization
June 30, Premiums Other Investment and and and
2008 Earned Income Income Reserves Admin Depreciation Total
(In thousands)
Independence
American:
Medical stop-loss $ 28,953 (63) 1,097 19,368 9,129 73 $ 1,417
Fully Insured Health 19,289 (277) 411 14,108 4,754 251 310
DBL 1,723 - 38 994 524 - 243
Total Independence
American 49,965 (340) 1,546 34,470 14,407 324 1,970
MGU Subs and
Agencies - 6,491 118 - 4,944 37 1,628
Corporate - 2 69 - 742 - (671)
Subtotal $ 49,965 6,153 1,733 34,470 20,093 361 2,927
Net realized investment gains 87
. . .
|
|
|