Independence Holding Co. :IHC-US: Earnings Analysis: Q3, 2016 By the Numbers : November 23, 2016

Independence Holding Co. reports financial results for the quarter ended September 30, 2016.

We analyze the earnings along side the following peers of Independence Holding Co. – Genworth Financial, Inc. Class A, MetLife, Inc., Lincoln National Corporation, CNO Financial Group, Inc., Prudential Financial, Inc., Kansas City Life Insurance Company and Assurant, Inc. (GNW-US, MET-US, LNC-US, CNO-US, PRU-US, KCLI-US and AIZ-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 81.02 million, Net Earnings of USD 4.32 million.
  • Year-on-year change in operating cash flow of 97.59% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings decline largely a result of unusuals – operating margins after interest up from 10.52% to 12.24%.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

2016-09-30 2016-06-30 2016-03-31 2015-12-31 2015-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 81.02 77.59 75.9 124.62 130.49
Revenue Growth (%YOY) -37.91 -41.71 -43.47 -1.94 0.56
Earnings (mil) 4.32 4.3 -3.76 4.93 14.76
Earnings Growth (%YOY) -70.71 -14.63 -172.04 22.29 213.38
Net Margin (%) 5.34 5.54 -4.95 3.96 11.31
EPS 0.25 0.25 6.08 0.28 0.85
Return on Equity (%) 3.84 3.78 -3.84 6.03 18.81
Return on Assets (%) 1.36 1.28 -1.16 1.64 4.93

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Market Share Versus Profits

Revenues History
Earnings History

IHC-US‘s change in revenue this period compared to the same period last year of -37.91% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that IHC-US is holding onto its market share. Also, for comparison purposes, revenues changed by 4.43% and earnings by 0.63% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

Insurance companies sometimes tradeoff for improvements in premiums earned by relaxing standards in underwriting policies. A quick way to check against such activity is to compare the changes in loan loss provisions as well any chnages in the level of policy claims. If either of these checks point to a decline in the underwriting standards, it is quite possible that the company’s performance is a result of underwriting policy changes that could have a longer term impact compared to the shorter term pop in premiums earned.

Premiums Earned Percent History
Loss Ratio History

The company’s year-on-year earnings decline has been driven by the drop in premiums earned as a percent of total revenues from 91.23% to 83.11%. This decline in earnings would have been worse but for underwriting policy improvements in its operations which helped improve the loss ratio from 62.35% to 56.85%. For comparison, premiums earned as a percent of revenues were 84.59% and the loss ratio 61.68% in the immediate last period.

Premiums Earned Percent Versus Loss Ratio

Cash Versus Earnings – Sustainable Performance?

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

IHC-US‘s change in operating cash flow of 97.59% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Margins

Despite overall improvement in operating margins, the company’s earnings fell. Operating margins after interest widened from 10.52% to 12.24%. The decline in earnings appears to be largely because of one-time items. Pretax margins weakened from 17.79% to 8.64%.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for Independence Holding Co.

Company Profile

Independence Holding Co. operates as a holding company that engages in the life and health insurance business through multiple distribution channels. It provides specialized life and health coverage and related services to commercial customers and individuals. The company operates its business into three reportable segments; Medical Stop-Loss, Fully Insured Health and Group Disability. Its specialties include small group and individual consumer driven health plans, medical stop-loss, short-term medical, dental, vision and specialized life and disability products. The Medical Stop-Loss segment writes nationally excess or stop-loss insurance for self-insured employer groups that desire to manage the risk of large medical claims. The Fully Insured Health segment includes the following lines of business: major medical health plans for small groups, individuals and families, dental/vision, short-term medical, limited medical, pet insurance, and ancillary benefits, such as accident and critical illness plans. The Group Disability segment sells group term life products, including group term life, accidental death and dismemberment ‘AD&D’, supplemental life and supplemental AD&D and dependent life. The company was founded in 1980 and is headquartered in Stamford, CT.

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