Independence Holding Company Reports Loss
STAMFORD, Conn. - Independence Holding Company reported revenues increased 12% to $93,285,000 for the three months ended December 31, 2006, compared to revenues of $83,327,000 for the same period in 2005. Net income increased to $3,597,000, or $.23 per share, diluted, for the three months ended December 31, 2006, compared to $895,000, or $.06 per share, diluted, for the three months ended December 31, 2005. Results for the 2006 and 2005 periods include pre-tax realized investment losses of $95,000 and $1,000, respectively.
Revenues increased 23% to $364,688,000 for the year ended December 31, 2006, compared to revenues of $296,417,000 for the year ended December 31, 2005. Net income decreased to $14,061,000, or $.93 per share, diluted, for the year ended December 31, 2006, compared to $17,301,000, or $1.21 per share, diluted, for the year ended December 31, 2005. Income before taxes declined by $5,375,000 in 2006; contributing to the decline were several factors including (i) lower net investment gains of $625,000 in 2006 versus $2,077,000 in 2005, (ii) additional share-based compensation expense of $1,104,000 in 2006 as a result of the adoption of Statement of Financial Accounting Standards No. 123R and (iii) other income of $3,500,000 recorded in 2005 relating to a commutation agreement and loss cover.
Roy Thung, Chief Executive Officer, commented, "IHC believes that 2006 and 2005 will be remembered as the years in which it accomplished two critical goals while significantly increasing revenues and positioning itself for a better future. IHC’s first goal was to diversify and balance its health business by developing a growing presence in five fully insured health insurance product lines - small group major medical, major medical for individuals and families, dental/vision, short-term medical and limited medical. The fully insured market is generally more predictable and is thought to be more than 100 times larger ($500 billion market versus $4 billion) than the employer medical stop-loss market. In 2004, IHC had no fully insured health premiums. IHC projects that, by the end of 2007, fully insured will be its largest line of business with $350 million of annualized gross premiums, a significant part of which will be earned in 2007, spread among five classes of business and multiple distribution strategies. Of course, IHC has never emphasized top-line growth at the expense of profitability, and the fully insured health division is no exception; on average, this line of business should exceed our pricing targets on business written in 2006, as well as generating significant fee income.”
“IHC has also made progress towards accomplishing its second goal – improving the profitability of the core medical stop-loss block of business. Softness in this market and reserve strengthening, primarily relating to business written in 2004, have adversely affected earnings in this line over the past five quarters. Based on currently available information, business incepting in 2006, of which a material portion will be earned and recorded in 2007, is projected to achieve a net loss ratio that is meaningfully lower than that of business incepting in 2005, just as the net loss ratio on business incepting in 2005 was meaningfully lower than that of business incepting in 2004. Due to reserve strengthening recorded in 2006 with respect to business written in prior years, on a reported basis, the net loss ratio on IHC’s medical stop-loss line increased by 2% when comparing 2005 to 2006.”
Mr. Thung continued, “In 2007 and beyond, IHC will strive to produce consistently profitable results, not only from appropriately pricing its products, but from a vertical integration strategy that provides fee income generated from its managing general underwriter, third-party administrator, actuarial and marketing service subsidiaries and affiliates. IHC believes that the work accomplished over the past two years to build its enterprise, diversify its lines of business and increase profitability will produce higher earnings in 2007.”
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