Note 7. Goodwill and Other Intangible Assets

12 Months Ended

Dec. 31, 2015

Notes

Note 7. Goodwill and Other Intangible Assets

Note 7.                        Goodwill and Other Intangible Assets

            Changes in goodwill and goodwill balances by reportable segment are as follows for the periods indicated (in thousands):

		Medical		Fully-Insured
		Stop-Loss		Health		Total
Balance at December 31, 2013	$	5,664	$	44,654	$	50,318
Acquisition		-		-		-
Balance at December 31, 2014		5,664		44,654		50,318
Acquisition (see Note 6)		-		5,703		5,703
Sale of subsidiary/business (see Note 6)		-		(3,081)		(3,081)
Balance at December 31, 2015	$	5,664	$	47,276	$	52,940

At December 31, 2015, the Company’s market capitalization was less than its book value indicating a potential impairment of goodwill.  As a result, the Company assessed the factors contributing to the performance of IHC stock in 2015, and concluded that the market capitalization does not represent the fair value of the Company.  The Company noted several factors that have led to a difference between the market capitalization and the fair value of the Company, including (i) the Company’s stock is thinly traded and a sale of even a small number of shares can have a large percentage impact on the price of the stock, (ii) Geneve Corporation and insiders own approximately 57% of the outstanding shares, which has had a significant adverse impact on the number of shares available for sale and therefore the trading potential of IHC stock, and (iii) lack of analyst coverage of the Company. If we experience a sustained decline in our results of operations and cash flows, or other indicators of impairment exist, we may incur a material non-cash charge to earnings relating to impairment of our goodwill, which could have a material adverse effect on our results.

The Company has net other intangible assets of $15,517,000 and $12,135,000 at December 31, 2015 and 2014, respectively, which are included in other assets in the Consolidated Balance Sheets. These intangible assets consist of: (i) finite-lived intangible assets, principally the fair value of acquired agent and broker relationships, which are subject to amortization; and (ii) indefinite-lived intangible assets which consist of the estimated fair value of insurance licenses that are not subject to amortization.

The gross carrying amounts of these other intangible assets are as follows for the periods indicated (in thousands):

		December 31, 2015				December 31, 2014
		Gross				Gross
		Carrying		Accumulated		Carrying		Accumulated
		Amount		Amortization		Amount		Amortization
Finite-lived Intangible Assets:
Agent and broker relationships	$	23,529	$	16,906	$	22,725	$	18,567
Trademarks		1,000		83		-		-
Total finite-lived	$	24,529	$	16,989	$	22,725	$	18,567

		December 31,
		2015		2014
Indefinite-lived Intangible Assets:
Insurance licenses	$	7,977	$	7,977
Total indefinite-lived	$	7,977	$	7,977

Changes in net other intangible assets are as follows for the periods indicated (in thousands):

		2015		2014		2013
Balance at beginning of year	$	12,135	$	14,767	$	18,271
Acquisitions		5,500		-		(183)
Sale of subsidiaries/businesses		(122)		-		(101)
Amortization expense		(1,996)		(2,632)		(3,220)
Balance at end of year	$	15,517	$	12,135	$	14,767

As discussed in Note 6, the Company recorded $5,500,000 of intangible assets in connection with the acquisition of a controlling interest in GAF during 2015 and, of that amount, $1,000,000 represents the fair value of trademarks, which is being amortized over a period of 8 years, and $4,500,000 represents the fair value of customer relationships being amortized over a period of 9 years.

As a result of the deconsolidation of certain subsidiaries discussed in Note 6, net intangible assets associated with the Fully Insured Health segment decreased by $122,000.         

Estimated amortization expense for each of the next five years is as follows (in thousands):

		Amortization
Year		Expense
2016	$	1,925
2017		1,551
2018		1,210
2019		849
2020		622