ihrc20160831

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.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

NOTE 4 – Investments

Investments in available-for-sale securities are summarized as follows:

			Gross		Gross
September 30, 2016	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Fixed maturity securities:
U.S. government obligations	$	22,095,238	$	1,055,465	$	347	$	23,150,356
States and political subdivisions		35,440,349		6,363,950		-		41,804,299
Corporate		199,144,059		15,393,658		261,102		214,276,615
Foreign		50,649,606		3,599,268		5,092		54,243,782
Mortgage-backed securities (MBS):
Commercial MBS		6,750,974		516,795		-		7,267,769
Residential MBS		33,284,905		2,432,185		-		35,717,090
Corporate redeemable preferred stock		932,150		84,984		28,209		988,925
Total fixed maturity securities		348,297,281		29,446,305		294,750		377,448,836
Equity securities:
U.S. agencies		707,900		-		-		707,900
Mutual funds		318,284		29,858		-		348,142
Corporate common stock		6,665,413		1,286,221		352,179		7,599,455
Total equity securities		7,691,597		1,316,079		352,179		8,655,497
Total	$	355,988,878	$	30,762,384	$	646,929	$	386,104,333

			Gross		Gross
December 31, 2015	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
Fixed maturity securities:
U.S. government obligations	$	23,373,714	$	642,038	$	-	$	24,015,752
States and political subdivisions		36,830,198		4,511,826		136,585		41,205,439
Corporate		229,425,035		10,338,999		4,587,896		235,176,138
Foreign		65,010,084		1,731,076		4,682,638		62,058,522
Asset-backed securities		143,552		457		-		144,009
Mortgage-backed securities (MBS):
Commercial MBS		6,830,520		148,314		15,592		6,963,242
Residential MBS		37,200,599		1,776,233		62,255		38,914,577
Corporate redeemable preferred stock		711,915		-		42,787		669,128
Total fixed maturity securities		399,525,617		19,148,943		9,527,753		409,146,807
Equity securities:
U.S. agencies		707,900		-		-		707,900
Mutual funds		318,284		-		14,253		304,031
Corporate common stock		6,426,482		702,497		524,121		6,604,858
Total equity securities		7,452,666		702,497		538,374		7,616,789
Total	$	406,978,283	$	19,851,440	$	10,066,127	$	416,763,596

The following table summarizes, for all securities in an unrealized loss position as of the balance sheet dates, the estimated fair value, pre-tax gross unrealized loss and number of securities by length of time that those securities have been continuously in an unrealized loss position.

	September 30, 2016						December 31, 2015
			Gross		Number				Gross		Number
	Estimated		Unrealized		of		Estimated		Unrealized		of
	Fair Value		Loss		Securities		Fair Value		Loss		Securities
Fixed Maturities:
Less than 12 months:
U.S. government obligations	$	253,233	$	347		1	$	-	$	-		-
States and political subdivisions		-		-		-		1,613,415		136,585		2
Corporate		2,792,199		8,936		2		55,039,213		3,873,158		52
Foreign		389,000		5,092		1		24,154,510		1,418,143		20
Commercial MBS		-		-		-		1,447,694		15,592		2
Residential MBS		-		-		-		3,320,890		62,255		2
Corporate redeemable preferred stock		17,248		733		1		669,128		42,787		2
Greater than 12 months:
Corporate		4,941,783		252,166		3		5,533,581		714,738		4
Foreign		-		-		-		6,007,156		3,264,495		4
Corporate redeemable preferred stock		202,605		27,476		1		-		-		-
Total fixed maturities		8,596,068		294,750		9		97,785,587		9,527,753		88

Equities:
Less than 12 months:
Mutual funds		-		-		-		304,031		14,253		1
Corporate common stock		1,514,608		176,954		9		2,449,672		473,551		15
Greater than 12 months:
Corporate common stock		726,041		175,225		8		183,960		50,570		3
Total equities		2,240,649		352,179		17		2,937,663		538,374		19

Total	$	10,836,717	$	646,929		26	$	100,723,250	$	10,066,127		107

At September 30, 2016, 100% of the fixed maturity portfolio had a fair value to amortized cost ratio of greater than 80% and 96.3% of the equity securities portfolio had a fair value to cost ratio of greater than 80%. At December 31, 2015, 97.4% of the fixed maturity portfolio had a fair value to amortized cost ratio of greater than 80%, and 93.4% of the equity securities portfolio had a fair value to cost ratio of greater than 80%. At September 30, 2016 and December 31, 2015, 0% and 54.5%, respectively, of the total gross unrealized losses shown above were comprised of fixed maturity securities in the basic industrial sector while 21.6% and 22.6%, respectively, of the gross unrealized losses were comprised of fixed maturity securities in the energy sector. The majority of these unrealized losses were attributable to credit spread widening across the energy sector and metals/mining subsectors associated with sharp declines in commodity prices during 2015. Energy-related companies have been negatively impacted by the rapid decline in oil prices, which has pressured revenues and margins. The metal/mining sub-sector companies are experiencing lower demand for coal, copper, iron ore and other minerals due to the economic slowdown in China in addition to sluggish demand in the United States and Europe and tightening environmental regulation. While the market values of these securities remain below book value, the market values have rebounded significantly as of September 30, 2016.

At September 30, 2016 and December 31, 2015, the unrealized losses associated with our equity securities were primarily attributable to unrealized losses on real estate sector stocks. The unrealized losses are primarily due to equity market conditions rather than credit concerns associated with the positions.

The Company’s decision to record an impairment loss is primarily based on whether the security’s fair value is likely to remain significantly below its book value in light of all the factors considered. Factors that are considered include the length of time the security’s fair value has been below its carrying amount, the severity of the decline in value, the credit worthiness of the issuer, and the coupon and/or dividend payment history of the issuer. The Company also assesses whether it intends to sell or whether it is more likely than not that it may be required to sell the security prior to its recovery in value. For any fixed maturity securities that are other-than-temporarily impaired, the Company determines the portion of the other-than-temporary impairment that is credit-related and the portion that is related to other factors. The credit-related portion is the difference between the expected future cash flows and the amortized cost basis of the fixed maturity security, and that difference is charged to earnings. The non-credit-related portion representing the remaining difference to fair value is recognized in other comprehensive income (loss). Only in the case of a credit-related impairment where management has the intent to sell the security, or it is more likely than not that it will be required to sell the security before recovery of its cost basis, is a fixed maturity security adjusted to fair value and the resulting losses recognized in realized gains/losses in the consolidated statements of income. Any other-than-temporary impairments on equity securities are recorded in the consolidated statements of income in the periods incurred as the difference between fair value and cost.

During the quarter ended September 30, 2016, the Company recognized an other-than-temporary impairment on one real estate common stock totaling $118,267. While the Company continues to hold this security, there was no evidence to suggest that the security would recover in the near-term based on the financial outlook for the stock, the significance of the reduction in market value and the length of time that the stock has traded below its book value. The Company experienced no additional other-than-temporary impairments during the quarters or nine months ended September 30, 2016 or 2015.

Management believes that the Company will fully recover its cost basis in the securities held at September 30, 2016, and management does not have the intent to sell nor is it more likely than not that the Company will be required to sell such securities until they recover or mature. The temporary impairments shown herein are primarily the result of the current interest rate and economic environment rather than credit factors that would imply other-than-temporary impairment.

Net unrealized gains for investments classified as available-for-sale are presented below, net of the effect on deferred income taxes and deferred acquisition costs assuming that the appreciation (depreciation) had been realized.

	September 30,			December 31,
	2016			2015
Net unrealized appreciation on available-for sale securities	$	30,115,455		$	9,785,313
Adjustment to deferred acquisition costs		(835,824	)		(249,401	)
Deferred income taxes		(9,955,075	)		(3,242,210	)
Net unrealized appreciation on available-for sale securities	$	19,324,556		$	6,293,702

The amortized cost and fair value of fixed maturity securities at September 30, 2016, by contractual maturity, are presented below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available-for-Sale
	Amortized		Fair
	Cost		Value
Due in one year or less	$	14,712,695	$	14,994,152
Due after one year through five years		94,722,166		102,418,614
Due after five years through ten years		135,505,787		144,857,593
Due after ten years		42,633,992		50,627,149
Due at multiple maturity dates		59,790,491		63,562,403
Corporate redeemable preferred stock		932,150		988,925
Total	$	348,297,281	$	377,448,836

Proceeds from sales and maturities of investments in available-for-sale securities, as well as gross gains and gross losses realized, are presented below.

	Quarter Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Proceeds from sales and maturities	$	45,275,073		$	13,603,538		$	72,674,725		$	29,969,158
Gross realized gains		1,772,703			606,915			2,345,537			857,095
Gross realized losses		(844,787	)		(406	)		(852,564	)		(122,745	)

The table below shows the change in net unrealized investment gains (losses) and the amount of realized investment gains (losses) on fixed maturities and equity securities in addition to realized investment gains on mortgage loans.

	Quarter Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016		2015
Change in net unrealized investment gains (losses):
Securities available-for-sale:
Fixed maturities	$	680,196		$	(2,751,428	)	$	19,530,365	$	(8,248,903	)
Equity securities		(42,715	)		(721,896	)		799,777		(1,095,334	)
Net realized investment gains (losses):
Securities available-for-sale:
Fixed maturities	$	880,055		$	-		$	1,445,112	$	90,859
Equity securities		47,861			606,509			47,861		643,491
Mortgage loans on real estate		-			-			-		75,915
Investments in convertible options		-			(5,529	)		9,232		(5,529	)

The Company is required to hold assets on deposit for the benefit of policyholders in accordance with statutory rules and regulations. At September 30, 2016 and December 31, 2015, these required deposits had a total fair value of $23,253,142 and $22,899,132, respectively.

The Company also engages in commercial and residential mortgage lending. As of September 30, 2016, investments in commercial and residential properties comprised 23.2% and 76.8%, respectively, of the Company’s mortgage portfolio. At December 31, 2015, investments in commercial and residential properties comprised 32.1% and 67.9%, respectively, of the Company’s mortgage portfolio.

All commercial mortgage loans as well as residential apartment building loans are either originated in-house or through two mortgage brokers, are secured by first mortgages on the real estate and generally carry personal guarantees by the borrowers. Loan-to-value ratios of 80% or less and debt service coverage from existing cash flows of 115% or higher are generally required. We minimize credit risk in our mortgage loan portfolio through various methods, including stringently underwriting the loan request, maintaining small average loan balances, and reviewing larger mortgage loans on an annual basis.

The Company purchases single family residential mortgage loans through the secondary market. Each mortgage loan opportunity is reviewed individually, considering both the value of the underlying property and the credit worthiness of the borrower. We utilize third party servicers to administer these loans.

As of September 30, 2016 and December 31, 2015, there were no non-performing loans, loans on nonaccrual status, loans in process of foreclosure, or restructured loans. As of September 30, 2016, the Company held two mortgage loans totaling $686,655 that were past due by more than 90 days. The Company previously held one additional loan where the Company’s mortgage loan servicer formally filed a notice of intent to foreclose on the property. During the third quarter of 2016, all principal and interest was paid in full on this loan prior to foreclosure. The Company had no mortgage loans past due by more than 90 days as of December 31, 2015. The Company experienced no mortgage loan defaults during the quarters or nine months ended September 30, 2016 and 2015.

The Company’s investments in mortgage loans, by state, are as follows:

	September 30,		December 31,
	2016		2015
Texas	$	5,613,143	$	5,694,612
Florida		5,404,717		3,906,034
Illinois		4,936,961		6,046,408
Georgia		3,372,057		2,671,788
California		3,020,218		3,366,434
Missouri		2,738,436		1,342,845
Kentucky		2,451,081		3,241,793
Ohio		2,434,104		1,692,354
Arizona		2,168,241		774,060
Colorado		1,375,508		222,364
New Jersey		1,199,938		247,723
Tennessee		1,074,622		895,607
Indiana		897,984		759,139
North Carolina		699,495		353,275
Oregon		489,172		-
Nevada		481,073		373,359
Virginia		403,002		-
Pennsylvania		356,582		370,323
Utah		345,011		77,939
West Virginia		235,751		412,250
South Carolina		203,698		225,881
Massachusetts		174,940		205,469
Idaho		146,921		159,073
Kansas		134,653		135,401
Total	$	40,357,308	$	33,174,131

The Company owns certain investments in state-guaranteed receivables. These investments represent an assignment of the future rights to cash flows from lottery winners purchased at a discounted price. Payments on these investments are made by state run lotteries and guaranteed by the states. The state-guaranteed receivables are carried at their amortized cost basis on the balance sheet. At September 30, 2016, the amortized cost and estimated fair value of state-guaranteed receivables, by contractual maturity, are summarized as follows:

	Amortized		Fair
	Cost		Value
Due in one year or less	$	983,246	$	996,050
Due after one year through five years		3,501,954		3,869,310
Due after five years through ten years		3,761,316		4,766,741
Due after ten years		2,050,892		3,451,501
Total	$	10,297,408	$	13,083,602

The amortized cost of state-guaranteed receivables, by state, is summarized as follows:

	September 30,		December 31,
	2016		2015
New York	$	3,483,723	$	3,496,115
Massachusetts		2,407,968		1,991,601
Georgia		2,052,018		1,432,022
Washington		693,716		-
Indiana		462,637		-
Ohio		433,262		54,171
Pennsylvania		338,291		294,968
Texas		257,031		243,939
California		168,762		180,143
Total	$	10,297,408	$	7,692,959

During the third quarter of 2015, the Company began purchasing investments in convertible fixed maturity securities. Convertible securities feature an option allowing for a portion of the security to be converted into an equity position of the underlying issuer in exchange for a lower coupon rate. In accordance with FASB accounting guidance, this convertible feature must be bifurcated and reported separately on the balance sheet at fair value, with adjustments in fair value recognized in the income statement. Accordingly, the convertible options within our portfolio are reported as investments in convertible options on the balance sheet, and the mark-to-market adjustment associated with the changes in fair value of the convertible options are reported as gains (losses) on investments in convertible options as a component of net investment income. As of September 30, 2016 and December 31, 2015, the total fair value of our investments in convertible options was $974,103 and $957,405, respectively. For the quarter and nine months ended September 30, 2016, we recognized a gain (loss) on our investments in convertible options of $99,192 and ($44,184), respectively, relative to the mark-to-market adjustment. For the quarter and nine months ended September 30, 2015, we recognized a loss on our investments in convertible options of $41,082 relative to the mark-to-market adjustment.

Major categories of net investment income are summarized as follows:

	Quarter Ended September 30,					Nine Months Ended September 30,
	2016		2015			2016			2015
Fixed maturities	$	4,410,484	$	4,517,133		$	13,951,373		$	13,713,883
Equity securities		88,563		55,400			220,213			192,180
Mortgage loans on real estate		642,705		545,945			1,966,079			1,730,040
Policy loans		121,616		126,798			365,071			368,784
State-guaranteed receivables		172,946		134,770			480,469			413,045
Gain (loss) on investments in convertible options		99,192		(41,082	)		(44,184	)		(41,082	)
Other		53,360		47,741			165,674			168,772
Gross investment income		5,588,866		5,386,705			17,104,695			16,545,622
Investment expenses		258,013		148,668			774,037			744,725
Net investment income	$	5,330,853	$	5,238,037		$	16,330,658		$	15,800,897

NOTE 5 – Fair Values of Financial Instruments

The fair value of a financial instrument is the estimated amount at which the instrument could be exchanged in an orderly transaction between knowledgeable, unrelated, willing parties, i.e., not in a forced transaction. The estimated fair value of a financial instrument may differ from the amount that could be realized if the security was sold in an immediate sale, e.g., a forced transaction. Additionally, the valuation of investments is more subjective when markets are less liquid due to the lack of market based inputs, which may increase the potential that the estimated fair value of an investment is not reflective of the price at which an actual transaction would occur.

The Company holds fixed maturities and equity securities that are measured and reported at fair market value on the balance sheet. The Company is also required to disclose fair value estimates for other financial instruments not required to be carried at market value on the balance sheet. The Company determines the fair market values of its financial instruments based on the fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value, as follows:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The unobservable inputs reflect the Company’s own assumptions about the inputs that market participants would use.

The Company has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into the three-level fair value hierarchy. If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the valuation inputs, or their ability to be observed, may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in/out of the Level 3 category as of the beginning of the period in which the reclassifications occur.

Valuation of Investments Reported at Fair Value in Financial Statements

The Company’s Level 1 investments include equity securities that are traded in an active exchange market, as well as one U.S. agency equity security whose value is set by government statute.

The Company’s Level 2 investments include fixed maturities with quoted prices that are traded less frequently than exchange-traded instruments or instruments whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes the majority of our fixed maturities, where fair values are obtained from a nationally recognized, third-party pricing service as well as our investments in convertible options. These options are bifurcated from the underlying fixed maturity investments and are also valued using observable market data obtained from a nationally recognized, third-party pricing service.

The Company’s Level 3 investments include financial instruments whose value cannot be obtained through a pricing service and must be determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category currently includes one private equity investment where independent pricing inputs were not able to be obtained. For fixed maturities that may fall within this level, the Company utilizes the assistance of its third-party investment advisor to estimate the fair value based on non-binding broker quotes and internal models using unobservable assumptions about market participants. For the private equity investment, the Company establishes fair value based on the most recent trading activity as well as a review of the underlying financial statements of the entity.

The following table presents the Company’s fair value hierarchy for those financial instruments measured and reported at fair value on a recurring basis.

	September 30, 2016
	Level 1		Level 2		Level 3		Total
Fixed maturities:
U.S. government obligations	$	-	$	23,150,356	$	-	$	23,150,356
States and political subdivisions		-		41,804,299		-		41,804,299
Corporate		-		214,276,615		-		214,276,615
Foreign		-		54,243,782		-		54,243,782
Mortgage-backed securities:
Commercial MBS		-		7,267,769		-		7,267,769
Residential MBS		-		35,717,090		-		35,717,090
Corporate redeemable preferred stock		-		988,925		-		988,925
Total fixed maturities	$	-	$	377,448,836	$	-	$	377,448,836

Equity securities:
U.S. agencies	$	707,900	$	-	$	-	$	707,900
Mutual funds		348,142		-		-		348,142
Corporate common stock		7,151,455		-		448,000		7,599,455
Total equity securities	$	8,207,497	$	-	$	448,000	$	8,655,497

Investments in convertible options	$	-	$	974,103	$	-	$	974,103

	December 31, 2015
	Level 1		Level 2		Level 3		Total
Fixed maturities:
U.S. government obligations	$	-	$	24,015,752	$	-	$	24,015,752
States and political subdivisions		-		41,205,439		-		41,205,439
Corporate		-		235,176,138		-		235,176,138
Foreign		-		62,058,522		-		62,058,522
Asset-backed securities		-		144,009		-		144,009
Mortgage-backed securities:
Commercial MBS		-		6,963,242		-		6,963,242
Residential MBS		-		38,914,577		-		38,914,577
Corporate redeemable preferred stock		-		669,128		-		669,128
Total fixed maturities	$	-	$	409,146,807	$	-	$	409,146,807

Equity securities:
U.S. agencies	$	707,900	$	-	$	-	$	707,900
Mutual funds		304,031		-		-		304,031
Corporate common stock		6,252,858		-		352,000		6,604,858
Total equity securities	$	7,264,789	$	-	$	352,000	$	7,616,789

Investments in convertible options	$	-	$	957,405	$	-	$	957,405

The following table provides a summary of changes in fair value of our Level 3 financial instruments reported at fair value.

	Quarter Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Corporate common stock:
Beginning balance	$	448,000	$	352,000	$	352,000	$	384,000
Transfers into Level 3		-		-		-		-
Transfers out of Level 3		-		-		-		-
Purchases		-		-		-		-
Sales		-		-		-		-
Total gains or losses:
Included in earnings		-		-		-		-
Included in other comprehensive income		-		-		96,000		(32,000	)
Ending balance	$	448,000	$	352,000	$	448,000	$	352,000

The Company experienced no transfers between Level 1 and Level 2 during the quarters or nine months ended September 30, 2016 or 2015. The Company experienced no transfers between Level 2 and Level 3 during the quarters or nine months ended September 30, 2016 or 2015. Transfers in and/or out of Level 3 are primarily attributable to changes in the availability of market observable information and re-evaluation of the observability of pricing inputs.

The unrealized gains (losses) on Level 3 investments are recorded as a component of accumulated other comprehensive income (loss), net of tax, in accordance with required accounting for our available-for-sale portfolio.

Financial Instruments Disclosed, but not Carried, at Fair Value

The following disclosure presents the carrying values and estimated fair values of the Company’s financial instruments disclosed, but not carried, at fair value and the level within the fair value hierarchy at which such assets and liabilities are measured on a recurring basis. The fair values for insurance contracts other than investment-type contracts are not required to be disclosed. The estimated fair value amounts have been determined using available market information and appropriate valuation methodologies. However, considerable judgment was required to interpret market data to develop these estimates. Accordingly, the estimates are not necessarily indicative of the amounts which could be realized in a current market exchange. The use of different market assumptions or estimation methodologies may have a material effect on the fair value amounts.

	September 30, 2016
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Assets:
Mortgage loans on real estate:
Commercial	$	9,374,448	$	9,628,342	$	-	$	-	$	9,628,342
Residential		30,982,860		33,484,069		-		-		33,484,069
Policy loans		6,394,333		6,394,333		-		-		6,394,333
State-guaranteed receivables		10,297,408		13,083,602		-		13,083,602		-
Other invested assets		2,043,888		2,043,888		-		-		2,043,888
Cash and cash equivalents		47,911,628		47,911,628		47,911,628		-		-
Accrued investment income		4,055,195		4,055,195		-		-		4,055,195
Cash value of company-owned life insurance		13,575,925		13,575,925		-		-		13,575,925

Liabilities:
Policyholder deposits (Investment-type contracts)		52,182,540		51,872,237		-		-		51,872,237
Policy claims		2,545,195		2,545,195		-		-		2,545,195
Obligations under capital leases		130,114		130,114		-		-		130,114
Notes payable		1,159,316		1,159,316		-		-		1,159,316

	December 31, 2015
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Assets:
Mortgage loans on real estate:
Commercial	$	10,655,107	$	11,080,145	$	-	$	-	$	11,080,145
Residential		22,519,024		24,679,435		-		-		24,679,435
Policy loans		6,702,911		6,702,911		-		-		6,702,911
State-guaranteed receivables		7,692,959		9,094,934		-		9,094,934		-
Other invested assets		2,379,451		2,379,451		-		-		2,379,451
Cash and cash equivalents		3,619,663		3,619,663		3,619,663		-		-
Accrued investment income		5,149,612		5,149,612		-		-		5,149,612
Cash value of company-owned life insurance		13,191,773		13,191,773		-		-		13,191,773

Liabilities:
Policyholder deposits (Investment-type contracts)		52,694,746		53,880,242		-		-		53,880,242
Policy claims		2,584,088		2,584,088		-		-		2,584,088
Obligations under capital leases		377,259		377,259		-		-		377,259
Notes payable		1,433,448		1,433,448		-		-		1,433,448

The following methods and assumptions were used in estimating the fair value disclosures for financial instruments in the accompanying financial statements and notes thereto:

Mortgage loans on real estate: The fair values for mortgage loans are estimated using discounted cash flow analyses. For commercial mortgage loans, the discount rate was assumed to be the interest rate of the last commercial mortgage acquired by the Company. For residential mortgage loans, the discount rate was assumed to be the average yield on recent purchases less an expense factor.

State-guaranteed receivables: The fair values for state-guaranteed receivables are estimated using discounted cash flow analyses, using the average Citigroup Pension Liability Index in effect at the end of each period.

Cash and cash equivalents: The carrying amounts reported for these financial instruments approximate their fair values given the highly liquid nature of the instruments.

Cash value of company-owned life insurance: The carrying values and fair values for these policies are based on the current cash surrender values of the policies.

Investment-type contracts: The fair value for liabilities under investment-type insurance contracts (accumulation annuities) is calculated using a discounted cash flow approach. Cash flows are projected using actuarial assumptions and discounted to the valuation date using risk-free rates adjusted for credit risk and the nonperformance risk of the liabilities.

Notes payable: The fair values for notes payable with floating interest rates and promissory notes approximate the unpaid principal balances on such notes.

Policy loans, other invested assets, accrued investment income, policy claims and obligations under capital leases: The carrying values of these instruments approximate their fair values and are disclosed in Level 3 of the hierarchy.

NOTE 9 – Other Comprehensive Income (Loss)

The following tables present the pretax components of the Company’s other comprehensive income (loss), and the related income tax expense (benefit) for each component.

	Quarter Ended September 30, 2016
				Income Tax
				Expense
	Pretax			(Benefit)			Net of Tax
Other comprehensive income:
Change in net unrealized gains on available-for-sale securities:
Unrealized holding gains arising during period	$	1,565,397		$	532,235		$	1,033,162
Reclassification adjustment for gains included in income		(927,916	)		(315,492	)		(612,424	)
Adjustment for effect of deferred acquisition costs		(87,465	)		(29,737	)		(57,728	)
Net unrealized gains on investments		550,016			187,006			363,010
Change in defined benefit pension plan:
Amortization of actuarial net loss in net periodic pension cost		184,293			62,660			121,633

Total other comprehensive income	$	734,309		$	249,666		$	484,643

	Quarter Ended September 30, 2015
				Income Tax
				Expense
	Pretax			(Benefit)			Net of Tax
Other comprehensive loss:
Change in net unrealized gains on available-for-sale securities:
Unrealized holding losses arising during period	$	(2,866,815	)	$	(1,106,939	)	$	(1,759,876	)
Reclassification adjustment for gains included in income		(606,509	)		(73,993	)		(532,516	)
Adjustment for effect of deferred acquisition costs		93,198			31,688			61,510
Net unrealized losses on investments		(3,380,126	)		(1,149,244	)		(2,230,882	)
Change in defined benefit pension plan:
Amortization of actuarial net loss in net periodic pension cost		190,559			64,790			125,769

Total other comprehensive loss	$	(3,189,567	)	$	(1,084,454	)	$	(2,105,113	)

	Nine Months Ended September 30, 2016
				Income Tax
				Expense
	Pretax			(Benefit)			Net of Tax
Other comprehensive income:
Change in net unrealized gains on available-for-sale securities:
Unrealized holding gains arising during period	$	21,823,115		$	7,419,859		$	14,403,256
Reclassification adjustment for gains included in income		(1,492,973	)		(507,611	)		(985,362	)
Adjustment for effect of deferred acquisition costs		(586,423	)		(199,383	)		(387,040	)
Net unrealized gains on investments		19,743,719			6,712,865			13,030,854
Change in defined benefit pension plan:
Amortization of actuarial net loss in net periodic pension cost		552,880			187,979			364,901

Total other comprehensive income	$	20,296,599		$	6,900,844		$	13,395,755

	Nine Months Ended September 30, 2015
				Income Tax
				Expense
	Pretax			(Benefit)			Net of Tax
Other comprehensive loss:
Change in net unrealized gains on available-for-sale securities:
Unrealized holding losses arising during period	$	(8,609,887	)	$	(3,068,836	)	$	(5,541,051	)
Reclassification adjustment for gains included in income		(734,350	)		(108,206	)		(626,144	)
Adjustment for effect of deferred acquisition costs		257,145			87,430			169,715
Net unrealized losses on investments		(9,087,092	)		(3,089,612	)		(5,997,480	)
Change in defined benefit pension plan:
Amortization of actuarial net loss in net periodic pension cost		571,675			194,370			377,305

Total other comprehensive loss	$	(8,515,417	)	$	(2,895,242	)	$	(5,620,175	)

Realized gains and losses on the sales of investments are determined based upon the specific identification method and include provisions for other-than-temporary impairments where appropriate.

The change in the components of the Company’s accumulated other comprehensive income, net of tax, are as follows:

	Unrealized Gains			Defined			Accumulated
	(Losses) on			Benefit			Other
	Available-For-Sale			Pension			Comprehensive
	Securities			Plan			Income
For the nine months ended September 30, 2016:
Beginning balance	$	6,293,702		$	(5,536,541	)	$	757,161
Other comprehensive income before reclassifications		14,016,216			-			14,016,216
Amounts reclassified from accumulated other comprehensive income		(985,362	)		364,901			(620,461	)
Net current period other comprehensive income		13,030,854			364,901			13,395,755
Ending balance	$	19,324,556		$	(5,171,640	)	$	14,152,916

For the nine months ended September 30, 2015:
Beginning balance	$	17,743,407		$	(5,039,088	)	$	12,704,319
Other comprehensive loss before reclassifications		(5,371,336	)		-			(5,371,336	)
Amounts reclassified from accumulated other comprehensive income		(626,144	)		377,305			(248,839	)
Net current period other comprehensive income (loss)		(5,997,480	)		377,305			(5,620,175	)
Ending balance	$	11,745,927		$	(4,661,783	)	$	7,084,144

The following table presents the pretax and the related income tax components of the amounts reclassified from the Company’s accumulated other comprehensive income to the Company’s consolidated statement of income.

	Quarter Ended September 30,						Nine Months Ended September 30,
Reclassification Adjustments	2016			2015			2016			2015
Unrealized gains on available-for-sale securities:
Realized gains on sale of securities ^(a)	$	927,916		$	606,509		$	1,492,973		$	734,350
Income tax expense ^(c)		(315,492	)		(73,993	)		(507,611	)		(108,206	)
Net of tax		612,424			532,516			985,362			626,144

Defined benefit pension plan:
Amortization of actuarial net loss ^(b)		(184,293	)		(190,559	)		(552,880	)		(571,675	)
Income tax benefit ^(c)		62,660			64,790			187,979			194,370
Net of tax		(121,633	)		(125,769	)		(364,901	)		(377,305	)

Total reclassifications for the period	$	490,791		$	406,747		$	620,461		$	248,839

(a) These items appear within net realized gains (losses) on investments in the consolidated income statements.

(b) These items are included in the computation of net periodic pension cost (see Note 10).

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Investors Heritage Capital Corporation is incorporated under the laws of the Commonwealth of Kentucky and wholly owns Investors Heritage Life Insurance Company, a life insurance company also incorporated under the laws of the Commonwealth of Kentucky. Investors Heritage Capital also wholly owns Investors Heritage Financial Services Group, Inc., a Kentucky insurance marketing company; Investors Heritage Printing, Inc., a Kentucky printing company that previously provided printing to Investors Heritage Life and other unaffiliated parties but which is currently dormant; is the sole member of At Need Funding, LLC, a Kentucky limited liability company that provides advance funding of funerals in exchange for the irrevocable assignment of life insurance policies from other nonaffiliated companies; and is the sole member of Heritage Funding, LLC, a limited liability company that was formed to invest in various business ventures but is currently dormant.

Investors Heritage Life offers a full line of life insurance products including, but not limited to, whole life, term life, single premium life, multi-pay life and annuities. Investors Heritage Life’s primary lines of business are insurance policies and annuities utilized to fund preneed funeral contracts, policies sold in the senior wealth transfer market, final expense insurance, credit life and credit disability insurance, group term insurance sold through associations, and term life and reducing term life sold through financial institutions. We continue to actively develop new products and diversify distribution systems in order to broaden our marketing base.

In our preneed and burial product segment, we currently market the Legacy Gold and Heritage Final Expense products. The Legacy Gold life insurance and annuity product series is sold in the preneed market in conjunction with prearranged funerals. The Legacy Gold series includes both single premium and multi-pay policies, and both underwritten and guaranteed issue options are available. The Heritage Final Expense product is a non-participating whole life insurance product with simplified underwriting, sold in the final expense market.

Within our traditional and universal life products segment, we currently market two products geared toward wealth preservation in the senior market – the Heritage Solution, a single premium life policy, and the Heritage Provider, a ten pay whole life and single premium immediate annuity combination. These products are currently being sold exclusively through our partnership with Puritan Financial Group and are being underwritten and issued using a third party underwriter with significant experience in that market. Prior to January 1, 2013, this business was being reinsured under a 50% coinsurance arrangement with Puritan Life Insurance Company of America. Effective January 1, 2013, this coinsurance agreement was amended to reinsure 25% of new business. This reinsurance agreement was terminated with respect to new business effective July 31, 2015, after which time we now retain 100% of new business being produced under the marketing agreement.

Investors Heritage Life assumes 75% of the risks on certain policies sold by Puritan Life Insurance Company of America and Sterling Investors Life Insurance Company. The products being assumed are identical to the Heritage Solution and Heritage Provider products currently being written by Investors Heritage Life. However, these reinsurance arrangements allow us to participate in the profitability of these products in certain states where we are not currently marketing. These reinsurance agreements were also terminated with respect to new business effective July 31, 2015.

Our traditional and universal life products also include the HLW Choice Whole Life product and the Heritage Protector IV product. The HLW Choice Whole Life product is designed with numerous options and with flexibility to achieve our customers’ goals. The Heritage Protector IV product is a term product marketed primarily by banks and other financial institutions in conjunction with consumer credit.

We introduced an association group term product during the second half of 2013. This product provides a monthly renewable term benefit and is being marketed to various association groups.

We also market the Heritage Youth Protector, which is a combination term/whole life plan marketed to parents and grandparents, with issue ages of 0-22. The policy is a term policy until age 25 at which time it automatically converts to a whole life policy with increased premium. Waiver of premium and guaranteed insurability option riders are also available. Initial coverage may be purchased in $5,000 increments from $5,000 to $20,000 per child, with single or annual payment options to age 25. At age 25, the policy becomes an annual pay plan.

We utilize a combination of yearly renewable term reinsurance and coinsurance to cede life insurance coverage in excess of our desired retention limits. In recent years, we have maintained our retention limits in most cases at $25,000 per life, utilizing a combination of established product specific reinsurance treaties along with yearly renewable term treaties for policies where we had previously maintained more than this limit. At the end of the second quarter of 2016, we approved an increase in our individual life retention to $50,000 per life where allowable under our reinsurance agreements. We are in the process of evaluating and either replacing or modifying our existing individual life yearly renewable term reinsurance agreements in order to effect this increase in retention. We anticipate that this change will better align our retention with our current capital, reduce reinsurance costs and allow for us to maintain a greater share of the anticipated profitability of our products.

Effective September 30, 2016, we entered into a 100% coinsurance agreement with Southland National Insurance Corporation (“SNIC”) whereby we reinsured an existing block of deferred fixed annuities to SNIC. The total liabilities reinsured as of September 30, 2016 were approximately $44,024,000 and deferred acquisition costs associated with this block were approximately $329,000. We transferred cash to SNIC under the agreement totaling approximately $41,921,000. In order to generate cash, we sold fixed maturity securities generating pre-tax net realized capital gains totaling approximately $880,000. As of September 30, 2016, the cash to be transferred to SNIC was recorded on the financial statements as a reinsurance payable within other liabilities until it was transferred to SNIC on October 4, 2016.

In accordance with GAAP guidance, the initial ceding commission received on this transaction was deferred and will be recognized into income over the expected life of the reinsurance contract, which is 20 years. The initial ceding commission, net of tax, was $1,471,858 and is presented separately on the balance sheet as deferred revenue on reinsurance ceded.

Under the terms of the reinsurance agreement, we will continue to administer this business and will be paid administrative fees by SNIC. SNIC will also maintain a trust account further securing the statutory liabilities ceded.

Investors Heritage Life continues to market its third party administrative (“TPA”) services as an additional revenue source. These agreements, for various levels of administrative services on behalf of each company, generate fee income for Investors Heritage Life. We currently have five TPA clients for which we provide tailored services to meet each client’s individual business needs. Two former life insurance holding company clients terminated their agreements effective October 1, 2015 in order to begin performing that work in-house. We have been able to perform our TPA services using our existing in-house resources.

The discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. Preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We evaluate our estimates continually, including those related to investments, deferred acquisition costs, value of business acquired, policy liabilities, income taxes, employee benefit plans, regulatory requirements, contingencies and litigation. We base such estimates on historical experience and other assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following accounting policies, judgments and estimates are the most critical to the preparation of our consolidated financial statements.

Investments in Fixed Maturities, Equity Securities, Mortgage Loans and State-Guaranteed Receivables

We hold fixed maturities and equity interests in a variety of companies. Additionally, we originate, underwrite and manage commercial mortgage loans, and we purchase residential mortgage loans through the secondary market. We also own certain investments in state-guaranteed receivables consisting of the future cash flow rights from lottery prize winners. We continuously evaluate all of our investments based on current economic conditions, credit loss experience and other developments. We evaluate the difference between the cost/amortized cost and estimated fair value of our investments to determine whether any decline in fair value is other-than-temporary in nature. This determination involves a degree of uncertainty.

If a decline in the fair value of a security is determined to be temporary, the decline is recognized in other comprehensive income (loss) within stockholders’ equity. If a decline in a security’s fair value is considered to be other-than-temporary, we then determine the proper treatment for the other-than-temporary impairment. For fixed maturities, the amount of any other-than-temporary impairment related to a credit loss is recognized in earnings and reflected as a reduction in the cost basis of the security; and the amount of any other-than-temporary impairment related to other factors is recognized in other comprehensive income (loss) with no change to the cost basis of the security. For equity securities, the amount of any other-than-temporary impairment is recognized in earnings and reflected as a reduction in the cost basis of the security.

The assessment of whether a decline in fair value is considered temporary or other-than-temporary includes management’s judgment as to the financial position and future prospects of the entity issuing the security. It is not possible to accurately predict when it may be determined that a specific security will become impaired. Future adverse changes in market conditions, poor operating results of underlying investments and defaults on mortgage loan payments could result in losses or an inability to recover the current carrying value of the investments, thereby possibly requiring an impairment charge in the future. Likewise, if a change occurs in our intent to sell temporarily impaired securities prior to maturity or recovery in value, or if it becomes more likely than not that we will be required to sell such securities prior to recovery in value or maturity, a future impairment charge could result.

If an other-than-temporary impairment related to a credit loss occurs with respect to a bond, we amortize the reduced book value back to the security’s expected recovery value over the remaining term of the bond. We continue to review the security for further impairment that would prompt another write-down in the book value.

We classify our fixed maturities and equity securities as available-for-sale and carry them at fair value on the balance sheet, with unrealized appreciation (depreciation) relating to temporary market value changes recorded as an adjustment to other comprehensive income (loss), net of adjustments to deferred acquisition costs and federal income taxes. Fair value for these investments is determined using Accounting Standards Codification principles covering Level 1, Level 2 and Level 3 instruments as further discussed in Note 5 to the consolidated financial statements.

Our fixed maturities are Level 2 instruments, for which the fair value is derived from readily available pricing services utilizing recent trades and broker information. Certain liquid equity securities are considered Level 1 instruments and are valued based on publicly available market quotes in an active market. We hold $448,000 in Level 3 financial instruments, comprising 0.1% of our total investments carried at fair value. Fair value for these instruments is derived from unobservable inputs and internal models using unobservable assumptions about market participants.

The recovery of deferred acquisition costs is dependent on the future profitability of the underlying business for which acquisition costs were incurred. Each reporting period, we evaluate the recoverability of the unamortized balance of deferred acquisition costs. We consider estimated future gross profits or future premiums, expected mortality or morbidity, interest earned and credited rates, persistency and expenses in determining whether the balance is recoverable. If we determine a portion of the unamortized balance is not recoverable, it is immediately charged to amortization expense. The assumptions we use to amortize and evaluate the recoverability of the deferred acquisition costs involve significant judgment. A revision to these assumptions may impact future financial results.

Deferred acquisition costs related to annuities and universal life insurance products are deferred to the extent deemed recoverable and amortized in relation to the present value of actual and expected gross profits on the policies. To the extent that realized gains and losses on securities result in adjustments to deferred acquisition costs related to annuities, such adjustments are reflected as a component of the amortization of deferred acquisition costs.

Deferred acquisition costs related to annuities are also adjusted, net of tax, for the change in amortization that would have been recorded if the unrealized gains (losses) from securities had actually been realized. This adjustment is included in the change in net unrealized appreciation (depreciation) on available-for-sale securities, a component of "Accumulated Other Comprehensive Income (Loss)" in the stockholders' equity section of the balance sheet.

Estimating liabilities for our long-duration insurance contracts requires management to make various assumptions, including policyholder persistency, mortality rates, investment yields, discretionary benefit increases, new business pricing, and operating expense levels. We evaluate historical experience for these factors when assessing the need for changing current assumptions. However, since many of these factors are interdependent and subject to short-term volatility during the long-duration contract period, substantial judgment is required. Actual experience may emerge differently from that originally estimated. Any such difference would be recognized in the current year’s consolidated statement of income. We utilize in-house actuaries in developing our actuarial assumptions and estimates and in monitoring such assumptions and estimates against actual experience.

We evaluate our deferred income tax assets, which partially offset our deferred tax liabilities, for any necessary valuation allowances. In doing so, we consider our ability and potential for recovering income taxes associated with such assets, which involve significant judgment. Revisions to the assumptions associated with any necessary valuation allowances would be recognized in the consolidated financial statements in the period in which such revisions are made.

Under current tax law, we are allowed to utilize the small life insurance company deduction to limit the federal taxable income associated with Investors Heritage Life annually. Changes in tax law or the growth of the Company’s tax basis assets to an amount greater than $500 million could limit our ability to utilize this deduction in future years, which could give rise to higher current federal income tax expense.

We maintain a defined benefit retirement plan on behalf of our employees. Measurement of the future benefit obligations associated with this plan involves significant judgment, particularly in regard to the expected long-term rate of return on plan assets and the current discount rate used to calculate the present value of future obligations. The long-term rate of return for plan assets is determined based on an analysis of historical returns on invested assets, anticipated future fixed income, equity investment markets, and diversification needs. Long term trends are evaluated relative to current market factors such as inflation, interest rates and investment strategies, including risk management, in order to assess the assumptions as applied to the plan. The discount rate utilized is determined based on reviews of market indices commonly used to measure such liabilities in the industry. Changes in our assumptions can significantly impact the accrued pension liability and net periodic benefit cost recorded in the consolidated financial statements. Additionally, funding of plan liabilities is sensitive to changes in investment returns as well as regulatory changes, which can significantly impact our consolidated financial statements. We continually monitor the performance of plan assets and growth in liabilities and funding necessities, utilizing independent and experienced consultants to assist in plan management.

During 2014, the Society of Actuaries released new mortality tables and a new mortality improvement scale for consideration with respect to defined benefit plan liability measurement. Effective December 31, 2015, our plan began utilizing new mortality tables and improvement scales, developed by plan consulting actuaries utilizing the principles underlying the guidance from the Society of Actuaries along with allowable adjustments where warranted.

We previously disclosed in our financial statements for the year ended December 31, 2015 that we expected to contribute $300,000 to our defined benefit pension plan during 2016. During the third quarter 2016, we completed the required funding calculation for 2016 and determined that the annual contribution for 2016 should be increased to $331,987. As of September 30, 2016, we had contributed $225,000 to the plan.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance for the accounting for credit losses on financial instruments. A new model, referred to as the current expected credit losses model, requires an entity to determine credit-related impairment losses for financial instruments held at amortized cost and to estimate these expected credit losses over the life of an exposure (or pool of exposures). The estimate of expected credit losses should consider historical and current information, reasonable and supportable forecasts, as well as estimates of prepayments. The estimated credit losses, and subsequent adjustment to loss estimates, will be recorded through an allowance account which is deducted from the amortized cost of the financial instrument, with the offset recorded in current earnings. The guidance also modifies the impairment model for available-for-sale debt securities. The new model will require an estimate of expected credit losses only when the fair value is below the amortized cost of the asset, thus the length of time the fair value of an available-for-sale debt security has been below the amortized cost will no longer affect the determination of whether a credit loss exists. In addition, credit losses on available-for-sale debt securities will be limited to the difference between the security’s amortized cost basis and its fair value. The updated guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for periods beginning after December 15, 2018. We are evaluating the impact of the adoption of this guidance on the Company’s financial position and results of operations.

In August 2016, the FASB issued new guidance that clarifies the classification of certain cash receipts and payments in the statement of cash flows under eight different scenarios including, but not limited to: (i) debt prepayment or debt extinguishment costs; (ii) proceeds from the settlement of corporate-owned life insurance policies including bank-owned life insurance policies; (iii) distributions received from equity method investees; and (iv) separately identifiable cash flows and application of the predominance principle. This guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact of this guidance on our statement of cash flows.

All other new accounting standards and updates of existing standards issued through the date of this filing were considered by management and did not relate to accounting policies and procedures pertinent to the Company at this time or were not expected to have a material impact to the consolidated financial statements. Refer to the footnotes to the consolidated financial statements for the year ended December 31, 2015, as included in our Annual Report on Form 10-K, for previously issued standards that have not yet been adopted that are considered applicable to the Company’s current operations.

We maintain a sound, conservative investment strategy. At September 30, 2016, 84.6% of our total invested assets consisted of fixed income securities, compared to 87.5% at December 31, 2015. At September 30, 2016 and December 31, 2015, our fixed income investments were 98.4% and 97.5% investment grade, respectively, as rated by Standard & Poor’s. The Standard & Poor’s average quality rating of our fixed income portfolio holdings as of September 30, 2016 and December 31, 2015 was A.

During the quarter ended September 30, 2016, we recognized an other-than-temporary impairment on one real estate common stock totaling $118,267. While we continue to hold this security, there was no evidence to suggest that the security would recover in the near-term based on the financial outlook for the stock, the significance of the reduction in market value and the length of time that the stock has traded below its book value. We experienced no additional other-than-temporary impairments during the quarters or nine months ended September 30, 2016 or 2015. Additionally, none of our fixed income assets are in default and there has been no material change in the distribution of our fixed income portfolio.

At September 30, 2016, 100% of our fixed maturity portfolio had a fair value to amortized cost ratio of greater than 80% and 96.3% of our equity securities portfolio had a fair value to cost ratio of greater than 80%. At December 31, 2015, 97.4% of our fixed maturity portfolio had a fair value to amortized cost ratio of greater than 80%, and 93.4% of our equity securities portfolio had a fair value to cost ratio of greater than 80%. At September 30, 2016 and December 31, 2015, 0% and 54.5%, respectively, of the total gross unrealized losses in our fixed maturities and equities portfolio were comprised of fixed maturity securities in the basic industrial sector while 21.6% and 22.6%, respectively, of the gross unrealized losses were comprised of fixed maturity securities in the energy sector. The majority of these unrealized losses were attributable to credit spread widening across the energy sector and metals/mining subsectors associated with sharp declines in commodity prices during 2015. Energy-related companies have been negatively impacted by the rapid decline in oil prices, which has pressured revenues and margins. The metal/mining sub-sector companies are experiencing lower demand for coal, copper, iron ore and other minerals due to the economic slowdown in China in addition to sluggish demand in the United States and Europe and tightening environmental regulation. While the market values of these securities remain below book value, the market values have rebounded significantly as of September 30, 2016.

We continuously monitor the investment risk within our portfolio, including the risk associated with subprime lending with our CMO investments. As of September 30, 2016, we have no investments with any level of direct subprime exposure. Additionally, we have no Alt-A bond exposure within our current holdings.

We have an investment advisory agreement with an independent third-party investment advisor to purchase common and preferred stocks in stable areas within the real estate sector. The investment advisor has a history of strong performance within these markets. The majority of these funds have been invested in a diversified assortment of regularly traded, exchange listed common stocks. As of September 30, 2016, the largest individual stock position within this group had a fair value of approximately $414,000. We believe the unrealized losses in our common stock portfolio are temporary in nature given the credit quality of the issuers. We believe that these investments will generate positive future results by providing a slightly increased and fully managed exposure to equity markets.

Additionally, we engage in commercial and residential mortgage lending. As of September 30, 2016 and December 31, 2015, investments in commercial properties comprised 23.2% and 32.1%, respectively, of our mortgage portfolio. Our commercial and residential apartment building mortgage loans are either originated in-house or through two mortgage brokers, are secured by first mortgages on the real estate and generally carry personal guarantees by the borrowers. Loan-to-value ratios of 80% or less and debt service coverage from existing cash flows of 115% or higher are generally required. We minimize credit risk in our mortgage loan portfolio through various methods, including stringently underwriting the loan request, maintaining small average loan balances, and reviewing larger mortgage loans on an annual basis.

As of September 30, 2016 and December 31, 2015, investments in residential mortgage loans comprised 76.8% and 67.9%, respectively, of our mortgage portfolio. We purchase single family residential mortgage loans through the secondary market. Each mortgage loan opportunity is reviewed individually, considering both the value of the underlying property and the credit worthiness of the borrower. We utilize third party servicers to administer these loans. We currently anticipate evaluating and making additional residential mortgage loan investments assuming they meet our investment goals and criteria.

As of September 30, 2016, our average loan balance is $163,390 and the average loan-to-value is 61%. The largest loan currently held has a balance of $911,917. Our mortgage loans are spread across properties located in 24 states, with approximately 61.4% of our loans located in the states of Illinois, Texas, Florida, California, Kentucky, and Georgia. At September 30, 2016 and December 31, 2015, 9.0% and 7.1% of invested assets consisted of mortgage loans, respectively.

We are familiar with our mortgage loan markets and given our low loan-to-value ratios, we do not believe that there is a significant risk of loss on our mortgage loan portfolio. We have been successful in adding value to the total investment portfolio through mortgage loan originations and secondary market purchases due to the fact that yields realized from the mortgage loan portfolio are generally higher than yields realized from fixed income investments. Value has also been added because the mortgage loan portfolio has consistently performed well. As of September 30, 2016 and December 31, 2015, there were no non-performing loans, loans on nonaccrual status, loans in process of foreclosure, or restructured loans. As of September 30, 2016, we held two mortgage loans totaling $686,655 that were past due by more than 90 days. We previously held one additional loan where the Company’s mortgage loan servicer formally filed a notice of intent to foreclose on the property. During the third quarter of 2016, all principal and interest was paid in full on this loan prior to foreclosure. The Company had no mortgage loans past due by more than 90 days as of December 31, 2015. The Company experienced no mortgage loan defaults during the quarters or nine months ended September 30, 2016 and 2015.

We own certain investments in state-guaranteed receivables. These investments represent an assignment of the future rights to cash flows from lottery winners purchased at a discounted price. Payments on these investments are made by state run lotteries and guaranteed by the states. As these payment streams are secured by the states themselves, a key function of our due diligence is the assessment of the states’ ability to meet these obligations. Additionally, each state generally withholds income tax from each payment for which we must file for reimbursement of such tax annually where allowable by law. We carry the state-guaranteed receivables at their amortized cost basis on the balance sheet. As of September 30, 2016, we held approximately $10,297,000 in state-guaranteed receivables, with the largest concentrations in the states of New York, Massachusetts and Georgia totaling approximately $3,484,000, $2,408,000 and $2,052,000, respectively. At September 30, 2016 and December 31, 2015, 2.3% and 1.6% of invested assets consisted of state-guaranteed receivables, respectively.

During the third quarter of 2015, with the assistance and under the active management of our external third party investment advisor, we began purchasing investments in convertible fixed maturity securities. Convertible securities feature an option allowing for a portion of the security to be converted into an equity position of the underlying issuer in exchange for a lower coupon rate. In accordance with FASB accounting guidance, this convertible feature must be bifurcated and reported separately on the balance sheet at fair value, with adjustments in fair value recognized in the income statement. Accordingly, the convertible options within our portfolio are reported as investments in convertible options on the balance sheet, and the mark-to-market adjustment associated with the changes in fair value of the convertible options are reported as gains (losses) on investments in convertible options as a component of net investment income. As of September 30, 2016 and December 31, 2015, the total fair value of our investments in convertible options was $974,103 and $957,405. For the quarter and nine months ended September 30, 2016, we recognized a gain (loss) on our investments in convertible options of $99,192 and ($44,184), respectively, relative to the mark-to-market adjustment. For the quarter and nine months ended September 30, 2015, we recognized a loss on our investments in convertible options of $41,082 relative to the mark-to-market adjustment.

Investors Heritage Life’s principal sources of cash flow used to meet short-term and long-term cash requirements are insurance premiums, which include mortality and expense charges, investment income, and administrative service fees.

Investors Heritage Life’s short-term obligations consist primarily of policyholder benefits and operating expenses. Investors Heritage Life has historically been able to meet these obligations out of operating cash, premiums and investment income.

Investors Heritage Life’s principal long-term obligations are fixed contractual obligations incurred in the sale of its life insurance products. The premiums charged for these products are based on conservative and actuarially sound assumptions as to mortality, persistency and interest. We believe these assumptions will produce revenues sufficient to meet our future contractual benefit obligations and operating expenses, and provide an adequate profit margin.

Investors Heritage Capital’s principal sources of cash flow are rental income, dividends from its subsidiaries and proceeds received under company-owned life insurance policies. Investors Heritage Capital’s principal long-term obligations are payments on long-term debt and stock purchased under the put option through the IHCC Retirement Savings Plan and Trust, which is now frozen with respect to new contributions.

Investors Heritage Life’s conservative approach in the product development area and the strength and stability of its fixed income and mortgage loan portfolios provide adequate liquidity both in the short-term and the long-term.

We assess our compliance with prescribed debt covenant requirements as outlined in the terms of each debt agreement at least annually, if not otherwise required in the debt agreement. Management has assessed our position and as of September 30, 2016, we are in compliance with all debt covenant requirements.

We are not aware of any commitments or unusual events that could materially affect capital resources. We have the option to prepay certain notes payable at our discretion prior to their maturity dates.

We will continue to explore various opportunities including mergers and acquisitions and purchasing blocks of business from other companies, which may dictate a need for either long-term or short-term debt. There are no restrictions as to use of funds except the restriction on Investors Heritage Life as to the payment of cash dividends to Investors Heritage Capital.

Premiums earned (net of reinsurance) were $10,900,881 for the third quarter of 2016 (a decrease of 10.1% compared to the third quarter of 2015) and $31,350,178 for the nine months ended September 30, 2016 (a decrease of 10.9% compared to the corresponding period in 2015). This decrease is primarily due to lower direct and assumed premiums relative to the Puritan product offerings in comparison to the corresponding periods in 2015.

Net investment income was $5,330,853 for the third quarter of 2016 (an increase of 1.8% compared to the third quarter of 2015) and $16,330,658 for the nine months ended September 30, 2016 (an increase of 3.4% compared to the corresponding period in 2015). The increases in investment income are primarily due to investment income earned on the make whole call of a bond in the first quarter of 2016, an increase in investment income earned on mortgage loans and state-guaranteed receivables associated with our increased investments in these areas. These increases were partially offset for the nine month period by the loss recognized on our convertible options due to the mark-to-market adjustment, although the amount of the loss improved during the third quarter. We continue to seek high quality investments while considering alternative investments that can be used to enhance future investment income.

Net realized gains were $927,916 and $1,502,205 for the quarter and nine months ended September 30, 2016, respectively, compared to $600,980 and $804,736 for the quarter and nine months ended September 30, 2015, respectively. The realized gains recognized on fixed maturities during the quarter and nine months ended September 30, 2016 were attributable to gains realized on the strategic sale of certain bonds in order to fund the SNIC reinsurance agreement as well as gains taken earlier in 2016 to reduce single issuer exposures. The realized gains recognized on equity securities in the quarters and nine months ended September 30, 2016 and 2015 were primarily attributable to real estate common stock capital gains taken. Additionally, we recognized one other-than-temporary impairment on a real estate common stock totaling $118,267 during the quarter and nine months ended September 30, 2016. We experienced no other-than-temporary impairments during the quarters or nine months ended September 30, 2015.

Other income was $409,186 for the third quarter of 2016 (a decrease of 9.1% compared to the third quarter of 2015) and $1,142,095 for the nine months ended September 30, 2016 (a decrease of 4.4% compared to the corresponding period in 2015). These decreases are primarily due to the loss of two smaller TPA clients during the fourth quarter of 2015, additional TPA fees generated in 2015 relative to acquisition conversion work for one of our clients, and a reduction in income generated by Investors Heritage Printing as it ceased ongoing operations at the end of 2015. The decreases have been partially offset by increases in our third party administrative fees for our life insurance company clients as their policy counts have increased.

Total benefits and expenses were $15,910,190 for the third quarter of 2016 (a decrease of 8.4% compared to the third quarter of 2015) and $47,962,510 for the nine months ended September 30, 2016 (a decrease of 8.5% compared to the corresponding period in 2015). These decreases are primarily due to reduced death benefits due to more favorable mortality experience in comparison to the prior periods in addition to a reduction in the increase in reserves and commissions due to the lower new premium volume previously discussed.

After providing for federal income taxes, our net income was $1,598,378 with net income per share of $1.44 for the third quarter of 2016 compared to net income of $1,091,053 with net income per share of $0.98 for the third quarter of 2015. Our net income was $2,126,363 with net income per share of $1.91 for the nine months ended September 30, 2016 compared to net income of $722,893 with net income per share of $0.64 for the nine months ended September 30, 2015.

We declared a dividend of $0.21 per share on February 11, 2016 to shareholders of record on March 18, 2016. This dividend was paid on April 7, 2016.

FASB guidance requires a "management approach" in the presentation of business segments based on how management internally evaluates the operating performance of business units. The discussion of segment operating results that follows is being provided based on segment data prepared using this methodology.

Preneed and burial products include both life and annuity products sold by funeral directors or affiliated agents to fund prearranged funerals. Revenues for this segment were $14,280,983 for the third quarter of 2016 (an increase of 9.3% compared to the third quarter of 2015) and $40,136,824 for the nine months ended September 30, 2016 (an increase of 7.2% compared to the corresponding period in 2015). These increases were predominantly due to stronger sales of our preneed products driven both by sales within existing relationships as well as new agent relationships coupled with increased investment income and realized gains in comparison to the prior period.

Pre-tax income from operations was $1,189,337 and $1,526,801 for the quarter and nine months ended September 30, 2016, respectively, compared to pre-tax income (loss) of $590,199 and ($309,668) for the quarter and nine months ended September 30, 2015, respectively. The increases in pre-tax income were due primarily to the revenue increases discussed above, lower sales management expenses, and more favorable mortality experience in comparison to the prior period.

Traditional and universal life products include traditional life and group life insurance products, certain annuities and universal life products. Revenues for this segment were $2,641,376 for the third quarter of 2016 (a decrease of 44.5% compared to the third quarter of 2015) and $8,601,946 for the nine months ended September 30, 2016 (a decrease of 37.9% compared to the corresponding period in 2015). These decreases were primarily due to the reduction in direct and assumed premiums generated from the Puritan product offerings in comparison to the prior period.

Pre-tax income from operations was $184,732 and $564,699 for the quarter and nine months ended September 30, 2016, respectively, compared to pre-tax income of $364,982 and $640,179 for the quarter and nine months ended September 30, 2015, respectively. The decreases in pre-tax income were primarily attributable to the reduction in sales of the Puritan product offerings.

Administrative and financial services include the administration of credit life and credit accident and health insurance products. We reinsure 100% of the related underwriting risk on credit products currently produced within this segment. Accordingly, credit product revenue is generated primarily from initiation fees as well as fees for servicing and administering the credit business for our reinsurers. Because the credit product revenue is fee-based, performance is in direct relation to new premium production coupled with fees generated as premiums are earned. Premium production within this segment is also significantly affected by economic conditions within our credit markets, particularly Kentucky.

In addition to credit administration, this segment includes fees generated relative to our third party administrative relationships. We currently provide tailored administrative services for five unaffiliated life insurance companies, which includes a new client added in September 2016. Services provided to each company vary based on their needs and can include some or all aspects of back-office accounting, actuarial services and policy administration. Two former life insurance holding company clients terminated their agreements effective October 1, 2015 in order to begin performing that work in-house.

Revenues for this segment were $364,967 for the third quarter of 2016 (a decrease of 8.2% compared to the third quarter of 2015) and $1,045,289 for the nine months ended September 30, 2016 (an increase of 0.8% compared to the corresponding period in 2015). The reduction in revenue for the quarter was primarily due to additional fees generated from TPA conversion work in 2015 while the increase in revenue for the nine month period was due to the fact that our life insurance company clients have experienced increased policy counts which have resulted in an increase in our monthly fees. Pre-tax income from operations was $142,640 and $267,796 for the quarter and nine months ended September 30, 2016, respectively, compared to pre-tax income of $83,689 and $201,412 for the quarter and nine months ended September 30, 2015, respectively. The increases in pre-tax income were primarily due to reduced expense allocations to this segment along with the revenue changes previously discussed.

Corporate and other consists of corporate accounts measured primarily by stockholders’ paid-in capital, contributed surplus, earned surplus, property and equipment, corporate-owned life insurance and other minor business lines which include group annuities and group and individual accident and health products. Revenues for this segment were $281,510 for the third quarter of 2016 (an increase of 49.6% compared to the third quarter of 2015) and $541,077 for the nine months ended September 30, 2016 (a decrease of 14.2% compared to the corresponding period in 2015). Pre-tax income from operations was $141,937 and $3,330 for the quarter and nine months ended September 30, 2016, respectively, compared to pre-tax income (loss) of ($3,390) and $12,677 for the quarter and nine months ended September 30, 2015, respectively. Results for the quarter and nine months ended September 30, 2016 were significantly impacted by the mark-to market adjustment on our investments in convertible options that increased investment income by $99,192 for the quarter and reduced investment income by $44,184 for the nine month period.

While we continue to focus on expanding the operations of Investors Heritage Financial and At Need Funding, less than 1% of our consolidated revenues were generated by our non-life subsidiaries. During the nine months ended September 30, 2016, Investors Heritage Capital received dividends of $60,000 from Investors Heritage Financial. Investors Heritage Capital received no dividends or distributions from its other subsidiaries. The potential exists for dividend payments and distributions over the remainder of 2016 as any needs arise.

The provision (benefit) for federal income taxes is based on our expected effective annual tax rate. Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Income before federal income taxes differs from taxable income principally due to the dividends-received deduction; the 404(k) dividend deduction; the small life insurance company tax deduction; nondeductible travel and entertainment expenses; the taxable initial ceding commission received on the reinsurance of a block of existing business; and non-taxable effects of company-owned life insurance premiums, cash value growth and death benefit proceeds. Our estimated effective tax rate was 3.6% and 10.0% for the quarter and nine months ended September 30, 2016, respectively, compared to (5.4%) and (32.7%) for the quarter and nine months ended September 30, 2015, respectively. These changes in our effective tax rates are principally due to the current year impact of the taxable initial reinsurance ceding commission as well as differences in the impact of the small life insurance deduction and the non-taxable company-owned life insurance cash value growth in comparison to pre-tax income in each year.

We caution readers regarding certain forward-looking statements contained in this report and in any other statements made by us or on our behalf, whether or not in future filings with the Securities and Exchange Commission. Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results, or other developments. Statements using verbs such as “expect”, “anticipate”, “believe” or words of similar import generally involve forward-looking statements. Without limiting the foregoing, forward-looking statements include statements which represent our beliefs concerning future levels of sales and redemptions of Investors Heritage Life’s products, investment spreads and yields, or our earnings and profitability.

Forward-looking statements are necessarily based on estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which are subject to change. These uncertainties and contingencies could cause actual results to differ materially from those expressed in any forward-looking statements made by us or on our behalf. Whether or not actual results differ materially from forward-looking statements may depend on numerous foreseeable and unforeseeable factors and developments. Some of these may be national in scope, such as general economic conditions, changes in tax law and changes in interest rates. Some may be related to the insurance industry generally, such as pricing competition, regulatory developments, industry consolidation and the effects of competition in the insurance business from other insurance companies and other financial institutions operating in our market area and elsewhere. Others may relate to us specifically, such as credit, volatility and other risks associated with our investment portfolio. We caution that such factors are not exclusive. We disclaim any obligation to update forward-looking information.

As of the end of the period covered by this Form 10-Q, we performed an evaluation, under the supervision and with the participation of management, including our Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in this Quarterly Report on Form 10-Q. There have been no changes in our internal control over financial reporting identified by that evaluation that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during this most recent quarter or subsequent to the date we carried out our evaluation.

Investors Heritage Capital is not involved in any legal proceedings. From time to time Investors Heritage Life is involved in litigation relating to claims arising out of its operations in the normal course of business. As of November 10, 2016, Investors Heritage Life is not a party to any legal proceedings, the adverse outcome of which, in management’s opinion, individually or in the aggregate, would have a material adverse effect on our financial condition or results of operations.

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.

KENTUCKY		61-6030333
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

200 Capital Avenue,
Frankfort, Kentucky 40602
(Address of principal executive offices)

(502) 223-2361
(Registrant’s telephone number, including area code)

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐ (Do not check if a smaller reporting company)	Smaller reporting company ☒

	PART I – FINANCIAL INFORMATION
		Page
ITEM 1.	Condensed Consolidated Financial Statements	4
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
ITEM 4.	Controls and Procedures	39



	PART II – OTHER INFORMATION

ITEM 1.	Legal Proceedings	40
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
ITEM 3.	Defaults Upon Senior Securities	40
ITEM 4.	Mine Safety Disclosures	40
ITEM 5.	Other Information	40
ITEM 6.	Exhibits	40


SIGNATURES		41

EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32

	(Unaudited)
	September 30,		December 31,
	2016		2015
ASSETS
Investments:
Securities available-for-sale, at fair value:
Fixed maturities (amortized cost: $348,297,281 and $399,525,617)	$	377,448,836	$	409,146,807
Equity securities (cost: $7,691,597 and $7,452,666)		8,655,497		7,616,789
Mortgage loans on real estate		40,357,308		33,174,131
Policy loans		6,394,333		6,702,911
State-guaranteed receivables		10,297,408		7,692,959
Investments in convertible options		974,103		957,405
Other invested assets		2,043,888		2,379,451
Total investments		446,171,373		467,670,453
Cash and cash equivalents		47,911,628		3,619,663
Accrued investment income		4,055,195		5,149,612
Due premiums		2,851,302		2,946,218
Deferred acquisition costs		15,533,061		17,237,522
Value of business acquired		174,428		225,276
Leased property under capital leases		144,077		381,432
Property and equipment, net		864,012		909,151
Cash value of company-owned life insurance		13,575,925		13,191,773
Other assets		3,961,819		2,374,292
Amounts recoverable from reinsurers		99,466,431		56,332,692
Total assets	$	634,709,251	$	570,038,084

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Policy liabilities:
Benefit reserves	$	493,441,567	$	493,369,378
Unearned premium reserves		8,054,486		8,119,385
Policy claims		2,545,195		2,584,088
Liability for deposit-type contracts		3,343,739		3,400,836
Reserves for dividends and endowments and other		397,235		388,193
Total policy liabilities		507,782,222		507,861,880
Deferred federal income tax liability		7,698,732		1,105,776
Obligations under capital leases		130,114		377,259
Notes payable		1,159,316		1,433,448
Accrued pension liability		5,766,698		6,075,376
Deferred revenue on reinsurance ceded		1,471,858		-
Other liabilities		46,384,000		3,933,343
Total liabilities		570,392,940		520,787,082

STOCKHOLDERS' EQUITY
Common stock (shares issued: 1,106,706 and 1,117,647)		1,106,706		1,117,647
Paid-in surplus		8,913,360		8,913,360
Accumulated other comprehensive income		14,152,916		757,161
Retained earnings		40,143,329		38,462,834
Total stockholders' equity		64,316,311		49,251,002
Total liabilities and stockholders' equity	$	634,709,251	$	570,038,084

	Quarter Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
REVENUE
Premiums and other considerations	$	13,836,244		$	15,429,289		$	39,545,191		$	44,916,211
Premiums ceded		(2,935,363	)		(3,304,682	)		(8,195,013	)		(9,738,262	)
Net premiums		10,900,881			12,124,607			31,350,178			35,177,949

Investment income, net of expenses		5,330,853			5,238,037			16,330,658			15,800,897
Net realized gains (losses) on investments:
Total other-than-temporary impairment losses		(118,267	)		-			(118,267	)		-
Other net realized investment gains		1,046,183			600,980			1,620,472			804,736
Total net realized gains on investments		927,916			600,980			1,502,205			804,736
Other income		409,186			450,005			1,142,095			1,195,142
Total revenue		17,568,836			18,413,629			50,325,136			52,978,724

BENEFITS AND EXPENSES
Death and other benefits		10,363,008			10,584,316			32,324,120			33,529,784
Guaranteed annual endowments		91,569			93,254			304,657			316,142
Dividends to policyholders		73,603			74,180			230,792			262,741
Increase in benefit reserves and unearned premiums		1,652,885			2,858,998			3,550,345			6,236,723
Acquisition costs deferred		(1,256,830	)		(1,477,478	)		(3,621,389	)		(4,498,621	)
Amortization of deferred acquisition costs		1,497,933			1,683,094			4,410,013			5,232,649
Commissions		829,201			980,682			2,356,672			2,885,027
Other general and administrative expenses		2,658,821			2,581,103			8,407,300			8,469,679
Total benefits and expenses		15,910,190			17,378,149			47,962,510			52,434,124

INCOME BEFORE FEDERAL
INCOME TAXES		1,658,646			1,035,480			2,362,626			544,600

PROVISION (BENEFIT) FOR FEDERAL
INCOME TAXES
Current		347,532			209,683			544,151			329,473
Deferred		(287,264	)		(265,256	)		(307,888	)		(507,766	)
Total federal income taxes		60,268			(55,573	)		236,263			(178,293	)

NET INCOME	$	1,598,378		$	1,091,053		$	2,126,363		$	722,893

BASIC AND DILUTED NET INCOME
PER SHARE	$	1.44		$	0.98		$	1.91		$	0.64

DIVIDENDS PER SHARE	$	-		$	-		$	0.21		$	0.21


32.1	Certifications Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS**	XBRL Instance
101.SCH**	XBRL Taxonomy Extension Schema
101.CAL**	XBRL Taxonomy Extension Calculation
101.DEF**	XBRL Taxonomy Extension Definition
101.LAB**	XBRL Taxonomy Extension Labels
101.PRE**	XBRL Taxonomy Extension Presentation

	INVESTORS HERITAGE CAPITAL CORPORATION

	BY: /s/Harry Lee Waterfield II
	Harry Lee Waterfield II
DATE: November 10, 2016	President

	BY: /s/Larry Johnson
	Larry Johnson
DATE: November 10, 2016	Vice President - Chief Financial Officer

	Nine Months Ended September 30,
	2016			2015

NET CASH PROVIDED BY OPERATING ACTIVITIES	$	3,916,385		$	6,947,933

INVESTING ACTIVITIES
Purchases of available-for-sale securities		(19,875,700	)		(23,018,969	)
Sales of available-for-sale securities		55,563,518			6,764,986
Maturities of available-for-sale securities		17,111,207			23,204,172
Acquisitions of mortgage loans on real estate		(17,126,902	)		(10,312,856	)
Payments of mortgage loans on real estate		9,875,929			7,199,727
Purchases of state-guaranteed receivables		(2,753,509	)		-
Payments of state-guaranteed receivables		629,530			611,280
Purchases of convertible options		(62,185	)		(739,809	)
Sales and exchanges of convertible options		10,536			29,249
Net change in payable (receivable) for securities		20,541			-
Net reductions (additions) of other investments		644,141			505,625
Net additions to property and equipment		(40,459	)		(247,611	)

NET CASH PROVIDED BY INVESTING ACTIVITIES		43,996,647			3,995,794
FINANCING ACTIVITIES
Policyholder account deposits		3,428,616			3,336,586
Policyholder account withdrawals		(6,318,742	)		(6,103,330	)
Payments on notes payable		(2,065,106	)		(3,030,476	)
Proceeds from notes payable		1,790,974			2,331,660
Dividends paid		(234,706	)		(236,035	)
Repurchases of common stock, net		(222,103	)		(133,869	)

NET CASH USED IN FINANCING ACTIVITIES		(3,621,067	)		(3,835,464	)
INCREASE IN CASH AND CASH EQUIVALENTS		44,291,965			7,108,263
Cash and cash equivalents at beginning of period		3,619,663			1,870,867
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	47,911,628		$	8,979,130