SECURITIES ANDEXCHANGE COMMISSION

 

Washington, D. C.20549

 

FORM 10-K

 

ANNUAL REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIESEXCHANGE ACT OF 1934

 

FOR THE FISCALYEAR ENDED DECEMBER 31, 2009

 

COMMISSION FILENUMBER 0-1999

 

**INVESTORSHERITAGE CAPITAL CORPORATION**

 

(Exact name ofregistrant as specified in its Charter)

 

| KENTUCKY
			61-6030333
			(State or Other Jurisdiction of
(IRS			Employer
			Incorporation or Organization)
			Identification Number)
 

200 CapitalAvenue, Frankfort, Kentucky 40601

(Address ofPrincipal Executive Offices)

 

Registrant'stelephone number, including area code 502-223-2361

 

Securitiesregistered pursuant to Section 12(b) of the Act:

 

None

 

Title of EachClass

None

 

Name of EachExchange on Which Registered

None

 

Securitiesregistered pursuant to Section 12(g) of the Act:

 

Common CapitalStock Par Value $1.00 Per Share

 

Indicate by check mark if the registrant is a well-knownseasoned issuer, as defined in Rule 405 of the SecuritiesAct.  YES  (  )    NO  (X)

 

Indicate by check mark if the registrant is not required tofile reports pursuant to Section 13 or Section 15(d) of theAct.  YES  (  )    NO  (X)

 

Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90days.  YES  (X)         NO  (  )

 

Indicate by check mark whetherthe registrant has submitted electronically and posted on its corporate Website,if any, every Interactive Data File required to be submitted and posted pursuantto Rule 405 of Regulation S-T (Section 232.405 of this chapter) during thepreceding 12 months (or for such shorter period that the registrant was requiredto submit and post such files).   YES  (  )        NO  (  )

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405of this chapter) is not contained herein, and will not be contained, to the bestof registrant's knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or any amendments tothis Form 10-K.  (X)

 

Indicate by check mark whetherthe registrant is a large accelerated filer, an accelerated filer, anon-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. (Check one):

Large accelerated filer  (  )

Accelerated filer  (  ) 

Non-accelerated filer  (  ) (Do not check if a smallerreporting company)

Smaller Reporting Company (X)

 

Indicate by check mark whetherthe registrant is a shell company (as defined in Rule 12b-2 of theAct).  YES  (  )    NO  (X)

 

State the aggregate marketvalue of the voting stock held by nonaffiliates of the registrant computed byreference to the average bid and asked price of such common equity as of June30, 2009.     $23,859,975

 

Indicate the number of sharesoutstanding of each of the registrant's classes of common stock, as of thelatest practicable date.

 

Class

Common CapitalStock

 

Outstanding atMarch 3, 2010

1,140,632.356

 

Documents Incorporated by Reference:

 

(1) Portions of the Annual Report to the Stockholders forthe year ended December 31, 2009 (Form 10-K, Items 1, 7, 8 and 15.)

 

(2) Portions of the Proxy Statement dated April 2, 2010,for the Annual Meeting of Stockholders to be held May 13, 2010 (Form 10-K, Items10, 11, 12, 13 and 14.)

 

 

CONTENTS

 

Part I

 
  
Page
Item 1.
Business
5
Item 2.
Properties
12
Item 3.
Legal Proceedings
12
Item 4.
Reserved 
 

Part II

 

Item 5.
Market For Registrant's Common Equity, Related			Stockholder Matters and Issuer Purchases of Equity Securities
 

13
Item 7.
Management's Discussion and Analysis of			Financial

Condition and Results of Operations
 

14
Item 8.
Financial Statements and Supplementary Data
14
Item 9.
Changes in and Disagreements with Accountants

on Accounting and Financial Disclosure
 

14
Item 9A(T)
Controls and Procedures
14
Item 9B.
Other Information
15
 

Part III

 

Item 10.
Directors, Executive Officers and Corporate			Governance
16
Item 11.
Executive Compensation
17
Item 12.
Security Ownership of Certain Beneficial Owners

and Management and Related Stockholder Matters
 

17
tem 13.
Certain Relationships and Related Transactions,			and Director Independence
 

17
Item 14.
Principal Accountant Fees and Services
18
 

Part IV

 

Item 15.
Exhibits
19
Index To

Exhibits 
 

20
Signatures 
21
 

 

PART I

 

Item 1. Business

 

(a) Business Overview

 

Investors Heritage CapitalCorporation is the holder of 100% of the outstanding common stock of a lifeinsurance company, a printing company and an insurance marketing company and isthe sole member of two Kentucky limited liability companies.

 

Investors Heritage Capital owns100% of Investors Heritage Life Insurance Company, Investors Heritage Printing,Inc. and Investors Heritage Financial Services Group, Inc. Investors HeritageCapital is the sole member of At Need Funding, LLC, and Heritage Funding, LLC,both Kentucky limited liability corporations. We will be referring to InvestorsHeritage Printing, Investors Heritage Financial, At Need Funding and HeritageFunding as the "Non-insurance Subsidiaries". We will be referring to InvestorsHeritage Life, Investors Heritage Printing, Investors Heritage Financial and AtNeed Funding as the "Subsidiaries". We will also be referring to InvestorsHeritage Capital and its subsidiaries as "we", "us", "our" and as the "Company".

 

Investors Heritage Life owns96% of Investors Underwriters, Inc., an investment holding company. Less than 1%of Investors Heritage Capital's total consolidated revenues were generated bythe Non-insurance Subsidiaries for the year ended December 31, 2009. TheNon-insurance Subsidiaries' total assets and stockholders' equity comprised lessthan 1% in the aggregate of Investors Heritage Capital's reported total assetsand stockholders' equity as of December 31, 2009.

 

(b) Financial InformationAbout Business Segments

 

Investors Heritage Life

 

The business segments ofInvestors Heritage Life are identified and discussed on page 8 of the AnnualReport to Stockholders for the year ended December 31, 2009 and are incorporatedherein by reference. We offer a portfolio of the standard forms of participatingand non-participating whole life, limited pay, endowments, split-funding,interest-sensitive whole life, guaranteed issue whole life, universal life, termand group life. In addition, we write credit life and credit accident and healthinsurance (collectively "Credit Insurance") on a group basis.  The business ofInvestors Heritage Life is not seasonal.

 

Ordinary Production. The business segments for ordinary production arePreneed and Burial products ("Preneed") and Traditional and Universal Lifeproducts ("Traditional"). Ordinary in force accounts for 31% of total in forcebusiness. We continue to work diligently to increase ordinary product sales. Ourprimary focus over the last several years has been the Preneed sales in thefinal expense and preneed funeral markets. Final expense sales include the saleof small face amount ordinary life insurance products, the purpose of which isto pay the insured's final 

 

5

 

 

expenses. Preneed funeral salesinclude the sale of multiple premium and single premium ordinary life policieswhich are sold to fund a specific prearranged funeral contract.

 

Credit Insurance Productsand Administrative Services ("Credit Insurance"). Investors Heritage Lifehas sold Credit Insurance since 1966. Since 1996, Investors Heritage Financialhas marketed Investors Heritage Life's Credit Insurance products. All of therisk on Credit Insurance policies sold by Investors Heritage Life has been andwill continue to be reinsured with larger, highly rated companies. Currently,Investors Heritage Life has reinsurance agreements with ACE Life InsuranceCompany and Swiss Life Insurance and Pension Company, which replaced Scottish Re(U.S.), Inc.  as one of our reinsurers on new business effective June 1, 2008.  During 2005, Investors Heritage Life, with the assistance of Investors HeritageFinancial, entered into a joint venture partnership with the Kentucky BankersAssociation ("KBA") to market various products to all of the KBA membersthroughout the Commonwealth of Kentucky.  Investors Heritage Life reinsurescredit business sold through KBA members to, and serves in an administrativecapacity for, KenBanc Reinsurance Company, Ltd., the KBA's reinsurance company. Investors Heritage Financial markets Investors Heritage Life Credit Insuranceproducts and mortgage redemption products through this partnership as well asproducts for several unaffiliated companies.  These relationships allowInvestors Heritage Financial to provide more products and better serve ourexisting accounts thereby allowing us to further strengthen these agencyrelationships.  

 

During 2009, our market sharethrough the Kentucky financial institutions remained steady although saleslagged due to economic conditions.  We anticipate sales of our Credit Insuranceand mortgage redemption products to rebound as the economic conditionsstrengthen.

 

We have executed a letter ofintent with the KBA and its insurance agency subsidiary, KenBanc InsuranceServices, Inc., whereby they would assume all marketing responsibilities for thecredit insurance products to financial institutions in the Commonwealth ofKentucky.  Investors Heritage Life will continue to provide insurance productsto be marketed as well as all back office administrative services related to thecredit insurance operations.  We anticipate definitive agreements to be executedon or before the end of the second quarter 2010.

 

(c) Narrative Description ofBusiness

 

Preneed and Burial Products("Preneed").   Approximately 56% of total ordinary insurance in force isPreneed. Sales for this segment are under the direct supervision of the homeoffice using a regionally supervised agency system. The method of fieldoperation involves independent contractual agents working with district andregional managers. These managers contract with and train agents who work underthem. The regional managers may have several district managers under theirsupervision. As a result of our growth in the Preneed area, agency relationshipshave also been entered into directly with numerous funeral home owners.Management anticipates this trend to continue and, depending on the size of thefuneral home and state law, preneed counselors may also become part of theagency force. 

 

Preneed sales increased 4.4% during 2009 primarily due to increased marketingactivity from our agency division in the preneed markets.  Investors HeritageLife strives to continue to improve its marketing capability in this area. Ourefforts and strategy to continue a successful ordinary

 

6

 

 

insurance operation hinge oncontinuing to provide solid products and outstanding administrative service andon the personal relationships developed and fostered each year. In the fourthquarter of 2007, we introduced a new preneed product replacing the LegacyProtector and Legacy Preferred product series.  The Legacy Gold series includesboth single premium as well as multi-pay policies. Reaction to this product inour markets continues to be favorable.  The performance of this product serieshas been in line with expectations and has improved product profitability inthis segment.  Our Preneed sales are generated primarily through independentfuneral homes in fourteen states. 

 

We also market a series offinal expense whole life insurance policies known as the "Heritage Final ExpenseProducts".  During the fourth quarter 2008, we introduced a new Final Expenseproduct, Heritage Final Expense II, which replaced our old final expense productseries and was designed to provide more flexibility to our customers.  Theseproducts are non-participating whole life insurance issued with simplifiedunderwriting. These products are offered outside of the preneed market and areperforming in line with expectations.

 

Traditional and UniversalLife Products ("Traditional"). Sales for this segment are under the directsupervision of the home office using a regionally supervised agency system. Themethod of field operation involves independent contractual agents working withdistrict and regional managers. These managers contract with and train agentswho work under them. The regional managers may have several district managersunder their supervision. We also sell business through general agents or brokerswho may represent one or more companies.

 

Approximately 44% of totalordinary insurance in force is Traditional. These sales are built around astandard portfolio of life insurance policies with some of the contributions toin-force business being a participating ordinary life insurance policy, aguaranteed issue whole life policy and non-participating life policies. Inaddition, we offer term insurance products.

 

During the fourth quarter 2008,we also introduced a new Whole Life Policy, HLW Choice Whole Life, whichreplaced our Life Paid Up at 95 product.  This Whole Life Policy is designedwith numerous options and with flexibility to achieve our customer's goals.  

 

As anticipated, ordinarypremium production from financial institutions decreased by $338,772 to $586,431in 2009. This 36.6% decrease over 2008 was primarily due to the tightening ofconsumer credit markets in light of the current economic situation.

 

Group life accounts for 60% oftotal in-force business.  In addition to the group business discussed above,Investors Heritage Life participates in the Federal Employee Group LifeInsurance ("FEGLI") Program, which is administered by Metropolitan LifeInsurance Company, and in the Servicemen's Group Life Insurance ("SEGLI")Program, which is administered by Prudential Insurance Company of America. As ofyear-end 2009, the total amount of insurance in force from the FEGLI and SEGLIprograms was approximately $583,857,000 and $1,357,321,000, respectively.

 

Credit Insurance. Credit Insurance, which accounts for 9% of totalin-force business, is generally sold through banks, finance companies andautomobile dealerships and is offered in connection

 

7

 

 

with the extension of credit.The amount of the insurance is designed to cover the amount of the loan with thefinancial institution being the beneficiary of the insurance policy to theextent of the unpaid balance of the loan. Credit Insurance production isdependent on consumer debt. In times of low unemployment, reasonable interestrates and a steadily improving economy, consumer debt increases; therefore,Credit Insurance sales increase. When the economy slows, consumer debt slows andtherefore Credit Insurance sales decrease.

 

Investors Heritage Life hasreinsurance agreements with eight unaffiliated companies, Transamerica LifeInsurance Company, Universal Guaranty Life Insurance Company, Madison NationalLife Insurance Company, Minnesota Life Insurance Company, KenBanc ReinsuranceCompany, Ltd., Plateau Insurance Company, Central States Health and Life Companyof Omaha and Aspi Re Limited.  Pursuant to those agreements, our CreditInsurance products sold by each company's agents are then reinsured to eachcompany, respectively. Investors Heritage Life and Investors Heritage Financialare paid an initiation fee and an administration fee for services provided.Investors Heritage Financial will continue to seek contracts to operate as anadministrator for other companies that sell Credit Insurance.

 

Investors Heritage Financialcontinued to call on banks, finance companies and selected automobiledealerships to market Credit Insurance products for Investors Heritage Lifeduring 2009. As anticipated, 8.6% of Investors Heritage Financial revenues for2009 were derived from the sale of Investors Heritage Life's Credit Insuranceproducts. Credit Insurance gross written premiums were lower than in the prioryear due primarily to lower loan demand related to the sluggish economy.  Asnoted above, Investors Heritage Life has executed a letter of intent with theKBA and its affiliated insurance agency, KenBanc Insurance Services, Inc.,whereby KenBanc will provide all marketing responsibilities for the sale of ourcredit insurance products through financial institutions in the Commonwealth ofKentucky.

 

In addition to selling CreditInsurance, Investors Heritage Life provides ongoing servicing of written creditbusiness, generating fee income.  Additionally, Investors Heritage Life bankagents may obtain an ordinary life license enabling them to sell mortgage lifeinsurance that might be required in excess of the statutory credit lifelimitation enacted by each state where our Credit Insurance products are sold.The mortgage life insurance sales operations will continue to be conductedthrough Investors Heritage Financial. During the fourth quarter of 2008, weintroduced a new product for our credit ordinary sales through financialinstitutions, Heritage Protector IV.  This product replaces the HeritageProtector III series. Further, Investors Heritage Financial is licensed withother unaffiliated insurance companies to provide products that InvestorsHeritage Life does not offer to the financial institutions and other agents.These products include cancer, accident, second-to-die, large face amount terminsurance, short term and long term disability and annuities. Theserelationships generated additional fee income in the amount of $216,244 during2009 and management anticipates continued fee income from this area.

 

Reinsurance.  Investors Heritage Life utilizes a combination of yearlyrenewable term reinsurance and coinsurance to cede life insurance coverage inexcess of its retention limit, which is $25,000 per life. This retention levelwas achieved by keeping current reinsurance treaties in place and addingadditional yearly renewable term treaties for the difference. As

 

8

 

 

anticipated, this retentionlevel has stabilized earnings fluctuations in the Traditional segment. Excesscoverages are reinsured externally to unaffiliated reinsurers.

 

Investors Heritage Life has areinsurance agreement with Munich American Reassurance Company, which reinsuresthe Heritage Final Expense products on an 80/20 quota share basis with InvestorsHeritage Life retaining 20% of the risk on each life. We also have a reinsuranceagreement with Lincoln National Life Insurance Company, which reinsures the Termto 95 product on an 80/20 quota share basis with Investors Heritage Liferetaining 20% of the risk on each life.

 

As of December 31, 2009,approximately $47,168,000 or 14% of total benefit and unearned premium reserveswas reinsured with non-affiliated, well-established insurance companies.Investors Heritage Life is party to reinsurance and coinsurance agreements withtwenty-seven non-affiliated companies. The reinsurers for Investors HeritageLife and amounts of insurance in force that are reinsured are as follows:

 

			Company
			Reinsurance
			Percent 
			Reserves
Of			Total   
ACE Life Insurance			Company
			$  1,491,000
3.16%
Aspi Re Limited
247,000
0.52%
Canada Life			Assurance Company
147,000
0.31%
Central States			Health & Life Co. of Omaha
64,000
0.14%
KenBanc Reinsurance			Company LTD
238,000
0.50%
Lincoln National			Life Insurance Company
			1,101,000
2.33%
Madison National			Life Insurance Company
155,000
0.33%
Minnesota Life			Insurance Company
			3,050,000
6.47%
Munich American			Reassurance Company
			5,339,000
11.32%
Optimum Re			Insurance Company
33,000
0.07%
Plateau Insurance			Company
19,000
0.04%
RBC Reinsurance			(Ireland) Ltd.
893,000
1.89%
ReliaStar Life			Insurance Company
29,000
0.06%
Scottish Annuity			and Life Insurance Company
			27,890,000
59.13%
Scottish RE (US)
			1,595,000
3.38%
Settlers Life			Insurance Company
			1,285,000
2.72%
Swiss Life			Insurance and Pension Company
			2,665,000
5.65%
Swiss Re Life &			Health America Inc.
447,000
0.95%
Transamerica Life			Insurance Company
455,000
0.97%
Universal Guaranty			Life Insurance Company
15,000
0.03%
Vernon General			Insurance Company
3,000
0.01%
Other Companies (6)
			        7,000
			    0.02%
 
			$47,168,000
			100.00%
 

Investors Heritage Life reinsures all of the risk on the Credit Insuranceproducts sold by its agents.  Currently, this business is being reinsured withACE Life Insurance Company and Swiss Life Insurance and Pension Company, whichreplaced Scottish Re (U.S.), Inc. effective June 1,

 

9

 

 

2008 on new sales of our creditproducts.  As explained above, some of these credit insurance risks are alsoreinsured to Transamerica, Universal Guaranty, Madison National, Minnesota Life,KenBanc, Plateau, Central States and Aspi Re.

 

Administrative Services. During 2009, we continued to market our third party administrative services tonon-affiliated companies.  We have an employee whose primary responsibility isto promote this aspect of our organization.  This additional marketing focus hasand is expected to generate increased fee income associated with providing theseservices. Our overall revenue is further enhanced by the fact that we generallyincur minimal expense increases associated with the third party administrativeservices, which decreases our overall unit costs.  

 

We have the capacity within ourorganization to handle the additional load and we have been successful inproviding services without the need to add new employees.  During 2009, we addedtwo new companies and now provide administrative services for eight companies. These agreements are with a variety of companies that encompass different levelsof services, including in some cases, full life insurance back officeadministration and accounting.  

 

Other Subsidiaries.Investors Heritage Printing does job printing for Investors Heritage Life aswell as numerous unaffiliated sources. This includes the printing of theapplication forms and other office forms required by Investors Heritage Life.While the income from Investors Heritage Printing is not a significant factor inour overall business, Investors Heritage Printing continues to work to improveprofitability. Revenues from Investors Heritage Printing were approximately$363,000 in 2009, down $3,000 compared to 2008.

 

The formation and operation ofInvestors Heritage Financial generates additional revenue to Investors HeritageCapital Corporation. Although this additional revenue is not a significantfactor in our overall business, Investors Heritage Financial generated revenuefrom its operations of approximately $237,000 in 2009 compared to $329,000 in2008.  The decrease is directly related to the decrease in production of creditinsurance and credit ordinary insurance due to the tightening of credit thatresulted from the current economic conditions. 

 

At Need Funding is a singlemember, limited liability company organized under the laws of the Commonwealthof Kentucky. Investors Heritage Capital Corporation is the sole member of theLLC. Funding provided by At Need Funding is secured by assignments of verifiedincontestable life insurance policies issued by unaffiliated companies. Thefunds are advanced to funeral homes for services provided for the insured. Uponreceipt of death benefits from the unaffiliated insurance company, the principalbalance of the debt is reduced and interest and fees are recorded. This serviceis marketed primarily to funeral homes that do not have the manpower to timelycomplete necessary paperwork to process the insurance claim.  Revenues from AtNeed Funding were approximately $91,000 in 2009, down $15,000 compared to 2008,primarily due to the current economic conditions.

 

Dividends and distributionsfrom the Non-insurance Subsidiaries for 2009 and 2008 amounted to $186,000 and$234,500, respectively.

 

10

 

 

Additionally, we earn fees forother services performed for our subsidiaries. The fees pay for the necessarysupervision and coordination required to provide a common policy for all thecompanies. The supervision results in a coordination of contracts with thevarious independent agents, common sales brochures, and a savings to eachcompany in the area of printing and purchasing. We purchase director and officerliability coverage, employment practices liability insurance coverage, andblanket fidelity bonds.  All policies provide coverage for each of thesubsidiaries and provide a cost savings when compared to purchases made byindividual companies. We also administer the group life and the retirementprograms for the various companies.  These fees are not significant to our totalrevenue. Investors Heritage Capital Corporation also has revenue from otherinvestments, but it is not a significant factor in our business.

 

Employees. InvestorsHeritage Capital Corporation does not have any employees. While InvestorsHeritage Capital Corporation's officers perform various functions, they are notpaid a salary by Investors Heritage Capital Corporation for performing suchfunctions. There are 86 people employed by Investors Heritage Life and threepeople employed by Investors Heritage Printing. The number of active independentcontractual agents of Investors Heritage Life is 2,368. There are no unionsorganized nor are there any collective bargaining agreements with the employeesor agents.  Management of Investors Heritage Life considers its relationshipwith the employees and agents to be satisfactory.

 

(d) Financial Informationabout Geographic Areas

 

The principal markets forInvestors Heritage Life's products are in the Commonwealths of Kentucky andVirginia, and the States of North Carolina, South Carolina, Georgia, Ohio,Indiana, Florida, Tennessee and Michigan. Investors Heritage Life has licensedordinary agents and regional managers throughout these states and credit lifeagents in 257 banks and automobile dealerships.

 

Investors Heritage Life is alsolicensed in twenty other states: Alabama, Arizona, Arkansas,  Illinois,Louisiana, Mississippi and West Virginia in the South and Southeast; Colorado,Missouri, New Mexico, North Dakota, South Dakota, Oklahoma, Montana, Nebraska,Kansas, Texas and Utah in the West; and Maryland and Pennsylvania in the North.The business in these states is written mostly through general agents.

 

Forward Looking Information.We caution readers regarding certain forward-looking statements contained inthis report and in any other statements made by, or on behalf of, the Company,whether or not in future filings with the Securities and Exchange Commission(the "SEC"). Forward-looking statements are statements not based on historicalinformation and which relate to future operations, strategies, financialresults, or other developments. Statements using verbs such as "expect,""anticipate," "believe" or words of similar import generally involveforward-looking statements. Without limiting the foregoing, forward-lookingstatements include statements which represent our beliefs concerning futurelevels of sales and redemptions of our products, investment spreads and yields,or the earnings and profitability of our activities.

 

11

 

 

Forward-looking statements arenecessarily based on estimates and assumptions that are inherently subject tosignificant 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 differmaterially from those expressed in any forward-looking statements made by, or onbehalf of, the Company. Whether or not actual results differ materially fromforward-looking statements may depend on numerous foreseeable and unforeseeablefactors and developments. Some of these may be national in scope, such asgeneral economic conditions, changes in tax law and changes in interest rates.Some may be related to the insurance industry generally, such as pricingcompetition, regulatory developments, industry consolidation and the effects ofcompetition in the insurance business from other insurance companies and otherfinancial institutions operating in our market area and elsewhere. Others mayrelate to the Company specifically, such as credit, volatility and other risksassociated with our investment portfolio. We caution that such factors are notexclusive. We disclaim any obligation to update forward-looking information.

 

Item 2. Properties

 

The physical property of theCompany consists of the home office building and grounds, owned in fee, at 200Capital Avenue, Frankfort, Kentucky. Adjacent to the home office, the Companyowns additional property on Second Street and on Shelby Street in Frankfort,Kentucky. One building is used for agency and company meetings; one building isa print shop used by Investors Heritage Printing, one building is used forsupplies and additional storage; one building is leased to a commercial tenantand one building is a residential apartment building.  All of the properties arein good condition.

 

Item 3. Legal Proceedings

 

There are no legal proceedingsto which Investors Heritage Capital Corporation is a party. There are no legalproceedings to which Investors Heritage Life is a party that are material to theoverall financial condition or results of operations of Investors HeritageCapital Corporation.

 

Item 4.  Reserved

 

12

 

 

PART II

 

 

 

Item 5. Market for Registrant'sCommon Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities

 

(a)

(i)     The stock of Investors Heritage Capital Corporation, Inc. is quoted on the OTCBulletin Board.  The quotations reflect inter-dealer prices, without retailmark-up, mark-down, or commission, and may not represent actual transactions. The symbol for Investors Heritage Capital Corporation is IHRC.  The followingtable shows the range of high and low closing sales prices of our shares on theOTC Bulletin Board market quotations.  

 
 
HIGH
LOW
YEAR ENDED DECEMBER 31, 2009:  
First Quarter
$24.00
$13.50
Second Quarter
			  19.00
			  14.65
Third Quarter
			  21.00
			  17.10
Fourth Quarter
			  19.00
			  17.15
 
 
HIGH
LOW
YEAR ENDED DECEMBER 31, 2008:  
First Quarter
$29.50
$26.50
Second Quarter
			  31.00
			  26.75
Third Quarter
			  27.20
			  23.75
Fourth Quarter
			  29.75
			  19.85
 

(ii)    Approximate Number of Equity Security Holders

 

(A)

Title of Class

Common Stock

 

(B)

Number of Holdersof Record 12-31-2009

2,885

 

(iii)   Dividends

 

InvestorsHeritage Capital Corporation did not pay a dividend in 2009. 

 

13

 

 

(iv) Equity Compensation Plan Information

 

On September 24, 1999, Investors Heritage Capital's Boardgranted to certain directors and executive officers options to purchase 75,000shares of Investors Heritage Capital common stock pursuant to the 1999 StockOption and Stock Appreciation Rights Plan (the "Plan").  All of the optionsvested on September 24, 2001 and all outstanding awards expired on September 24,2009.  Investors Heritage Capital did not grant any options in 2009, and nooption holders exercised any options during 2009.  The Plan terminated onSeptember 24, 2009. 

 

(b)  None.

 

(c)  No share repurchases were made pursuant to apublicly announced plan or program. All share repurchases were shares tenderedby original stockholders under our right of first refusal or by employees aspart of our 401(k) plan.

 

Item 7. Management's Discussionand Analysis of Financial Condition and Results of Operations

 

Management's Discussion andAnalysis of financial condition and results of operations appears on pages 5-14in the Annual Report to the Stockholders for the year ended December 31, 2009,and is incorporated herein by reference.

 

Item 8. Financial Statements

 

The financial statements andnotes appear on pages 16-39 in the Annual Report to the Stockholders for theyear ended December 31, 2009 and are incorporated herein by reference. See PartIV, Item 15.

 

Item 9. Changes in andDisagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

Item 9A(T). Controls andProcedures (This report shall not be deemed to be filed for purposes of Section18 of the Exchange Act or otherwise subject to the liabilities of that section).

 

(a)  Management is responsible for establishing andmaintaining adequate internal control over the Company's financial reporting. Asof the end of the period covered by this annual report, the Company carried outan evaluation, under the supervision and with the participation of the Company'smanagement, including the Company's Chief Executive Officer and Chief FinancialOfficer, of the effectiveness of the design and operation of the Company'sinternal controls over financial reporting as defined in Rule 13a-15(e) and15d-15(e) of the Securities Exchange Act of 1934.  Based upon this evaluation,management concluded that, as of the end of the period covered by this annualreport, the Company's internal controls over financial reporting are effective. The standard measures adopted by management in making its evaluation are themeasures in the Internal-Control Integrated Framework published by the Committeeof Sponsoring Organizations of the Treadway Commission.  This annual report doesnot include an attestation report of the Company's 

 

14

 

 

independentregistered public accounting firm regarding internal control over financialreporting.  Management's report was not subject to the attestation by theCompany's independent registered public accounting firm pursuant to temporaryrules of the Securities and Exchange Commission that permit the Company toprovide only management's report in this annual report.

 

The Companycarried out an evaluation, under the supervision and with the participation ofthe Company's management, including the Company's Chief Executive Officer andChief Financial Officer, of the Company's disclosure controls and procedures asdefined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. Based on that evaluation, the Chief Executive Officer and Chief FinancialOfficer concluded that the Company's disclosure controls and procedures areeffective in timely alerting them to material information relating to theCompany (including its consolidated subsidiaries) required to be included inthis Annual Report on Form 10-K.

 

(b)   Changes to Internal Control Over Financial Reporting

 

There was achange in the Company's internal control over financial reporting during thethree months ended December 31, 2009 that may have materially affected, or was reasonably likely to materially affect, the Company's internal control overfinancial reporting.  During December, 2009 we concluded that we did notmaintain effective internal control over financial reporting in determining ourinsurance reserves for a limited block of our life policies and, as a result, amaterial weakness existed in our internal control over financial reportingrelative to this portion of insurance reserves.  On December 18, 2009, weimplemented a new procedure to improve the control.  Specifically, we instituteda control whereby key personnel involved in our financial reporting processreview system reserve runs by plan code to confirm that our life insurance planscontain an appropriate insurance reserving code.

 

Item 9B.  Other Information

 

None.

 

15

 

 

PART III

 

Item 10. Directors, Executive Officers and CorporateGovernance

 

(a)        The Executive officers and directors of theCompany are:

 

**Name, Position & Year Became**
**Age**
**Officer/Director** 
**Family Relationship**   
Harry Lee Waterfield II
66
Chairman of the Board, President/1963 
  
Jimmy R. McIver, Treasurer/2000
58
  
Robert M. Hardy, Jr.
52
Director, Vice President and General  
Counsel/1988 
Nephew of Harry Lee Waterfield II 
  
Raymond L. Carr, Chief Financial
61
Officer, Vice President/2002 
  
Jane S. Jackson, Secretary/2003
55
  
Helen S. Wagner, Director/1986
73
  
Gordon C. Duke, Director/1991
64
  
Harold G. Doran, Jr. Director/2001
56
  
Howard L. Graham, Director/2002
75
  
David W. Reed, Director/1982
55
  
Michael F. Dudgeon, Jr., Director/2004

Nephew of Harry Lee Waterfield II
48
 

 

(b)        Each of the Directorshas occupied the position indicated for a period of more than five years withthe exception of Gordon C. Duke.  Since 2003, Mr. Duke has been an independentbusinessman, and since November 1, 2008, he has also served as a consultant andas a Vice President for Nucleus: Kentucky's Life Science and Innovation Center,LLC.   Board member and Audit Committee member, Jerry F. Howell, Jr. died in2009 and his vacancy has not been filled by the Board. 

 

16

 

 

There have been no events underany bankruptcy act, no criminal proceedings and no judgments or injunctionsmaterial to the evaluation of the ability and integrity of any Director orExecutive Officer during the past ten years.

 

Additional information regardingthe Directors and leadership structure of the Board are shown on page 4 and page7, respectively, of the Proxy Statement for the Annual Meeting of Shareholdersto be held May 13, 2010 and is incorporated herein by reference.

 

Officers are appointed annuallyby the Board of Directors at the Board meeting immediately following the AnnualMeeting of Shareholders. There are no arrangements or any understandings betweenany officer and any other person pursuant to which the office was selected.

 

The Board of Directors hasdetermined that Audit Committee members Harold G. Doran, Jr. and Gordon C. Dukeare audit committee financial experts as defined by Item 407(d)(5) of RegulationS-K of the Exchange Act and are independent as that term is used in Item 7(d) ofSchedule 14A under the Exchange Act.  The Company has a designated AuditCommittee established in accordance with Section 3(a)(58)(A) of the ExchangeAct.  The members of the Audit Committee are Harold G. Doran, Jr., Gordon C.Duke, and David W. Reed. All members of the Audit Committee are independent.

 

The Company has adopted awritten code of ethics that applies to the Company's President and ChiefExecutive Officer, the Chief Financial Officer and all other corporate officersdesignated by the Chief Executive Officer.  The Company has posted a copy of thecode on the Company's internet website at the internet address: http://www.InvestorsHeritage.com. Copies of the code may be obtained free ofcharge from the Company's website at the above internet address.

 

Item 11. Executive Compensation

 

Information regardingcompensation of executive officers and transactions with executive officers anddirectors is shown on pages 7-10 of the Proxy Statement for the Annual Meetingof Shareholders to be held May 13, 2010, and is incorporated herein byreference.

 

Item 12. Security Ownership ofCertain Beneficial Owners and Management and Related Stockholder Matters

 

Security ownership by Officers,Directors, and management is shown on pages 5-6 of the Proxy Statement for theAnnual Meeting of Shareholders to be held May 13, 2010, and is incorporatedherein by reference.

 

Item 13. Certain Relationshipsand Related Transactions, and Director Independence

 

Certain relationships andrelated transactions are shown on page 11 of the Proxy Statement for the AnnualMeeting of Shareholders to be held May 13, 2010, and are incorporated herein byreference.

 

17

 

 

Item 14. Principal AccountantFees and Services

 

Information regarding accountingfees and services is shown on page 11 of the Proxy Statement for the AnnualMeeting of Shareholders to be held May 13, 2010, and is incorporated herein byreference.

 

 

 

18

 

 

PART IV

 

Item 15. Exhibits

 

(a)1. The following financialstatements incorporated herein by reference in Item 8 to the Company's AnnualReport to Stockholders for the year ended December 31, 2009 (pages 16-39) arefiled as Exhibit 1 thereto:

 

   Report of Independent Registered Public Accounting Firm

 

   Consolidated Balance Sheets as of December 31, 2009 and2008

 

   For each of the two years in the period ended December31, 2009:

 

      Consolidated Statements of Income

 

      Consolidated Statements of Stockholders' Equity

 

      Consolidated Statements of Cash Flows

 

      Notes to Consolidated Financial Statements

 

19

 

 

**INDEX TOEXHIBITS**

 

(a)3. Listing of Exhibits

 

Exhibit 
Number
			Description of Exhibits  
3.1
Articles of			Incorporation of the Company, as amended, is incorporated by			reference as Exhibit 3.1 to the Company's registration statement on			Form S-4 filed on 10-7-1999 (File No. 333-87947).  
3.2
By-Laws of the			Company, as amended, are incorporated by reference as Exhibit 3.2 to			the Company's registration statement on Form S-4 filed on 10-7-1999			(File No. 333-87947).  
11
Statements re:			computation of Per Share Earnings is contained in Note A to the			Consolidated Financial Statements, "Common Stock and Earnings per			Share", on page 22 of the Annual Report to the Stockholders for the			year ended December 31, 2009, and is incorporated herein by			reference.  
13
Annual Report to the			Stockholders for the year ended December 31, 2009 is attached hereto			as Exhibit 13 and is incorporated herein by reference.  
23
Consent of			Independent Registered Public Accounting Firm.

31.1 &

31.2
Certifications			pursuant to Securities and Exchange Act Rule 13a-14(a)/15d-14(a), as			adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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

 

*The material included in thisReport shall not be deemed to be "filed" with the Commission or otherwisesubject to the liabilities of Section 18 of the Act, except to the extent thatthis registrant specifically incorporates it in its Annual Report on this Form10-K by reference.

 

(b) See Item 15(a)3 above.

 

20

 

 

SIGNATURES

 

 

Pursuant to the requirements ofSection 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant hasduly caused this Form 10-K to be signed on its behalf by the undersigned,thereunto duly authorized.

 
 
INVESTORS HERITAGE CAPITAL CORPORATION
March			19, 2010  
DATE 
/s/Harry Lee Waterfield II 
BY:
Harry Lee Waterfield II 
ITS:
Chairman of the Board and President
 

Pursuant to the requirements ofthe Securities Exchange Act of 1934, this report is signed below by thefollowing persons on behalf of the Registrant and in the capacities and on thedates indicated.

 

/s/Harry Lee Waterfield II

Harry Lee Waterfield II

Chairman of the Board and President

Principal Executive Officer

March 19, 2010

 

 

/s/Robert M. Hardy, Jr.

Robert M. Hardy, Jr.

Vice President, General Counsel and Director

March 19, 2010

 

 

/s/Jimmy R. McIver

Jimmy R. McIver

Treasurer

March 19, 2010

 

 

/s/Raymond L. Carr

Raymond L. Carr

Chief Financial Officer

Vice President

March 19, 2010

 

21

 

 

/s/Gordon C. Duke

Gordon C. Duke

Director

March 19, 2010

 

 

/s/Helen S. Wagner

Helen S. Wagner

Director

March 19, 2010

 

 

/s/Harold G. Doran

Harold G. Doran

Director

March 19, 2010

 

 

/s/David W. Reed

David W. Reed

Director

March 19, 2010

 

 

/s/ Howard L. Graham

Howard L. Graham

Director

March 19, 2010

 

 

/s/Michael F. Dudgeon, Jr.

Michael F. Dudgeon, Jr.

Director

March 19, 2010

 

22

 

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