SECURITIES AND EXCHANGE COMMISSION

 

Washington, D. C. 20549

 

FORM 10-K/A

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

FOR THE FISCAL YEAR ENDED DECEMBER 31,2008

 

COMMISSION FILE NUMBER 0-1999

 

**INVESTORS HERITAGE CAPITAL CORPORATION**

 

(Exact name of registrant as specified inits Charter)

 

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

200 Capital Avenue,Frankfort, Kentucky 40601

(Address of Principal Executive Offices)

 

Registrant's telephone number, includingarea code 502-223-2361

 

Kentucky Investors, Inc.

(Former name, if changed since last report)

 

 

Securities registered pursuant to Section12(b) of the Act:

 

None

 

Title of Each Class

None

 

Name of Each Exchange on Which Registered

None

 

Securities registered pursuant to Section12(g) of the Act:

 

Common Capital Stock Par Value $1.00 PerShare

 

Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act.  YES  (  )    NO  (X)

 

Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 orSection 15(d) of the Act.  YES  (  )    NO  (X)

 

Indicate by check mark whether theregistrant (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 forsuch 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 if disclosure ofdelinquent filers pursuant to Item 405 of Regulation S-K (229.405 of thischapter) is not contained herein, and will not be contained, to the best ofregistrant'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 whether theregistrant is a large accelerated filer, an accelerated filer, a non-acceleratedfiler, or a smaller reporting company.  See the definitions of "largeaccelerated filer," "accelerated filer," and "smaller reporting company" in Rule12b-2 of the Exchange Act. (Check one):

Large acceleratedfiler  (  )                Acceleratedfiler  (  )                Non-accelerated filer  ( )

(Do not check if asmaller reporting company)                       Smaller Reporting Company (X)

 

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

 

State the aggregate market value of thevoting stock held by nonaffiliates of the registrant computed by reference tothe average bid and asked price of such common equity as of June 30, 2008.    $28,826,153

 

Indicate the number of shares outstandingof each of the registrant's classes of common stock, as of the latestpracticable date.

 

Class

Common Capital Stock

 

Outstanding at March 12, 2009

1,120,686.256

 

DocumentsIncorporated by Reference:

 

(1) Portions of theAnnual Report to the Stockholders for the year ended December 31, 2008 (Form10-K, Items 1, 7, 8 and 15)

 

(2) Portions of theProxy Statement dated April 3, 2009, for the Annual Meeting of Stockholders tobe held May 14, 2009 (Form 10-K, Items 10, 11, 12, 13 and 14.)

 

 

**EXPLANATORY NOTE**

 

Weare filing Form 10-K/A for the period ended December 31, 2008, for the purposeof restating our condensed consolidated financial statements as of December 31,2008 (and comparative prior year).  The restatement reflects the correctionof a clerical error dating to 1998 in the calculation of insurance reserves oncertain types of life policies, principally certain reduced paid-up and extendedterm life policies and policy riders.  We have restated retained earningsin the consolidated balance sheets effective January 1, 2007, to reflect therecognition of the prior period cumulative effect of the clerical error as ofthat date, net of deferred tax, reducing retained earnings by $626,847. Additionally, we have recorded changes in the additional insurance reserves,related reinsurance recoverables and related deferred income tax asset in thecondensed consolidated financial statements for the periods presented herein. These changes resulted in an increase in the net loss for 2008 of $105,134 and areduction of net income for 2007 of $122,614.  The cumulative changes alsoresulted in a reduction in stockholders' equity at December 31, 2008 and 2007,of $854,595 and $749,461, respectively.  These changes also have an effecton previously disclosed data relative to cash flows, reinsurance, income taxesand segment information.  Accordingly, we have revised Notes D and I to thenotes to the condensed consolidated financial statements to account for therestatement.  Additionally, we have adjusted certain comparison dataincluded in management's discussion and analysis to account for these changes. Please refer to Note L of the notes to the condensed consolidated financialstatements for detailed information on the effects of these changes onindividual financial statement line items.  We have not updated this Form10-K/A for events or information subsequent to the date of filing of theoriginal Form 10-K, except in connection with the foregoing.

 

 

CONTENTS

 

PART I

 
  
Page
Item 1.
Business
4
Item 2.
			Properties
11
Item 3.
Legal			Proceedings
11
Item 4.
			Submission of Matters to a Vote of Security Holders
11
 

Part II

 

Item 5.
Market			For Registrant's Common Equity, Related Stockholder Matters and			Issuer Purchases of Equity Securities
			12
Item 7.
			Management's Discussion and Analysis of Financial			Condition And Results of Operations
			13
Item 8.
Financial			Statements
13
Item 9.
Changes			in And Disagreements with Accountants			on Accounting and Financial Disclosure
			13
Item			9A(T)
Controls			and Procedures
13
Item 9B.
Other			Information
14
 

Part III

 

Item 10.
			Directors, Executive Officers and Corporate Governance
15
Item 11.
Executive			Compensation
16
Item 12.
Security			Ownership of Certain Beneficial Owners			and Management and Related Stockholder Matters
			16
Item 13.
Certain			Relationships and Related Transactions, and Director Independence
16
Item 14.
Principal			Accountant Fees and Services
16
 

Part IV

 

Item 15.
Exhibits
17
Index To			Exhibits
18
			Signatures
19
 

 

PART I

 

Item 1. Business

 

(a) Business Overview

 

Investors Heritage Capital Corporation (formerlyknown as Kentucky Investors, Inc. prior to name change effective June 1, 2009) is the holder of100% of the outstanding common stock of a life insurance company, a printingcompany and an insurance marketing company and is the sole member of twoKentucky limited liability companies.

 

Investors Heritage Capital owns 100% of InvestorsHeritage Life Insurance Company, Investors Heritage Printing, Inc. and InvestorsHeritage Financial Services Group, Inc. Investors Heritage Capital is the sole member ofAt Need Funding, LLC, and Heritage Funding, LLC, both Kentucky limited liabilitycorporations. We will be referring to Investors Heritage Printing, InvestorsHeritage Financial, At Need Funding and Heritage Funding as the "Non-insuranceSubsidiaries". We will be referring to Investors Heritage Life, InvestorsHeritage Printing, Investors Heritage Financial and At Need Funding as the"Subsidiaries". We will also be referring to Investors HeritageCapital and itssubsidiaries as "we", "us", "our" and as the "Company".

 

Investors Heritage Life owns 96% ofInvestors Underwriters, Inc., an investment holding company. Approximately 1% ofInvestors Heritage Capital's total consolidated revenues were generated by theNon-insurance Subsidiaries for the year ended December 31, 2008. TheNon-insurance Subsidiaries' total assets and stockholders' equity comprised lessthan 1% in the aggregate of Investors Heritage Capital's reported total assets andstockholders' equity as of December 31, 2008.

 

(b) Financial Information AboutBusiness Segments

 

Investors Heritage Life

 

The business segments of InvestorsHeritage Life are identified and discussed on page 6 of the Annual Report toStockholders for the year ended December 31, 2008 and are incorporated herein byreference. We offer a portfolio of the standard forms of participating andnon-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 are Preneed and Burial products ("Preneed")and Traditional and Universal Life products ("Traditional"). Ordinary in forceaccounts for 35% of total in force business. We continue to work diligently toincrease ordinary product sales. Our primary focus over the last several yearshas been the Preneed sales in the final expense and preneed funeral markets.Final expense sales include the sale of small face amount ordinary lifeinsurance products, the purpose of which is to pay the insured's final expenses.Preneed funeral sales include the sale of multiple premium and single premiumordinary life policies which are sold to fund a specific prearranged funeralcontract.

 

4

 

 

Preneed sales decreased 2% during 2008primarily due to the sluggish economy coupled with competition in themarketplace.  Investors Heritage Life strives to continue to improve itsmarketing capability in this area. Our efforts and strategy to continue asuccessful ordinary insurance operation hinge on continuing to provide solidproducts and outstanding administrative service and on the personalrelationships developed and fostered each year. In the fourth quarter of 2007,we introduced a new preneed product replacing the Legacy Protector and LegacyPreferred product series.  The Legacy Gold series includes both single premiumas well as multi-pay policies. Reaction to this product in our markets has beenfavorable.  The performance of this product series has been in line withexpectations and has improved product profitability in this segment.  OurPreneed sales are generated primarily through independent funeral homes infourteen states. 

 

Credit Insurance Products andAdministrative Services ("Credit Insurance").Investors Heritage Life has sold Credit Insurance since 1966. Since 1996,Investors Heritage Financial has marketed Investors Heritage Life's CreditInsurance products. All of the risk on Credit Insurance policies sold byInvestors Heritage Life has been and will continue to be reinsured with larger,highly rated companies. Currently, Investors Heritage Life has reinsuranceagreements with ACE Life Insurance Company and Swiss Life Insurance and PensionCompany, which replaced Scottish Re (U.S.), Inc.  as one of our reinsurers onnew business effective June 1, 2008.   During 2005, Investors Heritage Life,with the assistance of Investors Heritage Financial, entered into a jointventure partnership with the Kentucky Bankers Association ("KBA") to marketvarious products to all of the KBA members throughout the Commonwealth ofKentucky.  Investors Heritage Life reinsures credit business sold through KBAmembers to, and serves in an administrative capacity for, KenBanc ReinsuranceCompany, Ltd., the KBA's reinsurance company.  Investors Heritage Financial markets Investors Heritage Life Credit Insurance products and mortgageredemption products through this partnership as well as products for severalunaffiliated companies.  These relationships allow Investors Heritage Financialto provide more products and better serve our existing accounts thereby allowingus to further strengthen these agency relationships.  

 

During 2008, our market share through theKentucky financial institutions remains steady although sales lagged due toeconomic conditions.  We anticipate sales of our Credit Insurance and mortgageredemption products to rebound as the economic conditions strengthen.

 

(c) Narrative Description of Business

 

Preneed and Burial Products ("Preneed").   Approximately55% of total ordinary insurance in force is Preneed. Sales for this segment areunder the direct supervision of the home office using a regionally supervisedagency system. The method of field operation involves independent contractualagents working with district and regional managers. These managers contract withand train agents who work under them. The regional managers may have severaldistrict managers under their supervision. As a result of our growth in thePreneed area, agency relationships have also been entered into directly withnumerous funeral home owners. Management anticipates this trend to continue and,depending on the size of the funeral home and state law, preneed counselors mayalso become part of the agency force. 

 

5

 

 

During the fourth quarter 2007, weintroduced the "Legacy Gold Series", our sixth generation of life productsdesigned for the preneed funeral market. These products provide an underwrittenand a guaranteed issue single premium policy as well as underwritten andguaranteed issue multi-pay policies. All of the products provide for increasingdeath benefits on a non-guaranteed basis with a guaranteed minimum increase andfor a lengthened reduced benefit period on the guaranteed issue multi-payproduct. 

 

We also market a series of final expensewhole life insurance policies known as the "Heritage Final Expense Products". During the fourth quarter 2008, we introduced a new Final Expense product,Heritage Final Expense II, which replaced our old final expense product seriesand was designed to provide more flexibility to our customers.  These productsare non-participating whole life insurance issued with simplified underwriting.These products are offered outside of the preneed market and are performing inline with expectations.

 

Traditional and Universal Life Products("Traditional"). Sales for this segmentare under the direct supervision of the home office using a regionallysupervised agency system. The method of field operation involves independentcontractual agents working with district and regional managers. These managerscontract with and train agents who work under them. The regional managers mayhave several district managers under their supervision. We also sell businessthrough general agents or brokers who may represent one or more companies.

 

Approximately 45% of total ordinaryinsurance in force is Traditional. These sales are built around a standardportfolio of life insurance policies with some of the contributions to in-forcebusiness being a participating ordinary life insurance policy, a guaranteedissue whole life policy and non-participating life policies. In addition, weoffer term insurance products.

 

During the fourth quarter 2008, we alsointroduced a new Whole Life Policy, HLW Choice Whole Life, which replaced ourLife Paid Up at 95 product.  This Whole Life Policy is designed with numerousoptions and with flexibility to achieve our customer's goals.  

 

As anticipated, ordinary premiumproduction from financial institutions decreased by $662,142 to $925,203 in2008. This 41.7% decrease over 2007 was primarily due to the tightening ofconsumer credit markets in light of the current economic situation.

 

Group life accounts for 53% of totalin-force business.  In addition to the group business discussed above, InvestorsHeritage Life participates in the Federal Employee Group Life Insurance ("FEGLI")Program, which is administered by Metropolitan Life Insurance Company, and inthe Servicemen's Group Life Insurance ("SEGLI") Program, which is administeredby Prudential Insurance Company of America. As of year-end 2008, the totalamount of insurance in force from the FEGLI and SEGLI programs was approximately$440,547,000 and $1,159,350,000, respectively.

 

Credit Insurance.Credit Insurance, which accounts for 12% of total in-force business, isgenerally sold through banks, finance companies and automobile dealerships andis offered in connection with the extension of credit. The amount of theinsurance is designed to cover the amount of the loan with the financialinstitution being the beneficiary of the insurance policy to 

 

6

 

 

the extent of the unpaid balance of the loan.Credit Insurance production is dependent on consumer debt. In times of lowunemployment, reasonable interest rates and a steadily improving economy,consumer debt increases; therefore, Credit Insurance sales increase. When theeconomy slows, consumer debt slows and therefore Credit Insurance salesdecrease.

 

Investors Heritage Life has reinsuranceagreements with eight unaffiliated companies, Life Investors Insurance Companyof America, Universal Guaranty Life Insurance Company, Madison National LifeInsurance Company, Minnesota Life Insurance Company,  Reinsurance Company, Ltd.,Plateau Insurance Company, Central States Health and Life Company of Omaha andAspi Re Limited.  Pursuant to those agreements, our Credit Insurance productssold by each company's agents are then reinsured to each company, respectively.Investors Heritage Life and Investors Heritage Financial are paid an initiationfee and an administration fee for services provided. Investors HeritageFinancial will continue to seek contracts to operate as an administrator forother companies that sell Credit Insurance.

 

Investors Heritage Financial continues tocall on banks, finance companies and selected automobile dealerships to marketCredit Insurance products for Investors Heritage Life. As anticipated, 12.8% ofInvestors Heritage Financial revenues for 2008 were derived from the sale ofInvestors Heritage Life's Credit Insurance products. Credit Insurance grosswritten premiums were lower than in the prior year due primarily to lower loandemand related to the sluggish economy.  

 

In addition to selling Credit Insurance,Investors Heritage Life provides ongoing servicing of written credit business,generating fee income.  Additionally, Investors Heritage Life bank agents mayobtain an ordinary life license enabling them to sell mortgage life insurancethat might be required in excess of the statutory credit life limitation enactedby each state where our Credit Insurance products are sold. The mortgage lifeinsurance sales operations will continue to be conducted through InvestorsHeritage Financial. During the fourth quarter of 2008, we introduced a newproduct for our credit ordinary sales through financial institutions, HeritageProtector IV.  This product replaces the Heritage Protector III Series. Further,Investors Heritage Financial is licensed with other unaffiliated insurancecompanies to provide products that Investors Heritage Life does not offer to thefinancial institutions and other agents. These products include cancer,accident, second-to-die, large face amount term insurance, short term and longterm disability and annuities. These relationships generated additional feeincome in the amount of $285,593 during 2008 and management anticipatescontinued fee income from this area.

 

Reinsurance. Investors Heritage Life utilizes a combination of yearly renewable termreinsurance and coinsurance to cede life insurance coverage in excess of itsretention limit, which is $25,000 per life. This retention level was achieved bykeeping current reinsurance treaties in place and adding additional yearlyrenewable term treaties for the difference with Scottish Re (U.S.) (inforce asof December 31, 2003) and Munich American Reassurance Company (business issuedin 2004 and later). As anticipated, this retention level has stabilized earningsfluctuations in the Traditional segment. Excess coverages are reinsuredexternally to unaffiliated reinsurers.

 

7

 

 

Investors Heritage Life has a reinsuranceagreement with Munich, which reinsures the Heritage Final Expense products on an80/20 quota share basis with Investors Heritage Life retaining 20% of the riskon each life. We also have a reinsurance agreement with Lincoln National LifeInsurance Company, which reinsures the Term to 95 product on an 80/20 quotashare basis with Investors Heritage Life retaining 20% of the risk on each life.

 

As of December 31, 2008, approximately$49,735,000 or 14% of total benefit and unearned premium reserves was reinsuredwith non-affiliated well-established insurance companies. Investors HeritageLife is party to reinsurance and coinsurance agreements with twenty-sevennon-affiliated companies. The reinsurers for Investors Heritage Life and amountsof insurance in force that are reinsured are as follows:

 

Company
Reinsurance
Percent 
Reserves
Of Total   
ACE Life Insurance Company
$  1,575,000
3.17%
Aspi Re Limited
551,000
1.11%
Canada Life Assurance Company
198,000
0.40%
Central States Health & Life			Co. of Omaha
88,000
0.18%
KenBanc Reinsurance Company			LTD
217,000
0.44%
Life Investors Insurance			Company of America
569,000
1.14%
Lincoln National Life			Insurance Company
1,174,000
2.36%
Madison National Life			Insurance Company
264,000
			0.53%
Minnesota Life Insurance			Company
3,196,000
6.43%
Munich American Reassurance			Company
4,458,000
8.96%
Optimum Re Insurance Company
29,000
0.06%
Plateau Insurance Company
23,000
0.05%
RBC Reinsurance (Ireland) Ltd.
1,674,000
3.37%
ReliaStar Life Insurance			Company
41,000
0.08%
Scottish Annuity and Life			Insurance Company
29,210,000
58.73%
Scottish RE (US)
3,073,000
6.18%
Settlers Life Insurance			Company
1,384,000
2.78%
Swiss Life Insurance and			Pension Company
1,635,000
3.29%
Swiss Re Life & Health America			Inc.
322,000
0.65%
Universal Guaranty Life			Insurance Company
30,000
0.06%
Vernon General Insurance			Company
15,000
0.03%
Other Companies (6)
        9,000
    0.02% 
$49,735,000
100.00%
 

Investors Heritage Life reinsures all ofthe risk on the Credit Insurance products sold by its agents.  Currently, thisbusiness is being reinsured with ACE Life Insurance Company and Swiss LifeInsurance and Pension Company, which replaced Scottish Re (U.S.), Inc. effectiveJune 1, 2008 on new sales of our credit products.  As explained above, some ofthese credit insurance risks are also reinsured to Life Investors, UniversalGuaranty, Madison National, Minnesota Life, KenBanc, Plateau, Central States andAspi Re.

 

8

 

 

Administrative Services. During 2008, 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 other new employees.  During 2008, weadded one new company and now provide administrative services for fivecompanies.  One of the agreements is with an established company opening a newline of life insurance products.  A second agreement is with a startup companythat raised in excess of $14,000,000 and commenced marketing their lifeinsurance products in the second quarter of 2007.  The remaining agreements arewith start-up companies that have not commenced insurance sales but needadministrative assistance with accounting and financial reporting.  

 

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$366,000 in 2008, down $111,000 compared to 2007.

 

The formation and operation of InvestorsHeritage Financial generates additional revenue to Investors Heritage Capital. Althoughthis additional revenue is not a significant factor in our overall business,Investors Heritage Financial generated revenue from its operations ofapproximately $329,000 in 2008 compared to $522,000 in 2007.  The decrease isdirectly related to the decrease in production of credit insurance and creditordinary insurance due to the tightening of credit that resulted from thecurrent economic conditions. 

 

At Need Funding is a single member,limited liability company organized under the laws of the Commonwealth ofKentucky. Investors Heritage Capital is the sole member of the LLC. Funding provided byAt Need Funding is secured by assignments of verified incontestable lifeinsurance policies issued by unaffiliated companies. The funds are advanced tofuneral homes for services provided for the insured. Upon receipt of deathbenefits from the unaffiliated insurance company, the principal balance of thedebt is reduced and interest and fees are recorded. This service is marketedprimarily to funeral homes that do not have the manpower to timely completenecessary paperwork to process the insurance claim.  Revenues from At NeedFunding were approximately $106,000 in 2008, down $50,000 compared to 2007,primarily due to the current economic conditions.

 

Dividends and distributions from theNon-insurance Subsidiaries for 2008 and 2007 amounted to $234,500 and $494,000,respectively.

 

Additionally, we earn fees for otherservices performed for our subsidiaries. The fees pay for the necessarysupervision and coordination required to provide a common policy for all the

 

9

 

 

companies. The supervision results in acoordination of contracts with the various independent agents, common salesbrochures, and a savings to each company in the area of printing and purchasing.We purchase director and officer liability coverage, employment practicesliability insurance coverage, and blanket fidelity bonds.  All policies providecoverage for each of the subsidiaries and provide a cost savings when comparedto purchases made by individual companies. We also administer the group life andthe retirement programs for the various companies.  These fees are notsignificant to our total revenue. Investors Heritage Capital also has revenue from otherinvestments, but it is not a significant factor in our business.

 

Employees.Investors Heritage Capital does not have any employees. While Investors HeritageCapital's officers perform various functions, they are not paid a salary byInvestors Heritage Capital for performing such functions. There are 83 people employed byInvestors Heritage Life and three people employed by Investors HeritagePrinting. The number of active independent contractual agents of InvestorsHeritage Life is 2,366. There are no unions organized nor are there anycollective bargaining agreements with the employees or agents.  Management ofInvestors Heritage Life considers its relationship with the employees and agentsto be satisfactory.

 

(d) Financial Information aboutGeographic Areas

 

The principal markets for InvestorsHeritage Life's products are in the Commonwealths of Kentucky and Virginia, andthe States of North Carolina, South Carolina, Georgia, Ohio, Indiana, Florida,Tennessee and Michigan. Investors Heritage Life has licensed ordinary agents andregional managers throughout these states and credit life agents in 280 banksand automobile dealerships.

 

Investors Heritage Life is also licensedin 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. Thebusiness 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.

 

Forward looking statements are necessarilybased on estimates and assumptions that are inherently subject to significantbusiness, economic and competitive uncertainties and contingencies, many ofwhich are beyond our control and many of which are subject to change. Theseuncertainties and contingencies could cause actual results to differ materiallyfrom those expressed in any forward-looking statements made by, or on behalf of,the Company. Whether or 

 

10

 

 

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 the Companyconsists of the home office building and grounds, owned in fee, at 200 CapitalAvenue, Frankfort, Kentucky. Adjacent to the home office, the Company ownsadditional 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 proceedings to whichInvestors Heritage Capital is a party. There are no legal proceedings to which InvestorsHeritage Life is a party that are material to the overall financial condition orresults of operations of Investors Heritage Capital.

 

Item 4. Submission of Matters to a Vote ofSecurity Holders

 

None.

 

11

 

 

PART II

 

 

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

 

(a)

(i)    The stock ofInvestors Heritage Capital Corporation is quoted on the OTC Bulletin Board.  The quotations reflect inter-dealerprices, without retail mark-up, mark-down, or commission, and may not representactual transactions.  The symbol for Investors Heritage Capital 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, 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
 

YEAR ENDED DECEMBER 31, 2007:
First Quarter
$29.50
			$25.80
Second Quarter
  27.25
  24.55
Third Quarter
  28.95
  25.00
Fourth Quarter
  28.75
  26.80
 

(ii)   Approximate Number of EquitySecurity Holders

 

(A)

Title of Class

Common Stock

 

(B)

Number of Holders of Record 12-31-2008

2,975

 

(iii)  Dividends

 

Investors Heritage Capital paid dividendstotaling $422,959 to stockholders in 2008, representing $.38 per share. 

 

12

 

 

(iv)  Equity Compensation Plan Information

 

 

 

Plan Category
Number of securities to be			issued upon exercise of outstanding options, warrants and rights
Weighted-average exercise			price of outstanding options, warrants and rights
Number of securities remaining			available for future issuance under equity compensation plans
Equity compensation plans			approved by security holders
61,125
$23.00
188,875
Equity compensation plans not			approved by security holders
-
-
-
Total
61,125
$23.00
188,875
 

(b)        None.

 

(c)        No share repurchases were madepursuant to a publicly announced plan or program. All share repurchases wereshares tendered by original stockholders under our right of first refusal or byemployees as part of our 401(k) plan.

 

Item 7. Management's Discussion andAnalysis of Financial Condition and Results of Operations

 

Management's Discussion and Analysis offinancial condition and results of operations appears on pages 4-13 in theAnnual Report to the Stockholders for the year ended December 31, 2008, and isincorporated herein by reference.

 

Item 8. Financial Statements

 

The financial statements and notes appearon pages 15-36 in the Annual Report to the Stockholders for the year endedDecember 31, 2008 and are incorporated herein by reference. See Part IV, Item15.

 

Item 9. Changes in and Disagreements withAccountants on Accounting and Financial Disclosure

 

None.

 

13

 

 

Item 9A(T). Controlsand Procedures (This report shall not be deemed to be filed for purposes ofSection 18 of the Exchange Act or otherwise subject to the liabilities of thatsection).

 

(a)  Management is responsible forestablishing and maintaining adequate internal control over the Company'sfinancial reporting. As of the end of the period covered by this annual report,the Company carried out an evaluation, under the supervision and with theparticipation of the Company's management, including the Company's ChiefExecutive Officer and Chief Financial Officer, of the effectiveness of thedesign and operation of the Company's internal controls over financial reportedas defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of1934.  The standard measures adopted by management in making its evaluationare the measures in the Internal-Control Integrated Framework published by theCommittee of Sponsoring Organizations of the Treadway Commission.  Thisannual report does not include an attestation by the Company's independent registered publicaccounting firm pursuant to temporary rules of the Securities and ExchangeCommission that permit the Company to provide only management's report in thisannual report.

 

In view of these restatements for the respectiveperiods referenced above, we have concluded that we did not maintain effectiveinternal controls over financial reporting in determining our insurance reservesfor a limited block of our life policies and, as a result, a material weaknessexisted in our internal control over financial reporting relative to thisportion of insurance reserves.  We have implemented a new procedure toimprove the control processes.  Specifically, we have instituted a controlwhereby key personnel involved in our financial reporting process review systemreserve runs by plan code to confirm that our life insurance plans contain anappropriate insurance reserving code.  We have implemented this correctiveaction, which we believe will remedy the identified deficiencies in our internalcontrols over financial reporting.

 

As of December 31, 2008, we, under the supervisionand with the participation of our management, including our Chief ExecutiveOfficer and Chief Financial Officer, evaluated the effectiveness of ourdisclosure controls and procedures as defined in Exchange Act Rules 13a-15(e)and 15(d)-15(e).  Subsequently we identified a material weakness in ourinternal control over financial reporting with respect to a clerical error inthe calculation of benefit reserves.  Solely as a result of this materialweakness, our Chief Executive Officer and Chief Financial Officer concluded thatour disclosure controls and procedures were not effective as of December 31,2008.  Concurrent with the filing of this annual report on Form 10-K, we,under the supervision and with the participation of our management, includingour Chief Executive Officer and Chief Financial Officer, again evaluated theeffectiveness of our disclosure controls and procedures as defined in ExchangeAct Rules 13a-15(e) and 15(d)-15(e).  Based upon this subsequent evaluation,including the remedial actions described below, the Chief Executive Officer andChief Financial Officer concluded that our disclosure controls and proceduresare effective.

 

(b)  Changes to Internal Control OverFinancial Reporting

 

There were nochanges in the Company's internal control over financial reporting during thethree months ended December 31, 2008, that have materially affected,or are reasonably likely to materially affect, the Company's internal controlover financial reporting.  Subsequent to December 31, 2008, the Companyimplemented a new procedure that includes the formal review of the systemreserve report by plan code to confirm proper reserve coding on all plan types. This additional internal control over financial reporting has been designed andimplemented to address the material weakness identified above.

 

Item 9B.  Other Information

 

None.

 

14

 

 

PART III

 

 

Item 10. Directors, Executive Officers andCorporate Governance

 

(a)        The Executive officers anddirectors of the Company are:

 

**Name, Position & Year Became**
**Age**
**Officer/Director**
 
**Family Relationship**
 
 
 
Harry Lee Waterfield II
65
Chairman of the Board,			President/1963
 
 
 
Jimmy R. McIver,			Treasurer/2000
57
 
 
Robert M. Hardy, Jr.
51
Director, Vice President and			General 
 
Counsel/1988
 
Nephew of Harry Lee Waterfield			II
 
 
 
Raymond L. Carr, Chief			Financial
60
Officer, Vice President/2002
 
 
 
Jane S. Jackson,			Secretary/2003
54
 
 
Helen S. Wagner, Director/1986
72
 
 
Gordon C. Duke, Director/1991
63
 
 
Harold G. Doran, Jr.			Director/2001
55
 
 
Howard L. Graham,			Director/2002
74
 
 
Jerry F. Howell, Jr.,			Director/1983
67
 
 
David W. Reed, Director/1982
54
 
 
Michael F. Dudgeon, Jr.,			Director/2004			Nephew of Harry Lee Waterfield II
47
 

 

(b)        Each of the Directors hasoccupied the position indicated for a period of more than five years with theexception of Gordon C. Duke.  Since 2003, Mr. Duke was an independentbusinessman.  On November 1, 2008, Mr. Duke was engaged as a consultant forNucleus: Kentucky's Life Science and Innovation Center, LLC and also serves asVice President of that organization. 

 

15

 

 

There have been no events under anybankruptcy act, no criminal proceedings and no judgments or injunctions materialto the evaluation of the ability and integrity of any Director or ExecutiveOfficer during the past five years.

 

Officers are appointed annually by theBoard of Directors at the Board meeting immediately following the Annual Meetingof Shareholders. There are no arrangements or any understandings between anyofficer and any other person pursuant to which the office was selected.

 

The Board of Directors has determined thatAudit Committee members Harold G. Doran, Jr. and Gordon C. Duke are auditcommittee financial experts as defined by Item 407(d)(5) of Regulation S-K ofthe 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, Jerry F. Howell, Jr. and David W. Reed. All members of the Audit Committeeare independent.

 

The Company has adopted a written code ofethics that applies to the Company's President and Chief Executive Officer, theChief Financial Officer and all other corporate officers designated by the ChiefExecutive Officer.  The Company has posted a copy of the code on the Company'sinternet website at the internet address: http://www.InvestorsHeritage.com.Copies of the code may be obtained free of charge from the Company's website atthe above internet address.

 

Item 11. Executive Compensation

 

Information regarding compensation ofexecutive officers and transactions with executive officers and directors isshown on pages 6-10 of the Proxy Statement for the Annual Meeting ofShareholders to be held May 14, 2009, and is incorporated herein by reference.

 

Item 12. Security Ownership of CertainBeneficial Owners and Management and Related Stockholder Matters

 

Security ownership by Officers, Directors,and management is shown on pages 4-5 of the Proxy Statement for the AnnualMeeting of Shareholders to be held May 14, 2009, and is incorporated herein byreference.

 

Item 13. Certain Relationships and RelatedTransactions, and Director Independence

 

Certain relationships and relatedtransactions are shown on page 12 of the Proxy Statement for the Annual Meetingof Shareholders to be held May 14, 2009, and are incorporated herein byreference.

 

Item 14. Principal Accountant Fees andServices

 

Information regarding accounting fees andservices is shown on pages 11-12 of the Proxy Statement for the Annual Meetingof Shareholders to be held May 14, 2009, and is incorporated herein byreference.

 

16

 

 

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, 2008 (pages 15-36) arefiled as Exhibit 1 thereto:

 

   Report of Independent Registered PublicAccounting Firm

 

   Consolidated Balance Sheets as ofDecember 31, 2008 and 2007

 

   For each of the two years in the periodended December 31, 2008:

 

      Consolidated Statements of Income

 

      Consolidated Statements ofStockholders' Equity

 

      Consolidated Statements of CashFlows

 

      Notes to Consolidated FinancialStatements

 

17

 

 

 

**INDEX TO EXHIBITS**
 
(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, 2008, and is incorporated herein by reference.
 
 
13
Annual Report to the			Stockholders for the year ended December 31, 2008 is attached hereto			as Exhibit 1 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 this Reportshall not be deemed to be "filed" with the Commission or otherwise subject tothe liabilities of Section 18 of the Act, except to the extent that thisregistrant specifically incorporates it in its Annual Report on this Form 10-Kby reference.

 

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

 

18

 

 

SIGNATURES

 

 

Pursuant to the requirements of Section 13or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly causedthis Form 10-K to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 

 

 
INVESTORS HERITAGE CAPITAL			CORPORATION
 
 
December 31, 2009
 
DATE
/s/Harry Lee Waterfield II
 
BY:
Harry Lee Waterfield II
 
ITS:
Chairman of the Board and			President
 

Pursuant to the requirements of theSecurities Exchange Act of 1934, this report is signed below by the followingpersons on behalf of the Registrant and in the capacities and on the datesindicated.

 

/s/Harry Lee Waterfield II

Harry Lee Waterfield II

Chairman of the Board and President

Principal Executive Officer

December 31, 2009

 

 

/s/Robert M. Hardy, Jr.

Robert M. Hardy, Jr.

Vice President, General Counsel andDirector

December 31, 2009

 

 

/s/Jimmy R. McIver

Jimmy R. McIver

Treasurer

December 31, 2009

 

 

/s/Raymond L. Carr

Raymond L. Carr

Chief Financial Officer

Vice President

December 31, 2009

 

 

/s/Gordon C. Duke

Gordon C. Duke

Director

December 31, 2009

 

 

/s/Helen S. Wagner

Helen S. Wagner

Director

December 31, 2009

 

 

/s/Harold G. Doran

Harold G. Doran

Director

December 31, 2009

 

 

/s/David W. Reed

David W. Reed

Director

December 31, 2009

 

 

/s/Jerry F. Howell, Jr.

Jerry F. Howell, Jr.

Director

December 31, 2009

 

 

/s/ Howard L. Graham

Howard L. Graham

Director

December 31, 2009

 

 

/s/Michael F. Dudgeon, Jr.

Michael F. Dudgeon, Jr.

Director

December 31, 2009

 

 

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