UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

__________________________________________

FORM 10-Q

[X]

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the quarterly period ended March 31, 2009

[   ]

Transition Report under Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the transition period from: ________ to _________  

Commission File Number: 0-10306

INDEPENDENCE HOLDING COMPANY

(Exact name of registrant as specified in its charter)

Delaware		58-1407235
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

96 CUMMINGS POINT ROAD, STAMFORD, CONNECTICUT                      06902

                                  (Address of principal executive offices)                                              (Zip Code)

Registrant's telephone number, including area code: (203) 358-8000

NOT APPLICABLE

Former name, former address and former fiscal year, if changed since last report.

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. Yes   [X]   No [  ]

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 (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).   Yes   [  ]   No [  ]

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 definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer [    ]	Accelerated Filer   [ X ]
Non-Accelerated Filer   [    ]	Smaller Reporting Company   [     ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   [  ]   No   [X]

Class	Outstanding at May 11, 2009
Common stock, $ 1.00  par value	15,418,621 Shares

INDEPENDENCE HOLDING COMPANY

INDEX

PART I – FINANCIAL INFORMATION					PAGE
						NO.
		Item 1. Financial Statements
			Condensed Consolidated Balance Sheets -		4
				March 31, 2009 (unaudited) and December 31, 2008
			Condensed Consolidated Statements of Operations -
				Three Months Ended March 31, 2009 and 2008 (unaudited)	5
			Condensed Consolidated Statement of Changes in Equity -
				Three Months Ended March 31, 2009 (unaudited)	6
			Condensed Consolidated Statements of Cash Flows -
				Three Months Ended March 31, 2009 and 2008 (unaudited)	7
			Notes to Condensed Consolidated Financial Statements (unaudited)		8
		Item 2. Management's Discussion and Analysis of Financial Condition
			and Results of Operations		25
		Item 3. Quantitative and Qualitative Disclosures about Market Risk			37
		Item 4. Controls and Procedures			38
PART II - OTHER INFORMATION
		Item 1.    Legal Proceedings			38
		Item 1A. Risk Factors			38
		Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds			38
		Item 3.    Defaults Upon Senior Securities			38
		Item 4.    Submission of Matters to a Vote of Security Holders			38
		Item 5.    Other Information			38
		Item 6.    Exhibits			39
	Signatures				40

Copies of the Company’s SEC filings can be found on its website at www.ihcgroup.com.

2

Forward-Looking Statements

This report on Form 10−Q contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbors created by those laws. We have based our forward-looking statements on our current expectations and projections about future events. Our forward-looking statements include information about possible or assumed future results of our operations. All statements, other than statements of historical facts, included or incorporated by reference in this report that address activities, events or developments that we expect or anticipate may occur in the future, including such things as the growth of our business and operations, our business strategy, competitive strengths, goals, plans, future capital expenditures and references to future successes may be considered forward-looking statements. Also, when we use words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “probably” or similar expressions, we are making forward-looking statements.

Numerous risks and uncertainties may impact the matters addressed by our forward-looking statements, any of which could negatively and materially affect our future financial results and performance.  We describe some of these risks and uncertainties in greater detail in Item 1A, Risk Factors, of IHC’s annual report on Form 10-K as filed with Securities and Exchange Commission.

Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of these assumptions, and, therefore, also the forward-looking statements based on these assumptions, could themselves prove to be inaccurate. In light of the significant uncertainties inherent in the forward-looking statements that are included in this report, our inclusion of this information is not a representation by us or any other person that our objectives and plans will be achieved. Our forward-looking statements speak only as of the date made, and we will not update these forward-looking statements unless the securities laws require us to do so. In light of these risks, uncertainties and assumptions, any forward-looking event discussed in this report may not occur.

3

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements

    

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

							March 31, 2009			December 31, 2008
							(unaudited)
ASSETS:
	Investments:
		Short-term investments				$	52		$	52
		Securities purchased under agreements to resell					29,194			60,823
		Fixed maturities, available for sale					648,931			608,487
		Equity securities, available for sale					44,956			54,007
		Other investments					37,404			37,724
				Total investments			760,537			761,093
	Cash and cash equivalents						7,906			7,767
	Due from securities brokers						19,752			2,598
	Investment in American Independence Corp. ("AMIC")						41,776			41,217
	Deferred acquisition costs						59,480			62,401
	Due and unpaid premiums						53,094			55,663
	Due from reinsurers						138,138			139,052
	Premium and claim funds						46,825			52,171
	Notes and other receivables						17,270			16,000
	Goodwill						53,081			52,331
	Other assets						77,284			83,601
				TOTAL ASSETS		$	1,275,143		$	1,273,894
LIABILITIES AND EQUITY:
LIABILITIES:
	Insurance reserves-health					$	192,111		$	199,160
	Insurance reserves-life and annuity						279,105			279,731
	Funds on deposit						407,768			411,188
	Unearned premiums						16,726			16,727
	Policy claims-health						14,577			12,158
	Policy claims-life						12,764			10,738
	Other policyholders' funds						21,745			21,888
	Due to reinsurers						38,417			38,406
	Accounts payable, accruals and other liabilities						66,537			69,260
	Liabilities related to discontinued operations						3,155			3,542
	Debt						10,000			10,000
	Junior subordinated debt securities						38,146			38,146
				TOTAL LIABILITIES			1,101,051			1,110,944
EQUITY:
IHC STOCKHOLDERS' EQUITY:
	Preferred stock (none issued)						-			-
	Common stock $1.00 par value, 20,000,000 shares authorized;
			15,451,292 and 15,434,891 shares issued, respectively;
			15,418,537 and 15,402,136 shares outstanding, respectively				15,451			15,435
	Paid-in capital						101,297			101,086
	Accumulated other comprehensive loss						(46,888)			(54,291)
	Treasury stock, at cost  32,755 shares						(326)			(326)
	Retained earnings						103,917			100,798
TOTAL IHC STOCKHOLDERS’ EQUITY							173,451			162,702
NONCONTROLLING INTERESTS IN SUBSIDIARIES							641			248
				TOTAL EQUITY			174,092			162,950
				TOTAL LIABILITIES AND EQUITY		$	1,275,143		$	1,273,894

See the accompanying notes to condensed consolidated financial statements.

4

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
						Three Months Ended
						March 31,
						2009		2008
REVENUES:
	Premiums earned:
		Health			$	66,638	$	72,654
		Life and annuity				9,795		9,000
	Net investment income					10,719		10,645
	Fee income					9,035		11,199
	Net realized investment gains					1,394		114
	Equity income from AMIC					693		401
	Other income					1,097		405
						99,371		104,418
EXPENSES:
	Insurance benefits, claims and reserves:
		Health				43,796		49,548
		Life and annuity				12,400		11,236
	Selling, general and administrative expenses					37,054		36,837
	Amortization of deferred acquisitions costs					1,050		1,454
	Interest expense on debt					770		986
						95,070		100,061
	Income from continuing operations before income taxes					4,301		4,357
	Income taxes					952		1,353
	Income from continuing operations					3,349		3,004
	Discontinued operations:
	Loss from discontinued operations					(216)		-
	Loss on disposition of discontinued operations					(21)		-
	Net income					3,112		3,004
	Loss from noncontrolling interests in subsidiaries					7		68
				NET INCOME ATTRIBUTABLE TO IHC	$	3,119	$	3,072
Basic income per common share:
	Income from continuing operations attributable to IHC shareholders				$	.22	$	.20
	Loss from discontinued operations attributable to IHC shareholders					(.02)		-
	Loss on disposition of discontinued operations					-		-
			Basic income attributable to IHC shareholders		$	.20	$	.20
WEIGHTED AVERAGE SHARES OUTSTANDING						15,408		15,331
Diluted income per common share:
	Income from continuing operations attributable to IHC shareholders				$	.22	$	.20
	Loss from discontinued operations attributable to IHC shareholders					(.02)		-
	Loss on disposition of discontinued operations					-		-
			Diluted income attributable to IHC shareholders		$	.20	$	.20
WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING						15,411		15,384

See the accompanying notes to condensed consolidated financial statements.

5

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Unaudited)
									ACCUMULATED								NON-
									OTHER		TREASURY				TOTAL IHC		CONTROLLING
					COMMON		PAID-IN		COMPREHENSIVE		STOCK,		RETAINED		STOCKHOLDERS'		INTERESTS IN		TOTAL
					STOCK		CAPITAL		INCOME (LOSS)		AT COST		EARNINGS		EQUITY		SUBSIDIARIES		EQUITY
BALANCE AT
	DECEMBER 31, 2008			$	15,435	$	101,086	$	(54,291)	$	(326)	$	100,798	$	162,702	$	248	$	162,950
Net income (loss)													3,119		3,119		(7)		3,112
Net change in unrealized
	gains (losses)								7,403						7,403		-		7,403
		Total comprehensive
			income												10,522		(7)		10,515
Acquisition of Wisconsin
	Underwriting Associates,
		LLC													-		400		400
Share-based compensation
	expenses and related
		related tax benefits			16		198								214		-		214
Other capital transactions							13								13		-		13
BALANCE AT
	MARCH 31, 2009			$	15,451	$	101,297	$	(46,888)	$	(326)	$	103,917	$	173,451	$	641	$	174,092

See the accompanying notes to condensed consolidated financial statements.

6

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
							Three Months Ended March 31,
							2009			2008
CASH FLOWS PROVIDED BY (USED BY) OPERATING ACTIVITIES:
	Net income attributable to IHC					$	3,119		$	3,072
	Adjustments to reconcile net income attributable to IHC to net change in
		cash from operating  activities:
			Loss from discontinued operations				216			-
			Loss on disposition of discontinued operations				21			-
			Amortization of deferred acquisition costs				1,050			1,454
			Net realized investment gains				(1,394)			(114)
			Equity income from AMIC and other equity method investments				(844)			(553)
			Depreciation and amortization				1,306			1,286
			Share-based compensation expenses				267			292
			Deferred tax benefit				(568)			(908)
			Other				143			(409)
Changes in assets and liabilities:
			Change in insurance liabilities				(7,618)			(1,669)
			Additions to deferred acquisition costs, net				(981)			(1,047)
			Change in net amounts due from and to reinsurers				925			(1,839)
			Change in premium and claim funds				5,346			(1,659)
			Change in income tax liability				1,582			2,279
			Change in due and unpaid premiums				2,569			4,647
			Change in other assets				962			(7,288)
			Change in other liabilities				(2,414)			4,017
				Net change in cash from operating activities of continuing operations			3,687			1,561
				Net change in cash from operating activities of discontinued operations			(751)			(12,092)
					Net change in cash from operating activities		2,936			(10,531)
CASH FLOWS PROVIDED BY (USED BY) INVESTING ACTIVITIES:
		Change in net amount due from and to securities brokers					(17,154)			2,700
		Net proceeds of short-term investments					(1)			55
		Net (purchases) sales of securities under resale and repurchase agreements					31,629			(34,436)
		Sales of equity securities					-			24,001
		Purchases of equity securities					-			(21,356)
		Sales of fixed maturities					105,199			117,275
		Maturities and other repayments of fixed maturities					36,492			29,878
		Purchases of fixed maturities					(157,420)			(169,965)
		Additional investments in other investments, net of distributions					472			1,489
		Cash paid in acquisitions of companies, net of cash acquired					(275)			-
		Investment in AMIC					-			(1,401)
		Change in notes and other receivables					(1,270)			(1,015)
		Other					(844)			(745)
					Net change in cash from investing activities		(3,172)			(53,520)
CASH FLOWS PROVIDED BY (USED BY)  FINANCING ACTIVITIES:
		Proceeds from issuance of common stock					1			1,401
		Exercises of common stock options					-			(24)
		Excess tax expense benefits from exercises of stock options					(64)			(176)
		(Withdrawals) proceeds of investment-type insurance contracts					824			(608)
		Dividends paid					(386)			(382)
					Net change in cash from financing activities		375			211
Net change in cash and cash equivalents							139			(63,840)
Cash and cash equivalents, beginning of year							7,767			72,823
Cash and cash equivalents, end of period						$	7,906		$	8,983

See the accompanying notes to condensed consolidated financial statements.

7

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1.  

Significant Accounting Policies and Practices

(A)

Business and Organization

Independence Holding Company, a Delaware corporation ("IHC"), is a holding company principally engaged in the life and health insurance business through: (i) its wholly owned insurance companies, Standard Security Life Insurance Company of New York ("Standard Security Life") and Madison National Life Insurance Company, Inc. ("Madison National Life"); and (ii) its marketing and administrative companies, including Insurers Administrative Corporation (“IAC”), managing general underwriters ("MGUs") in which it owns a significant voting interest, Health Plan Administrators, Inc. (“HPA”), GroupLink, Inc. (“GroupLink”), IHC Health Solutions, Inc. (“IHC Health Solutions”), and Actuarial Management Corporation (“AMC”).  These companies are sometimes collectively referred to as the "Insurance Group," and IHC and its subsidiaries (including the Insurance Group) are sometimes collectively referred to as the "Company."  At March 31, 2009, the Company also owned a 49.7% equity interest in American Independence Corp. ("AMIC"), which owns Independence American Insurance Company (“Independence American”), three MGUs and controlling interests in two agencies.

Geneve Corporation, a diversified financial holding company, and its affiliated entities held approximately 53% of IHC's outstanding common stock at March 31, 2009.

(B)

Basis of Presentation

The condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles and include the accounts of IHC and its consolidated subsidiaries. All significant intercompany transactions have been eliminated in consolidation. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect:  (i) the reported amounts of assets and liabilities; (ii) the disclosure of contingent assets and liabilities at the date of the financial statements; and (iii) the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. IHC’s annual report on Form 10-K as filed with the Securities and Exchange Commission should be read in conjunction with the accompanying condensed consolidated financial statements.

In the opinion of management, all adjustments (consisting only of normal recurring accruals) that are necessary for a fair presentation of the consolidated financial position and results of operations for the interim periods have been included. The consolidated results of operations for the three months ended March 31, 2009 are not necessarily indicative of the results to be anticipated for the entire year.

(C)

Recent Accounting Pronouncements

Recently Issued Accounting Standards Not Yet Adopted

In April 2009, the Financial Accounting Standards Board ("FASB") issued FASB Staff Position ("FSP") FAS 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability have Significantly Decreased and Identifying Transactions That Are Not Orderly", ("FSP FAS 157-4"). FSP FAS 157-4 provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, "Fair Value Measurements", when the volume and level of activity for the asset or liability have significantly decreased, and guidance on identifying circumstances that indicate a transaction is not orderly.  FSP FAS 157-4 emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same.  Fair value is the price that would be received to sell an asset

8

or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. FSP FAS 157-4 is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. For comparative purposes, FSP FAS 157-4 does not require disclosures for earlier periods presented at initial adoption. For periods after initial adoption, comparative disclosures are required only for those periods ending after initial adoption. The adoption of FSP FAS 157-4 is not expected to have a material effect on the Company's consolidated financial statements.

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, "Recognition and Presentation of Other-Than-Temporary Impairments", ("FSP FAS 115-2 and FAS 124-2"). FSP FAS 115-2 and FAS 124-2 applies to debt securities classified as available-for-sale and held-to-maturity that are subject to other-than-temporary impairment guidance. FSP FAS 115-2 and FAS 124-2 modifies the existing requirement whereby an investor must assert that it has both the intent and ability to hold a security for a period of time sufficient to allow for an anticipated recovery in its fair value to its amortized cost basis in order to avoid recognizing an other-than-temporary impairment. Instead, an entity must assess whether (a) it has the intent to sell the debt security, or (b) it more likely than not will be required to sell the debt security before its anticipated recovery. If either of these conditions is met, the entity must recognize an other-than-temporary impairment. In assessing whether the entire amortized cost basis of the security will be recovered, an entity shall compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security and, if the expected cash flows is less than the amortized cost basis, a credit loss exists, and an other-than-temporary impairment shall be considered to have occurred. The guidance provides numerous factors to be considered when estimating whether a credit loss exists and the period over which the debt security is expected to recover. If an entity intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis, the entire difference between the security's amortized cost basis and its fair value at the balance sheet date shall be recognized in earnings. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis, the other-than-temporary impairment shall be separated into (a) the amount representing the credit loss, and (b) the amount related to all other factors. The amount related to the credit loss shall be recognized in earnings and the amount related to all other factors shall be recognized in other comprehensive income, net of applicable income taxes. The new amortized cost basis of the investment shall be the previous amortized cost basis less the other-than-temporary impairment recognized in earnings. FSP FAS 115-2 and FAS 124-2 also expands and increases the frequency of existing disclosures about other-than-temporary impairments for both debt and equity securities and requires new disclosures pertaining to the significant inputs used in determining a credit loss, as well as a rollforward of that amount each period. FSP FAS 115-2 and FAS 124-2 is effective for interim and annual reporting periods ending after June 15, 2009 and shall be applied to existing and new investments held by an entity as of the beginning of the interim period in which it is adopted. For debt securities held at the beginning of the interim period for which an other-than-temporary impairment was previously recognized, if an entity does not intend to sell and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis, the entity shall recognize the cumulative effect of initially applying this FSP as an adjustment to the opening balance of retained earnings with a corresponding adjustment to accumulated other comprehensive income, net of tax. The amortized cost basis of the security shall be adjusted by the cumulative-effect adjustment before taxes. As of March 31, 2009, the Company has previously recognized $18,123,000 of other-than-temporary impairments on certain fixed maturities available-for-sale in the Consolidated Statement of Operations. The Company is currently analyzing these investments to determine (a) the portion of the previously recorded losses representing the credit loss, and (b) the amount of a cumulative-effect adjustment to the opening balance of retained earnings and corresponding adjustment to accumulate other comprehensive income representing the amount of previously recorded losses related to all other factors.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1,"Interim Disclosures about Fair Value of Financial Instruments", ("FSP FAS 107-1 and APB 28-1"). FSP FAS 107-1 and APB 28-1 require public companies to include disclosures about the fair value of its financial instruments whenever it issues summarized financial information for interim reporting periods. Such disclosures should include the fair

9

value of all financial instruments for which it is practicable, together with the related carrying values, and disclosure of the methods and significant assumptions used to estimate the fair value and changes in the methods and significant assumptions, if any, during the period. FSP FAS 107-1 and APB 28-1 are effective for interim reporting periods ending after June 15, 2009. Disclosures are not required for earlier periods presented at initial adoption. In periods after initial adoption, comparative disclosures are required only for periods ending after initial adoption. The adoption of FSP FAS 107-1 and APB 28-1 is not expected to have a material effect on the Company's consolidated financial statements.

Recently Adopted Accounting Standards

In April 2009, the FASB issued FSP FAS 141(R)-1, "Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies" ("FSP FAS 141(R)-1"). FSP FAS 141(R)-1 amends and clarifies Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations", to address application issues on initial recognition and measurement, subsequent measurement and accounting, and disclosures of assets and liabilities arising from contingencies in a business combination. FSP FAS 141(R)-1 is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The adoption of FSP FAS 141(R)-1, effective January 1, 2009, did not have a material effect on the Company's consolidated financial statements.

In November 2008, the FASB issued EITF Issue No. 08-6, "Equity Method Investment Accounting” (“EITF No. 08-6”).  EITF No. 08-6 requires that the cost basis of an equity method investment be determined by using a cost-accumulation model, which would continue the practice of including transaction costs in the cost of the investment and would exclude the value of contingent consideration.  Equity method investments are subject to other-than-temporary impairment analysis. However, an equity investor shall not separately test an investee’s underlying assets for impairment.  EITF No. 08-6 also requires an equity investor to account for a share issuance by an investee as if the investor had sold a proportionate share if its investment.  Any gain or loss to the investor resulting from an investee’s share issuance shall be recognized in earnings.  The adoption of EITF No. 08-6, effective January 1, 2009, did not have a material effect on the Company’s consolidated financial statements.

In June 2008, the FASB issued FSP EITF No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP EITF No. 03-6-1”).  FSP EITF No. 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and therefore need to be included in the earnings allocation in calculating earnings per share under the two-class method described in SFAS No. 128, “Earnings per Share”. FSP EITF No. 03-6-1 requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividend or dividend equivalents as a separate class of securities in calculating earnings per share.  The adoption of FSP EITF No. 03-6-1, effective January 1, 2009, did not have a material effect on the Company’s consolidated financial statements.

 In April 2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of Intangible Assets.” (“FSP FAS 142-3”).  FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets.”  FSP FAS 142-3 applies prospectively to intangible assets that are acquired, individually or with a group of other assets, after the effective date in either a business combination or asset acquisition.  The adoption of FSP FAS 142-3, effective January 1, 2009, did not have a material effect on the Company’s consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133” (“SFAS 161”).  SFAS 161 expands the current disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under FASB Statement 133 and its

10

related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows.  In addition, SFAS 161 requires disclosure of fair values of derivative instruments, and their gains and losses, in a tabular format as well as cross-referencing within the footnotes to allow users of financial statements to locate important information about derivative instruments.  The adoption of SFAS 161, effective January 1, 2009, did not have a material effect on the Company’s consolidated financial statements.

In February 2008, the FASB issued FSP SFAS No. 140-3, “Accounting for Transfers of Financial Assets and Repurchase Financing Transactions” (“FSP SFAS 140-3”). The objective of FSP SFAS 140-3 is to provide guidance on accounting for a transfer of a financial asset and a repurchase financing.  FSP SFAS 140-3 presumes that an initial transfer of a financial asset and a repurchase financing are considered part of the same arrangement (linked transaction) under SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” ("SFAS 140"). However, if certain criteria are met, the initial transfer and repurchase financing shall not be evaluated as a linked transaction and shall be evaluated separately under SFAS 140.  The adoption of FSP SFAS 140-3, effective January 1, 2009, did not have a material effect on the Company’s consolidated financial statements.

In November 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141(R)”) and SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements”, an amendment of ARB No. 51 (“SFAS 160”). These standards aim to improve, simplify, and converge internationally the accounting for business combinations and the reporting of non-controlling interests in consolidated financial statements. SFAS 141(R) changes how business acquisitions are accounted for and will impact financial statements both on the acquisition date and in subsequent periods. SFAS 141(R) will be applied prospectively. SFAS 160 changed the accounting and reporting for minority interests, which have been re-characterized as non-controlling interests and classified as a component of equity.  Management has applied the presentation and disclosure requirements retroactively for existing minority interests in accordance with SFAS 160. All other requirements of SFAS 160 will be applied prospectively. The adoption of SFAS 141(R) and SFAS 160, effective January 1, 2009, did not have a material effect on the Company’s consolidated financial statements.

(D)

 Reclassifications

Certain amounts in prior years' Condensed Consolidated Financial Statements and Notes thereto have been reclassified to conform to the 2009 presentation, primarily relating to the adoption of SFAS 160.

11

Note 2.

 

American Independence Corp.

AMIC is an insurance holding company engaged in the insurance and reinsurance business. AMIC does business with the Insurance Group, including reinsurance treaties under which, in 2008, Standard Security Life and Madison National Life ceded to Independence American an average of 23% of their medical stop-loss business, 10% of certain of their fully insured health business and 20% of their New York Statutory Disability business. IHC owned 49.7% of AMIC's outstanding common stock at March 31, 2009 and December 31, 2008 which was purchased in various transactions from 2002 through 2008. IHC accounts for its investment in AMIC under the equity method. At March 31, 2009 and December 31, 2008, IHC's investment in AMIC had a total carrying value of $45,998,000 and $45,439,000 respectively, including goodwill of $4,222,000. This goodwill represents the excess of IHC's cost over the underlying equity in AMIC's net assets at the respective purchase dates. At March 31, 2009 and December 31, 2008, based on the closing market price of AMIC's common stock, the fair value of the AMIC shares owned by IHC was approximately $15,007,000 and $11,541,000, respectively.

For the quarters ended March 31, 2009 and 2008, IHC recorded $693,000 and $401,000, respectively, of equity income from its investment in AMIC, representing IHC's proportionate share of income based on its ownership interests during those periods. AMIC paid no dividends on its common stock in the three-month periods ended March 31, 2009 and 2008.

IHC and its subsidiaries earned $235,000 and $218,000 for the quarters ended March 31, 2009 and 2008, respectively, from service agreements with AMIC and its subsidiaries. These are reimbursements to IHC and its subsidiaries, at agreed upon rates including an overhead factor, for management services provided by IHC and its subsidiaries, including accounting, legal, compliance, underwriting and claims. The Company ceded premiums to AMIC of $11,894,000 and $15,690,000 for the three months ended March 31, 2009 and 2008, respectively.  Benefits to policyholders on business ceded to AMIC were $6,686,000 in the first quarter of 2009 and $10,625,000 in the first quarter of 2008.  Additionally, AMIC subsidiaries market, underwrite and provide administrative services (including premium collection, medical management and claims adjudication) for a substantial portion of the Medical Stop-Loss business written by the insurance subsidiaries of IHC. IHC recorded gross premiums of $16,782,000 and $20,580,000 in the first quarters of 2009 and 2008, respectively, and net commission expense of $742,000 and $951,000 in the first quarters of 2009 and 2008, respectively, for these services. The Company also contracts for several types of insurance coverage (e.g. directors and officers and professional liability converge) jointly with AMIC. The cost of this coverage is allocated between the Company and AMIC according to the type of risk, and IHC’s portion is recorded in Selling, General and Administrative Expenses.

Included in the Company’s Condensed Consolidated Balance Sheets at March 31, 2009 and December 31, 2008, respectively, are the following balances arising from transactions in the normal course of business with AMIC and its subsidiaries: Due from reinsurers $16,322,000 and $18,394,000; Other assets $3,292,000 and $3,009,000; and Other liabilities of $222,000 and $404,000.

12

Note 3.

Income Per Common Share

Income per share calculations are based on income from continuing operations attributable to the common shareholders of IHC for the three months ended March 31, 2009 and 2008, as shown below, and are net of $7,000 and $68,000, respectively, of losses attributable to non-controlling interests in subsidiaries (in thousands):

			Three Months Ended
			March 31,
			2009		2008
Income from continuing operations attributable to IHC
	shareholders, net of tax	$	3,356	$	3,072
Loss from discontinued operations, net of tax			(216)		-
Loss on disposition of discontinued operations			(21)		-
Net income attributable to IHC shareholders		$	3,119	$	3,072

Included in the diluted income per share calculations, for the three months ended March 31, 2009 and 2008, are 3,000 and 53,000 shares, respectively, from the assumed exercise of options and vesting of restricted stock using the treasury stock method.

Note  4.

Investments

The cost (amortized cost with respect to certain fixed maturities), gross unrealized gains, gross unrealized losses and fair value of investment securities are as follows:

				March  2009
						GROSS		GROSS
				AMORTIZED		UNREALIZED		UNREALIZED		FAIR
				COST		GAINS		LOSSES		VALUE
				(In thousands)
FIXED MATURITIES
	AVAILABLE-FOR-SALE:
	Corporate securities		$	201,979	$	17	$	(31,231)	$	170,765
	CMOs (1)			116,241		1,199		(14,396)		103,044
	U.S. Government obligations			6,382		135		-		6,517
	Agency MBS (2)			71,836		357		-		72,193
	GSEs (3)			6,507		-		(147)		6,360
	States and political subdivisions			305,207		2,069		(17,224)		290,052
		Total fixed maturities	$	708,152	$	3,777	$	(62,998)	$	648,931
EQUITY SECURITIES
	AVAILABLE-FOR-SALE:
	Preferred stocks		$	68,267	$	171	$	(23,482)	$	44,956
		Total equity securities	$	68,267	$	171	$	(23,482)	$	44,956

13

				December 31, 2008
						GROSS		GROSS
				AMORTIZED		UNREALIZED		UNREALIZED		FAIR
				COST		GAINS		LOSSES		VALUE
				(In thousands)
FIXED MATURITIES
	AVAILABLE-FOR-SALE:
	Corporate securities		$	212,620	$	895	$	(32,876)	$	180,639
	CMOs (1)			134,068		711		(13,466)		121,313
	U.S. Government obligations			6,402		199		-		6,601
	Agency MBS (2)			44,733		515		-		45,248
	GSEs (3)			9,815		-		(242)		9,573
	States and political subdivisions			283,237		3		(38,127)		245,113
		Total fixed maturities	$	690,875	$	2,323	$	(84,711)	$	608,487
EQUITY SECURITIES
	AVAILABLE-FOR-SALE:
	Common stocks		$		$		$		$
	Preferred stocks			68,538		-		(14,531)		54,007
		Total equity securities	$	68,538	$	-	$	(14,531)	$	54,007

(1)

Collateralized mortgage obligations (“CMOs”).

(2)

Mortgage-backed securities (“MBS”).

(3)

Government-sponsored enterprises (“GSEs”) which are the Federal Home Loan Mortgage Corporation, Federal National Mortgage Association and Federal Home Loan Banks. GSEs are private enterprises established and chartered by the Federal Government.

Government-sponsored enterprise securities consist of Federal National Mortgage Association mortgage-backed securities and other fixed maturity securities issued by the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association.

The amortized cost and fair value of fixed maturities at March 31, 2009, by contractual maturity, are shown 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. The average life of mortgage-backed securities is affected by prepayments on the underlying loans and, therefore, is materially shorter than the original stated maturity.

									% OF
				AMORTIZED			FAIR		TOTAL FAIR
				COST			VALUE		VALUE
				(In thousands)
Due in one year or less			$	8,600		$	8,200		1.3%
Due after one year through five years				36,389			32,365		5.0%
Due after five years through ten years				80,915			71,879		11.1%
Due after ten years				387,664			354,891		54.7%
				513,568			467,335		72.1%
CMO and MBS
	15 year			117,504			104,264		16.0%
	20 year			1,045			1,016		.1%
	30 year			76,035			76,316		11.8%
			$	708,152		$	648,931		100.0%

14

The following tables summarize, for all securities in an unrealized loss position at March 31, 2009 and December 31, 2008, respectively, the aggregate fair value and gross unrealized loss by length of time those securities had continuously been in an unrealized loss position:

				Less than 12 Months						12 Months or Longer						Total
				Fair			Unrealized			Fair			Unrealized			Fair			Unrealized
March 31, 2009				Value			Losses			Value			Losses			Value			Losses
				(In thousands)
Corporate securities			$	41,233		$	4,328		$	127,733		$	26,903		$	168,966	$	31,231
CMOs				17,132			1,575			38,959			12,821			56,091		14,396
GSEs				4,123			76			2,237			71			6,360		147
States and political
		subdivisions		128,593			7,791			82,000			9,433			210,593		17,224
Total fixed maturities				191,081			13,770			250,929			49,228			442,010		62,998
Preferred stocks-perpetual				16,979			12,976			11,375			7,572			28,354		20,548
Preferred stocks- with
		maturities		6,044			1,741			7,409			1,193			13,453		2,934
Total temporarily
	impaired securities		$	214,104		$	28,487		$	269,713		$	57,993		$	483,817	$	86,480

				Less than 12 Months						12 Months or Longer						Total
				Fair			Unrealized			Fair			Unrealized			Fair		Unrealized
December 31, 2008				Value			Losses			Value			Losses			Value		Losses
				(In thousands)
Corporate securities			$	44,316		$	6,681		$	117,035		$	26,195		$	161,351	$	32,876
CMOs				12,566			2,853			38,962			10,613			51,528		13,466
GSEs				4,311			119			5,262			123			9,573		242
States and political
		subdivisions		218,106			36,330			11,911			1,797			230,017		38,127
Total fixed maturities				279,299			45,983			173,170			38,728			452,469		84,711
Preferred stocks-perpetual				33,231			12,003			4,223			486			37,454		12,489
Preferred stocks- with
		maturities		8,616			1,377			7,937			665			16,553		2,042
Total temporarily
	impaired securities		$	321,146		$	59,363		$	185,330		$	39,879		$	506,476	$	99,242

Substantially all of the unrealized losses at March 31, 2009 and December 31, 2008 relate to investment grade securities and are attributable to changes in market interest rates and general disruptions in the credit market subsequent to purchase.  The unrealized loss on corporate securities and state and political subdivisions is due to wider spreads. Spreads have widened as investors shifted funds to US Treasuries in response to the current market turmoil. At March 31, 2009, the Company had $25.4 million invested in whole loan CMOs backed by Alt-A mortgages. Of this amount, 40.1% were in CMOs that originated in 2005 or earlier and 59.9% were in CMOs that originated in 2006. The Company’s mortgage security portfolio has no direct exposure to sub-prime mortgages. The decline in market value for the equity securities was primarily due to wider spreads from preferred stocks issued by financial institutions following the disruption in credit markets. Some of these financial institutions have exposure to sub-prime mortgages.

At March 31, 2009 and December 31, 2008, a total of 108 and 110 securities, respectively, were in a continuous unrealized loss position for less than 12 months and 133 and 64 securities, respectively, had continuous unrealized losses for 12 months or longer. The Company has only one non-performing fixed maturity investment at March 31, 2009 with a cost of $650,000, or 0.1% of the total carrying value of fixed maturities.

15

The Company reviews its investment securities regularly and determines whether other-than- temporary impairments have occurred. If a decline in fair value is judged by management to be other-than-temporary, a loss is recognized by a charge to net realized investment gains in the Condensed Consolidated Statements of Operations, establishing a new cost basis for the security. For the purpose of other-than-temporary impairment evaluations, preferred stocks are treated in a manner similar to debt securities.  The factors considered by management in its regular review include, but are not limited to:  the length of time and extent to which the fair value has been less than cost; the financial condition and near-term prospects of the issuer; adverse changes in ratings announced by one or more rating agencies; subordinated credit support; whether the issuer of a debt security has remained current on principal and interest payments; current expected cash flows; whether the decline in fair value appears to be issuer specific or, alternatively, a reflection of general market or industry conditions (including, in the case of fixed maturities, the effect of changes in market interest rates); and the Company's intent and ability to hold the security for a period of time sufficient to allow for a recovery in fair value. For structured securities, such as mortgage-backed securities, an impairment loss is recognized when there has been a decrease in expected cash flows and/or a decline in the security’s fair value below cost. Based on management’s review of the portfolio, which considered these factors, the Company recorded losses of $271,000 and $81,000 for other-than-temporary impairments for the three months ended March 31, 2009 and 2008, respectively. Further deterioration in credit quality of the companies backing the securities, further deterioration in the condition of the financial services industry, a continuation of the current imbalance in liquidity that exist in the marketplace, a continuation or worsening of the current economic recession, or additional declines in real estate values may further affect the fair value of these securities and increase the potential that certain unrealized losses be designated as other-than-temporary in future periods and the Company may incur additional write-downs.

There was no activity in the Company's trading accounts during the three months ended March 31, 2008 and, as of December 31, 2008, the Company no longer has any such trading accounts.

Note 5.

Derivative Instruments

In connection with its currently outstanding $10,000,000 line of credit, a subsidiary of IHC entered into an interest rate swap with the commercial bank lender, for a notional amount equal to the debt principal amount, under which the Company receives a variable rate equal to the rate on the debt and pays a fixed rate (6.65%) in order to manage the risk in overall changes in cash flows attributable to forecasted interest payments. There was no hedge ineffectiveness on this interest rate swap which is accounted for as a cash flow hedge. At March 31, 2009 and December 31, 2008, the fair value of the interest rate swap was $164,000 and $260,000, respectively, which is included in other liabilities on the accompanying Condensed Consolidated Balance Sheets. See Note 6 for further discussion on the valuation techniques utilized to determine the fair value of the interest rate swap. For the three months ended March 31, 2009 and 2008, the Company recorded $57,000 and $(197,000) respectively, of gains (losses) on the effective portion of the interest rate swap in accumulated other comprehensive loss on the accompanying Condensed Consolidated Balance Sheets, net of related taxes (benefits) of $38,000 and $(130,000), respectively.

At March 31, 2009 and December 31, 2008, the Company held no other derivative instruments and, for the three months ended March 31, 2009, recorded no gains or losses related to derivative instruments in the accompanying Condensed Consolidated Statements of Operations. For the three months ended March 31, 2008, the Company recorded a loss of $245,000 in net realized investment gains (losses) representing the net change in fair value of a stock put on IHC shares of common stock issued in connection with the acquisition of IAC in 2006. All of the shares subject to the IHC stock put were subsequently exercised during 2008.

16

Note 6.

Fair Value

For all financial and non-financial instruments accounted for at fair value on a recurring basis, the Company utilizes valuation techniques based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market expectations. These two types of inputs create the following fair value hierarchy:

Level 1 - Quoted prices for identical instruments in active markets.

Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 - Instruments where significant value drivers are unobservable.

When available, we use quoted market prices to determine fair value and classify such items in Level 1. In some cases, we use quoted market prices for similar instruments in active markets and/or model-derived valuations where inputs are observable in active markets and classify such items in Level 2.  When there are limited or inactive trading markets, we use industry-standard pricing methodologies, including discounted cash flow models, whose inputs are based on management’s assumptions and availably market information. These items are classified in level 3. Further, we retain independent pricing vendors to assist in valuing certain instruments.

  

The following section describes the valuation methodologies we use to measure different financial instruments at fair value.

  

Investments in fixed maturities and equity securities:

  

Investments included in Level 1 are equities with quoted market prices. Level 2 is primarily comprised of our portfolio of government securities, agency mortgage-backed securities, corporate fixed income securities, collateralized mortgage obligations, municipals, GSEs and certain preferred stocks that were priced with observable market inputs. Level 3 securities consist of CMO securities, primarily Alt-A mortgages.

    

Other:

  

The financial liability included in Level 2 consists of an interest rate swap on IHC debt. It is valued using market observable inputs including market price, interest rate, and volatility within a Black Scholes model.

  

  

17

The following tables present our financial assets and liabilities measured at fair value on a recurring basis, at March 31, 2009 and December 31, 2008, respectively (in thousands):

March 31, 2009
				Level 1			Level 2			Level 3		Total
FINANCIAL ASSETS:
Investment securities held for sale:
	Fixed maturities		$	-		$	617,275		$	31,656	$	648,931
	Equity securities			42,844			2,112			-		44,956
		Total	$	42,844		$	619,387		$	31,656	$	693,887
FINANCIAL LIABILITIES:
	Interest rate swap		$	-		$	164		$	-	$	164

December 31, 2008
			Level 1			Level 2			Level 3		Total
FINANCIAL ASSETS:
Investment securities held for sale:
	Fixed maturities	$	-		$	583,155		$	25,332	$	608,487
	Equity securities		51,851			2,156			-		54,007
Total		$	51,851		$	585,311		$	25,332	$	662,494
FINANCIAL LIABILITIES:
	Interest rate swap	$	-		$	260		$	-	$	260

18

Inputs for certain fixed maturity securities that were observable at December 31, 2008 were not observable at March 31, 2009 as a result of limited or inactive markets. These securities were transferred out of Level 2 and into the Level 3 category during 2009. No securities were sold or transferred out of the Level 3 category in 2009. Changes in the carrying value of Level 3 financial assets and liabilities for the three months ended March 31, 2009 are summarized as follows (in thousands):

				Fixed
				Maturities
Balance at beginning of year			$	25,332
Transfers into Level 3				7,532
Net realized investment gains (losses) included in earnings:
	Net realized investment gains from repayments of fixed maturities			-
	Other-than-temporary impairments			-
				-
Net unrealized gains (losses) included in accumulated other comprehensive loss:
	Net unrealized losses			(783)
	Reclassification of unrealized losses deemed to be other-than-temporary to
		net realized losses included in earnings		-
				(783)
Repayments of fixed maturities				(425)
Balance at end of period			$	31,656

Note 7.

Goodwill and Other Intangible Assets

The change in the carrying amount of goodwill and other intangible assets (included in other assets in the Condensed Consolidated Balance Sheets) for the first quarter of 2009 is as follows (in thousands):

				Other Intangible
		Goodwill		Assets
Balance at December 31, 2008	$	52,331		$	15,308
Acquire Wisconsin Underwriting Associates, LLC		750			-
Capitalized software development		-			121
Amortization expense		-			(644)
Balance at March 31, 2009	$	53,081		$	14,785

In January 2009, Wisconsin Underwriting Associates, Inc., a newly formed wholly owned subsidiary of IHC Health Holdings Corp., acquired the assets of Wisconsin Underwriting Associates, LLC ("WUA") in exchange for $300,000, $100,000 of contingent consideration and 49% of its capital stock. The addition of $750,000 of goodwill above represents the excess fair value of the consideration transferred over the total fair value of the net assets of WUA acquired.

Note 8.

Discontinued Operations

The Company sold its credit life and disability segment by entering into a 100% coinsurance agreement with an unaffiliated insurer effective December 31, 2007. Unearned premium reserves of this