UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C.WASHINGTON, D.C. 20549

FORM 10-Q

Commission File Number:0-10306

INDEPENDENCE HOLDING COMPANY

(Exact name of registrant as specified in its charter)

96 CUMMINGS POINT ROAD, STAMFORD, CONNECTICUT              06902

(Address of principal executive offices)                                           (Zip Code)

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]X. No [ ] _

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.)Act). Yes [ ] No [X]__. No. X_.

Indicate the number of shares

7,799,221 SHARES OF COMMON STOCK, $1.00 PAR VALUE

Common stock outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

May 12, 2004

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

INDEX

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)data)

See accompanying notesNotes to consolidated financial statements.Consolidated Financial Statements.

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

See accompanying notesNotes to consolidated financial statements.Consolidated Financial Statements.

INDEPENDENCEINDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (in(In thousands)

NINETHREE MONTHS ENDED SEPTEMBER 30, 2003 2002MARCH 31,

See accompanying notesNotes to consolidated financial statements.Consolidated Financial Statements.

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTENote 1. SIGNIFICANT ACCOUNTING POLICIES AND PRACTICESSignificant Accounting Policies and Practices

(A) Business and Organization

Independence Holding Company ("IHC") is a holding company principally engaged in the life and health insurance business through its wholly-owned subsidiaries, Standard Security Life Insurance Company of New York ("Standard Life") and Madison National Life Insurance Company, Inc. ("Madison Life") and their subsidiaries (collectively, the "Insurance Group") and a 39% equity interest in the common stock of American Independence Corp. ("AMIC"). IHC and its subsidiaries (including the Insurance Group) are collectively referred to as the "Company."

The Company also owns 31.7% of American Independence Corp. ("AMIC"). AMIC is an insurance holding company that owns three managing general underwriters that produce business for, and a reinsurer that assumes business from, Standard Life and Madison Life.

Geneve Corporation, a diversified financial holding company, and its affiliated entities (collectively, "Geneve") held approximately 59%58.6% of IHC's outstanding common stock at September 30, 2003.March 31, 2004.

The consolidated financial statements have been prepared in accordance with the requirements for quarterly reports on Form 10-Q. In the opinion of management, all adjustments (consisting only of normal recurring accruals) that are necessary for a fair presentation of the consolidated results of operations for the interim periods have been included. The consolidated results of operations for the three and nine months ended September 30, 2003March 31, 2004 are not necessarily indicative of the results to be anticipated for the entire year. The consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes included in IHC's Annual Report on Form 10-K for the year ended December 31, 2002.2003. Certain amounts in the prior year's consolidated financial statements and have been reclassified to conform to the 2003 presentation.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1. SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (Continued)

(C)(C) Stock-Based Compensation

The Company applies Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations in accounting for its stock option plan. Since stock options under the plan are issued with an exercise price equal to the stock's fair value on date of grant, no compensation cost has been recognized in the Consolidated Statements of Operations. The Company follows the disclosure provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation". In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - - Transition and Disclosure" ("SFAS 148"). SFAS 148 amends SFAS 123 to provide alternative methods of transition for a voluntary change from the intrinsic value method to the fair value based method of accounting for stock-based compensation. At September 30, 2003, the Company continued to apply the intrinsic value method. SFAS 148 also requires more prominent disclosures in both annual and interim financial statements about the method used and its effect on reported results., as amended.

INDEPENDENCEINDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTENote 1. SIGNIFICANT ACCOUNTING POLICIES AND PRACTICESSignificant Accounting Policies and Practices (Continued)

(C) Stock-Based Compensation (Continued)

SFAS No. 123 establishes a fair value based method of accounting for stock-based compensation plans as an alternative to APB Opinion No. 25. Under SFAS No. 123, the compensation cost for options is measured at the grant date based on the value of the award, and such cost is recognized as an expense over the vesting period of the options. Compensation cost for stock appreciation rights ("SARs") is recognized over the service period of the award under both APB Opinion No. 25 and SFAS No. 123. Had the Company applied SFAS No. 123 in accounting for stock-based compensation awards, net income and net income per share for the three months ended March 31, 2004 and nine months ended September 30, 2003 and 2002 would have been as follows:

NOTENote 2. INCOME PER COMMON SHAREAmerican Independence Corp.

IncludedAMIC is an insurance holding company engaged in the diluted earnings per share calculation are 182,000insurance and 235,000 sharesreinsurance business. AMIC does business with the Insurance Group, including reinsurance treaties under which Standard Life and Madison Life cede at least 15% of their medical stop-loss business.

At March 31, 2004, the Company owned 39% of AMIC's outstanding common stock, and accounted for its investment under the equity method of accounting. The carrying value of the Company's investment in AMIC including goodwill of $1,973,000 was $30,195,000 at March 31, 2004 and its equity income was $621,000 for the three months ended September 30,March 31, 2004. At March 31, 2003, and 2002, respectively, and 151,000 and 227,000 sharesthe Company owned 19.9% of AMIC's outstanding common stock. The Company's equity income was $401,000 for the ninethree months ended September 30, 2003 and 2002, respectively, from the assumed exercise of options using the treasury stock method. Net income does not change as a result of the assumed dilution of options.March 31, 2003.

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 3. INCOME TAXESNote 2. American Independence Corp. (Continued)

The provision for income taxes shown in the consolidated statements of operations was computed based on the Company's estimate of the effective tax rate expected to be applicableCompany earned $77,000 and $69,000 for the current year.

The income tax benefit for the ninethree months ended September 30,March 31, 2004 and 2003, allocated to stockholders' equity for the decrease in the net unrealized gains on investment securities was $691,000. The related deferred tax liability decreased to $282,000 at September 30, 2003respectively, from $973,000 at December 31,its service agreement with AMIC dated November 15, 2002.

NOTENote 3. Income Per Common Share

Included in the diluted earnings per share calculation for 2004 and 2003, respectively, are 230,000 and 140,000 shares from the assumed exercise of options using the treasury stock method. Net income does not change as a result of the assumed dilution of options.

Note 4. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATIONIncome Taxes

The provision for income taxes shown in the consolidated statements of operations was computed based on the Company's estimate of the effective tax rates expected to be applicable for the current year.

The deferred income tax provision for the three months ended March 31, 2004 allocated to stockholders' equity for the increase in the net unrealized gains on investment securities was $3,154,000.

Note 5. Supplemental Disclosures of Cash Flow Information

Cash payments for income taxes were $5,880,000$1,500,000 and $3,954,000$1,852,000 for the ninethree months ended September 30,March 31, 2004 and 2003, and 2002, respectively. Cash payments for interest were $371,000$266,000 and $336,000 for the nine months ended September 30, 2003 and 2002, respectively.

NOTE 5. COMPREHENSIVE INCOME

The components of comprehensive income include net income or loss reported in the consolidated statements of operations and unrealized gains and losses reported directly in stockholders' equity. The latter amounts consist of unrealized (losses) gains on available-for-sale securities, net of taxes and deferred acquisition costs. Comprehensive income$89,000 for the three months ended March 31, 2004 and nine months ended September 30, 2003, and 2002 is as follows:respectively.

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 6. Comprehensive Income

The components of comprehensive income include (i) net income or loss reported in the Consolidated Statements of Operations, and (ii) after-tax net unrealized gains and losses on securities available for sale (net of deferred acquisition costs) and cash flow hedges which are reported directly in stockholders' equity. Comprehensive income for the three months ended March 31, 2004 and 2003 is as follows:

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 6. SEGMENT REPORTINGNote 7. Segment Reporting

The Insurance Group principally engages in the life and health insurance business. Interest expense, taxes, and general expenses associated with parent company activities are included in Corporate. Information by business segment for the three months ended March 31, 2004 and nine months ended September 30, 2003 and 2002 is as follows:presented below:

NOTE 7. RECENT ACCOUNTING PRONOUNCEMENTS

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS No. 150"), which requires an issuer of mandatorily redeemable financial instruments to classify such instruments as a liability and to measure such liability at its present value, using the rate implicit at the inception of the contract. In addition, all future dividends paid to holders of those instruments are

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 7. RECENT ACCOUNTING PRONOUNCEMENTS (Continued)

to be reflected as interest cost. As originally issued, SFAS No. 150 was effective for all financial instruments entered into or modified after May 31, 2003, and otherwise was effective at the beginning of the first interim period beginning after June 15, 2003 for financial instruments that were in existence prior to May 31, 2003. However, the effective date of the statement's provisions related to the classification and measurement of certain mandatorily redeemable non-controlling interests (such as a consolidated subsidiary's trust preferred securities) has been deferred indefinitely by the FASB, pending further Board action. Upon adoption of SFAS No. 150, transition is achieved by reporting the difference, (if any) between the measurement of the liability upon adoption and the previous carrying value as the cumulative effect of a change in accounting principle. We do not expect SFAS No. 150 will have a material effect on the Company's consolidated financial statements, as the trust pref erred securities described in Note 9 have been reported as liabilities from their issuance date, which is in accordance with the present requirements of SFAS No. 150.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS No. 149"). This statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under Statement 133. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The provisions of SFAS No. 149 are to be applied prospectively. Provisions that relate to Statement 133 implementation issues that have been effective for fiscal quarters that began prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. The adoption of SFAS No. 149 did not have an impact on the Company's consolidated financial statements.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"), which addresses costs associated with an exit activity (including restructuring) or with disposal of long-lived assets. Those activities can include eliminating or reducing product lines, terminating employees and contracts, and relocating facilities and personnel. The provisions of SFAS 146 will not supersede the accounting requirements for costs to restructure operations acquired in a business combination. Under SFAS 146, companies are required to record a liability for a cost associated with an exit or disposal activity when that liability is incurred and can be measured at fair value. The new requirements are effective prospectively for exit and disposal activities initiated after December 31, 2002. The adoption of SFAS 146 effective as of January 1, 2003 did not affect the Company's consolidated financial statements.

In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). This interpretation requires that certain disclosures be made

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 7. RECENT ACCOUNTING PRONOUNCEMENTS (Continued)

by a guarantor in its financial statements about its obligations under guarantees, effective for financial statements for periods ending after December 15, 2002. FIN 45 also requires the recognition, at fair value, of a liability by a guarantor at the inception of certain guarantees issued r modified after December 31, 2002. The adoption of FIN 45 did not have a material effect on the Company's consolidated financial statements.

In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). This interpretation provides guidance on the identification of entities controlled through means other than voting rights. FIN 46 specifies how a business enterprise should evaluate its interests in a variable interest entity to determine whether to consolidate that entity. A variable interest entity must be consolidated by its primary beneficiary if the entity does not effectively disperse risks among the parties involved. A public company with a variable interest in an entity created before February 1, 2003 must apply FIN 46 in the first interim or annual period ending after December 15, 2003. The adoption of FIN 46 is not expected to have a material effect on the Company's consolidated financial statements.

NOTE 8. AMERICAN INDEPENDENCE CORP.

At September 30, 2003, the Company owned 31.7% of AMIC (an insurance holding company that does business with the Insurance Group) and accounted for its investment under the equity method of accounting. The carrying value of the Company's investment in AMIC was $20,214,000 at September 30, 2003 and its equity income was $1,707,000 and $770,000 for the nine months and three months ended September 30, 2003, respectively. The Company has recorded $1,632,000 of goodwill related to its investment in AMIC. The Company completed a cash tender offer for an additional 1,000,000 shares (approximately 12%) of AMIC's outstanding common stock on April 22, 2003, at a cost of $9,000,000.

NOTE 9. TRUST PREFERRED SECURITIES

On March 27, 2003, Independence Preferred Trust I (the "Trust "), a statutory business trust and wholly-owned subsidiary of the Company, issued securities having an aggregate liquidation amount of $10,000,000 (the "Capital Securities") to institutional buyers in a pooled trust preferred issue. The Trust received gross proceeds of $10,000,000 from the issuance of the Capital Securities, which the Trust then loaned to the Company to use for general corporate purposes. Issuance costs included in other assets from the March 27, 2003 sale totaled approximately $300,000.

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 9. TRUST PREFERRED SECURITIES (Continued)

The distributions payable on the Capital Securities are cumulative and payable quarterly in arrears. The Company has the right, subject to events of default, to defer payments of interest on the Capital Securities for a period not to exceed 20 consecutive quarters, provided that no extension period may extend beyond the maturity date of April 7, 2033. The Company has no current intention to exercise its right to defer payments of interest on the Capital Securities.

The interest rate is fixed at 7.4% through a swap for the first five years and is set at approximately 400 basis points over the nine month LIBOR thereafter. The Capital Securities are mandatorily redeemable upon maturity on April 7, 2033. The Company has the right to redeem the Capital Securities on or after April 7, 2008. If the Capital Securities were redeemed on or after April 7, 2008, the redemption price would be 100% of the principal amount plus accrued and unpaid interest.

NOTE 10. DEBT

A subsidiary of IHC entered into a $12,500,000 line of credit on September 8, 2003. As to such subsidiary, the line of credit (i) contains restrictions with respect to, among other things, the creation of additional indebtedness, the consolidation or merger with or into certain corporations, the payment of dividends and the retirement of capital stock, (ii) requires the maintenance of minimum amounts of net worth, as defined, certain financial ratios, and certain investment restrictions, and (iii) is secured by the stock of Madison Life and the assets of such subsidiary of IHC. At September 30, 2003, there was $12,500,000 outstanding under the line of credit at an interest rate of 3.96% fixed, through a swap, for the term of the line of credit, which matures on September 1, 2006. The proceeds were used to pay off existing debt of $5,625,000 and for general corporate purposes.

NOTE 11. COMMITMENTS

On July 2, 2003, IHC became a limited partner investor in Dolphin Domestic Fund II, L.P. by making a commitment to invest $7,000,000 in the fund, of which $1,750,000 is currently funded and included in other investments in the consolidated balance sheet at September 30, 2003. The remaining $5,250,000 is subject to capital call by the General Partner with 7 days prior written notice.

Dolphin Domestic Fund II, L.P. generally is expected to make investments in companies where it can employ an "active investor" approach to investing. It will primarily seek to acquire significant positions in the debt and/or equity of publicly traded securities of North American Companies.

ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION

Overview

Independence HoldingThe Company a Delaware corporation ("IHC"), is a holding company principally engaged in the life and health insurance businessthroughout the United States, and is a leader in the medical stop-loss industry nationally. The Company operates through its wholly-owned subsidiaries, Standard Securitytwo insurance carriers (Standard Life Insurance Company of New York ("Standard Life") and Madison National Life Insurance Company, Inc. ("Madison Life"), and their subsidiaries (collectively, the "Insurance Group"). IHCLife) and its subsidiaries (including the Insurance Group) are collectively referred to as the "Company." Corporate consists of investment income from parent company liquidity,39% ownership interest expense on debt and general expenses associated with parent company activities.

The Company also owns 31.7% ofin American Independence Corp. ("AMIC"). AMIC is an insurance holding company that, which owns Independence American Insurance Company ("IAIC") and threemedical stop-loss managing general underwriters that produce(MGUs). Through its ownership of AMIC and other MGUs, IHC controls a majority of the production sources for this core product, while maintaining profitability through disciplined underwriting. IHC also writes group disability/DBL, group life and annuities, individual life and annuities, and credit life and disability.These lines of business are targeted to niche markets. The majority of group life and disability business is focused in the upper Midwest school and public entity markets. The DBL business is written i n New York State and administered through Standard Life's efficient web-based back office. Individual life and annuities are written under a nation-wide program for volunteer emergency service personnel. Our credit life and disability business is through a select group of producers.

While management considers a wide range of factors in its strategic planning and decision-making, underwriting profit is consistently emphasized as the primary goal in all decisions as to whether or not to increase our retention in a core line, expand into new products, acquire an entity or a block of business, or otherwise change our business model. Management's assessment of trends in healthcare and morbidity, with respect to medical stop-loss, disability and DBL; mortality rates with respect to life insurance; and changes in market conditions in general play a significant role in determining the rates charged, deductibles and attachment points quoted, and the percentage of business retained. In addition, the Company's acquisition group assesses opportunities to acquire blocks of business based on the amount of reserves transferred and current interest rates. Finally, management focuses on managing the costs of our operations, which contributed to the Company's consistent profitabili ty.

The following is a summary of key performance information after for the three months ended March 31, 2004:

• Net income of $5.5 million ($.69 per share, diluted); 24% increase from the three months ended March 31, 2003;

• Revenues of $52.4 million; 23% increase from the three months ended March 31, 2003;

• Assets of $970 million; 7.9% increase from December 31, 2003;

• Book value of $23.29 per share; 6.5% increase from December 31, 2003;

• Generated investment income of 6.1% in the first quarter of 2004; compared to 6.4% in 2003;

• Investment portfolio continues to have an average AA rating and remains highly liquid; and
• The Insurance Group's invested assets were predominantly composed of investment grade fixed-income securities, cash and cash equivalents, resale agreements and policy loans; only 4.3% is held directly in non-investment grade bonds and a reinsurernegligible amount in mortgage loans.

In recent years, we have experienced beneficial market changes in our core lines of business, however, insurance business may be cyclical. While the rates charged for medical stop-loss are increasing at a lesser rate than in recent years, increases in medical trend are also being held in check to a greater extent and deductibles and attachment points have increased, which reduces IHC's risk exposure. The Company remains optimistic that assumes business from, Standard Life and Madison Life.it will continue to produce profitable results while still growing its core businesses.

Geneve Corporation, a diversified financial holding company, and its affiliated entities (collectively, "Geneve") held approximately 59%Information pertaining to the Company's business segments is provided in Note 7 of IHC's outstanding common stock at September 30, 2003.Notes to Consolidated Financial Statements.

CRITICAL ACCOUNTING POLICIES

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States ("GAAP") and to general practices within the insurance industry. The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Management has identified the accounting policies described below as those that, due to the judgments, estimates and assumptions inherent in those policies, are critical to an understanding of the Company's consolidated financial statements and management's discussion and analysis.

Insurance Reserves

The Company maintains loss reserves to cover its estimated liability for unpaid losses and loss adjustment expenses, including legal and other fees as well as a portion of the Company's general expenses, for reported and unreported claims incurred as of the end of each accounting period.

The Company computes future insurance policy benefits primarily using the net premium method based on anticipated investment yield, mortality (morbidity on health insurance) and withdrawals. Liabilities for future insurance policy benefits on certain short-term medical coverages were computed using completion factors and expected loss ratios derived from actual historical premium and claim data. These methods are widely used in the life and health insurance industry to estimate the liabilities for future insurance policy benefits. Inherent in these calculations are management and actuarial judgments and estimates (within industry standards) which could significantly impact the ending reserve liabilities and, consequently, operating income.results. Actual results may differ, and these estimates are subject to interpretation and change. Management believes that the Company's method of estimating the liabilities for future insurance policy benefits provides aprovided reasonably accurate levellevels of reserves at September 30, 2003,March 31, 2004 and December 31, 2003; however, if the Company's reserves are insufficient to cover its actual losses and loss adjustment expenses, the Company would have to augment its reserves and incur a charge to its earnings, and these charges could be material.

Investments

The Company accounts for its investments in debt and equity securities under Statement of Financial Accounting Standards No. 115 ("SFAS 115"),Accounting for Certain Investments in Debt and Equity Securities. The Company has classified all of its investments as available-for-sale securities. These investments are carried at fair value based on quoted market prices with unrealized gains and losses reported in accumulated other comprehensive income (loss) in the accompanying consolidated balance sheets.Consolidated Balance Sheets. Net realized gains and losses on investments are computed using the specific identification method and are reported in the accompanying consolidated statementsConsolidated Statements of operations.Operations. Declines in value judged to be other-than-temporary are determined based on the specific identification method and are reported in the accompanying consolidated statementsConsolidated Statements of operationsOperations as net realized losses. The factors considered by management in determining when a decline is other than temporary include but ar ebu t 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; whether the issuer of a debt security has remained current on principal and interest payments; whether the decline in fair value appears to be issuer specific or, alternatively, a reflection of general market or industry conditions; 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 securities within the scope of Emerging Issues Task Force Issue 99-20, such as purchased interest-only securities, an impairment loss is recognized when there has been a decrease in expected cash flows combined with a decline in the security's fair value below cost.

Premium Revenue Recognition

Premiums from short-duration contracts are recognized as revenue over the period of the contracts in proportion to the amount of insurance protection provided. Premiums from long duration contracts are recognized as revenue when due from policyholders.

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2003MARCH 31, 2004 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2002MARCH 31, 2003

Net income was $5.5 million, or $.69 per share, diluted, for the three months ended March 31, 2004 compared to $4.4 million, or $.56 per share, diluted, for the three months ended March 31, 2003. The Company's pre-tax income was $6.8before taxes increased $1.5 million to $8.4 million for the quarterthree months ended September 30, 2003 compared to $6.7March 31, 2004 from $6.9 million for the same period of 2002.2003. The Company had a net realized lossand unrealized gains of $.2$.9 million in 2003 and a net realized gainthe first quarter of $.12004 compared to $.3 million in 2002.2003. Decisions to sell securities are based on cash flow needs, investment opportunities and economic and market conditions, thus creating fluctuations in gains (losses)and losses from periodyear to period. Excluding net realized and unrealized gains (losses), pre-tax incomeyear. Income tax expense increased 6.1%$.4 million to $7.0$2.9 million in the first quarter of 2004 from $2.5 million 2003 from $6.6 millionprimarily reflecting the increase in 2002. Net income was $4.5 million, or $.57 per share, diluted, for the quarter ended September 30, 2003 versus $4.3 million, or $.53 per share, diluted, in 2002.before taxes.

Insurance Group

The Insurance Group's pre-tax income decreased $.1increased $1.8 million to $7.7$9.1 million in 20032004 from $7.8$7.3 million in 2002.2003. These results include a net realized and unrealized loss of $.2 million in 2003 compared to net realized and unrealized gain of $.2 million in 2002. Pre-tax income excluding net realized and unrealized gains (losses) increased to $7.9of $.9 million in 20032004 compared to $7.6$.3 million in 2002.2003.

Premium revenues grew $1.0$6.4 million to $38.0$40.3 million in 20032004 from $37.0$33.9 million in 2002;2003; premium revenues increased $2.7$1.8 million at Madison Life and decreased $1.7$4.6 million at Standard Life. The change at Madison Life is comprised of: ana $1.3 million increase of $1.2 million in the credit line of business due to increased production; an increase of $1.8 million from the medical stop-loss line of business whichbusiness; an increase of $.4 million from the credit line of business; and a $.3 million increase from the LTD line, partially offset by a $.2 million decrease in premiums from all other lines. The change at Standard Life is comprised of the following increases: $4.9 million in medical stop-loss premiums due to higher volume in 2004; $.3 million in the HMO Reinsurance line; and $.2 million in the ordinary life line, partially offset by decreases of $.7 million in provider excess and $.1 million in all other lines.

Total net investment income of the Insurance Group increased $1.2 million primarily due to an increase in investable assets. The annualized return on investments of the Insurance Group was 5.9% in the first quarter of 2004 and 6.4% in the first quarter of 2003.

Equity income from AMIC increased $.2 million primarily due to the additional investment in AMIC.

Other income increased $1.0 million primarily due to a large surrender in the first quarter of 2003 from a modified coinsurance agreement that is in runoff status at Standard Life.

Insurance benefits, claims and reserves increased $6.9 million, reflecting increases of $2.6 million at Madison Life commenced writingand $4.3 million at Standard Life. Madison Life's increase resulted from: $.8 million from growth in the third quarter of 2002;medical stop-loss business; a $.6 million increase in the credit line due to an increase in claims; a $.4 million increase in the ordinary life line due to an increase in reserves; a $.7 million increase in interest credited; and a decrease of $.3$.1 million inincrease from all other lines. The change at Standard Life is comprised of: a decrease of $3.7 million in individual annuity, which was the result of a reinsurance assumption transaction that took place in 2002; a $.8 million decrease in provider excess due to reduced production and the sale of IAIC to AMIC in 2002, and a net decease of $.9 million in all other lines partially offset by an increase of $3.7 million in stop-loss due to increased writings.

Total net investment income decreased $.7 million for the third quarter. The annualized return on investments of the Insurance Group was 6.4% in the third quarter of 2002 and 6.5% in the third quarter of 2002.

Equity income increased $1.4 million due to the Company's investment in AMIC. The Company recorded equity income of $.8 million in the third quarter of 2003 versus an equity loss of $.6 million in the third quarter of 2002. The loss in the third quarter of 2003 relates to the restructuring of AMIC.

Other income decreased $1.0 million primarily due to the sale of IndependenceCare and RAS to AMIC in the fourth quarter of 2002.

Insurance benefits, claims and reserves decreased $2.7 million, reflecting an increase of $.6 million at Madison Life and a decrease of $3.3 million at Standard Life. Madison Life's increase resulted from: a $1.3 million increase in the stop-loss business due to the increase in premium partially offset by a $.6 million decrease from the group term life line of business due to a decrease in reserves and a $.1 million decrease from other lines. The decrease at Standard Life is comprised of: $3.8 million attributable to a reduction in the annuity line due to a reinsurance assumption transaction which took place in 2002; a decrease in reserves of $1.0 million from the provider excess line due to the reduction in premiums; and a $.3 million decrease in all other lines; partially offset by higher claims and reserves of $1.8$3.4 million from the medical stop-loss line due to greater volume; an increase in reserves of $.8 million attributable to the greater volume.ordinary life line of business that the Company assumed in November 2003; and a $.1 million increase in all other lines.

Amortization of deferred acquisition costs and general and administrative expenses for the Insurance Group increased $3.1 million resulting from: an increase of $2.8 million in Madison Life's expenses; and an increase in Standard Life's expenses of $1.0$.7 million, due to anincreases at Madison Life of $.1 million and at Standard Life of $.6 million. The increase inat Madison Life is due to greater general expenses, partially offset by lower deferred acquisition costs. The increase at Standard Life is due to greater commissions and general expenses taxes and fees; partially offset by a decrease of $.7 million due to the sale of IndependenceCarein taxes, licenses and RAS to AMIC.fees.

Corporate

The pre-tax loss for corporate decreased $.2increased $.3 million to $.9$.7 million for the quarter ended September 30, 2003March 31, 2004 from $1.1$.4 million for the quarter ended September 30, 2002.March 31, 2003. The lowerhigher loss is primarily attributable to an increaseincreases in investment income of $.3 million, and an increase in realized gains of $.2 million, offset partially by a $.2 million increase in expenses and a $.1 decrease in other income.

NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2002

The Company's pre-tax income was $21.4 million for the period ended September 30, 2003 compared to $19.2 million for the same period of 2002. The Company had net realized and unrealized gainsinterest expense of $.5 million in both 2003 and 2002. Decisions to sell securities are based on cash flow needs, investment opportunities and economic and market conditions, thus creating fluctuations in gains (losses) from period to period. Excluding net realized and unrealized gains, pre-tax income increased 12% to $20.9 million in 2003 from $18.7 million in 2002. Net income was $13.9 million, or $1.75 per share, diluted, for the nine months ended September 30, 2003 versus $12.3 million, or $1.54 per share, diluted, in 2002.

Insurance Group

The Insurance Group's pre-tax income increased $1.2 million to $23.7 million in 2003 from $22.5 million in 2002. These results include net realized and unrealized gains of $.4 million in 2003 compared to $.6 million in 2002. Pre-tax income excluding net realized and unrealized gains increased to $23.3 million in 2003 compared to $21.9 million in 2002.

Premium revenues grew $9.6 million to $109.0 million in 2003 from $99.4 million in 2002; premium revenues increased $8.3 million at Madison Life and $1.3 million at Standard Life. The change at Madison Life is comprised of: a $4.3 million increase in the credit line of business due to an increase in premium production; an increase of $4.5 million from the medical stop-loss line of business which commenced writing premium in the third quarter of 2002; and a decrease of $.5 million from all other lines. The change at Standard Life is comprised of an increase of $8.4 million in medical stop-loss premiums due to higher volume in 2003 partially offset by: a $3.9 million decrease in the individual annuity line due to a reinsurance assumption transaction which took place in 2002; a $1.9 million decrease in provider excess due to reduced production and the sale of IAIC to AMIC in 2002; a $.9 million decrease in DBL due to a decrease in production and a $.4 million net decrease from all other lines of business.

Total net investment income decreased $2.0 million due to an overall decrease in yield on assets and the reduction in investments for the purchase of AMIC. The annualized return on investments of the Insurance Group was 6.7% in the nine months of 2003 and 7.1% in the nine months of 2002.

Equity income increased $2.3 million due to the Company's investment in AMIC. The Company recorded equity income of $1.7 million in the nine months ended September 30, 2003 versus an equity loss of $.6 million in the September 30, 2002 period. The loss in 2002 relates to the restructuring of AMIC.

Other income decreased $5.0 million. a $3.8 million decrease resulted from the sale of RAS and IndependenceCare to AMIC in the fourth quarter of 2002. In addition, Standard Life experienced $1. 2 million of other expense in the nine months ended September 30, 2003 due to surrenders from a modified coinsurance agreement that is in runoff status.

Insurance benefits, claims and reserves decreased $1.1 million, reflecting an increase of $3.0 million at Madison Life and a decrease of $4.1 million at Standard Life. The increase at Madison Life is attributable to: a $3.0 million increase in the newly commenced stop-loss line; a $1.8 million increase in the credit business due to the growth in this line; partially offset by: a $.5 million decrease in GTL claims; a $.3 million decrease in LTD; a $.6 million decrease in interest credited on annuity policies due to the decrease in rates and a net $.4 million decrease in the remaining lines. The change at Standard Life is comprised of: lower claims of $3.8 million from the annuity line due to a reinsurance assumption transaction which took place in 2002; a decrease in reserves of $2.1 million in the provider excess line of business which is due to improved experience and sale of subsidiary; an $.8 million decrease from the ordinarily life line due to runoff; a $.8 million decrease from the POS line due to the termination of one large case; a $.5 million decrease in behavioral health due to a decrease in retention; a $.3 million decrease in the blanket accident line due to improved experience and a $.2 million decrease in all other lines; partially offset by an increase of $4.4 million from the stop-loss line due to increased premiums on the line.

Amortization of deferred acquisition costs and general and administrative expenses for the Insurance Group increased $4.6 million. Madison Life had a $ 5.0 million increase and Standard Life had an increaseexpense of $2.7$.3 million, partially offset by $ 3.1 million of lower expenses due to the sale of IndependenceCare and RAS to AMIC. Madison Life's expenses increased due primarily to the increaseincreases in premium volume. The increase at Standard Life is primarily due to higher commissions and taxes.

Corporate

The pre-tax loss for corporate decreased $1.0 million to $2.3 million for the nine months ended September 30, 2003 from $3.3 million for the nine months ended September 30, 2002. The lower loss is primarily attributable to: an increase innet investment income of $.9 million; a reduction in general expense of $.5$.4 million partially offset by an increase in interest expense of $.3 million and a reduction in other income of $.1 million.

LIQUIDITY

Insurance Group

The Insurance Group normally provides cash flow from: (i) operations; (ii) the receipt of scheduled principal payments on its portfolio of fixed income securities; and (iii) earnings on investments. Such cash flow is partially used to finance liabilities for insurance policy benefits. These liabilities represent long-term and short-term obligations which are calculated using certain assumed interest rates.

Asset Quality

The nature and quality of insurance company investments must comply with all applicable statutes and regulations, which have been promulgated primarily for the protection of policyholders. Of the aggregate carrying value of the Insurance Group's investment assets, approximately 89%89.2% was invested in investment grade fixed income securities, resale agreements, policy loans and cash and cash equivalents at September 30, 2003.March 31, 2004. Also at such date, approximately 98%95.1% of the Insurance Group's fixed maturities were investment grade. These investments carry less risk and, therefore, lower interest rates than other types of fixed maturity investments. At September 30, 2003,March 31, 2004, approximately 2%4.9% of the carrying value of fixed maturities was invested in diversified non-investment grade fixed income securities (investments in such securities have different risks than investment grade securities, including greater risk of loss upon default, and thinner trading markets). The Company has no mortgagedoes not have any mortgag e loans or real estate. The Company's had no non-performing fixed maturities at September 30, 2003.March 31, 2004.

Investment Impairments

The Company reviews its investments quarterlyregularly and monitors its investments continually for impairments. For the ninethree months ended September 30,March 31, 2004 and 2003, and 2002, the Company recorded a realized loss for other than temporary impairments of $5.2$.6 million and $2.8$3.8 million, respectively. The Company had no impairment charge for the three months ended September 30, 2003. In 2004 and 2003, $5.0$.6 million and $3.6 million, respectively, of the loss relates to an interest related impairment recognized on certain interest only securities ("IO Securities") resulting from expected prepayments of the mortgage obligations underlying the IO Securities due to falling interest rates. The Company has invested in IO Securities to help actively manage its interest rate exposure. Typically these securities account for less than 2% of IHC's total portfolio assets and are rated AAA or better. In a rising interest rate environment, IO Securities will increase in value which acts to mitigate the loss on the balance of the bond portfolio. In a decreasi ngdecreasing interest rate environment, IO Securities will lose value, but there will be gains in the rest of the bond portfolio. Although these securities performed as expected, the Company applies the methodology of Emerging Issues Task Force 99-20, "Recognition of Interest Income and Impairment of Purchased and Retained Beneficial Interests in Securitized Financial Assets" ("EITF 99-20") in determining when an IO Security is considered other than temporarily impaired. The Company records arecorded realized losslosses in the three months ended March 31, 2004 and 2003 under EITF 99-20, whensince there hashad been a decrease in expected cash flows combined with a decline in the IO Securities' fair value below cost.

The Company's gross unrealized losses on fixed maturities totaled $7.1$4.9 million at September 30, 2003.March 31, 2004. Substantially all of these securities were investment grade. The remaining unrealized losses, primarily within the corporate securities portfolio, have been evaluated in accordance with the Company's policy and were determined to be temporary in nature at September 30, 2003.

March 31, 2004. The Company holds all securities as available-for-sale and accordingly marks all of its securities to market through accumulated other comprehensive income. Therefore, any realized loss generated by impairment losses will have no economic impact on the Company's total stockholders' equity. Moreover, since every security is marked to market through stockholders' equity, the Company is never in a position where a decline in the market value of a security would have an unexpected economic impact on the net worth of the Company.

Balance Sheet

Total investments increased $18.0$115.7 million to $562.6$709.1 million at September 30, 2003March 31, 2004. This increase is due to the investment of the cash received from $544.6 million atacquisitions in December 31, 2002.2003. Such increase includes the effect of increases of $15.8 million in due from brokers and $12.6 milliontotal investments was offset by an increase in due to brokers asof $29.9 million and a result the timingdecrease of securities trades.$58.0 million in cash and cash equivalents. The $19.1$2.4 million increase in future insurance policy benefits reflects growth in the business. A netThe $11.3 million increase of $4.1 million in debt is due to the Company's draw down of a new $12.5 million line of credit, partially offset by debt repayments of $8.4 million. The Company also issued $10.0 million in Trust Preferred Securities in 2003. The $10.8 million positive change in total stockholders' equity is primarily due to net income generated in the ninethree months ended September 30, 2003,March 31, 2004, and proceeds from the exercise of stock options, partially offset by a decreasean increase in net unrealized gains on investments andfixed maturity investments. There were no repurchases of the Company's common stock.stock in the first quarter of 2004.

The Company had net receivables from reinsurers of $130.0$118.0 million at September 30, 2003.March 31, 2004. Substantially all of the business ceded to such reinsurers is of short duration. All of these receivables are either due either from its affiliate, Independence American Insurance Company, highly rated companies or are adequately secured. As of March 31, 2004, the balance due from Independence American was $12,671,000 million. Accordingly, no allowance for doubtful accounts was necessary at September 30, 2003.March 31, 2004.

CorporateCorporate

Corporate derives its funds principally from: (i) dividends and interest income from the Insurance Group; (ii) management fees from its subsidiaries; and (iii) investment income from Corporate liquidity. Regulatory constraints historically have not affected the Company's consolidated liquidity, although state insurance laws have provisions relating to the ability of the parent company to use cash generated by the Insurance Group.

Total corporateCorporate liquidity (cash, cash equivalents, resale agreements, short-term investments and marketable securities, partnerships and other investments)securities) amounted to $21.3$25.8 million at September 30, 2003.

Trust Preferred SecuritiesMarch 31, 2004.

On March 27, 2003, Independence Preferred Trust I (the "Trust "), a statutory business trust and wholly-owned subsidiary of the Company, issued securities having an aggregate liquidation amount of $10.0 million (the "Capital Securities") to institutional buyers in a pooled trust preferred issue. The Trust received gross proceeds of $10.0 million from the issuance of the Capital Securities, which the Trust then loaned to the Company to use for general corporate purposes. Issuance costs from the March 27, 2003 sale totaled approximately $.3 million.

Debt

A subsidiary of IHC entered into a $12.5 million line of credit on September 8, 2003. As to such subsidiary, the line of credit (i) contains restrictions with respect to, among other things, the creation of additional indebtedness, the consolidation or merger with or into certain corporations, the payment of dividends and the retirement of capital stock, (ii) requires the maintenance of minimum amounts of net worth, as defined, certain financial ratios, and certain investment restrictions, and (iii) is secured by the stock of Madison Life and the assets of such subsidiary of IHC. At September 30, 2003, there was $12.5 million outstanding under the line of credit at an interest rate of 3.96% fixed through a swap through the term of the line of credit which matures on September 1, 2006. The proceeds were used to pay off the existing debt of $5.6 million and for general corporate purposes.

CAPITAL RESOURCES

Due to its strong capital ratios, broad licensing and excellent asset quality and credit-worthiness, the Insurance Group remains well positioned to increase or diversify its current activities. It is anticipated that future acquisitions or other expansion of operations will be funded internally from existing capital and surplus and parent company liquidity. In the event additional funds are required, it is expected that they would be borrowed or raised in the public or private capital markets to the extent determined to be necessary or desirable.

In accordance with SFAS No. 115, the Company may carry its portfolio of fixed income securities either as held to maturity (carried at amortized cost), as trading securities (carried at fair market value) or as available-for-sale (carried at fair market value). The Company has chosen to carry all of its debt securities as available-for-sale. The Company experienced a decreasean increase in unrealized gains of $1.2$5.7 million, net of deferred tax benefittaxes and deferred policy acquisition costs, in accumulated other comprehensive income, reflecting net unrealized gains of $.5$6.3 million at September 30, 2003March 31, 2004 versus $1.7$.6 million at December 31, 2002.2003. From time to time, as warranted, the Company employs investment strategies to mitigate interest rate and other market exposures. However, the portfolio will always have interest rate exposure given the matching of its liabilities, and therefore portfolio valuations will fluctuate with market interest rates. The Company also recorded unrealized losses of $.2 million, net of deferred taxes, in the quarter ended March 31, 2004, due to changes in the fair value of its interest rate swaps which are accounted for as cash flow hedges.

On April 22,The expected schedule of contractual obligations at March 31, 2004 is not materially different than the schedule at December 31, 2003 the Company completed a cash tender offer for an additional 1.0 million shares of AMIC at a total cost of $9.0 million.

FORWARD LOOKING STATEMENTS

Some of the statements included within Management's Discussion and Analysis may be considered to be forward looking statements which are subject to certain risks and uncertainties. Factors which could cause the actual results to differ materially from those suggested by such statements are described from time to time in the Company's Annual Report on Form 10-K and other filings with the Securities and Exchange Commission.

ITEMITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT

MARKET RISK

The Company manages interest rate risk by seeking to maintain a portfolio with a duration and average life that falls within the band of the duration and average life of the applicable liabilities. Options may be utilized to modify the duration and average life of such assets.

The Company monitors its investment portfolio on a continuous basis and believes that the liquidity of the Insurance Group will not be adversely affected by its current investments. This monitoring includes the maintenance of an asset-liability model that matches current insurance liability cash flows with current investment cash flows.

The expected change in fair value as a percentage of the Company's fixed income portfolio at September 30, 2003March 31, 2004 given a 100 to 300200 basis point rise or decline in interest rates is not materially different than the expected change at December 31, 2002.2003. In the Company's analysis of the asset-liability model, a 100 to 300200 basis point change in interest rates on the Insurance Group's liabilities would not be expected to have a material adverse effect on the Company. With respect to its liabilities, if interest rates were to increase, the risk to the Company is that policies would be surrendered and assets would need to be sold. This is not a material exposure to the Company since a large portion of the Insurance Group's interest sensitive policies are burial policies that are not subject to the typical surrender patterns of other interest sensitive policies, and many of the Insurance Group's universal life and annuity policies come from liquidated companies which tend to exhibit lower surrende r ratessurrender ra tes than such policies of continuing companies. Additionally, there are charges to help offset the benefits being surrendered. If interest rates were to decrease substantially, the risk to the Company is that some of its investment assets would be subject to early redemption. This is not a material exposure because the Company would have additional gains in its portfolio to help offset the future reduction of investment income. With respect to its investments, the Company employs (from time to time as warranted) investment strategies to mitigate interest rate and other market exposures.

ITEM 4.CONTROLS AND PROCEDURES

The Company's management, including its President and Chief Executive Officer and its Chief Financial Officer, has conducted an evaluation of the effectiveness of disclosure controls and procedures pursuant to Rules 13a-14 and 15d-14 of the Exchange Act. Based on that evaluation, each of the President and Chief Executive Officer and the Chief Financial Officer hasof the Company (its principal executive officer and its principal financial officer, respectively) have concluded, based on their evaluation as of the end of the period covered by this Report, that the Company's disclosure controls and procedures at September 30, 2003 are effective in ensuringto ensure that all material information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in this quarterly report hasthe Securities and Exchange Commission's rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company's management, including the President and the Chief Financial Officer, as appropriate, and allow timely decisions regarding required disclosure.

There have not been made known in a timely fashion. During the quarter ended September 30, 2003, there have been no significantany changes in the Company's internal controlscontrol over financial reporting during the fiscal quarter ended March 31, 2004 that have materially affected, or in factors that could significantlyare reasonably likely to materially affect, the Company's internal controlscontrol over financial reporting.

Forward Looking Statements

Some of the statements included within Management's Discussion and Analysis may be considered to be forward looking statements which are subject to certain risks and uncertainties. Factors which could cause the actual results to differ materially from those suggested by such statements are described from time to time in the Company's Annual Report on Form 10-K and other filings with the Securities and Exchange Commission.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None

Not ApplicableNone

Item 3. Defaults upon Senior Securities

Not Applicable                    None

Item 4.Submission of Matters to a Vote of Security Holders

None

Item 5.Other Information

Not ApplicableNone

Item 6.Exhibits and Reports on Form 8-K

31.2 Certification of the Chief Financial Officer Pursuant to Section 302

            Exhibits of the Sarbanes-Oxley Act of 2002