UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended:MARCH 31,JUNE 30, 2004

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)

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. YesX. No _

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

7,799,22114,198,296 SHARES OF COMMON STOCK, $1.00 PAR VALUE

Common stock outstanding as of May 12,August 13, 2004

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

INDEX

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

See accompanying Notes to Consolidated Financial Statements.

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

THREE MONTHS ENDED MARCH 31,

See accompanying Notes to Consolidated Financial Statements.

INDEPENDENCE

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (In(in thousands)

THREESIX MONTHS ENDED MARCH 31,JUNE 30, 2004 2003

See accompanying Notes to Consolidated Financial Statements.

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. Significant 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%40% 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."

Geneve Corporation, a diversified financial holding company, and its affiliated entities (collectively, "Geneve") held 58.6%approximately 58% of IHC's outstanding common stock at March 31,June 30, 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 six months ended March 31,June 30, 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, 2003. Certain amounts in the prior year's consolidated financial statements have been reclassified to conform to the 20032004 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.

(C) On June 8, 2004, IHC declared a special 80% stock dividend and $.045 per share cash dividend, payable to shareholders of record on June 18, 2004 with a distribution date of July 2, 2004. A total of 6,243,787 common shares (issued out of both treasury and authorized and unissued shares) were distributed and fractional shares were paid in cash in lieu of stock. The stock distribution has been accounted for as a stock split effected in the form of a dividend. Accordingly, the par value of the additional shares issued (approximately $6.2 million) was charged to retained earnings and a corresponding amount was credited to common stock, on a retroactive basis, with no change in total stockholders' equity. In addition, all share and per share data for all periods presented herein has been adjusted to reflect the additional shares.

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. Significant Accounting Policies and Practices (Continued)

1. 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", as amended.

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. Significant 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 and six months ended March 31,June 30, 2004 and 2003 would have been as follows:

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 Standard Life and Madison Life cede at least 15% of their medical stop-loss business.business to a subsidiary of AMIC.

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 2. American Independence Corp. (Continued)

On June 15, 2004, IHC purchased an additional 94,488 shares of AMIC for $1,464,000. This brought IHC's total ownership in AMIC to 3,374,555 shares. At March 31,June 30, 2004, the Company owned 39%40% 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$2,640,000, was $30,195,000$31,803,000 at March 31,June 30, 2004 and its equity income was $621,000$525,000 and $1,146,000, respectively, for the three and six months ended March 31,June 30, 2004. At March 31,June 30, 2003, the Company owned 19.9%31.7% of AMIC's outstanding common stock. The Company's equity income was $401,000$536,000 and $937,000, respectively, for the three and six months ended June 30, 2003.

The Company earned $82,000 and $31,000 for the three months ended March 31, 2003.

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 2. American Independence Corp. (Continued)

The Company earned $77,000June 30, 2004 and $69,0002003, respectively, and $159,000 and $100,000 for the threesix months ended March 31,June 30, 2004 and 2003, respectively, from its service agreement with AMIC dated November 15, 2002.2002 and amended April 21, 2004.

Note 3. Income Per Common Share

Included in the diluted earnings per share calculationcalculations are 343,000 and 259,000 shares for the three months ended June 30, 2004 and 2003, respectively, are 230,000 and 140,000319,000 and 250,000 shares for the six months ended June 30, 2004 and 2003, 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.

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 4. Investment Securities

The following table summarizes, for all securities in an unrealized loss position at June 30, 2004, the aggregate fair value and gross unrealized loss by length of time those securities have continuously been in an unrealized loss position:

Substantially all of the unrealized losses at June 30, 2004 relate to investment grade securities and are attributable to changes in market interest rates subsequent to purchase. There were no securities with unrealized losses that were individually significant dollar amounts at June 30, 2004.  A total of 95 securities were in a continuous unrealized loss position for less than 12 months, and 5 securities for 12 months or longer.  For fixed maturities, there are no securities past due or securities for which the Company currently believes it is not probable that it will collect all amounts due according to the contractual terms of the investment.  Because the Company has the ability to hold securities with unrealized losses until a market price recovery (which, for fixed maturities, may be until maturity) the Company did not consider these investments to be other-than-temporarily impaired at June 30, 2004.

For the six months ended June 30, 2004 and 2003, the Company recorded a realized loss for other than temporary impairments of $.8 million and $5.2 million, respectively. In 2004 and 2003, $.6 million and $5.0 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 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 Securities is considered other than temporarily impaired. The Company recorded realized losses in the six months ended June 30, 2004 and 2003 under EITF 99-20, since there has been a decrease in

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 4. Investment Securities (Continued)

expected cash flows combined with a decline in the IO Securities' fair value below cost.

Note 5. Income 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, 2004benefit allocated to stockholders' equity for other comprehensive loss for the increase in the net unrealized gains on investment securitiesthree months and six months ended June 30, 2004 was $3,154,000.$8,270,000 and $5,116,000, respectively.

Note 5.6. Supplemental Disclosures of Cash Flow Information

Cash payments for income taxes were $1,500,000$2,503,000 and $1,852,000$5,585,000 for the threesix months ended March 31,June 30, 2004 and 2003, respectively. Cash payments for interest were $266,000$832,000 and $89,000$95,000 for the threesix months ended March 31,June 30, 2004 and 2003, respectively.

Note 6.7. Comprehensive (Loss) Income

The components of comprehensive (loss) 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 (iii) after-tax net cash flow hedges which are reported directly in stockholders' equity. Comprehensive (loss) income for the three and six months ended March 31,June 30, 2004 and 2003 is as follows:

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 8. Purchase of Policy Block

On June 23, 2004, IHC acquired a block of individual deferred annuity and life policies through an assumption reinsurance transaction. A summary of the amounts recorded by the Company as of the effective date is as follows (in thousands):

Note 9. Subsequent Events

(A) Acquisition of MGU and Issuance of Common Stock

Effective July 1, 2004, IHC acquired a 52% interest in Majestic Underwriters LLC ("Majestic"), a medical stop-loss managing general underwriter ("MGU"), with a block of approximately $41 million of annualized premium. AMIC acquired a 23% interest and the current senior management continues to own 25% of the MGU. The purchase was paid for with both cash and the issuance of 129,808 shares of IHC common stock (the "Shares"). The Shares were issued at a fair value of $16.18 per share in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), as a private placement of unregistered securities under Section 4(2) thereof. Accordingly, the Shares will be "restricted securities", subject to a legend and will not be freely tradable in the United States until the Shares are registered for resale under the Securities Act, or to the extent they are tradable under Rule 144 pr omulgated under the Securities Act or any other available exemption. Any resale or other disposition of the securities in the United States must be made either under a registration statement filed by IHC with the Securities and Exchange Commission or under an exemption from the registration requirements of the Securities Act.

(B) Increase in Shares of Common Stock

On July 29, 2004, IHC filed an amendment to its Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to reflect an increase in the number of shares of common stock, $1.00 par value per share, which IHC has authority to issue by 5,000,000 from 15,000,000 to 20,000,000, and consequently, to increase the total number of shares of all classes of stock which IHC shall have authority to issue by 5,000,000, from 15,100,000 to 20,100,000. The amendment was approved by the written consent of stockholders pursuant to a consent solicitation commenced on July 12, 2004.

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 7.10. 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 monthsperiods ended March 31,June 30, 2004 and 2003 is presented below:

ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION

Overview

The Company is a holding company principally engaged in health insurance throughout the United States, and is a leader in the medical stop-loss industry nationally. The Company operates through its two insurance carriers (Standard Life and Madison Life) and its 39%40% ownership interest in American Independence Corp. ("AMIC"), which owns medical stop-loss managing general underwriters (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 nin 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.profitability.

The following is a summary of key performance information after for the three and six months ended March 31, 2004:June 30, 2004, as well as other key events affecting the Company:

• Net income of $5.5$5.6 million and $11.1 million ($.69.39 and $.77 per share, diluted); 24% increase from for the three and six months ended March 31, 2003;June 30, 2004, representing increases of 11.9% and 17.6% compared to the respective 2003 periods;

• Revenues of $52.4 million; 23% increase from$58.1 million and $110.5 million for the three and six months ended March 31, 2003;June 30, 2004, representing increases of 20.9% and 22.0% compared to the respective 2003 periods;

• Assets of $970$926.2 million; 7.9%3.1% increase from December 31, 2003;

• Book valueConsolidated investment yield rate of $23.29 per share; 6.5% increase from December 31, 2003;

• Generated investment income of 6.1%6.7% in the firstsecond quarter of 2004;2004 compared to 6.4%7.3% in 2003;

• InvestmentHighly liquid investment portfolio continues to havewith an average AA rating and remains highly liquid; andof AA;

• The Insurance Group's investedInvested 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 in4.9% of fixed income securities are non-investment grade bondsat June 30, 2004;

• Purchased an additional 94,488 shares of AMIC, bringing our current ownership to 40%;

• Increased the cash dividend 80% and began paying this dividend semi-annually;

• Declared an 80% stock dividend resulting in shareholders as of the record date of June 18, 2004, receiving eight additional shares for every 10 shares owned;

• Authorized the repurchase in the open market of an additional 450,000 shares of IHC common stock;

• Acquired an annuity block with reserves of approximately $25 million;

• Effective July 1, 2004, acquired a negligible amount52% interest in mortgage loans.a medical stop-loss MGU with approximately $41 million of annualized premium; and

• On July 15, 2004, moved the listing of IHC common stock to the New York Stock Exchange. The Company's stock now trades under the symbol "IHC".

In recent years, we haveIHC has experienced beneficial market changes in ourits core lines of business, however, the 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 it will continue to produce profitable results while still growing its core businesses.

Information pertaining to the Company's business segments is provided in Note 710 of 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 insurance policy benefits primarily using the net premium method based on anticipated investment yield, mortality (morbidity on health insurance) and withdrawals. Liabilities for 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 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 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 insurance policy benefits provided reasonably accurate levels of reserves at March 31,June 30, 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. Net realized gains and losses on investments are computed using the specific identification method and are reported in the accompanying Consolidated Statements of 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 Statements of Operations as net realized losses. The factors considered by management in determining when a decline is other than temporary include bu 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 MARCH 31,JUNE 30, 2004 COMPARED TO THREE MONTHS ENDED MARCH 31,JUNE 30, 2003

Net income was $5.5$5.6 million, or $.69$.39 per share, diluted, for the three months ended March 31,June 30, 2004 compared to $4.4$5.0 million, or $.56$.35 per share, diluted, for the three months ended March 31,June 30, 2003. The Company's income before taxes increased $1.5$.9 million to $8.4$8.6 million for the three months ended March 31,June 30, 2004 from $6.9$7.7 million for 2003. The Company had net realized and unrealized gains of $.9$.4 million in the firstsecond quarter of 2004 compared to $.3 million in 2003. Decisions to sell securities are based on cash flow needs, investment opportunities and economic and market conditions, thus creating fluctuations in gains and losses from yearperiod to year.period. Income tax expense increased $.4$.3 million to $2.9$3.0 million in the first quarter of 2004 from $2.5$2.7 million in 2003, primarily reflecting thean increase in income before taxes.

Insurance Group

The Insurance Group's pre-tax income increased $1.8$1.4 million to $9.1$10.1 million in 2004 from $7.3$8.7 million in 2003. These results include net realized and unrealized gains of $.9 million in 2004 compared to $.3 million infor both 2004 and 2003.

Premium revenues grew $6.4$8.3 million to $40.3$45.4 million in 2004 from $33.9$37.1 million in 2003; premium revenues increased $1.8$2.5 million at Madison Life and $4.6$5.8 million at Standard Life. The change at Madison Life is comprised of: a $1.3of the following increases: $1.4 million increase in the medical stop-loss line of business; an increase of $.4business due to higher volume; $.5 million from the creditordinary life line of business; and a $.3 million increasefrom Group A&H; $.2 million from the LTD line, partially offset by a $.2line; and $.1 million decrease in premiums from all other lines. The change at Standard Life is comprised of the following increases: $4.9$5.1 million in medical stop-loss premiums due to higher volume in 2004; $.3 million in the HMO ReinsuranceDBL line; and $.2 million in the ordinary life line, partially offset by decreases of $.7 million in provider excessline; and $.1$.2 million in all other lines.

Total net investment income of the Insurance Group increased $1.2$1.4 million primarily due to an increase in investable assets. The annualized return on investments of the Insurance Group was 5.9%6.7% in the firstsecond quarter of both 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.

was relatively unchanged. Other income increased $1.0 million primarily due to a large surrender in the first quarter of 2003 from a modified coinsurance agreement that is in runoff status at Standard Life.$.1 million.

Insurance benefits, claims and reserves increased $6.9$6.3 million, reflecting increases of $2.6$1.9 million at Madison Life and $4.3$4.4 million at Standard Life. Madison Life's increase resulted from: $.8$.9 million from growth in the medical stop-loss business; a $.6$.9 million increase in reserves for the ordinary life line; a $.5 million increase in the creditLTD line due to an increase inincreased claims; and a $.4 million increase in the ordinary life lineinterest credited on annuities due to an increasethe acquisitions in reserves;the fourth quarter of 2003; partially offset by a $.7decrease in the credit line of $.6 million increasedue to a reduction in interest credited;claims and a $.1$.2 million increasedecrease from all other lines. The change at Standard Life is comprised of: higher claims and reserves of $3.4$3.8 million from the medical stop-loss line due to greater volume;volume and an increase in claims experience in the second quarter of 2004; an increase in reserves of $.8$.4 million attributable to the ordinary life line of business that the Company assumed in Novemberthe fourth quarter of 2003; and a $.1 million$.2 mi llion increase in all other lines.

Amortization of deferred acquisition costs and general and administrative expenses for the Insurance Group increased $.7$2.1 million due to increases at Madison Life of $.1$.5 million and at Standard Life of $.6$1.6 million. The increase at Madison Life is due to greater generalcommission expenses, partially offset by lower amortization of deferred acquisition costs. The increase at Standard Life is due to greater commissions and general expenses, partially offset by a decrease in taxes, licenses and fees.

Corporate

The pre-tax loss for corporate increased $.3$.5 million to $.7$1.5 million for the quarter ended March 31,June 30, 2004 from $.4$1.0 million for the quarter ended March 31,June 30, 2003. The higher pre-tax loss is primarily attributable to increases in interest expense of $.5$.3 million and general expense of $.5 million, partially offset by increases in realized gains of $.1 million and other income of $.2 million.

SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO SIX MONTHS ENDED JUNE 30, 2003

Net income was $11.1 million, or $.77 per share, diluted, for the six months ended June 30, 2004 compared to $9.4 million, or $.66 per share, diluted, for the six months ended June 30, 2003. The Company's income before taxes increased $2.4 million to $17.0 million for the six months ended June 30, 2004 from $14.6 million for 2003. The Company had net realized and unrealized gains of $1.3 million in the six months ended 2004 compared to $.7 million in 2003. Income tax expense increased $.8 million to $6.0 million in the six months ended June 30, 2004 from $5.2 million in 2003, primarily reflecting the increase in income before taxes.

Insurance Group

The Insurance Group's pre-tax income increased $3.2 million to $19.2 million in 2004 from $16.0 million in 2003. These results include net realized and unrealized gains of $1.2 million in 2004 compared to $.7 million in 2003.

Premium revenues grew $14.8 million to $85.8 million in 2004 from $71.0 million in 2003; premium revenues increased $4.3 million at Madison Life and $10.5 million at Standard Life. The change at Madison Life is comprised of increases of: $2.6 million in the medical stop-loss line of business; $.5 million from the credit line of business; $.5 million from the LTD line; $.4 million from the ordinary life lines; and $.3 million increase from the Group A&H lines. The change at Standard Life is comprised of the following increases; $10.0 million in medical stop-loss premiums due to higher volume in 2004; $.4 million in the HMO Reinsurance line; $.5 million in the ordinary life line; and $.3 million in all other lines; partially offset by a decrease of $.7 million in provider excess.

Total net investment income of the Insurance Group increased $2.7 million, primarily due to an increase in investable assets. The annualized return on investments of the Insurance Group was 6.3% in the first six months of 2004 and 6.6% in the first six months of 2003.

Equity income from AMIC increased $.2 million primarily due to the increase in ownership.

Other income increased $1.1 million primarily due to $.7 million of surrenders from a coinsurance agreement on a block of business assumed and $.4 million from other items.

Insurance benefits, claims and reserves increased $13.1 million, reflecting increases of $4.5 million at Madison Life and $8.6 million at Standard Life. Madison Life's increase resulted from: a $1.6 million increase from growth in the medical stop-loss business; a $1.2 million increase in the ordinary life line and a $1.1 million increase in interest credited on annuity policies, both due to the acquisitions during the fourth quarter of 2003; a $.7 million increase in the LTD line due to an increase in premiums and loss ratios; partially offset by a $.1 million decrease from all other lines. The change at Standard Life is comprised of: higher claims and reserves of $6.8 million from the medical stop-loss line due to greater volume and an increase in claims experience; an increase in reserves of $1.4 million attributable to the ordinary life line of business that the Company assumed in November 2003; an increase of $.3 million in DBL from higher claims; and a $.1 million increase in all other lines.

Amortization of deferred acquisition costs and general and administrative expenses for the Insurance Group increased $3.0 million, due to increases at Madison Life of $.6 million and at Standard Life of $2.4 million. The increase at Madison Life is due to greater commissions and general expenses, partially offset by lower amortization of deferred acquisition costs. The increase at Standard Life is due to greater commissions and general expenses partially offset by a decrease in taxes, licenses and fees.

Corporate

The pre-tax loss for corporate increased $.8 million to $2.2 million for the six months ended June 30, 2004 from $1.4 million for the six months ended June 30, 2003. The higher pre-tax loss is primarily attributable to increases in interest expense of $.7 million due to the increase in debt and general expense of $.8 million related to higher compensation and legal costs, partially offset by increases in net investment income of $.4 million, realized gains of $.1 million and other income of $.1$.2 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 89.2%89.0% was invested in investment grade fixed income securities, resale agreements, policy loans and cash and cash equivalents at March 31,June 30, 2004. Also at such date, approximately 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 March 31,June 30, 2004, approximately 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 does not have any mortgag emortgage loans or non-performing fixed maturities at March 31,June 30, 2004.

Investment Impairments

The Company reviews its investments regularly and monitors its investments continually for impairments. For the threesix months ended March 31,June 30, 2004 and 2003, the Company recorded a realized loss for other than temporary impairments of $.6 million and $3.8$5.2 million, respectively. In 2004 and 2003, $.6 million and $3.6$5.0 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, such as that experienced in the second quarter of 2004, IO Securities will increase in value which acts to mitigate the unrealized loss on the balance of the bond portfolio.portfoli o. In a decreasing interest rate environment, such as that experienced in the first half of 2003, IO Securities will lose value, but there will be unrealized 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 recorded realized losses in the threesix months ended March 31,June 30, 2004 and 2003 under EITF 99-20, since there had been a decrease in expected cash flows combined with a decline in the IO Securities' fair value below cost.

The Company's gross unrealized lossesloss on fixed maturities totaled $4.9$22.5 million at March 31,June 30, 2004. Substantially all of these securities were investment grade. The 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 March 31,June 30, 2004. The Company holds all securities as available-for-sale and accordingly marks all of its securities to market through accumulated other comprehensive income.income or loss.

Balance Sheet

Total investments increased $115.7$67.4 million to $709.1from $593.4 million at MarchDecember 31, 2003 to $660.8 million at June 30, 2004. This increase is primarily due to the investment of the cash received from acquisitions of policy blocks in December 2003.2003 and June 2004 and the settlement of security trades. Such increase in total investments was offset by an increase in due to brokers of $29.9 million andpart by a decrease of $58.0$29.0 million in cash and cash equivalents. The $2.4$27.4 million increase in insurance policy benefits and funds on deposit reflects growth in the business.business principally from the June 2004 acquisition. The $11.3$1.9 million increase in total stockholders' equity is primarily due to net income generatedfrom operations and exercise of options in the threesix months ended March 31,June 30, 2004, and an increase inoffset by net unrealized gainslosses on fixed maturity investments. There were noinvestments and repurchases of the Company's common stock in the first quarter of 2004.stock.

The Company had net receivables from reinsurers of $118.0$116.9 million at March 31,June 30, 2004. Substantially all of the business ceded to such reinsurers is of short duration. All of these receivables are either due either from itsthe Company's affiliate, Independence American Insurance Company, highly rated companies or are adequately secured. As of March 31,June 30, 2004, the balance due from Independence American was $12,671,000$14.9 million. Accordingly, noAn allowance for doubtful accounts was not deemed necessary at March 31,June 30, 2004.

Corporate

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 Corporate liquidity (cash, cash equivalents, resale agreements, short-term investments and marketable securities) amounted to $25.8$25.6 million at March 31,June 30, 2004.

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, issuance of stock 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 an increase in unrealized gainslosses of $5.7$8.8 million, net of deferred taxes and deferred policy acquisition costs, in accumulated other comprehensive income (loss), reflecting net unrealized losses of $8.2 million at June 30, 2004 versus net unrealized gains of $6.3 million at March 31, 2004 versus $.6 million at December 31, 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 recordednet unrealized lossesloss at June 30, 2004 consists of $.2a net unrealized loss of $8.5 million neton securities available-for-sale and an unrealized gain of deferred taxes, in the quarter ended March 31, 2004,$.3 million due to changes in the fair value of its interest rate swaps which are accounted for as cash flow hedges. The net unrealized loss on securities available-for-sale is attributable to the dramatic increase in interest rates from December 31, 2003 to June 30, 2004.

The expectedCompany's schedule of contractual obligations at March 31,June 30, 2004 is not materially different thanfrom the schedule at December 31, 2003 included in the annual report on Form 10-K.

Share Repurchase Program

IHC has a program, initiated in 1991, under which it repurchases shares of its common stock. In June 2004, the Board of Directors authorized an additional 450,000 shares to be repurchased under the 1991 plan. As of June 30, 2004, 548,737 shares were still authorized to be repurchased under the plan.

The following table summarizes information with respect to the share repurchase program:

ITEM 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 March 31,June 30, 2004 given a 100 to 200 basis point rise or decline in interest rates is not materially different than the expected change at December 31, 2003. In the Company's analysis of the asset-liability model, a 100 to 200 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 surrender ra tesrat es 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 President and the Chief Financial Officer of 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 are effective to ensure that 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 the 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 any changes in the Company's internal control over financial reporting during the fiscal quarter ended March 31,June 30, 2004 that have materially affected, or are reasonably likely to materially affect, the Company's internal control 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

None

Item 3. Defaults upon Senior Securities

None

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

NoneAt its Annual Meeting of Stockholders held on June 18, 2004, the following 7 nominees were re-elected for one-year terms on the Board of Directors:

Larry R. Graber, Allan C. Kirkman, Steven B. Lapin, Edward Netter, Robert P. Ross, Jr., James G. Tatum and Roy T.K. Thung.

The vote on the election of the above nominees was:

For: At least 13,209,912 shares

Against: No more than 223,112 shares

The appointment of KPMG LLP as independent auditors for 2004 was ratified by a vote of 13,282,395 shares for, 100,892 shares against, and 49,738 shares abstaining.

There were no broker non-votes.

Item 5.Other Information

None

Item 6.Exhibits and Reports on Form 8-K

(b)Reports on Form 8-K

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

By:/s/ Roy T.K. Thung

Chief Executive Officer and

President

By: /s/ Teresa A. Herbert

Teresa A. Herbert

Vice President and

Chief Financial Officer

Dated: May 14,August 13, 2004