UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[X]

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

For the quarterly period ended~~September 30, 2011.~~March 31, 2012.

[ ]

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

For the transition period from: ________ to _________

Commission File Number:0-10306

INDEPENDENCE HOLDING COMPANY

(Exact name of registrant as specified in its charter)


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

96 CUMMINGS POINT ROAD, STAMFORD, CONNECTICUT 06902

(Address of principal executive offices) (Zip Code)

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

NOT APPLICABLE

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.


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

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


Class	Outstanding at ~~November 7, 2011~~May 4, 2012
Common stock, $ 1.00 par value	~~16,415,671~~17,991,661 Shares

INDEPENDENCE HOLDING COMPANY

INDEX


PART I – FINANCIAL INFORMATION						PAGE
						��	NO.

		Item 1. Financial Statements

			Condensed Consolidated Balance Sheets -			4
				~~September 30, 2011~~March 31, 2012 (unaudited) and December 31, ~~2010~~2011		4

			Condensed Consolidated Statements of Operations -			5
				Three Months Ended March 31, 2012 and ~~Nine~~2011 (unaudited)		5

			Condensed Consolidated Statements of Comprehensive Income-
				Three Months Ended ~~September 30,~~March 31, 2012 and 2011 ~~and 2010~~ (unaudited)		6

			Condensed Consolidated Statement of Changes in Equity -			6
					~~Nine~~Three Months Ended ~~September 30, 2011~~March 31, 2012 (unaudited)	7

			Condensed Consolidated Statements of Cash Flows -			7
					~~Nine~~Three Months Ended ~~September 30,~~March 31, 2012 and 2011 ~~and 2010~~ (unaudited)	8

			Notes to Condensed Consolidated Financial Statements (unaudited)			89

		Item 2. Management's Discussion and Analysis of Financial Condition				29
			and Results of Operations			27

		Item 3. Quantitative and Qualitative Disclosures about Market Risk				4338

		Item 4. Controls and Procedures				4438

PART II - OTHER INFORMATION

		Item 1. Legal Proceedings				4539

		Item 1A. Risk Factors				4539

		Item 2. Unregistered Sales of Equity Securities and Use of Proceeds				4539

		Item 3. Defaults Upon Senior Securities				4539

		Item 4. ~~Removed and Reserved~~Submission of Matters to a Vote of Security Holders				4539

		Item 5. Other Information				4639

		Item 6. Exhibits				4640

	Signatures					4641

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

Forward-Looking Statements

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

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

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

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)


						September 30, 2011		December 31, 2010						March 31, 2012		December 31, 2011
						(Unaudited)								(Unaudited)
ASSETS:	ASSETS:								ASSETS:
	Investments:								Investments:
		Short-term investments			$	50	$	53		Short-term investments			$	50	$	50
		Securities purchased under agreements to resell				17,352		41,081		Securities purchased under agreements to resell				17,112		17,258
		Fixed maturities, available-for-sale				822,766		793,656		Trading securities				6,851		-
		Equity securities, available-for-sale				43,558		48,073		Fixed maturities, available-for-sale				716,809		842,873
		Other investments				37,247		36,864		Equity securities, available-for-sale				29,463		37,541
				Total investments		920,973		919,727		Other investments				32,496		35,223
												Total investments		802,781		932,945
	Cash and cash equivalents					14,205		11,426
	Due from securities brokers					27,435		15,022	Cash and cash equivalents					9,286		18,227
	Deferred acquisition costs					41,309		43,465	Due from securities brokers					9,585		12,106
	Due and unpaid premiums					45,639		48,586	Deferred acquisition costs					37,270		37,101
	Due from reinsurers					157,981		154,243	Due and unpaid premiums					39,091		37,341
	Premium and claim funds					38,007		37,646	Due from reinsurers					306,933		159,729
	Notes and other receivables					15,137		16,766	Premium and claim funds					40,194		43,604
	Goodwill					51,713		51,713	Notes and other receivables					19,827		15,500
	Other assets					55,224		63,198	Goodwill					50,318		50,318
									Other assets					49,126		51,988
				TOTAL ASSETS	$	1,367,623	$	1,361,792
												TOTAL ASSETS	$	1,364,411	$	1,358,859
LIABILITIES AND EQUITY:

LIABILITIES AND STOCKHOLDERS’ EQUITY:									LIABILITIES AND STOCKHOLDERS’ EQUITY:
LIABILITIES:	LIABILITIES:								LIABILITIES:
	Insurance reserves-health				$	179,856	$	181,447	Insurance reserves-health				$	173,531	$	179,042
	Insurance reserves-life and annuity					278,395		278,000	Insurance reserves-life and annuity					279,611		279,636
	Funds on deposit					416,107		408,566	Funds on deposit					421,796		417,310
	Unearned premiums					2,647		4,043	Unearned premiums					5,935		4,319
	Policy claims-health					14,892		16,521	Policy claims-health					14,024		13,945
	Policy claims-life					12,153		11,809	Policy claims-life					12,035		11,948
	Other policyholders' funds					20,737		20,195	Other policyholders' funds					22,010		21,546
	Due to securities brokers					16,536		32,469	Due to securities brokers					1,988		383
	Due to reinsurers					37,454		31,554	Due to reinsurers					44,581		40,030
	Accounts payable, accruals and other liabilities					63,481		70,497	Accounts payable, accruals and other liabilities					60,504		66,410
	Liabilities related to discontinued operations					-		771	Debt					10,000		10,000
	Debt					10,000		7,500	Junior subordinated debt securities					38,146		38,146
	Junior subordinated debt securities					38,146		38,146
												TOTAL LIABILITIES		1,084,161		1,082,715
				TOTAL LIABILITIES		1,090,404		1,101,518

EQUITY:
STOCKHOLDERS’ EQUITY:									STOCKHOLDERS’ EQUITY:
IHC STOCKHOLDERS' EQUITY:	IHC STOCKHOLDERS' EQUITY:								IHC STOCKHOLDERS' EQUITY:
	Preferred stock (none issued)					-		-	Preferred stock (none issued)					-		- -
	Common stock $1.00 par value, 20,000,000 shares authorized;								Common stock $1.00 par value, 20,000,000 shares authorized;
			16,774,210 and 15,742,020 shares issued;								18,457,336 and 18,450,917 shares issued;
			16,464,541 and 15,232,865 shares outstanding			16,774		15,472			18,008,947 and 18,052,661 shares outstanding			18,457		18,451
	Paid-in capital					112,369		101,003	Paid-in capital					126,377		126,298
	Accumulated other comprehensive income (loss)					8,957		633	Accumulated other comprehensive income					8,270		7,853
	Treasury stock, at cost 309,669 and 239,155 shares					(2,515)		(1,917)	Treasury stock, at cost; 448,389 and 398,257 shares					(3,747)		(3,277)
	Retained earnings					124,749		115,437	Retained earnings					115,675		111,752

TOTAL IHC STOCKHOLDERS’ EQUITY	TOTAL IHC STOCKHOLDERS’ EQUITY					260,334		230,628	TOTAL IHC STOCKHOLDERS’ EQUITY					265,032		261,077
NONCONTROLLING INTERESTS IN SUBSIDIARIES	NONCONTROLLING INTERESTS IN SUBSIDIARIES					16,885		29,646	NONCONTROLLING INTERESTS IN SUBSIDIARIES					15,218		15,067

				TOTAL EQUITY		277,219		260,274				TOTAL EQUITY		280,250		276,144

See the accompanying Notes to Condensed Consolidated Financial Statements.

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands, except per share data) ~~(Unaudited)~~


					Three Months Ended				Nine Months Ended								Three Months Ended
					September 30,				September 30,								March 31,
					2011		2010		2011		2010						2012		2011
REVENUES:	REVENUES:											REVENUES:
												Premiums earned:
	Premiums earned:												Health			$	74,285	$	75,723
		Health		$	76,326	$	74,071	$	226,787	$	211,735		Life and annuity				9,489		10,150
		Life and annuity			8,904		9,188		28,317		27,022	Net investment income					8,751		10,116
	Net investment income				9,235		11,136		28,984		30,638	Fee income					7,421		7,377
	Fee income				7,118		8,102		22,823		25,343	Other income					1,156		1,458
	Net realized investment gains				924		4,030		2,605		6,013	Net realized investment gains (losses)					1,137		(202)
			Total other-than-temporary impairment losses		(385)		(132)		(853)		(2,797)
			Portion of losses recognized in other comprehensive income		278		-		278		-	Other-than-temporary impairment losses:
	Net impairment losses recognized in earnings				(107)		(132)		(575)		(2,797)			Total other-than-temporary impairment losses			(83)		(303)
	Equity income from AMIC				-		-		-		280			Portion of losses recognized in other comprehensive income			-		-
	Gain on bargain purchase of AMIC				-		-		-		27,830				Net impairment losses recognized in earnings		(83)		(303)
	Other income				1,259		1,480		4,562		4,592
					103,659		107,875		313,503		330,656						102,156		104,319
EXPENSES:	EXPENSES:											EXPENSES:
	Insurance benefits, claims and reserves:											Insurance benefits, claims and reserves:
		Health			45,560		48,494		146,639		145,309		Health				46,193		50,576
		Life and annuity			11,094		12,826		36,421		37,518		Life and annuity				10,942		13,673
	Selling, general and administrative expenses				38,958		37,182		111,275		105,007	Selling, general and administrative expenses					36,472		35,986
	Amortization of deferred acquisitions costs				1,844		1,678		5,293		4,716	Amortization of deferred acquisitions costs					1,594		1,691
	Interest expense on debt				516		499		1,433		1,447	Interest expense on debt					539		457
					97,972		100,679		301,061		293,997
	Income from continuing operations																95,740		102,383
		before income taxes			5,687		7,196		12,442		36,659
	Income taxes				1,676		2,145		1,167		12,913	Income from operations before income taxes					6,416		1,936
												Income taxes (benefits)					2,086		(1,864)
	Income from continuing operations				4,011		5,051		11,275		23,746
												Net income					4,330		3,800
	Discontinued operations:											Less: income from noncontrolling interests in subsidiaries					(408)		(616)
	Loss from discontinued operations, net of tax				-		(21)		-		(203)
													NET INCOME ATTRIBUTABLE TO IHC			$	3,922	$	3,184
	Net income				4,011		5,030		11,275		23,543

	Less income from noncontrolling interests in subsidiaries				(457)		(610)		(1,497)		(1,391)

		NET INCOME ATTRIBUTABLE TO IHC		$	3,554	$	4,420	$	9,778	$	22,152

Basic income per common share:
	Income from continuing operations			$	.22	$	.29	$	.62	$	1.46
	Loss from discontinued operations				-		-		-		(.01)
		Basic income per common share		$	.22	$	.29	$	.62	$	1.45
Basic income per common share												Basic income per common share				$	.22	$	.19

WEIGHTED AVERAGE SHARES OUTSTANDING	WEIGHTED AVERAGE SHARES OUTSTANDING				16,173		15,233		15,831		15,279	WEIGHTED AVERAGE SHARES OUTSTANDING					18,029		17,027

Diluted income per common share:
	Income from continuing operations			$	.22	$	.29	$	.62	$	1.46
	Loss from discontinued operations				-		-		-		(.01)
		Diluted income per common share		$	.22	$	.29	$	.62	$	1.45
Diluted income per common share												Diluted income per common share				$	.22	$	.19

WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING	WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING				16,178		15,233		15,839		15,282	WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING					18,176		17,031

~~See the accompanying Notes to Condensed Consolidated Financial Statements.~~

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 2011 (In thousands)

ACCUMULATED

NON-

OTHER

TREASURY

TOTAL IHC

CONTROLLING

COMMON

PAID-IN

COMPREHENSIVE

STOCK,

RETAINED

STOCKHOLDERS'

INTERESTS IN

TOTAL

STOCK

CAPITAL

INCOME (LOSS)

AT COST

EARNINGS

EQUITY

SUBSIDIARIES

EQUITY

BALANCE AT

DECEMBER 31, 2010
$
15,472
$
101,003
$
633
$
(1,917)
$
115,437
$
230,628
$
29,646
$
260,274

Net income

9,778

9,778

1,497

11,275
Net change in unrealized

gains (losses)

8,207

8,207

390

8,597

Total comprehensive

income

17,985

1,887

19,872
Acquire noncontrolling

interests in American

Independence Corp.

1,293

10,081

117

11,491

(12,491)

(1,000)
Acquire noncontrolling

interests in Wisconsin

Underwriting Associates

391

391

(391)

-
Repurchase of common stock

(598)

(598)

-

(598)
Common Stock dividend

($0.025 Per share)

(396)

(396)

-

(396)
Share-based compensation

expenses and related

tax benefits

9

129

138

-

138
Distributions to noncontrolling

interests

-

(693)

(693)
Other capital transactions

765

(70)

695

(1,073)

(378)

BALANCE AT

SEPTEMBER 30, 2011
$
16,774
$
112,369
$
8,957
$
(2,515)
$
124,749
$
260,334
$
16,885
$
277,219

See the accompanying Notes to Condensed Consolidated Financial Statements.

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~COMPREHENSIVE INCOME (Unaudited)

(In thousands)

~~(In thousands) (Unaudited)~~

Nine Months Ended September 30,

2011

2010
CASH FLOWS PROVIDED BY (USED BY) OPERATING ACTIVITIES:

Net income
$
11,275

$
23,543

Adjustments to reconcile net income to net change in cash from

operating activities:

Gain on bargain purchase of AMIC

-

(27,830)

Loss from discontinued operations

-

203

Amortization of deferred acquisition costs

5,293

4,716

Net realized investment gains

(2,605)

(6,013)

Net impairment losses recognized in earnings

575

2,797

Equity income from AMIC and other equity method investments

(1,512)

(927)

Depreciation and amortization

3,183

3,609

Share-based compensation expenses

395

574

Deferred tax expense

774

14,730

Other

3,162

1,408
Changes in assets and liabilities:

Net purchase of trading securities

-

(1,355)

Change in insurance liabilities

(2,265)

(27,244)

Additions to deferred acquisition costs, net

(5,814)

(4,952)

Change in net amounts due from and to reinsurers

2,162

15,934

Change in premium and claim funds

(361)

3,702

Change in income tax liability

3,514

(3,175)

Change in due and unpaid premiums

2,948

10,655

Change in other assets

(3,123)

79

Change in other liabilities

(7,040)

(9,732)

Net change in cash from operating activities of continuing operations

10,561

722

Net change in cash from operating activities of discontinued operations

-

(975)

Net change in cash from operating activities

10,561

(253)

CASH FLOWS PROVIDED BY (USED BY) INVESTING ACTIVITIES:

Change in net amount due from and to securities brokers

(28,346)

10,093

Net sales of securities under resale and repurchase agreements

23,729

9,951

Sales of equity securities

52,826

49,295

Purchases of equity securities

(50,135)

(37,719)

Sales of fixed maturities

284,390

535,848

Maturities and other repayments of fixed maturities

138,875

96,178

Purchases of fixed maturities

(435,757)

(657,028)

Additional investments in other investments, net of distributions

1,129

2,070

Cash acquired in acquisition of AMIC, net of cash paid

-

4,562

Cash paid in acquisitions of companies, net of cash acquired

-

(3,469)

Cash paid in acquisitions of noncontrolling interests

(1,450)

-

Cash paid in acquisition of policy blocks

-

(2,791)

Change in notes and other receivables

1,629

844

Other

(1,390)

(1,581)

Net change in cash from investing activities

(14,500)

6,253

CASH FLOWS PROVIDED BY (USED BY) FINANCING ACTIVITIES:

Proceeds of debt

2,500

-

Repayment of long-term debt

-

(1,500)

Repurchase of common stock

(598)

(1,591)

Excess tax expense from expired stock options and vesting of restricted stock

(164)

(22)

Proceeds of investment-type insurance contracts

5,700

118

Dividends paid

(777)

(767)

Other capital transactions

57

(15)

Net change in cash from financing activities

6,718

(3,777)

Net change in cash and cash equivalents

2,779

2,223
Cash and cash equivalents, beginning of year

11,426

7,394

Cash and cash equivalents, end of period
$
14,205

$
9,617


				Three Months Ended
				March 31,
				2012		2011


Net income			$	4,330	$	3,800
Other comprehensive income (loss):
	Unrealized gains (losses) on available-for-sale securities			719		(264)
	Other-than-temporary impairment losses recorded in other comprehensive
		income		-		-
	Allocation to deferred acquisition costs			(14)		82
	Unrealized gains (losses) on derivative instruments			(36)		-
	Other comprehensive income (loss) before income taxes (benefits)			669		(182)
	Income taxes (benefits) related to other comprehensive income			286		(57)
	Other comprehensive income (loss), net of tax			383		(125)

Comprehensive income, net of tax				4,713		3,675

Comprehensive income, net of tax, attributable to noncontrolling interests:
Income from noncontrolling interests in subsidiaries				(408)		(616)
Other comprehensive loss, net of tax,attributable tononcontrolling interests:
	Unrealized losses on available-for-sale securities, net of tax			33		31
	Other-than-temporary impairment losses recorded in other
		comprehensive income (loss), net of tax		-		-
	Other comprehensive loss, net of tax, attributable to noncontrolling interests			33		31

	Comprehensive income, net of tax, attributable to noncontrolling interests:			(375)		(585)

Comprehensive income, net of tax, attributable to IHC			$	4,338	$	3,090

See the accompanying Notes to Condensed Consolidated Financial Statements.


INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Unaudited)
THREE MONTHS ENDED MARCH 31, 2012 (In thousands)


								ACCUMULATED								NON-
								OTHER		TREASURY				TOTAL IHC		CONTROLLING
				COMMON		PAID-IN		COMPREHENSIVE		STOCK,		RETAINED		STOCKHOLDERS'		INTERESTS IN		TOTAL
				STOCK		CAPITAL		INCOME (LOSS)		AT COST		EARNINGS		EQUITY		SUBSIDIARIES		EQUITY

BALANCE AT
	DECEMBER 31, 2011		$	18,451	$	126,298	$	7,853	$	(3,277)	$	111,752	$	261,077	$	15,067	$	276,144

Net income												3,922		3,922		408		4,330
Other comprehensive income
	(loss), net of tax							416						416		(33)		383
Repurchases of common										(470)		12		(458)		-		(458)
Acquire noncontrolling
	interests in American
	Independence Corp.					12		1						13		(36)		(23)
Common stock dividend												(11)		(11)		-		(11)
Share-based compensation
	expenses and related
		tax benefits		6		58								64		-		64
Distributions to noncontrolling
	interests													-		(191)		(191)
Other capital transactions						9								9		3		12

BALANCE AT
	MARCH 31, 2012		$	18,457	$	126,377	$	8,270	$	(3,747)	$	115,675	$	265,032	$	15,218	$	280,250

See the accompanying Notes to Condensed Consolidated Financial Statements.


INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)

						Three Months Ended March 31,
						2012		2011
CASH FLOWS PROVIDED BY (USED BY) OPERATING ACTIVITIES:
	Net income				$	4,330	$	3,800
	Adjustments to reconcile net income to net change in cash from
		operating activities:
			Amortization of deferred acquisition costs			1,594		1,691
			Net realized investment (gains) losses			(1,137)		202
			Other-than-temporary impairment losses			83		303
			Equity income from equity method investments			(458)		(542)
			Depreciation and amortization			990		1,123
			Share-based compensation expenses			478		138
			Deferred tax (benefit) expense			1,789		(605)
			Other			1,782		878
Changes in assets and liabilities:
			Net sales (purchases) of trading securities			(928)		-
			Change in insurance liabilities			803		279
			Additions to deferred acquisition costs, net			(1,776)		(1,722)
			Change in net amounts due from and to reinsurers			(142,652)		(2,181)
			Change in premium and claim funds			3,410		(2,112)
			Change in current income tax liability			1,013		(1,621)
			Change in due and unpaid premiums			(1,749)		2,748
			Change in other assets			(155)		(1,122)
			Change in other liabilities			(6,260)		1,279

				Net change in cash from operating activities		(138,843)		2,536

CASH FLOWS PROVIDED BY (USED BY) INVESTING ACTIVITIES:
		Change in net amount due from and to securities brokers				4,126		(20,947)
		Net sales of securities under resale and repurchase agreements				146		20,303
		Sales of equity securities				4,928		14,993
		Purchases of equity securities				(2,001)		(19,015)
		Sales of fixed maturities				246,167		89,904
		Maturities and other repayments of fixed maturities				12,797		17,799
		Purchases of fixed maturities				(133,450)		(103,417)
		Additional investments in other investments, net of distributions				3,185		(617)
		Change in notes and other receivables				(4,292)		(481)
		Other investing activities				(896)		(372)

				Net change in cash from investing activities		130,710		(1,850)

CASH FLOWS PROVIDED BY (USED BY) FINANCING ACTIVITIES:
		Repurchases of common stock				(457)		-
		Excess tax expense from expired stock options				(57)		(117)
		Cash paid in acquisitions of noncontrolling interests				(267)		(1,000)
		Proceeds of investment-type insurance contracts				392		803
		Dividends paid				(421)		(381)
		Other capital transactions				2		21

				Net change in cash from financing activities		(808)		(674)

Net change in cash and cash equivalents						(8,941)		12
Cash and cash equivalents, beginning of year						18,227		11,426

Cash and cash equivalents, end of period					$	9,286	$	11,438

See the accompanying Notes to Condensed Consolidated Financial Statements.

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1.

Significant Accounting Policies and Practices

(A)

Business and Organization

Independence Holding Company, a Delaware corporation ~~("IHC"~~(“IHC”), is a holding company principally engaged in the life and health insurance business through: (i) its ~~wholly owned~~ insurance companies, Standard Security Life Insurance Company of New York ("Standard Security Life") ~~and~~, Madison National Life Insurance Company, Inc. ("Madison National Life")~~; (ii) its majority owned insurance company,~~, and Independence American Insurance Company (“Independence American”); and ~~(iii)~~(ii) its marketing and administrative companies, including IHC ~~Administrative Services, Inc., IHC~~ Risk Solutions, LLC ~~its full service direct writer of medical stop-loss insurance for self-insured employer groups, and the managing general underwriters ("MGUs"~~(“Risk Solutions”) ~~in which it owns a significant voting interest,~~, IHC Health Solutions, Inc. (“~~IHC~~ Health Solutions”), and Actuarial Management Corporation ~~(“AMC”~~("AMC"). These companies are sometimes collectively referred to as the ~~"Insurance Group,"~~“Insurance Group”, and IHC and its subsidiaries (including the Insurance Group) are sometimes collectively referred to as the "Company." ~~At September 30, 2011,~~ IHC also owns a ~~76%~~significant equity interest in a managing general underwriter (“MGU”) that writes medical stop-loss for Standard Security Life. At March 31, 2012, the Company also owned a 78.5% interest in American Independence Corp. (“AMIC”).

Geneve Corporation, a diversified financial holding company, and its affiliated entities held approximately ~~50.5%~~50.7% of IHC's outstanding common stock at ~~September 30, 2011.~~March 31, 2012.

(B)

Basis of Presentation

The Condensed Consolidated Financial Statements have been prepared in conformity with U.S. generally accepted accounting principles ("GAAP") for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The Condensed Consolidated Financial Statements include the accounts of IHC and its consolidated subsidiaries. All significant intercompany transactions have been eliminated in consolidation. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect: (i) the reported amounts of assets and liabilities; (ii) the disclosure of contingent assets and liabilities at the date of the financial statements; and (iii) the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. IHC’s annual report on Form 10-K as filed with the Securities and Exchange Commission should be read in conjunction with the accompanying Condensed Consolidated Financial Statements.

In February 2012, IHC declared a special 10% stock dividend to shareholders of record on February 17, 2012 with a distribution date of March 5, 2012. All references to number of common shares and earnings per share amount have been adjusted retroactively for all periods presented to reflect the change in capital structure.

In the opinion of management, all adjustments (consisting only of normal recurring accruals) that are necessary for a fair presentation of the consolidated financial position and results of operations for the interim periods have been included. The condensed consolidated results of operations for the three months ~~and nine months~~ ended ~~September 30, 2011~~March 31, 2012 are not necessarily indicative of the results to be anticipated for the entire year.

(C)

Recent Accounting Pronouncements

Recently Adopted Accounting Standards

In December 2010, the FASB issued guidance that clarifies the existing requirements for pro forma revenue and earnings disclosures, and expands the supplemental pro forma revenue and earnings disclosures, for public companies that have completed business acquisitions. The amendments in this guidance were effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The adoption of

~~this guidance, effective January 1, 2011, did not have a material effect on the Company’s consolidated financial statements.~~

In December 2010, the FASB issued guidance that amends existing goodwill impairment test standards to include a requirement that entities perform Step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts if it is more likely than not that an impairment exists. This guidance was effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. The adoption of this guidance, effective January 1, 2011, did not have a material effect on the Company’s consolidated financial statements.

In January 2010, the FASB issued standards requiring entities to provide the activity of Level 3 security purchases, sales, issuances, and settlements on a gross basis, which was effective for fiscal years beginning after December 15, 2010. The adoption of this guidance, effective January 1, 2011, did not have a material effect on the Company's consolidated financial statements.

~~Recently Issued Accounting Standards Not Yet Adopted~~

In September 2011, the FASB issued guidance related to evaluating goodwill for impairment. The new guidance provides entities with the option to perform a qualitative assessment of whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount before applying the quantitative two-step goodwill impairment test. If an entity concludes that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it would not be required to perform the quantitative two-step goodwill impairment test. Entities also have the option to bypass the assessment of qualitative factors for any reporting unit in any period and proceed directly to performing the first step of the quantitative two-step goodwill impairment test, as was required prior to the issuance of this new guidance. An entity may begin or resume performing the qualitative assessment in any subsequent period. This guidance iswas effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this guidance, effective January 1, 2012, did not have a material effect on the Company’s consolidated financial statements.

In June and December 2011, the FASB issued guidance that requires all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. For public entities, the amendments were effective for fiscal years and interim periods within those years, beginning after December 15, 2011 and should be applied retrospectively. This standard only affected the Company’s presentation of comprehensive income and did not affect the Company’s consolidated financial statements.

In May 2011, the FASB issued guidance to achieve common fair value measurement and disclosure requirements in U.S. GAAP and IFRS. Some of the amendments in this update clarify the FASB’s intent about the application of certain existing fair value measurement requirements and other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. None of the amendments in this update require additional fair value measurements and are not intended to establish valuation standards or affect valuation practices outside of financial reporting. For public entities, this guidance was effective during interim and annual periods beginning after December 15, 2011. The adoption of this guidance, effective January 1, 2012, did not have a material effect on the Company’s consolidated financial statements.

In April 2011, the FASB issued guidance that amends existing standards with regards to transfers of financial assets under repurchase and other agreements that entitle and obligate the transferor to repurchase or redeem the assets prior to maturity. Specifically, with respect to assessing effective control in such agreements, the criteria that the transferor must have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even upon the transferee's default, has been eliminated; as has the corresponding criterion calling for the transferor to have obtained cash or other sufficient collateral to purchase replacement assets from a third party, which was required to demonstrate such ability. This guidance was effective for the first interim or annual period beginning after December 15, 2011. The adoption of this guidance, effective January 1, 2012, did not have a material effect on the Company’s consolidated financial statements.

In October 2010, the FASB issued guidance that specifies the accounting treatment for the costs incurred by insurance entities when acquiring new and renewal insurance contracts. The guidance was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011. The adoption of this guidance, which was applied prospectively January 1, 2012, had a negligible impact on the Company’s consolidated financial statements.

Recently Issued Accounting Standards Not Yet Adopted

In December 2011, the FASB issued guidance to amend the disclosure requirements on offsetting financial instruments and related derivatives. Entities are required to provide both net and gross information for these assets and liabilities in order to enhance comparability between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of International Financial Reporting Standards (“IFRS”). The amendments in this Update are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.

In July 2011, the FASB issued guidance specifying that the liability for the fees paid to the Federal Government by health insurers as a result of recent healthcare reform legislation should be estimated and recorded in full once the entity provides qualifying health insurance in the applicable calendar year in which the fee is payable with a corresponding deferred cost that is amortized to expense using a straight-line method of allocation unless another method better allocates the fee over the calendar year that it is payable. The amendments in this Update are effective for calendar years beginning after December 31, 2013, when the fee initially becomes effective. The adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.

In June 2011, the FASB issued guidance that requires all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. For public entities, the amendments are effective for fiscal years and interim periods within those years, beginning after December 15, 2011. The adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.

In May 2011, the FASB issued guidance to achieve common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards. Some of the amendments in this update clarify the FASB’s intent about the application of certain existing fair value measurement requirements and other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. None of the amendments in this update require additional fair value measurements and are not intended to establish valuation standards or affect valuation practices outside of financial reporting. For public entities, this guidance is effective during interim and annual periods beginning after December 15, 2011. The adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.

In April 2011, the FASB issued guidance that amends existing standards with regards to transfers of financial assets under repurchase and other agreements that entitle and obligate the transferor to repurchase or redeem the assets prior to maturity. Specifically, with respect to assessing effective control in such agreements, the criteria that the transferor must have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even upon the transferee's default, has been eliminated; as has the corresponding criterion calling for the transferor to have obtained cash or other sufficient collateral to purchase replacement assets from a third party, which was required to demonstrate such ability. This guidance is effective for the first interim or annual period beginning after December 15, 2011. The adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.

In October 2010, the FASB issued guidance that specifies the accounting treatment for the costs incurred by insurance entities when acquiring new and renewal insurance contracts. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011 and should be applied prospectively upon adoption. The adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.

~~(D)~~

~~Subsequent Events~~

Subsequent events are events or transactions that occur after the balance sheet date but before the financial statements are issued or are available to be issued. The Company has evaluated all such events occurring subsequent to the balance sheet date herein of September 30, 2011. The effects of all subsequent events that provided additional evidence about conditions that existed at the date of the balance sheet, including estimates, if any, have been recognized in the accompanying Condensed Consolidated Balance Sheet and Condensed Consolidated Statements of Operations as of and for the three-month and nine-month periods ended September 30, 2011.

Note 2.

American Independence Corp.

AMIC is an insurance holding company engaged in the insurance and reinsurance business. AMIC does business with the Insurance Group, including reinsurance treaties under which, in 2011, Standard Security Life and Madison National Life ~~cede~~ceded to Independence American an average of 20% of their medical stop-loss business, 9% of a majority of their fully insured health business and 20% of their New York Statutory Disability business.

~~In January 2011, a subsidiary~~During the first quarter of ~~IHC acquired 200,000 shares of AMIC common stock from a noncontrolling interest for $1,000,000 cash. In February and March 2011,~~2012, IHC acquired an aggregate ~~900,325~~5,124 shares of AMIC common stock from noncontrolling interests ~~in exchange~~ for ~~the issuance of~~ an aggregate ~~600,218 shares~~ of IHC’s common stock in various private placements of unregistered securities under Section 4(2) of the Securities Act of 1933, as amended. Accordingly, the shares are "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 promulgated under the Securities Act or any other available exemption.$23,000 cash consideration. As a result of these transactions, the Company: (i) recorded a ~~$95,000~~$12,000 credit to paid-in capital representing the difference between the fair value of the consideration paid and the carrying value of the noncontrolling interest; and (ii) increased its ownership interest in AMIC to ~~63.0%~~78.5%.

On July 15, 2011, IHC commenced an offer to exchange up to 908,085 shares of its common stock for properly tendered and accepted shares of common stock of AMIC (the “Exchange Offer”). IHC filed a Registration Statement on Form S-4 in connection with the Exchange Offer that was declared effective by the Securities and Exchange Commission on July 15, 2011 and expired on Friday, August 12, 2011. Pursuant to the Exchange Offer, IHC acquired 1,109,225 shares of AMIC common stock in consideration of 693,228 newly issued shares of IHC common stock plus a de minimis amount of cash paid in-lieu of

fractional shares. As a result of the exchange, the Company (i) recorded a $196,000 credit to paid-in capital representing the difference between the fair value of the consideration paid and the carrying value of the noncontrolling interest; and (ii) increased its ownership interest in AMIC to 76.0%.

In the third quarter of 2011, AMIC acquired an additional 27.8% ownership interest in its subsidiary, Independent Producers of America, LLC (“IPA”) from noncontrolling interests for cash consideration of $450,000, thereby increasing its ownership in IPA to 78.8% at September 30, 2011. As a result of this transaction, and giving effect to noncontrolling interests in AMIC, the Company (i) reduced noncontrolling interests by $1,127,000; and (ii) recorded a $677,000 credit to paid-in capital representing the difference between the fair value of the consideration paid and the carrying value of the noncontrolling interests.

~~Acquisition of AMIC in 2010~~

In March 2010, IHC acquired a controlling interest in AMIC as a result of the purchase of AMIC common stock in the open market. The principal reasons for acquiring control were: (i) the low market price of the AMIC stock; (ii) the improved financial presentation for IHC resulting from the consolidation of financial reporting; and (iii) a closer relationship that will create greater long-term value for both companies. The acquisition furthers IHC's goal of creating efficiencies by integrating the back office operations of our MGUs and marketing companies. Share purchases of 27,668 shares, or $141,000, through March 5, 2010 (the "Acquisition Date"), totaling 0.33% of voting equity interest, brought the total of AMIC shares owned by the Company to more than 50% of AMIC's outstanding common stock and as a result, IHC has included AMIC’s consolidated assets and liabilities and results of operations, subsequent to the Acquisition Date, in its condensed consolidated financial results.

In determining the bargain purchase gain with regard to the acquisition of the controlling interest in AMIC, IHC first recognized a gain of $2,201,000 as a result of remeasuring its equity interest in AMIC to its fair value of $22,013,000 immediately before the acquisition based on the closing market price of AMIC's common stock. Then, upon the acquisition of a controlling interest on March 5, 2010, the Company consolidated the net assets of AMIC. Accordingly, the Company determined the fair value of the identifiable assets acquired and liabilities assumed from AMIC on the Acquisition Date. The fair value of the net assets acquired exceeded the sum of: (i) the fair value of the consideration paid; (ii) the fair value of IHC’s equity investment prior to the acquisition; and (iii) the fair value of the noncontrolling interests in AMIC, resulting in a bargain purchase gain of $25,629,000. The total gain, amounting to $27,830,000, pre-tax, is included in gain on bargain purchase of AMIC on the Company’s Condensed Consolidated Statement of Operations. This gain is a result of the quoted market price of AMIC being significantly less than the fair value of the net assets of AMIC. This disparity is due to the low trading volume in AMIC shares, and a discount on the shares traded due to a lack of control by minority shareholders. The fair value of the noncontrolling interests in AMIC was based on the closing market price of AMIC’s common stock on the Acquisition Date.

In connection with the acquisition, the Company recorded $12,200,000 of intangible assets. Of this amount, $1,700,000 represents the fair value of agent and marketing contracts and relationships, $1,000,000 represents the fair value of a domain name, and $2,000,000 represents the fair value of customer lists and all are amortizable over the life of the respective intangible asset. The remaining $7,500,000 represents non-amortizable intangible assets consisting of the fair value of insurance licenses with indefinite lives. As the AMIC acquisition was accounted for as a bargain purchase, the Company did not record goodwill in connection with the transaction.

~~The following table presents the identifiable assets acquired and liabilities assumed in the acquisition of AMIC on the Acquisition Date based on their respective fair values (in thousands).~~

Investments

$
58,418
Cash and cash equivalents

4,761
Identifiable intangible assets

12,200
Deferred tax assets, net

10,654
Other assets

31,127

Total identifiable assets

117,160

Insurance liabilities

27,671
Other liabilities

19,023

Total liabilities

46,694

Net identifiable assets acquired

70,466

Purchase consideration

(71)
Fair value of equity investment prior to the acquisition

(22,013)
Noncontrolling interests in AMIC

(22,065)
Elimination of the fair value adjustment related to AMIC’s

investment in Majestic

(688)

Gain on bargain purchase

25,629

Gain on fair value of equity investment prior to the acquisition

2,201

Total gain on bargain purchase of AMIC, pretax

27,830

Deferred income taxes

11,097

Total gain on bargain purchase of AMIC, after tax

$
16,733

~~For the three months ended September 30, 2010, the Company’s Condensed Consolidated Statement of Operations includes revenues and net income of $21,803,000 and $1,000,000, respectively, from AMIC.~~

For the period from the Acquisition Date to September 30, 2010, the Company’s Condensed Consolidated Statement of Operations includes revenues and net income of $53,207,000 and $2,253,000, respectively, from AMIC.

The unaudited pro forma revenues and operating results, had the acquisition occurred as of the beginning of the nine-month period ended September 30, 2010, were $316,426,000 and $7,323,000, respectively. The unaudited pro forma information presented is not indicative of the results of operations in future periods, nor does it necessarily reflect the results of operations that would have resulted had the acquisition been completed as of the beginning of the applicable period. Pro forma adjustments to revenues principally reflectthe elimination of intercompany fee income, the elimination of the Company’s equity income related to AMIC and the elimination of the gain resulting from the bargain purchase. Pro forma adjustments to net income principally reflect the elimination of the Company’s equity income related to AMIC and the elimination of the gain resulting from the bargain purchase.

During the period from January 1, 2010 to the Acquisition Date (the “Stub Period”), IHC recorded $280,000 of equity income from its investment in AMIC, representing IHC's proportionate share of income based on its ownership interest during that period. AMIC paid no dividends on its common stock during the Stub Period.

~~The following disclosures summarize the effects of certain transactions between IHC and its~~

subsidiaries with AMIC during the Stub Period. Subsequent to the Acquisition Date, the effects of these transactions are eliminated in consolidation. IHC and its subsidiaries recorded income of $208,000 from service agreements with AMIC and its subsidiaries. These are reimbursements to IHC and its subsidiaries, at agreed upon rates including an overhead factor, for management services provided by IHC and its subsidiaries, including accounting, legal, compliance, underwriting and claims. The Company ceded premiums to AMIC of $5,867,000. Benefits to policyholders on business ceded to AMIC were $3,020,000. Additionally, AMIC subsidiaries market, underwrite and provide administrative services (including premium collection, medical management and claims adjudication) for a substantial portion of the Medical Stop-Loss business written by the insurance subsidiaries of IHC. IHC recorded gross premiums of $8,452,000 and net commission expense of $326,000 for these services. The Company also contracts for several types of insurance coverage (e.g. directors and officers and professional liability coverage) jointly with AMIC. The cost of this coverage is allocated between the Company and AMIC according to the type of risk, and IHC’s portion is recorded in Selling, General and Administrative Expenses.

Note 3.

Income Per Common Share

Income per share calculations are based on income from continuing operations attributable to the common shareholders of IHC for the three-month and nine-month periods ended September 30, 2011 and 2010, as shown below (in thousands):

Three Months Ended

Nine Months Ended

September 30,

September 30,

2011

2010

2011

2010

Income from continuing operations
$
4,011
$
5,051
$
11,275
$
23,746

Less income from noncontrolling interests

in subsidiaries

(457)

(610)

(1,497)

(1,391)

Income from continuing operations

attributable to IHC shareholders, net of tax

3,554

4,441

9,778

22,355

Loss from discontinued operations, net of tax

-

(21)

-

(203)

Net income attributable to IHC shareholders
$
3,554
$
4,420
$
9,778
$
22,152

Included in the diluted income per share calculations for the ~~three-months~~three months ended March 31, 2012 and ~~nine-months ended September 30,~~ 2011 are ~~5,000~~147,000 and ~~8,000~~4,000, respectively, of incremental shares respectively, from; (1) the assumed exercise of dilutive stock options; (ii) the assumed vesting of dilutive restricted stock; and (iii) assumed share settlement of dilutive stock appreciation rights (“SARs”), computed using the treasury stock method. Included in the diluted income per share calculations for the three-~~months and nine-months ended September 30, 2010 are nil and 3,000 of incremental shares, respectively,~~ from the assumed exercise of dilutive stock options and the assumed vesting of dilutive restricted stock, computed using the treasury stock method.

1311

Note 4.

Investments

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


				September 30, 2011										March 31, 2012
						GROSS		GROSS								GROSS		GROSS
				AMORTIZED		UNREALIZED		UNREALIZED		FAIR				AMORTIZED		UNREALIZED		UNREALIZED		FAIR
				COST		GAINS		LOSSES		VALUE				COST		GAINS		LOSSES		VALUE
				(In thousands)										(In thousands)
FIXED MATURITIES	FIXED MATURITIES										FIXED MATURITIES
	AVAILABLE-FOR-SALE:										AVAILABLE-FOR-SALE:
	Corporate securities		$	352,043	$	8,376	$	(2,400)	$	358,019	Corporate securities		$	343,552	$	5,446	$	(3,283)	$	345,715
	CMOs- residential⁽¹⁾			38,865		5,502		(2,143)		42,224	CMOs- residential⁽¹⁾			22,419		5,114		(735)		26,798
	CMOs - commercial			1,448		-		(904)		544	CMOs - commercial			1,448		-		(915)		533
	U.S. Government obligations			12,464		701		-		13,165	U.S. Government obligations			21,671		627		(4)		22,294
	Agency MBS - residential⁽²⁾			8,754		368		-		9,122	Agency MBS - residential⁽²⁾			499		43		-		542
	GSEs⁽³⁾			74,393		1,313		(228)		75,478	GSEs⁽³⁾			60,395		510		(162)		60,743
	States and political subdivisions			318,219		7,254		(1,259)		324,214	States and political subdivisions			253,358		7,558		(732)		260,184

		Total fixed maturities	$	806,186	$	23,514	$	(6,934)	$	822,766		Total fixed maturities	$	703,342	$	19,298	$	(5,831)	$	716,809

EQUITY SECURITIES	EQUITY SECURITIES										EQUITY SECURITIES
	AVAILABLE-FOR-SALE:										AVAILABLE-FOR-SALE:
	Common stocks		$	8,258	$	16	$	(783)	$	7,491	Common stocks		$	3,001	$	84	$	(5)	$	3,080
	Preferred stock - perpetuals			19,513		244		(311)		19,446	Preferred stock - perpetual			16,349		406		-		16,755
	Preferred stock - with maturities			15,527		1,285		(191)		16,621	Preferred stock - with maturities			8,051		1,577		-		9,628

		Total equity securities	$	43,298	$	1,545	$	(1,285)	$	43,558		Total equity securities	$	27,401	$	2,067	$	(5)	$	29,463


				December 31, 2010										December 31, 2011
						GROSS		GROSS								GROSS		GROSS
				AMORTIZED		UNREALIZED		UNREALIZED		FAIR				AMORTIZED		UNREALIZED		UNREALIZED		FAIR
				COST		GAINS		LOSSES		VALUE				COST		GAINS		LOSSES		VALUE
				(In thousands)										(In thousands)
FIXED MATURITIES	FIXED MATURITIES										FIXED MATURITIES
	AVAILABLE-FOR-SALE:										AVAILABLE-FOR-SALE:
	Corporate securities		$	272,061	$	3,595	$	(3,661)	$	271,995	Corporate securities		$	319,343	$	5,873	$	(2,076)	$	323,140
	CMOs - residential⁽¹⁾			58,829		6,662		(1,847)		63,644	CMOs - residential⁽¹⁾			33,119		5,200		(1,544)		36,775
	CMOs - commercial			1,447		-		(639)		808	CMOs - commercial			1,448		-		(910)		538
	U.S. Government obligations			16,617		351		-		16,968	U.S. Government obligations			164,807		1,775		-		166,582
	Agency MBS - residential⁽²⁾			10,069		206		(51)		10,224	Agency MBS - residential⁽²⁾			539		46		-		585
	GSEs⁽³⁾			70,199		510		(182)		70,527	GSEs⁽³⁾			59,633		379		(161)		59,851
	States and political subdivisions			365,578		2,070		(8,158)		359,490	States and political subdivisions			250,361		5,692		(651)		255,402

		Total fixed maturities	$	794,800	$	13,394	$	(14,538)	$	793,656		Total fixed maturities	$	829,250	$	18,965	$	(5,342)	$	842,873

EQUITY SECURITIES	EQUITY SECURITIES										EQUITY SECURITIES
	AVAILABLE-FOR-SALE:										AVAILABLE-FOR-SALE:
	Common stocks		$	4,600	$	167	$	(98)	$	4,669	Common stocks		$	6,537	$	311	$	(149)	$	6,699
	Preferred stock - perpetuals			31,530		1,065		(315)		32,280	Preferred stock - perpetual			21,767		422		(451)		21,738
	Preferred stock - with maturities			9,790		1,334		-		11,124	Preferred stock - with maturities			8,051		1,136		(83)		9,104

		Total equity securities	$	45,920	$	2,566	$	(413)	$	48,073		Total equity securities	$	36,355	$	1,869	$	(683)	$	37,541

(1)

Collateralized mortgage obligations (“CMOs”).

(2)

Mortgage-backed securities (“MBS”).

(3)

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

1412

~~Unrealized~~The unrealized gains (losses) on certain available-for-sale securities ~~(a residential CMO~~(residential CMO’s and certain preferred stocks with maturities) ~~include $1,954,000 and $1,763,000~~ at ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010,~~2011 include $1,897,000 and $2,625,000, respectively, ~~related to~~of the non-credit related component of other-than-temporary impairment losses, ~~pre-tax,~~pretax, that were recognized in accumulated other comprehensive income.

The amortized cost and fair value of fixed maturities available-for-sale at ~~September 30, 2011,~~March 31, 2012, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The average life of mortgage-backed securities is affected by prepayments on the underlying loans and, therefore, is materially shorter than the original stated maturity.


						% OF						% OF
			AMORTIZED		FAIR	TOTAL FAIR			AMORTIZED		FAIR	TOTAL FAIR
			COST		VALUE	VALUE			COST		VALUE	VALUE
			(In thousands)						(In thousands)

Due in one year or less	Due in one year or less	$	5,090	$	5,126	.6%	Due in one year or less	$	10,495	$	10,694	1.5%
Due after one year through five years	Due after one year through five years		175,516		178,490	21.7%	Due after one year through five years		153,663		156,083	21.8%
Due after five years through ten years	Due after five years through ten years		199,599		205,660	25.0%	Due after five years through ten years		173,812		175,236	24.4%
Due after ten years	Due after ten years		308,805		312,788	38.0%	Due after ten years		283,493		289,001	40.3%
			689,010		702,064	85.3%			621,463		631,014	88.0%
CMO and MBS	CMO and MBS						CMO and MBS
	15 year		60,352		63,469	7.7%	15 year		39,228		42,781	6.0%
	20 year		860		869	.1%	20 year		813		830	.1%
	30 year		55,964		56,364	6.9%	30 year		41,838		42,184	5.9%

		$	806,186	$	822,766	100.0%		$	703,342	$	716,809	100.0%

The following tables summarize, for all available-for-sale securities in an unrealized loss position at ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010,~~2011, respectively, the aggregate fair value and gross unrealized loss by length of time those securities that have continuously been in an unrealized loss position:


					Less than 12 Months				12 Months or Longer				Total							Less than 12 Months				12 Months or Longer				Total

					Fair		Unrealized		Fair		Unrealized		Fair			Unrealized				Fair		Unrealized		Fair		Unrealized		Fair			Unrealized
September 30, 2011					Value		Losses		Value		Losses		Value			Losses
March 31, 2012																	March 31, 2012			Value		Losses		Value		Losses		Value			Losses
					(In thousands)															(In thousands)

Corporate securities	Corporate securities			$	86,733	$	2,369	$	6,086	$	31	$	92,819	$	2,400		Corporate securities		$	137,266	$	(2,950)	$	19,630	$	(333)	$	156,896	$	(3,283)
CMOs - residential	CMOs - residential				10,643		462		7,534		1,681		18,177		2,143		CMOs - residential			200		(134)		8,726		(601)		8,926		(735)
CMO's - commercial	CMO's - commercial				-		-		544		904		544		904		CMO's - commercial			-		-		533		(915)		533		(915)
U.S. Government obligations																	U.S. Government obligations			1,238		(4)		-		-		1,238		(4)
Agency MBS residential																	Agency MBS residential			-		-		-		-		-		-
GSEs	GSEs				36,966		152		3,787		76		40,753		228		GSEs			13,356		(89)		3,336		(73)		16,692		(162)
States and political	States and political																States and political
		subdivisions			49,200		622		37,383		637		86,583		1,259			subdivisions		52,214		(494)		18,831		(238)		71,045		(732)
Total fixed maturities	Total fixed maturities				183,542		3,605		55,334		3,329		238,876		6,934		Total fixed maturities			204,274		(3,671)		51,056		(2,160)		255,330		(5,831)
Common stocks	Common stocks				6,964		783		-		-		6,964		783		Common stocks			851		(5)		-		-		851		(5)
Preferred stocks-perpetual	Preferred stocks-perpetual				7,350		38		5,641		273		12,991		311		Preferred stocks-perpetual			-		-		-		-		-		-
Preferred stocks with
			maturities		7,513		191		-		-		7,513		191
Total temporarily	Total temporarily																Total temporarily
	impaired securities			$	205,369	$	4,617	$	60,975	$	3,602	$	266,344	$	8,219		impaired securities		$	205,125	$	(3,676)	$	51,056	$	(2,160)	$	256,181	$	(5,836)



			Less than 12 Months				12 Months or Longer				Total

			Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
December 31, 2011			Value		Losses		Value		Losses		Value		Losses
			(In thousands)

Corporate securities		$	128,820	$	1,989	$	9,451	$	87	$	138,271	$	2,076
CMOs - residential			1,396		176		14,597		1,368		15,993		1,544
CMOs - commercial			-		-		538		910		538		910
GSEs			15,134		131		2,367		30		17,501		161
States and political subdivisions			43,978		291		20,929		360		64,907		651
Total fixed maturities			189,328		2,587		47,882		2,755		237,210		5,342
Common stocks			1,724		149		-		-		1,724		149
Preferred stocks-perpetual			-		-		4,968		451		4,968		451
Preferred stocks-with maturities			1,644		83		-		-		1,644		83
Total temporarily impaired
	securities	$	192,696	$	2,819	$	52,850	$	3,206	$	245,546	$	6,025

Less than 12 Months

12 Months or Longer

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized
December 31, 2010

Value

Losses

Value

Losses

Value

Losses

(In thousands)

Corporate securities
$
103,247

$
3,404

$
12,253

$
257

$
115,500
$
3,661
CMOs - residential

12,494

476

16,979

1,371

29,473

1,847
CMOs - commercial

-

-

808

639

808

639
Agency MBS - residential

5,085

51

-

-

5,085

51
GSEs

32,481

170

1,389

12

33,870

182
States and political

subdivisions

195,589

5,292

37,655

2,866

233,244

8,158
Total fixed maturities

348,896

9,393

69,084

5,145

417,980

14,538
Common stocks

999

98

-

-

999

98
Preferred stocks-perpetual

14,845

315

-

-

14,845

315
Total temporarily

impaired securities
$
364,740

$
9,806

$
69,084

$
5,145

$
433,824
$
14,951

At ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010,~~2011, a total of 5760 and ~~117~~53 fixed maturities available-for-sale,respectively, and 204 and 135 equity securities available-for-sale, respectively, were in a continuous unrealized loss position for less than 12 months. At ~~September 30, 2011~~both March 31, 2012 and December 31, ~~2010~~2011 a total of ~~23 and 27~~29 fixed maturities ~~respectively,~~available-for-sale, and nil and 1 ~~and nil~~ equity ~~securities,~~security available-for-sale, respectively, had continuous unrealized losses for 12 months or longer.

Substantially all of the unrealized losses on fixed maturities available-for-sale at ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010~~2011 relate to investment grade securities and are attributable to changes in market interest rates and general disruptions in the credit market subsequent to purchase. The unrealized loss on corporate securities and state and political subdivisions are due to wider spreads. Spreads have widened as investors shifted funds to US Treasuries in response to the current market turmoil. With the exception of the securities for which an other-than-temporary impairment was recorded in other comprehensive income, the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2011 becauseBecause the Company does not intend to sell, nor is it more likely than not that the Company will have to sell such investments before recovery of their amortized cost bases, which may be ~~maturity.~~maturity, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2012.

At ~~September 30, 2011,~~March 31, 2012, the Company had ~~$20,672,000~~$12,868,000 invested in whole loan CMOs backed by Alt-A mortgages. Of this amount, ~~45.0%~~21.3% were in CMOs that originated in 2005 or earlier and ~~55.0%~~78.7% were in CMOs that originated in 2006. The unrealized losses on all other CMO’s relate to prime rate CMO’s and are primarily attributed to general disruptions in the credit market subsequent to purchase. The Company’s mortgage security portfolio has no exposure to sub-prime mortgages.

Other-Than-Temporary Impairment Evaluations

The Company reviews its investment securities regularly and determines whether other-than- temporary impairments have occurred. The factors considered by management in its regular review to identify and recognize other-than-temporary impairment losses on fixed maturities include, but are not limited to: the length of time and extent to which the fair value has been less than cost; the Company's intent to sell, or be required to sell, the debt security before the anticipated recovery of its remaining amortized cost basis; the financial condition and near-term prospects of the issuer; adverse changes in ratings announced by one or more rating agencies; subordinated credit support; whether the issuer of a debt security has remained current on principal and interest payments; current expected cash flows; whether the decline in fair value appears to be issuer specific or, alternatively, a reflection of general market or industry conditions including the effect of changes in market interest rates. If the Company intends to sell a debt security, or it is more likely than not that it would be required to sell a debt security before the recovery of its amortized cost basis, the entire difference between the security's amortized cost basis and its fair value at the balance sheet date would be recognized by a charge to total other-than-temporary impairment losses in

1614

the Condensed Consolidated Statement of Operations. If a decline in fair value of a debt security is judged by management to be other-than-temporary and; (i) the Company does not intend to sell the security; and (ii) it is not more likely than not that it will be required to sell the security prior to recovery of the security’s amortized cost, the Company assesses whether the present value of the cash flows to be collected from the security is less than its amortized cost basis. To the extent that the present value of the cash flows generated by a debt security is less than the amortized cost basis, a credit loss exists. For any such security, the impairment is bifurcated into (a) the amount of the total impairment related to the credit loss, and (b) the amount of the total impairment related to all other factors. The amount of the other-than-temporary impairment related to the credit loss is recognized by a charge to total other-than-temporary impairment losses in the Condensed Consolidated Statement of Operations, establishing a new cost basis for the security. The amount of the other-than-temporary impairment related to all other factors is recognized in other comprehensive income in the Condensed Consolidated ~~Balance Sheet.~~Statement of Comprehensive Income. It is reasonably possible that further declines in estimated fair values of such investments, or changes in assumptions or estimates of anticipated recoveries and/or cash flows, may cause further other-than-temporary impairments in the near term, which could be significant.

In assessing corporate debt securities for other-than-temporary impairment, the Company evaluates the ability of the issuer to meet its debt obligations and the value of the company or specific collateral securing the debt position. For mortgage-backed securities where loan level data is not available, the Company uses a cash flow model based on the collateral characteristics. Assumptions about loss severity and defaults used in the model are primarily based on actual losses experienced and defaults in the collateral pool. Prepayment speeds, both actual and estimated, are also considered. The cash flows generated by the collateral securing these securities are then determined with these default, loss severity and prepayment assumptions. These collateral cash flows are then utilized, along with consideration for the issue’s position in the overall structure, to determine the cash flows associated with the mortgage-backed security held by the Company. In addition, the Company evaluates other asset-backed securities for other-than-temporary impairment by examining similar characteristics referenced above for mortgage-backed securities. The Company evaluates U.S. Treasury securities and obligations of U.S. Government corporations, U.S. Government agencies, and obligations of states and political subdivisions for other-than-temporary impairment by examining the terms and collateral of the security.

Equity securities may experience other-than-temporary impairment in the future based on the prospects for full recovery in value in a reasonable period of time and the Company’s ability and intent to hold the security to recovery. If a decline in fair value is judged by management to be other-than-temporary or management does not have the intent or ability to hold a security, a loss is recognized by a charge to total other-than-temporary impairment losses in the Condensed Consolidated Statement of Operations. For the purpose of other-than-temporary impairment evaluations, preferred stocks with maturities are treated in a manner similar to debt securities. Declines in the creditworthiness of the issuer of debt securities with both debt and equity-like features requires the use of the equity model in analyzing the security for other-than-temporary impairment.

Subsequent increases and decreases, if not an other-than-temporary impairment, in the fair value of available-for-sale securities that were previously impaired, are included in other comprehensive ~~income in the Condensed Consolidated Balance Sheet.~~income.

1715

Based on management’s review of the portfolio, which considered these factors, the Company ~~recognized~~recorded the following losses for other-than-temporary impairments in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2012 and ~~nine months ended September 30,~~ 2011 ~~and 2010~~ (in thousands):

Three Months Ended

Nine Months Ended

September 30,

September 30,

2011

2010

2011

2010

Other-than-temporary impairments:

Fixed maturities
$
107
$
132
$
575
$
2,797


			Three Months Ended
			March 31,
			2012		2011

Other-than-temporary impairments:
	Fixed maturities	$	83	$	303

For the ~~three-month~~three months ended March 31, 2012 and ~~nine-month periods ended September 30,~~ 2011 other-than-temporary ~~impairment losses~~impairments on fixed maturities ~~recognized in earnings~~ of ~~$107,000~~$83,000 and ~~$575,000,~~$303,000, respectively, consist of credit losses recorded as a result of expected cash flows ofon certain debt securities less than ~~the debt securities’~~their amortized cost. The Company also recognized $278,000 of other-than-temporary losses on fixed maturities as a result of factors other than credit losses, in other comprehensive income, for the three-month and nine-month periods ended September 30, 2011. For the three-month and nine-month periods ended September 30, 2010, $132,000 and $2,065,000, respectively, arecredit losses resulting from expected cash flows of debt securities less than the debt securities’ amortized cost. The nine-month period ended September 30, 2010 also includes losses of $732,000 recognized as a result of the Company’s intent to sell certain municipal debt securities prior to the recovery of their amortized cost bases. No losses for other-than-temporary impairments were recognized in other comprehensive income ~~during~~for the three months ended March 31, 2012 or ~~nine months ended September 30, 2010.~~2011.

For the ~~nine~~three months ended ~~September 30,~~March 31, 2012 and 2011, ~~and 2010,~~ cumulative credit losses for other-than-temporary impairments recorded on securities for which a portion of an other-than-temporary impairment was recognized in other comprehensive income were as follows (in thousands):


		2011		2010		2012		2011

Balance at beginning of year	$	1,763	$	2,394	$	2,555	$	1,763
Credit portion of other-than-temporary
impairment losses recognized during period		107		-		-		-
Securities sold		(86)		(631)		(576)		-

Balance at end of period	$	1,784	$	1,763	$	1,979	$	1,763

Further deterioration in credit quality of the companies backing the securities, further deterioration in the condition of the financial services industry, a continuation of the current imbalance in liquidity that exists in the marketplace, a continuation or worsening of the current economic recession, or additional declines in real estate values may further affect the fair value of these securities and increase the potential that certain unrealized losses be designated as other-than-temporary in future periods and the Company may incur additional write-downs.

~~Note 5.~~
~~Net Realized Investment Gains~~

~~Net realized investment gains for the three months and nine months ended September 30, 2011 and 2010 are as follows (in thousands):~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

2011

2010

2011

2010

Net realized investment gains (losses):

Fixed maturities
$
2,252
$
5,104
$
2,535
$
6,847

Common stocks

(696)

(210)

(722)

(58)

Preferred stocks

(632)

490

792

516

Total available-for-sale securities

924

5,384

2,605

7,305

Sales of trading securities

-

(1,355)

-

(1,355)
Other

-

1

-

63

Net realized investment gains
$
924
$
4,030
$
2,605
$
6,013

For the three months and nine months ended September 30, 2011, the Company realized gross gains of $3,112,000 and $9,730,000, respectively, and realized gross losses of $2,188,000 and $7,125,000, respectively, on sales of available-for-sale securities. For the three months and nine months ended September 30, 2010, the Company realized gross gains of $6,220,000 and $11,400,000, respectively, and realized gross losses of $836,000 and $4,095,000, respectively, on sales of available-for-sale securities.

Note 6.5.

Derivative Instruments

In connection with its outstanding $10,000,000 amortizing term loan, a subsidiary of IHC entered into an interest rate swap on July 1, 2011 with the commercial bank lender, for a notional amount equal to the debt principal amount, under which the Company receives a variable rate equal to the rate on the debt and pays a fixed rate ~~of 1.60%~~(1.60%) in order to manage the risk in overall changes in cash flows attributable to forecasted interest payments. As a result of the interest rate swap, interest payments on this debt ~~were~~are fixed at 4.95%. There was no hedge ineffectiveness on this interest rate swap which was accounted for as a cash flow hedge. ~~At September 30 2011, the~~The fair value of the interest rate swap was ~~$589,000~~$530,000 and $494,000 at March 31, 2012 and December 31, 2011, respectively, which is included in other liabilities on the accompanying Condensed Consolidated Balance ~~Sheet.~~Sheets. See Note 7 for further discussion on the valuation techniques utilized to determine the fair value of the interest rate swap. For the ~~three-month and nine-month periods~~three months ended ~~September 30, 2011,~~March 31, 2012, the Company recorded ~~$354,000~~losses of ~~losses on~~$22,000 (net of related tax benefits of $14,000), representing the ~~effective portion~~after-tax change in fair value of the interest rate swap, in other comprehensive income on the accompanying Condensed Consolidated Statement of Comprehensive Income.

Note 6.

Net Realized Investment Gains (Losses)

Net realized investment gains (losses) for the three months ended March 31, 2012 and 2011 are as follows (in thousands):


				Three Months Ended
				March 31,
				2012		2011

Sales of available-for-sale securities:
	Fixed maturities		$	1,241	$	(1,495)
	Common stocks			-		(45)
	Preferred stocks			(491)		1,338
		Total sales of available-for-sale securities		750		(202)

Sales of trading securities				256		-
		Total realized gains (losses)		1,006		(202)

Unrealized gains (losses) on trading securities:
	Available-for-sale securities transferred
		to trading category on January 1, 2012		138		-
	Change in unrealized gains (losses) on trading securities			(7)		-
		Total unrealized gains (losses) on trading securities		131		-

Net realized investment gains (losses)			$	1,137	$	(202)

For the three months ended March 31, 2012, the Company realized gross gains of $3,290,000 and realized gross losses of $2,540,000 on sales of available-for-sale securities. For the three months ended March 31, 2011, the Company realized gross gains of $3,532,000 and realized gross losses of $3,734,000 on sales of available-for-sale securities.

On January 1, 2012, the Company transferred equity securities previously classified as available-for-sale into the trading category and, as a result, recognized $287,000 of gross gains and $149,000 of gross losses in net realized investment gains on the accompanying Condensed Consolidated Statement of Operations. These gains and losses were previously included in accumulated other comprehensive income on the accompanying Condensed Consolidated Balance Sheet ~~net of related tax benefits of $235,000.~~at December 31, 2011.

Note 7.

Fair Value Disclosures of Financial Instruments

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

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

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

Level 3- Instruments where significant value drivers are unobservable.

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

Investments in fixed maturities and equity securities:

Available-for-sale securities included in Level 1 are equities with quoted market prices. Level 2 is primarily comprised of our portfolio of government securities, agency mortgage-backed securities, corporate fixed income securities, collateralized mortgage obligations, municipals, GSEs and certain preferred stocks that were priced with observable market inputs. Level 3 securities consist of CMO securities, primarily Alt-A mortgages. For these securities, we use industry-standard pricing methodologies, including discounted cash flow models, whose inputs are based on management’s assumptions and available market information. Further we retain independent pricing vendors to assist in valuing certain instruments.

~~Interest rate swap:~~

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

The following tables present our financial assets and liabilities measured at fair value on a recurring basis, at ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010,~~2011, respectively (in thousands):


September 30, 2011
March 31, 2012											March 31, 2012
				Level 1		Level 2		Level 3		Total				Level 1		Level 2		Level 3		Total

FINANCIAL ASSETS:	FINANCIAL ASSETS:										FINANCIAL ASSETS:
Fixed maturities available-for-sale:	Fixed maturities available-for-sale:										Fixed maturities available-for-sale:
	Corporate securities		$	-	$	358,019	$	-	$	358,019	Corporate securities		$	-	$	345,715	$	-	$	345,715
	CMOs - residential			-		18,780		23,444		42,224	CMOs - residential			-		13,448		13,350		26,798
	CMOs - commercial			-		-		544		544	CMOs - commercial			-		-		533		533
	US Government obligations			-		13,165		-		13,165	US Government obligations			-		22,294		-		22,294
	Agency MBS - residential			-		9,122		-		9,122	Agency MBS - residential			-		542		-		542
	GSEs			-		75,478		-		75,478	GSEs			-		60,743		-		60,743
	States and political subdivisions			-		324,214		-		324,214	States and political subdivisions			-		257,541		2,643		260,184
		Total fixed maturities		-		798,778		23,988		822,766		Total fixed maturities		-		700,283		16,526		716,809

Equity securities available-for-sale:	Equity securities available-for-sale:										Equity securities available-for-sale:
	Common stocks			7,491		-		-		7,491	Common stocks			3,080		-		-		3,080
	Preferred stocks - perpetual			19,446		-		-		19,446	Preferred stocks - perpetual			16,755		-		-		16,755
	Preferred stocks - with maturities			16,621		-		-		16,621	Preferred stocks - with maturities			9,628		-		-		9,628
		Total equity securities		43,558		-		-		43,558		Total equity securities		29,463		-		-		29,463

Trading securities:											Trading securities:
											Common stocks			6,851		-		-		6,851
												Total trading securities		6,851		-		-		6,851

		Total	$	43,558	$	798,778	$	23,988	$	866,324		Total Financial Assets	$	36,314	$	700,283	$	16,526	$	753,123

FINANCIAL LIABILITIES:	FINANCIAL LIABILITIES:										FINANCIAL LIABILITIES:
	Interest rate swap		$	-	$	589	$	-	$	589		Interest rate swap	$	-	$	530	$	-	$	530


December 31, 2010
December 31, 2011											December 31, 2011
				Level 1		Level 2		Level 3		Total				Level 1		Level 2		Level 3		Total

FINANCIAL ASSETS:	FINANCIAL ASSETS:										FINANCIAL ASSETS:
Fixed maturities available-for-sale:	Fixed maturities available-for-sale:										Fixed maturities available-for-sale:
	Corporate securities		$	-	$	271,995	$	-	$	271,995	Corporate securities		$	-	$	323,140	$	-	$	323,140
	CMOs - residential			-		26,187		37,457		63,644	CMOs - residential			-		14,648		22,127		36,775
	CMOs - commercial			-		-		808		808	CMOs - commercial			-		-		538		538
	US Government obligations			-		16,968		-		16,968	US Government obligations			-		166,582		-		166,582
	Agency MBS - residential			-		10,224		-		10,224	Agency MBS - residential			-		585		-		585
	GSEs			-		70,527		-		70,527	GSEs			-		59,851		-		59,851
	States and political subdivisions			-		359,490		-		359,490	States and political subdivisions			-		255,402		-		255,402
		Total fixed maturities		-		755,391		38,265		793,656		Total fixed maturities		-		820,208		22,665		842,873

Equity securities available-for-sale:	Equity securities available-for-sale:										Equity securities available-for-sale:
	Common stocks			4,669		-		-		4,669	Common stocks			6,699		-		-		6,699
	Preferred stocks - perpetual			32,280		-		-		32,280	Preferred stocks - perpetual			21,738		-		-		21,738
	Preferred stocks - with maturities			11,124		-		-		11,124	Preferred stocks - with maturities			9,104		-		-		9,104
		Total equity securities		48,073		-		-		48,073		Total equity securities		37,541		-		-		37,541

Total			$	48,073	$	755,391	$	38,265	$	841,729
												Total Financial Assets	$	37,541	$	820,208	$	22,665	$	880,414

FINANCIAL LIABILITIES:											FINANCIAL LIABILITIES:
											Interest rate swap		$	-	$	494	$	-	$	494

It is the Company’s policy to recognize transfers of assets and liabilities between levels of the fair value hierarchy at the end of a reporting period. At ~~September 30, 2011,~~March 31, 2012, there were no transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy. No securities were transferred out of Level 2 and into the Level 3 category at ~~September 30, 2011.~~March 31, 2012. The Company does not transfer out of Level 3 and into Level 2 until such time as observable inputs become available and reliable or the range of available independent prices narrow. No securities were transferred out of the Level 3 category in ~~2011.~~2012. The changes in the carrying value of Level 3 assets and liabilities for the ~~nine~~three months ended ~~September 30, 2011~~March 31, 2012 are summarized as follows (in thousands):

September 30, 2011

CMOs

Residential

Commercial

Total

Beginning balance
$
37,457
$
808
$
38,265

Gains(losses) included in earnings:

Net realized investment losses

(16)

-

(16)

Other-than-temporary impairments

(575)

-

(575)

Net unrealized gains (losses) included in

accumulated other comprehensive income

(830)

(264)

(1,094)
Non-credit portion of other-than-temporary impairments

included in other comprehensive income

(278)

-

(278)
Sales of securities

(9,196)

-

(9,196)
Repayments and amortization of fixed maturities

(3,118)

-

(3,118)

Balance at end of period
$
23,444
$
544
$
23,988


					March 31, 2012
					CMOs
									States and Political
					Residential		Commercial		Subdivisions		Total

Beginning balance				$	22,127	$	538	$	-	$	22,665

Purchases of securities					-		-		2,135		2,135

Gains(losses) included in earnings:
			Net realized investment losses		(1,212)		-		-		(1,212)
			Other-than-temporary impairments		(83)		-		-		(83)

Net unrealized gains (losses) included in
		accumulated other comprehensive loss			671		(5)		496		1,162

Sales of securities					(7,087)		-		-		(7,087)
Repayments and amortization of
	fixed maturities				(1,065)		-		11		(1,054)

Balance at end of period				$	13,351	$	533	$	2,642	$	16,526

The following methods and assumptions were used to estimate the fair value of financial instruments not disclosed elsewhere in the Notes to Condensed Consolidated Financial Statements:

(A)

Policy Loans

The fair value of policy loans included in level 2 of the fair value hierarchy is estimated by projecting aggregate loan cash flows to the end of the

expected lifetime period of the life insurance business at the average policy loan rates, and discounting them at a current market interest rate.

(B)

Funds on Deposit

The Company has two types of funds on deposit. The first type is credited with a current market interest rate, resulting in a fair value which approximates the carrying amount. The second type carries fixed interest rates which are higher than current market interest rates. The fair value of these deposits was estimated by discounting the payments using current market interest rates. The Company's universal life policies are also credited with current market interest rates, resulting in a fair value which approximates the carrying amount. Both types of funds on deposit are included in level 2 of the fair value hierarchy.

(C)

Debt

The fair value of debt with variable interest rates approximates its carrying ~~amount. The~~amount and is included in level 2 of the fair value ~~of fixed rate debt is estimated by discounting the cash flows using current market interest rates.~~hierarchy.

The estimated fair values of financial instruments not disclosed elsewhere in the Notes to Condensed Consolidated Financial Statements are as follows:


				September 30, 2011				December 31, 2010						March 31, 2012				December 31, 2011
				Carrying		Fair		Carrying		Fair				Carrying		Fair		Carrying		Fair
				Amount		Value		Amount		Value				Amount		Value		Amount		Value
				(In thousands)										(In thousands)
FINANCIAL ASSETS:	FINANCIAL ASSETS:										FINANCIAL ASSETS:
	Policy loans		$	23,104	$	28,168	$	23,216	$	28,298	Policy loans		$	22,951	$	29,342	$	23,109	$	29,511

FINANCIAL	FINANCIAL										FINANCIAL
	LIABILITIES:										LIABILITIES:
	Funds on deposit		$	416,017	$	418,751	$	406,366	$	411,036	Funds on deposit		$	421,796	$	424,596	$	417,310	$	418,823
	Debt and junior										Debt and junior
		subordinated debt										subordinated debt
		securities		48,146		48,146		45,646		45,646		securities	$	48,146	$	48,146	$	48,146	$	48,146

The following tables present the categorization by level of the fair value hierarchy for items above that are not carried at fair value in the Condensed Consolidated Financial Statements, at March 31, 2012 and December 31, 2011, respectively (in thousands):


March 31, 2012
					Level 1		Level 2		Level 3		Total

FINANCIAL ASSETS:
	Policy loans			$	-	$	29,342	$	-	$	29,342

FINANCIAL LIABILITIES:
		Funds on deposit		$	-	$	424,596	$	-	$	424,596
		Debt and junior subordinated
			debt securities	$	-	$	48,146	$	-	$	48,146


December 31, 2011
					Level 1		Level 2		Level 3		Total

FINANCIAL ASSETS:
	Policy loans			$	-	$	29,511	$	-	$	29,511

FINANCIAL LIABILITIES:
		Funds on deposit		$	-	$	418,823	$	-	$	418,823
		Debt and junior subordinated
			debt securities	$	-	$	48,146	$	-	$	48,146

Note 8.

Goodwill and Other Intangible Assets

The change in the carrying amount of goodwill and other intangible assets (included in other assets in the Condensed Consolidated Balance Sheets) for the first ~~nine months~~quarter of ~~2011~~2012 is as follows (in thousands):


				Other Intangible Assets									Other Intangible Assets
								Total									Total
								Other									Other
				Definitive		Indefinite		Intangible					Definitive		Indefinite		Intangible
		Goodwill		Lives		Lives		Assets			Goodwill		Lives		Lives		Assets

Balance at December 31, 2010	$	51,713	$	12,081	$	7,997	$	20,078
Balance at December 31, 2011									Balance at December 31, 2011	$	50,318	$	9,738	$	7,977	$	17,715

Fully insured:									Fully insured:
									Acquired CPR		-		325		-		325
Capitalized software development		-		116		-		116	Capitalized software development		-		91		-		91
Amortization expense		-		(1,719)		-		(1,719)	Amortization expense		-		(610)		-		(610)

Balance at September 30, 2011	$	51,713	$	10,478	$	7,997	$	18,475

Balance at March 31, 2012									Balance at March 31, 2012	$	50,318	$	9,544	$	7,977	$	17,521

22In February 2012, the Company acquired the net assets of CPR Risk Management, Inc. for (“CPR”) an aggregate purchase price of $275,000. The Company recorded other intangible assets of $325,000 representing customer relationships, which is being amortized over a weighted average period of 5.0 years.

Note 9.
~~Debt~~Common Stock

~~On July 1, 2011, a subsidiary~~IHC issued 1,638,849 shares of ~~IHC amended its amortizing term loan~~common stock, net of treasury shares, in connection with a ~~commercial bank and increased its outstanding debt from $7,500,000~~special 10% stock dividend payable to ~~$10,000,000. The amortizing term loan, as amended: (i) matures~~shareholders of record on ~~July 1, 2016; (ii) bears~~February 17, 2012 with a ~~variable interest rate~~distribution date of ~~Libor plus 3.35%; and (iii) requires annual principal payments in~~March 5, 2012. Accordingly, IHC charged retained earnings $15,799,000, representing the ~~amount~~fair value of ~~$2,000,000 commencing on July 2012 through maturity. The Company simultaneously entered into an interest rate swap with the commercial bank lender. (Refer to Note 6 for more information~~such shares on the ~~interest rate swap).~~distribution date, and recorded a credit to common stock for the par value of such shares and a credit to paid-in capital for the remaining difference. Fractional shares were paid in cash in-lieu of stock. All references to number of common shares and earnings per share amounts have been adjusted retroactively for all periods presented to reflect the change in capital structure.

In February 2012, IHC announced it will increase its annual dividend from $.05 to $.07 per share.

Note 10.
Share-Based Compensation

IHC and AMIC each have share-based compensation plans. The following is a summary of the activity pertaining to each of these plans. ~~AMIC disclosures reflect the activity subsequent to the Acquisition Date.~~

21

A)
IHC Share-Based Compensation Plans

Total share-based compensation was ~~$34,000~~$470,000 and ~~$208,000~~$122,000 for the three months ended ~~September 30,~~March 31, 2012 and 2011, ~~and 2010, respectively, and was $361,000 and $530,000 for the nine months ended September 30, 2011 and 2010,~~ respectively. Related tax benefits of ~~$14,000~~$188,000 and ~~$83,000~~$49,000 were recognized for the three months ended ~~September 30,~~March 31, 2012 and 2011, ~~and 2010, respectively, and were $144,000 and $211,000 for the nine months ended September 30, 2011 and 2010,~~ respectively.

Under the terms of IHC’s stock-based compensation plans, option exercise prices are more than or equal to the quoted market price of the shares at the date of grant; option terms range from five to ten years; and vesting periods are three years for employee options. The Company may also grant shares of restricted stock, share appreciation rights (“SARs”) and share-based performance awards. Restricted shares are valued at the quoted market price of the shares at the date of grant and have a three year vesting period. Exercise prices of SARs are more than or equal to the quoted market price of IHC shares at the date of the grant and have three year vesting periods. At ~~September 30, 2011,~~March 31, 2012, there were ~~700,380~~387,867 shares available for future stock-based compensation grants under IHC’s stock incentive plans.

Stock Options

~~IHC’s~~The Company’s stock option activity for the ~~nine~~three months ended ~~September 30, 2011~~March 31, 2012 is as follows:

Shares

Weighted- Average

Under Option

Exercise Price

December 31, 2010

756,480

$
11.68
Expired

(66,740)

21.94
September 30, 2011

689,740

10.68

Shares

Weighted- Average

Under Option

Exercise Price

December 31, 2011

758,714

$
9.71
Expired

(24,200)

19.54
March 31, 2012

734,514

$
9.39

The following table summarizes information regarding ~~IHC’s~~ outstanding and exercisable options as of ~~September 30, 2011:~~March 31, 2012:

Outstanding

Exercisable

Outstanding

Exercisable

Number of options

689,740

381,872

734,514

565,187
Weighted average exercise price per share
$
10.68
$
11.24
$
9.39
$
9.48
Aggregate intrinsic value for all options
$
-
$
-
$
441
$
294
Weighted average contractual term remaining

2.6 years

2.1 years

2.2 years

2.0 years

The fair value of an option award is estimated on the date of grant using the Black-Scholes option

valuation model. No options were granted during the ~~nine~~three months ended ~~September 30,~~March 31, 2012 or 2011. The weighted average grant-date fair-value of options granted during the nine months ended 2010 was $1.57 per share. The assumptions set forth in the table below were used to value the stock options granted during the nine-month period ended September 30, 2010:


~~Weighted-average risk-free interest rate~~		~~2.3%~~
~~Annual dividend rate per share~~	$	~~.05~~
~~Weighted-average volatility factor of the Company's common stock~~		~~45.0%~~
~~Weighted-average expected term of options~~		~~4.5 years~~

Compensation expense of $61,000 and ~~$120,000~~$110,000 was recognized in the three months ended ~~September 30,~~March 31, 2012 and 2011, ~~and 2010, respectively, and $231,000 and $374,000 was recognized in the nine months ended September 30, 2011 and 2010,~~ respectively, for the portion of the grant-date fair value of stock options vesting during ~~those periods.~~that period.

No options were exercised during the three months ~~and nine months~~ ended ~~September 30, 2011~~March 31, 2012 or ~~2010.~~2011.

As of ~~September 30, 2011,~~March 31, 2012, the total unrecognized compensation expense related to non-vested stock options was ~~$303,000~~$182,000 which is expected to be recognized over the remaining requisite weighted-average service period of ~~1.5~~.75 years.

Restricted Stock

~~IHC issued 6,750~~At March 31, 2012 and ~~2,250~~December 31, 2011, there were 9,900 unvested shares of restricted stock ~~during the nine months ended September 30, 2011 and 2010, respectively. The total~~outstanding with a weighted average grant-date fair value of ~~restricted stock that vested during each of the first nine months of 2011 and 2010 was $23,000.~~$8.95 per share. Restricted stock expense was $9,000 and $5,000, respectively, for the three months ended ~~September 30,~~March 31, 2012 and 2011, ~~and 2010, respectively, and was $18,000 and $24,000 for the nine months ended September 30, 2011 and 2010,~~ respectively. No

~~The following table summarizes~~

shares of restricted stock ~~activity for~~were issued by the ~~nine~~Company, or vested, during the first three months ~~ended September 30, 2011:~~of 2012 or 2011.

No. of

Weighted-Average

Non-vested

Grant-Date

Shares

Fair Value

December 31, 2010

4,500

$
7.80

Granted

6,750

10.82

Vested

(2,250)

$
8.67

September 30, 2011

9,000

$
9.85

As of ~~September 30, 2011,~~March 31, 2012, the total unrecognized compensation expense related to ~~IHC’s~~ non-vested restricted stock awards was ~~$80,000~~$62,000 which is expected to be recognized over the remaining requisite weighted-average service period of ~~2.4~~2.0 years.

SARs and Share-Based Performance Awards

IHC had 274,450 and 230,450 SAR awards outstanding at March 31, 2012 and December 31, 2011, respectively. During the first quarters of 2012 and 2011, the Company granted 44,000 and 96,800 SARs, respectively. The fair value of SARs is calculated using the Black-Scholes valuation model at the grant date and each subsequent reporting period until settlement. Compensation cost is based on the proportionate amount of the requisite service that has been rendered to date. Once fully vested, changes in fair value of the SARs continue to be recognized as compensation expense in the period of the change until settlement. For the three months ended ~~September 30,~~March 31, 2012 and 2011, ~~and 2010,~~ IHC recorded ~~$43,000~~$393,000 and ~~$54,000~~$16,000, respectively, of

compensation costs for these ~~awards, and for the nine months ended September 30, 2011 and 2010, IHC recorded $82,000 and $72,000, respectively.~~awards. No SARs were exercised during the ~~nine~~three months ended ~~September 30, 2011~~March 31, 2012 or ~~2010.~~2011. Included in Other Liabilities in the Company’s Condensed Consolidated Balance Sheets at ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010~~2011 are liabilities of ~~$161,000~~$680,000 and ~~$79,000,~~$288,000, respectively, pertaining to SARs.

Other outstanding awards include share-based performance awards. Compensation costs for these awards are recognized and accrued as performance conditions are met, based on the current share price. For the three months ended ~~September 30,~~March 31, 2012 and 2011, ~~and 2010,~~ IHC recorded ~~$8,000~~$9,000 and ~~$29,000,~~$(9,000), respectively, of compensation costs for these ~~awards, and for the nine months ended September 30, 2011 and 2010, recorded $29,000 and $60,000, respectively.~~awards. The intrinsic value of share-based performance awards ~~paid~~issued during the ~~nine months ended September 30, 2011 and 2010~~first quarter of 2012 was ~~$53,000 and $54,000, respectively.~~$52,000. There were no payments related to these awards in the first quarter of 2011. Included in ~~Other Liabilities in~~the other liabilities on the Company’s Condensed Consolidated Balance Sheets at ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010~~2011 are liabilities of ~~$52,000~~$21,000 and ~~$75,000,~~$65,000, respectively, pertaining to share-based performance awards.

B.B)

AMIC Share-Based Compensation Plans

Total AMIC share-based compensation expense was ~~$9,000~~$8,000 and ~~$18,000~~$16,000 for the three months ended ~~September 30,~~March 31, 2012 and 2011, ~~and 2010, respectively, and was $34,000 and $44,000 for the nine months ended September 30, 2011 and for the period between the Acquisition Date and September 30, 2010,~~ respectively. Related tax benefits of $3,000 and ~~$8,000~~$5,000 were recognized for the three months ended ~~September 30,~~March 31, 2012 and 2011, ~~and 2010, respectively, and were $12,000 and $18,000 for the nine months ended September 30, 2011 and for the period between the Acquisition Date and September 30, 2010,~~ respectively.

Under the terms of the AMIC’s stock-based compensation plan, option exercise prices are equal to the quoted market price of the shares at the date of grant; option terms are ten years; and vesting periods range from three to four years. AMIC may also grant shares of restricted stock, stock appreciation rights and share-based performance awards. Restricted shares are valued at the quoted market price of the shares at the date of grant, and have a three year vesting period. ~~At September 30, 2011, there were 6,517,221 shares available for future stock-based compensation grants under the AMIC stock incentive plan.~~

Stock Options

The following table summarizes information regarding AMIC’s ~~stock option activity~~outstanding and exercisable options for the ~~nine~~three months ended ~~September 30, 2011 is as follows:~~March 31, 2012:

Shares

Weighted- Average

Under Option

Exercise Price

December 31, 2010

359,234

$
9.95
Grants

20,001

5.52
Expired

(31,668)

4.50
Exercised

(13,611)

4.24
September 30, 2011

333,956

$
10.43


	Shares	Weighted- Average
	Under Option	Exercise Price

December 31, 2011	333,956	$	10.43
Expired	-	-
Exercised	-	-
March 31, 2012	333,956	$	10.43

The following table summarizes information regarding AMIC’s outstanding and exercisable options as of ~~September 30, 2011:~~March 31, 2012:


		Outstanding		Exercisable		Outstanding		Exercisable

Number of options		333,956		306,177		333,956		311,733
Weighted average exercise price per share	$	10.43	$	10.90	$	10.43	$	10.80
Aggregate intrinsic value for all options	$	2,000	$	400	$	-	$	-
Weighted average contractual term remaining		3.37 years		2.83 years		2.87 years		2.44 years

The fair value of an option award is estimated on the date of grant using the Black-Scholes option valuation model. ~~The weighted average grant-date fair-value of~~No options were granted during the ~~nine~~three months ended September 30, 2011 and during the period between the Acquisition Date and September 30, 2010 was $3.02 and $2.79 per share, respectively. The assumptions set forth in the table below were used to value the stock options granted during the periods:March 31, 2012 or 2011.

September 30,

2011

2010

Weighted-average risk-free interest rate

3.11%

3.69%
Annual dividend rate per share
$
-
$
-
Weighted-average volatility factor of the Company's common stock

36.89

45.00
Weighted-average expected term of options

5 years

5 years

Compensation expense of ~~$9,000~~$8,000 and ~~$14,000~~$12,000 was recognized for the three months ended ~~September 30,~~March 31, 2012 and 2011, ~~and 2010, respectively, and was $27,000 and $33,000 for the nine months ended September 30, 2011 and for the period between the Acquisition Date and September 30, 2010,~~ respectively, for the portion of the grant-date fair value of AMIC’s stock options vesting during ~~those periods.~~the period.

No options were exercised during the three months ended March 31, 2012. AMIC received cash proceeds of ~~$57,000~~$21,000 upon the exercise of ~~13,611~~4,722 options with an intrinsic value of ~~$11,000~~$2,000 during the ~~nine~~three months ended ~~September 30,~~March 31, 2011. ~~AMIC received cash proceeds of $45,000 upon the exercise of 10,000 options with an intrinsic value of $1,000 during the period between the Acquisition Date and September 30, 2010.~~

As of ~~September 30, 2011,~~March 31, 2012, the total unrecognized compensation expense related to AMIC’s non-vested options was ~~$88,000~~$72,000 which will be recognized over the remaining requisite service periods.

Restricted Stock

AMIC issued 12,000 restricted stock awards in the second quarter of 2008, with a weighted average grant-date fair value of $6.92 per share. No restricted stock awards ~~were~~have been issued ~~in 2011 or 2010. The total fair value of AMIC’s~~since then. AMIC had no unvested restricted stock ~~that vested during the nine months ended September 30, 2011~~awards outstanding at March 31, 2012 and ~~during the period between the Acquisition Date and September 30, 2010 was $12,000 and $13,000, respectively.~~December 31, 2011. Restricted stock expense was ~~$0 and~~ $4,000 for the three months ended ~~September 30, 2011 and 2010, respectively, and was $7,000 and $11,000 for the nine months ended September 30, 2011 and the period between the Acquisition Date and September 30, 2010, respectively.~~March 31, 2011.

~~The following table summarizes AMIC’s restricted stock activity for the nine months ended September 30, 2011:~~

No. of

Weighted-Average

Non-vested

Grant-Date

Shares

Fair Value

December 31, 2010

2,500

$
6.92

Vested

(2,000)

$
6.92

Forfeited

(500)

$
6.92

September 30, 2011

-

$
-

Note 11.
Income Taxes

The provision for income taxes shown in the Condensed Consolidated Statements of Operations was computed based on the Company's actual results which approximate the effective tax rate expected to be applicable for the balance of the current fiscal year in accordance with consolidated life/non-life group income tax regulations. Such regulations adopt a subgroup method in determining consolidated taxable income, whereby taxable income is determined separately for the life insurance company group and the non-life insurance company group.

The deferred income tax expense for the ~~nine~~three months ended ~~September 30, 2011~~March 31, 2012 allocated to stockholders' equity (principally for net unrealized ~~losses~~gains on investment securities) was ~~$3,967,000,~~$286,000, representing the increase in the related deferred tax liability from ~~$360,000~~$3,768,000 at December 31, ~~2010~~2011 to ~~$4,327,000~~4,054,000 at ~~September 30, 2011.~~March 31, 2012.

Included in the ~~$1,167,000 of~~$1,900,000 benefit for income taxes recorded for the ~~nine~~three months ended ~~September 30,~~March 31, 2011 is a deferred income tax benefit of $2,319,000 associated with IHC’s investment in AMIC. As the result of management’s intention to adopt tax planning strategies to recover IHC’s investment in AMIC in a tax-free manner, the cumulative Federal and State deferred income tax liabilities established as of December 31, 2010 for temporary differences between IHC’s book value and tax basis in AMIC became permanent. Accordingly, IHC released its previously recorded deferred income tax liabilities and will not record deferred income taxes in ~~2011 and~~ future periods for any earnings or stockholders’ equity adjustments relating to IHC’s investment in AMIC.

24

At ~~September 30, 2011,~~March 31, 2012, AMIC, had net operating loss carryforwards of approximately ~~$271,836,000~~$273,600,000 for federal income tax purposes which expire between 2019 and 2029. The ~~federal~~net deferred tax asset relative to AMIC included in other assets on IHC’s Condensed Consolidated Balance ~~Sheet~~Sheets at ~~September 30,~~March 31, 2012 and December 31, 2011 was ~~$8,837,000, net of a valuation allowance of $85,622,000.~~$7,478,000 and $8,030,000, respectively. AMIC continues to file its own separate income tax return and is not included in the consolidated tax return of IHC.

Note 12.
Reinsurance

Effective January 26, 2012, Standard Security Life entered into a coinsurance agreement with an unaffiliated reinsurer to cede group annuity reserves. In accordance with the agreement, Standard Security Life transferred $143,537,000 of cash in the first quarter of 2012 and recorded a corresponding amount as due from reinsurers. Subsequent to March 31, 2012, the Company received final approval from the New York State Insurance Department to convert the transfer from a coinsurance to an assumption agreement. When complete, the assumption will contractually relieve Standard Security Life of liability with regards to the policies.

Note ~~12.~~13.
Supplemental Disclosures of Cash Flow Information

Tax refunds, net of tax payments, were ~~$3,751,000~~$915,000 and ~~$(467,000)~~$(157,000) during the ~~nine~~three months ended ~~September 30, 2011~~March 31, 2012 and ~~2010, respectively.~~2011.

Cash payments for interest were ~~$1,420,000~~$532,000 and ~~$1,431,000~~$464,000 during the ~~nine~~three months ended ~~September 30,~~March 31, 2012 and 2011, ~~and 2010,~~ respectively.

Note ~~13.~~14.
Other Comprehensive Income (Loss)

The components of other comprehensive income (loss) include: (i) ~~net income or loss reported in the Condensed Consolidated Statements of Operations; (ii)~~ the after-tax net unrealized gains and losses on investment securities available for sale, including the subsequent increases and decreases in fair value of available-for-sale securities previously impaired; ~~and (iii)~~(ii) the non-credit related component of other-than-temporary impairments of fixed maturities, net of ~~tax.~~tax; and (iii) the after-tax gains and losses from derivative instruments designated and qualifying as a cash flow hedge.

The ~~comprehensive income for the three months and nine months ended September 30, 2011 and 2010 is summarized as follows (in thousands):~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

2011

2010

2011

2010

Net income
$
4,011
$
5,030
$
11,275
$
23,543
Net change in unrealized gains (losses):

Unrealized gains arising

during the period, net of income taxes

3,709

8,678

8,712

17,609

Net change in non-credit portion of other-than-

temporary impairment losses, net of tax

(115)

(410)

(115)

(410)

Comprehensive income

7,605

13,298

19,872

40,742
Less comprehensive income attributable to

noncontrolling interests

(591)

(610)

(1,887)

(1,391)

Comprehensive income attributable to IHC
$
7,014
$
12,688
$
17,985
$
39,351

~~Included in accumulated~~tax effect on each component of other comprehensive income ~~at September 30,~~(loss) for three months ended March 31, 2012 and 2011 ~~and December 31, 2010 are after-tax impairments losses of $1,247,000 and $1,132,000, respectively, related to the non-credit related component of other-than-temporary impairment losses.~~is as follows:


			Before		Tax		Net of
			Tax		Effect		Tax
		(In thousands)
2012
Net unrealized gains (losses) on available-for-sale securities		$	719	$	300	$	419
Other-than-temporary impairment losses			-		-		-
Allocation to deferred acquisition costs			(14)		-		(14)
Unrealized gains (losses) on derivatives			(36)		(14)		(22)
	Other comprehensive income (loss)	$	669	$	286	$	383

2011
Net unrealized gains (losses) on available-for-sale securities		$	(264)	$	(57)	$	(207)
Other-than-temporary impairment losses			-		-		-
Allocation to deferred acquisition costs			82		-		82
Unrealized gains (losses) on derivatives			-		-		-
	Other comprehensive income (loss)	$	(182)	$	(57)	$	(125)

Note ~~14.~~15.

Segment Reporting

The Insurance Group principally engages in the life and health insurance business. Information by business segment for the three months ~~and nine months~~ ended ~~September 30, 2011and 2010~~March 31, 2012and 2011 is presented below (in thousands):


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2011		2010		2011		2010			2012		2011
Revenues:									Revenues:
Medical Stop-Loss^(A)	$	32,668	$	34,187	$	93,448	$	99,533
Medical Stop-Loss									Medical Stop-Loss	$	35,260	$	30,635
Fully Insured Health^(B)		42,388		37,629		129,706		105,981		38,667		43,239
Group disability, life, annuities and DBL^(C)		14,986		16,626		45,429		50,416
Group disability, life, annuities and DBL									Group disability, life, annuities and DBL		12,915		15,257
Individual life, annuities and other		13,924		15,858		43,884		44,027	Individual life, annuities and other		13,790		15,143
Corporate		(1,124)		(323)		(994)		27,483	Corporate		470		550
		102,842		103,977		311,473		327,440			101,102		104,824
Net realized investment gains		924		4,030		2,605		6,013	Net realized investment gains		1,137		(202)
Net impairment losses recognized in earnings		(107)		(132)		(575)		(2,797)
Other-than-temporary impairment losses									Other-than-temporary impairment losses		(83)		(303)
										$	102,156	$	104,319
Income from continuing operations									Income from continuing operations
	$	103,659	$	107,875	$	313,503	$	330,656	before income taxes:

Income Before Income Taxes:
Medical Stop-Loss^(A)	$	2,691	$	955	$	4,598	$	3,407
Fully Insured Health^{(B) (D)}		2,355		888		7,297		1,967
Group disability, life, annuities and DBL^(C)		3,285		3,704		4,873		5,018
Medical Stop-Loss									Medical Stop-Loss	$	6,085	$	(27)
Fully Insured Health^(A)									Fully Insured Health^(A)		1,152		3,363
Group disability, life, annuities and DBL									Group disability, life, annuities and DBL		(31)		(184)
Individual life, annuities and other		308		754		652		1,648	Individual life, annuities and other		370		14
Corporate		(3,253)		(2,504)		(5,575)		22,850	Corporate		(1,675)		(268)
		5,386		3,797		11,845		34,890			5,901		2,898
Net realized investment gains		924		4,030		2,605		6,013	Net realized investment gains		1,137		(202)
Net impairment losses recognized in earnings		(107)		(132)		(575)		(2,797)
Other-than-temporary impairment losses									Other-than-temporary impairment losses		(83)		(303)
Interest expense		(516)		(499)		(1,433)		(1,447)	Interest expense		(539)		(457)
										$	6,416	$	1,936
	$	5,687	$	7,196	$	12,442	$	36,659

(A)

~~The amount includes equity income from AMIC (prior to its acquisition) of $14,000 for the nine months ended September 30, 2010.~~

~~(B)~~

~~The amount includes equity income from AMIC (prior to its acquisition) of $244,000 for the nine months ended September 30, 2010.~~

~~(C)~~

~~The amount includes equity income from AMIC (prior to its acquisition) of $22,000 for the nine months ended September 30, 2010.~~

~~(D)~~

The Fully Insured Health segment includes amortization of intangible assets recorded as a result of ~~purchase accounting for the recent acquisitions.~~acquisition accounting. Total amortization expense was ~~$592,000~~$595,000 and ~~$611,000~~$607,000 for the three months ended ~~September 30,~~March 31, 2012 and 2011, ~~and 2010, respectively, and $1,804,000 and $1,771,000 for the nine months ended September 30, 2011 and 2010,~~ respectively. Amortization expense for the other segments is insignificant.

~~Note 15.~~

~~Subsequent Event~~

~~Subsequent to September 30, 2011, the Company sold its 51% interests in MedWatch LLC and Hospital Bill Analysis, LLC.~~26

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

The following discussion of the financial condition and results of operations of Independence Holding Company ("IHC") and its subsidiaries (collectively, the "Company") should be read in conjunction with, and is qualified in its entirety by reference to, the Consolidated Financial Statements of the Company and the related Notes thereto appearing in our annual report on Form 10-K for the fiscal year ended December 31, ~~2010,~~2011, as filed with the Securities and Exchange Commission, and our unaudited Condensed Consolidated Financial Statements and related Notes thereto appearing elsewhere in this quarterly report.

Overview

Independence Holding Company, a Delaware corporation ~~("IHC"~~(“IHC”), is a holding company principally engaged in the life and health insurance business through: (i) its ~~wholly owned~~ insurance companies, Standard Security Life Insurance Company of New York ("Standard Security Life") ~~and~~, Madison National Life Insurance Company, Inc. ("Madison National Life")~~; (ii) its majority owned insurance company,~~, and Independence American Insurance Company (“Independence American”); and ~~(iii)~~(ii) its marketing and administrative companies, including IHC ~~Administrative Services, Inc., IHC~~ Risk Solutions, LLC (“~~IHCRS”~~Risk Solutions”), ~~its full service direct writer of medical stop-loss insurance for self-insured employer groups, and the managing general underwriters ("MGUs") in which it owns a significant voting interest,~~ IHC Health Solutions, Inc. (“~~IHC~~ Health Solutions”), and Actuarial Management Corporation ~~(“AMC”~~("AMC"). These companies are sometimes collectively referred to as the ~~"Insurance Group,"~~“Insurance Group”, and IHC and its subsidiaries (including the Insurance Group) are sometimes collectively referred to as the "Company." ~~At September 30, 2011,~~ IHC also owns a ~~76%~~significant equity interest in a managing general underwriter (“MGU”) that writes medical stop-loss for Standard Security Life. At March 31, 2012, the Company also owned a 78.5% interest in American Independence Corp. (“AMIC”).

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, fully insured medical, disability and New York State short-term statutory disability benefit product ("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. IHC also seeks transactions that permit it to leverage its vertically integrated organizational structure by generating fee income from production and administrative operating companies as well as risk income for its carriers and profit commissions. Management has always focused on managing the costs of its operations and providing its insureds with the best cost containment tools available.

The following is a summary of key performance information and events:

On March 5, 2010, IHC acquired a controlling interest in AMIC. Upon achieving control, AMIC’s income and expense amounts became consolidated with IHC’s results. Accordingly, the individual line items on the Condensed Consolidated Statement of Operations for 2010 include approximately seven months of operations of AMIC.

The results of operations for the three months ~~and nine months~~ ended ~~September 30, 2011and 2010~~March 31, 2012and 2011 are summarized as follows (in thousands):

Three Months Ended

Nine Months Ended

September 30,

September 30,

2011

2010

2011

2010

Revenues
$
103,659
$
107,875
$
313,503
$
330,656
Expenses

97,972

100,679

301,061

293,997

Income from continuing operations

before income taxes

5,687

7,196

12,442

36,659
Income taxes

1,676

2,145

1,167

12,913

Income from continuing operations
4,011

5,051

11,275

23,746

Discontinued operations:

Loss from discontinued operations

-

(21)

-

(203)

Net income

4,011

5,030

11,275

23,543

Less income from noncontrolling interests

in subsidiaries

(457)

(610)

(1,497)

(1,391)

Net income attributable to IHC
$
3,554
$
4,420
$
9,778
$
22,152


			Three Months Ended
			March 31,
			2012		2011

Revenues		$	102,156	$	104,319
Expenses			95,740		102,383

Income from operations before income taxes			6,416		1,936
Income taxes (benefits)			2,086		(1,864)

Net income			4,330		3,800

Less: income from noncontrolling interests in subsidiaries			(408)		(616)

	Net income attributable to IHC	$	3,922	$	3,184

~~Income~~Net income from ~~continuing~~ operations of $.22 per share, diluted, for the three months ended ~~September 30, 2011~~March 31, 2012, compared to ~~$.29~~$.19 per share, diluted, for the ~~same period in 2010. Income from continuing operations of $.62 per share, diluted, for the nine~~three months ended ~~September 30, 2011, compared to $1.46 per share, diluted, for the nine months ended September 30, 2010. Net income for 2010 includes a $16.7 million after-tax gain on the bargain purchase of AMIC;~~March 31, 2011;

·o

Consolidated investment yields (on an annualized basis) of 4.0% ~~and 4.2%~~ for the three months ~~and nine months~~ ended ~~September 30, 2011compared~~March 31, 2012compared to ~~4.9% and 4.6%~~4.4% for the ~~respective periods~~comparable period in ~~2010;~~2011;

·o

~~Released $2.3~~Declared a special 10% stock dividend to IHC shareholders of record on February 17, 2012 with a distribution date of March 5, 2012. As a result, IHC issued 1.6 million shares of ~~deferred income taxes relative to~~ its ~~investment in AMIC based on the Company’s intention to adopt tax planning strategies to recover its investment in AMIC in~~common stock, net of treasury shares, with a ~~tax-free manner;~~fair value of $15.8 million and paid cash in-lieu of fractional shares;

·o

~~Increased ownership interest in AMIC~~Announced IHC will increase its annual dividend from $.05 to ~~76.0%;~~$.07 per share; and

·o
Book value of ~~$15.81~~$14.72 per common share, an increase of ~~$.67~~$.26 per common share from $14.46 at December 31, 2010. The increase is primarily a result of current period net income and the acquisition of noncontrolling interests in AMIC, offset by the issuance of 1,302,190 shares of common stock during the period.2011.

28

The following is a summary of key performance information by segment:

·o
The Medical Stop-Loss segment reported income before taxes of ~~$2.7~~$6.1 million for the ~~third~~first quarter of ~~2011~~2012 compared to ~~$1.0 million~~break-even results for the ~~third quarter of 2010, and reported income before taxes of $4.6 million for the nine~~three months ended ~~September 30, 2011 compared to $3.4 million in the first nine months of 2010.~~March 31, 2011. The increase is primarily due to increased volume and improved ~~underwriting results~~loss ratios in ~~2011;~~2012;

o
Premiums earned ~~decreased $.4 million and~~increased $4.8 million for the ~~three-month and nine-month periods~~three months ended ~~September 30, 2011, respectively,~~March 31, 2012 when compared to the same ~~periods~~period in ~~2010.~~2011. The ~~decrease~~increase in premiums earned is due to ~~the cancellation of certain non-owned managing general underwriters in 2010.~~

o
~~The Company recorded a decrease in the loss ratio in the medical stop-loss line of business for the three months~~increased volume and nine months ended September 30, 2011 due to improved profitability. The medical stop-loss results for the third quarter of 2011 have begun to show improved profit margins primarily as a result of business written in 2010 performing better than that written in the comparable period of 2009 and the run-out of poorly performing business by non-owned MGUs which were previously cancelled.retention.

o
Underwriting experience for the Medical Stop-Loss segment, as indicated by its GAAP Combined Ratios, are as follows for the periods indicated (in thousands):

Three Months Ended

Nine Months Ended

Three Months Ended

September 30,

September 30,

March 31,

2011

2010

2011

2010

2012

2011

Premiums Earned
$
30,342
$
30,730
$
85,658
$
90,526
$
32,651
$
27,895
Insurance Benefits, Claims & Reserves

19,562

22,081

58,689

65,355

18,407

20,894
Expenses

9,228

8,700

25,830

24,109

9,524

8,251

Loss Ratio^(A)

64.5%

71.9%

68.5%

72.2%

56.4%

74.9%
Expense Ratio^(B)

30.4%

28.3%

30.2%

26.6%

29.1%

29.6%
Combined Ratio^(C)

94.9%

100.2%

98.7%

98.8%

85.5%

104.5%

o
Loss ratios for the three months ended March 31, 2012 decreased due to improved underwriting results in both the direct and assumed business.

(A)
Loss ratio represents insurance benefits, claims and reserves divided by premiums earned.
(B)
Expense ratio represents ~~net~~ commissions, ~~(including profit commissions),~~ administrative fees, premium taxes and other underwriting expenses divided by premiums earned.
(C)
~~Combined~~The combined ratio is equal to the sum of the loss ratio and the ~~expenses~~expense ratio.

·
The Fully Insured Health segment reported ~~$2.4~~$1.2 million of income before taxes for the three months ended ~~September 30, 2011as~~March 31, 2012as compared to ~~$.9~~$3.4 million for the comparable period in ~~2010, and reported $7.3 million of income before taxes for the nine months ended September 30, 2011 compared to $2.0 million for the same period in 2010.~~2011.

o
Premiums earned ~~increased~~decreased $4.7 ~~million and $24.5~~ million for the three months ~~and nine months~~ ended ~~September 30, 2011~~March 31, 2012 over the comparable ~~periods in 2010. The increase is~~2011 period primarily due to ~~increased~~decreased volume and retentions in certain lines of ~~this~~the business.

o
Underwriting experience, as indicated by its GAAP Combined Ratios, for the Fully Insured segment ~~are~~for the three months ended March 31, 2012 and 2011 is as follows ~~for the periods indicated~~ (in thousands):

Three Months Ended

Nine Months Ended

September 30,

September 30,

2011

2010

2011

2010

Premiums Earned
$
35,619
$
30,920
$
108,866
$
84,428
Insurance Benefits, Claims & Reserves

21,616

21,004

68,048

57,371
Expenses

11,563

9,168

33,782

24,506

Loss Ratio

60.7%

67.9%

62.5%

68.0%
Expense Ratio

32.5%

29.7%

31.0%

29.0%
Combined Ratio

93.2%

97.6%

93.5%

97.0%

29

Three Months Ended

March 31,

2012

2011

Premiums Earned
$
32,085
$
36,795
Insurance Benefits, Claims & Reserves

21,012

21,544
Expenses

9,409

11,557

Loss Ratio

65.5%

58.6%
Expense Ratio

29.3%

31.4%
Combined Ratio

94.8%

90.0%

o
The ~~decrease~~increase in the loss ratio was primarily attributable to ~~improved underwriting results due to a shift to more limited plans, lower utilization~~an increase in the claims experience on major medical business for groups and ~~claims~~individuals and ~~less exposure to large groups.~~dental businesses in the first quarter of 2012.

o
The underwriting expense ratio ~~increased~~decreased for the three months ended March 31, 2012, primarily as a result of ~~an increase~~a decrease in general expenses.

·
Income before taxes from the Group disability, life, annuities and DBL segment ~~decreased $.4~~increased $.2 million for the three months ended ~~September 30, 2011~~March 31, 2012 compared to the three months ended ~~September 30, 2010, and remained relatively flat for the nine months ended September 30,~~March 31, 2011 primarily as a result of better loss ratios in the group term life and LTD ~~lines partially offset by a decrease in the DBL line due to reduced volume and lower rates;~~lines;

·
Income before taxes from the Individual life, annuities and other segment ~~decreased $.5 million and $.9~~increased $.4 million for the ~~three-month and nine-month periods~~three months ended ~~September 30,~~March 31, 2012 compared to the same period in 2011 ~~over the respective periods in 2010 primarily~~ due to ~~lower investment income;~~a decrease in claims;

·
Income before taxes from the Corporate segment decreased ~~$.8~~$1.4 million for the ~~third quarter of 2011 compared to the third quarter of 2010. For the nine~~three months ended ~~September 30, 2011, income before taxes from the Corporate segment decreased $28.5 million~~March 31, 2012, primarily due to ~~the inclusion,~~an increase in ~~2010, of a $27.8 million pre-tax gain as a result of the March 2010 acquired controlling interest in AMIC;~~corporate overhead;

·
Net realized investment gains were ~~$.9 million and $2.6~~$1.1 million for the three months ~~and nine months~~ ended ~~September 30, 2011~~March 31, 2012 compared to net realized investment ~~gains~~losses of ~~$4.0 million and $6.0~~$.2 million for the three months ~~and nine months~~ ended ~~September 30, 2010. Other-than-temporary~~March 31, 2011.Other-than-temporary impairment losses ~~recognized in earnings~~ for the three months ended March 31, 2012and ~~nine months ended September 30,~~ 2011were $.1 million and ~~$.6~~$.3 million, ~~respectively, and were $.1 million and $2.8 million for the three months and nine months ended September 30, 2010,~~ respectively; and

Premiums by principal product for the three months ended March 31, 2012 and ~~nine months ended September 30,~~ 2011 ~~and 2010~~ are as follows (in thousands):


		Three Months Ended							Nine Months Ended					Three Months Ended
			September 30,						September 30,					March 31,

Gross Direct and Assumed	Gross Direct and Assumed												Gross Direct and Assumed
	Earned Premiums:				2011		2010		2011			2010	Earned Premiums:			2012		2011

Medical Stop-Loss	Medical Stop-Loss	$		38,472		$	40,440	$	109,301	$		122,040	Medical Stop-Loss	$	39,552		$	35,175
Fully Insured Health	Fully Insured Health	53,276				52,139		157,052		155,685			Fully Insured Health	52,447			51,922
Group disability, life, annuities and DBL	Group disability, life, annuities and DBL	23,098				25,744		71,169		78,588			Group disability, life, annuities and DBL	22,805			24,359
Individual, life, annuities and other	Individual, life, annuities and other			7,921			8,655		25,140		24,395		Individual, life, annuities and other		8,160			8,714

		$		122,767		$	126,978	$	362,662	$	380,708			$	122,964		$	120,170

Three Months Ended

Nine Months Ended

September 30,

September 30,

Net Premiums Earned:

2011

2010

2011

2010

Medical Stop-Loss
$
30,342
$
30,730
$
85,658
$
90,526
Fully Insured Health
35,619
30,920
108,866
84,428
Group disability, life, annuities and DBL
12,416
14,127
38,078
42,723
Individual, life, annuities and other

6,853

7,482

22,502

21,080

$
85,230
$
83,259
$
255,104
$
238,757


	Three Months Ended
	March 31,

Net Premiums Earned:			2012		2011

Medical Stop-Loss	$	32,651		$	27,895
Fully Insured Health	32,085			36,795
Group disability, life, annuities and DBL	12,176			13,068
Individual, life, annuities and other		6,862			8,115

	$	83,774		$	85,873

CRITICAL ACCOUNTING POLICIES

The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principles ("GAAP"). The preparation of the Condensed Consolidated Financial Statements in conformity with GAAP requires the Company's 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. A summary of the Company's significant accounting policies and practices is provided in Note 1 of the Notes to the Consolidated Financial Statements included in Item 8 of the Annual Report on Form 10-K for the fiscal year ended December 31, ~~2010.~~2011. Management has identified the accounting policies related toInsurance Premium Revenue Recognition and Policy Charges, Insurance Reserves, Deferred Acquisition Costs, Investments, Goodwill and Other Intangible Assets, and Deferred Income Taxesas 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 this Management's Discussion and Analysis. A full discussion of these policies is included under the heading, “Critical Accounting Policies” in Item 7 of the Annual Report on Form 10-K for the fiscal year ended December 31, ~~2010.~~2011. During the ~~nine~~three months ended ~~September 30, 2011,~~March 31, 2012, there were no additions to or changes in the critical accounting policies disclosed in the ~~2010~~2011 Form 10-K except for the recently adopted accounting standards discussed in Note 1(C) of the Notes to Condensed Consolidated Financial Statements.

3331

Results of Operations for the Three Months Ended ~~September 30, 2011~~March 31, 2012 Compared to the Three Months Ended ~~September 30, 2010~~March 31, 2011

Information by business segment for the three months ended ~~September 30, 2011and 2010~~March 31, 2012and 2011 is as follows:


									Benefits,		Amortization		Selling,
					Net		Fee and		Claims		of Deferred		General
		Premiums			Investment		Other		and		Acquisition		And
March 31, 2012		Earned			Income		Income		Reserves		Costs		Administrative		Total
(In thousands)

Medical Stop-Loss		$	32,651	1,354			1,255		18,407		-		10,768		$	6,085
Fully Insured Health		32,085		329			6,253		21,012		6		16,497			1,152
Group disability,
	life, annuities
	and DBL	12,176		677			62		8,839		-		4,107			(31)
Individual life,
	annuities and other	6,862		5,921			1,007		8,877		1,588		2,955			370
Corporate		-		470			-		-		-		2,145			(1,675)
Sub total		$	83,774	$		8,751	$	8,577	$	57,135	$	1,594	$	36,472		5,901


Net realized investment gains																1,137
Other-than-temporary impairment losses																(83)
Interest expense on debt																(539)
Income from operations before income taxes																6,416
Income taxes																2,086
Net income															$	4,330

Benefits,
Amortization
Selling,

Net
Fee and
Claims
of Deferred
General

Premiums
Investment
Other
and
Acquisition
And

September 30, 2011
Earned
Income
Income
Reserves
Costs
Administrative
Total
(In thousands)

Medical Stop-Loss
$
30,342
1,487
839
19,562
-
10,415
$
2,691
Fully Insured Health
35,619
367
6,402
21,616
8
18,409

2,355
Group disability,

life, annuities

and DBL
12,416
2,528
42
7,520
133
4,048

3,285
Individual life,

annuities and

other
6,853
5,977
1,094
7,956
1,703
3,957

308
Corporate
-
(1,124)
-
-
-
2,129

(3,253)
Sub total
$
85,230
$
9,235
$
8,377
$
56,654
$
1,844
$
38,958

5,386

Net realized investment gains

924
Net impairment losses recognized in earnings

(107)
Interest expense

(516)
Income from continuing operations before income taxes

5,687
Income taxes

1,676
Income from continuing operations

$
4,011

Benefits,
Amortization
Selling,

Net
Fee and
Claims
of Deferred
General

Premiums
Investment
Other
and
Acquisition
And

September 30, 2010
Earned
Income
Income
Reserves
Costs
Administrative
Total
(In thousands)

Medical Stop-Loss
$
30,730
1,407
2,050
22,081
-
11,151
$
955
Fully Insured Health
30,920
384
6,325
21,004
7
15,730

888
Group disability,

life, annuities

and DBL
14,127
2,455
44
7,855
125
4,942

3,704
Individual life,

annuities and

other
7,482
7,213
1,163
10,380
1,546
3,178

754
Corporate
-
(323)
-
-
-
2,181

(2,504)
Sub total
$
83,259
$
11,136
$
9,582
$
61,320
$
1,678
$
37,182

3,797

Net realized investment gains

4,030
Net impairment losses recognized in earnings

(132)
Interest expense

(499)
Income from continuing operations before income taxes

7,196
Income taxes

2,145
Income from continuing operations

$
5,051


									Benefits,		Amortization		Selling,
					Net		Fee and		Claims		of Deferred		General
		Premiums			Investment		Other		and		Acquisition		And
March 31, 2011		Earned			Income		Income		Reserves		Costs		Administrative		Total
(In thousands)

Medical Stop-Loss		$	27,895	1,290			1,450		20,894		-		9,768		$	(27)
Fully Insured Health		36,795		353			6,091		21,544		7		18,325			3,363
Group disability,
	life, annuities
	and DBL	13,068		2,143			46		11,386		131		3,924			(184)
Individual life,
	annuities and other	8,115		5,780			1,248		10,425		1,553		3,151			14
Corporate		-		550			-		-		-		818			(268)
Sub total		$	85,873	$		10,116	$	8,835	$	64,249	$	1,691	$	35,986		2,898


Net realized investment losses																(202)
Other-than-temporary impairment losses																(303)
Interest expense on debt																(457)
Income from operations before income taxes																1,936
Income tax benefits																(1,864)
Net income															$	3,800

3432

Premiums Earned

~~The increase in~~In the first quarter of 2012, premiums earned decreased $2.1 million over the comparable period of 2011. The decrease is primarily due to: (i) the Fully Insured Health segment which had a $4.7 million ~~increase~~decrease in premiums ~~in the third quarter of 2011~~ primarily as a result of ~~increased~~decreased retentions and volume in the short term medical business, major medical business for groups and individuals and ~~limited medical~~dental lines of business and increased volume in the limited medical line, partially offset by a decrease in the student accident line as a result of the cancellation of a producer of this product; partially offset bybusiness; (ii) a $.4 million decrease in the Medical Stop-Loss segment primarily due to the cancellation of non-owned managing general underwriters in 2010; (iii) $1.7 million decrease in the Group disability, life, annuities and DBL segment primarily due to the point of service line which has been discontinued and decreases in the production of LTD and DBL businesses; and (iv) a decrease of ~~$.6~~$1.3 million of earned premiums in the Individual life, annuities and other segment primarily as a result of the transfer of certain group annuity contracts in the fourth quarter of 2011and decreased premium volume from other lines in run-off; and (iii) a $.9 million decrease in the Group disability, life, annuities and DBL segment primarily due to decreased premiums from the LTD line due in part to reduced production ~~of annuity contracts slightly~~sources; partially offset by ~~premiums from~~(iv) a ~~new final expense product with no comparable amounts~~$4.8 million increase in ~~2010.~~the Medical Stop-Loss segment due to increased volume and retention of business in 2012.

Net Investment Income

Total net investment income decreased ~~$1.9~~$1.3 million. The overall annualized investment yields were 4.0% and ~~4.9%~~4.4% (approximately 4.1% and ~~5.2%~~4.6%, on a tax advantaged basis) in the ~~third~~first quarter of ~~2011~~2012 and ~~2010,~~2011, respectively. The overall decrease was primarily a result of ~~decreased partnership income and~~ a decrease in investment income on bonds, equities and short-term investments due to lower yields and the shorter duration of our portfolio. The annualized investment yields on bonds, equities and short-term investments were ~~4.3%~~3.7% and ~~4.8%~~4.0% in the ~~third~~first quarter of ~~2011~~2012 and ~~2010,~~2011, respectively. IHC has approximately ~~$148.6~~$135.2 million in highly rated shorter duration securities earning on average 1.7%. A portfolio that is shorter in duration enables us, if we deem prudent, the flexibility to reinvest in much higher yielding longer-term securities, which would significantly increase investment income.

Net Realized Investment Gains and Other-Than-Temporary Impairment Losses, Net

The Company had net realized investment gains of ~~$.9~~$1.1 million in ~~2011~~2012 compared to ~~$4.0 million of~~ net realized ~~gains in 2010. These amounts include gains and~~investment losses ~~from sales~~ of fixed maturities and equity securities available-for-sale and other investments. Decisions to sell securities are based on management's ongoing evaluation of investment opportunities and economic and market conditions, thus creating fluctuations in gains and losses from period to period.

For both the three months ended September 30, 2011 and 2010, the Company recorded $.1 million, of other-than-temporary impairment losses in earnings, pre-tax, resulting from expected cash flows of debt securities that are less than the debt securities’ amortized cost.

~~Fee Income and Other Income~~

Fee income decreased $1.0 million to $7.1 million in the three months ended September 30, 2011from $8.1 million in the three months ended September 30, 2010 as a result of the lower volume of business in the Medical Stop-Loss segment and certain lines of the Fully Insured Health segment.

~~Total other income decreased~~ $.2 million in ~~the three months ended September 30, 2011to $1.3 million from $1.5 million in the three months ended September 30, 2010.~~

~~Insurance Benefits, Claims and Reserves~~

The decrease in insurance benefits, claims and reserves is primarily attributable to: (i) a decrease of $2.5 million in the Medical Stop-Loss segment, largely resulting from a decrease in premiums earned partially offset by improved loss ratios in 2011; (ii) a $.4 million decrease in the Group disability, life, annuities and DBL segment largely as a result of decreases in LTD claims and decreases in the point of

service line which has been discontinued, partially offset by higher loss ratios in the GTL line of business; (iii) a $2.4 million decrease in the Individual life, annuity and other segment primarily resulting from a decrease in claims and reserves of ordinary life and annuities and reduced production of other annuity contracts; offset by (iv) an increase of $.6 million in the Fully Insured Health segment, principally due to the increase in premiums on the major medical business for groups and individuals, and limited medical lines of business partially offset by a decrease in short term medical claims and a decrease in the student accident line as a result of a lower volume of business.

~~Selling, General and Administrative Expenses~~

The increase in selling, general and administrative expenses is primarily due to: (i) a $.8 million decrease in commissions and other general expenses in the Medical Stop-Loss segment due to a decrease in volume as a result of reduced production; (ii) a $.9 million decrease in the Group disability, life, annuities and DBL segment as a result of the lower volume of the LTD line and the discontinued point of service line; partially offset by (iii) a $2.7 million increase in the Fully Insured Health segment largely due to an increase in commissions as a result of increased retentions in the major medical business for groups and individuals and limited medical lines of business in 2011 combined with administrative expenses resulting from the increased volume of limited medical business; and (iv) a net increase of $.7 million in the selling, general and administrative expenses of all other lines of business.

~~Income Taxes~~

The effective tax rate for the three months ended September 30, 2011 was 29.8% compared to 29.2% in 2010. Due to management’s intention to adopt tax planning strategies to recover its investment in AMIC in a tax-free manner, IHC did not record deferred taxes in 2011 relative to its share of earnings from its investment in AMIC, as it had in prior years. While this results in a lower effective tax rate, it was more than offset by a decrease, in 2011, of benefits derived from tax exempt interest and dividend received deductions as a result of the Company’s investments in both state and political subdivisions and preferred securities.

~~Results of Operations for the Nine Months Ended September 30, 2011 Compared to the Nine Months Ended September 30, 2010~~

~~Information by business segment for the nine months ended September 30, 2011 and 2010 is as follows:~~

Equity

Benefits,
Amortization
Selling,

Net
Income
Fee and
Claims
of Deferred
General

Premiums
Investment
From
Other
and
Acquisition
And

September 30, 2011
Earned
Income
AMIC
Income
Reserves
Costs
Administrative
Total
(In thousands)

Medical Stop-Loss
$
85,658
3,679
-
4,111
58,689
-
30,161
$
4,598
Fully Insured Health
108,866
1,117
-
19,723
68,048
23
54,338

7,297
Group disability,

life, annuities

and DBL
38,078
7,231
-
120
28,654
397
11,505

4,873
Individual life,

annuities and other
22,502
17,951
-
3,431
27,669
4,873
10,690

652
Corporate
-
(994)
-
-
-
-
4,581

(5,575)
Sub total
$
255,104
$
28,984
$
-
$
27,385
$
183,060
$
5,293
$
111,275

11,845

Net realized investment gains

2,605
Net impairment losses recognized in earnings

(575)
Interest expense

(1,433)
Income from continuing operations before income taxes

12,442
Income taxes

1,167
Income from continuing operations

$
11,275

Gain on

Bargain

Equity
Purchase,
Benefits,
Amortization
Selling,

Net
Income
Fee and
Claims
of Deferred
General

Premiums
Investment
From
Other
and
Acquisition
And

September 30, 2010
Earned
Income
AMIC
Income
Reserves
Costs
Administrative
Total
(In thousands)

Medical Stop-Loss
$
90,526
3,132
14
5,861
65,355
-
30,771
$
3,407
Fully Insured Health
84,428
965
244
20,344
57,371
21
46,622

1,967
Group disability,

life, annuities

and DBL
42,723
7,255
22
416
31,407
373
13,618

5,018
Individual life,

annuities and other
21,080
19,633
-
3,314
28,694
4,322
9,363

1,648
Corporate
-
(347)
-
27,830
-
-
4,633

22,850
Sub total
$
238,757
$
30,638
$
280
$
57,765
$
182,827
$
4,716
$
105,007

34,890

Net realized investment gains

6,013
Net impairment losses recognized in earnings

(2,797)
Interest expense

(1,447)
Income from continuing operations before income taxes

36,659
Income taxes

12,913
Income from continuing operations

$
23,746

~~Acquisition of AMIC~~

On March 5, 2010, IHC acquired a controlling interest in AMIC as a result of the purchase of AMIC common stock in the open market. In determining the bargain purchase gain with regard to the acquisition of the controlling interest in AMIC, IHC first recognized a gain of $2.2 million as a result of remeasuring its equity interest in AMIC to its fair value of $22.0 million immediately before the acquisition based on the closing market price of AMIC's common stock. Then, upon the acquisition of a controlling interest on March 5, 2010, the Company consolidated the net assets of AMIC. Accordingly, the Company

determined the fair value of the identifiable assets acquired and liabilities assumed from AMIC on such date. The fair value of the net assets acquired exceeded the sum of: (i) the fair value of the consideration paid; (ii) the fair value of IHC’s equity investment prior to the acquisition; and (iii) the fair value of the noncontrolling interests in AMIC, resulting in a bargain purchase gain of $25.6 million. The total gain, amounting to $27.8 million pre-tax, is included in gain on bargain purchase of AMIC on the Company’s Condensed Consolidated Statement of Operations. This gain is a result of the quoted market price of AMIC being significantly less than the fair value of the net assets of AMIC. This disparity is due to the low trading volume in AMIC shares, and a discount on the shares traded due to a lack of control by minority shareholders. The fair value of the noncontrolling interests in AMIC was based on the closing market price of AMIC’s common stock.

Prior to obtaining control, IHC recorded its investment in AMIC using the equity method. IHC recorded changes in its investment in AMIC in the “Equity income from AMIC” line in the Condensed Consolidated Statements of Operations. Upon achieving control, on March 5, 2010, AMIC’s income and expense amounts became consolidated with IHC’s results. Accordingly, the individual line items on the Condensed Consolidated Statement of Operations for 2010 reflect approximately seven months of the operations of AMIC.

~~Premiums Earned~~

Premiums in the first nine months of 2011 include nine months of earned premiums from AMIC of $54.6 million compared to seven months of earned premiums from AMIC of $43.4 million in 2010. Excluding these amounts, earned premiums increased $5.1 million. The increase is primarily due to: (i) the Fully Insured Health segment which had a $19.2 million increase in premiums in the first nine months of 2011 primarily as a result of increased retentions in the major medical business for groups and individuals, short term medical and limited medical lines of business and increased volume in the major medical business for groups and individuals and limited medical lines, partially offset by a decrease in the student accident line as a result of the cancellation of a producer of this product; (ii) an increase of $1.4 million of earned premiums in the Individual life, annuities and other segment primarily as a result of the ceding of certain ordinary life and annuity business during 2010, in part offset by reduced production of annuity contracts; partially offset by (iii) a $10.5 million decrease in the Medical Stop-Loss segment primarily due to the cancellation of non-owned managing general underwriters in 2010; and (iv) a $5.0 million decrease in the Group disability, life, annuities and DBL segment primarily due to the point of service line which has been discontinued.

~~Net Investment Income~~

Total net investment income decreased $1.6 million. The overall annualized investment yields were 4.2% and 4.6% (approximately 4.3% and 4.8%, on a tax advantaged basis) in the first nine months of 2011 and 2010, respectively. The overall decrease was primarily a result of lower partnership income offset, in part, by a decrease in investment income on bonds, equities and short-term investments due to lower yields and the shorter duration of our portfolio. The annualized investment yields on bonds, equities and short-term investments were 4.2% and 4.6% in the first nine months of 2011 and 2010, respectively. IHC has approximately $148.6 million in highly rated shorter duration securities earning on average 1.7%. A portfolio that is shorter in duration enables us, if we deem prudent, the flexibility to reinvest in much higher yielding longer-term securities, which would significantly increase investment income.

~~Net Realized Investment Gains and Other-Than-Temporary Impairment Losses, Net~~

~~The Company had net realized investment gains of $2.6 million in 2011 compared to $6.0 million of net realized gains in 2010.~~2011. These amounts include gains and losses from sales of fixed maturities and equity securities available-for-sale and other investments. Decisions to sell securities are based on management's ongoing evaluation of investment opportunities and economic and market conditions, thus creating fluctuations in gains and losses from period to period.

For the ~~nine~~three months ended ~~September 30,~~March 31, 2012 and 2011, ~~and 2010,~~ the Company recorded ~~$.6~~$.1 million and ~~$2.8~~$.3 million, respectively, of other-than-temporary impairment losses, ~~in earnings,~~ pre-tax. ~~In 2011, other-than-temporary~~Other-than-temporary impairment losses ~~recognized~~ in ~~earnings~~both 2012 and 2011 consist of credit losses resulting from expected cash flows of debt securities that are less than the debt securities’ amortized cost. In 2010, other-than-temporary impairment losses recognized in earnings consist of $2.0 million of credit losses resulting from expected cash flows of debt securities that are less than the debt securities’ amortized cost and $.8 million resulting from the Company’s intent to sell certain municipal debt securities prior to the recovery of their amortized cost bases.

Fee Income and Other Income

~~Fee~~No significant change in fee income ~~decreased $2.5 million to $22.8 million in~~for the ~~nine~~three months ended ~~September 30, 2011from $25.3 million in~~March 31, 2012compared to the ~~nine~~three months ended ~~September 30, 2010 as a result of the lower volume of business in the Medical Stop-Loss segment and certain lines of the Fully Insured Health segment.~~March 31, 2011.

Total other income ~~for~~decreased $.3 million in the ~~nine~~three months ended ~~September 30, 2011remained comparable to other income for~~March 31, 2012to $1.2 million from $1.5 million in the ~~nine~~three months ended ~~September 30, 2010.~~March 31, 2011.

Insurance Benefits, Claims and Reserves

~~Benefits, claims and reserves in~~In the first ~~nine months~~quarter of 2011 includes nine months of benefits, claims and reserves from AMIC of $36.1 million compared to seven months of benefits, claims and reserves from AMIC of $29.9 million in 2010. Excluding these amounts,2012, insurance, benefits, claims and reserves decreased ~~$5.9 million.~~$7.1 million over the comparable period in 2011. The decrease is primarily attributable to: (i) a decrease of ~~$8.8~~$2.5 million in the Medical Stop-Loss segment ~~largely resulting from a decrease in premiums earned; (ii) a $3.0 million decrease in the Group disability, life, annuities and DBL segment largely~~ as a result of ~~lower~~improved loss ratios on the GTL line of business and a decrease in the point of service line which has been discontinued; and (iii) a $1.0 million decrease in the Individual life, annuity and other segment primarily resulting from a decrease in individual annuity contracts in 2011 andoffset by an increase in ~~ordinary life and annuities; partially offset by (iv)~~premium volume; (ii) an ~~increase~~decrease of ~~$6.9~~$.5 million in the Fully Insured Health segment, principally due to the ~~increase~~decrease in premiums on the major medical business for groups and individuals, short term medical and ~~limited medical~~dental lines of business, partially offset by higher loss ratios on the major medical business for groups and individuals and dental

lines; (iii) a $2.6 million decrease in the ~~student accident line~~Group disability, life, annuities and DBL segment as a result of the transfer of certain group annuity contracts in the fourth quarter of 2011; and (iv) a ~~lower~~$1.5 million decrease in the Individual life, annuity and other segment primarily resulting from the transfer of certain group annuity contracts in the fourth quarter of 2011 and decreased premium volume ~~of business.~~from other lines in run-off.

Amortization of Deferred Acquisition Costs

Amortization of deferred acquisition costs decreased $.1 million primarily as a result of the write-off, in the fourth quarter of 2011, of certain deferred acquisition costs in connection with a coinsurance agreement.

Selling, General and Administrative Expenses

Selling, general and administrative expenses in first nine months 2011 include nine months of expenses from AMIC of $21.2 million compared to seven months of expenses from AMIC of $16.4 million in 2010. Excluding these amounts, selling, general and administrative expenses increased ~~$1.5~~$.5 million. The increase is primarily due to: (i) a ~~$2.3~~$1.0 million ~~decrease~~increase in commissions and other general expenses in the Medical Stop-Loss segment due to ~~a decrease~~an increase in volume as a result of ~~reduced production;~~increased production and retention; and (ii) ~~a $2.2~~an increase of $1.3 million ~~decrease~~ in ~~the Group disability, life, annuities and DBL segment;~~corporate overhead expenses; partially offset by (iii) a ~~$5.1~~$1.8 million ~~increase~~decrease in the Fully Insured Health segment largely due to ~~an increase in commissions as a result~~decreased volume of ~~increased retentions~~business in the major medical business for groups and individuals, short term medical and ~~limited medical~~dental lines of business in 2011 combined with administrative expenses resulting from the increased volume of major medical business for groups and individuals and limited medical business; and (iv) a net increase of $.9 million in the selling, general and administrative expenses of all other lines of

~~business.~~2012.

Income Taxes

The effective tax rate for the three months ended March 31, 2012 was 32.5%. In 2011, IHC eliminated $2.3 million of previously recorded deferred income taxes due to management’s intention to adopt tax planning strategies to recover its investment in AMIC in a tax-free manner. In addition, under the above assumptions, IHC did not record deferred taxes in 2011 relative to its share of earnings from its investment in AMIC, as it had in prior years, also resulting in a lower effective tax rate in the current year. Excluding this transaction, the effective tax rate for the ~~nine~~three months ended ~~September 30,~~March 31, 2011 was ~~28.2% compared to 35.1% in 2010.~~23.5%. The ~~high~~lower effective tax rate in ~~2010 is primarily attributable~~2011 was due to a higher ~~jurisdictional~~benefit from tax ~~rates on the gain related~~advantaged securities as a percentage of income due to ~~the AMIC acquisition~~lower income in ~~2010.~~

2011.

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 maturities; and (iii) earnings on investments. Such cash flow is partially used to fund liabilities for insurance policy benefits. These liabilities represent long-term and short-term obligations.

Corporate

Corporate derives its funds principally from: (i) dividends 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. ~~For~~The insurance group declared and paid $3.0 million of cash dividends to Corporate in the ~~nine~~first quarter of 2012. No dividends were declared or paid by the Insurance Group in the three months ended ~~September 30, 2011 and 2010, Madison National Life paid dividends of $2.0 million and $3.5 million, respectively.~~March 31, 2011.

Cash Flows

The Company had ~~$14.2~~$9.3 million and ~~$11.4~~$18.2 million ~~respectively,~~ of cash and cash equivalents as of ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010.~~2011, respectively.

~~Net~~In February 2012, Standard Security Life transferred $143.5 million cash ~~provided by operating activities of continuing operations for the nine months ended September 30, 2011 was $10.6 million.~~to an unaffiliated

~~Net~~

reinsurer in connection with a coinsurance agreement, representing a significant portion of the $138.8 million decrease in cash ~~used~~from operating activities. Cash provided by investing activities of $130.7 million consists primarily of proceeds from the net sales of investments in preparation for ~~the nine months ended September 30, 2011 was $14.5 million~~such transfer of which a net $14.4 million was invested in securities under resale agreements, equity securities and fixed maturities held-for-sale in addition to $1.0 million used to acquire additional shares of AMIC.funds.

The Company has ~~$458.3~~$453.1 million of insurance reserves that it expects to ultimately pay out of current assets and cash flows from future business. If necessary, the Company could utilize the cash received from maturities and repayments of its fixed maturity investments if the timing of claim payments associated with the Company's insurance resources does not coincide with future cash flows. For the ~~nine~~three months ended ~~September 30, 2011,~~March 31, 2012, cash received from the maturities and other repayments of fixed maturities was ~~$138.9~~$12.8 million.

~~Cash flows provided by financing activities include $2.5 million of proceeds on debt.~~

The Company believes it has sufficient cash to meet its currently anticipated business requirements over the next twelve months including working capital requirements and capital investments.

BALANCE SHEET

The Company had net receivables from reinsurers of ~~$120.5~~$262.3 million at ~~September 30,~~March 31, 2012 compared to $119.7 million at December 31, 2011. The increase is primarily due to a coinsurance agreement with an unaffiliated reinsurer to transfer approximately $143.5 million of group annuity reserves. All of such reinsurance receivables are with highly rated companies or are adequately secured. No allowance for doubtful accounts was necessary at ~~September 30, 2011.~~March 31, 2012.

The Company's health reserves by segment are as follows (in thousands):


		Total Health Reserves				Total Health Reserves
		September 30,		December 31,		March 31,		December 31,
		2011		2010		2012		2011

Medical Stop-Loss	$	60,945	$	64,338	$	52,226	$	58,741
Fully Insured Health		32,657		34,540		31,950		32,508
Group Disability		92,426		90,633		95,152		93,278
Individual A&H and Other		8,720		8,457		8,227		8,460

	$	194,748	$	197,968	$	187,555	$	192,987

Major factors that affect the Projected Net Loss Ratio assumption in reserving for medical stop-loss relate to: (i) frequency and severity of claims; (ii) changes in medical trend resulting from the influences of underlying cost inflation, changes in utilization and demand for medical services, the impact of new medical technology and changes in medical treatment protocols; and (ii) the adherence by the MGUs that produce and administer this business to the Company's underwriting guidelines. Changes in these underlying factors are what determine the reasonably likely changes in the Projected Net Loss Ratio.

The primary assumption in the determination of fully insured reserves is that historical claim development patterns tend to be representative of future claim development patterns. Factors which may affect this assumption include changes in claim payment processing times and procedures, changes in product design, changes in time delay in submission of claims, and the incidence of unusually large claims. The reserving analysis includes a review of claim processing statistical measures and large claim early notifications; the potential impacts of any changes in these factors are minimal. The time delay in submission of claims tends to be stable over time and not subject to significant volatility. Since our analysis considered a variety of outcomes related to these factors, the Company does not believe that any reasonably likely change in these factors will have a material effect on the Company’s financial condition, results of operations, or liquidity.

The ~~$29.7~~$3.9 million increase in IHC’s stockholders' equity in the first ~~nine~~three months of ~~2011~~2012 is primarily due to ~~$9.8~~$3.9 million of net ~~income, $8.2 million of net unrealized gains on available-for-sale securities and the $11.5 million acquisition of noncontrolling interests in AMIC.~~ income.

Asset Quality and Investment Impairments

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. Although the Company's gross unrealized losses on available-for-sale securities totaled ~~$8.2~~$5.8 million at ~~September 30, 2011,~~March 31, 2012, approximately ~~97.4%~~98.3% of the Company’s fixed maturities were investment grade and continue to be rated on average AA. The Company marks all of its available-for-sale securities to fair value through accumulated other comprehensive income or loss. These investments tend to carry less default risk and, therefore, lower interest rates than other types of fixed maturity investments. At ~~September 30, 2011,~~March 31, 2012, approximately ~~2.6%~~1.7% (or ~~$21.5~~7.9 million) of the carrying value of fixed maturities was invested in non-investment grade fixed maturities (primarily mortgage securities) (investments in such securities have different risks than investment grade securities, including greater risk of loss upon default, and thinner

trading markets). ~~The increase in non-investment grade securities is primarily due to the downgrades in credit ratings of certain Alt-A mortgage securities~~ The Company does not have any non-performing fixed maturities at ~~September 30, 2011.~~March 31, 2012.

The Company reviews its investments regularly and monitors its investments continually for impairments. For the ~~nine~~three months ended ~~September 30,~~March 31, 2012 and 2011, the Company recorded ~~$.9~~$.1 and $.3 million of losses for other-than-temporary impairments ~~consisting of $.6 million of credit~~in earnings. No losses ~~recognized in earnings and $.3 million of impairment losses~~for other-than-temporary impairments were recognized in other comprehensive income ~~representing~~for the ~~non-credit related component.~~ three months ended March 31, 2012 and 2011. The following table summarizes the carrying value of securities with fair values less than 80% of their amortized cost at March 31, 2012 by the length of time the fair values of those securities were below 80% of their amortized cost (in thousands):


				Greater than		Greater than
				3 months,		6 months,
		Less than		less than		less than		Greater than
		3 months		6 months		12 months		12 months		Total

Fixed maturities	$	134	$	-	$	-	$	915	$	1,049

The unrealized losses on all remaining available-for-sale securities have been evaluated in accordance with the Company's impairment policy and were determined to be temporary in nature at September 30, 2011. The following table summarizes the carrying value of securities with fair values less than 80% of their amortized cost at September 30, 2011 by the length of time the fair values of those securities were below 80% of their amortized cost (in thousands):

Greater than

Greater than

3 months,

6 months,

Less than

less than

less than

Greater than

3 months

6 months

12 months

12 months

Total

Fixed maturities
$
1,802
$
-
$
227
$
905
$
2,934
Equity securities

342

-

-

-

342

$
2,144
$
-
$
227
$
905
$
3,276

~~Net unrealized gains were $9.0 million and $.6 million at September 30, 2011 and December~~March 31, ~~2010, respectively.~~2012. In ~~2011,~~2012, the Company experienced an increase in net unrealized gains ~~on available-for-sale securities~~ of ~~$15.2~~$.7 million which was offset by ~~a $.2 million pre-tax change in the non-credit portion of other-than-temporary impairment losses recorded in other comprehensive income, $4.0~~$.3 million of deferred taxes and ~~$2.6 million~~a negligible amount of deferred policy acquisition costs. From time to time, as warranted, the Company may employ investment strategies to mitigate interest rate and other market exposures. Further deterioration in credit quality of the companies backing the securities, further deterioration in the condition of the financial services industry, a continuation of the current imbalances in liquidity that exist in the marketplace, a continuation or worsening of the current economic recession, or additional declines in real estate values may further affect the fair value of these securities and increase the potential that certain unrealized losses be designated as other-than-temporary in future periods and the Company may incur additional write-downs.

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.

IHC enters into a variety of contractual obligations with third parties in the ordinary course of its operations, including liabilities for insurance reserves, funds on deposit, debt and operating lease obligations. However, IHC does not believe that its cash flow requirements can be fully assessed based

solely upon an analysis of these obligations. Future cash outflows, whether they are contractual obligations or not, also will vary based upon IHC’s future needs. Although some outflows are fixed, others depend on future events. The maturity distribution of the Company’s obligations, as of ~~September 30, 2011,~~March 31, 2012, is not materially different from that reported in the schedule of such obligations at December 31, ~~2010~~2011 which was included in Item7of the Company’s Annual Report on Form 10-K.

OUTLOOK

For ~~2011,~~2012, we will continue to emphasize:

~~Preparing for~~ Adapting to health care reform by continuing to proactively ~~adjusting~~adjust our distribution strategies and mix of Fully Insured Health products ~~and distribution strategies~~ to take advantage of changing market ~~demands, while continuing to increase the efficiency of our fully insured administrative companies.~~demands.

Leveraging our ~~increased control over~~strategy of directly distributing our ~~medical stop-loss block and the efficiencies of scale arising from the formation of IHCRS~~Medical Stop-Loss products through Risk Solutions to organically generate or acquire additional Medical Stop-Loss business while ~~continuing to improve~~maintaining the profitability of the block. ~~In addition, we will retain more risk on our business as a result of our increased capital base, which will increase our net retained premiums and our future profits starting next year.~~

Closely monitoring the experience in our Group disability, life annuities and DBL business.

Continuing to increase the efficiency of our administrative companies.

The Company remained highly liquid in ~~2011~~2012 with a shorter duration portfolio. As a result, the yields on our investment portfolio were, and continue to remain, lower than in prior years and investment income may continue to be depressed for the balance of the year. IHC has approximately ~~$148.6~~$135 million in highly rated shorter maturity securities earning on average 1.7%; our portfolio as a whole is rated, on average, AA. The low duration of our portfolio enables us, if we deem prudent, the flexibility to reinvest in much higher yielding longer-term securities, which would significantly increase investment income. A low duration portfolio such as ours also mitigates the adverse impact of potential inflation. IHC will continue to monitor the financial markets and invest accordingly.

In the fourth quarter of 2011, Standard Security Life entered into a coinsurance agreement with an unaffiliated reinsurer effective January 26, 2012 and transferred approximately $143.4 million of group annuity reserves in the first quarter of 2012.

At ~~September 30, 2011,~~March 31, 2012, IHC owned approximately ~~76%~~78.5% of the outstanding common stock of AMIC.

We will continue to focus on our strategic objectives, including expanding our distribution network. However, the success of a portion of our Fully Insured Health business may be affected by the passage of the Patient Protection and Affordable Care and Education Reconciliation Act of 2010 signed by President Obama in March 2010, and its subsequent interpretations by state and federal regulators and the review of its ~~possible revision~~Constitutionality by the ~~newly-elected Congress.~~United States Supreme Court. The National Association of Insurance Commissioners has now issued its proposed regulations. The regulations proposed to-date (including those mandating minimum loss ratios) seem to have validated our strategy of pursuing niche lines of business across many states utilizing multiple carriers. We have begun a comprehensive review of all the options for IHC and we are continuing a thorough evaluation of our options for those health insurance products that may be affected. Although the law will generally require insurers to operate with a lower expense structure for major medical plans in the small employer and individual markets, the law appears to make exceptions for carriers, such as ours, that have a minimal presence in any one state. “Non-essential” lines of business ~~are not~~and Medical Stop-Loss have been impacted by health care ~~reform.~~reform minimally or not at all.

Our results depend on the adequacy of our product pricing, our underwriting and the accuracy of our reserving methodology, returns on our invested assets and our ability to manage expenses. Therefore, factors affecting these items, including unemployment and global financial markets, may have a material adverse effect on our results of operations and financial condition.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company manages interest rate risk by seeking to maintain an investment 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. This is accomplished by first creating an insurance model of the Company's in-force policies using current assumptions on mortality, lapses and expenses. Then, current investments are assigned to specific insurance blocks in the model using appropriate prepayment schedules and future reinvestment patterns.

The results of the model specify whether the investments and their related cash flows can support the related current insurance cash flows. Additionally, various scenarios are developed changing interest rates and other related assumptions. These scenarios help evaluate the market risk due to changing interest rates in relation to the business of the Insurance Group.

The expected change in fair value as a percentage of the Company's fixed income portfolio at ~~September 30, 2011~~March 31, 2012 given a 100 to 200 basis point rise or decline in interest rates is not materially different than the expected change at December 31, ~~2010~~2011 included in Item 7A of the Company’s Annual Report on Form 10-K.

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 were acquired from liquidated companies which tend to exhibit lower surrender rates 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 unrealized gains in its investment 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

IHC’s Chief Executive Officer and Chief Financial Officer supervised and participated in IHC’s evaluation of its disclosure controls and procedures as of the end of the period covered by this report. Disclosure controls and procedures are controls and procedures designed to ensure that information required to be disclosed in IHC’s periodic reports filed or submitted 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. Based upon that evaluation, IHC’S Chief Executive Officer and Chief Financial Officer concluded that IHC’s disclosure controls and procedures are effective.

There has been no change in IHC’s internal control over financial reporting during the ~~nine months~~fiscal quarter ended ~~September 30, 2011~~March 31, 2012 that has materially affected, or is reasonably likely to materially affect, IHC's internal control over financial reporting.

4438

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

We are involved in legal proceedings and claims that arise in the ordinary course of our businesses. We have established reserves that we believe are sufficient given information presently available related to our outstanding legal proceedings and claims. We do not anticipate that the result of any pending legal proceeding or claim will have a material adverse effect on our financial condition or cash flows, although there could be such an effect on our results of operations for any particular period.

ITEM 1A.

RISK FACTORS

There were no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2010~~2011 in Item 1A to Part 1 of Form 10-K.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~Private Placements~~

In the first quarter of 2011, IHC acquired an aggregate 900,325 shares of AMIC common stock from noncontrolling interests in exchange for the issuance of 600,218 shares of common stock as private placements of unregistered securities under section 4(2) of the Securities Act. Accordingly, the shares will be “restricted securities”, subject to 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 promulgated under the Securities Act or any other available exemption. Information pertaining to the Company’s common stock is provided in Note 15 of the Notes to Consolidated Financial Statements included in Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31,2010.

Share Repurchase Program

IHC has a program, initiated in 1991, under which it repurchases shares of its common stock. In January 2010, the Board of Directors authorized the repurchase of up to 500,000 shares of IHC’s common stock, inclusive of prior authorizations, under the 1991 plan. As of ~~September 30, 2011, 233,786~~March 31, 2012, 135,164 shares were still authorized to be repurchased under the plan. Share repurchases during the ~~third~~first quarter of ~~2011~~2012 are summarized as follows:

2011

Maximum Number

Average Price
Of Shares Which

Month of
Shares
of Repurchased
Can be

Repurchase

Repurchased

Shares

Repurchased

July
-
-
285,700

August
24,514
8.66
261,186

September

27,400
$
7.47
233,786


2012
								Maximum Number
					Average Price			Of Shares Which
		Month of	Shares		of Repurchased			Can be
		Repurchase		Repurchased		Shares			Repurchased

	January		14,823		$		9.23	166,580
	February		15,480		$		10.11	151,100
	March		15,936		$		9.31	135,164

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

Not applicable

ITEM 4.

~~(REMOVED AND RESERVED)~~SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable

ITEM 5.

OTHER INFORMATION

Not applicable

ITEM 6.

EXHIBITS

31.1

Certification of the Chief Executive Officer and President Pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002~~2002.

31.2

Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002~~2002.

32.1

Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002~~2002.

32.2

Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002~~2002.

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.

INDEPENDENCE HOLDING COMPANY

(REGISTRANT)

By:

/s/Roy T. K. Thung

Date:

~~November~~May 10, ~~2011~~2012

Roy T.K. Thung

Chief Executive Officer, President

and ~~President~~Chairman

By:

/s/Teresa A. Herbert

Date:

~~November~~May 10, ~~2011~~2012

Teresa A. Herbert

Senior Vice President and

Chief Financial Officer

4641


INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 2011 (In thousands)


									ACCUMULATED								NON-
									OTHER		TREASURY				TOTAL IHC		CONTROLLING
					COMMON		PAID-IN		COMPREHENSIVE		STOCK,		RETAINED		STOCKHOLDERS'		INTERESTS IN		TOTAL
					STOCK		CAPITAL		INCOME (LOSS)		AT COST		EARNINGS		EQUITY		SUBSIDIARIES		EQUITY

BALANCE AT
	DECEMBER 31, 2010			$	15,472	$	101,003	$	633	$	(1,917)	$	115,437	$	230,628	$	29,646	$	260,274

Net income													9,778		9,778		1,497		11,275
Net change in unrealized
	gains (losses)								8,207						8,207		390		8,597
		Total comprehensive
			income												17,985		1,887		19,872
Acquire noncontrolling
		interests in American
			Independence Corp.		1,293		10,081		117						11,491		(12,491)		(1,000)
Acquire noncontrolling
		interests in Wisconsin
		Underwriting Associates					391								391		(391)		-
Repurchase of common stock											(598)				(598)		-		(598)
Common Stock dividend
	($0.025 Per share)												(396)		(396)		-		(396)
Share-based compensation
	expenses and related
		tax benefits			9		129								138		-		138
Distributions to noncontrolling
		interests													-		(693)		(693)
Other capital transactions							765						(70)		695		(1,073)		(378)

BALANCE AT
	SEPTEMBER 30, 2011			$	16,774	$	112,369	$	8,957	$	(2,515)	$	124,749	$	260,334	$	16,885	$	277,219


							Nine Months Ended September 30,
							2011		2010
CASH FLOWS PROVIDED BY (USED BY) OPERATING ACTIVITIES:
	Net income					$	11,275	$	23,543
	Adjustments to reconcile net income to net change in cash from
		operating activities:
			Gain on bargain purchase of AMIC				-		(27,830)
			Loss from discontinued operations				-		203
			Amortization of deferred acquisition costs				5,293		4,716
			Net realized investment gains				(2,605)		(6,013)
			Net impairment losses recognized in earnings				575		2,797
			Equity income from AMIC and other equity method investments				(1,512)		(927)
			Depreciation and amortization				3,183		3,609
			Share-based compensation expenses				395		574
			Deferred tax expense				774		14,730
			Other				3,162		1,408
Changes in assets and liabilities:
			Net purchase of trading securities				-		(1,355)
			Change in insurance liabilities				(2,265)		(27,244)
			Additions to deferred acquisition costs, net				(5,814)		(4,952)
			Change in net amounts due from and to reinsurers				2,162		15,934
			Change in premium and claim funds				(361)		3,702
			Change in income tax liability				3,514		(3,175)
			Change in due and unpaid premiums				2,948		10,655
			Change in other assets				(3,123)		79
			Change in other liabilities				(7,040)		(9,732)
				Net change in cash from operating activities of continuing operations			10,561		722
				Net change in cash from operating activities of discontinued operations			-		(975)
					Net change in cash from operating activities		10,561		(253)

CASH FLOWS PROVIDED BY (USED BY) INVESTING ACTIVITIES:
	Change in net amount due from and to securities brokers						(28,346)		10,093
	Net sales of securities under resale and repurchase agreements						23,729		9,951
	Sales of equity securities						52,826		49,295
	Purchases of equity securities						(50,135)		(37,719)
	Sales of fixed maturities						284,390		535,848
	Maturities and other repayments of fixed maturities						138,875		96,178
	Purchases of fixed maturities						(435,757)		(657,028)
	Additional investments in other investments, net of distributions						1,129		2,070
	Cash acquired in acquisition of AMIC, net of cash paid						-		4,562
	Cash paid in acquisitions of companies, net of cash acquired						-		(3,469)
	Cash paid in acquisitions of noncontrolling interests						(1,450)		-
	Cash paid in acquisition of policy blocks						-		(2,791)
	Change in notes and other receivables						1,629		844
	Other						(1,390)		(1,581)
					Net change in cash from investing activities		(14,500)		6,253

CASH FLOWS PROVIDED BY (USED BY) FINANCING ACTIVITIES:
	Proceeds of debt						2,500		-
	Repayment of long-term debt						-		(1,500)
	Repurchase of common stock						(598)		(1,591)
	Excess tax expense from expired stock options and vesting of restricted stock						(164)		(22)
	Proceeds of investment-type insurance contracts						5,700		118
	Dividends paid						(777)		(767)
	Other capital transactions						57		(15)
					Net change in cash from financing activities		6,718		(3,777)

Net change in cash and cash equivalents							2,779		2,223
Cash and cash equivalents, beginning of year							11,426		7,394

Cash and cash equivalents, end of period						$	14,205	$	9,617



Investments				$	58,418
Cash and cash equivalents					4,761
Identifiable intangible assets					12,200
Deferred tax assets, net					10,654
Other assets					31,127

		Total identifiable assets			117,160

Insurance liabilities					27,671
Other liabilities					19,023

			Total liabilities		46,694

Net identifiable assets acquired					70,466

Purchase consideration					(71)
Fair value of equity investment prior to the acquisition					(22,013)
Noncontrolling interests in AMIC					(22,065)
Elimination of the fair value adjustment related to AMIC’s
	investment in Majestic				(688)

	Gain on bargain purchase				25,629
	Gain on fair value of equity investment prior to the acquisition				2,201

	Total gain on bargain purchase of AMIC, pretax				27,830

	Deferred income taxes				11,097

	Total gain on bargain purchase of AMIC, after tax			$	16,733


	No. of	Weighted-Average
	Non-vested	Grant-Date
	Shares	Fair Value

December 31, 2010	4,500	$	7.80
Granted	6,750		10.82
Vested	(2,250)	$	8.67

September 30, 2011	9,000	$	9.85


								Gain on
								Bargain
						Equity		Purchase,		Benefits,		Amortization		Selling,
				Net		Income		Fee and		Claims		of Deferred		General
		Premiums		Investment		From		Other		and		Acquisition		And
September 30, 2010		Earned		Income		AMIC		Income		Reserves		Costs		Administrative		Total
(In thousands)

Medical Stop-Loss		$	90,526	3,132		14		5,861		65,355		-		30,771		$	3,407
Fully Insured Health		84,428		965		244		20,344		57,371		21		46,622			1,967
Group disability,
	life, annuities
	and DBL	42,723		7,255		22		416		31,407		373		13,618			5,018
Individual life,
	annuities and other	21,080		19,633		-		3,314		28,694		4,322		9,363			1,648
Corporate		-		(347)		-		27,830		-		-		4,633			22,850
Sub total		$	238,757	$	30,638	$	280	$	57,765	$	182,827	$	4,716	$	105,007			34,890

Net realized investment gains																	6,013
Net impairment losses recognized in earnings																	(2,797)
Interest expense																	(1,447)
Income from continuing operations before income taxes																	36,659
Income taxes																	12,913
Income from continuing operations																$	23,746