Summary of AMERICAN INDEPENDENCE CORP

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of the financial condition and results of operations of 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 year ended December 31, 2007, as filed with the Securities and Exchange Commission, and our condensed consolidated financial statements and related Notes thereto appearing elsewhere in this quarterly report.

Overview

We are an insurance holding company engaged in the insurance and reinsurance business through our wholly owned insurance company, Independence American Insurance Company ("Independence American"), our marketing organizations, including our three medical stop-loss managing general underwriter subsidiaries ("our MGUs"), and our majority owned marketing organizations HIO and IPA ("our Agencies"). Since November 2002, AMIC has been affiliated with Independence Holding Company ("IHC"), which currently owns 49.7% of AMIC's stock, and IHC's senior management has provided direction to the Company through service agreements between the Company and IHC. As of September 30, 2008, Independence American's primary source of revenue was reinsurance premiums. The majority of these premiums are ceded to Independence American from IHC under long-term reinsurance treaties to cede its gross medical stop-loss premiums written to Independence American. In addition, Independence American assumes fully insured health and short-term statutory disability benefit product in New York State ("DBL") premiums from IHC, and assumes medical stop-loss premiums from unaffiliated carriers. In 2007, Independence American began writing small-group major medical, medical stop-loss, major medical plans for individuals and families, and short-term medical. Given its enhanced A- (Excellent) rating from
A.M. Best Company ("A.M. Best") and recent acquisitions, Independence American expects to expand the distribution of its medical stop-loss and fully insured health products.

While management considers a wide range of factors in its strategic planning, the overriding consideration is underwriting profitability. Management's assessment of trends in healthcare and in the medical stop-loss and fully insured health markets plays a significant role in determining whether to expand Independence American's participation in various programs. Since Independence American reinsures a portion of all of the business produced by our MGUs, and since these companies are also eligible to earn profit sharing commissions based on the profitability of the business they place, our MGUs also emphasize underwriting profitability. In addition, management focuses on controlling operating costs. By sharing employees with IHC and sharing resources among our subsidiaries, we strive to maximize our earnings.

Independence American Insurance Company

Independence American, which is domiciled in Delaware, is licensed to write property and/or casualty insurance in 49 states and the District of Columbia and has an A- (Excellent) rating from A.M. Best. An A.M. Best rating is assigned after an extensive quantitative and qualitative evaluation of a company's financial condition and operating performance, and is also based upon factors relevant to policyholders, agents, and intermediaries, and is not directed toward protection of investors. A.M. Best's ratings are not recommendations to buy, sell or hold securities of the Company. Independence American's unaudited statutory capital and surplus as of September 30, 2008 was $40,138,000.

Managing General Underwriters

IndependenceCare markets and underwrites employer medical stop-loss, provider excess loss and HMO Reinsurance products for Standard Security Life Insurance Company of New York ("Standard Security Life"), Madison National Life Insurance Company, Inc. ("Madison National Life"), Independence American and another carrier. In 2006, IndependenceCare Underwriting Services - Tennessee LLC and IndependenceCare Underwriting Services - Southwest LLC were converted from MGUs to regional sales offices. IndependenceCare's 11 employees are responsible for marketing, underwriting, billing and collecting premiums and medically managing, administering and adjudicating claims. RAS markets and underwrites employer medical stop-loss and group life for Standard Security Life and another carrier. RAS, which is based in South Windsor, Connecticut, has 11 marketing, underwriting and claims personnel. Marlton is an employer medical stop-loss and group life MGU for Standard Security Life, Madison National Life and two other carriers. Marlton, which is based in Voorhees, New Jersey, has 27 marketing, underwriting, medical management and claims employees.

The Company has a 23% interest in Majestic, an employer medical stop-loss MGU for Standard Security Life and another carrier. The Company accounts for this investment using the equity method of accounting. Majestic, which is headquartered in Troy, Michigan, has 23 marketing, underwriting, medical management and claims employees. On April 1, 2008, a wholly owned subsidiary of IHC purchased an additional 14.7% interest in Majestic, thereby increasing IHC's interest in this medical stop-loss MGU to 77%.

Discontinued Operations

Prior to becoming an insurance holding company as a result of the acquisition of Independence American Holdings Corp. on November 14, 2002, the Company was a holding company principally engaged in providing internet services through several discontinued operations. Discontinued operations include management's estimates of costs to settle its outstanding liabilities.

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

Net income per share increased to $.26 per share, diluted, or $2.2 million, for the nine months ended September 30, 2008, compared to $.10 per share, diluted, or $0.8 million for the nine months September 30, 2007. Net income per share increased to $.07 per share, diluted, or $0.6 million, for the three months ended September 30, 2008, compared to a loss of $(.17) per share, or $(1.5) million for the three months September 30, 2007.

The book value of the Company increased to $9.98 per share at September 30, 2008 compared to $9.96 per share at December 31, 2007.

Of the aggregate carrying value of the Company's investment assets, approximately 94.7% was invested in investment grade fixed maturities, securities purchased under resale agreements, and cash and cash equivalents at September 30, 2008. Also at such date, 100% of the Company's fixed maturities were investment grade.

The return on investments of the Company was 5.3% and 5.4% for the nine months ended September 30, 2008 and 2007, respectively.

Premiums earned decreased 8% from $80.7 million for the nine months ended September 30, 2007 to $73.8 million for the nine months ended September 30, 2008, primarily due to a decrease in stop-loss and fully insured health premiums assumed from IHC, offset by an increase in direct fully insured health premiums due to the Company's agreement with EDH (see Note 12 of Notes to Condensed Consolidated Financial Statements), and the additional premiums written by Independent Producers of America, LLC ("IPA") (see Note 6 of Notes to Condensed Consolidated Financial Statements).

Independence American is licensed in 49 states and the District of Columbia.

For the nine months ended September 30, 2008, Independence American wrote $3.9 million of medical stop-loss business and $17.1 million of small group major medical business pursuant to the EDH agreement.

For the nine months ended September 30, 2008, Independence American wrote $2.6 million of individual health business produced by our marketing organization IPA, and ceded 50% to a third-party reinsurer.

Underwriting experience, as indicated by its GAAP Combined Ratios on our three lines of business for the three months and nine months ended September 30, 2008 and 2007, are as follows (in thousands):

§                                          Three Months Ended        Nine Months Ended
Medical Stop-Loss                            September 30,             September 30,
                                           2008         2007          2008        2007

Premiums Earned                        $    12,996  $    15,674   $   41,949  $   48,655
Insurance Benefits Claims and Reserves       9,167       14,536       28,535      36,959
Expenses                                     3,881        4,856       13,083      14,468

Loss Ratio(A)                                70.5%        92.7%        68.0%       76.0%
Expense Ratio (B)                            29.9%        31.0%        31.2%       29.7%
Combined Ratio (C)                          100.4%       123.7%        99.2%      105.7%

§                                         Three Months Ended        Nine Months Ended
Fully Insured Health                         September 30,            September 30,
                                           2008         2007         2008        2007

Premiums Earned                        $    10,052  $    9,548   $   29,341  $   29,225
Insurance Benefits Claims and Reserves       9,194       7,092       23,302      20,936
Expenses                                     2,004       2,347        7,009       7,413

Loss Ratio(A)                                91.5%       74.3%        79.4%       71.6%
Expense Ratio (B)                            19.9%       24.6%        23.9%       25.4%
Combined Ratio (C)                          111.4%       98.9%       103.3%       97.0%




§                                          Three Months Ended        Nine Months Ended
DBL                                          September 30,             September 30,
                                           2008         2007          2008        2007

Premiums Earned                        $       833  $       991   $    2,556  $    2,825
Insurance Benefits Claims and Reserves         425          606        1,419       1,684
Expenses                                       215          293          739         836

Loss Ratio(A)                                51.0%        61.2%        55.5%       59.6%
Expense Ratio (B)                            25.8%        29.6%        28.9%       29.6%
Combined Ratio (C)                           76.8%        90.8%        84.4%       89.2%

(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)

The combined ratio is equal to the sum of the loss ratio and the expense ratio.

For the nine months ended September 30, 2008, our MGUs and Agencies generated revenues of $10.8 million compared to $7.4 million for the nine months ended September 30, 2007, an increase of 48%, primarily due to income earned by HIO and IPA slightly offset by lower fee income due to the lower volume of premium underwritten, partially offset by higher profit commissions. For the three months ended September 30, 2008, our MGUs and Agencies generated revenues of $4.1 million compared to $2.7 million for the three months ended September 30, 2007, an increase of 55%, primarily due to income earned by HIO and IPA slightly offset by lower fee income due to the lower volume of premium underwritten and lower profit commissions.

On April 1, 2008, the Company purchased the remaining 20% interest in Marlton, thereby increasing its interest in this medical stop-loss MGU to 100% (see Note 6 of Notes to Condensed Consolidated Financial Statements).

On April 15, 2008, the Company acquired a 51% interest in IPA.

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 Condensed Consolidated Financial Statements included in Item 8 of the Annual Report on Form 10-K for the year ended December 31, 2007. Management has identified the accounting policies related to Insurance Reserves, Premium and MGU Fee income Revenue Recognition, Reinsurance, Income Taxes, Investments, Goodwill and Other Intangibles as those that, due to the judgments, estimates and assumptions inherent in those policies, are critical to an understanding of the Company's condensed consolidated financial statements and this Management's Discussion and Analysis. A full discussion of these policies is included under Critical Accounting Policies in Item 7 of the Annual Report on Form 10-K for the year ended December 31, 2007. During the nine months ended September 30, 2008, there were no additions to or changes in the critical accounting policies disclosed in the Form 10-K for the year ended December 31, 2007.

Results of Operations for the Three Months Ended September 30, 2008, Compared to the Three Months Ended September 30, 2007

                                                  Benefits,    Selling,
                           Fees and      Net        Claims      General      Amortization
September 30,   Premiums    Other    Investment      and          and             and          Minority
     2008        Earned     Income     Income      Reserves      Admin       Depreciation      Interest       Total
                                                    (In thousands)

Independence
   American:
  Medical
stop-loss       $ 12,996        240         538        9,167       3,844                  37           -  $        726
  Fully
Insured Health    10,052      1,057         224        9,194       1,879                 125           -           135
  DBL                833          -          17          425         215                   -           -           210
Total
Independence
   American       23,881      1,297         779       18,786       5,938                 162           -         1,071
MGU Subs and
   Agencies            -      4,095          52            -       3,467                  62          169          449
Corporate              -          2          12            -         337                   -           -          (323)

Subtotal        $ 23,881      5,394         843       18,786       9,742                  224         169        1,197


Net realized investment gains                                                                                     (270)
Income before income taxes                                                                                         927
Income taxes                                                                                                      (331)
Net income                                                                                                $        596

                                                  Benefits,    Selling,
                           Fees and      Net        Claims      General      Amortization
September 30,   Premiums    Other    Investment      and          and             and          Minority
     2007        Earned     Income     Income      Reserves      Admin       Depreciation      Interest       Total
                                                    (In thousands)

Independence
   American:
  Medical
stop-loss       $ 15,674        (13)        613       14,536       4,819                  37           -  $     (3,118)
  Fully
Insured
Health             9,548        (54)        149        7,092       2,222                 125           -           204
  DBL                991          -          23          606         293                   -           -           115
Total
Independence
   American       26,213        (67)        785       22,234       7,334                 162           -        (2,799)
MGU Subs and
   Agencies            -      2,648          92            -       1,834                  81          50           775
Corporate              -          -          77            -         349                   -           -          (272)
Subtotal        $ 26,213      2,581         954       22,234       9,517                 243          50        (2,296)

Net realized investment gains                                                                                       90
Income (loss) before income taxes and
discontinued operations                                                                                         (2,206)
Income taxes                                                                                                       750
Net income                                                                                                $     (1,456)

Premiums Earned. Premiums earned decreased 9%, or $2,332,000, to $23,881,000 for the three months ended September 30, 2008, compared to $26,213,000 for the three months ended September 30, 2007. The Company currently has three lines of business. Premiums relating to medical stop-loss business were $12,996,000 and $15,674,000 for the three months ended September 30, 2008 and September 30, 2007, respectively. The decrease is primarily due to a decrease in medical stop-loss premiums assumed by Independence American ($2,370,000). Premiums relating to group medical, short-term medical ("STM") and individual health were $10,052,000 and $9,548,000 for the three months ended September 30, 2008 and September 30, 2007, respectively. The increase is primarily due to an increase in premiums produced through EDH and IPA ($774,000), offset by a net decrease in group medical and STM premiums assumed from IHC. Premiums relating to DBL were $833,000 and $991,000 for the three months ended September 30, 2008 and September 30, 2007, respectively, a decrease due to a reduction in rates. For the three months ended September 30, 2008, Independence American assumed 10% of IHC's STM business, 9.3% of IHC's group medical business, 20% of IHC's DBL business and 22.9% of IHC's medical stop-loss business. There were no significant changes to these percentages from the prior year.

MGU and Agency Income. MGU and agency income increased $1,449,000 to $4,092,000 for the three months ended September 30, 2008, compared to $2,643,000 for the three months ended September 30, 2007. MGU fee income-administration decreased $501,000 to $1,918,000 for the three months ended September 30, 2008, compared to $2,419,000 for the three months ended September 30, 2007, as our MGUs have decreased their volume of business as a result of stricter underwriting guidelines.

MGU fee income-profit commission decreased $147,000 to $77,000 for the three months ended September 30, 2008, compared to $224,000 for the three months ended September 30, 2007 as a result of less favorable loss ratios experienced at certain of our MGUs. Profit commissions for a given year are based primarily on the performance of business written during portions of the three preceding years. Therefore, profit commissions for 2008 are based on business written during portions of 2005, 2006 and 2007. Income from our Agencies consisted of commission income and other fees of $1,725,000 from IPA, and lead revenue of $372,000 from HIO. IPA and HIO were acquired subsequent to September 30, 2007.

Net Investment Income. Net investment income decreased $111,000 to $843,000 for the three months ended September 30, 2008, compared to $954,000 for the three months ended September 30, 2007 due to lower average investible assets as a result of the Marlton and IPA acquisitions in the second quarter of 2008. The return on investments of the Company was 5.4% for the three months ended September 30, 2008 and 2007.

Net Realized Investment Gains (Losses). The Company recorded a net realized investment loss of $270,000 for the three months ended September 30, 2008, compared to a gain of $90,000 for the three months ended September 30, 2007.
For the three months ended September 30, 2008 and 2007, the Company recorded a loss of $297,000 and $0, respectively, for other-than-temporary impairments.
The loss of $297,000 as of September 30, 2008 represents a loss on bonds and preferred stock that the Company determined to be other-than-temporary due to the severity of the decrease in fair values and the length of time that these securities were in a loss position. See Note 4 of Notes to Condensed Consolidated Financial Statements for additional information. The Company's decision as to whether to sell securities is based on management's ongoing evaluation of investment opportunities and economic market conditions, thus creating fluctuations in realized gains or losses from period to period.

Other Income (Loss). Other income was $1,302,000 for the three months ended September 30, 2008 compared to a loss of $62,000 for the three months ended September 30, 2007. Included in the three months ended September 30, 2008 is income of $1,297,000 representing a decrease in the fair value of the derivative liability relating to the agreement with EDH (see Note 12 of Notes to Condensed Consolidated Financial Statements). Included in the three months ended September 30, 2007 is a loss of $67,000 representing an increase in the fair value of the derivative liability relating to the agreement with EDH. The unrealized gain for the three months ended September 30, 2008 reflects the probability of a lower future payment due to EDH as a result of less favorable loss ratios on this business.

Insurance Benefits, Claims and Reserves. Insurance benefits claims and reserves decreased 16%, or $3,448,000, to $18,786,000 for the three months ended September 30, 2008, compared to $22,234,000 for the three months ended September 30, 2007. The decrease of $3,448,000 is primarily comprised of a $5,369,000 decrease in medical stop-loss due to a decrease in volume of business written and improved loss ratios (the Company recorded $4,500,000 of reserve strengthening in the prior year), offset by a $2,102,000 increase in fully insured health as a result of higher claims and an overestimation of a PPO discount on business from the EDH program, and higher losses on small group business assumed from IHC.

Selling, General and Administrative. Selling, general and administrative expenses increased $225,000 to $9,742,000 for the three months ended September 30, 2008, compared to $9,517,000 for the three months ended September 30, 2007.
This increase is primarily due to the additional expenses of IPA of $2,002,000, which include commissions and other general expenses of the agency, and higher underwriting expenses inclusive of administration fees of $156,000, offset by lower commissions expense of $1,774,000 incurred by Independence American primarily resulting from a decrease in premiums assumed in medical stop-loss business.

Amortization and Depreciation. Amortization and depreciation expense decreased $19,000 to $224,000 for the three months ended September 30, 2008, compared to $243,000 for the three months ended September 30, 2007. The decrease in amortization is the result of the Company fully amortizing the intangible asset associated with previous broker/TPA relationships in the prior year, offset by additional amortization expense as a result of the acquisition of the remaining 20% interest in Marlton (see Note 6 of Notes to Condensed Consolidated Financial Statements).

Minority Interest. The Company recorded minority interest expense of $169,000 for the three months ended September 30, 2008 and $50,000 for the three months ended September 30, 2007. The September 30, 2008 expense relates to the 49% minority interest in IPA and 49% minority interest in HIO. The September 30, 2007 expense relates to the 20% minority interest in Marlton.

Income Taxes. The provision for income taxes increased $1,081,000 to $331,000, an effective rate of 35.7%, for the three months ended September 30, 2008, compared to $(750,000), an effective rate of (34%), for the three months ended September 30, 2007. Net income for the three months ended September 30, 2008 and 2007 includes a non-cash provision for federal income taxes of $317,000 and $(750,000), respectively. The state tax effective rate increased to 2.5% for the three months ended September 30, 2008 from 2.1% for the three months ended September 30, 2007. As compared to our MGUs, Independence American pays a nominal amount of state income tax; therefore, the Company's state tax effective rate will increase relative to a decrease in Independence American's pre-tax income. For as long as AMIC utilizes its net operating loss carry forwards, it will not pay any income taxes, except for federal alternative minimum taxes and state income taxes.

Net Income (Loss). The Company's net income increased to $596,000, or $.07 per share, diluted, for the three months ended September 30, 2008, compared to $(1,456,000), or $(.17) per share, for the three months ended September 30, 2007.

Results of Operations for the Nine Months Ended September 30, 2008, Compared to the Nine Months Ended September 30, 2007

                                                  Benefits,    Selling,
                          Fees and      Net         Claims      General      Amortization
 September    Premiums     Other     Investment      and          and             and          Minority
    30,
    2008       Earned      Income      Income      Reserves      Admin       Depreciation      Interest       Total
                                                    (In thousands)

Independence
   American:
  Medical
stop-loss     $  41,949        177        1,635       28,535      12,973                 110           -  $      2,143
  Fully
Insured
Health           29,341        780          635       23,302       6,633                 376           -           445
  DBL             2,556          -           55        1,419         739                   -           -           453
Total
Independence
   American      73,846        957        2,325       53,256      20,345                 486           -         3,041
MGU Subs and
   Agencies           -     10,586          170            -       8,411                  99         321         1,925
Corporate             -          4           81            -       1,079                   -           -          (994)

Subtotal      $  73,846     11,547        2,576       53,256      29,835                 585         321         3,972


Net realized investment (losses)                                                                                  (555)
Income before income taxes                                                                                       3,417
Income taxes                                                                                                    (1,231)
Net income                                                                                                $      2,186

                                                  Benefits,    Selling,
                          Fees and      Net         Claims      General      Amortization
 September    Premiums     Other     Investment      and          and             and          Minority
    30,
    2007       Earned      Income      Income      Reserves      Admin       Depreciation      Interest       Total
                                                    (In thousands)

Independence
   American:
  Medical
stop-loss     $  48,655        (24)       1,782       36,959      14,358                 110           -  $     (1,014)
  Fully
Insured
Health           29,225        (99)         434       20,936       7,037                 376           -         1,211
  DBL             2,825          -           68        1,684         836                   -           -           373
Total
. . .