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 American Independence Corp. ("AMIC") 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 year ended December 31, 2008, 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"), our two insurance and marketing agencies IPA and HIO, and our claims administration company, ECA. 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 us through service agreements between us and IHC. As of March 31, 2009, the majority of Independence American's 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 premiums and New York State short-term statutory disability benefit law ("DBL") premiums from IHC, and assumes medical stop-loss premiums from unaffiliated carriers. Independence American began writing group major medical, medical stop-loss, major medical plans for individuals and families, and short-term medical in 2007.

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 market play a significant role in determining whether to expand Independence American's health insurance premiums. 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 March 31, 2009 was $42,372,000.

Managing General Underwriters

IndependenceCare, which is headquartered in Minneapolis, Minnesota, markets and underwrites employer medical stop-loss, provider excess loss, HMO Reinsurance and ancillary 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.
IndependenceCare's 10 employees are responsible for marketing, underwriting, billing and collecting premiums, and administrative services. RAS, which is headquartered near Hartford, Connecticut, markets and underwrites employer medical stop-loss and group life for Standard Security Life, Madison National Life, Independence American and one other and another carrier. RAS has 9 marketing, underwriting and claims personnel. Marlton, which is headquartered near Philadelphia, Pennsylvania, markets and underwrites employer medical stop-loss and group life for Standard Security Life, Independence American and two other carriers. Marlton has 18 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 18 marketing, underwriting, medical management and claims employees.

Agencies

In the fourth quarter of 2008, the Company formed ECA to administer, adjudicate, and process claims and perform medical management services for our MGUs, Majestic and third parties. These functions, which were previously performed by each MGU separately, were consolidated in order to generate cost savings through economies of scale and provide more uniform results among the MGUs. ECA, which is headquartered near Philadelphia, Pennsylvania, has 11 employees. The Company has a 51% interest in

both HIO and IPA. HIO, which is headquartered in Minneapolis, Minnesota, is an insurance and marketing agency through its well-established internet domain address: www.healthinsurance.org. This domain generates hundreds of daily leads from individuals and small employers seeking affordable health insurance solutions. IPA, which is headquartered in Tampa, Florida, is a national, career agent marketing organization. IPA operates under a controlled career agent distribution model in which independent producers sell products approved by IPA and AMIC.

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

Net income per share increased to $.16 per share, diluted, or $1.4 million, for the three months ended March 31, 2009, compared to $.10 per share, diluted, or $0.8 million for the three months March 31, 2008.

The book value of the Company shareholders' equity increased to $9.88 per share at March 31, 2009 compared to $9.75 per share at December 31, 2008.

Of the aggregate carrying value of the Company's investment assets, approximately 94.9% was invested in investment grade fixed maturities, securities purchased under resale agreements, and cash and cash equivalents at March 31, 2009. Also at such date, 99.7% of the Company's fixed maturities were investment grade.

The return on investments of the Company was 4.6% and 5.0% for the three months ended March 31, 2009 and 2008, respectively.

Premiums earned decreased 13% from $25.2 million for the three months ended March 31, 2008 to $21.9 million for the three months ended March 31, 2009, primarily due to lower assumed medical stop-loss premiums, lower assumed fully insured premiums, and lower direct fully insured premiums, partially offset by higher direct medical stop-loss premiums.

For the three months ended March 31, 2009, Independence American wrote $2.1 million of individual health business produced by our marketing organization IPA.

Underwriting experience, as indicated by its GAAP Combined Ratios on our three lines of business for the three months ended March 31, 2009 and 2008, are as follows (in thousands):

          §                                          Three Months Ended
          Medical Stop-Loss                              March 31,
                                                     2009         2008

          Premiums Earned                        $    11,884  $    14,701
          Insurance Benefits Claims and Reserves       6,811        9,573
          Expenses                                     3,919        4,815

          Loss Ratio(A)                                57.3%        65.1%
          Expense Ratio (B)                            33.0%        32.8%
          Combined Ratio (C)                           90.3%        97.9%

           §                                         Three Months Ended
           Fully Insured Health                           March 31,
                                                      2009        2008

           Premiums Earned                        $    9,187  $     9,660
           Insurance Benefits Claims and Reserves      6,510        7,461
           Expenses                                    2,205        2,229

           Loss Ratio(A)                               70.9%        77.2%
           Expense Ratio (B)                           24.0%        23.8%
           Combined Ratio (C)                          94.9%       101.0%




          §                                          Three Months Ended
          DBL                                            March 31,
                                                     2009         2008

          Premiums Earned                        $       876  $       883
          Insurance Benefits Claims and Reserves         525          518
          Expenses                                       280          250

          Loss Ratio(A)                                59.9%        58.7%
          Expense Ratio (B)                            32.0%        28.3%
          Combined Ratio (C)                           91.9%        87.0%

(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 three months ended March 31, 2009, our MGUs and Agencies generated revenues of $3.8 million compared to $2.4 million for the three months ended March 31, 2008, an increase of 58%, primarily due to IPA, ECA, and HIO, partially offset by lower income at our MGUs.

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, 2008. 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, 2008. During the three months ended March 31, 2009, there were no additions to or changes in the critical accounting policies disclosed in the Form 10-K for the year ended December 31, 2008.

Results of Operations for the Three Months Ended March 31, 2009, Compared to the
Three Months Ended March 31, 2008


                                                            Benefits,    Selling,
                                     Fees and      Net        Claims      General      Amortization
       March 31,          Premiums    Other    Investment      and          and             and
          2009             Earned     Income     Income      Reserves      Admin       Depreciation        Total

Independence
   American:
  Medical stop-loss       $ 11,884         11         472        6,811       3,882                  37   $   1,637
  Fully Insured Health       9,187         32         130        6,510       2,080                 125         634
  DBL                          876          -          17          525         280                   -          88
Total Independence
   American                 21,947         43         619       13,846       6,242                 162       2,359
MGU Subs and
   Agencies                      -      3,753          94            -       3,870                  47         (70)
Corporate                        -          -           -            -         314                   -        (314)
Subtotal                  $ 21,947      3,796         713       13,846      10,426                  209      1,975


Net realized investment gains (loss)                                                                           226
Income (loss) before income taxes                                                                            2,201
Income taxes                                                                                                  (746)
Net income                                                                                                   1,455
             Less: Net income attributable to the
             noncontrolling interest                                                                           (60)
Net income attributable to American Independence Corp.                                                   $   1,395

                                                            Benefits,    Selling,
                                     Fees and      Net        Claims      General      Amortization
       March 31,          Premiums    Other    Investment      and          and             and
          2008             Earned     Income     Income      Reserves      Admin       Depreciation        Total

Independence
   American:
  Medical stop-loss       $ 14,701        (20)        564        9,573       4,779                  36   $     857
  Fully Insured Health       9,660        (83)        210        7,461       2,173                 126          27
  DBL                          883          -          20          518         250                   -         135
Total Independence
   American                 25,244       (103)        794       17,552       7,202                 162       1,019
MGU Subs and
   Agencies                      -      2,432           8            -       1,770                  14         656
Corporate                        -          2          53            -         375                   -        (320)
Subtotal                  $ 25,244      2,331         855       17,552       9,347                 176       1,355

Net realized investment loss                                                                                   (27)
Income before income taxes                                                                                   1,328
Income taxes                                                                                                  (457)
Net income                                                                                                     871
             Less: Net income attributable to the
             noncontrolling interest                                                                           (65)
Net income attributable to American Independence Corp.                                                   $     806

Premiums Earned. Premiums earned decreased 13%, or $3,297,000, to $21,947,000 for the three months ended March 31, 2009, compared to $25,244,000 for the three months ended March 31, 2008. The Company currently has three lines of business.
Premiums relating to medical stop-loss business were $11,881,000 and $14,701,000 for the three months ended March 31, 2009 and 2008, respectively.
This is due to a decrease in medical stop-loss premiums assumed by Independence American ($3,160,000), partially offset by an increase in medical stop-loss written by Independence American ($340,000). Premiums relating to fully insured health consisting of group major medical, STM, dental, and individual health were $9,190,000 and $9,660,000 for the three months ended March 31, 2009 and 2008, respectively. The decrease is primarily due to a decrease in group major medical and STM premiums assumed from IHC and a decrease in premiums written by Independence American. Premiums relating to DBL were $876,000 and $883,000 for the three months ended March 31, 2009 and 2008, respectively. For the three months ended March 31, 2009, Independence American assumed 10% of IHC's STM business, 8.9% of certain of IHC's group major medical business, 20% of IHC's DBL business and approximately 23% 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 $1,326,000 to $3,754,000 for the three months ended March 31, 2009, compared to $2,428,000 for the three months ended March 31, 2008. MGU fee income-administration decreased $588,000 to $1,470,000 for the three months ended March 31, 2009, compared to $2,058,000 for the three months ended March 31, 2008, as our MGUs have decreased their volume of business as a result of stricter underwriting guidelines. MGU fee income-profit

commission decreased $160,000 to $121,000 for the three months ended March 31, 2009, compared to $281,000 for the three months ended March 31, 2008 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 2009 are based on business written during portions of 2006, 2007 and 2008. For the three months ended March 31, 2009, income from our Agencies consisted of commission income and other fees of $1,712,000 from IPA, revenue of $335,000 from HIO, and $116,000 of claims administration fees from ECA. For the three months ended March 31, 2008, income from our Agencies consisted of revenue of $89,000 from HIO. IPA was acquired subsequent to March 31, 2008 and ECA commenced operations in the fourth quarter of 2008.

Net Investment Income. Net investment income decreased $142,000 to $713,000 for the three months ended March 31, 2009, compared to $855,000 for the three months ended March 31, 2008 due to a lower return on investments. The return on investments of the Company was 4.6% for the three months ended March 31, 2009 and 5.0% for the comparable period in 2008.

Net Realized Investment Gains (Losses). The Company recorded a net realized investment gain of $226,000 for the three months ended March 31, 2009, compared to a loss of $27,000 for the three months ended March 31, 2008. 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 $42,000 for the three months ended March 31, 2009 compared to a loss of $97,000 for the three months ended March 31, 2008. Included in the three months ended March 31, 2009 is income of $43,000 representing a decrease in the fair value of the derivative liability relating to the agreement with Employers Direct Health, Inc. ("EDH") (see Note 12 of Notes to Condensed Consolidated Financial Statements). Included in the three months ended March 31, 2008 is a loss of $103,000 representing an increase in the fair value of the derivative liability relating to the agreement with EDH.
The unrealized gain for 2009 reflects the lower probability of EDH business meeting target benchmarks.

Insurance Benefits, Claims and Reserves. Insurance benefits claims and reserves decreased 21%, or $3,706,000, to $13,846,000 for the three months ended March 31, 2009, compared to $17,552,000 for the three months ended March 31, 2008.
The decrease of $3,706,000 is primarily comprised of a decrease in assumed medical stop-loss of $2,845,000 due to lower premiums written and improved loss ratios due to stricter underwriting guidelines, a decrease in the direct fully insured of $796,000 and a decrease in assumed fully insured of $153,000, partially offset by an increase in direct medical stop-loss of $81,000.

Selling, General and Administrative. Selling, general and administrative expenses increased $1,079,000 to $10,426,000 for the three months ended March 31, 2009, compared to $9,347,000 for the three months ended March 31, 2008.
This increase is primarily due to the additional expense of IPA of $2,257,000 and $274,000 of ECA, which includes commissions and other general expenses of the agencies, offset by lower commission expense of $1,079,000 incurred by Independence American primarily resulting from a decrease in premiums assumed in medical stop-loss business, and lower expenses at IndependenceCare and Marlton of $251,000 and $191,000, respectively primarily due to lower payroll expenses.

Amortization and Depreciation. Amortization and depreciation expense increased $33,000 to $209,000 for the three months ended March 31, 2009, compared to $176,000 for the three months ended March 31, 2008. The increase in amortization is the result of additional amortization expense as a result of the acquisition of the remaining 20% interest in Marlton and the acquisition of 51% of IPA in 2008.

Income Taxes. The provision for income taxes increased $289,000 to $746,000, an effective rate of 34.8%, for the three months ended March 31, 2009, compared to $457,000, an effective rate of 36.2%, for the three months ended March 31, 2008.
Net income for the three months ended March 31, 2009 and 2008 includes a non-cash provision for federal income taxes of $698,000 and $395,000, respectively. The state tax effective rate decreased to 0.7% for the three months ended March 31, 2009 from 3.3% for the three months ended March 31, 2008.
As compared to our MGUs, Independence American pays a nominal amount of state income tax; therefore, the Company's state tax effective rate will decrease relative to an increase in Independence American's pre-tax income. For as long as AMIC utilizes its NOL carryforwards, it will not pay any income taxes, except for federal alternative minimum taxes and state income taxes.

Net Income attributable to the noncontrolling interest. The Company recorded net income attributable to the noncontrolling interest of $60,000 and $65,000 for the three months ended March 31, 2009 and 2008, respectively. The net income for the three months ended March 31, 2009 relates to the 49% noncontrolling interest in IPA and the 49% noncontrolling interest in HIO. The net income for the three months ended March 31, 2008 relates to the 20% noncontrolling interest in Marlton and the 49% noncontrolling interest in HIO.

Net Income attributable to American Independence Corp. The net income attributable to the Company increased 73% to $1,395,000, or $.16 per share, diluted, for the three months ended March 31, 2009, compared to $806,000, or $.10 per share, diluted, for the three months ended March 31, 2008.

Liquidity and Capital Resources

Independence American

Independence American principally derives cash flow from: (i) operations; (ii) the receipt of scheduled principal payments on its portfolio of fixed income securities; and (iii) earnings on investments and other investing activities.
Such cash flow is partially used to finance liabilities for insurance policy benefits and reinsurance obligations.

Corporate

Corporate derives cash flow funds principally from: dividends and tax payments from its subsidiaries and investment income from corporate liquidity. Other than Independence American, there are no regulatory constraints on the ability of any of our subsidiaries to pay dividends to its parent company. Delaware insurance laws and regulations govern the ability of Independence American to pay dividends to its parent company. For the three months ended March 31, 2009, our MGUs and Agencies paid $525,000 in dividends to Corporate.

Cash Flows

As of March 31, 2009, the Company had $56,896,000 of cash, cash equivalents, and investments net of amounts due to/from securities brokers compared with $57,248,000 as of December 31, 2008.

Net cash used by operating activities of continuing operations for the three months ended March 31, 2009 was $148,000. Net cash used by investing activities of continuing operations for the thee months ended March 31, 2009 was $506,000.

As of March 31, 2009, the Company had $7,503,000 of restricted cash at our MGUs.
The amount at our MGUs is directly offset by corresponding liabilities for Premium and Claim Funds Payable of $7,503,000. This asset, in part, represents the premium that is remitted by the insureds and is collected by our MGUs on behalf of the insurance carriers they represent. Each month the premium is remitted to the insurance carriers by our MGUs. Until such remittance is made the collected premium is carried as an asset on the balance sheet of each MGU with a corresponding payable to each insurance carrier. In addition to the premium being held at our MGUs, our MGUs are in possession of cash to pay claims. The cash is deposited by each insurance carrier into a bank account that our MGUs can access. The cash is used by our MGUs to pay claims on behalf of the insurance carriers they represent. The availability of cash enables our MGUs to reimburse claims in a timely manner.

As of March 31, 2009, the Company had $29,991,000 of insurance reserves that it expects to 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.

The Company believes it has sufficient cash to meet its currently anticipated business requirements over the next twelve months including the funding of discontinued operations, working capital requirements, and capital investments.
The Company expects continued cash usage similar to the amount used in 2008 for its discontinued operations, which are primarily net lease obligations, for the year ending December 31, 2009.

Asset Quality and Investment Impairments

The nature and quality of insurance company investments must comply with all applicable insurance statutes and regulations which have been promulgated primarily for the protection of policyholders. Of the aggregate carrying value of the Company's investment assets, approximately 94.9% was invested in investment grade fixed income securities, securities purchased under resale agreements, and cash and cash equivalents at March 31, 2009. The Company's gross unrealized losses on available-for-sale securities totaled $4,754,000 at March 31, 2009. Substantially all of these securities were investment grade.
The Company holds all fixed maturities and preferred stock as available-for-sale and accordingly marks all of its securities to market through accumulated other comprehensive income (loss). The Company does not have any non-performing fixed maturities at March 31, 2009.

At March 31, 2009, the Company had $1.4 million invested in whole loan collateralized mortgage obligations ("CMOs") backed by Alt-A mortgages. Of this amount, 50.1% were in CMOs that originated in 2005 or earlier and 49.9% were in CMOs that originated in 2006. While these mortgages have seen lower market values recently, we believe that the unrealized losses on these securities are not necessarily indicative of their ultimate performance. The Company's mortgage security portfolio has no direct exposure to sub-prime mortgages. The decline in fair value for the equity securities was primarily due to wider spreads for preferred stocks issued by financial institutions following the . . .