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, 2011, 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 full service direct writer of medical-stop insurance for self-insured employer groups IHC Risk Solutions, LLC ("Risk Solutions"), and our two insurance and marketing agencies, Independent Producers of America, LLC ("IPA") and HealthInsurance.org ("HIO"). Since November 2002, AMIC has been affiliated with Independence Holding Company ("IHC"), which owned 78.5% of AMIC's stock as of March 31, 2012. The senior management of IHC provides direction to the Company through a service agreement between the Company and IHC. As of March 31, 2012, a significant amount of Independence American's revenue was from 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. Independence American began writing group major medical, medical stop-loss, major medical plans for individuals and families, and short-term medical in 2007, added dental in 2009, and pet insurance in 2012.
Given its A- (Excellent) rating from A.M. Best, Independence American expects to expand the distribution of its medical stop-loss and pet insurance products, and slightly increase the business written on its paper, especially major medical plans for individuals and families.

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 Risk Solutions, and since it is also eligible to earn profit sharing commissions based on the profitability of the business it places, Risk Solutions also emphasizes 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, 2012 was $51,789,000.

Risk Solutions

Risk Solutions has offices near Hartford, Connecticut, Philadelphia, Pennsylvania and Chicago, Illinois, and markets and underwrites employer medical stop-loss and group life primarily for Standard Security Life Insurance Company of New York ("Standard Security Life"). It also writes, to a much lesser extent, for four other carriers, including Madison National Life Insurance Company, Inc. ("Madison National Life") and Independence American.

Agencies

The Company has a 51% interest in HIO, which is headquartered in Minneapolis, Minnesota. HIO 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. The Company has a 89.6% interest in IPA which is headquartered in Tampa, Florida. IPA is a national, career agent marketing organization which operates under a controlled career agent distribution model in which independent producers sell products approved by IPA and AMIC. The Company increased its ownership interest in IPA from 51% to 79% at September 30, 2011, and from 79% to 89.6% at December 31, 2011.

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

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

                                                       Three Months Ended
                                                            March 31,
                                                        2012         2011

         Revenues                                   $   22,234   $  21,722
         Expenses                                       20,329      20,170
            Income before income tax                     1,905       1,552
            Provision for income taxes                     608         495
         Net income                                      1,297       1,057
            Less: Net income attributable to the
            non-controlling interest                      (178)       (120)
         Net income attributable to American
         Independence Corp.                         $    1,119   $     937

·

The book value of the Company's stockholders' equity increased to $11.48 per share at March 31, 2012 compared to $11.36 per share at December 31, 2011.

·

Net income per share increased to $.14 per share, diluted, or $1.1 million, for the three months ended March 31, 2012, compared to $.11 per share, diluted, or $0.9 million for the three months ended March 31, 2011.

·

At March 31, 2012, 99.6% of the Company's fixed maturities were investment grade.

·

Consolidated investment yields were 3.1% and 3.4% for the three months ended March 31, 2012 and 2011, respectively. The lower yield is primarily due to a decrease in investments in higher yield municipal bonds.

·

Premiums earned increased 4% to $18.5 million for the three months ended March 31, 2012 compared to $17.8 million for the three months ended March 31, 2011, primarily due to higher direct and assumed medical stop-loss premiums, offset by lower direct group major medical premiums written.

·

For the three months ended March 31, 2012 and 2011, Independence American wrote $2.7 million and $3.4 million, respectively, of individual health business produced by our marketing organization IPA.

·

For the three months ended March 31, 2012, Risk Solutions and our Agencies generated revenues of $3.2 million compared to $3.5 million for the three months ended March 31, 2011 primarily due to a decrease in profit commissions earned.

·

Underwriting experience, as indicated by GAAP Combined Ratios on our three lines of business for the three months ended March 31, 2012 and 2011, are as follows (in thousands):

          §
          Medical Stop-Loss                           Three Months Ended
                                                          March 31,
                                                      2012         2011

          Premiums Earned                         $    11,051  $    9,182
          Insurance Benefits, Claims and Reserves       6,642       6,380
          Profit Commission Expense (Recovery)            250         447
          Expenses                                      3,007       2,505

          Loss Ratio (A)                                60.1%        69.5%
          Profit Commission Expense Ratio (B)            2.3%         4.9%
          Expense Ratio (C)                             27.2%        27.2%
          Combined Ratio (D)                            89.6%       101.6%

          §
          Fully Insured Health                        Three Months Ended
                                                          March 31,
                                                      2012         2011

          Premiums Earned                         $    6,644   $    7,826
          Insurance Benefits, Claims and Reserves      4,594        4,175
          Profit Commission Expense (Recovery)            (3)         (47)
          Expenses                                     1,467        2,010

          Loss Ratio (A)                                69.1%        53.3%
          Profit Commission Expense Ratio (B)            0.0%        -0.6%
          Expense Ratio (C)                             22.1%        25.7%
          Combined Ratio (D)                            91.2%        78.4%



          §
          DBL                                         Three Months Ended
                                                          March 31,
                                                      2012         2011

          Premiums Earned                         $       762  $       761
          Insurance Benefits, Claims and Reserves         455          493
          Expenses                                        247          249

          Loss Ratio (A)                                59.7%        64.8%
          Expense Ratio (C)                             32.4%        32.7%
          Combined Ratio (D)                            92.1%        97.5%

(A)

Loss ratio represents insurance benefits, claims and reserves divided by premiums earned.

(B)

Profit commission expense ratio represents profit commissions divided by premiums earned.

(C)

Expense ratio represents commissions, administrative fees, premium taxes and other underwriting expenses divided by premiums earned.

(D)

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

·

The Company recorded a decrease in the loss ratio in the medical stop-loss line of business for the three months ended March 31, 2012 due to improved profitability of both direct and assumed business. The medical stop-loss results have begun to show improved profit margins primarily as a result of more profitable business written in recent years, and the run-out of poorly performing business by non-owned managing general underwriters ("MGUs") which were previously cancelled.

·

The Company recorded an increase in the loss ratio in the fully insured health line of business for the three months ended March 31, 2012 primarily as a result of one fully insured managing general underwriter experiencing much higher claims this quarter, and a slightly higher loss ratio in our individual health line of business.

·

The Company experienced a decrease in the loss ratio for DBL for the three months ended March 31, 2012 as a result of lower claims.

The accounting and reporting policies of the Company conform to U.S. generally accepted accounting principles ("U.S. GAAP"). The preparation of the condensed consolidated financial statements in conformity with U.S. 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 year ended December 31, 2011. Management has identified the accounting policies related to Insurance Reserves, Premium and 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, 2011. During the three months ended March 31, 2012, there were no additions to or changes in the critical accounting policies disclosed in the Form 10-K for the year ended December 31, 2011 except for the recently adopted accounting standards discussed in Note 1(C) of the Notes to the Condensed Consolidated Financial Statements.

Results of Operations for the Three Months Ended March 31, 2012, Compared to the
Three Months Ended March 31, 2011.


                                                            Benefits,    Selling,
                                     Fees and      Net        Claims      General      Amortization
       March 31,          Premiums    Other    Investment      and          and             and
          2012             Earned     Income     Income      Reserves      Admin       Depreciation        Total
     (In thousands)

Independence
   American:
  Medical stop-loss       $ 11,051          -         313        6,642       3,257                   -   $   1,465
  Fully Insured Health       6,644          -         110        4,594       1,464                   -         696
  DBL                          762          -          15          455         247                   -          75
Total Independence
   American                 18,457          -         438       11,691       4,968                   -       2,236
Risk Solutions
 And Agencies                    -      3,155          42            -       3,239                  45         (87)
Corporate                        -          -          16            -         386                   -        (370)
Subtotal                  $ 18,457      3,155         496       11,691       8,593                  45       1,779

Net realized investment gains                                                                                  126
Income before income taxes                                                                                   1,905
Income taxes                                                                                                  (608)
Net income                                                                                                   1,297
             Less: Net income attributable to the
             non-controlling interest                                                                         (178)
Net income attributable to American Independence Corp.                                                   $   1,119

                                                            Benefits,    Selling,
                                     Fees and      Net        Claims      General      Amortization
       March 31,          Premiums    Other    Investment      and          and             and
          2011             Earned     Income     Income      Reserves      Admin       Depreciation        Total
     (In thousands)

Independence
   American:
  Medical stop-loss       $  9,182          -         376        6,380       2,916                  36   $     226
  Fully Insured Health       7,826          -         111        4,175       1,837                 126       1,799
  DBL                          761          -          18          493         249                   -          37
Total Independence
   American                 17,769          -         505       11,048       5,002                 162       2,062
Risk Solutions
 and Agencies                    -      3,409          41            -       3,526                  52        (128)
Corporate                        -          -          13            -         380                   -        (367)
Subtotal                  $ 17,769      3,409         559       11,048       8,908                 214       1,567

Net realized investment (losses)                                                                               (15)
Income before income taxes                                                                                   1,552
Income taxes                                                                                                  (495)
Net income                                                                                                   1,057
             Less: Net income attributable to the
             non-controlling interest                                                                         (120)
Net income attributable to American Independence Corp.                                                   $     937

Premiums Earned. Premiums earned increased 4%, or $688,000 from 2011 to 2012.
The Company currently has three lines of business. Premiums relating to medical stop-loss business increased $1,869,000. This is due to an increase in medical stop-loss premiums assumed by Independence American ($820,000) and an increase in medical stop-loss premiums written by Independence American ($1,049,000). Premiums relating to fully insured health consisting of group major medical, limited medical, short-term medical, dental, vision, hospital indemnity, and individual health decreased $1,182,000. The decrease is primarily due to a decrease in group major medical premiums written by Independence American ($1,258,000). Premiums relating to DBL increased $1,000.
For the three months ended March 31, 2012, Independence American assumed 10% of IHC's short-term medical business, approximately 9% of certain of IHC's group major medical business, 20% of IHC's DBL business and approximately 22% of IHC's medical stop-loss business. There were no significant changes to these percentages from the prior year.

Fee and Agency Income. Fee and agency income decreased $188,000 from 2011 to 2012. Risk Solutions fee income-administration increased $24,000 to $1,271,000 for 2012, compared to $1,247,000 for 2011. Risk Solutions fee income-profit commission decreased $211,000 to $58,000 for 2012, compared to $269,000 for 2011. 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 2012 are based on business written during portions of 2009, 2010 and 2011. In 2012, income from our Agencies consisted of commission income and other fees of $1,147,000 from IPA and revenue of $652,000 from HIO. In 2011, income from our Agencies

consisted of commission income and other fees of $1,270,000 from IPA and revenue of $530,000 from HIO.

Net Investment Income. Net investment income decreased $63,000 from 2011 to 2012. The investment yields were 3.1% for the three months ended March 31, 2012 and 3.4% for the three months ended March 31, 2011. The lower yield is primarily due to a decrease in investments in higher yield municipal bonds.

Net Realized Investment Gains. The Company recorded a net realized investment gain of $126,000 for the three months ended March 31, 2012, compared to a loss of $15,000 for the three months ended March 31, 2011. 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. Other income decreased $66,000 from 2011 to 2012 due to lower consulting fees earned by Risk Solutions for the three months ended March 31, 2012, compared to the three months ended March 31, 2011.

Insurance Benefits, Claims and Reserves. Insurance benefits claims and reserves increased 6%, or $643,000 from 2011 to 2012. The increase is primarily comprised of an increase in direct individual health of $382,000 due to higher loss ratios offset by lower premiums written and an increase direct medical stop-loss of $375,000 due to higher premiums written offset by improved loss ratios.

Selling, General and Administrative. Selling, general and administrative expenses decreased $315,000 from 2011 to 2012. This decrease is primarily due to (i) lower expenses at Risk Solutions of $318,000 primarily due to lower salary expense and lower professional fees, (ii) lower expenses at IPA of $155,000 primarily due to lower professional fees and lower agent commission expense, (iii) lower profit commission expense of $153,000 at Independence American primarily for the medical stop-loss business, (iv) offset by higher expenses at HIO of $186,000 due to higher referral and management fees, (v) higher administration expense of $119,000 at Independence American due to higher fees in direct medical stop-loss due to higher premiums written.

Amortization and Depreciation. Amortization and depreciation expense decreased $169,000 from 2011 to 2012.

Income Taxes. The provision for income taxes increased $113,000 to $608,000, an effective rate of 35.2%, for the three months ended March 31, 2012, compared to $495,000, an effective rate of 34.6%, for the three months ended March 31, 2011.
Net income for the three months ended March 31, 2012 and 2011 includes a non-cash provision for federal income taxes of $558,000 and $464,000, respectively. The state tax effective rate increased to 1.4% for the three months ended March 31, 2012, compared to 0.8% for the three months ended March 31, 2011. 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 non-controlling interest. Net income attributable to the non-controlling interest increased $58,000 from 2011 to 2012. The net income for the three months ended March 31, 2012 relates to the 49% non-controlling interest in HIO and the 10% non-controlling interest in IPA.
The net income for the three months ended March 31, 2011 relates to the 49% non-controlling interest in HIO and the 49% non-controlling interest in IPA.

Net Income attributable to American Independence Corp. The net income attributable to the Company increased to $1,119,000, or $.14 per share, diluted, for the three months ended March 31, 2012, compared to $937,000, or $.11 per share, diluted, for the three months ended March 31, 2011.

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. The ability of Independence American to pay dividends to its parent company is governed by Delaware insurance laws and regulations; otherwise, there are no regulatory constraints on the ability of any of our subsidiaries to pay dividends to its parent company. For the three months ended March 31, 2012, our Agencies and Risk Solutions paid $175,000 in dividends to Corporate.

Cash Flows

As of March 31, 2012, the Company had $67,426,000 of cash, cash equivalents, and investments net of amounts due to/from securities brokers compared with $66,382,000 as of December 31, 2011.

Net cash provided by operating activities of continuing operations for the three months ended March 31, 2012 was $1,127,000. Net cash used by investing activities of continuing operations for the three months ended March 31, 2012 was $752,000.

At March 31, 2012, the Company had $14,750,000 of restricted cash at Risk Solutions. This amount is directly offset by corresponding liabilities for Premium and Claim Funds Payable of $14,750,000. This asset, in part, represents the premium that is remitted by the insureds and is collected by Risk Solutions on behalf of the insurance carriers they represent. Each month the premium is remitted to the insurance carriers by Risk Solutions. Until such remittance is made the collected premium is carried as an asset on the balance sheet with a corresponding payable to each insurance carrier. In addition to the premium being held at Risk Solutions, Risk Solutions is in possession of cash to pay claims. The cash is deposited by each insurance carrier into a bank account that Risk Solutions can access to reimburse claims in a timely manner. The cash is used by Risk Solutions to pay claims on behalf of the insurance carriers they represent.

At March 31, 2012, the Company had $20,103,000 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 working capital requirements and capital investments.

Total investments, net of amounts due to/from brokers, increased $669,000 to $65,303,000 during the three months ended March 31, 2012 from $64,634,000 at December 31, 2011, primarily due to the purchases of securities purchased under agreements to resell, the purchase of trading securities and additional fixed maturity securities, offset by a decrease in unrealized gains on fixed maturity securities.

The Company had receivables from reinsurers of $7,166,000 at March 31, 2012.
Substantially all of the business ceded to such reinsurers is of short duration. All of such receivables are either due from related parties, highly rated companies or are adequately secured. No allowance for doubtful accounts was deemed necessary at March 31, 2012.

The Company's insurance reserves by line of business are as follows (in thousands):

                                         Total Insurance Reserves
                                        March 31,     December 31,
                                           2012           2011

                 Medical Stop-Loss    $     13,527  $       14,165
                 Fully Insured Health        5,966           6,259
                 DBL                           610             606

                                      $     20,103  $       21,030

Generally, during the first twelve months of an underwriting year, reserves for medical stop-loss are first set at the projected net loss ratio, which is determined using assumptions developed using completed prior experience trended forward. The projected net loss ratio is the Company's best estimate of future performance until such time as developing losses provide a better indication of ultimate results.

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 (iii) 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.

. . .