FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended:  **MARCH 31, 2002
Commission File Number: **0-10306
 
**INDEPENDENCE HOLDING COMPANY**
(Exact name of registrant as specified in its charter)
**Delaware**58-1407235
(State of Incorporation)
(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.
 
**7,786,367 SHARES OF COMMON STOCK, $1.00 PAR VALUE**
Common stock outstanding as of May 13, 2002
**INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

INDEX
**PART I - FINANCIAL INFORMATION**PAGE NO.   
Consolidated Balance Sheets -  
March 31, 2002 (unaudited) and December 31, 2001 
        3   
Consolidated Statements of Operations -  
Three Months Ended March 31, 2002 and 2001 (unaudited) 
        4   
Consolidated Statements of Cash Flows -  
Three Months Ended March 31, 2002 and 2001 (unaudited) 
        5   
Notes to Consolidated Financial Statements (unaudited) 
   6 - 9   
Management's Discussion and Analysis of Results of Operations and  
Financial Condition 
10 - 13  **PART II - OTHER INFORMATION    
Item 6 - Exhibits and Reports on Form 8-K 
      14   
Signatures 
      15
									
**INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES****CONSOLIDATED BALANCE SHEETS**MARCH 31,**DECEMBER 31,**2002**2001**(UNAUDITED)**ASSETS
Investments:
Short-term investments
$
5,410,000
$
3,705,000
Securities purchased under agreements
to resell 
9,181,000
7,156,000
Fixed maturities 
424,218,000
423,745,000
Equity securities 
24,025,000
26,042,000
Other investments 
79,694,000
76,442,000
Total investments
542,528,000
537,090,000
Cash and cash equivalents
9,202,000
10,395,000
Due from brokers
76,000
2,650,000
Deferred acquisition costs 
27,607,000
25,751,000
Due and unpaid premiums
6,772,000
7,500,000
Due from reinsurers
126,096,000
122,354,000
Notes and other receivables
5,131,000
5,255,000
Other assets 
19,291,000
14,801,000
$
736,703,000
  $
725,796,000**LIABILITIES AND STOCKHOLDERS' EQUITY**LIABILITIES
Future insurance policy benefits 
$
301,830,000
  $
294,812,000
Funds on deposit
190,541,000
189,791,000
Unearned premiums
17,793,000
16,067,000
Policy claims 
7,828,000
7,771,000
Other policyholders' funds
4,565,000
4,783,000
Due to brokers
40,913,000
41,461,000
Due to reinsurers
4,630,000
4,498,000
Accounts payable, accruals and other
liabilities
18,507,000
15,001,000
Income taxes 
(83,000)
1,876,000
Long-term debt 
12,188,000
12,188,000**TOTAL LIABILITIES
598,712,000
588,248,000**STOCKHOLDERS' EQUITY 
Preferred stock (none issued)
-
-
Common stock, 7,786,367 and 7,789,667
 shares issued and outstanding, respectively          
 net of 1,998,289  and 1,994,487 shares
 in treasury, respectively
7,786,000
7,790,000
Paid-in-capital
78,300,000
78,352,000
Accumulated other comprehensive (loss) income:
income:
Unrealized (losses) gains on investments, net net
(3,356,000)
94,000
Retained earnings
55,261,000
51,312,000**TOTAL STOCKHOLDERS' EQUITY
137,991,000
137,548,000**TOTAL LIABILITIES AND**STOCKHOLDERS' EQUITY
$
736,703,000
  $
725,796,000** 

See Accompanying Notes to Consolidated Financial Statements.

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)
**THREE MONTHS ENDED MARCH 31,**2002**2001**REVENUES
Premiums earned 
$
28,655,000
$
25,172,000
Net investment income 
9,595,000
9,563,000
Net realized and unrealized gains 
184,000
1,643,000
Other income  
1,494,000
1,159,000
39,928,000
37,537,000**EXPENSES
Insurance benefits, claims and reserves
22,222,000
20,848,000
Amortization of deferred acquisition costs 
1,327,000
1,461,000
Selling, general and administrative
expenses
10,224,000
8,581,000
Interest expense on long-term debt
103,000
291,000
33,876,000
31,181,000
Income from operations before 
income taxes
6,052,000
6,356,000
Income tax expense
2,103,000
2,295,000**NET INCOME
$
3,949,000
4,061,000**Basic income per common share
$
.51
$
.52
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
7,790,000
7,878,000**Diluted income per common share
$
.49
$
.51
WEIGHTED AVERAGE DILUTIVE SHARES
OUTSTANDING
7,989,000
8,002,000**See Accompanying Notes to Consolidated Financial Statements.****INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
**THREE MONTHS ENDED MARCH 31,**                         2002**            2001

**CASH FLOWS FROM OPERATING ACTIVITIES
Net income
     $
3,949,000
 $
4,061,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred policy acquisition costs
1,327,000
1,461,000
Realized gains on sales of investments
(184,000)
(1,607,000)
Unrealized gains on trading securities
       -
(36,000)
Depreciation 
196,000
303,000
Deferred tax benefit
(54,000)
(588,000)
Other
(48,000)
(275,000)
Changes in assets and liabilities:
Net sales of trading securities
9,000
(85,000)
Change in insurance liabilities
9,440,000
(4,675,000)
Additions to deferred acquisition costs
(1,360,000)
(392,000)
Change in net amounts due from and to
reinsurers
(3,611,000)
8,833,000
Change in income tax liability
44,000
721,000
Change in due and unpaid premiums
                    728,000
(283,000)
Other
1,439,000
(2,941,000)
Net cash provided by operating activities
11,875,000
4,497,000**CASH FLOWS FROM INVESTING ACTIVITIES
Change in net amount due from and to brokers
2,026,000
6,773,000
Sales and maturities of short-term investments
3,367,000
5,270,000
Purchases of short-term investments
(5,138,000)
(6,396,000)
Net (purchases) sales of resale agreements
(2,025,000)
14,394,000
Sales of fixed maturities
344,162,000
317,969,000
Purchases of fixed maturities
(351,369,000)
(347,706,000)
Sales of equity securities
6,620,000
13,771,000
Purchases of equity securities 
(4,806,000)
(22,360,000)
Proceeds on sale of other investments
982,000
3,000,000
Additional investments in other investments, net 
of distributions
(4,040,000)
(5,985,000)
Acquisition of companies
(2,125,000)
(1,756,000)
Net change in notes receivable
(235,000)
10,698,000
Other
64,000
(1,171,000)
Net cash used by investing activities
(12,517,000)
(13,499,000)
**CASH FLOWS FROM FINANCING ACTIVITIES
Payments of investment-type insurance 
contracts
(107,000)
(268,000)
Repurchase of common stock and warrants
(55,000)
(48,000)
Dividends paid
(389,000)
(394,000)
Net cash used by financing activities
(551,000)
(710,000)
Decrease in cash and cash equivalents
Cash and cash equivalents, beginning of year
(1,193,000)
(9,712,000)
Cash and cash equivalents, end of period
10,395,000
18,024,000
$
9,202,000
           $
8,312,000**See Accompanying Notes to Consolidated Financial Statements.****INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1.	SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

     		(A)	BUSINESS AND ORGANIZATION**
Independence Holding Company ("IHC") is a holding company engaged principally in the life and health insurance business through its wholly-owned subsidiaries, Standard Security Life Insurance Company of New York ("Standard Life"), Madison National Life Insurance Company, Inc. ("Madison Life"), First Standard Security Insurance Company ("First Standard") and IndependenceCare Holdings L.L.C. ("IndependenceCare") and their subsidiaries (collectively, the "Insurance Group").  IHC and its subsidiaries (including the Insurance Group) are collectively referred to as the "Company".

Geneve Corporation, a diversified financial holding company, and its affiliated entities (collectively, "Geneve") held approximately 58% of IHC's outstanding common stock at March 31, 2002.

**(B) PRINCIPLES OF CONSOLIDATION AND PREPARATION OF****FINANCIAL     STATEMENTS**
The consolidated financial statements have been prepared in accordance with the requirements for quarterly reports on Form 10-Q.  In the opinion of management, all adjustments (consisting only of normal recurring accruals) that are necessary for a fair presentation of the consolidated results of operations for the interim periods have been included.  The consolidated results of operations for the three months ended March 31, 2002 are not necessarily indicative of the results to be anticipated for the entire year.  The consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes included in IHC's Annual Report on Form 10-K for the year ended December 31, 2001. Certain amounts in the prior year's consolidated financial statements and have been reclassified to conform to the 2002 presentation.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect: (i) the reported amounts of assets and liabilities; (ii) the disclosure of contingent assets and liabilities at the date of the financial statements; and (iii) the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.
**INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 2.	INCOME PER COMMON SHARE**
Included in the diluted earnings per share calculation for 2002 and 2001, respectively, are 199,000 and 124,000 shares from the assumed exercise of options using the treasury stock method. Net income does not change as a result of the assumed dilution of options. 
**NOTE 3.	INCOME TAXES**
The provision for income taxes shown in the consolidated statements of operations was computed based on the Company's estimate of the effective tax rates expected to be applicable for the current year.

The income tax expense for the three months ended March 31, 2002 allocated to stockholders' equity for unrealized gains on investment securities was $1,944,000, representing the change in the deferred tax asset of $1,945,000 at March 31, 2002 from  $1,000 at December 31, 2001.
**NOTE 4.	SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION**
Cash payments for income taxes were $2,168,000 and $2,010,000 for the three months ended March 31, 2002 and 2001, respectively. Cash payments for interest were $69,000 and $299,000 for the three months ended March 31, 2002 and 2001, respectively.
**NOTE 5.	COMPREHENSIVE INCOME**
The components of comprehensive income include net income and certain amounts reported directly in equity. Comprehensive income for the three months ended March 31, 2002 and 2001 is as follows:
****
 **2002**2001 **(IN THOUSANDS)     
Net  income
  $
3,949
 $
4,061
Unrealized gains (losses), on    
available-for-sale securities 
(3,450) 
1,496
Comprehensive income
  $
499
 $
5,557**INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 6.	NEW ACCOUNTING PRONOUNCEMENTS

Effective January 1, 2002, The Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142").  Under SFAS 142, goodwill is no longer subject to amortization over its estimated useful life. Instead, SFAS 142 requires that goodwill be evaluated at least annually for impairment by applying a fair value based test and, if impairment occurs, the amount of impaired goodwill must be written off immediately. The Company will complete impairment testing of goodwill by June 30, 2002. In addition, The Company no longer amortizes goodwill as a reduction to earnings from operations. In the three months ended March 31, 2001, selling, general and administrative expenses include goodwill amortization of $147,000. Had SFAS 142 been applied at March 31, 2001, net income would have been $4,208,000 and both basic and diluted income per common share would have been $.53.
**NOTE 7. 	SEGMENT REPORTING

The Insurance Group engages principally in the life and health insurance business. Interest expense, taxes, and general expenses associated with parent company activities are included in Corporate. Information by business segment for the three months ended March 31, 2002 and 2001 is as follows:

**2002**2001****(IN THOUSANDS)**Revenues:
Medical Stop-Loss
 $
10,760
 $
6,441
DBL
5,049
5,144
Group Term Disability and Term Life
and Annuities
6,364
5,737
Credit Life and Disability
3,069
3,218
Managed Health Care
3,353
2,995
Individual Life and Annuities
9,799
10,368
Other Business
1,080
1,525
Corporate
270
466
39,744
35,894
Net Realized and Unrealized Gains
184
1,643
 $
39,928
 $
37,537**INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 7.	 SEGMENT REPORTING (CONTINUED)**
**2002**2001**(IN THOUSANDS)**Operating Income (Loss):
Medical Stop-Loss
 $
2,201
$
1,450
DBL
590
771
Group Term Disability and Term Life
and Annuities
1,054
37
Credit Life and Disability
531
20
Managed Health Care
(6)
390
Individual Life and Annuities
2,055
2,131
Other Business
195
675
Corporate
(649)
(470)
5,971
5,004
Interest Expense
(103)
(291)
Net Realized and Unrealized Gains
184
1,643
$
6,052
$
6,356**ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION 
AND RESULTS OF OPERATIONS

Independence Holding Company, a Delaware corporation ("IHC"), is a holding company engaged principally in the life and health insurance business through its wholly-owned subsidiaries, Standard Security Life Insurance Company of New York ("Standard Life"), Madison National Life Insurance Company, Inc. ("Madison Life"), First Standard Security Insurance Company ("First Standard") and IndependenceCare Holdings L.L.C. ("IndependenceCare") and their subsidiaries (collectively, the "Insurance Group"). IHC and its subsidiaries (including the Insurance Group) are collectively referred to as the "Company." All remaining expenses and income, principally income from parent company liquidity are included in Corporate.
**RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001

The Company's operating income was $6.1 million, for the period ended March 31, 2002 compared to $6.4 million for the same period of 2001. The Company had net realized and unrealized gains of $.2 million in 2002 and $1.6 million in 2001. Decisions to sell securities are based on cash flow needs, investment opportunities and economic and market conditions, thus creating fluctuations in gains (losses) from year to year. Excluding net realized and unrealized gains, operating income increased 25% to $5.9 million in 2002 from $4.8 million in 2001. Net income was $3.9 million, or $.49 per share, diluted, for the quarter ended March 31, 2002 versus $4.1 million, or $.51 per share, diluted, in 2001. 
**Insurance Group

The Insurance Group's operating income decreased $.3 million to $6.8 million in 2002 from $7.1 million in 2001. Operating income includes net realized and unrealized gains of $.2 million in 2002 compared to $1.6 million in 2001. Operating income excluding net realized and unrealized gains increased to $6.6 million in 2002 compared to $5.5 million in 2001. 

Premium revenues increased $3.5 million to $28.7 million in 2002 from $25.2 million in 2000; premium revenues decreased $.3 million at Madison Life and increased $3.8 million at Standard Life. The change at Madison Life is comprised of: a $.3 million increase in long-term disability ("LTD") premiums as a result of an increase in premiums written in 2002 offset by a $.6 million decrease in the ordinary life and individual accident and health lines of business, primarily due to the runoff of acquisitions. The increase at Standard Life is comprised of: a $3.8 million increase in stop-loss premiums due to higher retention ($2.7 million) and increased volume ($1.1 million) in 2002; a $.6 million increase in the provider excess line slightly offset by a $.6 million decrease in HMO reinsurance due to a decrease in volume.

Total net investment income increased $.3 million due to a slight increase in assets. The annualized return on investments of the Insurance Group was 7.4% in both the first quarter of 2002 and 2001.

Other income increased $.3 million due to a $.1 million increase at Standard Life and a $2 million increase in fee income at IndependenceCare due to growth and acquisitions.	

	Insurance benefits, claims and reserves increased $1.4 million, reflecting a decrease of $.6 million at Madison Life and an increase of $2.0 million at Standard Life. Madison Life's decrease resulted from: a $.2 million decrease in ordinary life surrenders; a $.1 million decrease in LTD claims and a $.3 million decrease in the credit line of business due to a decrease in loss ratios. The change at Standard Life is comprised of: a $1.5 million increase in stop-loss reserves due to the increase in premiums offset by lower loss ratios and a $.5 million increase in the provider excess line of business due to the increase in volume. 

	Amortization of deferred acquisition costs and general and administrative expenses for the Insurance Group increased $1.6 million. Madison Life's expenses decreased $.6 million due to a reduction in administrative fees and a decrease in expenses of its majority owned MGU.  Standard Life's expenses increased $2.1 million due to a $1.1 million increase in commissions from the higher level of premiums; a $.7 million increase in general expenses due to higher employee benefit expense and administrative fees from the increase in volume and a $.3 million increase in state insurance taxes due to the increase in volume. IndependenceCare's expenses increased $.1 million. 
**Corporate

	          Operating loss for corporate remained at $.7 million for the quarter ended March 31, 2002 and March 31, 2001. Lower returns on partnership investments of $.2 million was offset by less interest expense of $.2 million due to the pay down of long-term debt and lower interest rates.
**LIQUIDITY
**Insurance Group**
	The Insurance Group normally provides cash flow from: (i)  operations; (ii) the receipt of scheduled principal payments on its portfolio of fixed income securities; and (iii) earnings on investments. Such cash flow is used partially to finance liabilities for insurance policy benefits. These liabilities represent long-term and short-term obligations which are calculated using certain assumed interest rates.

	In the first quarter of 2002, IndependenceCare purchased all of the assets of an employer stop-loss MGU in Austin, TX and opened a marketing office in California.

	**Asset Quality**
The nature and quality of insurance company investments must comply with all applicable statutes and regulations which have been promulgated primarily for the protection of policyholders. Of the aggregate carrying value of the Insurance Group's investment assets, approximately 80% was invested in investment grade fixed income securities, resale agreements, policy loans and cash and cash equivalents at March 31, 2002.  Also at such date, approximately 95.6% of the Insurance Group's fixed maturities were investment grade. These investments carry less risk and, therefore, lower interest rates than other types of fixed maturity investments. At March 31, 2002, approximately 4.4% of the carrying value of fixed maturities was invested in diversified non-investment grade fixed income securities (investments in such securities have different risks than investment grade securities, including greater risk of loss upon default, and thinner trading markets). Less than .1% of the carrying value of the Company's total investments was represented by real estate and mortgage loans. Less than 1% of the Company's total investments were in non-performing fixed maturities.

	**Risk Management**
	The Company manages interest rate risk by seeking to maintain a portfolio with a duration and average life that falls within the band of the duration and average life of the applicable liabilities, and may utilize options to modify the duration and average life of such assets.

	The Company monitors its investment portfolio on a continuous basis and believes that the liquidity of the Insurance Group will not be adversely affected by its current investments. This monitoring includes the maintenance of an asset-liability model that matches current insurance liability cash flows with current investment cash flows. 

 The expected change in fair value of the Company's fixed income portfolio at March 31, 2001 given a 100 to 300 basis point rise or decline in interest rates is not materially different than the expected change at December 31, 2001. In the Company's analysis of the asset-liability model, a 100 to 300 basis point change in interest rates on the Insurance Group's liabilities would not be expected to have a material adverse effect on the Company. With respect to its liabilities, if interest rates were to increase, the risk to the Company is that policies would be surrendered and assets would need to be sold. This is not a material exposure to the Company since a large portion of the Insurance Group's interest sensitive policies are burial policies that are not subject to the typical surrender patterns of other interest sensitive policies, and many of the Insurance Group's universal life and annuity policies come from liquidated companies which tend to exhibit lower surrender 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 gains in its portfolio to help offset the future reduction of investment income. With respect to its investments, the Company employs (from time to time as warranted) investment strategies to mitigate interest rate and other market exposures.

	**Balance Sheet**
	The increase in other assets is due to the acquisitions of an MGU at IndependenceCare. The increase in future insurance policy benefits is due to the growth in volume. The increase in unrealized losses is due to the increase in interest rates since December 31, 2001.

	The Company had net receivables from reinsurers of $121.5 million at March 31, 2002.  Substantially all of the business ceded to such reinsurers is of short duration. All of such receivables are either due from highly rated companies or are adequately secured. Accordingly, no allowance for doubtful accounts was necessary at March 31, 2002.
**Corporate

	Corporate derives its funds principally from: (i) dividends and interest income from the Insurance Group; (ii) management fees from its subsidiaries; and (iii) investment income from Corporate liquidity. Regulatory constraints historically have not affected the Company's consolidated liquidity, although state insurance laws have provisions relating to the ability of the parent company to use cash generated by the Insurance Group.

	Total corporate liquidity (cash, cash equivalents, resale agreements and marketable securities) amounted to $6.4 million at March 31, 2002. 
**Capital Resources**
	Due to its good 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. 

	In accordance with Statement of Financial Accounting Standards ("SFAS") No. 115, the Company may carry its portfolio of fixed income securities either as held to maturity (carried at amortized cost), as trading securities (carried at fair market value) or as available-for-sale (carried at fair market value); the Company has chosen to carry all of its debt securities as available-for-sale. The Company experienced an increase in unrealized losses of $3.5 million, net of deferred tax benefit and deferred policy acquisition costs, in accumulated other comprehensive income, reflecting unrealized losses of $3.4 million at March 31, 2002 versus gains of $.1 million at December 31, 2001. From time to time, as warranted, the Company employs investment strategies to mitigate interest rate and other market exposures.
**Forward Looking Statements

	Some of the statements included within Management's Discussion and Analysis may be considered to be forward looking statements which are subject to certain risks and uncertainties.  Factors which could cause the actual results to differ materially from those suggested by such statements are described from time to time in the Company's Annual Report on Form 10-K and other filings with the Securities and Exchange Commission.
**PART II.  OTHER INFORMATION

Item 6. 	  Exhibits and Reports on Form 8-K
                                a) Exhibit 11.  Statement re:  computation of per share earnings.

                                b) No report on Form 8-K was filed during the quarter ended March 31, 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
                                                                                                      (THE REGISTRANT)

 

Dated:  May 13, 2002                                                 By: /s/ Teresa A. Herbert  
                                                                  Teresa A. Herbert

                                                                  Vice President and

                                                                  Chief Financial Officer********************************************************************************************************************