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:  **JUNE 30,2000
Commission File Number: **0-10306
 
**INDEPENDENCE HOLDING COMPANY

(Exact name of registrant as specified in itscharter)
**Delaware**58-1407235
(State ofIncorporation)
(I.R.S. EmployerIdentification No.)
 
**96 CUMMINGS POINT ROAD, STAMFORD, CONNECTICUT06902**
(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 fiscalyear, 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) ofthe Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file suchreports), and (2) has been subject to such filing requirements for thepast 90 days. Yes X.  No _.
 

 
**7,181,100 SHARES OF COMMON STOCK, $1.00 PARVALUE**
Common stock outstanding as of August 10, 2000
**INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

INDEX

 

 

 ****PART I - FINANCIALINFORMATION**PAGENO.  
Consolidated BalanceSheets -  
June 30, 2000 (unaudited) andDecember 31, 1999........... 
3  
Consolidated Statements ofOperations -  
Three Months and Six MonthsEnded June 30, 2000 and 1999 (unaudited) 
4  
Consolidated Statements ofCash Flows -  
Six Months Ended June 30,2000 and 1999 (unaudited).......... 
5  
Notes to ConsolidatedFinancial Statements (unaudited).......... 
6 -
9  
Management's Discussionand Analysis of Results of Operations and  
FinancialCondition......................... 
10 -
15  **PART II - OTHERINFORMATION   
Item 4 - Submission ofMatters to a Vote of Security Holders....... 
16  
Item 6 - Exhibits and Reportson Form 8-K............... 
16  
Signatures............................. 
17** 

 

INDEPENDENCE HOLDING COMPANY ANDSUBSIDIARIES
**CONSOLIDATED BALANCESHEETS**JUNE 30,**DECEMBER31,**2000**1999**(UNAUDITED)**ASSETS:
Cash and cashequivalents
$
7,835,000
$
6,689,000
Investments:
Short-terminvestments
10,272,000
9,668,000
Securities purchased underagreements
to resell 
36,341,000
14,952,000
Fixed maturities
332,405,000
339,646,000
Equity securities
21,911,000
15,613,000
Other investments
66,608, 000
61,373,000
Totalinvestments
467,537,000
441,252,000
Due frombrokers
6,760,000
416,000
Deferred acquisition costs
31,552,000
32,537,000
Due and unpaidpremiums
9,502,000
14,645,000
Due fromreinsurers
130,113,000  
134,764,000
Notes and otherreceivables
8,745,000
37,548,000
Other assets 
11,351,000
10,500,000
$
673,395,000
$
678,351,000**LIABILITIES ANDSTOCKHOLDERS' EQUITY:**LIABILITIES:
Future insurance policybenefits 
$
284,834,000
$
289,689,000
Unearnedpremiums
20,450,000
21,557,000
Funds ondeposit
174,418,000
185,936,000
Policy claims 
6,894.000
7,062,000
Other policyholders'funds
4,863,000
5,014,000
Financial instrumentssold, but not 
yet purchased 
51,000
-
Due to brokers
24,416,000
9,593,000
Due toreinsurers
9,701,000
16,012,000
Accounts payable, accrualsand other
liabilities
19,768,000
20,424,000
Income taxes 
2,896,000
4,513,000
Long-term debt
15,000,000
15,000,000**TOTALLIABILITIES
563,291,000
574,800,000**STOCKHOLDERS' EQUITY:
Preferred stock (noneissued)
-
Common stock, 7,181,100and 7,180,100
shares issued andoutstanding, net of
2,480,519 and 2,481,519shares in
treasury,respectively
7,181,000
7,180,000
Paid-in-capital
81,027,000
81,026,000
Accumulated othercomprehensive loss
(10,292,000)
(11,028,000)
Retainedearnings
32,188,000
26,373,000**TOTAL STOCKHOLDERS'EQUITY
110,104,000
103,551,000**TOTAL LIABILITIESAND**STOCKHOLDERS'EQUITY
$
673,395,000
$
678,351,000** 

See Accompanying Notes to Consolidated FinancialStatements.

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
**(UNAUDITED)**THREE MONTHSENDED**SIX MONTHSENDED**JUNE 30,**JUNE 30,**2000**1999**2000**1999****REVENUES:
Premiumsearned
$
20,121,000
$
18,887,000
$
42,184,000
$
39,097,000
Net investmentincome
8,476,000
6,593,000
18,016,000
12,235,000
Net realized and
unrealized gains (losses)
339,000
(259,000)
(806,000)
173,000
Other income
2,148,000
2,106,000
2,086,000
4,316,000
31,084,000
27,327,000
61,480,000
55,821,000**EXPENSES:
Insurance benefits,claims
and reserves
16,294,000
14,459,000
32,627,000
29,065,000
Amortization ofdeferred
acquisitioncosts
1,420,000
1,234,000
2,648,000
2,491,000
Selling, generaland
administrativeexpenses
8,285,000
8,158,000
17,118,000
17,047,000
Interest expense on
long-term debt
316,000
-
617,000
-
26,315,000
23,851,000
53,010,000
48,603,000
Operating incomebefore
income taxes
4,769,000
3,476,000
8,470,000
7,218,000
Income taxexpense
1,312,000
764,000
2,655,000
2,063,000**NETINCOME
$
3,457,000
$
2,712,000
$
5,815,000
$
5,155,000**BASIC INCOME PER**COMMONSHARE**$
.48**$
.37
$
.81
$
.70

WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING
7,180,000
7,308,000
7,180,000
7,335,000**DILUTED INCOMEPER**COMMONSHARE
$
.48
$
.37
$
.80
$
.69

WEIGHTEDAVERAGE
DILUTIVESHARES
OUTSTANDING
7,252,000
7,416,000
7,251,000
7,451,000**See Accompanying Notes to ConsolidatedFinancial Statements.

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)****SIX MONTHS ENDED JUNE30,**2000**1999

**CASH FLOWS FROMOPERATING ACTIVITIES:
Net income
$
5,815,000
$
5,155,000
Adjustments to reconcilenet income to net cash
provided (used) by operatingactivities:

Amortization of deferredpolicy acquisition
costs
2,648,000
2,491,000
Realized losses (gains) onsales of
investments 
844,000
(173,000)
Unrealized losses ontrading securities
(38,000)
-
Depreciation 
313,000
302,000
Deferred tax (benefit)expense
(1,025,000)
407,000
Other
(590,000)
(568,000)
Changes in assets andliabilities:
Net sales of tradingsecurities
335,000
(582,000)
Decrease in insuranceliabilities
(16,933,000)
(4,566,000)
Additions to deferredacquisition costs
(1,672,000)
(1,769,000)
Change in net amounts duefrom and to
reinsurers
(1,658,000)
3,795,000
Change in income taxliability
(663,000)
(539,000)
Change in due and unpaidpremiums
5,142,000
(4,447,000)
Other
(3,743,000)
(3,463,000)
Net cash used by operatingactivities
(11,225,000)
(3,957,000)**CASH FLOWS FROMINVESTING ACTIVITIES:
Change in net amount duefrom and to brokers
8,480,000
10,319,000
Sales and maturities ofshort-term investments
58,577,000
48,919,000
Purchases of short-terminvestments
(59,039,000)
(31,781,000)
Net purchases of resaleagreements
(21,388,000)
(229,000)
Sales of fixedmaturities
206,858,000
225,502,000
Purchases of fixedmaturities
(199,210,000)
(244,449,000)
Sales of equitysecurities
40,046,000
26,717,000
Purchases of equity securities
(46,702,000)
(32,959,000)
Proceeds on sale of otherinvestments
2,369,000
3,794,000
Additional investments inother investments, net 
ofdistributions
(7,378,000)
(5,425,000)
Cash received fromcoinsurance/assumption
     reinsurancetransactions
-
3,112,000
Net change in notesreceivable
26,296,000
-
Other
4,683,000
(1,131,000)
Net cash provided byinvesting activities
13,592,000
2,389,000
 

 **CASH FLOWS FROMFINANCING ACTIVITIES:
Exercise of common stockoptions 
2,000
21,000
Payments of investment-type insurance 
contracts
(866,000)
(866,000)
Repurchase of commonstock
-
(1,001,000)
Dividends paid
(357,000)
(368,000)
Net cash used by financingactivities
(1,221,000)
(2,214,000)
Increase (decrease) incash and cash
equivalents
1,146,000
(3,782,000)
Cash and cash equivalents,beginning of year
6,689,000
7,889,000
Cash and cash equivalents,end of period
$
7,835,000
$
4,107,000**See Accompanying Notes to Consolidated FinancialStatements.

5

INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)

													

NOTE 1.	SIGNIFICANT ACCOUNTING POLICIES ANDPRACTICES

     		(A)	BUSINESS AND ORGANIZATION

Independence Holding Company ("IHC") is a holdingcompany engaged principally in the life and health insurance businessthrough its wholly-owned subsidiaries, Standard Security Life InsuranceCompany of New York ("Standard Life"), Madison National Life InsuranceCompany, Inc. ("Madison Life"), First Standard Security InsuranceCompany ("First Standard"), IndependenceCare LLC("IndependenceCare")  and their subsidiaries (collectively,the "Insurance Group").  IHC and its subsidiaries (including theInsurance Group) are collectively referred to as the"Company."

Geneve Corporation, a diversified financial holdingcompany, and its affiliated entities hold approximately 57% of IHC'soutstanding common stock.

 	   	**(B)	PRINCIPLES OF CONSOLIDATIONAND PREPARATION OF
       	FINANCIAL STATEMENTS

The consolidated financial statements have beenprepared in accordance with the requirements for quarterly reports onForm 10-Q.  In the opinion of management, all adjustments (consistingonly of normal recurring accruals) that are necessary for a fairpresentation of the consolidated results of operations for the interimperiods have been included.  The consolidated results of operations forthe three months and six months ended June 30, 2000 are not necessarilyindicative of the results to be anticipated for the entire year.  Theconsolidated financial statements should be read in conjunction withthe consolidated financial statements and the notes included in IHC'sAnnual Report on Form 10-K for the year ended December 31, 1999.Certain amounts in the prior year's consolidated financial statementsand notes thereto have been restated to conform to the 2000presentation.

The preparation of financial statements inconformity with generally accepted accounting principles requiresmanagement to make estimates and assumptions that affect: (i) thereported amounts of assets and liabilities; (ii) the disclosure ofcontingent assets and liabilities at the date of the financialstatements; and (iii) the reported amounts of revenues and expensesduring the reporting period.  Actual results could differ from thoseestimates.

 

 

 

 

 

 

 

 

 

 

 

 

 
**INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)

													
NOTE 2.	OTHER INVESTMENTS

The Company had invested $22,906,000 and $21,227,000at June 30, 2000 and December 31, 1999, respectively, in DolphinLimited Partnership-A ("DLP-A"), a limited partnership which invests inrelatively "market neutral" strategies, such as merger arbitrage,convertible arbitrage and distressed situations.  The condensedstatements of operations for DLP-A for the three months and six monthsended June 30, 2000 and 1999 are as follows:

 **THREE MONTHSENDED**SIX MONTHSENDED **2000**1999**2000**1999 **(INTHOUSANDS)     
Revenues
$
2,537
$
3,970
$
7,286
$
6,522
Net income
$
1,971
$
2,906
$
5,722
$
4,768     
IHC's share of    

net income
$
590
$
1,034
$
1,779
$
1,745
**NOTE 3.	INCOME PER COMMON SHARE

Included in the diluted earnings per sharecalculation for 2000 and 1999, respectively, are 72,000 and 108,000,and 71,000 and 116,000 shares for the first three months and sixmonths, respectively, from the assumed exercise of options using thetreasury stock method. Net income does not change as a result of theassumed dilution of options. Share Purchase Warrants (the"Warrants") to purchase 1,886,293 shares of common stock at$16.37 per share were not included in the computation of dilutedearnings per share because the Warrants' strike price was greater thanthe average market price of the common shares during the first threemonths and six months of 2000 and 1999.
**NOTE 4.	INCOME TAXES**
The provision for income taxes shown in theconsolidated statements of operations was computed based on theCompany's estimate of the effective tax rates expected to be applicablefor the current year, including the expected tax impact of thelife/nonlife consolidation.

The income tax expense for the six months ended June30, 2000 allocated to stockholders' equity for unrealized losses oninvestment securities was $70,000, representing the change in thedeferred tax asset of $38,000 at June 30, 2000 from  $108,000 atDecember 31, 1999.
**NOTE 5.	SUPPLEMENTAL DISCLOSURES OF CASH FLOWINFORMATION**
Cash payments for income taxes were $4,155,000 and$1,639,000 for the six months ended June 30, 2000 and 1999,respectively. Cash payments for interest were $570,000 and $3,000 forthe six months ended June 30, 2000 and 1999, respectively.
**INDEPENDENCE HOLDING COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)

													
NOTE 6.	COMPREHENSIVE INCOME

The components of comprehensive income include netincome and certain amounts previously reported directly in equity. 

Comprehensive income for the three months and sixmonths ended June 30,  2000 and 1999 is as follows:

 **THREE  MONTHSENDED**SIX MONTHSENDED **2000**1999**2000**1999 **(INTHOUSANDS)  
Net income
$
3,457
$
2,712
$
5,815
$
5,155
Unrealized (losses) gains,on   
available-for-salesecurities 
(738) 
(3,783) 
736 
(6,213)
Comprehensive income(loss)
$
2,719
$
(1,071)
$
6,551
$
(1,058)
**NOTE 7.	NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting StandardsBoard issued SFAS No. 133, "Accounting for Derivative Instruments andHedging Activities." The requirements for SFAS No. 133 were delayed bySFAS No. 137, "Deferral of the effective date of SFAS Statement No.133," and are effective for financial statements for periods beginningafter June 15, 2000.  The Company is currently evaluating the impact ofSFAS No. 133 but does not expect it to have a material impact on theCompany. 
**NOTE 8. 	SEGMENT REPORTING

The Insurance Group engages principally in thelife and health insurance business. Interest expense, taxes, andgeneral expenses associated with parent company activities are includedin Corporate. Information by business segment for the three months andsix months ended June 30, 2000 and 1999 is as follows:  
****
**INDEPENDENCE HOLDING COMPANY ANDSUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(UNAUDITED)

													
NOTE 8.	 SEGMENT REPORTING (CONTINUED)

****
**THREE MONTHSENDED**SIX MONTHS ENDED

 

 

 **2000**1999**2000**1999**(INTHOUSANDS)**REVENUES:
Medical Stop-Loss
$
6,872
$
7,043
$
13,092 
$
13,894
DBL
4,805
4,813
9,778
10,313
Group TermDisability
and Term Life
4,032
3,292
8,253
6,351
Credit Life andDisability
4,060
5,291
8,200
10,376
Managed HealthCare
1,297
682
2,764
1,309
SpecialDisability
199
27
272
43
AcquiredBlocks/Other
Business

9,163
5,557
18,917
11,850
Corporate
317
881
1,010
1,512
30,745
27,586
62,286
55,648
Net Realizedand
UnrealizedGains
(Losses)
339
(259)
(806)
173
$
31,084
$
27,327
$
61,480
$
55,821**OPERATINGINCOME:
Medical Stop-Loss
$
1,309
$
433
$
2,506
$
(262)
DBL
356
759
887
2,204
Group TermDisability
and Term Life
(464)
225
39
35
Credit Life andDisability
485
834
180
1,438
Managed HealthCare
(31)
195
48
856
SpecialDisability
240
(25)
314
191
AcquiredBlocks/
Other Business
3,097
1,188
6,398
2,512
Corporate
(562)
126
(1,096)
71
4,430
3,735
9,276
7,045
Net Realized and
UnrealizedGains
(Losses)
339
(259)
(806)
173
$
4,769
$
3,476
$
8,470
$
7,218**NOTE 9.	SUBSEQUENT EVENT**
	Subsequent to June 30, 2000, the Companydeclared a 10% special stock dividend payable to shareholders of recordon August 14, 2000 with a distribution date of August 28, 2000.Fractional shares will be paid in cash in lieu of stock. The X-dividenddate was set at August 10, 2000. Accordingly, the number of shares ofcommon stock outstanding and common stock options and the number ofshares issuable pursuant to the Warrants will be adjusted to reflectsuch stock dividend, which adjustments will first be reflected in theCompany's third quarter results.
**ITEM 7. 	MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION 
AND RESULTS OF OPERATIONS

Independence Holding Company, a Delawarecorporation ("IHC"), is a holding company engaged principally in thelife and health insurance business through its wholly-ownedsubsidiaries, Standard Security Life Insurance Company of New York("Standard Life"), Madison National Life Insurance Company, Inc.("Madison Life"), First Standard Security Insurance Company ("FirstStandard"), IndependenceCare LLC ("IndependenceCare") andtheir subsidiaries (collectively, the "Insurance Group"). IHC and itssubsidiaries (including the Insurance Group) are collectively referredto as the "Company." All remaining income, principally income fromparent company liquidity (cash, cash equivalents, resale agreements,marketable securities and partnership investments) and expense itemsassociated with parent company activities, the Company's remaining realestate holdings and certain other investments of the Company, areincluded in Corporate.
**RESULTS OF OPERATIONS

 

THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE30, 1999

The Company's operating income was $4.8 million, forthe period ended June 30, 2000 compared to $3.5 million for the threemonths ended June 30, 1999. The Company had net realized and unrealizedgains of $.3 million in 2000 and losses of $.3 million in 1999.Decisions to sell securities are based on cash flow needs, investmentopportunities and economic and market conditions, thus creatingfluctuations in gains (losses) from year to year. Excluding netrealized and unrealized gains, operating income increased 18% to $4.5million in 2000 as compared to $3.8 million in 1999 primarily due to anincrease in income from acquisitions, offset by an increase in interestexpense (see Note 8 of Notes to Consolidated Financial Statements). Netincome was $3.5 million, or $.48 per share, diluted, for the quarterended June 30, 2000 and $2.7 million or $.37 per share, diluted, forthe quarter ended June 30, 1999. 
**Insurance Group

The Insurance Group's operating income increased$2.1 million to $5.3 million in 2000 from $3.2 million in 1999.Operating income includes net realized and unrealized gains of $.3million in 2000 compared to losses of $.3 million in 1999. Operatingincome excluding net realized and unrealized losses was $5.0 million in2000 compared to $3.5 million in 1999. 

Premium revenues increased $1.2 million to $20.1million in 2000 from $18.9 million in 1999; premium revenues increased$1.2 million at Standard Life and remained constant at Madison Life.Madison Life had a $.6 million increase in long-term disability ("LTD")premiums as a result of an increase in premiums written in 2000; a $.1million increase in group term life,  a $.7 million increase inordinary life and individual accident and health premiums due to the1999 acquisitions and a $.5 million increase in other life and healthlines of business; such increases were offset by: a $1.9 milliondecrease in the credit lines of business, primarily due to the runoffof acquisitions of two single premium blocks of business effective in1997. The increase at Standard Life is comprised of: a $.3 millionincrease in stop-loss premiums; a $.2 million increase in the volunteerfirefighters division premiums; a $.3 million increase in its providerexcess line; a $.2 million increase in the closed group life assumedblock purchased effective April 1, 1999 and a $.2 million increase inthe special disability line.

Total net investment income increased $2.4 millionprimarily due to an increase in assets due to the acquisitions in 1999.The annualized return on investments of the Insurance Group in thesecond quarter of 2000 was 6.8% compared to 7.0% in the second quarterof 1999.
**Other income increased $.2 million atStandard Life and remained constant at Madison Life. 

	Insurance benefits, claims and reservesincreased $2.0 million, reflecting an increase of $1.3 million atMadison Life and an increase of $.7 million at Standard Life. MadisonLife's increase resulted from:  a $.6 million increase in interest onannuity policies due to acquisitions in 1999; a $.6 million increase ingroup term life reserves due to higher loss ratios, and a $.8 millionincrease in LTD claims due to an increase in premiums and higher lossratios; such increases were offset by a $.6 million decrease in thecredit line of business; and a $.1 million decrease in claims andreserves in other life and health lines of business. The change atStandard Life is comprised of: a $.6 million increase in DBL claims andreserves due to higher claims; a $.5 million increase in  interestexpense and group annuity and life reserves due to the acquisitioneffective April 1, 1999; a $.3 million increase in provider excessclaims; and a $.1 million increase in all other lines; such increaseswere offset by:  a $.8 million decrease in stop-loss reserves due tolower loss ratios. 

Amortization of deferred acquisition costs andgeneral and administrative expenses for the Insurance Group increased$.3 million. Madison Life's expenses decreased $.4 million and StandardLife's expenses increased $.5 million due to an increase in stateinsurance taxes and general expenses. IndependenceCare's expensesincreased $.2 million. 
**Corporate

Operating income for the quarter ended June 30, 2000decreased by $.8 million to a loss of $.5 million for the secondquarter of 2000 from income of $.3 million for the second quarter of1999. This decrease in operating income is a result of an increase ininterest expense of $.3 million attributable to the borrowing of $15.0million during the fourth quarter of 1999 and a decrease in investmentincome of $.5 million due to lower returns on certain equityinvestments.
**SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30,1999

The Company's operating income was $8.5 million, forthe period ended June 30, 2000 and $7.2 million for the period endedJune 30, 1999. The Company had net realized and unrealized losses of$.8 million in 2000 and gains of $.2 million in 1999. Excluding netrealized and unrealized gains, operating income increased 32% to $9.3million in 2000 as compared to $7.0 million in 1999 primarily from anincrease in income from acquisitions and an increase in yields oninvestable assets offset by an increase in interest expense (see Note 8of Notes to Consolidated Financial Statements). Net income was $5.8million, or $.80 per share, diluted, for the period ended June 30, 2000and was $5.2 million or $.69 per share, diluted, for the period endedJune 30, 1999. 
**Insurance Group

The Insurance Group's operating income increased$2.5 million to $9.5 million in 2000 from $7.0 million in 1999.Operating income includes net realized and unrealized losses of $.8million in 2000 compared to gains of $.1 million in 1999. Operatingincome excluding net realized and unrealized losses was $10.3 millionin 2000 compared to $6.9 million in 1999. 

Premium revenues increased $3.1 million to $42.2million in 2000 from $39.1 million in 1999; premium revenues increased$2.2 million at Madison Life and $.9 million at Standard Life. Theincrease at Madison Life is comprised of: a $1.1 million increase inLTD premiums as a result of an increase in premiums written in 2000; a$.3 million increase in group term life, and a $3.8 million increase inordinary life and individual accident and health premiums due to the1999 acquisitions; such increases were offset by: a $1.8 milliondecrease in the credit lines of business, primarily due to the runoffof acquisitions of two single premium blocks of business effective in1997; a $.7 million decrease in dental premiums due to the runoff ofthis block; a $.4 million decrease in family group term life premiumsand a $.1 million decrease in other life and health lines of business.The increase at Standard Life is comprised of: a $.6 million increasein its provider excess line due to increased retention; a $.5 millionincrease in the closed group life assumed block purchased effectiveApril 1, 1999; a $.3 million increase in the point of service line anda $.4 million increase in all other lines; such increases are offsetby:  a $.4 million decrease in stop-loss premiums and a $.5 milliondecrease in DBL due to a rate reduction. 

Total net investment income increased $6.3 millionprimarily due to higher yields on fixed income securities and anincrease in assets due to the acquisitions in 1999. The annualizedreturn on investments of the Insurance Group for the first six monthsof 2000 was 7.2% compared to 6.8% for the first six months of 1999.

Other income decreased $2.2 million due to $.5million less fee income earned by the managing general underwriter inwhich Madison Life acquired a controlling interest effective December31, 1997; and a $1.7 million decrease at Standard Life due primarily toan increase in coinsurance reserves due to the surrender by a largegroup of policyholders in a modified coinsurance treaty.	

	Insurance benefits, claims and reservesincreased $3.7 million, reflecting an increase of $4.4 million atMadison Life and a decrease of $.7 million at Standard Life. MadisonLife's increase resulted from: a $1.9 million increase in ordinary lifeand individual accident and health reserves, claims and surrenders, and$1.6 million increase in interest on annuity policies, all of suchincreases due to acquisitions in 1999; a $.4 increase in group termlife premiums; and a $1.3 million increase in LTD claims due to theincrease in premiums and an increase in loss ratios; such increaseswere offset by: a $.4 million decrease in the credit line of business;and a $.4 million decrease in claims and reserves in other life andhealth lines of business. The change at Standard Life is comprised of:a $2.6 million decrease in stop-loss reserves due to lower loss ratios;and a $1.2 million decrease in the closed block of ordinary lifebusiness due to the surrender by a large group of policyholders; suchincreases were offset by: a $1.2 million increase in DBL claims andreserves due to higher loss ratios; a $.8 million increase in  interestexpense and group annuity and life reserves due to the acquisition onApril 1, 1999; a $.6 million increase in point of service claims; and a$.5 million increase in all other lines.

	Amortization of deferred acquisition costs andgeneral and administrative expenses for the Insurance Group increased$.1 million. Madison Life's expenses decreased $.3 million, StandardLife's expenses increased $.2 million and IndependenceCare's expensesincreased $.2 million. 
** 

 

 

 

 

Corporate

Operating income for the quarter ended June 30, 2000decreased by $1.1 million from a gain of $.1 million in 1999 to a lossof $1.0 million. Operating income includes a realized gain of $.1million in 1999. Excluding realized gains, operating income decreasedby $1.0 million due to an increase in interest expense of $.6 millionattributable to the borrowing of $15.0 million during the fourthquarter of 1999 and a decrease of $.4 million in investment income dueto lower returns on certain equity investments.
**LIQUIDITY
**Insurance Group**
	The Insurance Group normally provides cash flowfrom: (i)  operations; (ii) the receipt of scheduled principal paymentson its portfolio of fixed income securities; and (iii) earnings oninvestments. Such cash flow is used partially to finance liabilitiesfor insurance policy benefits. These liabilities represent long-termand short-term obligations which are calculated using certain assumedinterest rates.

	**Asset Quality**
	The nature and quality of insurance companyinvestments must comply with all applicable statutes and regulationswhich have been promulgated primarily for the protection ofpolicyholders. Of the aggregate carrying value of the Insurance Group'sinvestment assets, approximately 81% was invested in investment gradefixed income securities, resale agreements, policy loans and cash andcash equivalents at June 30, 2000.  Also at such date, approximately97% of the Insurance Group's fixed maturities were investment grade.These investments carry less risk and, therefore, lower interest ratesthan other types of fixed maturity investments. At June 30, 2000,approximately 3% of the carrying value of fixed maturities was investedin diversified non-investment grade fixed income securities(investments in such securities have different risks than investmentgrade securities, including greater risk of loss upon default, andthinner trading markets). Less than .1% of the carrying value of theCompany's total investments was represented by real estate and mortgageloans. The Company has no non-performing fixed maturities.

	**Risk Management**
	The Company manages interest rate risk byseeking to maintain a portfolio with a duration and average life thatfalls within the band of the duration and average life of theapplicable liabilities, and may utilize options to modify the durationand average life of such assets.

	The Company monitors its investment portfolio ona continuous basis and believes that the liquidity of the InsuranceGroup will not be adversely affected by its current investments. Thismonitoring includes the maintenance of an asset-liability model thatmatches current insurance liability cash flows with current investmentcash flows. 

	The expected change in fair value of theCompany's fixed income portfolio at June 30, 2000 given a 100 to 300basis point rise or decline in interest rates is not materiallydifferent than the expected change at December 31, 1999. In theCompany's analysis of the asset-liability model, a 100 to 300 basispoint change in interest rates on the Insurance Group's liabilitieswould 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 andassets would need to be sold. This is not a material exposure to theCompany since a large portion of the Insurance Group's interestsensitive policies are burial policies and annuity riders that are notsubject to the typical surrender patterns of other interest sensitivepolicies, and many of the Insurance Group's universal life and annuitypolicies come from liquidated companies which tend to exhibit lowersurrender rates than such policies of continuing companies.Additionally, there are charges to help offset the benefits beingsurrendered. If interest rates were to decrease substantially, the riskto the Company is that some of its investment assets would be subjectto early redemption. With respect to its investments, the Companyemploys (from time to time as warranted) investment strategies tomitigate interest rate and other market exposures.

	**Balance Sheet**
	The increase in securities purchased underagreements to resell is offset by a decrease in notes receivable as aportion of guaranty association notes (which were received inconnection with the 1999 acquisitions) were paid-down. Also offsettingthe increase in total investments is an increase in due to brokers dueto the timing of a securities trade that settled after June 30,2000.

	The Company had net receivables from reinsurersof $120.4 million at June 30, 2000.  Substantially all of the businessceded to such reinsurers is of short duration. All of such receivablesare either due from highly rated companies or are adequately secured.Accordingly, no allowance for doubtful accounts was necessary at June30, 2000.
**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 fromCorporate liquidity. Regulatory constraints historically have notaffected the Company's consolidated liquidity, although state insurancelaws and statutory accounting rules have provisions relating to theability of the parent company to use cash or income generated by theInsurance Group.

	Total corporate liquidity (cash, cashequivalents, resale agreements and marketable securities) amounted to$13.1 million at June 30, 2000. 
**Capital Resources**
	Due to its superior capital ratios, broadlicensing and excellent asset quality and credit-worthiness, theInsurance Group remains well positioned to increase or diversify itscurrent activities. It is anticipated that future acquisitions or otherexpansion of operations will be funded internally from existing capitaland surplus and parent company liquidity, including the remaining $15.0million availability under its credit facility. In the event additionalfunds are required, it is expected that they would be borrowed orraised in the public or private capital markets to the extentdetermined to be necessary or desirable. 

 

 

 

	In accordance with Statement of FinancialAccounting Standards ("SFAS") No. 115, the Company may carry itsportfolio of fixed income securities either as held to maturity(carried at amortized cost), as trading securities (carried at fairmarket value) or as available-for-sale (carried at fair market value);the Company has chosen to carry all of its debt securities asavailable-for-sale. The Company experienced a decrease in unrealizedlosses of $1.2 million, net of deferred tax expense and deferred policyacquisition costs, in total stockholders' equity, reflecting unrealizedlosses of $9.8 million at June 30, 2000 versus $11.0 million atDecember 31, 1999. From time to time, as warranted, the Company employsinvestment strategies to mitigate interest rate and other marketexposures.

	Some of the statements included withinManagement's Discussion and Analysis may be considered to be forwardlooking statements which are subject to certain risks anduncertainties.  Factors which could cause the actual results to differmaterially from those suggested by such statements are described fromtime to time in the Company's Annual Report on Form 10-K and otherfilings with the Securities and Exchange Commission.

 
**PART II.  OTHER INFORMATION

Item 4.		Submission of Matters to a Vote ofSecurity Holders
		At its Annual Meeting of Stockholdersheld on June 22, 2000, the following nine nominees were re-elected forone-year terms on the Board of Directors:

Larry R. Graber, Harold E. Johnson, Allan C.Kirkman, Steven B. Lapin, Edward Netter, Robert P. Ross, Jr., Edward J.Scheider, James G. Tatum and Roy T.K. Thung

The vote on the election of the above nomineeswas:

For		At least 6,784,687 shares

Withheld	No more than 108,846 shares

In addition, at such meeting,  the appointment ofKPMG LLP as independent auditors for 2000 was ratified by a vote of6,883,941 shares for, 3,268 shares against, and 6,324 sharesabstaining. There were no broker non-votes. 
**	

Item 6. 	  Exhibits and Reports on Form 8-K
		a)   	1)   Exhibit 11.  Statement re:computation of per share earnings.

 		2)   Exhibit 27.  Financial Data Schedule.For submission in electronic 		filing only.

b)	No report on Form 8-K was filed during thequarter ended June 30, 2000.
**SIGNATURES**
Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this report to besigned on its behalf by the undersigned thereunto duly authorized.

INDEPENDENCE HOLDING COMPANY

(THE REGISTRANT)

 

 

						By:/s/  Teresa A.Herbert		
							Teresa A.Herbert

							Vice President and ChiefFinancial Officer

Dated:  August 11, 2000				****************************************************************************************************************************************************************************************