UNITED INSURANCE COMPANIES INC, S-3/A, 1996-04-24

UNITED INSURANCE COMPANIES INC
S-3/A, 1996-04-24
FIRE, MARINE & CASUALTY INSURANCE

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 24, 1996

REGISTRATION NO. 333-02043
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

AMENDMENT NO. 2

FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

UNITED INSURANCE COMPANIES, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 75-2044750
(State of incorporation) (I.R.S. Employer Identification Number)

4001 MCEWEN DRIVE, SUITE 200
DALLAS, TEXAS 75244
(214) 960-8497
(Address, including zip code, and telephone number, including area code, of
principal executive offices)

VERNON R. WOELKE
VICE PRESIDENT & TREASURER
4001 MCEWEN DRIVE, SUITE 200
DALLAS, TEXAS 75244
(214) 960-8497
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

COPIES TO:

CHARLES CHU CHARLES W. MULANEY, JR.
MAYER, BROWN & PLATT SKADDEN, ARPS, SLATE, MEAGHER & FLOM
2000 PENNSYLVANIA AVENUE, N.W. 333 WEST WACKER DRIVE
WASHINGTON, DC 20006-1882 CHICAGO, ILLINOIS 60606

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. / /
------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
===========================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value... 5,175,000 shares $21.94 $113,539,500 $39,152(3)
===========================================================================================================
</TABLE>

(1) Includes 675,000 shares covered by an over-allotment option.
(2) Estimated solely for purposes of determining the registration fee, based on
the average of the high and low sales prices on the Nasdaq National Market
on March 28, 1996.
(3) As previously paid.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

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<PAGE> 2
***************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY *
* NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH *
* SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO *
* REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH *
* STATE. *
* *
***************************************************************************

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS DATED APRIL 24, 1996

PROSPECTUS
4,500,000 SHARES

UNITED INSURANCE COMPANIES, INC.

COMMON STOCK
------------------------
All of the shares of Common Stock (the "Common Stock") offered hereby (the
"Shares") are being issued and sold by United Insurance Companies, Inc. ("UICI"
or the "Company"). The Common Stock is traded on the Nasdaq National Market
("Nasdaq") under the symbol "UICI." On April 3, 1996, the last reported sale
price of the Common Stock as reported on Nasdaq was $20 per share. See "Price
Range of Common Stock and Dividend Policy."

INVESTORS SHOULD CONSIDER CAREFULLY THE FACTORS SET FORTH UNDER THE CAPTION
"RISK FACTORS" ON PAGE 7.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
===============================================================================================
PRICE TO PROCEEDS TO
PUBLIC UNDERWRITING COMPANY(2)
DISCOUNT(1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................ $ $ $
- -----------------------------------------------------------------------------------------------
Total(3)................................. $ $ $
===============================================================================================
</TABLE>

(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities under the Securities Act of 1933. See "Underwriting."

(2) Before deducting expenses of the offering payable by the Company estimated
at $500,000.

(3) The Company has granted the Underwriters an option, exercisable within 30
days after the date hereof, to purchase up to 675,000 additional shares of
Common Stock at the Price to Public, less Underwriting Discount, solely to
cover over-allotments, if any. If such option is exercised in full, the
total Price to Public, Underwriting Discount, and Proceeds to Company will
be $ , $ , and $ , respectively. See
"Underwriting."

------------------------

The Shares are being offered by the several Underwriters, subject to prior
sale, when, as and if issued to and accepted by them, subject to approval of
certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York on or
about , 1996.

------------------------
MERRILL LYNCH & CO.
------------------------

The date of this Prospectus is , 1996.
<PAGE> 3

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON NASDAQ OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK OF
THE COMPANY ON NASDAQ IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITING."

FOR NORTH CAROLINA INVESTORS: THE COMMISSIONER OF INSURANCE OF THE STATE OF
NORTH CAROLINA HAS NOT APPROVED OR DISAPPROVED THIS OFFERING, NOR HAS SUCH
COMMISSIONER PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS.
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and Consolidated Financial
Statements and the notes thereto included elsewhere in this Prospectus. Unless
otherwise indicated, the information contained in this Prospectus assumes that
the Underwriters' over-allotment option is not exercised and has been adjusted
to give effect to the June 1995 four-for-one stock split and the September 1992
two-for-one stock split. Unless the context otherwise requires, references in
this Prospectus to "UICI" or the "Company" shall refer to United Insurance
Companies, Inc., and subsidiaries, references to "Common Stock" shall refer to
shares of Common Stock, $.01 par value, of the Company, and references to
"Shares" shall refer to the 4,500,000 shares of Common Stock being offered
hereby (the "Offering").

THE COMPANY

UICI, through its subsidiaries, provides health, life and other financial
products to selected niche markets. The Company issues health insurance policies
to the self-employed and student markets. For the self-employed market, which
includes self-employed individuals and individuals who work for small businesses
with five or fewer employees, the Company offers a range of health insurance
products. Catastrophic hospital and basic hospital-medical expense plans are
tailored to an insured's individual needs and include managed care options such
as a Preferred Provider Organization ("PPO") plan as well as other coverage
modifications. The Company markets these products through "dedicated" agency
sales forces, consisting of approximately 5,000 independent contractors who
primarily sell the Company's products. For the student market, the Company
offers tailored insurance programs which generally provide single school year
coverage to individual students primarily at universities but also at public and
private schools for kindergarten through grade 12. In this market, the Company
sells its products through in-house account executives who focus on colleges and
universities on a national basis. Health insurance premiums were $473.8 million
in 1995, or 74% of the Company's total revenues.

The Company issues life insurance products to selected niche markets and
acquires blocks of life insurance and annuity policies from other insurers on an
opportunistic basis. The life insurance policies issued by the Company are
marketed through a dedicated agency sales force. The Company also offers managed
health care services, including marketing, risk management and other services to
large employers, managed care organizations, and other insurers. In addition,
the Company assists individuals with no, or troubled, credit experience in
obtaining a nationally recognized credit card by providing financial support for
the card. This product is marketed through a sales force of independent
contractors.

The Company seeks to continue to expand its business profitably and
strengthen its position in the markets in which it competes. The key elements of
its strategy are as follows:

DEDICATED AGENT NETWORK. The Company's strategy in the self-employed
market is to align itself closely with its sales forces. Substantially all of
the health insurance either issued or coinsured by the Company in the
self-employed market is sold through a nationwide network of over 4,000 agents
associated with United Group Association, Inc. ("UGA"), which is wholly-owned by
the Company's Chairman, and over 1,000 agents associated with Cornerstone
Marketing of America ("CMA"), a division of the Company. UGA has agreed with the
Company that UGA will not market insurance products of another insurance carrier
competitive with the insurance products of the Company, subject to certain
exceptions. The agents, as a condition to receiving customer leads, exclusively
sell insurance products offered through UGA and CMA. The Company believes that
the use of dedicated sales forces, as opposed to insurance brokers who sell
products for a number of carriers, leads to better marketing performance because
such agents are committed to the Company's products. The Company also believes
that the recruitment, training and motivation of agents are key factors in the
success and growth of the Company. The number of dedicated agents selling the
Company's health insurance products has grown from approximately 900 in 1986 to
over 5,000 as of December 31, 1995.

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<PAGE> 5

EMPLOYEE AND AGENT STOCK OWNERSHIP. The Company believes that agents and
employees are more productive and remain associated with the Company longer when
they own Common Stock of the Company. Since 1987, the Company and UGA have
provided agents and employees with stock plans that allow them to systematically
buy Common Stock. Through these stock ownership plans, the agents and employees
of the Company and UGA owned in the aggregate approximately 16% of the Common
Stock as of December 31, 1995, which does not include any shares held by agents
and employees outside of these plans.

FOCUS ON NICHE MARKETS. The Company attempts to identify niche markets
which it believes are underserved by larger competitors and in which it has the
skills and marketing resources required to achieve profitability and growth.
Initially, the Company targeted the self-employed health insurance market. By
focusing on this market, the Company has been able to design and market its
product offerings, structure its coverage benefits and process claims to more
effectively service the needs of the self-employed. In 1987, the Company
identified a niche opportunity in the student health insurance market, and has
subsequently increased premiums from $17.0 million in 1987 to $90.4 million in
1995. The Company believes that it provides student health insurance plans to
more universities than any other single insurer. The Company also markets a life
insurance product which includes a rider committing the Company to provide loans
to help fund the higher education of the children of the insured. Annualized
premiums of new policies sold in 1995 for this product were approximately $15.0
million, as compared to approximately $2.0 million in 1993. In 1993, the Company
began offering credit support services to individuals not being served by the
larger financial institutions that issue major credit cards. In 1995, this
division had revenues of $28.0 million.

POLICY DESIGN AND CLAIMS MANAGEMENT. The Company's traditional indemnity
health insurance products are principally designed to limit coverages to the
occurrence of significant events which require hospitalization. This policy
design, which includes high deductibles, reduces the frequency of covered claims
requiring processing, thus controlling administrative expenses. The Company
seeks to price its products in a manner that accurately reflects its
underwriting assumptions and targeted margins, and relies on the marketing
capabilities of its dedicated agency sales forces to sell these products at
prices consistent with these objectives. For the last five fiscal years, the
Company's average combined ratio for the Self-Employed Health Insurance Division
was 94% and has ranged from 90% to 98%.

ACQUISITIONS OF EXISTING BLOCKS OF BUSINESS. The Company has grown through
opportunistic acquisitions of blocks of life insurance and annuity policies. The
Company believes that its success in profitably acquiring and servicing blocks
has been principally due to its experience and expertise in analyzing the
characteristics of the policies in the blocks and its ability to
cost-effectively administer the policies. The Company most recently acquired a
block of life insurance and annuity policies in 1994. Although the Company
believes that it can continue to exploit acquisition opportunities and continues
to analyze potential transactions, the current climate for acquisitions of life
insurance and annuity policies has become very competitive, making it more
difficult to successfully complete acquisitions which meet the Company's
financial goals.

RECENT DEVELOPMENTS

Since the Company's inception, a substantial portion of the health
insurance policies sold by UGA agents has been issued by AEGON USA, Inc.
(together with its subsidiaries, "AEGON") and coinsured by the Company.
Effective April 1, 1996, substantially all new health insurance policies sold by
UGA will be directly issued by the Company, following a transition period,
pursuant to agreements between the Company and AEGON (the "AEGON Transaction").
The Company will retain 100% of the premiums and pay all of the

4
<PAGE> 6

costs of such new policies. During the transition period, UGA agents will
continue to sell health insurance policies issued by AEGON and coinsured by the
Company in each state where UGA sells insurance until regulatory approvals for
the Company to directly issue its policies in such state are received. The
Company and AEGON will maintain the coinsurance agreement for policies issued by
AEGON prior to April 1, 1996 and during the transition period. The Company's
coinsurance percentage will be 57.5% in 1996 and 60% thereafter until December
31, 2000, at which time the Company will acquire all remaining policies from
AEGON at a formula price described in the agreement.

The Company does not anticipate that this transaction will have a material
impact on the results of operations for the Company in 1996. However, as new
health insurance policies are issued by the Company (of which the Company will
retain 100%) and as health insurance policies issued by AEGON (of which the
Company will have coinsured a maximum of only 60%) lapse, the Company expects
premiums will increase as its share of premiums on the policies sold by UGA
increases from 55% in 1995 to 100% in 2001. In 1995, health insurance policies
sold by UGA and issued by AEGON produced premiums of $390.2 million of which the
Company's share was 55%, or $214.6 million. There can be no assurance that the
Company's premium revenues from these operations will actually achieve any
specified level. As the premiums for insurance issued directly by the Company
increase, the Company will be required to increase the statutory capital and
surplus in its insurance subsidiaries in order to maintain the ratings it
currently has from A.M. Best and other rating agencies.

RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 1996

On April 22, 1996, the Company announced results for the first quarter
ended March 31, 1996. The Company reported revenues of $171.6 million for the
first quarter of 1996 compared to revenues of $150.8 million for the same period
in 1995. Net income for the first quarter of 1996 was $15.2 million or $0.40 per
share compared to $12.1 million or $0.32 per share for the same period in 1995.
Included in net income are gains from the sale of investments of $0.01 per share
in 1996 and 1995.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company......................... 4,500,000 shares
Common Stock to be outstanding after the Offering........... 42,763,745 shares(1)
Use of Proceeds............................................. The Company intends to use the
net proceeds from the Offering
for the retirement of certain
indebtedness, to fund capital
contributions to its insurance
subsidiaries and for general
corporate purposes, including
acquisitions of complementary
businesses and assets. See
"Use of Proceeds."
Nasdaq National Market Symbol............................... UICI
</TABLE>

- ---------------

(1) Based on the number of shares of Common Stock outstanding as of March 6,
1996. Excludes (i) 67,240 shares of Common Stock issuable upon exercise of
outstanding stock options having an average exercise price of $4.82 per
share and (ii) 35,760 shares of Common Stock issuable upon exercise of
outstanding warrants having an average exercise price of $2.50 per share.

5
<PAGE> 7

SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA

The following summary consolidated financial and operating data as of and
for each of the five years in the period ended December 31, 1995 have been
derived from the audited Consolidated Financial Statements of the Company. The
following data should be read in conjunction with the Consolidated Financial
Statements and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included herein.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
AND OPERATING STATISTICS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues............................. $ 641,074 $ 522,946 $ 451,789 $ 371,344 $ 311,964
Benefits and expenses................ 554,413 466,931 398,770 322,937 284,523
---------- ---------- ---------- ---------- ----------
Income before federal income taxes
and minority interests............. $ 86,661 $ 56,015 $ 53,019 $ 48,407 $ 27,441
Net Income........................... $ 53,328 $ 36,178 $ 32,845 $ 27,542 $ 16,908
========== ========== ========== ========== ==========
Fully diluted net income per
share(1)........................... $ 1.41 $ 0.96 $ 0.88 $ 0.79 $ 0.50
========== ========== ========== ========== ==========
Operating net income per
share(1)(2)........................ $ 1.37 $ 1.06 $ 0.75 $ 0.60 $ 0.40
========== ========== ========== ========== ==========
Weighted average fully diluted shares
outstanding(1)..................... 37,940 37,626 37,575 35,844 36,190
OPERATING DATA:
Health Ratios:
Loss ratio(3)...................... 58% 57% 55% 55% 54%
Expense ratio(4)................... 33% 36% 39% 40% 44%
---------- ---------- ---------- ---------- ----------
Combined ratio..................... 91% 93% 94% 95% 98%
========== ========== ========== ========== ==========
Return on average equity(5).......... 24.7% 21.2% 25.1% 33.3% 35.1%
BALANCE SHEET DATA:
Total investments and cash........... $ 937,185 $ 842,867 $ 727,248 $ 506,797 $ 413,816
Total assets(6)...................... 1,130,859 1,031,263 814,793 577,726 483,159
Total policy liabilities............. 787,905 778,676 616,615 426,193 356,436
Total debt........................... 50,381 56,155 19,500 -- 37,350
Stockholders' equity................. 248,819 170,923 154,768 110,999 59,173
</TABLE>

- ---------------

(1) Share and per share amounts have been restated to reflect the effect of the
June 1995 four-for-one stock split and the September 1992 two-for-one stock
split.

(2) Operating net income represents net income excluding realized gains or
losses on sale of investments, net of federal income taxes and minority
interests.

(3) The health loss ratio represents benefits, claims and settlement expenses
related to health insurance policies stated as a percentage of health
premiums.

(4) The health expense ratio represents underwriting, acquisition and insurance
expenses related to health insurance policies stated as a percentage of
health premiums. Expenses related to providing administrative services for
fees are not included.

(5) Excludes the net unrealized investment gains or losses which is reported as
a separate component of stockholders' equity. Return on average equity
represents net income as a percentage of average stockholders' equity
during the year.

(6) Total assets and total policy liabilities prior to 1993 have been restated
to reflect the adoption of Financial Accounting Standard (FAS) 113
"Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts."

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<PAGE> 8

RISK FACTORS

Prospective investors should consider carefully, in addition to the other
information contained in this Prospectus, the following factors before
purchasing Shares offered hereby.

HEALTH CARE REFORM

Many proposals have been introduced in Congress and various state
legislatures to reform the present health care system. Some of these proposals
are specifically directed at the small group health care market, which could
affect the Company's principal business. At the state level, a number of states
have passed or are considering legislation that would limit the differentials in
rates that carriers could charge between new business and renewal business and
with respect to similar demographic groups. Legislation also has been adopted or
is being considered that would make health insurance available to all small
groups by requiring coverage of all employees and their dependents, by limiting
the applicability of pre-existing conditions exclusions, by requiring carriers
to offer a basic plan exempt from certain mandated benefits as well as a
standard plan and by establishing a mechanism to spread the risk of high risk
employees to all small group carriers.

At the federal level, several competing proposals have been introduced in
Congress. One bill receiving serious current consideration is the Health
Insurance Reform Act of 1995 (S. 1028), which was introduced by Senators Nancy
Kassebaum and Edward Kennedy (the "Kassebaum-Kennedy bill"). The Clinton
administration has expressed its support for certain provisions of the bill, and
the bill was overwhelmingly approved by the Senate on April 23, 1996. Among
other provisions, the Kassebaum-Kennedy bill, if enacted, would build upon state
initiatives by guaranteeing "group-to-individual" portability. Under the bill,
any person governed by a group insurance plan for at least eighteen months
would, on leaving the group plan, have the right to buy an individual policy
from any insurance company selling individual health insurance policies in that
person's state regardless of whether that person has a pre-existing condition.
This provision, if enacted, could result in the Company insuring individuals who
under the Company's current underwriting standards would not be insured by the
Company. On March 28, 1996, the House passed a health care reform bill
containing provisions similar to the Kassebaum-Kennedy bill, although it also
contains provisions which, according to published reports, may be more
controversial. The two bills are expected to be reported to a conference
committee shortly and reconciled. In light of these developments, the Company
believes that the enactment of some form of federal health care reform
legislation has become more likely.

The Company is unable to predict when or whether any federal or state
proposals, or some combination thereof, will be enacted or, if enacted, the
likely impact on the Company. It is possible, however, that the enactment of
such health care reform legislation could materially adversely affect the
Company's results of operations. The Company has ceased issuing or coinsuring
insurance in the self-employed market in two states as a result of legislative
developments. See "Management's Discussion and Analysis of Financial Operations
and Results of Operations -- Health Care Reform."

INCREASING HEALTH CARE COSTS

The Company's profitability depends in large part on its ability to predict
and effectively manage claims related to health care costs. The aging of the
population and other demographic characteristics and advances in medical
technology continue to contribute to rising health care costs.
Government-imposed limitations on Medicare and Medicaid reimbursements also have
caused the private sector to bear a greater share of increasing health care
costs. Changes in health care practices, inflation, new technologies, major
epidemics, natural disasters and numerous other factors affecting the delivery
and cost of health care are beyond any company's control and may limit the
Company's ability to predict and control health care costs and claims. See
"Management's Discussion and Analysis of Financial Operations and Results of
Operations -- Inflation."

REGULATION

The Company's insurance subsidiaries, and the manner in which their
businesses are conducted, are subject to extensive regulation in their
domiciliary states and the other states in which they do business. Such

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<PAGE> 9

regulation is primarily intended to protect policyholders rather than investors.
Federal regulation, such as the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), also affects the manner in which the Company's insurance
subsidiaries conduct their business. Certain of the Company's subsidiaries, and
the manner in which their businesses are conducted, are also subject to
regulation not directly related to the business of insurance, including
regulation of student loans and the marketing of credit cards.

Compliance with legal or regulatory restrictions limits the ability of the
Company's subsidiaries to conduct their operations. A failure to comply may
subject the affected subsidiary to a loss or suspension of a right to engage in
certain businesses or business practices, criminal or civil fines, an obligation
to make restitution or pay refunds or other sanctions, which could adversely
affect the manner in which the Company's subsidiaries conduct their businesses
and the Company's results of operations.

State and federal regulation is continually changing and the Company is
unable to predict whether or when any such changes will be adopted. It is
possible, however, that the adoption of such changes could adversely affect the
manner in which the Company's subsidiaries conduct their business and the
Company's results of operations. See "Business -- Regulation."

RELIANCE ON KEY MANAGEMENT

The Company relies on its senior management, including Mr. Ronald L.
Jensen, Chairman of the Board, and the executives who are responsible for the
business of the Company's various divisions. Such executives are given
substantial autonomy for their respective divisions. The loss of the services of
any of these persons could have a material adverse effect on the Company's
results of operations.

DEPENDENCE ON JENSEN-OWNED COMPANIES

Mr. Jensen owns approximately 21% of the Common Stock as of the date of
this Prospectus and also owns 100% of UGA. Among other things, UGA insurance
agents sell insurance products issued by the Company or issued by subsidiaries
of AEGON USA, Inc. (together with its subsidiaries, "AEGON") and coinsured by
the Company, and UGA provides customer leads to UGA agents and other agents that
sell insurance products issued by the Company.

Although the terms of the insurance agency relationship between the Company
and UGA are set forth in certain agency agreements, such agreements are
terminable by either party at any time on 15 months' notice (or immediately for
cause, as defined) and do not afford specific assurances or guarantees that UGA
will continue to provide services to the Company for an indefinite period of
time. In addition, UGA has agreed that it will not cease to offer customer leads
to CMA agents without giving at least 180 days' prior notice. If UGA ceased
providing leads to the Company, the sales efforts of CMA's sales force could be
materially adversely affected. In any event, such agreements might be amended at
any time in a manner detrimental to the Company, or terminated if the parties
were unwilling to agree to such amendments. UGA sells insurance products which
represent a substantial amount of the Company's revenues. There is no indication
that the Company will end its dependence on UGA in the foreseeable future. If
UGA's ability to sell the insurance products issued or coinsured by the Company
is impaired for any reason, or if UGA ceases to sell such products, the results
of operations of the Company would be materially adversely affected.

In that regard, following a transition period which began on April 1, 1996,
UGA will no longer sell health insurance policies issued by AEGON and coinsured
by the Company, but will instead sell health insurance policies issued directly
by the Company. See "The Company -- Recent Developments" and "Certain
Relationships and Related Transactions."

CONFLICTS OF INTERESTS WITH MR. JENSEN AND JENSEN-OWNED COMPANIES

As noted above, the Company depends on certain relationships with UGA. The
interests of Mr. Jensen, UGA and other companies in which Mr. Jensen owns an
interest may conflict with the interests of the Company, including with respect
to the amount of compensation payable by the Company and the freedom of Mr.
Jensen and such companies to engage in other activities, and with respect to any
negotiations of, disputes

8
<PAGE> 10

under, or breaches of, any such agreements or arrangements. Certain officers and
employees of the Company, in addition to Mr. Jensen, also serve as officers or
directors of, or provide services to, UGA and other companies in which Mr.
Jensen owns an interest.

Mr. Jensen, UGA and other companies in which Mr. Jensen owns an interest
have engaged in a number of financial and other transactions with the Company.
The Board has adopted a policy that all material transactions in which there may
be a conflict of interest between the Company and Mr. Jensen are reviewed and
approved by a majority of the independent members of the Board. See "Certain
Relationships and Related Transactions."

CONTROL BY JENSEN FAMILY

Following completion of the Offering, Mr. Jensen will beneficially own
approximately 19% of the outstanding Common Stock and will remain the Company's
largest stockholder. In addition, his adult children, directly and through
Onward and Upward, Inc., will own approximately 14% of the Common Stock
following completion of the Offering. Accordingly, Mr. Jensen can be expected to
have the ability to control the direction of the Company.

COMPETITION

The Company operates in highly competitive industries. The Company's
insurance divisions compete with large national insurers, regional insurers and
specialty insurers, many of which are larger and have substantially greater
financial resources or higher A.M. Best ratings than the Company. In addition to
claims paying ratings, insurers compete on the basis of price, breadth and
flexibility of coverage, ability to attract and retain agents and the quality
and level of agent and policyholder services provided. The Company's other
divisions compete with financial services companies, managed care consultants,
and third party administrators, among others. Many of the competitors may have
greater financial resources, broader product lines or greater experience in
particular lines of business. The HealthCare Solutions Division has only
recently been formed and therefore competes with other companies with
significantly greater experience in highly competitive markets. There can be no
assurance that the HealthCare Solutions Division will be successful competing in
such markets.

ADEQUACY OF CLAIMS LIABILITIES

The liability for claims established by the Company are estimates of
amounts needed to pay reported and unreported claims based on facts and
circumstances known at the time the liabilities are established. Liabilities are
based on historical claims information, industry statistics and other factors.
The establishment of appropriate liabilities is an inherently uncertain process,
and there can be no assurance that the ultimate liability will not materially
exceed the Company's claims liability and have a material adverse effect on the
Company's results of operations and financial condition. Due to the inherent
uncertainty of estimating claims liabilities, it has been necessary, and may in
the future be necessary, to revise estimated future liabilities as reflected in
the Company's claims liability. When the Company acquires blocks of insurance
policies or insurers owning such blocks, the Company's assessment of the
adequacy of transferred policy liabilities is subject to similar uncertainties.
The Company has not had a revision in claims liabilities in the last five years
which resulted in recording an increase in the liability for prior years.

CERTAIN RISKS ASSOCIATED WITH CREDIT CARD BUSINESS

There are certain risks associated with the credit card business. The
primary risk involves the possibility of future economic downturns causing an
increase in credit losses. The Company currently targets the market of
individuals with no, or troubled, credit experience, for which market there is
generally limited historical loss information available. Accordingly, the
Company has experienced, and expects to continue to experience, higher credit
losses than industry averages. While the Company does not directly bear the risk
of credit losses on securitized credit card loans, certain risks are associated
with the securitized loans, including the risk of early amortization upon the
occurrence of certain events, which could accelerate the need for funding. The

9
<PAGE> 11

Company's ability to sustain the recent rate of growth in its credit card
portfolio is dependent upon the success of its marketing programs.

INVESTMENT PORTFOLIO

The Company's investment portfolio primarily consists of fixed maturity
securities such as investment grade publicly traded debt securities and
mortgage-backed securities, including collateralized mortgage obligations. At
December 31, 1995, approximately 81% of the Company's invested assets were fixed
maturity securities, of which approximately 58% were fixed income securities and
approximately 42% were mortgage-backed securities. Certain risks are inherent in
connection with fixed income securities, including loss upon default and price
volatility in reaction to changes in interest rates and general market factors.
Certain additional risks are inherent with mortgage-backed securities, including
the risks associated with reinvestment of proceeds due to prepayments of such
obligations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Investments."

10
<PAGE> 12

THE COMPANY

At its inception in 1984, the Company's business consisted solely of
coinsurance of health and term life insurance policies sold by UGA agents to the
self-employed market and issued by AEGON. Principally through acquisitions of
insurance companies and blocks of life insurance and annuity policies, and the
development of the underwriting and administrative capabilities to issue
insurance policies directly, the percentage of the Company's total revenues in
1995 relating to the coinsurance business decreased to 35% (although in absolute
terms such revenues continued to increase over prior years).

The Company's principal subsidiaries through which the business of the
Self-Employed Health Insurance Division, Student Health Insurance Division and
the Life Insurance and Annuity Division are conducted are The MEGA Life and
Health Insurance Company ("MEGA"), which is wholly-owned by the Company,
Mid-West National Life Insurance Company of Tennessee ("Mid-West"), in which the
Company owns 79% of the outstanding stock, and The Chesapeake Life Insurance
Company ("Chesapeake"), in which the Company owns 78% of the outstanding stock.
MEGA is an insurance company domiciled in Oklahoma and is licensed to issue
health and life insurance policies in all states except New York. Mid-West is an
insurance company domiciled in Tennessee and is licensed to issue health and
life insurance policies in all states except Connecticut, Maine, New Hampshire,
New York, and Vermont. Chesapeake is an insurance company domiciled in Oklahoma
and is licensed to issue health and life insurance policies in all states except
Kansas, New Jersey, New York and Vermont. MEGA is currently rated "A
(Excellent)," Mid-West is currently rated "A- (Excellent)," and Chesapeake is
currently rated "B++ (Very Good)" by A.M. Best. A.M. Best's ratings currently
range from "A++ (Superior)" to "F (Liquidation)." A.M. Best's ratings are based
upon factors relevant to policyholders, agents, insurance brokers and
intermediaries and are not directed to the protection of investors.

The HealthCare Solutions Division operates through a number of wholly-owned
and partially owned subsidiaries, as well as companies in which the Company does
not hold a majority interest. The business of the Credit Services Division is
conducted primarily through United Membership Marketing Group, LLC, in which the
Company owns 85% of the outstanding equity.

On April 16, 1996, the Company's stockholders approved a proposal to change
the name of the Company to "UICI." The Company will effect this name change
following the completion of the Offering.

The Company's principal executive offices are located at 4001 McEwen Drive,
Suite 200, Dallas, Texas 75244. Its telephone number is (214) 960-8497.

11
<PAGE> 13

RECENT DEVELOPMENTS

Since the Company's inception, a substantial portion of the health
insurance policies sold by UGA agents has been issued by AEGON and coinsured by
the Company. Effective April 1, 1996, substantially all new health insurance
policies sold by UGA will be directly issued by the Company, following a
transition period, pursuant to agreements between the Company and AEGON (the
"AEGON Transaction"). The Company will retain 100% of the premiums and pay all
of the costs of such new policies. During the transition period, UGA agents will
continue to sell health insurance policies issued by AEGON and coinsured by the
Company in each state where UGA sells insurance until regulatory approvals for
the Company to directly issue its policies in such state are received. The
Company believes that substantially all regulatory approvals will be obtained by
December 31, 1996. The Company and AEGON will maintain the coinsurance agreement
for policies issued by AEGON prior to April 1, 1996 and during the transition
period. The Company's coinsurance percentage will be 57.5% in 1996 and 60%
thereafter until December 31, 2000, at which time the Company will acquire all
remaining policies from AEGON at a formula price described in the agreement.

As part of the AEGON Transaction, the Company acquired AEGON's
underwriting, claims management and administrative capabilities related to the
products coinsured by the Company, through the purchase of AEGON's insurance
center for approximately $10 million. The Company also hired substantially all
of the 700 employees located at the center. The Company believes that this will
ensure a continuation of the quality, cost effective underwriting, claims
processing and customer service expertise that has contributed to the
profitability of the business sold by UGA.

Under general agency agreements effective April 1, 1996, UGA will sell
insurance directly issued by the Company. The agreements are terminable by
either party at any time on 15 months' written notice or immediately for cause
(as defined). Commissions will be agreed upon by the parties from time to time
under the agreements. UGA has agreed that until such agreements are terminated,
UGA will not market, and will use its reasonable efforts to prevent UGA agents
from marketing, insurance products of other insurance carriers that are
competitive with the Company's insurance products, unless the Company has
declined to market such products.

USE OF PROCEEDS

The net proceeds to the Company (after deducting underwriting discounts and
commissions and estimated offering expenses) from the sale of the Shares offered
hereby, assuming an offering price of $20.00 per share, are estimated to be
$84.8 million. Approximately $7.3 million will be used by the Company to repay
revolving credit indebtedness (which bears interest at the prime rate plus .875%
and matures on August 1, 2002). The Company also intends to use a portion of the
proceeds for capital contributions to its insurance subsidiaries. The insurance
subsidiaries of the Company are required by state regulation to maintain certain
levels of capital and surplus. In addition, in order to maintain the current
ratings of the Company's insurance subsidiaries or improve such ratings in the
future, higher levels of capital and surplus may be required. The required
levels are generally based on the amount of insurance issued and the quality of
the invested assets. As premiums increase, the Company is generally required to
increase the capital and surplus of the insurance companies. The AEGON
Transaction is expected to result in increased premiums for the

12
<PAGE> 14

Company. While the Company is not able to project the exact amount of additional
capital and surplus which will be required in the insurance subsidiaries, a
portion of the proceeds are expected to be used for this purpose. The remainder
of the proceeds will be used for general corporate purposes, including
acquisitions of complementary businesses and assets. There currently are no
commitments or agreements with respect to any such acquisitions.

Pending such uses, the net proceeds will be invested by the Company in
accordance with its current investment policies. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Investments."

CAPITALIZATION

The following table sets forth the capitalization of the Company at
December 31, 1995, and as adjusted to reflect the sale of the Shares offered by
the Company hereby at an assumed price of $20.00 per share and the application
of the estimated net proceeds as described in "Use of Proceeds." See "Selected
Consolidated Financial and Operating Data" and the Consolidated Financial
Statements and notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------
AS
ACTUAL ADJUSTED(1)
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term debt........................................................ $ 27,655 $ 27,655
Stockholders' equity(2):
Common Stock, $.01 par value; 40,000,000 shares authorized;
38,220,000 shares issued and outstanding (42,720,000 shares as
adjusted)(3)..................................................... 382 427
Paid-in capital..................................................... 50,554 135,284
Retained earnings................................................... 191,094 191,094
Unrealized gains on security investments -- net..................... 6,789 6,789
-------- ---------
Total stockholders' equity....................................... 248,819 333,594
-------- ---------
Total capitalization........................................ $276,474 $ 361,249
======== =========
</TABLE>

- ---------------

(1) Adjusted to reflect the sale of 4,500,000 Shares being offered by the
Company, after deducting the underwriting discounts and commissions and
estimated expenses of the offering payable by the Company, and the use of
proceeds therefrom and the proposed increase of the number of authorized
shares of Common Stock described in Footnote 2 below, as if such increase
was effective as of December 31, 1995.

(2) On April 16, 1996, the stockholders of the Company authorized an increase
of the number of authorized shares of Common Stock from 40,000,000 to
50,000,000 and authorized 10,000,000 shares of preferred stock, $0.01 par
value, having such powers, designations and other rights as the Board of
the Company may from time to time designate. As of the date of this
Prospectus, no shares of preferred stock were issued and outstanding.

(3) Excludes (i) 67,240 shares of Common Stock issuable upon exercise of
outstanding stock options having an average exercise price of $4.82 per
share and (ii) 71,520 shares of Common Stock issuable upon exercise of
outstanding warrants having an average exercise price of $2.50 per share.

13
<PAGE> 15

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Company's Common Stock is traded on Nasdaq under the symbol UICI. The
table below sets forth on a per share basis, for the period indicated, the high
and low closing sales prices of the Common Stock on Nasdaq. All stock prices
have been restated for periods prior to the second quarter of 1995 to reflect
the four-for-one stock split effective June 1, 1995.

<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR ENDING DECEMBER 31, 1994
1st Quarter.............................................................. $ 6 13/16 $ 6 1/4
2nd Quarter.............................................................. 6 13/16 6 17/32
3rd Quarter.............................................................. 7 15/16 6 9/16
4th Quarter.............................................................. 8 1/2 7 5/8
FISCAL YEAR ENDING DECEMBER 31, 1995
1st Quarter.............................................................. $10 3/8 $ 8 9/16
2nd Quarter.............................................................. 15 3/8 10 3/16
3rd Quarter.............................................................. 15 5/8 12 3/8
4th Quarter.............................................................. 19 14
FISCAL YEAR ENDING DECEMBER 31, 1996
1st Quarter.............................................................. $23 1/2 $19
2nd Quarter (as of April 3, 1996)........................................ 21 1/8 19 7/8
</TABLE>

On April 3, 1996, the closing price of the Common Stock on Nasdaq was $20
per share.

As of February 28, 1996, there were approximately 6,200 holders of record
of Common Stock.

The Company has not paid cash dividends on its Common Stock to date. The
Company currently intends to retain all future earnings to finance continued
expansion and operation of its business and subsidiaries. Any decision as to the
payment of dividends to the stockholders of the Company will be made by the
Company's Board of Directors and will depend upon the Company's future results
of operations, financial condition, capital requirements and such other factors
as the Board of Directors considers appropriate.

In addition, dividends paid by the domestic insurance subsidiaries of the
Company to the Company out of earned surplus in any year without prior approval
of state regulatory authorities are limited by the laws and regulations of the
state of domicile. Prior approval by state regulatory authorities is required
for the payment of dividends by domestic insurance companies which exceed the
limits set by the laws of the state of domicile.

14
<PAGE> 16

SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

The following selected consolidated financial data as of and for each of
the five years in the period ended December 31, 1995 have been derived from the
audited Consolidated Financial Statements of the Company. The following data
should be read in conjunction with the Consolidated Financial Statements and the
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included herein.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
AND OPERATING STATISTICS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues
Premiums:
Health...................................................... $ 473,778 $ 415,251 $343,743 $299,955 $267,282
Life........................................................ 38,530 36,987 24,977 11,815 8,625
Net investment income......................................... 65,054 47,956 39,226 36,987 25,220
Fees and other income......................................... 61,549 28,592 35,898 10,032 5,114
Gains (losses) on sale of investments......................... 2,163 (5,840) 7,945 12,555 5,723
---------- ---------- -------- -------- --------
Total revenues.......................................... 641,074 522,946 451,789 371,344 311,964
Benefits and expenses
Benefits, claims, and settlement expenses................... 317,172 273,786 224,360 184,669 157,648
Underwriting, acquisition and insurance expenses............ 233,332 191,232 173,013 136,643 124,940
Interest expense............................................ 3,909 1,913 1,397 1,625 1,935
---------- ---------- -------- -------- --------
Total benefits and expenses............................. 554,413 466,931 398,770 322,937 284,523
Income before federal income taxes and minority interests... 86,661 56,015 53,019 48,407 27,441
Federal income taxes........................................ 29,040 18,399 17,503 16,398 9,340
---------- ---------- -------- -------- --------
Income before minority interests............................ 57,621 37,616 35,516 32,009 18,101
Minority interests.......................................... 4,293 1,438 2,671 4,467 1,193
---------- ---------- -------- -------- --------
Net Income.............................................. $ 53,328 $ 36,178 $ 32,845 $ 27,542 $ 16,908
========== ========== ======== ======== ========
Fully diluted net income per share(1)......................... $1.41 $0.96 $0.88 $0.79 $0.50
========== ========== ======== ======== ========
Operating net income per share(1)(2).......................... $1.37 $1.06 $0.75 $0.60 $0.40
========== ========== ======== ======== ========
Weighted average fully diluted shares outstanding(1)............ 37,940 37,626 37,575 35,844 36,190
OPERATING DATA:
Health Ratios:
Loss ratio(3)................................................. 58% 57% 55% 55% 54%
Expense ratio(4).............................................. 33% 36% 39% 40% 44%
---------- ---------- -------- -------- --------
Combined ratio................................................ 91% 93% 94% 95% 98%
========== ========== ======== ======== ========
Return on average equity(5)..................................... 24.7% 21.2% 25.1% 33.3% 35.1%
BALANCE SHEET DATA:
Total investments and cash...................................... $ 937,185 $ 842,867 $727,248 $506,797 $413,816
Total assets(6)................................................. 1,130,859 1,031,263 814,793 577,726 483,159
Total policy liabilities........................................ 787,905 778,676 616,615 426,193 356,436
Total debt...................................................... 50,381 56,155 19,500 -- 37,350
Stockholders' equity............................................ 248,819 170,923 154,768 110,999 59,173
Stockholders' equity per share(1)(5)............................ $6.33 $5.04 $4.09 $3.13 $2.12
STATUTORY DATA:
Statutory admitted assets....................................... $ 911,219 $ 861,899 $737,519 $625,637 $422,909
Statutory capital and surplus and asset valuation reserve(7).... 168,283 135,115 108,300 93,217 66,413
</TABLE>

- ---------------

(1) Share and per share amounts have been restated to reflect the effect of the
June 1995 four-for-one stock split and the September 1992 two-for-one stock
split.
(2) Operating net income represents net income excluding realized gains or
losses on sale of investments, net of federal income taxes and minority
interests.
(3) The health loss ratio represents benefits, claims and settlement expenses
related to health insurance policies stated as a percentage of health
premiums.
(4) The health expense ratio represents underwriting, acquisition and insurance
expenses related to health insurance policies stated as a percentage of
health premiums. Expenses related to providing administrative services for
fees are not included.
(5) Excludes the net unrealized investment gains or losses which is reported as
a separate component of stockholders' equity. Return on average equity
represents net income as a percentage of average stockholders' equity during
the year.
(6) Total assets and total policy liabilities prior to 1993 have been restated
to reflect the adoption of Financial Accounting Standard (FAS) 113
"Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts."
(7) Includes the Asset Valuation Reserve at December 31, 1995, 1994, 1993, and
1992 and the Mandatory Securities Valuation Reserve at December 31, 1991.

15
<PAGE> 17

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion of the Company's historical results of operations
and of its liquidity and capital resources should be read in conjunction with
the Selected Consolidated Financial and Operating Data and the Consolidated
Financial Statements of the Company and related notes thereto appearing
elsewhere in this Prospectus.

The Company's business segments are: (i) Health Insurance, which includes
the businesses of the Self-Employed Health Insurance Division and the Student
Health Insurance Division; (ii) Life Insurance and Annuity; and (iii) Corporate
and Other, which includes the businesses of the HealthCare Solutions Division
and the Credit Services Division, invested income not allocated to the other
segments, expenses relating to corporate operations, goodwill amortization,
interest expense and realized gains or losses on sale of investments. Net
investment income is allocated to the Health Insurance segment and the Life
Insurance and Annuity segment based on policyholder liabilities. The interest
rate for the allocation is based on a high credit quality investment portfolio
with a duration consistent with the targeted duration of the segment's policy
liabilities.

The following table sets forth income statement data as a percentage of
revenues for the periods indicated.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Revenues............................................................. 100.0% 100.0% 100.0%
Benefits, claims, and settlement expenses............................ 49.5 52.3 49.7
Underwriting, acquisition and insurance expenses..................... 36.4 36.6 38.3
Interest expense..................................................... 0.6 0.4 0.3
----- ----- -----
86.5 89.3 88.3
Income before federal income taxes and minority interests............ 13.5 10.7 11.7
Federal income taxes................................................. 4.5 3.5 3.8
----- ----- -----
Income before minority interests..................................... 9.0 7.2 7.9
Minority interests................................................... 0.7 0.3 0.6
----- ----- -----
Net income................................................. 8.3% 6.9% 7.3%
===== ===== =====
</TABLE>

CONSOLIDATED RESULTS OF OPERATIONS FOR 1995 COMPARED TO 1994

Revenues. Revenues increased to $641.1 million in 1995 from $522.9 million
in 1994, an increase of $118.2 million, or 23%. The increase was a result of
increases in premiums, net investment income, fees and other income and gains on
sales of investments.

Health premiums. Health premiums increased to $473.8 million in 1995 from
$415.3 million in 1994, an increase of $58.5 million, or 14%. The increase was
primarily due to the growth in sales of new health insurance policies and
increased premiums from coinsured policies sold by UGA and issued by AEGON. In
1995, the coinsurance percentage on both in force and new health insurance
policies issued by AEGON increased to 55% from 52.5% in 1994. During 1995, the
Company also acquired a block of health insurance policies that contributed to
the increase in health premiums.

Life premiums. Life premiums increased to $38.5 million in 1995 from $37.0
million in 1994, an increase of $1.5 million, or 4%. The increase was a result
of the sale of new life policies.

Net investment income. Net investment income increased to $65.1 million in
1995 from $48.0 million in 1994, an increase of $17.1 million, or 36%. The
increase was due to both an increase in invested assets and an increase in the
yield on invested assets. Investments increased to $931.3 million at December
31, 1995 from $835.2 million at December 31, 1994. During 1995, the Company
extended the asset portfolio duration to

16
<PAGE> 18

more closely match the Company's target duration for its policy liabilities,
which contributed to a higher yield on invested assets. Market yields on short
term investments were also higher in 1995 than in 1994.

Fees and other income. Fees and other income increased to $61.5 million in
1995 from $28.6 million in 1994, an increase of $32.9 million, or 115%. The
increase related primarily to the increase in Credit Services Division revenue
and revenue from the companies acquired by the HealthCare Solutions Division in
1995.

Gains (losses) on sale of investments. The Company recognized gains on
sales of investments of $2.2 million in 1995 compared to losses of $5.8 million
in 1994. The amount of realized gains or losses on the sale of investments is a
function of interest rates, market trends and the timing of sales. Gains are
more likely during periods of decreasing long term interest rates, as occurred
in 1995. Losses are more likely during periods of increasing long term interest
rates, as occurred in 1994. In addition, due to decreasing long term interest
rates in 1995, the net unrealized investment gains on securities classified as
"available for sale," reported as a separate component of stockholders' equity
and net of applicable income taxes and minority interests, was $6.8 million at
December 31, 1995 compared to net unrealized investment losses of $18.1 million
at December 31, 1994.

Benefits, claims, and settlement expenses. Benefits, claims, and
settlement expenses increased to $317.2 million in 1995 from $273.8 million in
1994, an increase of $43.4 million, or 16%. The increase was primarily due to
the growth in premium volume. As a percentage of revenues, these expenses
decreased to 49.5% in 1995 from 52.3% in 1994, as a result of the increased
revenues from the Credit Services Division and HealthCare Solutions Division,
whose expenses are primarily classified as underwriting, acquisition, and
insurance expenses.

Underwriting, acquisition and insurance expenses. Underwriting,
acquisition and insurance expenses increased to $233.3 million in 1995 from
$191.2 million in 1994, an increase of $42.1 million, or 22%. The increase was
primarily due to the growth in premium volume and costs associated with the
expanded operations of the Credit Services Division and the operations of
businesses acquired by the HealthCare Solutions Division in 1995. As a
percentage of revenues, these expenses remained relatively constant at 36.4% in
1995 compared to 36.6% in 1994, as the increased costs associated with Credit
Services and HealthCare Solutions divisions were offset by the decrease in the
health expense ratio to 33% in 1995 from 36% in 1994.

Interest expense. Interest expense increased to $3.9 million in 1995 from
$1.9 million in 1994, an increase of $2.0 million. The increase was due to the
8.75% Senior Notes issued June 22, 1994 and additional debt incurred in the
financing of the credit card loans.

Income before federal income taxes and minority interests ("operating
income"). Operating income increased to $86.7 million in 1995 from $56.0
million in 1994, an increase of $30.7 million, or 55%. Operating income for each
of the Company's segments and divisions was as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994
-------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Health Insurance:
Self-Employed Health Insurance Division...................... $53,008 $41,272
Student Health Insurance Division............................ 11,448 10,663
------- -------
Total Health Insurance............................... 64,456 51,935
Life Insurance and Annuity..................................... 11,569 10,627
Corporate and Other:
HealthCare Solutions Division................................ (4,162) (2,206)
Credit Services Division..................................... 1,424 (1,154)
Other........................................................ 13,374 (3,187)
------- -------
Total Corporate and Other............................ 10,636 (6,547)
------- -------
$86,661 $56,015
======= =======
</TABLE>

17
<PAGE> 19

Health Insurance. Operating income for the Health Insurance segment
increased to $64.5 million in 1995 from $51.9 million in 1994, an increase of
$12.6 million, or 24%. This increase was due primarily to a 14% increase in
health premiums and a decrease in the combined health ratio to 91% in 1995 from
93% in 1994. Operating income increased $11.8 million for the Self-Employed
Health Insurance Division and $0.8 million for the Student Health Insurance
Division.

Life Insurance and Annuity. Operating income for the Life Insurance and
Annuity segment increased to $11.6 million in 1995 from $10.6 million in 1994,
an increase of $1.0 million, or 9%. The increase was due to an increase in
premiums, an increase in net investment income allocated to life insurance and
annuity products, and a decrease in administrative expenses.

Corporate and Other. Operating income for Corporate and Other was $10.6
million in 1995 compared to a loss of $6.5 million in 1994. The HealthCare
Solutions Division incurred an operating loss of $4.2 million in 1995. The loss
primarily resulted from the losses of certain companies in the development stage
which was partially offset by operating income of other businesses. Operating
income for the Credit Services Division was $1.4 million in 1995 compared to a
loss of $1.2 million in 1994. The change of $2.6 million was due to the growth
in new sales of the credit card program and a decrease in expenses, as a
percentage of revenues. Operating income from other corporate activities was
$13.4 million in 1995 compared to a loss of $3.2 million in 1994. The increase
was primarily due to the increase in invested income not allocated to the other
segments and gains on sale of investments. The increase was partially offset by
an increase in interest expense.

CONSOLIDATED RESULTS OF OPERATIONS FOR 1994 COMPARED TO 1993

Revenues. Revenues increased to $522.9 million in 1994 from $451.8 million
in 1993, an increase of $71.1 million or 16%. The increase was a result of
increases in premiums and net investment income which was partially offset by a
decrease in fees and other income and losses on sales of investments in 1994
compared to gains in 1993.

Health premiums. Health premiums increased to $415.3 million in 1994 from
$343.7 million in 1993, an increase of $71.6 million, or 21%. The increase was
primarily due to the growth in sales of new health insurance policies, rate
increases and increased premiums from coinsured policies sold by UGA and issued
by AEGON. In 1994, the coinsurance percentage on both in force and new health
policies issued by AEGON increased to 52.5% from 50% in 1993.

Life premiums. Life premiums increased to $37.0 million in 1994 from $25.0
million in 1993, an increase of $12.0 million, or 48%. The increase was
primarily a result of an acquisition of a life insurance company in March 1994.

Net investment income. Net investment income increased to $48.0 million in
1994 from $39.2 million in 1993, an increase of $8.8 million, or 22%. The
increase was due to both an increase in invested assets and an increase in the
yield on invested assets. Investments increased to $835.2 million at December
31, 1994 from $723.2 million at December 31, 1993, an increase of $112.0
million, or 15%.

Fees and other income. Fees and other income decreased to $28.6 million in
1994 from $35.9 million in 1993, a decrease of $7.3 million, or 20%. The
decrease was primarily a result of reduced fees for servicing a block of health
insurance policies for an unrelated company.

Gains (losses) on sale of investments. The Company recognized losses on
sales of investments of $5.8 million in 1994 compared to gains of $7.9 million
in 1993. The amount of realized gains or losses on the sale of investments is a
function of interest rates, market trends and the timing of sales. Losses are
more likely during periods of increasing long term interest rates, as occurred
in 1994. Gains are more likely during periods of decreasing long term interest
rates, as occurred in 1993.

Benefits, claims, and settlement expenses. Benefits, claims, and
settlement expenses increased to $273.8 million in 1994 from $224.4 million in
1993, an increase of $49.4 million, or 22%. The increase was primarily due to
the growth in premium volume. As a percentage of revenues, these expenses
increased to

18
<PAGE> 20

52.3% in 1994 from 49.7% in 1993, primarily as a result of the increased health
loss ratio which increased to 57% in 1994 from 55% in 1993.

Underwriting, acquisition and insurance expenses. Underwriting,
acquisition and insurance expenses increased to $191.2 million in 1994 from
$173.0 million in 1993, an increase of $18.2 million, or 11%. The increase was
primarily due to the growth in premium volume. As a percentage of revenues,
these expenses decreased to 36.6% in 1994 from 38.3% in 1993 primarily due to a
decrease in the health expense ratio to 36% in 1994 from 39% in 1993.

Interest expense. Interest expense increased to $1.9 million in 1994 from
$1.4 million in 1993, an increase of $0.5 million. The increase was due to the
8.75% Senior Notes issued June 22, 1994.

Income before federal income taxes and minority interests ("operating
income"). Operating income increased to $56.0 million in 1994 from $53.0
million in 1993, an increase of $3.0 million, or 6%. Operating income for each
of the Company's segments and divisions was as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1993
------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Health Insurance:
Self-Employed Health Insurance Division...... $41,272 $35,878
Student Health Insurance Division............ 10,663 5,426
------- -------
Total Health Insurance............... 51,935 41,304
Life Insurance and Annuity..................... 10,627 7,733
Corporate and Other:
HealthCare Solutions Division................ (2,206) --
Credit Services Division..................... (1,154) 600
Other........................................ (3,187) 3,382
------- -------
Total Corporate and Other............ (6,547) 3,982
------- -------
$56,015 $53,019
======= =======
</TABLE>

Health Insurance. Operating income for the Health Insurance segment
increased to $51.9 million in 1994 from $41.3 million in 1993, an increase of
$10.6 million, or 26%. This increase was due to a 21% increase in health
premiums and a decrease in the combined health ratio to 93% in 1994 from 94% in
1993. Operating income increased $5.4 million for the Self-Employed Health
Insurance Division and $5.2 million for the Student Health Insurance Division.
The increase in operating income for the Student Health Insurance Division in
1994 was primarily due to the fact that 1993 was the last year that the Company
paid a commission that was based on a percentage of the profits of the Student
Health Insurance Division.

Life Insurance and Annuity. Operating income for the Life Insurance and
Annuity segment increased to $10.6 million in 1994 from $7.7 million in 1993, an
increase of $2.9 million, or 37%. The increase was primarily due to an increase
in premiums resulting from an acquisition of a life insurance company in March
1994.

Corporate and Other. The operating loss for Corporate and Other was $6.5
million in 1994 compared to operating income of $4.0 million in 1993. The
HealthCare Solutions and Credit Services Divisions did not have significant
operations in 1993. The decrease was primarily due to losses on the sale of
investments and partially offset by the increase in invested income not
allocated to the other segments.

19
<PAGE> 21

QUARTERLY RESULTS

The following table sets forth consolidated results of operations for each
of the Company's eight fiscal quarters in 1995 and 1994. This information is
unaudited and has been prepared on the same basis as the audited Consolidated
Financial Statements of the Company included herein and, in management's
opinion, reflects all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the information for the
periods presented. The operating results for any quarter are not necessarily
indicative of results for any future period.

<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------
DEC. 31, SEPT. 30, JUNE 30, MARCH 31, DEC. 31, SEPT. 30, JUNE 30, MARCH 31,
1995 1995 1995 1995 1994 1994 1994 1994
-------- --------- -------- --------- -------- --------- -------- ---------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................. $177,511 $ 158,431 $154,293 $150,839 $142,364 $ 133,478 $130,093 $117,011
Benefits, claims and
settlement expenses.... 84,592 73,067 79,083 80,430 73,171 67,828 68,955 63,832
Underwriting, acquisition
and insurance
expenses............... 66,179 63,478 52,759 50,916 52,546 49,420 46,230 43,036
Interest expense......... 1,135 820 844 1,110 628 621 353 311
-------- --------- -------- -------- -------- --------- -------- --------
Income before federal
income taxes and
minority interests..... 25,605 21,066 21,607 18,383 16,019 15,609 14,555 9,832
Federal income taxes..... 9,192 7,197 6,764 5,887 5,437 5,157 4,655 3,150
-------- --------- -------- -------- -------- --------- -------- --------
Income before minority
interests.............. 16,413 13,869 14,843 12,496 10,582 10,452 9,900 6,682
Minority interests....... 1,565 1,326 1,049 353 404 334 631 69
-------- --------- -------- -------- -------- --------- -------- --------
Net income...... $ 14,848 $ 12,543 $ 13,794 $ 12,143 $ 10,178 $ 10,118 $ 9,269 $ 6,613
======== ========= ======== ======== ======== ========= ======== ========
Fully diluted net income
per share.............. $ 0.39 $ 0.33 $ 0.37 $ 0.32 $ 0.27 $ 0.27 $ 0.25 $ 0.17
======== ========= ======== ======== ======== ========= ======== ========
Fully diluted operating
net income per share... $ 0.37 $ 0.35 $ 0.34 $ 0.31 $ 0.28 $ 0.27 $ 0.27 $ 0.24
======== ========= ======== ======== ======== ========= ======== ========
</TABLE>

HEALTH CARE REFORM

20
<PAGE> 22

by the Company, which could have a material adverse effect on the Company. On
March 28, 1996, the House passed a health care reform bill containing provisions
similar to the Kassebaum-Kennedy bill, although it also contains provisions
which, according to published reports, may be more controversial. The two bills
are expected to be reported to a conference committee shortly and reconciled. In
light of these developments, the Company believes that the enactment of some
form of federal health care reform legislation has become more likely.

ACCOUNTING

Deferred acquisition costs. Under generally accepted accounting
principles, certain policy acquisition costs may be deferred and amortized over
the expected life of the policy. For all of the business in the Health Insurance
segment, only the commissions and premium taxes related to the unearned premiums
are deferred. This amount increased to $16.1 million at December 31, 1995 from
$14.1 million at December 31, 1994, due to an increase in health insurance
policies issued or coinsured. As a result of an increase in life insurance and
annuity policies issued in the Life Insurance and Annuity segment, deferred
acquisition costs increased to $19.6 million at December 31, 1995 from $12.6
million at December 31, 1994. The remaining deferred acquisition costs of $20.4
million at December 31, 1995 and $30.1 million at December 31, 1994 relates
primarily to the cost of various blocks of insurance acquired. Amortization of
the cost of insurance acquired accounts for the decrease on this portion.
Deferred acquisition costs are reviewed periodically to determine that the
unamortized portion does not exceed expected recoverable amounts.

Claims liabilities. The Company records a claims liability for its
estimate of the ultimate cost of all reported and unreported claims which are
unpaid as of the end of the applicable financial reporting period. Liabilities
for medical claims represent the significant majority of claims liability. The
Company uses the "incurred date" method to estimate its liability rather than
the "service date" method. The "service date" method estimates the liability for
all medical services received by the insured prior to the end of the applicable
financial reporting period. The "incurred date" method estimates the liability
for all medical services related to an accident or illness incurred prior to the
end of the period, even though the medical services may not be received by the
insured until a later financial reporting period. The "incurred date" method is
a more conservative method.

The Company's claims liabilities are computed using the Company's own
experience to estimate outstanding claims. The Company periodically tests its
estimation process to monitor the degree to which the Company's method continues
to properly estimate future obligations.

INCOME TAXES

The Company's effective tax rate was 33.5% for 1995 compared to 32.9% for
1994 and 33.0% in 1993 which varied from the federal tax rate of 35% primarily
due to the small life insurance company deduction allowed for certain insurance
subsidiaries of the Company.

LIQUIDITY AND CAPITAL RESOURCES

The primary sources of cash for the Company are premium revenues from
policies issued or coinsured, investment income and fees and other income. The
primary uses of cash are payments for benefits, claims and commissions under
those policies and operating expenses. Net cash provided from operations totaled
approximately $84.2 million in 1995, $64.8 million in 1994, and $63.8 million in
1993. The Company's insurance subsidiaries invest a substantial portion of these
funds, pending payment of their pro rata share of future benefits and claims.

21
<PAGE> 23

The Company's invested assets increased to $931.3 million at December 31,
1995 from $835.2 million at December 31, 1994, an increase of $96.1 million. The
primary sources for asset growth were increases in the funds retained for future
payments of health insurance policy liabilities, cash provided by current year
earnings, and the increase in market values of the fixed maturity securities
held as "available for sale." The increase in market values were the direct
result of decreases in long term interest rates. These sources were offset by
withdrawals from investment products (primarily annuities) and the acquisition
of companies relating to the HealthCare Solutions Division in 1995.

On June 22, 1994, the Company issued its 8.75% Senior Notes Payable due
June 2004 ("8.75% Senior Notes") in the aggregate amount of $27.7 million. The
proceeds from the sale of the 8.75% Senior Notes were used to repay $9.0 million
of bank debt and to repay the then $10.0 million of existing debt on a revolving
credit note with AEGON. The balance of the proceeds were used for other general
corporate purposes. Interest on the 8.75% Senior Notes is paid semi-annually.
The notes do not require principal repayments until June 1, 1998 and on each
June 1 thereafter in the amount of $4.0 million each until repaid.

The Company had no outstanding balance on its revolving credit note with
AEGON at December 31, 1995. The note bears interest at prime plus 0.875%.
Subsequent to year end, the Company amended the note to increase the amount
available on the revolving credit note to $12.0 million. Any amount outstanding
will be due August 1, 2002.

During October 1995, the Company acquired two companies related to the
HealthCare Solutions Division. The acquisitions were funded with cash and the
issuance of promissory notes to the former stockholders in the amount of $12.0
million due in January 1996. The promissory notes were non-interest bearing
loans and were repaid in January 1996.

During 1995, the Company borrowed $10.7 million from Mr. Jensen which was
principally used to pay off the then existing indebtedness on the AEGON
revolving credit note. The note is due on demand and bears interest at the prime
rate. The outstanding principal amount of the note was repaid in full on April
3, 1996.

During December 1995, the Company sold $51.6 million of credit card loans
in two separate transactions. The sales involved an asset backed securitization
in which the Company purchased participating interests totaling $16.0 million. A
portion of the proceeds received by the Company was used to repay $12.0 million
of promissory notes due January 1996 and for general corporate purposes
including the purchase of investments. There was no gain or loss recorded as a
result of these transactions.

At December 31, 1995, the Company had approximately $546.1 million in
student loan commitments outstanding of which the Company expects to fund
approximately $74.0 million. These commitments will continue to come due in
years 1996 through 2017. The Company estimates that approximately $6.0 million
in student loans will be funded in 1996.

The Company has commitments to fund the unused line of credit on certain
credit cards and to purchase the credit card receivables related to the credit
cards issued by the Credit Services Division. At December 31, 1995, the
outstanding commitment for the unused line of credit was $14.5 million.

The Company has the right and may be required by the minority stockholders
to purchase certain of the shares of the minority stockholders of the insurance
subsidiaries of the Company at a predetermined formula price. The formula price
based on information available at December 31, 1995 was $12.5 million. Beginning
in December 1996, and in December of each year thereafter, the Company may be
required by the minority stockholders to purchase the remaining shares of the
minority stockholders of one of the companies acquired by the Company in 1995,
for the HealthCare Solutions Division, at a predetermined formula price. The
formula price based on information available at December 31, 1995 was $14.5
million.

The AEGON Transaction was effective April 1, 1996. There was no cost to the
Company other than the purchase of the building and equipment, although the
Company is obligated to purchase all remaining coinsured policies on December
31, 2000 at a formula price described in the agreement. The purchase price for
the building and equipment of approximately $10.0 million was funded by one of
the insurance subsidiaries of the Company from existing funds. The increase in
premiums resulting from the AEGON Transaction will

22
<PAGE> 24

require additional capital in the insurance subsidiaries, a portion of which may
be provided from the net proceeds of the Offering, to maintain the ratings of
the Company's insurance subsidiaries. See "The Company -- Recent Developments."

Reinsurance receivables decreased to $65.3 million at December 31, 1995
from $83.7 million at December 31, 1994. In 1994, the Company assumed a block of
life and annuity policies which were ceded to an unrelated reinsurer. These
policies were subject to a moratorium on withdrawals and surrenders at the time
of purchase. A significant portion of the decrease in the reinsurance
receivables relates to the surrenders and withdrawals on these policies, which
were made in 1995 after the expiration of the moratorium period. There was a
corresponding decrease in future policy and contract benefits.

Goodwill increased to $15.6 million at December 31, 1995 from $3.3 million
at December 31, 1994. The increase was the result of two companies acquired in
October 1995 related to the HealthCare Solutions Division. The goodwill
associated with these acquisitions is being amortized straight-line over 15
years.

The state of domicile of each of the Company's domestic insurance
subsidiaries imposes minimum risk-based capital requirements which were
developed by the National Association of Insurance Commissioners. The formulas
for determining the amount of risk-based capital specify various weighting
factors that are applied to financial balances and premium levels based on the
perceived degree of risk. Regulatory compliance is determined by a ratio of a
company's regulatory total adjusted capital, as defined, to its authorized
control level risk-based capital, as defined. Companies' specific trigger points
or ratios are classified within certain levels, each of which requires specified
corrective action. The risk-based capital ratio of each of the Company's
domestic insurance subsidiaries significantly exceeds the ratios in which
regulatory corrective action would be required.

Dividends paid by domestic insurance companies out of earned surplus in any
year are limited by the law of the state of domicile. See "Price Range of Common
Stock and Dividend Policy."

INVESTMENTS

General. The Company has an Investment Committee which monitors the
investment portfolio of the Company and its subsidiaries. The Investment
Committee receives investment management services from external professionals.
The largest portion of the Company's portfolio is managed by AEGON.

Investments are selected based upon the parameters established in the
Company's investment policies. Emphasis is given to the selection of high
quality, liquid securities that provide current investment returns. Maturities
or liquidity characteristics of the securities are managed by continually
structuring the duration of the investment portfolio to be consistent with the
duration of the policy liabilities. Consistent with regulatory requirements and
internal guidelines, the Company invests in a range of assets, but limits its
investments in certain classes of assets, and limits its exposure to certain
industries and to single issuers.

23
<PAGE> 25

Shown below are the Company's investments by category:

<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
--------------------- ---------------------
% OF TOTAL % OF TOTAL
CARRYING CARRYING CARRYING CARRYING
AMOUNT VALUE AMOUNT VALUE
-------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Securities available for sale --
Fixed maturities, at fair value
(cost: 1995 -- $743,945; 1994 -- $591,480)....... $754,473 81.0% $562,983 67.4%
Equity securities, at fair value
(cost: 1995 -- $5,114; 1994 -- $4,179)........... 5,288 0.6 4,146 0.5
Guaranteed student loans.............................. 12,159 1.3 20,137 2.4
Mortgage and collateral loans......................... 15,559 1.7 9,152 1.1
Policy loans.......................................... 24,042 2.6 25,021 3.0
Credit card loans..................................... 36,727 3.9 51,770 6.2
Short-term investments................................ 83,024 8.9 161,949 19.4
-------- -------- -------- --------
Total investments........................... $931,272 100.0% $835,158 100.0%
======== ======== ======== ========
</TABLE>

Investment accounting policies. The Company has classified its entire
fixed maturity portfolio as "available for sale" which requires the portfolio to
be carried at fair value with the resulting unrealized gains or losses, net of
applicable income taxes and minority interests, reported as a separate component
of stockholders' equity. As a result, fluctuations in interest rates will result
in increases or decreases to the Company's stockholders' equity.

At December 31, 1995, the estimated fair value of the Company's fixed
maturity securities available for sale was $754.5 million or $10.6 million more
than the amortized cost of $743.9 million. The ending balance of stockholders'
equity at December 31, 1995 was increased by $6.8 million (net of applicable
deferred income taxes and minority interests) to reflect the net unrealized gain
on fixed maturity securities.

Fixed maturity securities. Fixed maturity securities accounted for 81.0%
of the Company's total investments at December 31, 1995. Fixed maturity
securities consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------
% OF TOTAL
CARRYING CARRYING
VALUE VALUE
-------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
U.S. Treasury and U.S. Government agency obligations......... $130,837 17.3%
Corporate bonds.............................................. 307,342 40.8
Mortgage-backed securities issued by U.S. Government agencies
and authorities............................................ 131,874 17.5
Other mortgage and asset backed securities................... 184,420 24.4
-------- --------
$754,473 100.0%
======== ========
</TABLE>

Included in the fixed maturity portfolio is a concentration of
mortgage-backed securities such as collateralized mortgage obligations and
mortgage-backed pass-throughs. To limit its credit risk, the Company invests in
mortgage-backed securities which are rated investment grade by the public rating
agencies. Also, 42% of the mortgage-backed securities are backed by U.S.
Government agencies. The Company's mortgage-backed securities portfolio is a
conservatively structured portfolio that is concentrated in the less volatile
tranches, in the form of planned amortization classes, sequential payment and
commercial mortgage-backed securities. The objectives are to minimize prepayment
risk during periods of declining interest rates and minimize duration extension
risk during periods of rising interest rates. The Company has less than 1%
invested in the more volatile tranches, such as inverse floaters, interest only
and principal only type mortgage-backed securities.

24
<PAGE> 26

As of December 31, 1995, $722.5 million or 95.8% of the fixed maturity
securities portfolio was rated BBB or better (investment grade) and only $32.0
million or 4.2% of the fixed maturity securities portfolio were invested in
below investment grade securities (less than BBB). A quality distribution for
fixed maturity securities is as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------
% OF TOTAL
CARRYING CARRYING
RATING VALUE VALUE
------------------------------------------------------------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
U.S. Governments and AAA..................................... $420,841 55.8%
AA........................................................... 50,585 6.7
A............................................................ 90,478 12.0
BBB.......................................................... 160,573 21.3
Less than BBB................................................ 31,996 4.2
-------- --------
$754,473 100.0%
======== ========
</TABLE>

INFLATION

Inflation historically has had a significant impact on the health insurance
business. In recent years, inflation in the costs of medical care covered by
such insurance has exceeded the general rate of inflation. Under the major
hospital insurance coverage, established ceilings for covered expenses limit the
impact of inflation on the amount of claims paid. Under the catastrophic
hospital expense plans, covered expenses are generally limited only by a maximum
lifetime benefit and a maximum lifetime benefit per accident or sickness. Thus,
inflation may have a significantly greater impact on the amount of claims paid
under catastrophic hospital expense plans as compared to claims under major
hospital coverage. As a result, trends in health care costs must be monitored
and rates adjusted accordingly. Under the health insurance policies issued in
the self-employed market, the primary insurer generally has the right to
increase rates upon 30-60 days written notice.

The annuity and universal life-type policies issued directly and assumed by
the Company are significantly impacted by inflation. Interest rates affect the
amount of interest that existing policyholders expect to have credited to their
policies. However, the Company believes that the annuity and universal life-type
policies are generally competitive with those offered by other insurance
companies of similar size, and the investment portfolio is managed to minimize
the effects of inflation.

RECENTLY ISSUED ACCOUNTING STANDARDS

In March 1995, the FASB issued Statement No. 121, "Accounting For The
Impairment of Long-Lived Assets And For Long-Lived Assets To Be Disposed Of".
Since goodwill and fixed assets represent less than 2.5% of total assets, this
new standard will not have a material effect on the Company. In October 1995,
the FASB, issued Statement No. 123, "Accounting For Stock-Based Compensation".
The Company accounts for its stock compensation arrangements under the provision
of APB 25, "Accounting For Stock Issued To Employees" and intends to continue
doing so, therefore this new standard will not have a material impact on the
Company.

25
<PAGE> 27

BUSINESS

GENERAL

UICI, through its subsidiaries, provides health, life and other financial
products to selected niche markets. The Company issues health insurance policies
to the self-employed and student markets. The Company offers a range of health
insurance products to self-employed individuals and individuals who work for
small businesses with, generally, five or fewer employees. Catastrophic hospital
and basic hospital-medical expense plans are tailored to an insured's individual
needs and include managed care options such as a PPO plan as well as other
coverage modifications. The Company markets these products through "dedicated"
agency sales forces, consisting of approximately 5,000 independent contractors
who primarily sell the Company's products. For the student market, the Company
offers tailored insurance programs which generally provide single school year
coverage to individual students primarily at universities but also at public and
private schools for kindergarten through grade 12. In this market, the Company
sells its products through in-house account executives who focus on colleges and
universities on a national basis. Health insurance premiums were $473.8 million
in 1995, or 74% of the Company's total revenues.

BUSINESS STRATEGY

The Company seeks to continue to expand its business profitably and
strengthen its position in the markets in which it competes. The key elements of
its strategy are as follows:

DEDICATED AGENT NETWORK. The Company's strategy in the self-employed
market is to align itself closely with its sales forces. Substantially all of
the health insurance either issued or coinsured by the Company in the
self-employed market is sold through a nationwide network of agents associated
with UGA or agents associated with CMA. UGA, with over 4,000 agents, is
wholly-owned by Mr. Ronald L. Jensen, Chairman of the Board of Directors of the
Company. UGA has agreed with the Company that UGA will not market insurance
products of another insurance carrier competitive with the insurance products of
the Company, subject to certain exceptions. See "Certain Relationships and
Related Transactions." CMA, with over 1,000 agents, is a marketing division of
the Company. The agents, as a condition of receiving customer leads, exclusively
sell insurance products offered by UGA and CMA. The Company believes that the
use of dedicated sales forces, as opposed to insurance brokers who sell products
for a number of carriers, leads to better marketing performance because such
agents are committed to the Company's products. The Company also believes that
the recruitment, training and motivation of agents are key factors in the
success and growth of the Company. The number of dedicated agents selling the
Company's health insurance products has grown from approximately 900 in 1986 to
over 5,000 as of December 31, 1995.

The Company believes that the stock plans have grown primarily due to their
design and the performance of the Company's stock price over the last ten years.
The plans are structured to encourage participation in a disciplined manner.
Agents are eligible to participate in the plans after one full calendar year of
service. Participant contributions are matched by contributions from the
Company, in the case of employees and

26
<PAGE> 28

Company agents, and UGA, in the case of UGA agents. The amount of permitted
contributions made by the agents is based on sales performance. Matching
contributions of terminated participants which have not vested (or are otherwise
not payable under the applicable plans) do not revert back to the Company or
UGA, but rather are allocated to the remaining participants, providing further
incentive to remain with the Company or UGA. Share purchases pursuant to the
plans are made in the open market, thus avoiding dilution to existing
stockholders.

FOCUS ON NICHE MARKETS. The Company attempts to identify niche markets
which it believes are underserved by larger competitors and in which it has the
skills and marketing resources required to achieve profitability and growth.
Initially, the Company targeted the self-employed health insurance market. By
focusing on this market, the Company has been able to design and market its
product offerings, structure its coverage benefits and process claims to more
effectively service the needs of the self-employed. In 1987, the Company
identified a niche opportunity in the student health insurance market, and has
subsequently increased premiums from $17.0 million in 1987 to $90.4 million in
1995. The Company believes that it provides student health insurance plans to
more universities than any other single insurer. The Company also markets a life
insurance product which includes a rider committing the Company to provide loans
to fund the higher education of the children of the insured. Annualized premiums
of new policies sold in 1995 for this product were approximately $15.0 million,
as compared to approximately $2.0 million in 1993. In 1993, the Company began
offering credit support services to individuals not being served by the larger
financial institutions that issue major credit cards. In 1995, this division had
revenues of $28.0 million.

Historically, the Company has coinsured insurance products sold by UGA
agents and designed and issued by AEGON. The Company maintains administrative
centers with full underwriting, claims management and administrative
capabilities, and, on April 1, 1996, the Company acquired AEGON's insurance
center operations. See "The Company -- Recent Developments." The Company
believes that by processing its own claims it can better assure that claims are
properly processed and utilize the claims information to periodically modify the
benefits and coverages of its policies.

MANAGED CARE. The Company recently formed the HealthCare Solutions
Division to leverage its capabilities in insurance underwriting, claims
administration, risk management and marketing in order to provide services that
enhance the delivery of quality managed health care. The division focuses on
providing administrative services, underwriting and risk management, and health
care delivery services to clients in the managed health care market, including
groups of physicians, large employers, managed care organizations and other
insurers. In 1995, the Company acquired controlling interests in several
companies related to the HealthCare Solutions Division for $32.4 million, in
cash and common stock. In addition, in 1995 the Company also placed additional
emphasis on incorporating managed care features of a PPO into its health plans
in order to further control health care costs. The health plans with managed
care options generally provide greater coverage for preventive and other
services not requiring hospitalization such as periodic examinations and doctor
visits. These plans also generally have lower deductibles and co-payments for
services that are received from providers that are in the PPO network.

ACQUISITIONS OF EXISTING BLOCKS OF BUSINESS. The Company has grown through
opportunistic acquisitions of blocks of life insurance and annuity policies. In
an acquisition of a block of business, the Company assumes policy liabilities
and receives assets (net of the purchase price) sufficient, based on actuarial
assumptions, to cover such estimated future liabilities. The profitability of a
block of business depends on the amount of investment income from the assets and
the amount of premiums received less the amount of

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<PAGE> 29

benefits and expenses actually paid. The Company believes that its success in
profitably acquiring and servicing blocks has been principally due to its
experience and expertise in analyzing the characteristics of the policies in the
blocks and its ability to cost-effectively administer the policies. The Company
most recently acquired a block of life insurance and annuity policies in 1994.
Although the Company believes that it can continue to exploit acquisition
opportunities and continues to analyze potential transactions, the current
climate for acquisitions of life insurance and annuity policies has become very
competitive, making it more difficult to successfully complete acquisitions
which meet the Company's financial goals.

HEALTH INSURANCE

The Company directly markets or coinsures health insurance policies
primarily to two markets. The Self-Employed Health Insurance Division serves the
self-employed market, which includes self-employed individuals and individuals
who work for small businesses, generally with five or fewer employees. The
Student Health Insurance Division serves the student market, which includes
college and university students and students in kindergarten through grade 12.

Self-Employed Health Insurance Division

Market. According to the Bureau of Labor Statistics, there were
approximately 10.5 million self-employed individuals at the end of 1995. There
are currently in force approximately 235,000 basic health policies issued or
coinsured by the Company. The Company believes that there is significant
opportunity to increase its penetration in this market.

Products. The health insurance products directly issued and coinsured by
the Company are substantially similar. The two basic health insurance plans are
as follows:

- The Group Catastrophic Hospital Expense Plan provides a lifetime maximum
benefit ranging from $2,000,000 to $5,000,000 and a lifetime maximum
benefit for each injury or sickness ranging from $500,000 to $1,000,000.
Covered expenses are subject to a deductible and are reimbursed at a
benefit payment rate ranging from 50% to 100%, as determined by the
policy. After a pre-selected dollar amount of covered expenses has been
reached, the remaining expenses are reimbursed at 100% for the remainder
of the period of confinement. The benefits for this plan tend to
increase as hospital care expenses increase and therefore the premiums
for these policies are subject to increase as overall hospital care
expenses rise.

- The Group Basic Hospital-Medical Expense Plan has a $1,000,000 lifetime
maximum benefit and $500,000 lifetime maximum benefit for each injury
or sickness. Covered expenses are subject to a deductible. Covered
hospital room and board charges are reimbursed at 100% up to a
pre-selected maximum. Covered expenses for inpatient hospital
miscellaneous charges, same-day surgery facility, surgery, assistant
surgeon, anesthesia, second surgical opinion, doctor visits, and
ambulance services are reimbursed at 80% to 100% up to a scheduled
maximum. This type of health insurance policy is of a "scheduled
benefit" nature, and as such, provides benefits equal to the lesser of
the actual cost incurred for covered expenses or the maximum benefit
stated in the policy. These limitations allow for more certainty in
predicting future claims experience and thus future premium increases
for this policy are expected to be less than on the catastrophic policy.

Each of the policies is available with options providing for some
modification of coverage so that the insurance may be tailored to meet the needs
of the individual policyholder. In 1995, the Company placed additional emphasis
on policies which incorporate managed care features of a PPO, which are designed
to control health care costs. The health plans that provide the PPO option
generally provide greater coverage for preventive medical and other services not
requiring hospitalization such as periodic examinations and doctor visits. The
policies that provide for the use of a PPO impose a higher deductible and
co-payment if the policyholder uses providers outside of the PPO network. The
increased benefits in the PPO products are expected to result in a higher loss
ratio than the traditional indemnity products. This higher loss ratio is
expected to be offset by a lower expense ratio due to lower commissions on the
PPO products.

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<PAGE> 30

The Self-Employed Health Insurance Division had premium revenues of $383.4
million, $330.8 million, and $269.5 million (60%, 63%, and 60% of total
revenue), in 1995, 1994 and 1993, respectively.

Marketing and Sales. The Company's marketing strategy in the self-employed
market is to closely align itself with dedicated agent sales forces.
Substantially all of the health insurance products issued or coinsured by the
Company are sold through dedicated independent agents associated with UGA and
CMA. UGA is a nationwide network of over 4,000 agents which is wholly-owned by
Mr. Jensen. The agency has been aligned with the Company since 1984, originally
selling health insurance policies underwritten by AEGON and coinsured by the
Company. Subsequently, a small percentage of health insurance sold by UGA agents
was directly issued by the Company. Following a transition period which began on
April 1, 1996, the UGA agents will begin selling health insurance directly
issued by the Company. See "The Company -- Recent Developments." CMA was
established by the Company in 1989 and has expanded to become a nationwide
agency of over 1,000 agents. The policies sold by the CMA agents are issued by
the Company.

UGA agents and CMA agents are independent contractors and not employees of
UGA or the Company and all of the compensation they receive from UGA or the
Company is based upon their sales production. UGA and CMA are each organized
into geographical regions having regional directors and two additional levels of
field leaders. At December 31, 1995, the number of field leaders and "writing"
agents (i.e., the agents that are not involved in management) were as follows:

<TABLE>
<CAPTION>
CMA UGA
----- -----
<S> <C> <C>
Writing agents......................................................... 853 3,775
District leaders....................................................... 116 300
Division leaders....................................................... 46 65
Regional directors..................................................... 7 8
----- -----
1,022 4,148
===== =====
</TABLE>

The retention of qualified, effective field leaders who can recruit, train
and motivate writing agents is a key factor in the success and growth of the
Company's business. Although the agent base at the writing level has
historically been subject to a high rate of turnover, the field leader levels
have remained relatively stable. As of December 31, 1995, UGA's regional
directors had been associated with UGA for an average of nine years, division
leaders had been associated with UGA for an average of seven years and district
leaders had been associated with UGA for an average of four years.

UGA and CMA are each responsible for the recruitment and training of their
field leaders and writing agents. UGA and CMA generally seek persons with
previous sales experience. The process of recruiting agents is extremely
competitive. The Company and UGA believe that the primary factors in
successfully recruiting and retaining effective agents and field leaders are the
policies regarding advances on commissions, the quality of the leads provided,
common stock ownership plans, the quality of the products offered, proper
training, and agent incentives and support. Classroom and field training is made
available to the agents under the direction of the field leaders, who are
frequently assisted by Company and UGA personnel.

The health insurance products issued or coinsured by the Company are
primarily issued to members of various independent membership associations which
endorse the products and act as the master policyholder for such products. Two
principal membership associations in the self-employed market are the National
Association for the Self-Employed ("NASE") and the Alliance for Affordable
Health Care ("AAHC"). The associations provide their membership with a number of
endorsed products, although health insurance is often the product of major
interest to potential members. Individuals may not obtain insurance under the
associations' master policies unless they are members. UGA agents and CMA agents
also act as enrollers of new members for the associations. Although the Company
has no formal agreements with these associations requiring the associations to
continue as the master policyholder and endorse the Company's insurance products
to their respective members, the Company considers its relationship with these
associations to be good.

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<PAGE> 31

UGA generates leads for its agents and the CMA agents through the efforts
of approximately 400 telephone operators. From various sources of data, a pool
of approximately 7.0 million names has been developed. Individuals in this pool
are contacted by telephone or by mail to determine their interest in obtaining
health insurance. The names of persons expressing an interest are provided as
leads to agents which the Company believes results in a higher success rate than
would be the case if the agents made unsolicited calls on prospective customers.

Coinsurance Arrangements. Under the terms of its coinsurance agreement,
AEGON has agreed to cede (i.e., transfer), and the Company has agreed to
coinsure, a specified percentage of the health insurance sold by UGA agents and
issued by AEGON. The Company receives this percentage of premiums collected and
is liable for this percentage of commission expenses, administrative costs,
claims payments, premium taxes, legal expenses, extra-contractual charges and
other payments. Such insurance policies are underwritten and administered at the
AEGON insurance center. The coinsurance percentage is 57.5% in 1996 and 60%
thereafter.

On April 1, 1996 the Company acquired AEGON's underwriting, claims
management and administrative capabilities related to products coinsured by the
Company. In connection with this transaction, UGA agents will begin to market
health insurance products of the Company rather than the coinsured product. See
"The Company -- Recent Developments."

Acquisition of Blocks. From time to time, the Company may acquire blocks
of health insurance policies or companies that own such blocks. These
opportunities are pursued on a case-by-case basis and have generally not
represented a material percentage of Self-Employed Health Insurance Division
revenue.

Student Health Insurance Division

Market. The student market is comprised of students attending colleges and
universities in the United States and those attending public and private schools
in kindergarten through grade 12. Generally, the marketing strategy of the
Company has been to focus on college students whose circumstances are such that
health insurance may not otherwise be available through their parents. In
particular, older undergraduates, graduate and international students often have
a need to obtain insurance as "first-time buyers." According to industry
sources, there are approximately 2,100 four-year universities and colleges in
the United States which have a combined enrollment of approximately 8.7 million
students. For the 1994-1995 school year, 369 of these institutions with a
combined enrollment of approximately 2.0 million authorized the Company to offer
its health insurance plans to their students. Approximately 215,000 of these
students purchased health insurance from the Company during this period. The
Company believes that it provides student health insurance plans to more
universities than any other single insurer.

Products. The insurance programs sold in the student market are designed
to meet the requirements of each individual school. The programs generally
provide coverage for one school year and the maximum benefits available to any
individual student enrolled in the program range from $10,000 to $250,000
depending on the coverage level desired by the school. All students at any one
school enrolled in the program have the same coverage. The benefits on the lower
limit policies are usually paid according to schedules in the policy while
substantially all coverage under the higher limit policies is tied to a PPO
arrangement.

The Student Health Insurance Division had premium revenues of $90.4
million, $84.4 million and $74.2 million (14%, 16% and 16% of total revenue), in
1995, 1994, and 1993, respectively.

Marketing and Sales. The Company markets to colleges and universities on a
national basis through in-house account executives whose compensation is based
primarily on commissions. Account executives make presentations to the
appropriate school officials and the Company, if selected, is endorsed as the
provider of health insurance for students attending that school. At December 31,
1995, there were 15 account executives.

The kindergarten through grade 12 business has been marketed primarily in
Arkansas, Florida, Louisiana, Oklahoma and Texas.

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<PAGE> 32

LIFE INSURANCE AND ANNUITY

At December 31, 1995, the Life Insurance and Annuity Division had over $4.4
billion of life insurance in force and approximately 310,000 individual
policyholders. The division has grown primarily through acquisitions of blocks
of life insurance and annuity policies. The Company also issues life insurance
and annuity policies directly in certain niche markets.

The Life Insurance and Annuity Division had premium revenues of $38.5
million, $37.0 million and $25.0 million (6%, 7% and 6% of total revenue), in
1995, 1994 and 1993, respectively.

Direct Business

The Company offers an interest sensitive life insurance product generally
with an annuity and child's term rider. The child's term rider includes a
special provision under which the Company commits to provide loans to help fund
the named child's higher education if certain restrictions and qualifications
are satisfied. Currently, loans are available in amounts up to $30,000 for
undergraduate school and up to $20,000 for graduate school. Loans made under
this rider are guaranteed as to principal and interest by a guarantee agency and
are not funded or supported by the federal government. However, as a part of the
program, the Company is a qualified lender under applicable Department of
Education regulations and makes available, outside of the Company's commitment
under the rider, loans under Federal Family Education Loan Programs. Currently,
any such loans are funded by qualified third parties.

Life insurance products are marketed and sold through the Company's network
of 800 dedicated agents. This marketing organization was acquired in 1993 and
has since been expanded to cover 35 states from only five at the time of the
acquisition. Annualized premiums for policies issued in 1995 increased to $15.0
million from $2.0 million in 1993.

The division also offers a credit life and credit disability policy through
brokers.

Acquired Blocks

The Company has grown through opportunistic acquisitions of blocks of life
insurance and annuities. In an acquisition of a block of business, the Company
assumes policy liabilities and receives assets (net of the purchase price)
sufficient, based on actuarial assumptions, to cover such estimated future
liabilities. The profitability of a block of business depends on the amount of
investment income from the assets and the amount of premiums received less the
amount of benefits and expenses actually paid. The Company believes that its
success in profitably acquiring and servicing blocks has been principally due to
its experience and expertise in analyzing the characteristics of the policies in
the blocks and its ability to cost-effectively administer the policies. The
Company most recently acquired a block of life insurance and annuities in 1994.
Although the Company believes that it can continue to exploit acquisition
opportunities and continues to analyze potential transactions, the Company
believes that the current climate for acquisitions of life insurance and
annuities has become very competitive, making it more difficult to successfully
complete acquisitions which meet the Company's financial goals.

Since 1991 the Company has added approximately $267.0 million in life
reserves and $214.0 million in annuity reserves, on a statutory basis as of the
respective acquisition dates, through twelve acquisitions of insurers and blocks
of insurance.

In 1991, the Company entered into an agreement whereby it services a block
of policies with life insurance and annuity reserves of $125.0 million, as of
the date of the service agreement, for an unrelated company. At December 31,
1995, total life insurance and annuity reserves for this block were $95.0
million. The Company receives a fee for servicing the policies and will also
participate in 50% of the profits or losses of the block of business after the
unrelated company has realized statutory earnings equal to its purchase price of
$20.0 million. There was no financial investment by the Company. No assets or
liabilities, income or expense of this block of business are reflected in the
Company's Consolidated Financial Statements but rather are carried on the
unrelated company's financial statements. The Company's Consolidated Financial
Statements

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<PAGE> 33

reflect only the servicing fee currently earned. As of December 31, 1995, the
unrelated company had realized statutory earnings of $16.8 million on this block
and the Company anticipates that it will begin to share in profits and losses of
this business during 1997.

In August 1994, the Company entered into a similar transaction whereby the
Company acquired a block of life insurance and annuity policies. At December 31,
1995, total life insurance and annuity reserves for this block were $39.7
million. In conjunction with this acquisition, the Company ceded through a
coinsurance agreement 100% of the policy liabilities to an unrelated reinsurer.
The acquisition required no financial investment by the Company. The Company
administers the life insurance and annuity policies and receives a servicing fee
from the unrelated insurer. Also, after the unrelated reinsurer recovers its
investment in this block, the coinsurance agreement will be terminated and all
remaining policies will be recaptured by the Company at no cost. The Company
anticipates that it will begin to receive 100% of the profits and losses of this
business in 1998.

HEALTHCARE SOLUTIONS

The Company believes the delivery of health care in the United States will
continue to change and that the infrastructure required to meet the needs of
emerging health care market opportunities must incorporate "value added"
sophistication while lowering costs for various components of the health care
delivery system. The Company formed the HealthCare Solutions Division to
leverage its capabilities in insurance underwriting, claims administration, risk
management and marketing in order to provide services that enhance the delivery
of quality managed health care. The division focuses on providing administrative
services, underwriting and risk management, and health care delivery services to
clients in the managed health care market, including groups of physicians, large
employers, managed care organizations and other insurers. In 1995, the Company
acquired controlling interests in several companies related to the HealthCare
Solutions Division for $32.4 million, in cash and common stock. The HealthCare
Solutions Division had revenues of $17.8 million and an operating loss of $4.2
million in 1995.

Administrative Services

Health benefit claims processing (medical and dental) for insurance
companies and Blue Cross plans has historically been relatively costly and
inefficient, requiring significant amounts of paper to complete a transaction.
The Company believes that the elimination of paper claims processing and the
move to a fully electronic environment for both claims submission and payment
will increase efficiency and lower costs.

Through its ownership interests in several businesses, the Company seeks to
deliver claims processing solutions to payors such as other insurers, Blue Cross
plans, health maintenance organizations ("HMOs") and third party administrators.
In addition, the Company seeks to deliver systems solutions to physician and
hospital groups for both claims processing and total business office
outsourcing.

Paperless Adjudication, Ltd., in which the Company and Mr. Jensen each own
approximately a one-third interest, has developed a system that provides
"on-line, real time" medical claim submission, eligibility determination,
benefit calculation and electronic funds transfer to participating physicians.
Claims are submitted directly from the physician's office and payment is made
via electronic funds transfer. The system eliminates the majority of the
paperwork typically inherent in such a transaction, as well as a significant
portion of the associated costs of claims processing for both physicians and
insurers. The system is designed to work with most health care payor systems and
is currently operational in two markets processing medical and dental claims.

Insurdata Incorporated ("Insurdata"), in which the Company owns a 51%
interest, is a health care payor systems development company providing
technological solutions for health claims processing and claims data management.
The system is used by Blue Cross health plan administrators, insurers and third
party administrators. Insurdata integrates a variety of technologies to
eliminate paper and human intervention in claims processing.

IPN Network, LLC ("IPN"), in which the Company owns a 75% interest,
provides comprehensive outsourcing services for hospital business office
management and health claims clearinghouse functions. IPN

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<PAGE> 34

provides business office management services for approximately 25 hospitals,
primarily in the southeastern United States, and health claim clearinghouse
functions for over 100 hospitals.

Insurnational Insurance Administrators, Incorporated ("Insurnational"), in
which the Company owns an 80% interest, is a full service third party
administrator employing advanced "paperless" technology, serving employers who
elect to self-fund their medical, dental or other employee benefit plans under
ERISA and for insurers who wish to outsource their claims processing and payment
functions.

Underwriting and Risk Management

The Company believes that physicians and hospitals will increasingly assume
greater financial risk, either on a stand-alone basis or in partnership with
insurance companies, large self-funded customers or HMOs. With its knowledge of
insurance, underwriting and risk management, the Company has the capability to
partner with physician and hospital groups to share this risk. In addition, the
Company manages underwriting facilities for physician and hospital excess loss
insurance, HMO reinsurance and stop loss insurance for large employers with
self-funded health plans.

Health Care Delivery Services

The Company believes that as the health care market changes, managed care
organizations will focus on their strengths and look to outsource certain
functions. For example, many HMOs outsource their dental programs. The Company
offers a discounted fee for service dental plan to over 100,000 members
nationwide and owns a dental HMO servicing approximately 230,000 members in
Florida. The Company currently has plans to expand its dental HMO operations to
other states.

WinterBrook HealthCare Management ("WinterBrook"), which is 72% owned by
the Company, provides managed care network management services to employers,
insurers, managed care organizations and provider groups. WinterBrook also
manages PPO networks for insurers and large employers.

CREDIT SERVICES

The Credit Services Division, started in 1992, offers assistance to persons
with no, or troubled, credit experience in obtaining a nationally recognized
credit card by providing financial support for the card. Applicants must meet
certain requirements in order to become members of the American Fair Credit
Association ("AFCA"), an independent membership association which provides
credit education programs and other benefits. Individuals must be enrolled as
members in AFCA, and pay initiation and monthly membership fees, in order to
obtain a credit card.

The credit program is administered by United Membership Marketing Group,
LLC ("UMMG"), an 85%-owned subsidiary of the Company, which markets through a
sales force of independent contractors located in 39 states. At December 31,
1995, there were approximately 950 representatives. UMMG and its sales
representatives receive commissions from AFCA for enrolling members in the
association.

The credit card has an annual fee which is collected before the card is
issued. The interest rate for outstanding balances on the card is comparable to
rates charged by many other card issuers and commensurate with the greater risks
associated with this group of cardholders. The credit limit on each card issued,
initially set at $300 may be increased up to $1,000 over a two-year period if
the cardholder meets certain requirements which are indicative of the proper use
of credit. The credit card is not secured.

The credit card is issued by a bank in South Dakota which receives a
monthly fee for each card issued. The Company assumes the credit risk for the
cards issued and retains the profit, if any, from the credit card business. The
Company also provides cardholder services and performs collection services at
its service center located in South Dakota. The Company has plans to charter its
own credit card bank to issue the credit cards. However, there can be no
assurance of when, if ever, the Company will be successful in obtaining the
charter, which must be approved by the Office of the Comptroller of the
Currency.

The Credit Services Division had revenues of $28.0 million in 1995.

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<PAGE> 35

INVESTMENTS

The Company has an Investment Committee which monitors the investment
portfolio of the Company and its subsidiaries. The Investment Committee receives
investment management services from external professionals. The largest part of
the Company's portfolio is managed by an AEGON. At December 31, 1995,
approximately 81% of the Company's investment portfolio of $931.3 million was
invested in bonds and other debt instruments, including collateralized mortgage
obligations, asset backed securities, U.S. Treasury bonds, corporate bonds and
"pass-through" certificates.

See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Investments."

REINSURANCE

The Company's insurance subsidiaries reinsure portions of the coverages
provided by their insurance products with other insurance companies on both an
excess of loss and coinsurance basis. The maximum retention by the Company on
one individual in the case of life insurance is $100,000. The Company uses
reinsurance for its health insurance business only for limited purposes. It does
not reinsure any health insurance issued or coinsured in the self-employed
market and currently expects that this will continue following the consummation
of the AEGON Transaction. See "The Company -- Recent Developments."

Reinsurance agreements are intended to limit an insurer's maximum loss. The
ceding of reinsurance does not discharge the primary liability of the original
insurer to the insured.

Although the Company, through coinsurance, assumes risks under policies
sold by UGA agents and issued by AEGON, and has occasionally used assumption
reinsurance to acquire blocks of insurance from other insurers, it does not
regularly assume risks of other insurance companies. See "Business -- Health
Insurance -- Coinsurance Arrangements."

COMPETITION

The Company operates in highly competitive industries. The Company's
insurance subsidiaries compete with large national insurers, regional insurers
and specialty insurers, many of which are larger and have substantially greater
financial resources or higher A.M. Best ratings than the Company. In addition to
claims paying ratings, insurers compete on the basis of price, breadth and
flexibility of coverage, ability to attract and retain agents and the quality
and level of agent and policyholder services provided. The Company's other
divisions compete with financial services companies, managed care consultants,
and third party administrators, among others. Many of the competitors may have
greater financial resources, broader product lines or greater experience in
particular lines of business. The HealthCare Solutions Division has only
recently been formed and therefore competes with other companies with
significantly greater experience in highly competitive markets. There can be no
assurance that the HealthCare Solutions Division will be successful competing in
such markets.

REGULATION

The Company's insurance subsidiaries are subject to extensive regulation in
their domiciliary states and the other states in which they do business under
statutes which typically delegate broad regulatory, supervisory and
administrative powers to insurance departments. The method of regulation varies,
but the subject matter of such regulation covers, among other things: the amount
of dividends and other distributions that can be paid by the Company's insurance
subsidiaries without prior approval or notification; the granting and revoking
of licenses to transact business; trade practices, including with respect to the
protection of consumers; minimum loss ratios; premium rate regulation;
underwriting standards; approval of policy forms; claims payment; licensing of
insurance agents and the regulation of their conduct; the amount and type of
investments that the Company's subsidiaries may hold, minimum reserve and
surplus requirements; risk-based capital requirements; and compelled
participation in, and assessments in connection with, risk sharing pools and
guarantee

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<PAGE> 36

funds. Such regulation is intended to protect policyholders rather than
investors. Federal regulations, including ERISA, also affect the manner in which
the Company's insurance subsidiaries conduct their businesses.

Many states have also enacted insurance holding company laws which require
registration and periodic reporting by insurance companies controlled by other
corporations. Such laws vary from state to state but typically require periodic
disclosure concerning the corporation which controls the controlled insurer and
prior notice to, or approval by, the applicable regulator of intercorporate
transfers of assets and other transactions (including payments of dividends in
excess of specified amounts by the controlled insurer) within the holding
company system. Such laws often also require the prior approval for the
acquisition of a significant ownership interest (e.g., 10% or more) in the
insurance holding company. The Company's insurance subsidiaries are subject to
such laws and the Company believes they are in compliance in all material
respects with all applicable insurance holding company laws and regulations.

Under the risk-based capital initiatives adopted in 1992 by the National
Association of Insurance Commissioners ("NAIC"), insurance companies must
calculate and report information under a risk-based capital formula. Risk-based
capital formulas are intended to evaluate risks associated with: asset quality;
adverse insurance experience; loss from asset and liability mismatching; and
general business hazards. This information is intended to permit regulators to
identify and require remedial action for inadequately capitalized insurance
companies but is not designed to rank adequately capitalized companies. Based on
year-end 1995 calculations, the Company's insurance subsidiaries were
significantly above required capital levels.

The states in which the Company is licensed have the authority to change
the minimum mandated statutory loss ratios to which the Company is subject, the
manner in which these ratios are computed and the manner in which compliance
with these ratios is measured and enforced. Loss ratios are commonly defined as
incurred claims divided by earned premiums. Most states in which the Company
writes insurance have adopted the loss ratios recommended by the NAIC but
frequently the loss ratio regulations do not apply to the types of health
insurance issued by the Company. The Company is unable to predict the impact of
(i) any changes in the mandatory statutory loss ratios for individual or group
policies to which the Company may become subject, or (ii) any change in the
manner in which these minimums are computed or enforced in the future. Such
changes could result in a narrowing of profit margins and have a material
adverse effect upon the Company. The Company has not been informed by any state
that it does not meet mandated minimum ratios, and the Company believes that it
is in compliance with all such minimum ratios. In the event the Company is not
in compliance with minimum statutory loss ratios mandated by regulatory
authorities with respect to certain policies, the Company may be required to
reduce or refund premiums, which could have a material adverse effect upon the
Company.

NAIC and state insurance departments are continually re-examining existing
laws and regulations, including those related to reducing the risk of insolvency
and related accreditation standards. To date, the increase in solvency-related
oversight has not had a significant impact on the Company's insurance business.

Certain of the Company's subsidiaries, and the manner in which their
businesses are conducted, are also subject to regulation not directly related to
the business of insurance. The marketing practices of the Credit Services
Division are subject to state credit service organization laws and other
consumer protection statutes. In order to continue to have government guaranteed
student loans made available through the Company, the Company is required to
maintain its status as a qualified lender for federal student loan programs
under applicable Department of Education regulation.

Compliance with legal or regulatory restrictions may limit the ability of
the Company's subsidiaries to conduct their operations. A failure to comply may
subject the affected subsidiary to a loss or suspension of a right to engage in
certain businesses or business practices, criminal or civil fines, an obligation
to make restitution or pay refunds or other sanctions, which could adversely
affect the manner in which the Company's subsidiaries conduct their businesses
and the Company's results of operations.

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<PAGE> 37

results of operations. See also "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Health Care Reform."

EMPLOYEES

The Company had approximately 2,050 employees at April 15, 1996, including
the employees that the Company hired in connection with the AEGON Transaction.
The Company considers its employee relations to be good. UGA agents and the
dedicated agents of the Company are independent contractors and are not
employees of UGA or the Company.

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<PAGE> 38

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Set forth below are the names, ages, positions and certain other
information concerning the current directors and executive officers of the
Company as of March 28, 1996.

<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- ----------------------------- --- ---------------------------------------------------------
<S> <C> <C>
Ronald L. Jensen............. 65 Chairman of the Board of Directors
W. Brian Harrigan............ 41 President, Chief Executive Officer and Director
Richard J. Estell............ 50 Executive Vice President and Director
Charles T. Prater............ 44 Vice President and Director
Vernon R. Woelke............. 47 Vice President, Treasurer and Director
Robert B. Vlach.............. 55 Vice President, Secretary and General Counsel
Ernest S. Auerbach........... 59 Senior Vice President
Gary L. Friedman............. 41 Director
J. Michael Jaynes............ 48 Director
Richard T. Mockler........... 58 Director
</TABLE>

Mr. Jensen has served as Chairman of the Board of Directors of the Company
and its predecessor Company since December 1983. Mr. Jensen served as President
of the Company until January 1995 and for the preceding five years except for a
three-month period in 1992. Mr. Jensen is a member of the Executive and Stock
Option Committees of the Board of Directors. Mr. Jensen is the sole owner of
UGA.

Mr. Harrigan has served as President and Chief Executive Officer of the
Company since January 1995 and as a Director since February 1995. He is a member
of the Executive Committee of the Board of Directors. Mr. Harrigan has served as
Chief Executive Officer of the HealthCare Solutions Division since June 1995.
Mr. Harrigan has served as President of WinterBrook Holdings, Inc. since October
1993. From July 1987 until October 1993, Mr. Harrigan served as Executive Vice
President of Westport Management Services, Inc. in which Mr. Jensen had an
ownership interest. Mr. Harrigan has also performed services for UGA.

Mr. Estell has served as Executive Vice President and Director of the
Company since January 1989. He is a member of the Executive, Investment and
Audit Committees of the Board of Directors. Mr. Estell has served as Chief
Executive Officer of the Self-Employed Health Insurance Division since 1989. Mr.
Estell has served as Chairman of the Board for Mid-West and MEGA and as
President of MEGA since January 1989. He has served as Chairman of the Board of
Chesapeake since November 1991. Mr. Estell became a director of UGA in 1996.

Mr. Prater has served as a Vice President of the Company since 1993 and as
a Director since March 1996. Mr. Prater is Chairman of the Investment Committee
of the Board of Directors. Mr. Prater has been Chief Executive Officer of the
Life and Annuity Division since 1988. Mr. Prater has served as Vice President of
Mid-West since March 1987, Vice President of MEGA since April 1991, Director of
MEGA and Mid-West since May 1990 and Vice President and Director of Chesapeake
since November 1991.

Mr. Woelke has served as a Director of the Company since January 1991 and
as Vice President and Treasurer since 1985. Mr. Woelke is a member of the
Executive and Investment Committees of the Board of Directors. He has served as
a Director of MEGA since 1988, Vice President since April 1991 and Treasurer
from April 1988 to April 1991; and as President of Mid-West since 1988 and as a
Director since 1987. He has also served as a Director and Executive Vice
President of Chesapeake since November 1991. Mr. Woelke has also performed
services for other companies in which Mr. Jensen owns an interest.

Mr. Vlach has served as Vice President, Secretary, and General Counsel of
the Company since May 1990. Mr. Vlach has also served as Vice President,
Secretary, General Counsel, and Director for MEGA and Mid-West since May 1990
and for Chesapeake since November 1991.

Mr. Auerbach has served as Senior Vice President of the Company since
September 1995 and as Chief Executive Officer of the Student Health Division
since February 1996. From May 1995 until joining the

37
<PAGE> 39

Company, he was a partner with the law firm of Soules & Wallace. He served as
Senior Consultant and Senior Manager of Andersen Consulting, Mexico City, Mexico
from August 1993 until April 1995. From February 1992 until May 1993, Mr.
Auerbach was Director General of Seguros Azteca, Mexico City, Mexico, and from
May 1991 until January 1992, served as President and Chief Executive Officer of
Paperless Claims, Inc.

Mr. Friedman has served as a Director of the Company since 1984. He is a
member of the Stock Option Committee of the Board of Directors. Mr. Friedman has
served as Director and Treasurer of UGA since August 1985, and as Secretary of
UGA since July 1990. Since 1994, Mr. Friedman has served as a Director and
Secretary of Matrix Telecom, Inc., a company in which Mr. Jensen and his adult
children own a majority interest.

Mr. Jaynes has served as a Director of the Company since January 1989. He
is a member of the Audit and Stock Option Committees of the Board of Directors.
Mr. Jaynes has been a sole practitioner of law in Irving, Texas since 1974.

Mr. Mockler has served as a Director of the Company since January 1991. Mr.
Mockler is a member of the Audit Committee of the Board of Directors. Mr.
Mockler retired as a partner with Ernst & Young in 1989, after 27 years of
service. Mr. Mockler served as a member of the Board of Directors of Georgetown
Railroad Company from 1990 to 1991 and has served as a member of the Board of
Directors of Georgetown Rail Equipment Company since 1994. Mr. Mockler has
served as a Director of Snead Research Labs since 1995.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Under the Company's by-laws, any contract or other transaction between the
Company and any director (or company in which the director is interested) is
valid for all purposes if authorized by the Board, provided that the interest of
such director is disclosed or known and such authorization is by a majority of
directors, not including the interested director. The Board has further adopted
a resolution requiring that, where Mr. Jensen is the interested director, a
contract or transaction with Mr. Jensen, UGA or other company in which Mr.
Jensen has a substantial ownership interest (i.e., at least 30% of the
outstanding equity of such company) be approved (or retroactively ratified) by a
majority of the independent directors, to the extent independent directors are
then serving on the Board. For the purposes of the foregoing, a director is
deemed "independent" if he or she is not an employee of the Company (or its
subsidiaries) or of Mr. Jensen, UGA or other company in which Mr. Jensen has a
substantial ownership interest, or any person acting, pursuant to written
agreement, as an independent insurance agent or sales representative of the
Company (or its subsidiaries) or any such company. While the Board attempts to
review all significant transactions between Mr. Jensen and the Company, the
formal Board policy on independent director approval does not apply to a
contract or transaction involving payments of less than $500,000 in any twelve
month period and less than $2.5 million over the life of such contract or
transaction. Mr. Jensen has not voted with respect to matters in which his adult
children or Onward and Upward, Inc. have an interest.

The relationships between the Company and UGA and other companies owned by
Mr. Jensen -- which comprise a part of the strategy that the Company be closely
aligned with its sales forces -- were an important consideration at the time the
Company was organized and remain material to the Company and its prospects. The
Company believes that it has benefited from such relationships and expects that
such relationships, in some form, will continue. The Company believes that the
terms of the transactions described below are fair to the Company.

UGA agents sell insurance products issued by AEGON and coinsured by the
Company. Sales of such insurance accounted for 35% of the total revenues of the
Company in 1995. UGA agents sell such insurance pursuant to general agency
agreements between UGA and AEGON. Under an agreement dated July 7, 1985, between
the Company and UGA, UGA agreed that at least 80% of the insurance policies sold
by UGA (determined on the basis of premiums) would be coinsured by the Company.
Historically, substantially all insurance policies sold by UGA were coinsured by
the Company or issued by the Company. In 1995, UGA received $45.5 million in
commissions. In 1995, through the coinsurance agreements with AEGON, the amount
of these commissions received by UGA attributable to the Company was $26.1
million. UGA also

38
<PAGE> 40

markets insurance directly issued by the Company. During 1995, the Company paid
commissions of $1.9 million to UGA relating to such insurance. In connection
with the AEGON Transaction, under agreements effective April 1, 1996, UGA agreed
to sell insurance issued directly by the Company. The agreements are terminable
by either party at any time on 15 months' written notice or immediately for
cause (as defined). See "The Company -- Recent Developments."

UGA provides customer leads to its agents, CMA agents and other agent sales
forces organized by the Company. UGA has agreed that it will not cease to offer
customer leads to CMA agents without giving at least 180 days' prior notice. If
UGA ceases to provide leads to the Company, the sales efforts of CMA's sales
force could be materially adversely affected. In 1995, the Company paid UGA $4.3
million for leads.

In November 1994, the Company extended a $10 million line of credit to
Excell Agent Services, LLC ("Excell"), in which Mr. Jensen owns a majority
interest. The line of credit bears interest at the rate of prime plus 2% and
matures on December 31, 1997. The line of credit is collateralized by certain of
Excell's tangible assets and is guaranteed by Mr. Jensen. At December 31, 1995,
Excell had drawn the full $10 million on the line of credit. In 1995, the
Company received $483,000 in interest income from Excell.

The Company had an unsecured loan from Mr. Jensen in the amount of $10.7
million at December 31, 1995, bearing interest at the prime rate of a local
bank, and was due on demand. The outstanding principal amount was repaid in full
on April 3, 1996.

During 1995, the Company and UGA entered into an agreement whereby the
Company receives a 20% interest in the profits or losses relating to certain
lead activities of UGA. During 1995, the Company had losses of $1.6 million
related to these activities. It is expected that these activities will result in
a small gain during the three-year period ending December 31, 1997.

Mr. Jensen and his adult children own a majority interest in Matrix
Telecom, Inc. ("Matrix"), a telephone company. In 1995, the Company paid Matrix
$686,180 for long distance telephone services.

The adult children of Mr. Jensen own a controlling interest in Specialized
Association Services, Inc. ("SAS"). In 1995, the Company paid SAS $301,470 for
marketing, printing and graphic design services.

In 1991, the Company entered into an agreement whereby it retired a portion
of its outstanding convertible subordinated debentures held by Onward and
Upward, Inc. ("Onward and Upward") at par and issued a warrant to purchase
357,600 shares of the Common Stock for $2.50 per share. Onward and Upward is a
corporation owned by the five adult children of Mr. Jensen and is a major
stockholder of the Company. During 1995, 20% of the warrants were exercised and
71,520 shares of common stock were issued for proceeds of $178,800. At December
31, 1995, there were 71,520 warrants outstanding. The remaining warrants expire
on July 1, 1996.

Onward and Upward, and the adult children of Mr. Jensen, own approximately
18.6% of Mid-West and a minority interest in certain other subsidiaries of the
Company. Onward and Upward and the adult children of Mr. Jensen have the right
to cause the Company, and has granted the Company a right, to purchase their
ownership of the subsidiaries' stock at prices based on a predetermined formula
which approximates their acquisition cost plus their pro rata share of
accumulated retained earnings (or losses) from the date of their acquisition.

On December 29, 1995, the Company securitized $26.5 million of credit card
loans and Onward and Upward purchased the senior tranche for $15.0 million. This
transaction was accounted for as a sale. The transaction did not result in a
gain or loss for the Company. The Company purchased the remaining interest for
$11.5 million.

During 1995, the Company issued 28,947 shares of Common Stock to one of the
adult children of Mr. Jensen in exchange for 80% of the outstanding common stock
of Association Dental Plan, Inc. The Company also purchased the remaining 20%
from an unrelated individual at the same price per share.

During 1995, the Company issued 427,900 shares of Common Stock to W. Brian
Harrigan, the President, Chief Executive Officer and Director of the Company, in
exchange for 97.25% of the outstanding common

39
<PAGE> 41

stock of WinterBrook Holdings, Inc. The Company also purchased the remaining
2.75% from an unrelated individual at the same price per share.

Mr. Harrigan has outstanding debt owed to the Company in the amount of
$74,000 at December 31, 1995, which was also the largest amount of debt owed by
him to the Company during 1995. The debt was incurred in connection with the
purchase of restricted stock of the Company in January 1995. The debt bears
interest at the prime rate of a local bank and interest is due monthly. The
outstanding amount of the debt at March 1, 1996 was $59,200.

Charles T. Prater, Vice President and Director of the Company, has
outstanding debt owed to the Company in the amount of $128,000 at December 31,
1995, which was also the largest amount of debt owed by him to the Company in
1995. The debt was incurred in connection with the purchase of restricted stock
of the Company. The debt bears interest at the prime rate of a local bank and
interest is due monthly. The outstanding amount of the debt owed to the Company
at March 1, 1996 was $58,000.

40
<PAGE> 42

UNDERWRITING

Subject to the terms and conditions set forth in the Purchase Agreement
(the "Purchase Agreement") among the Company and each of the Underwriters named
below (the "Underwriters"), for whom Merrill Lynch, Pierce, Fenner & Smith
Incorporated is acting as representative (the "Representative"), the Company has
agreed to sell to each of the Underwriters, and each of the Underwriters has
severally agreed, to purchase from the Company, the aggregate number of shares
of Common Stock set forth opposite its name below.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................
---------
Total....................................... 4,500,000
=========
</TABLE>

In the Purchase Agreement, the several Underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all of the shares of
Common Stock being sold pursuant to the Purchase Agreement if any of the shares
of Common Stock being sold pursuant to the Purchase Agreement are purchased.
Under certain circumstances, the commitments of non-defaulting Underwriters may
be increased.

The Representative has advised the Company that the Underwriters propose
initially to offer the shares of Common Stock to the public at the public
offering price set forth on the cover page of this Prospectus, and to certain
dealers at such price less a concession not in excess of $ per share. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of $ per share on sales to certain other dealers. After the initial public
offering, the public offering price, concession and discount may be changed.

The Company has granted to the Underwriters an option to purchase up to
675,000 additional shares of Common Stock, exercisable for 30 days after the
date of this Prospectus, at the initial public offering price set forth on the
cover page of this Prospectus, less the underwriting discount. The Underwriters
may exercise this option only to cover over-allotments, if any, made on the sale
of Common Stock offered hereby. To the extent that the Underwriters exercise
this option, each Underwriter will be obligated, subject to certain conditions,
to purchase the number of additional shares of Common Stock proportionate to
such Underwriter's initial amount reflected in the foregoing table.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act and other
applicable securities laws, or to contribute to payments the Underwriters may be
required to make in respect thereof.

The Company has agreed not to offer, pledge, sell, contract to sell or
otherwise dispose of, directly or indirectly, any shares of Common Stock, or
securities convertible into or exchangeable for Common Stock (except for the
shares of Common Stock being offered in the Offering), for a period of 120 days
after the date of this Prospectus without the prior written consent of Merrill
Lynch, Pierce, Fenner & Smith Incorporated on behalf of the Underwriters,
subject to certain exceptions, including that the Company may, without such
consent, issue up to an aggregate of 1,500,000 shares in connection with any
future acquisitions, which shares, if issued, will be subject to restrictions on
resale for a period of at least 120 days from the date of this Prospectus. In
addition, the Company's senior management and directors and Mr. Jensen and his
adult family members who beneficially own an aggregate of 15,200,684 shares,
have agreed not to offer, pledge, sell, contract to sell or otherwise dispose
of, directly or indirectly, any shares of Common Stock, or securities
convertible into or exchangeable for Common Stock, for a period of 120 days
after the date of this Prospectus without the prior written consent of Merrill
Lynch, Pierce, Fenner & Smith Incorporated on behalf of the Underwriters,
subject to certain exceptions.

In connection with the Offering, certain Underwriters and selling group
members or their affiliates may engage in passive market making transactions in
the Common Stock on Nasdaq in accordance with Rule 10b-6A under the Securities
Exchange Act of 1934 (the "Exchange Act") during the two business day

41
<PAGE> 43

period before the commencement of offers and sales of the Common Stock offered
hereby. Passive market making consists of, among other things, displaying bids
on Nasdaq limited by the bid prices of independent market makers and purchases
limited by such prices and effected in response to order flow. Net purchases by
a passive market maker on each day are limited to a specified percentage of the
passive market maker's average daily trading volume in the Common Stock during a
specified prior period and all possible market making activity must be
discontinued when such limit is reached. Passive market making may stabilize the
market price of the Common Stock at a level above that which might otherwise
prevail and, if commenced, may be discontinued at any time.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Mayer, Brown, & Platt, Houston, Texas, and for the
Underwriters by Skadden, Arps, Slate, Meagher & Flom, Chicago, Illinois.

EXPERTS

The consolidated financial statements of the Company as of December 31,
1995 and 1994 and for each of the two years in the period ended December 31,
1995, appearing in this Prospectus and Registration Statement, have been audited
by Ernst & Young, LLP, independent auditors, and for the year ended December 31,
1993, by Coopers & Lybrand L.L.P., independent auditors, as set forth in their
respective reports thereon appearing elsewhere herein, and are included in
reliance upon such reports given upon the authority of such firms as experts in
accounting and auditing.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy or information statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information filed by the Company with the Commission
can be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices located at 75 Park Place, New York, New York 10007
and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such
reports, proxy statements and other information concerning the Company also may
be inspected at the offices of The Nasdaq National Market, 1735 K Street, N.W.,
Washington, D.C. 20006-1500.

This Prospectus constitutes a part of a Registration Statement on Form S-3
filed by the Company with the Commission under the Securities Act. This
Prospectus omits certain of the information contained in the Registration
Statement and reference is hereby made to the Registration Statement and to the
exhibits relating thereto for further information with respect to the Company
and the Common Stock offered hereby. Any statements contained herein concerning
the provisions of any document are not necessarily complete, and, in each
instance, reference is made to the copy of such document filed as an exhibit to
the Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference. The Registration
Statement and the exhibits thereto may be inspected at the public reference
facilities maintained by the Commission discussed above, and copies thereof may
be obtained from the Commission at prescribed rates.

42
<PAGE> 44

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed by the Company with the Commission pursuant
to the Exchange Act are incorporated in this Prospectus by reference and made a
part hereof: (i) Annual Report on Form 10-K for the year ended December 31, 1995
(the "1995 Annual Report") filed on March 29, 1996; (ii) the registration
statement on Form 8-A filed on March 17, 1986, which discusses the terms of the
Common Stock as updated by Quarterly Report on 10-Q for quarter ended March 31,
1995 filed on May 12, 1995, as amended on March 28, 1996; and (iii) the current
report on Form 8-K filed on April 5, 1996.

All documents subsequently filed by the Company pursuant to sections 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of any offering
of the Shares shall be deemed to be incorporated by reference in this Prospectus
and to be a part of this Prospectus from the date of the filing of such
documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document that also is or is
deemed to be incorporated by reference herein modifies or replaces such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.

The Company will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the documents referred to above that have been or may be
incorporated by reference in this Prospectus, other than exhibits to such
documents. Such written or oral request should be directed to the attention of
Investor Relations, United Insurance Companies, Inc., 4001 McEwen Drive, Suite
200, Dallas, Texas 75244, (telephone (214) 960-8497).

43
<PAGE> 45

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Reports......................................................... F-2
Consolidated balance sheets -- December 31, 1995 and 1994............................. F-4
Consolidated statements of income -- Years ended December 31, 1995, 1994,
and 1993............................................................................ F-5
Consolidated statements of stockholders' equity -- Years ended December 31, 1995,
1994,
and 1993............................................................................ F-6
Consolidated statements of cash flows -- Years ended December 31, 1995, 1994, and
1993................................................................................ F-7
Notes to consolidated financial statements............................................ F-8
</TABLE>

F-1
<PAGE> 46

REPORT OF INDEPENDENT AUDITORS

Board of Directors
United Insurance Companies, Inc.

We have audited the accompanying consolidated balance sheets of United
Insurance Companies, Inc. and Subsidiaries (the "Company") as of December 31,
1995 and 1994, and the related consolidated statements of income, stockholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the 1995 and 1994 consolidated financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of United Insurance Companies, Inc. and Subsidiaries at
December 31, 1995 and 1994, and the consolidated results of their operations and
their cash flows for the years then ended in conformity with generally accepted
accounting principles.

ERNST & YOUNG LLP

Dallas, Texas
March 8, 1996,
except for Note O, as to which the date is
March 27, 1996

F-2
<PAGE> 47

REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors and Shareholders
United Insurance Companies, Inc.:

We have audited the accompanying consolidated statements of income,
stockholders' equity and cash flows of United Insurance Companies, Inc. and
Subsidiaries (the "Company") for the year ended December 31, 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards required that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations, changes in
stockholders' equity and cash flows of United Insurance Companies, Inc. and
Subsidiaries for the year ended December 31, 1993, in conformity with generally
accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Dallas, Texas
March 29, 1994

F-3
<PAGE> 48

UNITED INSURANCE COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
Investments -- Note C
Securities available for sale --
Fixed maturities, at fair value (cost: 1995 -- $743,945;
1994 -- $591,480)............................................... $ 754,473 $ 562,983
Equity securities, at fair value (cost: 1995 -- $5,114;
1994 -- $4,179)................................................. 5,288 4,146
Guaranteed student loans............................................ 12,159 20,137
Mortgage and collateral loans....................................... 15,559 9,152
Policy loans........................................................ 24,042 25,021
Credit card loans -- Note C......................................... 36,727 51,770
Short-term investments.............................................. 83,024 161,949
---------- ----------
Total Investments........................................... 931,272 835,158
Cash.................................................................. 5,913 7,709
Agents' receivables, less allowances of $2,986 in 1995 and $3,623 in
1994................................................................ 4,538 3,747
Reinsurance receivables -- Note E..................................... 65,332 83,656
Federal income taxes -- Note G........................................ 4,987 14,739
Due premiums and other receivables.................................... 19,256 8,691
Investment income due and accrued..................................... 11,283 8,612
Deferred acquisition costs -- Note B.................................. 56,122 56,802
Goodwill -- Note B.................................................... 15,564 3,307
Furniture and equipment, net.......................................... 12,937 6,220
Other................................................................. 3,655 2,622
---------- ----------
$1,130,859 $1,031,263
========== ==========
LIABILITIES
Policy liabilities -- Notes D and E:
Future policy and contract benefits................................. $ 526,777 $ 560,232
Claims.............................................................. 179,809 143,188
Unearned premiums................................................... 68,099 61,740
Other policy liabilities............................................ 13,220 13,516
Other liabilities..................................................... 25,501 15,566
Short-term debt -- Note F............................................. 22,726 20,100
Long-term debt -- Note F.............................................. 27,655 36,055
---------- ----------
863,787 850,397
MINORITY INTERESTS.................................................... 18,253 9,943
COMMITMENTS AND CONTINGENCIES -- Note I
STOCKHOLDERS' EQUITY -- Note H
Common Stock, par value $.01 per share -- authorized 40,000,000
shares, issued and outstanding 38,220,000 shares in 1995 and
authorized 10,000,000 shares, issued and outstanding 9,375,000 in
1994............................................................. 382 94
Additional paid-in capital.......................................... 50,554 50,723
Net unrealized investment gains (losses)............................ 6,789 (18,102)
Retained earnings................................................... 191,094 138,208
---------- ----------
248,819 170,923
---------- ----------
$1,130,859 $1,031,263
========== ==========
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE> 49

UNITED INSURANCE COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
REVENUE
Premiums -- Note E:
Health.................................................... $473,778 $415,251 $343,743
Life...................................................... 38,530 36,987 24,977
-------- -------- --------
512,308 452,238 368,720
Net investment income -- Note C.............................. 65,054 47,956 39,226
Fees and other income........................................ 61,549 28,592 35,898
Gains (losses) on sale of investments -- Note C.............. 2,163 (5,840) 7,945
-------- -------- --------
641,074 522,946 451,789
BENEFITS AND EXPENSES -- Note E
Benefits, claims, and settlement expenses.................... 317,172 273,786 224,360
Underwriting, acquisition, and insurance expenses --
Note P.................................................... 233,332 191,232 173,013
Interest expense............................................. 3,909 1,913 1,397
-------- -------- --------
554,413 466,931 398,770
-------- -------- --------
INCOME BEFORE FEDERAL INCOME TAXES AND MINORITY
INTERESTS............................................... 86,661 56,015 53,019
Federal income taxes -- Note G................................. 29,040 18,399 17,503
-------- -------- --------
INCOME BEFORE MINORITY INTERESTS.......................... 57,621 37,616 35,516
Minority Interests............................................. 4,293 1,438 2,671
-------- -------- --------
NET INCOME........................................... $ 53,328 $ 36,178 $ 32,845
======== ======== ========
NET INCOME PER SHARE -- Note H....................... $ 1.41 $ 0.96 $ 0.88
======== ======== ========
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE> 50

UNITED INSURANCE COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
COMMON STOCK
Beginning of year........................................ $ 94 $ 93 $ 87
Four-for-one stock split................................. 282 -- --
Exercise of stock options................................ -- 1 1
Adjustment for business combinations..................... 6 -- --
Purchase of minority interest............................ -- -- 5
-------- -------- --------
End of year.............................................. 382 94 93
-------- -------- --------
ADDITIONAL PAID-IN CAPITAL
Beginning of year........................................ 50,723 50,650 39,305
Purchase of minority interest............................ -- 10,509
Restricted common stock issued........................... -- 719
Adjustment for business combinations..................... 71 -- --
Exercise of warrants..................................... 178 179 179
Exercise of stock options................................ 53 48 42
Four-for-one stock split................................. (282) -- --
Retirement of treasury stock............................. (189) (154) (104)
-------- -------- --------
End of year.............................................. 50,554 50,723 50,650
-------- -------- --------
NET UNREALIZED INVESTMENT GAINS (LOSSES)
Beginning of year........................................ (18,102) 1,995 2,422
Change in unrealized investment gains or losses during
the year.............................................. 39,232 (31,744) (1,507)
Deferred income taxes.................................... (12,593) 10,278 776
Minority interests....................................... (1,748) 1,369 304
-------- -------- --------
End of year.............................................. 6,789 (18,102) 1,995
-------- -------- --------
RETAINED EARNINGS
Beginning of year........................................ 138,208 102,030 69,185
Adjustment for business combinations..................... (442) -- --
Net income............................................... 53,328 36,178 32,845
-------- -------- --------
End of year.............................................. 191,094 138,208 102,030
-------- -------- --------
TREASURY STOCK
Beginning of year........................................ -- -- --
Purchase of stock........................................ (189) (154) (104)
Retirement of treasury stock............................. 189 154 104
-------- -------- --------
End of year.............................................. -- -- --
-------- -------- --------
TOTAL STOCKHOLDERS' EQUITY................................. $248,819 $170,923 $ 54,768
======== ======== ========
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE> 51

UNITED INSURANCE COMPANIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
--------- --------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income......................................................... $ 53,328 $ 36,178 $ 32,845
Adjustments to reconcile net income to cash provided by operating
activities:
Increase in policy liabilities................................... 11,918 102,784 28,248
Increase (decrease) in other liabilities......................... 4,933 (871) (2,535)
Deferred income tax benefit...................................... (3,683) (3,073) (2,248)
Increase (decrease) in federal income taxes payable.............. 1,435 908 (2,367)
Decrease (increase) in accrued investment income, reinsurance
receivables and other receivables.............................. 13,654 (75,921) 13,090
Acquisition costs deferred....................................... (14,349) (14,693) (6,589)
Amortization of deferred acquisition costs....................... 15,029 13,776 8,093
Amortization of goodwill......................................... 544 152 1,014
Net income attributable to minority interests.................... 4,293 1,438 2,671
(Gains) losses on sale of investments............................ (2,163) 5,840 (7,945)
Other items, net................................................. (690) (1,714) (472)
--------- --------- -----------
Cash Provided by Operations................................. 84,249 64,804 63,805
--------- --------- -----------
INVESTING ACTIVITIES
Securities available-for-sale
Purchases........................................................ (542,362) (508,002) (1,652,212)
Sales............................................................ 225,988 231,852 741,552
Maturities, calls and redemptions................................ 165,284 293,309 765,981
Credit card loans
Purchases........................................................ (154,138) (81,154) (32,704)
Repayments....................................................... 117,619 56,812 9,001
Sales............................................................ 51,562 -- --
Other investments Purchases........................................ (17,027) (21,055) (19,782)
Sales, repayments and maturities................................. 18,680 25,265 100,312
Short-term investments-net......................................... 91,158 (82,894) 107,148
Purchase of subsidiaries and life, health and annuity business, net
of cash acquired of $3,428 and $5,635 in 1995 and 1994,
respectively (Note B and P)...................................... (20,024) (7,134) (20,594)
Minority interests purchased....................................... -- -- (148)
Decrease (increase) in agents' receivables......................... 959 5,619 (3,983)
--------- --------- -----------
Cash Used in Investing Activities........................... (62,301) (87,382) (5,429)
--------- --------- -----------
FINANCING ACTIVITIES
Proceeds from notes payable........................................ 18,091 59,655 28,500
Repayment of notes payable......................................... (34,600) (23,000) (23,000)
Proceeds from payable to related party............................. 10,735 940 --
Repayment of payable to related party.............................. (275) (1,500) (6,000)
Deposits from investment products.................................. 21,145 33,391 18,347
Withdrawals from investment products............................... (36,878) (43,027) (75,884)
Proceeds from exercise of warrants................................. 178 179 179
Proceeds from exercise of stock options............................ 29 33 32
Purchase of treasury stock......................................... (189) (154) (104)
Distributions to minority interests................................ (1,980) (230) (714)
--------- --------- -----------
Cash Provided by (Used in) Financing Activities............. (23,744) 26,287 (58,644)
Net Increase (Decrease) in Cash............................. (1,796) 3,709 (268)
Cash at Beginning of Period................................. 7,709 4,000 4,268
--------- --------- -----------
Cash at End of Period....................................... $ 5,913 $ 7,709 $ 4,000
========= ========= ===========
</TABLE>

See notes to consolidated financial statements.

F-7
<PAGE> 52

UNITED INSURANCE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A -- SIGNIFICANT ACCOUNTING POLICIES

The Company is a financial services company primarily engaged in the
insurance business. Information on the Company's operations by segment are
included in Note N to the financial statements.

The Company's primary business, conducted by the Health Insurance segment,
has been the issuance and coinsurance of health insurance policies, including
catastrophic coverages, to niche markets, particularly to the self-employed and
student markets. The Life Insurance and Annuity segment has acquired blocks of
life and annuity policies from other insurers and also sells insurance products
in selected niche markets.

Principles of Consolidation: The consolidated financial statements include
the accounts of United Insurance Companies, Inc. and its subsidiaries (the
Company). All significant intercompany accounts and transactions have been
eliminated in consolidation.

Use of Estimates: The preparation of the consolidated financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results could
differ from those estimates.

Basis of Presentation: The consolidated financial statements have been
prepared on the basis of generally accepted accounting principles (GAAP). The
more significant variances between GAAP and statutory accounting practices
prescribed or permitted by regulatory authorities are securities are carried at
market value for investments classified as available for sale for GAAP rather
than generally at amortized cost; the deferral of new business acquisition
costs, rather than expensing them as incurred; the determination of the
liability for future policyholder benefits based on realistic assumptions,
rather than on statutory rates for mortality and interest; the provision for
deferred income taxes; and the exclusion of non-admitted assets for statutory
purposes. (See Note H for stockholders' equity and net income as determined
using statutory accounting practices.)

Investments: Investments are valued as follows:

Fixed maturities consist of bonds, notes, or bills issued by
governments, businesses, or other entities; mortgage and asset backed
securities and similar securitized loans. All fixed maturity investments
are classified as available for sale and carried at fair value.

Equity securities consist of common and nonredeemable preferred stocks
and are carried at fair value.

Guaranteed student loans are stated at the unpaid balances, less
allowance for losses. The carrying amount approximates fair value due to
agreements whereby the Company's federally insured loans will be sold (see
Note I).

Mortgage and collateral loans are carried at unpaid balances, less
allowance for losses.

Policy loans are carried at unpaid balances.

Credit card loans are carried at unpaid balances, less allowance for
losses, which approximates fair value.

Cash and short-term investments are carried at cost which approximates
fair value.

Realized gains and losses on sales of investments are recognized in
net income on the specific identification basis and include write downs on
those investments deemed to be permanently impaired. Unrealized investment
gains or losses on securities carried at fair value, net of applicable
deferred income tax and minority interests, are reported as a separate
component of stockholders' equity and accordingly have no effect on net
income.

F-8
<PAGE> 53

UNITED INSURANCE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Purchases and sales of short-term financial instruments are part of
investing activities and not necessarily a part of the cash management
program. Short-term financial instruments are classified as investments in
the Consolidated Balance Sheets and are included as investing activities in
the Consolidated Statements of Cash Flows.

Deferred Acquisition Costs: The costs of writing new business, principally
commissions, which vary with and are directly related to the production of new
business, have been deferred. The costs of business acquired through acquisition
of subsidiaries or blocks of business is determined based upon estimates of the
future profits inherent in the business acquired. Costs associated with
traditional life business are being amortized over the estimated premium-paying
period of the related policies in proportion to the ratio of the annual premium
revenue to the total premium revenue anticipated. Such anticipated premium
revenue, which is modified to reflect actual lapse experience, was estimated
using the same assumptions as were used for computing policy benefits. For
universal life-type and annuity contracts, deferrable costs are amortized in
proportion to the ratio of a contract's annual gross profits to total
anticipated gross profits. Costs associated with health business are being
amortized over the effective period for the related unearned premiums. That
amortization is adjusted when estimates of current or future gross profits to be
realized from a group of products are revised.

Furniture and Equipment: Furniture and equipment are reported at
depreciated cost that is computed using an accelerated method based upon the
estimated useful lives of the assets. The accumulated depreciation for furniture
and equipment was $15.7 million and $5.7 million at December 31, 1995 and 1994,
respectively.

Goodwill: The excess of cost over the underlying value of the net assets
of companies acquired is generally amortized on a straight-line basis over
fifteen to forty years. The Company continually reevaluates the propriety of the
carrying amount of goodwill, as well as the amortization period to determine
whether current events and circumstances warrant adjustments to the carrying
value and/or revised estimates of useful life. Adjustments, if any, are
reflected in current operations.

Future Policy and Contract Benefits and Claims: Traditional life insurance
future policy benefit liabilities are computed on a net level premium method
using assumptions with respect to current investment yield, mortality,
withdrawal rates, and other assumptions determined to be appropriate as of the
date the business was issued or purchased by the Company. Future contract
benefits related to universal life-type and annuity contracts are generally
based on policy account values. Claims liabilities represent the estimated
liabilities for claims reported plus claims incurred but not yet reported. The
liability for health claims are generally computed using the "incurred date"
method. The liabilities are subject to the impact of actual payments and future
changes in claim factors; as adjustments become necessary they are reflected in
current operations.

Participating Insurance Contracts: Participating life insurance policies
have been issued by the Company's life insurance subsidiaries and entitle
policyholders to share in the earnings of the participating policies, provided
that a dividend distribution is authorized by the insurance company.
Approximately 2% of the ordinary life insurance volume in force was from
participating policies at December 31, 1995 and 1994. During 1995 and 1994, the
Company did not issue any new participating policies. Policyholder dividends do
not have a significant effect on net income.

Recognition of Premium Revenues and Costs: Premiums on traditional life
insurance are recognized as revenue when due. Benefits and expenses are matched
with premiums so as to result in recognition of income over the term of the
contract. This matching is accomplished by means of the provision for future
policyholder benefits and expenses and the deferral and amortization of
acquisition costs. Revenues for universal life-type and annuity contracts
consist of policy and surrender charges assessed during the year. Contract
benefits that

F-9
<PAGE> 54

UNITED INSURANCE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

are charged to expense include benefit claims incurred in the period in excess
of related contract balances, and interest credited to contract balances.

Unearned Premiums: Premiums on health insurance contracts are recognized
as earned over the period of coverage on a pro rata basis.

Reinsurance: Insurance liabilities are reported before the effects of
ceding reinsurance. Reinsurance receivables and prepaid reinsurance premiums are
reported as assets rather than netted against the related insurance liabilities.
The cost of reinsurance is accounted for over the terms of the underlying
reinsured policies using assumptions consistent with those used to account for
the policies.

Federal Income Taxes: Deferred income taxes are recorded to reflect the
tax consequences on future years of differences between the tax bases of assets
and liabilities and their financial reporting amounts at each year-end. Such
deferrals have been computed in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes".

Stock Compensation: The Company accounts for its stock compensation
arrangements under the provision of APB 25, "Accounting for Stock Issued to
Employees" and intends to continue doing so.

Earnings Per Share: Primary earnings per common and common equivalent
share are computed by dividing net income by the weighted average number of
common and common equivalent shares outstanding during each quarterly period and
for the year. A four-for-one stock split was effected on June 1, 1995 for
shareholders of record as of May 22, 1995.

Reclassification: Certain amounts in the 1994 and 1993 financial
statements have been reclassified to conform with the 1995 financial statement
presentation.

NOTE B -- ACQUISITIONS AND DISPOSITIONS

During 1995, the Company acquired majority interest in three companies and
a block of health insurance policies for $11.5 million in cash and issued $12.0
million in notes due in January 1996. The total cost to acquire these companies
and block of health insurance policies was $23.5 million. Total fair value of
assets acquired was $46.0 million and total fair value of liabilities assumed
was $22.5 million. Two of the companies acquired accounted for the increase in
goodwill during 1995. The goodwill related to these acquisitions is being
amortized straight-line over 15 years. For financial reporting purposes, these
acquisitions were accounted for using the purchase method of accounting, and as
a result, the assets and liabilities acquired were recorded at fair value on the
dates acquired. The Consolidated Statements of Income for the year ended
December 31, 1995 include the results of operations of each acquired company
from their respective dates of acquisitions. The effect of these acquisitions on
the Company's results of operations was not material. Accordingly, pro forma
financial information has not been presented.

During 1995, the Company issued 617,600 shares of common stock for the
acquisition of 100% of the outstanding stock of three companies, the effect of
which was not material to the consolidated financial statements. The President
and Chief Executive Officer of the Company owned substantially all of one of the
companies acquired (see Note L).

During 1994, the Company acquired (i) on March 31, 1994 all of the common
stock of First Life Assurance Company ("FLAC") for a purchase price of $12.8
million and, (ii) a block of health insurance policies for $2.6 million. For
financial reporting purposes, these acquisitions were accounted for using the
purchase method of accounting, and as a result, the assets and liabilities
acquired were recorded at fair value on the dates acquired.

F-10
<PAGE> 55

UNITED INSURANCE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The acquisition of FLAC and the health insurance policies purchased in 1994
consisted of the following revalued assets and liabilities at the dates
acquired:

<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
ASSETS:
Investments..................................................... $ 63,612
Cost of business acquired....................................... 11,967
Other assets.................................................... 9,605
--------
85,184
--------
Liabilities:
Policy liabilities.............................................. 69,239
Other liabilities............................................... 3,176
--------
72,415
--------
Net assets acquired, as revalued........................ $ 12,769
========
</TABLE>

The Consolidated Statement of Income for the year ended December 31, 1994
includes results of operations of each acquisition from their respective date of
acquisition. The following unaudited pro forma consolidated results of
operations for the years ended December 31, 1994 and 1993 assumes that all the
acquisitions had occurred on January 1, 1993. The pro forma financial
information does not purport to be indicative of the results of operations that
actually would have been obtained if the combined operations had been conducted
during the periods presented and is not intended to be a projection of future
results of operations.

<TABLE>
<CAPTION>
UNAUDITED
DECEMBER 31,
-------------------
1994 1993
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Revenues................................................................. $533,992 $495,248
Operating income before minority interests............................... 38,189 36,841
Minority interests....................................................... (1,438) (2,671)
-------- --------
Net Income..................................................... $ 36,751 $ 34,170
======== ========
Net income per share -- adjusted for stock split (see Note H).......... $ 0.98 $ 0.91
======== ========
</TABLE>

During 1993, the Company acquired (i) acquired a block of annuity policies
for a purchase price of $3.9 million and, (ii) in March 1993, all of the common
stock of Southern Educators Life Insurance Company (SOED) for a purchase price
of $20.6 million. For financial reporting purposes, these acquisitions were
accounted for using the purchase method of accounting, and as a result, the
assets and liabilities acquired were recorded at fair value on the dates
acquired.

Also, in January 1993, the Company acquired under a Stock Exchange
Agreement the 25% minority interest of its subsidiary, The MEGA Life and Health
Insurance Company (MEGA) based on a predetermined formula price. The Company
acquired the 25% minority interest in MEGA from Onward and Upward, Inc. which is
a corporation owned by the five adult children of the Chairman of the Board of
the Company. Onward and Upward, Inc. and the five adult children are hereinafter
referred to as Onward and Upward. The purchase was completed by issuance of 2.2
million shares of the Company's common stock, adjusted for stock split (see Note
H), in exchange for the approximately $10.8 million of minority interest. As a
result of the acquisition MEGA became a wholly owned subsidiary of the Company.
The effect of purchase accounting relating to this transaction was
insignificant.

F-11
<PAGE> 56

UNITED INSURANCE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Consolidated Statement of Income for the year ended December 31, 1993
includes the results of operations for each of the 1993 acquisitions from their
respective dates of acquisition.

Deferred Acquisition Costs

Included in deferred acquisition costs are the unamortized costs of writing
new business and the costs of business acquired through acquisitions. The
following is an analysis of the costs of business acquired:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1994 1993
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Costs of business acquired:
Beginning of year....................................... $30,061 $26,425 $ 9,372
Additions............................................ -- 11,967 22,681
Amortization(a)...................................... (9,647) (8,331) (5,628)
------- ------- -------
End of year............................................. 20,414 30,061 26,425
Costs of business produced................................ 35,708 26,741 17,814
------- ------- -------
$56,122 $56,802 $44,239
======= ======= =======
</TABLE>

- ---------------

(a) The discount rate used in the amortization of the costs of business acquired
ranges from 7% to 8%.

The amortization for the next five years and thereafter for costs of
business acquired is estimated to be as follows:

<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
1996.......................................... 5,136
1997.......................................... 4,061
1998.......................................... 2,724
1999.......................................... 2,136
2000.......................................... 1,628
2001 and thereafter........................... 4,729
--------
$ 20,414
========
</TABLE>

NOTE C -- INVESTMENTS

Under the terms of various reinsurance agreements (see Note E), the Company
is required to maintain assets in escrow with a fair value equal to the
statutory reserves assumed under the reinsurance agreements. Under these
agreements, the Company had on deposit, securities with a fair value of
approximately $237.2 million as of December 31, 1995. In addition, at December
31, 1995, the life insurance subsidiaries had securities with a fair value of
$27.6 million on deposit with insurance departments in various states.

F-12
<PAGE> 57

UNITED INSURANCE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of net investment income is as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1994 1993
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities.......................................... $47,391 $35,337 $32,268
Equity securities......................................... 247 182 23
Guaranteed student loans.................................. 1,496 1,663 1,589
Mortgage and collateral loans............................. 1,493 913 1,126
Policy loans.............................................. 1,388 1,428 928
Credit card loans......................................... 7,643 4,093 499
Short-term investments.................................... 6,107 4,935 2,621
Other investments......................................... 1,842 1,955 2,178
------- ------- -------
67,607 50,506 41,232
Less investment expenses.................................. (2,553) (2,550) (2,006)
------- ------- -------
$65,054 $47,956 $39,226
======= ======= =======
</TABLE>

Realized gains (losses) and the change in unrealized investment gains
(losses) on fixed maturity and equity security investments are summarized as
follows:

<TABLE>
<CAPTION>
GUARANTEED GAINS NET GAINS
FIXED EQUITY STUDENT OTHER (LOSSES) ON TAX MINORITY (LOSSES) ON
MATURITIES SECURITIES LOANS INVESTMENTS INVESTMENTS EFFECTS INTEREST INVESTMENTS
---------- ---------- ---------- ----------- ----------- -------- -------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31:
1995
Realized............. $ 2,298 $ (19) $ 100 $ (216) $ 2,163 $ (638) $ (192) $ 1,333
Change in
unrealized......... 39,025 207 -- -- 39,232 (12,593) (1,748) 24,891
-------- -------- ------ ------- --------- -------- ------- ---------
Combined......... $ 41,323 $ 188 $ 100 $ (216) $ 41,395 $(13,231) $(1,940) $ 26,224
======== ======== ====== ======= ========= ======== ======= =========
1994
Realized............. $ (5,880) $ 245 $ 93 $ (298) $ (5,840) $ 1,952 $ 206 $ (3,682)
Change in
unrealized......... (31,389) (355) -- -- (31,744) 10,278 1,369 (20,097)
-------- -------- ------ ------- --------- -------- ------- ---------
Combined......... $(37,269) $ (110) $ 93 $ (298) $ (37,584) $ 12,230 $ 1,575 $ (23,779)
======== ======== ====== ======= ========= ======== ======= =========
1993
Realized............. $ 14,606 $ (1,331) $ (912) $(4,418) $ 7,945 $ (2,060) $(1,087) $ 4,798
Change in
unrealized......... (1,258) (249) -- -- (1,507) 776 304 (427)
-------- -------- ------ ------- --------- -------- ------- ---------
Combined......... $ 13,348 $ (1,580) $ (912) $(4,418) $ 6,438 $ (1,284) $ (783) $ 4,371
======== ======== ====== ======= ========= ======== ======= =========
</TABLE>

Gross unrealized investment gains pertaining to equity securities was
$787,000 and $626,000 at December 31, 1995 and 1994, respectively. Gross
unrealized investment losses pertaining to equity securities was $613,000 and
$659,000 at December 31, 1995 and 1994, respectively.

F-13
<PAGE> 58

UNITED INSURANCE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The amortized cost and fair value of investments in fixed maturities are as
follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government agency
obligations................................. $ 128,898 $ 1,993 $ (54) $130,837
Mortgage-backed securities issued by U.S.
Government agencies and authorities......... 129,499 2,803 (428) 131,874
Other mortgage and asset backed securities.... 182,611 2,996 (1,187) 184,420
Other corporate bonds......................... 302,937 6,511 (2,106) 307,342
--------- -------- -------- --------
Total fixed maturities.............. $ 743,945 $ 14,303 $ (3,775) $754,473
========= ======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government agency
obligations................................. $ 48,621 $ 78 $ (1,543) $ 47,156
Mortgage-backed securities issued by U.S.
Government agencies and authorities......... 175,909 621 (7,534) 168,996
Other mortgage-backed securities.............. 144,760 562 (10,726) 134,596
Other corporate bonds......................... 222,190 318 (10,273) 212,235
--------- ------ --------- --------
Total fixed maturities.............. $ 591,480 $1,579 $ (30,076) $562,983
========= ====== ========= ========
</TABLE>

Fair values for fixed maturity securities are based on quoted market
prices, where available. For fixed maturity securities not actively traded, fair
values are estimated using values obtained from quotation services.

The amortized cost and fair value of fixed maturities at December 31, 1995,
by contractual maturity, are shown below. Fixed maturities subject to early or
unscheduled prepayments have been included below based upon their contractual
maturity dates. Actual maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.

<TABLE>
<CAPTION>
AMORTIZED FAIR
MATURITY COST VALUE
- -------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
One year or less..................................................... $ 29,928 $ 29,961
Over 1 year through 5 years.......................................... 223,559 225,407
Over 5 years through 10 years........................................ 113,002 116,045
Over 10 years........................................................ 65,346 66,766
--------- --------
431,835 438,179
Mortgage and asset backed securities................................. 312,110 316,294
--------- --------
Total fixed maturities..................................... $ 743,945 $754,473
========= ========
</TABLE>

Proceeds from the sale of investments in fixed maturities were $226.0
million, $231.9 million, and $741.6 million for 1995, 1994, and 1993,
respectively. Gross gains of $4.1 million, $2.2 million, and $21.4 million and
gross losses of $1.9 million, $8.1 million, and $6.8 million were realized on
fixed maturity sales during 1995, 1994, and 1993, respectively.

F-14
<PAGE> 59

UNITED INSURANCE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On December 29, 1995, the Company sold approximately $51.6 million of
credit card loans to two separate trusts, one of which was a related party (see
Note L), for the benefit of investors in certificates representing undivided
fractional interest in the trusts. The Company purchased participating interests
in each of the trusts totalling $16.0 million and has recorded these amounts as
credit card loans. These transactions were accounted for as sales. No gain or
loss was recognized related to these transactions.

The fair values of the Company's equity securities, which also represent
the carrying amounts, are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Common Stocks................................... $2,518 $2,358
Non-redeemable preferred stocks................. 2,770 1,788
------ ------
$5,288 $4,146
====== ======
</TABLE>

The fair value of equity securities are based on quoted market prices,
where available.

The carrying amounts and fair values of the Company's investments in
mortgage, collateral and policy loans are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial mortgages........................ $ 2,492 $ 3,763 $ 4,776 $ 5,510
Residential mortgages....................... 2,517 3,032 3,682 3,259
-------- ------- -------- -------
5,009 6,795 8,458 8,769
Collateral loans............................ 10,550 10,550 694 694
-------- ------- -------- -------
$ 15,559 $17,345 $ 9,152 $ 9,463
======== ======= ======== =======
Policy loans................................ $ 24,042 $22,636 $ 25,021 $23,564
======== ======= ======== =======
</TABLE>

The fair values for mortgage, collateral and policy loans and policy loans
are estimated using discounted cash flow analysis, using interest rates
currently being offered for similar loans to borrowers with similar credit
ratings.

The carrying values for guaranteed student loans, mortgage loans, and
credit card loans are net of allowances for losses. The balances of those
allowances are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Mortgage loans.................................. $ 650 $ 650
Credit card loans............................... 12,129 4,252
Student loans................................... 178 196
------- ------
$12,957 $5,098
======= ======
</TABLE>

The Company has an investment of $36.7 million in a fixed maturity issued
by GE Capital Mortgage Services that exceeds 10% of Stockholders' Equity as of
December 31, 1995.

The Company recognizes the credit risk involved in the fixed maturities
portfolio. The credit risk is minimized by investing primarily in investment
grade securities. Included in fixed maturities is a concentration

F-15
<PAGE> 60

UNITED INSURANCE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of mortgage and asset backed securities. At December 31, 1995, the Company had a
carrying amount of $316.3 million of mortgage and asset backed securities, of
which, $131.9 million are government backed, $142.6 million are rated AAA, $30.1
million are rated AA, and $11.7 million are rated A by external rating agencies.
At December 31, 1994, the Company had a carrying amount of $303.6 million of
mortgage-backed securities, of which $168.9 million are government backed,
$100.5 million are rated AAA, $28.1 million are rated AA, $6.1 million are rated
A.

Delivery and payment for U.S. Treasury obligations and mortgage-backed
securities purchased on a "to be announced" (TBA) basis can take place a month
or more after the date of the transaction. These securities are subject to
market fluctuations during this period and it is the Company's policy to
recognize, on an aggregate basis, any losses during this period as they occur
and to recognize gains only when they are realized. The Company maintains cash
and securities with a fair value at least equal to the amount of its TBA
purchase commitments. At December 31, 1995, the TBA purchase commitments
amounted to $10.7 million and had a current fair value of $10.8 million. At
December 31, 1994, the TBA purchase commitments amounted to $61.8 million and
had a fair value of $61.7 million. The TBA purchase commitments in excess of its
fair value was recognized as a loss on sale of investments for the year ended
December 31, 1994. Fair values for the TBA purchase commitments are based on
quoted market prices.

NOTE D -- POLICY LIABILITIES

Liability for future policy and contract benefits consists of the
following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Life................................................... $268,839 $271,086
Annuity................................................ 257,938 289,146
-------- --------
$526,777 $560,232
======== ========
</TABLE>

With respect to traditional life insurance, future policy benefits are
computed on a net level premium method using assumptions with respect to current
investment yield, mortality and withdrawal rates determined to be appropriate as
of the date the business was acquired by the Company. Substantially all reserve
interest assumptions range from 7% to 8%. Such liabilities are graded to equal
statutory values or cash values prior to maturity.

Interest rates credited to future contract benefits related to universal
life-type contracts approximated 5.7% and 5.5% during 1995 and 1994,
respectively. Interest rates credited to the liability for future contract
benefits related to annuity contracts generally ranged from 4.0% to 6.8% during
1995; 4.0% to 7.4% during 1994; and 4.5% to 7.0% during 1993.

As described in Note E, the Company assumes certain life and annuity
business from subsidiaries of AEGON USA (AEGON), and uses the same actuarial
assumptions as the ceding company. The liability for future policy benefits
related to life business has been calculated using an interest rate of 9% graded
to 5% over twenty years for life policies. Mortality and withdrawal rates are
based on published industry tables or experience of the ceding company and
include margins for adverse deviation. Interest rates credited to the liability
for future contract benefits related to annuity contracts generally ranged from
4.8% to 6.8% during 1995, 4.7% to 7.4% during 1994, and 5.2% to 6.5% during
1993.

F-16
<PAGE> 61

UNITED INSURANCE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The carrying amounts and fair values of the Company's liabilities for
investment-type contracts (included in future policy and contract benefits and
other policy liabilities in the balance sheets) are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Direct annuities.............................. $127,778 $ 21,747 $158,568 $ 51,084
Assumed annuities............................. 130,160 126,829 130,578 127,313
Supplemental contracts without life
contingencies............................... 4,045 4,045 4,779 4,779
-------- -------- -------- --------
$261,983 $ 52,621 $293,925 $ 83,176
======== ======== ======== ========
</TABLE>

Fair values under investment-type contracts consisting of direct annuities
and supplemental contracts without life contingencies are estimated using the
assumption-reinsurance pricing method, based on estimating the amount of profits
or losses an assuming company would realize, and then discounting those amounts
at a current market interest rate. Fair values for the Company's liabilities
under assumed annuity investment-type contracts are estimated using the cash
surrender value of the annuity.

Activity in the claims liability is summarized as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1994 1995
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Claims liability at beginning of year, net of related
reinsurance recoverables............................. $140,660 $114,111 $103,675
Add:
Acquired claims liability............................ 12,585 6,145 220
Incurred losses, net of reinsurance, occurring
during:
Current year...................................... 332,208 280,110 214,013
Prior years....................................... (44,886) (33,594) (21,072)
-------- -------- --------
287,322 246,516 192,941
-------- -------- --------
Deduct payments for claims, net of reinsurance,
occurring during:
Current year...................................... 187,776 163,077 125,107
Prior years....................................... 76,461 63,035 57,618
-------- -------- --------
264,237 226,112 182,725
-------- -------- --------
Claims liability at end of year, net of related
reinsurance recoverables:
1995 -- $3,479, 1994 -- $2,528 and
1993 -- $3,318.................................. $176,330 $140,660 $114,111
======== ======== ========
</TABLE>

The above reconciliation shows a better than originally estimated
development of prior years incurred losses due in part to the Company's
reserving methodology which has been applied on a consistent basis from year to
year.

NOTE E -- REINSURANCE

In 1995, 1994, and 1993, approximately 50%, 54%, and 54%, respectively, of
the Company's health premiums and 5% of the Company's life premiums were assumed
from AEGON on business produced by United Group Association, Inc. (UGA) an
agency owned by the Chairman of the Board of the Company.

The Company assumed 55% in 1995, 52.5% in 1994 and 50% in 1993 of the
health and group life business produced by UGA. The premiums, commissions,
claims and premium taxes on the business are shared

F-17
<PAGE> 62

UNITED INSURANCE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

according to the percentage assumed and the Company paid administrative expenses
equal to an agreed upon percentage of premiums collected and health claims paid.

The Company has also assumed other life and annuity policies issued by
AEGON. At December 31, 1995 and 1994, the Company's portion of the life
insurance in force assumed was approximately $173.0 million and $115.9 million,
respectively. At December 31, 1995 and 1994, $2.6 million and $1.1 million,
respectively, was due from AEGON under all reinsurance agreements.

The Company's insurance subsidiaries, in the ordinary course of business,
reinsure certain risks with other insurance companies. These arrangements
provide greater diversification of risk and limit the maximum net loss potential
to the Company arising from large risks. To the extent that reinsurance
companies are unable to meet their obligations under the reinsurance agreements,
the Company remains liable.

Reinsurance transactions reflected in the consolidated financial statements
are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Direct............................................. $255,892 $223,695 $178,125
Assumed............................................ 276,044 245,619 199,791
Ceded.............................................. (19,628) (17,076) (9,196)
-------- -------- --------
Net Premiums............................. $512,308 $452,238 $368,720
======== ======== ========
Ceded benefits, claims and settlement expenses..... $ 13,500 $ 11,689 $ 8,362
======== ======== ========
Life insurance in force ceded...................... $776,086 $767,580 $213,817
======== ======== ========
</TABLE>

NOTE F -- DEBT

The Company's short-term and long-term debt is summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Other notes payable............................................ $22,726 $ --
Bank note...................................................... -- 20,000
Current portion long-term debt................................. -- 100
------- -------
Total short-term debt.................................. $22,726 $20,100
======= =======
Long-term debt:
8.75% senior notes payable..................................... $27,655 $27,655
AEGON revolving credit note.................................... -- 8,500
------- -------
27,655 36,155
Less: current portion.......................................... -- (100)
------- -------
Total long-term debt................................... $27,655 $36,055
======= =======
</TABLE>

In October 1995 the Company acquired a majority interest in two companies
(see Note B). The acquisitions were funded with existing cash and the issuance
of promissory notes to the previous shareholders totalling approximately $12.0
million due in January 1996. The promissory notes were non-interest bearing
loans.

F-18
<PAGE> 63

UNITED INSURANCE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

During 1995, the Company borrowed $10.7 million from the Company's Chairman
of the Board which was principally used to repay the then existing indebtedness
on the AEGON revolving credit note. The note bears interest at the Texas
Commerce Bank prime rate and is due on demand.

On December 29, 1994, the Company borrowed $20.0 million from a bank to
finance the purchase of credit card loans. The loan, collateralized by the
Company's stock of MEGA, was repaid in 1995.

On June 22, 1994, the Company authorized an issue of its 8.75% Senior Notes
Payable (8.75% Senior Notes) due June 2004 in the aggregate amount of $27.7
million. In accordance with the agreement, on June 1, 1998 and on each June 1
thereafter to and including June 1, 2003, the Company will repay $4.0 million
aggregate principal together with accrued interest thereon to the date of such
repayment. The note agreement contains restrictive covenants which include
limitations of additional indebtedness as a percentage of certain defined equity
amounts, disposal of subsidiaries, and of certain financial ratios. The proceeds
from the sale of the 8.75% Senior Notes were used to prepay $9.0 million of bank
debt and to repay the then $10.0 million of existing indebtedness on the AEGON
revolving credit note. The balance of the proceeds was used for other general
corporate purposes.

The Company has a revolving credit note with AEGON bearing interest at
prime plus 0.875% with a maximum line of credit of $8.4 million through July 31,
1996. The line of credit declines by $1.2 million annually through July 31,
2002. Under terms of the agreement, a percentage of the outstanding shares of
the Company's stock of The Chesapeake Life Insurance Company is pledged as
collateral, depending on the outstanding loan balance. There were no outstanding
borrowings on the line of credit at December 31, 1995. Subsequent to year end,
the Company amended the revolving credit note to increase it to $12.0 million
through August 1, 2002.

Principal payments required in each of the next five years after December
31, 1995 are as follows:

<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
1996.............................................................. $ 22,726
1997.............................................................. --
1998.............................................................. 3,951
1999.............................................................. 3,951
2000.............................................................. 3,951
</TABLE>

The carrying amounts of the Company's short-term debt approximate fair
values.

The fair value of the long-term debt was $29.3 million and $34.7 million at
December 31, 1995 and 1994, respectively. The fair value of the Company's
long-term debt is estimated using discounted cash flow analyses, based on the
Company's current incremental borrowing rates for similar types of borrowing
arrangements.

Total interest paid was $3.4 million, $1.9 million and $1.1 million, for
1995, 1994, and 1993, respectively.

F-19
<PAGE> 64

UNITED INSURANCE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE G -- FEDERAL INCOME TAXES

Deferred income taxes for 1995 and 1994 reflect the impact of temporary
differences between the financial statement carrying amounts and tax bases of
assets and liabilities. The temporary differences that give rise to a
significant portion of the deferred tax (asset) or liability at December 31,
1995 and 1994 relate to the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Deferred policy acquisition costs and costs of business acquired........ $12,125 $ 12,710
Investment in subsidiaries.............................................. 3,327 2,836
Net unrealized investment gains......................................... 3,336 --
Other................................................................... 927 38
------- --------
Total gross deferred tax liabilities............................ 19,715 15,584
------- --------
Deferred tax assets:
Policy liabilities...................................................... 18,549 17,681
Allowance for losses on investments..................................... 5,508 3,822
Operating loss carryforwards............................................ 2,985 3,394
Capital loss carryforwards.............................................. 1,648 1,235
Net unrealized investment losses........................................ -- 9,257
Other................................................................... 2,439 426
------- --------
Total gross deferred tax assets................................. 31,129 35,815
Less: Valuation allowance............................................ (4,234) (4,734)
------- --------
Net deferred tax assets.............................................. 26,895 31,081
------- --------
Net deferred tax asset............................................... (7,180) (15,497)
Net current tax liability............................................ 2,193 758
------- --------
Federal income tax asset............................................. $(4,987) $(14,739)
======= ========
</TABLE>

The nature of the Company's deferred tax assets and liabilities are such
that the reversal pattern for these temporary differences should generally
result in realization of the Company's deferred tax assets. The Company
establishes a valuation allowance when management believes, based on the weight
of the available evidence, that it is more likely than not that some portion of
the deferred tax asset will not be realized. The net change in the total
valuation allowance for the year ended December 31, 1995 was a decrease of
$500,000.

The provision for income taxes consisted of the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1994 1993
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current tax expense....................................... $32,723 $21,472 $19,751
Deferred tax benefit...................................... (3,683) (3,073) (2,248)
------- ------- -------
$29,040 $18,399 $17,503
======= ======= =======
</TABLE>

F-20
<PAGE> 65

UNITED INSURANCE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's effective income tax rates varied from the maximum statutory
federal income tax rate as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate.............................. 35.0% 35.0% 35.0%
Small life insurance company deduction......................... (1.7) (1.9) (4.4)
Valuation allowance............................................ (0.6) 1.3 1.5
Other items, net............................................... 0.8 (1.5) 0.9
---- ---- ----
Effective income tax rate.................................... 33.5% 32.9% 33.0%
==== ==== ====
</TABLE>

Under pre-1984 life insurance company federal income tax laws, a portion of
a life insurance company's "gain from operations" was not subject to current
income taxation but was accumulated for tax purposes in a memorandum account
designated as "policyholders' surplus account". These amounts are not taxable
unless distributed to the Company or unless they exceed certain statutory
limitations. The aggregate accumulation in this account for the Company's life
insurance subsidiaries was approximately $11.7 million at December 31, 1995.
Taxes have not been provided on this amount since the Company contemplates no
action and can foresee no events that would result in such a tax on the
remaining portion.

At December 31, 1995, certain acquired subsidiaries of the Company had
aggregate federal tax loss carryforwards of $8.6 million for use to offset
future taxable income, under certain circumstances, with expiration dates
ranging between 2002 and 2007. The maximum amounts of federal tax loss
carryforwards available are $1.2 million in 1996, $1.1 million in 1997, $658,000
per year from 1998 through 2006, and $386,000 in 2007.

Total federal income taxes paid were $31.3 million, $20.6 million, and
$21.4 million, for 1995, 1994, and 1993, respectively.

United Insurance Companies, Inc. and its non-life insurance subsidiaries
file a consolidated federal income tax return. The Company's life insurance
subsidiaries are taxed as life insurance companies and all file separate federal
income tax returns.

NOTE H -- STOCKHOLDERS' EQUITY

At the Annual Meeting of Shareholders on May 8, 1995, approval for an
increase in authorized shares from 10.0 million shares to 40.0 million shares
was obtained and the Board of Directors of the Company declared a four-for-one
stock split, in the form of a three hundred percent stock dividend. Each
shareholder received three additional shares of the Company's stock for each
share of the Company's stock they currently owned. The four-for-one split was
distributed on June 1, 1995 to shareholders of record at the close of business
on May 22, 1995. All share and per share amounts have been restated for 1994 and
1993 to reflect the stock split, except the authorized, issued and outstanding
shares at December 31, 1994.

Generally, total stockholders' equity of domestic insurance subsidiaries,
as determined in accordance with statutory accounting practices, in excess of
minimum statutory capital requirements is available for transfer to the parent
company subject to the tax effects of distribution from the "policyholders'
surplus account" described in Note G on federal income taxes. The minimum
statutory capital and surplus requirements of domestic insurance subsidiaries at
December 31, 1995 was $7.3 million.

Prior approval by statutory authorities is required for the payment of
dividends by a domestic insurance company which exceed certain limitations. At
December 31, 1995, the insurance companies could pay aggregate dividends to the
parent company of approximately $17.2 million without prior approval of
statutory authorities.

F-21
<PAGE> 66

UNITED INSURANCE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Combined net income and stockholders' equity for the Company's domestic
insurance subsidiaries determined in accordance with statutory accounting
practices and adjusted for percentage of ownership and pro rata share of net
income are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1994 1993
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net income............................................. $ 39,256 $ 33,567 $ 31,197
Stockholders' equity................................... $150,543 $117,956 $100,823
</TABLE>

The Company's domestic insurance subsidiaries prepare their statutory
financial statements in accordance with accounting practices prescribed or
permitted by their respective state insurance departments. Prescribed statutory
accounting practices include state laws, regulations, and general administrative
rules, as well as a variety of publications of the National Association of
Insurance Commissioners (NAIC). Permitted statutory accounting practices
encompass all accounting practices that are not prescribed; such practices
differ from state to state, may differ from company to company within a state,
and may change in the future. The Company has no permitted statutory accounting
practices. Furthermore, the NAIC has a project to codify statutory accounting
practices, the result of which is expected to constitute the only source of
"prescribed" statutory accounting practices. Accordingly, that project, which is
expected to be completed in 1997, will likely change to some extent prescribed
statutory accounting practices, and may result in changes to the accounting
practices that insurance enterprises use to prepare their statutory financial
statements.

NOTE I -- COMMITMENTS AND CONTINGENCIES

Off-Balance Sheet risk: The Company has commitments to purchase securities
on a "to be announced" basis where delivery and payment can take place a month
or more after the date of the transaction. (See Note C.)

Various lawsuits and claims are pending against the Company and its
subsidiaries. Based in part upon the opinion of counsel as to the ultimate
disposition of such lawsuits and claims, management believes that the liability,
if any, will not be material.

The Company has extended a $1.0 million line of credit with an interest
rate of 12%. The line is secured by an interest in premium accounts receivable.
There were no amounts outstanding under this line of credit during 1995.

The Company has commitments to fund the unused line of credit on certain
credit card loans. At December 31, 1995, the outstanding commitment was $14.5
million.

The Company has the right and may be required to purchase shares of certain
minority stockholders, certain of which are related parties, based on a
predetermined formula. This obligation at December 31, 1995 was approximately
$12.5 million. (See Note L).

Beginning in December of 1996, and in December of each year thereafter, the
Company may be required to purchase the remaining shares of the minority
shareholders of one of the subsidiary companies acquired in 1995 based on a
predetermined formula price. Also, the minority shareholders of this subsidiary
may require the Company to purchase all of their remaining shares based on the
same predetermined formula price. The formula price based on information
available at December 31, 1995 is $14.5 million.

The Company and its subsidiaries lease office space and data processing
equipment under various lease agreements with initial lease periods of three to
ten and one-half years. Minimum lease commitments, at December 31, 1995 amount
to $2.5 million in 1996, $2.2 million in 1995, $1.9 million in 1998, $1.3
million in 1999 and $629,000 in 2000. Rent expense amounted to $2.8 million,
$1.7 million and $1.7 million for 1995, 1994, and 1993, respectively.

F-22
<PAGE> 67

UNITED INSURANCE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company has an agreement whereby it services a block of life insurance
policies for an unrelated company. The Company receives a fee for servicing the
policies and will also participate in the profits or losses relating to the
performance of the block of life insurance policies after amortization of the
unrelated Company's purchase price. The Company does not anticipate losses
relating to the performance of the block of life insurance policies, but if
losses should occur the Company is liable for its portion.

In conjunction with its life insurance operations, the Company commits to
assist in funding the higher education of its insureds with student loans. As of
December 31, 1995, the Company has outstanding student loan commitments for the
years 1996 through 2017. The interest rate on these commitments vary as
described below. Loans are limited to the cost of school or prescribed maximums.
These loans are guaranteed as to principal and interest by an appropriate
guarantee agency and are also collateralized by either the related insurance
policy or the co-signature of a parent or guardian. The Company also makes
available federally insured loans as a part of its arrangement with the
guarantee agency. Any such loans are funded by qualified third parties. The
total commitment for the next five school years and thereafter as well as the
amount the Company expects to fund considering lapses and utilization rate are
as follows:

<TABLE>
<CAPTION>
TOTAL EXPECTED
COMMITMENT FUNDING
---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
1996............................................................ $ 21,854 $ 6,000
1997............................................................ 40,804 10,000
1998............................................................ 61,147 11,000
1999............................................................ 77,067 12,000
2000............................................................ 86,711 11,000
Thereafter...................................................... 258,498 24,000
---------- --------
$546,081 $ 74,000
========= =======
</TABLE>

Interest rates on the above commitments are as follows:

<TABLE>
<CAPTION>
TOTAL EXPECTED
COMMITMENT FUNDING
---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
9.50%........................................................... $ 952 $ 416
9.75%........................................................... 69,046 10,775
Variable (Prime plus 2%)........................................ 476,083 62,809
---------- --------
$546,081 $ 74,000
========= =======
</TABLE>

NOTE J -- EMPLOYEE BENEFIT PLANS

The Company has an Employee Stock Ownership Plan (ESOP) which requires the
Company to contribute 3% of the participants' compensation and match one-half of
participants' contributions up to 6% of the participants' compensation.
Substantially all full-time employees are eligible to participate in the ESOP.
Contributions by the Company for 1995, 1994, and 1993 totaled $1.1 million,
$893,000, and $808,000, respectively.

The ESOP borrowed $381,000 from the Company in 1991, at 8.75% to purchase
42,000 shares of the Company's common stock. The loan was repaid in 1995. The
note receivable had an unpaid balance of $76,000 at December 31, 1994 and was
secured by 33,600 shares of the Company's common stock.

F-23
<PAGE> 68

UNITED INSURANCE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE K -- STOCK OPTION PLAN AND WARRANTS

The Company has a stock option plan which provides options on 1.6 million
shares of common stock for granting to officers, key employees, and certain
eligible non-employees at fair market value at the date of grant. The options
vest at 20% every twelve months subject to continuing employment, provided that
an option will vest 100% upon death, permanent disability, or change of control
of the Company. All options under the plan are exercisable over a five year
period.

A summary of stock option transactions adjusted for stock split (see Note
H) are as follows:

<TABLE>
<CAPTION>
NUMBER AVERAGE OPTION
OF SHARES PRICE PER SHARE ($)
--------- -------------------
<S> <C> <C>
Outstanding options at January 1, 1993.................... 643,200 1.46
Granted................................................... --
Canceled.................................................. (217,904) 1.07
Exercised................................................. (225,616) 1.15
---------
Outstanding options at December 31, 1993.................. 199,680 2.04
Granted................................................... 400,000 7.50
Canceled.................................................. (47,468) 1.95
Exercised................................................. (56,972) 1.64
---------
Outstanding options at December 31, 1994.................. 495,240 6.51
Granted................................................... 20,000 10.00
Canceled.................................................. (418,561) 6.70
Exercised................................................. (29,439) 1.96
---------
Outstanding options at December 31, 1995.................. 67,240 4.82
---------
Options Exercisable at December 31,
1993.................................................... 69,040 2.05
1994.................................................... 51,960 2.22
1995.................................................... 35,880 2.55
</TABLE>

During 1991, the Company entered into an agreement with Onward and Upward
whereby it retired a portion of the convertible subordinated debentures at par
and issued a warrant to purchase 357,600 shares of the Company's common stock
for $2.50 per share, adjusted for stock split (see Note H). During 1995, 1994,
and 1993, 20% of the warrants were exercised in each year and 71,520 shares of
common stock were issued for proceeds of $179,000 in each year. Warrants
outstanding were 71,520, 143,040, and 214,560 at December 31, 1995, 1994, and
1993, respectively. The remaining warrants expire equally on January 1, 1996 and
on July 1, 1996.

NOTE L -- RELATED PARTY TRANSACTIONS

Onward and Upward owns common stock of various subsidiaries of the Company
and has granted the Company a right of first refusal to purchase its ownership
interests at prices based on a predetermined formula. Onward and Upward has the
right to require the Company to purchase its ownership in the subsidiaries'
stock at prices based on the same predetermined formula. During 1993, the
Company acquired the 25% minority interest in MEGA from Onward and Upward. (See
Note B)

The Company has issued warrants to Onward & Upward. (See Note K)

In August 1993, the Company sold the future commissions of one of the
Company's agencies to the Chairman of the Board of the Company. The purchase
price of $3.6 million was based on the present value of the future commissions
which was calculated using assumptions based on recent experience.

F-24
<PAGE> 69

UNITED INSURANCE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

During 1993, the Company entered into an agreement with the Company's
Chairman of the Board to participate in an interest in a start-up company which
has developed a paperless claims system. Until the long-term viability of the
start-up company is determined, the Company has substantially written off its
investment of $4.0 million with $1.4 million, $2.2 million and $300,000
occurring in 1995, 1994 and 1993, respectively.

During 1995, the Company issued 427,900 shares of its common stock in
exchange for 97.5% of the outstanding common stock of WinterBrook Holdings, Inc.
(WinterBrook) from the Company's President and Chief Executive Officer. The
Company also purchased the remaining 2.75% from an unrelated individual at the
same price per share.

In November 1994, the Company extended a $10.0 million line of credit to a
related company of which the Chairman of the Board of the Company has an
ownership interest. The line of credit bears interest at the rate of prime plus
two percent (2%) maturing December 31, 1997. The line of credit is
collateralized by certain tangible assets of the related company. The line of
credit is guaranteed by the Company's Chairman of the Board. At December 31,
1995, the related company had drawn the full $10.0 million on the line of
credit.

At December 31, 1995, the Company had an unsecured loan payable to the
Chairman of the Board of the Company in the amount of $10.7 million, bearing
interest at the prime rate of a local bank, and is due on demand.

On December 29, 1995, the Company sold $26.5 million of credit card loans
to a trust established for the benefit of investors in certificates representing
undivided fractional interests in the trust. Onward & Upward purchased a $15.0
million participating interest in this trust. This transaction was accounted for
as a sale. The transaction did not result in a gain or loss for the Company. The
Company purchased a participating interest in the trust totaling $11.5 million.

During 1995, the Company and UGA entered into an agreement whereby the
Company receives a 20% interest in the profits or losses relating to certain
lead activities of UGA. During 1995, the Company had losses of $1.6 million on
these activities. It is expected that these activities will result in a small
gain for the three year period ending December 31, 1997.

UGA receives commissions from insurance subsidiaries of AEGON with respect
to insurance policies that the Company coinsures. UGA received $45.5 million,
$50.3 million, and $43.2 million in such commissions in 1995, 1994, and 1993,
respectively. Through the coinsurance agreements with AEGON, the amount of these
commissions received by UGA attributable to the Company were $26.1 million,
$26.3 million, and $31.4 million in 1995, 1994, and 1993, respectively.

UGA generates sales leads for agents and management expertise for an
insurance subsidiary of the Company. The insurance subsidiary of the Company
paid UGA $4.3 million and $4.7 million in 1995 and 1994, respectively.

UGA markets products which are directly underwritten by insurance
subsidiaries of the Company. The insurance subsidiaries paid commissions of $1.9
million and $894,000 to UGA in 1995 and 1994, respectively.

NOTE M -- INVESTMENT ANNUITY SEGREGATED ACCOUNTS

The Company has deferred investment annuity policies which have segregated
account assets and liabilities amounting to $210.5 million and $193.3 million at
December 31, 1995 and 1994, respectively, which are funded by specific assets
held in segregated custodian accounts for the purposes of providing policy
benefits and paying applicable premiums, taxes and other charges as due. Because
investment decisions with respect to these segregated accounts are made by the
policyholders, these assets and liabilities are not presented in these financial
statements. The assets are held in individual custodian accounts from which the
Company has received hold harmless agreements and indemnifications.

F-25
<PAGE> 70

UNITED INSURANCE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE N -- SEGMENT INFORMATION

The Company's operations are classified and summarized in three industry
segments. The business segments are health insurance, life insurance and
annuity, and corporate and other. Allocations of investment income and certain
general expenses are based on a number of assumptions and estimates, and the
Company's reported operating results would change if different methods were
applied. Certain assets are not individually identifiable by segment and,
accordingly, have been allocated by formulas. Segment revenues include premiums
and other policy charges and considerations, net investment income, and other
income. Realized investment gains and losses and general corporate expenses are
included in corporate and other. Operations which do not constitute reportable
business segments have been combined with corporate and other. Depreciation
expense and capital expenditures are not considered material. Financial
information by industry segment for revenues, income before federal income
taxes, and identifiable assets are summarized as follows:

<TABLE>
<CAPTION>
LIFE
HEALTH INSURANCE/ CORPORATE
TOTAL INSURANCE ANNUITY AND OTHER
---------- --------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Year ended December 31, 1995
Revenues.......................................... $ 641,074 $ 495,976 $ 79,038 $ 66,060
Income before federal income taxes................ 86,661 64,456 11,569 10,636
Identifiable assets*.............................. 1,130,859 259,205 528,700 342,954
Year ended December 31, 1994
Revenues.......................................... $ 522,946 $ 440,432 $ 72,440 $ 10,074
Income (loss) before federal income taxes......... 56,015 51,935 10,627 (6,547)
Identifiable assets*.............................. 1,031,263 217,325 561,351 252,587
Year ended December 31, 1993
Revenues.......................................... $ 451,789 $ 372,089 $ 60,335 $ 19,365
Income (loss) before federal income taxes......... 53,019 41,304 7,733 3,982
Identifiable assets*.............................. 814,793 176,140 440,475 198,178
</TABLE>

- ---------------

* At end of year.

NOTE O -- SUBSEQUENT EVENT

In January 1996, the Company agreed in principle to acquire the health
administrative office from PFL Life Insurance Company ("PFL"), a subsidiary of
AEGON, to be effective April 1, 1996. The facility underwrites and services the
majority of the health business produced by UGA. All in force business will
continue to be serviced and will continue to be shared by the Company and AEGON
through an existing coinsurance agreement. After a short transition period, all
new business produced by UGA will be underwritten by one of the Company's
subsidiaries and will not be shared with AEGON through coinsurance arrangements.
The Company anticipates purchasing the building and equipment from PFL.

On January 29, 1996, the Board of Directors approved an amendment to the
Company's Certificate of Incorporation, subject to approval of stockholders, to
increase the authorized shares of common stocks from 40 million shares to 50
million shares and to create a class of preferred stock consisting of 10 million
shares with a par value of $.01. In addition, on March 27, 1996, the Board of
Directors approved issuance of up to 5.8 million shares of common stock and
passed a resolution to authorize a Board Committee to approve a planned common
stock offering including the price and number of shares to be offered.

F-26
<PAGE> 71

UNITED INSURANCE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE P -- SUPPLEMENTAL FINANCIAL STATEMENT DATA

Disclosures of non-cash investing and financing activities are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1994 1993
------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Exchange of Company's common stock for remaining minority
interest of subsidiary................................. $ -- $ -- $ 10,800
Purchase of subsidiaries and life, annuity and health
business:
Fair value of assets acquired.......................... 45,990 85,184 258,694
Liabilities assumed.................................... 22,538 72,415 238,100
------- ------- --------
Net cash paid.......................................... $23,452 $12,769 $ 20,594
======= ======= ========
</TABLE>

Details of underwriting, acquisitions, and insurance expenses are as
follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Amortization of deferred policy acquisition
costs............................................ $ 15,029 $ 13,776 $ 8,093
Commissions........................................ 93,522 89,584 82,385
Administrative expenses............................ 111,292 76,681 71,981
Premium taxes...................................... 12,945 11,038 9,540
Amortization of goodwill........................... 544 153 1,014
-------- -------- --------
$233,332 $191,232 $173,013
======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
1995
-----------------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues........................................ $150,839 $154,293 $158,431 $177,511
Income before federal income taxes and minority
interests..................................... 18,383 21,607 21,066 25,605
Net income...................................... 12,143 13,794 12,543 14,848
Net income per share............................ $ 0.32 $ 0.37 $ 0.33 $ 0.39
</TABLE>

<TABLE>
<CAPTION>
1994
-----------------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues........................................ $117,011 $130,093 $133,478 $142,364
Income before federal income taxes and minority
interests..................................... 9,832 14,555 15,609 16,019
Net income...................................... 6,613 9,269 10,118 10,178
Net income per share............................ $ 0.17 $ 0.25 $ 0.27 $ 0.27
</TABLE>

Computation of earnings per share for each quarter are made independently
of earnings per share for the year. All per share amounts have been restated for
periods prior to the second quarter of 1995 to reflect the four-for-one stock
split effective June 1, 1995 (see Note H).

F-27
<PAGE> 72
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED ON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
REGISTERED SECURITIES TO WHICH IT RELATES IN ANY STATE TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH STATE. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.

---------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
The Company........................... 11
Use of Proceeds....................... 12
Capitalization........................ 13
Price Range of Common Stock and
Dividend Policy..................... 14
Selected Consolidated Financial and
Operating Data...................... 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
Business.............................. 26
Management............................ 37
Certain Relationships and
Related Transactions................ 38
Underwriting.......................... 41
Legal Matters......................... 42
Experts............................... 42
Available Information................. 42
Incorporation of Certain Documents by
Reference........................... 43
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

4,500,000 SHARES

UNITED INSURANCE
COMPANIES, INC.

COMMON STOCK

---------------------------

PROSPECTUS

---------------------------

MERRILL LYNCH & CO.

, 1996

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 73

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the estimated expenses in connection with
the issuance and distribution of the securities registered hereby:

<TABLE>
<S> <C>
SEC registration fee..................................................... $ 39,152
NASD filing fee.......................................................... 11,854
NASDAQ listing fee....................................................... 17,500
Blue sky qualification fees and expenses (including attorneys' fees)..... 20,000
Printing and engraving fees.............................................. 60,000
Legal fees and expenses.................................................. 150,000
Accounting fees and expenses............................................. 60,000
Miscellaneous............................................................ 70,000
----------
Total.......................................................... $ 428,506
==========
</TABLE>

ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.

(a) The General Corporation Law of Delaware (Section 145) gives Delaware
corporations broad powers to indemnify their present and former directors and
officers and those of affiliated corporations against expenses incurred in the
defense of any lawsuit to which they are made parties by reason of being or
having been such directors or officers, subject to specified conditions and
exclusions; gives a director or officer who successfully defends an action the
right to be so indemnified; and authorizes the Company to buy directors' and
officers' liability insurance. Such indemnification is not exclusive of any
other rights to which those indemnified may be entitled under any by-laws,
agreement, vote of stockholders or otherwise.

(b) Article 8.08 of the By-Laws of the Company provides for indemnification
of, and the advancement of expenses which may become subject to indemnification
under the By-Laws to, directors and officers and any person who served at the
Company's request as a director or officer of another corporation. The
indemnification and advancement of expenses provisions contained in the By-Laws
are not exclusive of any other rights.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

For a list of Exhibits, see Index to Exhibits included herewith which is
incorporated by reference herein.

The following financial statement schedules are incorporated herein by
reference to the Annual Report on Form 10-K for the year ended December 31, 1995
filed with the Commission on March 29, 1996:

<TABLE>
<S> <C> <C>
Schedule I -- Summary of Investments
Schedule II -- Condensed Financial Information of Registrant December 31, 1995, 1994,
and 1993:
United Insurance Companies, Inc. (Parent Company)
Schedule III -- Supplementary Insurance Information
Schedule IV -- Reinsurance
Schedule V -- Valuation and Qualifying Accounts
</TABLE>

ITEM 17. UNDERTAKINGS.

(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in this registration statement
shall be deemed to be a new

II-1
<PAGE> 74

registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions set forth or described in Item 15 (except
as set forth in paragraphs (c) and (d) therein) of this Registration Statement,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding, or claims to the extent covered by contracts of insurance)
is asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-2
<PAGE> 75

SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Amendment No. 2 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Dallas and State of Texas on April 24, 1996.

UNITED INSURANCE COMPANIES, INC.

By: /s/ Vernon R. Woelke
------------------------------------
Vernon R. Woelke
Vice President

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed below by the following persons
in the capacities indicated on April 24, 1996.

<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
/s/ RONALD L. JENSEN* Chairman of the Board and Director
- ---------------------------------------------
Ronald L. Jensen

/s/ W. BRIAN HARRIGAN* President (Principal Executive Officer) and
- --------------------------------------------- Director
W. Brian Harrigan

/s/ VERNON R. WOELKE Vice President and Treasurer (Principal
- --------------------------------------------- Financial Officer and Principal Accounting
Vernon R. Woelke Officer) and Director

/s/ RICHARD J. ESTELL* Executive Vice President and Director
- ---------------------------------------------
Richard J. Estell

/s/ GARY L. FRIEDMAN* Director
- ---------------------------------------------
Gary L. Friedman

/s/ J. MICHAEL JAYNES* Director
- ---------------------------------------------
J. Michael Jaynes

/s/ RICHARD T. MOCKLER* Director
- ---------------------------------------------
Richard T. Mockler

/s/ CHARLES T. PRATER* Vice President and Director
- ---------------------------------------------
Charles T. Prater

- ---------------
* By Power of Attorney
/s/ VERNON R. WOELKE
Vernon R. Woelke
(Attorney-in-Fact)
</TABLE>

II-3

<PAGE> 76

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
- ----------- ----------------------------------------------------------------------- ----------
<C> <C> <S> <C>
1.1 -- Form of Purchase Agreement.............................................
2.1 -- Plan of Reorganization of United Group Insurance Company, as subsidiary
of United Group Companies, Inc. and Plan and Agreement of Merger of
United Group Companies, Inc. into United Insurance Companies, Inc.
Filed as Exhibit 2-1 to the Registration Statement on Form S-1, File
No. 33-2998, filed with the Securities and Exchange Commission on
January 30, 1986 and incorporated by reference herein..................
3.1 -- Copy of Certificate of Incorporation, as amended, of the Company.......
3.2 -- Copy of By-laws, as amended, of the Company. Filed as Exhibit 3.2 to
the Company's Annual Report on Form 10-K for the year ended December
31, 1995, filed on March 29, 1996 and incorporated by reference
herein.................................................................
4.1 -- Refer to Exhibits 3.1 and 3.2 to this Registration Statement...........
5.1 -- Opinion of Mayer, Brown & Platt........................................
23.1 -- Consent of Ernst & Young LLP...........................................
23.2 -- Consent of Coopers & Lybrand L.L.P.....................................
23.3 -- Consent of Mayer, Brown & Platt (contained in their opinion filed as
Exhibit 5.1 to this Registration Statement)............................
24.1* -- Powers of Attorney (included on signature page of this Registration
Statement).............................................................
27 -- Financial Data Schedule. Filed as Exhibit 27 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995, filed on
March 29, 1996 and incorporated herein by reference....................
</TABLE>

- ---------------

* Previously filed.

II-4

<PAGE> 1
EXHIBIT 1.1

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

UNITED INSURANCE COMPANIES, INC.
(a Delaware corporation)

4,500,000 Shares of Common Stock

PURCHASE AGREEMENT

Dated: April __, 1996

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<S> <C>
PURCHASE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

SECTION 1. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

(a) Representations and Warranties by the Company. . . . . . . . . . . . . . . . . . . . . . 3
(i) Compliance with Registration Requirements . . . . . . . . . . . . . . . . . . . . . 3
(ii) Incorporated Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(iii) Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(iv) Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(v) No Material Adverse Change in Business . . . . . . . . . . . . . . . . . . . . . . 4
(vi) Good Standing of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(vii) Good Standing of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(viii) Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(ix) Authorization of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(x) Authorization and Description of Securities . . . . . . . . . . . . . . . . . . . . 6
(xi) Absence of Defaults and Conflicts . . . . . . . . . . . . . . . . . . . . . . . . 6
(xii) Absence of Labor Dispute . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(xiii) Absence of Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(xiv) Accuracy of Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(xv) Possession of Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . 7
(xvi) Absence of Further Requirements . . . . . . . . . . . . . . . . . . . . . . . . . 8
(xvii) Possession of Licenses and Permits . . . . . . . . . . . . . . . . . . . . . . . 8
(xviii) Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(xix) Title to Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(xx) Compliance with Cuba Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(xxi) Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(xxii) Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(b) Officer's Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

SECTION 2. Sale and Delivery to Underwriters; Closing. . . . . . . . . . . . . . . . . . . . . . . 10

(a) Initial Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(b) Option Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(c) Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(d) Denominations; Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

SECTION 3. Covenants of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

(a) Compliance with Securities Regulations and Commission Requests . . . . . . . . . . . . 12
(b) Filing of Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>

<PAGE> 3
<TABLE>
<S> <C> <C>
(c) Delivery of Registration Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(d) Delivery of Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(e) Continued Compliance with Securities Laws . . . . . . . . . . . . . . . . . . . . . . . 13
(f) Blue Sky Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(g) Rule 158 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(h) Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(i) Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(j) Restriction on Sale of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(k) Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

SECTION 4. Payment of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

(a) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(b) Termination of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

SECTION 5. Conditions of Underwriters' Obligations . . . . . . . . . . . . . . . . . . . . . . . . 15

(a) Effectiveness of Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . 15
(b) Opinion of Counsel for Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(c) Opinion of Counsel for Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(d) Officers' Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(e) Accountant's Comfort Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(f) Bring-down Comfort Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(g) Approval of Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(h) Lock-up Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(i) Conditions to Purchase of Option Securities . . . . . . . . . . . . . . . . . . . . . . 17
(j) Additional Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(k) Termination of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

SECTION 6. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

(a) Indemnification of Underwriters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(b) Indemnification of Company, Directors and Officers . . . . . . . . . . . . . . . . . . . 19
(c) Actions against Parties; Notification . . . . . . . . . . . . . . . . . . . . . . . . . 20
(d) Settlement without Consent if Failure to Reimburse . . . . . . . . . . . . . . . . . . . 20

SECTION 7. Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

SECTION 8. Representations, Warranties and Agreements to Survive
Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

</TABLE>

ii
<PAGE> 4
<TABLE>
<S> <C> <C>
SECTION 9. Termination of Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

(a) Termination; General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(b) Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

SECTION 10. Default by One or More of the Underwriters . . . . . . . . . . . . . . . . . . . . . . . 23

SECTION 11. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

SECTION 12. Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

SECTION 13. GOVERNING LAW AND TIME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

SECTION 14. Effect of Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

</TABLE>

iii
<PAGE> 5

UNITED INSURANCE COMPANIES, INC.

(a Delaware corporation)

4,500,000 Shares of Common Stock

(Par Value $.01 Per Share)

PURCHASE AGREEMENT

April __, 1996

MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
as Representative of the several Underwriters
North Tower
World Financial Center
New York, New York 10281-1209

Ladies and Gentlemen:

United Insurance Companies, Inc., a Delaware corporation (the
"Company"), confirms its agreement with Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and each of the other
Underwriters named in Schedule A hereto (collectively, the "Underwriters",
which term shall also include any underwriter substituted as hereinafter
provided in Section 10 hereof), for whom Merrill Lynch is acting as
representative (in such capacity, the "Representative"), with respect to the
issue and sale by the Company and the purchase by the Underwriters, acting
severally and not jointly, of the respective numbers of shares of Common Stock,
par value $.01 per share, of the Company ("Common Stock") set forth in said
Schedule A, and with respect to the grant by the Company to the Underwriters,
acting severally and not jointly, of the option described in Section 2(b)
hereof to purchase all or any part of 675,000 additional shares of Common Stock
to cover over-allotments, if any. The aforesaid 4,500,000 shares of Common
Stock (the "Initial Securities") to be purchased by the Underwriters and all or
any part of the 675,000 shares of Common Stock subject to the option described
in Section 2(b) hereof (the "Option Securities") are hereinafter called,
collectively, the "Securities".

1
<PAGE> 6
The Company understands that the Underwriters propose to make a public
offering of the Securities as soon as the Representative deems advisable after
this Agreement has been executed and delivered.

The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 333-02043) covering the
registration of the Securities under the Securities Act of 1933, as amended
(the "1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will
either (i) prepare and file a prospectus in accordance with the provisions of
Rule 430A ("Rule 430A") of the rules and regulations of the Commission under
the 1933 Act (the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule
424(b)") of the 1933 Act Regulations or (ii) if the Company has elected to rely
upon Rule 434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term
sheet (a "Term Sheet") in accordance with the provisions of Rule 434 and Rule
424(b). The information included in such prospectus or in such Term Sheet, as
the case may be, that was omitted from such registration statement at the time
it became effective but that is deemed to be part of such registration
statement at the time it became effective (a) pursuant to paragraph (b) of Rule
430A is referred to as "Rule 430A Information" or (b) pursuant to paragraph (d)
of Rule 434 is referred to as "Rule 434 Information." Each prospectus used
before such registration statement became effective, and any prospectus that
omitted, as applicable, the Rule 430A Information or the Rule 434 Information,
that was used after such effectiveness and prior to the execution and delivery
of this Agreement, is herein called a "preliminary prospectus." Such
registration statement, including the exhibits thereto, schedules thereto, if
any, and the documents incorporated by reference therein pursuant to Item 12 of
Form S-3 under the 1933 Act, at the time it became effective and including the
Rule 430A Information and the Rule 434 Information, as applicable, is herein
called the "Registration Statement." Any registration statement filed pursuant
to Rule 462(b) of the 1933 Act Regulations is herein referred to as the "Rule
462(b) Registration Statement," and after such filing the term "Registration
Statement" shall include the Rule 462(b) Registration Statement. The final
prospectus, including the documents incorporated by reference therein pursuant
to Item 12 of Form S-3 under the 1933 Act, in the form first furnished to the
Underwriters for use in connection with the offering of the Securities is
herein called the "Prospectus." If Rule 434 is relied on, the term
"Prospectus" shall refer to the preliminary prospectus dated April 4, 1996,
together with the applicable Term Sheet and all references in this Agreement to
the date of such Prospectus shall mean the date of the applicable Term Sheet.
For purposes of this Agreement, all references to the Registration Statement,
any preliminary prospectus, the Prospectus or any Term Sheet or any amendment
or supplement to any of the foregoing shall be deemed to include the copy filed
with the Commission pursuant to its Electronic Data Gathering, Analysis and
Retrieval system ("EDGAR").

All references in this Agreement to financial statements and schedules
and other information which is "contained," "included" or "stated" in the
Registration Statement, any preliminary prospectus or the Prospectus (or other
references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which is

2
<PAGE> 7
incorporated by reference in the Registration Statement, any preliminary
prospectus or the Prospectus, as the case may be; and all references in this
Agreement to amendments or supplements to the Registration Statement, any
preliminary prospectus or the Prospectus shall be deemed to mean and include
the filing of any document under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), which is incorporated by reference in the
Registration Statement, such preliminary prospectus or the Prospectus, as the
case may be.

SECTION 1. Representations and Warranties.

(a) Representations and Warranties by the Company. The Company
represents and warrants to each Underwriter as of the date hereof, as of the
Closing Time referred to in Section 2(c) hereof, and as of each Date of
Delivery (if any) referred to in Section 2(b) hereof and agrees with each
Underwriter, as follows:

(i) Compliance with Registration Requirements. The Company
meets the requirements for use of Form S-3 under the 1933 Act. Each
of the Registration Statement and any Rule 462(b) Registration
Statement has become effective under the 1933 Act and no stop order
suspending the effectiveness of the Registration Statement or any Rule
462(b) Registration Statement has been issued under the 1933 Act and
no proceedings for that purpose have been instituted or are pending
or, to the knowledge of the Company, are contemplated by the
Commission, and any request on the part of the Commission for
additional information has been complied with.

At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments
thereto became effective and at the Closing Time (and, if any Option
Securities are purchased, at the Date of Delivery), the Registration
Statement, the Rule 462(b) Registration Statement and any amendments
and supplements thereto complied and will comply in all material
respects with the requirements of the 1933 Act and the 1933 Act
Regulations and did not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
Neither the Prospectus nor any amendments or supplements thereto, at
the time the Prospectus or any amendments or supplements thereto were
issued and at the Closing Time (and, if any Option Securities are
purchased, at the Date of Delivery), included or will include an
untrue statement of a material fact or omitted or will omit to state a
material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading. If Rule 434 is used, the Company will comply with the
requirements of Rule 434. The representations and warranties in this
subsection shall not apply to statements in or omissions from the
Registration Statement or the Prospectus made in reliance upon and in
conformity with information furnished to the Company in writing by any
Underwriter through the Representative expressly for use in the
Registration Statement or the Prospectus.

3
<PAGE> 8
Each preliminary prospectus and the prospectus filed as part
of the Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424 under the 1933 Act,
complied when so filed in all material respects with the 1933 Act
Regulations, if applicable, and each preliminary prospectus and the
Prospectus delivered to the Underwriters for use in connection with
this offering was identical to the electronically transmitted copies
thereof filed with the Commission pursuant to EDGAR, except to the
extent permitted by Regulation S-T.

(ii) Incorporated Documents. The documents incorporated or
deemed to be incorporated by reference in the Registration Statement
and the Prospectus, at the time they were or hereafter are filed with
the Commission, complied and will comply in all material respects with
the requirements of the 1934 Act and the rules and regulations of the
Commission thereunder (the "1934 Act Regulations"), and, when read
together with the other information in the Prospectus, at the time the
Registration Statement became effective, at the time the Prospectus
was issued and at the Closing Time (and, if any Option Securities are
purchased, at the Date of Delivery), did not and will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading.

(iii) Independent Accountants. The accountants who certified
the financial statements and supporting schedules included in the
Registration Statement are independent public accountants as required
by the 1933 Act and the 1933 Act Regulations.

(iv) Financial Statements. The financial statements included
in the Registration Statement and the Prospectus, together with the
related schedules and notes, present fairly the financial position of
the Company and its consolidated subsidiaries at the dates indicated
and the statement of operations, stockholders' equity and cash flows
of the Company and its consolidated subsidiaries for the periods
specified; said financial statements have been prepared in conformity
with generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved. The supporting
schedules included in the Registration Statement present fairly in
accordance with GAAP the information required to be stated therein.
The selected financial data and the summary financial information
included in the Prospectus present fairly the information shown
therein and, other than the statutory data included therein, have been
compiled on a basis consistent with that of the audited financial
statements included in the Registration Statement.

(v) No Material Adverse Change in Business. Since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, except as otherwise stated therein, (A)
there has been no material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the

4
<PAGE> 9
ordinary course of business (a "Material Adverse Effect"), (B) there
have been no transactions entered into by the Company or any of its
subsidiaries, other than those in the ordinary course of business,
which are material with respect to the Company and its subsidiaries
considered as one enterprise, and (C) there has been no dividend or
distribution of any kind declared, paid or made by the Company on any
class of its capital stock.

(vi) Good Standing of the Company. The Company has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Delaware and has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus and to enter into and perform
its obligations under this Agreement; and the Company is duly
qualified as a foreign corporation to transact business and is in good
standing in each other jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or
the conduct of business, except where the failure so to qualify or to
be in good standing would not result, individually or in the
aggregate, in a Material Adverse Effect.

(vii) Good Standing of Subsidiaries. Each of the
subsidiaries listed on Schedule C hereto (each a "Subsidiary" and,
collectively, the "Subsidiaries") has been duly organized and is
validly existing as a corporation (or other entity) in good standing
under the laws of the jurisdiction of its organization, has power
(corporate or other) and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus
and is duly qualified as a foreign corporation (or other entity) to
transact business and is in good standing in each jurisdiction in
which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except
where the failure so to qualify or to be in good standing would not
result, individually or in the aggregate, in a Material Adverse
Effect; except as otherwise disclosed in the Registration Statement,
all of the issued and outstanding capital stock (or other equity
interest) of each such Subsidiary has been duly authorized and validly
issued, and is fully paid and non-assessable; Schedule C sets forth
the Company's percentage ownership of the common stock (or other
equity interest) in each of the Subsidiaries; the common stock (or
other equity interest) reflected as owned by the Company on Schedule C
is owned by the Company, directly or through subsidiaries, free and
clear of any security interest, mortgage, pledge, lien, encumbrance,
claim or equity (except that the shares of common stock of The
Chesapeake Life Insurance Company are pledged to AEGON (as defined in
the Prospectus) as security under the Company's revolving credit note
with AEGON); there are no outstanding shares of capital stock (or
other equity interest) of any Subsidiary other than common stock (or a
single class of equity interests); none of the outstanding shares of
capital stock (or other equity interest) of any Subsidiary was issued
in violation of the preemptive or similar rights of any securityholder
of such Subsidiary. The only subsidiaries of the Company are (a) the
subsidiaries listed on Schedule C hereto and (b) certain other
subsidiaries which,

5
<PAGE> 10
considered in the aggregate as a single Subsidiary, do not constitute
a "significant subsidiary" as defined in Rule 1-02 of Regulation S-X.

(viii) Capitalization. The authorized, issued and
outstanding capital stock of the Company is as set forth in the
Prospectus in the column entitled "Actual" under the caption
"Capitalization" (except for subsequent issuances, if any, pursuant to
this Agreement, pursuant to reservations, agreements or employee
benefit plans referred to in the Prospectus or pursuant to the
exercise of convertible securities or options referred to in the
Prospectus). The shares of issued and outstanding capital stock of
the Company have been duly authorized and validly issued and are fully
paid and non-assessable; none of the outstanding shares of capital
stock of the Company was issued in violation of the preemptive or
other similar rights of any securityholder of the Company.

(ix) Authorization of Agreement. This Agreement has been
duly authorized, executed and delivered by the Company.

(x) Authorization and Description of Securities. The
Securities to be purchased by the Underwriters from the Company have
been duly authorized for issuance and sale to the Underwriters
pursuant to this Agreement and, when issued and delivered by the
Company pursuant to this Agreement against payment of the
consideration set forth herein will be validly issued, fully paid and
non-assessable; the Common Stock conforms to all statements relating
thereto contained or incorporated by reference in the Prospectus and
such description conforms to the rights set forth in the instruments
defining the same; no holder of the Securities will be subject to
personal liability by reason of being such a holder; and the issuance
of the Securities is not subject to preemptive or other similar rights
of any securityholder of the Company.

(xi) Absence of Defaults and Conflicts. Neither the Company
nor any of its subsidiaries is in violation of its charter or by-laws
or in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, license,
policy, reinsurance treaty, lease or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which it
or any of them may be bound, or to which any of the property or assets
of the Company or any subsidiary is subject (collectively, "Agreements
and Instruments"), except for such defaults that would not result,
individually or in the aggregate, in a Material Adverse Effect; and
the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated in this Agreement and in
the Registration Statement (including the issuance and sale of the
Securities and the use of the proceeds from the sale of the Securities
as described in the Prospectus under the caption "Use of Proceeds")
and compliance by the Company with its obligations under this
Agreement have been duly authorized by all necessary corporate action
and do not and will not, whether with or without the giving of notice
or passage of time or both, conflict with or constitute a breach of,
or default

6
<PAGE> 11
or Repayment Event (as defined below) under, or result in the creation
or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any subsidiary pursuant to the Agreements and
Instruments (except for such conflicts, breaches or defaults or liens,
charges or encumbrances that would not result, individually or in the
aggregate, in a Material Adverse Effect), nor will such action result
in any violation of the provisions of the charter or by-laws of the
Company or any subsidiary or any applicable law, statute, rule,
regulation, judgment, order, writ or decree of any government,
government instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any subsidiary or any of their
assets, properties or operations. As used herein, a "Repayment Event"
means any event or condition which gives the holder of any note,
debenture or other evidence of indebtedness (or any person acting on
such holder's behalf) the right to require the repurchase, redemption
or repayment of all or a portion of such indebtedness by the Company
or any subsidiary.

(xii) Absence of Labor Dispute. To the knowledge of the
Company, no labor dispute with the employees of the Company or any
subsidiary or insurance agents that sell insurance of the Company or
any subsidiary exists or is imminent (which may reasonably be expected
to result in a Material Adverse Effect).

(xiii) Absence of Proceedings. There is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Company, threatened, against or affecting the
Company or any of its subsidiaries, which is required to be disclosed
in the Registration Statement (other than as disclosed therein), or
which are reasonably expected to result, individually or in the
aggregate, in a Material Adverse Effect, or which are reasonably
expected, individually or in the aggregate, to materially and
adversely affect the consummation of the transactions contemplated in
this Agreement or the performance by the Company of its obligations
hereunder; the aggregate of all pending legal or governmental
proceedings to which the Company or any of its subsidiaries is a party
or of which any of their respective property or assets is the subject
which are not described in the Registration Statement, including
ordinary routine litigation incidental to the business, could not
reasonably be expected to result, individually or in the aggregate, in
a Material Adverse Effect.

(xiv) Accuracy of Exhibits. There are no contracts or
documents which are required to be described in the Registration
Statement, the Prospectus or the documents incorporated by reference
therein or to be filed as exhibits thereto which have not been so
described and filed as required.

(xv) Possession of Intellectual Property. The Company and
its subsidiaries own or possess, or can acquire on reasonable terms,
adequate patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), trademarks,

7
<PAGE> 12
service marks, trade names or other intellectual property
(collectively, "Intellectual Property") necessary to carry on the
business now operated by them, and neither the Company nor any of its
subsidiaries has received any notice or is otherwise aware of any
infringement of or conflict with asserted rights of others with
respect to any Intellectual Property or of any facts or circumstances
which would render any Intellectual Property invalid or inadequate to
protect the interest of the Company or any of its subsidiaries
therein, and which infringement or conflict (if the subject of any
unfavorable decision, ruling or finding) or invalidity or inadequacy
would result, individually or in the aggregate, in a Material Adverse
Effect.

(xvi) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by the Company of
its obligations hereunder, in connection with the offering, issuance
or sale of the Securities under this Agreement or the consummation of
the transactions contemplated by this Agreement, except such as have
been already obtained or as may be required under the 1933 Act or the
1933 Act Regulations or state securities or blue sky laws.

(xvii) Possession of Licenses and Permits. The Company and
its subsidiaries possess such permits, licenses, approvals, consents
and other authorizations (collectively, "Governmental Licenses")
issued by the appropriate federal, state, local or foreign regulatory
agencies or bodies necessary to conduct the business now operated by
them and the Company and its subsidiaries are in compliance with the
terms and conditions of all such Governmental Licenses, except where
the failure so to comply would not, individually or in the aggregate,
have a Material Adverse Effect. The Company, on behalf of its
subsidiaries, has made all required filings under applicable insurance
holding company statutes (except for failures to file that,
individually or in the aggregate, would not have a Material Adverse
Effect), including without limitation all insurance holding company
system registration statements required to be filed, in all
jurisdictions in which such registrations are required. Each
subsidiary of the Company that is required to be organized and
licensed as an insurance company in its jurisdiction of incorporation
is so duly organized and licensed, and each subsidiary of the Company
is duly authorized or qualified as an insurer in each jurisdiction
where such authorization or qualification is required, except where
the failure to be so authorized or qualified in any such jurisdiction
would not, individually or in the aggregate, have a Material Adverse
Effect. All of the Governmental Licenses are valid and in full force
and effect, except when the invalidity of such Governmental Licenses
or the failure of such Governmental Licenses to be in full force and
effect would not, individually or in the aggregate, have a Material
Adverse Effect; and neither the Company nor any of its subsidiaries
has received any notice of proceedings relating to the revocation or
modification of any such Governmental Licenses which, individually or
in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would result in a Material Adverse Effect; and no such
Governmental License

8
<PAGE> 13
contains a burdensome restriction not adequately disclosed in the
Registration Statement and Prospectus which restriction, individually
or in the aggregate, has a Material Adverse Effect.

(xviii) Compliance With Laws. The Company and each of its
subsidiaries is in compliance with the requirements of the laws and
regulations (including all insurance laws and regulations) of its
respective jurisdiction of incorporation and the laws and regulations
(including all insurance laws and regulations) of other jurisdictions
which are applicable to the Company and each such subsidiary, and has
filed all notices, reports, documents or other information required to
be filed thereunder, except where the failure to so comply or file
would not, individually or in the aggregate, have a Material Adverse
Effect.

(xix) Title to Property. The Company and its subsidiaries
have good and marketable title to all real property owned by the
Company and its subsidiaries and good title to all other properties
owned by them, in each case, free and clear of all mortgages, pledges,
liens, security interests, claims, restrictions or encumbrances of any
kind except such as (a) are described in the Prospectus or (b) do not,
singly or in the aggregate, materially affect the value of such
property and do not interfere with the use made and proposed to be
made of such property by the Company or any of its subsidiaries; and
all of the leases and subleases material to the business of the
Company and its subsidiaries, considered as one enterprise, and under
which the Company or any of its subsidiaries holds properties
described in the Prospectus, are in full force and effect, and neither
the Company nor any subsidiary has any notice of any material claim of
any sort that has been asserted by anyone adverse to the rights of the
Company or any of its subsidiaries under any of the leases or
subleases mentioned above, or affecting or questioning the rights of
the Company or such subsidiary to the continued possession of the
leased or subleased premises under any such lease or sublease.

(xx) Compliance with Cuba Act. The Company has complied
with, and is and will be in compliance with, the provisions of that
certain Florida act relating to disclosure of doing business with
Cuba, codified as Section 517.075 of the Florida statutes, and the
rules and regulations thereunder (collectively, the "Cuba Act") or is
exempt therefrom.

(xxi) Investment Company Act. The Company is not, and upon
the issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the
Prospectus will not be, an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in
the Investment Company Act of 1940, as amended (the "1940 Act").

(xxii) Environmental Laws. Except as described in the
Registration Statement and except such violations as would not, singly
or in the aggregate, result in a Material Adverse Effect, (A) to the
Company's knowledge, neither the Company nor any of its

9
<PAGE> 14
subsidiaries is in violation of any federal, state, local or foreign
statute, law, rule, regulation, ordinance, code, policy or rule of
common law and any judicial or administrative interpretation thereof
including any judicial or administrative order, consent, decree or
judgment, relating to pollution or protection of human health, the
environment (including, without limitation, ambient air, surface
water, groundwater, land surface or subsurface strata) or wildlife,
including, without limitation, laws and regulations relating to the
release or threatened release of chemicals, pollutants, contaminants,
wastes, toxic substances, hazardous substances, petroleum or petroleum
products (collectively, "Hazardous Materials") or to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of Hazardous Materials (collectively, "Environmental
Laws"), (B) the Company and its subsidiaries have all permits,
authorizations and approvals required under any applicable
Environmental Laws and are each in compliance with their requirements,
(C) to the Company's knowledge, there are no pending or threatened
administrative, regulatory or judicial actions, suits, demands, demand
letters, claims, liens, notices of noncompliance or violation,
investigation or proceedings relating to any Environmental Law against
the Company or any of its subsidiaries and (D) to the Company's
knowledge, there are no events or circumstances that might reasonably
be expected to form the basis of an order for clean-up or remediation,
or an action, suit or proceeding by any private party or governmental
body or agency, against or affecting the Company or any of its
subsidiaries relating to any Hazardous Materials or the violation of
any Environmental Laws.

(b) Officer's Certificates. Any certificate signed by any officer
of the Company or any of its subsidiaries delivered to the Representative or to
counsel for the Underwriters shall be deemed a representation and warranty by
the Company to each Underwriter as to the matters covered thereby.

SECTION 2. Sale and Delivery to Underwriters; Closing.

(a) Initial Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, severally and not
jointly, and each Underwriter, severally and not jointly, agrees to purchase
from the Company, at the price per share set forth in Schedule B, the number of
Initial Securities set forth in Schedule A opposite the name of such
Underwriter, plus any additional number of Initial Securities which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 10 hereof.

(b) Option Securities. In addition, on the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase up to an additional
675,000 shares of Common Stock at the price per share set forth in Schedule B,
less an amount per share equal to any dividends or distributions declared by
the Company and payable on the Initial Securities but not payable on the Option
Securities. The option hereby granted will expire

10
<PAGE> 15
30 days after the date hereof and may be exercised in whole or in part from
time to time only for the purpose of covering over-allotments which may be made
in connection with the offering and distribution of the Initial Securities upon
notice by the Representative to the Company setting forth the number of Option
Securities as to which the several Underwriters are then exercising the option
and the time and date of payment and delivery for such Option Securities. Any
such time and date of delivery for the Option Securities (a "Date of Delivery")
shall be determined by the Representative, but shall not be later than seven
full business days after the exercise of said option, nor in any event prior to
the Closing Time, as hereinafter defined. If the option is exercised as to all
or any portion of the Option Securities, each of the Underwriters, acting
severally and not jointly, will purchase that proportion of the total number of
Option Securities then being purchased which the number of Initial Securities
set forth in Schedule A opposite the name of such Underwriter bears to the
total number of Initial Securities, subject in each case to such adjustments as
the Representative in its discretion shall make to eliminate any sales or
purchases of fractional shares.

(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of
Skadden, Arps, Slate, Meagher & Flom, Chicago, Illinois, or at such other place
as shall be agreed upon by the Representative and the Company, at 10:00 A.M.
(Eastern time), on the third (fourth, if the pricing occurs after 4:30 P.M.
(Eastern time) on any given day) business day after the date hereof (unless
postponed in accordance with the provisions of Section 10), or such other time
not later than ten business days after such date as shall be agreed upon by the
Representative and the Company (such time and date of payment and delivery
being herein called "Closing Time").

In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the
above-mentioned offices, or at such other place as shall be agreed upon by the
Representative and the Company, on each Date of Delivery as specified in the
notice from the Representative to the Company.

Payment shall be made to the Company by wire transfer of same day
funds to a bank account designated by the Company, against delivery to the
Representative for the respective accounts of the Underwriters of certificates
for the Securities to be purchased by them. It is understood that each
Underwriter has authorized the Representative, for its account, to accept
delivery of, receipt for, and make payment of the purchase price for, the
Initial Securities and the Option Securities, if any, which it has agreed to
purchase. Merrill Lynch, individually and not as representative of the
Underwriters, may (but shall not be obligated to) make payment of the purchase
price for the Initial Securities or the Option Securities, if any, to be
purchased by any Underwriter whose funds have not been received by the Closing
Time or the relevant Date of Delivery, as the case may be, but such payment
shall not relieve such Underwriter from its obligations hereunder.

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<PAGE> 16
(d) Denominations; Registration. Certificates for the Initial
Securities and the Option Securities, if any, shall be in such denominations
and registered in such names as the Representative may request in writing at
least two full business days before the Closing Time or the relevant Date of
Delivery, as the case may be. The certificates for the Initial Securities and
the Option Securities, if any, will be made available for examination and
packaging by the Representative in The City of New York not later than 10:00
A.M. (Eastern Time) on the business day prior to the Closing Time or the
relevant Date of Delivery, as the case may be.

SECTION 3. Covenants of the Company. The Company covenants
with each Underwriter as follows:

(a) Compliance with Securities Regulations and
Commission Requests. The Company, subject to Section 3(b), will
comply with the requirements of Rule 430A or Rule 434, as applicable,
and will notify the Representative immediately, and confirm the notice
in writing, (i) when any post-effective amendment to the Registration
Statement, shall become effective, or any supplement to the Prospectus
or any amended Prospectus shall have been filed, (ii) of the receipt
of any comments from the Commission, (iii) of any request by the
Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for additional
information, and (iv) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or of
any order preventing or suspending the use of any preliminary
prospectus, or of the suspension of the qualification of the
Securities for offering or sale in any jurisdiction, or of the
initiation or threatening of any proceedings for any of such purposes.
The Company will promptly effect the filings necessary pursuant to
Rule 424(b) and will take such steps as it deems necessary to
ascertain promptly whether the form of prospectus transmitted for
filing under Rule 424(b) was received for filing by the Commission
and, in the event that it was not, it will promptly file such
prospectus. The Company will make every reasonable effort to prevent
the issuance of any stop order and, if any stop order is issued, to
obtain the lifting thereof at the earliest possible moment.

(b) Filing of Amendments. The Company will give the
Representative notice of its intention to file or prepare any
amendment to the Registration Statement (including any filing under
Rule 462(b)), any Term Sheet or any amendment, supplement or revision
to either the prospectus included in the Registration Statement at the
time it became effective or to the Prospectus, whether pursuant to the
1933 Act, the 1934 Act or otherwise, will furnish the Representative
with copies of any such documents a reasonable amount of time prior to
such proposed filing or use, as the case may be, and will not file or
use any such document to which the Representative or counsel for the
Underwriters shall object.

(c) Delivery of Registration Statements. The Company
has furnished or will deliver to the Representative and counsel for
the Underwriters, without charge,

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<PAGE> 17
signed copies of the Registration Statement as originally filed and of
each amendment thereto (including exhibits filed therewith or
incorporated by reference therein and documents incorporated or deemed
to be incorporated by reference therein) and signed copies of all
consents and certificates of experts, and will also deliver to the
Representative, without charge, a conformed copy of the Registration
Statement as originally filed and of each amendment thereto (without
exhibits) for each of the Underwriters. If applicable, the copies of
the Registration Statement and each amendment thereto furnished to the
Underwriters will be identical to the electronically transmitted
copies thereof filed with the Commission pursuant to EDGAR, except to
the extent permitted by Regulation S-T.

(d) Delivery of Prospectus. The Company has delivered
to each Underwriter, without charge, as many copies of each
preliminary prospectus as such Underwriter reasonably requested, and
the Company hereby consents to the use of such copies for purposes
permitted by the 1933 Act. The Company will furnish to each
Underwriter, without charge, during the period when the Prospectus is
required to be delivered under the 1933 Act or the 1934 Act, such
number of copies of the Prospectus (as amended or supplemented) as
such Underwriter may reasonably request. If applicable, the
Prospectus and any amendments or supplements thereto furnished to the
Underwriters will be identical to the electronically transmitted
copies thereof filed with the Commission pursuant to EDGAR, except to
the extent permitted by Regulation S-T.

(e) Continued Compliance with Securities Laws. The
Company will comply with the 1933 Act and the 1933 Act Regulations and
the 1934 Act and the 1934 Act Regulations so as to permit the
completion of the distribution of the Securities as contemplated in
this Agreement and in the Prospectus. If at any time when a
prospectus is required by the 1933 Act to be delivered in connection
with sales of the Securities, any event shall occur or condition shall
exist as a result of which it is necessary, in the opinion of counsel
for the Underwriters or for the Company, to amend the Registration
Statement or amend or supplement the Prospectus in order that the
Prospectus will not include any untrue statements of a material fact
or omit to state a material fact necessary in order to make the
statements therein not misleading in the light of the circumstances
existing at the time it is delivered to a purchaser, or if it shall be
necessary, in the opinion of such counsel, at any such time to amend
the Registration Statement or amend or supplement the Prospectus in
order to comply with the requirements of the 1933 Act or the 1933 Act
Regulations, the Company will promptly prepare and file with the
Commission, subject to Section 3(b), such amendment or supplement as
may be necessary to correct such statement or omission or to make the
Registration Statement or the Prospectus comply with such
requirements, and the Company will furnish to the Underwriters such
number of copies of such amendment or supplement as the Underwriters
may reasonably request.

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<PAGE> 18
(f) Blue Sky Qualifications. The Company will
cooperate with the Underwriters to qualify the Securities for offering
and sale under the applicable securities laws of such states and other
jurisdictions (domestic or foreign) as the Representative may
designate and to maintain such qualifications in effect for a period
of not less than one year from the later of the effective date of the
Registration Statement and any Rule 462(b) Registration Statement;
provided, however, that the Company shall not be obligated to file any
general consent to service of process or to qualify as a foreign
corporation or as a dealer in securities in any jurisdiction in which
it is not so qualified or to subject itself to taxation in respect of
doing business in any jurisdiction in which it is not otherwise so
subject. In each jurisdiction in which the Securities have been so
qualified, the Company will file such statements and reports as may be
required by the laws of such jurisdiction to continue such
qualification in effect for a period of not less than one year from
the effective date of the Registration Statement and any Rule 462(b)
Registration Statement.

(g) Rule 158. The Company will timely file such
reports pursuant to the 1934 Act as are necessary in order to make
generally available to its securityholders as soon as practicable an
earnings statement for the purposes of, and to provide the benefits
contemplated by, the last paragraph of Section 11(a) of the 1933 Act.

(h) Use of Proceeds. The Company will use the net
proceeds received by it from the sale of the Securities in the manner
specified in the Prospectus under "Use of Proceeds".

(i) Listing. The Company will use its reasonable
best efforts to effect and maintain the quotation of the Securities on
the Nasdaq National Market and will file with the Nasdaq National
Market all documents and notices required by the Nasdaq National
Market of companies that have securities that are traded in the
over-the-counter market and quotations for which are reported by the
Nasdaq National Market.

(j) Restriction on Sale of Securities. During a
period of 120 days from the date of the Prospectus, the Company will
not, without the prior written consent of the Representative, (i)
directly or indirectly, offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of any share of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or
file any registration statement under the 1933 Act with respect to any
of the foregoing or (ii) enter into any swap or any other agreement or
any transaction that transfers, in whole or in part, directly or
indirectly, the economic consequence of ownership of the Common Stock,
whether any such swap or transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not
apply to (A) the Securities to be sold hereunder, (B) any shares of
Common Stock issued by the Company

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<PAGE> 19
upon the exercise of an option or warrant or the conversion of a
security outstanding on the date hereof and referred to in the
Prospectus, (C) any shares of Common Stock issued or options to
purchase Common Stock granted pursuant to existing employee benefit
plans of the Company referred to in the Prospectus, (D) any shares of
Common Stock issued pursuant to any non-employee director stock plan
or dividend reinvestment plan, (F) the issuance of up to an aggregate
1,500,000 shares of Common Stock in connection with any future
acquisition which shares, if issued, will be subject to restrictions
on resale for a period of at least 120 days from the date of the
Prospectus, or (G) the registration of up to an aggregate 150,000
shares of Common Stock heretofore issued in connection with a previous
acquisition pursuant to a contractual obligation to so register such
shares (it being understood that the Company shall use its reasonable
efforts to defer any such registration beyond the end of such 120 day
period). The Company and the Underwriters acknowledge and agree that
the purchase of shares of Common Stock for or for the benefit of the
employees or insurance agents of the Company and its subsidiaries in
open market transactions in connection with existing stock purchase
and bonus plans therefor (or successor plans) is not within the scope
of clause (i) or (ii) above.

(k) Reporting Requirements. The Company, during the
period when the Prospectus is required to be delivered under the 1933
Act or the 1934 Act, will file all documents required to be filed with
the Commission pursuant to the 1934 Act within the time periods
required by the 1934 Act and the 1934 Act Regulations.

SECTION 4. Payment of Expenses. (a) Expenses. The Company
will pay all expenses incident to the performance of its obligations under this
Agreement, including (i) the preparation, printing and filing of the
Registration Statement (including financial statements and exhibits) as
originally filed and of each amendment thereto, (ii) the preparation, printing
and delivery to the Underwriters of this Agreement and such other documents as
may be required in connection with the offering, purchase, sale, issuance or
delivery of the Securities, (iii) the preparation, issuance and delivery of the
certificates for the Securities to the Underwriters, including any stock or
other transfer taxes and any stamp or other duties payable upon the sale,
issuance or delivery of the Securities to the Underwriters, (iv) the fees and
disbursements of the Company's counsel, accountants and other advisors, (v) the
qualification of the Securities under securities laws in accordance with the
provisions of Section 3(f) hereof, including filing fees and the reasonable
fees and disbursements of counsel for the Underwriters in connection therewith
and in connection with the preparation of the Blue Sky Survey and any
supplement thereto, (vi) the printing and delivery to the Underwriters of
copies of each preliminary prospectus, any Term Sheets and of the Prospectus
and any amendments or supplements thereto, (vii) the preparation, printing and
delivery to the Underwriters of copies of the Blue Sky Survey and any
supplement thereto, (viii) the fees and expenses of any transfer agent or
registrar for the Securities, (ix) the filing fees incident to, and the
reasonable fees and disbursements of counsel to the Underwriters in connection
with, the review by the National Association of Securities Dealers, Inc. (the
"NASD") of the terms of the sale of the Securities and (x) the fees and

15
<PAGE> 20
expenses incurred in connection with the inclusion of the Securities in the
Nasdaq National Market.

(b) Termination of Agreement. If this Agreement is terminated by the
Representative in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Company shall reimburse the Underwriters for all of their
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Underwriters.

SECTION 5. Conditions of Underwriters' Obligations. The
obligations of the several Underwriters hereunder are subject to the accuracy
of the representations and warranties of the Company contained in Section 1
hereof or in certificates of any officer of the Company or any subsidiary
delivered pursuant to the provisions hereof, to the performance by the Company
of its covenants and other obligations hereunder, and to the following further
conditions:

(a) Effectiveness of Registration Statement. The
Registration Statement, including any Rule 462(b) Registration
Statement, has become effective on the date hereof and at Closing Time
no stop order suspending the effectiveness of the Registration
Statement shall have been issued under the 1933 Act or proceedings
therefor initiated or threatened by the Commission, and any request on
the part of the Commission for additional information shall have been
complied with to the reasonable satisfaction of counsel to the
Underwriters. A prospectus containing the Rule 430A Information shall
have been filed with the Commission in accordance with Rule 424(b) (or
a post-effective amendment providing such information shall have been
filed and declared effective in accordance with the requirements of
Rule 430A) or, if the Company has elected to rely upon Rule 434, a
Term Sheet shall have been filed with the Commission in accordance
with Rule 424(b).

(b) Opinions of Counsel for Company. At Closing Time
the Representative shall have received the favorable opinions, dated
as of Closing Time, of Mayer, Brown & Platt, special counsel for the
Company, and Robert B. Vlach, Vice President, General Counsel and
Secretary of the Company, in each case in form and substance
satisfactory to counsel for the Underwriters, together with signed or
reproduced copies of such letter for each of the other Underwriters to
the effect set forth in Exhibit A hereto and to such further effect as
counsel to the Underwriters may reasonably request.

(c) Opinion of Counsel for Underwriters. At Closing
Time the Representative shall have received the favorable opinion,
dated as of Closing Time, of Skadden, Arps, Slate, Meagher & Flom,
counsel for the Underwriters, together with signed or reproduced
copies of such letter for each of the other Underwriters with respect
to the matters set forth in (i), (iv), (v) (solely as to preemptive or
other similar rights arising by operation of law or under the charter
or by-laws of the Company), (vi) to (viii), inclusive, (x) and the
penultimate paragraph under the heading "Form of Opinion of Mayer,
Brown & Platt to be delivered pursuant to Section 5(b)" in Exhibit A
hereto.

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<PAGE> 21
In giving such opinion such counsel may rely, as to all matters
governed by the laws of jurisdictions other than the law of the States
of New York and Illinois, the federal law of the United States and the
General Corporation Law of the State of Delaware, upon the opinions of
counsel satisfactory to the Representative. Such counsel may also
state that, insofar as such opinion involves factual matters, they
have relied, to the extent they deem proper, upon certificates of
officers of the Company and its subsidiaries and certificates of
public officials.

(d) Officers' Certificate. At Closing Time there
shall not have been, since the date hereof or since the respective
dates as of which information is given in the Prospectus, any material
adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and
its subsidiaries considered as one enterprise, whether or not arising
in the ordinary course of business, and the Representative shall have
received a certificate of the President or a Vice President of the
Company and of the chief financial or chief accounting officer of the
Company, dated as of Closing Time, to the effect that (i) there has
been no such material adverse change, (ii) the representations and
warranties in Section 1(a) hereof are true and correct with the same
force and effect as though expressly made at and as of Closing Time,
(iii) the Company has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied at or prior to
Closing Time, and (iv) no stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or are contemplated by the
Commission.

(e) Accountant's Comfort Letter. At the time of the
execution of this Agreement, the Representative shall have received
from Ernst & Young LLP a letter dated such date, in form and substance
satisfactory to the Representative, together with signed or reproduced
copies of such letter for each of the other Underwriters containing
statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in
the Registration Statement and the Prospectus.

(f) Bring-down Comfort Letter. At Closing Time the
Representative shall have received from Ernst & Young LLP a letter,
dated as of Closing Time, to the effect that they reaffirm the
statements made in the letter furnished pursuant to subsection (e) of
this Section, except that the specified date referred to shall be a
date not more than three business days prior to Closing Time.

(g) Approval of Listing. At the Closing Time the
Securities shall have been approved for inclusion in the Nasdaq
National Market, subject only to official notice of issuance.

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<PAGE> 22
(h) Lock-up Agreements. At the date of this
Agreement, the Representative shall have received an agreement
substantially in the form of Exhibit B hereto signed by the persons
listed on Schedule D hereto.

(i) Conditions to Purchase of Option Securities. In
the event that the Underwriters exercise their option provided in
Section 2(b) hereof to purchase all or any portion of the Option
Securities, the representations and warranties of the Company
contained herein and the statements in any certificates furnished by
the Company or any subsidiary of the Company hereunder shall be true
and correct as of each Date of Delivery and, at the relevant Date of
Delivery, the Representative shall have received:

(i) Officers' Certificate. A certificate, dated such
Date of Delivery, of the President or a Vice President of the Company
and of the chief financial or chief accounting officer of the Company
confirming that the certificate delivered at the Closing Time pursuant
to Section 5(d) hereof remains true and correct as of such Date of
Delivery.

(ii) Opinions of Counsel for Company. The favorable
opinions of Mayer, Brown & Platt, special counsel for the Company, and
Robert B. Vlach, Vice President, General Counsel and Secretary of the
Company, in each case in form and substance satisfactory to counsel
for the Underwriters, dated such Date of Delivery, relating to the
Option Securities to be purchased on such Date of Delivery and
otherwise to the same effect as the opinion required by Section 5(b)
hereof.

(iii) Opinion of Counsel for Underwriters. The
favorable opinion of Skadden, Arps, Slate, Meagher & Flom, counsel for
the Underwriters, dated such Date of Delivery, relating to the Option
Securities to be purchased on such Date of Delivery and otherwise to
the same effect as the opinion required by Section 5(c) hereof.

(iv) Bring-down Comfort Letter. A letter from Ernst &
Young LLP, in form and substance satisfactory to the Representative
and dated such Date of Delivery, substantially in the same form and
substance as the letter furnished to the Representative pursuant to
Section 5(f) hereof, except that the "specified date" in the letter
furnished pursuant to this paragraph shall be a date not more than
five days prior to such Date of Delivery.

(j) Additional Documents. At Closing Time and at each Date of
Delivery counsel for the Underwriters shall have been furnished with such
documents and opinions as they may require for the purpose of enabling them to
pass upon the issuance and sale of the Securities as herein contemplated, or in
order to evidence the accuracy of any of the representations or warranties, or
the fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Company in connection with the issuance and sale of the Securities
as herein

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<PAGE> 23
contemplated shall be satisfactory in form and substance to the Representative
and counsel for the Underwriters.

(k) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled,
this Agreement, or, in the case of any condition to the purchase of Option
Securities on a Date of Delivery which is after the Closing Time, the
obligations of the several Underwriters to purchase the relevant Option
Securities, may be terminated by the Representative by notice to the Company at
any time at or prior to Closing Time or such Date of Delivery, as the case may
be, and such termination shall be without liability of any party to any other
party except as provided in Section 4 and except that Sections 1, 6, 7 and 8
shall survive any such termination and remain in full force and effect.

SECTION 6. Indemnification.

(a) Indemnification of Underwriters. The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act as follows:

(i) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, arising out of any untrue
statement or alleged untrue statement of a material fact contained in
the Registration Statement (or any amendment thereto), including the
Rule 430A Information and the Rule 434 Information, if applicable, or
the omission or alleged omission therefrom of a material fact required
to be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus
or the Prospectus (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;

(ii) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, to the extent of the aggregate
amount paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or
threatened, or of any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or
omission; provided that (subject to Section 6(d) below) any such
settlement is effected with the written consent of the Company; and

(iii) against any and all expense whatsoever, as
incurred (including the fees and disbursements of counsel), reasonably
incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever based
upon any such

19
<PAGE> 24
untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under (i) or
(ii) above;

provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission (x) made in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter through the Representative expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) or (y)
contained or made in any preliminary prospectus and corrected in a Prospectus
and (A) any such loss, liability, claim, damage or expense suffered or incurred
by any Underwriter (or any person who controls any Underwriter) resulted from
an action, claim or suit by any person who purchased the Securities which are
the subject thereof from such Underwriter in the offering and (B) such
Underwriter failed to deliver or provide a copy of the Prospectus (provided
that the Company had previously furnished copies thereof to such Underwriter)
to such person at or prior to the confirmation of the sale of such Securities
in any case where such delivery is required by the 1933 Act or the 1933 Act
Regulations.

(b) Indemnification of Company, Directors and Officers. Each
Underwriter severally agrees to indemnify and hold harmless the Company, its
directors, each of its officers who signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection
(a) of this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
the Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by such
Underwriter through the Representative expressly for use in the Registration
Statement (or any amendment thereto) or such preliminary prospectus or the
Prospectus (or any amendment or supplement thereto).

(c) Actions against Parties; Notification. Each indemnified party
shall give notice as promptly as reasonably practicable to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability hereunder to the extent it
is not materially prejudiced as a result thereof and in any event shall not
relieve it from any liability which it may have otherwise than on account of
this indemnity agreement. An indemnifying party may participate at its own
expense in the defense of any such action; provided, however, that counsel to
the indemnifying party shall not (except with the consent of the indemnified
party) also be counsel to the indemnified party. If it so elects within a
reasonable time after receipt of such notice, an indemnifying party, jointly
with any other

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<PAGE> 25
indemnifying parties receiving such notice, may assume the defense of such
action with counsel chosen by it and approved by (i) the Representative in the
case of parties indemnified pursuant to Section 6(a) above and (ii) by the
Company in the case of parties indemnified pursuant to Section 6(b) above;
provided that, if such indemnified party or parties reasonably determine that
there may be legal defenses available to them which are inconsistent from those
available to such indemnifying party or parties, then such indemnifying party
or parties shall not be entitled to assume such defense (in which case counsel
for such indemnifying party or parties shall be entitled to conduct their own
defense of such action if they are parties to such action). If an indemnifying
party assumes the defense of such action, the indemnifying parties shall not be
liable for any fees and expenses of counsel for the indemnified parties
incurred thereafter in connection with such action. In no event shall the
indemnifying parties be liable for fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one action or separate but similar
or related actions in the same jurisdiction arising out of the same general
allegations or circumstances. No indemnifying party shall, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any litigation, or any investigation
or proceeding by any governmental agency or body, commenced or threatened, or
any claim whatsoever in respect of which indemnification or contribution could
be sought under this Section 6 or Section 7 hereof (whether or not the
indemnified parties are actual or potential parties thereto), unless such
settlement, compromise or consent (i) includes an unconditional release of each
indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of
any indemnified party.

(d) Settlement without Consent if Failure to Reimburse. If at any
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 6(a)(ii) effected without its written consent if
(i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement.

SECTION 7. Contribution. If the indemnification provided for
in Section 6 hereof is for any reason held to be unenforceable by any
indemnified parties although applicable in accordance with its terms, then each
indemnifying party shall contribute to the aggregate amount of such losses,
liabilities, claims, damages and expenses incurred by such indemnified party of
the nature contemplated by such indemnification, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from the
offering of the Securities pursuant to this Agreement or (ii) if the allocation
provided by clause (i) is not permitted by applicable law, in such proportion
as is appropriate to reflect not only the relative benefits referred to in
clause (i) above

21
<PAGE> 26
but also the relative fault of the Company on the one hand and of the
Underwriters on the other hand in connection with the statements or omissions
which resulted in such losses, liabilities, claims, damages or expenses, as
well as any other relevant equitable considerations.

The relative benefits received by the Company on the one hand and the
Underwriters on the other hand in connection with the offering of the
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the
Securities pursuant to this Agreement (before deducting expenses) received by
the Company and the total underwriting discount received by the Underwriters,
in each case as set forth on the cover of the Prospectus, or, if Rule 434 is
used, the corresponding location on the Term Sheet bear to the aggregate
initial public offering price of the Securities as set forth on such cover.

The relative fault of the Company on the one hand and the Underwriters
on the other hand shall be determined by reference to, among other things,
whether any such untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.

The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of
the equitable considerations referred to above in this Section 7. The
aggregate amount of losses, liabilities, claims, damages and expenses incurred
by an indemnified party and referred to above in this Section 7 shall be deemed
to include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged
untrue statement or omission or alleged omission.

Notwithstanding the provisions of this Section 7, no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.

No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.

For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same

22
<PAGE> 27
rights to contribution as such Underwriter, and each director of the Company,
each officer of the Company who signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act shall have the same rights to
contribution as the Company. The Underwriters' respective obligations to
contribute pursuant to this Section 7 are several in proportion to the number
of Initial Securities set forth opposite their respective names in Schedule A
hereto and not joint.

SECTION 8. Representations, Warranties and Agreements to
Survive Delivery. All representations, warranties and agreements contained in
this Agreement or in certificates of officers of the Company submitted pursuant
hereto, shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or controlling person, or
by or on behalf of the Company, and shall survive delivery of the Securities to
the Underwriters.

SECTION 9. Termination of Agreement.

(a) Termination; General. The Representative may terminate this
Agreement, by notice to the Company, at any time at or prior to Closing Time
(i) if there has been, since the time of execution of this Agreement or since
the respective dates as of which information is given in the Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, or (ii) if there has occurred any material adverse
change in the financial markets in the United States or the international
financial markets, any outbreak of hostilities or escalation thereof or other
calamity or crisis or any change or development involving a prospective change
in national or international political, financial or economic conditions, in
each case the effect of which is such as to make it, in the judgment of the
Representative, impracticable to market the Securities or to enforce contracts
for the sale of the Securities, or (iii) if trading in any securities of the
Company has been suspended or limited by the Commission or the Nasdaq National
Market, or if trading generally on the American Stock Exchange or the New York
Stock Exchange or in the Nasdaq National Market has been suspended or
materially limited, or minimum or maximum prices for trading have been fixed,
or maximum ranges for prices have been required, by any of said exchanges or by
such system or by order of the Commission, the National Association of
Securities Dealers, Inc. or any other governmental authority, or (iv) if a
banking moratorium has been declared by either Federal or New York authorities.

(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that
Sections 1, 6 and 7 shall survive such termination and remain in full force and
effect.

SECTION 10. Default by One or More of the Underwriters. If
one or more of the Underwriters shall fail at Closing Time or a Date of
Delivery to purchase the Securities which

23
<PAGE> 28
it or they are obligated to purchase under this Agreement (the "Defaulted
Securities"), the Representative shall have the right, within 24 hours
thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than
all, of the Defaulted Securities in such amounts as may be agreed upon and upon
the terms herein set forth; if, however, the Representative shall not have
completed such arrangements within such 24-hour period, then:

(a) if the number of Defaulted Securities does not
exceed 10% of the number of Securities to be purchased on such date,
each of the non-defaulting Underwriters shall be obligated, severally
and not jointly, to purchase the full amount thereof in the
proportions that their respective underwriting obligations hereunder
bear to the underwriting obligations of all non-defaulting
Underwriters, or

(b) if the number of Defaulted Securities exceeds 10%
of the number of Securities to be purchased on such date, this
Agreement or, with respect to any Date of Delivery which occurs after
the Closing Time, the obligation of the Underwriters to purchase and
of the Company to sell the Option Securities to be purchased and sold
on such Date of Delivery shall terminate without liability on the part
of any non-defaulting Underwriter.

No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.

In the event of any such default which does not result in a
termination of this Agreement or, in the case of a Date of Delivery which is
after the Closing Time, which does not result in a termination of the
obligation of the Underwriters to purchase and the Company to sell the relevant
Option Securities, as the case may be, either the Representative or the Company
shall have the right to postpone Closing Time or the relevant Date of Delivery,
as the case may be, for a period not exceeding seven days in order to effect
any required changes in the Registration Statement or Prospectus or in any
other documents or arrangements. As used herein, the term "Underwriter"
includes any person substituted for a Underwriter under this Section 10.

SECTION 11. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
mailed or transmitted by any standard form of telecommunication. Notices to
the Underwriters shall be directed to the Representative at North Tower, World
Financial Center, New York, New York 10281-1201, attention of o; and notices to
the Company shall be directed to it at United Insurance Companies, Inc., 4001
McEwen Drive, Suite 200, Dallas, Texas 75244, attention of Vernon Woelke, Vice
President and Treasurer.

SECTION 12. Parties. This Agreement shall each inure to the
benefit of and be binding upon the Underwriters and the Company and their
respective successors. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person,

24
<PAGE> 29
firm or corporation, other than the Underwriters and the Company and their
respective successors and the controlling persons and officers and directors
referred to in Sections 6 and 7 and their heirs and legal representatives, any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision herein contained. This Agreement and all conditions and
provisions hereof are intended to be for the sole and exclusive benefit of the
Underwriters and the Company and their respective successors, and said
controlling persons and officers and directors and their heirs and legal
representatives, and for the benefit of no other person, firm or corporation.
No purchaser of Securities from any Underwriter shall be deemed to be a
successor by reason merely of such purchase.

SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
EXCEPT AS OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK
CITY TIME.

SECTION 14. Effect of Headings. The Article and Section
headings herein and the Table of Contents are for convenience only and shall
not affect the construction hereof.

25
<PAGE> 30
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement between the Underwriters and the Company in accordance with its
terms.

Very truly yours,

UNITED INSURANCE COMPANIES, INC.

By
-------------------------------------
Title:

CONFIRMED AND ACCEPTED,
as of the date first above written:

MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED

By
-------------------------------------
Authorized Signatory

For itself and as Representative of the
other Underwriters named in Schedule A hereto.

26
<PAGE> 31
SCHEDULE A

<TABLE>
<CAPTION>
Number of
Initial
Name of Underwriter Securities
-------------------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . .

---------

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,500,000
=========

</TABLE>

Sch A-1
<PAGE> 32
SCHEDULE B

UNITED INSURANCE COMPANIES, INC.

4,500,000 Shares of Common Stock

(Par Value $.01 Per Share)

1. The initial public offering price per share for the
Initial Securities, determined as provided in said Section 2, shall be
$o.

2. The purchase price per share for the Initial
Securities to be paid by the several Underwriters shall be $o, being
an amount equal to the initial public offering price set forth above
less $o per share; provided that the purchase price per share for any
Option Securities purchased upon the exercise of the over-allotment
option described in Section 2(b) shall be reduced by an amount per
share equal to any dividends or distributions declared by the Company
and payable on the Initial Securities but not payable on the Option
Securities.

Sch B-1
<PAGE> 33
SCHEDULE C

List of Subsidiaries

<TABLE>
<CAPTION>
Ownership
Percentage Jurisdiction
---------- ------------
<S> <C> <C>
The MEGA Life and Insurance Company 100% Oklahoma
Mid - West National Life Insurance Company of Tennessee 79% Tennessee
The Chesapeake Life Insurance Company 78% Oklahoma
First Life Assurance Company 100% Oklahoma
Southern Educators Life Insurance Company 100% Georgia
United Group Reinsurance, Inc. 100% Turks & Caicos Islands
National Managers Life Insurance Company, Inc. 79% Turks & Caicos Islands
Financial Services Reinsurance, Ltd. 79% Turks & Caicos Islands
U.S. Managers Life Insurance, Ltd. 79% Turks & Caicos Islands
United Membership Marketing Group, Ltd. Liability Co. 85% Colorado
Specialized Card Services, Inc. 100% South Dakota
WinterBrook Holdings, Inc. 100% Texas
National Risk Transfer 100% Texas
IPN Network, LLC 75% Tennessee
Association Dental Plan, Inc. 100% District of Columbia
International Dental Plans, Inc. 100% Florida
Insurdata Incorporated 51% Texas
Insurnational Insurance Administrators, Inc. 80% Texas

</TABLE>

Sch C-1
<PAGE> 34
SCHEDULE D

List of persons and entities
subject to lock-up

Ronald L. Jensen
The adult children of Mr. Jensen
Onward and Upward, Inc.
W. Brian Harrigan
Richard J. Estell
Charles T. Prater
Vernon R. Woelke
Robert B. Vlach
Ernest S. Auerbach
Gary L. Friedman
J. Michael Jaynes
Richard T. Mockler

Sch D-1
<PAGE> 35
Exhibit A

FORM OF OPINION OF MAYER BROWN & PLATT
TO BE DELIVERED PURSUANT TO
SECTION 5(b)

(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware.

(ii) The Company has corporate power and authority to own,
lease and operate its properties and to conduct its business as
described in the Prospectus and to enter into and perform its
obligations under the Purchase Agreement.

(iii) The authorized capital stock of the Company is as set
forth in the Prospectus in the column entitled "Actual" under the
caption "Capitalization".

(iv) The Securities to be purchased by the Underwriters
from the Company have been duly authorized for issuance and sale to
the Underwriters pursuant to the Purchase Agreement and, when issued
and delivered by the Company pursuant to the Purchase Agreement
against payment of the consideration set forth in the Purchase
Agreement, will be validly issued and fully paid and non-assessable.

(v) The issuance of the Securities is not subject to
preemptive or other similar rights of any securityholder of the
Company arising by operation of law, under the charter or by-laws of
the Company or, to our knowledge, otherwise.

(vi) The Purchase Agreement has been duly authorized,
executed and delivered by the Company.

(vii) The Registration Statement has been declared
effective under the 1933 Act; any required filing of the Prospectus
pursuant to Rule 424(b) has been made in the manner and within the
time period required by Rule 424(b); and, to our knowledge, no stop
order suspending the effectiveness of the Registration Statement has
been issued under the 1933 Act and no proceedings for that purpose
have been instituted or are pending or threatened by the Commission.

(viii) The Registration Statement, the Rule 430A Information
and the Rule 434 Information, as applicable, the Prospectus, excluding
the documents incorporated by reference therein, and each amendment or
supplement to the Registration Statement and the Prospectus, excluding
the documents incorporated by reference therein, as of their
respective effective or

A-1
<PAGE> 36
issue dates (other than the financial statements and supporting
schedules included therein or omitted therefrom, as to which we need
express no opinion) complied as to form in all material respects with
the requirements of the 1933 Act and the 1933 Act Regulations.

(ix) The documents referred to in the first paragraph
under "Incorporation of Certain Documents By Reference" in the
Prospectus (other than the financial statements and supporting
schedules included therein or omitted therefrom, as to which no
opinion need be rendered), when they were filed with the Commission
complied as to form in all material respects with the requirements of
the 1934 Act and the rules and regulations of the Commission
thereunder.

(x) The form of certificate used to evidence the Common
Stock is in due and proper form and complies in all material respects
with all applicable statutory requirements.

(xi) To our knowledge, there is not pending or threatened
any action, suit, proceeding, inquiry or investigation, to which the
Company or any subsidiary is a party, or to which the property of the
Company or any subsidiary is subject, before or brought by any court
or governmental agency or body, domestic or foreign, which is
reasonably expected to materially and adversely affect the
consummation of the transactions contemplated in the Purchase
Agreement or the performance by the Company of its obligations
thereunder.

(xii) The information in the Prospectus under the first
paragraph of "Certain Relationships and Related Transactions" and in
the Registration Statement under Item 15, to the extent that it
constitutes matters of law, summaries of legal matters, the Company's
charter and by-laws or legal proceedings, or legal conclusions, has
been reviewed by us and, to our knowledge, is correct in all material
respects.

(xiii) All descriptions in the Prospectus of contracts and
other documents to which the Company or its subsidiaries are a party
and which are listed on Annex A attached to the opinion (the "Listed
Contracts") are accurate in all material respects.

(xiv) To our knowledge, the Company is not in violation of
its charter or by-laws.

(xv) No filing with, or authorization, approval, consent,
license, order, registration, qualification or decree of, any court or
governmental authority or agency, domestic or foreign (other than
under the 1933 Act and the 1933 Act Regulations, which have been
obtained, or as may be required under the securities or blue sky laws
or insurance laws of the various states, as to which we need express
no opinion) is necessary or required in connection with the due
authorization, execution and delivery of the Purchase Agreement or for
the offering, issuance, sale or delivery of the Securities.

(xvi) The execution, delivery and performance of the Purchase
Agreement and the consummation of the transactions contemplated in the
Purchase Agreement and in the Registration Statement (including the
issuance and sale of the Securities, and the use of the

A-2
<PAGE> 37
proceeds from the sale of the Securities as described in the
Prospectus under the caption "Use Of Proceeds") and compliance by the
Company with its obligations under the Purchase Agreement do not and
will not, whether with or without the giving of notice or lapse of
time or both, conflict with or constitute a breach of, or default or
Repayment Event (as defined in Section 1(a)(xi) of the Purchase
Agreement) under or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or
any subsidiary pursuant to any Listed Contract, nor will such action
result in any violation of the provisions of the charter or by-laws of
the Company or any Subsidiary, or any applicable law, statute, rule,
regulation, judgment, order, writ or decree, known to us, of any
government, government instrumentality or court, domestic or foreign
(except for insurance laws and for state securities or blue sky laws
or the antifraud provisions of the federal securities laws, as to
which we express no opinion in this subparagraph), having jurisdiction
over the Company or any Subsidiary or any of their respective
properties, assets or operations, except for violations which,
individually or in the aggregate, would not have a Material Adverse
Effect.

(xvii) The Company is not an "investment company" or an
entity "controlled" by an "investment company," as such terms are
defined in the 1940 Act.

(xviii) The Company, on behalf of certain Subsidiaries, has
filed an insurance holding company system registration statement dated
as of March 1, 1996 in Oklahoma, Tennessee, and Georgia.

(xix) The MEGA Life and Insurance Company has been issued a
Certificate of Authority to sell insurance in Oklahoma, Florida, New
Jersey, Indiana, Massachusetts, Texas, Pennsylvania, Michigan,
California and Ohio and, to our knowledge, no such Certificate of
Authority has been revoked, suspended or rescinded.

As indicated above, we have examined various documents and
records and participated in conferences with your representatives,
representatives of the Company, representatives of the independent
public accountants for the Company, and counsel for the Underwriters,
at which time the contents of the Registration Statement and
Prospectus and related matters were discussed. We have also examined
the opinions and documents delivered on the date hereof. However,
except as to (iii), with respect to the authorized capital stock of
the Company, (viii), with respect to compliance as to form of certain
documents under the 1933 Act, (ix), with respect to compliance as to
form of certain documents under the 1934 Act, (xii), with respect to
certain information in the Prospectus, and (xiii), with respect to the
description of certain contracts, we are not passing upon and assume
no responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or Prospectus or
making any representation that we have independently verified or
checked the accuracy, completeness or fairness of such statements.
Subject to the foregoing, we advise you that nothing has come to our
attention that would lead us to believe that the Registration
Statement or any amendment thereto, including the Rule 430A
Information and Rule 434 Information (if applicable), (except for
financial statements and schedules and other financial data included
or incorporated by

A-3
<PAGE> 38
reference therein or omitted therefrom, as to which we need make no
statement), at the time such Registration Statement or any such
amendment became effective, contained an untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading or that the Prospectus or any amendment or supplement
thereto (except for financial statements and schedules and other
financial data included or incorporated by reference therein or
omitted therefrom, as to which we need make no statement), at the time
the Prospectus was issued, at the time any such amended or
supplemented prospectus was issued or at the Closing Time, included or
includes an untrue statement of a material fact or omitted or omits to
state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading.

In rendering such opinion, such counsel may rely, as to
matters of fact (but not as to legal conclusions), to the extent they
deem proper, on certificates of responsible officers of the Company
and public officials. Such opinion shall be limited to matters
governed by the laws of the State of Texas, the General Corporation
Law of the State of Delaware and the federal laws of the United
States. Such opinion shall not state that it is to be governed or
qualified by, or that it is otherwise subject to, any treatise,
written policy or other document relating to legal opinions,
including, without limitation, the Legal Opinion Accord of the ABA
Section of Business Law (1991).

A-4
<PAGE> 39
FORM OF OPINION OF ROBERT B. VLACH, VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY OF THE COMPANY,
TO BE DELIVERED PURSUANT TO SECTION 5(b)

(i) The Company is duly qualified as a foreign
corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of
business, except where the failure so to qualify or to be in good
standing would not result, individually or in the aggregate, in a
Material Adverse Effect.

(ii) The shares of issued and outstanding capital stock of
the Company have been duly authorized and validly issued and are fully
paid and non-assessable; and none of the outstanding shares of
capital stock of the Company was issued in violation of the preemptive
or other similar rights of any securityholder of the Company arising
by operation of law, under the charter or by-laws of the Company or,
to my knowledge, otherwise.

(iii) Each Subsidiary has been duly incorporated and is
validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus and is duly qualified as a
foreign corporation to transact business and is in good standing in
each jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of
business, except where the failure so to qualify or to be in good
standing would not result in a Material Adverse Effect; except as
otherwise disclosed in the Registration Statement, all of the issued
and outstanding capital stock of each Subsidiary has been duly
authorized and validly issued, is fully paid and non-assessable and,
to my knowledge and information, the capital stock of each Subsidiary
reflected as owned by the Company on Schedule C to the Purchase
Agreement is owned by the Company, directly or through subsidiaries,
free and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity (except that the shares of common stock
of The Chesapeake Life Insurance Company are pledged to AEGON (as
defined in the Prospectus) as security under the Company's revolving
credit note with AEGON); none of the outstanding shares of capital
stock of any Subsidiary was issued in violation of the preemptive or
similar rights of any securityholder of such Subsidiary arising by
operation of law, under the charter or by-laws of such Subsidiary or,
to my knowledge, otherwise.

(iv) To my knowledge, there is not pending or threatened
any action, suit, proceeding, inquiry or investigation, to which the
Company or any subsidiary is a party, or to which the property of the
Company or any subsidiary is subject, before or brought by any court
or governmental agency or body, domestic or foreign, which is
reasonably expected to result in a Material Adverse Effect, or which
is reasonably expected to materially and adversely affect the
consummation of the transactions contemplated in the Purchase
Agreement or the performance by the Company of its obligations
thereunder.

A-5
<PAGE> 40
(v) To my knowledge, there are no franchises, contracts,
indentures, mortgages, loan agreements, notes, licenses, policies,
reinsurance treaties, leases or other instruments required to be
described or referred to in the Registration Statement or to be filed
as exhibits thereto other than those described or referred to therein
or filed or incorporated by reference as exhibits thereto, and the
descriptions thereof or references thereto are correct in all material
respects.

(vi) To my knowledge, neither the Company nor any
Subsidiary is in violation of its charter or by-laws (except for
violations of the charter or by-laws of any Subsidiary that,
individually or in the aggregate, would not have a Material Adverse
Effect) and no material default by the Company or any subsidiary
exists in the due performance or observance of any material
obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, license, policy,
reinsurance treaty, lease or other agreement or instrument that is
described or referred to in the Registration Statement or the
Prospectus or filed or incorporated by reference as an exhibit to
the Registration Statement.

(vii) The Company and its subsidiaries have made all
filings pursuant to, and have obtained all authorizations, approvals,
consents, licenses, orders, registrations, qualifications and decrees
required to be obtained by them on or prior to the date hereof under
all applicable insurance laws and regulations in connection with the
issuance and sale of the Securities and the consummation of the
transactions contemplated by the Purchase Agreement.

(viii) To my knowledge, no holder of securities of the
Company has any rights to the registration of securities of the
Company because of the filing of the Registration Statement or
otherwise in connection with the sale of the Securities hereunder
(except to the extent such holder has waived all such rights).

(ix) The Company, on behalf of its insurance subsidiaries,
has made all required filings under applicable insurance holding
company statutes, including without limitation insurance holding
company system registration statements in each jurisdiction where such
filings are required to conduct its business as described in the
Prospectus, except where the failure to make such filings would not,
individually or in the aggregate, have a Material Adverse Effect.

(x) Each Subsidiary that is required to be organized and
licensed as an insurance company in its jurisdiction of incorporation
identified on Schedule C to the Purchase Agreement is so duly
organized and licensed and each such Subsidiary is duly authorized or
qualified as an insurer in each other jurisdiction where it is
required to be so authorized or qualified to conduct its business as
described in the Prospectus, except where the failure to be so
authorized or qualified in such jurisdiction would not, singly or in
the aggregate, have a Material Adverse Effect; the Company and each
Subsidiary has all other necessary authorizations, approvals, orders,
consents, licenses, certificates, permits, registrations or
qualifications of and from all regulatory authorities (including
insurance regulatory authorities) to conduct their respective
businesses as described in the Prospectus, except where the failure to
have such authorizations,

A-6
<PAGE> 41
approvals, orders, consents, licenses, certificates, permits,
registrations or qualifications would not, individually or in the
aggregate, have a Material Adverse Effect.

(xi) The Company and each Subsidiary is in compliance with
the requirements of the laws and regulations (including insurance laws
and regulations) of its jurisdiction of incorporation and the laws and
regulations (including insurance laws and regulations) of other
jurisdictions which are applicable to the Company and each such
Subsidiary, and has filed all notices, reports, documents or other
information required to be filed thereunder, except where the failure
to so comply or file would not, individually or in the aggregate, have
a Material Adverse Effect;

(xii) The statements made in the Prospectus under
"Business--Regulation" concerning laws, rules, regulations, policies
and other regulatory matters concerning insurance have been examined
by me and fairly and accurately present the information set forth
therein in all material respects and, to my knowledge, there are no
statutes or regulations that are required to be described in the
Prospectus that are not described as required.

In addition, I advise you that nothing has come to my
attention that would lead me to believe that the Registration Statement or any
amendment thereto, including the Rule 430A Information and Rule 434 Information
(if applicable), (except for financial statements and schedules and other
financial data included or incorporated by reference therein or omitted
therefrom, as to which we need make no statement), at the time such
Registration Statement or any such amendment became effective, contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading or that the Prospectus or any amendment or supplement thereto
(except for financial statements and schedules and other financial data
included or incorporated by reference therein or omitted therefrom, as to which
we need make no statement), at the time the Prospectus was issued, at the time
any such amended or supplemented prospectus was issued or at the Closing Time,
included or includes an untrue statement of a material fact or omitted or omits
to state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.

In rendering such opinion, such counsel may rely, as to
matters of fact (but not as to legal conclusions), to the extent he deems
proper, on certificates of responsible officers of the Company and public
officials. Such opinion shall not state that it is to be governed or qualified
by, or that it is otherwise subject to, any treatise, written policy or other
document relating to legal opinions, including, without limitation, the Legal
Opinion Accord of the ABA Section of Business Law (1991).

A-7
<PAGE> 42

Exhibit B

, 1996

MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
as Representative of the several
Underwriters to be named in the
within-mentioned Purchase Agreement
North Tower
World Financial Center
New York, New York 10281-1209

Re: Proposed Public Offering by United Insurance Companies, Inc.

Dear Sirs:

The undersigned, a stockholder and an officer and/or director of
United Insurance Companies, Inc., a Delaware corporation (the "Company"),
understands that Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") proposes to enter into a Purchase Agreement (the
"Purchase Agreement") with the Company providing for the public offering of
shares (the "Securities") of the Company's common stock, par value $.01 per
share (the "Common Stock"). In recognition of the benefit that such an
offering will confer upon the undersigned as a stockholder, officer or director
of the Company, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned agrees with each
underwriter to be named in the Purchase Agreement that, during a period of 120
days from the date of the Purchase Agreement, the undersigned will not, without
the prior written consent of Merrill Lynch, directly or indirectly, (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant for
the sale of, or otherwise dispose of or transfer any shares of the Company's
Common Stock or any securities convertible into or exchangeable or exercisable
for Common Stock, whether now owned or hereafter acquired by the undersigned or
with respect to which the undersigned has or hereafter acquires the power of
disposition, or (ii) enter into any swap or any other agreement or any
transaction that transfers, in whole or in part, directly or indirectly, the

B-1
<PAGE> 43
economic consequence of ownership of the Common Stock, whether any such swap or
transaction is to be settled by delivery of Common Stock or other securities,
in cash or otherwise. The foregoing sentence shall not apply to (A) the
pledge of shares of Common Stock pursuant to contractual obligations existing
on the date hereof or (B) sales of shares of Common Stock issued upon the
exercise of currently outstanding warrants or options, to the extent required
to realize the exercise price, estimated tax liability and other expenses
arising in connection with such exercise.

Very truly yours,

Signature:

Print Name:

B-2
<PAGE> 44
Annex A

FORM OF ACCOUNTANTS' COMFORT LETTER PURSUANT TO SECTION 5(e)

We are independent public accountants with respect to the Company within the
meaning of the 1933 Act and the applicable published 1933 Act Regulations

(i) in our opinion, the audited financial statements and
the related financial statement schedules included or incorporated by
reference in the Registration Statement and the Prospectus comply as
to form in all material respects with the applicable accounting
requirements of the 1933 Act and the published rules and regulations
thereunder;

(ii) on the basis of procedures (but not an examination in
accordance with generally accepted auditing standards) consisting of a
reading of the latest available unaudited interim consolidated
financial statements of the Company, a reading of the minutes of all
meetings of the stockholders and directors of the Company and its
subsidiaries and all committees of the Company's Board of Directors
and any subsidiary committees since January 1, 1996, inquiries of
certain officials of the Company and its subsidiaries responsible for
financial and accounting matters, and such other inquiries and
procedures as may be specified in such letter, nothing came to our
attention that caused us to believe that:

(A ) at a specified date not more than five days
prior to the date of this Agreement, there was any change
in the capital stock of the Company and its subsidiaries
or any decrease in the consolidated net current assets or
consolidated stockholders' equity of the Company and its
subsidiaries or any increase in the consolidated
short-term debt or long-term debt of the Company and its
subsidiaries, in each case as compared with amounts shown
in the latest balance sheet included in the Registration
Statement, except in each case for changes, decreases or
increases that the Registration Statement discloses have
occurred or may occur; or

(B ) for the period from January 1, 1996 to March
31, 1996 and for the period from April 1, 1996 to a
specified date not more than five days prior to the date
of this Agreement, there was any decrease in consolidated
net sales, total or per share consolidated net income
before extraordinary items or consolidated net income, in
each case as compared with the comparable period in the
preceding year, except in each case for any decreases
that the Registration Statement discloses have occurred
or may occur;

(iii) based upon the procedures set forth in clause (ii)
above and a reading of the Selected Consolidated Financial and
Operating Data included in the Registration

Annex A-1
<PAGE> 45
Statement nothing came to our attention that caused us to believe that
the Selected Consolidated Financial and Operating Data included in the
Registration Statement do not comply as to form in all material
respects with the disclosure requirements of Item 301 of Regulation
S-K of the 1933 Act, that the amounts included in the Selected
Consolidated Financial and Operating Data are not in agreement with
the corresponding amounts in the audited consolidated financial
statements for the respective periods or that the financial statements
not included in the Registration Statement from which certain of such
data were derived are not in conformity with generally accepted
accounting principles;

(iv) we have compared the information in the Registration
Statement under selected captions with the disclosure requirements of
Regulation S-K of the 1933 Act and on the basis of limited procedures
specified herein, nothing came to our attention that caused us to
believe that this information does not comply as to form in all
material respects with the disclosure requirements of Items 302 and
503(d), respectively, of Regulation S-K;

(vi) in addition to the procedures referred to in clause
(ii) above, we have performed other procedures, not constituting an
audit, with respect to certain amounts, percentages, numerical data
and financial information appearing in the Registration Statement,
which are specified herein, and have compared certain of such items
with, and have found such items to be in agreement with, the
accounting and financial records of the Company.

Annex A-2

<PAGE> 1

Exhibit 3.1

PAGE 1

STATE OF DELAWARE

OFFICE OF THE SECRETARY OF STATE

-------------------------------

I, EDWARD J. FREEL, SECRETARY OF THE STATE OF THE STATE OF DELAWARE,
DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "UNITED INSURANCE COMPANIES, INC.", FILED IN THIS OFFICE ON THE
SIXTEENTH DAY OF APRIL, A.D. 1996, AT 12:30 O'CLOCK P.M.

A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.

/s/ EDWARD J. FREEL
[SEAL] ----------------------------------------
Edward J. Freel, Secretary of State

AUTHENTICATION: 7908865
2051666 8100
DATE: 04-16-96
960108857
<PAGE> 2
CERTIFICATE OF AMENDMENT

CERTIFICATE OF INCORPORATION

UNITED INSURANCE COMPANIES, INC.

UNITED INSURANCE COMPANIES, INC., a corporation organized and existing
under the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY
AS FOLLOWS:

FIRST: That at a meeting of the Board of Directors of UNITED
INSURANCE COMPANIES, INC. resolutions were duly adopted setting forth a
proposed amendment to the Certificate of Incorporation of said corporation,
declaring said amendment to be advisable and calling a meeting of the
stockholders of the corporation for consideration thereof. The resolution
setting forth the proposed amendment is as follows:

RESOLVED, that the Certificate of Incorporation of this
corporation be amended by changing the Fourth Article thereof so that,
as amended, said Article shall be and read as follows:

"ARTICLE IV

"The Company is authorized to issue two classes of stock to be
designated, respectively, 'Common Stock' and 'Preferred Stock'. The
total number of shares which the Company is authorized to issue is
Sixty Million (60,000,000), consisting of Fifty Million (50,000,000)
shares of Common Stock with a par value of One Cent ($0.01) per share
and Ten Million (10,000,000) shares of Preferred Stock with a par
value of One Cent ($0.01) per share.

"The Preferred Stock may be issued from time to time in one or
more series. The Board of Directors of this Company is hereby
authorized, within the limitations and restrictions prescribed by law
or stated in this Certificate of Incorporation, and by filing a
certificate pursuant to applicable law of the State of Delaware, to
provide for the issuance of Preferred Stock in series and (i) to
establish from time to time
<PAGE> 3
the number of shares to be included in each such series; (ii) to fix
the voting powers, designations, powers, preferences and relative,
participating, optional or other rights, dividend rates, conversion
rights, conversion rates, voting rights, rights and terms of
redemption (including sinking fund provisions), the redemption price
or prices, and the liquidation preferences of any wholly unissued
series subsequent to the issue of shares of that series, but not below
the number of shares of such series then outstanding. In case the
number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the number
of shares of such series."

SECOND: That thereafter, pursuant to resolution of its Board of
Directors, the annual meeting of the stockholders of said corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware, at which meeting the necessary number
of shares as required by statute were voted in favor of the amendment.

THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.

IN WITNESS WHEREOF, said UNITED INSURANCE COMPANIES, INC. has caused
this Certificate to be signed by Richard J. Estell, its Executive Vice
President, and Robert B. Vlach, its Secretary, this 16th day of April, 1996.

UNITED INSURANCE COMPANIES, INC.

By: /s/ Richard J. Estell
----------------------------------
Executive Vice President

ATTEST:

/s/ Robert B. Vlach
- --------------------------
Secretary
<PAGE> 4
STATE OF TEXAS }
}
COUNTY OF DALLAS }

On this date, before me, a Notary Public in and for the State of
Texas, personally appeared Richard J. Estell and Robert B. Vlach, known to me
to be the Executive Vice President and Secretary, respectively, of UNITED
INSURANCE COMPANIES, INC., a corporation organized and existing under the laws
of the State of Delaware, and acknowledged to me that they executed the
foregoing instrument for the purposes and consideration therein expressed, and
as the act of said corporation.

GIVEN UNDER MY HAND AND SEAL of office, this 16th day of April, 1996.

/s/ Peggy G. Simpson
----------------------------------
Notary Public, State of Texas
<PAGE> 5

PAGE 1

STATE OF DELAWARE

OFFICE OF THE SECRETARY OF STATE

--------------------

I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "UNITED INSURANCE COMPANIES, INC.", FILED IN THIS OFFICE ON THE
NINTH DAY OF MAY, A.D. 1995, AT 1 O'CLOCK P.M.

A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.

/s/ EDWARD J. FREEL
------------------------------------
[SEAL] Edward J. Freel, Secretary of State

AUTHENTICATION: 7499816
2051666 8100 DATE: 05-09-95

950102394
<PAGE> 6
CERTIFICATE OF AMENDMENT

CERTIFICATE OF INCORPORATION

UNITED INSURANCE COMPANIES, INC.

UNITED INSURANCE COMPANIES, INC., a corporation organized and existing
under the General Corporation Law of the State of Delaware DOES HEREBY CERTIFY

AS FOLLOWS:

FIRST: That at a meeting of the Board of Directors of UNITED
INSURANCE COMPANIES, INC., resolutions were duly adopted setting forth a
proposed amendment to the Certificate of Incorporation of said corporation,
declaring said amendment to be advisable and calling a meeting of the
stockholders of the corporation for consideration thereof. The resolution
setting forth the proposed amendment is as follows:

RESOLVED, that the Certificate of Incorporation of this
corporation be amended by changing the Fourth Article thereof so that,
as amended, said Article shall be and read as follows:

"ARTICLE FOUR

"THE AGGREGATE NUMBER OF SHARES WHICH THE COMPANY SHALL HAVE
AUTHORITY TO ISSUE IS FORTY MILLION (40,000,000) CONSISTING OF
FORTY MILLION (40,000,000) SHARES OF COMMON STOCK WITH A PAR
VALUE OF ONE CENT ($0.01) PER SHARE."

SECOND: That thereafter, pursuant to resolution of its Board of
Directors, the annual meeting of the stockholders of said corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of
<PAGE> 7
Delaware, at which meeting the necessary number of shares as required by
statute were voted in favor of the amendment.

THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.

UNITED INSURANCE COMPANIES, INC.

By: /s/ RICHARD J. ESTELL
-----------------------------------
Richard J. Estell, Executive
Vice President
ATTEST:

/s/ ROBERT B. VLACH
- -------------------------------
Robert B. Vlach, Secretary

STATE OF TEXAS )
COUNTY OF DALLAS )

On this date, before me, a Notary Public, in and for the State of
Texas, personally appeared Richard J. Estell and Robert B. Vlach, known to me
to be the Executive Vice President and Secretary, respectively, of UNITED
INSURANCE COMPANIES, INC., a corporation organized and existing under the laws
of the State of Delaware, and acknowledged to me that they executed the
foregoing instrument for the purposes and consideration therein expressed, and
as the act of said corporation.

GIVEN UNDER MY HAND AND SEAL of office, this 9th day of May, 1995.

/s/ PEGGY G. SIMPSON
--------------------------------------
Peggy G. Simpson
Notary Public, State of Texas

PEGGY G. SIMPSON
[SEAL] Notary Public
State of Texas
Commission Expires 11-20-97
<PAGE> 8
CERTIFICATE OF AMENDMENT

CERTIFICATE OF INCORPORATION

UGC, INC.

UGC, Inc. (the "Corporation"), a corporation organized and existing
under the General Corporation Law of the State of Delaware DOES HEREBY CERTIFY
AS FOLLOWS:

FIRST: The Certificate of Incorporation of the Corporation was filed
in the office of the Secretary of State of the State of Delaware on December
28, 1984.

SECOND: The Certificate of Incorporation of the Corporation is amended
so that Article One shall read in its entirety as follows:

"ARTICLE ONE

The name of the Corporation is
UNITED INSURANCE COMPANIES, INC."

THIRD: The Certificate of Incorporation of the Corporation is amended
so that Article Four shall read in its entirety as follows:

"ARTICLE FOUR

The aggregate number of shares which the
Corporation shall have authority to issue is
Ten Million (10,000,000), consisting of Ten
Million (10,000,000) shares of common stock
with a par value of One cent (1c) per share."

FOURTH: The foregoing amendments were duly proposed by resolution of
the board of Directors and duly adopted by all of the shareholders of the
Corporation in accordance with the
<PAGE> 9
provisions of Section 242(b) of the General Corporation Law of the State of
Delaware.

IN WITNESS WHEREOF, the undersigned has executed this Certificate this
15th day of June, 1985.

UGC, INC. (HEREAFTER TO BE UNITED
INSURANCE COMPANIES, INC.)

By: /s/ RONALD L. JENSEN
-----------------------------------
Ronald L. Jensen, President and
Chairman of the Board of
Directors of the Corporation

Attest:

/s/ LEE STRAHAN
- --------------------------
Lee Strahan, Secretary

- 2 -
<PAGE> 10
CERTIFICATE OF MERGER

UNITED GROUP COMPANIES, INC.

INTO

UGC, INC.

THE UNDERSIGNED CORPORATIONS DO HEREBY CERTIFY:

FIRST: That the name and state of incorporation of each of the
constituent corporations of the merger are as follows:

<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION
---- ----------------------
<S> <C>
United Group Companies, Inc. Texas
UGC, Inc. Delaware
</TABLE>

SECOND: That an Agreement and Plan of Merger among the parties to the
merger has been approved, adopted, certified, executed and acknowledged by each
of the constituent corporations in accordance with subsection (c) of Section
252, of the General Corporation Law of the State of Delaware.

THIRD: That the name of the surviving corporation is UGC, Inc.

FOURTH: That the surviving corporation is incorporated in the State of
Delaware and that the certificate of incorporation of UGC, Inc., a Delaware
corporation, shall be the certificate of incorporation of the surviving
corporation.

FIFTH: That the executed Agreement and Plan of Merger is on file at
the principal place of business of the surviving corporation and that the
address of the principal
<PAGE> 11
place of business of the surviving corporation is 2121 Precinct Line Road,
Suite 202, Hurst, Texas 76053.

SIXTH: That a copy of the Agreement and Plan of Merger will be
furnished by the surviving corporation, on request and without cost, to any
stockholder of any constituent corporation.

SEVENTH: That the authorized capital stock of each constituent
corporation which is not incorporated in the State of Delaware is as follows:

<TABLE>
<CAPTION>
Name Authorized Capital Stock
---- ------------------------
<S> <C>
United Group Companies, Inc. 500,000 shares common
par value $1.00
</TABLE>

EIGHTH: That this Certificate of Merger shall be effective on March
31, 1985.

Dated: March 29, 1985

ATTEST: UNITED GROUP COMPANIES, INC.

/s/ LEE STRAHAN /s/ RONALD JENSEN
- ------------------------ --------------------------
Lee Strahan, Secretary Ronald Jensen, President

ATTEST: UGC, INC.

/s/ LEE STRAHAN /s/ RONALD JENSEN
- ----------------------- --------------------------
Lee Strahan, Secretary Ronald Jensen, President
<PAGE> 12
ARTICLES OF MERGER
OF
DOMESTIC AND FOREIGN CORPORATIONS

Pursuant to the provisions of Article 5.07 of the Texas Business
Corporation Act, the undersigned domestic and foreign corporations adopt the
following Articles of Merger for the purpose of merging them into one of such
corporations.

1. The names of the undersigned corporations and the states under
the laws of which they are respectively organized are:

<TABLE>
<CAPTION>
NAME OF CORPORATION STATE
------------------- -----
<S> <C>
United Group Companies, Inc. Texas
UGC, Inc. Delaware
</TABLE>

2. The laws of the state under which such foreign corporation is
organized permit such merger.

3. The name of the surviving corporation is UGC, Inc., and it is
to be governed by the laws of the State of Delaware.

4. There is attached hereto as Exhibit A a copy of the
Certificate of Merger being filed on the date hereof in the State of Delaware.

5. The Plan of Merger, which was approved by the shareholders of
the undersigned domestic corporation in the manner prescribed by the Texas
business Corporation Act and approved by the undersigned foreign corporation in
the manner prescribed by the laws of the state under which it is organized, is
set forth in Exhibit B which is attached hereto and hereby incorporated herein.
<PAGE> 13
6. As to each of the undersigned corporations, the number of
shares outstanding, and the designation and number of outstanding shares of
each class entitled to vote as a class on such Plan, are as follows:

<TABLE>
<CAPTION>
Number of Entitled to Vote as a Class
Name of Shares Designation Number of
Corporation Outstanding of Class Shares

<S> <C> <C> <C>
United Group Companies, Inc. 120,000 Common Stock 120,000
UGC, Inc. 100 Common Stock 100
</TABLE>

7. The shareholders of each of the undersigned corporations voted
unanimously for such Plan.

8. UGC, Inc., the surviving corporation hereby: (a) agrees that
it may be served with process in the State of Texas in any proceeding for the
enforcement of any obligation of the undersigned domestic corporation and in
any proceeding for the enforcement of the rights of a dissenting shareholder of
such domestic corporation against the surviving corporation; (b) irrevocably
appoints the Secretary of State of Texas as its agent to accept service of
process in any such proceedings; and (c) agrees that it will promptly pay to
the dissenting shareholders of such domestic corporation the amount, if any, to
which they shall be entitled under the provisions of the Texas Business
Corporation Act with respect to the rights of dissenting shareholders.

Dated: March 29, 1985

ATTEST: UNITED GROUP COMPANIES, INC.

By /s/ RONALD JENSEN
- ----------------------------- --------------------------------
Lee Strahan, Secretary Ronald Jensen, President

ATTEST: UGC, INC.

By /s/ RONALD JENSEN
- ----------------------------- --------------------------------
Lee Strahan, Secretary Ronald Jensen, President

<PAGE> 14
State of Texas

County of Tarrant

The undersigned notary public does hereby certify that on this 28th
day of March, 1985, personally appeared before me Ronald Jensen who, being by
me first duly sworn, declared that he is the President of UGC, Inc., that he
signed the foregoing document as President of the corporation, and that the
statements therein contained are true.

/s/ RISA NICHOLS
------------------------------
Notary Public in and for
Tarrant County, Texas

State of Texas

County of Tarrant

The undersigned notary public does hereby certify that on this 28th
day of March, 1985, personally appeared before me Ronald Jensen who, being by
me first duly sworn, declared that he is the President of United Group
Companies, Inc., that he signed the foregoing document as President of the
corporation, and that the statements therein contained are true.

/s/ RISA NICHOLS
------------------------------
Notary Public in and for
Tarrant County, Texas

<PAGE> 15
CERTIFICATE OF INCORPORATION

UGC, INC.

The undersigned natural person of the age of eighteen (18) years or
more, acting as incorporator of a corporation (hereinafter called the
"Corporation") pursuant to Section 102 of the General Corporation Law of the
State of Delaware, hereby adopts the following Certificate of Incorporation for
the Corporation.

ARTICLE ONE

The name of the Corporation is UGC, Inc.

ARTICLE TWO

The period of its duration is perpetual.

ARTICLE THREE

The purpose for which the Corporation is organized is to engage in any
lawful act or activity for which a corporation may be organized under the
General Corporation Law of the State of Delaware, as now existing or hereafter
amended.

ARTICLE FOUR

The aggregate number of shares which the Corporation shall have
authority to issue is Five Million (5,000,000), consisting of Five Million
(5,000,000) shares of common stock with a par value of One Cent (1 cent)
per share.

ARTICLE FIVE

The Corporation will not commence business until it has received for
the issuance of its shares consideration of the value of One Thousand and
No/100 Dollars ($1,000.00), consisting of money, labor done or property
actually received.

ARTICLE SIX

The address of the registered office of the Corporation in the State
of Delaware is Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle, Delaware 19801. The name of the registered
agent at such address is The Corporation Trust Company.
<PAGE> 16
ARTICLE SEVEN

The number of directors constituting the initial board of directors is
five (5), and the names and addresses of the persons who are to serve as such
initial directors until the first annual meeting of the stockholders or until
their respective successors have been duly elected and qualified are:

<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Ronald L. Jensen 4612 O'Connor Court
Irving, Texas 75062

John Maurer 3549 West Northgate, Apt. 2314
Irving, Texas 75062

Marvin Gill P.O. Box 1239
Conway, Arkansas 72032

Larry Ballantyne 13180 Nottingham Court
P.O. Box 112
Chardon, Ohio 44024

Gary L. Friendman 741 Spring Valley Drive
Hurst, Texas 76054
</TABLE>

Election of directors need not be by written ballot unless so required
in the Bylaws of the Corporation.

ARTICLE EIGHT

The name and mailing address of the incorporator is:

<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Jeffrey I. Gordon 2000 Pennsylvania Avenue, N.W.
Suite 6500
Washington, D.C. 20006
</TABLE>

ARTICLE NINE

Each outstanding share of common stock of the Corporation is entitled
to one (1) vote on each matter submitted to a vote of stockholders of the
Corporation. Cumulative voting for the election of directors of the
Corporation is expressly prohibited.

ARTICLE TEN

No stockholder of the Corporation and no other person shall have any
preemptive right whatsoever to acquire any securities of the Corporation,
except to the extent the board of directors of the Corporation authorizes a
preemptive right.

- 2 -
<PAGE> 17
ARTICLE ELEVEN

The Corporation may directly or indirectly enter into contracts,
agreements, understandings or other transactions (i) with its directors,
officers, employees or stockholders or in which any one or more of such persons
directly or indirectly has an interest; or (ii) with any partnership,
corporation or other entity in which any one or more of its directors,
officers, employees or stockholders is a member, director, officer, employee,
stockholder or otherwise directly or indirectly has an interest. Any such
contract, agreement, understanding or other transaction shall not be
invalidated or in any way affected adversely by the fact that any officer,
director, employee or stockholder has or may have an interest or interests
therein or related thereto which are or might be adverse to the best interest
of the Corporation, even though the vote or approval of any officer, director,
employee or stockholder of the Corporation having such an adverse interest
shall have been necessary to obligate the Corporation upon any such contract,
agreement, understanding or other transaction; and no director, officer,
employee or stockholder having such adverse interest shall be liable to the
Corporation or to any stockholder or creditor thereof, or to any other person,
for any loss or liability incurred by the Corporation by reason of any
contract, agreement, understanding or other transaction, nor shall any such
director, officer, employee or stockholder be accountable to the Corporation,
or otherwise, for any gains or profits realized in connection therewith;
provided that at the time such contract, agreement, understanding or other
transaction is approved by the Corporation, whether by the board of directors,
stockholders or duly authorized officers or employees, that any direct or
indirect interest of any officer, director, employee or stockholder of the
Corporation therein was fully disclosed, and that any such contract, agreement,
understanding or other transaction shall not, at the time at which it was
entered into, have been in any way fraudulent as to the Corporation or its
stockholders.

ARTICLE TWELVE

The board of directors shall adopt the initial Bylaws of the
Corporation. The power to alter, amend or repeal the Bylaws or adopt new
Bylaws shall be vested in the board of directors, subject to repeal or change
by action of stockholders representing a majority of shares of the Corporation
entitled to vote on such repeal or change.

- 3 -
<PAGE> 18
ARTICLE THIRTEEN

Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for the Corporation under the provisions of section 279 of Title 8 of
the Delaware Code, order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths (3/4) in value of the creditors
or class of creditors, and/or of the stockholders or class of stockholders of
the Corporation, as the case may be, agree to any compromise or arrangement and
to any reorganization of the Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which said application has been made, be
binding on all the creditors or class of creditors, and/or on all of the
stockholders or class of stockholders, of the Corporation, as the case may be,
and also on the Corporation.

ARTICLE FOURTEEN

The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.

IN WITNESS WHEREOF, I have hereunto set my hand this twenty-sixth
(26th) day of December, 1984, and I affirm the foregoing certificate is my act
and deed and that the facts stated therein are true.

/s/ JEFFREY I. GORDON
----------------------------------
Jeffrey I. Gordon, Incorporator

- 4 -

<PAGE> 1
Mayer, Brown & Platt
700 Louisiana, Suite 3600
Houston, Texas 77002

Exhibit 5.1

April 24, 1996

United Insurance Companies, Inc.
4001 McEwen, Suite 200
Dallas, Texas 75244

Re: Common Stock, $.01 par value

Ladies and Gentlemen:

We have acted as counsel to United Insurance Companies, Inc., a
Delaware corporation (the "Company"), in connection with the corporate
proceedings (the "Corporate Proceedings") taken and to be taken relating to the
public offering of up to 5,175,000 shares of the Company's Common Stock, $.01
par value per share (the "Common Stock"). We have also participated in the
preparation and filing with the Securities and Exchange Commission under the
Securities Act of 1933 of a registration statement on Form S-3, file number
333-02043 (the "Registration Statement") relating to such shares of Common
Stock. In this connection, we have examined such corporate and other records,
instruments, certificates and documents as we considered necessary to enable
us to express this opinion.

Based on the foregoing, it is our opinion that, upon completion of the
Corporate Proceedings, the Common Stock will have been duly authorized for
issuance and, when the Common Stock is delivered and sold, and when the
consideration therefor is received by the Company, in accordance with the
Corporate Proceedings and in accordance with the Purchase Agreement in
substantially the form filed as Exhibit 1.1 to the Registration Statement, it
will be validly issued, fully paid and non-assessable by the Company.

We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters."

Very truly yours,

MAYER, BROWN & PLATT

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EXHIBIT 23.1 -- CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 8, 1996 (except for Note O, as to which the
date is March 27, 1996), in Amendment No. 2 to the Registration Statement (Form
S-3 No. 333-02043) and related Prospectus of United Insurance Companies, Inc.
for the registration of 5,175,000 shares of its common stock.

We also consent to the incorporation by reference therein of our report
dated March 8, 1996 (except for Note O, as to which the date is March 27, 1996)
with respect to the consolidated financial statements and schedules of United
Insurance Companies, Inc. and Subsidiaries for the years ended December 31, 1995
and 1994 included in the Annual Report on Form 10-K for 1995 filed with the
Securities and Exchange Commission.

ERNST & YOUNG LLP

Dallas, Texas

April 24, 1996

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EXHIBIT 23.2 -- CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in the registration statement of United
Insurance Companies, Inc. and Subsidiaries on Amendment 2 to Form S-3 (File No.
333-02043), of our report dated March 29, 1994, on our audit of the consolidated
financial statements of United Insurance Companies, Inc. and Subsidiaries for
the year ended December 31, 1993, and to the reference to our Firm under the
caption "Experts."

We also consent to the incorporation by reference herein of our report
dated March 29, 1994, on our audit of the consolidated financial statements and
financial statement schedules of United Insurance Companies, Inc. and
Subsidiaries for the year ended December 31, 1993, which report is included in
the Annual Report on Form 10-K.

COOPERS & LYBRAND L.L.P.

Dallas, Texas

April 24, 1996