UICI, 10-K, 2000-04-06

UICI
10-K, 2000-04-06
FIRE, MARINE & CASUALTY INSURANCE

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999.

[ ] TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FROM THE TRANSITION PERIOD FROM TO

COMMISSION FILE NO. 0-14320
--------------

UICI
(Exact name of registrant as specified in its charter)

DELAWARE 75-2044750
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)

4001 MCEWEN DRIVE,
SUITE 200,
DALLAS, TEXAS 75244
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code:
(972) 392-6700 Securities registered pursuant to
Section 12(b) of the Act:

NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Stock, $0.01 par value New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

NONE
(Title of class)

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

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ]

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 31, 2000 was $205.4 million.

The number of shares outstanding of $0.01 par value Common Stock, as of
March 31, 2000 was 46,425,031.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the annual proxy statement for the annual meeting of
stockholders are incorporated by reference into Part III.

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PART I

ITEM 1. BUSINESS

GENERAL

UICI (together with its subsidiaries, "UICI" or the "Company") is a
diversified financial services company that offers insurance and selected
financial services to niche consumer and institutional markets.

The Company issues health insurance policies, covering individuals and
families, to the self-employed, association group and student markets. The
Company offers a broad range of health insurance products for self-employed
individuals and individuals who work for small businesses. The Company's
catastrophic hospital and basic hospital-medical expense plans are designed to
accommodate individual needs and include both traditional fee-for-service
indemnity (choice of doctor) plans and managed care options, such as a preferred
provider organization ("PPO") plan as well as other supplemental types of
coverage. The Company markets these higher deductible products through
"dedicated" agency sales forces comprised of independent contractor agents that
primarily sell the Company's products. For the student market, UICI offers
tailored health insurance programs that generally provide single school year
coverage to individual students at colleges and universities. The Company also
provides an accident policy for students at public and private schools in
kindergarten through grade 12. In the student market, the Company sells its
products through in-house account executives that focus on colleges and
universities on a national basis. The Company believes that it provides student
insurance plans to more universities than any other single insurer. During 1999
and 1998, health insurance premiums were approximately $690 million and $747
million, respectively, representing 68% and 71% of UICI's total revenues in such
periods.

UICI also issues life and annuity insurance products to selected niche
markets, and UICI acquires blocks of life insurance and annuity policies from
other insurers on an opportunistic basis. The life and annuity insurance
policies issued by UICI are marketed through a dedicated agency sales force.
During 1999 and 1998, total revenues (including premiums and allocated
investment income) from the Company's life and annuity business were
approximately $94.1 million and $98.8 million, respectively, representing 8% of
UICI's total revenues in each of such periods.

UICI also provides underwriting, claims management and claims
administrative services to third party insurance carriers (primarily to AEGON
USA, Inc. related to products coinsured by UICI), third party administrators,
Blue Cross/Blue Shield organizations and self-administered employer health care
plans.

The Company's principal subsidiaries through which the business of the
Self-Employed Agency Division, Student Insurance Division and the Life Insurance
and Annuity Division are conducted are The MEGA Life and Health Insurance
Company ("MEGA"), Mid-West National Life Insurance Company of Tennessee
("Mid-West"), and The Chesapeake Life Insurance Company ("Chesapeake"), all of
which are wholly-owned by the Company. MEGA is an insurance company domiciled in
Oklahoma and is licensed to issue health, life and annuity insurance policies in
all states except New York. Mid-West is an insurance company domiciled in
Tennessee and is licensed to issue health, life and annuity insurance policies
in Puerto Rico and all states except 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 New
Jersey, New York and Vermont. The claims paying ability rating of MEGA and
Mid-West were rated A by Duff & Phelps Credit Rating Co. 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.

Through its United CreditServ, Inc. subsidiary, UICI has marketed
credit support services to individuals with no, or troubled, credit experience
and assists them in obtaining a nationally recognized credit card. These
services have been marketed through a sales force of independent contractors and
through direct mail and in-bound and outbound telemarketing. The credit cards
have been issued by United Credit National Bank, an indirect wholly-owned
subsidiary of UICI. During 1999 and 1998, revenues from credit support services
were approximately $227.4 million and $123.2 million, respectively, representing
18% and 10% of UICI's total revenues in such periods. Several recent
developments affecting United CreditServ have had and will continue to have a
material

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adverse effect upon the Company's financial condition and results of operations.
The Board of Directors of UICI has determined, after a thorough assessment of
the unit's prospects, that it will exit from its United CreditServ sub-prime
credit card business and, as a result, the United CreditServ unit has been
reflected as a discontinued operation for financial reporting purposes. See
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations."

Educational Finance Group, Inc. (in which UICI holds a 75% interest)
("EFG"), markets, originates, funds and services primarily Federally-guaranteed
student loans and is a leading provider of student tuition installment plans.
EFG seeks to provide solutions for college and graduate school students, their
parents and the educational institutions they attend. At December 31, 1999, UICI
had approximately $1.3 billion aggregate principal amount of student loans
outstanding, of which approximately 91% were Federally guaranteed.

Through its National Motor Club unit, UICI markets and provides
approximately 500,000 members with benefits such as road and towing assistance,
trip routing, emergency travel assistance, and accident related indemnity
benefits.

At March 31, 2000, UICI held approximately 39% of the fully diluted
equity of HealthAxis.com, Inc. ("HealthAxis.com"), the surviving corporation in
the January 2000 merger of HealthAxis.com and Insurdata Incorporated, formerly a
100%-owned subsidiary of UICI. HealthAxis.com is a leading web-based insurance
retailer providing fully integrated, end-to-end, web-enabled solutions for
health insurance distribution and administration. HealthAxis.com serves both
consumers and insurance payors, which include commercial carriers, third-party
administrators ("TPAs"), Blue Cross/Blue Shield plans and self-insured
employers. HealthAxis.com is both a web-based retailer of health insurance
products and related consumer services as well as a provider of web-enabled
software applications and services to payors designed to enhance the efficiency
and effectiveness of the claims administration, benefits enrollment, benefits
maintenance and data capture activities involved in the administration of health
insurance.

The Company's operating segments include (a) the Insurance segment,
which includes the businesses of the Company's Self-Employed Agency Division,
the Student Insurance Division, the OKC Division, the Special Risk Division and
the National Motor Club Division; (b) the Financial Services segment, which
includes the businesses of Educational Finance Group, Inc., the Company's
investment in HealthAxis.com, Inc. (formerly Insurdata Incorporated) and other
business units; and (c) investment income not otherwise allocated to the other
segments, interest and general expenses relating to corporate operations and
other. The business of United CreditServ, Inc. has been separately classified as
a discontinued operation for financial reporting purposes.

The Company's principal executive offices are located at 4001 McEwen
Drive, Suite 200, Dallas, Texas 75244. Its telephone number is (972) 392-6700.

INSURANCE SEGMENT

SELF-EMPLOYED AGENCY DIVISION

Market. According to the Bureau of Labor Statistics, there were
approximately 10.1 million self-employed individuals in the United States at the
end of 1999. The Company has currently in force approximately 200,000 basic
health policies issued or coinsured by the Company. UICI believes that there is
significant opportunity to increase its penetration in this market.

Products. UICI's basic health insurance plan offerings include the
following:

o UICI's 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.

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o UICI's 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 daily 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.

o UICI's Group Preferred Provider Plan incorporates 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.

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.

The Self-Employed Agency Division generated revenues of $566.8 million,
$610.1 million and $538.3 million (56%, 58%, and 59% of total revenue) in 1999,
1998, and 1997, respectively.

Marketing and Sales. The Company's marketing strategy in the
self-employed market is to remain closely aligned with dedicated agent sales
forces. Substantially all of the health insurance products issued by the Company
are sold through dedicated independent contractor agents associated with the
Company.

The agents are independent contractors, and all compensation that
agents receive from the Company is based upon their levels of sales production.
UGA and CMA, (the Company's wholly-owned marketing divisions) are each organized
into geographical regions having regional directors, two additional levels of
field leaders and writing agents (i.e., the agents that are not involved in
management).

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 believes 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, the
availability and accessibility of 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.

The health insurance products issued by the Company are primarily
issued to members of various independent membership associations that endorse
the products and act as the master policyholder for such products. Two principal
membership associations in the self-employed market for which the Company
underwrites insurance are the National Association for the Self-Employed
("NASE") and the Alliance for Affordable Services ("AAS"). The associations
provide their membership with a number of endorsed products, including health
insurance underwritten by the Company. Individuals may not obtain insurance
under the associations' master policies unless they are members of the
associations. 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.

Leads for the agents of UGA and CMA are generated through the efforts
of a direct mail team and approximately 250 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 the benefits of association membership, including
health insurance. The names of persons expressing an

<PAGE> 5

interest are provided as leads to agents, which the Company believes results in
a higher "close" rate than would be the case if the agents made unsolicited
calls on prospective customers.

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 that require hospitalization. This
policy design, which includes high deductibles, reduces the number of covered
claims requiring processing, thereby controlling administrative expenses. The
Company seeks to price its products in a manner that accurately reflects its
underwriting assumptions and targeted margins, and it relies on the marketing
capabilities of its dedicated agency sales forces to sell these products at
prices consistent with these objectives.

The Company maintains administrative centers with full underwriting,
claims management and administrative capabilities. The Company believes that by
processing its own claims it can better assure that claims are properly
processed and can utilize the claims information to periodically modify the
benefits and coverages afforded under its policies.

Preferred Provider Products. In order to further control health care
costs, in 1995 the Company placed additional emphasis on incorporating managed
care features of a PPO into its health plans. 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 participating in the PPO network.

Coinsurance Arrangements. Prior to 1996, a substantial portion of the
health insurance policies sold by UGA agents were issued by AEGON USA, Inc. and
coinsured by the Company. Effective April 1, 1996, the Company acquired the
underwriting, claims management and administrative capabilities of AEGON USA,
Inc. related to products coinsured by the Company. Following this transaction,
the agents of UGA began to market health insurance products directly for the
Company rather than through the coinsurance arrangement. The Company retains
100% of the premiums and pays all of the costs of such new policies. Under the
terms of its coinsurance agreement, AEGON has agreed to cede (i.e., transfer),
and the Company has agreed to coinsure, 60% of the health insurance sold by UGA
agents and issued by AEGON. The Company receives 60% of premiums collected and
is liable for 60% of commission expenses, administrative costs, claims payments,
premium taxes, legal expenses, extra-contractual charges and other payments. The
Company and AEGON have agreed to maintain the coinsurance agreement for policies
issued by AEGON prior to April 1, 1996 and during the transition period ending
in 1997. The Company's coinsurance percentage is 60% until December 31, 2000, at
which time the Company will assume all of the remaining policies from AEGON.
Following the assumption, the Company will coinsure 40% of the health insurance
business to AEGON until December 31, 2002, at which time the Company will
acquire the remaining 40% of the coinsured business from AEGON based upon a
mutually agreed-upon prescribed price.

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

STUDENT INSURANCE DIVISION

Market. The student market consists primarily of students attending
colleges and universities in the United States and Puerto Rico and, to a lesser
extent, those attending public and private schools in grades 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 2,200 four-year universities and colleges in the United States,
which have a combined enrollment of approximately 8.7 million students.
Typically, a carrier must be approved and endorsed by the educational
institution as a preferred vendor of health insurance coverage to the
institution's students. The Company believes that it has been authorized to
provide student health insurance plans by more universities than any other
single insurer.

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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 $1,000,000, depending on the coverage level desired by the school.

The Student Insurance Division had revenues of $108.0 million, $111.0
million, and $97.6 million in 1999, 1998 and 1997, respectively, representing
11% of total revenues in each such year.

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.

The kindergarten through grade 12 business is marketed primarily in
Washington, Florida, Arizona, Louisiana, Oklahoma and Texas.

SPECIAL RISK DIVISION

The Company's Special Risk Division specializes in certain niche
health-related products (including "stop loss", marine crew accident, organ
transplant and international travel accident products). Prior to 1997, the
Company had a small penetration in Special Risk markets and offered only
Employer Stop Loss and Provider Excess of Loss coverages. The Special Risk
Division's offerings were expanded in 1997, with the acquisition of Excess, Inc.
("Excess"), a managing general underwriter of special health-related coverages.
The Excess acquisition led to the purchase of a block of special risk coverages
with net collected premiums in the amount of $48.9 million and $50.2 million in
1999 and 1998, respectively.

NATIONAL MOTOR CLUB DIVISION

The Company's National Motor Club Division markets primarily to
individuals in non-metropolitan areas through a one-on-one, face-to-face field
force. The products offered by the National Motor Club encompass typical motor
club benefits plus certain accident-related financial security benefits. The
vast majority of the memberships in National Motor Club are generated in the
Midwestern and Southeastern states. The National Motor Club unit also operates a
nationwide emergency road service call center that services its own customers,
as well as those of contracted third parties. National Motor Club is currently
licensed in 48 states, and the Company plans to grow its business in all such
states.

OKC DIVISION

Through the Company's OKC Division, the Company offers life insurance
and annuity products to individuals through its dedicated field force and
employee group accident and workers compensation insurance marketed by brokers
to employers and their employees. The OKC Division also actively pursues the
acquisition of life and annuity blocks of insurance business. At December 31,
1999, the OKC Division had over $3.883 billion of life insurance in force and
approximately 384,000 individual policyholders. The Division has grown primarily
through acquisitions of blocks of life insurance and annuity policies and
through its marketing efforts.

The OKC Division had revenues of $94.1 million, $98.8 million, and
$100.5 million (representing 9%, 9%, and 11% of total revenue) in 1999, 1998,
and 1997, respectively.

Direct Business. The Company offers an interest-sensitive whole life
insurance product generally with an annuity rider and a child term rider. The
child term rider includes a special provision under which the Company commits to
provide private student loans to help fund the named child's higher education if
certain restrictions and qualifications are satisfied. Currently, student loans
are available in amounts up to $30,000 for undergraduate school and up to
$30,000 for graduate school. Loans with a Fair Isaac credit score of 570 and
above 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, MEGA and Mid-West are qualified lenders under
the

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applicable Department of Education regulations and make available, outside of
the Company's insurance subsidiaries' commitment under the rider, student loans
under Federal Family Education Loan Programs.

Marketing and Sales. Life insurance products are marketed and sold
through the Company's network of dedicated agents. This marketing organization
covered five states when acquired by the Company in 1993, and has since been
expanded to cover 42 states. Annualized premiums for policies issued in 1999
increased to $9.2 million from $2.0 million in 1993.

Acquired Blocks. Historically, the Company grew 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 particular 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 last block of life insurance and annuities was acquired by the
Company 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 blocks of life
insurance and annuities has become very competitive, making it more difficult to
successfully complete acquisitions that meet the Company's acquisition rate of
return criteria.

In 1991, the Company entered into an agreement pursuant to which 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, 1999, total life insurance and annuity reserves for this block were
$78.1 million. The Company receives a fee for servicing the policies and in
1997, also began to participate in 50% of the profits or losses on this
business. The Company's Consolidated Financial Statements reflect the servicing
fee currently earned and $2.4 million of profit participation in 1999 and $2.3
million in 1998.

In August 1994, the Company entered into a similar transaction,
pursuant to which the Company acquired a block of life insurance and annuity
policies. At December 31, 1999, total life insurance and annuity reserves for
this block were $24.8 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 reinsurer. In addition, after the
reinsurer recovers its investment in this block, the coinsurance agreement will
be terminated and the Company at no cost will recapture all remaining policies.
Reinsurers' unrecovered investment in the block of policies at December 31, 1999
was $779,748.

RECENT DEVELOPMENTS - - HEALTHPLAN SERVICES TRANSACTION

On October 5, 1999, the Company and HealthPlan Services Corporation
("HPS") entered into an Agreement and Plan of Merger, pursuant to which the
Company agreed to acquire HPS in a stock-for-stock merger transaction. Following
the Company's announcement in December 1999 of significant operating losses at
its United CreditServ unit, on February 18, 2000, the Company and HPS entered
into an Amended and Restated Merger Agreement, contemplating the acquisition by
the Company of HPS for convertible preferred securities valued at $8.75 per HPS
share, or $120 million in the aggregate. Upon completion of the pending
acquisition, HPS will become a wholly owned, separately-operated subsidiary of
UICI. HPS is a managed health care services company, providing enrollment,
billing and collection, claims administration and risk management services for
health care payors and providers. HPS' customers include insurance companies,
HMOs and other managed care organizations, and organizations with self-funded
health care plans.

In the merger, it is proposed that HPS shareholders will receive
preferred securities issued by a business trust established by UICI. At the
option of the holder, each preferred security can either be (1) exchanged at any
time into a fixed number of HealthAxis.com common shares, calculated at a 25%
premium over the average closing price per share of HealthAxis.com's common
stock for the 10 consecutive trading days prior to the issue date, or (2)

<PAGE> 8
converted into a fixed number of common shares of UICI at $25 per UICI common
share. The preferred securities have a maturity of 30 years and call for annual
cumulative distributions at the rate of 7% payable quarterly in arrears, subject
to certain deferral rights.

The acquisition is contingent upon UICI's obtaining the consent on or
before April 15, 2000 of the HPS bank group and lenders under the UICI bank
facility to assume HPS's bank indebtedness and to issue the subordinated
debentures connected with, and to make the dividend payments on, the preferred
securities. The HPS acquisition is also conditioned upon consummation of the
upstream merger of HealthAxis.com, Inc. and HealthAxis Inc. and registration of
the underlying HealthAxis.com shares into which the preferred securities are
exchangeable, both of which events are expected to be completed in the second
quarter of 2000. The transaction is otherwise subject to several closing
conditions, including the reissuance of a fairness opinion by HPS's financial
advisor on or about the time of mailing of the definitive proxy materials and
approval by HPS shareholders.

There can be no assurance at this time that the acquisition of HPS as
contemplated by the Amended and Restated Merger Agreement will be consummated
or, if consummated, when such acquisition will be completed.

FINANCIAL SERVICES SEGMENT

EDUCATIONAL FINANCE GROUP, INC.

Educational Finance Group, Inc. ("EFG") (in which the Company holds a
75% equity interest) markets, originates, funds and services primarily
Federally-guaranteed student loans and is a leading provider of student tuition
installment plans. EFG (which is based in Swansea, Massachusetts) seeks to
provide financing solutions for college and graduate school students, their
parents and the educational institutions they attend. At December 31, 1999, UICI
had approximately $1.3 billion aggregate principal amount of student loans
outstanding, of which approximately 91% were Federally guaranteed.

EFG primarily acquires and originates federally-guaranteed loans to
students and parents made under the Federal Family Education Loan Program
("FFELP Loans"). Four types of loans are currently available under the FFELP
Loan program: (i) loans to students with respect to which the federal government
makes interest payments available to reduce student interest cost during periods
of enrollment ("Stafford Loans"); (ii) loans to students with respect to which
the federal government does not make such interest payments ("Unsubsidized
Stafford Loans"); (iii) supplemental loans to parents of dependent students
("PLUS Loans"); and (iv) loans to fund payments and consolidation of certain of
the borrower's obligations ("Consolidation Loans"). These loan types vary as to
eligibility requirements, interest rates, repayment periods, loan limits and
eligibility for interest subsidies.

Stafford Loans are the primary loans extended under the FFELP Loan
program. Students who are not eligible for Stafford Loans based on their
economic circumstance may be able to obtain Unsubsidized Stafford Loans. Parents
of students may be able to obtain PLUS Loans. Consolidation Loans are available
to borrowers with existing loans made under the FFELP Loan program and certain
other federal programs to consolidate repayment of such existing loans.

In addition to the various federally guaranteed loan programs, EFG
offers alternative student loans, guaranteed by private insurers, which during
1999 aggregated 9.0% of EFG's loan originations. EFG also services loans under
the Perkins Loan Program on behalf of participating colleges and universities.
The Perkins Loan program provides low-interest loans to assist needy students in
financing the costs of post-secondary education. Students can receive Perkins
Loans at any one of approximately 2,000 participating post-secondary
institutions.

EFG has funded its loan origination business primarily with secured
lines of credit extended by various financial institutions. After loans are
originated, EFG typically sells or refinances the loans using a variety of
capital markets financing facilities. During 1999, EFG sold approximately $400
million in loans and added approximately $1.3 billion of long term funding
facilities in three separate transactions. These transactions used special
purpose financing entities, which issued securities in the capital markets and
used the proceeds to buy pools of student loans from EFG. EFG's 1999 financing
transactions included the following:

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o Issuance of $319.5 million Auction Rate Student Loan-Backed Notes
(which bear interest at variable rates established pursuant to an
auction conducted, generally, every thirty-five days).

o Issuance of $650 million Asset Backed Commercial Paper Notes
(which bear interest at variables rates established by
calculating the total costs of the commercial paper program and
which have maturities of one to 270 days).

o Issuance of $229 million Floating Rate Student Loan-Backed Notes
(which bear interest at variable rates equal to 0.42% over three
month LIBOR, reset every quarter in January, April, July, and
October) and $115 million Auction Rate Student Loan Backed Notes.

In July 1999, EFG acquired AMS Investment Group, Inc. (the parent of
Academic Management Services, Inc.) ("AMS"), based in Swansea, Massachusetts.
AMS is the leading provider of tuition installment plans for undergraduate
students, serving as the designated provider of tuition installment plans at
over 1,200 colleges, universities and independent schools. AMS also originates
student loans.

EFG provides loan servicing and administrative services for federal
Perkins loans and privately insured loans. EFG Technologies, Inc. is based in
Winston-Salem, North Carolina, and is a loan servicer for approximately 600
colleges, universities and private lenders with 1.0 million active accounts and
loan balances aggregating $2.6 billion. Education Loan Administrators Group
("ELA"), acquired by EFG in 1997, is a leading provider of PLUS Loans, which are
made directly to the parent rather than the student. Based in San Diego,
California, ELA markets PLUS Loans through direct mail and telemarketing
programs directly to prospective student and parent borrowers. During 1999, ELA
generated $296 million of PLUS and other FFELP loans.

EFG incurred significant operating losses in 1998 and 1999. See "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations."

INVESTMENT IN HEALTHAXIS.COM, INC. (FORMERLY INSURDATA INCORPORATED)

Insurdata's clients included large insurance carriers, Blue Cross and
Blue Shield organizations, third party administrators, self-funded employers,
and other industry participants. Insurdata also offered systems integration,
technology management and data capture services to these same client groups.
Insurdata generated revenues of $46.2 million, $41.2 million and $25.1 million
in 1999, 1998, and 1997, respectively, of which 60%, 56% and 42% were derived
from information systems and software development services provided to the
Company and its insurance company affiliates.

On January 7, 2000, Insurdata merged with and into HealthAxis.com, Inc.
("HealthAxis.com"), a web-based retailer of health insurance products and
related consumer services. During 1999 and in advance of the merger, Insurdata
transferred to UICI the net assets of Insurdata Administrators (a division of
Insurdata engaged in the business of providing third party benefits
administration, including eligibility and billing reconciliation) and its member
interest in Insurdata Marketing Services, LLC (a subsidiary of Insurdata engaged
in the business of marketing third party benefits administration services) for
cash in the amount of $858,000, representing the aggregate book value of the net
assets and member interest so transferred. Following the merger, the Company
held approximately 44%, and HealthAxis, Inc. (formerly Provident American
Corporation) ("HAI") held approximately 28.1%, of the issued and outstanding
capital stock of HealthAxis.com, the surviving corporation in the merger. On
March 14, 2000, the Company sold in a private sale to an institutional purchaser
2,000,000 shares of

<PAGE> 10
HealthAxis.com common stock and, giving effect to such sale, the Company holds
39% of the issued and outstanding shares of common stock of HealthAxis.com.

HealthAxis.com is a leading web-based insurance retailer providing
fully integrated, end-to-end, web-enabled solutions for health insurance
distribution and administration. HealthAxis.com serves both consumers and
insurance payers, which include commercial carriers, third-party administrators
("TPAs"), Blue Cross/Blue Shield plans and self-insured employers.
HealthAxis.com is both a web-based retailer of health insurance products and
related consumer services as well as a provider of web-enabled software
applications and services to payors designed to enhance the efficiency and
effectiveness of the claims administration, benefits enrollment, benefits
maintenance and data capture activities involved in the administration of health
insurance.

The Company believes that HealthAxis.com is the only e-healthcare
company servicing both the consumer and business-to-business marketplaces with
health plan solutions. HealthAxis.com's consumer Web site, www.healthaxis.com,
is a fully transactional, online health insurance agency targeting the
individual and small group markets. HealthAxis.com's proprietary workflow and
business application software, built around an application service provider
model, enables healthcare payers to more efficiently capture, process, and share
health plan data over the Internet. HealthAxis.com is headquartered in suburban
Philadelphia. HealthAxis.com employs over 350 information technology
professionals.

On January 26, 2000, HAI and HealthAxis.com entered into an Agreement
and Plan of Merger, pursuant to which HAI will acquire all of the outstanding
shares of HealthAxis.com that HAI does not currently own through the merger of
HealthAxis.com with a wholly-owned subsidiary of HAI. Upon consummation of the
reorganization transactions, HealthAxis.com shareholders will receive 1.127
shares of HAI common stock for each share of HealthAxis.com common stock
outstanding. Under the terms of the transaction, HAI will issue new shares to
acquire all of the outstanding HealthAxis.com shares that HAI does not already
own. The consummation of the merger is subject to various conditions, including
the approval of both HAI and HealthAxis.com shareholders, as well as regulatory
approval. The closing of the merger is currently anticipated to occur during the
second quarter of 2000. It is anticipated that, following the merger, the
Company will hold approximately 20.1 million shares (representing 43.2%) of the
issued and outstanding shares of HAI, of which 10.0 million shares (representing
21.6%) will be subject to the terms of a Voting Trust Agreement, pursuant to
which trustees unaffiliated with the Company will have the right to vote such
shares.

DISCONTINUED OPERATIONS - - UNITED CREDITSERV, INC.

Through the Company's United CreditServ, Inc. subsidiary ("United
CreditServ"), the Company has historically marketed credit support services to
individuals with no, or troubled, credit experience and assisted such
individuals in obtaining a nationally recognized credit card. The activities of
United CreditServ have been conducted primarily through its wholly-owned
subsidiaries United Credit National Bank ("UCNB") (a special purpose national
bank, based in Sioux Falls, South Dakota, chartered solely to hold credit card
receivables); Specialized Card Services, Inc. (provider of account management
and collections services for all of the Company's credit card programs); United
Membership Marketing Group, Inc. ("UMMG") (a Lakewood, Colorado-based provider
of marketing, administrative and support services for the Company's credit
support programs); and UICI Receivables Funding Corporation ("RFC"), a
single-purpose, bankruptcy-remote entity through which certain credit card
receivables have been securitized.

Through 1999, United CreditServ marketed its credit support services
and access to a credit card through the American Fair Credit Association LLC
("AFCA"), an independent membership association that provided credit education
programs and other benefits, and American Credit Educators LLC ("ACE"), which
marketed credit education materials and had a marketing agreement with UCNB to
solicit credit card applications. AFCA applicants were required to meet certain
requirements (including payment of initiation and monthly membership fees) in
order to become members of AFCA, and, in order to obtain a credit card, to meet
underwriting criteria established by UCNB.

Several recent developments have affected the operations of the
Company's United CreditServ subsidiary and will materially and adversely affect
the results of operations and financial condition of the Company in the future.

<PAGE> 11
Significant Operating Losses

During the year ended December 31, 1999, United CreditServ incurred a
pre-tax operating loss in the amount of approximately $145.0 million (inclusive
of the write off of the $35.9 million purchase price of UMMG), primarily
attributable to significant increases to credit card loan loss reserves
associated with the non-performance of its ACE credit card product. The Company
believes that such losses were due primarily to inadequate attention to ACE
collections, inefficiencies associated with administrative and operating systems
conversions during a period of significant increases in card issuance volumes,
mis-pricing of the ACE product, and the failure of the AFCA credit card
portfolio performance to be sufficiently predictive of the performance of the
ACE credit card loan portfolio.

UCNB is currently subject to the terms of a Consent Order issued by the
Office of the Comptroller of the Currency (see discussion below). In accordance
with the terms of the Consent Order, UCNB has ceased all activities with ACE and
AFCA (UCNB's only marketing organizations), and UCNB is further prohibited under
the terms of the Consent Order from introducing new products or services without
approval by the OCC. Accordingly, for the indefinite future United CreditServ's
Specialized Card Services' unit will be unable to generate sufficient revenue to
cover its operating costs, and, as a result, the Company expects that
Specialized Card Services, Inc. will continue to incur operating losses. The
Company has taken immediate steps to reduce costs associated with its credit
card operations, including significant staff reductions at its UMMG operations.

Significant Cash Infusions to UCNB

The 1999 and continuing operating losses at United CreditServ have had
and will continue to have a material adverse effect upon the liquidity and cash
flows of the Company. Since the Company first announced losses at its United
CreditServ unit in December 1999, UICI through United CreditServ has contributed
to the Bank as capital an aggregate of $105.1 million in cash, including
additional cash in the amount of $17.0 million contributed on March 27, 2000.
UICI has funded these cash contributions with the proceeds of sale of investment
securities, regular cash dividends from its insurance company subsidiaries and
cash on hand. The Company continues to explore means to achieve increased
liquidity, including through the issuance of additional UICI securities and/or
selected sales of investment securities and other assets. See "Item 7.
Management's Discussion and Analysis of Liquidity and Results of Operations."

Comptroller of the Currency Consent Order

On February 25, 2000, UCNB agreed to the issuance of a Consent Order by
the U.S. Office of the Comptroller of the Currency (the "OCC"). Under the terms
of the Consent Order, UCNB is prohibited from accessing the brokered deposit
market and from soliciting or accepting deposits over the Internet. At March
31, 2000, UCNB had $296.0 million of certificates of brokered deposits
outstanding, the majority of which are scheduled to mature over the next six
months. At March 31, 2000, UCNB had approximately $160.0 million in cash, cash
equivalents and short term U.S. Treasury securities.

The Consent Order requires UCNB, until further notice from the OCC, to
cease all activities with ACE and AFCA (UCNB's only marketing organizations).
The Consent Order further requires UCNB, until further notice from the OCC, to
cease all transactions with affiliated parties (including UICI but excluding
Specialized Card Services, Inc., the servicer of UCNB's credit card accounts),
and to conduct an immediate review of all agreements with all third parties to
assess whether such agreements are on terms fair and reasonable to UCNB. UCNB
engaged PricewaterhouseCoopers LLP to independently review the terms of all
agreements between UCNB and Specialized Card Services, Inc. (an indirect wholly
owned subsidiary of UICI and the servicer of UCNB's credit card accounts). On
March 27, 2000, UCNB submitted to the OCC its review of third party agreements
and PricewaterhouseCoopers LLP's review of agreements between UCNB and
Specialized Card Services, Inc.

UCNB is further prohibited under the terms of the Consent Order from
introducing new products or services, without accompanying policies and
procedures reviewed and approved by the OCC providing for, among other things,
appropriate risk management, internal control, management information and data
processing systems. Under the terms of the Consent Order, UCNB is generally
prohibited from increasing its assets in the future unless the OCC has approved
a capital plan submitted by UCNB and UCNB is in compliance with the capital
plan.

<PAGE> 12

UCNB's failure to comply with the terms of the Consent Order could
result in sanctions brought against UCNB, its officers and directors and UCNB's
"institution-related parties," including the assessment of civil money penalties
and enforcement of the Consent Order in Federal District Court.

A liquidity and capital assurances agreement, dated May 15, 1998,
between UICI and UCNB provides that, upon demand by UCNB, UICI will purchase
certificates of deposit issued by UCNB to assure sufficient liquidity to meet
UCNB's funding demands and will contribute capital to UCNB sufficient for UCNB
to comply with its stated policy of maintaining a total risk-based capital ratio
of at least 12%. Total risk-based capital includes both Tier I and Tier II
capital.

Sale of United CreditServ Operations

In light of UICI's continuing difficulties with its United CreditServ
unit, the Board of Directors of UICI has determined, after a thorough assessment
of the unit's prospects, that it will exit from its United CreditServ sub-prime
credit card business and, as a result, the United CreditServ unit has been
reflected as a discontinued operation for financial reporting purposes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Company currently expects to complete the sale of the United
CreditServ unit during the year 2000. UICI has recorded in 1999 its estimate of
additional loss that it believes it will incur as part of any sale of the United
CreditServ unit. The Company has estimated that its loss on the discontinued
operation will be $130.0 million. UICI's current estimate includes asset
write-downs, the estimated loss on the sale of the business and/or assets and
continuing losses through date of sale. The loss the Company will ultimately
realize upon disposal of the discontinued operation could differ materially from
the current estimate.

Proposed UCNB Capital Plan

In accordance with the terms of the Consent Order, on March 29, 2000,
the Board of Directors of UCNB submitted to the OCC for its review and approval
a capital plan (the "Proposed Capital Plan"). The Proposed Capital Plan
contemplates the orderly disposition of United CreditServ's ownership interest
in UCNB or the liquidation of UCNB, the payment of all of UCNB's insured
deposits and satisfaction of all other UCNB liabilities, and the maintenance of
minimum capital ratios. The Proposed Capital Plan provides that United
CreditServ will dispose of its interest in UCNB or UCNB will dispose of all of
its assets on or before December 31, 2000 (the "Plan Period"). To support its
implementation, the Proposed Capital Plan further contemplates that (a) UICI,
United CreditServ and UICI's principal shareholder will provide financial
support to UCNB and deliver collateral to UCNB to secure its obligations to
provide such financial support and (b) UCNB will be able to access the brokered
deposit market on a limited basis. Under the Proposed Capital Plan, it is
currently expected that UICI will be required to contribute an additional $25.0
million to the capital of UCNB during the Plan Period. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources"

The Proposed Capital Plan is expressly subject to the review and
approval of the OCC and the FDIC. There can be no assurance that the OCC or the
FDIC will approve the Proposed Capital Plan in its current form. If the OCC
and/or FDIC fails to approve the Proposed Capital Plan or some mutually
acceptable alternative plan, UCNB could be required to liquidate its assets on a
short term basis and the Company could be required to fund the resulting losses
immediately. Such a requirement could have a material adverse effect upon the
Company's liquidity, results of operations and financial condition.

In addition, in the event that the OCC determines that the Proposed
Capital Plan does not comply with the terms of the Consent Order, the OCC may
take a number of actions, including directing that a new capital plan be
submitted, seeking an order from a Federal District Court directing compliance
with the Consent Order, or seeking the assessment of civil money penalties.

ACE and AFCA Litigation

In February 2000, ACE and AFCA filed suit against UICI and UCNB
(American Credit Educators, LLC v. United Credit National Bank and UICI and
American Fair Credit Association, Inc. v. United Credit National Bank and UICI,
each pending in the United States District Court for the District of Colorado)
alleging, among other things, that UCNB has breached its agreements with ACE and
AFCA and claiming damages in an indeterminate

<PAGE> 13
amount. ACE and AFCA are each controlled by Phillip A. Gray, the former head of
UICI's credit card operations. The Company believes that it has meritorious
defenses to the suits and intends to defend the cases vigorously.

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 $150,000. The Company uses
reinsurance for its health insurance business only for limited purposes. The
Company does not reinsure any health insurance issued in the self-employed
market.

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 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

Insurance

The Company operates in highly competitive markets. 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 greater claims paying ability ratings than the Company.
In addition to claims paying ability 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 insurance 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.

Student Loans

The student loan industry is highly competitive. The Company competes
with over 2,000 other lenders. Despite the large number of lenders, the top 100
lenders account for approximately 87% of new loan volume. The Company believes
that the volume of new loans originated in 1999 would make it one of the top
lenders in 1999. The Company competes by designing and offering an integrated
package of government guaranteed and privately guaranteed loan products.

Credit Card Operations

In its credit card business, the Company has faced and continues to
face intense and increasingly aggressive competition from other providers of
credit to the sub-prime market. Most of the Company's competitors in this
business are substantially larger and have greater financial resources than the
Company, and customer loyalty is often limited. Competitive practices, such as
the offering of lower interest rates and fees and the offering of incentives to
customers, could hurt the Company's ability to retain customers as the Company
seeks to exit from this business.

REGULATION

Insurance Regulation

The Company's insurance subsidiaries are subject to extensive
regulation in their states of domicile 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

<PAGE> 14

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; disclosure requirements;
privacy standards; 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 guaranty funds. Such
regulation is intended to protect policyholders rather than investors.

Federal law, including ERISA and the Federal Health Insurance and
Portability Act of 1996 ("HIPAA"), also affect the manner in which the Company's
insurance subsidiaries conduct their businesses. In addition, recently adopted
(e.g., the Gramm-Leach-Bliley Act providing for financial services
modernization) and certain pending legislation, if adopted (including additional
HIPAA regulation and so-called Patients' Bill of Rights legislation) will impose
significant additional regulatory requirements upon the Company's insurance
subsidiaries. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - - Health Care Reform."

Many states have also enacted insurance holding company laws that
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
inter-corporate 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 that such subsidiaries 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 1999 calculations, the Company's
insurance subsidiaries were significantly above required capital levels.

In 1998, the NAIC adopted codified statutory accounting principles
("Codification"), which will be effective January 1, 2001. Codification will
change, to some extent, prescribed statutory accounting practices and may result
in changes to the accounting practices that the Company uses to prepare its
statutory-basis financial statements. Codification will require adoption by the
various states before it becomes the prescribed statutory basis of accounting
for insurance companies domesticated within those states. Accordingly, before
Codification becomes effective for the Company, the states of domicile must
adopt Codification as the prescribed basis of accounting on which domestic
insurers must report their statutory-basis results to the Insurance Department.
At this time it is anticipated that the states of domicile will adopt
Codification. Management has not yet determined the impact of Codification on
the Company's statutory-basis financial statements.

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.

<PAGE> 15

The NAIC and state insurance departments are continually reexamining
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.

United CreditServ, Inc.

UCNB is a national bank, the deposits of which are insured by the Bank
Insurance Fund of the Federal Deposit Insurance Corporation (the "FDIC"). UCNB
is subject to assessment for FDIC deposit insurance premiums and is subject to
the supervision and regulation by the FDIC. UCNB also is subject to the
supervision and regulation by the Office of the Comptroller of the Currency (the
"OCC"). The OCC may conduct examinations and investigations into the affairs of
a national bank. The OCC has the statutory responsibility to determine the
solvency of a national bank and to appoint the FDIC as receiver in the event of
insolvency.

National banks are subject to comprehensive regulation over their
operations. Among other things, national banks are subject to regulations
regarding minimum levels of capital, loans to one borrower and payment of
dividends. In addition, national banks are subject to quantitative and
qualitative restrictions on transactions between the bank and their
"affiliates," as that term is defined by Section 23A of the Federal Reserve Act.

The OCC and the FDIC are vested with administrative enforcement power,
including among other things, the authority to assess civil money penalties and
to issue a cease and desist order. A cease and desist order may require a
national bank to correct any conditions resulting from a violation of law or
unsafe or unsound practice and such corrective action may include requiring
restitution, reimbursement, indemnification or guarantee against loss if certain
statutorily prescribed conditions have been satisfied.

The marketing practices of United CreditServ and its affiliates are
also subject to state credit service organization laws and other consumer
protection statutes.

UCNB is currently subject to the terms of a Consent Order, issued by
the OCC on February 25, 2000. See "Business - Discontinued Operations - United
CreditServ, Inc."

Student Loan Operations

A significant portion of the student loans originated by the Company
are made under the Federal Family Education Loan Program (the "FFELP program"),
which is subject to periodic legislative reauthorization and interim revision by
legislation and regulation. The Higher Education Act, which authorizes most
federal aid programs, went through its regular reauthorization process in 1998.
The loans made under the FFELP program include Federal Stafford loans for
students and PLUS Loans to parents.

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
business 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 financial condition or results of operations.

<PAGE> 16

EMPLOYEES

The Company had approximately 5,000 employees at March 1, 2000. The
Company considers its employee relations to be good. Agents associated with the
Company's UGA and CMA field forces constitute independent contractors and are
not employees of the Company.

ITEM 2. PROPERTIES

The Company owns three office buildings in Tarrant County, Texas, with
approximately 190,000 square feet. The Company's United CreditServ subsidiary
owns one building in Sioux Falls, South Dakota, with approximately 106,000
square feet. In addition, the Company and its subsidiaries rent office space at
various locations, including its principal executive office located at 4001
McEwen Drive, Dallas, Texas. EFG owns an office building in Swansea,
Massachusetts, with approximately 35,000 square feet.

ITEM 3. LEGAL PROCEEDINGS

See Note M of Notes to Consolidated Financial Statements, the terms of
which are incorporated by reference herein.

ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

<PAGE> 17

EXECUTIVE OFFICERS OF THE COMPANY

The Chairman of the Company is elected, and all other executive
officers listed below are appointed by the Board of Directors of the Company at
its Annual Meeting each year or by the Executive Committee of the Board of
Directors to hold office until the next Annual Meeting or until their successors
are elected or appointed. None of these officers have family relationships with
any other executive officer or director.

<TABLE>
<CAPTION>
BUSINESS EXPERIENCE
NAME OF OFFICER PRINCIPAL POSITION AGE DURING PAST FIVE YEARS
- --------------- ------------------ --- ----------------------
<S> <C> <C> <C>

Ronald L. Jensen Chairman of the Board 69 Mr. Jensen has served as Chairman since December
1983. In the last five years, Mr. Jensen also
served as President of the Company from October
1997 until January 1999.

Gregory T. Mutz President and Chief 54 Mr. Mutz was elected President and Chief Executive
Executive Officer, Chief Officer in January 1999 and Chief Financial Officer
Financial Officer in March 2000. Prior to January 1999, Mr. Mutz
served as Chairman and Chief Executive Officer of
AMLI Realty Co. (a real estate investment management
firm), which the Company acquired in 1996.

Glenn W. Reed Executive Vice President and 47 Mr. Reed has served in his current position since
General Counsel July 1999. Prior to joining UICI, Mr. Reed was a
partner with the Chicago, Illinois law firm of
Gardner, Carton & Douglas.

William P. Benac Executive Vice President 53 Mr. Benac joined the Company in May 1999 as its
Chief Financial Officer. Effective March 2000, Mr. Benac
no longer serves as Chief Financial Officer. He
served as Chief Executive Officer of the Company's
United CreditServ subsidiary until March 2000. For the
five years prior to joining UICI, Mr. Benac was
Chief Executive Officer of FirstPlus Financial
Group and served as Corporate Vice President and
Treasurer of Electronic Data Systems.

Charles T. Prater Vice President and Chief 48 Mr. Prater has served as a Vice President of the
Operating Officer -- OKC Company since 1993 and as a Director of the
Division Company during the period March 1996 - May 1999.
Mr. Prater has been Chief Operating Officer of the
OKC Division since 1998.

Steven K. Arnold Vice President 52 Mr. Arnold joined the Company in October 1998 as a
consultant. In March 1999, Mr. Arnold became
Chief Executive Officer of the Student Insurance
Division and Special Risk Group of the Company. In
August 1999, Mr. Arnold was elected a Vice
President of the Company. For the five years prior
to joining the Company, Mr. Arnold held various
positions as a consultant and officer in the
health care and systems industries.

William J. Gedwed Vice President 44 Mr. Gedwed currently oversees the Company's
insurance operations. Since 1993 Mr. Gedwed served
(and continues to serve) as Chairman and Chief
Executive Officer of NMC Holdings, Inc. (the
parent company of National Motor Club of America),
which the Company acquired in 1997).
</TABLE>

<PAGE> 18

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

On April 30, 1999, trading of the Company's shares commenced on the New
York Stock Exchange ("NYSE") under the symbol "UCI". Prior to April 30, 1999,
shares of the Company's Common Stock were quoted on the Nasdaq National Market
automatic quotation system. 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 NYSE and the Nasdaq National Market, as the case may be.

HIGH LOW
---- ---
<S> <C> <C>
FISCAL YEAR ENDED DECEMBER 31, 1998
1st Quarter......................................... $ 36 3/16 $ 30 3/4
2nd Quarter......................................... 35 3/8 25 5/8
3rd Quarter......................................... 27 7/8 12 13/16
4th Quarter......................................... 24 1/2 12
FISCAL YEAR ENDED DECEMBER 31, 1999
1st Quarter......................................... $ 23 13/16 $ 20
2nd Quarter......................................... 27 11/16 22 13/16
3rd Quarter......................................... 28 7/8 25 9/16
4th Quarter......................................... 27 1/8 9 3/4
</TABLE>

As of March 21, 2000, there were approximately 11,000 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. See Note K of the
Notes to Consolidated Financial Statements included herein.

ITEM 6. SELECTED FINANCIAL DATA

The following selected consolidated financial data as of and for each
of the five years in the period ended December 31, 1999 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. The following income statement data
has been restated to reflect the Company's United CreditServ segment as a
discontinued operation. See Note B to Notes to the Consolidated Financial
Statements.

<PAGE> 19

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OPERATING RATIOS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues from continuing operations ................. $ 1,013,183 $ 1,056,751 $ 905,562 $ 690,935 $ 612,819
Income from continuing operations before
income taxes ......................................... 50,852 47,262 111,814 90,247 80,944
Income from continuing operations ..................... 33,250 31,523 75,608 61,780 53,948
Income (loss) from discontinued operations ............ (179,132) 27,246 10,896 7,467 (620)
Net income (loss) ..................................... (145,882) 58,769 86,504 69,247 53,328
Earnings per share from continuing
operations:
Basic earnings per
Common share ..................................... $ 0.72 $ 0.68 $ 1.67 $ 1.48 $ 1.43
Diluted earnings per
Common share ..................................... $ 0.70 $ 0.67 $ 1.67 $ 1.48 $ 1.43
Earnings (loss) per share from
discontinued operations:
Basic earnings (loss) per
Common share ..................................... $ (3.87) $ 0.59 $ 0.24 $ 0.18 $ (0.02)
Diluted earnings (loss) per
Common share ..................................... $ (3.75) $ 0.59 $ 0.24 $ 0.18 $ (0.02)
Earnings (loss) per share
Basic earnings (loss) per
Common share ..................................... $ (3.15) $ 1.27 $ 1.91 $ 1.66 $ 1.41
Diluted earnings (loss) per
Common share ..................................... $ (3.05) $ 1.26 $ 1.91 $ 1.66 $ 1.41

OPERATING RATIOS:
Health Ratios:
Loss ratio(1) .................................... 68% 75% 63% 58% 58%
Expense ratio(2) ................................. 30% 30% 30% 33% 33%
----------- ----------- ----------- ----------- -----------
Combined health ratio ............................ 98% 105% 93% 91% 91%
=========== =========== =========== =========== ===========
BALANCE SHEET DATA:
Total investments and cash (3) ...................... $ 1,112,579 $ 1,148,074 $ 1,071,838 $ 1,055,587 $ 895,369
Total assets ........................................ 3,539,344 2,349,634 1,552,478 1,316,494 1,091,360
Total policy liabilities ............................ 905,357 916,754 871,292 807,324 787,905
Total debt .......................................... 120,637 50,328 50,270 30,943 50,381
Student loan credit facility ........................ 1,730,348 669,026 -- -- --
Stockholders' equity ................................ 407,434 594,791 536,290 432,918 248,819
Stockholders' equity per share(4) ................... $ 9.44 $ 12.52 $ 11.29 $ 9.55 $ 6.33
</TABLE>

- ---------

See Management's Discussion and Analysis of Financial Condition and Results of
Operations and Notes to Consolidated Financial Statements.

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

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

(3) Does not include restricted cash. See Note A of Notes to Consolidated
Financial Statements.

(4) Excludes the unrealized gains (losses) on available for sale securities,
which are reported in accumulated other comprehensive income as a separate
component of stockholders' equity.

<PAGE> 20

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Certain statements set forth herein or incorporated by reference herein
from the Company's filings that are not historical facts are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act.
Actual results may differ materially from those included in the forward-looking
statements. These forward-looking statements involve risks and uncertainties
including, but not limited to, the following: changes in general economic
conditions, including the performance of financial markets, and interest rates;
competitive, regulatory or tax changes that affect the cost of or demand for the
Company's products; health care reform; the ability to predict and effectively
manage claims related to health care costs; and reliance on key management and
adequacy of claim liabilities. The Company's and its United CreditServ unit's
future results also could be adversely affected by the inability to fully
reserve for anticipated future credit card charge-offs and losses; the inability
of the Company to generate cash from operations, from sales of assets and/or
from the proceeds of debt and/or equity financings in an amount sufficient to
fund in a timely manner future capital requirements at United Credit National
Bank and operating losses at Specialized Card Services, Inc.; the inability of
United Credit National Bank to issue certificates of deposit on a timely basis
to refinance outstanding certificates of deposit as they mature; possible
regulatory actions arising from the Consent Order issued by the OCC and other
related activities; and the possibility of future economic downturns causing an
increase in credit losses or changes in regulations for credit cards or credit
card national banks. The Company's Educational Finance Group business could be
adversely affected by changes in the Higher Education Act or other relevant
federal or state laws, rules and regulations and the programs implemented
thereunder may adversely impact the education credit market. In addition,
existing legislation and future measures by the federal government may adversely
affect the amount and nature of federal financial assistance available with
respect to loans made through the U.S. Department of Education. Finally the
level of competition currently in existence in the secondary market for loans
made under the Federal Loan Programs could be reduced, resulting in fewer
potential buyers of the Federal Loans and lower prices available in the
secondary market for those loans.

ITEM 7. 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 Financial Data and the Consolidated Financial
Statements of the Company and related notes thereto included herein.

The Company's operating segments are: (i) Insurance, which includes the
businesses of the Self-Employed Agency Division; the Student Insurance Division;
the OKC Division; the Special Risk Division; and the National Motor Club
Division; (ii) Financial Services, which includes the businesses of Educational
Finance Group, Inc., the Company's investment in HealthAxis.com, Inc., and Other
Business Units and (iii) Other Key Factors, which includes investment income not
allocated to the other segments, interest expense, general expenses relating to
corporate operations, goodwill amortization, realized gains or losses on sale of
investments and the AMLI operations. Net investment income is allocated to the
Insurance segment based on policy liabilities. The interest rate for the
allocation is based on a high credit quality investment portfolio with a
duration consistent with the duration of the segment's policy liabilities.

In light of UICI's continuing difficulties with its United CreditServ
unit, on March 17, 2000 the Board of Directors of UICI determined, after a
thorough assessment of the unit's prospects, that it will exit from its United
CreditServ sub-prime credit card business. Accordingly, the United CreditServ
unit has been reflected as a discontinued operation for financial reporting
purposes. The Company currently expects to complete the sale of the United
CreditServ unit during the year 2000. UICI has recorded in 1999 its current
estimate of all additional loss that it believes it will incur as part of any
sale of the United CreditServ unit. The Company currently estimates that such
pre-tax loss will be $130.0 million. The estimate includes asset write-downs,
the estimated loss on the sale of the business and/or the assets and continuing
losses through date of sale. The loss the Company will ultimately realize upon
disposal of the discontinued operation could differ materially from the current
estimate.

Previously released quarterly financial information has been restated
to reflect (a) the classification of the United CreditServ credit card business
as a discontinued operation in 1998 and 1999; (b) the retroactive application,
beginning on January 1, 1999, of a revised methodology for determining credit
card loan losses and carrying value of residual assets, (c) the write-off in the
second quarter of 1999 of the $35.9 million purchase price of the UMMG minority
interest acquired by United CreditServ in the second quarter of 1999; (d) a
downward adjustment to Educational Finance Group's

<PAGE> 21

interest income in the amount of $5.5 million in the second quarter of 1999; and
(e) the recording of compensation expense in the amount of $5.3 million
associated with stock option exercises in the third quarter of 1999. The
application of the revised methodology for determining loan loss reserves and
the carrying value of residual assets, the write-off of the UMMG minority
interest purchase price, the adjustment to EFG's interest income and the
recording of additional compensation expense reduced in the aggregate previously
reported net income in the second and third quarters of 1999 by $51.7 million
($1.08 per share) and $38.3 million ($0.80 per share), respectively.

In addition, 1999 results from continuing operations were impacted by
several significant adjustments taken in the fourth quarter, including (a) a
$5.0 million accrual for professional fees, (b) a write off of previously
capitalized software and system development costs in the amount of $2.3 million
at the Company's Student Insurance Division, (c) a strengthening of insurance
reserves associated with the Company's Special Risk operations in the amount of
$3.5 million, and (d) a write off in the amount of $9.0 million to adjust
Educational Finance Group, Inc.'s student loan balance.

CONSOLIDATED RESULTS OF OPERATIONS

1999 Compared to 1998

Continuing Operations

Revenues. Revenues decreased to $1,013.2 million in 1999 from $1,056.8
million in 1998, a decrease of $43.6 million, or 4%, primarily as a result of
decreases in health premiums.

Health premiums. Health premiums decreased to $690.2 million in 1999
from $747.3 million in 1998, a decrease of $57.1 million, or 8%. The decrease in
health premiums for the year resulted primarily from decreased premiums in the
self employed market, which was due to the negative impact on new sales and
recruiting efforts of rate increases implemented starting in 1998.

Life premiums and other considerations. Life premiums and other
considerations decreased to $46.4 million in 1999 from $49.3 million in 1998, a
decrease of $2.9 million, or 6%. This decrease resulted from reduced premiums
and other considerations from closed blocks of life and annuity business.

Investment income. Investment income increased to $85.5 million in 1999
from $74.9 million in 1998, an increase of $10.6 million, or 14%. The increase
was due to increased earnings from the Company's investment in AMLI Realty Co.,
along with an increase in investment yield.

Other interest income. Other interest income increased to $65.1 million
in 1999 from $31.6 million in 1998, an increase of $33.5 million. The increase
was due to the additional interest income earned on student loans in 1999.

Other fee income. Other fee income increased to $122.9 million in 1999
from $111.1 million in 1998, an increase of $11.8 million. The increase was due
to the increase in revenue from Educational Finance Group as a result of
increased originations from higher student loan volume.

Other income. Other income decreased to $3.5 million in 1999 from $37.5
million in 1998, a decrease of $34.0 million. The decrease was primarily
attributable to the disposition of the IPN, LLC and HealthCare Automation
business units that were sold to a related party in July 1998, which units
generated an aggregate of $20.4 million in revenues during 1998. In 1998 the
Company also recognized a $9.7 million gain on sale of the ATM transaction
processing assets of SunTech Processing Systems, LLC (an 80%- owned subsidiary
of the Company).

Loss on sale of investments. The Company recognized losses on sale of
investments of $367,000 in 1999 compared to a gain from sale of investments of
$4.9 million in 1998. 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 1999. In addition, due to increasing long-term interest
rates in 1999, the net unrealized investment loss on securities classified as
"available for sale", reported in accumulated other comprehensive income as a
separate component of stockholders' equity and net of applicable income taxes,
was $30.4 million at December 31, 1999, compared to an unrealized gain of $13.4
million at December 31, 1998.

Benefits, claims, and settlement expenses. Benefits, claims, and
settlement expenses decreased to $514.6 million in 1999 from $586.0 million in
1998, a decrease of $71.4 million, or 12%. The decrease was primarily due to the
decline in premium sales and a decrease in loss ratio in the SEA Division.

<PAGE> 22

Underwriting, acquisition and insurance expenses. Underwriting,
acquisition and insurance expenses decreased to $243.4 million in 1999 from
$270.9 million in 1998, a decrease of $27.5 million or 10%. The decrease was
primarily due to the decline in new policy sales.

Other expenses. Other expenses increased to $119.3 million in 1999 from
$114.4 million in 1998, an increase of $4.9 million. The increase is primarily
due to the increased costs of Educational Finance Group's student loan
originations which were offset by the disposition of IPN, LLC and HealthCare
Automation, Inc. units that were sold in July 1998. In 1998, the Company
recognized aggregate operating losses from IPN, LLC and HealthCare Automation,
Inc. in the amount of $10.5 million.

Depreciation and amortization. Depreciation and amortization increased
to $20.1 million in 1999 from $15.9 million in 1998, an increase of $4.2
million. The increase is primarily due to increased goodwill amortization as a
result of the AMS Investment Group, Inc. acquisition by Educational Finance
Group.

Interest expense. Interest expense on corporate borrowings increased to
$7.4 million in 1999 from $3.1 million in 1998, an increase of $4.3 million. The
increase was due primarily to the increased level of borrowings outstanding
during 1999. Interest expense on student loan obligations increased to $57.5
million in 1999 from $19.2 million in 1998, an increase of $38.3 million. The
increase was due primarily to EFG's increased student loan origination volume.

Operating Income. Income from continuing operations before federal
income taxes ("operating income") increased to $50.9 million in 1999 from $47.3
million in 1998. Operating income (loss) for each of the Company's segments and
divisions was as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Insurance:
Self Employed Agency..................................................... $ 50,415 $ (4,765)
Student Insurance........................................................ 49 6,089
OKC...................................................................... 17,405 20,436
Special Risk............................................................. (4,079) 5,805
National Motor Club...................................................... 3,200 5,099
--------- ---------
66,990 32,664
Financial Services:
Educational Finance Group................................................ (19,938) (1,339)
Insurdata (HealthAxis.com, Inc.)......................................... 2,322 3,277
Other Business Units..................................................... -- 441
--------- ---------
(17,616) 2,379
Other Key Factors.......................................................... 1,478 12,219
--------- ---------
$ 50,852 $ 47,262
========= =========
</TABLE>

Self Employed Agency Division ("SEA"). The SEA Division reported operating
income of $50.4 million in 1999 compared to a loss of $4.8 million in 1998.
Revenue for the SEA Division decreased to $566.8 million for the year ended in
1999 from $610.1 million in 1998, an decrease of 7%. The increase in operating
income was the result of continued success on directing a larger portion of new
sales to traditional indemnity products and the improved loss ratio on the PPO
products. The decrease in revenues was attributable to the negative impact of
rate increases, imposed beginning in 1998, on new sales and recruiting efforts.

Student Insurance Division. The Student Insurance Division generated
near breakeven operating income in 1999 compared to operating income of $6.1
million in 1998. The reduced earnings reflect lower margins resulting from
increased loss ratios on the 1998-1999 policy year and a write off of previously
capitalized software and system development costs in the amount of $2.3 million.
Revenue for the Student Insurance Division decreased to $108.0 million in 1999
from $111.0 million in 1998, a decrease of 3%.

<PAGE> 23

OKC Division. Operating income for the OKC Division decreased to $17.4
million in 1999 from $20.4 million in 1998, a decrease of 15%. The decrease in
operating income was due to lower profit margins in the workers compensation
business and the write off of additional deferred acquisition costs due to lower
persistency in the College Fund Life Division. Revenue for the OKC Division
decreased to $94.1 million in 1999 from $98.8 million in 1998, a decrease of 5%.
The decrease in revenue was the result of lower revenues on the closed blocks of
life policies and decreased premium in the workers compensation business.

Special Risk Division. Operating income for the Special Risk Division
decreased to a loss of $4.1 million in 1999 from a gain of $5.8 million in
1998. The decrease in operating income was due to higher loss ratios on closed
blocks of business and a significant strengthening of reserves in the Division's
marine medical business. Revenue for the Special Risk Division was $59.0 million
in 1999 compared to $66.8 million in 1998, a decrease of 12%. The decrease in
revenue was primarily due to elimination of unprofitable blocks of business and
implementation of rate increases on stop-loss accounts causing customers to
terminate their policies.

National Motor Club. Operating income for the National Motor Club was
$3.2 million in 1999 compared to $5.1 million in 1998. The decrease in operating
income was primarily attributable to the write off in 1999 of additional
deferred acquisition costs. Revenue for the twelve months ended December 31,
1999 was $27.8 million compared to $27.3 million for the twelve months ended
December 31, 1998.

Educational Finance Group ("EFG"). EFG incurred an operating loss of
$19.9 million in 1999 compared to an operating loss of $1.3 million in 1998.
Revenue for EFG increased to $104.6 million in 1999 from $57.2 million in 1998.
The increase in revenue in 1999 was attributable to the increased origination
and interest income derived from EFG's higher student loan volume. The increased
loss was attributable primarily to increases in interest expense from higher
borrowings and interest rates and sustained operating losses at EFG Technologies
Inc. and Education Loan Administrators Group. EFG's AMS unit also incurred an
operating loss in 1999, due to the timing of the acquisition and the recording
of revenues in the tuition installment plan business of AMS, which revenues are
recorded primarily in May through August. The AMS acquisition was completed on
July 26, 1999.

Insurdata. Insurdata reported operating income of $2.3 million in 1999
compared to $3.3 million in 1998. Revenue for Insurdata increased to $46.2
million in 1999 from $41.2 million in 1998, an increase of 12%. Insurdata
revenue derived from other divisions and operating units of the Company were
$24.4 million and $21.1 million in 1999 and 1998, respectively. These revenues
and costs are eliminated in consolidating the Company's operations.

Other Business Units. During 1998, this category ceased to exist, with
the Other Business Units sold, closed or reclassified.

Other Key Factors. Other key factors include investment income not
allocated to the other segments, interest expense from corporate borrowings,
general expenses relating to corporate operations, amortization of goodwill,
realized gains or losses on sale of investments and the AMLI operations.
Operating income for other key factors decreased to $1.5 million from $12.2
million in 1998. The decrease is primarily due to an increase in amortization of
goodwill (recorded in connection with Educational Finance Group, Inc.'s
acquisition of AMS in July 1999), additional interest expense associated with a
higher level of corporate borrowings outstanding during 1999, general corporate
operations and a decrease in realized gains, which was partially offset by an
increase in investment income on equity not allocated to the other segments. 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.

Discontinued Operations - - United CreditServ

United CreditServ generated revenues from interest income, credit card
fees and other fee income in the amount of $227.4 million and $123.2 million in
1999 and 1998, respectively. United CreditServ incurred an operating loss of
$145.3 million in 1999 compared to an operating profit of $43.5 million in 1998.
The significant operating loss in 1999 was due primarily to increases in the
reserves for credit card loan losses and the write off of the $35.9 million
purchase price of the UMMG minority interest, both of which were attributable to
the unprofitable

<PAGE> 24

performance of its ACE credit card product. The Company believes that such
operating losses were due primarily to inadequate attention to ACE collections
during much of 1999, inefficiencies associated with administrative and operating
systems conversions during a period of significant increases in card issuance
volumes, mis-pricing of the ACE product, and the failure of the AFCA credit card
portfolio performance to be sufficiently predictive of the performance of the
ACE credit card loan portfolio. The Company has also recorded a pre-tax
estimated loss on disposal of United CreditServ in the amount of $130.0 million.
See "Liquidity and Capital Resources".

Year 2000 Costs

In prior years, the Company discussed the nature and progress of its
plans to become Year 2000 ready. In late 1999, the Company completed its
remediation and testing of systems. As a result of those planning and
implementation efforts, the Company experienced no significant disruptions in
mission critical information technology and non-information technology systems
and believes those systems successfully responded to the Year 2000 date change.
The Company expensed approximately $10.3 million cumulatively, and $4.3 million
during 1999, in connection with remediating its systems. The Company is not
aware of any material problems resulting from Year 2000 issues, either with its
products, its internal systems, or the products and services of third parties.
The Company will continue to monitor its mission critical computer applications
and those of its suppliers and vendors throughout the year 2000 to ensure that
any latent Year 2000 matters that may arise are addressed promptly.

1998 Compared to 1997

Continuing Operations

Revenues. Revenues increased to $1,056.8 million in 1998 from $905.6
million in 1997, an increase of $151.2 million, or 17%. The increase resulted
primarily from increases in health premiums in the self-employed market.

Health premiums. Health premiums increased to $747.3 million in 1998
from $653.9 million in 1997, an increase of $93.4 million, or 14%. The increase
in health premiums in 1998 resulted primarily from increased premiums in the
self-employed market, which increase was due to increased sales of new health
policies by the Company's independent agent force and due to discontinuing the
coinsurance arrangement originally reached in 1996 for new business written by
UGA.

Life premiums and other considerations. Life premiums and other
considerations were comparable in 1998 and 1997. Increases from the sale of new
life policies were offset by the decrease in premiums and other considerations
from closed blocks of life and annuity business.

Investment income. Investment income decreased to $74.9 million in 1998
from $78 million in 1997, a decrease of $3.1 million, or 4%. The decrease was
due to a decrease in investment yield.

Other interest income. Other interest income increased to $31.6 million
in 1998 from $4 million in 1997, an increase of $27.6 million. The increase was
due to the investment income earned on student loans in 1998.

Other fee income. Other fee income increased to $111.1 million in 1998
from $70.3 million in 1997, an increase of $40.8 million. The increase was due
to the increase in revenue from Educational Finance Group and reporting a full
year of operations of National Motor Club.

Other income. Other income decreased to $37.5 million in 1998 from
$45.9 million in 1997, a decrease of $8.4 million or 18%. The decrease was due
primarily to the disposition of business units in 1998 that contributed
approximately $34.9 million of income in 1997. This decrease in other income was
partially offset by the $9.7 million gain recognized by the Company on the sale
of the assets of SunTech Processing LLC.

Gains on sale of investments. The Company recognized gains on sale of
investments of $4.9 million in 1998 compared to $4.0 million in 1997. 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.

<PAGE> 25

Benefits, claims, and settlement expenses. Benefits, claims, and
settlement expenses increased to $586.0 million in 1998 from $449.7 million in
1997, an increase of $136.3 million, or 30%. The increase was primarily due to
the growth in premium volume and a higher loss ratio in the SEA Division.

Underwriting, acquisition and insurance expenses. Underwriting,
acquisition and insurance expenses increased to $270.9 million in 1998 from
$249.8 million in 1997, an increase of $21.1 million, or 8%. The increase was
primarily due to increased premium volume in 1998 compared to 1997.

Other expenses. Other expenses increased to $114.4 million in 1998 from
$81.4 million in 1997, an increase of $33 million, or 41%. The increase was
primarily due to the increased costs associated with the operations of
Educational Finance Group and reporting a full year of operations of National
Motor Club.

Depreciation and amortization. Depreciation and amortization increased
to $15.9 million in 1998 from $10 million in 1997, an increase of $5.9 million.
The increase is primarily due to increased amortization costs associated with
goodwill recorded in connection with the acquisitions of Educational Finance
Group and National Motor Club.

Interest expense. Interest expense on corporate borrowings increased to
$3.1 million in 1998 from $2.9 million in 1997, an increase of $200,000.
Interest expense on student loan obligations was $19.2 million in 1998 and $-0-
in 1997.

Operating Income. Operating income decreased to $47.3 million in 1998
from $111.8 million in 1997, a decrease of $64.5 million, or 58%. Operating
income (loss) for each of the Company's segments and divisions was as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------
1998 1997
--------- ----------
(IN THOUSANDS)
<S> <C> <C>
Insurance:
Self Employed Agency..................................................... $ (4,765) $ 47,552
Student Insurance........................................................ 6,089 15,540
OKC...................................................................... 20,436 18,880
Special Risk............................................................. 5,805 7,988
National Motor Club...................................................... 5,099 2,024
--------- ----------
32,664 91,984
Financial Services:
Educational Finance Group................................................ (1,339) 2,020
Insurdata ............................................................... 3,277 2,637
Other Business Units..................................................... 441 (5,844)
--------- ----------
2,379 (1,187)
Other Key Factors.......................................................... 12,219 21,017
--------- ----------
$ 47,262 $ 111,814
========= ==========
</TABLE>

Self Employed Agency Division ("SEA"). The SEA Division generated a
loss of $4.8 million in 1998 compared to income of $47.6 million in 1997. The
lower earnings of SEA were the result of the losses on certain managed care
products and adjustments in the estimates of claim reserves based on an analysis
completed in 1998.

The losses on the managed care products resulted primarily from losses
from a specific PPO insurance product. The Company discontinued the marketing of
this PPO product in the first quarter of 1998. The losses on the managed care
products were due to higher loss ratios and a slower than anticipated
implementation of rate increases on the managed care products. The Company also
encouraged current in-force policyholders to raise their deductibles and
co-payment amounts.

The Company implemented a substantial rate increase on its PPO policies
beginning in April 1998 which was completed in October 1998. A new round of rate
increases was also imposed in October 1998. The marketing organizations were
successful in directing a larger portion of new sales to the Company's
traditional indemnity

<PAGE> 26

products, with respect to which the Company did not experience similar pricing
problems and higher claims volumes.

The claim reserving method employed by the previous administrator of a
portion of SEA's insurance business was not comparable to the traditional
reserving methods employed by the Company for its other self employed health
insurance. While both reserving methods are acceptable for statutory and GAAP
reporting, the Company's method is the more conservative of the two methods. The
decision to conform the two methods at a time when a continuing evaluation of
rates and rate changes was critical in managing the block to profitability.
Conforming the two methods resulted in an increase in the claim reserves of $12
million in March 1998.

Revenue for the SEA Division increased to $610.1 million for the year
ended in 1998 from $538.3 million in 1997, an increase of 13%. The increase in
revenues was the result of an increase in the proportion of direct business
compared to coinsured business. New sales in 1998 were lower than 1997 as a
result of fewer PPO products being sold.

Student Insurance Division. The Student Insurance Division reported
operating income of $6.1 million in 1998 compared to operating income of $15.6
million in 1997. The reduced earnings reflected lower margins resulting from
aggressive pricing in response to increased price competition and the impact of
regulatory and compliance issues, particularly in the university health
insurance market. Revenue for the Student Insurance Division increased to $111.0
million in 1998 from $97.6 million in 1997, an increase of 14%.

OKC Division. Operating income for the OKC Division increased to $20.4
million for the year ended in 1998 from operating income of $18.9 million in
1997, an increase of 8%. Operating income for this Division continued to
increase while the capital invested in this Division decreased. The reduced
capital is attributable to the fact that no major purchases of closed blocks of
life insurance policies were made during 1998 or 1997. The increased earnings
are the result of the development and marketing of new products and continuing
efforts to realize more profits from the closed blocks of policies. Revenue for
the OKC Division decreased to $98.8 million in 1998 from $100.5 million in 1997,
a decrease of 2%. The decrease in revenue is the result of lower revenues on the
closed blocks of life policies.

Special Risk Division. Operating income for the Special Risk Division
decreased to $5.8 million for the year in 1998 from operating income of $8.0
million in 1997. Included in operating income in 1997 is a gain of $2.7 million
from the sale of a discontinued health care solutions company. Revenue for the
Special Risk Division was $66.8 million in 1998 compared to $56.1 million in
1997, an increase of 19%. The major operations of this Division were acquired in
the second and third quarter of 1997.

National Motor Club. Operating income for the National Motor Club was
$5.1 million in 1998 compared to operating income of $2.0 million in 1997. The
Company acquired the National Motor Club in the third quarter of 1997. Revenue
for the twelve months ended December 31, 1998 was $27.3 million compared to
revenue of $10.3 million for the five months ended December 31, 1997.

Educational Finance Group ("EFG"). EFG reported an operating loss of
$1.3 million in 1998 compared to income of $2.0 million in 1997. Revenue for EFG
increased to $57.2 million in 1998 from $8.0 million in 1997.

In 1998, EFG significantly changed its business as it evolved from a
marketing company to an originator, holder, and servicer of student loans.
Student loans increased to $670.4 million at December 31, 1998 from $11.3
million at December 31, 1997. With this change, EFG also established funding
sources for the student loans. The first funding facility was entered into in
March 1998 and subsequently increased to $750 million.

In December 1998, EFG completed a $550 million Variable Rate Note
("VRN") facility, which replaced $550 million of the $750 million repurchase
facility. Approximately 97.0% of the notes issued under the VRN are rated AAA,
with the remainder rated BBB, by both Standard and Poor's and Moody's. These
high quality credit ratings greatly enhance the marketability of the notes. The
balance of the $750 million repurchase facility, or $200 million remains in
place. EFG continues to explore additional funding facilities that will provide
the short term, intermediate, and long term funding for the student loans which
will be originated.

<PAGE> 27

Insurdata. Insurdata generated operating income of $3.3 million in 1998
compared to operating income of $2.6 million in 1997. The operating income in
1998 was reduced by approximately $740,000 of expenses incurred in preparation
for an initial public offering of equity securities, which offering was not
consummated. Revenue generated by Insurdata increased to $41.2 million in 1998
from $25.1 million in 1997, an increase of 64%. Insurdata revenue from other
divisions of the Company were $21.1 million and $10.4 million in 1998 and 1997,
respectively.

Other Business Units. In the past, Other Business Units have primarily
been HealthCare Solutions companies. Over the past 18 months most companies in
this category have been sold or closed down, with the exception of Insurdata.
For 1998, the Company reported net income of $441,000, which included the sale
of IPN, LLC and HealthCare Automation, Inc. (collectively, "IPN") business units
(which were sold in July 1998) and the sale of the ATM transaction processing
assets of SunTech Processing Systems, LLC. ("STP"). The STP sale resulted in a
gain of $9.7 million from the sale of the assets of the business and IPN had a
loss from operations of $10.5 million in 1998.

Other Key Factors. Other key factors include investment income not
allocated to the other segments, interest expense, general expenses relating to
corporate operations, amortization of goodwill, realized gains or losses on sale
of investments and the AMLI operations. Operating income for other key factors
decreased to $12.2 million in 1998 from $21.0 million in 1997. The decrease in
1998 is mainly attributed to an increase in amortization of goodwill of $3.4
million and a decrease of $4.4 million in investment income on equity. The
decrease in investment income on equity is attributed to a decrease in
investment yield.

Discontinued Operations - - United CreditServ

Revenues generated by United CreditServ (consisting of interest, credit
card and other fees) increased to $123.2 million in 1998 from $50.3 million in
1997, an increase of 145%. The increase was primarily due to growth in new sales
from the ACE program started in 1997. Of the accounts added during 1998 under
the new program, 67% were added during the last four months of the year.
Operating income for United CreditServ increased to $43.5 million in 1998 from
$18.1 million in 1997, primarily attributable to increased credit card volumes.
United CreditServ's net managed credit card receivables increased to $233.4
million in 1998 from $95.5 million in 1997. A substantial portion of the
increased receivables was financed through a securitization of $60 million of
AFCA receivables in December 1998 and an increase in time deposits to $98.9
million at December 31, 1998 from $7.6 million at December 31, 1997.

RECENT DEVELOPMENTS

United CreditServ

The Consent Order requires UCNB, until further notice from the OCC, to
cease all activities with ACE and AFCA (its only marketing organizations). The
Consent Order further required UCNB, until further notice from the OCC, to cease
all transactions with affiliated parties (including UICI but excluding
Specialized Card Services, Inc., the servicer of UCNB's credit card accounts),
and to conduct an immediate review of all agreements with all third parties to
assess whether such agreements are on terms fair and reasonable to UCNB. UCNB
has engaged PricewaterhouseCoopers LLP to independently review the terms of all
agreements between UCNB and Specialized Card Services, Inc. (an indirect wholly
owned subsidiary of UICI and the servicer of UCNB's credit card accounts). On
March 27, 2000, UCNB submitted to the OCC its review of third party agreements
and PricewaterhouseCoopers LLP's review of agreements between UCNB and
Specialized Card Services, Inc.

<PAGE> 28

other things, appropriate risk management, internal control, management
information and data processing systems. Under the terms of the Consent Order,
UCNB is generally prohibited from increasing its assets in the future unless the
OCC has approved a capital plan submitted by UCNB and UCNB is in compliance with
the capital plan.

In accordance with the terms of the Consent Order, on March 29, 2000,
UCNB submitted to the OCC for its review and approval a capital plan (the
"Proposed Capital Plan"). The Proposed Capital Plan contemplates the orderly
disposition of United CreditServ's ownership interest in UCNB or the liquidation
of UCNB, the payment of all of UCNB's insured deposits and satisfaction of all
other UCNB liabilities, and the maintenance of minimum capital ratios. The
Proposed Capital Plan provides that United CreditServ will dispose of its
interest in UCNB or UCNB will dispose of all of its assets on or before December
31, 2000 (the "Plan Period"). To support its implementation, the Proposed
Capital Plan further contemplates that (a) UICI, United CreditServ and UICI's
principal shareholder will provide financial support to UCNB and deliver
collateral to UCNB to secure its obligations to provide such financial support
and (b) UCNB will be able to access the brokered deposit market on a limited
basis. Under the Proposed Capital Plan, it is currently expected that UICI will
be required to contribute an additional $25.0 million to the capital of UCNB
during the Plan Period. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources"

Transactions between an insured bank (including UCNB, the Company's
indirect wholly owned subsidiary) and its affiliates are subject to, among other
things, the quantitative and qualitative restrictions of Section 23A of the
Federal Reserve Act, as well as safety and soundness considerations. The OCC has
expressed criticism with respect to certain of the transactions that have taken
place between UCNB and the Company and/or certain of its wholly owned
subsidiaries. The Company disagrees, but it cannot predict at this time what
action, if any, the OCC will ultimately take with respect to these transactions.

UCNB's failure to comply with the terms of the Consent Order could also
result in sanctions brought against UCNB, its officers and directors and UCNB's
"institution-related parties," including the assessment of civil money penalties
and enforcement of the Consent Order in Federal District Court.

Educational Finance Group, Inc.

While revenues at Educational Finance Group, Inc. increased from $57.2
million in 1998 to $104.6 million in 1999, during 1999 EFG incurred an operating
loss in the amount of $19.9 million, compared to an operating loss of $1.3
million in 1998. The significant operating loss was attributable primarily to
increases in interest expense from higher borrowings and interest rates and
sustained operating losses at EFG Technologies Inc. and Education Loan
Administrators Group. EFG's AMS unit also incurred an operating loss in 1999,
due to the timing of the acquisition and the recording of revenues in the
tuition installment plan business of AMS, which revenues are recorded primarily
in May through August. The AMS acquisition was completed on July 26, 1999.

The Company believes it has taken steps to restore EFG to
profitability. In January 2000, UICI named William A. Hastings (formerly
President and Chief Executive Officer of AMS) to serve as President and Chief
Executive Officer of EFG, and Mr. Hastings and his management team have been
charged with assessing all aspects of EFG's operations and lines of business.

HealthAxis.com, Inc.

During 1999 the Company held a 100% interest in Insurdata Incorporated
("Insurdata"), a provider of Internet-enabled, integrated proprietary software
applications that address the workflow and processing inefficiencies embedded in
the healthcare insurance industry. On January 7, 2000, Insurdata merged with and
into HealthAxis.com, Inc. ("HealthAxis.com"), a web-based retailer of health
insurance products and related consumer services. Following the merger, the
Company held approximately 44%, and HealthAxis, Inc. (formerly Provident
American Corporation) ("HAI") held approximately 28.1%, of the issued and
outstanding capital stock of HealthAxis.com, the surviving corporation in the
merger. On March 14, 2000, the Company sold in a private sale to an
institutional purchaser 2,000,000 shares of HealthAxis.com common stock, and,
giving effect to such sale, the Company holds 39% of the issued and outstanding
shares of common stock of HealthAxis.com.

<PAGE> 29

transactions, HealthAxis.com shareholders (including the Company) will receive
1.127 shares of HAI common stock for each share of HealthAxis.com common stock
outstanding. Under the terms of the transaction, HAI will issue new shares to
acquire all of the outstanding HealthAxis.com shares that HAI does not already
own. The consummation of the merger is subject to various conditions, including
the approval of both HAI and HealthAxis.com shareholders, as well as regulatory
approval. The closing of the merger is currently anticipated to occur during the
second quarter of 2000. It is anticipated that, following the merger, the
Company will hold approximately 20.1 million shares (representing 43.2%) of the
issued and outstanding shares of HAI, of which 10.0 million shares (representing
21.6%) will be subject to the terms of a Voting Trust Agreement, pursuant to
which trustees unaffiliated with the Company will have the right to vote such
shares.

Debt Restructuring

In May 1999, the Company entered into a $100 million unsecured credit
facility with a group of commercial banks. Amounts outstanding under the credit
facility initially bore interest at an annual rate of LIBOR plus 75 basis points
(0.75%). At December 31, 1999, the Company had fully drawn on the credit
facility, of which $50 million was used to repay $50 million of debt outstanding
under the Company's prior bank facility and $50 million was used to fund the
UMMG and AMS acquisitions (completed in May 1999 and July 1999, respectively)
and current operations. Effective December 31, 1999, the interest rate on
amounts outstanding under the credit facility was increased to LIBOR plus 100
basis points (1.00%).

On March 14, 2000, UICI reduced indebtedness outstanding under the
credit facility from $100.0 million to $25.0 million, utilizing $5.0 million of
cash on hand and the proceeds of a $70.0 million loan from a limited liability
company controlled by the Company's Chairman ("Lender LLC"). As part of the
paydown, the bank credit facility was amended to provide, among other things,
that the $25.0 million balance outstanding will be due and payable on July 10,
2000, amounts outstanding under the facility are secured by a pledge of
investment securities and shares of Mid-West National Life Insurance Company of
Tennessee, and the restrictive covenants formerly applicable to UICI and its
restricted subsidiaries (primarily the Company's insurance companies) will now
be applicable solely to Mid-West. Amounts outstanding under the bank credit
facility will continue to bear interest at LIBOR plus 100 basis points per
annum.

Lender LLC loaned $70.0 million to a newly-formed subsidiary of the
Company. The loan bears interest at the prevailing prime rate, is guaranteed by
UICI, is due and payable in July 2001 and is secured by a pledge of investment
securities and shares of the Company's National Motor Club unit. No principal
outstanding under the loan from Lender LLC can be paid unless all amounts
outstanding under the bank credit facility are paid in full.

Giving effect to the restructuring, at March 13, 2000, UICI and its
consolidated subsidiaries had approximately $159.5 million of long and short
term indebtedness outstanding (other than indebtedness under student loan
funding facilities), bearing interest at a weighted average annual rate of
8.18%.

QUARTERLY RESULTS

On March 17, 2000 the Board of Directors of UICI determined, after a
thorough assessment of the unit's prospects, that it will exit from its United
CreditServ sub-prime credit card business. Accordingly, the United CreditServ
unit has been reflected as a discontinued operation for financial reporting
purposes. The Company currently expects to complete the sale of the United
CreditServ unit during the year 2000. UICI has recorded in the fourth quarter of
1999 its current estimate of loss that it believes it will incur on disposal of
the United CreditServ unit. The Company currently estimates that such pre-tax
loss will be $130 million. The estimate includes asset write-downs, the
estimated loss on the sale of the business and/or the assets and continuing
losses through date of sale. The loss the Company will ultimately realize upon
disposal of the discontinued operation could differ materially from the current
estimate.

Previously released quarterly financial information has been restated
to reflect (a) the classification of the United CreditServ credit card business
as a discontinued operation in 1998 and 1999; (b) the retroactive application,
beginning on January 1, 1999, of a revised methodology for determining credit
card loan losses and carrying value of residual assets, (c) the write-off in the
second quarter of 1999 of the $35.9 million purchase price of the UMMG minority
interest acquired in the second quarter of 1999; (d) a downward adjustment to
Educational Finance Group's

<PAGE> 30
interest income in the amount of $5.5 million in the second quarter of 1999; and
(e) the recording of compensation expense in the amount of $5.3 million
associated with stock option exercises in the third quarter of 1999. The
application of the revised methodology for determining loan loss reserves and
the carrying value of a residual interest in securitized assets, the write-off
of the UMMG minority interest purchase price, the adjustment to EFG's interest
income and the recording of additional compensation expense reduced in the
aggregate previously reported net income in the second and third quarters of
1999 by $51.7 million ($1.08 per share) and $38.3 million ($0.80 per share),
respectively.

In addition, the fourth quarter 1999 results from continuing operations
were impacted by several significant adjustments, including (a) a $5.0 million
accrual for professional fees, (b) a write off of previously capitalized
software and system development costs in the amount of $2.3 million at the
Company's Student Insurance Division, (c) a strengthening of insurance reserves
associated with the Company's Special Risk operations in the amount of $3.5
million, and (d) a write off in the amount of $9.0 million to adjust Educational
Finance Group, Inc.'s student loan balance.

The following table presents the information for each of the Company's
fiscal quarters in 1999 and 1998 as originally reported and as restated to
reflect adjustments described above. 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 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.

<PAGE> 31

<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------------
DEC. 31, SEPT. 30, JUNE 30, MARCH 31, DEC. 31, SEPT. 30, JUNE 30, MARCH 31,
1999 1999 1999 1999 1998 1998 1998 1998
--------- --------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues from continuing
operations:
As restated ............. $256,129 $251,393 $251,389 $254,272 $261,461 $258,083 $277,295 $259,912
As included in amounts
previously reported .. -- 251,393 256,936 254,272 261,461 258,083 277,295 259,912

Income (loss) from
continuing operations
before federal
income taxes:
As restated ................ (6,017) 21,893 18,554 16,422 14,735 10,072 14,152 8,303
As previously reported ..... -- 26,893 24,101 16,422 14,735 10,072 14,152 8,303

Income (loss) from
continuing
operations:
As restated ............... (4,186) 15,254 10,868 11,314 10,389 6,394 9,672 5,068
As previously reported .... -- 18,344 16,415 11,314 10,389 6,394 9,672 5,068

Income (loss) from
discontinued operations:
As restated ............... (120,904) (29,081) (38,713) 9,566 12,234 7,137 4,786 3,089
As previously reported .... -- 6,112 7,433 9,566 12,234 7,137 4,786 3,089

Net income (loss):
As restated ............... (125,090) (13,827) (27,845) 20,880 22,623 13,531 14,458 8,157
As previously reported .... -- 24,456 23,848 20,880 22,623 13,531 14,458 8,157

Basic earnings (loss) for
common stockholders per
common share:

Income from continuing
operations:
As restated ............... (0.09) 0.33 0.24 0.24 0.23 0.14 0.20 0.11
As previously reported .... -- 0.40 0.36 0.24 0.23 0.14 0.20 0.11

Income (loss) from
discontinued operations:
As restated ............... (2.61) (0.63) (0.84) 0.21 0.26 0.15 0.11 0.07
As previously reported .... -- 0.12 0.16 0.21 0.26 0.15 0.11 0.07

Net income(loss):
As restated ............... (2.70) (0.30) (0.60) 0.45 0.49 0.29 0.31 0.18
As previously reported .... -- 0.52 0.52 0.45 0.49 0.29 0.31 0.18

Diluted earnings (loss)
for common stockholders
per common share:

Income from continuing
operations:
As restated ............... (0.09) 0.32 0.23 0.24 0.22 0.14 0.20 0.11
As previously reported .... -- 0.38 0.34 0.24 0.22 0.14 0.20 0.11

Income (loss) from
discontinued operations:
As restated ............... (2.53) (0.61) (0.81) 0.20 0.26 0.15 0.11 0.07
As previously reported .... -- 0.13 0.16 0.20 0.26 0.15 0.11 0.07

Net income (loss):
As restated ............... (2.62) (0.29) (0.58) 0.44 0.48 0.29 0.31 0.18
As previously reported .... $ -- $ 0.51 $ 0.50 $ 0.44 $ 0.48 $ 0.29 $ 0.31 $ 0.18
</TABLE>

<PAGE> 32

Computation of earnings per share for each quarter is made
independently of earnings per share for the year.

HEALTH CARE REFORM

Many proposals have been introduced in Congress and various state
legislatures to further reform the present health care system. Current
initiatives are specifically directed toward protecting patient's rights and
confidentiality. These initiatives are expected to affect the Company's business
processes and procedures. At the federal level, new laws and regulations
directed toward patient's rights and privacy have been introduced, passed,
and/or adopted. At the state level, a number of states have followed Congress's
lead and have passed or are considering legislation that would provide further
patient protection and confidentiality requirements. In some cases, the states
are mandated by federal law to functionally regulate insurance entities in these
areas.

The Company is unable to predict when or whether any additional 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 additional health care reform legislation could adversely affect the
Company's results of operations. The Company has been proactively involved in an
advocacy role concerning such regulatory initiatives and is in a position to
evaluate and recommend the Company's position with respect to such initiatives.

INCOME TAXES

The Company's effective tax rate was 34.3% for 1999 compared to 31.0%
for 1998 and 31.9% for 1997. The 1999, 1998, and 1997 effective rate 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 along with
certain tax credits and the change in the valuation allowance related to
deferred tax assets. In 1999, no tax benefit was recognized for certain
operating loss carryforwards. As of December 31, 1999, the Company has
recognized a net deferred tax asset of $84.2 million. Realization of the net
deferred tax asset is dependent on generating sufficient taxable income prior to
expiration of loss carryforwards. Although realization is not assured,
management believes it is more likely than not that all of the deferred tax
assets will be realized. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced.

LIQUIDITY AND CAPITAL RESOURCES

General

Historically, the Company's primary sources of cash have been premium
revenues from policies issued, investment income, fees and other income,
deposits to fund the credit card receivables, and borrowings to fund student
loans. The primary uses of cash have been payments for benefits, claims and
commissions under those policies, operating expenses and the funding of credit
card receivables and student loans. Net cash used in operations totaled
approximately $58.3 million in 1999. Net cash provided from operations totaled
$140.5 million and $145.6 in 1998 and 1997, respectively. The Company's
insurance subsidiaries invest a substantial portion of these funds, pending
payment of the subsidiaries' pro rata share of future benefits and claims.

The 1999 operating losses at United CreditServ have had and will
continue to have a material adverse effect upon the liquidity and cash flow of
the Company. Since December 30, 1999, UICI through United CreditServ has
contributed to UCNB as capital an aggregate of $105.1 million in cash, including
additional cash in the amount of $17.0 million contributed on March 27, 2000.
UICI has funded these cash contributions with the proceeds of sale of investment
securities, regular cash dividends from its insurance company subsidiaries and
cash on hand.

UICI is a holding company, the principal assets of which are its
investments in its separate operating subsidiaries, including its regulated
insurance subsidiaries. The holding company's ability to fund its cash
requirements is largely dependent upon its ability to access cash, by means of
dividends or other means, from its subsidiaries. Dividends paid by the Company's
domestic insurance subsidiaries in any year are restricted by the laws of the
state of such subsidiaries' domicile. Inability to access cash from its
subsidiaries could have a material adverse effect upon the Company's liquidity
and capital resources.

In connection with the Company's designation of United CreditServ as
a discontinued operation, the Company has recorded in 1999 a loss in the amount
of $130.0 million, which represents its current estimate of ultimate loss upon
disposal for financial reporting purposes. As part of its plan to exit from the
credit card business on or before December 31, 2000 and in accordance with the
terms of the Consent Order issued by the OCC, the Company also expects that UCNB
will enter into a capital plan designed to meet Federal bank regulatory
requirements. Based on current projections, the Company believes that its exit
from the credit card business will require the holding company to generate
additional cash in the amount of approximately $92.0 million to fund future
operating losses of the credit card business, including approximately $25.0
million which will be required to be contributed as additional capital to UCNB
pursuant to the capital plan. In addition, through December 31, 2000 the holding
company will have additional cash requirements in the amount of approximately
$32.0 million, of which $25.0 million represents a mandatory principal payment
owing on its bank credit facility in July 2000.

The Company currently anticipates that these cash requirements at the
holding company level will be funded by cash on hand ($40.0 million at April 4,
2000), possible sales of certain of its operating subsidiaries, sales of
investment securities, proceeds from refinancing of indebtedness, proceeds from
the issuance by the holding company of debt and/or equity securities, or regular
dividends from its regulated insurance subsidiaries, if required. It is likely
that the payment of dividends from its regulated insurance subsidiaries will
adversely affect the insurance subsidiaries' claims paying and AM Best ratings.
Nonetheless, the Company's domestic insurance subsidiaries, without prior
approval of the state regulatory authorities, could currently pay aggregate
dividends to the holding company in the amount of approximately $30.7 million
and an additional $19.8 million after December 22, 2000.

There can be no assurance that the cash requirements at the holding
company level will not exceed current estimates, or that the holding company
will be able to raise sufficient cash to fund cash requirements on a timely
basis.

United CreditServ

UCNB's unsecuritized net credit card receivables increased from $136.3
million at December 31, 1998 to $190.7 million at December 31, 1999, which
growth was funded with the proceeds of deposits at UCNB. Time deposits at UCNB
increased from $99 million at December 31, 1998 to $290 million at December 31,
1999. In accordance with the terms of a Consent Order issued by the OCC, UCNB is
currently prohibited from accessing the brokered deposit market and from
soliciting or accepting deposits over the Internet. At March 31, 2000, UCNB had
$296.0 million of certificates of deposits outstanding, the majority of which
are scheduled to mature over the next six months. At March 31, 2000, UCNB had
approximately $160.0 million in cash, cash equivalents and short term U.S.
Treasury securities.

<PAGE> 33
The Company securitized $60.0 million, $30.0 million and $29.0 million
of credit card receivables in 1998, 1997 and 1996, respectively. The Company did
not securitize any credit card receivables in 1999. The Company purchased
participating interests in such securitizations in the aggregate principal
amount of $6.0 million, $3.0 million and $2.9 million in 1998, 1997 and 1996,
respectively. On December 30, 1999, the Company sold for cash at par $10.0
million principal amount of such participating interests to Ronald L. Jensen
(the Company's Chairman). See Note L of Notes to Consolidated Financial
Statements.

UCNB is subject to risk-based capital guidelines adopted by the OCC.
Risk-based capital ratios are determined by allocating assets and specified
off-balance sheet commitments to several weighted categories, with higher levels
of capital being required for the categories perceived as representing greater
risk. Under current guidelines, in order to be considered "adequately
capitalized," institutions are required to maintain a minimum total risk-based
capital ratio (total Tier 1 and Tier 2 capital to risk-weighted assets) of 8%,
and a Tier 1 risk-based capital ratio (Tier 1 capital to risk-weighted assets)
of 4%. The OCC has also established guidelines prescribing a minimum "leverage
ratio" (Tier 1 capital to adjusted total assets as specified in the guidelines)
of 3% for institutions that meet certain criteria, including the requirement
that they have the highest regulatory rating, and a minimum of 4% for
institutions that do not meet the criteria. The OCC may, however, set higher
capital requirements when an institution's particular circumstances warrant.

As of December 31, 1999 (giving effect to all capital contributions
made subsequent to December 31, 1999), UCNB had a total risk-based capital ratio
of 13.10%, a Tier 1 risk-based capital ratio of 11.40% and a leverage ratio of
6.79%. The Board of Directors of UCNB has established a policy of maintaining a
Tier I leverage ratio of 8%, a Tier I risk-based capital ratio of 10% and a
total risk-based capital ratio of not less than 12%.

The Federal Deposit Insurance Corporation Improvement Act of
1991("FDICIA") expanded the powers of federal bank regulatory authorities to
take corrective action with respect to banks that do not meet minimum capital
requirements. For these purposes, FDICIA established five capital tiers: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized. Under regulations adopted by
the OCC, an institution is generally considered to be "well capitalized" if it
has a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based
capital ratio of 6% or greater, and a leverage ratio of 5% or greater;
"adequately capitalized" if it has a total risk-based capital ratio of 8% or
greater, a Tier 1 risk-based capital ratio of 4% or greater and, generally, a
leverage ratio of 4% or greater; and "undercapitalized" if it does not meet any
of the "adequately capitalized" tests. An institution is deemed to be
"significantly undercapitalized" if it has a total risk-based capital ratio
under 3% and "critically undercapitalized" if it has a ratio of tangible equity
(as defined in the regulations) to total assets that is equal to or less than
2%. An "adequately capitalized" institution is permitted to accept brokered
deposits only if it receives a waiver from the FDIC and pays interest on
deposits at a rate that is not more than 75 basis points higher than the
prevailing rate in its market. Undercapitalized institutions cannot accept
brokered deposits, are subject to growth limitations and must submit a capital
restoration plan. "Significantly undercapitalized" institutions may be subject
to a number of additional requirements and restrictions. "Critically
undercapitalized" institutions are subject to appointment of a receiver or
conservator.

A liquidity and capital assurances agreement, dated May 15, 1998,
between UICI and UCNB provides that, upon demand by UCNB, UICI will purchase
certificates of deposit issued by UCNB to assure sufficient liquidity to meet
UCNB's funding demands and will contribute capital to UCNB sufficient for UCNB
to comply with its stated policy of maintaining a total (Tier I and Tier II)
risk-based capital ratio of at least 12%.

<PAGE> 34

Plan, it is currently expected that UICI will be required to contribute an
additional $25.0 million to the capital of UCNB during the Plan Period.

The Proposed Capital Plan is expressly subject to the review and
approval of the OCC and the FDIC. There can be no assurance that the OCC or the
FDIC will approve the Proposed Capital Plan in its current form. If the OCC
and/or FDIC fails to approve the Proposed Capital Plan or some mutually
acceptable alternative plan, UCNB could be required to liquidate its assets on a
short term basis and the Company could be required to fund the resulting losses
immediately. Such a requirement would have a material adverse effect upon the
Company's liquidity, results of operations and financial condition.

UCNB has commitments to fund the unused credit limits on issued credit
card accounts. At December 31, 1999 and 1998, the outstanding commitment was
$33.8 million and $31.0 million, respectively.

Educational Finance Group, Inc.

EFG's student loan portfolio increased from $670 million at December
31, 1998 to $1.326 billion at December 31, 1999. This growth was funded
utilizing the proceeds from EFG's student loan credit facility (which had a
balance outstanding of $398 million at December 31, 1999) and the issuance of
long term notes.

In March 1998, Educational Finance Group, Inc. entered into a master
repurchase agreement and credit facility with a financial institution that is
partially guaranteed by the Company. The repurchase agreement provides for the
purchase of student loans by the financial institution, and the financial
institution may put the student loans back to EFG on the last day of each month.
EFG, in turn, has the right to require the financial institution to repurchase
the student loans on such date, with the interest rate on the credit facility
reset on such date. The credit facility provides for up to $150 million of
financing and may be increased subject to monthly confirmations. The credit
facility had an outstanding balance of $318.8 million and $318.9 million at
December 31, 1999 and 1998, respectively, and bears interest at a variable
annual rate of LIBOR plus 75 basis points (7.23% at December 31, 1999). The
credit facility has a term of one year and is secured by student loans
originated under the Federal Family Education Loan Program ("FFELP"), which are
guaranteed by the federal government or alternative loans guaranteed by private
guarantors. The financial institution may value the loans at any time and
require EFG to repay any amount by which the market value of the loans is less
than the amount required by the credit facility.

On June 11, 1999, a special purpose financing subsidiary of EFG sold,
in a private placement transaction, $319.5 million principal amount of Auction
Rate Student Loan-Backed Notes at an initial interest rate of 5.038%. The
interest rate on the notes is reset monthly through an auction process. The
notes were sold in two equal tranches and mature in November 2022. The notes
received a "AAA" credit rating from Standard & Poor's and Fitch IBCA and an
"Aaa" rating from Moody's Investor Services.

Effective August 6, 1999, EFG completed a $650 million single seller
asset-backed commercial paper conduit through its special purpose entity, EFG
Funding, LLC. Approximately $515 million of commercial paper was issued under
the facility in a private placement transaction. The commercial paper bears
annual interest at rates ranging from 5.05% to 5.69%. Commercial paper is issued
under the conduit from time to time with maturities from one to 270 days.
Liquidity support is provided by a separate banking facility. The commercial
paper received ratings of A1/P1/F1 from Standard & Poor's, Moody's, and Fitch,
respectively.

On October 7, 1999 EFG completed a $344 million financing of three
classes of notes. The $229 million Class A-1 notes were structured as
three-month LIBOR floating rate notes and were priced with a spread of 42 basis
points with the interest rate to be reset quarterly. The Class A-1 notes have an
expected average life of 3.5 years with legal final maturity in April 2009. The
$57.5 million Class A-2 and $57.5 million Class A-3 notes were structured as
auction rate notes with an initial interest rate of 6.38%. The interest rate
(6.38% at December 31, 1999) on these notes is reset quarterly pursuant to
auctions conducted by Lehman Brothers and BancAmerica Securities. Legal final
maturity of the A-2 and A-3 notes is July 2000. Lehman Brothers and Banc of
America Securities were the initial purchasers of all three classes of notes.
All three classes of notes received AAA/Aaa/AAA ratings from Standard & Poor's,
Moody's and Fitch IBCA respectively.

In connection with its AMS business, at December 31, 1999, the Company
had $113 million of restricted cash representing amounts collected under the
tuition plan program and a corresponding liability due to the various
educational institutions.

Other Matters

In 1998, the Company borrowed $12.0 million on a revolving credit note
extended by AEGON USA. The funds were used to fund the student loan credit
facility. The Company had no outstanding balance on its revolving

33
<PAGE> 35
credit note with AEGON USA at December 31, 1998. On May 17, 1999, the Company
terminated this line of credit. The Company did not borrow on this revolving
note during 1999.

During 1997, the Company acquired four companies and certain assets for
$88.3 million in cash. Total fair value of assets acquired were $112.1 million
and total fair value of liabilities assumed were $23.8 million.

Effective January 1, 1997, the Company acquired the agency force and
certain assets of United Group Association, Inc., for a price equal to the net
book value of the tangible assets acquired and assumed certain agent commitments
of $3.9 million. The tangible assets acquired consist primarily of agent debit
balances, a building, and related furniture and fixtures having a net book value
of $13.1 million, which approximates fair market value of the tangible assets.

The state of domicile of each of the Company's domestic insurance
subsidiaries imposes minimum risk-based capital requirements that were developed
by the NAIC. 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. At December 31,
1999, the risk-based capital ratio of each of the Company's domestic insurance
subsidiaries significantly exceeded the ratios for 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 "Item 5. Market
for Registrant's Common Stock and Related Stockholder Matters" and Note K to
Notes to the Consolidated Financial Statements.

INVESTMENTS

General. The Company has an Investment Committee that monitors the
investment portfolio of the Company and its subsidiaries. The Investment
Committee receives investment management services from external professionals.

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.

Shown below are the Company's investments by category:

<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------------- --------------------------
% OF TOTAL % OF TOTAL
CARRYING CARRYING CARRYING CARRYING
AMOUNT VALUE AMOUNT VALUE
------------ ---------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Securities available for sale--
Fixed maturities, at fair value
(cost: 1999-- $904,662; 1998-- $865,589) $ 861,337 82.9% $ 886,406 78.4%
Equity securities, at fair value
(cost: 1999-- $25,951; 1998-- $18,077) 23,079 2.2 18,320 1.6
Mortgage and collateral loans.............. 6,324 0.6 8,266 0.7
Policy loans............................... 20,444 2.0 21,332 1.9
Investment in unconsolidated subsidiary.... 47,696 4.6 45,843 4.0
Short-term investments..................... 79,608 7.7 151,007 13.4
------------ ----- ------------ -----
Total investments................ $ 1,038,488 100.0% $ 1,131,174 100.0%
============ ===== ============ =====
</TABLE>

<PAGE> 36

Investment accounting policies. The Company has classified its entire
fixed maturity portfolio as "available for sale." This classification requires
the portfolio to be carried at fair value with the resulting unrealized gains or
losses, net of applicable income taxes, reported in accumulated other
comprehensive income 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.

Fixed maturity securities. Fixed maturity securities accounted for
82.9% of the Company's total investments at December 31, 1999. Fixed maturity
securities consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------
% OF TOTAL
CARRYING CARRYING
VALUE VALUE
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
U.S. Treasury and U.S. Government agency obligations............................ $ 61,471 7.2%
Corporate bonds................................................................. 555,865 64.5
Mortgage-backed securities issued by U.S. Government
agencies and authorities...................................................... 63,700 7.4
Other mortgage and asset backed securities...................................... 180,301 20.9
--------- -----
$ 861,337 100.0%
========= =====
</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. 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 Company's 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.

As of December 31, 1999, $826.6 million or 96% of the fixed maturity
securities portfolio was rated BBB or better (investment grade) and only $34.7
million or 4% of the fixed maturity securities portfolio was invested in below
investment grade securities (less than BBB). A quality distribution for fixed
maturity securities is as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------
% OF TOTAL
CARRYING CARRYING
VALUE VALUE
--------- ----------
(IN THOUSANDS)
<S> <C> <C>
RATING
U.S. Governments and AAA........................................................ $ 246,514 28.6%
AA.............................................................................. 81,645 9.5
A............................................................................... 295,161 34.3
BBB............................................................................. 203,287 23.6
Less than BBB................................................................... 34,730 4.0
--------- ------
$ 861,337 100.0%
========= =====

</TABLE>

35
<PAGE> 37
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
major hospital insurance coverage, established ceilings for covered expenses
limit the impact of inflation on the amount of claims paid. Under catastrophic
hospital expense plans and preferred provider contracts, 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
and preferred provider 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 and subject to regulatory approval in most
cases.

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 PRONOUNCEMENTS

At December 31, 1999 and 1998, the Company had accrued $1.8 million and
$1.9 million, respectively, for future assessments. The period over which the
assessments are expected to be paid and the recorded premium tax offsets and/or
policy surcharges are expected to be realized is up to 5 and 10 years,
respectively. Expenses incurred for guaranty fund assessments were $587,000 and
$331,000 in 1999 and 1998, respectively.

In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in years beginning after June 15, 2000. Because of the
Company's minimal use of derivatives, management does not anticipate that the
adoption of the new Statement will have a significant effect on earnings or the
financial position of the Company.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss arising from adverse changes in market
rates and prices, such as interest rates, foreign currency exchange rates, and
other relevant market rate or price changes. Market risk is directly influenced
by the volatility and liquidity in the markets in which the related underlying
assets are traded.

The primary market risk to the Company's investment portfolio is
interest rate risk associated with investments and the amount of interest that
policyholders expect to have credited to their policies. The interest rate risk
taken in the investment portfolio is managed relative to the duration of the
liabilities. The Company's investment portfolio consists mainly of high quality,
liquid securities that provide current investment returns. The Company believes
that the annuity and universal life-type policies are generally competitive with
those offered by other insurance companies of similar size. The Company does not
anticipate significant changes in the primary market risk exposures or in how
those exposures are managed in the future reporting periods based upon what is
known or expected to be in effect in future reporting periods.

Profitability of the student loans is affected by the spreads between
the interest yield on the student loans and the cost of the funds borrowed under
the various credit facilities. Although the interest rates on the student loans

<PAGE> 38

and the interest rate on the credit facilities are variable, the interest earned
uses the 91-day T-bill as the base rate while the base rate on the credit
facilities is LIBOR.

United CreditServ's operations are subject to risk resulting from
interest rate fluctuations to the extent that there is a difference between the
amount of interest earned on the credit cards and the amount of the interest
paid on the time deposits. The maturity of the time deposits is less than one
year.

Sensitivity analysis is defined as the measurement of potential loss in
future earnings, fair values or cash flows of market sensitive instruments
resulting from one or more selected hypothetical changes in interest rates and
other market rates or prices over a selected time. In the Company's sensitivity
analysis model, a hypothetical change in market rates is selected that is
expected to reflect reasonably possible near-term changes in those rates. "Near
term" is defined as a period of time going forward up to one year from the date
of the consolidated financial statements.

In this sensitivity analysis model, the Company uses fair values to
measure its potential loss. The primary market risk to the Company's market
sensitive instruments is interest rate risk. The sensitivity analysis model uses
a 100 basis point change in interest rates to measure the hypothetical change in
fair value of financial instruments included in the model. For invested assets,
duration modeling is used to calculate changes in fair values. Duration on
invested assets is adjusted to call, put and interest rate reset features.

The sensitivity analysis model produces a loss in fair value of market
sensitive instruments of $40.1 million based on a 100 basis point increase in
interest rates as of December 31, 1999. This loss value only reflects the impact
of an interest rate increase on the fair value of the Company's financial
instruments.

The Company has not used derivative financial instruments in managing
its market risk.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The audited consolidated financial statements of the Company and other
information required by this Item 8 are included in this Form 10-K beginning on
page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

<PAGE> 39

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

See the Company's Proxy Statement to be filed in connection with the
2000 Annual Meeting of Shareholders, of which the section entitled "Election of
Directors" is incorporated herein by reference.

For information on executive officers of the Company, reference is made
to the item entitled "Executive Officers of the Company" in Part I of this
report.

ITEM 11. EXECUTIVE COMPENSATION

See the Company's Proxy Statement to be filed in connection with the
2000 Annual Meeting of Stockholders, of which the subsection entitled "Executive
Compensation" is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

See the Company's Proxy Statement to be filed in connection with the
2000 Annual Meeting of Stockholders, of which the subsection entitled "Nominees"
and the subsection entitled "Beneficial Ownership of Common Stock" are
incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

See the Company's Proxy Statement to be filed in connection with the
2000 Annual Meeting of Stockholders, of which the subsection entitled "Certain
Relationships and Related Transactions" is incorporated herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) Financial Statements

The following consolidated financial statements of UICI and subsidiaries are
included in Item 8:

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report on Financial Statements and Financial Statement Schedules........ F-2
Consolidated Balance Sheets-- December 31, 1999 and 1998...................................... F-3
Consolidated Statements of Operations-- Years ended December 31, 1999, 1998, and 1997......... F-4
Consolidated Statements of Stockholders' Equity-- Years ended December 31, 1999, 1998,
And 1997.................................................................................... F-5
Consolidated Statements of Cash Flows-- Years ended December 31, 1999, 1998, and 1997......... F-6
Notes to Consolidated Financial Statements.................................................... F-7
</TABLE>

Financial Statement Schedules

<TABLE>

<S> <C>
Schedule II -- Condensed Financial Information of Registrant December 31, 1999, 1998,
and 1997:
UICI (Parent Company)........................................................ F-51
Schedule III-- Supplementary Insurance Information............................................ F-54
Schedule IV-- Reinsurance..................................................................... F-56
Schedule V-- Valuation and Qualifying Accounts................................................ F-57
</TABLE>

<PAGE> 40

All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are not applicable and therefore have
been omitted.

(a) 3. Exhibits

The response to this portion of Item 14 is submitted as a separate section
of this report beginning on page 41.

(b) Reports on Form 8-K

1. A current report on Form 8-K dated October 5, 1999 regarding the
pending merger between UICI and HealthPlan Services.

2. A current report on Form 8-K dated December 9, 1999 announcing
that the Company anticipated recording a fourth quarter pre-tax
operating loss at its United CreditServ subsidiary and agreement
to merge the Company's wholly owned subsidiary, Insurdata
Incorporated, and HealthAxis.com.

3. A current report on Form 8-K dated December 20, 1999 announcing
that the Company and certain officers had been named as
defendants in a series of purported class action lawsuits
alleging violations of federal securities laws arising in
connection with recently-announced losses at its credit card
unit.

4. A current report on Form 8-K dated February 10, 2000 regarding
delay of fourth quarter and full year operating results.

5. A current report on Form 8-K dated February 18, 2000 regarding
announcement of execution of amended and restated Agreement and
Plan of Merger with HealthPlan Services Corporation.

6. A current report on Form 8-K dated February 28, 2000 announcing
that United Credit National Bank had agreed to the issuance by
the Office of Comptroller of the Currency of a Consent Order.

7. A current report on Form 8-K dated March 23, 2000 announcing
additional fourth quarter pre-tax operating losses at United
CreditServ.

<PAGE> 41

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

UICI

By /s/ GREGORY T. MUTZ
--------------------------------------
Gregory T. Mutz,
President and Chief Executive Officer
Date April 5, 2000

Pursuant to the requirements of Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

SIGNATURE DATE
--------- ----
<S> <C>
RONALD L. JENSEN* April 5, 2000
- -------------------------------------------------------
Ronald L. Jensen,
Chairman of the Board and Director

/s/ GREGORY T. MUTZ April 5, 2000
- -------------------------------------------------------
Gregory T. Mutz,
President, Chief Executive Officer, Principal
Financial Officer and Director

/s/ CONNIE PALACIOS April 5, 2000
- -------------------------------------------------------
Maria Consuelo Palacios
Controller
(Chief Accounting Officer)

STUART D. BILTON* April 5, 2000
- -------------------------------------------------------
Stuart D. Bilton,
Director

GEORGE H. LANE, III* April 5, 2000
- -------------------------------------------------------
George H. Lane, III,
Director

PATRICK J. MCLAUGHLIN* April 5, 2000
- -------------------------------------------------------
Patrick J. McLaughlin,
Director

RICHARD T. MOCKLER* April 5, 2000
- -------------------------------------------------------
Richard T. Mockler,
Director

*By: /s/ GLENN W. REED April 5, 2000
----------------------------------------------------
Glenn W. Reed
(Attorney-in-fact)
</TABLE>

<PAGE> 42

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
2 -- 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(A) -- Certificate of Incorporation of UICI, as amended, filed as
Exhibit 4.1 (a) to Registration Statement on Form S-8, File No.
333-85113, filed with the Securities and Exchange Commission on
August 13, 1999 and incorporated by reference herein.

3.2(A) -- Restated By-Laws, as amended, of the Company, filed as Exhibit
4.1(b) to Registration Statement on Form S-8 File No. 333-85113,
filed with the Securities and Exchange Commission on August 13, 1999
and incorporated by reference herein.

10.1(B) -- Reinsurance Agreement between AEGON USA Companies and UICI
Companies Effective January 1, 1995, as amended through November 21,
1995 and incorporated by reference herein.

10.1(C) -- Amendment No. 3 to Reinsurance Agreement between AEGON USA
Companies and UICI Companies effective April 1, 1996, and filed as
Exhibit 10.1 to the Company's Current Report on Form 8-K dated April
1, 1996 (File No. 0-14320), and incorporated by reference herein.
The Amendment No. 3 amends the Reinsurance Agreement between AEGON
USA Companies and UICI Companies effective January 1, 1995, as
amended through November 21, 1995, filed as Exhibit 10.1(B) on
Annual Report on Form 10-K for year ended December 31, 1995, (File
No. 0-14320), filed on March 29, 1996, and incorporated by reference
herein.

10.2 -- Agreements Relating to United Group Association Inc., filed as
Exhibit 10-2 to the Registration Statement on Form S-18, File No.
2-99229, filed with the Securities and Exchange Commission on July
26, 1985 and incorporated by reference herein.

10.3 -- Agreement for acquisition of capital stock of Mark Twain Life
Insurance Corporation by Mr. Ronald L. Jensen, filed as Exhibit 10-4
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.

10.3(A) -- Assignment Agreement among Mr. Ronald L. Jensen, the Company
and Onward and Upward, Inc. dated February 12, 1986 filed as Exhibit
10-4(A) to Amendment No. 1 to Registration Statement on Form S-1,
File No. 33-2998, filed with the Securities and Exchange Commission
on February 13, 1986 and incorporated by reference herein.

10.4 -- Agreement for acquisition of capital stock of Mid-West National
Life Insurance Company of Tennessee by the Company filed as Exhibit
2 to the Report on Form 8-K of the Company, File No. 0-14320, dated
August 15, 1986 and incorporated by reference herein.

10.5(A) -- Stock Purchase Agreement, dated July 1, 1986, among the
Company, Charles E. Stuart and Stuart Holding Company, as amended
July 7, 1986, filed as Exhibit 11(c)(1) to Statement on Schedule
14D-1 and Amendment No. 1 to Schedule 13D, filed with the Securities
and Exchange Commission on July 14, 1986 and incorporated by
reference herein.

10.5(B) -- Acquisition Agreement, dated July 7, 1986 between Associated
Companies, Inc. and the Company, together with exhibits thereto,
filed as Exhibit (c) (2) to Statement on Schedule 14D-1 and
Amendment No. 1 to Schedule 13D, filed with the Securities and
Exchange Commission on July 14, 1986 and incorporated by reference
herein.

10.5(C) -- Offer to Purchase, filed as Exhibit (a) (1) to Statement on
Schedule 14D-1 and Amendment No. 1 to Schedule 13D, filed with the
Securities and Exchange Commission on July 14, 1986 and incorporated
by reference herein.

10.6 -- Agreement for acquisition of capital stock of Life Insurance
Company of Kansas, filed as Exhibit 10.6 to the 1986 Annual Report
on Form 10-K, File No. 0-14320, filed with the Securities and
Exchange Commission on March 27, 1987 and incorporated by reference
herein.
</TABLE>

<PAGE> 43

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>

10.7 -- Agreement Among Certain Stockholders of the Company, filed as
Exhibit 10-6 to the Registration Statement on Form S-18, File No.
2-99229, filed with the Securities and Exchange Commission on July
26, 1985 and incorporated by reference herein.

10.8 -- Form of Subscription Agreement for 1985 Offering, filed as
Exhibit 10-7 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.

10.9 -- Repurchase Agreement between Life Investors Inc., UGIC, Ronald
Jensen and Keith Wood dated January 6, 1984, filed as Exhibit 10-8
to 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.

10.10 -- Treaty of Assumption and Bulk Reinsurance Agreement for
acquisition of certain assets and liabilities of Keystone Life
Insurance Company, filed as Exhibit 10.10 to the 1987 Annual Report
on Form 10-K, File No. 0-14320, filed with the Securities and
Exchange Commission on March 28, 1988 and incorporated by reference
herein.

10.11 -- Acquisition and Sale-Purchase Agreements for the acquisition of
Orange State Life and Health Insurance Company and certain other
assets, filed as Exhibit 10.11 to the 1987 Annual Report on Form
10-K, File No. 0-14320, filed with the Securities and Exchange
Commission on March 28, 1988 and incorporated by reference herein.

10.12 -- United Insurance Companies, Inc. 1987 Stock Option Plan, included
with the 1988 Proxy Statement filed with the Securities and Exchange
Commission on April 25, 1988 and incorporated by reference herein,
filed as Exhibit 10.12 to the 1988 Annual Report on Form 10-K, File
No. 0-14320, filed with the Securities and Exchange Commission on
March 30, 1989 and incorporated by reference herein.

10.13 -- Amendment to the United Insurance Companies, Inc. 1987 Stock
Option Plan, filed as Exhibit 10.13 to the 1988 Annual Report on
Form 10-K, File No. 0-14320, filed with the Securities and Exchange
Commission on March 30, 1989 and incorporated by reference herein.

10.14 -- UICI Restated and Amended 1987 Stock Option Plan as amended and
restated March 16, 1999 filed as exhibit 10.1 to Form 10-Q dated
March 31, 1999, (File No. 0-14320, and incorporated by reference
herein.

10.15 -- Amendment to Stock Purchase Agreement between American Capital
Insurance Company and United Insurance Companies, Inc., filed as
Exhibit 10.15 to the 1988 Annual Report on Form 10-K, File No.
0-14320, filed with the Securities and Exchange Commission on March
30, 1989 and incorporated by reference herein.

10.16 -- Agreement of Substitution and Assumption Reinsurance dated as of
January 1, 1991 by and among Farm and Home Life Insurance Company,
the Arizona Life and Disability Insurance Guaranty Fund and United
Group Insurance Company, as modified by a Modification Agreement
dated August 26, 1991, together with schedules and exhibits thereto,
filed as Exhibit 2 to Schedule 13D, filed with the Securities and
Exchange Commission on September 3, 1991 and incorporated by
reference herein.

10.17 -- Stock Purchase Agreement dated as of August 26, 1991 by and among
Farm and Home Life Insurance Company, First United, Inc. and The
MEGA Life and Health Insurance Company, filed as Exhibit 3 to
Schedule 13D, filed with the Securities and Exchange Commission on
September 3, 1991 and incorporated by reference herein.

10.18 -- Stock Purchase Agreement dated as of August 26, 1991 by and among
Farm and Home Life Insurance Company, The Chesapeake Life Insurance
Company and Mid-West National Life Insurance Company of Tennessee,
filed as Exhibit 4 to Schedule 13D, File No. 0-14320 filed with the
Securities and Exchange Commission on September 3, 1991 and
incorporated by reference herein.
</TABLE>

<PAGE> 44

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
10.19 -- Second Agreement of Modification to Agreement of Substitution and
Assumption Reinsurance dated as of November 15, 1991 among Farm and
Home Life Insurance Company, United Group Insurance Company, and the
Arizona Life and Disability Insurance Guaranty Fund, filed as
Exhibit 1 to Amendment No. 1 to Schedule 13D, File No. 0-14320 filed
with the Securities and Exchange Commission on February 5, 1992 and
incorporated by reference herein. This agreement refers to a
Modification Agreement dated September 12, 1991. The preliminary
agreement included in the initial statement was originally dated
August 26, 1991.

10.20 -- Addendum to Agreement of Substitution and Assumption Reinsurance
dated as of November 22, 1991 among United Group Insurance Company,
Farm and Home Life Insurance Company, and the Arizona Life and
Disability Insurance Guaranty Fund, filed as Exhibit 2 to Amendment
No. 1 to Schedule 13D, File No. 0-14320 filed with the Securities
and Exchange Commission on February 5, 1992 and incorporated by
reference herein.

10.21 -- Modification Agreement dated November 15, 1991 between First
United, Inc., Underwriters National Assurance Company, and Farm and
Home Life Insurance Company, The MEGA Life and Health Insurance
Company, and the Insurance Commissioner of the State of Indiana, and
filed as Exhibit 3 to Amendment No. 1 to Schedule 13D, File No.
0-14320 filed with the Securities and Exchange Commission on
February 5, 1992 and incorporated by reference herein.

10.22 -- Agreement of Reinsurance and Assumption dated December 14, 1992
by and among Mutual Security Life Insurance Company, in Liquidation,
National Organization of Life and Health Insurance Guaranty
Associations, and The MEGA Life and Health Insurance Company, and
filed as Exhibit 2 to the Company's Report on Form 8-K dated March
29, 1993, (File No. 0-14320), and incorporated by reference herein.

10.23 -- Acquisition Agreement dated January 15, 1993 by and between
United Insurance Companies, Inc. and Southern Educators Life
Insurance Company, and filed as Exhibit 2 to the Company's Report on
Form 8-K dated March 29, 1993, (File No. 0-14320), and incorporated
by reference herein.

10.24 -- Stock Exchange Agreement effective January 1, 1993 by and between
Onward and Upward, Inc. and United Insurance Companies, Inc. and
filed as Exhibit 2 to the Company's Report on Form 8-K dated March
29, 1993, (File No. 0-14320), and incorporated by reference herein.

10.25 -- Stock Purchase Agreement by and among United Insurance Companies,
Inc. and United Group Insurance Company and Landmark Land Company of
Oklahoma, Inc. dated January 6, 1994, and filed as Exhibit 10.27 to
Form 10-Q dated March 31, 1994, (File No. 0-14320), and incorporated
by reference herein.

10.26 -- Private Placement Agreement dated June 1, 1994 of 8.75% Senior
Notes Payable due June 2004 in the aggregate amount of $27,655,000,
and filed as Exhibit 28.1 to the Company's Report on Form 8-K dated
June 22, 1994, (File No. 0-14320), and incorporated by reference
herein.

10.27 -- Asset Purchase Agreement between UICI Companies and PFL Life
Insurance Company, Bankers United Life Assurance Company, Life
Investors Insurance Company of America and Monumental Life Insurance
Company and Money Services, Inc. effective April 1, 1996, as filed
as Exhibit 10.2 to the Company's Report on Form 8-K dated April 1,
1996 (File No. 0-14320) and incorporated by reference herein.

10.28 -- General Agent's Agreement between Mid-West National Life
Insurance Company of Tennessee and United Group Association, Inc.
effective April 1, 1996, and filed as Exhibit 10.3 to the Company's
Report on Form 8-K dated April 1, 1996 (File No. 0-14320), and
incorporated by reference herein.

10.29 -- General Agent's Agreement between The MEGA Life and Health
Insurance Company and United Group Association, Inc. Effective April
1, 1996, and filed as Exhibit 10.4 to the Company's Report on Form
8-K dated April 1, 1996 (File No. 0-14320) and incorporated by
reference herein.

10.30 -- Agreement between United Group Association, Inc. and Cornerstone
Marketing of America effective April 1, 1996, and filed as Exhibit
10.5 to the Company's Current Report on Form 8-K dated April 1, 1996
(File No. 0-14320) and incorporated by reference herein.
</TABLE>

43
<PAGE> 45

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
10.31 -- Stock exchange agreement dated October 1996 by and between Amli
Realty Co. and UICI, as amended by that first amendment stock
exchange agreement dated November 4, 1996 filed as Exhibit 10.31 to
the Registration Statement on Form S-3 File No. 333-23899 filed with
the Securities and Exchange Commission on April 25, 1997 and
incorporated by reference herein.

10.32 -- Agreement dated December 6, 1997 by and between UICI, UICI
Acquisition Corp., ELA Corp., and Marcus A. Katz, Cary S. Katz, Ryan
D. Katz and RK Trust #2 filed as Exhibit 10.32 to the Registration
Statement on Form S-3 File No. 333-42937 filed with the Securities
and Exchange Commission on December 22, 1997 and incorporated by
reference herein.

10.33 -- Repurchase Agreement dated as of March 27, 1998 as amended
between Lehman Commercial Paper, Inc. and Educational Finance Group,
Inc. filed as exhibit 10.1 to Form 10-Q dated September 30, 1999,
(File No. 0-14320), and incorporated by reference herein.

10.34 -- Loan Agreement among UICI, Bank of America, as administrative
agent, The First National Bank of Chicago as documentation agent,
and Fleet National Bank as co-agent dated May 17, 1999 filed as
exhibit 10.2 to Form 10-Q dated September 30, 1999, (File No.
0-14320), and incorporated by reference herein.

10.35 -- Indenture Agreement dated as of August 5, 1999 between EFG-III,
LP, as Issuer and The First National Bank of Chicago, as Indenture
Trustee and Eligible Lender Trustee filed as exhibit 10.3 to Form
10-Q dated September 30, 1999, (File No. 0-14320), and incorporated
by reference herein.

10.36 -- Indenture Agreement dated as of June 14, 1999 between EFG-II, LP, as
Issuer and The First National Bank of Chicago, as Indenture Trustee
and Eligible Lender Trustee filed as exhibit 10.4 to Form 10-Q dated
September 30, 1999, (File No. 0-14320), and incorporated by
reference herein.

10.37 -- Amended and Plan of Merger by and among UICI, UICI Acquisition
Co., and HealthPlan Services Corporation dated as of October 5, 1999
filed as exhibit 2 to Form 8K dated October 5, 1999 and incorporated
by reference herein.

10.38 -- Voting agreements dated October 5, 1999 between UICI and
Automatic Data Processing, Inc., James K. Murray, Jr., Shinnston
Enterprises, Ltd., Elm Grove Associates, William Bennett, and Robert
Parker filed as exhibits 99.1, 99.2, 99.3, 99.4, 99.5, 99.6 and
99.7, respectively to Form 8K dated October 5, 1999 and incorporated
herein.

10.39 -- Amended and Restated Agreement and Plan of Merger, dated as of
February 18, 2000, by and among UICI, UICI Acquisition Co., UICI
Capital Trust I and HealthPlan Services Corporation filed as exhibit
99.2 to Form 8K dated February 18, 2000 and incorporated by
reference herein.

10.40 -- Amended and Restated Loan Agreement, dated as of March 10, 2000,
between UICI, the Banks named therein and Bank of America, NA, for
itself and as agent, filed as exhibit 99.2 to Form 8K dated March
22, 2000 and incorporated by reference herein

10.41 -- Promissory Note, dated March 14, 2000, payable by UICI SUB I,
Inc. to LM Financial, LLC, filed as exhibit 99.3 to Form 8K dated
March 22, 2000 and incorporated by reference herein

10.42 -- Guaranty, dated March 14, 2000, from UICI to LM Financial, LLC,
filed as exhibit 99.4 to Form 8K dated March 22, 2000 and
incorporated by reference herein

21 -- Subsidiaries of UICI

23 -- Consent of Independent Auditors

24 -- Power of Attorney

27 -- Financial Data Schedule
</TABLE>

NOTE FOR READERS OF FORM 10-K

This copy of the Annual Report on Form 10-K only includes a copy of Exhibit
21. UICI will provide a copy of any exhibit upon written request. All requests
should be mailed to the address on Page 1 or to [email protected]

44
<PAGE> 46
ANNUAL REPORT ON FORM 10-K

ITEM 8, ITEM 14(A)(1) AND (2), (C), AND (D)

FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

FINANCIAL STATEMENT SCHEDULES

CERTAIN EXHIBITS

YEAR ENDED DECEMBER 31, 1999

UICI

AND

SUBSIDIARIES

DALLAS, TEXAS

F-1
<PAGE> 47

REPORT OF INDEPENDENT AUDITORS

Board of Directors
UICI

We have audited the accompanying consolidated balance sheets of UICI
and subsidiaries (the "Company") as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. Our
audits also included the financial statement schedules listed in the Index at
Item 14(a). These financial statements and schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
UICI and subsidiaries at December 31, 1999 and 1998, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.

ERNST & YOUNG LLP

Dallas, Texas
April 4, 2000

F-2
<PAGE> 48
UICI AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
ASSETS DECEMBER 31,
------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Investments
Securities available for sale--
Fixed maturities, at fair value (cost: 1999 -- $904,662; 1998-- $865,589).... $ 861,337 $ 886,406
Equity securities, at fair value (cost: 1999-- $25,951; 1998-- $18,077)...... 23,079 18,320
Mortgage and collateral loans.................................................. 6,324 8,266
Policy loans................................................................... 20,444 21,332
Investment in equity investees................................................. 47,696 45,843
Short-term investments......................................................... 79,608 151,007
------------- -------------
Total Investments....................................................... 1,038,488 1,131,174
Cash............................................................................. 74,091 16,900
Student loans.................................................................... 1,326,050 670,429
Restricted cash.................................................................. 489,720 34,569
Reinsurance receivables.......................................................... 104,946 89,566
Receivables from related parties................................................. -- 14,069
Due premiums and other receivables and assets.................................... 58,800 38,473
Investment income due and accrued................................................ 51,751 40,018
Refundable income taxes.......................................................... 21,415 --
Deferred acquisition costs....................................................... 80,188 93,008
Goodwill......................................................................... 152,668 102,586
Deferred income tax.............................................................. 84,249 --
Property and equipment, net...................................................... 56,978 45,361
Net assets of discontinued operations............................................ -- 73,481
------------- -------------
$ 3,539,344 $ 2,349,634
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy liabilities:
Future policy and contract benefits............................................ $ 452,776 $ 468,297
Claims......................................................................... 335,943 317,298
Unearned premiums.............................................................. 97,548 110,569
Other policy liabilities....................................................... 19,090 20,590
Accrued income taxes............................................................. -- 36,111
Other liabilities................................................................ 112,631 82,624
Collections payable.............................................................. 113,057 --
Debt............................................................................. 120,637 50,328
Student loan credit facilities................................................... 1,730,348 669,026
Net liabilities of discontinued operations (includes reserve for losses
on disposal for 1999).......................................................... 149,880 --
------------- -------------
3,131,910 1,754,843
Commitments and Contingencies

Stockholders' Equity
Preferred stock, par value $0.01 per share-- authorized 10,000,000 shares, no
shares issued and outstanding in 1999 and 1998.............................. -- --
Common Stock, par value $0.01 per share-- authorized 100,000,000
shares and 50,000,000 shares in 1999 and 1998; issued 46,616,121
shares and outstanding 46,406,418 shares in 1999 and 46,428,941
shares issued and outstanding in 1998........................................ 466 464
Additional paid-in capital..................................................... 173,585 166,489
Accumulated other comprehensive income (loss).................................. (30,432) 13,412
Retained earnings.............................................................. 268,544 414,426
Treasury stock, at cost (209,703 shares)....................................... (4,729) --
------------- -------------
407,434 594,791
------------- -------------
$ 3,539,344 $ 2,349,634
============= =============
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE> 49
UICI AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE
Premiums:
Health .................................................................... $ 690,171 $ 747,275 $ 653,906
Life premiums and other considerations .................................... 46,416 49,347 49,434
----------- ----------- -----------
736,587 796,622 703,340
Investment income ............................................................ 85,497 74,892 77,971
Other interest income ........................................................ 65,055 31,642 4,006
Other fee income ............................................................. 122,930 111,138 70,295
Other income ................................................................. 3,481 37,545 45,936
Gains (losses) on sale of investments ........................................ (367) 4,912 4,014
----------- ----------- -----------
1,013,183 1,056,751 905,562
BENEFITS AND EXPENSES
Benefits, claims, and settlement expenses .................................... 514,574 586,035 449,657
Underwriting, acquisition, and insurance expenses ............................ 243,435 270,870 249,842
Other expenses ............................................................... 119,264 114,438 81,371
Depreciation and amortization ................................................ 20,163 15,863 10,021
Interest expense ............................................................. 7,433 3,059 2,857
Interest expense-- student loan credit facility .............................. 57,462 19,224 --
----------- ----------- -----------
962,331 1,009,489 793,748
----------- ----------- -----------

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES .......................... 50,852 47,262 111,814

Federal income taxes ........................................................... 17,602 15,739 36,206
----------- ----------- -----------

INCOME FROM CONTINUING OPERATIONS .............................................. 33,250 31,523 75,608

DISCONTINUED OPERATION:
Income (loss) from operations, (net of income tax (expense) benefit $50,673,
($16,238) and ($7,190) in 1999, 1998, and 1997, respectively ................. (94,632) 27,246 10,896
Estimated loss on disposal (net of income tax benefit of $45,500) .............. (84,500) -- --
----------- ----------- -----------
(179,132) 27,246 10,896
----------- ----------- -----------

NET INCOME (LOSS) .............................................................. $ (145,882) $ 58,769 $ 86,504
=========== =========== ===========

Earnings (loss)per share:
Basic earnings (loss)
Income from continuing operations ....................................... $ 0.72 $ 0.68 $ 1.67
Income (loss) from discontinued operations .............................. (3.87) 0.59 0.24
----------- ----------- -----------
Net income (loss) ....................................................... $ (3.15) $ 1.27 $ 1.91
=========== =========== ===========

Diluted earnings (loss)
Income from continuing operations ....................................... $ .70 $ 0.67 $ 1.67
Income (loss) from discontinued operations .............................. (3.75) 0.59 0.24
----------- ----------- -----------
Net income (loss) ....................................................... $ (3.05) $ 1.26 $ 1.91
=========== =========== ===========
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE> 50
UICI AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON PAID-IN COMPREHENSIVE RETAINED TREASURY
STOCK CAPITAL INCOME EARNINGS STOCK TOTAL
--------- --------- ------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 ....................... $ 451 $ 165,668 $ 2,153 $ 264,646 $ -- $ 432,918
Comprehensive income
Net income ..................................... 86,504 86,504
---------
Other comprehensive income, net of tax
Change in unrealized gains on securities .... 18,645 18,645
Deferred income taxes ....................... (6,010) (6,010)
Other ....................................... (508) (508)
---------
Other comprehensive income ................ 12,127
---------
Comprehensive income ............................. 98,631
---------
Exercise of stock options and warrants ........... 1 417 418
Adjustment for business combinations ............. 10 4,507 4,517
Purchase and retirement of treasury stock ........ (194) (194)
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1997 ..................... 462 165,891 14,280 355,657 -- 536,290
Comprehensive income
Net income ..................................... 58,769 58,769
---------
Other comprehensive income, net of tax
Change in unrealized gains on securities .... (1,328) (1,328)
Deferred income tax benefit ................. 47 47
Other ....................................... 413 413
---------
Other comprehensive loss .................. (868)
---------
Comprehensive income ............................. 57,901
---------
Common stock issued .............................. 2 3,898 3,900
Note receivable from shareholder ................. (3,300) (3,300)
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1998 ..................... 464 166,489 13,412 414,426 -- 594,791
Comprehensive income
Net loss ....................................... (145,882) (145,882)
---------
Other comprehensive income, net of tax
Change in unrealized gain (loss) on
securities ................................ (67,411) (67,411)
Deferred income tax benefit ................. 22,744 22,744
Other ....................................... 823 823
---------
Other comprehensive loss .................. (43,844)
---------
Comprehensive loss ............................... (189,726)
---------
Exercise of stock options and warrants ........... 2 6,568 6,570
Retirement of treasury stock ..................... (6,952) 6,952 --
Purchase of treasury stock ....................... (11,681) (11,681)
Capital contribution ............................. 10,129 10,129
Notes receivable from shareholders ............... (2,649) (2,649)
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1999 ..................... $ 466 $ 173,585 $ (30,432) $ 268,544 $ (4,729) $ 407,434
========= ========= ========= ========= ========= =========
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE> 51
UICI AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)......................................... $(145,882) $ 58,769 $ 86,504
Loss on Disposal of Discontinued Operations............. 130,000 -- --
Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities:
Increase in policy liabilities.......................... 10,525 66,935 61,769
Decrease in accrued investment income................... (10,418) (26,959) (1,328)
Increase in other liabilities........................... 26,346 17,267 14,942
Deferred income tax (benefit) change.................... (75,269) (2,004) 6,957
(Decrease) increase in federal income taxes payable..... (36,111) 16,529 (3,298)
Refundable income taxes................................. (21,415) -- --
Increase in reinsurance receivables and other
receivables........................................... 18,269 (12,593) (7,605)
Acquisition costs deferred.............................. (19,146) (18,430) (45,263)
Amortization of deferred acquisition costs.............. 31,966 24,480 21,001
Depreciation and amortization........................... 26,491 17,083 11,458
(Gains) Loss on sale of investments..................... 8,038 (4,912) (4,014)
Other items, net........................................ ( 1,700) 4,299 4,456
--------- --------- ---------
Cash Provided by (Used in) Operating Activities....... (58,306) 140,464 145,579
--------- --------- ---------
INVESTING ACTIVITIES
Securities available-for-sale
Purchases............................................... (207,274) (468,889) (686,999)
Sales................................................... 111,172 332,234 516,246
Maturities, calls and redemptions....................... 49,256 81,537 125,616
Credit card loans
Fundings................................................ (411,537) (442,300) (172,350)
Repayments.............................................. 357,141 300,088 110,770
Sales................................................... -- 60,000 30,000
Student loans
Purchases and originations.............................. (1,144,122) (766,180) (10,234)
Maturities.............................................. 75,861 34,445 796
Sales................................................... 434,114 72,560 16,227
Other investments
Purchases............................................... (4,992) (42,951) (17,453)
Sales, repayments and maturities........................ 3,222 39,943 5,244
Increase in restricted cash............................. (311,309) (34,569)
Short-term investments--net............................... (26,682) (51,095) 64,200
Purchase of subsidiaries and life and health business net
of cash acquired of $20, $2,137, and $3,996 in 1999,
1998 and 1997, respectively............................. (52,231) (3,061) (95,312)
Sale of assets and subsidiaries, net of cash of $1,528..... -- 21,270 --
Additions to property and equipment....................... (29,487) (20,680) (19,187)
Decrease (increase) in agents' receivables................ 995 2,412 (1,088)
--------- --------- ---------
Cash Used in Investing Activities......................... (1,155,873) (885,236) (133,524)
--------- --------- ---------
FINANCING ACTIVITIES
Net cash provided from time deposits...................... 191,110 91,317 7,596
Proceeds from notes payable............................... 127,499 40,620 11,615
Repayment of notes payable................................ (45,667) (28,990) (5,931)
Proceeds from payable to related party.................... -- 100 --
Repayment of payable to related party..................... (497) -- --
Proceeds from student loan credit facility................ 2,487,728 684,979 --
Repayment of student loan credit facility................. (1,468,350) (15,953) --
Deposits from investment products......................... 15,954 16,490 17,746
Withdrawals from investment products...................... (38,776) (37,963) (44,038)
Capital Contributions..................................... 10,129 -- --
Other .................................................... (7,760) (4,860) 1,469
--------- --------- ---------
Cash Provided by (Used in) Financing Activities............. 1,271,370 745,740 (11,543)
--------- --------- ---------
Net Increase in Cash........................................ 57,191 968 512
Cash at Beginning of Period................................. 16,900 15,932 15,420
--------- --------- ---------
Cash at End of Period....................................... $ 74,091 $ 16,900 $ 15,932
========= ========= =========
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE> 52
UICI AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A -- SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of UICI and
its subsidiaries (the "Company"). All significant intercompany accounts and
transactions have been eliminated in consolidation.

Nature of Operations

The Company is a diversified financial services company which offers
insurance and financial services to niche consumer markets. The Company also
provides institutional technology and outsourcing solutions to the insurance and
health services community. Information on the Company's operations by segment is
included in Note P.

The Company's Health Insurance segment issues health insurance
policies, including catastrophic coverages, to niche markets, particularly to
the self-employed and student markets. The OKC Division segment has acquired
blocks of life and annuity policies from other insurers and also sells insurance
products in selected niche markets. Educational Finance Group provides financial
solutions for college students and the educational institutions they attend by
offering an integrated package of student loans and student loan servicing.
National Motor Club is a leading provider of motor club benefits to
non-metropolitan areas of the United States. Insurdata is a healthcare payer
system development company providing technology solutions and related
outsourcing services to the healthcare industry. Other Business Units in the
past have been primarily HealthCare Solutions companies. Over the past thirty
months most companies in this category have been sold or closed down. This unit
ceased to exist in 1998. Other Key Factors includes investment income not
allocated to the other segments, corporate interest expenses, general expenses
relating to corporate operations, amortization of goodwill, realized gains or
losses on sale of investments and the AMLI operations.

Discontinued Operations

On March 17, 2000, the Board of Directors of the Company determined,
after a thorough assessment of the unit's prospects, that it will exit from its
United CreditServ sub-prime credit card business. Accordingly, the United
CreditServ unit has been separately reflected as a discontinued operation for
financial reporting purposes. The Company currently expects to complete the sale
of the United CreditServ unit during the year 2000. UICI has recorded in 1999
its current estimate of loss that it believes it will incur as part of the sale
of the United CreditServ unit. The Company currently estimates that such pre-tax
loss will be $130 million. The estimate includes asset write-downs, the
estimated loss on the sale of the business and/or the assets and continuing
losses through date of sale. The loss the Company will ultimately realize upon
disposal of the discontinued operation could differ materially from the current
estimate. See Note B.

Liquidity and Capital Resources

F-7

<PAGE> 53
additional cash in the amount of approximately $92.0 million to fund future
operating losses of the credit card business, including approximately $25.0
million which will be required to be contributed as additional capital to UCNB
pursuant to the capital plan. In addition, through December 31, 2000 the holding
company will have additional cash requirements in the amount of approximately
$32.0 million, of which $25.0 million represents a mandatory principal payment
owing on its bank credit facility in July 2000.

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 for insurance companies are: fixed
maturities are carried at fair value for investments classified as available for
sale for GAAP rather than generally at amortized cost; the deferral of new

F-8
<PAGE> 54
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 for GAAP; the recording of
reinsurance receivables as assets for GAAP rather than as reductions of
liabilities; and the exclusion of non-admitted assets for statutory purposes.
(See Note K for stockholders' equity and net income as determined using
statutory accounting practices.)

Investments

Investments are valued as follows:

Fixed maturities consist of bonds and notes 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 non-redeemable preferred stocks
and are carried at fair value.

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

Policy loans are carried at unpaid balances.

Short-term investments are carried at fair value which approximates
cost.

Investment in equity investees is principally stated at the Company's
cost as adjusted for contributions or distributions and the Company's share of
partnership income or loss.

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 have an other than temporary decline in fair values.
Unrealized investment gains or losses on securities carried at fair value, net
of applicable deferred income tax, are reported in accumulated other
comprehensive income as a separate component of stockholders' equity and
accordingly have no effect on net income (loss).

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.

Student loans, consisting of student loans originated and student loans
purchased, are carried at their unpaid principal balances, which are adjusted
for unamortized premiums, capitalized interest and loan origination costs.

Deferred Student Loan Costs

The incremental direct costs associated with originating student loans,
principally salaries and related expenses, and premiums paid to acquire student
loans are included in student loans and are amortized over the life of the
underlying loans or recognized in the period loans are sold.

Deferred Acquisition Costs.

The costs of writing new insurance business, principally commissions,
which vary with and are directly related to the production of new business, have
been deferred. The cost 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 generally amortized over the effective
period for the related unearned premiums. Anticipated investment income is
considered in determining whether a premium

F-9
<PAGE> 55
deficiency exists. That amortization is adjusted when estimates of current or
future gross profits to be realized from a group of products are revised.

Restricted Cash

At December 31, 1999 and 1998, Educational Finance Group had restricted
cash in the amount of $470.0 million and $15.3 million, respectively. The
increase in restricted cash is attributed to proceeds from a loan sale at
December 31, 1999 and the restricted funds maintained by AMS. At December 31,
1999 and 1998, the Company's subsidiary, Sun Tech Processing Systems, LLC, had
$19.7 million and $19.2 million, respectively, of funds held in an account
designated by a court registry (see Notes L and M).

EFG's wholly-owned subsidiary, AMS, has entered into a trust agreement
(the "Trust") with a bank (trustee) for the safekeeping of payments received
from beneficiaries (participants in the tuition budgeting program). All funds
are held in trust for the benefit of the beneficiaries. AMS is entitled to the
interest earned on the funds held in trust as well as tuition budgeting program
fees deposited into the Trust. The Trust held approximately $113 million of
participant payments at December 31, 1999. The funds are invested in treasuries
and money market funds of insured depository institutions (approximate fair
value of $113 million) at December 31, 1999.

Property and Equipment

Property and equipment are reported at depreciated cost that is
computed using straight line and accelerated methods based upon the estimated
useful lives of the assets, generally 3 to 7 years for furniture and equipment
and 30 years for buildings. The accumulated depreciation for property and
equipment was $42.3 million and $30.0 million at December 31, 1999 and 1998,
respectively. Depreciation expense was $13.8 million, $10.1 million, and $7.7
million for 1999, 1998, and 1997, 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 twenty
to twenty-five 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. The Company assesses the
recoverability of goodwill based upon several factors, including management's
intention with respect to the operations to which the goodwill relates and those
operations' projected future income and undiscounted cash flows. An impairment
loss would be recorded in the period such determination was made. The Company
had net goodwill of $152.7 million and $102.6 million at December 31, 1999 and
1998, respectively. Amortization expense recorded for continuing operations
totaled $6.3 million, $5.7 million, and $2.3 million in 1999, 1998, and 1997,
respectively.

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 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.

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

F-10
<PAGE> 56
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 are charged to expense include benefit claims incurred in
the period in excess of related contract balances, and interest credited to
contract balances.

Student Loan Income

The Company recognizes student loan income as earned, including
adjustments for the amortization of premiums. Marketing fees for student loans
which are sold to third parties are earned when received and are included in
other fee income.

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 ceded
reinsurance. Reinsurance receivables and prepaid reinsurance premiums are
reported as assets. 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
of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end.

Comprehensive Income

Included in comprehensive income is the reclassification adjustments
for gains/losses realized included in net income of $35,000 and $1.5 million
for the years ended December 31, 1999 and 1998, respectively, net of tax.

Guaranty Funds and Similar Assessments

The Company is assessed amounts by state guaranty funds to cover losses
of policyholders of insolvent or rehabilitated insurance companies, by state
insurance oversight agencies to cover the operating expenses of such agencies
and by other similar legislative entities. These mandatory assessments may be
partially recovered through a reduction in future premium taxes in certain
states. Effective January 1, 1999, the Company adopted the provisions of AICPA
Statement of Position 97-3 ("SOP 97-3"), under which these assessments are
accrued in the period in which they have been incurred. The effects of initially
adopting SOP 97-3 were not material to the financial condition or results of
operations of the Company. At December 31, 1999 and 1998, the Company had
accrued $1.8 million and $1.9 million, respectively, to cover the cost of these
assessments. The period over which the assessments are expected to be paid and
the recorded premium tax offsets and/or policy surcharges are expected to be
realized is up to 5 and 10 years, respectively. Expenses incurred for guaranty
fund assessments were $587,000 and $331,000 in 1999 and 1998, respectively.

New Pronouncements

In June 1998, FAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, was issued, and as amended, is required to be adopted in
years beginning after June 15, 2000. This Statement requires all derivatives to
be recorded on the balance sheet at fair value. This results in the offsetting
changes in fair values or cash flows of both the hedged item being recognized in
earnings in the same period. Changes in fair values of derivatives not meeting
the Statement's hedge criteria are included in income. Because of the Company's
minimal use of derivatives, management does not anticipate that the adoption of
the new Statement will have a significant effect on earnings or the financial
position of the Company.

F-11
<PAGE> 57

Reclassification

Certain amounts in the 1998 and 1997 financial statements have been
reclassified to conform to the 1999 financial statement presentation including
the reclassification associated with discontinued operation.

NOTE B -- DISCONTINUED OPERATION

On March 17, 2000, the Company announced that, due to the continuing
difficulties with its United CreditServ business unit, the Board of Directors of
the Company had determined that, after a thorough assessment of the unit's
prospects, it will exit from its United CreditServ sub-prime credit card
business. Accordingly, the United CreditServ unit has been reflected as a
discontinued operation for financial reporting purposes. The Company currently
expects to complete the sale of the United CreditServ unit during the year 2000.

United CreditServ's 1999 pre-tax operating loss of $145.3 million
($94.6 million, net of a corresponding tax benefit of $50.7 million) includes
write off of approximately $36 million paid in the second quarter of 1999 to
acquire the UMMG minority interest. (See Note L). The Company has estimated that
its loss on the disposal of the discontinued operation will be $130 million
($84.5 million, net of tax benefit of $45.5 million). The estimate includes
asset write-downs, the estimated loss on the sale of the business and/or the
assets and continuing losses through date of sale. The loss the Company will
ultimately realize upon the disposal of the discontinued operation could differ
materially from the current estimate.

The 1999 operating losses at United CreditServ have had and will
continue to have a material adverse effect upon the liquidity and cash flow of
the Company. Since December 31, 1999, UICI has contributed to United CreditServ
an aggregate of $57.6 million in cash, including additional cash in the amount
of $17.0 million contributed on March 27, 2000. UICI has funded these cash
contributions with the proceeds of sale of investment securities, regular cash
dividends from its insurance company subsidiaries and cash on hand.

A liquidity and capital assurances agreement, dated May 15, 1998,
between UICI and UCNB provides that, upon demand by UCNB, UICI will purchase
certificates of deposit issued by UCNB to assure sufficient liquidity to meet
UCNB's funding demands and will contribute capital to UCNB sufficient for UCNB
to comply with its stated policy of maintaining a total (Tier I and Tier II)
risk-based capital ratio of at least 12%.

The Proposed Capital Plan is expressly subject to the review and
approval of the OCC and the FDIC. There can be no assurance that the OCC or the
FDIC will approve the Proposed Capital Plan in its current form. If the OCC
and/or FDIC fails to approve the Proposed Capital Plan or some mutually
acceptable alternative plan, UCNB could be required to liquidate its assets on a
short term basis and the Company could be required to fund the resulting losses
immediately. Such a requirement would have a material adverse effect upon the
Company's liquidity, results of operations and financial condition.

Transactions between an insured bank (including UCNB, the Company's
indirect wholly owned subsidiary) and its affiliates, are subject to, among
other things, the quantitative and qualitative restrictions of Section 23A of
the Federal Reserve Act, as well as safety and soundness considerations. The
OCC has expressed criticism with respect to certain of the transactions that
have taken place between UCNB and the Company and/or certain of its wholly owned
subsidiaries. The Company disagrees, but cannot predict at this time, what
action, if any, the OCC will ultimately take with respect to these transactions.

UCNB has commitments to fund the unused credit limits on issued credit
card accounts. At December 31, 1999 and 1998, the outstanding commitment was
$33.8 million and $31.0 million, respectively.

Set forth below is a summary of the operating results of the United
CreditServ business for the years ended December 31, 1999, 1998, and 1997,
respectively.

F-12
<PAGE> 58
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUE
Net interest income ..................................................... $ 20,129 $ 10,285 $ 2,197
Credit card fees ........................................................ 201,071 108,867 46,497
Other fee income ........................................................ 6,175 4,000 1,573
--------- --------- ---------
Total revenues ................................................. 227,375 123,152 50,267
EXPENSES
Provision for loan losses ............................................... 211,747 73,954 12,797
UMMG purchase ........................................................... 35,944 -- --
Operating expenses ...................................................... 118,661 4,494 18,832
Depreciation and amortization ........................................... 6,328 1,220 552
--------- --------- ---------
Total expenses ................................................ 372,680 79,668 32,181

Income (loss) from operations before federal income taxes (benefit) ....... (145,305) 43,484 18,086
Federal income taxes (benefit) ............................................ (50,673) 16,238 7,190
--------- --------- ---------
Income (loss) from operations ............................................. (94,632) 27,246 10,896

Estimated loss on disposal, net of income tax benefit ..................... (84,500) -- --
--------- --------- ---------

Income (loss) from discontinued operations ................................ $(179,132) $ 27,246 $ 10,896
========= ========= =========
</TABLE>

F-13
<PAGE> 59

Assets and liabilities of the United CreditServ business to be disposed
of consisted of the following at December 31, 1999 and 1998:

<TABLE>
<CAPTION>
(IN THOUSANDS)
1999 1998
--------- ---------
<S> <C> <C>
Assets
Cash .................................................... $ 18,469 $ --
Short term investments .................................. 92,070 24,484
Credit card receivables, net of allowance for losses .... 190,676 136,280
Other assets ............................................ 46,869 38,138
--------- ---------
Total assets ............................................... $ 348,084 $ 198,902

Liabilities
Time deposits ........................................... 290,023 98,913
Notes payable ........................................... 12,241 1,215
Other liabilities ....................................... 65,700 25,293
Reserve for loss on disposal ............................ 130,000 --
--------- ---------
Total liabilities .......................................... 497,964 125,421
--------- ---------

Net assets (liabilities) to be disposed .................... $(149,880) $ 73,481
========= =========
</TABLE>

Following is a summary of the credit card loans as of December 31,

<TABLE>
<CAPTION>
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
AFCA credit card loans ..................................... $ 38,467 $ 60,705
ACE credit card loans ...................................... 236,855 142,386
Transferor's interest ...................................... 23,992 --
--------- ---------
Total credit card loans .................................... $ 299,314 $ 203,091
========= =========
</TABLE>

The Company's provision for losses on credit card loans is summarized below:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
(IN THOUSANDS)
------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of year ............................... $ 66,811 $ 4,283 $ 8,728
Provisions for losses ...................................... 211,747 73,954 12,797
Recoveries ................................................. 40,091 -- --
Charge offs and other ...................................... (210,011) (11,426) (17,242)
--------- --------- ---------
Balance at end of year ..................................... $ 108,638 $ 66,811 $ 4,283
========= ========= =========
</TABLE>

The provision for possible credit losses includes current period credit
losses and an amount which, in the judgment of management, is necessary to
maintain the allowance for possible credit losses at a level that reflects known
and inherent risks in the credit card loan portfolio. Recoveries of previously
charged off accounts have not been material.

During 1999, the Company reduced by $7.7 million the carrying value of
a residual interest in a securitized asset.

The Company securitized $60.0 million, and $30.0 million of credit card
receivables in 1998 and 1997, respectively, through asset backed securities in
which the Company purchased participating interests totaling $6.0 million and
$3.0 million in 1998 and 1997, respectively. No gain was recognized on these
transactions. These transactions were accounted for as sales.

UCNB maintained interest-bearing deposits of approximately $290 million
and $98.9 million at December 31, 1999 and 1998, respectively. These
interest-bearing deposits consist of certificates of deposit and deposit notes

F-14
<PAGE> 60

with an average interest rate of approximately 6.4% and 6.1% at December 31,
1999 and 1998, respectively. Approximately $17.7 million, $113.3 million, $96.8
million, and $61.8 million mature at the end of March 31, June 30, September 30,
and December 31, 2000, respectively. Substantially all certificates of deposit
owing at December 31, 1999 and 1998 were issued in denominations of $100,000 or
more.

UCNB paid $10.0 million, $2.6 million and $36,500 in 1999, 1998, and
1997, respectively, in interest on time deposits and other interest-bearing
liabilities.

Specialized Card Services, Inc. (a wholly-owned subsidiary of the
Company) ("SCS") had a $5.0 million unsecured loan payable to Norwest Bank of
South Dakota. The loan was paid on March 31, 2000 and bore interest at a rate of
8.50 % per annum. In addition, SCS has various loans with the South Dakota Board
of Economic Development with a 3% interest rate. The balance outstanding under
these loans was $4.6 million at December 31, 1999. The loans mature in 2003 and
2004. The proceeds were used to purchase equipment.

United Membership Marketing Group, Inc. (a wholly-owned subsidiary of
the Company) has various equipment loans with Norwest Bank of South Dakota with
interest rates ranging from 7.75% to 9.5%. The balance outstanding under these
loans was $2.6 million at December 31, 1999. The loans mature in 2002.

NOTE C -- ACQUISITIONS AND DISPOSITIONS

Effective July 26, 1999, the Company's Educational Finance Group
subsidiary acquired for $58.0 million 100% of the outstanding capital stock of
AMS Investment Group, Inc., a holding company whose principal operations consist
of Academic Management Services, Inc. The acquisition was financed with Company
borrowings. The Company recorded $49.8 million of goodwill in connection with
this acquisition and is amortizing the goodwill on a straight line basis over
twenty years. Total fair value of assets acquired was $255.1 million (including
goodwill) and fair value of liabilities assumed was $197.1 million at purchase
date.

Effective September 30, 1999, the Company acquired from a partnership
(the partners of which consisted primarily of certain of the Company's agents)
the remaining 21% interest in National Managers Life Insurance Company, Ltd,
("National Managers") for cash in the amount of $793,780, increasing the
Company's ownership in National Managers to 100%. The purchase price was based
on a predetermined formula that approximated GAAP book value.

In November 1999, the Company's National Motor Club subsidiary acquired
a 90% interest in Landen Bias Corporation (also known as Coachnet) for cash in
the amount of $4.6 million. The fair value of the assets (including goodwill)
was $6.4 million and the fair value of the liabilities assumed was $1.8 million
at the purchase date.

Effective August 31, 1998, the Company acquired the remaining 21%
interest in its subsidiary, The Chesapeake Life Insurance Company ("CLICO"), for
$4.5 million in cash, increasing the Company's ownership in CLICO to 100%.
Onward & Upward, Inc. (a related party) sold approximately 15.9% of CLICO as
part of the transaction (see Note L). The purchase price was based on a
predetermined formula that approximated GAAP book value.

On July 1998, the Company acquired certain assets of Core Marketing,
Ltd., a marketing entity, from a related party (see Note L) for $2.8 million in
cash. Total fair value of assets acquired was $3.6 million and total fair value
of liabilities assumed was $831,000.

Effective July 1, 1998, the Company sold the assets of IPN, LLC, a
healthcare solutions company, for cash in the amount of $3.5 million to IPN
Acquisitions, Inc., a related party (see Note L), which represented net book
value of the assets acquired and included $9.3 million of assets and $5.8
million of liabilities.

Effective July 1, 1998, the Company sold the assets of HealthCare
Automation, Inc., a healthcare solutions company, for $1.9 million in cash to
HAI Acquisitions, Inc., a related party (see Note L), which represented net book
value and included $2.6 million of assets and $750,000 of liabilities.

F-15
<PAGE> 61

In February 1998, the Company sold its ATM transaction processing
assets of a subsidiary for $17.5 million (see Note L). During 1998, the Company
recognized other income of $9.7 million as a result of this sale.

During 1997, the Company made several acquisitions that were accounted
for under the purchase method including four companies and certain assets
acquired for $88.3 million in cash. Total fair value of assets acquired,
including $82.1 million of goodwill, were $112.1 million and total fair value of
liabilities assumed were $23.8 million. The Company also acquired $44.8 million
of life and health reserves and received $43.5 million of assets for a purchase
price of $1.3 million. The goodwill related to these acquisitions is being
amortized straight line over twenty-five years.

Effective January 1, 1997, the Company acquired the agency force and
certain assets of United Group Association, Inc. ("UGA Inc.") for a price equal
to the net book value of the tangible assets acquired and assumed certain
agents' commitments of $3.9 million. Ronald L. Jensen (the Company's Chairman)
owned 100% of the equity interest in UGA Inc. (see Note L). The tangible assets
acquired consisted primarily of agent debit balances, a building, and related
furniture and fixtures having a net book value of $13.1 million.

In 1997, the Company acquired 100% of two companies through a stock
exchange agreement. The Company exchanged 1,068,089 shares of its common stock
for all of the outstanding common stock of the two companies. The effect of
these acquisitions was not material to the consolidated financial statements.

During 1997, the Company sold three subsidiaries (Televere Systems,
LLC, B. T. Systems Integrators, LLC and WinterBrook VSO, LLC) and certain assets
of UICI Administrators, Inc. to Ronald L. Jensen for a price equal to the net
book value of the tangible assets totaling $1.2 million. (See Note L).

For financial reporting purposes, the acquisitions described above 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 Statement of Operations for the year of the
acquisition includes the results of operations of each acquired company from
their respective dates of acquisition. The effect of these acquisitions on the
Company's results of operations was not material. Accordingly, pro forma
financial information has not been presented.

Deferred Acquisition Costs

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Costs of policies acquired:
Beginning of year ........................................ $ 21,910 $ 24,938 $ 13,978
Additions ............................................. 213 -- 15,505
Amortization (a) ...................................... (4,687) (3,028) (4,545)
-------- -------- --------
End of year ........................................... 17,436 21,910 24,938
Costs of policies issued ................................... 62,752 71,098 74,673
-------- -------- --------
Total Deferred Acquisition Costs ................. $ 80,188 $ 93,008 $ 99,611
======== ======== ========
</TABLE>

- --------

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

F-16
<PAGE> 62

NOTE D -- INVESTMENTS

A summary of net investment income is as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities......................................................... $ 60,833 $ 59,321 $ 57,902
Equity securities........................................................ 1,386 969 675
Mortgage and collateral loans............................................ 816 1,653 2,635
Policy loans............................................................. 1,353 1,357 1,398
Short-term investments................................................... 9,740 8,010 9,591
Investment in equity investees........................................... 7,857 5,038 4,844
Other investments........................................................ 7,208 2,013 3,395
--------- -------- --------
89,193 78,361 80,440
Less investment expenses................................................. (3,696) (3,469) (2,469)
--------- -------- --------
$ 85,497 $ 74,892 $ 77,971
========= ======== ========
</TABLE>

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

<TABLE>
<CAPTION>
GAINS
FIXED EQUITY OTHER (LOSSES) ON
MATURITIES SECURITIES INVESTMENTS INVESTMENTS
---------- ---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31:
1999
Realized................ $ (802) $ 885 $ (450) $ (367)
Change in unrealized.... (64,142) (3,116) (153) (67,411)
-------- -------- -------- ---------
Combined.............. $(64,944) $ (2,231) $ (603) $(67,778)
======== ======== ======== ========
1998
Realized................ $ 3,311 $ 1,635 $ (34) $ 4,912
Change in unrealized.... 1,113 (2,010) (431) (1,328)
-------- -------- -------- --------
Combined.............. $ 4,424 $ (375) $ (465) $ 3,584
======== ======== ======== ========
1997
Realized................ $ 1,764 $ 2,436 $ (186) $ 4,014
Change in unrealized.... 17,944 701 -- 18,645
-------- -------- -------- --------
Combined.............. $ 19,708 $ 3,137 $ (186) $ 22,659
======== ======== ======== ========
</TABLE>

Gross unrealized investment gains pertaining to equity securities were
$500,000, $1.9 million, and $2.5 million at December 31, 1999, 1998, and 1997,
respectively. Gross unrealized investment losses pertaining to equity securities
were $3.4 million, $1.6 million, and $280,000 at December 31, 1999, 1998, and
1997, respectively.

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

<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government agency
obligations ............................... $ 63,614 $ 57 $ (2,200) $ 61,471
Mortgage-backed securities issued by U.S. ...
Government agencies and authorities ....... 65,423 152 (1,875) 63,700
Other mortgage and asset backed
securities ................................ 186,344 821 (6,864) 180,301
Other corporate bonds ....................... 589,281 992 (34,408) 555,865
------------ ------------ ------------ ------------
Total fixed maturities ............ $ 904,662 $ 2,022 $ (45,347) $ 861,337
============ ============ ============ ============
</TABLE>

F-17
<PAGE> 63

<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government agency
Obligations ................................................... $ 57,952 $ 1,847 $ (89) $ 59,710
Mortgage-backed securities issued by U.S. .......................
Government agencies and authorities ........................... 49,367 731 (72) 50,026
Other mortgage and asset backed
Securities .................................................... 211,288 7,228 (360) 218,156
Other corporate bonds ........................................... 546,982 18,820 (7,288) 558,514
------------ ------------ ------------ ------------
Total fixed maturities ................................ $ 865,589 $ 28,626 $ (7,809) $ 886,406
============ ============ ============ ============
</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,
1999, by contractual maturity, are shown below. Fixed maturities subject to
early or unscheduled prepayments have been included 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
COST VALUE
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Maturity
One year or less...................................................................... $ 28,338 $ 27,494
Over 1 year through 5 years........................................................... 176,437 170,256
Over 5 years through 10 years......................................................... 300,069 280,569
Over 10 years......................................................................... 148,051 139,017
--------- ---------
652,895 617,336
Mortgage and asset backed securities.................................................. 251,767 244,001
--------- ---------
Total fixed maturities...................................................... $ 904,662 $ 861,337
========= =========
</TABLE>

Proceeds from the sale of investments in fixed maturities were $98.9
million, $332.2 million, and $516.2 million, for 1999, 1998, and 1997,
respectively. Gross gains of $2.1 million, $6.5 million, and $4.9 million and
gross losses of $2.9 million, $3.2 million, and $3.1 million were realized on
sales of fixed maturity investments during 1999, 1998, and 1997, respectively.
Proceeds from the sale of equity investments were $12.2 million, $8.1 million
and $16.5 million for 1999, 1998, and 1997, respectively. Gross gains of $1.8
million, $1.7 million and $2.4 million and gross losses of $935,000, $48,000 and
$9,700 were realized on sales of equity investments during 1999, 1998, and 1997,
respectively.

Following is a summary of the Company's equity securities:

<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------- ---------------------
FAIR FAIR
COST VALUE COST VALUE
--------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Common Stocks.............................................. $ 129 $ 233 $ 129 $ 517
Non-redeemable preferred stocks............................ 25,822 22,846 17,948 17,803
--------- -------- --------- --------
$ 25,951 $ 23,079 $ 18,077 $ 18,320
========= ======== ========= ========
</TABLE>

The fair value, which represents carrying amounts, of equity securities
are based on quoted market prices. For equity securities not actively traded,
market values are estimated using values obtained from quotation services.

The carrying amounts of the Company's investments in mortgage,
collateral and policy loans approximate fair value. The fair values for
mortgage, collateral 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 mortgage and collateral loans is net of
allowance of $650,000 for 1999 and 1998.

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 of mortgage
and asset backed securities. At December 31, 1999, the Company had a carrying
amount of $244 million

F-18
<PAGE> 64

of mortgage and asset backed securities, of which, $63.7 million are government
backed, $102.1 million are rated AAA, $38.4 million are rated AA, $33.3 million
are rated A, and $6.5 million are rated BBB by external rating agencies. At
December 31, 1998, the Company had a carrying amount of $268.2 million of
mortgage and asset backed securities, of which, $50.0 million are government
backed, $132.9 million are rated AAA, $38.4 million are rated AA, $40.1 million
are rated A, and $6.8 million are rated BBB by external rating agencies.

The Company has a 12% investment in AMLI, a real estate investment
trust, which is accounted for under the equity method of accounting. This
investment, which is included in investment in equity investees, was recorded at
$25.4 million and $23.8 million at December 31, 1999 and 1998, respectively, and
the market value was $60.1 million and $65.1 million in 1999 and 1998,
respectively.

Under the terms of various reinsurance agreements (see Note G), 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 $186.4 million as of December 31, 1999. In addition, at December
31, 1999, domestic insurance subsidiaries had securities with a fair value of
$19.0 million on deposit with insurance departments in various states.

NOTE E -- STUDENT LOANS

The Company markets student loans to students at selected colleges and
has historically targeted universities serving graduate healthcare
professionals. At December 31, 1999, EFG had the right, but not the obligation,
to either purchase or direct the sale of certain student loans funded by an
unrelated financial institution. The net proceeds from loan sales are received
by the Company after certain fees due the financial institution are deducted.
When the Company purchases loans, a premium is paid equal to certain fees due
the financial institution. The premium is capitalized and added to the carrying
value of the loans.

At December 31, 1999 and 1998, the Company had the right to purchase
and/or direct the sale of loans totaling approximately $283.0 million and $200.0
million, respectively.

Following is a summary of the Company's student loans:

<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------------- --------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
FFELP loans ....................... $ 1,195,190 $ 1,247,069 $ 617,295 $ 642,866
Alternative loans ................. 133,112 133,112 54,069 54,069
----------- ----------- ----------- -----------
Total student loans ............... 1,328,302 1,380,181 671,364 $ 696,935
=========== ===========
Allowance on student loans ........ (2,252) (935)
----------- -----------
Total student loans ............... 1,326,050 $ 670,429
=========== ===========
</TABLE>

The fair value of student loans is based on estimated market values on
recent sales of student loans by the Company. The loans are carried at unpaid
principal plus capitalized interest.

The federal government or other private insurers have guaranteed 98% of
the student loan portfolio principal and capitalized interest. The Company has
established a reserve for potential losses on the portion of principal and
capitalized interest not guaranteed by the federal government or other private
insurers and for potential losses on privately insured student loans. The
reserve is maintained at a level that the Company believes is adequate to absorb
estimated credit losses.

F-19
<PAGE> 65

The Company's provision for losses on student loans is summarized as
follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
-------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year...................................... $ 935 $ 400 $ 278
Provisions for losses............................................. 1,317 535 122
-------- --------- ---------
Balance at end of year............................................ $ 2,252 $ 935 $ 400
======= ======== ========
</TABLE>

The Company recognized interest income from the student loans of $62.5
million, $29.0 million, and $1.5 million in 1999, 1998, and 1997, respectively.

During 1999, the Company acquired loans with principal and interest
balances of $409.1 million at a total cost of $421.9 million. The difference of
$12.8 million represented a premium on the loans which was paid in accordance
with the terms of purchase agreements. The premium will be amortized over the
life of the loans.

Included in other fees for the year ended December 31, 1999 and 1998 is
approximately $7.4 million and $2.7 million, respectively, in gain from the sale
of loans. The loans had a carrying value of $397.8 million and $74.8 million at
the date of sale in 1999 and 1998, respectively.

NOTE F -- POLICY LIABILITIES

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

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Life........................................................................ $267,309 $ 264,102
Annuity..................................................................... 185,467 204,195
-------- ---------
$452,776 $ 468,297
======== =========
</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 5.4%, 5.5%, and 5.8% during 1999,
1998, and 1997, respectively. Interest rates credited to the liability for
future contract benefits related to annuity contracts generally ranged from 4.5%
to 7.2% during 1999, 4.5% to 6.0% during 1998 and 4.5% to 6.6% during 1997.

As described in Note G, the Company assumes certain life and annuity
business from subsidiaries of AEGON USA, INC. (AEGON), utilizing 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 these annuity contracts
generally ranged from 4.4% to 6.6% during 1999, 4.8% to 5.5% during 1998, and
4.9% to 6.0% during 1997.

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 consolidated balance sheets) are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Direct annuities...................................... $ 93,579 $ 90,023 $ 98,342 $ 94,014
Assumed annuities..................................... 91,888 91,049 105,853 104,170
Supplemental contracts without life
Contingencies....................................... 1,885 1,885 2,588 2,588
--------- --------- --------- ---------
$ 187,352 $ 182,957 $ 206,783 $ 200,772
========= ========= ========= =========
</TABLE>

F-20
<PAGE> 66

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,
----------------------------------
1999 1998 1997
--------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Claims liability at beginning of year, net of related
Reinsurance recoverables............................................ $ 300,695 $ 248,969 $ 192,922
Add:
Acquired claims liability........................................... -- -- 20,273
Incurred losses, net of reinsurance, occurring during:
Current year..................................................... 499,119 577,823 478,671
Prior years...................................................... 1,602 (10,151) (49,741)
--------- ---------- ---------
500,721 567,672 428,930
--------- ---------- ---------

Deduct payments for claims, net of reinsurance, occurring during:
Current year..................................................... 272,381 332,056 285,450
Prior years...................................................... 226,029 183,890 107,706
--------- ---------- ---------
498,410 515,946 393,156
--------- ---------- ---------
Claims liability at end of year, net of related
Reinsurance recoverables
(1999-- $32,937; 1998-- $16,603; and 1997-- $9,852).............. $ 303,006 $ 300,695 $ 248,969
========= ========== =========
</TABLE>

The above reconciliation shows incurred losses related to prior years
for 1998 and 1997 developed in amounts less than originally anticipated due to
better than expected experience which was offset, in 1998, by adverse
development related to performance of a managed care product.

NOTE G -- REINSURANCE

In 1999, 1998, and 1997, approximately 17%, 21%, and 33%, respectively,
of the Company's health premiums and 1%, 2%, and 2% of the Company's life
premiums were assumed from AEGON. Prior to 1997, the health business assumed was
marketed by UGA Inc. and issued through AEGON's insurance subsidiaries. Under
the terms of its coinsurance agreement, AEGON's insurance subsidiaries have
agreed to cede and the Company has agreed to assume through coinsurance 60% of
the health business previously sold by UGA Inc. agents for business written on
AEGON's insurance subsidiaries prior to 1998. In 1998 and 1999, the Company
directly issued the health business written by UGA Inc. agents and retained all
of the business.

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:

F-21
<PAGE> 67

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1999 1998 1997
------------ ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Premiums:
Premiums Written:
Direct..................................................... $ 641,308 $ 608,205 $ 491,746
Assumed.................................................... 162,253 229,411 265,409
Ceded...................................................... (70,262) (45,658) (48,166)
------------ ------------ ----------
Net Written................................................ $ 733,299 $ 791,958 708,989
============ ============ ==========

Premiums Earned:
Direct..................................................... $ 635,208 $ 617,867 $ 474,929
Assumed.................................................... 164,626 226,024 270,728
Ceded...................................................... (63,247) (47,269) (42,317)
------------ ------------ ----------
Net Earned................................................. $ 736,587 $ 796,622 $ 703,340
============ ============ ==========
</TABLE>

NOTE H -- DEBT

Following is the Company's short-term and long-term debt excluding debt
at Educational Finance Group, Inc. (see Note I):

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- --------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Notes ...................................................................... $ 602 $ 25,000
Portion of long-term debt due in 2000....................................... 34,032 4,691
---------- --------
Total short-term debt............................................... $ 34,634 $ 29,691
========== ========
Long-term debt:
8.75% Senior Notes ......................................................... $ 19,754 $ 23,704
Line of Credit.............................................................. 100,000 --
Other notes ................................................................ 281 1,624
---------- --------
120,035 25,328
Less: amounts due in 2000................................................... (34,032) (4,691)
---------- --------
Total long-term debt................................................ $ 86,003 $ 20,637
========== ========
</TABLE>

On June 22, 1994, the Company authorized an issue of its 8.75% Senior
Notes due June 2004 in the aggregate amount of $27.7 million. In accordance with
the agreement governing the terms of the notes (the "Note Agreement"), on June
1, 1998 and on each June 1 thereafter to and including June 1, 2003, the Company
is required to repay approximately $4.0 million aggregate principal together
with accrued interest thereon to the date of such repayment. The Company made
its first scheduled payment on June 1, 1998. The principal amount of the notes
outstanding was $19.8 million and $23.7 million at December 31, 1999 and 1998,
respectively. The Company incurred $1.9 million, $2.2 million, and $2.4 million
of interest expense on the notes in the years ended December 31, 1999, 1998, and
1997, respectively. The Note Agreement contains restrictive covenants that
include certain financial ratios, limitations on additional indebtedness as a
percentage of certain defined equity amounts and the disposal of certain
subsidiaries, including primarily the Company's regulated insurance
subsidiaries.

F-22
<PAGE> 68

On March 14, 2000, UICI reduced indebtedness outstanding under the
credit facility from $100.0 million to $25.0 million, utilizing $5.0 million of
cash on hand and the proceeds of a $70.0 million loan from a limited liability
company controlled by the Company's Chairman ("Lender LLC") (see Note L). As
part of the paydown, the bank credit facility was amended to provide, among
other things, that the $25.0 million balance outstanding will be due and payable
on July 10, 2000, amounts outstanding under the facility are secured by a pledge
of investment securities and shares of Mid-West National Life Insurance Company
of Tennessee, and the restrictive covenants formerly applicable to UICI and its
restricted subsidiaries will now be applicable solely to Mid-West. Amounts
outstanding under the bank credit facility will continue to bear interest at
LIBOR plus 100 basis points per annum.

Lender LLC loaned $70.0 million to a newly-formed subsidiary of the
Company. The loan bears interest at the prevailing national prime rate, is
guaranteed by UICI, is due and payable in July 2001 and is secured by a pledge
of investment securities and shares of the Company's National Motor Club unit.
No principal outstanding under the loan from the Lender LLC can be paid unless
all amounts outstanding under the bank credit facility are paid in full.

Effective May 17, 1999, the Company terminated a $12.0 million
revolving credit note with AEGON. There were no outstanding borrowings on the
line of credit at December 31, 1998 and the Company did not borrow on this
revolving credit note during 1999.

Insurdata Imaging Systems, Inc. (an indirectly wholly-owned subsidiary
of the Company) has a $35,000 loan with interest rates ranging from 9.25% to
10.0% and maturing in 2003.

AMLI Realty Company (a wholly-owned subsidiary of the Company) has
various loans outstanding aggregating approximately $849,000, bearing interest
at rates ranging from 6.0% to 8.25%, with $602,000 maturing in 2000 and $247,000
maturing in 2003.

Principal payments required in each of the next five years after
December 31, 1999 are as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
2000............................................................................ $ 34,634
2001............................................................................ 74,037
2002............................................................................ 4,041
2003............................................................................ 3,974
2004............................................................................ 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 $120.8 million and $52.4
million at December 31, 1999 and 1998, respectively. The fair value of the
Company's long-term debt is estimated using discounted cash flow analysis, based
on the Company's current incremental borrowing rates for similar types of
borrowing arrangements.

Total interest paid was $7.4 million, $3.1 million, and $2.9 million,
for 1999, 1998, and 1997, respectively.

F-23
<PAGE> 69

NOTE I -- STUDENT LOAN CREDIT FACILITIES

Following is a summary of debt outstanding under student loan credit
facilities at Educational Finance Group, Inc.

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
----------- ----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Lehman Warehouse Line of Credit........................................... $ 318,735 $ 318,854
Bank of America Warehouse Line of Credit.................................. 79,004 --
Portion of long-term debt due in 2000..................................... 10,917 --
----------- ----------
Total short-term debt $ 408,656 $ 318,854
=========== ==========

Long-term debt:
Auction Rate notes........................................................ $ 432,790 $ --
Floating Rate notes....................................................... 229,000 350,172
Commercial Paper.......................................................... 639,235 --
Other notes............................................................... 31,584 --
----------- ----------
1,332,609 350,172
Less: amounts due in 2000 10,917 --
----------- ----------
Total long-term debt $ 1,321,692 $ 350,172
=========== ==========
</TABLE>

On June 11, 1999, an EFG special purpose financing subsidiary sold, in
a private placement transaction, $319.5 million principal amount of Auction Rate
Student Loan-Backed Notes at an initial interest rate of 5.038%. The notes were
sold in two tranches (Class A-1 and Class A-2) and mature in November 2022. The
interest rate (6.32% for Class A-1 and 6.30% for Class A-2 at December 31, 1999)
on the notes will be reset monthly by an auction process. The notes received a
"AAA" credit rating from Standard & Poor's and Fitch IBCA and an "Aaa" rating
from Moody's Investor Services. The outstanding balance at December 31, 1999 was
$317.8 million.

Educational Finance Group, Inc. entered into a $30 million loan
agreement with Bank of America, N.A. to partially finance the AMS acquisition.
The note requires quarterly principal payments beginning December 1999 and
terminates on March 31, 2001. The note bears interest at prime (8.50% at
December 31, 1999) plus 0.5%. The balance at December 31, 1999 was $28.8
million.

Primarily as a result of EFG's significant operating losses in 1999, at
December 31, 1999 events of default had occurred under the terms of the loan
agreement governing its $30.0 million bank credit facility. In accordance with
the terms of a waiver and amendment to the loan agreement, dated as of March 30,
1999, the lender waived all events of default under the loan agreement and
agreed not to exercise any rights or remedies with respect thereto.

Effective August 6, 1999 EFG completed a closing and funding of $515
million of its $650 million single seller asset-backed commercial paper conduit
pursuant to which commercial paper may be issued from time to time with
maturities from one to 270 days. Approximately $639.2 million of commercial
paper was issued and outstanding at December 31, 1999. At December 31, 1999,
this facility had interest rates ranging from 5.69% to 7.1%. Liquidity support
is provided by a separate banking facility. The commercial paper received
ratings of A1/P1/F1 from Standard & Poor's, Moody's, and Fitch, respectively.

On October 7, 1999, EFG completed a $344 million financing of three
classes of notes. The $229 million Class A-1 notes were structured as
three-month LIBOR floating rate notes and were priced with a spread of 42 basis
points with the interest rate to be reset quarterly. The Class A-1 notes have an
expected average life of 3.5 years with legal final maturity in April 2009. The
$57.5 million Class A-2 and $57.5 million Class A-3 notes were structured as
auction rate notes with an initial interest rate of 6.38%. The interest rate
(6.38% at December 31, 1999) on these notes is reset quarterly pursuant to
auctions conducted by Lehman Brothers and BancAmerica Securities. Legal final
maturity of the Class A-2 and Class A-3 notes is July 2000. Lehman Brothers and
Banc of America Securities were the initial purchasers of all three classes of
notes. All three classes of notes received AAA/Aaa/AAA ratings from Standard &
Poor's, Moody's and Fitch IBCA respectively.

At December 31, 1999, AMS has available a line of credit agreement with
Bank of America, N.A. The maximum amount available to AMS was $125 million. The
line of credit matures December 31, 2000 and is secured by the AMS student loan
portfolio. The maximum amount outstanding during the year was approximately

F-24
<PAGE> 70

$123 million, with an average monthly balance of approximately $70 million. The
amount outstanding under the line of credit at December 31, 1999 is $79 million.
Interest is indexed to 30-day LIBOR (5.823% at December 31, 1999) with interest
paid quarterly.

AMS has a note totaling approximately $2 million with Fleet National
Bank maturing June 30, 2004. The note bears interest at approximately 7.6%,
requiring principal and interest payments quarterly and is secured by an AMS
building.

In March 1998, Educational Finance Group, Inc. entered into a master
repurchase agreement and credit facility with a financial institution that is
partially guaranteed (approximately $13 million at December 31, 1999) by UICI.
The repurchase agreement provides for the purchase of student loans by the
financial institution, and the financial institution may put the student loans
back to EFG on the last day of each month. EFG, in turn, has the right to
require the financial institution to repurchase the student loans on such date,
with the interest rate on the credit facility reset on such date. The credit
facility provides for up to $150 million of financing and may be increased
subject to monthly confirmations. The credit facility had an outstanding balance
of $318.8 million and $318.9 at December 31, 1999 and 1998, respectively, and
bears interest at a variable annual rate of LIBOR plus 75 basis points (7.23% at
December 31, 1999). The credit facility has a term of one year and is secured by
student loans originated under the Federal Family Education Loan Program
("FFELP"), which are guaranteed by the federal government or alternative loans
guaranteed by private guarantors. The financial institution may value the loans
at any time and require EFG to repay any amount by which the market value of the
loans is less than the amount required by the credit facility.

In December 1998, EFG sold $357.4 million of loans to a trust which
issued floating rate student loan asset-backed securities in a private offering.
The Company has partially guaranteed the performance of the loans. The AAA rated
Class A securities were acquired by a financial institution. The Class A
securities had a variable interest rate of LIBOR plus 75 basis points. The trust
could issue up to $550.0 million of securities with a maturity of 30 years. At
December 31, 1998, the trust had issued Class A securities totaling $350.2
million and the interest rate on the Class A securities was 6.38%. The Company's
borrowings vary to reflect current interest rates and carrying amounts
approximate fair value. In connection with its August 1999 Commercial Paper
Program, the Company redeemed these notes.

Principal payments required in each of the next five years are as
follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
2000.............................................................................. $ 408,655
2001.............................................................................. 18,917
2002.............................................................................. 167
2003.............................................................................. 167
2004.............................................................................. 167
</TABLE>

Total interest paid on borrowings was $57.5 million and $19.2 million
for 1999 and 1998, respectively.

NOTE J -- FEDERAL INCOME TAXES

Deferred income taxes for 1999 and 1998 reflect the impact of temporary
differences between the financial statement carrying amounts and tax bases of
assets and liabilities. Deferred liabilities and assets consist of the
following:

F-25
<PAGE> 71
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Deferred policy acquisition and loan origination............................... $ 22,794 $ 20,817
Investment in subsidiaries..................................................... 4,536 4,536
Allowances for credit card losses.............................................. -- 3,961
Net unrealized investment gains................................................ -- 7,102
Other.......................................................................... 6,838 4,449
--------- --------
Total gross deferred tax liabilities................................... 34,168 40,865
--------- --------
Deferred tax assets:
Loss on disposal of continued operations....................................... 45,500 --
Policy liabilities............................................................. 21,690 16,176
Unrealized loss on securities.................................................. 15,668 --
Allowance for losses on investments............................................ 12,136 3,954
Operating loss carryforwards................................................... 13,533 1,977
Capital loss carryforwards..................................................... 404 --
Annual credit card fees........................................................ 6,139 6,621
Other.......................................................................... 10,030 --
--------- --------
Total gross deferred tax assets.................................................. 125,100 28,728
Less: valuation allowance........................................................ (6,683) (1,654)
--------- --------
Deferred tax assets.............................................................. 118,417 27,074
--------- --------
Net deferred tax (asset) liability............................................... $ (84,249) $ 13,791
========= ========
</TABLE>

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. Realization of
the net deferred tax asset is dependent on generating sufficient future taxable
income. The amount of the deferred tax asset considered realizable, however,
could be reduced in the near term if estimates of future taxable income during
the carryforward period are reduced. The net change in the total valuation
allowance was an increase of $5,029,000 for 1999 and a decrease of $456,000 for
1998. The 1999 increase in the valuation allowance arises from EFG, which files
a separate income tax return. Any net operating losses of EFG are not
eligible for utilization in the Company's consolidated income tax return.

The provision for income tax expense (benefit) consisted of the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
---------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
From continuing operations:
Current tax expense............................................... $ 17,737 $18,682 $ 29,664
Deferred tax expense (benefit).................................... (135) (2,943) 6,542
---------- ------- ---------
Total from continuing operations............................. 17,602 15,739 36,206
---------- ------- ---------
From discontinued operations:
Current tax expense (benefit)..................................... (21,039) 15,299 6,775
Deferred tax expense (benefit).................................... (75,134) 939 415
---------- ------- ---------
Total from discontinued operations........................... (96,173) 16,238 7,190
---------- ------- ---------
Total tax expense (benefit).................................. $ (78,571) $31,977 $ 43,396
========== ======= =========
</TABLE>

F-26
<PAGE> 72
The Company's effective income tax rates varied from the maximum
statutory federal income tax rate as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Statutory federal income tax rate ........... 35.0% 35.0% 35.0%
Small life insurance company deduction ...... 0.6 (1.4) (1.1)
Operating loss not benefitted ............... (2.2) -- --
Valuation allowance ......................... -- (0.5) (0.5)
Low-income housing credit ................... 0.5 -- --
Other items, net ............................ 0.4 (2.1) (1.5)
------ ------ ------
Effective income tax rate ......... 34.3% 31.0% 31.9%
====== ====== ======
</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 a life insurance company fails to qualify as a life insurance
company for federal income tax purposes for two consecutive years, these amounts
are distributed to the Company, or these amounts 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, 1999. For
the taxable year ended December 31, 1999, The MEGA Life and Health Insurance
Company (MEGA) did not qualify as a life insurance company for federal income
tax purposes. The Company believes that it is likely that MEGA will also not
qualify as a life insurance company for federal income tax purposes for the
taxable year ending December 31, 2000. Accordingly, taxes of approximately $4.1
million have been provided on this amount.

At December 31, 1999, certain acquired subsidiaries of the Company had
aggregate federal tax loss carryforwards of $5.0 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 $658,000 per year from 2000 through 2006, and
$385,000 in 2007.

Total federal income taxes paid were $40.2 million, $15.7 million, and
$39.4 million, for 1999, 1998, and 1997, respectively.

UICI, MEGA and certain non-life insurance subsidiaries file a
consolidated federal income tax return. EFG and the Company's other life
insurance subsidiaries all file separate federal income tax returns.

The Company has interests in several limited liability corporations
which file separate tax returns. The Company's consolidated results of
operations reflect 100% of the income from these companies.

NOTE K -- STOCKHOLDERS' EQUITY

During November 1998, the Company's board of directors authorized the
repurchase of up to 4,500,000 shares of its Common Stock. The shares may be
purchased from time to time on the open market or in private transactions; the
timing and extent of the repurchases, if any, will depend on market conditions
and the Company's evaluation of its financial condition at the time. As of
December 31, 1999, the Company had repurchased 209,703 shares which is included
in treasury stock.

Effective September 15, 1999, the Company entered into an Assumption
Agreement with a related party (see Note L), pursuant to which UICI agreed to
assume and discharge an unfunded obligation to purchase and transfer to
independent sales agents, representatives and independent organizations, in
consideration of a cash payment made by the related party to the Company in the
amount of $10,129,212, representing the dollar value of 369,174 shares of UICI
Common Stock at $27.4375 per share (the closing price of UICI common stock at
September 15). On October 29, 1999, the Company received the cash payment.

In 1999, the Company entered into a put/call agreement on the Company's
Common Stock with a related party. See Note L.

During 1998 and 1999, the Company extended loans to officers, directors
and employees, in the amount of $3.3 million and $2.9 million, respectively, the
proceeds of which were used to purchase Company Common Stock. The six-year term
loans bear interest at 5.22% - 5.37% per annum, and interest is payable
quarterly. Loans are full recourse to borrowers and are payable in full upon the
occurrence of certain events. (See Note L).

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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 J on federal income taxes.
The minimum statutory capital and surplus requirements of domestic insurance
subsidiaries at December 31, 1999 was $37.1 million.

Prior approval by insurance regulatory authorities is required for the
payment of dividends by a domestic insurance company which exceed certain
limitations based on statutory surplus and net income. At December 31, 1999, the
domestic insurance companies could pay aggregate dividends to the parent company
of approximately $30.7 million without prior approval by statutory authorities
and an additional $19.8 million after December 22, 2000.

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,
---------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net income........................................................... $ 50,761 $ 4,804 $ 41,801
Stockholders' equity................................................. $ 287,360 $ 227,167 $ 223,930
</TABLE>

In 1998, the NAIC adopted codified statutory accounting principles
("Codification") effective January 1, 2001. Codification will likely change, to
some extent, prescribed statutory accounting practices and may result in changes
to the accounting practices that the Company uses to prepare its statutory-basis
financial statements. Codification will require adoption by the various states
before it becomes the prescribed statutory basis of accounting for insurance
companies domesticated within those states. Accordingly, before Codification
becomes effective for the Company, the state of domicile must adopt Codification
as the prescribed basis of accounting on which domestic insurers must report
their statutory-basis results to the Insurance Departments. At this time it is
anticipated that the states of domicile will adopt Codification. While
management has not yet determined the impact of Codification to UICI's
statutory-basis financial statements, it is possible that certain changes in
statutory accounting practices arising from Codification could be material to
the Company.

The OCC imposes certain capital adequacy requirements on the Company's
national credit card bank subsidiary. The capital adequacy is measured by the
method prescribed by the OCC in its rules and regulations for maintaining
capital adequacy. See Note M.

NOTE L -- RELATED PARTY TRANSACTIONS

INTRODUCTION

Historically, the Company and its subsidiaries have engaged from time
to time in transactions and joint investments with executive officers and
entities controlled by executive officers, particularly Ronald L. Jensen (the
Company's Chairman) and entities in which Mr. Jensen and his adult children have
an interest ("Jensen Affiliates").

Under the Company's by-laws, any contract or other transaction between
the Company and any director (or company in which a director is interested) is
valid for all purposes if the interest of such director is disclosed or known
and such transaction is authorized by a majority of directors not interested in
the transaction. The Board of Directors has a current policy requiring that,
where Mr. Jensen is the interested director, a contract or transaction with Mr.
Jensen 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 by a
majority of the directors of the Company who are not employees of the Company or
its subsidiaries. While the Company believes that during 1999 the Board of
Directors has been apprised of and has reviewed in advance all significant
transactions between all Jensen Affiliates and the Company, the formal Board
policy governing independent approval does not strictly apply to a contract or

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<PAGE> 74

transaction involving payments of less than $500,000 in any twelve month period
or less than $2.5 million over the life of such contract or transaction. Mr.
Jensen has never voted with respect to any matter in which he or his children
have or have had an interest.

On March 20, 2000, the Board of Directors accepted the recommendations
of the Special Litigation Committee to amend the Company's policy for
related-party transactions, requiring (1) prospective Board review, until March
20, 2001, of any contract or transaction involving payments of $60,000 or more
over the life of any contract, and, after March 20, 2001, review of any contract
or transaction involving payments of $250,000 or more in any twelve-month period
or $1,000,000 over the life of the contract and (2) defining a "related-party"
as a person or entity that is an "affiliate" of the Company or any entity in
which any officer or director of the Company has a 5% or greater equity
interest.

The Company believes that the terms of all such transactions with all
related parties, including all Jensen Affiliates, are and have been on terms no
less favorable to the Company than could have been obtained in arms' length
transactions with unrelated third parties.

Transactions between an insured bank (including UCNB, the Company's
indirect wholly owned subsidiary) and its affiliates are subject to, among
other things, the quantitative and qualitative restrictions of Section 23A of
the Federal Reserve Act, as well as safety and soundness considerations. The
OCC has expressed criticism with respect to certain of the transactions that
have taken place between UCNB and the Company and/or certain of its wholly owned
subsidiaries. The Company disagrees, but it cannot predict at this time what
action, if any, the OCC will ultimately take with respect to these transactions.

TRANSACTIONS WITH MR. JENSEN AND JENSEN AFFILIATES

Special Investment Risks, Ltd.

From the Company's inception through 1996, Special Investment Risks,
Ltd. ("SIR") (formerly United Group Association, Inc. ("UGA")) sold health
insurance policies that were issued by AEGON USA and coinsured by the Company or
policies issued directly by the Company. SIR is owned by Mr. Jensen. Effective
January 1, 1997, the Company acquired the agency force of SIR and certain
tangible assets of SIR for a price equal to the net book value of the tangible
assets acquired and assumed certain agent commitments of $3.9 million. The
tangible assets acquired consisted primarily of agent debit balances, a
building, and related furniture and fixtures having a net book value of $13.1
million.

In accordance with the terms of the asset sale to the Company, SIR
retained the right to receive all renewal commissions on policies written prior
to January 1, 1997, including the policies previously issued by AEGON and
coinsured by the Company and the policies previously issued directly by the
Company. The renewal commissions paid to SIR on the coinsured policies issued by
AEGON are based on commission rates negotiated and agreed to by AEGON and SIR at
the time the policies were issued prior to 1997, and the commission rates paid
on policies issued directly by the Company are commensurate with the AEGON
renewal commission rates. The Company expenses its proportionate share of
renewal commissions payable to SIR on co-insured policies issued by AEGON.
During 1997, 1998 and 1999, SIR received insurance renewal commissions of $20.4
million, $20.9 million and $10.1 million, respectively, on the policies
previously issued by AEGON and coinsured by the Company. During 1997, 1998 and
1999, SIR received renewal commissions of $9.2 million, $4.7 million and $3.3
million, respectively, on policies issued directly by the Company.

In 1986 and 1996, respectively, SIR established, for the benefit of its
independent insurance agents, independent sales representatives and independent
organizations associated with SIR, the Agency Matching Total Ownership Plan I
and the Agency Matching Total Ownership Plan II (collectively, the "Plans"),
entitling participants to purchase and receive Company Common Stock. In
connection with SIR's transfer to the Company of SIR's agency operations
effective January 1, 1997, SIR agreed to retain the liability to fund the Plans
to the extent of 922,587 shares of UICI Common Stock, representing the
corresponding number of unvested AMTOP Credits (as defined in the Plans) at
January 1, 1997. As of August 30, 1999, the liability of SIR to fund the Plans
remained undischarged to the extent of 369,174 shares of UICI Common Stock (the
"Unfunded Obligation").

Effective September 15, 1999, SIR and the Company entered into an
Assumption Agreement, pursuant to which UICI agreed to assume and discharge the
Unfunded Obligation, in consideration of a cash payment made by SIR to the
Company in the amount of $10,129,212, representing the dollar value of 369,174
shares of UICI Common Stock at $27.4375 per share (the closing price of UICI
common stock at September 15). On October 29, 1999, SIR funded the cash payment.

To ensure that the dollar value of the Unfunded Obligation will not
exceed the dollar proceeds received

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<PAGE> 75

from SIR plus a reasonable allowance for the cost of funds, effective September
15, 1999, the Company and OUI entered into a Put/Call Agreement. Pursuant to the
Put/Call Agreement, for a thirty day period commencing on July 1 of each year
(commencing in 2000 through 2006), the Company has an option to purchase from
OUI, and OUI has a corresponding right to require the Company to purchase, up to
369,174 shares of Common Stock at an initial purchase price in 2000 of $28.50
per share. The call/put price escalates over time in annual dollar increments to
recognize an increase in value of the underlying UICI stock based upon
historical past performance (an approximate 6.0% annual rate of appreciation).

During 1995, the Company and SIR entered into a three-year agreement
entitling the Company to receive a 20% interest in the profits or losses
relating to certain lead generation activities of SIR. In accordance with this
arrangement, SIR paid to the Company $600,000 and $1.1 million in 1998 and 1997,
respectively.

During 1999, 1998 and 1997, the Company received $163,000, $13,000 and
$-0-, respectively, from SIR as reimbursement of office supply and occupancy
expenses.

Richland State Bank

Richland State Bank ("RSB") is a state-chartered bank in which Mr.
Jensen holds a 100% equity interest. Prior to the chartering of United Credit
National Bank in February 1997, the Company's United CreditServ subsidiary
(formerly the Company's Credit Services division) utilized RSB to issue credit
cards, for which the Company paid origination fees in the amount of $352,000,
$176,000 and $103,000 in 1999, 1998 and 1997, respectively. During 1997, the
Company purchased $6.3 million of the Credit Services Division credit card
receivables from RSB.

RSB has also originated student loans for Educational Finance Group,
Inc. ("EFG") and resold originated loans to EFG at par less an origination fee
of 31 basis points (0.31%). In 1998, RSB originated $21.6 million in student
loans for EFG and received $66,960 in origination fees. During 1999, RSB
originated $59.8 million aggregate principal amount of student loans for EFG,
for which it received $176,000 in origination fees. During 1997, the Company
also borrowed $666,000 from RSB, of which $497,000 was outstanding at December
31, 1998, bearing interest at annual rates ranging from 9% to 9.25%. The loans
were paid in full in August 1999.

The Company's United CreditServ unit processes and services credit
cards issued by RSB. The Company received $1.1 million, $585,000 and $885,000
from RSB for services performed in connection with processing of credit cards in
1999, 1998 and 1997, respectively.

RSB has also historically provided student loan origination services
for the Company's College Fund Life Division. On June 12, 1999, RSB and UICI
Funding Corporation ("Funding") (a wholly owned subsidiary of UICI), executed a
Loan Origination and Purchase Agreement, pursuant to which RSB continues to
originate student loans for Funding. Originated student loans are resold to
Funding at par (plus accrued interest) less an origination fee of 31 basis
points (0.31%). Funding, in turn, resells the loans to the College Fund Life
Division of The MEGA Life and Health Insurance Company (a wholly-owned
subsidiary of UICI) ("MEGA") and to the College Fund Life Division of Mid-West
National Life Insurance Company of Tennessee (a wholly-owned subsidiary of UICI)
("Mid-West"). During 1999, RSB originated $15.3 million aggregate principal
amount of student loans for MEGA and Mid-West, for which it received origination
fees in the amount of $380,000

During 1999, RSB collected on behalf of, and paid to, Funding
$1,250,000 in guarantee fees paid by student borrowers in connection with the
origination of student loans.

In June 1999, RSB entered into a service agreement with the College
Fund Life Division of MEGA and Mid-West pursuant to which MEGA and Mid-West
provide underwriting services to permit RSB to approve prospective student
loans. During 1999, RSB paid to MEGA and Mid-West administrative fees for such
services in the amounts of $165,000 and $300,000, respectively.

During 1999, the Company received from RSB interest income in the
amount of $5,400 on certificates of deposit issued by RSB.

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Specialized Association Services, Inc.

Pursuant to an agreement entered into in July 1998, Specialized
Association Services, Inc. ("SAS") (which is owned by Mr. Jensen's adult
children) regularly pays MEGA for certain benefits (e.g., National Motor Club
memberships) provided to association members. MEGA, in turn, purchases such
benefits from third parties (including, in some cases, the Company). The Company
believes that the fees earned by MEGA as a percentage of MEGA's cost of benefits
is approximately 23%, which is prior to any allocation of overhead. During 1999
and 1998, SAS paid to MEGA $6.0 million and $900,000, respectively, pursuant to
this arrangement.

During 1999, 1998 and 1997, the Company paid to SAS $151,000, $-0- and
$-0-, respectively, for telemarketing services. During 1999, 1998 and 1997, the
Company paid to SAS $166,000, $214,000 and $-0-, respectively, for various
services and reimbursement of expenses. The Company received from SAS $32,000,
$95,000 and $-0- during 1999, 1998 and 1997, respectively, for reimbursement of
expenses. During 1999, 1998 and 1997, SAS paid to MEGA $325,000, $114,000 and
$-0-, respectively, for leased office facilities.

Healthcare Management Administrators, Inc.

In 1997, pursuant to the terms of a Sale and Administration Agreement,
the Company sold certain tangible assets associated with its third party
administrator business to Healthcare Management Administrators, Inc. ("HMA")
(which is owned by Mr. Jensen) and also agreed to assign associated rights and
benefits of licenses of third party administrator business. The purchase price
received by the Company was $641,000, which approximated book value of the net
assets sold.

During 1999, 1998 and 1997, the Company provided to HMA leased
facilities and data processing, accounting, management and administrative
services. The Company received fees of $3.5 million, $9.2 million and $4.5
million in 1999, 1998 and 1997, respectively, and the Company paid HMA $273,000,
$69,000 and $28,000 in 1999, 1998 and 1997, respectively, for certain claims
processing services performed by HMA. During 1998, the Company loaned HMA
$910,000, which loan was repaid in full in 1998 with interest at prime plus two
percent.

During 1999, 1998 and 1997 Insurdata Marketing Services received
commissions from HMA in the amount of $630,000, $-0- and $-0-, respectively.

In accordance with the terms of a Management and Option Agreement,
dated as of April 1, 1999, HMA and Mr. Jensen granted to the Company an option
to purchase certain assets, subject to certain corresponding liabilities,
associated with the third party administration business of HMA. The option was
exercisable on or before January 30, 2000 at an option price equal to the book
value of the net tangible assets of HMA to be purchased plus assumption of an
obligation to pay WinterBrook VSO, LLC (a company controlled by Mr. Jensen)
certain commissions payable over a five year term in an amount not to exceed
$4.2 million. The Company delivered notice of exercise of the option on January
25, 2000, and the Company completed the purchase of the assets associated with
HMA's third party administration business on February 3, 2000, at a renegotiated
purchase price equal to $3,980,500 (representing the recorded net book value of
the assets purchased) plus $500,000, representing repayment to Mr. Jensen of
cash advances made to HMA subsequent to December 31, 1999.

NetLojix Communications, Inc. (formerly AvTel Communications, Inc.)

Netlojix provides voice telecommunications services to the Company,
pursuant to an agreement originally executed in 1998, renegotiated effective
August 1, 1999 and expiring on October 31, 2001. Mr. Jensen and his adult
children own beneficially in the aggregate approximately 59% of the issued
capital stock of Netlojix. The Company paid Netlojix $4.4 million, $2.4 million
and $2.1 million in 1999, 1998 and 1997, respectively, for telecommunications
services, and in 1999, 1998 and 1997 the Company received reimbursement payments
of $192,000, $113,670 and $-0-, respectively, in connection with such services.

Excell Global Services, Inc.

Excell Global Services, Inc. ("Excell Global") (in which Mr. Jensen,
Mr. Mutz, President and Chief Executive Officer of the Company, and an officer
of United CreditServ serve as directors and in which Mr. Jensen

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<PAGE> 77

and Mr. Mutz are beneficial holders of 57.28% and 14.6%, respectively, of the
outstanding equity) is a holding company, the principal subsidiary of which is
Excell Agent Services, LLC ("Excell"). Excell Global and members of management
of Excell Global hold, in the aggregate, 99% of the equity interest in Excell,
and Mr. Jensen holds the remaining 1% equity interest. Excell provides telephone
directory assistance services. During 1999, Excell and MEGA entered into a
consulting arrangement, pursuant to which Excell was engaged on a project basis
to provide advisory and consulting services to MEGA with regard to call center
matters. During 1999, MEGA paid to Excell the amount of $48,000 for such
services.

In November 1994, UICI extended a $10.0 million line of credit to
Excell. The terms of the line of credit were renegotiated in 1997 to provide for
additional collateral, to decrease the interest rate to prime from prime plus 4%
and to extend the maturity of the loan to December 31, 1998 from September 30,
1998. The line of credit was secured by a pledge of securities owned by Mr.
Jensen. Excell repaid $2.5 million in 1997 and the remaining balance of $7.5
million was repaid in May 1998.

In January 1999, the Company sold to Excell a stop loss policy issued
by MEGA. During 1999, Excell paid to the Company total premiums on such policy
in the amount of $153,000.

Onward and Upward, Inc. and Other Entities Owned by the Jensen Adult Children

Mr. Jensen's five adult children hold in the aggregate 100% of the
equity interest in Onward & Upward, Inc. ("OUI"), the holder of approximately
6.69% of the Company's outstanding Common Stock.

During 1998, the Company acquired from OUI a 15.9% interest in the
Company's subsidiary, The Chesapeake Life Insurance Company, for a purchase
price of $4.5 million. The purchase price was based on a predetermined formula
that approximated GAAP book value. OUI also holds a 21% equity interest in U.S.
Managers Life Insurance Company, Ltd., a subsidiary of the Company, with respect
to which OUI has granted the Company an option to purchase, and retained a
corresponding option to sell, at a predetermined formula price.

For the six-month period ended July 1, 1998, Core Marketing, Ltd. (in
which the Jensen adult children held 100% of the equity interest) generated
sales leads for the agents of the Company. The Company paid $7.5 million for the
leads in 1998. In 1998, the Company purchased certain assets of Core Marketing,
Ltd. for a purchase price of $2.8 million.

In 1999, 1998 and 1997, the Company paid $147,000, $1,600 and $37,000,
respectively, to Small Business Ink (a division of Specialized Association
Services, in which the adult children of Mr. Jensen own 98.8%) for printing
services.

Tesia Corporation (formerly Paperless Adjudication Ltd.)

During 1993, Mr. Jensen and the Company agreed to jointly invest in
Tesia Corporation ("Tesia"), which seeks to develop a paperless system for
insurance claims administration and adjudication. Mr. Jensen holds a 29.67% and
Mr. Jensen's five adult children hold in the aggregate a 12.17% equity interest
in Tesia. At December 31, 1998, the Company had written off its aggregate
investment of $6.1 million made prior to 1999. In September 1999, the Company
invested an additional $119,000 in Tesia in exercise of its preemptive rights as
part of a private placement offering of equity interests by Tesia. After
recognizing its share of Tesia's operating losses, at December 31, 1999, the
Company's carrying value of its investment in Tesia was $-0-.

In 1999, 1998 and 1997, the Company received $8,400, $-0- and $-0-,
respectively, from Paperless Adjudication, Ltd. for commissions and
reimbursement of expenses.

Impact Productions, Inc.

In 1998, the Company acquired a 90% interest in Impact Productions,
Inc. ("Impact") from one of Mr. Jensen's adult children for a total price of
$236,000, which approximated the net book value of the assets as of the purchase
date. The adult child of Mr. Jensen retains a 10% equity interest in Impact.
During 1999, 1998 and 1997, the Company paid to Impact $111,000, $319,000 and
$119,000, respectively, for promotional services.

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During 1999, 1998 and 1997, Impact paid the Company $13,000, $17,000
and $-0-, respectively, for reimbursement of expenses.

Interactive Media Works, Inc.

During 1999 and 1998, United Membership Marketing Group, LLC (an
indirect wholly-owned subsidiary of the Company) paid Interactive Media Works,
LLC (in which Mr. Jensen held a 72.5% equity interest) the amount of $-0- and
$1,435,441, respectively, for voice activation services related to its credit
card operation.

Small Business Showcase, Inc. ("SBS")

Cornerstone Marketing of America (a division of Mid-West) paid to Small
Business Showcase, Inc. ("SBS") (which is owned by one of Mr. Jensen's adult
children) $11,000, $-0- and $-0- in 1999, 1998 and 1997, respectively, for lead
generation services.

In 1999 and 1998, SBS paid to subsidiaries of the Company $659,000 and
$-0-, respectively, for generating Internet leads.

WinterBrook VSO, LLC

During 1999 and 1998, Insurdata Imaging Services, LLC (an indirect
wholly-owned subsidiary of the Company) paid WinterBrook VSO, LLC (in which Mr.
Jensen holds a controlling interest) $258,000 and $-0-, respectively,
representing run-off commissions relating to the marketing and sale of satellite
imaging systems.

Purchase of Series B Certificates

On December 31, 1999, the Company sold to Mr. Jensen for an aggregate
of $10,000,000 in cash (representing 100% of the principal amount thereof) (a) a
Class B 8.25% Asset Backed Certificate, Series 1998-1, in the outstanding
principal amount of $4,100,000; (b) a Class B 10.00% Asset Backed Certificate,
Series 1997-1, in the outstanding principal amount of $3,000,000; and (c) a
Class B 10.00% Asset Backed Certificate, Series 1996-1, in the outstanding
principal amount of $2,900,000 (collectively the "Series B Certificates"). The
Series B Certificates were created as part of the Company's securitizations of
credit card receivables issued in 1996, 1997 and 1998 generated by the Company's
credit card operations.

Sale of SunTech Processing Systems, LLC

In 1996, the Company invested $4 million in exchange for a 100% Class A
and a 40% Class B membership interest in Cash Delivery Systems, LLC ("CDS"),
formerly known as Sun Network Technologies. The remaining 60% Class B membership
interest was held by Sun Communications, Inc. ("Sun"). At the time of the
Company's investment, CDS was engaged in the business of owning and placing
automated teller machines ("ATMs") and processing ATM transactions. In
connection with the Company's investment in CDS, Mr. Jensen executed an
agreement pursuant to which Mr. Jensen agreed to indemnify the Company for any
loss or reduction in value of the Company's Class A membership contribution and
granted an option to the Company to put the Class A membership interest to Mr.
Jensen for $4 million. CDS and Mr. Jensen then invested $80,000 and $20,000 in
Sun Tech Processing Systems, LLC ("STP") in exchange for an 80% and 20%
membership interest, respectively. In addition, Mr. Jensen agreed to loan up to
$6 million to STP, secured by all property acquired with the funds advanced. No
funds were drawn down on this commitment.

In accordance with an Agreement dated March 1997 and effective December
31, 1996 (the "March 1997 Agreement"), the Company, Mr. Jensen, Sun, CDS, and
STP restructured these investments as follows:

o CDS and Mr. Jensen withdrew their membership contributions
from STP and the agreement to advance up to $6 million to CDS
was canceled.

o STP issued to the Company and Sun a new 80% and 20% Class B
membership interest for $800 and $200, respectively.

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<PAGE> 79

o The Company invested an additional $2.0 million in STP in
exchange for a 100% Class A membership interest.

o The Company sold its entire Class A and Class B membership
interests in CDS to Mr. Jensen for $854,000, which represented
the net book value of the Company's interest in CDS before the
transfer of the ATM transaction processing business to STP. In
addition, Sun transferred a 40% interest in CDS to Mr. Jensen.
Giving effect to these transactions, Mr. Jensen and Sun owned
80% and 20% of the Class B membership interests of CDS,
respectively, and Mr. Jensen owned 100% of the Class A
membership interests of CDS.

o Mr. Jensen agreed to provide financing to CDS in the total
amount of approximately $12 million to pay off outstanding CDS
indebtedness, approximately $2 million of which was to be
unsecured. As of March 1997, Mr. Jensen had paid on behalf of
CDS approximately $10.3 million.

In connection with the sale of UICI's interests in CDS to Mr. Jensen,
CDS distributed processing assets with approximately $1.3 million in book value
to Mr. Jensen and Sun, which at the time owned 80% and 20% of the Class B
membership interests in CDS, respectively. Sun contributed its share of those
processing assets to STP, and Mr. Jensen contributed his $1.1 million share of
the book value of those processing assets to STP on behalf of UICI.

The March 1997 Agreement also provides, in part, that (i) there will be
no distributions to Class B members of STP or CDS until all Class A preferred
interests in both STP and CDS have been paid or redeemed in full and (ii) if
funds are available to any parties from either STP or CDS, such funds will be
loaned to the other company until the preferred interests are retired. The
agreements governing the organization and governance of STP and CDS both
require, upon liquidation, the payment of the respective outstanding debt of
each company before the equity holders of that company receive a distribution.
After the sale of CDS's ATMs and use of the proceeds to repay these loans in
part, approximately $6.2 million of Mr. Jensen's loans to CDS remained
outstanding as of December 31, 1999. These loans bear interest at an annual rate
of 2.5% plus the prime rate, payable monthly, and have a maturity date of July
1, 2001.

In February 1998, the assets of STP were sold to an unrelated party for
$17.5 million, and in 1998 the Company recognized a gain in the total amount of
$9.7 million on the sale. As discussed below, the ultimate outcome of the
appeals in the Sun Litigation may have an impact on this recorded gain.
Consistent with its understanding of the March 1997 Agreement, in the first
quarter of 1998 the Company recorded a gain of $2.3 million (representing the
distribution due to its Class A and Class B interests in STP after funds were
advanced to CDS to retire Mr. Jensen's debt and redeem his Class A interest in
CDS). In April 1998, Sun filed certain claims in District Court in Dallas
County, Texas concerning the distribution of the proceeds from the sale of the
STP assets. The core issue of the suit was whether the provisions of the March
1997 Agreement would require that STP make a loan or advance to CDS out of the
proceeds of the STP sale so that CDS could repay the loans made by Mr. Jensen to
CDS and redeem Mr. Jensen's Class A preferred membership interest in CDS. The
liquidator appointed to rule on the proper distribution ruled that the proceeds
should be distributed in a manner different than had previously been applied by
the Company in the first quarter of 1998.

The net effect of any loan or advance to CDS would be to reduce the
funds available for STP to distribute to the Company and Sun. In accordance with
an agreement effective June 30, 1998 (the "Assurance Agreement"), Mr. Jensen
agreed that, if UICI receives less than the $15.149 million in the lawsuit, then
Mr. Jensen will advance funds to UICI sufficient to increase UICI's recovery to
$15.149 million.

The Dallas County, Texas District Court ruled in December 1998 that, as
a matter of law, the March 1997 agreement governing the distribution of the cash
proceeds of the STP sale should be read in the manner urged by Sun and
consistent with the court-appointed liquidator's previous ruling. The District
Court entered a judgment directing distribution of the sales proceeds in the
manner urged by Sun. The District Court also entered a finding that UICI
violated Texas securities disclosure laws and breached a fiduciary duty owed to
Sun, and the District Court awarded the plaintiff $1.7 million in attorneys'
fees, which amount could be increased to $2.1 million under certain
circumstances.

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UICI believes that the District Court was incorrect in the awarding of
attorneys' fees and in its finding that UICI violated Texas securities laws and
breached a fiduciary duty to Sun for allegedly selling STP for less than its
true market value. On September 10, 1999 the Company filed its initial briefs in
support of its appeal of the District Court's decision as to those issues. The
Company has not, however, appealed the District Court's ruling with regard to
the interpretation of the March 1997 agreement. On September 10, 1999, Mr.
Jensen filed his initial brief in support of his appeal of, among other things,
the trial court's December 1998 finding in the Sun Litigation that Mr. Jensen
was not entitled to any of the proceeds from the sale of STP's assets. On
October 4, 1999, Sun filed its brief in opposition to the appeal.

In the brief filed in his appeal of the District Court's December 1998
finding, Mr. Jensen reasserted that the March 1997 agreement requires that,
before STP can make a distribution to UICI and Sun, it must advance
approximately $10 million to CDS to allow CDS to satisfy certain creditor and
preferred equity claims, owed primarily to Mr. Jensen. If and to the extent that
Mr. Jensen's interpretation of the March 1997 agreement is ultimately adopted in
the Sun Litigation after all rights to appeal have been exhausted, the amount of
such proceeds which UICI may ultimately receive directly from STP may be
reduced. However, in such event and in accordance with the Assurance Agreement,
the Company anticipates that it will receive no less than $15,149,000 from the
STP sale.

Oral argument before the Dallas Court of Appeals on the appeal was held
on February 1, 2000, though no decision on the appeal has been rendered. As
previously disclosed, for financial reporting purposes any cash ultimately
received by the Company from Mr. Jensen pursuant to the Assurance Agreement
would be treated as a capital contribution to the Company, and the Company's
gain would be reduced by a corresponding amount. In such case, however, the
Company's consolidated stockholders' equity would not be adversely affected. In
1998, the Company's results of operations reflected a pre-tax gain from the STP
sale of $9.7 million ($6.7 million after-tax, or $0.15 per share).

March 2000 Loan

On March 14, 2000, a limited liability company controlled by the
Company's Chairman (the "Lender LLC") extended to a newly-formed subsidiary of
UICI a loan in the amount of $70.0 million, the proceeds of which, together with
$5.0 million of cash on hand, were used to reduce indebtedness outstanding under
the Company's bank credit facility from $100.0 million to $25.0 million. The
loan bears interest at the prevailing prime rate, is guaranteed by UICI, is due
and payable in July 2001 and is secured by a pledge of investment securities and
shares of the Company's National Motor Club unit. No principal outstanding under
the loan from Lender LLC can be paid unless all amounts outstanding under the
bank credit facility are paid in full.

Other Transactions

Effective July 1, 1998, the Company sold to IPN Acquisitions, Inc. (in
which Mr. Jensen holds a 100% equity interest) its equity interest in IPN, LLC
(a healthcare solutions company) for cash in the amount of $3.5 million. The
purchase price represented the net book value of the net assets of IPN, LLC.

Effective July 1, 1998, the Company sold to HAI Acquisitions, Inc. (in
which Mr. Jensen holds a 100% equity interest) its equity interest in HealthCare
Automation, Inc. (a healthcare solutions company) for cash in the amount of $1.9
million. The purchase price represented the net book value of the net assets of
Healthcare Automation, Inc.

During 1997, the Company sold to Mr. Jensen its equity interest in
Televere Systems, LLC, B. T. Systems Integrators, LLC and Winterbrook VSO, LLC
and certain assets of UICI Administrators, Inc. for cash in the aggregate amount
of $1.2 million. The purchase price represented the net book value of the net
assets of the companies.

In 1999, 1998 and 1997, the Company paid $28,000, $79,000 and $1,900,
respectively, to United Group Service Center, Inc. (in which Mr. Jensen holds a
100% equity interest) for reimbursement of expenses. In 1999, 1998 and 1997, the
Company received $43,000, $14,000 and $14,000, respectively, from United Group
Service

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Center, Inc., which amounts represent premiums on a stop loss policy issued by
MEGA and reimbursement of office expenses.

EDUCATIONAL FINANCE GROUP, INC.

The Company's Educational Finance Group, Inc. subsidiary formerly
leased office space from a partnership in which Stephen J. Galvin (former
President and Chief Executive Officer of EFG) is a partner. During 1999, 1998
and 1997, EFG paid $149,000, $-0- and $-0-, respectively, under the terms of the
lease. EFG terminated the lease on January 13, 2000. EFG also paid $3,200 and
$2,300 in 1999 and 1998, respectively, for facilities services to a property
management company, the sole shareholders of which included members of Mr.
Galvin's family.

EFG also utilized the services of a travel agency owned by Mr. Galvin
and members of his family. During 1999, 1998 and 1997, EFG incurred for the
benefit of the travel agency the cost of space and salary and benefits for one
agency employee in the amount of $28,000, $14,000 and $-0-, respectively.

In 1998 Mr. Galvin contributed a $9.0 million note payable to him by
EFG as equity to EFG. This note payable had a balance of $10.5 million at
December 31, 1997.

As president and chief executive officer of EFG, Mr. Galvin received
compensation from EFG in the amount of $239,000, $200,000 and $66,000 in 1999,
1998 and 1997, respectively.

Mr. Galvin and an employee of EFG together hold 66% of the equity
interest in a company to which EFG paid $66,000 in 1998 for web-site development
services.

TRANSACTIONS WITH PHILLIP A. GRAY

During 1997, 1998 and the period ended on April 23, 1999, Phillip A.
Gray served as head of the Company's Credit Services division and held a
minority interest in United Membership Marketing Group, Ltd. (a majority owned
subsidiary of the Company) ("UMMG"). During 1999, 1998 and 1997, the Company
engaged in several transactions with Mr. Gray and business entities controlled
by Mr. Gray.

American Credit Educators, LLC

Mr. Gray is the controlling member of American Credit Educators, LLC
("ACE"), an independent membership association that provides credit education
programs and other benefits and through which United CreditServ has historically
marketed its credit support services and "ACE" credit cards. During 1999, 1998
and 1997, UCNB made payments to ACE totaling $79.6 million, $52.6 million, and
$-0-, respectively, pursuant to the terms of a Credit Card Merchant Agreement.
These payments were for educational materials that were sold by ACE and charged
to credit cards issued by UCNB. In addition, during 1998 and 1999, UCNB paid to
ACE cash in the amount of $12.8 million and $6.0 million, respectively, in
satisfaction of certain merchant holdback liabilities, and in 1999 ACE purchased
from UCNB certain credit card receivables in the amount of $13.8 million,
representing the unpaid balance of the accounts purchased.

In 1999, 1998 and 1997, ACE paid to UMMG the amount of $16.3 million,
$21.0 million and $-0-, respectively, for fulfillment services and marketing
materials.

American Fair Credit Association, LLC

Mr. Gray is the controlling member of American Fair Credit Association,
LLC ("AFCA"), an independent membership association that provides credit
education programs and other benefits and through which United CreditServ has
historically marketed its credit support services and "AFCA" credit cards.

In 1999, 1998 and 1997, AFCA paid to UMMG cash in the amount of $15.3
million, $24.5 million and $20.8 million, respectively, for fulfillment services
and marketing materials. In 1999, 1998 and 1997, AFCA paid to United CreditServ
$300,000, $900,000 and $2.4 million for processing fees.

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United Membership Marketing Group, LLC

UMMG was initially organized by the Company in 1993 to serve as the
marketing and fulfillment organization for the Company's Credit Services
division. At inception, the Company and Mr. Gray held an 80% and 20% equity
interest, respectively, in UMMG. In 1994, the Company increased its equity
interest in UMMG to 85%. During 1998 and 1999, the Company entered into two
transactions, pursuant to which the Company purchased from Mr. Gray and the
other minority owners additional equity interests in UMMG. On January 1, 1998,
the Company purchased from Mr. Gray a 3% equity interest in UMMG (thereby
increasing the Company's equity interest in UMMG from 85% to 88%), for which Mr.
Gray received $6.0 million. In April 1999, the Company purchased from Mr. Gray a
8.25% interest in UMMG for $22.7 million, and the Company purchased the
remaining 3.75% equity interest in UMMG from another officer of UMMG and the
remaining minority owners for $7.5 million and $2.1 million, respectively (the
"April 1999 Buyout").

In connection with the Company's initial acquisition in 1992 of an 80%
interest in the predecessor of the Credit Services division, Mr. Jensen loaned
an aggregate of $2,000,000 to the prior owners (the "Gray Group"), including
$1,600,000 to Mr. Gray and $160,000 to another officer of UMMG. The loans from
Mr. Jensen were paid in full on April 23, 1999.

As the holders of equity interests in UMMG, in 1999, 1998 and 1997 Mr.
Gray received cash dividend distributions in the amount of $6.5 million, $1.2
million and $1.2 million, another officer of UMMG received $646,364, $454,636
and $311,291, respectively, and the remaining minority holders of equity
interests received $536,532, $113,659 and $77,823, respectively.

Mr. Gray received additional compensation from UMMG in the amount of
$291,000, $931,000 and $849,000 in 1999, 1998 and 1997, respectively.

In 1997, UMMG advanced to Mr. Gray a loan in the amount of $2.0
million, of which $1,776,000 and $1,792,000 was outstanding at December 31, 1998
and 1997, respectively. The loan bore interest at the annual rate of 7.97%. The
loan was repaid in 1999.

Financial Services Reinsurance, Ltd.

The Company, Mr. Gray, another officer of UMMG and other individuals
(collectively Mr. Gray, the other officer and the other individuals constitute
the "Gray Group") hold a 79%, 16.8%, 1.68% and 2.52% equity interest,
respectively, in Financial Services Reinsurance. Ltd., an offshore re-insurer
("FSR"). In 1992, the Gray Group acquired its collective 21% interest in FSR
from OUI for a purchase price of $21,000. As part of the initial acquisition of
the Gray Group's 21% interest in FSR, all shareholders of FSR, including the
Company and Mr. Gray, contributed additional capital to FSR in an aggregate
amount of $900,000, of which Mr. Gray contributed $151,200, the other officer
contributed $15,120 and the remaining individuals contributed $22,680. Mr.
Gray's and the other officer's capital contributions to FSR was funded by
non-recourse loans from the Company to Mr. Gray and the other officer in the
amount of $151,200 and $15,120, respectively (the "FSR Capital Loans"), which
bore interest at the rate of 6% per annum. Since 1992 and through December 31,
1999, FSR has paid an aggregate of $1,294,440 in dividends to the members of the
Gray Group, including $1,058,400 to Mr. Gray and $105,840 to the other officer.
During 1999, 1998 and 1997, FSR distributed cash dividends to Mr. Gray in the
amount of $285,600, $168,000 and $336,000, respectively. During 1999, 1998 and
1997, FSR distributed cash dividends to the other officer in the amount of
$28,560, $16,800 and $33,600, respectively. During 1999, 1998 and 1997, FSR
distributed cash dividends to the remaining members of the Gray Group in the
amount of $14,280, $25,200 and $50,400, respectively.

At the closing of the April 1999 Buyout, the Company loaned Mr. Gray
and the other officer the additional amounts of $859,025 and $251,499,
respectively, which loans were added to indebtedness owing to the Company under
the FSR Capital Loans. Accordingly, at December 31, 1999, Mr. Gray had total
indebtedness owing to the Company in the amount of $1,010,225, and the other
officer had total indebtedness outstanding in the amount of $266,619, which
indebtedness in each case bears interest at 5% - 6% per annum, with principal
and all accrued interest due and payable on January 1, 2002.

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The Company has a right-of-first-offer to purchase from the Gray Group,
and the Gray Group has a corresponding put right to sell to the Company, the
Gray Group's 21% equity interest in FSR, at a price equal to 21% of the book
value of FSR (determined in accordance with generally accepted accounting
principles) at the date of purchase. At December 31, 1999, FSR had a book value
of $4.83 million.

ACE and AFCA Litigation

OTHER TRANSACTIONS WITH CERTAIN MEMBERS OF MANAGEMENT

Transactions with Mr. Mutz

In January 1999, Gregory T. Mutz was elected President and Chief
Executive Officer of the Company. During 1999, Mr. Mutz continued to serve as
Chairman of the Board of AMLI Residential Properties Trust, a publicly-traded
real estate investment trust ("AMLI"). At December 31, 1999, the Company held a
14% fully diluted interest in AMLI. As Chairman of the Board of AMLI, Mr. Mutz
received certain compensation and participated in various option and deferred
compensation programs, all of which are described in the AMLI proxy statement.
In addition, as of December 31, 1999, AMLI had loaned Mr. Mutz $2.1 million on a
recourse and secured basis, the proceeds of which were used to purchase 112,413
shares of AMLI beneficial interest.

Mr. Mutz also serves as chairman of the board of AMLI Commercial
Properties Trust ("ACPT"), a private real estate investment trust in which the
Company holds a 20% equity interest. Mr. Mutz is the beneficial holder of less
than one percent of the issued and outstanding shares of beneficial interest of
ACPT. At December 31, 1999, ACPT had an outstanding loan owing from Mr. Mutz in
the amount of $600,000, the proceeds of which were used to purchase stock in
ACPT.

In December 1998, the Company extended a loan to Mr. Mutz in the amount
of $3,300,000, the proceeds of which were used to purchase 200,000 shares of
Common Stock in the Company at a purchase price of $19.50 per share. The amount
outstanding under the loan at December 31, 1999, including accrued interest, was
$3,341,589. The loan bears interest at the rate of 5% per annum, payable
quarterly, has a six-year term, and is full recourse to Mr. Mutz. On March 10,
2000, Mr. Mutz made a $534,875 principal payment.

In June 1999, the Company extended a loan to Mr. Mutz in the amount of
$429,063, the proceeds of which were used to purchase 20,000 shares of Company
Common Stock. The loan bears interest at 5.37%, is payable quarterly, has a
six-year term, and is full recourse to Mr. Mutz. At December 31, 1999, the
amount outstanding on the loan was $433,481, including accrued interest. The
loan was paid off on March 10, 2000.

On August 4, 1999, the Company entered into an indemnification
agreement with Mr. Mutz, pursuant to which the Company agreed to indemnify Mr.
Mutz to the fullest extent permitted by Delaware law from certain liabilities
and expenses incurred in his capacity as an officer of the Company and/or as an
officer and/or director of the Company's subsidiaries.

Other Loans to Management

During 1999 the Company extended loans to Messrs. Reed, Gedwed, Prater,
Estell, and Benac, all executive officers of the Company, in the amounts of
$417,332, $203,155, $158,438, $229,997 and $203,750, respectively, the proceeds
of which were used to purchase Company Common Stock. The loans to Messrs. Benac
and Prater bear interest at 5.22% per annum and the loans to Messrs. Reed and
Gedwed bear interest at 5.37% per annum. The six-year term loans require
quarterly interest payments, have a six-year term, are full recourse to the
borrower and are payable in full upon the occurrence of certain events,
including the termination of employment. In connection with a separation and
consulting arrangement entered into between the Company and Mr. Estell in

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November 1999, the Company released Mr. Estell from liability under his note and
the note balance was written off. At December 31, 1999, Messrs. Reed, Gedwed,
Prater, and Benac had outstanding loans payable to the Company under the program
in the amounts of $422,981, $203,155, $160,582, and $203,750, respectively,
including accrued interest.

Other Transactions

On September 1, 1999, the Company entered into separate indemnification
agreements with each of Messrs. Reed, Gedwed, Prater, Estell, and Benac,
pursuant to which the Company agreed to indemnify such officers to the fullest
extent permitted by Delaware law from certain liabilities and expenses incurred
in their respective capacities as officers of the Company and/or officers and
directors of the Company's subsidiaries.

The Company receives investment management services from investment
advisory firms affiliated with two of its directors. During 1999, 1998 and 1997,
the Company paid advisory fees in the amount of $366,400, $373,400 and $362,400
to Emerald Capital Group, Ltd., for which Patrick J. McLaughlin (a Director of
the Company) serves as a managing director and owner. During 1999, 1998 and
1997, the Company paid investment advisory fees in the amount of $140,000,
$127,100 and $58,700 to The Chicago Trust Company, for which Stuart Bilton (a
Director of the Company) serves as President and Chief Executive Officer.

From time to time the Company has also retained Emerald Capital Group,
Ltd. to perform investment banking and insurance advisory services. In
accordance with the terms of a Consulting Agreement dated September 14, 1999,
the Company formally retained the services of Emerald Capital Group, Ltd. for an
annual fee of $400,000, payable in monthly installments. During 1999, the
Company paid an aggregate of $188,116 in fees and expenses to Emerald Capital
Group, Ltd. for investment banking and insurance advisory services. Effective
March 10, 2000, Mr. McLaughlin elected to forego $100,000 of cash payments
otherwise due and owing under the Consulting Agreement in exchange for options
to purchase 50,000 shares of Company Common Stock at $6.625 per share.

During 1999 the Company extended a loan to Mr. McLaughlin in the amount
of $43,712, the proceeds of which were used to purchase Company Common Stock.
The loan bears interest at 5.22% per annum. The loan has a six-year term,
requires quarterly interest payments, is full recourse to the borrower, and is
payable in full upon the occurrence of certain events.

NOTE M -- COMMITMENTS AND CONTINGENCIES

LITIGATION

The Company is a party to the following material legal proceedings:

Securities Class Action Litigation

In December 1999 and February 2000, the Company and certain of its
executive officers were named as defendants in three securities class action
lawsuits (Silver v. UICI, Gregory Mutz and Vernon Woelke; Rinderknecht v. UICI,
Ronald L. Jensen, Gregory T. Mutz, Richard Estell, Warren Idsal, Vernon Woelke
and William Benac; and Uzelac v. UICI, Gregory Mutz and Vernon Woelke, all
pending in U.S. District Court for the Northern District of Texas) alleging,
among other things, that UICI's periodic filings with the SEC contained untrue
statements of material facts and/or failed to disclose all material facts
relating to the condition of UICI's credit card business, in violation of
Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
The Rinderknecht case has been consolidated with the Silver case and the
Rinderknecht case was closed. The Uzelac case was filed on February 11, 2000 and
has not yet been consolidated with the Silver case.

The Company intends to vigorously contest the allegations in the cases.

Sun Communications Litigation

As previously disclosed, UICI and Ronald L. Jensen (the Company's
Chairman) are involved in litigation (Sun Communications, Inc. v. SunTech
Processing Systems, LLC, UICI, Ronald L. Jensen, et al) (the "Sun Litigation")
with a third party concerning the distribution of the cash proceeds from the
sale and liquidation of SunTech Processing Systems, LLC ("STP") assets in
February 1998. The Dallas County, Texas District Court ruled in December 1998
that, as a matter of law, a March 1997 agreement governing the distribution of
such cash proceeds should be read in the manner urged by Sun Communications,
Inc. ("Sun") and consistent with a court-appointed liquidator's previous ruling.
The District Court entered a judgment directing distribution of the sales
proceeds in the manner urged by Sun. The District Court also entered a finding
that UICI violated Texas securities

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<PAGE> 85

disclosure laws and breached a fiduciary duty owed to Sun, and the District
Court awarded the plaintiff $1.7 million in attorneys' fees, which amount could
be increased to $2.1 million under certain circumstances.

UICI believes that the District Court was incorrect in the awarding of
attorneys' fees and in its finding that UICI violated Texas securities laws and
breached a fiduciary duty, and on September 10, 1999 the Company filed its
initial briefs in support of its appeal of the District Court's decision as to
those issues. The Company has not, however, appealed the District Court's ruling
with regard to the interpretation of the March 1997 agreement. On September 10,
1999, Mr. Jensen filed his initial brief in support of his appeal of, among
other things, the trial court's December 1998 finding in the Sun Litigation that
Mr. Jensen was not entitled to any of the proceeds from the sale of Sun. On
October 4, 1999, Sun filed its brief in opposition to the appeal.

In the brief filed in his appeal of the District Court's December 1998
finding, Mr. Jensen has reasserted that the March 1997 agreement requires that,
before STP can make a distribution to UICI and Sun, it must advance
approximately $10 million to Mr. Jensen in satisfaction of certain creditor and
preferred equity claims. If and to the extent that Mr. Jensen's interpretation
of the March 1997 agreement is ultimately adopted in the Sun Litigation after
all rights to appeal have been exhausted, the amount of such proceeds which UICI
may ultimately receive directly from STP may be reduced. However, in such event
and in accordance with an agreement reached with the Company in June 1998 (the
"Assurance Agreement"), Mr. Jensen has agreed that, if UICI receives less than
$15.149 million in the lawsuit, then Mr. Jensen will advance funds to UICI
sufficient to increase UICI's recovery to $15.149 million.

Oral argument before the Dallas Court of Appeals on the appeal was held
on February 1, 2000. The Company cannot at this time predict how, when or in
what fashion the appellate court will dispose of the various claims of the
Company and Mr. Jensen on appeal. The appellate court may affirm the District
Court's judgment, may return the case to the District Court for trial, or may
reverse the District Court's decision and render a judgment. In addition, there
can be no assurances as to the time period during which the appeals filed by Mr.
Jensen or the Company in the Sun Litigation may be heard and a final judgment
rendered which affords no party in the Sun Litigation the right to further
appeal. However, for financial reporting purposes, any cash ultimately received
by the Company from Mr. Jensen pursuant to the Assurance Agreement would be
treated as a capital contribution to the Company, and the gain would be reduced
by a corresponding amount. In such case, however, the Company's consolidated
stockholders' equity would not be adversely affected. In 1998, the Company's
results of operations reflected a pre-tax gain from the STP sale of $9.7 million
($6.7 million after-tax, or $0.15 per share).

The Special Litigation Committee constituted to review and assess the
allegations in the Schappel Shareholder Derivative Litigation (see discussion
below) has recommended that the Company seek, and the Company intends to seek,
the release to the Company of approximately $7.55 million of proceeds from the
STP sale held in the District Court's registry.

Schappel Shareholder Derivative Litigation

As previously disclosed, on June 1, 1999, the Company was named as a
nominal defendant in a shareholder derivative action captioned Richard Schappel
v. UICI, Ronald Jensen, Richard Estell, Vernon Woelke, J. Michael Jaynes, Gary
Friedman, John Allen, Charles T. Prater, Richard Mockler and Robert B. Vlach,
which was filed and is pending in the District Court of Dallas County, Texas
(the "Shareholder Derivative Litigation"). The plaintiff has asserted on behalf
of UICI various derivative claims brought against the individual defendants,
alleging, among other things, breach of fiduciary duty, conversion, waste of
corporate assets, constructive fraud, negligent misrepresentation, conspiracy
and breach of contract. Plaintiff seeks to compel UICI's directors and officers
to conduct a complete accounting and audit relating to all related party
transactions and to fully and completely restate, report and disclose such
transactions. Plaintiff further seeks to recover for UICI's benefit all damages
caused by such alleged breach of the officers' and directors' duty to UICI. The
plaintiff in the Shareholder Derivative Litigation is also the private
third-party plaintiff in the Sun Communications Litigation, and the claims made
in the Shareholder Derivative Litigation arose out of the same transactions that
serve as the factual underpinning to the Sun Communications Litigation referred
to above.

At the regular quarterly meeting of the Company's Board of Directors
held on August 4, 1999, George Lane III and Stuart D. Bilton (non-employee
directors of the Company) were appointed, in accordance with Texas

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and Delaware law, to serve as a special committee to investigate and assess on
behalf of the Company the underlying claims made in the Shareholder Derivative
Litigation.

On January 18, 2000, plaintiff filed an amended petition and request
for injunctive relief. Plaintiff expanded his complaint to include a request for
an injunction against the Company prohibiting, among other things, any existing
or future transactions between UICI and any and all entities related to Ronald
L. Jensen unless each such transaction is fully and fairly disclosed to UICI
shareholders together with an opinion from an independent public accounting firm
opining with particularity as to the fairness of each proposed transaction.

On February 4, 2000, the Court granted the Company's motion for a
statutory stay of all further proceedings in the case, in accordance with Texas
law (including action on plaintiff's request for injunctive relief), pending
completion of the review of the claims currently undertaken by the Special
Litigation Committee, and its determination as to what further action, if any,
should be taken with respect to those claims. Subsequent to imposition of the
statutory stay, plaintiff filed (a) a motion to lift the statutory stay for the
limited purpose of hearing a motion for summary judgement to enforce Mr.
Jensen's 1996 agreement to indemnify the Company for any loss or reduction in
value of the Company's Class A investment in Cash Delivery Systems, LLC, (b) a
second amended complaint and (c) a motion to lift the statutory stay for the
limited purpose of hearing a motion for summary judgment against certain
individual defendants with respect to a so-called "diminished value claim" in
the Sun Communications litigation. The second amended complaint added reference
to the consent order issued by the OCC; attempted to quantify damages alleged to
have resulted from related party transactions; added an allegation of usurpation
of corporate opportunities; and requested injunctive relief that would require
the company to, among other things, freeze, review and where appropriate rescind
all related party transactions, and require detailed reporting of related party
transactions. See Note L.

On March 20, 2000, the Special Litigation Committee delivered to the
Board of Directors of UICI its findings with respect to the allegations in the
original complaint. Based on its review and assessment of the allegations in the
original complaint, the Special Litigation Committee recommended that the
Company (a) seek dismissal of claims raised in the original complaint in the
derivative lawsuit, including dismissal of claims relating to Mr. Jensen's June
25, 1996 "Guaranty" (see discussion below); (b) seek the release to UICI of
approximately $7.55 million of uncontested proceeds from the STP sale held in
the District Court's registry; (c) seek from Mr. Jensen and/or former management
certain legal fees incurred by UICI in connection with the Sun Litigation that
it believes were incurred without appropriate board approval; (d) seek
reimbursement of certain legal fees awarded to Sun if and only if certain
ongoing appeals prove unsuccessful; and (e) implement certain heightened
related-party transaction controls (see discussion below). The Company's Board
of Directors accepted and adopted the Special Litigation Committee's findings
and recommendations and directed management to implement the specific
recommendations as promptly as practicable. The Special Litigation Committee is
now in the process of assessing the allegations contained in plaintiff's amended
complaints.

On March 22, 2000, the Special Litigation Committee reported to the
Court its findings and recommendations with respect to the allegations in the
original complaint, and the Court granted plaintiff's motion to lift the
statutory stay in the proceedings solely for the purposes of evaluating the
Special Litigation Committee's decision on the guaranty extended by Mr. Jensen
(and the derivative plaintiff's motion for summary judgment on the guaranty) and
releasing the $7.55 million of uncontested funds to the Company. A hearing on
the guaranty issue has been set for May 16, 2000.

ACE and AFCA Litigation

The Company and its indirect wholly-owned subsidiary, United Credit
National Bank, are parties to separate lawsuits filed in February 2000 by
American Credit Educators, Inc. ("ACE") and American Fair Credit Association,
Inc. ("AFCA"), organizations through which United CreditServ formerly marketed
its credit card programs (American Credit Educators, LLC v. United Credit
National Bank and UICI and American Fair Credit Association, Inc. v. United
Credit National Bank and UICI, each pending in the United States District Court
for the District of Colorado). In the suits, plaintiffs have alleged, among
other things, that UCNB has breached its agreements with ACE and AFCA and have
claimed damages in an indeterminate amount. ACE and AFCA are each controlled by
Phillip A. Gray, the former head of UICI's credit card operations.

F-41
<PAGE> 87

The Company's and UCNB's answers to the complaints are due on April 11,
2000. The Company believes that it and UCNB have meritorious defenses to the
allegations and intends to vigorously contest the cases.

Mitchell Litigation

As previously disclosed, the Company and one of its subsidiaries are
named defendants in a class action suit filed in 1997 (Dadra Mitchell v.
American Fair Credit Association, United Membership Marketing Group, LLC and
UICI) pending in California state court (the "Mitchell case"), in which
plaintiffs have alleged that defendants violated California law regarding unfair
and deceptive trade practices by making misleading representations about, and
falsely advertising the nature and quality of, the benefits of membership in
American Fair Credit Association ("AFCA"). The Company marketed credit cards
through AFCA through February 2000. Plaintiffs also filed a companion case in
federal district court in San Francisco captioned Dadra Mitchell v. BankFirst,
N.A., which alleges violations of the federal Truth in Lending Act and
Regulation Z. on the theory that the 90-day notice period required for
termination of AFCA membership was not properly disclosed. The only defendant in
the federal case (the "BankFirst" case) is BankFirst, N.A., a bank that issued a
VISA credit card made available through the AFCA program.

The California state court in the Mitchell case has certified a class
of all California residents who entered into a membership contract with AFCA
through April 12, 1999. Defendants' motions to compel arbitration and to narrow
the class definition are pending before the court.

On September 27, 1999, the parties reached a tentative settlement with
respect to the AFCA case and the BankFirst case. However, the existence of the
Consent Order to which United Credit National Bank is now subject (see "Business
- - - Discontinued Operations - - United CreditServ") and certain subsequent
statements by AFCA's principal, Phillip A. Gray, have called into question
whether consummation of the tentative settlement is possible or practicable.

Alabama Litigation

As previously disclosed, during the quarter ended September 30, 1999,
United Credit National Bank ("UCNB") (an indirect wholly-owned subsidiary of the
Company) was named as a defendant in two lawsuits in Macon County, Alabama
(LaTonya Tarver v. UCNB, American Credit Educators, L.L.C. ("ACE") and various
unnamed defendants and Wylean Tarver v. UCNB, ACE and unnamed defendants) and
two lawsuits in Bullock County, Alabama (Mandy B. Shell v. UCNB, ACE, Charles P.
Ostrowski and unnamed defendants and Ruby N. Cunningham v. UCNB, ACE, Charles P.
Ostrowski and unnamed defendants) arising from 1999 telemarketing activities
undertaken by UCNB and/or ACE.

UCNB filed motions to dismiss and motions to compel arbitration in all
four lawsuits, and hearings on the defendants' motions to compel arbitration in
the two Bullock County, Alabama cases were held on February 22, 2000. Hearings
on the defendants' motions to compel arbitration in the two Macon County cases
have been postponed indefinitely at the request of plaintiffs' counsel.

The Company believes that it has meritorious defenses to the
allegations and intends to vigorously contest the cases. The telemarketing
activities in question were conducted for UCNB by a third party on an outsourced
basis, and the Company believes that UCNB is entitled to indemnification by the
third party in connection with the cases. In addition, a review of transcripts
of recordings of the conversations confirms that, contrary to the allegations in
the complaints, the charges for the ACE credit education materials were
disclosed to all four plaintiffs in these cases.

Klinefelter Litigation

As previously disclosed, The MEGA Life and Health Insurance Company (a
wholly-owned subsidiary of the Company) ("MEGA") is a party defendant in a
purported class action suit filed in December 1996 (The Klinefelter Family
Revocable Living Trust, et al. v. First Life Assurance Company, et al. pending
in the District Court of Hidalgo County, Texas), in which the named plaintiffs
have alleged breach of contract, violations of the

F-42
<PAGE> 88

Texas Deceptive Trade Practices Act and the Texas Insurance Code arising from
the sale of so-called "vanishing premium" life insurance policies.

The Company believes that plaintiffs and defendants reached a tentative
settlement of the suit. The respective parties' counsel are presently
negotiating the terms of a release and settlement agreement. The Company has
agreed to reimburse plaintiffs' class counsel $847,500 in attorneys' fees and
costs. The total value of the settlement remains unresolved pending the
finalization of the class claims filing process, evaluation by the class claims
committee and approval by the trial court of the class settlement.

Gottstein Litigation

UICI, Ronald L. Jensen, and UGA, Inc. are party defendants in a
purported class action lawsuit filed in November 1998 (Gottstein, et al. v. The
National Association for the Self-Employed, et al., pending in the United States
District Court for the District of Kansas). The class representatives have
alleged fraud, conspiracy to commit fraud, breach of fiduciary duty, violation
of the Kansas Consumer Protection Act, conspiracy to commit RICO violations, and
violation of RICO, all arising out of the concurrent sales of individual health
insurance policies underwritten and marketed by PFL Life Insurance Company (PFL)
and memberships in The National Association for the Self-Employed (NASE).

On November 10, 1999, a tentative settlement was reached for $2 million
plus the cost of administration of the settlement, to include all potential
class members in all states, including Kansas. The formal terms of the
settlement agreement and the administration of the settlement are currently
being negotiated by the parties, and any settlement will be subject to
certification of a nationwide class and court approval. Under the terms of a
cost sharing agreement with a unit of AEGON USA, UICI and/or MEGA will be
obligated to reimburse the AEGON USA unit for 50% of the cash cost of the
settlement.

Jacola Litigation

MEGA is a party defendant in a purported class action suit filed in May
1995 (Michael D. Jacola, et al. v. The MEGA Life and Health Insurance Company,
et al., pending in the Circuit Court of Saline County, Arkansas), in which the
named plaintiffs have alleged, among other things, fraud, negligence, deceit,
misrepresentation and violations of the Arkansas Deceptive Trade Practices Act
and the Arkansas Insurance Code. On February 16, 2000, the parties reached a
tentative settlement in mediation for $750,000. The formal terms of the
settlement agreement and the administration of the settlement are currently
being negotiated by the parties and any settlement will be subject to court
approval.

Katz Litigation

As previously disclosed, the Company is currently involved in a dispute
with the former owners of a student loan marketing business acquired by the
Company in December 1997. The former owners allege that, as part of the
negotiations leading to the acquisition, the Company and the former owners
entered into an oral option agreement, pursuant to which the former owners were
granted the right, for a five-year period, to purchase 6.5% of the student loan
business of Educational Finance Group, Inc. ("EFG") for $5.7 million. The former
owners further allege that the 6.5% percentage is subject to adjustment of up to
50% based on the relative post-acquisition performance of ELA Corporation to the
performance of EFG (including ELA Corporation) as a whole. Attempts to reach
agreement on the terms of the option over an 18-month period were unsuccessful.

On July 28, 1999, EFG filed a declaratory judgment action in U.S.
District Court in Boston (EFG, Inc. v. Marcus Katz, et al) seeking a finding
that no option existed since there had been no agreement on essential terms. The
former owners filed a motion to dismiss the action, which motion was denied on
December 30, 1999. The former owners of ELA have filed an amended counterclaim,
alleging breach of contract, breach of the implied covenant of good faith and
fair dealing, tortious interference with contract and business relationships and
a breach of the Massachusetts Deceptive Trade Practices Act. The Company has
filed an amended answer, denying all allegations in the amended counterclaim.

F-43
<PAGE> 89

In re United Credit National Bank

The Company's United Credit National Bank is currently subject to
the terms of a Consent Order issued by the Comptroller of the Currency. (See
Note B). The terms of the Consent Order will govern for the indefinite future
the capitalization, funding activities, growth and operations of UCNB, a special
purpose national bank headquartered in Sioux Falls, South Dakota. UCNB's failure
to comply with the terms of the Consent Order could result in sanctions brought
against UCNB, its officers and directors and UCNB's "institution-related
parties," including the assessment of civil money penalties and enforcement of
the Consent Order in Federal District Court.

Other Matters

The Company and its subsidiaries are parties to various other pending
legal proceedings arising in the ordinary course of business, including some
asserting significant damages arising from claims under insurance policies,
disputes with agents and other matters. 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, resulting from the disposition of such
proceedings will not be material to the Company's financial condition or results
of operations.

OTHER COMMITMENTS AND CONTINGENCIES

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, 1999 amount
to $14.7 million in 2000, $11.1 million in 2001, $6.6 million in 2002, $3.7 in
2003, and $2.8 million in 2004. Rent expense amounted to $14.8 million, $9.2
million, and $8.6 million, for 1999, 1998, and 1997, respectively.

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, 1999, the Company had outstanding student loan commitments for
the years 2000 through 2020. The interest rates on these commitments vary as
described below. Loans are limited to the cost of school or prescribed maximums.
These loans are generally 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 total
commitment for the next five school years and thereafter as well as the amount
the Company expects to fund considering utilization rates and lapses are as
follows:

<TABLE>
<CAPTION>
TOTAL EXPECTED
COMMITMENT FUNDING
------------ ----------
(IN THOUSANDS)
<S> <C> <C>
2000.............................................................................. $ 179,322 $ 16,713
2001.............................................................................. 242,633 15,265
2002.............................................................................. 294,520 11,831
2003.............................................................................. 307,611 8,004
2004.............................................................................. 302,044 4,658
Thereafter........................................................................ 716,085 5,796
------------ ----------
$ 2,042,215 $ 62,267
============ ==========
</TABLE>

Interest rates on the above commitments are principally variable
(national prime plus 2%).

NOTE N -- EMPLOYEE BENEFIT AND STOCK OPTION PLANS

The Company has an Employee Stock Ownership and Savings 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 1999, 1998, and 1997 totaled $5.0
million, $4.1 million, and $3.2 million, respectively.

F-44
<PAGE> 90

Effective August 15, 1998, the Company's Chairman agreed to contribute
100,000 shares of UICI stock to all agents and employees of UICI and certain
others as of August 15, 1998. These shares vest at August 15, 2002. The value of
these shares will be distributed at that time.

Agents of the Company are eligible to participate in the Agents
Matching Total Ownership Plan ("AMTOP"). To be eligible, agents must participate
in the Agents Total Ownership Plan ("ATOP"), which requires agents to purchase
Company Common Stock and hold such Common Stock in ATOP. Through AMTOP, the
Company provides matching credits to the agents' ATOP participation. AMTOP
awards are payable in Company Common Stock or cash, and vest over periods up to
ten years.

The Company has certain other employee stock plans that award Company
stock, and in some instances stock or options of affiliated companies, to
Company employees and agents.

Effective August 15, 1998, the Company granted agents and employees of
the Company options to purchase 8.1 million shares of Company common stock at an
exercise price of $15 per share. The options began vesting 20% each year,
beginning on August 15, 1999 and thereafter through year 2001, and 40% on August
15, 2002. All options that are not vested when an agent or employee leaves will
be forfeited. There were options for approximately 3,844,634 shares outstanding
at December 31, 1999 under this plan. In 1999, the Company recognized $6.0
million of compensation expense related to this plan.

The Company has a stock option plan that reserves for grant options to
purchase up to 4,000,000 shares of common stock. Options under this plan may be
granted 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. During 1999, the Company
granted under this plan options to purchase an aggregate of 147,682 shares to
officers, directors and employees at an average exercise price of $24.94 per
share, which was equal to the market price at the date of grant. In December
1998, the Company issued 200,000 options at an option price of $19.50 to the
Company's new President and CEO. The exercise price was equal to the market
price of the stock at the date the option is granted.

Set forth below is a summary of stock option transactions:

<TABLE>
<CAPTION>
AVERAGE
NUMBER OPTION
OF SHARES PRICE PER SHARE ($)
----------- -------------------
<S> <C> <C>
Outstanding options at January 1, 1997.................................. 107,150 11.21
Granted................................................................. -- --
Canceled................................................................ -- --
Exercised............................................................... (46,559) 8.02
-----------
Outstanding options at December 31, 1997................................ 60,591 12.72
Granted................................................................. 8,294,305 15.11
Canceled................................................................ (2,167,346) 15.00
Exercised............................................................... --
-----------
Outstanding options at December 31, 1998................................ 6,187,550 15.12
Granted................................................................. 147,682 24.94
Canceled................................................................ (1,644,316) 15.00
Exercised............................................................... (438,009) 15.00
-----------
Outstanding options at December 31, 1999................................ 4,252,907 15.52
===========

Options exercisable at December 31,
1997.................................................................. 41,693 12.74
1998.................................................................. 60,591 15.12
1999.................................................................. 615,034 15.07
</TABLE>

The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," requires use of
option valuation models that were not developed for use in valuing

F-45
<PAGE> 91
employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of underlying stock on
the date of grant, no compensation expense is recognized.

Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1999: risk-free interest rate of 5.68%; dividend yield of 0.0%;
volatility factor of the expected market price of the Company's common stock of
0.42; and a weighted-average expected life of the option of five years. The
weighted average grant date fair value per share of stock options issued in
1999, 1998, and 1997 was $11.07, $6.03 and $0, respectively.

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The effect on
net income (loss) of the stock compensation amortization for the years presented
above is not likely to be representative of the effects on reported net income
for future years. The Company's pro forma information follows (in thousands
except for earnings per share information):

<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
(Dollars in thousands except per share amounts)
<S> <C> <C> <C>
Pro forma income (loss):
Income from continuing operations ............................. $ 33,102 $ 30,165 $ 75,608
Income (loss) from discontinued operations .................... (179,132) 27,246 10,896
------------ ------------ ------------
Net income (loss) ............................................. $ (146,030) $ 57,411 86,504
============ ============ ============
Pro forma earnings (loss) per common share: Basic earnings (loss):
From continuing operations .................................... $ 0.71 $ 0.65 $ 1.67
Income (loss) from discontinued operations .................... (3.87) 0.59 0.24
------------ ------------ ------------
Net income (loss) ............................................. $ (3.16) $ 1.24 $ 1.91
============ ============ ============
Diluted earnings (loss):
From continuing operations .................................... $ 0.69 $ 0.65 $ 1.67
Income (loss) from discontinued operations .................... (3.75) 0.59 0.24
------------ ------------ ------------
Net income (loss) ............................................. $ (3.06) $ 1.24 $ 1.91
============ ============ ============
</TABLE>

NOTE O -- INVESTMENT ANNUITY SEGREGATED ACCOUNTS

The Company has deferred investment annuity policies which have
segregated account assets and liabilities amounting to $239.9 million and $229.9
million at December 31, 1999 and 1998, 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 indemnification.

NOTE P -- SEGMENT INFORMATION

The Company's operating segments are: (i) Insurance, which includes the
businesses of the Self Employed Agency Division, the Student Insurance Division,
the OKC Division, the Special Risk Division and the National Motor Club
Division; (ii) Financial Services, which includes the businesses of Educational
Finance Group, Inc. and the Company's investment in HealthAxis.com, Inc.
(formerly Insurdata Incorporated) and (iii) Other Key Factors.

F-46
<PAGE> 92

Other Key Factors include investment income not allocated to the other segments,
interest and general expenses relating to corporate operations, amortization of
goodwill and realized gains or losses on sale of investments. Allocations of
investment income and certain general expenses are based on a number of
assumptions and estimates, and the business segments 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 fees and other income. Operations
that do not constitute reportable operating segments have been combined with
Other Key Factors. Depreciation expense and capital expenditures are not
considered material. Management does not allocate income taxes to segments.
Transactions between reportable operating segments are accounted for under
respective agreements that are generally at cost. Financial information by
operating segment for revenues, income before federal income taxes and minority
interests, and identifiable assets is summarized as follows:

F-47
<PAGE> 93

<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues
Insurance:
Self Employed Agency .......................................... $ 566,847 $ 610,097 $ 538,280
Student Insurance ............................................. 107,975 111,047 97,561
OKC Division .................................................. 94,135 98,801 100,455
Special Risk .................................................. 59,005 66,819 56,104
National Motor Club ........................................... 27,806 27,257 10,296
----------- ----------- -----------
855,768 914,021 802,696
----------- ----------- -----------
Financial Services:
Educational Finance Group ..................................... 104,592 57,233 8,014
Insurdata ..................................................... 46,184 41,236 25,088
Other Business Units .......................................... -- 34,773 42,743
----------- ----------- -----------
150,776 133,242 75,845
----------- ----------- -----------
Other Key Factors ............................................... 37,913 32,993 38,662
----------- ----------- -----------
Intersegment Eliminations ....................................... (31,274) (23,505) (11,641)
----------- ----------- -----------
Total revenues ........................................ $ 1,013,183 $ 1,056,751 $ 905,562
=========== =========== ===========
</TABLE>

<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Income from continuing operations before federal income
taxes
Insurance:
Self Employed Agency ....................................... $ 50,415 $ (4,765) $ 47,552
Student Insurance .......................................... 49 6,089 15,540
OKC Division ............................................... 17,405 20,436 18,880
Special Risk ............................................... (4,079) 5,805 7,988
National Motor Club ........................................ 3,200 5,099 2,024
----------- ----------- -----------
66,990 32,664 91,984
Financial Services:
Educational Finance Group .................................. (19,938) (1,339) 2,020
Insurdata .................................................. 2,322 3,277 2,637
Other Business Units ....................................... -- 441 (5,844)
----------- ----------- -----------
(17,616) 2,379 (1,187)
----------- ----------- -----------
Other Key Factors ............................................ 1,478 12,219 21,017
----------- ----------- -----------
Total income from continuing operations before
federal income taxes ............................... $ 50,852 $ 47,262 $ 111,814
=========== =========== ===========
</TABLE>

F-48
<PAGE> 94

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1999 1998 1997
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Identifiable Assets
Insurance:
Self Employed Agency...................................... $ 423,142 $ 444,240 $ 353,659
Student Insurance......................................... 79,011 87,303 87,423
OKC Division.............................................. 582,275 585,055 605,803
Special Risk.............................................. 85,235 51,580 51,456
National Motor Club....................................... 20,713 26,038 20,457
------------- ------------- -------------
1,190,376 1,194,216 1,118,798
------------- ------------- -------------
Financial Services:
Educational Finance Group................................. 1,883,666 773,412 37,681
Insurdata................................................. 22,931 22,338 16,417
Other Business Units...................................... 20,029 19,226 22,572
------------- ------------- -------------
1,926,626 814,976 76,670
------------- ------------- -------------
Other Key Factors........................................... 422,342 266,961 305,964
------------- ------------- -------------
Total assets from continuing operations........... $ 3,539,344 2,423,115 $ 1,501,432
------------- ------------- -------------

Net assets from discontinued operations..................... -- 73,481 51,046
------------- ------------- -------------
Total assets...................................... $ 3,539,344 $ 2,349,634 $ 1,552,478
============= ============= =============
</TABLE>

F-49
<PAGE> 95

NOTE Q -- EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted
earnings (loss) per share:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1999 1998 1997
------------ ------------ ------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Income (loss) available to common shareholders:
Income from continuing operations available to common
shareholders ............................................. $ 33,250 $ 31,523 $ 75,608
Income (loss) from discontinued operations ................. (179,132) 27,246 10,896
------------ ------------ ------------
Net income (loss) .......................................... $ (145,882) $ 58,679 $ 86,504
============ ============ ============

Weighted average shares outstanding (thousands)
-- basic earnings (loss) per share ........................ 46,326 46,244 45,300
Effect of dilutive securities:
Employee stock options and other shares (see Note N) ....... 1,504 224 35
------------ ------------ ------------
Weighted average shares outstanding-- dilutive earnings
(loss) per share ......................................... 47,830 46,468 45,335
------------ ------------ ------------
Basic earnings (loss) per share
Income from continuing operations ..................... $ 0.72 $ 0.68 $ 1.67
Discontinued operations .............................. (3.87) 0.59 0.24
------------ ------------ ------------
Net income (loss) ..................................... $ (3.15) $ 1.27 $ 1.91
============ ============ ============
Diluted earnings (loss) per share
Income from continuing operations ..................... $ .70 $ 0.67 $ 1.67
Discontinued operations .............................. (3.75) 0.59 0.24
------------ ------------ ------------
Net income (loss) ..................................... $ (3.05) $ 1.26 $ 1.91
============ ============ ============
</TABLE>

NOTE R -- SUPPLEMENTAL FINANCIAL STATEMENT DATA

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Amortization of deferred policy acquisition costs....................... $ 31,966 $ 24,480 $ 21,001
Commissions............................................................. 65,451 97,614 91,082
Administrative expenses................................................. 129,646 130,262 113,261
Premium taxes........................................................... 16,372 18,514 24,498
--------- --------- ---------
$ 243,435 $ 270,870 $ 249,842
========= ========= =========
</TABLE>

F-50
<PAGE> 96

SCHEDULE II

CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UICI (PARENT COMPANY)

BALANCE SHEETS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
-----------------------
1999 1998
---------- ---------
<S> <C> <C>
Investments:
Investments in and advances to subsidiaries*..................... $ 636,146 $ 545,252
Net assets of discontinued operations............................ -- 67,721
Investment in agents' receivables................................ 11,145 10,469
Guaranteed student loans......................................... 4,030 992
Collateral loans................................................. 1,256 2,504
Short-term and other investments................................. 4,022 11,303
---------- ---------
Total Investments........................................ 656,599 638,241
Cash............................................................... 35,754 1,478
Other.............................................................. 4,454 10,652
---------- ---------
$ 696,807 $ 650,371
========== =========
LIABILITIES

Accrued expenses and other liabilities............................. $ 17,796 $ 1,171
Short-term debt.................................................... 3,951 28,950
Long-term debt..................................................... 115,803 19,754
Net liabilities of discontinued operations......................... 149,880 --
Federal income taxes payable....................................... 1,943 5,705
---------- ---------
289,373 55,580
STOCKHOLDERS' EQUITY

Preferred stock.................................................... -- --
Common stock....................................................... 466 464
Additional paid-in capital......................................... 173,585 166,489
Accumulated other comprehensive income (loss)...................... (30,432) 13,412
Retained earnings.................................................. 268,544 414,426
Treasury stock..................................................... (4,729) --
---------- ---------
407,434 594,791
---------- ---------
$ 696,807 $ 650,371
========== =========

</TABLE>

- ----------

* Eliminated in consolidation.

The condensed financial statements should be read in conjunction with
the consolidated financial statements and notes thereto of UICI and
Subsidiaries.

F-51
<PAGE> 97

SCHEDULE II

CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
UICI (PARENT COMPANY)

STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
--------- -------- ---------
<S> <C> <C> <C>
Income:
Dividends from subsidiaries*........................................ $ 50,416 $ 37,863 $ 39,154
Interest income..................................................... 3,174 6,736 9,981
Interest and other income from subsidiaries*........................ 6,515 1,043 572
Losses on sale of investments................................. (403) (41) (162)
Fees and other income............................................... 1,423 723 1,981
--------- -------- ---------
61,125 46,324 51,526
--------- -------- ---------
Expenses:
General and administrative expenses................................. 21,658 4,320 955
Administrative expenses to subsidiaries*............................ -- 215 --
Interest expense.................................................... 7,067 2,641 2,449
--------- -------- ---------
28,725 7,176 3,404
--------- -------- ---------
Income before equity in undistributed earnings (loss)
of subsidiaries and federal income taxes (benefit).................. 32,400 39,148 48,122
Equity in undistributed earnings (loss) of continuing operations...... (5,523) (522) 34,053
--------- -------- ---------
Income before federal income taxes.................................... 26,877 38,626 82,175
Federal income taxes (benefit)........................................ (6,373) 7,103 6,567
--------- -------- ---------
Net income from continuing operations....................... 33,250 31,523 75,608
Net income (loss) of discontinued operations.......................... (179,132) 27,246 10,896
--------- -------- ---------
Net income (loss)..................................................... $(145,882) $ 58,769 $ 86,504
========= ======== =========
</TABLE>

- ----------

* Eliminated in consolidation.

The condensed financial statements should be read in conjunction with
the consolidated financial statements and notes thereto of UICI and
Subsidiaries.

F-52
<PAGE> 98
SCHEDULE II

CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
UICI (PARENT COMPANY)

STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income (loss)................................................ $ (145,882) $ 58,769 $ 86,504
Adjustments to reconcile net income to cash provided by
operating activities:
Equity in undistributed (earnings) loss of subsidiaries
of discontinued operations................................. 179,132 (27,246) (10,896)
Equity in undistributed earnings of continuing operations..... 5,523 522 (34,053)
(Gains) losses on sale of investments......................... 403 41 162
Decrease in amounts due from related companies................ -- -- 547
Increase in other receivables................................. (2,649) (3,300) --
Increase (decrease) in accrued expenses and other liabilities. 16,625 (2,016) 299
Deferred income taxes (benefit)............................... (3,901) (1,047) 1,914
Increase (decrease) in federal income taxes payable........... 139 6,260 (5,035)
Other items, net.............................................. 8,847 (2,693) 135
---------- ---------- ----------
Cash provided by continuing operations........................ 58,237 29,290 39,577
Cash provided by (used in) discontinued operations............ (21,372) (10,648) 4,263
---------- ---------- ----------
Net cash Provided by Operating Activities................... 36,865 18,642 43,840
---------- ---------- ----------
INVESTING ACTIVITIES
Purchase of subsidiaries......................................... -- -- (66,948)
Disposal of subsidiaries and assets.............................. -- 21,270 --
Purchase of minority interest.................................... (878) (11,117) (15,062)
Increase of investments in and advances to subsidiaries.......... (91,037) (79,525) (28,017)
Payments of credit card loans.................................... -- -- --
Funding of credit card loans..................................... -- --
Purchase of health business...................................... -- -- (5,218)
Net decrease (increase) in other investments..................... 5,491 (10,661) 86,200
Decrease (increase) in agents' receivables....................... (676) 8,197 (5,384)
Investing activities of discontinued operations.................. 15,821 26,145 (4,118)
---------- ---------- ----------
Net cash Used in Investing Activities....................... (71,279) (45,691) (38,547)
---------- ---------- ----------
FINANCING ACTIVITIES
Proceeds of notes payable........................................ 115,000 37,000 --
Repayment of notes payable....................................... (43,950) (15,950) --
Proceeds from capital contribution............................... 10,129 -- --
Purchase of treasury stock....................................... (4,729) -- (194)
Other changes in equity.......................................... (7,760) 3,900 417
---------- ---------- ----------
Net cash Provided by Financing Activities................... 68,690 24,950 223
---------- ---------- ----------
Increase (decrease) in Cash................................. 34,276 (2,099) 5,516
Cash (overdraft) at Beginning of Period..................... 1,478 3,577 (1,939)
---------- ---------- ----------
Cash at End of Period....................................... $ 35,754 $ 1,478 $ 3,577
========== ========== ==========
</TABLE>

The condensed financial statements should be read in conjunction with
the consolidated financial statements and notes thereto of UICI and
Subsidiaries.

F-53
<PAGE> 99

SCHEDULE III

UICI
AND SUBSIDIARIES

SUPPLEMENTARY INSURANCE INFORMATION

<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- -------------------------------------------------- ---------- ----------------- ------------- -------------
DEFERRED FUTURE POLICY
POLICY BENEFITS, LOSSES,
ACQUISITION CLAIMS, AND LOSS UNEARNED POLICYHOLDER
COSTS EXPENSES PREMIUMS FUNDS
----------- ----------------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
December 31, 1999:
Self Employed Agency............................ $ 17,313 $ 256,434 $ 33,762 $ 8,016
Student Insurance............................... 2,862 24,543 27,954 --
OKC Division.................................... 48,550 443,575 30,278 11,074
Special Risk.................................... 650 62,509 1,450 --
National Motor Club............................. -- 1,658 4,104 --
-------- ---------- ---------- --------
Total................................... $ 69,375 $ 788,719 $ 97,548 $ 19,090
======== ========== ========== ========
December 31, 1998:
Self Employed Agency............................ $ 22,856 $ 255,170 $ 37,142 $ 7,972
Student Insurance............................... 3,212 25,621 31,546 --
OKC Division.................................... 50,894 465,782 35,957 9,560
Special Risk.................................... 910 37,552 1,552 3,058
National Motor Club............................. 1,611 1,470 4,372 --
-------- ---------- ---------- --------
Total................................... $ 79,483 $ 785,595 $ 110,569 $ 20,590
======== ========== ========== ========
December 31, 1997:
Self Employed Agency............................ $ 22,778 $ 205,429 $ 39,085 $ 6,614
Student Insurance............................... 7,469 28,785 29,899 --
OKC Division.................................... 54,377 487,380 30,942 8,940
Special Risk.................................... 1,170 24,251 957 4,197
National Motor Club............................. 220 -- 4,813 --
-------- ---------- ---------- --------
Total................................... $ 86,014 $ 745,845 $ 105,696 $ 19,751
======== ========== ========== ========
</TABLE>

F-54
<PAGE> 100

SCHEDULE III

UICI
AND SUBSIDIARIES

SUPPLEMENTARY INSURANCE INFORMATION -- (CONTINUED)

<TABLE>
<CAPTION>
COL. F COL. G COL. H COL. I COL. J COL. K
--------- ---------- ----------- ------------ ----------- ---------
BENEFITS, AMORTIZATION
CLAIMS OF DEFERRED
LOSSES, AND POLICY OTHER
PREMIUM INVESTMENT SETTLEMENT ACQUISITION OPERATING PREMIUMS
REVENUE INCOME* EXPENSES COSTS EXPENSES* WRITTEN
--------- ---------- ----------- ------------ ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1999:
Self Employed Agency................ $ 526,224 $ 19,252 $ 349,472 $ 14,327 $ 131,262
Student Insurance................... 103,633 2,768 78,807 349 27,196
OKC Division........................ 57,283 29,579 39,623 13,496 16,338
Special Risk........................ 46,756 2,628 44,301 260 8,902
National Motor Club................. 2,691 153 2,371 3,534 71
---------- -------- --------- -------- ---------
$ 736,587 $ 54,380 $ 514,574 $ 31,966 $ 183,769 $ 733,299
========== ======== ========= ======== ========= ===========
1998:
Self Employed Agency................ $ 572,516 $ 18,467 $ 430,228 $ 3,030 $ 162,490
Student Insurance................... 107,029 2,764 76,448 3,393 23,863
OKC Division........................ 58,915 32,667 38,573 17,797 14,777
Special Risk........................ 55,155 2,455 38,115 260 13,430
National Motor Club................. 3,007 363 2,671 -- 70
---------- -------- --------- -------- ---------
$ 796,622 $ 56,716 $ 586,035 $ 24,480 $ 214,630 $ 791,958
========== ======== ========= ======== ========= ==========
1997:
Self Employed Agency................ $ 503,167 $ 14,787 $ 317,703 $ 2,667 $ 150,031
Student Insurance................... 94,099 2,599 56,026 -- 25,133
OKC Division........................ 58,411 34,159 43,223 18,204 12,263
Special Risk........................ 44,636 847 30,016 130 7,349
National Motor Club................. 3,027 104 2,689 -- 55
---------- -------- --------- -------- ---------
$ 703,340 $ 52,496 $ 449,657 $ 21,001 $ 194,831 $ 708,989
========== ======== ========= ======== ========= ==========
</TABLE>

- ----------

* Allocations of Net Investment Income and Other Operating Expenses are
based on a number of assumptions and estimates, and the results would
change if different methods were applied.

F-55
<PAGE> 101

SCHEDULE IV

UICI
AND SUBSIDIARIES

REINSURANCE
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
PERCENTAGE
OF AMOUNT
GROSS NET ASSUMED
AMOUNT CEDED ASSUMED AMOUNT TO NET
------------ ------------ ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999
Life insurance in force........................ $ 5,366,204 $ 1,144,756 $ 501,703 $ 4,723,151 10.6%
============ ============ =========== ============ =======

Premiums:
Life insurance................................. $ 50,695 $ 9,795 $ 5,516 $ 46,416 11.9%
Health insurance............................... 584,513 53,452 159,110 690,171 23.1%
------------ ------------ ----------- ------------
$ 635,208 $ 63,247 $ 164,626 $ 736,587
============ ============ =========== ============
Year ended December 31, 1998
Life insurance in force........................ $ 4,850,858 $ 1,291,525 $ 1,668,440 $ 5,227,773 31.9%
============ ============ =========== ============ =======

Premiums:
Life insurance................................. $ 51,755 $ 13,237 $ 10,829 $ 49,347 21.9%
Health insurance............................... 566,112 34,032 215,195 747,275 28.8%
------------ ------------ ----------- ------------
$ 617,867 $ 47,269 $ 226,024 $ 796,622
============ ============ =========== ============
Year ended December 31, 1997
Life insurance in force........................ $ 4,898,072 $ 1,526,651 $ 2,115,614 $ 5,487,035 38.6%
============ ============ =========== ============ =======

Premiums:
Life insurance................................. $ 54,497 $ 16,539 $ 11,476 $ 49,434 23.2%
Health insurance............................... 420,432 25,778 259,252 653,906 39.6%
------------ ------------ ----------- ------------
$ 474,929 $ 42,317 $ 270,728 $ 703,340
============ ============ =========== ============
</TABLE>

F-56
<PAGE> 102

SCHEDULE V

UICI
AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
RECOVERIES/ DEDUCTIONS/
BALANCE AT ADDITIONS CHARGED AMOUNTS BALANCE
BEGINNING COST AND TO OTHER CHARGED AT END OF
OF PERIOD EXPENSES ACCOUNTS OFF PERIOD
---------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Allowance for losses
Year ended December 31, 1999
Agents' receivables............................... $ 483 $ 1,851 -- $ (352) $ 1,982
Mortgage and collateral loans..................... 650 -- -- -- 650
Student loans..................................... 935 1,317 -- -- 2,252
Real estate....................................... 1,083 -- -- 1,083
Year ended December 31, 1998
Agents' receivables............................... $ 1,491 $ 95 -- $ (1,103) $ 483
Mortgage and collateral loans..................... 650 -- -- -- 650
Student loans..................................... 400 535 -- -- 935
Real estate....................................... 2,723 400 -- (2,040) 1,083
Year ended December 31, 1997
Agents' receivables............................... $ 1,182 $ 501 $ 1 $ (193) $ 1,491
Mortgage and collateral loans..................... 650 -- -- -- 650
Student loans..................................... 278 122 -- -- 400
Real estate....................................... 2,614 109 -- -- 2,723
</TABLE>

F-57
<PAGE> 103
EXHIBIT INDEX

10.1(B) -- Reinsurance Agreement between AEGON USA Companies and UICI
Companies Effective January 1, 1995, as amended through November 21,
1995 and incorporated by reference herein.

<PAGE> 104

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>

<PAGE> 105

<PAGE> 106

10.41 -- Promissory Note, dated March 14, 2000, payable by UICI SUB I,
Inc. to LM Financial, LLC, filed as exhibit 99.3 to Form 8K dated
March 22, 2000 and incorporated by reference herein

10.42 -- Guaranty, dated March 14, 2000, from UICI to LM Financial, LLC,
filed as exhibit 99.4 to Form 8K dated March 22, 2000 and
incorporated by reference herein

21 -- Subsidiaries of UICI

23 -- Consent of Independent Auditors

24 -- Power of Attorney

27 -- Financial Data Schedule
</TABLE>

<PAGE> 1

UICI
AND SUBSIDIARIES

EXHIBIT 21 -- SUBSIDIARIES OF UICI

<TABLE>
<CAPTION>
JURISDICTION
------------
<S> <C>
The MEGA Life and Health Insurance Company Oklahoma

Mid-West National Life Insurance Company of Tennessee Tennessee

The Chesapeake Life Insurance Company Oklahoma

National Motor Club of America, Inc. Texas

United Membership Marketing Group, Inc. Colorado

United Credit National Bank South Dakota

Educational Finance Group, Inc. Delaware

Insurdata Texas

Amli Realty Company Illinois

Financial Services Reinsurance, Ltd. Turks and Caicos Islands

National Managers Life Insurance Company, Inc. Turks and Caicos Islands

United Group Reinsurance, Ltd. Turks and Caicos Islands

Specialized Card Services, Inc. South Dakota

United CreditServ, Inc. Delaware

UICI Receivables Funding Corp. Delaware

U.S. Managers Life Insurance, Ltd. Turks and Caicos Islands

Fidelity First Insurance Company Texas

AMS Investment Group, Inc. Delaware

UICI Funding Corp. Delaware
</TABLE>

<PAGE> 1
EXHIBIT 23--CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-19891) pertaining to the United Insurance Companies, Inc. Employee
Stock Ownership Plan of UICI, in the Registration Statement (Form S-3 No.
333-02043) of United Insurance Companies, Inc. and related Prospectus, in the
Registration Statement (Form S-3 No. 333-23899) pertaining to the UICI and Amli
Realty Company stock exchange agreement and related Prospectus, the Registration
Statement (Form S-3 No. 333-42937) pertaining to the UICI and ELA Corp.
agreement and related Prospectus, and in the Registration Statement (Form S-8
No. 333-85113) pertaining to the UICI 1998 Employee Stock Option Plan and UICI
1998 Agents Stock Option Plan and related Prospectus of our report dated April
4, 2000, with respect to the consolidated financial statements and schedules of
UICI and subsidiaries included in the Annual Report (Form 10-K) for the year
ended December 31, 1999.

ERNST & YOUNG LLP

Dallas, Texas
April 4, 2000

<PAGE> 1
EXHIBIT 24

POWER OF ATTORNEY

WHEREAS, UICI, a Delaware corporation (herein referred to as the
"Company"), intends to file with the Securities and Exchange Commission, under
the Securities Exchange Act of 1934, an Annual Report on Form 10-K for the
fiscal year ended December 31, 1999; and

WHEREAS, each of the undersigned holds the office or offices in the
Company herein below set opposite his or her name, respectively;

NOW, THEREFORE, each of the undersigned hereby constitutes and appoints
Gregory T. Mutz and Glenn W. Reed and each of them individually, his attorney
with full power to act for him and in his name, place and stead, to sign his
name in the capacity or capacities set forth below to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1999.

IN WITNESS WHEREOF, the undersigned have hereunto set their hands this
2nd day of February, 2000.

Ronald L. Jensen, Chairman
and Director /s/ RONALD L. JENSEN
---------------------------------------

Gregory T. Mutz, Director and
President, Chief Executive
Officer, Principal Financial
Officer and Director /s/ GREGORY T. MUTZ
---------------------------------------

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

Patrick J. McLaughlin, Director /s/ PATRICK J. MCLAUGHLIN
---------------------------------------

Stuart D. Bilton, Director /s/ STUART D. BILTON
---------------------------------------

George H. Lane, III, Director /s/ GEORGE H. LANE, III
---------------------------------------

<ARTICLE> 7
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<DEBT-HELD-FOR-SALE> 861,337
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 23,079
<MORTGAGE> 6,324
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,038,488
<CASH> 74,091
<RECOVER-REINSURE> 104,946
<DEFERRED-ACQUISITION> 80,188
<TOTAL-ASSETS> 3,539,344
<POLICY-LOSSES> 788,719
<UNEARNED-PREMIUMS> 97,548
<POLICY-OTHER> 19,090
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 1,850,985
0
0
<COMMON> 466
<OTHER-SE> 406,968
<TOTAL-LIABILITY-AND-EQUITY> 3,539,344
736,587
<INVESTMENT-INCOME> 85,497
<INVESTMENT-GAINS> (367)
<OTHER-INCOME> 3,481
<BENEFITS> 514,574
<UNDERWRITING-AMORTIZATION> 31,966
<UNDERWRITING-OTHER> 211,469
<INCOME-PRETAX> 50,852
<INCOME-TAX> 17,602
<INCOME-CONTINUING> 33,250
<DISCONTINUED> (179,132)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (145,882)
<EPS-BASIC> (3.15)
<EPS-DILUTED> (3.05)
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0

</TABLE>