To Our Shareholders:

FINANCIAL HIGHLIGHTS OF 2000

The financial results speak for themselves.

• Premiums and fees before reinsurance rose 79% to $451.3 million
• Total revenues increased 92% to $284.1 million
• Pre-tax operating income grew 106% to $33.1 million
• Net income was up 133% to $22.9 million
• Fully diluted earnings per share increased 44% to $0.49 per share
• Shareholders' equity increased 30% to $173.9 million
• Fully diluted book value per common share increased 26% to $3.67 per share
• Assets increased 3% to almost $1.2 billion

One of the most important elements of our past and future success is our commitment to execution. In 2000, we concentrated on integrating the six insurance companies we acquired in 1999, including Pennsylvania Life Insurance Company and PennCorp Life Insurance Company of Canada. I am delighted to say that we completed the project on time and on budget. We have already seen marked improvement in our operations resulting from the integration, and we expect to realize significant savings in 2001 and beyond.

INSURANCE COMPANIES

Senior Market Brokerage

In our Senior Market Brokerage division, we emphasize the sale of products that appeal to the senior market, largely through independent marketing organizations with concentrations in this segment. We currently sell these products in 25 states with particular concentration in the Southeast, the Southwest and the Northeast, and we have plans to further broaden our geographical reach. The core products are Medicare Supplement and Select, a variety of long term care plans and life insurance. New sales (annualized issued premium) for this segment amounted to $85.1 million in 2000, up from $36.6 million in 1999.

Career Agency

As part of our 1999 acquisitions, we brought in a viable career agency force that made its mark selling fixed benefit accident and sickness disability insurance and life insurance primarily to the self-employed market. A core part of Universal American's strategy has been to introduce its senior market products through this marketing channel.

The Career Agency field force has 50 branch offices throughout the United States and 15 branch offices in Canada, with approximately 700 agents in the United States and 400 agents in Canada. In contrast to independent agents, career agents have exclusive arrangements with, and effectively represent, only the Company. Even though new sales from our Career Agency of $22.3 million in 2000 were only a slight improvement over the prior year, the profits generated by this segment continue to be outstanding.

After expanding our product line and recruiting extensively, we are now beginning to see healthy growth from the Career Agency, especially in the senior market.

Special Markets

Through our own operating history and acquisitions, Universal American has accumulated various lines of business that are no longer part of our core focus. Some of these products, including traditional and interest-sensitive life insurance and group life insurance, continue to be sold in limited amounts through general agency relationships. Others, including older accident and health lines, are being run off. In either case, these lines of business are monitored closely and actively managed for profit.

We also continued to eliminate those sectors of our business that either have not performed up to our standards or are simply outside our focus. In the fourth quarter of 2000, we decided to exit the Major Medical business. This will eliminate approximately $27 million of the $31 million in annualized premiums in force on that line of business. This action will reduce our premium revenue without reducing our ongoing profitability, and the elimination of this underperforming area will allow us to focus better on our core businesses.

ADMINISTRATIVE SERVICES DIVISION

We are particularly optimistic about the dramatic progress made in building our Administrative Services division as a profit center based on fee income. Going into last year, we had a solid base on which to build. Our WorldNet Services Corp. subsidiary was growing, profitable and operationally sound.

In 2000, we were able to make two important add-on acquisitions. In January, we acquired American Insurance Administration Group, Inc., an experienced and profitable third party administrator of insured senior market products. In August, we acquired CHCS, Inc., a leading outsourcing company in the fast-growing long term care business.

With these two acquisitions, we now have the scale and expertise to offer a comprehensive suite of outsourcing products for the senior market insurance business. Further, we are moving beyond the insurance industry and are beginning to offer products and services, particularly in the emerging geriatric care management sector, for the more than 90% of the eligible population that is not covered by long term care insurance.

We look to our Administrative Services division as a growing and reliable source of cash flow and profitability. In its first year of combined activity, this division had revenue of $24 million, earnings before interest, taxes, depreciation and amortization of $7.5 million and a net profit of $3.8 million.

THE USE OF TECHNOLOGY

Until recently, we focused on using technology to integrate the companies and blocks of business we have acquired, as we have done with the successful integration of the companies we acquired in 1999. We are now concentrating on using new technology and the Internet to draw us closer to our producers, and customers, and make us all more efficient in the sales, fulfillment and service process.

We recently installed an advanced Internet-based interface with our agents so that we can communicate and process business more efficiently. We have also acquired an electronic new business processing system with artificial intelligence features that will allow us to process applications from all media, including the Internet. By year's end, we will bring in new state-of-the-art customer relations management software for our call centers so that we can service our policyholders more efficiently.

ACQUISITION STRATEGY

Going forward, we intend to build on a strength we have clearly demonstrated: the ability to find, structure and close acquisitions that add value to our company. Our increased size and access to capital give us the ability to attract and evaluate a broader range of potential transactions.

SUMMARY

In September 2000, Fortune magazine ranked Universal American 58th on its list of "America's Fastest Growing Companies." We were delighted to be the only insurance company on the list. Much of our growth came from the 1999 acquisitions; we are now building on the momentum of that success.

We are fine-tuning our expertise in the senior market, and continue to build on our large portfolio of senior-oriented insurance products and services. Our integration efforts have resulted in a lean overhead structure that allows us to efficiently support an even larger base of business.

Thus, we are in an excellent position to continue to build our company profitably, and are looking forward to the challenges and opportunities of the coming year. I would like to take this opportunity to thank our loyal policyholders, producers, employees and shareholders for their continued support.

Richard A. Barasch Chairman & Chief Executive Officer