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

Forward-Looking Statements

The purpose of this section is to discuss and analyze the company's consolidated results of operations, financial condition, and liquidity and capital resources. This analysis should be read in conjunction with the consolidated financial statements and related notes which appear elsewhere in this report and also contained in the Form 10-K for the year ended December 31, 2000.

The Company cautions readers regarding certain forward-looking statements contained in the following discussion and elsewhere in this report and in any other oral or written statements, either made by, or on behalf of, the Company, whether or not in future filings with the Securities and Exchange Commission ("SEC"). Forward-looking statements are statements not based on historical information. They relate to future operations, strategies, financial results or other developments. In particular, statements using verbs such as "expect," "anticipate," "believe" or similar words generally involve forward-looking statements. Forward-looking statements include statements that represent the Company's products, investment spreads or yields, or the earnings or profitability of the Company's activities.

Forward-looking statements are based upon estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond the Company's control and are subject to change. These uncertainties can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. Whether or not actual results differ materially from forward-looking statements may depend on numerous foreseeable and unforeseeable events or developments, some of which may be national in scope, such as general economic conditions and interest rates. Some of these events may be related to the insurance industry generally, such as pricing competition, regulatory developments and industry consolidation. Others may relate to Universal American specifically, such as credit, volatility and other risks associated with the Company's investment portfolio, and other factors. Universal American disclaims any obligation to update forward-looking information.

Introduction

The following analysis of the consolidated results of operations and financial condition of the Company should be read in conjunction with the Consolidated Financial Statements and related consolidated footnotes included elsewhere.

The Company owns nine insurance companies (collectively, the "Insurance Subsidiaries"): American Progressive Life & Health Insurance Company of New York ("American Progressive"), American Pioneer Life Insurance Company ("American Pioneer"), American Exchange Life Insurance Company ("American Exchange"), Constitution Life Insurance Company ("Constitution Life"), Marquette National Life Insurance Company ("Marquette"), Peninsular Life Insurance Company ("Peninsular Life"), Pennsylvania Life Insurance Company ("Pennsylvania Life"), PennCorp Life Insurance Company of Canada ("PennCorp Life of Canada") and Union Bankers Insurance Company ("Union Bankers"). Six of these companies, Pennsylvania Life, PennCorp Life of Canada, Peninsular, Union Bankers, Constitution and Marquette, as well as certain other related assets, were acquired on July 30, 1999.

In addition to the Insurance Subsidiaries, Universal American owns three third party administrators: American Insurance Administration Group, Inc. ("AIAG"), which was purchased January 2, 2000, Capitated Health Care Services, Inc., ("CHCS"), which was purchased August 10, 2000 and WorldNet Services Corp. ("WorldNet") that process the Company's brokerage senior market policies, as well as business for unaffiliated insurance companies.

Description of Segments

Currently, the Company manages its business, with primary emphasis on its distribution channels, through four operating segments, Senior Market Brokerage, Career Agency, Special Markets and Administrative Services and also maintains a corporate segment.

Senior Market Brokerage - This distribution channel consists of a general agency system and insurance brokerage system that focus on the sale of products in the senior market segment, including Medicare Supplement, long term care, final expense life insurance and annuities.

Career Agency - The Career Agency segment was acquired in the 1999 Acquisition in July 1999 and comprises the operations of Pennsylvania Life and PennCorp Life of Canada. PennCorp Life of Canada operates exclusively in Canada, while Pennsylvania Life operates in both the U.S. ("Pennsylvania Life U.S.") and Canada. The Career Agency segment is comprised of a career agency field force, which distributes fixed benefit accident and sickness, life insurance and supplemental senior health insurance in the United States and Canada. The Career Agents are under exclusive contract with Pennsylvania Life and PennCorp Life of Canada.

Special Markets - Through its own operating history and through prior acquisitions, Universal American has accumulated various lines of business that it manages in its Special Markets segments. These products include traditonal, interest-sensitive and group life insurance, individual medical and other accident and health insurance.

Administrative Services - In connection with the acquisition of AIAG and CHCS, Universal American has increased its efforts on the development of the Administrative Services segment. The primary services are to act as a third party administrator and service provider on various senior supplemental health insurance products offered by both affiliated and unaffiliated insurance companies. Services performed include policy underwriting, telephone verification, policyholder services, claims adjudication, clinical case management, care assessment and referral to healthcare facilities.

Corporate -This segment includes the corporate activities of the holding company, including interest on debt. This segment also includes the elimination of intersegment revenues and expenses that are reported gross in each of the operating segments. These eliminations affect the amounts reported on the individual financial statement line items, but do not change operating income before taxes. The significant items eliminated include intersegment revenue and expense relating to services performed by the Administrative Services segment for the Career Agency, Senior Market Brokerage and Special Market segments and interest on notes issued by the Corporate segment to the other operating segments.