The table below details the gross premiums and policyholder fees before reinsurance for the major product lines in the Senior Market Brokerage segment and the corresponding average amount of premium retained. The Company reinsures all of its senior market brokerage products to unaffiliated third party reinsurers under various quota share agreements. Medicare Supplement written premium is reinsured under quota share reinsurance agreements ranging between 50% and 75% based upon the geographic distribution. The Company has also acquired various blocks of Medicare Supplement premium, which are reinsured under quota share reinsurance agreements ranging from 75% to 100%. Under these reinsurance agreements, the Company reinsures the claims incurred and commissions on a pro rata basis and receives additional expense allowances for policy issue, administration and premium taxes.

                                        2000                 1999                 1998
                                  Gross       Net      Gross       Net      Gross       Net
                                 Premiums  Retained   Premiums  Retained   Premiums  Retained
Medicare Supplement acquired . . $145,972      8%     $ 95,062     13%     $ 66,263     20%
Medicare Supplement written  . .   82,013     31%       34,810     34%       13,913     41%
Other supplemental health  . . .   20,701     56%       12,812     60%        7,943     50%
Senior life insurance  . . . . .    6,625     50%        3,560     50%        4,288     50%  

Total Gross premiums . . . . . . $255,311     20%     $146,244     22%     $ 92,407     24%  

Years ended December 31, 2000 and 1999

Operating income from the Senior Market Brokerage segment increased by $1.6 million, or 42%, in 2000 compared to 1999.

Revenues. Gross premium written increased $109.1 million, or 75% over 1999. This increase consists of an increase of $47.2 million, or 135%, on Medicare Supplement business written by the Insurance Subsidiaries, an increase of $50.9 million on Medicare Supplement premium acquired through acquisition, an increase of $7.9 million in other senior supplemental health premium and $3.1 million in senior life insurance premium.

This increase in gross premium written by the Insurance Subsidiaries was the result of the increase in sales of $48.5 million, or 133%, of the senior market product portfolio from $36.6 million in 1999 to $85.1 million in 2000. Medicare Supplement written premium grew as a result of the increase in number of general agents under contract and by the disenrollment of policyholders due to various Health Maintenance Organizations ("HMO's"). In addition, premiums increased due to rate increases implemented by the Company in 2000, offset by expected lapses.

The 1999 amount of Medicare Supplement acquired gross premium includes approximately $36.7 million of gross premiums received on the policies acquired in the 1999 Acquisition for the five months ended December 31, 1999. This premium amounts to $88.1 million on an annualized basis and as adjusted, 2000 premiums for the acquired blocks of business decreased by $0.5 million compared to 1999.

The increase of $7.9 million in other supplemental senior health gross premiums is the result of increased sales of long term care products and an increase of $2.8 million due to the inclusion in 2000 of twelve months of long term care premiums acquired in the 1999 Acquisition compared to five months in 1999. Senior life insurance premium increased as a result of more general agents under contract.

Net premiums for the year increased by approximately $19.5 million, or 60%, compared to 1999. The net premiums did not increase in line with the gross premiums due to the amount of retained Medicare Supplement written premium decreasing from 34% in 1999 to 31% in 2000. This reduction in retained premium is a result of increased writing by American Pioneer that has 75% quota share reinsurance agreements in force. The retained Medicare Supplement acquired premium decreased from 13% in 1999 to 8% in 2000 as a result of the inclusion of a full year of the Medicare Supplement premium acquired in connection with the 1999 Acquisition, which premium was 100% reinsured under agreements that predated the acquisition. The other supplemental senior health insurance retained decreased from 60% in 1999 to 56% in 2000 as result of the increased writing of long-term care insurance that is reinsured pursuant to 50% quota share reinsurance agreements.

Net investment income increased by approximately 21% over 1999, as a result of the increase in the average invested assets for the comparable periods. Average invested assets increased as a result of earnings for the year.

Benefits, Claims and Other Deductions.

Policyholder benefits, including the change in reserves, increased by approximately $17.0 million, or 72%, compared to 1999. The net policyholder benefits increased more than the net premium primarily due to an increase in loss ratios on the Medicare Supplement written policies from approximately 70% in 1999 to 75% in 2000. The Company has implemented rate increases, which will be effective during 2001. The loss ratios on the Medicare Supplement acquired policies decreased slightly from 84% in 1999 to 83% in 2000. In addition, the net benefits incurred on the business acquired in the 1999 Acquisition increased $2.0 million as a result of including twelve months of operations in 2000 compared to five months in 1999.

Interest credited to policyholders decreased by approximately $0.6 million, or 10%, as a result of the decrease in the effective interest rate credited to the policies in 2000 compared to 1999 and the expected lapses of the policies in force.

The increase in deferred acquisition costs was approximately $1.3 million more in 2000, compared to the increase in 1999. The increase in deferred acquisition costs relates to the increase in premiums issued during 2000 compared to 1999.

Commissions and other operating expenses increased by approximately $4.6 million or 37% in 2000 compared to 1999. The following table details the components of commission and other operating expenses:

                                          2000          1999  
Commissions . . . . . . . . . . . .    $ 43,131      $ 24,181
Other operating costs . . . . . . .      33,345        21,262
Reinsurance allowances  . . . . . .     (59,273)      (32,863)
Commissions and general
 expenses, net of allowances  . . .    $ 17,203      $ 12,580 

The ratio of commissions to gross premiums remained flat at 16.9% and 16.5% in 2000 and 1999, respectively. Other operating costs as a percentage of gross premiums decreased to 13.1% in 2000 from 14.5% in 1999. Commission and expense allowances received from reinsurers as a percentage of the premiums ceded were flat at 29.2% in 2000 compared to 28.9% in 1999.

Years ended December 31, 1999 and 1998

Operating income from the Senior Market Brokerage segment increased by $1.8 million, or 86%, in 1999 compared to 1998.

Revenues. Gross premium earned before reinsurance increased $53.8 million, or 58%, over 1998. This consists of an increase of $20.9 million on Medicare Supplement business written by the Insurance Subsidiaries, an increase of $28.8 million on Medicare Supplement premium acquired through acquisition, an increase of $4.9 million in supplemental senior health premium and a reduction of $0.7 million in senior life insurance premium.

This increase in Medicare Supplement gross premium written by the Insurance Subsidiaries was the result of the rapid growth of the senior market product portfolio from 1997 to 1999. This growth was a result of the increase in Medicare Supplement issued premium generated by the increase in the number of general agents under contract and by the disenrollment of policyholders by various HMO's.

The 1999 amount of Medicare Supplement acquired premium includes approximately $36.7 million of gross premiums received relating to the 1999 Acquisition for the five months ended December 31, 1999. Medicare Supplement premiums for the remaining acquired blocks of business decreased by approximately $7.9 million as a result of expected lapses of the in-force policies.

The increase of $4.9 million in other supplemental senior health gross premiums is the result of increased sales of long term care products and an increase of $2.0 million due to the inclusion of long term care premiums acquired in the 1999 Acquisition for the five months in 1999.

Net premiums for the year increased by approximately $10.8 million, or 50%, compared to 1998. Included in the 1999 amount were $1.9 million of net premiums acquired in the 1999 Acquisition. The remaining increase was less than the increase in gross premiums discussed above due to the amount of retained Medicare Supplement written premium decreasing from 41% in 1998 to 34% in 1999. This decrease is the result of increased writing by American Pioneer, which has 75% quota share reinsurance agreements in force. The retained Medicare Supplement acquired premium decreased from 20% in 1998 to 13% in 1999 as a result of the inclusion of the Medicare Supplement premium acquired in connection with the 1999 Acquisition, which premium was 100% reinsured under agreements that predated the acquisition.

Net investment income increased by approximately 15% over 1998 to $9.4 million, as a result of the increase in the average invested assets for the comparable periods. Average invested assets increased as a result of earnings for the year.

Benefits, Claims and Other Deductions.

Policyholder benefits, including the change in reserves, increased by approximately $7.1 million, or 43%, from 1998, compared to the increase in net premiums of 50% noted above. The policyholder benefits did not increase as much as net premiums due to a decrease in loss ratios on the acquired block of Medicare Supplement premium from approximately 95% in 1998 to 84% in 1999. The loss ratios on the Medicare Supplement written business increased slightly from 69% in 1998 to 70% in 1999. Included in the 1999 amount were $1.4 million of net benefits incurred on the business acquired in the 1999 Acquisition.

Interest credited to policyholders decreased by approximately $0.6 million, or 10%, as a result of the decrease in the effective interest rate credited to the policies in 1999 compared to 1998 and the expected lapses of the policies in force.

The increase in deferred acquisition costs amounted to $3.7 million and $3.8 million in 1999 and 1998, respectively. Increases in the deferred acquisition costs on the supplemental senior health products were offset by corresponding decreases in the annuity deferred acquisition costs balances.

Commissions and other operating expenses increased by approximately $3.2 million, or 34%, in 1999 compared to 1998. The following table details the components of commission and other operating expenses:

                                          1999         1998  
Commissions . . . . . . . . . . . .    $ 24,181     $ 19,516
Other operating costs . . . . . . .      21,262       12,815
Reinsurance allowances  . . . . . .     (32,863)     (22,906)
Commissions and general
 expenses, net of allowances  . . .    $ 12,580     $  9,425 

The ratio of commissions to gross premiums decreased to 16.5% in 1999 from 21.1% in 1998, as a result of the implementation of rate increases on the acquired Medicare Supplement business. Other operating costs as a percentage of gross premiums increased to 14.5% in 1999 from 13.9% in 1998 as a result of the increase in the production of new sales in 1999 over the 1998 amount and the inclusion of the expenses incurred on the business acquired in the 1999 Acquisition. Commission and expense allowances received from reinsurers as a percentage of the premiums ceded decreased to 28.9% in 1999 compared to 32.4% in 1998 as a result of the Medicare Supplement business acquired in the 1999 Acquisiiton.