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

Segment Results - Special Markets 

                             For the year ended December 31,
                                2000       1999       1998  
                                       (In thousands)
Net premiums and
 policyholder fees:
 Life and annuity . . . .     $12,773    $ 9,325    $ 6,485
 Accident & Health  . . .      25,502     17,947     14,204 
 Net premiums . . . . . .      38,275     27,272     20,689
Net investment income . .      14,704      8,662      3,125
Other income  . . . . . .         332        246        238 
 Total revenue  . . . . .      53,311     36,180     24,052 

Policyholder benefits . .      31,831     19,216     14,405
Interest credited
 to policyholders . . . .       3,477      2,681      1,782
Change in deferred
 acquisition costs  . . .       1,566        412        253
Amortization of present
 value of future profits
 and goodwill . . . . . .         230        314        145
Commissions and
 general expenses,
 net of allowances  . . .      11,417      8,939      6,352 
Total benefits, claims
 and other deductions . .      48,521     31,562     22,937 

Segment operating
 income . . . . . . . . .     $ 4,790    $ 4,618    $ 1,115

Years ended December 31, 2000 and 1999

Operating results for the year improved approximately 4% in 2000 compared to 1999.

Revenues. Net premiums for the year increased by $11.0 million or 40% compared to 1999. Approxmately $10.6 million of the increase, including $3.3 million of life and $7.3 million of accident and health, relates to the impact of a full year's results in 2000 for the companies acquired in 1999, compared to five months as reported in 1999.

Net investment income increased by $6.0 million compared to 1999, primarily due to twelve months of the acquired companies compared to five months in 1999.

Benefits, Claims and Other Deductions.

Policyholder benefits increased by $12.6 million in 2000 compared to 1999. Approximately $9.8 million relates to the impact of a full year's results from the acquired companies in 2000 compared to five months in 1999. Approximately $2.0 million results from deterioration in the loss ratios for the health business of the segment. The remaining increase relates to adverse mortality in 2000 compared to 1999.

The increase in interest credited of $0.8 million was due primarily to the inclusion of a full year for the acquired companies.

The increase in the net amortization of deferred acquisition costs relates primarily to the Company's decision to exit the major medical line of business. As a result of this decision, the Company wrote off approximately $1.4 million of deferred acquisition costs in 2000. The Company believes that it will be able to cancel, by the end of 2002, approximately $27.0 million of the $31.0 million of annualized premium in force for this line of business.

Commissions and general expenses, net of allowances increased by $2.5 million, or 28%, during 2000. An increase of approximately $3.3 million was due to the inclusion of a full year's results of the acquired companies in 2000 compared to five months in 1999. Offsetting this increase is a decrease in operating expenses relating to the existing blocks of business.

Years ended December 31, 1999 and 1998

Operating results for the year increased by $3.5 million in 1999 compared to 1998, primarily as a result of the addition of certain blocks of business from the acquired companies in 1999.

Revenues. Net premiums for the year increased by $6.6 million or 32% compared to 1999. The Acquired Companies added approximately $11.5 million during 1999. This increase was offset by a decrease in health premiums at the existing companies.

Net investment income increased by $5.5 million compared to 1998. The Acquired Companies added $4.8 million during 1999. The remaining increase relates to an increase in the invested assets of the existing companies.

Benefits, Claims and Other Deductions.

Policyholder benefits increased by $4.8 million in 1999 compared to 1998. Approximately $8.1 million relates to the Acquired Companies. Offsetting this was a decrease at the existing companies, directly related to the decrease in premiums noted above.

The increase in interest credited of $0.9 million was due primarily to the addition of the acquired companies.

Commissions and general expenses, net of allowances increased by $2.6 million or 41% during 1999. An increase of approximately $3.5 million was due to the addition of the acquired companies in 1999. Offsetting this increase is a decrease in operating expenses for the existing blocks of business, related to the decrease in premium noted above.