1. ORGANIZATION AND COMPANY BACKGROUND:

Universal American Financial Corp. ("the Company" or "Universal American") was incorporated in the State of New York in 1981 as a life and accident and health insurance holding company. Until July 30, 1999, the Company had three principal 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"), in addition to WorldNet Services Corp. ("WorldNet") and Quincy Coverage Corp. ("Quincy"). On July 30, 1999, Universal American acquired all of the outstanding shares of common stock of certain direct and indirect subsidiaries of PennCorp Financial Group ("PFG"), including the following six insurance companies (the "Acquired Companies"): Pennsylvania Life Insurance Company ("Pennsylvania Life"), Peninsular Life Insurance Company ("Peninsular"), Union Bankers Insurance Company ("Union Bankers"), Constitution Life Insurance Company ("Constitution"), Marquette National Life Insurance Company ("Marquette") and PennCorp Life Insurance Company, a Canadian company ("PennCorp Canada"). On January 2, 2000, Universal American acquired American Insurance Administration Group, Inc. ("AIAG") and on August 10, 2000, Universal American acquired Capitated Healthcare Services, Inc. ("CHCS").

Universal American is a life and accident and health insurance holding company whose principal insurance subsidiaries have operated through a general agency system, marketing and underwriting products aimed at the senior market, including Medicare supplement, long term care, home healthcare, life insurance and annuities. With the acquisition of Pennsylvania Life and PennCorp Canada, the Company has expanded its issuance of fixed benefit accident and health insurance products. The acquisition expanded the Company's general agency system and provided a new distribution system consisting of career agents. The Career Agency distribution system operates through a network of regional managers that operate branch offices throughout the United States and Canada, and are under exclusive contract with Pennsylvania Life and PennCorp Life of Canada. Universal American, through its acquisitions of AIAG and CHCS in 2000, has expanded its insurance services segment to include independent third party administrative service contracts.