4. ACQUISITION OF INSURANCE SERVICE COMPANIES

Acquisition of American Insurance
Administration Group, Inc. ("AIAG")

In January 2000, Universal American acquired all of the outstanding shares of AIAG, a privately held third party administrator located in Clearwater, Florida, for $5.8 million, including $2.9 million in cash and 809,860 shares of Universal American common stock. AIAG is a third party administrator of approximately $125 million of senior supplemental health insurance. Approximately $96 million of in-force premium is administered for Union Bankers and Constitution Life, for which AIAG received administrative fees of $7.6 million and $8.1 million in 2000 and 1999, respectively. This acquisition has generated increased cash flow and strengthened the Company's administrative capabilities while it expands its presence in the senior market and initiates crossselling opportunities between the Company's Senior Market Brokerage and Career Sales Divisions.

The fair value of the net assets acquired was $(0.9) million. The excess of the purchase price over the fair value of net assets acquired represents the present value of future profits ("PVFP"), net of deferred taxes, relating to contracts existing at the date of purchase. The PVFP was determined using a discount rate of 15%. It is being amortized in proportion to the expected profits from the contracts in force on the date of acquisition. A large portion of the contracts had a remaining term of three years at the date of acquisition; accordingly, the amortization is heavily weighted to those periods. During 2000, approximately $2.8 million or 37% of the original balance was amortized.

Acquisition of CHCS, Inc. ("CHCS")

In August 2000, Universal American acquired all of the outstanding shares of CHCS, a privately held third party administrator located in Weston, Florida, for $4.6 million, including $3.3 million in cash, 64,820 shares on Universal American common stock and future cash payments totaling $1.0 million over 18 months. CHCS is a third party administrator of long term care and home healthcare insurance products for over 35 unaffiliated insurance companies. For the five months ended December 31, 2000, CHCS received administrative fees of $2.4 million on contracts with expected annual fees for the year 2001 of $6.5 million.

The fair value of the net assets acquired was $1.9 million. The excess of the purchase price over the fair value of the net assets acquired was assigned to goodwill (see Note 2o).