UICI - 10-Q Quarterly Report

Back to GetFilings.com

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

---------------

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003.

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
------------- -------------
COMMISSION FILE NO. 001-14953

---------------

UICI
(Exact name of registrant as specified in its charter)

Delaware 75-2044750
------------------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

9151 Grapevine Highway, North Richland Hills, Texas 76180
- --------------------------------------------------- -----
(Address of principal executive office) (Zip Code)

Registrant's telephone number, including area code (817) 255-5200

Not Applicable
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
----- -----

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X No
----- ----

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common Stock, $.01 Par Value,
46,409,282 shares as of August 13, 2003.

INDEX

UICI AND SUBSIDIARIES

2

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

UICI AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NOTE: The balance sheet data as of December 31, 2002 have been derived from the
audited financial statements at that date.

See Notes to Consolidated Condensed Financial Statements.

3

UICI AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

See Notes to Consolidated Condensed Financial Statements.

4

UICI AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED) (DOLLARS IN THOUSANDS)

See Notes to Consolidated Condensed Financial Statements.

5

UICI AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)

See Notes to Consolidated Condensed Financial Statements.

6

UICI AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2003

NOTE A - BASIS OF PRESENTATION

The accompanying unaudited consolidated condensed financial statements for
UICI and its subsidiaries (the "Company" or "UICI") have been prepared in
accordance with accounting principles generally accepted in the United States of
America ("GAAP") for interim financial information and the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, such financial statements do
not include all of the information and notes required by GAAP for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. All such adjustments,
except as otherwise described herein, consist of normal recurring accruals.
Operating results for the six-month period ended June 30, 2003 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2003. For further information, refer to the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 2002. Certain amounts in the 2002 financial
statements have been reclassified to conform to the 2003 financial statement
presentation.

CHANGE IN RESERVING METHODOLOGY - SELF EMPLOYED AGENCY DIVISION

Effective January 1, 2003, the Company's Self Employed Agency ("SEA")
Division made adjustments to its reserve methodology and certain changes in
accounting estimates, the net effect of which decreased reserves and
correspondingly increased operating income reported by the SEA Division in the
amount of $4.8 million in the first quarter of 2003. Set forth below is a
summary of the adjustments and changes in accounting estimates made by the
Company.

Claim Reserve Changes

The SEA Division utilizes the developmental method to estimate claim
reserves. Under the developmental method, completion factors are applied to paid
claims in order to estimate the ultimate claim payments. These completion
factors are derived from historical experience and are dependent on the
"incurred dates" of the paid claims. Prior to January 1, 2003, the Company
utilized the "original incurred date" coding method to establish the date a
policy claim is incurred under the developmental method. Under the original
incurred date coding method, prior to the end of the period in which a health
policy claim was made, the Company estimated and recorded a liability for the
cost of all medical services related to the accident or sickness relating to the
claim, even though the medical services associated with such accident or
sickness might not be rendered to the insured until a later financial reporting
period.

Effective January 1, 2003, the Company has determined to utilize a "modified
incurred date" coding method to establish incurred dates under the developmental
method. Under this modified incurred date coding method, a break in service of
more than six months will result in the establishment of a new "incurred date"
for subsequent services. In addition, under the modified incurred date coding
method, prior to the end of the period in which a health policy claim is made,
the Company estimates and records a liability for the cost of medical services
to be rendered to the insured for at most the succeeding three years following
the date the policy claim is initially made. If in fact a particular claim
extends past the three year period following the date the policy claim is
initially made, an incurred date more recent than the original incurred date is
utilized in future reserve calculations. The Company believes that this modified
incurred date coding method will provide for a more direct and accurate
reflection of actual experience in the pricing of the Company's insurance
products. This change in methodology resulted in a reduction in the claim
reserves of $12.3 million during the first quarter of 2003.

Changes in Estimate

Several changes in accounting estimates resulted in a further reduction of
the claim reserve in the amount of $5.4 million during the first quarter of
2003. This reduction in the claim reserve was attributable primarily to the
effects of a change in estimate of the reserve for excess pending claims. This
change was necessary to maintain consistency with the historical data underlying
the calculation of the new completion factors used in the claim development
reserve. These completion factors are based on more recent experience with
claims payments than the previous factors. This more recent experience has a
greater number of pending claims. As a result, the new completion

7

factors have built in a higher level of reserves for pending claims. The release
of a portion of the excess pending claims reserve reflects the additional
pending claims included in the completion factors.

ROP Reserve Changes

The Company has issued certain health policies with a "return-of-premium"
(ROP) rider, pursuant to which the Company undertakes to return to the
policyholder on or after age 65 all premiums paid less claims reimbursed under
the policy. The ROP rider also provides that the policyholder may receive a
portion of the benefit prior to age 65. Historically, the Company has
established a reserve for future ROP benefits, which reserve has been calculated
by applying factors (based on 2 year preliminary term, a 5% interest assumption,
1958 CSO mortality termination assumption, and level future gross premiums) to
the current premium on a contract-by-contract basis. A claims offset was
applied, on a contract-by-contract basis, solely with respect to an older closed
block of policies. The ROP reserve is reflected in future policy and contract
benefits on the Company's consolidated balance sheet.

The Company records an ROP reserve to fund longer-term obligations
associated with the ROP rider. This reserve is impacted both by the techniques
utilized to calculate the reserve and the many assumptions underlying the
calculation, including interest rates, policy lapse rates, premium rate
increases on policies and assumptions with regard to claims paid. The Company
has previously utilized a simplified reserving methodology that it believed
generated an appropriate ROP reserve in the aggregate. However, the Company
recently reviewed its ROP reserving methodology in order to determine if
refinements to the methodology were appropriate. As a result of such review,
effective January 1, 2003, the ROP reserving methodology was refined to utilize
new factors (based on a net level premium basis, 4.5% interest, 1958 CSO
mortality, and, where appropriate, 10% annual increases in future gross
premiums) and to apply these factors to the historical premium payments on a
contract-by-contract basis. The claim offset is now applied on all material
blocks of policies with ROP riders. As a result of these changes, the ROP
reserve for the Company increased by $12.9 million during the first quarter of
2003.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 2002, the FASB issued Statement No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. Statement 146 is effective for exit
or disposal activities initiated after December 31, 2002. Effective January 1,
2003, the Company adopted this pronouncement. Adoption of this pronouncement did
not have a material effect upon the financial condition or results of operations
of the Company.

In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. The interpretation elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The initial recognition and initial measurement
provisions of this Interpretation are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002, irrespective of the
guarantor's fiscal year end. The disclosure requirements in this Interpretation
are effective for financial statements of interim or annual periods ending after
December 15, 2002. Effective January 1, 2003, the Company adopted this
pronouncement. Adoption of this pronouncement did not have a material effect
upon the financial condition or results of operations of the Company.

In December 2002, the FASB issued Statement No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure. Statement 148 amends FASB
Statement No. 123, Accounting for Stock-Based Compensation, to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition,
Statement 148 amends the disclosure requirements of Statement 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The amendments to Statement 123 are effective
for financial statements for fiscal years ending after December 15, 2002.
Earlier application of the transition provisions is permitted for entities with
a fiscal year ending prior to December 15, 2002. The Company has historically
accounted for the stock-based compensation plans under Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. On January
1, 2003, the Company adopted Statement No. 123 for all employee awards granted
or modified on or after January 1, 2003, and began measuring the compensation
cost of stock-based awards under the fair value method. The Company adopted the
transition provisions that require expensing options prospectively in the year
of adoption. Existing awards will continue to follow the intrinsic value method
prescribed by APB 25. Assuming award levels and fair values similar to past

8

years, the impact of adoption is not material on results of operations. This
change will primarily impact the accounting for stock options.

The following table illustrates the effect on net income as if the
fair-value-based method had been applied to all outstanding and unvested awards
in each period.

NOTE B - DISCONTINUED OPERATIONS

The Company has reflected as discontinued operations for financial reporting
purposes the results of its former sub-prime credit card business, its Special
Risk Division operations, its UICI Administrators, Inc. unit, and, effective May
2003, its former Senior Market Division.

In May 2003, the Company determined to exit the businesses of its Senior
Market Division by sale or wind-down, and as a result the Company designated and
has classified its Senior Market Division as a discontinued operation for
financial reporting purposes. The Company's Senior Market Division formerly
specialized in the development of long-term care and Medicare Supplement
insurance products for the senior market.

For the three and six months ended June 30, 2003, the Senior Market Division
reported losses (net of tax) in the amount of $(7.4) million and $(8.5) million,
respectively, compared to losses (net of tax) of $(1.2) million and $(2.1)
million in the three and six months ended June 30, 2002, respectively. A
significant portion of such losses in the three and six months ended June 30,
2003 was attributable to a loss in the amount of $(5.5) million (net of tax)
recognized upon transfer, effective June 30, 2003, of the Company's interest in
Seniors First LLC, an agency through which the Company formerly marketed and
distributed insurance products to the senior market.

NOTE C - INVESTMENT IN HEALTHAXIS, INC.

At June 30, 2003, the Company held 23,699,904 shares of common stock of
Healthaxis, Inc. (HAXS: Nasdaq) ("HAI"), which at such date represented
approximately 44.2% of the issued and outstanding shares of HAI. Effective July
1, 2003, 2,682,798 HAI shares previously owned by the Company but held for the
benefit of certain Healthaxis employees in the Healthaxis, Inc. Founders Plan
Voting Trust reverted to the Company. Giving effect to such reversion, on July
1, 2003 the Company held 26,382,702 shares of HAI common stock, representing
approximately 49.2% of the issued and outstanding shares of HAI.

Effective November 7, 2001, UICI appointed as its proxies the board of
directors of HAI, who may vote 33 1/3% of the number of HAI shares held of
record from time to time by UICI in favor of the nominees for director that a
majority of the directors of HAI shall have recommended stand for election. The
authority granted to such proxies will terminate at the earlier to occur of (i)
November 7, 2011, (ii) such date as UICI beneficially holds less than 25% of the
outstanding shares of common stock of HAI on a fully diluted basis, (iii) such
date as any person or persons acting as a "group" beneficially holds a greater
percentage of the outstanding shares of HAI common stock on a fully diluted
basis than the percentage beneficially owned by UICI, or (iv) the filing by HAI
of a voluntary petition in bankruptcy or the filing by a third party of an
involuntary petition in bankruptcy with respect to HAI.

9

The Company has accounted for its investment in HAI utilizing the equity
method and has recognized its ratable share of HAI income and loss (computed
prior to amortization of goodwill recorded by HealthAxis.com in connection with
the January 7, 2000 merger of Insurdata Incorporated (formerly a wholly-owned
subsidiary of UICI) with and into HealthAxis.com). The Company's carrying value
of its investment in HAI was $3.9 million and $4.9 million at June 30, 2003 and
December 31, 2002, respectively.

NOTE D - GOODWILL AND OTHER INTANGIBLE ASSETS

The Company adopted FASB Statements No. 141, Business Combinations, and No.
142, Goodwill and Other Intangible Assets on January 1, 2002. In accordance with
Statement No. 142, the Company tested for goodwill impairment as of January 1,
2002. As a result of the transitional impairment testing, completed during the
quarter ended June 30, 2002, the Company determined that goodwill recorded in
connection with the acquisitions of Academic Management Services Corp. and
Barron Risk Management Services ("Barron") was impaired in the aggregate amount
of $6.9 million ($5.1 million net of tax). The Company has reflected this
impairment charge in its financial statements as a cumulative effect of a change
in accounting principle as of January 1, 2002 in accordance with Statement No.
142.

Effective February 28, 2002, UICI acquired STAR HRG for an initial cash
purchase price of $25.0 million, plus additional contingent consideration based
on the future annualized performance of STAR HRG measured over the three-month
period ending May 31, 2003. During the three months ended June 30, 2003, the
Company recorded on its consolidated balance sheet the additional consideration
plus interest from date of acquisition through May 31, 2003 ($16.1 million) as
goodwill and established a corresponding liability reflecting the obligation to
pay the additional consideration (see Note G).

As a result of certain events at Academic Management Services Corp. ("AMS")
that occurred in July 2003, the Company reviewed for impairment the goodwill
recorded in connection with the acquisition of AMS (see Note P - Subsequent
Event).

Set forth in the table below is a summary of the goodwill and other
intangible assets by operating segment as of June 30, 2003 and December 31,
2002:

Other intangible assets consist of customer lists, trademark and non-compete
agreements related to the acquisition of Star Human Resources Group, Inc. and
STAR Administrative Services, Inc. (collectively referred by the Company as its
"STAR HRG" unit) completed in the three months ended March 31, 2002. (See Note
G).

Set forth in the table below is a summary of the estimated amortization
expense for the next five years and thereafter for other intangible assets:

10

NOTE E - DEBT

At June 30, 2003 and December 31, 2002, the Company had outstanding
consolidated short and long-term indebtedness (exclusive of indebtedness secured
by student loans) in the amount of $5.5 million and $9.5 million, respectively,
of which $4.0 million and $7.9 million, respectively, constituted indebtedness
of the holding company.

On January 25, 2002, the Company entered into a three-year bank credit
facility with Bank of America, NA and LaSalle Bank National Association. Under
the facility, the Company may borrow from time to time up to $30.0 million on a
revolving, unsecured basis. The Company intends to utilize the proceeds of the
facility for general working capital purposes. At June 30, 2003, the Company had
no borrowings outstanding under the facility.

On June 22, 1994, the Company authorized an issue of its 8.75% Senior Notes
due June 2004 in the aggregate amount of $27.7 million. In accordance with the
agreement governing the terms of the notes (the "Note Agreement"), commencing on
June 1, 1998 and on each June 1 thereafter to and including June 1, 2003, the
Company is required to pay approximately $4.0 million aggregate principal
together with accrued interest thereon to the date of such repayment. The
principal amount of the notes outstanding was $4.0 million and $7.9 million at
June 30, 2003 and December 31, 2002, respectively. The Company incurred $317,000
and $490,000 of interest expense on the notes in the six months ended June 30,
2003 and 2002, respectively. The Note Agreement contains restrictive covenants
that include certain financial ratios, limitations on additional indebtedness as
a percentage of certain defined equity amounts and the disposal of certain
subsidiaries, including primarily the Company's regulated insurance
subsidiaries.

AMS has a note payable in the outstanding principal amount of $1.5 million
and $1.6 million at June 30, 2003 and December 31, 2002, respectively. The note
bore interest at approximately 3.3% at June 30, 2003, matures on June 30, 2004,
requires principal and interest payments quarterly and is secured by a first
mortgage on real estate held by AMS.

NOTE F - STUDENT LOAN CREDIT FACILITIES

At June 30, 2003 and December 31, 2002, the Company, through its AMS
subsidiary and its former College Fund Life Division, had outstanding an
aggregate of $1,871.9 million and $1,752.6 million of indebtedness,
respectively, under secured student loan credit facilities, of which $1,864.8
million and $1,726.1 million, respectively, were issued by special purpose
entities ("Special Purpose Subsidiaries"). The accounts of all of the Company's
Special Purpose Subsidiaries are included in the Company's Consolidated
Financial Statements. At June 30, 2003 and December 31, 2002, indebtedness
outstanding under secured student loan credit facilities (including indebtedness
issued by Special Purpose Subsidiaries) was secured by federally guaranteed and
alternative (i.e., non-federally guaranteed) student loans in the carrying
amount of $1,464.1 million and $1,398.5 million, respectively, and by a pledge
of cash, cash equivalents and other qualified investments in the amount of
$286.7 million and $222.5 million, respectively. All such indebtedness issued
under secured student loan credit facilities is reflected as student loan
indebtedness on the Company's consolidated balance sheet; all such student loans
pledged to secure such facilities are reflected as student loan assets on the
Company's consolidated balance sheet; and all such cash, cash equivalents and
qualified investments specifically pledged under the student loan credit
facilities are reflected as restricted cash on the Company's consolidated
balance sheet.

In April 2003, AMS completed the sale to institutional investors of $366.7
million principal amount of student loan asset-backed notes issued by a Special
Purpose Subsidiary of AMS, consisting of a series of senior notes in the
aggregate principal amount of $330.0 million and a series of subordinated notes
in the aggregate principal amount of $36.7 million. The notes are secured by a
pledge of federally guaranteed student loans and alternative (i.e.,
non-federally guaranteed) student loans. As of August 18, 2003, the senior notes
were rated AAA by Standard & Poor's and Fitch, Inc. and Aaa by Moody's Investor
Service, and the subordinated notes were rated A by Standard & Poor's, A2 by
Moody's Investor Service and A+ by Fitch, Inc. The final scheduled payment date
of the senior and subordinated notes is May 2042. The notes are prepayable by
the Special Purpose Subsidiary at any time and from time to time at 100% of the
principal amount thereof. Interest on the senior notes is payable and reset
every 28 days

11

at a rate equal to the 90-day LIBOR plus 1.25%, and interest on the subordinated
notes is payable and reset every 28 days at a rate equal to the 90-day LIBOR
plus 2.25%.

On July 21, 2003, UICI reported the discovery of a shortfall in the type and
amount of collateral supporting two of the securitized student loan financing
facilities entered into by three Special Purpose Subsidiaries of AMS. See Note P
- - Subsequent Event.

NOTE G - ACQUISITIONS AND DISPOSALS

Effective February 28, 2002, the Company acquired all of the outstanding
capital stock of STAR Human Resources Group, Inc. and STAR Administrative
Services, Inc. (collectively referred to by the Company as its "STAR HRG" unit),
a Phoenix, Arizona based business specializing in the marketing and
administration of limited benefit plans for entry level, high turnover, hourly
employees. Commencing March 1, 2002, health insurance policies offered under the
STAR HRG program have been issued by The MEGA Life and Health Insurance Company,
a wholly owned subsidiary of UICI. UICI acquired STAR HRG for an initial cash
purchase price of $25.0 million, plus additional contingent consideration based
on the future annualized performance of STAR HRG measured over the three-month
period ending May 31, 2003. During the three months ended June 30, 2003, the
Company determined that the maximum additional contingent consideration in the
amount of $15.0 million will be due based on the performance of STAR HRG in the
three-month measurement period ended May 31, 2003. The contingent consideration
is payable in October 2003, at the Company's option, in cash or by delivery of
UICI's 6.0% convertible subordinated notes due March 1, 2012 plus, in each case,
interest payable in cash computed at a rate of 6% from the initial closing. The
Company has not yet determined whether it will satisfy this obligation by the
payment of cash or delivery of its 6.0% convertible subordinated notes. In
connection with the acquisition, in the first quarter of 2002 the Company
recorded non-amortizable goodwill in the amount of $17.5 million and amortizable
intangible assets in the amount of $8.9 million. During the three months ended
June 30, 2003, the Company recorded on its consolidated balance sheet the
additional consideration plus interest from date of acquisition through May 31,
2003 ($16.1 million) as goodwill and established a corresponding liability
reflecting the obligation to pay the additional consideration.

NOTE H - INCOME TAXES

The Company's effective tax rate on continuing operations for the three and
six month periods ended June 30, 2003 was 34.9% and 35.0%, respectively,
compared to 40.8% and 35.6%, respectively, in the corresponding 2002 periods.
For the three months ended June 30, 2002, the Company's effective tax rate on
continuing operations varied from the statutory rate of 35% primarily as a
result of an increase in the non-deductible portion of the variable stock-based
compensation expense.

12

NOTE I - EARNINGS (LOSS) PER SHARE

The following table sets forth the computation of basic and diluted earnings
(loss) per share:

NOTE J - LEGAL PROCEEDINGS

The Company is a party to the following material legal proceedings:

SUN COMMUNICATIONS LITIGATION

As previously disclosed, UICI and Ronald L. Jensen (the Company's Chairman)
have been parties to litigation (Sun Communications, Inc. v. SunTech Processing
Systems, LLC, UICI, Ronald L. Jensen, et al) with a third party concerning the
distribution of the cash proceeds from the sale and liquidation of SunTech
Processing Systems, LLC ("STP") assets in February 1998. On May 13, 2003, the
Company, Mr. Jensen and the plaintiffs reached agreement on a full and final
settlement of the case on favorable terms, and the Court on June 13, 2003
entered an agreed order dismissing the case as to all parties with prejudice.

ACE/AFCA AND PHILIP A. GRAY LITIGATION

As previously disclosed, the Company has been a party to a lawsuit (the
"ACE/AFCA Litigation") (American Credit Educators, LLC and American Fair Credit
Association, Inc. v. UICI and United Credit National Bank, pending in the United
States District Court for the District of Colorado), which was initially filed
as two separate lawsuits in February 2000 by American Credit Educators, LLC
("ACE") and American Fair Credit Association, Inc. ("AFCA"), organizations
through which United CreditServ formerly marketed its credit card programs. In
the ACE/AFCA Litigation, plaintiffs initially alleged, among other things, that
UCNB breached its agreements with ACE and AFCA, sought injunctive relief and a
declaratory judgment and claimed money damages in an indeterminate amount. ACE
and AFCA are each controlled by Phillip A. Gray, the former head of UICI's
credit card operations.

In a separate suit filed on March 26, 2001 in the District Court of Dallas
County, Texas (the "Gray Litigation") (UICI, United Membership Marketing Group,
Inc., and UMMG-Colorado, LLC f/k/a United Membership Marketing Group Ltd.
Liability Co. v. Philip A. Gray and PAG Family Partners, LLC), the Company sued
Philip A. Gray

13

individually ("Gray") and a related limited liability company (the "LLC"),
alleging, among other things, fraud, negligent misrepresentation, and breach of
fiduciary duty in connection with the Company's sub prime credit card business.
Gray removed the case to the United States District Court for the Northern
District of Texas, and UICI substituted PAG Family Partners Ltd. ("PAG") and the
PAG Family Trust for the LLC as defendants. By order dated May 6, 2002, the
Texas Federal Court denied PAG's motion to dismiss the fraud, negligent
misrepresentation and certain other claims, but dismissed certain of the named
defendants from the Gray Litigation. In addition, the Court ordered the transfer
of the Gray Litigation to the United States District Court for the District of
Colorado.

On May 31, 2002, in an answer and third-party complaint Gray denied all
allegations and asserted counterclaims against UICI and third-party claims
against certain individuals, including Ronald L. Jensen (the Company's Chairman)
and Gregory T. Mutz (the Company's former President and Chief Executive
Officer), in which Gray has alleged, among other things, violations of Colorado
securities laws, fraudulent misrepresentations, breach of fiduciary duty, unjust
enrichment and negligent misrepresentations and has sought a declaratory
judgment and an accounting. Certain third-party defendants have not yet been
served.

On December 11, 2002, UICI entered into a settlement agreement with ACE,
AFCA and all other Gray-related parties. The settlement was contingent upon
court approval of the settlement reached in the credit card marketing consumer
actions (Dadra Mitchell, et al. v. American Fair Credit Association, Inc., et
al., Mitchell v. Bank First, N.A., and Timothy M. Roe v. Phillip A. Gray,
American Fair Credit Association, Inc., UICI, UCNB, et al) that are pending
against UICI and various of the Gray-related parties. All conditions to
effectiveness of the settlement were satisfied on May 9, 2003. On May 28, 2003,
the U.S. District Court for the District of Colorado issued a formal order of
dismissal with prejudice in the ACE/AFCA Litigation and the Gray Litigation.

CREDIT CARD MARKETING CONSUMER LITIGATION

As previously disclosed, the Company has been involved in three disputes
(Dadra Mitchell v. American Fair Credit Association, United Membership Marketing
Group, LLC and UICI; Dadra Mitchell v. BankFirst, N.A; and Timothy M. Roe v.
Phillip A. Gray, American Fair Credit Association, Inc., UICI, UCNB, et al), all
of which arise out of the marketing of the American Fair Credit Association
credit card program prior to the termination of the Company's participation in
the program in January 2000.

Following a mediation held on December 7, 2002, the parties entered into a
Settlement and Release Agreement, dated as of December 11, 2002, pursuant to
which the defendants (including the Company), without acknowledging any fault,
liability or wrongdoing of any kind and subject to satisfaction of certain
conditions, agreed to settle all three cases. Funding of the settlement was
completed on December 20, 2002 in accordance with the terms of the Settlement
and Release Agreement.

On February 5, 2003, the California Superior Court for Alameda County in the
Mitchell case entered a final order approving the settlement and dismissing the
case. On February 28, 2003, the U.S. District Court for the Northern District of
California in the Bankfirst case entered a final order approving the settlement
and dismissing the case. Those orders became non-appealable on May 9, 2003, at
which date, all conditions to effectiveness of the settlement were satisfied. On
June 10, 2003, the U.S. District Court for the Northern District of Colorado
entered an order dismissing with prejudice the Roe litigation.

The terms of the settlement as contemplated by the Settlement and Release
Agreement did not have a material adverse effect upon the financial condition or
results of operations of the Company.

ASSOCIATION GROUP LITIGATION

The health insurance products issued by the Company's insurance subsidiaries
in the self-employed market are primarily issued to members of various
independent membership associations that jointly market the products with the
insurance subsidiaries. The associations provide their membership with a number
of endorsed benefits and products, including the opportunity to apply for health
insurance underwritten by the Company's health insurance subsidiaries. The
Company and/or its insurance company subsidiaries have recently been named a
party to several lawsuits challenging the nature of the relationship between the
Company's insurance companies and the associations that have endorsed the
insurance companies' health insurance products.

14

The MEGA Life and Health Insurance Company (a wholly owned subsidiary of
the Company) ("MEGA") is currently a defendant in six separate lawsuits in
Mississippi (Herman Tomlin and Gary Harrison v. MEGA Life and Health Insurance
Company, et al., filed on January 28, 2003 in the Circuit Court of Monroe
County, Mississippi; Bailey et al. v. MEGA Life, et al., filed on February 13,
2003 in the Circuit Court of Chickasaw County, Mississippi; Pride, et al. v.
MEGA Life, et al., filed on December 31, 2002 in the Circuit Court of Panola
County, Mississippi; Bishop v. John Doe, MEGA Life and Health Insurance Company,
et al., filed on April 15, 2003 in the Circuit Court of Lafayette County,
Mississippi; Clark, et al. v. MEGA Life and Health Insurance Company, et al.,
filed on April 16, 2003 in the Circuit Court of Tate County, Mississippi; and
Webster, et al. v. The MEGA Life and Health Insurance Company, et al., filed on
June 18, 2003 in the Circuit Court of the First Judicial District of Chickasaw
County, Mississippi). Each of the Mississippi cases contains certain allegations
regarding the relationships between MEGA and the National Association for the
Self-Employed (NASE), the membership association that has endorsed MEGA's health
insurance products. Plaintiffs specifically allege, among other things, that
MEGA pursued a scheme of deceptive sales practices designed to create the
impression that NASE is an independent entity; that in fact NASE and MEGA are
"under common ownership and control;" that the benefits of NASE membership are
negligible and membership is intended to permit MEGA to control the
insurer/insured relationship; and that the arrangement was intended to allow
MEGA to eliminate insureds with health problems from its block of business by
raising premiums. Plaintiffs demand punitive and economic damages in an
indeterminate amount, including excess premiums, association dues and charges,
administrative fees, and accrued interest.

The Tomlin, Bailey, Pride, Bishop, Clark and Webster cases have been
removed to the United States District Court for the Northern District of
Mississippi. The plaintiffs in the Tomlin, Bailey, Pride and Bishop cases have
moved to remand the matters to state court. MEGA was also named in two other
lawsuits (Shelton v. Mills, et al. and McBrayer v. Fair, et al.) that were
subsequently voluntarily dismissed by the plaintiffs with prejudice. MEGA has
moved to dismiss the Tomlin, Bailey, Bishop and Pride cases, but has not
answered or otherwise responded in the Clark and Webster cases. No discovery has
been undertaken in any of the cases.

As previously disclosed, UICI and Mid-West National Life Insurance Company
of Tennessee (a wholly owned subsidiary of the Company) ("Mid-West") have been
named as defendants in a suit filed on April 2, 2003 (Correa v. UICI, et al.) in
the Superior Court for the State of California, County of Los Angeles, in which
plaintiff has alleged, among other things, that defendants have engaged in
illegal marketing practices in connection with the sale of health insurance. The
plaintiff has asserted several causes of action, including breach of contract,
violation of California Business and Professions Code Section 17200, false
advertising, and negligent and intentional misrepresentation. On July 3, 2003
The Correa case was removed to the United States District Court for the Central
District of California. The Company moved to dismiss the case on August 5, 2003.

As previously disclosed, UICI and MEGA have been named defendants in a
purported class action suit filed on April 22, 2003 (Garcia v. UICI, et al.) in
the District Court of Starr County, Texas, 381st Judicial District, Case No.
DC-03-135. The Garcia case was removed on July 18, 2003 to the United States
District Court for the Southern District of Texas, McAllen Division. Plaintiff,
on behalf of himself and a purported class of similarly situated individuals,
has asserted, among other things, that MEGA, NASE Group Trust and NASE are under
common control and ownership and operate as a "unified business arrangement"
which is used solely for the purpose of generating profits through association
dues and avoiding state insurance regulations. Plaintiffs have alleged that
defendants have used false and deceptive advertising and sales practices in
connection with the sale of insurance in Texas in violation of the Texas
Insurance Code, and plaintiffs further allege conversion and breach of contract,
for which they have asked for a return of all association dues and
administrative fees collected by the defendants. MEGA, UICI, and NASE responded
to initial written discovery requests. Neither UICI nor MEGA has answered or
otherwise responded in the case.

UICI, MEGA, and Mid-West were named as defendants in an action filed on
April 22, 2003 (Sandra Lacy v. The MEGA Life and Health Insurance Company, et
al.) in Superior Court of California, County of Alameda, Case No. RG03-092881.
The Lacy case was removed on June 18, 2003 to the United States District Court
for the Northern District of California. Plaintiff, purportedly on behalf of the
"general public," has alleged that all of the defendants are under common
control and operate as a unified business arrangement established for the
purpose of, among other things, generating profits through association dues and
bypassing and circumventing more stringent state insurance regulations
applicable to other California insurance companies. Plaintiff has further
alleged that defendants have knowingly and intentionally failed to disclose the
common ownership and control of the defendant group, the amount and character of
association dues administrative fees and other costs of obtaining insurance from

15

MEGA and Mid-West and that initial premium rates are below the amount
actuarially calculated for the purpose of inducing purchases of MEGA and
Mid-West policies. Plaintiffs assert that defendants' actions constitute a
violation of California Business and Professions Code Section 17200, for which
plaintiff is entitled to injunctive, disgorgement, and monetary relief in an
unspecified amount. The Company moved to dismiss the case on July 15, 2003.

UICI and Mid-West were named in a lawsuit filed on May 28, 2003 (Mark and
Misty Startup v. UICI, et al.) in the Superior Court for the State of
California, County of Los Angeles, Case No. BC296476). The Startup matter was
removed on July 18, 2003 to the United States District Court for the Central
District of California. Plaintiffs have alleged, among other things, that UICI
and Mid-West breached their duty of good faith and fair dealing in failing to
pay medical claims submitted under a Mid-West policy issued to plaintiffs.
Plaintiffs also alleged that the relationship between Alliance and Mid-West
constitutes an illegal marketing "scheme" and asserted several causes of action,
including breach of contract, violation of California Business and Professions
Code Section 17200, false advertising, and negligent and intentional
misrepresentation. Plaintiffs seek injunctive relief and monetary damages in an
unspecified amount.

UICI and MEGA were named as defendants in a lawsuit filed on May 2, 2003
(Lloyd H. Grigsby and Frances R. Grigsby v. The MEGA Life and Health Insurance
Company, et al.) in the District Court of Oklahoma County, Oklahoma, Case No.
CJ-2003-3759. The Grigsby case was removed on June 4, 2003, to the United States
District Court for the Western District of Oklahoma. Plaintiffs allege that the
defendants defrauded them into purchasing a health insurance policy and an
association membership and that MEGA acted in bad faith and in breach of its
contractual obligations in processing their health claims. Plaintiffs further
allege that the defendants knowingly misrepresented, among other things, their
relationship with NASE and that plaintiffs were purchasing "true group
insurance." Plaintiffs seek actual and punitive damages. UICI and MEGA moved to
dismiss the case on July 16, 2003.

The Company believes that plaintiffs' claims in all of these cases are
wholly without merit, and the Company intends to vigorously contest the claims.

INSURANCE REGULATORY MATTERS

The Company's insurance subsidiaries are subject to extensive regulation in
their states of domicile and the other states in which they do business under
statutes that typically delegate broad regulatory, supervisory and
administrative powers to state insurance departments and agencies. The method of
regulation varies, but the subject matter of such regulation covers, among other
things, the amount of dividends and other distributions that can be paid by the
Company's insurance subsidiaries without prior approval or notification; the
granting and revoking of licenses to transact business; trade practices,
including with respect to the protection of consumers; disclosure requirements;
privacy standards; minimum loss ratios; premium rate regulation; underwriting
standards; approval of policy forms; methods and timing of claims payment;
licensing of insurance agents and the regulation of their conduct; the amount
and type of investments that the Company's subsidiaries may hold; minimum
reserve and surplus requirements; risk-based capital requirements; and compelled
participation in, and assessments in connection with, risk sharing pools and
guaranty funds. Such regulation is intended to protect policyholders rather than
investors.

The Company's insurance subsidiaries are required to file detailed annual
statements with the state insurance regulatory departments, and state insurance
departments have also periodically conducted and continue to conduct periodic
financial and market conduct examinations of UICI's insurance subsidiaries. As
of June 30, 2003, either or both MEGA and Mid-West were subject to ongoing
market conduct examinations in eight states. State insurance regulatory agencies
have broad authority to levy monetary fines and penalties resulting from
findings made during the course of such financial and market conduct
examinations. Historically, the Company's insurance subsidiaries have from time
to time been assessed such fines and penalties, none of which individually or in
the aggregate have had a material adverse effect on the results of operations or
financial condition of the Company.

The Company provides health insurance products to consumers in the
self-employed market in 44 states. A substantial portion of such products is
issued to members of various independent membership associations that endorse
the products and act as the master policyholder for such products. The two
principal membership associations in the self-employed market for which the
Company underwrites insurance are the NASE and the Alliance for Affordable
Services ("AAS"). The associations provide their membership with a number of
endorsed benefits and products, including health insurance underwritten by the
Company. Subject to applicable state law,

16

individuals generally may not obtain insurance under an association's master
policy unless they are also members of the associations. UGA agents and
Cornerstone agents also act as field service representatives on behalf of the
associations, in which capacity the agents act as enrollers of new members for
the associations and provide field support services, for which the agents
receive compensation. Specialized Association Services, Inc. (a company
controlled by the adult children of the Chairman of the Company) provides
administrative and benefit procurement services to the associations, and a
subsidiary of the Company sells new membership sales leads to the enrollers and
video and print services to the associations and to Specialized Association
Services, Inc. In addition to health insurance premiums derived from the sale of
health insurance, the Company receives fee income from the associations,
including fees associated with the enrollment of new members, fees for
association membership marketing and administrative services and fees for
certain association member benefits. The agreements with these associations
requiring the associations to continue as the master policyholder and to endorse
the Company's insurance products to their respective members are terminable by
the Company and the associations upon not less than one year's advance notice to
the other party.

Recent articles in the press have been critical of association group
coverage. In December 2002, the NAIC convened a special task force to review
association group coverage, and the Company is aware that selected states are
reviewing the laws and regulations under which association group policies are
issued. As discussed above, the Company and/or its insurance subsidiaries have
also recently been named a party to several lawsuits challenging the nature of
the relationship between the Company's insurance companies and the principal
membership associations that have endorsed the insurance companies' health
insurance products. While the Company believes it is providing association group
coverage in full compliance with applicable law, changes in the relationship
between the Company and the membership associations and/or changes in the laws
and regulations governing so-called "association group" insurance (particularly
changes that would subject the issuance of policies to prior premium rate
approval and/or require the issuance of policies on a "guaranteed issue" basis)
could have a material adverse impact on the financial condition, results of
operations and/or business of the Company.

OTHER LITIGATION MATTERS

The Company and its subsidiaries are parties to various other pending legal
proceedings arising in the ordinary course of business, including some asserting
significant damages arising from claims under insurance policies, disputes with
agents and other matters. Based in part upon the opinion of counsel as to the
ultimate disposition of such lawsuits and claims, management believes that the
liability, if any, resulting from the disposition of such proceedings will not
be material to the Company's financial condition or results of operations.

NOTE K - RELATED PARTY TRANSACTIONS

SALE OF SHARES BY MR. MUTZ

On May 6, 2003, the Company completed the purchase of 207,104 shares of UICI
common stock from Gregory T. Mutz (the President and Chief Executive Officer of
the Company until July 1, 2003). The shares were purchased for a total purchase
price of $2.8 million, or $13.67 per share, which was the closing price of UICI
shares on the New York Stock Exchange on May 5, 2003. Part of the proceeds from
the sale was used to retire indebtedness owing by Mr. Mutz to the Company in the
amount of $1.3 million, which indebtedness had initially been incurred by Mr.
Mutz in 1998-99 to acquire shares of UICI stock pursuant to the Company's
Executive Stock Purchase Program.

In a separate transaction, on May 8, 2003, Mr. Mutz sold 265,507 shares of
UICI common stock to Ronald L. Jensen (Chairman of the Company). All of the
proceeds of such sale were used by Mr. Mutz to pay in full indebtedness owing to
Mr. Jensen, which indebtedness had initially been incurred to acquire shares of
UICI stock in 1998.

AMENDMENT TO UICI - SPECIAL INVESTMENT RISKS, LTD. AGREEMENT

As previously disclosed, from the Company's inception through 1996, Special
Investment Risks, Ltd. ("SIR") (formerly United Group Association, Inc.) (a
company owned by the Company's Chairman) sold health insurance policies that
were issued by AEGON USA and coinsured by the Company or policies that were
issued directly by the Company. Effective January 1, 1997, the Company acquired
the agency force of SIR and certain tangible assets of SIR for a price equal to
the net book value of the tangible assets acquired and assumed certain agent
commitments of $3.9 million. The tangible assets acquired consisted primarily of
agent debit balances, a building, and related furniture and fixtures having a
net book value of $13.1 million.

17

In accordance with the terms of the asset sale to the Company, SIR retained
the right to receive all commissions on policies written prior to January 1,
1997, including the policies previously issued by AEGON and coinsured by the
Company and the policies previously issued directly by the Company. During 2002,
2001 and 2000, SIR received insurance commissions of $3.1 million, $3.8 million
and $7.7 million, respectively, on the policies previously issued by AEGON prior
to January 1, 1997 and coinsured by the Company. During 2002, 2001 and 2000, SIR
received commissions of $2.5 million, $3.1 million and $1.8 million,
respectively, on policies issued prior to January 1, 1997 and issued directly by
the Company.

In accordance with the terms of an amendment, dated July 22, 1998, to the
terms of the initial sale agreement governing the sale of the UGA assets to the
Company, SIR was granted the right to retain 10% of net renewal commissions
(computed at the UGA -- Association Field Services agency level) on any new
business written by the UGA agency force after January 1, 1997. During the years
ended December 31, 2002, 2001 and 2000, the Company paid to SIR the amount of
$1.9 million, $1.2 million and $1.1 million, respectively, pursuant to this
override arrangement.

In an effort to simplify the calculation of the payments to be made to Mr.
Jensen and to clarify with specificity the business subject to the override
arrangement, the Company and SIR have entered into an amendment to the asset
sale agreement, the principal effect of which is to change the basis of the
override calculation from a multiple of renewal commissions received by UGA -
Association Field Services to a multiple of commissionable renewal premium
received. Based on management's projections of future business, the Company
estimates that the absolute amount of future override commission to be paid to
SIR pursuant to the amendment will not vary in any material respect from that
expected to be paid in accordance with the existing arrangement.

TRANSFER OF MINORITY INTEREST IN SUNTECH PROCESSING SYSTEMS, LLC

As indicated in Note J under the caption "Sun Communications Litigation," on
May 13, 2003, the Company, Mr. Jensen and the plaintiffs reached agreement on a
full and final settlement of litigation (Sun Communications, Inc. v. SunTech
Processing Systems, LLC, UICI, Ronald L. Jensen, et al) concerning the
distribution of the cash proceeds from the sale and liquidation of SunTech
Processing Systems, LLC ("STP") assets in February 1998 (the "Sun Litigation").

As previously disclosed, effective April 2, 2002, the Company and Mr. Jensen
entered into an Assignment and Release Agreement, which, among other things,
transferred UICI's financial and other rights and obligations in STP to Mr.
Jensen and effectively terminated the Company's active participation in, and
limited the Company's financial exposure associated with, the Sun Litigation. In
accordance with the terms of the Assignment and Release Agreement, on April 2,
2002 Mr. Jensen made a total payment to UICI of $15.6 million and granted to
UICI various indemnities against possible losses which UICI might incur
resulting from the Sun Litigation. In addition, as part of the terms of the
Assignment and Release Agreement UICI granted to Mr. Jensen an irrevocable
option to purchase and to receive an assignment of UICI's membership interests,
including without limitation all of UICI's Class A Interests and Class B
Interests (constituting an 80% economic interest) in STP for an exercise price
of $100.

Following settlement of the Sun Litigation, and pursuant to the terms of an
agreement dated as of June 17, 2003, by and between UICI and Mr. Jensen, Mr.
Jensen exercised his option to purchase UICI's membership interests in STP, and
UICI assigned and transferred to Mr. Jensen all of the Company's right, title
and interest in and to such STP membership interests. For financial reporting
purposes the Company recognized no gain or loss in connection with this
transaction.

PURCHASE OF MINORITY INTEREST IN U.S. MANAGERS LIFE INSURANCE LTD.

As previously disclosed, UICI currently holds a 79% equity interest in U.S.
Managers Life Insurance Company Ltd, a Turks and Caicos Islands domiciled
insurer ("U.S. Managers"). The remaining 21% minority interest in U.S. Managers
is held by Onward and Upward, Inc. ("OUI"), a corporation owned by the adult
children of the Company's Chairman. The shares held by OUI are subject to the
terms of a Stock Agreement, dated as of January 3, 1992, as amended (the "Stock
Agreement"), between UICI and OUI, pursuant to which OUI has a put, and UICI has
a corresponding obligation to purchase, the minority interest in U.S. Managers
at a formula price generally equal to the cost of such minority interest plus
(or minus) cumulative earnings (losses) of U.S. Managers.

18

OUI has notified UICI of its intent to exercise its put and sell its 21%
minority interest in U.S. Managers at the formula price calculated as of July
31, 2003, and UICI and OUI have entered into a Purchase Agreement governing the
terms of the exercise of the put and sale to UICI of the minority interest. The
formula price at July 31, 2003 for the 21% equity interest in U.S. Managers is
anticipated to be approximately $856,000 (based on results through June 30,
2003).

NOTE L - SEGMENT INFORMATION

The Company's operating segments included in operations are: (i) Insurance,
which includes the businesses of the Self Employed Agency Division, the Group
Insurance Division (formerly the Company's Student Insurance Division, which
includes the operations of the Company's recently-acquired STAR HRG business
unit effective February 28, 2002), and the Life Insurance Division (formerly the
Company's OKC Division, which includes the Company's College Fund Life
Division), (ii) Financial Services, which includes the businesses of Academic
Management Services Corp. ("AMS") and the Company's investment in Healthaxis,
Inc., and (iii) Other Key Factors.

Effective January 1, 2003, the Company began to allocate to the Company's
operating business segments certain general expenses relating to corporate
operations (consisting primarily of technology related expenses and expenses
associated with the operations of the Company's insurance company subsidiaries),
which expenses had been formerly reflected in the Other Key Factors segment. All
business segment results for all periods presented have been restated to reflect
such allocation of these expenses. The Company believes that this allocation of
certain general expenses relating to corporate operations results in a more
accurate portrayal of the financial results of its core insurance and other
operations. The Other Key Factors segment now includes investment income not
allocated to the other business segments, realized gains or losses on sale of
investments, , the operating results at the Company's former Barron Risk
Management Services, Inc. unit until its sale in September 2002, the operations
of the Company's AMLI Realty Co. subsidiary, certain other general expenses
related to corporate operations, minority interest, interest expense on
corporate debt and variable stock-based compensation.

Allocations of investment income and certain general expenses are based on a
number of assumptions and estimates, and the business segments reported
operating results would change if different methods were applied. Certain assets
are not individually identifiable by segment and, accordingly, have been
allocated by formulas. Segment revenues include premiums and other policy
charges and considerations, net investment income, fees and other income.
Depreciation expense and capital expenditures are not considered material.
Management does not allocate income taxes to segments. Transactions between
reportable operating segments are accounted for under respective agreements,
which provide for such transactions generally at cost.

Revenues from continuing operations, income from continuing operations
before federal income taxes, and assets by operating segment are set forth in
the tables below:

NOTE M - STOCK OPTIONS

The Company has historically accounted for the stock-based compensation
plans under Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees. Under APB 25, because the exercise price of the
Company's employee stock options has been equal to the market price of
underlying stock on the date of grant, no compensation expense has to date been
recognized. On January 1, 2003, the Company adopted Statement No. 123 for all
employee awards granted or modified on or after January 1, 2003, and will begin
measuring the compensation cost of stock-based awards under the fair value
method. The Company adopted Statement No. 148 on January 1, 2003 and has adopted
the transition provisions that require expensing options prospectively in the
year of adoption. Existing awards will continue to follow the intrinsic value
method prescribed by APB 25. The impact of implementation on the Company's
financial position or results of operations was not material.

Pro forma information regarding net income and earnings per share is
required by Statement No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 2002: risk-free interest rate 3.53%; dividend yield of 0%,
volatility factor of the expected market price of the Company's common stock of
0.65; and a weighted-average expected life of the option of 4.26 years. The
weighted average grant date fair value per share of stock options issued in 2002
was $4.46.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The effect on
net income of the stock compensation amortization for the periods presented
above is not likely to be representative of the effects on reported net income
for future periods. The Company's pro forma information is set forth below (in
thousands except for earnings per share information):

20

NOTE N - EMPLOYEE AND AGENT STOCK ACCUMULATION PLANS

UICI EMPLOYEE STOCK OWNERSHIP AND SAVINGS PLAN

The Company maintains for the benefit of its and its subsidiaries' employees
the UICI Employee Stock Ownership and Savings Plan (the "Employee Plan").

During the three and six months ended June 30, 2002, the Company recorded an
expense of $2.2 million and $4.1 million, respectively, related to stock
appreciation expense with respect to the Employee Plan. This expense represented
the incremental compensation expense associated with the allocation to
participants' accounts during the respective period of shares, previously
purchased in 2000 by the Employee Plan from the Company at $5.25 per share
("$5.25 ESOP Shares") to fund the Company's matching and supplemental
contributions to the ESOP. The allocated $5.25 ESOP Shares were considered
outstanding for purposes of the computation of earnings per share. The Employee
Plan initially purchased in 2000 an aggregate of 1,610,000 $5.25 ESOP Shares,
and as of December 31, 2002 all such shares had been allocated to participants'
accounts. During the fourth quarter of 2002, the Company allocated the remaining
unallocated shares to participants' accounts.

AGENT STOCK ACCUMULATION PLANS

The Company sponsors a series of stock accumulation plans (the "Agent
Plans") established for the benefit of the independent insurance agents and
independent sales representatives associated with its field force agencies,
including UGA -- Association Field Services, New United Agency and Cornerstone
Marketing of America.

The Agent Plans generally combine an agent-contribution feature and a
Company-match feature. The agent-contribution feature generally provides that
eligible participants are permitted to allocate a portion (subject to prescribed
limits) of their commissions or other compensation earned on a monthly basis to
purchase shares of UICI common stock at the fair market value of such shares at
the time of purchase. Under the Company-match feature of the Agent Plans,
participants are eligible to have posted to their respective Agent Plan accounts
book credits in the form of equivalent shares based on the number of shares of
UICI common stock purchased by the participant under the agent-contribution
feature of the Agent Plans. The "matching credits" vest over time (generally in
prescribed increments over a ten-year period, commencing the plan year following
the plan year during which contributions are first made under the
agent-contribution feature), and vested matching credits in a participant's plan
account in January of each year are converted from book credits to an equivalent
number of shares of UICI common stock. Matching credits forfeited by
participants no longer eligible to participate in the Agent Plans are
reallocated each year among eligible participants and credited to eligible
participants' Agent Plan accounts.

The Agent Plans do not constitute qualified plans under Section 401(a) of
the Internal Revenue Code of 1986 or employee benefit plans under the Employee
Retirement Income Security Act of 1974 ("ERISA"), and the Agent Plans are not
subject to the vesting, funding, nondiscrimination and other requirements
imposed on such plans by the Internal Revenue Code and ERISA.

21

Prior to July 1, 2000, the Company granted matching credits in an amount
equal to the number of shares of UICI common stock purchased by the participant
under the agent-contribution feature of the Agent Plans. Effective July 1, 2000,
the Company modified the formula for calculating the number of matching credits
to be posted to participants' accounts. During the period beginning July 1, 2000
and ending on the earlier of June 30, 2002 or the date that an aggregate of
2,175,000 share equivalents had been granted under this revised formula, the
number of matching credits issued to an individual participant will be the
greater of (a) the number of matching credits determined each month by dividing
the dollar amount of the participant's contribution for that month by $5.25, or
(b) the actual number of shares acquired, at then-current fair market value, by
the participant's contribution amount.

Prior to July 1, 2000, the Company purchased UICI shares in the open market
from time to time to satisfy its commitment to issue its shares upon vesting of
matching credits under the Agent Plans. During the period beginning July 1, 2000
and ending July 31, 2002, the Company agreed to utilize up to 2,175,000 newly
issued shares to satisfy its commitment to deliver shares that will vest under
the Company-match feature of the agent plans. Under the arrangement effective
July 1, 2000, the Company's subsidiaries transferred to the holding company
$5.25 per share for any newly issued shares utilized to fund vested matching
credits under the plans. In accordance with such arrangement, during the period
commencing July 1, 2000 and ending on July 31, 2002, the Company issued to the
subsidiaries an aggregate of 1,765,251 shares, for which the Company's
subsidiaries transferred to the Company at the holding company level cash in the
aggregate amount of $9.3 million. Subsequent to July 31, 2002, the Company
resumed purchasing UICI shares in the open market from time to time to satisfy
its commitment to issue its shares upon vesting of matching credits under the
Agent Plans.

For financial reporting purposes, the Company accounts for the Company-match
feature of its Agent Plans under EITF 96-18 "Accounting for Equity Instruments
that are issued to Other Than Employees for Acquiring or in Connection with
Selling Goods and Services," by recognizing compensation expense over the
vesting period in an amount equal to the fair market value of vested shares at
the date of their vesting and distribution to the participants. At each
quarter-end, the Company estimates its current liability for unvested matching
credits by reference to the number of unvested credits, the current market price
of the Company's common stock, and the Company's estimate of the percentage of
the vesting period that has elapsed up to the current quarter end. Changes in
the liability from one quarter to the next are accounted for as an increase in,
or decrease to, compensation expense, as the case may be. Upon vesting, the
Company releases the accrued liability (equal to the market value of the vested
shares at date of vesting) with a corresponding increase to paid-in capital.
Unvested matching credits are considered share equivalents outstanding for
purposes of the computation of earnings per share. For the three months ended
June 30, 2003 and 2002, the Company recorded total compensation expense
associated with these agent plans in the amount of $(4.1) million and $(5.5)
million, respectively, of which $(1.7) million and $(3.9) million, respectively,
represented the non-cash stock based compensation expense associated with the
adjustment to the liability for future unvested benefits. For the six months
ended June 30, 2003 and 2002, the Company recorded total compensation (expense)
benefit associated with these agent plans in the amount of $(4.6) million and
$(8.8) million, respectively, of which $452,000 and $(5.7) million,
respectively, represented the non-cash stock based compensation benefit
(expense) associated with the adjustment to the liability for future unvested
benefits.

At December 31, 2002, the Company had recorded approximately 1.9 million
unvested matching credits associated with the Agent Plans, of which 697,000
vested in January 2003. At June 30, 2003, the Company had recorded approximately
1.6 million unvested matching credits.

The accounting treatment of the Company's Agent Plans will result in
unpredictable stock-based compensation expense charges, dependent upon
fluctuations in the quoted price of UICI common stock. These unpredictable
fluctuations in stock based compensation charges may result in material non-cash
fluctuations in the Company's results of operations. In periods of general
decline in the quoted price of UICI common stock, if any, the Company will
recognize less stock based compensation expense than in periods of general
appreciation in the quoted price of UICI common stock. In addition, in
circumstances where increases in the quoted price of UICI common stock are
followed by declines in the quoted price of UICI common stock, negative
compensation expense may result as the Company adjusts the cumulative liability
for unvested stock-based compensation expense.

NOTE O - CORPORATE OVERHEAD ALLOCATION

Effective January 1, 2003, the Company began to allocate to the Company's
operating business segments certain general expenses relating to corporate
operations (consisting primarily of technology related expenses and expenses
associated with the operations of the Company's insurance company subsidiaries),
which expenses had been formerly reflected in the Other Key Factors segment. The
Company believes that this allocation of certain general

22

expenses relating to corporate operations results in a more accurate portrayal
of the financial results of its core insurance and other operations. The Other
Key Factors segment now includes investment income not allocated to the other
business segments, realized gains or losses on sale of investments, the
operating results at the Company's former Barron Risk Management Services, Inc.
unit until its sale in September 2002, the operations of the Company's AMLI
Realty Co. subsidiary, certain other general expenses related to corporate
operations, minority interest, interest expense on corporate debt and variable
stock-based compensation.

Following is a summary of the Company's quarterly segment results for the
year ended December 31, 2002, adjusted to reflect the allocation to the
Company's operating business segments of certain general expenses relating to
corporate operations as discussed above:

NOTE P - SUBSEQUENT EVENT

The Company's Academic Management Services Corp. subsidiary finances its
student loan origination activities through seven special purpose subsidiaries
("Special Purpose Subsidiaries") (EFG-II LP, EFG-III LP, EFG Funding LLC, EFG-IV
LP, AMS-I 2002 LP, AMS-II 2002 LP and AMS-III 2003 LP), through which it has
outstanding six secured student loan financing facilities that issue debt
securities secured by student loans and other qualified collateral. On July 21,
2003, UICI reported the discovery of a shortfall in the type and amount of
collateral supporting two of the securitized student loan financing facilities
entered into by three Special Purpose Subsidiaries of AMS.

The problems at one of the financing facilities (the EFG-III LP commercial
paper conduit facility) are of three types: insufficient collateral, a higher
percentage of alternative loans (i.e., loans that are privately guaranteed as
opposed to loans that are guaranteed by the federal government) included in the
existing collateral than permitted by the loan eligibility provisions of the
financing documents and failure to provide timely and accurate reporting to each
of the various financial institutions that are parties to the financings,
including the indenture trustee, the commercial paper liquidity providers and
the financial guaranty insurer. The problems related to the second financing
subsidiary (AMS-1 2002, LP) consist primarily of a higher percentage of
alternative loans included in the existing collateral than permitted by the loan
eligibility provisions of the financing documents and the failure to provide
timely and accurate reporting to interested parties. In addition, AMS and the
other four special financing subsidiaries of AMS have failed to comply with
their respective reporting obligations owed to the indenture trustee under the
financing documents.

On July 24, 2003, AMS obtained waivers and releases from interested third
parties, as described more fully below, with respect to four of the six
securitized student loan financing facilities. The waiver and release agreements
were entered into with Bank of America and Fleet Bank (the providers of a
liquidity facility that supports the EFG-III, LP commercial paper facility),
Bank One (the trustee under the indentures that govern the terms of the debt
securities issued by each of AMS' Special Purpose Subsidiaries) and MBIA
Insurance Corporation

23

(the financial guaranty insurer of debt securities issued by four of the six AMS
student loan financing facilities).

The waiver and release agreement for the EFG-III, LP commercial paper
securitized student loan facility required UICI's contribution to the capital of
AMS of $48.25 million ($1.75 million on July 24, 2003, $36.5 million on July 31,
2003 and $10.0 million on August 15, 2003) in cash, all of which, as of July 31,
2003, UICI had contributed to AMS.

The financial institutions have agreed to waive all existing defaults under
the relevant financing documents with respect to EFG-III, LP and EFG Funding LLC
(both of which are exclusively involved in the commercial paper program) until
January 1, 2004, which date will be automatically extended for successive 90-day
periods through September 30, 2004 if the outstanding amount of commercial paper
is reduced to agreed-upon levels from its current outstanding amount
(approximately $440 million). AMS has agreed to partially address the
under-collateralization problem by transferring to EFG-III, LP approximately
$189 million of federally-guaranteed student loan and other assets that meet
loan eligibility requirements under the financing documents and by transferring
approximately $34.4 million of uninsured student loans that do not meet loan
eligibility requirements under the financing documents. In addition, AMS has
agreed to contribute to EFG-III LP $46.5 million of the $48.25 million in cash
contributed to AMS by UICI either in the form of cash or federally guaranteed
student loans. These various transfers by AMS will eliminate the shortfall in
collateral amount with respect to the EFG-III LP commercial paper conduit
facility.

With respect to the AMS-1 2002, LP facility, as of July 24, 2003, the
interested parties agreed to waive, for a period of 90 days, all defaults,
amortization events and events of default based solely on defaults arising prior
to July 24, 2003 resulting from non-federally insured student loans included in
the collateral in excess of the maximum percentage limit for such loans as set
forth in the documents governing the financing, which waiver is not extendable.
In addition, with respect to four other student loan financing facilities, the
interested parties agreed to waive, as of July 24, 2003, all immaterial
previously-existing defaults resulting from inaccurate or untimely reporting to
interested parties or any other reporting deficiency by the applicable issuer
under each such facility, AMS or any other affiliate of AMS, for a period of 90
days, which period is not extendable. Upon expiration of the 90-day waiver
period, all then uncured events of default shall be reinstated and be in full
force and effect.

UICI believes that it has no obligations with respect to the indebtedness of
AMS' Special Purpose Subsidiaries or with respect to the obligations of AMS
relating to such financings. Nonetheless, in exchange for UICI's capital
contribution to AMS as described above, the financial institutions named above
have agreed to release UICI from any and all existing claims or suits (other
than claims for fraud at the UICI level) that could arise relating to the AMS
student loan financing facilities.

On August 7, 2003, AMS entered into a master repurchase facility with a
financial institution, the obligations under which are partially (to the extent
of $13.3 million) guaranteed by the Company. The proceeds of the facility will
be used by AMS from time to time to initially fund AMS' student loan
originations. The repurchase facility provides for the purchase of student loans
by the financial institution at 96% of par, and the financial institution may
put the student loans back to AMS on the last day of each month. AMS, in turn,
has the right to require the financial institution to repurchase the student
loans on such date, with the interest rate on the repurchase facility reset on
such date. The lender under the facility is committed to provide up to $150.0
million of financing. Amounts outstanding under the facility will bear interest
at a variable annual rate of LIBOR plus 75 basis points and are secured by
student loans made under the Federal Family Education Loan Program. The master
repurchase facility terminates on August 31, 2003 and is subject to monthly
extensions upon the mutual agreement of the financial institution and AMS.

AMS has entered into a letter of intent, dated July 30, 2003, contemplating
a forward commitment on the part of a financial institution to purchase from
time to time pools of student loans guaranteed under the Federal Family
Education Loan Program at a purchase price of 102.00% of the outstanding
principal amount of such loans. The forward purchase commitment contemplated by
the letter of intent is subject to execution and delivery of definitive
documentation and other closing conditions, and there can be no assurance that
such conditions will in fact be satisfied.

The events at AMS occurring in July 2003 had the immediate effect of
increasing AMS' cost of borrowings used to fund AMS' student loan originations,
which increase has negatively impacted and will continue to negatively impact
the amount of student loan interest spread income that AMS may earn in future
periods. Accordingly, the Company has determined that, for the indefinite
future, AMS will originate and sell student loans rather than

24

originate and hold student loans in AMS' portfolio. As a result of the change in
AMS' business plan prompted by the events occurring in July 2003, the Company
has reviewed and continues to review for impairment the goodwill initially
recorded in connection with the acquisition of AMS. In particular, the Company,
with the assistance of an independent valuation advisor, has assessed the fair
value of AMS, based on certain assumptions made by the Company with respect to
AMS' future loan origination volumes and other factors. The Company has
undertaken a discounted cash flow analysis of AMS' three reporting units and
analyzed available information with respect to comparable companies. As a result
of its impairment testing to date, the Company has determined that goodwill
recorded in connection with the acquisition of AMS has been impaired in an
amount in a range of approximately $50.0 million ($44.9 million net of tax) to
$73.0 million ($64.0 million net of tax). The Company will continue to review
for impairment the goodwill associated with AMS, which impairment will be
reflected in the Company's results of operations in the three and nine months
ended September 30, 2003.

The Company is assessing its strategic alternatives with respect to AMS,
including a possible sale of all or parts of the company.

The Audit Committee of UICI's Board of Directors, with the assistance of
independent counsel, conducted an investigation into the matters and events
leading to the announcement of the collateral shortfalls at AMS' student loan
financing facilities. Based on that investigation, the Company believes that
UICI's previously published consolidated financial statements have been fairly
presented.

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

INTRODUCTION

The Company's operating segments include: (i) Insurance, which includes the
businesses of the Self Employed Agency Division, the Group Insurance Division
(formerly the Company's Student Insurance Division, which includes the
operations of the Company's STAR HRG business unit effective February 28, 2002),
and the Life Insurance Division (formerly the Company's OKC Division), (ii)
Financial Services, which includes the businesses of Academic Management
Services Corp. ("AMS") and the Company's investment in Healthaxis, Inc., and
(iii) Other Key Factors.

Effective January 1, 2003, the Company began to allocate to the Company's
operating business segments certain general expenses relating to corporate
operations (consisting primarily of technology related expenses and expenses
associated with the operations of the Company's insurance company subsidiaries),
which expenses had been formerly reflected in the Other Key Factors segment. The
Company believes that this allocation of certain general expenses relating to
corporate operations results in a more accurate portrayal of the financial
results of its core insurance and other operations. The Other Key Factors
segment now includes investment income not allocated to the other business
segments, realized gains or losses on sale of investments, the operating results
at the Company's former Barron Risk Management Services, Inc. unit until its
sale in September 2002, the operations of the Company's AMLI Realty Co.
subsidiary, certain other general expenses related to corporate operations,
minority interest, interest expense on corporate debt and variable stock-based
compensation.

RECENT DEVELOPMENTS AT ACADEMIC MANAGEMENT SERVICES CORP.

The Company's Academic Management Services Corp. ("AMS") subsidiary is
engaged in the student loan origination and funding business, student loan
servicing business, and tuition installment payment plan business. AMS finances
its student loan origination activities through seven special purpose
subsidiaries ("Special Purpose Subsidiaries") (EFG-II LP, EFG-III LP, EFG
Funding LLC, EFG-IV LP, AMS-I 2002, LP, AMS-II 2002 LP and AMS-III 2003, LP),
through which AMS has outstanding six securitized student loan financing
facilities that issue debt securities secured by student loans and other
qualified collateral.

On July 21, 2003, UICI reported the discovery of a shortfall in the type and
amount of collateral supporting two of the securitized student loan financing
facilities entered into by three Special Purpose Subsidiaries of AMS. The
problems at one of the financing facilities (the EFG-III LP commercial paper
conduit facility) are of three types: insufficient collateral, a higher
percentage of alternative loans (i.e., loans that are privately guaranteed as
opposed to loans that are guaranteed by the federal government) included in the
existing collateral than permitted by the loan eligibility provisions of the
financing documents and failure to provide timely and accurate reporting to each
of the various financial institutions that are parties to the financings,
including the indenture trustee, the commercial paper liquidity providers and
the financial guaranty insurer. The problems related to the second financing
subsidiary (AMS-1 2002, LP) consist primarily of a higher percentage of
alternative loans included in the existing collateral than permitted by the loan
eligibility provisions of the financing documents, and the failure to provide
timely and accurate reporting to interested parties. In addition, AMS and the
other four AMS Special Purpose Subsidiaries

25

have failed to comply with their respective reporting obligations owed to the
indenture trustee under the financing documents.

As announced on July 24, 2003, AMS has obtained waivers and releases from
interested third parties, as described more fully below, with respect to four of
the six securitized student loan financing facilities. The waiver and release
agreements were entered into with Bank of America and Fleet Bank (the providers
of a liquidity facility that supports the EFG-III, LP commercial paper
facility), Bank One (the trustee under the indentures that govern the terms of
the debt securities issued by each of AMS' Special Purpose Subsidiaries) and
MBIA Insurance Corporation (the financial guaranty insurer of debt securities
issued by four of the seven AMS Special Purpose Subsidiaries).

The waiver and release agreement for the EFG-III LP (one of AMS' Special
Purpose Subsidiaries) commercial paper securitized student loan facility
required UICI to contribute to the capital of AMS $48.25 million ($1.75 million
on July 24, 2003, $36.5 million on July 31, 2003 and $10.0 million on August 15,
2003) in cash, all of which, as of July 31, 2003, UICI had contributed to AMS.

The financial institutions agreed to waive all existing defaults under the
relevant financing documents with respect to EFG-III LP and EFG Funding (both of
which are exclusively involved in the commercial paper program) until January 1,
2004, which date will be automatically extended for successive 90-day periods
through September 30, 2004 if the outstanding amount of commercial paper is
reduced to agreed-upon levels from its current outstanding amount (approximately
$440 million). AMS has agreed to partially address the under-collateralization
problem by transferring to EFG-III LP approximately $189 million of
federally-guaranteed student loan and other assets that meet loan eligibility
requirements under the financing documents and by transferring approximately
$34.4 million of uninsured student loans that do not meet loan eligibility
requirements under the financing documents. In addition, AMS will contribute to
EFG-III LP $46.5 million of the $48.25 million in cash contributed to AMS by
UICI either in the form of cash or federally guaranteed student loans. These
various transfers by AMS will eliminate the shortfall in collateral amount with
respect to the EFG-III LP commercial paper conduit facility.

With respect to the AMS-1 2002 LP facility, as of July 24, 2003, the
interested parties agreed to waive, for a period of 90 days, all defaults,
amortization events and events of default based solely on defaults arising prior
to July 24, 2003 resulting from non-federally insured student loans included in
the collateral in excess of the maximum percentage limit for such loans as set
forth in the documents governing the financing, which waiver is not extendable.
In addition, with respect to four other student loan financing facilities, the
interested parties agreed to waive, as of July 24, 2003, all immaterial
previously-existing defaults resulting from inaccurate or untimely reporting or
any other reporting deficiency by the applicable issuer under each such
facility, AMS or any other affiliate of AMS, for a period of 90 days, which
period is not extendable. Upon expiration of the 90-day waiver period, all then
uncured events of default shall be reinstated and be in full force and effect.

UICI believes that it has no obligations with respect to the indebtedness of
AMS' special financing subsidiaries or with respect to the obligations of AMS
relating to such financings. Nonetheless, in exchange for UICI's capital
contribution to AMS as described above, the financial institutions named above
have agreed to release UICI from any and all existing claims or suits (other
than claims for fraud at the UICI level) that could arise relating to the AMS
student loan financing facilities.

As previously disclosed, on July 17, 2003 the former president of AMS was
put on leave and relieved of all responsibilities pending the completion of AMS'
and UICI's ongoing investigation into the matter. On August 15, 2003, the
employment of the former president of AMS was terminated.

The Audit Committee of UICI's Board of Directors, with the assistance of
independent counsel, has conducted an investigation into the matters and events
leading to the announcement of the collateral shortfalls at AMS' student loan
financing facilities. Based on that investigation, the Company believes that
UICI's previously published consolidated financial statements have been fairly
presented.

The Company is assessing its strategic alternatives with respect to AMS,
including a possible sale of all or parts of the company.

ANTICIPATED THIRD QUARTER 2003 GOODWILL IMPAIRMENT CHARGE

The events at AMS occurring in July 2003 had the immediate effect of
increasing AMS' cost of borrowings used to fund AMS' student loan originations,
which increase has negatively impacted and will continue to negatively impact
the amount of student loan interest spread income that AMS may earn in future
periods. Accordingly, the Company has determined that, for the indefinite
future, AMS will originate and sell student loans rather than originate and hold
student loans in AMS' portfolio. As a result of the change in AMS' business plan
prompted by the events occurring in July 2003, the Company has reviewed and
continues to review for impairment the goodwill initially recorded in connection
with the acquisition of AMS. In particular, the Company, with the assistance of
an independent valuation advisor, has assessed the fair value of AMS, based on
certain assumptions made by the Company with respect to AMS' future loan
origination volumes and other factors. The Company has undertaken a discounted
cash flow analysis of AMS' three reporting units and analyzed available
information with respect to comparable companies. As a result of its impairment
testing to date, the Company has determined that goodwill recorded in connection
with the acquisition of AMS has been impaired in an amount in a range of
approximately $50.0 million ($44.9 million net of tax) to $73.0 million ($64.0
million net of tax). The Company will continue to review for impairment the
goodwill associated with AMS.

Any charge associated with the impairment of goodwill at AMS will be
reflected in the Company's results of operations in the three and nine months
ending September 30, 2003. Accordingly, based on its goodwill impairment
analyses completed to date, the Company anticipates that it may record a loss
from continuing operations and a net loss for the quarter ending September 30,
2003. Because a significant portion of any goodwill impairment charge associated
with AMS will be non-deductible for federal income tax purposes, the Company
anticipates that the annualized effective tax rate applicable to the Company
during 2003 will be in a range of 52% to 70%, which will be significantly in
excess of the effective tax rate applicable to the Company in 2002 and the
statutory rate of 35%.

26

RESULTS OF OPERATIONS

Revenues and income from continuing operations before federal income taxes
("operating income") by business segment are summarized in the tables below.

- ----------
(1) As discussed above, effective January 1, 2003, the Company began to
allocate to the Company's operating business segments certain general expenses
relating to corporate operations (consisting primarily of technology related
expenses and expenses associated with the operations of the Company's insurance
company subsidiaries), which expenses had been formerly reflected in the Other
Key Factors segment. All business segment results for all periods presented have
been restated to reflect the allocation of these expenses.

27

Three and Six Months ended June 30, 2003 compared to Three and Six Months ended
June 30, 2002

The Company reported second quarter 2003 revenues and income from continuing
operations in the amount of $451.4 million and $13.2 million ($0.28 per diluted
share), compared to revenues and income from continuing operations of $352.2
million and $6.9 million ($0.14 per diluted share), in the second quarter of
2002. For the six months ended June 30, 2003, the Company generated revenues and
income from continuing operations of $884.7 million and $34.4 million ($0.72 per
diluted share), respectively, compared to revenues and income from continuing
operations of $664.1 million and $19.9 million ($0.41 per diluted share),
respectively, in the six months ended June 30, 2002.

Overall, for the three months ended June 30, 2003, the Company reported net
income in the amount of $6.8 million ($0.14 per diluted share), compared to net
income of $5.7 million ($0.12 per diluted share) in the corresponding 2002
period. For the six months ended June 30, 2003, the Company reported net income
in the amount of $27.9 million ($0.58 per diluted share), compared to net income
of $12.7 million ($0.26 per diluted share) in the first six months of 2002. Net
income in the three and six months ended June 30, 2003 was negatively impacted
by losses from discontinued operations (consisting of the Company's former
sub-prime credit card unit, the Special Risk Division and the results of its
Senior Market Division) in the amount of $(6.4) million and $(6.5) million (net
of tax), respectively. A significant portion of such losses in the three and six
months ended June 30, 2003 was attributable to a loss in the amount of $(5.5)
million (net of tax) recognized upon transfer, effective June 30, 2003, of the
Company's interest in Seniors First LLC, an agency through which the Company
formerly marketed and distributed insurance products to the senior market.

The Company's results in the three and six months ended June 30, 2003 were
highlighted by the strong performance of its Self Employed Agency Division,
which enjoyed significant continued period-over-period growth in both revenue
and operating income. Earned premium revenue increased from $222.4 million in
the second quarter of 2002 to $297.8 million in the second quarter of 2003 and
from $418.5 million in the first six months of 2002 to $579.2 million in the
first six months of 2003. Operating income increased to $24.5 million and $48.3
million in the three and six-month periods ended June 30, 2003, respectively,
from $19.7 million and $35.4 million in the corresponding 2002 periods.

Results at the Self Employed Agency Division for the six months ended June
30, 2003 included pre-tax income in the amount of $4.8 million associated with
the release of reserves resulting from an adjustment to the Company's reserve
methodology and certain changes in accounting estimates. See discussion below
under the caption "Other Matters - - Self Employed Agency Division - - Reserve
Adjustments".

In accordance with Statement No. 142, the Company tested for goodwill
impairment as of January 1, 2002. As a result of the transitional impairment
testing, completed during the quarter ended June 30, 2002, the Company
determined that goodwill recorded in connection with the acquisitions of AMS and
Barron was impaired in the aggregate amount of $6.9 million ($5.1 million net of
tax). The Company reflected this impairment charge in the quarter ended June 30,
2002 in its financial statements as a cumulative effect of a change in
accounting principle as of January 1, 2002 in accordance with Statement No. 142.

Set forth below is a discussion of results by business segment in the three
and six-month period ended June 30, 2003:

Self-Employed Agency Division

Operating income at the Company's Self Employed Agency ("SEA") Division
increased to $24.5 million and $48.3 million in the three and six-month periods
ended June 30, 2003, respectively, from $19.7 million and $35.4 million in the
corresponding 2002 periods. Earned premium revenue increased from $222.4 million
in the second quarter of 2002 to $297.8 million in the second quarter of 2003
and from $418.5 million in the first six months of

28

2002 to $579.2 million in the first six months of 2003. For the six months ended
June 30, 2003, submitted annualized premium volume increased to $462.8 million
from $457.8 million in the corresponding 2002 period. Submitted annualized
premium volume decreased to $215.5 million in the second quarter of 2003 from
$230.6 million in the corresponding period of the prior year. Submitted
annualized premium volume in any period is the aggregate annualized premium
amount associated with health insurance applications submitted by the Company's
agents for underwriting by the Company.

Operating income as a percentage of earned premium revenue in the three and
six months ended June 30, 2003 was 8.2% and 8.3%, respectively, compared to 8.8%
and 8.5% in each of the corresponding periods of the prior year. This decrease
in operating margin was attributable primarily to the higher commission expense
associated with the increase in first year earned premium revenue. The SEA
Division's results for the first six months of 2003 included pre-tax income in
the amount of $4.8 million associated with the release of reserves resulting
from an adjustment to the Company's reserve methodology and certain changes in
accounting estimates.

Group Insurance Division

The Company's Group Insurance Division (consisting of the Company's Student
Insurance and STAR HRG business units) reported operating income of $3.0 million
and $8.1 million in the three and six months ended June 30, 2003, respectively,
compared to operating income of $3.3 million and $5.1 million in the
corresponding 2002 periods. The increase in operating income for the six month
2003 period was primarily attributable to the incremental operating income
associated with the Company's STAR HRG unit (which was acquired by the Company
on February 28, 2002) and an increase in earned premium revenue and a moderate
decrease in administrative expenses as a percentage of earned premium at the
Company's Student Insurance Division. These favorable factors were offset
somewhat by a slight increase in the loss ratio at the Group Insurance Division.

Life Insurance Division

For the three and six months ended June 30, 2003, the Company's Life
Insurance Division reported operating losses of $(4.7) million and $(2.9)
million, respectively, compared to operating income of $2.8 million and $5.4
million in the corresponding 2002 periods. The decrease in operating income in
the three months ended June 30, 2003 was primarily attributable to a previously
announced charge associated with the final resolution of litigation arising out
of the close down in 2001 of the Company's former workers compensation business
and costs associated with the closedown of the Company's College Fund Life
Division operations.

Academic Management Services Corp. ("AMS")

For the three and six months ended June 30, 2003, UICI's AMS unit reported
operating income of $671,000 and $2.2 million, respectively, compared to
operating income of $4.3 million and $8.4 million, respectively, in the
corresponding periods of the prior year. The decrease in operating income for
the three and six months ended June 30, 2003 resulted primarily from decreased
student loan spread income (i.e., the difference between interest earned on
outstanding student loans and interest expense associated with indebtedness
incurred to fund such loans), lower realized gains on sale of loans and reduced
yields on the trust balances associated with AMS' tuition installment plan
business, in each case as compared to results in the corresponding 2002 period.

During the first six months of 2002, AMS benefited significantly from a
favorable prescribed minimum rate earned on its student loan portfolio. On July
1, 2002, the floor rates on loans made under the federal FFELP student loan
program for the period July 1, 2002 through June 30, 2003 reset 193 basis points
lower than the floor rates in effect for the period July 1, 2001 through June
30, 2002. Reflecting this downward adjustment on July 1, 2002 to the floor rate
on loans made under the federal FFELP student loan program, AMS' student loan
spread income declined significantly from $9.2 million and $17.1 million in the
three and six months ended June 30, 2002, respectively, to $5.6 million and
$11.2 million in the three and six months ended June 30, 2003, respectively.

On July 1, 2003, the floor rates on loans made under the federal FFELP
student loan program for the period July 1, 2003 through June 30, 2004 reset 64
basis points lower than the floor rates in effect for the period July 1, 2002
through June 30, 2003. In addition, on July 21, 2003, UICI reported the
discovery of a shortfall in the type and amount of collateral supporting two of
the securitized student loan financing facilities entered into by three Special
Purpose Subsidiaries of AMS. See "Recent Developments at Academic Management
Services Corp." above. The events at AMS occurring in July 2003 had the
immediate effect of increasing AMS' cost of borrowings used to fund AMS' student
loan originations, which increase has negatively impacted and will continue to
further negatively

29

impact the amount of student loan interest spread income that AMS may earn in
future periods. Based on current prevailing market interest rates and the
negative events that occurred at AMS in July 2003, the Company expects that
spread income for the six months ending December 31, 2003 will be significantly
less than spread income earned in the first six months of 2003 and total spread
income in 2003 will be significantly less than the level of spread income earned
in 2002.

AMS experienced a 34% decrease in income on trust funds held in connection
with tuition payment programs ($1.1 million in the first six months of 2003
compared to $1.7 million in the first six months of 2002) as a result of lower
prevailing market interest rates (despite a 31% increase in the average trust
fund balance.)

AMS generated gains on sales of student loans in the amount of $500,000 and
$1.7 million in the three and six months ended June 30, 2003, respectively,
compared to gains of $818,000 and $1.9 million in the comparable 2002 periods.
In the three and six months ended June 30, 2003, AMS sold $33.3 million and
$101.4 million principal amount of student loans, respectively, compared to
sales of $56.8 million and $114.9 million principal amount of student loans in
the comparable 2002 period.

As previously disclosed, on July 17, 2003 the former president of AMS was
put on leave and relieved of all responsibilities pending the completion of AMS'
and UICI's ongoing investigation into the matter. On August 15, 2003, the
employment of the former president of AMS was terminated.

On August 7, 2003, AMS entered into a master repurchase facility with a
financial institution, the obligations under which are partially (to the extent
of $13.3 million) guaranteed by the Company. The proceeds of the facility will
be used by AMS from time to time to initially fund AMS' student loan
originations. The repurchase facility provides for the purchase of student loans
by the financial institution at 96% of par, and the financial institution may
put the student loans back to AMS on the last day of each month. AMS, in turn,
has the right to require the financial institution to repurchase the student
loans on such date, with the interest rate on the repurchase facility reset on
such date. The lender under the facility is committed to provide up to $150.0
million of financing. Amounts outstanding under the facility will bear interest
at a variable annual rate of LIBOR plus 75 basis points and are secured by
student loans made under the Federal Family Education Loan Program. The master
repurchase facility terminates on August 31, 2003 and is subject to monthly
extensions upon the mutual agreement of the financial institution and AMS.

AMS has entered into a letter of intent, dated July 30, 2003, contemplating
a forward commitment on the part of a financial institution to purchase from
time to time pools of student loans guaranteed under the Federal Family
Education Loan Program at a purchase price of 102.00% of the outstanding
principal amount of such loans. The forward purchase commitment contemplated by
the letter of intent is subject to execution and delivery of definitive
documentation and other closing conditions, and there can be no assurance that
such conditions will in fact be satisfied.

The events at AMS occurring in July 2003 had the immediate effect of
increasing AMS' cost of borrowings used to fund AMS' student loan originations,
which increase has negatively impacted and will continue to negatively impact
the amount of student loan interest spread income that AMS may earn in future
periods. Accordingly, the Company has determined that, for the indefinite
future, AMS will originate and sell student loans rather than originate and hold
student loans in AMS' portfolio. As a result of the change in AMS' business plan
prompted by the events occurring in July 2003, the Company has reviewed and
continues to review for impairment the goodwill initially recorded in connection
with the acquisition of AMS. In particular, the Company, with the assistance of
an independent valuation advisor, has assessed the fair value of AMS, based on
certain assumptions made by the Company with respect to AMS' future loan
origination volumes and other factors. The Company has undertaken a discounted
cash flow analysis of AMS' three reporting units and analyzed available
information with respect to comparable companies. As a result of its impairment
testing to date, the Company has determined that goodwill recorded in connection
with the acquisition of AMS has been impaired in an amount in a range of
approximately $50.0 million ($44.9 million net of tax) to $73.0 million ($64.0
million net of tax). The Company will continue to review for impairment the
goodwill associated with AMS, which impairment will be reflected in the
Company's results of operations in the three and nine months ended September 30,
2003.

The Company is assessing its strategic alternatives with respect to AMS,
including a possible sale of all or parts of the company.

30

Investment in Healthaxis, Inc.

At June 30, 2003, the Company held approximately 44.2% of the issued and
outstanding shares of Healthaxis, Inc. (HAXS: Nasdaq) ("HAI"). The Company
accounts for its investment in HAI utilizing the equity method and, accordingly,
recognizes its ratable share of HAI income and loss (computed prior to
amortization of goodwill recorded by HealthAxis.com in connection with the
January 7, 2000 merger of Insurdata Incorporated (formerly a wholly-owned
subsidiary of UICI) with and into HealthAxis.com).

During the three and six months ended June 30, 2003, the Company's share of
HAI's operating losses (computed prior to amortization of merger related
goodwill and excluding gain on extinguishment of debt) was $(301,000) and
$(945,000) compared to its reported share of operating losses of $(7.9) million
and $(8.1) million, in the three and six months ended June 30, 2002. For the
three and six months ended June 30, 2002, the total HAI segment loss in the
amount of $(7.9) million and $(8.1) million, respectively, reflected the
Company's share of HAI's operating losses ($1.4 million and $1.6 million,
respectively) plus a $6.5 million impairment charge related to the adjustment to
the carrying value of the Company's investment in HAI taken in the second
quarter of 2002.

The Company's carrying value of its investment in HAI was $3.9 million and
$4.9 million at June 30, 2003 and December 31, 2002.

Other Key Factors

In the three and six months ended June 30, 2003, the Company's Other Key
Factors segment reported operating losses of $(2.8) million and $(1.9) million,
respectively, compared to operating losses of $(10.5) million and $(15.4)
million in the corresponding periods of 2002. The decrease in losses in the
Other Key Factors category in the first six months of 2003 as compared to 2002
was primarily attributable to significant decreases in variable stock-based
compensation expense in 2003 (as discussed more fully below) and $(5.1) million
of realized losses taken in the second quarter of 2002. The continued lower
prevailing interest rate environment in 2003 negatively affected investment
income attributable to equity determined after allocation to operating segment
portfolios. Investment income after allocation to the operating segments
decreased by $1.4 million in the second quarter of 2003 and by $2.2 million in
the first six months of 2003, in each case as compared to such income in the
corresponding 2002 periods.

Variable Stock-Based Compensation

The Company sponsors a series of stock accumulation plans established for
the benefit of the independent insurance agents and independent sales
representatives associated with UGA -- Association Field Services, New United
Agency, Cornerstone America, Guaranty Senior Assurance and SeniorsFirst. The
Company's agent stock accumulation plans generally combine an agent-contribution
feature and a Company-match feature. Under EITF 96-18 "Accounting for Equity
Instruments that are issued to Other Than Employees for Acquiring or in
Connection with Selling Goods and Services," the Company has established a
liability for future unvested benefits under the plans and adjusts the liability
based on the market value of the Company's common stock. In connection with
these plans, the Company has recognized and will continue to recognize non-cash
variable stock-based compensation benefit (expense) in amounts that depend and
fluctuate based upon the market performance of the Company's common stock. See
Note N of Notes to Consolidated Condensed Financial Statements.

In the three and six months ended June 30, 2003, the Company recognized
non-cash variable stock-based benefit (expense) in the amount of $(1.7) million
and $452,000, respectively, associated with its agent stock accumulation plans.
During the three and six months ended June 30, 2002, the Company recognized
non-cash variable stock-based expense in the amount of $(6.8) million and
$(11.3) million, respectively, of which $(3.9) million and $(5.7) million,
respectively, was attributable to the Company's stock accumulation plans
established for the benefit of its independent agents, $(2.2) million and $(4.1)
million, respectively, was attributable to the allocation of the $5.25 UICI
shares under the UICI Employee Stock Ownership and Savings Plan and $(700,000)
and $(1.5) million, respectively, was attributable to other stock-based
compensation plans. As of December 31, 2002, all $5.25 UICI shares had been
allocated to participants' accounts under UICI's Employee Stock Ownership and
Savings Plan. Accordingly, in all periods commencing after December 31, 2002 the
Company will not recognize additional variable stock-based compensation
associated with the ESOP feature of the UICI Employee Stock Ownership and
Savings Plan.

31

The accounting treatment of the Company's agent plans is expected to
continue to result in unpredictable non-cash stock-based compensation charges,
primarily dependent upon future fluctuations in the quoted price of UICI common
stock. These unpredictable fluctuations in stock based compensation charges may
result in material non-cash fluctuations in the Company's results of operations.
Unvested benefits under the agent plans vest in January of each year;
accordingly, in periods of general appreciation in the quoted price of UICI
common stock, the Company's cumulative liability, and corresponding charge to
income, for unvested stock-based compensation is expected to be greater in each
successive quarter during any given year.

Discontinued Operations

The Company's results in the three and six months ended June 30, 2003
included losses from discontinued operations (consisting of the Company's former
sub-prime credit card unit, the Special Risk Division and the results of its
Senior Market Division) in the amount of $(6.4) million and $(6.5) million, net
of tax, respectively. A significant portion of such losses in the three and six
months ended June 30, 2003 was attributable to a loss in the amount of $(5.5)
million (net of tax) recognized upon transfer, effective June 30, 2003, of the
Company's interest in Seniors First LLC, an agency through which the Company
formerly marketed and distributed insurance products to the senior market. For
the three and six months ended June 30, 2002, the Company's results from
discontinued operations reflected income in the amount of $(1.2) million and
$(2.1) million (net of tax), respectively.

In March 2000 the Board of Directors of UICI designated its former United
CreditServ sub-prime credit card business as a discontinued operation for
financial reporting purposes, and the United CreditServ unit has been so
reflected for all periods presented. For the three and six months ended June 30,
2003, the Company's United CreditServ unit reported income (net of tax) in the
amount of $927,000 and $4.4 million, respectively, which income has been
reflected in results from discontinued operations. United CreditServ's results
reflect the release of reserves resulting from the Company's settlement, which
became final on May 9, 2003, of all related credit card litigation matters.

In December 2001 the Company determined to exit the businesses of its
Special Risk Division by sale, abandonment and/or wind-down and, accordingly,
the Company also designated and classified its Special Risk Division as a
discontinued operation for financial reporting purposes for all periods
presented. The Company's Special Risk Division specialized in certain niche
health-related products (including "stop loss", marine crew accident, organ
transplant and international travel accident products), various insurance
intermediary services and certain managed care services. In the three and six
months ended June 30, 2003, the Company's Special Risk Division reported a loss
(net of tax) in the amount of $-0- and $(2.3) million, respectively. The loss in
the six months ended June 30, 2003 reflected a pre-tax $3.6 million reserve
charge taken in the first quarter of 2003 resulting from a reassessment and
strengthening of claims reserves as a result of experienced deterioration in one
of the specialty blocks of the Special Risk Division. In the balance of 2003 the
Company will continue the wind-down of its former Special Risk Division.

On May 30, 2003, UICI announced that its Board of Directors, at a meeting
held on May 29, 2003, adopted a plan to close by sale or wind down the Senior
Market Division, which the Company established in 2001 to develop long-term care
and Medicare supplement insurance products for the senior market. For the three
and six months ended June 30, 2003, the Company's Senior Market Division
reported a loss (net of tax) in the amount of $(7.4) million and $(8.5) million,
respectively, consisting of a write off of impaired assets, operating losses
incurred at the Senior Market Division through the close-down date and costs
associated with the wind down and closing of the operations, including a loss in
the amount of $(5.5) million (net of tax) recognized upon transfer, effective
June 30, 2003, of the Company's interest in Seniors First LLC (an agency through
which the Company formerly marketed and distributed insurance products to the
senior market).. The Company currently anticipates incurring additional exit
costs in the amount of approximately $800,000 (pre-tax), substantially all of
which costs will be expensed as incurred in future periods in accordance with
Financial Accounting Standards Board Statement No. 146, Accounting for Costs
Associated with Exit or Disposal Activities.

OTHER MATTERS -- SELF EMPLOYED AGENCY DIVISION -- RESERVE ADJUSTMENTS

Effective January 1, 2003, the Company's SEA Division made adjustments to
its reserve methodology and certain changes in accounting estimates, the net
effect of which decreased reserves and correspondingly increased operating
income reported by the SEA Division in the amount of $4.8 million in the first
quarter of 2003. Set forth below is a summary of the adjustments and changes in
accounting estimates made by the Company.

32

Claim Reserve Changes

The SEA Division utilizes the developmental method to estimate claim
reserves. Under the developmental method, completion factors are applied to paid
claims in order to estimate the ultimate claim payments. These completion
factors are derived from historical experience and are dependent on the
"incurred dates" of the paid claims. Prior to January 1, 2003, the Company
utilized the "original incurred date" coding method to establish the date a
policy claim is incurred under the developmental method. Under the original
incurred date coding method, prior to the end of the period in which a health
policy claim was made, the Company estimated and recorded a liability for the
cost of all medical services related to the accident or sickness relating to the
claim, even though the medical services associated with such accident or
sickness might not be rendered to the insured until a later financial reporting
period.

Effective January 1, 2003, the Company has determined to utilize a "modified
incurred date" coding method to establish incurred dates under the developmental
method. Under this modified incurred date coding method, a break in service of
more than six months will result in the establishment of a new "incurred date"
for subsequent services. In addition, under the modified incurred date coding
method, prior to the end of the period in which a health policy claim is made,
the Company estimates and records a liability for the cost of medical services
to be rendered to the insured for at most the succeeding three years following
the date the policy claim is initially made. If in fact a particular claim
extends past the three year period following the date the policy claim is
initially made, an incurred date more recent than the original incurred date is
utilized in future reserve calculations. The Company believes that this modified
incurred date coding method will provide for a more direct and accurate
reflection of actual experience in the pricing of the Company's insurance
products. This change in methodology resulted in a reduction in the claim
reserves of $12.3 million during the first quarter of 2003.

Changes in Estimate

Several changes in accounting estimate resulted in a further reduction of
the claim reserve in the amount of $5.4 million during the first quarter of
2003. This reduction in the claim reserve was attributable primarily to the
effects of a change in estimate of the reserve for excess pending claims. This
change was necessary to maintain consistency with the historical data underlying
the calculation of the new completion factors used in the claim development
reserve. These completion factors are based on more recent experience with
claims payments than the previous factors. This more recent experience has a
greater number of pending claims. As a result, the new completion factors have
built in a higher level of reserves for pending claims. The release of a portion
of the excess pending claims reserve reflects the additional pending claims
included in the completion factors.

ROP Reserve Changes

The Company has issued certain health policies with a "return-of-premium"
(ROP) rider, pursuant to which the Company undertakes to return to the
policyholder on or after age 65 all premiums paid less claims reimbursed under
the policy. The ROP rider also provides that the policyholder may receive a
portion of the benefit prior to age 65. Historically, the Company has
established a reserve for future ROP benefits, which reserve has been calculated
by applying factors (based on 2 year preliminary term, a 5% interest assumption,
1958 CSO mortality termination assumption, and level future gross premiums) to
the current premium on a contract-by-contract basis. A claims offset was
applied, on a contract-by-contract basis, solely with respect to an older closed
block of policies. The ROP reserve is reflected in future policy and contract
benefits on the Company's consolidated balance sheet.

The Company records an ROP reserve to fund longer-term obligations
associated with the ROP rider. This reserve is impacted both by the techniques
utilized to calculate the reserve and the many assumptions underlying the
calculation, including interest rates, policy lapse rates, premium rate
increases on policies and assumptions with regard to claims paid. The Company
has previously utilized a simplified reserving methodology that it believed
generated an appropriate ROP reserve in the aggregate. However, the Company
recently reviewed its ROP reserving methodology in order to determine if
refinements to the methodology were appropriate. As a result of such review,
effective January 1, 2003, the ROP reserving methodology was refined to utilize
new factors (based on a net level premium basis, 4.5% interest, 1958 CSO
mortality, and, where appropriate, 10% annual increases in future gross
premiums) and to apply these factors to the historical premium payments on a
contract-by-contract basis. The claim offset is now applied on all material
blocks of policies with ROP riders. As a result of these changes, the ROP
reserve for the Company increased by $12.9 million during the first quarter of
2003.

33

LIQUIDITY AND CAPITAL RESOURCES

Historically, the Company's primary sources of cash on a consolidated basis
have been premium revenues from policies issued, investment income, fees and
other income, and borrowings to fund student loans. The primary uses of cash
have been payments for benefits, claims and commissions under those policies,
operating expenses and the funding of student loans. In the six months ended
June 30, 2003, net cash provided by operations totaled approximately $87.6
million, compared to net cash provided by operations of $119.2 million in the
corresponding period of 2002.

As previously discussed (see "Recent Developments at Academic Management
Services Corp." above), on July 31, 2003, UICI completed its contribution to the
capital of AMS of cash in the amount of $48.25 million in accordance with the
terms of the waiver and release agreements with the interested third parties to
the AMS financings. UICI is a holding company, the principal assets of which are
its investments in its separate operating subsidiaries, including its regulated
insurance subsidiaries. The holding company's ability to fund its cash
requirements is largely dependent upon its ability to access cash, by means of
interest income, loans or dividends or other means, from its subsidiaries. At
June 30, 2003, the Company at the holding company level held cash in the amount
of $20.6 million. The Company generated additional cash to fund its $48.25
million obligations under the AMS waiver and release agreements from loans and
dividends from offshore insurance subsidiaries, reimbursements under tax sharing
agreements with subsidiaries and dividends from non-insurance subsidiaries.

Payment by UICI of the capital contributions to AMS pursuant to the terms of
the waiver and release agreements has had a material adverse effect upon the
liquidity of the Company at the holding company level. Following payment by the
Company to AMS of $48.25 million in accordance with the terms of the AMS waiver
and release agreements, at July 31, 2003, the Company at the holding company
level held approximately $8.0 million in cash. The Company currently anticipates
that it will be able to fund its future estimated cash requirements at the
holding company level with cash currently on hand and cash generated from the
sources set forth above, plus dividends from regulated domestic insurance
subsidiaries. However, there can be no assurance that the cash requirements at
the holding company level will not exceed current estimates.

The Company intends to adhere to its historical policy with regard to
dividends from its regulated domestic insurance company subsidiaries. The
Company's domestic insurance company subsidiaries have not paid cash dividends
in 2003. These subsidiaries will be able to pay $39.1 million in cash dividends
to the UICI holding company in December 2003 in the ordinary course of business
without prior approval of the regulatory authorities. However, as has been its
policy in the past, during the fourth quarter of 2003 the Company will assess
the results of operations of the regulated domestic insurance companies to
determine the prudent dividend capability of the subsidiaries, consistent with
UICI's practice of maintaining risk-based capital ratios at each of the
Company's domestic insurance subsidiaries significantly in excess of minimum
requirements. Historically, the Company has not received dividends from its
regulated domestic insurance subsidiaries in the full amount that it could
otherwise receive without prior regulatory approval.

During the six months ended June 30, 2003, the Company reduced its
consolidated short and long-term indebtedness (exclusive of indebtedness
incurred to fund student loans) from $9.5 million at December 31, 2002 to $5.5
million at June 30, 2003.

On January 25, 2002, the Company entered into a three-year bank credit
facility with Bank of America, NA and LaSalle Bank National Association. Under
the facility, the Company may borrow from time to time up to $30.0 million on a
revolving, unsecured basis. Loans outstanding under the facility will bear
interest at the option of the Company at prime plus 1% or LIBOR plus 1%. The
Company intends to utilize the proceeds of the facility for general working
capital purposes. The Company has not to date borrowed any funds under the
facility.

On August 7, 2003, AMS entered into a master repurchase facility with a
financial institution, the obligations under which are partially (to the extent
of $13.3 million) guaranteed by UICI, the holding company. The proceeds of the
facility will be used by AMS from time to time to initially fund AMS' student
loan originations. The repurchase facility provides for the purchase of student
loans by the financial institution at 96% of par, and the financial institution
may put the student loans back to AMS on the last day of each month. AMS, in
turn, has the right to require the financial institution to repurchase the
student loans on such date, with the interest rate on the repurchase facility
reset on such date. The lender under the facility is committed to provide up to
$150.0 million of financing. Amounts outstanding under the facility will bear
interest at a variable annual rate of LIBOR plus 75 basis points and are secured
by student loans made under the Federal Family Education Loan Program. The
master repurchase

34

facility terminates on August 31, 2003 and is subject to monthly extensions upon
the mutual agreement of the financial institution and AMS.

AMS has entered into a letter of intent, dated July 30, 2003, contemplating
a forward commitment on the part of a financial institution to purchase from
time to time pools of student loans guaranteed under the Federal Family
Education Loan Program at a purchase price of 102.00% of the outstanding
principal amount of such loans. The forward purchase commitment contemplated by
the letter of intent is subject to execution and delivery of definitive
documentation and other closing conditions, and there can be no assurance that
such conditions will in fact be satisfied.

During the three months ended June 30, 2003, the Company determined that
additional contingent consideration in the amount of $15.0 million will be
payable to the sellers of STAR Human Resources Group, Inc. and STAR
Administrative Services, Inc. (collectively referred to by the Company as its
"STAR HRG" unit), a Phoenix, Arizona based business specializing in the
marketing and administration of limited benefit plans for entry level, high
turnover, hourly employees. See Note G of Notes to Consolidated Condensed
Financial Statements. The contingent consideration is payable in October 2003,
at the Company's option, in cash or by delivery of UICI's 6.0% convertible
subordinated notes due March 1, 2012 plus, in each case, interest payable in
cash computed at a rate of 6% from the initial closing. The Company has not yet
determined whether it will satisfy this obligation by the payment of cash or
delivery of its 6.0% convertible subordinated notes.

STOCK REPURCHASE PLAN

In November 1998, the Company's Board of Directors authorized the repurchase
of up to 4,500,000 shares of the Company's Common Stock. The shares were
authorized to be purchased from time to time on the open market or in private
transactions. As of December 31, 2000, the Company had repurchased 198,000
shares pursuant to such authorization, all of which were purchased in 1999. At
its regular meeting held on February 28, 2001, the Board of Directors of the
Company reconfirmed the Company's 1998 share repurchase program. Following
reconfirmation of the program the Company had purchased an additional 3.3
million shares pursuant to the program (with the most recent purchase made on
March 12, 2003) at an aggregate cost of $43.2 million, or $12.98 per share. The
timing and extent of additional repurchases, if any, will depend on market
conditions and the Company's evaluation of its financial resources at the time
of purchase.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's discussion and analysis of its financial condition and results
of operations are based upon the Company's consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these financial
statements requires the Company to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an on-going basis, the
Company evaluates its estimates, including those related to health and life
insurance claims and reserves, deferred acquisition costs, bad debts, impairment
of investments, intangible assets, income taxes, financing operations and
contingencies and litigation. The Company bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

Effective January 1, 2003, the Company's SEA Division made adjustments to
its reserve methodology and certain changes in accounting estimates, the net
effect of which decreased reserves and correspondingly increased operating
income in the amount of $4.8 million in the first quarter of 2003. See
discussion above under the caption "Other Matters - - Self Employed Agency
Division - - Reserve Adjustments ".

PRIVACY INITIATIVES

Recently-adopted legislation and regulations governing the use and security
of individuals' nonpublic personal data by financial institutions, including
insurance companies, may have a significant impact on the Company's business and
future results of operations.

35

Gramm-Leach-Bliley Act and State Insurance Laws and Regulations

The business of insurance is primarily regulated by the states and is also
affected by a range of legislative developments at the state and federal levels.
The recent Financial Services Modernization Act of 1999 (the so-called
Gramm-Leach-Bliley Act, or "GLBA") includes several privacy provisions and
introduces new controls over the transfer and use of individuals' nonpublic
personal data by financial institutions, including insurance companies,
insurance agents and brokers and certain other entities licensed by state
insurance regulatory authorities. Additional federal legislation aimed at
protecting the privacy of nonpublic personal financial and health information is
proposed and over 400 state privacy bills are pending.

GLBA provides that there is no federal preemption of a state's insurance
related privacy laws if the state law is more stringent than the privacy rules
imposed under GLBA. Accordingly, state insurance regulators or state
legislatures will likely adopt rules that will limit the ability of insurance
companies, insurance agents and brokers and certain other entities licensed by
state insurance regulatory authorities to disclose and use non-public
information about consumers to third parties. These limitations will require the
disclosure by these entities of their privacy policies to consumers and, in some
circumstances, will allow consumers to prevent the disclosure or use of certain
personal information to an unaffiliated third party. Pursuant to the authority
granted under GLBA to state insurance regulatory authorities to regulate the
privacy of nonpublic personal information provided to consumers and customers of
insurance companies, insurance agents and brokers and certain other entities
licensed by state insurance regulatory authorities, the National Association of
Insurance Commissioners has recently promulgated a new model regulation called
Privacy of Consumer Financial and Health Information Regulation. Some states
issued this model regulation before July 1, 2001, while other states must pass
certain legislative reforms to implement new state privacy rules pursuant to
GLBA. In addition, GLBA requires state insurance regulators to establish
standards for administrative, technical and physical safeguards pertaining to
customer records and information to (a) ensure their security and
confidentiality, (b) protect against anticipated threats and hazards to their
security and integrity, and (c) protect against unauthorized access to and use
of these records and information. However, no state insurance regulators have
yet issued any final regulations in response to such security and
confidentiality requirements. The privacy and security provisions of GLBA will
significantly affect how a consumer's nonpublic personal information is
transmitted through and used by diversified financial services companies and
conveyed to and used by outside vendors and other unaffiliated third parties.

Due to the increasing popularity of the Internet, laws and regulations may
be passed dealing with issues such as user privacy, pricing, content and quality
of products and services, and those regulations could adversely affect the
growth of the online financial services industry. If Internet use does not grow
as a result of privacy or security concerns, increasing regulation or for other
reasons, the growth of UICI's Internet-based business would be hindered. It is
not possible at this time to assess the impact of the privacy provisions on
UICI's financial condition or results of operations.

Health Insurance Portability and Accountability Act of 1996

The federal Health Insurance Portability and Accountability Act of 1996
("HIPAA") contains provisions requiring mandatory standardization of certain
communications between health plans (including health insurance companies),
electronic clearinghouses and health care providers who transmit certain health
information electronically. HIPAA requires health plans to use specific
data-content standards, mandates the use of specific identifiers (e.g., national
provider identifiers and national employer identifiers) and requires specific
privacy and security procedures. HIPAA authorized the Secretary of the federal
Department of Health and Human Services ("HHS") to issue standards for the
privacy and security of medical records and other individually identifiable
patient data.

In December 2000, HHS issued final regulations regarding the privacy of
individually-identifiable health information. This final rule on privacy applies
to both electronic and paper records and imposes extensive requirements on the
way in which health care providers, health plan sponsors, health insurance
companies and their business associates use and disclose protected information.
Under the new HIPAA privacy rules, the Company is required to (a) comply with a
variety of requirements concerning its use and disclosure of individuals'
protected health information, (b) establish rigorous internal procedures to
protect health information and (c) enter into business associate contracts with
other companies that use similar privacy protection procedures. The final rules
do not provide for complete federal preemption of state laws, but, rather,
preempt all contrary state laws unless the state law is more stringent. The
Company believes that it was in material compliance with the privacy
requirements imposed by HIPAA and the rules thereunder as of April 14, 2003, the
date the rules became effective.

36

Sanctions for failing to comply with standards issued pursuant to HIPAA
include criminal penalties of up to $250,000 per violation and civil sanctions
of up to $25,000 per violation. Due to the complex and controversial nature of
the privacy regulations, they may be subject to court challenge, as well as
further legislative and regulatory actions that could alter their effect.

In August 2000, HHS published for comment proposed rules related to the
security of electronic health data, including individual health information and
medical records, for health plans, health care providers, and health care
clearinghouses that maintain or transmit health information electronically. The
proposed rules would require these businesses to establish and maintain
responsible and appropriate safeguards to ensure the integrity and
confidentiality of this information. The standards embraced by these rules
include the implementation of technical and organization policies, practices and
procedures for security and confidentiality of health information and protecting
its integrity, education and training programs, authentication of individuals
who access this information, system controls, physical security and disaster
recovery systems, protection of external communications and use of electronic
signatures. The final HIPAA security rules were issued by the HHS in February
2003, and the compliance date for HIPAA covered entities is April 21, 2005.

UICI is currently reviewing the potential impact of the HIPAA privacy
regulations on its operations, including its information technology and security
systems. The Company cannot at this time predict with specificity what impact
(a) the recently adopted final HIPAA rules governing the privacy of
individually-identifiable health information and (b) the proposed HIPAA rules
for ensuring the security of individually-identifiable health information may
have on the business or results of operations of the Company. However, these new
rules will likely increase the Company's burden of regulatory compliance with
respect to its life and health insurance products and other information-based
products, and may reduce the amount of information the Company may disclose and
use if the Company's customers do not consent to such disclosure and use. There
can be no assurance that the restrictions and duties imposed by the recently
adopted final rules on the privacy of individually-identifiable health
information, or the proposed rule on security of individually-identifiable
health information, will not have a material adverse effect on UICI's business
and future results of operations.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Certain statements set forth herein or incorporated by reference herein from
the Company's filings that are not historical facts are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act.
Actual results may differ materially from those included in the forward-looking
statements. These forward-looking statements involve risks and uncertainties
including, but not limited to, the ability to resolve all of the collateral and
reporting issues associated with AMS' securitized student loan financings,
including compliance with waivers obtained from third parties with respect to
such student loan financings; AMS' ability to prevent similar future
occurrences; AMS' ability to meet future student loan funding obligations; the
Company's ability to maintain adequate liquidity to satisfy its obligations;
changes in general economic conditions, including the performance of financial
markets, and interest rates; competitive, regulatory or tax changes that affect
the cost of or demand for the Company's products; health care reform; the
ability to predict and effectively manage claims related to health care costs;
and reliance on key management and adequacy of claim liabilities.

The Company's future results will depend in large part on accurately
predicting health care costs incurred on existing business and upon the
Company's ability to control future health care costs through product and
benefit design, underwriting criteria, utilization management and negotiation of
favorable provider contracts. Changes in mandated benefits, utilization rates,
demographic characteristics, health care practices, provider consolidation,
inflation, new pharmaceuticals/technologies, clusters of high-cost cases, the
regulatory environment and numerous other factors are beyond the control of any
health plan provider and may adversely affect the Company's ability to predict
and control health care costs and claims, as well as the Company's financial
condition, results of operations or cash flows. Periodic renegotiations of
hospital and other provider contracts coupled with continued consolidation of
physician, hospital and other provider groups may result in increased health
care costs and limit the Company's ability to negotiate favorable rates. In
addition, the Company faces competitive and regulatory pressure to contain
premium prices. Fiscal concerns regarding the continued viability of
government-sponsored programs such as Medicare and Medicaid may cause decreasing
reimbursement rates for these programs. Any limitation on the Company's ability
to increase or maintain its premium levels, design products, implement
underwriting criteria or negotiate competitive provider contracts may adversely
affect the Company's financial condition or results of operations.

37

The Company's insurance subsidiaries are subject to extensive regulation in
their states of domicile and the other states in which they do business under
statutes that typically delegate broad regulatory, supervisory and
administrative powers to state insurance departments and agencies. State
insurance departments have also periodically conducted and continue to conduct
financial and market conduct examinations and other inquiries of UICI's
insurance subsidiaries. State insurance regulatory agencies have authority to
levy monetary fines and penalties resulting from findings made during the course
of such examinations and inquiries. Historically, the Company's insurance
subsidiaries have from time to time been subject to such regulatory fines and
penalties. While none of such fines or penalties individually or in the
aggregate have to date had a material adverse effect on the results of
operations or financial condition of the Company, the Company could be adversely
affected by increases in regulatory fines or penalties an/or changes in the
scope, nature and/or intensity of regulatory scrutiny and review.

The Company provides health insurance products to consumers in the
self-employed market in 44 states. A substantial portion of such products is
issued to members of various independent membership associations that endorse
the products and act as the master policyholder for such products. The two
principal membership associations in the self-employed market for which the
Company underwrites insurance are the National Association for the Self-Employed
("NASE") and the Alliance for Affordable Services ("AAS"). The associations
provide their membership with a number of endorsed benefits and products,
including health insurance underwritten by the Company. Subject to applicable
state law, individuals generally may not obtain insurance under an association's
master policy unless they are also members of the associations. UGA agents and
Cornerstone agents also act as field service representatives on behalf of the
associations, in which capacity the agents act as enrollers of new members for
the associations and provide field support services, for which the agents
receive compensation. Specialized Association Services, Inc. (a company
controlled by the adult children of the Chairman of the Company) provides
administrative and benefit procurement services to the associations, and a
subsidiary of the Company sells new membership sales leads to the enrollers and
video and print services to the associations and to Specialized Association
Services, Inc. In addition to health insurance premiums derived from the sale of
health insurance, the Company receives fee income from the associations,
including fees associated with the enrollment of new members, fees for
association membership marketing and administrative services and fees for
certain association member benefits. The agreements with these associations
requiring the associations to continue as the master policyholder and to endorse
the Company's insurance products to their respective members are terminable by
the Company and the associations upon not less than one year's advance notice to
the other party.

Recent articles in the press have been critical of association group
coverage. In December 2002, the National Association of Insurance Commissioners
(NAIC) convened a special task force to review association group coverage, and
the Company is aware that selected states are reviewing the laws and regulations
under which association group policies are issued. The Company has also recently
been named a party to several lawsuits challenging the nature of the
relationship between the Company's insurance companies and the associations that
have endorsed the insurance companies' health insurance products. While the
Company believes it is providing association group coverage in full compliance
with applicable law, changes in the relationship between the Company and the
membership associations and/or changes in the laws and regulations governing
so-called "association group" insurance (particularly changes that would subject
the issuance of policies to prior premium rate approval and/or require the
issuance of policies on a "guaranteed issue" basis) could have a material
adverse impact on the financial condition, results of operations and/or business
of the Company.

The Company's Academic Management Services Corp. business could be adversely
affected by changes in the Federal Higher Education Act of 1965, which
authorizes and governs most federal student aid and student loan programs,
and/or changes in other relevant federal or state laws, rules and regulations.
The Higher Education Act is subject to review and reauthorization by the
recently convened 108th Congress. Congress last reauthorized the Higher
Education Act in 1998. While the Company believes that the Higher Education Act
of 1965 will in fact be reauthorized, there can be no assurance of the form that
reauthorization will take or the changes that the reauthorization bill will
bring to the law and regulations governing student finance.

In addition, existing legislation and future measures by the federal
government may adversely affect the amount and nature of federal financial
assistance available with respect to loans made through the U.S. Department of
Education. Finally, the level of competition currently in existence in the
secondary market for loans made under the Federal Loan Programs could be
reduced, resulting in fewer potential buyers of the Federal Loans and lower
prices available in the secondary market for those loans.

38

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss arising from adverse changes in market rates
and prices, such as interest rates, foreign currency exchange rates, and other
relevant market rate or price changes. Market risk is directly influenced by the
volatility and liquidity in the markets in which the related underlying assets
are traded.

The primary market risk to the Company's investment portfolio is interest
rate risk associated with investments and the amount of interest that
policyholders expect to have credited to their policies. The interest rate risk
taken in the investment portfolio is managed relative to the duration of the
policy liabilities. The Company's investment portfolio consists mainly of high
quality, liquid securities that provide current investment returns. The Company
believes that the annuity and universal life-type policies are generally
competitive with those offered by other insurance companies of similar size. The
Company does not anticipate significant changes in the primary market risk
exposures or in how those exposures are managed in the future reporting periods
based upon what is known or expected to be in effect in future reporting
periods.

The events at AMS occurring in July 2003 had the immediate effect of
increasing AMS' cost of borrowings used to fund AMS' student loan originations,
which increase has negatively impacted and will continue to negatively impact
the amount of student loan interest spread income that AMS may earn in future
periods. Accordingly, the Company has determined that, for the indefinite
future, AMS will originate and sell student loans rather than originate and hold
student loans in AMS' portfolio. Nevertheless, if and to the extent that AMS
continues to hold student loans in its portfolio, profitability of the student
loans will be affected by the spreads between the interest yield on the student
loans and the cost of the funds borrowed under the various credit facilities.
Although the interest rates on the student loans and the interest rate on the
credit facilities are variable, the gross interest earned by lenders on Stafford
student loans uses the results of 91-day T-bill auctions as the base rate while
the base rate on the credit facilities is LIBOR. The effect of rising interest
rates on earnings on Stafford loans is generally small, as both revenues and
costs adjust to new market levels. In addition to Stafford loans, the Company
holds PLUS loans on which the interest rate yield is set annually beginning July
1 through June 30 by regulation at a fixed rate. The Company had approximately
$167.2 million principal amount of PLUS loans outstanding at June 30, 2003. The
fixed yield on PLUS loans was 4.86% and 6.79% for the twelve months ended June
30, 2003 and 2002, respectively, and was reset to 4.22% for the twelve months
beginning July 1, 2003. These loans are financed with borrowings whose rates are
subject to reset, generally monthly. During the twelve months beginning July 1,
2003, the cost of borrowings to finance this portion of the student loan
portfolio could rise or fall while the rate earned on the student loans will
remain fixed.

Item 4 - Controls and Procedures

As of June 30, 2003, the Company's management, including William J. Gedwed
(the Chief Executive Officer) and Mark D. Hauptman (the Principal Financial
Officer), evaluated the effectiveness of the Company's "disclosure controls and
procedures," as such term is defined in Rules 13a-15(e) and 15d-15(e)
promulgated under the Securities Exchange Act of 1934, as amended. Based on that
evaluation and except as disclosed in the following paragraphs, the Company's
Chief Executive Officer and its Principal Financial Officer concluded that the
Company's disclosure controls and procedures were effective in timely alerting
management, including the Chief Executive Officer and the Principal Financial
Officer, to information about the Company required to be included in periodic
Securities and Exchange Commission filings. Except as disclosed in the following
paragraphs, there have been no significant changes in the Company's internal
control over financial reporting that occurred that have materially affected, or
are reasonably likely to materially affect, the Company's internal control over
financial reporting subsequent to the date of evaluation.

As discussed above (see "Management's Discussion and Analysis of Liquidity
and Results of Operations - Recent Developments at Academic Management Services
Corp."), during July 2003 the Company became aware of a shortfall in the type
and amount of collateral supporting two of the securitized student loan
financing facilities entered into by three Special Purpose Subsidiaries of AMS.
UICI has determined (and has so advised the Audit Committee of its Board of
Directors and KPMG LLP, its independent auditors) that a significant deficiency
in AMS' internal control over financial reporting detracted from AMS' ability to
timely monitor and accurately assess the impact of certain transactions relating
to AMS' securitized student loan financing facilities, as would otherwise be
expected in an effective financial reporting control environment.

The Audit Committee of UICI's Board of Directors, with the assistance of
independent counsel, conducted an investigation into the matters and events
leading to the announcement of the collateral shortfalls at AMS' student loan
financing facilities. Based on that investigation, the Company believes that
UICI's previously published consolidated financial statements have been fairly
presented. Nevertheless, the Company and AMS have dedicated and will continue to
dedicate resources to make corrections to the control deficiency at AMS. The

39

Company has taken immediate steps to better integrate AMS' financial reporting
function and information reporting systems to assure that accurate and
consistent information concerning AMS's student loan funding facilities is
transmitted to interested parties in a timely fashion. In addition, on July 17,
2003 the former president of AMS was put on leave and relieved of all
responsibilities pending the completion of AMS' and UICI's ongoing investigation
into the matter, and on August 15, 2003, the employment of the former president
of AMS was terminated.

Notwithstanding the foregoing and as indicated in the certifications filed
as Exhibits 31.1 and 31.2 to this Quarterly Report on Form 10-Q, the Company's
Chief Executive Officer and the Principal Financial Officer have certified that,
to the best of their knowledge, the financial statements, and other financial
information included in this Quarterly Report on Form 10-Q, fairly present in
all material respects the financial condition, results of operations and cash
flows of the Company as of the dates, and for the periods presented, in this
Report.

PART II. OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

The Company is a party to various material legal proceedings, all of which
are described in Note J of Notes to the Consolidated Condensed Financial
Statements included herein and in the Company's Annual Report on Form 10-K filed
for the year ended December 31, 2002 under the caption "Item 3 - Legal
Proceedings." The Company and its subsidiaries are parties to various other
pending legal proceedings arising in the ordinary course of business, including
some asserting significant damages arising from claims under insurance policies,
disputes with agents and other matters. Based in part upon the opinion of
counsel as to the ultimate disposition of such lawsuits and claims, management
believes that the liability, if any, resulting from the disposition of such
proceedings will not be material to the Company's financial condition or results
of operations.

ITEM 2 - Changes in Securities and Use of Proceeds

During the six months ended June 30, 2003, the Company issued 61,182 shares
of unregistered common stock pursuant to its 2001 Restricted Stock Plan.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company's Annual Meeting of Stockholders was held on May 14, 2003. The
following members were elected to the Company's Board of Directors to hold
office for the ensuing year.

The results of the voting on the appointment of auditors were as follows:

Ratification of Appointment of KPMG LLP as the Company's independent
auditors for the fiscal year ending December 31, 2003.

The voters of the stockholders on this item were as follows:

40

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits.

3.2(A) -- Amended and Restated By-Laws of the Company, as amended
as of July 30, 2003

10.72 -- EFG-II Waiver dated July 24, 2003, entered into by MBIA
Insurance Corporation, Bank One, National Association,
as successor to The First National Bank of Chicago, not
in its individual capacity but solely as Indenture
Trustee, Eligible Lender Trustee and EFG Eligible Lender
Trustee, EFG-II, LP, and Academic Management Services
Corp.

10.73 -- EFG-III Waiver dated July 24, 2003, entered into by MBIA
Insurance Corporation, Fleet National Bank, Bank of
America, N.A., Bank One, National Association, as
successor to The First National Bank of Chicago, not in
its individual capacity but solely as Indenture Trustee
and Eligible Lender Trustee, EFG-II SPC-I, Inc.,
Academic Management Services Corp., and EFG Funding LLC

10.74 -- EFG-IV Waiver dated July 24, 2003, entered into by MBIA
Insurance Corporation, Bank One, National Association,
EFG-IV, LP, and Academic Management Services Corp.

10.75 -- AMS-I Waiver dated July 24, 2003, entered into by MBIA
Insurance Corporation, AMS-1 2002, LP, and Academic
Management Services Corp.

10.76 -- Indenture Agreement dated May 8, 2003 among AMS-3 2003,
LP, as Issuer, and Bank One, National Association, as
Indenture Trustee and Eligible Lender Trustee

10.77 -- Master Repurchase Agreement, dated as of August 7, 2003,
between Lehman Brothers Bank, FSB, and Academic
Management Services Corp.

10.78 -- Guaranty and Warranty Agreement, dated as of August 7,
2003 made by UICI in favor of Lehman Brothers Bank, FSB

10.79 -- Agreement between Student Loan Marketing Association,
Fleet National Bank (solely in its capacity as Trustee
for the AMS Education Loan Trust), and Academic
Management Services, Inc. dated July 1, 2000 and as
amended June 25, 2003 and July 29, 2003.

10.80 -- Stock purchase agreement between Ronald L. Jensen and
Gregory T. Mutz

10.81 -- Stock purchase agreement between UICI and Gregory T.
Mutz

31.1 -- Principal Executive Officer's Certifications Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

31.2 -- Principal Financial Officer's Certifications Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002

32 -- Certification Pursuant to 18 U.S.C. Section 1350
(Section 906 of Sarbanes-Oxley Act of 2002)

(b) Reports on Form 8-K.

1. Current Report on Form 8-K dated April 30, 2003
2. Current Report on Form 8-K dated May 9, 2003
3. Current Report on Form 8-K dated May 23, 2003
4. Current Report on Form 8-K dated June 2, 2003
5. Current Report on Form 8-K dated July 21, 2003
6. Current Report on Form 8-K dated August 4, 2003

41

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

UICI
-----
(Registrant)

Date: August 19, 2003 /s/ William J. Gedwed
----------------------------------------
William J. Gedwed, President,
Chief Executive Officer and Director

Date: August 19, 2003 /s/ Mark D. Hauptman
----------------------------------------
Mark D. Hauptman, Vice President, Chief
Accounting Officer and Chief Financial Officer

42