1
                                  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 MARCH 31, 2001.

                                       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.)


   4001 McEwen, Suite 200, Dallas, Texas                75244
   -------------------------------------                -----
  (Address of principal executive office)             (Zip Code)

Registrant's telephone number, including area code (972) 392-6700

                                 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 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,
47,625,066 shares as of May 5, 2001.



   2


                                      INDEX

                              UICI AND SUBSIDIARIES



                                                                                                        PAGE
                                                                                                        ----

                                                                                                  
      PART I.         FINANCIAL INFORMATION

      Item 1.         Financial Statements

                      Consolidated condensed balance sheets-March 31, 2001 (unaudited) and
                      December 31, 2000...........................................................         3

                      Consolidated condensed statements of income  (unaudited) - three months
                      ended March 31, 2001 and 2000...............................................         4

                      Consolidated statements of comprehensive income  (unaudited) - three months
                      ended March 31, 2001 and 2000 ..............................................         5

                      Consolidated condensed statements of cash flows (unaudited) - three months
                      ended March 31, 2001 and 2000...............................................         6

                      Notes to consolidated condensed financial statements (unaudited) - March 31,
                      2001........................................................................         7

      Item 2.         Management's Discussion and Analysis of Financial Condition and Results of
                      Operations..................................................................        22

      Item 3.         Quantitative and Qualitative Disclosures about Market Risk..................        30

      PART II.        OTHER INFORMATION

      Item 1.         Legal Proceedings...........................................................        31

      Item 5.         Market for Registrant's Common Stock and Related Stockholder Matters........        31

      Item 6.         Exhibits and Reports on Form 8-K............................................        31

      SIGNATURES                                                                                          32




                                       2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

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




                                                                      MARCH 31,         DECEMBER 31,
                                                                        2001                2000
                                                                    -----------         -----------
                                                                    (UNAUDITED)

                                                                                   
                                     ASSETS

Investments
  Securities available for sale --
     Fixed maturities, at fair value (cost:
     2001--$839,749; 2000--$827,905).........................        $  841,417          $  814,433
     Equity securities, at fair value (cost:
     2001--$16,794; 2000--$18,926)...........................            15,159              16,916
  Mortgage and collateral loans..............................             5,286               5,368
  Policy loans...............................................            19,829              20,171
  Investment in Healthaxis, Inc..............................            16,363              18,442
  Investment in other equity investees.......................            43,053              43,196
  Short-term investments.....................................           111,632             149,525
                                                                     ----------          ----------
         Total Investments...................................         1,052,739           1,068,051
Cash.........................................................             7,295              83,058
Student loans................................................         1,314,113           1,156,072
Restricted cash..............................................           191,795             222,660
Reinsurance receivables......................................           121,624             120,723
Due premiums, other receivables and assets...................            58,300              52,766
Investment income due and accrued............................            61,164              62,014
Refundable income taxes......................................                --              13,978
Deferred acquisition costs...................................            69,322              68,515
Goodwill.....................................................            90,948              92,120
Deferred income tax..........................................            23,066              32,949
Property and equipment, net..................................            77,513              75,128
                                                                     ----------          ----------
                                                                     $3,067,879          $3,048,034
                                                                     ==========          ==========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Policy liabilities
  Future policy and contract benefits........................        $  423,234          $  429,167
  Claims.....................................................           355,378             358,108
  Unearned premiums..........................................           102,420              98,491
  Other policy liabilities...................................            17,886              17,927
Other liabilities............................................           140,867             156,953
Collections payable..........................................            67,200             111,787
Note Payable to related party................................                --              18,954
Debt.........................................................            35,237              47,828
Student loan credit facilities...............................         1,453,509           1,358,056
                                                                     ----------          ----------
                                                                      2,595,731           2,597,271
Commitments and Contingencies
Stockholders' Equity
  Preferred stock, par value $0.01 per share.................                --                  --
  Common Stock, par value $0.01 per share....................               487                 483
  Additional paid-in capital.................................           193,017             186,820
  Accumulated other comprehensive gain (loss)................                19             (10,068)
  Retained earnings..........................................           286,380             274,277
  Treasury stock, at cost....................................            (7,755)               (749)
                                                                     ----------          ----------
                                                                        472,148             450,763
                                                                     ----------          ----------
                                                                     $3,067,879          $3,048,034
                                                                     ==========          ==========



NOTE: The balance sheet data as of December 31, 2000 have been derived from the
    audited financial statements at that date.

See notes to consolidated condensed financial statements.



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




                                                                                                THREE MONTHS ENDED
                                                                                                     MARCH 31,
                                                                                            --------------------------
                                                                                              2001             2000
                                                                                            ---------        ---------

                                                                                                       
REVENUE
  Premiums:
     Health (includes amounts received from related parties of $1,552
          and $602 for the three months ended March 31, 2001 and 2000,
          respectively,) ............................................................       $ 179,092        $ 165,331
     Life premiums and other considerations .........................................           9,656           10,864
                                                                                            ---------        ---------
                                                                                              188,748          176,195
  Investment income .................................................................          20,850           24,268
  Interest income (includes amounts received from related parties of
        $10 and $8 for the three months ended March 31, 2001 and 2000,
        respectively) ...............................................................          27,019           28,023
  Other fee income (includes amounts received from related parties of
        $1,847 and $715 for the three months ended March 31, 2001 and 2000,
        respectively) ...............................................................          22,390           29,391
  Other income ......................................................................             681              770
  Gain on sale of HealthAxis.com shares .............................................            --             26,300
  Losses on sale of other investments ...............................................             (25)            (963)
                                                                                            ---------        ---------
                                                                                              259,663          283,984
BENEFITS AND EXPENSES
  Benefits, claims, and settlement expenses .........................................         120,112          115,246
  Underwriting, acquisition, and insurance expenses (includes amounts
     paid to related parties of $8,215 and $8,895 for the three months
     ended March 31, 2001 and 2000, respectively) ...................................          66,991           60,631
  Other expenses (includes amounts paid to related parties of $2,321 and
     $1,034 for the three months ended March 31, 2001 and 2000, respectively) .......          22,860           31,664
  Depreciation ......................................................................           3,230            2,272
  Interest expense (includes expenses incurred with related parties of
     $98 and $290 for the three months ended March 31, 2001 and 2000,
     respectively) ..................................................................           1,875            3,277
  Interest expense--student loan credit facilities ..................................          22,955           24,982
  Equity in operating loss from Healthaxis, Inc. investment .........................           2,079            5,920
  Goodwill amortization .............................................................           1,172            1,689
                                                                                            ---------        ---------
                                                                                              241,274          245,681
                                                                                            ---------        ---------
INCOME FROM OPERATIONS BEFORE INCOME TAXES ..........................................          18,389           38,303
Federal income taxes ................................................................           6,286           18,512
                                                                                            ---------        ---------
NET INCOME ..........................................................................       $  12,103        $  19,791
                                                                                            =========        =========

Earnings  per share:

     Basic earnings .................................................................       $    0.26        $    0.43

     Diluted earnings ...............................................................       $    0.25        $    0.42



See notes to consolidated condensed financial statements.



                                       4
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UICI AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED) (DOLLARS IN THOUSANDS)




                                                                          THREE MONTHS ENDED
                                                                                MARCH 31,
                                                                        ------------------------
                                                                          2001            2000
                                                                        --------        --------

                                                                                  
Net income ......................................................       $ 12,103        $ 19,791

Other comprehensive income, before tax:

   Unrealized gains  on securities:
     Unrealized holding gains arising during period .............         15,388           2,342
     Reclassification adjustment for gains
       included in net income ...................................            128             220
                                                                        --------        --------
           Other comprehensive income, before tax ...............         15,516           2,562
     Income tax provision related to items of
       other comprehensive income ...............................         (5,429)           (898)
                                                                        --------        --------
           Other comprehensive income, net of tax
             benefits ...........................................         10,087           1,664
                                                                        --------        --------

Comprehensive income ............................................       $ 22,190        $ 21,455
                                                                        ========        ========



See notes to consolidated condensed financial statements.



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




                                                                            THREE MONTHS ENDED
                                                                                 MARCH 31,
                                                                        ---------------------------
                                                                            2001             2000
                                                                        ---------        ---------

                                                                                   
OPERATING ACTIVITIES
   Net income ...................................................       $  12,103        $  19,791
   Adjustments to reconcile net income  to
     Cash used in operating activities:
     Increase in policy liabilities .............................           2,445            1,641
     Increase (decrease) in other liabilities ...................         (13,845)           3,054
     Increase in income taxes ...................................          18,508           26,983
     Increase in deferred acquisition costs .....................            (807)            (234)
     Decrease (increase) in accrued investment income ...........             850          (15,234)
     Decrease (increase) in reinsurance and other receivables ...          (2,973)           8,758
     Depreciation and amortization ..............................           4,402            4,015
     Decrease in collections payable ............................         (44,587)         (55,246)
     Operating loss of Healthaxis, Inc. .........................           2,079            5,920
     Loss (gains) on sale of investments ........................              25          (25,337)
     Amounts contributed to discontinued operations .............            --            (63,999)
     Other items, net ...........................................             279            3,917
                                                                        ---------        ---------
         Cash Used in Operating Activities ......................         (21,521)         (85,971)
                                                                        ---------        ---------

INVESTING ACTIVITIES
   Increase in student loans ....................................        (158,041)        (166,694)
   Decrease  (increase) in other investments ....................          28,514          (12,409)
   Proceeds from sale of HealthAxis.com shares ..................            --             30,000
   Decrease in restricted cash ..................................          30,865          300,739
   Increase in agents' receivables ..............................          (3,275)          (3,188)
   Purchase of subsidiary .......................................            --             (4,481)
   Increase in property and equipment ...........................          (5,615)          (3,422)
                                                                        ---------        ---------
         Cash Provided by (Used in) Investing Activities ........        (107,552)         140,545
                                                                        ---------        ---------

FINANCING ACTIVITIES
   Deposits from investment products ............................           3,855            4,106
   Withdrawals from investment products .........................         (11,075)          (8,050)
   Proceeds from student loan borrowings ........................         227,657          280,696
   Repayment of student loan borrowings .........................        (132,204)        (390,362)
   Proceeds from note payable to related party ..................            --             70,000
   Repayment of debt ............................................         (12,591)         (75,012)
   Repayment of note payable to related party ...................         (18,954)            --
   Purchase of treasury shares ..................................          (7,961)            --
   Issue treasury shares ........................................             955             --
   Other items, net .............................................           3,628              960
                                                                        ---------        ---------
         Cash Provided by (Used in) Financing Activities ........          53,310         (117,662)
                                                                        ---------        ---------

         Net Decrease in Cash ...................................         (75,763)         (63,088)
         Net Cash at Beginning of Period ........................          83,058           74,091
                                                                        ---------        ---------
         Cash at End of Period ..................................       $   7,295        $  11,003
                                                                        =========        =========



See notes to consolidated condensed financial statements.



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

March 31, 2001

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 generally accepted accounting principles ("GAAP") for interim
financial information and with 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 three-month period ended March 31, 2001 are not necessarily indicative of
the results that may be expected for the year ended December 31, 2001. 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, 2000.

Recently Issued Accounting Pronouncements

    In June 2000, FAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, was issued, and as amended, is required to be adopted in years
beginning after June 15, 2000. This Statement requires all derivatives to be
recorded on the balance sheet at fair value. Changes in fair values of
derivatives not meeting the Statement's hedge criteria are included in income.
Because of the Company's minimal use of derivatives, the adoption of the new
Statement does not have a significant effect on earnings or the financial
position of the Company.

    In September 2000, the FASB issued Statement No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
replacing Statement No. 125. Statement 140 which is effective for transfers
occurring after March 31, 2001, changes certain provisions of Statement 125. The
Company does not expect these changes to materially impact its earnings or
financial position.

NOTE B - DISCONTINUED OPERATION

    In March 2000 the Board of Directors of UICI determined, after a thorough
assessment of the unit's prospects, that the Company would exit from its United
CreditServ sub-prime credit card business. In September 2000, the Company
completed the sale of substantially all of United CreditServ's non-cash assets,
and on January 29, 2001, the Company completed the voluntary liquidation of
United Credit National Bank ("UCNB"), in accordance with the terms of a plan of
voluntary liquidation approved by the Office of Comptroller of Currency ("OCC").
UCNB surrendered to the OCC its national bank charter and distributed to a
wholly-owned subsidiary of UICI the residual assets of UCNB in the amount of
approximately $26.0 million, substantially all of which consisted of cash and
cash equivalents. The Company believes that its exit from the credit card
business is now substantially complete.

    For financial reporting purposes, at December 31, 2000, the remaining assets
of the discontinued operations in the amount of $54.3 million (consisting of
cash and short-term investments in the amount of $27.8 million and other assets
in the amount of $26.5 million) were reclassified to cash and other assets,
respectively, on the Company's consolidated balance sheet, and the remaining
liabilities of the discontinued operations in the amount of $53.0 million
(consisting of notes payable in the amount of $4.3 million and other liabilities
in the amount of $48.7 million) were reclassified to notes payable and other
liabilities, respectively, on the Company's consolidated balance sheet.

NOTE C - LIQUIDITY

    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 dividends or
other means, from its subsidiaries. The laws governing the Company's insurance
subsidiaries restrict dividends paid by the Company's



                                       7
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domestic insurance subsidiaries in any year. Inability to access cash from its
subsidiaries could have a material adverse effect upon the Company's liquidity
and capital resources.

    At March 31, 2001, UICI at the parent company level held cash and cash
equivalents in the amount of $20.4 million and had short and long-term
indebtedness outstanding in the amount of $6.2 million and $22.9 million,
respectively.

    The Company currently estimates that, through December 31, 2001, the holding
company will have operating cash requirements in the amount of approximately
$65.1 million. The Company currently anticipates that these cash requirements at
the holding company level will be funded by cash on hand, cash received from
interest income, dividends from domestic and offshore insurance companies and
tax sharing reimbursements from subsidiaries (which will be partially offset by
holding company operating expenses).

NOTE D - INVESTMENT IN HEALTHAXIS, INC. (FORMERLY HEALTHAXIS.COM, INC.)

    At December 31, 2000, the Company held approximately 39.2% of the issued and
outstanding shares of common stock of HealthAxis.com, Inc. ("HealthAxis.com"), a
provider of Internet-enabled, integrated proprietary software applications that
address the workflow and processing inefficiencies embedded in the healthcare
insurance industry. At December 31, 2000, Healthaxis, Inc. (HAXS: Nasdaq)
("HAI") held approximately 34.7% of the issued and outstanding shares of common
stock of HealthAxis.com. In addition, at December 31, 2000, the Company held
$1.7 million principal amount of 2% convertible subordinated debentures issued
by HAI and a warrant to purchase 12,291 shares of HAI common stock at an
exercise price of $3.01 per HAI share. The HAI debentures mature in September
2005 and are convertible into 185,185 shares of HAI common stock.

    On January 26, 2001, HAI acquired all of the outstanding shares of
HealthAxis.com that HAI did not then own in a stock-for-stock merger of
HealthAxis.com with a wholly-owned subsidiary of HAI (the "HAI Merger"). The
Company recognized no gain in connection with the HAI Merger. In the HAI Merger,
HealthAxis.com shareholders (including the Company) received 1.334 shares of HAI
common stock for each share of HealthAxis.com common stock outstanding.
Following the HAI Merger, the Company beneficially holds 23,944,030 shares of
HAI common stock (including the 185,185 shares issuable upon conversion of the
HAI convertible subordinated debentures), representing approximately 45.3% of
the issued and outstanding shares of HAI. Of such 23,944,030 shares beneficially
held by the Company, 8,581,714 shares (representing 16.2% of HAI's total issued
and outstanding shares) are subject to the terms of a Voting Trust Agreement,
pursuant to which trustees unaffiliated with the Company have the right to vote
such shares. Gregory T. Mutz and Patrick J. McLaughlin, President and a director
of UICI, respectively, serve on the Board of Directors of HAI.



                                       8
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    Set forth below is summary condensed balance sheet and income statement data
for HAI as of and for the three month period ended March 31, 2001. This
financial information has been adjusted to exclude the effects of push-down
accounting for the January 7, 2000 merger of Insurdata Incorporated (formerly a
wholly-owned subsidiary of UICI) with and into HealthAxis.com.



                                                               MARCH 31,
                                                                 2001
                                                            --------------
                                                            (IN THOUSANDS)

                                                          
     Assets
       Cash and current assets.......................        $   19,776
       Property and equipment........................            10,785
       Other assets..................................             6,178
                                                             ----------
               Total assets..........................        $   36,739
                                                             ==========
     Liabilities
       Accounts payable and accrued expenses.........        $    5,395
       Debt..........................................            27,259
       Other liabilities.............................             3,615
                                                             ----------
       Total liabilities.............................            36,269
       Stockholders' equity..........................               470
                                                             ----------
     Total liabilities and equity....................        $   36,739
                                                             ==========




                                        THREE MONTHS ENDED
                                          MARCH 31, 2001
                                        ------------------
                                          (IN THOUSANDS)

                                         
           Revenue.....................     $ 11,212
           Expenses....................       15,800
                                            --------
                     Net loss..........     $ (4,588)
                                            ========


NOTE E - LONG TERM DEBT

    Effective July 27, 2000, the Company and a limited liability company
controlled by the Company's Chairman ("Lender LLC") completed a restructuring of
the terms of a $70.0 million loan originally to a newly-formed subsidiary of the
Company in March 2000 (the "Lender LLC Loan"). As part of the restructuring, the
Company paid to Lender LLC principal owing on the Lender LLC Loan in the amount
of $6.0 million and amended the terms of the Lender LLC Loan to provide that the
aggregate principal amount of $70.0 million then owing by the Company would
consist of a $32.0 million unsecured tranche and a $38.0 million tranche secured
by a pledge of 100% of the capital stock of Mid-West (the "Amended Lender LLC
Loan"). The Amended Lender LLC Loan (a) matured on January 1, 2002, (b)
continued to bear interest at the prevailing prime rate from time to time, with
interest accruing but not payable until the earlier to occur of full prepayment
of the Lender LLC Loan or January 1, 2002, and (c) was mandatorily prepayable
monthly to the extent of 1% of the original outstanding principal balance of the
Amended Lender LLC Loan. The security interest in all remaining collateral
previously pledged to secure payment of the Lender LLC Loan and indebtedness
outstanding under the bank credit facility (including all investment securities
and shares of the Company's National Motor Club unit) was released in full.

    In addition to scheduled principal payments totaling $3.5 million made
during the course of 2000, on October 20, 2000, the Company prepaid the
unsecured tranche of the Amended Lender LLC Loan in the amount of $12.5 million.
In addition, on November 2, 2000, the Company prepaid an additional $17.4
million of the unsecured tranche and $17.6 million of the secured tranche.
Accordingly, at December 31, 2000, the Company had no indebtedness outstanding
under the unsecured tranche and $19.0 million outstanding under the secured
tranche of the Amended Lender LLC Loan.

    On January 30, 2001, the Company prepaid in full all principal and accrued
interest on the secured tranche of the Amended Lender LLC Loan in the amount of
$21.1 million, utilizing a portion of the proceeds received in the liquidation
of UCNB. Lender LLC's security interest in 100% of the capital stock of Mid-West
was released in full.

    On July 19, 2000, the Company's offshore-domiciled insurance companies
incurred indebtedness with an institutional lender in the amount of $24.0
million. The indebtedness bears interest at the per annum rate of 11.0%,



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matures on August 1, 2001, is secured by a pledge of all of the assets of the
offshore companies, and is guaranteed by the Company. The proceeds of the
borrowing were advanced to the parent company to fulfill the liquidity needs at
the parent company. At March 31, 2001 and December 31, 2000, the outstanding
balance on the loan was $6.0 million and $18.0 million, respectively. On May 3,
2001, all outstanding principal and accrued interest on the loan was paid in
full.

NOTE F - INCOME TAXES

    The Company's effective tax rate on operations for the three-month period
ended March 31, 2001 was approximately 34% compared to 48% for the same period
in 2000. The reduction is primarily due to the decrease in losses at Academic
Management Services Corp. (formerly Educational Finance Group, Inc.) ("AMS").
AMS is 75% owned by the Company and files a separate federal income tax return.
Consequently losses at AMS are not eligible for utilization in the Company's
consolidated income tax return and therefore no tax benefit was provided on AMS'
losses. As of March 31, 2001, AMS incurred losses of $769,000 (including
amortization of goodwill and other expenses of $1.0 million), and as of March
31, 2000 AMS incurred losses of $9.5 million (including amortization of goodwill
and other expenses of $1.1 million).

NOTE G - EARNINGS PER SHARE

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



                                                                  THREE MONTHS ENDED
                                                                       MARCH 31,
                                                            -------------------------------
                                                            2001                       2000
                                                          --------                   --------
                                                        (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                                               
Net income available to Common shareholders...........    $ 12,103                   $ 19,791
                                                          ========                   ========
Weighted average shares outstanding
  -- basic earnings per share.........................      46,997                     46,388
Effect of dilutive securities:
Employee stock options and other shares...............       1,164                        807
                                                          --------                   --------
Weighted average shares outstanding
  -- dilutive earnings per share......................      48,161                     47,195
                                                          ========                   ========

Basic earnings per share..............................    $   0.26                   $   0.43
                                                          ========                   ========

Diluted earnings per share............................    $   0.25                   $   0.42
                                                          ========                   ========


NOTE H - LEGAL PROCEEDINGS

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

Securities Class Action Litigation

    As previously disclosed, in December 1999 and February 2000, the Company and
certain of its executive officers were named as defendants in three securities
class action lawsuits alleging, among other things, that the Company's periodic
filings with the SEC contained untrue statements of material facts and/or failed
to disclose all material facts relating to the condition of the Company's credit
card business, in violation of Section 10(b) of the Securities Exchange Act of
1934 and Rule 10b-5 thereunder. The three cases have been subsequently
consolidated as Herbert R. Silver, et al. v. UICI et al, which is pending in
U.S. District Court for the Northern District of Texas. Plaintiffs purport to
represent a class of persons who purchased UICI common stock from April 16, 1999
through December 9, 1999. On June 12, 2000, plaintiffs filed a consolidated
amended class action complaint, amending, consolidating and supplementing the
allegations made in the original cases.

    On August 4, 2000, UICI and the individual defendants filed a motion to
dismiss the case in its entirety, asserting that plaintiffs failed to properly
plead the elements of a Section 10(b) claim. On January 31, 2001, the Court
ordered plaintiffs to file a second amended complaint clarifying and curing
certain enumerated deficiencies in plaintiffs' pleadings, and plaintiffs
subsequently filed a second amended complaint. Defendants' response to
plaintiffs' second amended complaint is due on May 25, 2001.



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    The Company intends to continue to vigorously contest the allegations in the
case.

Sun Communications Litigation

    As previously disclosed, UICI and Ronald L. Jensen (the Company's Chairman)
are involved in litigation (Sun Communications, Inc. v. SunTech Processing
Systems, LLC, UICI, Ronald L. Jensen, et al) (the "Sun Litigation") 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.
The Dallas County, Texas District Court ruled in December 1998 that, as a matter
of law, a March 1997 agreement governing the distribution of such cash proceeds
should be read in the manner urged by Sun Communications, Inc. ("Sun") and
consistent with a court-appointed liquidator's previous ruling. The District
Court entered a judgment directing distribution of the sales proceeds in the
manner urged by Sun. The District Court also entered a finding that UICI had
violated Texas securities disclosure laws and breached a fiduciary duty owed to
Sun, and the District Court awarded the plaintiff $1.7 million in attorneys'
fees, which amount could be increased to $2.1 million under certain
circumstances.

    On September 10, 1999, the Company filed its initial briefs in support of
its appeal of the District Court's decision as to the awarding of attorneys'
fees and its finding that UICI violated Texas securities laws and breached a
fiduciary duty. The Company did not, however, appeal the District Court's ruling
with regard to the interpretation of the March 1997 agreement. On September 10,
1999, Mr. Jensen filed his initial brief in support of his appeal of, among
other things, the trial court's December 1998 finding in the Sun Litigation that
Mr. Jensen was not entitled to any of the proceeds from the sale of Sun.

    On August 1, 2000, the Court of Appeals for the Fifth District of Texas at
Dallas rendered its opinion on the appeal, reversing the trial court's judgment
as to UICI's liability for attorneys' fees and its finding that UICI violated
Texas securities laws and breached a fiduciary duty. The Appeals Court also
reversed the trial court's judgment that directed distribution of the STP sales
proceeds in the manner urged by Sun. In December 2000, the Appeals Court
affirmed its earlier decision and denied the Company's, Mr. Jensen's and Sun's
respective motions for rehearing.

    In the brief filed in his appeal of the District Court's December 1998
finding, Mr. Jensen reasserted that the March 1997 agreement requires that,
before STP can make a distribution to UICI and Sun, it must advance
approximately $10.0 million to Mr. Jensen in satisfaction of certain creditor
and preferred equity claims. If and to the extent that Mr. Jensen's
interpretation of the March 1997 agreement is ultimately adopted in the Sun
Litigation after all rights to appeal have been exhausted, the amount of such
proceeds which UICI may ultimately receive directly from STP may be reduced.
However, in such event and in accordance with an agreement reached with the
Company in June 1998 (the "Assurance Agreement"), Mr. Jensen has agreed that, if
UICI receives less than $15.1 million in the lawsuit, then Mr. Jensen will
advance funds to UICI sufficient to increase UICI's recovery to $15.1 million.
The Assurance Agreement also restricts the manner in which UICI can seek funds
in satisfaction of Mr. Jensen's previously unconditional agreement (the "Jensen
1996 Guaranty") to indemnify the Company for any loss or reduction in value of
the Company's Class A investment in Cash Delivery Systems, LLC.

    By letter dated July 7, 2000, Mr. Jensen submitted a formal proposal to
purchase the Company's 80% interest in STP for $15.6 million ("Proposal A") or,
alternatively, to purchase for $15.1 million the Company's rights and claim of
rights to receive funds held in the registry of the Court in the Sun Litigation
("Proposal B"). As part of either proposal, the Company would agree to terminate
and release Mr. Jensen from any and all obligations arising under the Jensen
1996 Guaranty and the Assurance Agreement. As part of Mr. Jensen's proposals,
Mr. Jensen has offered to indemnify and hold the Company harmless from and
against, among other things, (a) the breach of fiduciary duty claim asserted by
Sun against the Company and Sun's related claim for attorneys' fees, (b) Sun's
claim for attorneys' fees arising out of the distribution issue in the Sun
Litigation, and (c) any and all other claims of any nature asserted by Sun
against the Company in the Sun Litigation arising out of or relating directly to
the March 1997 agreement governing the distribution of cash proceeds from the
sale and liquidation of STP.

    Mr. Jensen's proposal to purchase UICI's 80% interest in STP contemplated by
Proposal A may be subject to the consent of Sun. The Company solicited the
consent of Sun to the transfer so that it might accept Proposal A, but Sun was
unwilling to grant such consent and objected to Proposal B, claiming that Sun's
consent is required to consummate either Proposal. Following approval of the
disinterested outside directors of UICI in accordance with



                                       11
   12

the related party transactions policies and procedures adopted by the UICI
Board, on July 21, 2000, the Company formally accepted Proposal A and, in the
alternative, Proposal B. On November 22, 2000, the Court in the Company's
pending Shareholder Derivative Litigation (see discussion below) approved the
alternative settlements between Mr. Jensen and the Company, subject to any
alleged right on the part of Sun to consent to Proposal A and/or Proposal B. The
Company subsequently sued Sun separately (UICI v. Sun Communications, Inc.,
pending in 134th Judicial District Court of Dallas County, Texas, Cause No.
009353), seeking to resolve the consent issue. Sun subsequently moved to abate
the separate suit.

    The Company cannot at this time predict how, when or in what fashion the Sun
Litigation will ultimately be resolved. However, for financial reporting
purposes, any cash ultimately received by the Company from Mr. Jensen pursuant
to the Assurance Agreement may be treated as a capital contribution to the
Company, and the gain would be reduced by a corresponding amount. In such case,
however, the Company's consolidated stockholders' equity would not be adversely
affected. In 1998, the Company's results of operations reflected a pre-tax gain
from the STP sale of $9.7 million ($6.7 million after tax, or $0.15 per share).

Shareholder Derivative Litigation

    As previously disclosed, on June 1, 1999, the Company was named as a nominal
defendant in a shareholder derivative action captioned Richard Schappel v. UICI,
Ronald Jensen, Richard Estell, Vernon Woelke, J. Michael Jaynes, Gary Friedman,
John Allen, Charles T. Prater, Richard Mockler and Robert B. Vlach, which was
filed and is pending in the District Court of Dallas County, Texas (the
"Shareholder Derivative Litigation"). The plaintiff has asserted on behalf of
UICI various derivative claims brought against the individual defendants,
alleging, among other things, breach of fiduciary duty, conversion, waste of
corporate assets, constructive fraud, negligent misrepresentation, conspiracy
and breach of contract. Plaintiff seeks to compel UICI to conduct a complete
accounting and audit relating to all related party transactions and to fully and
completely restate, report and disclose such transactions. Plaintiff further
seeks to recover for UICI's benefit all damages caused by such alleged breach of
the officers' and directors' duties to UICI. The plaintiff in the Shareholder
Derivative Litigation is also the president of Sun (the plaintiff in the Sun
Litigation), and substantially all of the initial claims made in the Shareholder
Derivative Litigation arose out of the same transactions that serve as the
factual underpinning to the Sun Communications Litigation referred to above.

    At the regular quarterly meeting of the Company's Board of Directors held on
August 4, 1999, George Lane III and Stuart D. Bilton (non-employee directors of
the Company) were appointed, in accordance with Texas and Delaware law, to serve
as a special committee (the "Special Litigation Committee") to investigate and
assess on behalf of the Company the underlying claims made in the Shareholder
Derivative Litigation.

    On January 18, 2000, plaintiff filed an amended petition and request for
injunctive relief. Plaintiff expanded his complaint to include a request for an
injunction against the Company prohibiting, among other things, any existing or
future transactions between UICI and any and all entities related to Ronald L.
Jensen unless each such transaction is fully and fairly disclosed to UICI
shareholders, together with an opinion from an independent public accounting
firm opining with particularity as to the fairness of each proposed transaction.

    On February 4, 2000, the Court granted the Company's motion for a statutory
stay of all further proceedings in the case, in accordance with Texas law
(including action on plaintiff's request for injunctive relief), pending
completion of the review of the claims currently undertaken by the Special
Litigation Committee, and its determination as to what further action, if any,
should be taken with respect to those claims. Subsequent to imposition of the
statutory stay, plaintiff filed (a) a motion to lift the statutory stay for the
limited purpose of hearing a motion for summary judgement to enforce Mr.
Jensen's 1996 agreement (the "Jensen 1996 Guaranty") to indemnify the Company
for any loss or reduction in value of the Company's Class A investment in Cash
Delivery Systems, LLC, (b) a second amended complaint and (c) a motion to lift
the statutory stay for the limited purpose of hearing a motion for summary
judgment against certain individual defendants with respect to the breach of
fiduciary duty claim in the Sun Litigation. The second amended complaint added
reference to the consent order issued by the OCC; attempted to quantify damages
alleged to have resulted from numerous related party transactions previously
disclosed in the Company's public filings; added an allegation of usurpation of
corporate opportunities; and requested injunctive relief that would require the
Company to, among other things, freeze, review and where appropriate rescind all
related party transactions, and require detailed reporting of related party
transactions.



                                       12
   13

    On March 20, 2000, the Special Litigation Committee delivered to the Board
of Directors of UICI its findings with respect to the allegations in the
original complaint. Based on its review and assessment of the allegations in the
original complaint, the Special Litigation Committee recommended that the
Company (a) seek dismissal of claims raised in the original complaint in the
derivative lawsuit, including dismissal of claims relating to the Jensen 1996
Guaranty (see discussion below); (b) seek the release to UICI of approximately
$7.6 million of uncontested proceeds from the STP sale held in the District
Court's registry; (c) seek from Mr. Jensen and/or former management certain
legal fees incurred by UICI in connection with the Sun Litigation that it
believes were incurred without appropriate board approval (which fees were
reimbursed by Mr. Jensen on July 5, 2000); (d) seek reimbursement of certain
legal fees awarded to Sun if and only if certain ongoing appeals prove
unsuccessful; and (e) implement certain heightened related-party transaction
controls. The Special Litigation Committee also recommended that UICI ratify the
Assurance Agreement, which allows UICI to recover up to $15.1 million from the
STP sale and which also requires UICI to look to the proceeds from the STP sale
to satisfy the Jensen 1996 Guaranty of the value of UICI's initial investment in
a predecessor company to STP. The Company's Board of Directors affirmed the
Special Litigation Committee's findings and recommendations and directed
management to implement the specific recommendations as promptly as practicable.

    On March 22, 2000, the Special Litigation Committee reported to the Court
its findings and recommendations with respect to the allegations in the original
complaint, and the Court granted plaintiff's motion to lift the statutory stay
in the proceedings for the purposes of evaluating the Special Litigation
Committee's decision on the Jensen 1996 Guaranty (and the derivative plaintiff's
motion for summary judgment on the Jensen 1996 Guaranty) and releasing the $7.6
million of uncontested funds from the sale of STP to the Company. The Company
filed a motion with the appeals court in the Sun Litigation seeking a
distribution to UICI of $7.6 million of uncontested funds. Following Sun's
demand that a portion of the remaining funds held in the court's registry in the
Sun Litigation be distributed to Sun, the court of appeals denied all requested
relief.

     On June 10, 2000, the Court dismissed plaintiff's claims arising from the
Jensen 1996 Guaranty. On April 30, 2000, UICI filed a motion to disqualify
plaintiff and his counsel, alleging that they were not fair and adequate
representatives of UICI. On May 4, 2000, plaintiff filed a Motion to Show
Authority, alleging that UICI did not have the authority to file the motion to
disqualify. The motion to disqualify and the motion to show authority are still
pending before the Court.

    On September 11, 2000, the Court lifted the statutory stay in the case at
the request of the Special Litigation Committee, in anticipation of the
Committee's report with respect to nine specific transactions that were the
subject of allegations made in plaintiff's first and second amended complaints.
On September 21, 2000, the Special Litigation Committee delivered to the Board
of Directors of UICI its findings with respect to these specific allegations.
Based on its review and assessment, the Special Litigation Committee recommended
that the Company (a) seek dismissal of the claims related to eight of the nine
transactions reviewed, (b) make certain supplemental disclosures with respect to
certain of the related party transactions that were the subject of the first and
second amended complaints, and (c), with respect to one of the nine
transactions, seek reimbursement of a portion of compensation paid to an
employee of the Company during the period 1995-1996. After plaintiff submitted
supplemental information to the Special Litigation Committee, the Special
Litigation Committee withdrew its recommendation that the Company seek
reimbursement of a portion of compensation paid to an employee, and conducted
further review. The Company's Board of Directors affirmed the Special Litigation
Committee's September 21, 2000 findings and recommendations and directed
management to implement the specific recommendations as promptly as practicable.

    In October 2000, the Company and the Special Litigation Committee filed a
motion for final settlement and release of certain derivative claims related to
the reimbursement of certain legal fees from Mr. Jensen and for dismissal of all
derivative claims asserted by plaintiff relating to the Sun Litigation. The
Company also sought the court's approval to allow Mr. Jensen to purchase the
Company's 80% interest in STP for $15.6 million ("Proposal A") or,
alternatively, to purchase for $15.1 million the Company's rights and claim of
rights to receive funds held in the registry of the court in the Sun Litigation
("Proposal B") (see discussion above under the caption "Sun Communications
Litigation"). On November 22, 2000, the Court granted the motion for settlement
and release of the derivative claims related to the reimbursement of certain
legal fees from Mr. Jensen, granted the motion to dismiss the derivative claims
asserted by the plaintiff relating to the Sun Litigation and related
transactions, and



                                       13
   14

approved the alternative settlements between Mr. Jensen and the Company, subject
to any alleged right on the part of Sun Communications, Inc. ("Sun") to consent
to Proposal A and/or Proposal B. The Company subsequently sued Sun separately
(UICI v. Sun Communications, Inc., pending in 134th Judicial District Court of
Dallas County, Texas, Cause No. 009353), seeking to resolve the consent issue.
Sun subsequently moved to abate the separate suit.

    In November 2000, plaintiff filed an application for attorneys' fees and
reimbursement of expenses. The Company intends to vigorously oppose such
application and to seek an offset of its own attorneys' fees.

    On January 25, 2001, the Special Litigation Committee delivered to the
Company its final findings, recommendations, and conclusions. The Special
Litigation Committee reinstated the prior recommendation that the Company seek a
portion of the compensation paid to an employee of the Company during the period
1995-1996, which compensation had previously been recovered by the Company in
December 2000. In addition, the Special Litigation Committee found that it "has
uncovered absolutely no evidence of any pattern of behavior that would suggest
any motive to disadvantage the Company on the part of any of UICI's present or
former officers or directors," and concluded that, in its opinion and except
with respect to the compensation previously recovered from the employee and the
legal fees previously recovered from Mr. Jensen (see discussion above), the
"related party transactions that were undertaken accrued to the significant
benefit of UICI." Finally, the Special Litigation Committee recommended
dismissal of plaintiff's lawsuit in its entirety. At a meeting held on February
28, 2001, the UICI Board of Directors accepted the final recommendations and
conclusions of the Special Litigation Committee. In accordance with the final
recommendations of the Special Litigation Committee, on April 20, 2001 UICI
filed a motion to dismiss the case in its entirety.

ACE and AFCA Litigation

    As previously disclosed, the Company and UCNB were initially parties to
separate lawsuits filed 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
(American Credit Educators, LLC v. United Credit National Bank and UICI and
American Fair Credit Association, Inc. v. United Credit National Bank and UICI,
each pending in the United States District Court for the District of Colorado).
In the suits, plaintiffs alleged, among other things, that UCNB has breached its
agreements with ACE and AFCA and have claimed damages in an indeterminate
amount. ACE and AFCA are each controlled by Phillip A. Gray, the former head of
UICI's credit card operations.

    On January 12, 2001, AFCA filed a second amended complaint seeking, among
other things, a declaratory judgement and injunctive relief and alleging breach
of contract and other causes of action. ACE filed a first amended complaint on
November 6, 2000.

    On September 28, 2000, ACE and AFCA filed motions for preliminary
injunctions to compel UICI to, among other things, deposit a significant portion
of the proceeds of the sale of UICI's credit card business in escrow under court
supervision. AFCA filed a supplement to its motion on February 2, 2001, alleging
the liquidation of UCNB as an additional ground for relief. On October 16, 2000,
the Company and UCNB filed motions to dismiss both cases. On January 12, 2001,
the court granted UCNB's motion to dismiss UCNB from the case as to claims for
monetary relief and denied the remainder of UICI's motion to dismiss.

    Following the voluntary liquidation of UCNB completed on January 29, 2001,
the legal existence of UCNB terminated and, in accordance with the terms of the
June 2000 Consent Order issued by the OCC against UICI, UICI expressly assumed
all liabilities of UCNB, including contingent liabilities associated with
pending and future litigation. Accordingly, on February 5, 2001, UICI moved to
substitute UICI for UCNB as a party defendant and to substitute United
CreditServ for UCNB for purposes of asserting and prosecuting counterclaims,
cross-claims, third party complaints and other offensive pleadings. On March 9,
2001, the court granted UICI's motion to consolidate the ACE and AFCA lawsuits
and ordered the plaintiffs to file an amended complaint on or before March 23,
2001. The Court denied ACE's motion for a preliminary injunction without
prejudice, and AFCA subsequently withdrew its motion for a preliminary
injunction. ACE and AFCA filed a consolidated complaint against the Company and
UCNB on April 4, 2001. UICI filed its motion to dismiss plaintiffs' consolidated
complaint on April 30, 2001. The court denied ACE's motion for preliminary
injunction without prejudice, and AFCA subsequently withdrew its motion for a
preliminary injunction.



                                       14
   15

    The Company believes that it has meritorious defenses to the allegations and
intends to vigorously contest the cases.

Mitchell Litigation

    As previously disclosed, the Company is one of three named defendants in a
class action suit filed in 1997 (Dadra Mitchell v. American Fair Credit
Association, United Membership Marketing Group, LLC and UICI) pending in
California state court (the "Mitchell case"), in which plaintiffs have alleged
that defendants violated California law regarding unfair and deceptive trade
practices by making misleading representations about, and falsely advertising
the nature and quality of, the benefits of membership in American Fair Credit
Association ("AFCA"). Plaintiffs also filed a companion case in federal district
court in San Francisco captioned Dadra Mitchell v. BankFirst, N.A., which
alleges violations of the federal Truth in Lending Act and Regulation Z. on the
theory that the 90-day notice period required for termination of AFCA membership
was not properly disclosed. The only defendant in the federal case (the
"BankFirst case") is BankFirst, N.A., a bank that issued a VISA credit card made
available through the AFCA program.

    On April 12, 1999, the California state court in the Mitchell case certified
a class of all California residents who entered into a membership contract with
AFCA through April 12, 1999.

    On May 4, 2000, the court in the BankFirst case granted Bankfirst's motion
for summary judgment and entered a judgment terminating the case in favor of
Bankfirst and against plaintiff Mitchell. Plaintiff Mitchell subsequently filed
a notice of appeal to the United States Court of Appeals for the Ninth Circuit.

    In October 2000, the state court in the Mitchell case granted, in part, and
denied, in part the joint motions of UICI, AFCA and UMMG to compel arbitration
and to narrow the scope of the plaintiff class. The court severed from the class
action the claims for recovery of money by way of damages or restitution of
class members who joined AFCA after January 1, 1998 and who executed signed
arbitration agreements. However, the state court denied UICI's motion to compel
arbitration with respect to these class members' claims for injunctive relief
and, as a result, their claims for injunctive relief remain part of the class
action. With respect to class members who were existing members of AFCA in
January of 1998 and who received through the mail an amendment adding
arbitration of disputes to their AFCA membership agreement, the state court
denied UICI's motion to compel arbitration unless the member also signed a
separate arbitration agreement. In addition, the state court clarified that its
prior April 12, 1999 order certified a class with respect to all claims pleaded
in the complaint, not solely claims under the California Credit Services Act of
1984.

    On October 12, 2000, UICI, jointly with defendants AFCA and UMMG, filed a
Notice of Appeal from the state court's October 2000 orders and from its
original class certification order dated April 12, 1999. By letter dated October
12, 2000, defendants notified plaintiffs of the filing of their Notice of Appeal
and that, consequently, all proceedings in the Mitchell case were stayed.

    In a status conference on the Mitchell case held on December 21, 2000, the
state court considered, among other issues, the extent and scope of the stay of
proceedings in the state court resulting from defendants' October 12, 2000
Notice of Appeal. The state court determined that it would presume that the stay
of proceedings in the state court resulting from defendants' October 12, 2000
Notice of Appeal extended to the entire Mitchell case and that such stay would
continue in effect until further order of the state court upon fully noticed
motion by plaintiff Mitchell. As of May 10, 2001, UICI had not received notice
from plaintiff Mitchell of a motion for any relief from the stay, and there have
been no further proceedings in the state court. Accordingly, at this time, it is
unclear whether or not plaintiffs will move for relief from the stay of
proceedings, and, if so, what relief from the stay, if any, will be granted to
plaintiffs pending the outcome of UICI's appeal.

Reinsurance Litigation

     On November 3, 2000, The MEGA Life and Health Insurance Company (a
wholly-owned subsidiary of the Company) ("MEGA") was named as a party defendant
in a suit filed by General & Cologne Life Re of America ("Cologne Re") (General
& Cologne Life Re of America vs. The MEGA Life and Health Insurance Company),



                                       15
   16

which is currently pending in the High Court of Justice, Queen's Bench Division,
Commercial Court, Royal Courts of Justice, in London, England. Plaintiff has
alleged that it is due the sum of (pound)1,592,358.54 (approximately US $2.3
million as of March 31, 2001) for losses incurred in a health insurance program
in the United Kingdom in which Cologne Re was a cedant of reinsurance and MEGA
was Cologne Re's retrocessionaire.

     A defense has been filed by MEGA, and Cologne Re recently submitted a reply
pleading, which is presently under review by counsel. English law provides for
extensive document discovery, which is being undertaken by both parties.

     MEGA believes it has meritorious defenses and counterclaims against Cologne
Re, which it served on Cologne Re on February 16, 2001, and intends to
vigorously defend the case and prosecute its counterclaims.

Gottstein Litigation

    As previously disclosed, UICI, Ronald L. Jensen, and UGA, Inc. are party
defendants in a purported class action lawsuit filed in November 1998
(Gottstein, et al. v. The National Association for the Self-Employed, et al.,
pending in the United States District Court for the District of Kansas). The
class representatives have alleged fraud, conspiracy to commit fraud, breach of
fiduciary duty, violation of the Kansas Consumer Protection Act, conspiracy to
commit RICO violations, and violation of RICO, all arising out of the concurrent
sales of individual health insurance policies underwritten and marketed by PFL
Life Insurance Company ("PFL") and memberships in The National Association for
the Self-Employed. On February 1, 2001, the court approved a settlement
including all potential class members in all states, including Kansas. Under the
terms of a cost sharing agreement with a unit of AEGON USA, UICI and/or MEGA
will be obligated to reimburse the AEGON USA unit for 50% of the cash cost of
the settlement.

    Disposition of the case under the current terms of the settlement will not
have a material adverse effect upon the Company.

State of Connecticut Investigation

    As previously disclosed, on April 19, 2000, the Connecticut Attorney
General's Office served upon UCNB a Civil Investigative Demand, seeking
information regarding UCNB's credit card fees, disclosures, marketing practices,
affinity relationships and the handling of payments from consumers to UCNB. On
May 26, 2000, UCNB submitted a timely response to the information request.

United Credit National Bank

    As previously disclosed, on February 25, 2000, the Board of Directors of
United Credit National Bank ("UCNB") consented to the issuance by the OCC of a
Consent Order (the "February Consent Order"). Until January 29, 2001, UCNB was a
special purpose national bank headquartered in Sioux Falls, South Dakota, and an
indirect wholly owned (except for directors' qualifying shares) subsidiary of
the Company. Among other things, the February Consent Order required UCNB, until
further notice from the OCC, to cease all activities with ACE and AFCA (UCNB's
only marketing organizations) and prohibited UCNB from introducing new products
or services, without accompanying policies and procedures reviewed and approved
by the OCC providing for, among other things, appropriate risk management,
internal control, management information and data processing systems.

    On June 29, 2000, the Company, UCS and UCNB agreed to the issuance by the
OCC of separate Consent Orders (the "June Consent Orders") memorializing the
terms of a definitive Capital Plan previously submitted by the Company and UCNB
and approved by the OCC as required by the February Consent Order (the "UCNB
Capital Plan"). The June Consent Orders required, among other things, (a) the
Company through UCS to contribute additional capital to UCNB in the amount of
$50.0 million in prescribed increments over a thirty-day period ended July 29,
2000 (which $50.0 million was contributed as required); (b) UCNB to maintain
prescribed capital ratios throughout the plan period; (c) UCNB to adopt and
implement certain credit card administrative policies and procedures; and (d)
the Company, on or before December 31, 2000, to assume all of UCNB's remaining
contingent liabilities.



                                       16
   17

    On January 29, 2001, the Company completed the voluntary liquidation of
UCNB, in accordance with the terms of a plan of voluntary liquidation approved
by the OCC. UCNB surrendered to the OCC its national bank charter and
distributed to a wholly-owned subsidiary of UICI the residual assets of UCNB,
including available cash and cash equivalents in the amount of approximately
$26.0 million. As part of the plan of liquidation, on January 29, 2001, the OCC
terminated the February and June Consent Orders issued against UCNB and the June
2000 Consent Order issued against UICI's United CreditServ subsidiary. The OCC
substantially modified the June Consent Order issued with respect to UICI to
eliminate all restrictive provisions except a reconfirmation of UICI's
obligation to assume all liabilities of UCNB.

    In the event that UICI fails to comply with the terms of the June Consent
Order, as modified, such failure could result in sanctions brought against the
Company and its officers and directors, including the assessment of civil money
penalties and enforcement of the Consent Order in Federal District Court.

Roe Litigation

     On March 8, 2001, UICI and UCNB were named as defendants in a case (Timothy
M. Roe v. Phillip A. Gray, American Fair Credit Association, Inc., UICI, UCNB,
et al) filed in the U.S. District Court for the District of Colorado. On his own
behalf and on behalf of a purported class of similarly situated individuals,
plaintiff in connection with the AFCA credit card program has alleged breach of
contract and violations of the federal Credit Repair Organizations Act and the
Truth-In-Lending Act and seeks certain declaratory relief.

     The Company believes that it has meritorious defenses to the allegations
and intends to vigorously contest the case.

Other 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 I - SEGMENT INFORMATION

    The Company's operating segments included in operations are: (i) Insurance,
which includes the businesses of the Self Employed Agency Division, the Student
Insurance Division, the OKC Division, the Special Risk Division and the National
Motor Club Division (which the Company sold on July 27, 2000); (ii) Financial
Services, which includes the businesses of Academic Management Services Corp.
("AMS"), the Company's investment in Healthaxis, Inc. (formerly HealthAxis.com,
Inc.) and Third Party Administration (formerly UICI Administrators), and (iii)
Other Key Factors.

    Other Key Factors include investment income not allocated to the other
segments, interest and general expenses relating to corporate operations,
realized gains or losses on sale of investments and the operations of the
Company's AMLI subsidiary. 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. Operations that do not constitute reportable operating segments
have been combined with Other Key Factors. 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 transactions
generally at cost.



                                       17
   18

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



                                                             THREE MONTHS ENDED
                                                                  MARCH 31,
                                                         --------------------------
                                                           2001              2000
                                                         ---------        ---------
                                                               (IN THOUSANDS)

                                                                    
Revenues
   Insurance:
     Self Employed Agency ........................       $ 156,521        $ 137,691
     Student Insurance ...........................          27,993           27,274
     OKC Division ................................          23,365           23,696
     Special Risk ................................           3,224           10,668
     National Motor Club .........................            --              9,237
                                                         ---------        ---------
                                                           211,103          208,566

   Financial Services:
     Academic Management Services ................          37,397           36,234
     Third Party Administration ..................           6,204            3,722
     Gain on sale of HealthAxis.com
      shares .....................................            --             26,300
                                                         ---------        ---------
                                                            43,601           66,256

   Other Key Factors .............................           5,989            9,297
   Intersegment Eliminations .....................          (1,030)            (135)
                                                         ---------        ---------
Total revenues ...................................       $ 259,663        $ 283,984
                                                         =========        =========




                                                                           THREE MONTHS ENDED
                                                                                MARCH 31,
                                                                        ------------------------
                                                                          2001            2000
                                                                        --------        --------
                                                                             (IN THOUSANDS)

                                                                                  
Income from operations before federal income taxes:
   Insurance:
     Self Employed Agency .......................................       $ 17,572        $ 18,134
     Student Insurance ..........................................            459              84
     OKC Division ...............................................          3,796           4,133
     Special Risk ...............................................           (148)            246
     National Motor Club ........................................           --             1,089
                                                                        --------        --------
                                                                          21,679          23,686

   Financial Services:
     Academic Management Services ...............................            269          (8,461)
     Third Party Administration .................................           (843)           (266)
     Gain on sale of HealthAxis.com shares ......................           --            26,300
     Healthaxis, Inc. operating loss ............................         (2,079)         (5,920)
                                                                        --------        --------
                                                                          (2,653)         11,653

   Other Key Factors ............................................            535           4,653
   Goodwill amortization ........................................         (1,172)         (1,689)
                                                                        --------        --------
Total income from operations before federal income taxes ........       $ 18,389        $ 38,303
                                                                        ========        ========




                                                               MARCH 31,      DECEMBER 31,
                                                                 2001             2000
                                                              ----------      ------------
                                                                   (IN THOUSANDS)

                                                                         
 Assets
   Insurance:
      Self Employed Agency ............................       $  475,753       $  446,106
      Student Insurance ...............................           84,506           78,197
      OKC Division ....................................          664,974          666,552
      Special Risk ....................................           91,741           97,647
                                                              ----------       ----------
                                                               1,316,974        1,288,502
   Financial Services:
      Academic Management Services ....................        1,532,655        1,479,217
      Third Party Administration ......................            6,464            6,392
      Investment in Healthaxis, Inc. ..................           16,363           18,442
                                                              ----------       ----------
                                                               1,555,482        1,504,051

  Other Key Factors ...................................          195,423          255,481
                                                              ----------       ----------
Total assets ..........................................       $3,067,879       $3,048,034
                                                              ==========       ==========




                                       18
   19

NOTE J - RELATED PARTY TRANSACTIONS

    Historically, the Company and its subsidiaries have engaged from time to
time in transactions and joint investments with executive officers and entities
controlled by executive officers, particularly Ronald L. Jensen (the Company's
Chairman) and entities in which Mr. Jensen and his adult children have an
interest ("Jensen Affiliates").

Payment of Amended Lender LLC Loan

    On January 30, 2001, the Company prepaid in full all principal and accrued
interest owing on the secured tranche of the Amended Lender LLC Loan in the
amount of $21.1 million, utilizing a portion of the proceeds received in
liquidation of UCNB, and the lender's security interest in 100% of the capital
stock of Mid-West National Life of Tennessee was released in full. The Lender
LLC is a limited liability company controlled by Mr. Jensen. See Note E of Notes
to Consolidated Condensed Financial Statements.

Onward and Upward Put

    In 1986 and 1996, respectively, Special Investment Risks, Ltd. ("SIR")
established, for the benefit of its independent insurance agents, independent
sales representatives and independent organizations associated with SIR, the
Agency Matching Total Ownership Plan I and the Agency Matching Total Ownership
Plan II (collectively, the "Plans"), entitling participants to purchase and
receive UICI Common Stock. In connection with SIR's transfer to the Company of
SIR's agency operations effective January 1, 1997, SIR agreed to retain the
liability to fund the Plans to the extent of 922,587 shares of UICI Common
Stock, representing the corresponding number of unvested AMTOP Credits (as
defined in the Plans) at January 1, 1997. As of August 30, 1999, the liability
of SIR to fund the Plans remained undischarged to the extent of 369,174 shares
of UICI Common Stock (the "Unfunded Obligation").

    Effective September 15, 1999, SIR and the Company entered into an Assumption
Agreement, pursuant to which the Company agreed to assume and discharge the
Unfunded Obligation, in consideration of a cash payment made by SIR to the
Company in the amount of $10.1 million representing the dollar value of 369,174
shares of UICI Common Stock at $27.4375 per share (the closing price of UICI
common stock at September 15). On October 29, 1999, SIR funded the cash payment.

    Mr. Jensen's five adult children hold in the aggregate 100% of the equity
interest in Onward & Upward, Inc. ("OUI"), which is the holder of approximately
6.5% of the Company's outstanding Common Stock. To ensure that the dollar value
of the Unfunded Obligation will not exceed the dollar proceeds received from SIR
plus a reasonable allowance for the cost of funds, effective September 15, 1999,
the Company and OUI entered into a Put/Call Agreement. Pursuant to the Put/Call
Agreement, for a thirty day period commencing on July 1 of each year (commencing
in 2000 through 2006), the Company has an option to purchase from OUI, and OUI
has a corresponding right to require the Company to purchase, up to 369,174
shares of Common Stock at an initial purchase price in 2000 of $28.50 per share.
The call/put price escalates over time in annual dollar increments to recognize
an increase in value of the underlying UICI stock based upon historical past
performance (an approximate 6.0% annual rate of appreciation). In July 2000, the
Company extended until October 31, 2000 the period during which OUI may exercise
its initial put right under the Put/Call Agreement. In November 2000, the
Company extended until March 31, 2001 the period during which OUI may exercise
its initial put right under the Put/Call Agreement.

    In May 2001, the Company extended until June 30, 2001 the period during
which OUI may exercise its initial put right under the Put/Call Agreement.

NOTE K - 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"). The
Employee Plan through its 401(k) feature enables eligible employees to make
pre-tax contributions to the Employee Plan in an amount not in excess of 15% of
compensation



                                       19
   20

(subject to overall limitations) and to direct the investment of such
contributions among several investment options, including UICI common stock. A
second feature of the Employee Plan constitutes an employee stock ownership plan
(the "ESOP"), contributions to which are invested primarily in shares of UICI
common stock. The ESOP feature allows participants to receive from UICI and its
subsidiaries discretionary matching contributions and to share in certain
supplemental contributions made by UICI and its subsidiaries. Contributions by
UICI and its subsidiaries to the Employee Plan under the ESOP feature currently
vest in prescribed increments over a seven-year period.

    On August 11, 2000, the Company issued to the Employee Plan 1,610,000 shares
of UICI common stock at a purchase price of $5.25 per share or $8.5 million in
the aggregate. The purchase price for the shares was paid by delivery to UICI of
the Employee Plan's $8.5 million promissory note (the "Plan Note"), which
matures in three years and is secured by a pledge of the purchased shares. The
shares of UICI common stock purchased with the Plan Note (the "$5.25 ESOP
Shares") are held in a suspense account for allocation among participants as and
when the Company's matching and supplemental contributions to the ESOP are made.
It is expected that the Plan Note will be extinguished over a period of
approximately two years by crediting the Company's matching and supplemental
contribution obligations under the ESOP feature of the Employee Plan against
principal and interest due on the Plan Note.

    During the three months ended March 31, 2001, the Company recorded
compensation expense associated with contributions to the Employee Plan in the
amount of $1.6 million. Included in the $1.6 million expense is $485,000 of
stock appreciation, which is reflected in other expenses on the Company's
consolidated statement of income. The amount classified as stock appreciation
expense represents the incremental compensation expense associated with the
allocation during the three months ended March 31, 2001 of 193,000 $5.25 ESOP
Shares to fund the Company's matching and supplemental contributions to the
ESOP. As and when the Company makes matching and supplemental contributions to
the ESOP by allocating to participants' accounts the $5.25 ESOP Shares held in
the suspense account, the Company will record additional compensation expense
equal to the excess, if any, between the fair value of the shares allocated and
$5.25 per share. The allocated $5.25 ESOP Shares are considered outstanding for
purposes of the computation of earnings per share.

    The Company currently estimates that approximately 600,000 $5.25 ESOP Shares
will be allocated to participants' ESOP accounts during 2001. The fair value of
the 1,062,000 unallocated $5.25 ESOP Shares totaled $9.3 million at March 31,
2001.

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 UGA - Association Field
Services, New United Agency, Cornerstone Marketing of America, CLD Agency and
CFLD Association Field Services agency field forces.

    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 on January 1 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, and the Agent Plans are not



                                       20
   21

subject to the vesting, funding, nondiscrimination and other requirements
imposed on such plans by the Internal Revenue Code and ERISA.

    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 have 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 June 30, 2002, the Company will utilize up to 2,175,000 newly-issued
shares to satisfy its commitment to deliver shares that vest during this period
under the Company-match feature of the Agent Plans. Under the arrangement
effective July 1, 2000, the Company's subsidiaries will transfer to the Company
$5.25 per share for any newly issued shares utilized to fund vested matching
credits under the 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 commission 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, commission 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 March, 2001 and 2000, the Company recorded
commission expense associated with the Agent Plans in the amount of $162,000 and
$624,000, respectively.

    At March 31, 2000, the Company had recorded approximately 1.1 million
unvested matching credits associated with the Agent Plans, of which the Company
estimates 326,000 will vest at January 1, 2002.

    The accounting treatment of the Company's Agent Plans will result in
unpredictable stock-based commission charges, dependent upon fluctuations in the
quoted price of UICI common stock. These unpredictable fluctuations in stock
based commission 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
commission 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 commission expense may result as the Company
adjusts the cumulative liability for unvested stock-based commission expense.
Stock- based commission expense is non-cash and will accordingly have no impact
on the Company's cash flows or liquidity.

NOTE L - SUBSEQUENT EVENTS

    Effective April 1, 2001, Specialized Card Services, Inc. ("SCS"), an
indirect wholly-owned subsidiary of the Company, entered into an agreement with
an unaffiliated third party to form a new venture to engage in the business of
collecting charged off consumer debt. In exchange for 50% of the common stock in
the newly formed entity and $3.0 million liquidation value of preferred stock,
SCS contributed to the newly formed corporation the business operations of its
Harker Heights, Texas collection facility at net book value and certain
previously written-off credit card receivables.



                                       21
   22

    On April 27, 2001, the Company completed a $100 million securitization of
alternative (i.e., non-federally guaranteed) student loans originated by the
Company's College Fund Life Division. The securitization consisted of two $50.0
million series of Student Loan Asset Backed Notes offered and sold by a special
purpose corporation (the "SPC") solely to qualified institutional buyers in
compliance with Rule 144A of the Securities Act of 1933. Interest rates on the
notes reset monthly in a Dutch auction process, with the initial rate set at
4.75%. The notes are secured by a pledge of alternative student loans, are rated
Aaa by Moody's Investor Service and AAA by Fitch, Inc. and are insured by MBIA.
As part of the transaction, the SPC acquired a $70.1 million portfolio of
alternative student loans from various affiliates of the Company, including
$11.0 million of loans previously held by UICI Funding Corp. 2, $29.0 million of
loans held by AMS, $24.0 million of loans held by MEGA and $6.0 million of loans
held by Mid-West. As part of the securitization, a loan acquisition fund was
established to acquire in the future up to an additional $19.1 million of
student loans originated by the Company's College Fund Life Division. On a
consolidated basis, the Company does not expect to record any gain on sale as a
result of the financing, and will continue to carry on its balance sheet the
alternative student loans and the associated debt arising from the transaction.

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

RESULTS OF OPERATIONS

    The Company's business segments included in operations are: (i) Insurance,
which includes the businesses of the Self Employed Agency Division, the Student
Insurance Division, the OKC Division, the Special Risk Division and the National
Motor Club Division (which the Company sold July 27, 2000); (ii) Financial
Services, which includes the businesses of Academic Management Services Corp.,
the Company's investment in Healthaxis, Inc., (formerly Insurdata Incorporated),
and Third Party Administration (formerly UICI Administrators) and (iii) Other
Key Factors, which includes investment income not allocated to the other
segments, interest and general expenses relating to corporate operations,
realized gains or losses on sale of investments and the operations of the
Company's AMLI subsidiary. Allocation of investment income is based on a number
of assumptions and estimates and the business segments reported operating
results would change if different methods were applied. Segment revenues include
premiums and other policy charges and considerations, net investment income,
fees and other income.

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



                                                         THREE MONTHS ENDED
                                                             MARCH 31,
                                                    --------------------------
                                                      2001             2000
                                                    ---------        ---------
                                                         (IN THOUSANDS)

                                                               
Revenues
   Insurance:
     Self Employed Agency ...................       $ 156,521        $ 137,691
     Student Insurance ......................          27,993           27,274
     OKC Division ...........................          23,365           23,696
     Special Risk ...........................           3,224           10,668
     National Motor Club ....................            --              9,237
                                                    ---------        ---------
                                                      211,103          208,566

   Financial Services:
     Academic Management Services ...........          37,397           36,234
     Third Party Administration .............           6,204            3,722
     Gain on sale of HealthAxis.com
      shares ................................            --             26,300
                                                    ---------        ---------

                                                       43,601           66,256

   Other Key Factors ........................           5,989            9,297
   Intersegment Eliminations ................          (1,030)            (135)
                                                    ---------        ---------
Total Revenues ..............................       $ 259,663        $ 283,984
                                                    =========        =========




                                       22
   23



                                                                      THREE MONTHS ENDED
                                                                           MARCH 31,
                                                                   ------------------------
                                                                     2001            2000
                                                                   --------        --------
                                                                        (IN THOUSANDS)

                                                                             
Income from operations before federal income taxes:
   Insurance:
     Self Employed Agency ..................................       $ 17,572        $ 18,134
     Student Insurance .....................................            459              84
     OKC Division ..........................................          3,796           4,133
     Special Risk ..........................................           (148)            246
     National Motor Club ...................................           --             1,089
                                                                   --------        --------
                                                                     21,679          23,686

   Financial Services:
     Academic Management Services ..........................            269          (8,461)
     Third Party Administration ............................           (843)           (266)
     Gain on sale of HealthAxis.com shares .................           --            26,300
     HealthAxis, Inc. operating loss .......................         (2,078)         (5,920)
                                                                   --------        --------
                                                                     (2,653)         11,653

   Other Key Factors .......................................            534           4,653
   Goodwill amortization ...................................         (1,172)         (1,689)
                                                                   --------        --------
Total income from operations before federal income taxes ...       $ 18,389        $ 38,303
                                                                   ========        ========


Three Month Period ended March 31, 2001 compared to Three Month Period ended
March 31, 2000

    For the three months ended March 31, 2001, the Company generated revenues
and net income of $259.7 million and $12.1 million ($0.25 per diluted share),
respectively, compared to pro forma revenues and net income of $248.4 million
and $2.2 million ($0.05 per diluted share), respectively, for the three months
ended March 31, 2000.

    Pro forma revenues and net income in 2000 exclude the effects of a one-time
gain from the sale of investment securities in the amount of $26.3 million
($17.1 million net of tax, or $0.36 per diluted share) and revenues and
operating income from the Company's National Motor Club unit (which was sold on
July 27, 2000) in the amount of $9.2 million and $1.1 million ($543,000 net of
tax, or $0.01 per diluted share), respectively. Including those items, the
Company reported revenues and net income of $284.0 million and $19.8 million
($0.42 per diluted share), respectively, for the three months ended March 31,
2000.

    Self-Employed Agency ("SEA") Division

    Operating income for the SEA Division decreased to $17.6 million for the
three months ended March 31, 2001 from $18.1 million for the comparable 2000
period. Revenues for the SEA Division increased to $156.5 million for the three
months ended March 31, 2001 from $137.7 million for the same period in 2000.
During the 2001 quarter, SEA experienced substantial growth in submitted
annualized premium volume ($123.6 million for the first three months of 2001
compared to $79.0 million for the first three months of 2000), continued to
successfully direct newer sales to the more traditional, higher margin,
indemnity products (sales of indemnity products represented 81% of new
production in the first three months of 2001 compared to 44% in the first three
months of 2000), and maintained loss ratios consistent with its favorable
experience during 2000 (61% for the first three months of 2001 compared to 60%
for the first three months of 2000).

    Student Insurance Division

    The Company's Student Insurance Division reported operating income of
$459,000 for the three months ended March 31, 2001, compared to $84,000 for the
comparable period in the prior year. The increase in operating income was
attributed primarily to improved administrative efficiencies. Revenue increased
to $28.0 million for the three months ended March 31, 2001 from $27.3 million in
the corresponding 2000 period.



                                       23
   24

    OKC Division

    Operating income for the OKC Division decreased to $3.8 million for the
three months ended March 31, 2001 from $4.1 million for the same period in 2000.
Revenues for the three months ended March 31, 2001 for the OKC Division
decreased to $23.3 million from $23.7 million in the comparable 2000 period. The
decrease in operating income is attributable to declining profits from the OKC
Division's closed blocks of life insurance business.

    Special Risk Division

    Operating losses for the Special Risk Division (consisting of certain niche
health-related products, including "stop loss", marine crew accident, organ
transplant and international travel accident products) were $148,000 for the
three months ended March 31, 2001 compared to income of $246,000 in the
comparable 2000 period. Revenue for the three months ended March 31, 2001
decreased to $3.2 million from $10.7 million in the corresponding 2000 period.
The decrease in revenue is a result of the implementation of reinsurance and
specific retrocession agreements that effectively permitted the Company to
transfer insurance revenue and the associated risk to a new insurance carrier.
This transfer was effective January 1, 2000, and will occur monthly as the
business renews over the life of the policies.

    National Motor Club

     On July 27, 2000, the Company completed the sale of its 97% interest in NMC
Holdings, Inc. (the parent of National Motor Club of America, Inc.) to an
investor group consisting of members of the family of Ronald L. Jensen
(including Mr. Jensen). As a result of the sale, no revenues or income generated
by National Motor Club are reflected on the Company's results of operations for
the three months ended March 31, 2001. During the three months ended March 31,
2000, National Motor Club generated revenues and operating income of $9.2
million and $1.1 million, respectively.

     Academic Management Services Corp. ("AMS")

    For the three months ended March 31, 2001, AMS reported operating income of
$269,000 compared to an operating loss of $8.5 million in the three months ended
March 31, 2000. AMS' revenues for the three months ended March 31, 2001 were
$37.4 million compared to revenues of $36.2 million for the comparable period in
the prior year.

    The significant improvement in operations resulted primarily from reductions
in operating expenses and a favorable interest rate environment during the three
months ended March 31, 2001.

    Total operating expenses of $11.6 million for the first quarter of 2001 were
approximately $4.9 million less than operating expenses in the comparable
quarter of the prior year. As previously announced, in the first quarter of 2000
AMS incurred charges of approximately $3.5 million in connection with a
management change effected in January 2000 and related changes in business
infrastructure and strategy. In addition, AMS realized expense reductions in the
first quarter of 2001 resulting from the closure of its San Diego facility,
which was completed in the fourth quarter of 2000.

    Declining market interest rates in the first quarter of 2001 resulted in
improved spreads on AMS' student loan portfolio. Spread income was $3.4 million
for the three months ended March 31, 2001, compared to $1.9 million for the
comparable period of the prior year, despite a reduction in portfolio size of
approximately $180.0 million. While declining market interest rates resulted in
reduced yields on student loans, the positive effect of rate reductions on AMS'
underlying financing more than offset the reduced yields on the student loan
portfolio. AMS also realized gains on the sale of student loans of $1.8 million
in the first quarter of 2001, compared to gains of $800,000 for the comparable
quarter of the prior year.

    Fee income from tuition payment programs increased to $2.7 million for the
three months ended March 31, 2001, from $1.9 million for the comparable period
of the prior year, due primarily to an increase in tuition installment plan
accounts and the imposition of late fees on delinquent accounts. Loan servicing
fee income was down slightly to $3.4 million from $3.7 million in the first
quarter of the prior year.



                                       24
   25

    The Company has previously disclosed that AMS had engaged Lehman Brothers
Inc. and Bank of America Securities Inc. to assist AMS in evaluating various
strategic alternatives, including a possible sale of AMS. While the Company and
AMS continue to evaluate and assess AMS' strategic alternatives, consideration
of a possible sale of AMS in its entirety has been suspended at this time.

    Third Party Administration Division (formerly UICI Administrators)

    The Company has classified the operations of UICI Administrators, Inc. (a
company engaged in the business of providing third party benefits
administration, including eligibility and billing reconciliation), Insurdata
Marketing Services, LLC (a subsidiary of the Company engaged in the business of
marketing third party benefits administration services), Healthcare Management
Administrators, Inc. (which the Company acquired on February 3, 2000) and
Barrons (previously included in the OKC Division) as its Third Party
Administration Division ("TPA") division. In the three months ended March 31,
2001, the TPA Division incurred an operating loss of $843,000 compared to an
operating loss of $266,000 in the comparable 2000 period. Revenues for the three
months ended March 31, 2001 increased to $6.2 million from $3.7 million in the
corresponding 2000 period.

    Investment in Healthaxis, Inc. (formerly HealthAxis.com, Inc.)

    At December 31, 2000, the Company held approximately 39.2% of the issued and
outstanding shares of common stock of HealthAxis.com, Inc. ("HealthAxis.com"), a
provider of Internet-enabled, integrated proprietary software applications that
address the workflow and processing inefficiencies embedded in the healthcare
insurance industry. At December 31, 2000, Healthaxis, Inc. (HAXS: Nasdaq)
("HAI") held approximately 34.7% of the issued and outstanding shares of common
stock of HealthAxis.com. In addition, at December 31, 2000, the Company held
$1.7 million principal amount of 2% convertible subordinated debentures issued
by HAI and a warrant to purchase 12,291 shares of HAI common stock at an
exercise price of $3.01 per HAI share. The HAI debentures mature in September
2005 and are convertible into 185,185 shares of HAI common stock.

    On January 26, 2001, HAI acquired all of the outstanding shares of
HealthAxis.com that HAI did not then own in a stock-for-stock merger of
HealthAxis.com with a wholly-owned subsidiary of HAI (the "HAI Merger"). In the
HAI Merger, HealthAxis.com shareholders (including the Company) received 1.334
shares of HAI common stock for each share of HealthAxis.com common stock
outstanding. The Company recognized no gain in connection with the HAI Merger.
Following the HAI Merger, the Company beneficially holds 23,944,030 shares of
HAI common stock (including the 185,185 shares issuable upon conversion of the
HAI convertible subordinated debentures), representing approximately 45.3% of
the issued and outstanding shares of HAI. Of such 23,944,030 shares beneficially
held by the Company, 8,581,714 shares (representing 16.2% of HAI's total issued
and outstanding shares) are subject to the terms of a Voting Trust Agreement,
pursuant to which trustees unaffiliated with the Company have the right to vote
such shares. Gregory T. Mutz and Patrick J. McLaughlin, President and a director
of UICI, respectively, serve on the Board of Directors of HAI.

    The Company has accounted for its investment in HealthAxis.com and will
continue to account 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). At March 31, 2001, the
Company's carrying value of its investment in HAI was $16.4 million. The
Company's equity in the loss of HAI in the three months ended March 31, 2001 was
$2.1 million.

    Other Key Factors

    The Other Key Factors category includes investment income not allocated to
the other segments, interest expense on corporate debt, general expenses
relating to corporate operations, realized gains or losses on sale of
investments and the operations of the Company's AMLI subsidiary. Operating
income for the three months ended March 31, 2001 associated with this category
decreased from $4.7 million for the three months ended March 31, 2000 to
$534,000, a decrease of $4.2 million. The decrease resulted primarily from a
decrease in income from the Company's AMLI subsidiary (to $702,000 for the three
months ended March 31, 2001 from $3.9 million for the three months ended March
31, 2000); an increase in minority interest expense of $2.7 million for the
three months



                                       25
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ended March 31, 2001 compared to the comparable 2000 period as a result of the
turnaround in earnings for the AMS division; and a $1.9 million decrease in
interest expense, which was primarily attributable to the reduction of
outstanding corporate indebtedness from $115.6 million at March 31, 2000 to
$35.2 million at March 31, 2001.

LIQUIDITY AND CAPITAL RESOURCES

    Historically, the Company's primary sources of cash 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 three-month periods ended March 31,
2001 and 2000, net cash used in operations totaled approximately $21.5 million
and $86.0 million, respectively.

    At March 31, 2001, UICI at the parent company level held cash and cash
equivalents in the amount of $20.4 million and had short and long-term
indebtedness outstanding in the amount of $6.2 million and $22.9 million,
respectively.

    The Company currently estimates that, through December 31, 2001, the holding
company will have operating cash requirements in the amount of approximately
$65.1 million. The Company currently anticipates that these cash requirements at
the holding company level will be funded by cash on hand, cash received from
interest income, dividends from domestic and offshore insurance companies and
tax sharing reimbursements from subsidiaries (which will be partially offset by
holding company operating expenses).

    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 dividends or
other means, from its subsidiaries. The laws governing the Company's insurance
subsidiaries restrict dividends paid by the Company's domestic insurance
subsidiaries in any year. Inability to access cash from its subsidiaries could
have a material adverse effect upon the Company's liquidity and capital
resources.

STATUTORY ACCOUNTING

    The Company's insurance subsidiaries statutory-basis financial statements
are prepared in accordance with accounting practices prescribed or permitted by
the Oklahoma, Tennessee, or Texas Insurance Departments. Currently, "prescribed"
statutory accounting practices are interspersed throughout state insurance laws
and regulations, the NAIC's Accounting Practices and Procedures Manual and a
variety of other NAIC publications. "Permitted" statutory accounting practices
encompass all accounting practices that are not prescribed; such practices may
differ from state to state, may differ from company to company within a state,
and may change in the future.

    The NAIC revised the Accounting Practices and Procedures Manual in a process
referred to as Codification. The revised manual became effective January 1,
2001. The domiciled states of the Company's insurance subsidiaries (Oklahoma,
Tennessee and Texas) have adopted the provisions of the revised manual. The
revised manual has changed, to some extent, prescribed statutory accounting
practices and will result in changes to the accounting practices that the
Company's insurance subsidiaries use to prepare its statutory-basis financial
statements. The cumulative effect of changes in accounting practices adopted to
conform to the revised Accounting Practices and Procedures Manual was reported
as an adjustment to surplus as of January 1, 2001 in the Company's statutory
statements. The impact of these changes did not result in a reduction in the
Company's statutory-basis capital and surplus as of adoption.

UNITED CREDITSERV - DISCONTINUED OPERATIONS

     In March 2000 the Board of Directors of UICI determined, after a thorough
assessment of the unit's prospects, that the Company would exit from its United
CreditServ sub-prime credit card business. Accordingly, the United CreditServ
unit was reflected as a discontinued operation for financial reporting purposes
as of, and for the years ended, December 31, 2000, 1999 and 1998.



                                       26
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    The Company believes that its exit from the credit card business is now
substantially complete. On January 29, 2001, the Company completed the voluntary
liquidation of United Credit National Bank ("UCNB") (the Company's credit card
issuing bank), in accordance with the terms of a plan of voluntary liquidation
approved by the United States Office of the Comptroller of the Currency (the
"OCC"). UCNB surrendered to the OCC its national bank charter and distributed to
a wholly-owned subsidiary of UICI the residual assets of UCNB in the amount of
approximately $26.0 million, substantially all of which consisted of cash and
cash equivalents. The Company utilized a substantial portion of the proceeds of
the liquidation to prepay in full principal and accrued interest owing to Lender
LLC (see Note E of Notes to Consolidated Condensed Financial Statements) in the
amount of $21.1 million and other indebtedness in the amount of $5.0 million.

    For financial reporting purposes, at December 31, 2000, the remaining assets
of the discontinued operations in the amount of $54.3 million (consisting of
cash and short-term investments in the amount of $27.8 million and other assets
in the amount of $26.5 million) were reclassified to cash and other assets,
respectively, on the Company's consolidated balance sheet, and the remaining
liabilities of the discontinued operations in the amount of $53.0 million
(consisting of notes payable in the amount of $4.3 million and other liabilities
in the amount of $48.7 million) were reclassified to notes payable and other
liabilities, respectively, on the Company's consolidated balance sheet.

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, through May 5, 2001, the Company had purchased
additional 964,800 shares pursuant to the program. 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.

MODIFICATION OF UICI EXECUTIVE STOCK PURCHASE PROGRAM

     In January 2001, the Board of Directors of the Company adopted certain
modifications to the UICI Executive Stock Purchase Program (the "ESPP"), which
was initially adopted and implemented in December 1998 to afford directors and
key UICI executives the opportunity to purchase UICI common stock. In connection
with the January 2001 modifications to the ESPP, for financial reporting
purposes the Company recorded in the quarter ended December 31, 2000
compensation expense in the amount of $4.8 million pre-tax, or $4.1 million net
of tax.

ACCOUNTING FOR 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 UGA - Association Field
Services, New United Agency, Cornerstone Marketing of America, CLD Agency and
CFLD Association Field Services agency field forces. 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 Agent Plans and
is required on a quarterly basis to adjust the liability based on the market
value of the Company's Common Stock. The accounting treatment of the Company's
Agent Plans will result in unpredictable stock-based commission charges,
dependent upon fluctuations in the quoted price of UICI common stock. These
unpredictable fluctuations in stock based commission charges may result in
material non-cash fluctuations in the Company's results of operations. See Note
K of Notes to Consolidated Condensed Financial Statements.

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.



                                       27
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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. The privacy rules under
GLBA became effective in November 2000, but compliance with the rules has been
deferred and is optional until July 1, 2001. By July 1, 2001 the Company is
required to provide written notice of its privacy practices to all of the
Company's customers/insureds, the Company must give customers/insureds an
opportunity to state their preferences regarding the Company's use of their
non-public personal information, and the Company must honor those preferences.

    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 are
expected to issue 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 the Company's Internet-based activities would be
hindered. It is not possible at this time to assess the impact of the privacy
provisions on the Company'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



                                       28
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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 will now
be 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. These rules must be complied with by April 14, 2003.

    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. These proposed rules have not yet become final.

    The Company 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 the Company's 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 the Company'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 following: 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.
Recently, large physician practice management companies have experienced



                                       29
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extreme financial difficulties, including bankruptcy, which may subject the
Company to increased credit risk related to provider groups and cause the
Company to incur duplicative claims expense. In addition, the Company faces
competitive 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.

    The Company's Academic Management Services Corp. business could be adversely
affected by changes in the Higher Education Act or other relevant federal or
state laws, rules and regulations and the programs implemented thereunder may
adversely impact the education credit market. 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.

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.

    Profitability of the student loans is 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 $312.0 million principal amount of
PLUS loans outstanding at March 31, 2001. The fixed yield on PLUS loans was
7.72% for the twelve months ended June 30, 2000 and has been reset to 8.99% for
the twelve months beginning July 1, 2000. These loans are financed with
borrowings whose rates are subject to reset, generally monthly. During the
twelve months beginning July 1, 2000, 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.



                                       30
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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 H 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, 2000 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 5 -- MARKET FOR REGISTRANT'S COMMON STOCK  AND RELATED MATTERS

    During the three months ended March 31, 2001, the Company issued 96,250
shares of unregistered common stock pursuant to its 2001 Restricted Stock Plan.


ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits.

         None.



(b)  Reports on Form 8-K.

         None.



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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:  May 11, 2001                /s/ Gregory T. Mutz
                                   --------------------------------------------
                                   Gregory T. Mutz, President,
                                   Chief Executive Officer and Director




Date:  May 11, 2001                /s/ Matthew R. Cassell
                                   --------------------------------------------
                                   Matthew R. Cassell, Vice President and
                                   Chief Financial Officer



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