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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, 2003.

OR

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

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

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


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


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


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

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

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

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

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common Stock, $.01 Par Value,
46,624,470 shares as of May 7, 2003.






INDEX

UICI AND SUBSIDIARIES



PAGE
-------

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated condensed balance sheets-March 31, 2003 (unaudited) and
December 31, 2002.................................................................... 3

Consolidated condensed statements of income (unaudited) - Three months
ended March 31, 2003 and 2002........................................................ 4

Consolidated statements of comprehensive income (unaudited) - Three months ended
March 31, 2003 and 2002.............................................................. 5

Consolidated condensed statements of cash flows (unaudited) - Three months
ended March 31, 2003 and 2002........................................................ 6

Notes to consolidated condensed financial statements (unaudited) - March 31, 2003.... 7

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................................ 21

Item 3. Quantitative and Qualitative Disclosures about Market Risk........................... 31

Item 4. Controls and Procedures.............................................................. 32

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.................................................................... 32

Item 5. Market for Registrant's Common Stock and Related Matters............................. 32

Item 6. Exhibits and Reports on Form 8-K..................................................... 32

SIGNATURES........................................................................................ 33

Certification of Gregory T. Mutz, Chief Executive Officer of UICI, Pursuant to Rule 13a-14 under
the Securities Exchange Act of 1934 ............................................................. 34
Certification of Mark D. Hauptman, Chief Financial Officer of UICI, Pursuant to Rule 13a-14 under
the Securities Exchange Act of 1934 ............................................................. 35



2




PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

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



MARCH 31, DECEMBER 31,
2003 2002
----------------- --------------
(UNAUDITED)

ASSETS
Investments
Securities available for sale --
Fixed maturities, at fair value (cost:
2003--$1,091,166; 2002--$1,051,710)..................... $1,131,466 $1,088,126
Equity securities, at fair value (cost:
2003--$43,083; 2002--$52,526)........................... 71,145 81,240
Mortgage and collateral loans.............................. 6,356 7,322
Policy loans............................................... 18,869 19,191
Investment in Healthaxis, Inc. ............................ 4,271 4,929
Short-term investments..................................... 169,731 138,854
---------- ----------
Total Investments................................... 1,401,838 1,339,662
Cash......................................................... 32,516 54,916
Student loans................................................ 1,507,742 1,430,989
Restricted cash.............................................. 386,169 410,184
Reinsurance receivables...................................... 57,623 59,155
Due premiums and other receivables........................... 71,305 61,304
Investment income due and accrued............................ 61,355 59,127
Federal income tax assets.................................... -- 5,881
Deferred acquisition costs................................... 90,560 89,617
Goodwill and other intangible assets......................... 110,486 110,907
Property and equipment, net.................................. 82,689 91,093
Other assets................................................. 16,644 17,469
---------- ----------
$3,818,927 $3,730,304
========== ==========


LIABILITIES AND STOCKHOLDERS' EQUITY

Policy liabilities
Future policy and contract benefits........................ $ 434,247 $ 423,218
Claims..................................................... 488,480 466,429
Unearned premiums.......................................... 133,033 121,750
Other policy liabilities................................... 17,925 17,706
Accounts payable............................................. 31,135 35,245
Other liabilities............................................ 107,847 138,452
Collections payable.......................................... 144,670 155,908
Federal income tax liabilities............................... 4,787 --
Debt......................................................... 9,443 9,547
Student loan credit facilities............................... 1,801,688 1,752,602
Net liabilities of discontinued operations, including reserve
for losses on disposal.................................... 25,683 24,397
---------- ----------
3,198,938 3,145,254
Commitments and Contingencies
Stockholders' Equity
Preferred stock, par value $0.01 per share................. -- --
Common stock, par value $0.01 per share.................... 516 509
Additional paid-in capital................................. 252,566 236,082
Accumulated other comprehensive income .................... 44,436 42,337
Retained earnings.......................................... 385,136 364,032
Treasury stock, at cost.................................... (62,665) (57,910)
---------- ----------
619,989 585,050
---------- ----------
$3,818,927 $3,730,304
========== ==========


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

See Notes to Consolidated Condensed Financial Statements.


3




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



THREE MONTHS ENDED
MARCH 31,
------------------------
2003 2002
--------- ---------

REVENUE
Premiums:
Health (includes amounts received from related parties of $2,656 and $2,895 for
the three months ended March 31, 2003 and 2002, respectively)................. $362,163 $240,437
Life premiums and other considerations.......................................... 7,571 7,754
-------- --------
369,734 248,191
Investment income.................................................................. 20,619 19,829
Other interest income (includes amounts received from related parties of $1
and $1 for the three months ended March 31, 2003 and 2002, respectively)......... 14,035 18,161
Other income (includes amounts received from related parties of $1,170 and $2,903 for
the three months ended March 31, 2003 and 2002, respectively).................... 29,974 26,892
Losses on investments.............................................................. (385) (738)
-------- --------
433,977 312,335
BENEFITS AND EXPENSES
Benefits, claims, and settlement expenses.......................................... 238,089 160,818
Underwriting, acquisition, and insurance expenses (includes amounts paid to
related parties of $2,504 and $6,864 for the three months ended March 31, 2003 and
2002, respectively).............................................................. 124,042 84,132
Variable stock-based compensation expense (benefit)................................ (2,137) 4,511
Other expenses (includes amounts paid to related parties of $262 and $1,134 for
the three months ended March 31, 2003 and 2002, respectively).................... 29,201 29,140
Depreciation (includes expense on assets purchased from related parties of $506 and
$386 for the three months ended March 31, 2003 and 2002, respectively)........... 4,299 4,659
Interest expense................................................................... 227 648
Interest expense--student loan credit facilities................................... 8,861 10,453
Losses in Healthaxis, Inc. investment.............................................. 644 174
-------- --------
403,226 294,535
-------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE FEDERAL INCOME TAXES........................ 30,751 17,800
Federal income taxes................................................................. 10,763 5,744
-------- --------
INCOME FROM CONTINUING OPERATIONS.................................................... 19,988 12,056

DISCONTINUED OPERATIONS
(net of income tax (expense) benefit of $(600) and $965 for the three months
ended March 31, 2003 and 2002, respectively)..................................... 1,115 67
--------- ---------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE................................. 21,103 12,123
Cumulative effect of accounting change (net of income tax benefit of $0 and $1,742
for the three months ended March 31, 2003 and 2002, respectively)................ -- (5,144)
--------- ---------
NET INCOME........................................................................... $ 21,103 $ 6,979
========= =========
Earnings per share:
Basic earnings
Income from continuing operations............................................... $ 0.43 $ 0.26
Income from discontinued operations............................................ 0.02 --
-------- --------
Income before cumulative effect of accounting change............................ 0.45 0.26
Cumulative effect of accounting change.......................................... -- (0.11)
-------- ---------
Net income...................................................................... $ 0.45 $ 0.15
======== ========
Diluted earnings
Income from continuing operations............................................... $ 0.42 $ 0.25
Income from discontinued operations............................................ 0.02 --
-------- --------
Income before cumulative effect of accounting change............................ 0.44 0.25
Cumulative effect of accounting change.......................................... -- (0.11)
-------- --------
Net income ..................................................................... $ 0.44 $ 0.14
======== ========




See Notes to Consolidated Condensed Financial Statements.

4




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



THREE MONTHS ENDED
MARCH 31,
--------------------------
2003 2002
--------- ---------


Net income............................................ $21,103 $ 6,979

Other comprehensive income (loss):
Unrealized gains on securities:
Unrealized holding gains (losses) arising during 3,996 (10,214)
period.........................................
Reclassification adjustment for losses
included in net income......................... (766) (737)
------- --------
Other comprehensive income (loss) before tax 3,230 (10,951)
Income tax provision related to items of
other comprehensive income..................... (1,131) 3,833
------- --------
Other comprehensive income (loss) net of
tax provision............................ 2,099 (7,118)
------- --------

Comprehensive income (loss)........................... $23,202 $ (139)
======= =======



See Notes to Consolidated Condensed Financial Statements.


5





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



THREE MONTHS ENDED
MARCH 31,
----------------------------
2003 2002
----------- ------------

OPERATING ACTIVITIES
Net income ....................................................... $ 21,103 $ 6,979
Adjustments to reconcile net income to
cash provided by operating activities:
Increase in policy liabilities.................................. 49,723 26,989
Decrease in other liabilities and accrued expenses.............. (16,039) (9,219)
Increase in income taxes........................................ 9,517 9,319
Increase in deferred acquisition costs.......................... (943) (4,032)
Increase in accrued investment income........................... (2,228) (3,545)
(Increase) decrease in reinsurance and other receivables........ (11,015) 8,625
Stock appreciation expense (benefit)............................ (2,137) 4,511
Depreciation and amortization................................... 4,724 11,844
Decrease in collections payable................................. (11,238) (9,375)
Operating loss of Healthaxis, Inc............................... 644 174
Losses on sale of investments................................... 385 738
Amounts (charged to) recovered from loss on disposal of
discontinued operations....................................... (5,460) 237
Other items, net................................................ 1,160 (1,167)
---------- ----------
Cash Provided by Operating Activities....................... 38,196 42,078
---------- ----------

INVESTING ACTIVITIES
Increase in student loans......................................... (77,006) (138,734)
Increase in other investments..................................... (44,848) (7,481)
Decrease in restricted cash....................................... 24,015 4,209
Decrease (Increase) in agents' receivables........................ 1,890 (8,406)
Proceeds from sale of subsidiary net of cash disposal of $145 in
2002............................................................ -- 1,855
Purchase of subsidiaries net of cash acquired of $2,599 in 2002... -- (30,833)
Increase in property and equipment................................ (11,722) (6,598)
---------- ----------
Cash Used in Investing Activities........................... (107,671) (185,988)
----------- ----------

FINANCING ACTIVITIES
Deposits from investment products................................. 3,589 3,809
Withdrawals from investment products.............................. (6,397) (6,895)
Proceeds from student loan borrowings............................. 197,515 508,100
Repayment of student loan borrowings.............................. (148,429) (389,269)
Repayment of debt................................................. (104) (678)
Exercise of stock options......................................... 9,031 1,000
Purchase of treasury shares....................................... (8,456) (255)
Other items, net.................................................. 326 3,136
---------- ----------
Cash Provided by Financing Activities....................... 47,075 118,948
---------- ----------

Net Decrease in Cash........................................ (22,400) (24,962)
Cash and cash equivalents at Beginning of Period............ 54,916 50,777
---------- ----------
Cash and cash equivalents at End of Period.................. $ 32,516 $ 25,815
========== ==========



See Notes to Consolidated Condensed Financial Statements.


6




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

March 31, 2003

NOTE A - BASIS OF PRESENTATION

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

CHANGE IN RESERVING METHODOLOGY - SELF EMPLOYED AGENCY DIVISION

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

Claim Reserve Changes

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

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

Changes in Estimate

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


7



ROP Reserve Changes

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

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

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 2002, the FASB issued Statement No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. Statement 146 is effective for exit
or disposal activities initiated after December 31, 2002. The impact of
implementation on the Company's financial position or results of operations is
not expected to be material.

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

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

8



years, the impact of adoption is not material on results of operations. This
change will primarily impact the accounting for stock options. The following
table illustrates the effect on net income as if the fair-value-based method had
been applied to all outstanding and unvested awards in each period.




THREE MONTHS ENDED
MARCH 31,
------------------------
2003 2002
---------- ----------
(IN THOUSANDS)

Net income, as reported........................................ $ 21,103 $ 6,979
Add stock-based employee compensation expense included
in reported net income, net of tax........................... 1 101
Deduct total stock-based employee compensation expense determined
under fair-value-based method for all rewards, net of tax.... (133) (1,556)
---------- ----------
Pro forma net income........................................... $ 20,971 $ 5,524
========== ==========


NOTE B - INVESTMENT IN HEALTHAXIS, INC.

At March 31, 2003, the Company held 24,147,404 shares of common stock of
Healthaxis, Inc. (HAXS: Nasdaq) ("HAI"), which at such date represented
approximately 45.2% of the issued and outstanding shares of HAI. HAI is an
emerging technology service firm that provides web-based connectivity and
applications solutions for health benefit distribution and administration. These
solutions, which consist primarily of software products and related services,
are designed to assist health insurance payers, third party administrators,
intermediaries and employers in providing enhanced services to members,
employees and providers through the application of HAI's flexible technology to
legacy systems, either on a fully integrated or on an application service
provider (ASP) basis.

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

The Company has accounted for its investment in HAI utilizing the equity
method and has recognized its ratable share of HAI income and loss (computed
prior to amortization of goodwill recorded in connection with the Insurdata
Merger). The Company's carrying value of its investment in HAI was $4.3 and $4.9
million at March 31, 2003 and December 31, 2002, respectively.

NOTE C - GOODWILL AND OTHER INTANGIBLE ASSETS

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

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




MARCH 31, 2003
-------------------------------------------------------------
(IN THOUSANDS)
OTHER
INTANGIBLE ACCUMULATED
GOODWILL ASSETS AMORTIZATION NET
---------- ------------ -------------- ---------

Self Employed Agency Division............. $ 9,405 $ -- $ (3,972) $ 5,433
Group Insurance Division.................. 17,513 8,858 (1,794) 24,577
Life Insurance Division................... 552 -- (193) 359
Senior Market Division.................... 6,089 1,637 (381) 7,345
Academic Management Services Corp......... 85,382 -- (12,610) 72,772
-------- -------- -------- --------
$118,941 $ 10,495 $(18,950) $110,486
======== ======== ======== ========


9





DECEMBER 31, 2002
-------------------------------------------------------------
(IN THOUSANDS)
OTHER
INTANGIBLE ACCUMULATED
GOODWILL ASSETS AMORTIZATION NET
-------- ---------- ------------ --------

Self Employed Agency Division............. $ 9,405 $ -- $ (3,972) $ 5,433
Group Insurance Division.................. 17,513 8,858 (1,428) 24,943
Life Insurance Division................... 552 -- (193) 359
Senior Market Division.................... 6,089 1,637 (326) 7,400
Academic Management Services Corp......... 85,382 -- (12,610) 72,772
-------- -------- -------- --------
$118,941 $ 10,495 $(18,529) $110,907
======== ======== ======== ========


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

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




(IN THOUSANDS)
--------------

Remainder of 2003..... $ 1,255
2004.................. 1,468
2005.................. 1,263
2006.................. 1,111
2007.................. 866
2008 and thereafter... 2,357
--------
$ 8,320
========


NOTE D - DEBT

At March 31, 2003 and December 31, 2002, the Company had outstanding
consolidated short and long-term indebtedness (exclusive of indebtedness secured
by student loans) in the amount of $9.4 and $9.5 million, respectively, of which
$7.9 million constituted indebtedness of the holding company at each such date.

On January 25, 2002, the Company entered into a three-year bank credit
facility with Bank of America, NA and LaSalle Bank National Association. Under
the facility, the Company may borrow from time to time up to $30.0 million on a
revolving, unsecured basis. The Company intends to utilize the proceeds of the
facility for general working capital purposes. At March 31, 2003, the Company
had no borrowings outstanding under the facility.

On June 22, 1994, the Company authorized an issue of its 8.75% Senior Notes
due June 2004 in the aggregate amount of $27.7 million. In accordance with the
agreement governing the terms of the notes (the "Note Agreement"), commencing on
June 1, 1998 and on each June 1 thereafter to and including June 1, 2003, the
Company is required to pay approximately $4.0 million aggregate principal
together with accrued interest thereon to the date of such repayment. The
principal amount of the notes outstanding was $7.9 million at each of March 31,
2003 and December 31, 2002. The Company incurred $173,000 and $259,000 of
interest expense on the notes in the three months ended March 31, 2003 and 2002,
respectively. The Note Agreement contains restrictive covenants that include
certain financial ratios, limitations on additional indebtedness as a percentage
of certain defined equity amounts and the disposal of certain subsidiaries,
including primarily the Company's regulated insurance subsidiaries.

AMS has a note payable in the outstanding principal amount of $1.5 million
and $1.6 million at March 31, 2003 and December 31, 2002, respectively. The note
bore interest at 3.55% at March 31, 2003, matures on June 30, 2004, requires
principal and interest payments quarterly and is secured by a first mortgage on
real estate held by AMS.

NOTE E - STUDENT LOAN CREDIT FACILITIES

At March 31, 2003 and December 31, 2002, the Company, through its AMS
subsidiary and the College Fund Life Insurance Division, had outstanding an
aggregate of $1,801.7 million and $1,752.6 million of indebtedness,
respectively, under secured student loan credit facilities, of which $1,681.3
million and $1,726.1 million, respectively, were issued by bankruptcy-remote
special purpose entities (a "Special Purpose Entity"). The accounts of all of
the Company's Special Purpose Entities are included in the Company's
Consolidated Financial Statements. At March 31, 2003 and December 31, 2002,
indebtedness outstanding under secured student loan credit facilities (including
indebtedness issued by Special Purpose Entities) was secured by federally
guaranteed and alternative (i.e., non-federally guaranteed) student loans in the
carrying amount of $1,507.5 million and $1,430.8 million, respectively, and by a
pledge of cash, cash equivalents and other qualified investments in the amount
of $207.0



10



million and $222.5 million, respectively. All such indebtedness issued
under secured student loan credit facilities is reflected as student loan
indebtedness on the Company's consolidated balance sheet; all such student loans
pledged to secure such facilities are reflected as student loan assets on the
Company's consolidated balance sheet; and all such cash, cash equivalents and
qualified investments specifically pledged under the student loan credit
facilities are reflected as restricted cash on the Company's consolidated
balance sheet.

NOTE F - ACQUISITIONS AND DISPOSALS

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

NOTE G - INCOME TAXES

The Company's effective tax rate on continuing operations for the three
month period ended March 31, 2003 was 35% compared to an effective tax rate of
32.3% in the corresponding period of 2002. For the three months ended March 31,
2002, the Company's effective tax rate on continuing operations varied from the
statutory rate of 35% primarily as a result of the reduction of the Company's
deferred tax liability following its assessment of potential additional tax
obligations. This decrease was partially offset by the non-deductible portion of
the variable stock-based compensation expense recorded in the three months ended
March 31, 2002.

NOTE H - EARNINGS (LOSS) PER SHARE

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




THREE MONTHS ENDED
MARCH 31,
----------------------------
2003 2002
---------- ----------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)

Income (loss) available to common shareholders:
Income from continuing operations available
to common shareholders................... $ 19,988 $ 12,056
Income (loss) from discontinued operations.. 1,115 67
---------- ----------
Income before cumulative effect of accounting 21,103 12,123
change....................................
Cumulative effect of accounting change...... -- (5,144)
---------- ----------
Net income.................................. $ 21,103 $ 6,979
========== ==========
Weighted average shares outstanding
-- basic earnings (loss) per share.......... 46,509 46,901
Effect of dilutive securities:
Employee stock options and other shares....... 1,521 1,213
---------- ----------
Weighted average shares outstanding -- dilutive
earnings (loss) per share................... 48,030 48,114
========== ==========
Basic earnings (loss) per share
From continuing operations.................. $ 0.43 $ 0.26
From discontinued operations................ 0.02 --
---------- ----------
Income before cumulative effect of accounting 0.45 0.26
change....................................
Cumulative effect of accounting change...... -- (0.11)
---------- ----------
Net income ................................. $ 0.45 $ 0.15
========== ==========
Diluted earnings (loss) per share
From continuing operations.................. $ 0.42 $ 0.25
From discontinued operations................ 0.02 --
---------- ----------
Income before cumulative effect of accounting 0.44 0.25
change....................................
Cumulative effect of accounting change...... -- (0.11)
---------- ----------
Net income.................................. $ 0.44 $ 0.14
========== ==========




11



NOTE I - 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 were 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 February 10, 1999 through
December 9, 1999.

Following a mediation held on May 23, 2002, the parties entered into
definitive settlement agreement on July 3, 2002 pursuant to which the parties
have agreed, without admitting or denying liability and provided that certain
conditions are satisfied, to fully and finally resolve the litigation. The
Company believes that the terms of the settlement as contemplated by the
settlement agreement will not have a material adverse effect upon the financial
condition or results of operations of the Company. Funding of the settlement
amount was completed on July 15, 2002.

On December 12, 2002, the Court issued an order preliminarily approving the
settlement and providing for notice to prospective class members. At fairness
hearing, held on March 3, 2003, the Court confirmed the settlement and entered
final judgment that, pursuant to the terms of the settlement agreement, released
the Company and named individual defendants with respect to all issues raised or
which could have been raised in the litigation.

SUN COMMUNICATIONS LITIGATION

As previously disclosed, UICI and Ronald L. Jensen (the Company's Chairman)
are parties to 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.

Effective April 2, 2002, the Company and Mr. Jensen entered into an
Assignment and Release Agreement, which, among other things, transferred UICI's
financial and other rights and obligations in STP to Mr. Jensen and effectively
terminated the Company's active participation in, and limited the Company's
financial exposure associated with, the Sun Litigation. In accordance with the
terms of the Assignment and Release Agreement, on April 2, 2002 Mr. Jensen made
a total payment to UICI of $15.6 million and granted to UICI various indemnities
against possible losses which UICI might incur resulting from the Sun
Litigation, including (i) any losses arising from the breach of fiduciary duty
claim asserted by Sun Communications, Inc. ("Sun") against the Company and Sun's
related claim for attorneys' fees, (ii) Sun's claim for attorneys' fees arising
out of the distribution issue in the Sun Litigation, and (iii) 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. In exchange
therefore, (i) UICI assigned to Mr. Jensen all of UICI's right, title and
interest to the funds held in the registry of the Court in the Sun Litigation
and released Mr. Jensen from any and all obligations arising under the Jensen
1996 Guaranty and the Assurance Agreement; (ii) UICI granted to Mr. Jensen an
option, exercisable at a nominal exercise price, to transfer to Mr. Jensen
UICI's 80% interest in STP; (iii) UICI agreed to cooperate with Mr. Jensen in
connection with the Sun Litigation; and (iv) UICI granted to Mr. Jensen an
irrevocable proxy to vote UICI's membership interest in STP all matters coming
before the members of STP for a vote.

At the request of Mr. Jensen and pursuant to the Company's obligations to
cooperate with Mr. Jensen in the Sun Litigation, on December 12, 2002 UICI made
an offer to purchase all, but not less than all, of Sun's membership interest in
STP in accordance with a "Texas draw" agreement. In connection with the Texas
draw offers, Mr. Jensen agreed to pay all of the Company's costs relating to the
offer and to indemnify UICI against any liability that might arise therefrom.
Sun subsequently filed a motion for a temporary injunction to enjoin closing of
the transactions contemplated by the Texas draw agreement. The closing of the
transactions contemplated by the Texas draw agreement was postponed pending the
court's ruling on a cross motions for summary judgment motion that was argued on
April 14, 2003 with respect to the validity of the transactions. If the
transactions contemplated by the


12



Texas draw agreement are not allowed to close in accordance with their terms
(which include dismissal of the Sun Litigation and release of all claims), trial
in the Sun Litigation is set to begin on May 12, 2003.

ACE/AFCA AND PHILIP A. GRAY LITIGATION

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

On July 26, 2001, the Court issued an order granting UICI's motion to
substitute UICI for UCNB as a party defendant and dismissing a significant
number of plaintiffs' claims. UICI's motion to dismiss was denied by the Court
as to AFCA's claims for breach of contract, declaratory judgment and
interference with contractual relations and ACE's claims for breach of contract
and for an accounting.

In its answer filed on August 15, 2001, the Company asserted numerous
defenses to the plaintiffs' remaining claims. UICI and United CreditServ also
asserted numerous counterclaims against ACE and AFCA, including, among other
things, breach of contract, breach of fiduciary duty, fraud and civil
conspiracy, and UICI and UCS have claimed damages in an indeterminate amount.
ACE and AFCA filed a partial motion to dismiss the counterclaims. While such
motion was pending, UICI and UCS sought leave to amend their counterclaims and
asserted additional claims against ACE and AFCA. On September 12, 2002, the
Court granted UICI's and UCS' motion for leave and denied ACE's and AFCA's
partial motion to dismiss the counterclaims previously filed.

In a separate suit filed on March 26, 2001 in the District Court of Dallas
County, Texas (the "Gray Litigation") (UICI, United Membership Marketing Group,
Inc., and UMMG-Colorado, LLC f/k/a United Membership Marketing Group Ltd.
Liability Co. v. Philip A. Gray and PAG Family Partners, LLC), the Company sued
Philip A. Gray individually ("Gray") and a related limited liability company
(the "LLC"), alleging, among other things, fraud, negligent misrepresentation,
and breach of fiduciary duty in connection with the Company's sub prime credit
card business. Gray removed the case to the United States District Court for the
Northern District of Texas, and UICI substituted PAG Family Partners Ltd.
("PAG") and the PAG Family Trust for the LLC as defendants. By order dated May
6, 2002, the Texas Federal Court denied PAG's motion to dismiss the fraud,
negligent misrepresentation and certain other claims, but dismissed certain of
the named defendants from the Gray Litigation. In addition, the Court ordered
the transfer of the Gray Litigation to the United States District Court for the
District of Colorado.

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

On December 11, 2002, UICI entered into a settlement agreement with ACE,
AFCA and all other Gray-related parties. The settlement is contingent upon court
approval of the settlement reached in the credit card marketing consumer actions
(Dadra Mitchell, et al. v. American Fair Credit Association, Inc., et al.,
Mitchell v. Bank First, N.A., and Timothy M. Roe v. Phillip A. Gray, American
Fair Credit Association, Inc., UICI, UCNB, et al) that are pending against UICI
and various of the Gray-related parties. In the event that the settlement
agreement becomes effective, it provides for the dismissal of the ACE/AFCA
litigation and the Gray Litigation upon terms that would not have a material
adverse effect upon the results of operations or financial condition of the
Company.

In the event that the settlement does not become effective, the Company
intends to continue to vigorously defend and pursue its counterclaims in the
ACE/AFCA Litigation and defend the counterclaims and pursue its claims in the
Gray Litigation.

CREDIT CARD MARKETING CONSUMER LITIGATION

As previously disclosed, the Company is involved in three disputes (Dadra
Mitchell v. American Fair Credit Association, United Membership Marketing Group,
LLC and UICI; Dadra Mitchell v. BankFirst, N.A; and Timothy


13



M. Roe v. Phillip A. Gray, American Fair Credit Association, Inc., UICI, UCNB,
et al), all of which arise out of the marketing of the American Fair Credit
Association credit card program prior to the termination of the Company's
participation in the program in January 2000.

Following a mediation held on December 7, 2002, the parties entered into a
Settlement and Release Agreement, dated as of December 11, 2002, pursuant to
which the defendants (including the Company), without acknowledging any fault,
liability or wrongdoing of any kind and subject to satisfaction of certain
conditions, agreed to settle all three cases. Funding of the settlement was
completed on December 20, 2002 in accordance with the terms of the Settlement
and Release Agreement. The Company believes that the terms of the settlement as
contemplated by the Settlement and Release Agreement will not have a material
adverse effect upon the financial condition or results of operations of the
Company.

The settlement is subject to preliminary approval of the terms of the
settlement, and certification of a plaintiff class for purposes of the
settlement, by the U.S. District Court for the Northern District of California
(with respect to the BankFirst case) and the California Superior Court for
Alameda County (with respect to the Mitchell case); notice of settlement to the
plaintiff class; and final approval of, and granting of a final non-appealable
judgment by, the U.S. District Court for the Northern District of California
(with respect to the BankFirst case) and the California Superior Court for
Alameda County (with respect to the Mitchell case). There can be no assurance
that these conditions to effectiveness of the settlement will in fact be
satisfied.

On February 28, 2003, the U.S. District Court entered a judgment granting
final approval of the settlement terms of the BankFirst case. The time to appeal
from the judgment entered by the U.S. District Court expired on March 31, 2003.
No appeal was taken from the judgment of the U.S. District Court. Accordingly,
the judgment in the BankFirst case is now final and non-appealable.

The California state court in the Mitchell case entered a judgment granting
final approval of the settlement terms on February 5, 2003. The time to appeal
from the judgment entered by the California state court is set to expire on May
9, 2003. The parties to the litigation have not to date received notice of the
filing of an appeal from this judgment. Absent such an appeal, the judgment
entered by the California state court will become final and non-appealable on
May 9, 2003, and the terms of the Settlement and Release Agreement will then be
effective.

ASSOCIATION GROUP LITIGATION

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

The MEGA Life and Health Insurance Company ("MEGA", a wholly owned
subsidiary of the Company) has recently been named a defendant in seven
separate lawsuits (Richard and Patty McBrayer vs. Brad Fair, MEGA Life and
Health Insurance Company, et al., filed on December 26, 2002 in the Circuit
Court of Clay County, Mississippi; Joe Shelton and Sharon Shelton vs. Chad
Mills, MEGA Life and Health Insurance Company, et al., filed on December 20,
2002 in the Circuit Court of Pontotoc County, Mississippi; Herman Tomlin and
Gary Harrison vs. MEGA Life and Health Insurance Company, et al., filed on
January 28, 2003 in the Circuit Court of Monroe County, Mississippi; Bailey et
al. v. MEGA Life, et al., filed on February 13, 2003 in the Circuit Court of
Chickasaw County, Mississippi; Pride, et al. v. MEGA Life, et al., filed on
December 31, 2002 in the Circuit Court of Panola County, Mississippi, Bishop
vs. John Doe, MEGA Life and Health Insurance Company, et al., filed on April
15, 2003 in the Circuit Court of Lafayette County, Mississippi; and Clark, et
al. vs. MEGA Life and Health Insurance Company, et al., filed on April 16, 2003
in the Circuit Court of Tate County, Mississippi), each of which contain
certain allegations regarding the relationships between MEGA and the National
Association for the Self-Employed (NASE), the membership association that has
endorsed MEGA's health insurance products. Plaintiffs specifically allege,
among other things, that MEGA pursued a scheme of deceptive sales practices
designed to create the impression that NASE is an independent entity; that in
fact NASE and MEGA are "under common ownership and control;" that the benefits
of NASE membership are negligible and membership is intended to permit MEGA to
control the insurer/insured relationship; and that the arrangement was intended
to allow MEGA to eliminate insureds with health problems from its block of
business by raising premiums. Plaintiffs demand punitive and economic damages
in an indeterminate amount, including excess premiums, association dues and
charges, administrative fees, and accrued interest.



14


The McBrayer, Shelton, Tomlin, Bailey, and Pride cases have been removed to
the United States District Court for the Northern District of Mississippi. The
Shelton case was subsequently voluntarily dismissed by the plaintiffs with
prejudice. The Company has moved to dismiss the McBrayer and Tomlin cases, but
has not answered or otherwise responded in the Bailey, Pride, Bishop or Clark
cases. No discovery has been undertaken in any of the cases.

In addition, UICI and Mid-West National Life Insurance Company of Tennessee
(a wholly owned subsidiary of the Company) have been named as defendants in a
suit filed on April 2, 2003 (Correa v. UICI, Mid-West National Life Insurance
Company of Tennessee, Alliance for Affordable Services, et al., pending in the
Superior Court for the State of California, County of Los Angeles), in which
plaintiff has alleged, among other things, that defendants have engaged in
illegal marketing practices in connection with the sale of health insurance. The
plaintiff has asserted several causes of action, including breach of contract,
violation of California Business and Professions Code Section 17200, false
advertising, and negligent and intentional misrepresentation. Neither UICI nor
Mid-West has been served, answered, or otherwise responded in the case.

UICI and The MEGA Life and Health Insurance Company have been named
defendants in a purported class action suit filed in Texas state court on April
22, 2003 (Garcia v. UICI, MEGA Life and Health Insurance Company, NASE Group
Insurance Trust and National Association for the Self Employed, pending in the
District Court of Starr County, Texas, 381st Judicial District, Case No.
DC-03-135). Plaintiff on behalf of himself and a purported class of similarly
situated individuals has asserted, among other things, that MEGA, NASE Group
Trust and NASE are under common control and ownership and operate as a "unified
business arrangement" which is used solely for the purpose of generating profits
through association dues and avoiding state insurance regulations. Plaintiffs
have alleged that defendants have used false and deceptive advertising and sales
practices in connection with the sale of insurance in Texas in violation of the
Texas Insurance Code, and plaintiffs further allege conversion and breach of
contract, for which they have asked for a return of all association dues and
administrative fees collected by the defendants. Plaintiffs have served
discovery requests on MEGA, UICI and NASE, though neither UICI nor MEGA has
answered or otherwise pleaded in the case.

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

INSURANCE REGULATORY MATTERS

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

The Company's insurance subsidiaries are required to file detailed annual
statements with the state insurance regulatory departments, and state insurance
departments have also periodically conducted and continue to conduct periodic
financial and market conduct examinations of UICI's insurance subsidiaries. As
of March 31, 2003, either or both of The MEGA Life and Health Insurance Company
and Mid-West National Life Insurance Company of Tennessee were subject to
ongoing market conduct examinations in ten states. State insurance regulatory
agencies have broad authority to levy monetary fines and penalties resulting
from findings made during the course of such financial and market conduct
examinations. Historically, the Company's insurance subsidiaries have from time
to time been assessed such fines and penalties, none of which individually or in
the aggregate have had a material adverse effect on the results of operations or
financial condition of the Company.

The Company provides health insurance products to consumers in the
self-employed market in 44 states. A substantial portion of such products is
issued to members of various independent membership associations that endorse
the products and act as the master policyholder for such products. The two
principal membership associations in the self-employed market for which the
Company underwrites insurance are the National Association for the Self-Employed
("NASE") and the Alliance for Affordable Services ("AAS"). The associations
provide their membership with a number of endorsed benefits and products,
including health insurance underwritten by the Company. Subject to applicable
state law, individuals generally may not obtain insurance under an association's
master policy unless they are also members of the associations. UGA agents and
Cornerstone agents also act as


15



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

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

OTHER LITIGATION MATTERS

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

NOTE J - SEGMENT INFORMATION

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

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

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



16



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



THREE MONTHS ENDED
MARCH 31,
-----------------------
2003 2002
-------- --------
(IN THOUSANDS)

Revenues
Insurance:
Self Employed Agency Division..................... $308,610 $219,778
Group Insurance Division.......................... 83,494 41,645
Life Insurance Division........................... 16,036 19,920
Senior Market Division............................ 793 437
-------- --------
408,933 281,780
-------- --------

Financial Services:
Academic Management Services Corp................. 22,078 26,475
-------- --------

Other Key Factors................................... 3,427 4,217
Intersegment Eliminations........................... (461) (137)
-------- --------
Total revenues from continuing operations.............. $433,977 $312,335
======== ========





THREE MONTHS ENDED
MARCH 31,
-----------------------
2003 2002
-------- --------
(IN THOUSANDS)

Income (loss) from continuing operations before federal
income taxes:
Insurance:
Self Employed Agency Division..................... $23,794 $15,748
Group Insurance Division.......................... 5,083 1,747
Life Insurance Division........................... 1,827 2,615
Senior Market Division............................ (1,761) (1,387)
------- -------
28,943 18,723
------- -------

Financial Services:
Academic Management Services Corp................. 1,516 4,098
Losses in Healthaxis, Inc. investment............. (644) (174)
------- -------
872 3,924
------- -------

Other Key Factors:
Investment income on equity, realized gains and
losses, general corporate expenses and other
(including interest expense on non-student
loan indebtedness).............................. (1,201) (336)
Variable stock-based compensation (expense) benefit. 2,137 (4,511)
------- -------
936 (4,847)
------- -------
Total income from continuing operations before federal
income taxes........................................... $30,751 $17,800
======= =======






MARCH 31, DECEMBER 31,
2003 2002
------------- -------------
(IN THOUSANDS)

Assets
Insurance:
Self Employed Agency Division...... $ 724,445 $ 671,370
Group Insurance Division........... 192,386 170,372
Life Insurance Division............ 621,178 630,597
Senior Market Division............. 8,419 8,209
------------- -------------
1,546,428 1,480,548
------------- -------------
Financial Services:
Academic Management Services Corp.. 1,876,384 1,842,773
Investment in Healthaxis, Inc...... 4,271 4,929
------------- -------------
1,880,655 1,847,702
------------- -------------
Other Key Factors:
General corporate and other........ 391,844 402,054
------------- -------------
Total assets............................. $ 3,818,927 $ 3,730,304
============= =============



NOTE K - STOCK OPTIONS

The Company has historically accounted for the stock-based compensation
plans under Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees. Under APB 25, because the exercise price of the
Company's employee stock options has been equal to the market price of
underlying stock on the date of



17



grant, no compensation expense has to date been recognized. On January 1, 2003,
the Company adopted Statement No. 123 for all employee awards granted or
modified on or after January 1, 2003, and will begin measuring the compensation
cost of stock-based awards under the fair value method. The Company adopted
Statement No. 148 on January 1, 2003 and has adopted the transition provisions
that require expensing options prospectively in the year of adoption. Existing
awards will continue to follow the intrinsic value method prescribed by APB 25.
The impact of implementation on the Company's financial position or results of
operations was not material.

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

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



THREE MONTHS ENDED
MARCH 31,
-----------------------
2003 2002
---------- ----------
(DOLLARS IN THOUSANDS
EXCEPT PER SHARE AMOUNTS)


Pro forma income:
Income from continuing operations..................... $ 19,856 $ 10,601
Income from discontinued operations................... 1,115 67
Loss from cumulative effect of accounting change...... -- (5,144)
---------- ----------
Net income..................................... $ 20,971 $ 5,524
========== ==========
Pro forma earnings per common share:
Basic earnings:
From continuing operations.......................... $ 0.43 $ 0.23
Income from discontinued operations................. 0.02 --
Loss from cumulative effect of accounting
Change......................................... -- (0.11)
--------- ----------
Net income..................................... $ 0.45 $ 0.12
========== ==========
Diluted earnings:
From continuing operations............................ $ 0.42 $ 0.22
Income from discontinued operations................... 0.02 --
Loss from cumulative effect of accounting change...... -- (0.11)
--------- ----------
Net income..................................... $ 0.44 $ 0.11
========== ==========


NOTE L - EMPLOYEE AND AGENT STOCK ACCUMULATION PLANS

UICI Employee Stock Ownership and Savings Plan

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

During the three months ended March 31, 2002, the Company recorded an
expense of $(2.0) million related to stock appreciation expense with respect to
the Employee Plan. This expense represented the incremental compensation expense
associated with the allocation to participants' accounts during the respective
period of shares, previously purchased in 2000 by the Employee Plan from the
Company at $5.25 per share ("$5.25 ESOP Shares") to fund the Company's matching
and supplemental contributions to the ESOP. The allocated $5.25 ESOP Shares were
considered outstanding for purposes of the computation of earnings per share.
The Employee Plan initially purchased in 2000 an aggregate of 1,610,000 $5.25
ESOP Shares, and as of December 31, 2002 all such shares had been allocated to
participants' accounts. During the fourth quarter of 2002, the Company allocated
the remaining unallocated shares to participants' accounts.


18




Agent Stock Accumulation Plans

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

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

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

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

For financial reporting purposes, the Company accounts for the Company-match
feature of its Agent Plans under EITF 96-18 "Accounting for Equity Instruments
that are issued to Other Than Employees for Acquiring or in Connection with
Selling Goods and Services," by recognizing compensation expense over the
vesting period in an amount equal to the fair market value of vested shares at
the date of their vesting and distribution to the participants. At each
quarter-end, the Company estimates its current liability for unvested matching
credits by reference to the number of unvested credits, the current market price
of the Company's common stock, and the Company's estimate of the percentage of
the vesting period that has elapsed up to the current quarter end. Changes in
the liability from one quarter to the next are accounted for as an increase in,
or decrease to, compensation expense, as the case may be. Upon vesting, the
Company releases the accrued liability (equal to the market value of the vested
shares at date of vesting) with a corresponding increase to paid-in capital.
Unvested matching credits are considered share equivalents outstanding for
purposes of the computation of earnings per share. For the three months ended
March 31, 2003 and 2002, the Company recorded total compensation (expense)
benefit associated with these agent plans in the amount of $(538,000) and $(3.3)
million, respectively, of which $2.1 million and $(1.8) million, respectively,
represented the non-cash stock based compensation benefit (expense) associated
with the adjustment to the liability for future unvested benefits. In the three
months ended March 31, 2003, the Company recorded a benefit from the decrease in
non-cash stock-based compensation associated with the Company's agent stock
accumulation plans


19


primarily attributable to the lower share price in the first quarter of 2003
compared to the share price in the comparable quarter in 2002.

At December 31, 2002, the Company had recorded approximately 1.9 million
unvested matching credits associated with the Agent Plans, of which 697,000
vested in January 2003. At March 31, 2003, the Company had recorded
approximately 1.5 million unvested matching credits.

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

NOTE M - CORPORATE OVERHEAD ALLOCATION

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

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



THREE MONTHS ENDED
----------------------------------------------------------------
MAR 31, JUN 30, SEP 30, DEC 31, TOTAL
2002 2002 2002 2002 2002
-------- -------- -------- -------- --------
(IN THOUSANDS)

Income (loss) from continuing operations before
federal income taxes:
Insurance:
Self Employed Agency Division ................. $ 15,748 $ 19,671 $ 23,128 $ 25,647 $ 84,194
Group Insurance Division ...................... 1,747 3,311 3,030 5,067 13,155
Life Insurance Division ....................... 2,615 2,817 1,244 1,421 8,097
Senior Market Division ........................ (1,387) (1,855) (2,107) (2,202) (7,551)
-------- -------- -------- -------- --------
18,723 23,944 25,295 29,933 97,895
-------- -------- -------- -------- --------

Financial Services:
Academic Management Services Corp. ............ 4,098 4,337 (1,764) 299 6,970
Losses in Healthaxis, Inc. investment ........ (174) (7,925) (796) (744) (9,639)
-------- -------- -------- -------- --------
3,924 (3,588) (2,560) (445) (2,669)
-------- -------- -------- -------- --------

Other Key Factors:
Investment income on equity, realized gains and
losses, general corporate expenses and other
(including interest expense on non-student
loan indebtedness) ......................... (336) (3,754) 957 398 (2,735)
Variable stock-based compensation expense ..... (4,511) (6,805) (4,496) (2,245) (18,057)
-------- -------- -------- -------- --------
(4,847) (10,559) (3,539) (1,847) (20,792)
-------- -------- -------- -------- --------

Total income from continuing operations before
federal income taxes ............................ $ 17,800 $ 9,797 $ 19,196 $ 27,641 $ 74,434
======== ======== ======== ======== ========


NOTE N - SUBSEQUENT EVENT

On May 6, 2003, the Company completed the purchase of 207,104 shares of UICI
common stock from Gregory T. Mutz, President and Chief Executive Officer of the
Company. The shares were purchased for a total purchase price of $2.8 million,
or $13.67 per share, which was the closing price of UICI shares on the New York
Stock Exchange on May 5, 2003. Part of the proceeds from the sale was used to
retire indebtedness owing by Mr. Mutz to


20


the Company in the amount of $1.3 million, which indebtedness had initially been
incurred by Mr. Mutz in 1998-99 to acquire shares of UICI stock pursuant to the
Company's Executive Stock Purchase Program.

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

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

INTRODUCTION

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

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

On January 17, 2002, the Company completed the sale of UICI Administrators,
Inc., the major component of its former Third Party Administration (TPA)
Division. In the three months ended December 31, 2001, the Company recognized an
impairment charge of $2.3 million to its long-lived assets associated with the
UICI Administrators, Inc. unit, of which $700,000 represented a write-down of
fixed assets (which was reflected in depreciation for the full year and fourth
quarter of 2001) and $1.6 million represented a write-down of goodwill (which
was reflected in goodwill amortization for the full year and fourth quarter of
2001). As a result of the charge in the fourth quarter of 2001, the Company
recognized no gain or loss on the sale of UICI Administrators, Inc. Through
January 17, 2002 (the date of sale), the UICI Administrators, Inc. unit reported
net income in the amount of $67,000.

In accordance with FASB Statement 144, the results of operations of UICI
Administrators, Inc. have been reflected in discontinued operations for all
periods presented. The remaining portion of the former TPA Division (consisting
primarily of Barron Risk Management Services) have been reclassified to the
Company's Other Key Factors segment for all periods presented. Effective
September 30, 2002, Barron was sold for a nominal gain.

Sarbanes-Oxley Act of 2002

On July 30, 2002, President Bush signed into law the Public Accounting
Reform and Investor Protection Act of 2002 - - commonly referred to as the
Sarbanes-Oxley Act of 2002 (the "Act"). The stated purpose of the Act is to
improve the independence and oversight of public accounting firms engaged in
practice before the Securities and Exchange Commission, to expand the scope and
timeliness of certain public disclosures by reporting companies, to strengthen
corporate governance practices by reporting companies, their directors and
executive officers and to increase the accountability of directors and executive
officers for violations of the securities laws. The Act, together with recent
proposals to amend the listing standards imposed by the New York Stock Exchange,
will have a significant impact on the corporate governance obligations of public
companies, including UICI.

In accordance with Section 302(a) of the Act, the Securities and Exchange
Commission adopted rules effective August 29, 2002 requiring an issuer's
principal executive officer and financial officer to certify the financial and
other information contained in an issuer's quarterly and annual reports. The
newly-adopted rules also require these officers to certify that they are
responsible for establishing, maintaining and regularly evaluating the
effectiveness of the issuer's internal controls, that they have made certain
disclosures to the issuer's auditors and the audit committee


21


of the board of directors about the issuer's internal controls, and that they
have included information in the issuer's quarterly and annual reports about
their evaluation and whether there have been significant changes in the issuer's
internal controls or in other factors that could significantly affect internal
controls subsequent to the evaluation. The certifications required by Section
302(a) of the Act and newly-adopted Rule 13a-14 under the Securities Exchange
Act of 1934 of each of Gregory T. Mutz (President and Chief Executive Officer of
UICI) and Mark D. Hauptman (Vice President and Chief Financial Officer of UICI)
are included as part of this Quarterly Report on Form 10-Q and may be found
immediately following the signature page hereof.

In accordance with Section 906 of the Act, and in connection with the
filing of the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 2003 (the "Report"), each of Gregory T. Mutz (President and Chief
Executive Officer of UICI) and Mark D. Hauptman (Vice President and Chief
Financial Officer of UICI) has also submitted to the SEC a statement certifying,
to his knowledge, that the Report fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of 1934; and the
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.

RESULTS OF OPERATIONS

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

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



THREE MONTHS ENDED
MARCH 31,
------------------------
2003 2002
--------- ---------
(IN THOUSANDS)

Revenues
Insurance:
Self Employed Agency Division ................................. $ 308,610 $ 219,778
Group Insurance Division ...................................... 83,494 41,645
Life Insurance Division ....................................... 16,036 19,920
Senior Market Division ........................................ 793 437
--------- ---------
408,933 281,780

Financial Services:
Academic Management Services Corp. ............................ 22,078 26,475
--------- ---------

Other Key Factors ............................................... 3,427 4,217
Intersegment Eliminations ....................................... (461) (137)
--------- ---------
Total revenues from continuing operations .......................... $ 433,977 $ 312,335
========= =========




THREE MONTHS ENDED
MARCH 31,
----------------------
2003 2002
-------- --------
(IN THOUSANDS)

Income (loss) from continuing operations before federal income taxes:
Insurance:
Self Employed Agency Division .................................. $ 23,794 $ 15,748
Group Insurance Division ....................................... 5,083 1,747
Life Insurance Division ........................................ 1,827 2,615
Senior Market Division ......................................... (1,761) (1,387)
-------- --------
28,943 18,723
-------- --------

Financial Services:
Academic Management Services Corp. ............................ 1,516 4,098
Losses in Healthaxis, Inc. investment ......................... (644) (174)
-------- --------
872 3,924
-------- --------
Other Key Factors:
Investment income on equity, realized gains and
losses, general corporate expenses and other
(including interest expense on non-student
loan indebtedness) ........................................... (1,201) (336)
Variable stock-based compensation (expense) benefit ............ 2,137 (4,511)
-------- --------
936 (4,847)
-------- --------
Total income from continuing operations before federal
income taxes ........................................................ $ 30,751 $ 17,800
======== ========





22



Three Months ended March 31, 2003 compared to Three Months ended March 31, 2002

The Company reported first quarter 2003 revenues and income from continuing
operations in the amount of $434.0 million ($0.42 per diluted share), compared
to revenues and income from continuing operations of $312.3 million ($0.25 per
diluted share), in the first quarter of 2002.

Overall, for the three months ended March 31, 2003, the Company reported net
income in the amount of $21.1 million ($0.44 per diluted share), compared to net
income of $7.0 million ($0.14 per diluted share) in the corresponding 2002
period. Overall results in the three months ended March 31, 2002 included a
goodwill impairment charge in the amount of $(5.1) million (net of tax) ($(0.11)
per diluted share), which has been reflected as a cumulative effect of a change
in accounting principle in accordance with recently adopted Financial Accounting
Standards Board ("FASB") Statement No. 142, Goodwill and Other Intangible
Assets.

The Company's first quarter 2003 results were highlighted by the strong
performance of its Self Employed Agency Division, which enjoyed significant
continued period-over-period growth in both revenue and operating income. Earned
premium revenue at the Self Employed Agency Division increased to $281.4 million
in the first quarter of 2003 from $196.1 million in the first quarter of 2002 (a
43% increase), and operating income at the Self Employed Agency Division
increased to $23.8 million in the first quarter of 2003 from $15.7 million in
the first quarter of 2002 (a 51% increase). The Self Employed Agency Division's
first quarter 2003 results included pre-tax income in the amount of $4.8 million
associated with the release of reserves resulting from an adjustment to the
Company's reserve methodology and certain changes in accounting estimates. See
discussion below under the caption "Other Matters - - Self Employed Agency
Division - - Reserve Adjustments ".

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

Set forth below is a discussion of results by business segment in the
three-month period ended March 31, 2003:

Self-Employed Agency Division

Operating income at UICI's Self Employed Agency ("SEA") Division increased
by 51% to $23.8 million in the three months ended March 31, 2003 from $15.7
million in the corresponding period of 2002. In the 2003 period, SEA continued
to experience increases in submitted annualized premium volume ($247.4 million
in the three months ended March 31, 2003 compared to $227.2 million in 2002).
Submitted annualized premium volume in any period is the aggregate annualized
premium amount associated with health insurance applications submitted by the
Company's agents in such period for underwriting by the Company. Earned premium
revenue at the SEA Division increased from $196.1 million in the first quarter
of 2002 to $281.4 million in the first quarter of 2003 (a 43% increase).

Effective January 1, 2003, the Company's SEA Division made adjustments to
its reserve methodology and certain changes in accounting estimates, the net
effect of which decreased reserves and correspondingly increased operating
income reported by the SEA Division in the amount of $4.8 million in the first
quarter of 2003. The net reduction in reserves of $4.8 million consisted of a
$12.3 million reduction in the claim reserves associated with the Company's
decision to change to a "modified incurred date" coding method to establish
incurred dates under the developmental method for establishing claims reserves;
a further reduction of the claim reserve in the amount of $5.4 million resulting
from changes in accounting estimates, consisting primarily of a change in
estimate of the reserve for excess pending claims; and an increase in reserves
in the amount of $12.9 million associated with the changes in the Company's
reserving methodology for certain health policies issued with a
"return-of-premium" (ROP) rider. See discussion below under the caption "Other
Matters - - Self Employed Agency Division - - Reserve Adjustments ".

Operating income as a percentage of earned premium revenue in the three
months ended March 31, 2003 was 8.5% compared to 8.0% in the corresponding
period of the prior year. Excluding the effects of the changes in reserves
referenced above, operating income as a percentage of earned premium revenue in
the three months ended March 31, 2003 was 6.7% compared to 8.0% in the
corresponding period of the prior year. The decrease in operating margin
(excluding the effects of the changes in reserves referenced above) was
attributable primarily to a modest increase in the loss ratio associated with
SEA's health insurance products.


23


Group Insurance Division

The Company's Group Insurance Division reported operating income of $5.1
million for the three months ended March 31, 2003 compared to operating income
of $1.7 million in the comparable period of 2002. These increases were primarily
attributable to the incremental operating income associated with the Company's
STAR HRG unit, which was acquired by the Company on February 28, 2002, and an
increase in earned premium revenue and decrease in administrative expenses as a
percentage of earned premium at the Company's Student Insurance Division.

Life Insurance Division

For the three months ended March 31, 2003, the Company's Life Insurance
Division (which includes the results of the Company's OKC life insurance
operations and its College Fund Life Division) reported operating income of $1.8
million compared to operating income of $2.6 million in the corresponding period
in 2002. The decrease in operating income in the three months ended March 31,
2003 compared to 2002 reflects the disappointing performance of the closed
blocks of life business, increased marketing and other expenses associated with
bringing the Company's new life insurance products to market and costs
associated with the closedown of its College Fund Life Division program.

The Company has determined that, effective May 31, 2003, it will no longer
issue new life insurance policies under the College Fund Life Division program
and that, effective June 30, 2003, it will cease all operations at the Company's
Norcross, Georgia facility. In connection with such closedown, the Company
currently estimates that it will incur additional exit costs (consisting
primarily of employee severance, relocation expenses and lease termination and
other costs) in the amount of approximately $800,000, which costs will be
expensed as incurred over the period ending June 30, 2003 in accordance with
Financial Accounting Standards Board ("FASB") Statement No. 146, Accounting for
Costs Associated with Exit or Disposal Activities.

Senior Market Division

The Company's Senior Market Division generated revenues of $793,000 and
$437,000 for the three months ended March 1, 2003 and 2002, respectively. The
Senior Market Division generated operating losses of $(1.8) million and $(1.4)
million in 2003 and 2002, respectively. The Company currently anticipates that
its Senior Market Division will continue to generate operating losses throughout
the balance of 2003.

In 2001 the Company entered into an agreement with an unaffiliated third
party to serve as administrator for the Company's senior age insurance products,
in which capacity the third party underwrote, billed, provided customer service
and administered claims for all long-term care and Medicare supplement insurance
products to be sold by the Company's two principal insurance subsidiaries. This
third party arrangement will effectively terminate in the second quarter of
2003. In March 2003, the Company brought in house all underwriting, billing,
customer service and claims administration functions for all new long term care
applications submitted. Conversion of in-force long-term care and Medicare
supplement business will occur in the second quarter of 2003. Medicare
supplement sales were suspended in February 2003 until the conversion of
administrative functions to the Company's administration center is complete.

Senior market products are distributed through independent agents affiliated
with Guaranty Senior Assurance (a division of MEGA) and through independent
agents affiliated with SeniorsFirst LLC, an agency in which the Company holds a
50% ownership interest. The Company acquired its 50% interest in SeniorsFirst
LLC on January 17, 2002 for a cash purchase price of $8.0 million.

Academic Management Services Corp. ("AMS")

For the three months ended March 31, 2003, UICI's AMS unit reported
operating income of $1.5 million compared to operating income of $4.1 million in
the year-earlier period. The decrease in operating income for the three months
ended March 31, 2003 resulted primarily from decreased student loan spread
income (i.e., the difference between interest earned on outstanding student
loans and interest expense associated with indebtedness incurred to fund such
loans).

During the first quarter of 2002, AMS benefited significantly from a
favorable prescribed minimum rate earned on its student loan portfolio. On July
1, 2002, the floor rates on loans made under the federal FFELP student loan
program for the period July 1, 2002 through June 30, 2003 reset 193 basis points
lower than the floor rates in effect for the period July 1, 2001 through June
30, 2002. Reflecting this downward adjustment on July 1, 2002 to the floor


24


rate on loans made under the federal FFELP student loan program, AMS' student
loan spread income declined significantly from $7.9 million in the three months
ended March 31, 2002 to $5.6 million in the three months ended March 31, 2003.

AMS' tuition payment programs generated fee income in the quarter ended
March 31, 2003 in the amount of $2.9 million, compared to fee income in the year
earlier quarter of $2.7 million. This modest increase in fee income was offset
by a 21.2% decrease in investment income on trust funds held in connection with
tuition payment programs ($814,000 in the first quarter of 2003 compared to $1.0
million in the first quarter of 2002) as a result of lower prevailing market
interest rates (despite a 25.6% increase in the average trust fund balance.)

As a result of the variability of student loan spread income, AMS may
continue to rely on gains from timely sales of student loans to remain
profitable during certain periods. AMS generated gains on sales of student loans
in the amount of $1.2 million in the three months ended March 31, 2003, compared
to gains of $1.1 million in the comparable 2002 period. In the three months
ended March 31, 2003, AMS sold $68.1 million principal amount of student loans
compared to sales of $58.1 million principal amount of student loans in the
comparable 2002 period.

Investment in Healthaxis, Inc.

At March 31, 2003, the Company held approximately 45% of the issued and
outstanding shares of Healthaxis, Inc. (HAXS: Nasdaq) ("HAI"). The Company
accounts for its investment in HAI utilizing the equity method and, accordingly,
recognizes its ratable share of HAI income and loss (computed prior to
amortization of goodwill recorded by HealthAxis.com in connection with the
January 7, 2000 merger of Insurdata Incorporated (formerly a wholly-owned
subsidiary of UICI) with and into HealthAxis.com).

During the three months ended March 31, 2003, the Company's share of HAI's
operating losses (computed prior to amortization of merger related goodwill and
excluding gain on extinguishment of debt) was $(644,000) compared to its
reported share of operating losses of $(174,000), in the three months ended
March 31, 2002.

The Company's carrying value of its investment in HAI was $4.3 million and
$4.9 million at March 31, 2003 and December 31, 2002.

Other Key Factors

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

For the three months ended March 31, 2003, Other Key Factors reported an
operating loss of $(1.2) million, compared to an operating loss of $(336,000) in
2002. The increase in the operating loss in the Other Key Factors category in
2003 as compared to 2002 was mainly attributable to a $782,000 decrease in 2003
in unallocated investment income due to the continued unfavorable interest rate
environment in 2003.

Variable Stock-Based Compensation

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


25





In the first quarter of 2003, the Company recognized a non-cash benefit in
the amount of $2.1 million, associated with its agent stock accumulation plans.
The benefit was primarily attributable to the lower UICI share price in the
first quarter of 2003 compared to the share price in the comparable quarter in
2002. During the first quarter of 2002, the Company recognized non-cash variable
stock-based expense in the amount of $(4.5) million, of which $(1.8) million was
attributable to the Company's stock accumulation plans established for the
benefit of its independent agents, $(2.0) million was attributable to the
employee stock ownership plan (ESOP) feature of the UICI Employee Stock
Ownership and Savings Plan and $(721,000) was attributable to other stock-based
compensation plans.

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

Discontinued Operations

The Company's results in the three months ended March 31, 2003 included
income from discontinued operations (consisting of the Company's former
sub-prime credit card unit and the Special Risk Division) in the amount of $1.1
million, net of tax. For the three months ended March 31, 2002, the Company's
results from discontinued operations reflected income in the amount of $67,000,
net of tax, from the Company's UICI Administrators, Inc. unit (sold January 17,
2002).

In March 2000 the Board of Directors of UICI designated its former United
CreditServ sub-prime credit card business as a discontinued operation for
financial reporting purposes, and the United CreditServ unit has been so
reflected for all periods presented. In September 2000, the Company completed
the sale of substantially all of United CreditServ's non-cash assets, and in
January 2001 the Company completed the voluntary liquidation of United Credit
National Bank (the Company's credit card issuing bank), in accordance with the
terms of a plan of voluntary liquidation approved by the Office of the
Comptroller of the Currency.

In December 2001 the Company determined to exit the businesses of its
Special Risk Division by sale, abandonment and/or wind-down and, accordingly,
the Company also designated and classified its Special Risk Division as a
discontinued operation for financial reporting purposes for all periods
presented. The Company's Special Risk Division specialized in certain niche
health-related products (including "stop loss", marine crew accident, organ
transplant and international travel accident products), various insurance
intermediary services and certain managed care services.

For the three months ended March 31, 2003, the Company's United CreditServ
reported income (net of tax) in the amount of $3.5 million, which income has
been reflected in results from discontinued operations. United CreditServ's
results reflect a $5.3 million release of reserves resulting from the Company's
pending settlement of related credit card litigation matters.

For the three months ended March 31, 2003, the Company's Special Risk
Division reported a loss (net of tax) in the amount of $2.3 million, which
reflected a $3.6 million reserve charge resulting from a reassessment and
strengthening of claims reserves. The Company experienced deterioration in one
of its specialty blocks. In 2003 the Company will continue the wind-down of its
former Special Risk Division.

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

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

Claim Reserve Changes

The SEA Division utilizes the developmental method to estimate claim
reserves. Under the developmental method, completion factors are applied to paid
claims in order to estimate the ultimate claim payments. These completion
factors are derived from historical experience and are dependent on the
"incurred dates" of the paid claims. Prior to January 1, 2003, the Company
utilized the "original incurred date" coding method to establish the date a
policy claim is incurred under the developmental method. Under the original
incurred date coding method,



26



prior to the end of the period in which a health policy claim was made, the
Company estimated and recorded a liability for the cost of all medical services
related to the accident or sickness relating to the claim, even though the
medical services associated with such accident or sickness might not be rendered
to the insured until a later financial reporting period.

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

Changes in Estimate

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

ROP Reserve Changes

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

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

LIQUIDITY AND CAPITAL RESOURCES

Historically, the Company's primary sources of cash on a consolidated basis
have been premium revenues from policies issued, investment income, fees and
other income, and borrowings to fund student loans. The primary uses of cash
have been payments for benefits, claims and commissions under those policies,
operating expenses and the funding of student loans. In the three-month period
ended March 31, 2003, net cash provided by operations totaled approximately
$38.2 million compared to net cash provided by operations of $42.1 million for
the three-month period ended March 31, 2002.

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



27



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.

At March 31, 2003 and December 31, 2002, UICI at the holding company level
held cash and cash equivalents in the amount of $23.7 million and $22.4 million,
respectively, and had short and long-term indebtedness outstanding in the amount
of $7.9 million at both dates. The Company currently estimates that, through
December 31, 2003, the holding company will have operating cash requirements in
the amount of approximately $34.3 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 to be paid from domestic
and offshore insurance companies and tax sharing reimbursements from
subsidiaries (which will be partially offset by holding company operating
expenses).

STOCK REPURCHASE PLAN

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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

PRIVACY INITIATIVES

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

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.



28



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

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

Health Insurance Portability and Accountability Act of 1996

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

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

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,



29



system controls, physical security and disaster recovery systems, protection of
external communications and use of electronic signatures. The final HIPAA
security rules were issued by the HHS in February 2003, and the compliance date
for HIPAA covered entities is April 21, 2005.

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

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

Certain statements set forth herein or incorporated by reference herein
from the Company's filings that are not historical facts are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act.
Actual results may differ materially from those included in the forward-looking
statements. These forward-looking statements involve risks and uncertainties
including, but not limited to, the 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. In
addition, the Company faces competitive and regulatory pressure to contain
premium prices. Fiscal concerns regarding the continued viability of
government-sponsored programs such as Medicare and Medicaid may cause decreasing
reimbursement rates for these programs. Any limitation on the Company's ability
to increase or maintain its premium levels, design products, implement
underwriting criteria or negotiate competitive provider contracts may adversely
affect the Company's financial condition or results of operations.

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

The Company provides health insurance products to consumers in the
self-employed market in 44 states. A substantial portion of such products is
issued to members of various independent membership associations that endorse
the products and act as the master policyholder for such products. The two
principal membership associations in the self-employed market for which the
Company underwrites insurance are the National Association for the Self-Employed
("NASE") and the Alliance for Affordable Services ("AAS"). The associations
provide their membership with a number of endorsed benefits and products,
including health insurance underwritten by the Company. Subject to applicable
state law, individuals generally may not obtain insurance under an association's
master policy unless they are also members of the associations. UGA agents and
Cornerstone agents also act as


30



enrollers of new members for the associations, for which the agents receive
compensation. Specialized Association Services, Inc. (a company controlled by
the adult children of Ronald L. Jensen. the Chairman of the Company) provides
administrative and benefit procurement services to the associations, and a
subsidiary of the Company sells new membership sales leads to the enrollers and
video and print services to the associations and to Specialized Association
Services, Inc. In addition to health insurance premiums derived from the sale of
health insurance, the Company receives fee income from the associations,
including fees associated with the enrollment of new members, fees for
association membership marketing and administrative services and fees for
certain association member benefits. The agreements with these associations
requiring the associations to continue as the master policyholder and to endorse
the Company's insurance products to their respective members are terminable by
the Company and the associations upon not less than one year's advance notice to
the other party.

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

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

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

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 $176 million principal amount of PLUS
loans outstanding at March 31, 2003. The fixed yield on PLUS loans was 8.99% and
6.79% for the twelve months ended June 30, 2001 and 2002, respectively, and was
reset to 4.86% for the twelve


31


months beginning July 1, 2002. These loans are financed with borrowings whose
rates are subject to reset, generally monthly. During the twelve months
beginning July 1, 2002, the cost of borrowings to finance this portion of the
student loan portfolio could rise or fall while the rate earned on the student
loans will remain fixed.

ITEM 4 - CONTROLS AND PROCEDURES

Within the 90 days prior to the filing date of this report, the Company's
management, including the Chief Executive Officer and Chief Financial Officer,
conducted an evaluation of the effectiveness and design of the Company's
disclosure controls and procedures pursuant to Rule 13a-15 of the Securities
Exchange Act of 1934 (the "Exchange Act"). Based upon that evaluation, the
Company's Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures were effective. In addition, there
have been no significant changes in internal controls or in other factors that
could significantly affect internal controls, subsequent to the date the Chief
Executive Officer and Chief Financial Officer completed their evaluation.

Disclosure controls and procedures are defined in Rule 13a-14(c) of the
Exchange Act as controls and other procedures designed to ensure that
information required to be disclosed in Exchange Act reports is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commission's rules and forms. The Company's disclosure
controls and procedures were designed to ensure that material information
related to the Company, including its consolidated subsidiaries, is made known
to management, including the Chief Executive Officer and Chief Financial
Officer, in a timely manner.

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

ITEM 5 - MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED MATTERS

During the three months ended March 31, 2003, the Company issued 61,182
shares of unregistered common stock pursuant to its 2001 Restricted Stock Plan.

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits.

(b) Reports on Form 8-K.

1. Current Report on Form 8-K dated February 6, 2003
2. Current Report on Form 8-K dated March 3, 2003
3. Current Report on Form 8-K dated April 30, 2003


32





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 9, 2003 /s/ Gregory T. Mutz
----------------------------------------
Gregory T. Mutz, President,
Chief Executive Officer and Director




Date: May 9, 2003 /s/Mark D. Hauptman
----------------------------------------
Mark D. Hauptman, Vice President, Chief
Accounting Officer and Chief Financial Officer



33




CERTIFICATION OF GREGORY T. MUTZ, CHIEF EXECUTIVE OFFICER OF UICI,
PURSUANT TO RULE 13A-14 UNDER THE SECURITIES EXCHANGE ACT OF 1934


I, Gregory T. Mutz, certify that:


1. I have reviewed this quarterly report on Form 10-Q of UICI;


2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;


3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;


4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:


(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;


(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and


(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;


5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):


(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and


(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and


6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.


Date: May 9, 2003

/S/ GREGORY T. MUTZ
----------------------------------------
Gregory T. Mutz
President and Chief Executive Officer
UICI


34



CERTIFICATION OF MARK D. HAUPTMAN, CHIEF FINANCIAL OFFICER OF UICI,
PURSUANT TO RULE 13a-14 UNDER THE SECURITIES EXCHANGE ACT OF 1934


I, Mark D. Hauptman, certify that:


1. I have reviewed this quarterly report on Form 10-Q of UICI;


2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;


3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;


4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:


(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;


(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and


(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;


5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):


(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and


(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and


6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.


Date: May 9, 2003

/S/ MARK D. HAUPTMAN
----------------------------------------
Mark D. Hauptman
Vice President, Chief Accounting Officer
and Chief Financial Officer
UICI