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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the Period Ended March 31, 2003

Commission File Number 1-14177

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COBALT CORPORATION(Exact name of registrant as specified in its charter)

|Wisconsin                                      |  | 39-1931212                          
|---------------------------------------------- |  | ------------------------------------
|(State of incorporation)                       |  | (I.R.S. Employer
Identification No.)
|401 West Michigan Street, Milwaukee, Wisconsin |  | 53203-2896                          
|(Address of principal executive offices)       |  | (Zip Code)                          

(414) 226-6900(Registrant's telephone number, including area code)

Indicate
by check mark whether registrant (1) has filed all documents and 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 ý    No o

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

Indicate
the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date:

41,866,362
shares of common stock were outstanding as of April 30, 2003.

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COBALT CORPORATION

INDEX TO  QUARTERLY REPORT ON FORM 10-Q

For the Period Ended March 31, 2003

|PART I            |  |                                                                                      
|----------------- |  | -------------------------------------------------------------------------------------
|Item 1.           |  | Financial Statements and Supplementary Data                                          
|Item 2.           |  | Management's Discussion and Analysis of Financial Condition and Results of Operations
|Item 3.           |  | Quantitative and Qualitative Disclosures about Market Risk                           
|Item 4.           |  | Controls and Procedures                                                              
|PART II           |  |                                                                                      
|Other Information |  | 21                                                                                   
|Signature Page    |  | 22                                                                                   
|Certifications    |  | 23                                                                                   

2

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PART I.    FINANCIAL INFORMATION

Item 1.    Financial Statements and Supplementary Data

COBALT CORPORATION

CONSOLIDATED BALANCE SHEETS

|                                           |                                                             | March 31,
2003 |         | December 31,
2002
|------------------------------------------ | ----------------------------------------------------------- | -------------- | ------- | -----------------
|
|
|ASSETS                                     |                                                             |                |         |                  
|Current assets:                            |                                                             |                |         |                  
|                                           | Cash and cash equivalents                                   |                | $       | 65,669           
|                                           | Investmentsavailable-for-sale, at fair value               |                |         | 386,459          
|                                           | Premium receivables                                         |                |         | 46,290           
|                                           | Due from clinics and providers                              |                |         | 2,479            
|                                           | Reinsurance recoverables                                    |                |         | 36,220           
|                                           | Other receivables                                           |                |         | 46,152           
|                                           | Prepaid expenses and other current assets                   |                |         | 43,237           
|                                           |                                                             |                |         |                  
|Total current assets                       |                                                             |                | 626,506 |                  
|Noncurrent assets:                         |                                                             |                |         |                  
|                                           | Investmentsheld-to-maturity, at amortized cost             |                |         | 12,974           
|                                           | Property and equipment, net                                 |                |         | 37,051           
|                                           | Goodwill and intangible assets, net                         |                |         | 99,288           
|                                           | Prepaid pension                                             |                |         | 67,021           
|                                           | Deferred income taxes                                       |                |         | 18,658           
|                                           | Reinsurance recoverables                                    |                |         | 23,304           
|                                           | Other noncurrent assets                                     |                |         | 25,764           
|                                           |                                                             |                |         |                  
|Total assets                               |                                                             | $              | 910,566 |                  
|                                           |                                                             |                |         |                  
|LIABILITIES AND SHAREHOLDERS' EQUITY       |                                                             |                |         |                  
|Current liabilities:                       |                                                             |                |         |                  
|                                           | Medical and other benefits payable                          |                | $       | 224,088          
|                                           | Advance and unearned premiums                               |                |         | 113,097          
|                                           | Payables and accrued expenses                               |                |         | 65,863           
|                                           | Short-term debt                                             |                |         | 3,575            
|                                           | Other current liabilities                                   |                |         | 36,456           
|                                           |                                                             |                |         |                  
|Total current liabilities                  |                                                             |                | 443,079 |                  
|Noncurrent liabilities:                    |                                                             |                |         |                  
|                                           | Medical and other benefits payable                          |                |         | 53,743           
|                                           | Deferred income taxes                                       |                |         | 33,227           
|                                           | Postretirement benefits other than pension                  |                |         | 18,320           
|                                           | Long-term debt                                              |                |         | 25,000           
|                                           | Other noncurrent liabilities                                |                |         | 21,597           
|                                           |                                                             |                |         |                  
|Total liabilities                          |                                                             |                | 594,966 |                  
|Shareholders' equity:                      |                                                             |                |         |                  
|                                           | Preferred stock (no par value, 1,000,000 shares authorized) |                |         |                 
|                                           | Common stock (Note J)                                       |                |         | 262,437          
|                                           | Retained earnings                                           |                |         | 44,422           
|                                           | Accumulated other comprehensive income                      |                |         | 8,741            
|                                           |                                                             |                |         |                  
|Total shareholders' equity                 |                                                             |                | 315,600 |                  
|                                           |                                                             |                |         |                  
|Total liabilities and shareholders' equity |                                                             | $              | 910,566 |                  
|                                           |                                                             |                |         |                  

See
notes to interim consolidated financial statements.

3

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COBALT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

|                                                                                                     |                                             | Three months ended
March 31,  |           
|---------------------------------------------------------------------------------------------------- | ------------------------------------------- | ----------------------------- | ----------
|
|
|Revenues:                                                                                            |                                             |                               |           
|                                                                                                     | Premium                                     |                               | $         
|                                                                                                     | Government services                         |                               |           
|                                                                                                     | Other                                       |                               |           
|                                                                                                     |                                             |                               |           
|                                                                                                     |                                             | Total health services revenue |           
|                                                                                                     | Investment income, net                      |                               |           
|                                                                                                     | Net realized investment gains               |                               |           
|                                                                                                     |                                             |                               |           
|                                                                                                     |                                             | Total revenues                |           
|Expenses:                                                                                            |                                             |                               |           
|                                                                                                     | Medical and other benefits                  |                               |           
|                                                                                                     | Selling, general, administrative, and other |                               |           
|                                                                                                     | Interest                                    |                               |           
|                                                                                                     | Amortization of intangible assets           |                               |           
|                                                                                                     |                                             |                               |           
|                                                                                                     |                                             | Total expenses                |           
|Income from continuing operations before income tax expense and income from investment in affiliates |                                             |                               | 18,208    
|Income tax expense                                                                                   |                                             |                               | (7,066    
|Income from investment in affiliates, net of tax                                                     |                                             |                               |          
|                                                                                                     |                                             |                               |           
|Income from continuing operations                                                                    |                                             |                               | 11,142    
|Loss from discontinued operations, net of tax                                                        |                                             |                               |          
|Gain on sale of discontinued operations, net of tax                                                  |                                             |                               |          
|                                                                                                     |                                             |                               |           
|Net income                                                                                           |                                             | $                             | 11,142    
|                                                                                                     |                                             |                               |           
|Weighted average common shares                                                                       |                                             |                               | 41,827,290
|Diluted weighted average common shares                                                               |                                             |                               | 42,678,666
|Earnings per common share:                                                                           |                                             |                               |           
|                                                                                                     | Basic EPS from continuing operations        |                               | $         
|                                                                                                     | Basic EPS from discontinued operations      |                               |           
|                                                                                                     |                                             |                               |           
|                                                                                                     |                                             | Total basic EPS               |           
|                                                                                                     |                                             |                               |           
|                                                                                                     | Diluted EPS from continuing operations      |                               | $         
|                                                                                                     | Diluted EPS from discontinued operations    |                               |           
|                                                                                                     |                                             |                               |           
|                                                                                                     |                                             | Total diluted EPS             |           
|                                                                                                     |                                             |                               |           

See
notes to interim consolidated financial statements.

4

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COBALT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME

(UNAUDITED)

|                                                             |  | Common Stock |   |   |         |   |   |        |   |   |         |   |  
|------------------------------------------------------------ |  | ------------ | - | - | ------- | - | - | ------ | - | - | ------- | - | -
|
|
|
|Balance at December 31, 2001                                 |  | 40,593,043   |   | $ | 249,566 |   | $ |       |   | $ | (41,979 | ) |  
|Net income                                                   |  |             |   |   |        |   |   |       |   |   | 22,603  |   | $
|Change in unrealized gains/losses on investments, net of tax |  |             |   |   |        |   |   |       |   |   |        |   |  
|Issuance of common stockoptions exercised                   |  | 29,292       |   |   | 105     |   |   |       |   |   |        |   |  
|Issuance of common stock401(k)                              |  | 44,050       |   |   | 250     |   |   |       |   |   |        |   |  
|Change in ownership affiliates                               |  |             |   |   |        |   |   |       |   |   | 1,322   |   |  
|Stock option amortization                                    |  |             |   |   | 44      |   |   |       |   |   |        |   |  
|                                                             |  |              |   |   |         |   |   |        |   |   |         |   |  
|Comprehensive income                                         |  |              |   |   |         |   |   |        |   |   |         |   | $
|                                                             |  |              |   |   |         |   |   |        |   |   |         |   |  
|                                                             |  |              |   |   |         |   |   |        |   |   |         |   |  
|Balance at March 31, 2002                                    |  | 40,666,385   |   | $ | 249,965 |   | $ |       |   | $ | (18,054 | ) |  
|                                                             |  |              |   |   |         |   |   |        |   |   |         |   |  
|Balance at December 31, 2002                                 |  | 41,644,584   |   | $ | 261,482 |   | $ |       |   | $ | 33,280  |   |  
|Net income                                                   |  |             |   |   |        |   |   |       |   |   | 11,142  |   | $
|Change in unrealized gains/losses on investments, net of tax |  |             |   |   |        |   |   |       |   |   |        |   |  
|Issuance of common stockoptions exercised                   |  | 22,752       |   |   | 185     |   |   |       |   |   |        |   |  
|Tax benefit from stock options exercised                     |  |             |   |   | 39      |   |   |       |   |   |        |   |  
|Issuance of common stock401(k)                              |  | 43,180       |   |   | 552     |   |   |       |   |   |        |   |  
|Issuance of common stockrestricted shares                   |  | 155,900      |   |   | 2,187   |   |   | (2,187 | ) |   |        |   |  
|Amortization of unearned compensation restricted stock       |  |             |   |   |        |   |   | 135    |   |   |        |   |  
|Stock option amortization                                    |  |             |   |   | 45      |   |   |       |   |   |        |   |  
|Repurchase of fractional shares                              |  | (54          | ) |   | (1      | ) |   |       |   |   |        |   |  
|                                                             |  |              |   |   |         |   |   |        |   |   |         |   |  
|Comprehensive income                                         |  |              |   |   |         |   |   |        |   |   |         |   | $
|                                                             |  |              |   |   |         |   |   |        |   |   |         |   |  
|                                                             |  |              |   |   |         |   |   |        |   |   |         |   |  
|Balance at March 31, 2003                                    |  | 41,866,362   |   | $ | 264,489 |   | $ | (2,052 | ) | $ | 44,422  |   |  
|                                                             |  |              |   |   |         |   |   |        |   |   |         |   |  

See notes to interim consolidated financial statements

5

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COBALT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

|                                                                                                                   |                                                                   | Three months ended
March 31,                         |       
|------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------- | ---------------------------------------------------- | ------
|
|
|Operating activities                                                                                               |                                                                   |                                                      |       
|Income from continuing operations                                                                                  |                                                                   | $                                                    | 11,142
|Adjustments to reconcile income from continuing operations to
net cash provided by (used in) operating activities: |                                                                   |                                                      |       
|                                                                                                                   | Depreciation and amortization                                     |                                                      |       
|                                                                                                                   | Income from investment in affiliates, net of tax                  |                                                      |       
|                                                                                                                   | Realized investment gains, net                                    |                                                      |       
|                                                                                                                   | Deferred income tax expense                                       |                                                      |       
|Changes in operating accounts, net of discontinued operations,
and acquisition related activity:                   |                                                                   |                                                      |       
|                                                                                                                   | Premium receivables                                               |                                                      |       
|                                                                                                                   | Other receivables                                                 |                                                      |       
|                                                                                                                   | Due from clinics and providers                                    |                                                      |       
|                                                                                                                   | Reinsurance recoverables                                          |                                                      |       
|                                                                                                                   | Medical and other benefits payable                                |                                                      |       
|                                                                                                                   | Advance and unearned premiums                                     |                                                      |       
|                                                                                                                   | Payables and accrued expenses                                     |                                                      |       
|                                                                                                                   | Other, net                                                        |                                                      |       
|                                                                                                                   |                                                                   |                                                      |       
|                                                                                                                   |                                                                   | Net cash provided by (used in) continuing operations |       
|Investing activities                                                                                               |                                                                   |                                                      |       
|                                                                                                                   | Acquisition activity                                              |                                                      |       
|                                                                                                                   | Proceeds from sale of investment in affiliate                     |                                                      |       
|                                                                                                                   | Proceeds from sale of discontinued operations                     |                                                      |       
|                                                                                                                   | Purchases of available-for-sale investments                       |                                                      |       
|                                                                                                                   | Purchases of held-to-maturity investments                         |                                                      |       
|                                                                                                                   | Proceeds from maturity of held-to-maturity investments            |                                                      |       
|                                                                                                                   | Proceeds from sale and maturity of available-for-sale investments |                                                      |       
|                                                                                                                   | Additions to property and equipment, net                          |                                                      |       
|                                                                                                                   |                                                                   |                                                      |       
|                                                                                                                   |                                                                   | Net cash (used in) provided by investing activities  |       
|Financing activities                                                                                               |                                                                   |                                                      |       
|                                                                                                                   | Proceeds from issuance of common stock                            |                                                      |       
|                                                                                                                   | Net repayments of debt                                            |                                                      |       
|                                                                                                                   |                                                                   |                                                      |       
|                                                                                                                   |                                                                   | Net cash used in financing activities                |       
|Discontinued Operations                                                                                            |                                                                   |                                                      |       
|                                                                                                                   | Cash flows from discontinued operations                           |                                                      |       
|                                                                                                                   |                                                                   |                                                      |       
|                                                                                                                   |                                                                   | Net cash provided by discontinued operations         |       
|Cash and cash equivalents                                                                                          |                                                                   |                                                      |       
|                                                                                                                   | Increase (decrease) during year                                   |                                                      |       
|                                                                                                                   | Balance at beginning of year                                      |                                                      |       
|                                                                                                                   |                                                                   |                                                      |       
|                                                                                                                   |                                                                   | Balance at end of year                               |       
|                                                                                                                   |                                                                   |                                                      |       

See
notes to interim consolidated financial statements.

6

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COBALT CORPORATION

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note A. Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted for interim
financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United States ("GAAP") for complete financial statements. In the opinion of management, all adjustments considered necessary for a
fair presentation have been included. Operating results for the three months ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ending
December 31, 2003. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2002
and footnotes thereto included in the Cobalt Corporation ("Cobalt", the "Company", or "we") Annual Report on Form 10-K for the year ended December 31, 2002, as filed with the
Securities and Exchange Commission.

Certain
reclassifications have been made to the interim consolidated financial statements for 2002 to conform with the 2003 presentation.

Note B. Acquisition of Claim Management Services, Inc.

On December 31, 2002, we purchased all of the outstanding stock of Claim Management Services, Inc. ("CMSI"), a third-party administrator of
self-funded employee benefit plans. CMSI is headquartered in Green Bay, Wisconsin and recorded revenue and pre-tax income for
the year ended December 31, 2002 of $21,965,000 and $2,316,000, respectively. Our consolidated financial statements include the results of operations for CMSI for periods subsequent to the
acquisition date.

The
purchase price consisted of a cash payment of approximately $15.4 million and 149,098 shares of common stock of American Medical Security Group ("AMSG"), plus a possible
earn-out of up to $3,000,000 based on CMSI's earnings over the next three years. Any payments made under the earn-out provision will be recorded as additional purchase price.
The excess of the purchase price over the book value of net assets acquired was initially recorded as goodwill at December 31, 2002. During the first quarter of 2003, we obtained a third-party
appraisal of assets acquired and refined the initial purchase accounting estimates, resulting in goodwill of $8,578,000, identifiable intangible assets of $3,630,000, and an increase in the fair value
of tangible assets, which had a fair value of $956,000 at the time of acquisition, in accordance with Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations".
Goodwill is not amortized and identifiable intangible assets are amortized on a straight-line basis over the estimated lives of the assets from 1-7 years.

Note C. Discontinued Operations

On March 29, 2002, we sold our behavioral health and medical management subsidiary, Innovative Resource Group, LLC ("IRG"). As a result, IRG is accounted
for as a discontinued operation for all periods presented. The agreement required certain subsidiaries of Cobalt to enter into seven-year service agreements for the provision of services
by IRG and also provides for certain bonuses/penalties to be received/paid between IRG and Cobalt based on IRG revenues generated from Cobalt in future years.

Note D. Earnings Per Share

Basic earnings per share ("EPS") is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding,
including restricted stock, during the period. The 7,949,904 shares of Cobalt Corporation common stock owned by Blue Cross & Blue Shield United of Wisconsin ("BCBSUW") are not included in the
calculation of outstanding shares. Diluted earnings per share is calculated similarly, except that it includes the dilutive effect of the assumed exercise of stock options using the treasury stock
method.

7

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The
calculation of basic and diluted EPS is as follows:

Three months ended
March 31,2003

2002(In thousands, except per share
and per share data)Numerator:Income from continuing operations

$
11,142

$
13,244Discontinued operations





9,359Net income

$
11,142

$
22,603Denominator:Denominator for basic EPSweighted average shares


41,827,290


40,637,194Effect of dilutive securitiesemployee stock options


851,376


330,749Denominator for diluted EPS


42,678,666


40,967,943Earnings per common share:Basic EPS from continuing operations

$
0.27

$
0.33Basic EPS from discontinued operations


0.00


0.23Total basic EPS

$
0.27

$
0.56Diluted EPS from continuing operations

$
0.26

$
0.32Diluted EPS from discontinued operations


0.00


0.23Total diluted EPS

$
0.26

$
0.55


Note E. Stock Based Compensation

We account for stock option awards under Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees" and related
interpretations. Under APB No. 25, no stock-based employee compensation cost is reflected in net income to the extent that stock options granted have an exercise price equal to the market value
of the underlying common stock on the date of grant and no modifications are made to option terms subsequent to their grant date.

8

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The
following table illustrates the effect on net income and earnings per share as if we had applied the fair value expense recognition provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," as amended:

Three months ended
March 31,2003

2002(In thousands)Net income as reported

$
11,142

$
22,603Less pro forma stock based compensation expense determined under fair value based method, net of tax


(752
)

(253
)Pro forma net income

$
10,390

$
22,350


Three months ended
March 31,2003

2002Basic earnings per share:Continuing operations, as reported

$
0.27

$
0.33Continuing operations, pro forma


0.25


0.32Discontinued operations, as reported


0.00


0.23Discontinued operations, pro forma


0.00


0.23Diluted earnings per share:Continuing operations, as reported

$
0.26

$
0.32Continuing operations, pro forma


0.24


0.32Discontinued operations, as reported


0.00


0.23Discontinued operations, pro forma


0.00


0.23


Note F. Stock Option and Restricted Stock Awards

During the three months ended March 31, 2003, we granted to certain eligible executives, employees and non-employee directors stock options to
purchase 845,300 shares of Cobalt common stock. The exercise price of these options was equal to the fair value of the stock on the grant date. No compensation expense has been recorded related to
these grants.

During
the three months ended March 31, 2003, we also granted 155,900 shares of Cobalt common stock as restricted stock awards to certain eligible executives. The aggregate fair
market value of the stock at the grant date was $2.2 million. Twenty-five percent of the shares vest annually on the anniversary date of the grant over the next four years. None of
the shares of restricted stock may be transferred or encumbered, except as provided for in the award agreements, until the restrictions on such shares lapse or are removed. For grants of restricted
stock, unearned compensation equivalent to the fair market value of the shares at the date of grant is recorded as a separate component of shareholders' equity and subsequently amortized to
compensation expense over the vesting period.

Note G. Income from Investment in Affiliates

Income from investment in affiliates, net of tax for the three months ended March 31, 2002 is primarily comprised of our equity in AMSG net income. We
subsequently reduced our ownership in AMSG to 10.7% and reclassified this investment to investments available-for-sale. On January 3, 2003, we sold all of our remaining
investment in AMSG.

Note H. Debt

During 2002, we entered into a three-year revolving credit arrangement ("revolver") with a commercial bank. This revolver provides for borrowings up
to $30.0 million by Cobalt with the availability declining to $25.0 million on August 7, 2003 and to $15.0 million on August 7, 2004. The revolver is collateralized
by the common stock of BCBSUW and Compcare Health Services Insurance Corporation ("CompcareBlue"). The revolver bears interest at a rate of London Interbank Offered Rate ("LIBOR") plus 1.5% to 2.5%
depending on the timing and amount of the borrowings. A

9

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commitment
fee of 3/8% annually is payable quarterly on the unused portion of the revolver. As of March 31, 2003, the outstanding balance on the revolver is $27.8 million and bears
interest at a rate of 3.84%.

Debt
covenants under the revolver include compliance with a minimum tangible net worth, minimum debt-service/liquidity ratio, and risk-based capital ("RBC")
requirements on a quarterly basis. As of March 31, 2003, we are in compliance with the covenants contained in the revolver.

We
also have a line-of-credit ("LOC") with a commercial bank, which permits aggregate borrowings among certain subsidiaries, excluding the corporate holding
company, up to $20.0 million. The LOC has an adjustable interest rate with interest payments due monthly. The LOC bears interest at a rate of LIBOR plus 2.0% or, at our discretion, prime rate.
As of March 31, 2003, the outstanding balance on the LOC was $0.8 million.

Note I. Comprehensive Income

Comprehensive income consists of the following:

Three months ended
March 31,2003

2002(In thousands)Net income

$
11,142

$
22,603Change in unrealized gains/loss on investments, net of taxes


984


(2,899
)Comprehensive income

$
12,126

$
19,704


Note J. Common Stock

The common stock of Cobalt has no par or stated value. The authorized, issued and outstanding shares of common stock are as follows:

March 31,
2003

December 31,
2002Number of shares:Authorized

75,000,000

75,000,000Issued (includes 7,949,904 subsidiary owned shares)

49,816,266

49,594,488Outstanding (excludes 7,949,904 subsidiary owned shares)

41,866,362

41,644,584


Note K. Segment Reporting

We have four reportable business segments: insured medical products, specialty managed care products and services, government services, and
self-funded products. Insured medical products include full coverage, copayment, preferred provider organization ("PPO"), Medicare supplement, interim coverage, health maintenance
organization ("HMO"), and point-of-service ("POS") products sold primarily in Wisconsin. The specialty managed care products and services segment includes dental, life,
disability, and workers' compensation products, along with managed care consulting, electronic claim submission services, subrogation and hospital bill audit services, and receivables management
services. The specialty managed care products and services are sold throughout the United States. The self-funded products consist of administrative services and access to Cobalt's
extensive
provider networks for uninsured contracts and the BlueCard Program. Government services include processing services for Medicare providers throughout the United States and for Medicaid in the states
of Wisconsin and Hawaii, as well as providing integrity, consulting, and safeguard services in connection with publicly funded health programs.

Corporate
holding company and other includes activities not directly related to the business segments and unallocated corporate overhead expenses. We evaluate segment performance based
on profit or loss from operations before income taxes. The accounting policies of the reportable segments are the same as those described in our December 31, 2002 audited financial statements
in the summary of significant accounting policies.

10

---



Financial data from continuing operations by segment is as follows:

Three months ended
March 31,2003

2002(In thousands)Health services revenue:Insured medical products

$
323,132

$
305,127Self-funded products


14,268


7,233Specialty managed care products and services


44,045


45,328Government services


27,810


28,809Eliminations


(5,309
)

(8,458
)Total

$
403,946

$
378,039Investment income and net realized investment gains:Insured medical products

$
3,084

$
3,188Self-funded products


5


4Specialty managed care products and services


1,433


1,407Government services


114


124Corporate holding company and other


9


(35
)Eliminations


(24
)

(1,757
)Total

$
4,621

$
2,931Medical and other benefits expenses:Insured medical products

$
279,799

$
268,222Specialty managed care products and services


27,257


27,473Eliminations


(3,215
)

(3,337
)Total

$
303,841

$
292,358Selling, general, administrative, and other expenses:Insured medical products

$
34,760

$
33,060Self-funded products


12,606


6,889Specialty managed care products and services


13,767


16,381Government services


27,310


28,277Corporate holding company and other


(429
)

(2,615
)Eliminations


(2,096
)

(5,124
)Total

$
85,918

$
76,868Income from continuing operations before income tax expense and income from investment in affiliates:Insured medical products

$
11,433

$
6,502Self-funded products


1,335


348Specialty managed care products and services


4,388


2,777Government services


614


656Corporate holding company and other


438


1,289Total

$
18,208

$
11,572


11

---

Eliminations
by operating segment presented above are as follows:

Three months ended
March 31,2003

2002(In thousands)Health services revenue:Insured medical products

$
(2,975
)
$
(3,194
)Self-funded products


(68
)

(55
)Specialty managed care products and services


(2,266
)

(5,209
)Total

$
(5,309
)
$
(8,458
)Investment income and realized investment gains (losses):Insured medical products

$
(19
)
$
(1,560
)Specialty managed care products and services





(195
)Corporate holding company


(5
)

(2
)Total

$
(24
)
$
(1,757
)Medical and other benefits expenses:Insured medical products

$
(2,684
)
$
(2,777
)Specialty managed care products and services


(531
)

(560
)Total

$
(3,215
)
$
(3,337
)Selling, general, administrative, and other expenses:Insured medical products

$
(1,256
)
$
(1,679
)Self-funded products


(4
)

Specialty managed care products and services


(5
)

(3,323
)Government services


(261
)

(134
)Corporate holding company


(570
)

12Total

$
(2,096
)
$
(5,124
)


Assets,
other than goodwill and government services assets, have been allocated by segment in the following table based on the percentage of revenue for the three months ended
March 31, 2003 and revenues for the year ended December 31, 2002.

March 31,
2003

December 31,
2002(In thousands)Total assets by segment:Insured medical products

$
721,139

$
688,430Self-funded products


41,015


28,442Specialty managed care products and services


115,868


120,167Government services


32,544


32,860Total

$
910,566

$
869,899


12

---

Note L. Commitments and Contingencies

In 2001, Cobalt issued 31,313,390 shares of newly issued common stock to the Wisconsin United for Health Foundation, Inc. (the "Foundation"). The
Foundation was established for the sole purpose of benefiting public health in Wisconsin from the earnings on its investment in Cobalt. During February of 2003, the Foundation sold approximately
6.3 million shares of Cobalt common stock realizing proceeds of approximately $71.9 million. We did not sell any shares of common stock in conjunction with this transaction and we
received no proceeds from the sale of the Foundation's shares. As of March 31, 2003, the Foundation owned 59.7% of the total outstanding Cobalt common stock. The Foundation is required to
decrease its percentage ownership of Cobalt to 50% by March 23, 2004 and 20% by March 23, 2006. We are responsible for all legal and accounting fees, printing, and other
out-of-pocket costs (excluding the Foundation's legal fees) associated with the offerings to facilitate these sales.

We
are involved in various legal actions occurring in the normal course of business. In the opinion of management, adequate provision has been made for any losses that may result from
these actions and, accordingly, the outcome of these proceedings is not expected to have a material adverse effect on the consolidated financial statements.

The
Health Insurance Portability and Accountability Act of 1996 ("HIPAA") includes administrative provisions imposing significant requirements relating to maintaining the privacy of
medical information ("Privacy"), establishing uniform health care provider and employer identifiers, requiring use of standardized transaction formats ("Transactions"), and seeking protections for
confidentiality and security of patient data ("Security"). The Privacy and Transactions provisions require implementation in 2003. Final HIPAA Security rules were published on February 20,
2003, and the implementation and compliance date is April of 2005. HIPAA is far-reaching and complex, and proper interpretation and practice under the law continue to evolve. Consequently,
our efforts to measure, monitor, and adjust our business practices to comply with HIPAA are ongoing. Compliance with HIPAA could require us to make significant changes to our operations and failure to
comply could
subject us to civil and criminal penalties. The costs of complying with HIPAA are likely to be substantial.

13

---

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

Overview

Cobalt Corporation ("Cobalt," the "Company," or "we") is the leading managed care company in Wisconsin based on 2001 premium statistics published by the Office of
the Commissioner of Insurance of the State of Wisconsin ("OCI"). We offer a broad portfolio of managed care and insurance products to employers, individuals, and government entities. We have an
exclusive license to utilize the Blue Cross and Blue Shield service marks in Wisconsin, giving us a unique position in that market. As of March 31, 2003, we serviced 808,933 insured and
self-funded members in our medical operations and 499,788 insured and self-funded members in our dental programs.

Blue
Cross & Blue Shield United of Wisconsin ("BCBSUW") provides underwritten products, including preferred provider organizations ("PPO") and indemnity options, as well as
self-funded, administrative services only programs. Compcare Health Services Insurance Corporation ("CompcareBlue") operates the oldest health maintenance organization ("HMO") in
Wisconsin.

We
offer one of the largest provider networks in Wisconsin. All of our customers, including HMO members, have the ability to access the leading physicians and hospitals in their
respective service areas, including Mayo Health Systems, University Health Care, Inc. ("UHC") and Aurora Health Care. We believe that our ability to offer a full spectrum of products and a
broad provider network to meet the needs and objectives of a wide range of customers provides us with a competitive advantage.

We
offer a variety of specialty managed care products, including dental, life and disability insurance. We are one of the largest providers of dental HMO and dental indemnity coverage in
Wisconsin. We also offer workers' compensation insurance and a variety of specialty managed care services, including cost containment, health care electronic data interchange and receivables
management services. These specialty managed care products and services are designed to complement our customers' employee benefit packages. We also process Medicare claims as a Medicare Part A
fiscal intermediary and a Regional Home Health intermediary for providers in numerous states and several U.S. territories and as a national intermediary for the Federally Qualified Health Centers in
all 50 states.

We
market our medical and dental products through a salaried sales force located throughout Wisconsin, as well as through independent agents and brokers, and directly to customers via
the internet. By integrating the marketing of our medical products, we are able to offer a broad range of product choices to health care consumers. We sell our specialty managed care products and
services to employer groups and providers, principally in Wisconsin, through a variety of distribution channels.

Capitated and Other Service Arrangements

CompcareBlue, Valley Health Plan, Inc. ("Valley"), and Unity Health Plans Insurance Corporation ("Unity") utilize capitation and risk-sharing
programs with certain physician groups and hospitals to manage the cost of health care provided to members. BCBSUW has not employed capitation or risk sharing arrangements to any significant extent.
Capitation is an arrangement whereby we pay medical providers a set fee per member per month in exchange for providing health care services.

For
the three months ended March 31, 2003, medical and other benefits expense included $28.1 million relating to capitated medical and dental arrangements, representing
9.3% of the total medical and other benefits expense, and medical and other benefits payable at March 31, 2003, included $0.9 million relating to capitated arrangements. This compares to
the three months ended March 31, 2002, with $32.0 million relating to capitated medical and dental arrangements, representing 10.9% of the total medical and other benefits expense.

14

---

Summary of Membership, Revenue, and Ratios

The number of "members" is equivalent to the number of persons covered by contracts in force. A covered person may be counted in more than one category. Member
equivalents relating to individuals who access medical care under the BlueCard PPO program are not included.

|                             |                              | As of March 31,
|---------------------------- | ---------------------------- | ---------------
|
|Membership at end of period: |                              |                
|                             | Insured medical products     |                
|                             | Self-funded medical products |                
|                             | Insured dental products      |                
|                             | Self-funded dental products  |                
|                             | Other insured products       |                

|                                                        |                                                              | Three Months
Ended March 31,  |  
|------------------------------------------------------- | ------------------------------------------------------------ | ----------------------------- | -
|
|
|Revenue:                                                |                                                              |                               |  
|                                                        | Insured medical products                                     |                               | $
|                                                        | Self-funded products                                         |                               |  
|                                                        | Specialty managed care products and services                 |                               |  
|                                                        | Government services                                          |                               |  
|                                                        | Eliminations(1)                                              |                               |  
|                                                        |                                                              |                               |  
|                                                        |                                                              | Total health services revenue |  
|                                                        | Investment income, net                                       |                               |  
|                                                        | Net realized investment gains                                |                               |  
|                                                        |                                                              |                               |  
|                                                        |                                                              | Total                         |  
|                                                        |                                                              |                               |  
|Health services revenue (as a percentage of the total): |                                                              |                               |  
|                                                        | Insured medical products                                     |                               |  
|                                                        | Self-funded products                                         |                               |  
|                                                        | Specialty managed care products and services                 |                               |  
|                                                        | Government services                                          |                               |  
|                                                        | Eliminations(1)                                              |                               |  
|                                                        |                                                              |                               |  
|                                                        |                                                              | Total                         |  
|                                                        |                                                              |                               |  
|Insured medical products:                               |                                                              |                               |  
|                                                        | Care ratio(2)                                                |                               |  
|                                                        | Selling, general, administrative, and other expense ratio(3) |                               |  

---

15

---

Comparison of Results of Operations for the three months ended March 31, 2003 with the three months ended March 31, 2002.

Financial data in this section that relates to specific business segments are gross numbers and, therefore, are not net of intracompany eliminations.

Total Revenues

Total revenues for the three months ended March 31, 2003 increased 7.2% to $408.6 million compared to $381.0 million for the three months
ended March 31, 2002. This increase was primarily due to increased revenues on insured medical products and self-funded products.



Insured medical products revenue for the three months ended March 31, 2003 increased 5.9% to $323.1 million from $305.1 million for the three
months ended March 31, 2002. The increase in premium revenue is primarily due to a premium rate increase on existing business, partially offset by a decline in membership. The number of insured
medical members as of March 31, 2003 decreased to 451,049 from 469,784 as of March 31, 2002.



Self-funded administrative fees for the three months ended March 31, 2003 increased 98.6% to $14.3 million from $7.2 million for
the three months ended March 31, 2002. Self-funded medical and dental membership increased to 565,681 as of March 31, 2003 from 170,378 as of March 31, 2002. The large
increase in membership is attributable to the acquisition of Claim Management Services, Inc. ("CMSI") on December 31, 2002. The increase in administrative fees is also attributable to
the acquisition of CMSI, which accounted for $5.8 million of the increase, and increased volume in the BlueCard PPO program. Under the BlueCard PPO program, we do not maintain membership but
receive an administrative fee and percentage of discounts for members from other Blue Cross and Blue Shield plans ("Blue Plans") that access medical care in Wisconsin.



Specialty managed care products and services revenue for the three months ended March 31, 2003 decreased 2.9% to $44.0 million from
$45.3 million for the three months ended March 31, 2002. The decrease in revenue is due to cancellations of life and disability business and lower revenue from the collection business.
This decrease was partially offset by an increase in revenues on the workers' compensation business.



Government services revenue for the three months ended March 31, 2003 decreased 3.5% to $27.8 million from $28.8 million for the three months
ended March 31, 2002. The decrease is due to lower Medicare reimbursements of approximately $1.7 million offset by new contract revenues of approximately $0.6 million. Medicare
reimbursements declined primarily due to lower spending driven by tighter government fiscal policy and implementation of operational efficiencies while two new contracts, one effective in October of
2002 and the other in January of 2003, provided new revenue sources. The contracts added consist of auditing certain hospitals receiving payments for graduate medical education, and performing audit
and rate setting activities for the State of Hawaii Medicaid program.

Investment Income

Net investment income for the three months ended March 31, 2003 increased 57.1% to $4.4 million from $2.8 million for the three months ended
March 31, 2002 due primarily to an increase in invested assets resulting from cash proceeds from the sale of American Medical Security Group, Inc. ("AMSG") shares, the sale of Innovative
Resource Group, LLC ("IRG"), and positive operating cash flow. Average invested assets for the three months ended March 31, 2003 increased 90.8% to $441.6 million from
$231.5 million for the three months ended March 31, 2002. Average annualized

16

---

investment
yields, excluding net realized investment gains, investment income from affiliates, and other interest income, were 3.9% for the three months ended March 31, 2003 and 4.8% for the
three months ended March 31, 2002.

Expense Ratios



The insured medical products care ratio for the three months ended March 31, 2003 was 86.6% compared with 87.9% for the three months ended March 31,
2002. The improvement in the insured medical products care ratio is primarily due to improved underwriting discipline and favorable trends in pharmacy and other costs.



For our insurance subsidiaries, the selling, general, administrative, and other ("SGA") expense ratio includes commissions, administrative expenses, premium taxes
and other assessments, and claim interest expense. For non-insurance subsidiaries, the SGA expense ratio includes operating expenses only.

The
insured medical products SGA expense ratio for the three months ended March 31, 2003 and for the three months ended March 31, 2002 stayed constant at 10.8%.

The
expense ratio for self-funded products for the three months ended March 31, 2003 improved to 88.4% from 95.2% for the three months ended March 31, 2002. The
improved expense ratio results from the acquisition of CMSI, which accounted for 41% of the self-funded revenue in 2003, and an increase in the volume of business serviced under the
BlueCard PPO program. Costs associated with servicing the CMSI accounts and the BlueCard PPO program are significantly lower than the costs associated with servicing other self-funded
accounts.

The
combined loss and expense ratio for specialty managed care products and services for the three months ended March 31, 2003 improved to 93.1% from 96.7% for the three months
ended March 31, 2002. The improvement is primarily due to continued growth in the workers' compensation business, along with favorable claims experience on our dental business.

The
operating expense ratio for government services for the three months ended March 31, 2003 and for the three months ended March 31, 2002 stayed constant at 98.2%.

Income from Investment in Affiliates

For the three months ended March 31, 2002, income from investment in affiliates, net of tax, of $2.9 million was primarily comprised of our equity
in AMSG net income of $2.4 million, combined with a net gain of $0.4 million on the sale of 1.4 million shares of AMSG stock during the first quarter of 2002. Subsequent to the
first quarter of 2002, we reclassified our investment in AMSG from an affiliated investment to investments available-for-sale due to our decreased ownership and the fact that
we no longer had the ability to exercise significant influence over AMSG.

Income Taxes

Income tax expense for financial reporting purposes in 2002 was reduced through utilization of certain net operating loss carryforwards that were subject to a
valuation allowance that had been established by a charge to income tax expense. The utilization of this benefit resulted in an effective tax rate of 10.2% in the first quarter of 2002. The majority
of such net operating loss carryforwards were exhausted for book purposes during the fourth quarter of 2002, and our effective tax rate for financial reporting purposes increased to 38.8% for the
three months ended March 31, 2003. For the three months ended March 31, 2003, we recorded current income tax expense of $3.8 million and deferred tax expense of
$3.3 million. For the three months ended March 31, 2002, we recorded current tax expense of $0.2 million and deferred tax expense of $1.0 million.

17

---

Discontinued Operations

Discontinued operations for the three months ended March 31, 2002 consisted of the net operating loss of IRG of approximately $0.6 million and an
after-tax gain on the sale of IRG on March 29, 2002 in the amount of $9.9 million.

Net Income

For the three months ended March 31, 2003, net income was $11.1 million compared to $22.6 million for the three months ended March 31,
2002. For the three months ended March 31, 2002, net income included income from discontinued operations of $9.4 million, referred to above, and $2.9 million in income from
affiliates, primarily related to our investment in AMSG. For the three months ended March 31, 2002, net income also benefited from a 10.2% effective tax rate as discussed above. Income from
continuing operations before income tax expense and income from investment in affiliates increased from $11.6 million for the three months ended March 31, 2002 to $18.2 million
for the three months ended March 31, 2003.

Liquidity and Capital Resources

Our sources of cash flow consist primarily of health services revenues and investment income. The primary uses of cash include medical and other benefit payments,
as well as operating expense payments. Positive cash flows are invested pending future payments of medical and other benefits and other operating expenses. Our investment policies are designed to
maximize yield, preserve principal, and provide liquidity to meet anticipated payment obligations.

Our
investment portfolio consists primarily of investment-grade bonds and government securities, and has a limited exposure to equity securities. We do not have any investments in
mortgage loans or any
significant amounts of non-publicly traded securities. The bond portfolio had an average quality rating by Moody's Investor Service of "Aa3" at March 31, 2003 and lower than
investment grade bonds represented 5.7% of our total investment portfolio at that date. The market value of the total investment portfolio was greater than amortized cost by $15.9 million at
March 31, 2003 and less than amortized cost by $2.0 million at March 31, 2002.

Our
operating cash flow improved for the three months ended March 31, 2003 compared to the three months ended March 31, 2002. Cash provided by continuing operations
improved to $33.4 million for the three months ended March 31, 2003 compared to $9.9 million in cash used in continuing operations for the three months ended March 31,
2002. Favorable cash flow for the three months ended March 31, 2003 also reflects increases in advance and unearned premium balances, due to increased premium volume in the health and workers'
compensation business and an increase in the medical and other benefits payable balance.

To
meet periodic cash flow requirements, we make borrowings under our bank line-of-credit ("LOC"). The LOC is with a commercial bank and has an interest rate
equal to the London Interbank Offered Rate ("LIBOR"), plus 2.0%, adjusted monthly with interest payments due monthly. The LOC permits aggregate borrowings among certain subsidiaries, excluding the
corporate holding company, up to $20.0 million. At March 31, 2003, the outstanding balance on this LOC was $0.8 million.

We
also currently have a three-year revolving credit facility ("revolver") from M&I Marshall & Ilsley Bank that originated on August 7, 2002 and provides up to
$30.0 million of available credit to us with the availability declining by $5.0 million after one year and an additional $10.0 million after two years. As of March 31,
2003, the interest rate on the revolver was at a rate of LIBOR plus 2.50%. We have pledged the stock of our BCBSUW and CompcareBlue subsidiaries as collateral for the revolver. Our outstanding balance
on the revolver was $27.8 million as of March 31, 2003.

Interest
expense on the LOC and revolver discussed above totaled $0.3 million and $0.2 million for the three months ended March 31, 2003 and 2002, respectively.

The
BlueCross BlueShield Association (the "Association") requires BCBSUW and CompcareBlue to maintain a prescribed liquidity ratio of certain liquid assets to average monthly expenses,
as defined, in accordance with licensure requirements of the Association. BCBSUW and CompcareBlue maintained these required levels as of March 31, 2003.

18

---

We
have an outstanding line-of-credit in the amount of $15.0 million available to Health Professionals of Wisconsin, Inc., an affiliate of UHC,
which is a key provider for Unity. The balance was $3.0 million as of March 31, 2003. Interest is calculated using the quarterly prime rate and is due and payable annually on
November 1.

Statutory Capital

We are required to maintain certain levels of statutory capital and surplus under the National Association of Insurance Commissioners ("NAIC") Risk Based Capital
("RBC") requirements. Wisconsin insurers are also subject to compulsory and security surplus requirements based upon a percentage of underwritten premiums, with the applicable percentage determined by
line of business. In addition to statutory capital requirements, we, BCBSUW and CompcareBlue are required to maintain certain capital levels as determined by the Association. As of December 31,
2002, all of our insurance subsidiaries exceeded the minimum capital requirements imposed by the State of Wisconsin and the Association.

Inflation

Health care costs have been rising and are expected to continue to rise at a rate that exceeds the consumer price index. Our cost control measures,
risk-sharing incentive arrangements with medical care providers, and premium rate increases are designed to reduce the adverse effect of medical cost inflation on our operations. In
addition, we utilize our ability to apply appropriate underwriting criteria in selecting groups and individuals and in controlling the utilization of health care services. However, we cannot be
certain that these efforts will fully offset the impact of inflation or that premium revenue increases will equal or exceed increasing health care costs.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States ("GAAP"). The preparation of these financial statements requires us 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, we evaluate our estimates, including
those related to allowances for doubtful accounts, deferred tax assets, impairment of investments, goodwill impairment, medical and other benefits payables, and litigation and tax contingencies. We
base our 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.

A
discussion of certain accounting policies and estimates deemed by us to be critical to an understanding of our financial condition and results of operations is contained in
"Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2002.

Cautionary Statement

This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the safe harbor provisions of the United States
Private Securities Litigation Reform Act of 1995. Forward-looking statements can generally be identified because they are preceded by or include words like "anticipate," "believe," "estimate,"
"expect," "forecast," "objective," "plan," "possible," "potential," "project" and similar expressions. Forward-looking statements are statements based upon management's expectations at the time such
statements are made and are subject to risks and uncertainties that could cause the Company's actual results to differ materially from those contemplated in the statements. Those risks and
uncertainties include rising health care costs, business conditions, impact of elimination of memberships, competition in the managed care industry, developments in health care reform and other
regulatory issues. Readers are cautioned not to place undue reliance on the forward-looking statements.

19

---

A
discussion of certain risk factors we deem to be critical is contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report
on Form 10-K for the fiscal year ended December 31, 2002.

ITEM 3.    Quantitative and Qualitative Disclosures about Market Risk

Because of our investment policies, the primary market risks associated with our portfolio are interest rate risk, credit risk, and the risk related to
fluctuations in equity prices. With respect to interest rate risk, a reasonably near-term rise in interest rates could negatively affect the fair value of our bond portfolio. However,
because we consider it unlikely that we would need or choose to substantially liquidate our portfolio, we believe that such an increase in interest rates would not have a material impact on future
earnings or cash flows. In addition, we are exposed to the risk of loss related to changes in credit spreads. Credit spread risk arises from the potential that changes in an issuer's credit rating or
credit perception may affect the value of financial instruments.

The
overall goal of the investment portfolio is to support our ongoing operations. Our philosophy is to manage assets to maximize total return over a multiple-year time
horizon, subject to appropriate levels of risk. We manage these risks by establishing gain and loss tolerances, targeting asset-class allocations, diversifying among asset classes and segments within
various asset classes, and using performance measurement and reporting.

We
use a sensitivity model to assess the interest rate risk of our fixed income investments. The model includes all fixed income securities and incorporates assumptions regarding the
impact of changing interest rates on expected cash flows for certain financial assets with prepayment features, such as callable bonds and mortgage-backed securities. The reduction in the fair value
of Cobalt's modeled financial assets resulting from a hypothetical instantaneous 100 basis point increase in the U.S. Treasury yield curve is estimated at $15.2 million as of March 31,
2003.

ITEM 4.    Controls and Procedures

The registrant's certifying officers have evaluated the effectiveness of the design and operation of our internal controls and disclosure controls and procedures
within 90 days prior to the date of this quarterly report. Based upon that review, the certifying officers have concluded that the internal controls and disclosure controls and procedures are
effectively operating to ensure that material information relating to us and our consolidated subsidiaries is made known to such officers by others within those entities, particularly during the
period in which this quarterly report was being prepared. The review of internal controls and disclosure controls and procedures did not reveal any significant deficiencies in their design or
operation, which could adversely affect our ability to record, process, summarize and report financial data. We did not discover any material weaknesses in these controls or procedures, nor did we
discover any fraud of any kind involving management or other employees who have a significant role in Cobalt's internal controls. There were no significant changes in the internal controls or in other
factors that could significantly affect internal controls subsequent to the date of evaluation, including any corrective actions taken with regard to significant deficiencies or material weaknesses,
and there are no corrective actions contemplated as of the date of this report. They did not identify any significant changes that need to be made to ensure the effectiveness of the internal controls
or the disclosure controls and procedures. Nor did they identify any other factors that could materially affect the internal controls occurring after the date of our certification.

20

---



PART II.    OTHER INFORMATION

COBALT CORPORATION

Item 1.    Legal Proceedings

None

Item 2.    Changes in Securities

None

Item 3.    Defaults Upon Senior Securities

None

Item 4.    Submission of Matters to a Vote of Security Holders

None

Item 5.    Other Information

None

Item 6.    Exhibits and Reports on Form 8-K

| | (a) |  | Exhibits           
| | --- |  | -------------------
| |     |  | 99.1               
| |     |  | 99.2               
| | (b) |  | Reports on Form 8-K
| |     |  | (i)                
| |     |  | (ii)               
| |     |  | (iii)              
| |     |  | (iv)               
| |     |  | (v)                
| |     |  | (vi)               

21

---



SIGNATURE

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.

|May 13, 2003 | COBALT CORPORATION |  |                                                                                             
|------------ | ------------------ |  | --------------------------------------------------------------------------------------------
|             | By:                |  | /s/GAIL L. HANSONGail L. Hanson
Senior Vice President, Treasurer and
Chief Financial Officer

22

---



CERTIFICATIONS

I, Stephen E. Bablitch, certify that:

1.     I
have reviewed this Quarterly Report on Form 10-Q of Cobalt Corporation;

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 officers 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:



5.     The
registrant's other certifying officers 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):



6.     The
registrant's other certifying officers 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 13, 2003

| | By: |  | /s/STEPHEN E. BABLITCHStephen E. Bablitch
Chairman and Chief
Executive Officer
| | --- |  | ------------------------------------------------------------------------------

23

---



CERTIFICATIONS

I, Gail L. Hanson, certify that:

1.     I
have reviewed this Quarterly Report on Form 10-Q of Cobalt Corporation;

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 officers 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:



5.     The
registrant's other certifying officers 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):



6.     The
registrant's other certifying officers 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 13, 2003

| | By: |  | /s/GAIL L. HANSONGail L. Hanson
Senior Vice President,
Treasurer & CFO
| | --- |  | ----------------------------------------------------------------------

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