<PAGE>

                                  United States
                       Securities and Exchange Commission
                             Washington, D.C. 20549


                                    FORM 10-Q


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


                       For the Period Ended June 30, 1999


                         Commission File Number 1-14177


                         UNITED WISCONSIN SERVICES, INC.
             (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 X      No
           ---       ---


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

Common stock outstanding as of July 31, 1999 was 16,845,275.


<PAGE>

                         UNITED WISCONSIN SERVICES, INC.

                                    INDEX TO
                          QUARTERLY REPORT ON FORM 10-Q

                       For the Period Ended June 30, 1999

<TABLE>
<S>                                                                                <C>
PART I

Financial Statements and Supplementary Data.......................................    3

Management's Discussion and Analysis of Financial Condition and Results
 of Operations....................................................................   11

Quantitative and Qualitative Disclosures about Market Risk........................   19


PART II

Other Information.................................................................   21

Signature Page....................................................................   23
</TABLE>



                                       2
<PAGE>



                         UNITED WISCONSIN SERVICES, INC.
                           CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)


<TABLE>
<CAPTION>

                                                                                      June 30,           December 31,
                                                                                        1999                 1998
                                                                                   ---------------      ---------------
                                                                                             (IN THOUSANDS)
              <S>                                                                       <C>                  <C>
              ASSETS

              Current Assets:

                 Cash and cash equivalents                                                $ 4,686             $ 26,385
                 Investments--available for sale                                          148,428              158,463
                 Other receivables                                                         65,957               65,464
                 Prepaid and other current assets                                          18,482                6,778
                                                                                   ---------------      ---------------

                       Total Current Assets                                               237,553              257,090

              Investments--held to maturity                                                 8,161                7,710
              Property and equipment, net                                                   9,110                8,963
              Goodwill and other intangible assets, net                                    10,612                7,751
              Other noncurrent assets                                                      22,470               16,694
                                                                                   ---------------      ---------------






              Total Assets                                                              $ 287,906            $ 298,208
                                                                                   ===============      ===============

</TABLE>

            See Notes to Interim Consolidated Financial Statements.

                                       3
<PAGE>
                         UNITED WISCONSIN SERVICES, INC.
                           CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                        June 30,            December 31,
                                                                                          1999                  1998
                                                                                     ---------------       ---------------
                                                                                                (IN THOUSANDS)
              <S>                                                                          <C>                   <C>
              LIABILITIES AND SHAREHOLDERS' EQUITY

              Current Liabilities:

                 Medical and other benefits payable                                        $ 50,941              $ 70,659
                 Advance premiums                                                            31,651                30,584
                 Note payable to affiliate                                                   70,000                70,000
                 Due to affiliates - other                                                    6,850                 7,513
                 Payables and accrued expenses                                               21,350                19,129
                 Other current liabilities                                                   17,555                10,527
                                                                                     ---------------       ---------------

                       Total Current Liabilities                                            198,347               208,412

              Other noncurrent liabilities                                                   31,888                25,337
                                                                                     ---------------       ---------------

                       Total Liabilities                                                    230,235               233,749

              Shareholders' Equity:

                 Preferred stock (no par value, 1,000,000 shares authorized)                      -                     -
                 Common stock (no par value, no stated value,
                     50,000,000 shares authorized, 16,845,067 and 16,812,081
                     issued and outstanding at June 30, 1999
                     and December 31, 1998, respectively)                                    13,660                13,378
                 Retained earnings                                                           44,775                50,088
                 Unrealized gains (losses) on investments, net of taxes                        (764)                  993
                                                                                     ---------------       ---------------

                       Total Shareholders' Equity                                            57,671                64,459
                                                                                     ---------------       ---------------


              Total Liabilities and Shareholders' Equity                                  $ 287,906             $ 298,208
                                                                                     ===============       ===============

</TABLE>

            See Notes to Interim Consolidated Financial Statements.

                                       4
<PAGE>



                           UNITED WISCONSIN SERVICES, INC.
                          CONSOLIDATED STATEMENTS OF INCOME
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                   Three months ended                    Six months ended
                                                                        June 30,                             June 30,
                                                               --------------------------          ---------------------------
                                                                 1999             1998               1999              1998
                                                               ---------        ---------          ---------         ---------
                                                                             (IN THOUSANDS, EXCEPT SHARE DATA)
 <S>                                                           <C>              <C>                <C>               <C>
 Revenues:
    Health services revenue:
     Premium revenue                                           $ 160,879        $ 150,526          $ 321,200         $ 298,602
     Other revenue                                                10,940            7,257             20,265            14,378
    Investment results                                             3,124            5,999              6,487             9,960
                                                               ---------        ---------          ---------         ---------
           Total Revenues                                        174,943          163,782            347,952           322,940

 Expenses:

     Medical and other benefits                                  153,050          127,641            291,986           253,708
     Selling, general and administrative expenses                 34,088           26,282             62,784            50,674
     Profit (loss) sharing on provider arrangements                 (150)             289               (280)            1,413
     Interest expense                                              1,241                -              2,425                 -
     Amortization of goodwill and other intangibles                  195               99                360               215
                                                               ---------        ---------          ---------         ---------
           Total Expenses                                        188,424          154,311            357,275           306,010
                                                               ---------        ---------          ---------         ---------
 Income (Loss) before Income Taxes                               (13,481)           9,471             (9,323)           16,930

 Income Tax Expense (Benefit)                                     (5,496)           3,772             (4,010)            6,515
                                                               ---------        ---------          ---------         ---------
 Net Income (Loss)                                              $ (7,985)         $ 5,699           $ (5,313)         $ 10,415
                                                               ---------        ---------          ---------         ---------
                                                               ---------        ---------          ---------         ---------
 Basic and Diluted Earnings (Loss) Per Common
     Share (1998 pro forma)                                      $ (0.47)          $ 0.30            $ (0.32)           $ 0.53
                                                               ---------        ---------          ---------         ---------
                                                               ---------        ---------          ---------         ---------

</TABLE>

            See Notes to Interim Consolidated Financial Statements.

                                       5
<PAGE>




                         UNITED WISCONSIN SERVICES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                   Six months ended
                                                                                                       June 30,
                                                                                             -----------------------------
                                                                                                1999             1998
                                                                                             ------------     ------------
                                                                                                    (IN THOUSANDS)
              <S>                                                                               <C>              <C>
              Operating Activities:

                 Net Income (Loss)                                                              $ (5,313)        $ 10,415
                 Adjustments to reconcile net income (loss) to net cash
                      provided by (used in) operating activities:
                        Depreciation and amortization                                              1,764            1,278
                        Realized investment gains                                                 (1,789)          (5,023)
                        Deferred income tax expense (benefit)                                       (596)             116
                        Changes in operating accounts:
                         Other receivables                                                          (505)           1,375
                         Medical and other benefits payable                                      (18,145)          (6,006)
                         Advance premiums                                                          1,067            5,705
                         Due to/from affiliates                                                     (679)             717
                         Other, net                                                               (7,220)          (4,492)
                                                                                             ------------     ------------

                               Net Cash Provided by (Used in) Operating Activities               (31,416)           4,085

              Investing Activities:
                 Acquisition of subsidiaries (net of cash and cash equivalents
                      acquired of $253,000)                                                       (3,168)               -
                 Purchases of available for sale investments                                     (80,890)        (102,367)
                 Proceeds from sale of available for sale investments                             80,496           98,291
                 Proceeds from maturity of available for sale investments                          8,650            5,575
                 Purchases of held to maturity investments                                          (459)            (313)
                 Proceeds from maturity of held to maturity investments                                -              265
                 Additions to property and equipment                                              (1,104)          (1,946)
                                                                                             ------------     ------------

                               Net Cash Provided by (Used in) Investing Activities                 3,525             (495)

              Financing Activities:

                 Issuances of common stock                                                             2                -
                 Proceeds from line of credit                                                      6,715                -
                 Repayment of debt                                                                  (525)               -
                 Decrease in investments by and advances from AMSG                                     -           (5,873)
                                                                                             ------------     ------------

                               Net Cash Provided by (Used in) Financing Activities                 6,192           (5,873)

              Cash and Cash Equivalents:
                 Decrease during period                                                          (21,699)          (2,283)
                 Balance at beginning of year                                                     26,385           17,033
                                                                                             ------------     ------------
                               Balance at End of Period                                          $ 4,686         $ 14,750
                                                                                             ============     ============

</TABLE>

            See Notes to Interim Consolidated Financial Statements.

                                       6

<PAGE>

                         UNITED WISCONSIN SERVICES, INC.
               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


                                  June 30, 1999

Note A.  Basis of Presentation

The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles 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 generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of only normal recurring adjustments) considered
necessary for a fair presentation have been included. Operating results for
the three-month and six-month periods ended June 30, 1999 and 1998 are not
necessarily indicative of the results that may be expected for the years
ending December 31, 1999 and 1998. These interim consolidated financial
statements should be read in conjunction with the audited consolidated
financial statements for the year ended December 31, 1998 and footnotes
thereto included in United Wisconsin Services, Inc. (the "Company") Form
10-K, as filed with the Securities and Exchange Commission.

The accompanying unaudited interim consolidated financial statements present
the consolidated financial position, consolidated results of operations and
cash flows as if the Company had been an independent, publicly owned company
for all periods presented prior to the spin off ("Spin off" or
"Distribution") from American Medical Security Group, Inc. ("AMSG", formerly
United Wisconsin Services, Inc.) on September 25, 1998 ("Spin off date").
Certain estimates, assumptions and allocations were made to facilitate the
preparation of the unaudited interim consolidated financial statements.

Note B.  Net Income (Loss) Per Share

Basic earnings per common share are computed by dividing net income (loss) by
the weighted average number of common shares outstanding. Diluted earnings
per common share are computed by dividing net income by the weighted average
number of common shares outstanding, adjusted for the effect of dilutive
securities for employee and board of director stock options. When the Company
reports a net loss, potentially dilutive securities are not included in the
calculation of Earnings Per Share ("EPS") because their inclusion would have
an antidilutive effect.

The weighted average number of common shares outstanding used in the
calculation of both basic and diluted EPS are 16,845,043 and 16,834,275 for
the three months and six months ended June 30, 1999, respectively.

Options to purchase 2,349,235 and 2,549,331 common shares during the three
months and six months ended June 30, 1999, respectively, were not included in
the computation of diluted earnings per common share since the options'
exercise prices were greater than the average market price of the outstanding
common shares. In addition, 400,900 and 432,267 potentially dilutive common
shares for the three months and six months ended June 30, 1999, respectively,
were not included because the Company had a net loss in the periods presented
for 1999 and their inclusion would have been antidilutive.

                                       7
<PAGE>

Note C.  Pro Forma Financial Information

In conjunction with the distribution of assets pursuant to the Spin off, the
Company assumed a $70 million note obligation to Blue Cross & Blue Shield
United of Wisconsin ("BCBSUW"). The assumption of debt was effective
September 11, 1998. The unaudited pro forma results presented on the interim
consolidated statement of income and below, have been prepared for
informational purposes only. These results include the adjustment to
historical results, based on additional interest expense for the three month
and six month periods ended June 30, 1998, net of related income tax. Pro
forma calculations for dilutive securities for the second quarter and
year-to-date of 1998, assume that the price of the common shares and the
strike price of the options is the same during the periods.

The following unaudited pro forma information presents a summary of the
effect on net income as if the Spin off had occurred at the beginning of the
period:

<TABLE>
<CAPTION>
                                                                      Three months           Six months
                                                                          ended                 ended
                                                                      June 30, 1998         June 30, 1998
                                                                     ---------------       ---------------
                                                                        (IN THOUSANDS, EXCEPT SHARE DATA)
<S>                                                                  <C>                   <C>
Net income as reported                                               $         5,699       $        10,415
Pro forma adjustment - interest expense, net of taxes                            789                 1,581
                                                                     ---------------       ---------------
Pro forma net income                                                 $         4,910       $         8,834
                                                                     ---------------       ---------------
                                                                     ---------------       ---------------

Pro forma basic and diluted weighted average common shares                16,546,176            16,531,108

Pro forma basic and diluted earnings per common share                $          0.30       $          0.53
                                                                     ---------------       ---------------
                                                                     ---------------       ---------------
</TABLE>

The unaudited pro forma financial information presented on the consolidated
statement of income and above, do not purport to be indicative of the results
of operations which actually would have resulted had the transactions
occurred at the beginning of the periods presented or of the future results
of operations.

Note D.  Related Party

The Company and BCBSUW have discontinued negotiations for a private purchase
by BCBSUW of newly issued shares of the Company's common stock. BCBSUW
instead, is in the process of purchasing approximately 1.4 million of the
Company's shares in the market as a result of the previously disclosed plan
for BCBSUW to increase its ownership in the Company. The majority ownership
by BCBSUW will allow Compcare Health Services Insurance Corporation, a wholly
owned subsidiary of the Company, to use the Blue Cross and Blue Shield brand
on its products.

BCBSUW's Board of Directors announced in June of 1999 its intention to
convert BCBSUW from a service insurance corporation to a stockholder-owned
corporation. The conversion is authorized under existing state law and would
occur following the required approval by Wisconsin regulators, including the
Office of the Commissioner of Insurance. In conjunction with the planned
change in corporate structure of BCBSUW, the Company plans to pursue
opportunities for a possible merger or other business combination with
BCBSUW. Any merger or other business combination is not expected to occur
before October of 2000.

                                       8
<PAGE>

Note E.  Comprehensive Income

A reconciliation from net income (loss) reported in the Consolidated
Statements of Income to comprehensive income (loss) is stated below:

<TABLE>
<CAPTION>
                                                         Three months ended             Six months ended
                                                              June 30,                      June 30,
                                                     ---------------------------- -----------------------------
                                                         1999            1998           1999            1998
                                                     -----------     ------------    -----------    -----------
                                                                            (IN THOUSANDS)
<S>                                                  <C>             <C>             <C>            <C>
Net income (loss) per Consolidated Statements
     of Income                                         $(7,985)        $ 5,699        $(5,313)       $10,415
Unrealized gains (losses) on investments,
     net of taxes                                         (523)         (2,891)        (1,757)        (1,964)
                                                     -----------     ------------    -----------    -----------
Comprehensive income (loss)                            $(8,508)        $ 2,808        $(7,070)       $ 8,451
                                                     -----------     ------------    -----------    -----------
                                                     -----------     ------------    -----------    -----------
</TABLE>

Comprehensive income (loss) is defined as all changes in equity during the
period except those resulting from shareholder equity contributions and
distributions. The accumulated effect of comprehensive income (loss) was a
reduction of $0.8 million and an increase of $1.0 million as of June 30, 1999
and December 31, 1998, respectively.

Note F.  Segment Reporting

The Company has two reportable business segments: Health Maintenance
Organization ("HMO") products sold primarily in Wisconsin, and specialty
managed care products and services, including dental, life, disability and
workers' compensation products, managed care consulting, electronic claim
submission, pharmaceutical management, managed behavioral health services,
case management and receivables management sold throughout the United States.

 "Other Operations" includes operations not directly related to the business
segments, unallocated corporate items (i.e. interest expense on corporate
debt, amortization of goodwill and intangibles, unallocated overhead expenses
and one-time transaction and reorganization costs) and intercompany
eliminations. The Company evaluates 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 the December 31, 1998
audited financial statements in the summary of significant accounting
policies.

Financial data by segment is as follows:

<TABLE>
<CAPTION>
                                                             Three months ended                   Six months ended
                                                                  June 30,                            June 30,
                                                       --------------- ---------------     --------------- --------------
                                                             1999            1998                1999           1998
                                                       --------------- ---------------     --------------- --------------
                                                                                 (IN THOUSANDS)
<S>                                                    <C>             <C>                 <C>             <C>
Health services revenue:
    HMO products                                             $138,017        $128,066            $274,915       $254,702
    Specialty managed care products and services               37,931          33,723              74,640         66,191
    Other operations                                           (4,129)         (4,006)             (8,090)        (7,913)
                                                       --------------- ---------------     --------------- --------------
        Total consolidated                                   $171,819        $157,783            $341,465       $312,980
                                                       --------------- ---------------     --------------- --------------
                                                       --------------- ---------------     --------------- --------------
</TABLE>

                                       9
<PAGE>

<TABLE>
<CAPTION>
                                                         Three months ended             Six months ended
                                                              June 30,                      June 30,
                                                     ------------- -----------       ----------- ----------
                                                          1999        1998              1999       1998
                                                     ------------- -----------       ----------- ----------
                                                                         (IN THOUSANDS)
<S>                                                  <C>           <C>               <C>         <C>
Investment results:
    HMO products                                           $1,478      $2,445            $3,460     $4,038
    Specialty managed care products and services            1,623       3,470             2,986      5,702
    Other operations                                           23          84                41        220
                                                     ------------- -----------       ----------- ----------
        Total consolidated                                 $3,124      $5,999            $6,487     $9,960
                                                     ------------- -----------       ----------- ----------
                                                     ------------- -----------       ----------- ----------

Income (loss) before income tax expense:
    HMO products                                        $(11,222)      $4,621           $(8,719)    $8,396
    Specialty managed care products and services           1,998        5,229             5,187      9,235
    Other operations                                      (4,257)        (379)           (5,791)      (701)
                                                     ------------- -----------       ----------- ----------
        Total consolidated                              $(13,481)      $9,471           $(9,323)   $16,930
                                                     ------------- -----------       ----------- ----------
                                                     ------------- -----------       ----------- ----------
</TABLE>

<TABLE>
<CAPTION>
                                                               June 30,         December 31,
                                                                1999                1998
                                                          -----------------    --------------
                                                                     (IN THOUSANDS)
<S>                                                       <C>                  <C>
Total assets:
    HMO products                                                  $115,662          $138,272
    Specialty managed care products and services                   159,338           151,845
    Other operations                                                12,906             8,091
                                                          -----------------    --------------
        Total consolidated                                        $287,906          $298,208
                                                          -----------------    --------------
                                                          -----------------    --------------
</TABLE>

<TABLE>
<CAPTION>
                                                             Three months ended         Six months ended
                                                                  June 30,                  June 30,
                                                          ------------------------    ----------------------
                                                              1999        1998           1999       1998
                                                          ----------- ------------    ---------- -----------
                                                                             (IN THOUSANDS)
<S>                                                       <C>         <C>             <C>        <C>
Health services revenue from transactions
 with other operating segments:
         HMO products                                       $   528     $   485        $  988     $   966
         Specialty managed care products and
          services                                            3,035       3,184         6,704       6,950
</TABLE>

Note G.  Reclassifications

Certain reclassifications have been made to the consolidated financial
statements for 1998 to conform with the 1999 presentation.

                                       10
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS11

OVERVIEW

       United Wisconsin Services, Inc. (the "Company") is a Wisconsin
corporation organized in May of 1998 for the purpose of owning and operating
the managed care companies and specialty businesses of the Company's
predecessor, American Medical Security Group, Inc. ("AMSG") (formerly United
Wisconsin Services, Inc.). On September 25, 1998, the Company was spun off
(the "Spin off") from its former parent AMSG.

      The Company is a leading provider of managed health care services and
employee benefit products. The Company's two primary product lines are: (i)
Health Maintenance Organization ("HMO") products, including Compcare Health
Services Insurance Corporation ("Compcare"), Valley Health Plan, Inc.
("Valley"), Unity Health Plans Insurance Corporation ("Unity") and certain
point-of-service ("POS") and other related products managed by Compcare,
Valley and Unity, and (ii) specialty managed care products and services,
including dental, life, disability and workers' compensation products,
managed care consulting, electronic claim submission, pharmaceutical
management, managed behavioral health services, case management and
receivables management, sold throughout the United States. Operating results
and statistics for these product groups are presented below for the periods
indicated.

      The following Management's Discussion and Analysis should be read in
conjunction with the audited consolidated financial statements for the year
ended December 31, 1998 and footnotes thereto included in the Company's Form
10-K.

RESULTS OF OPERATIONS

TOTAL REVENUES

      Total revenues for the three months ended June 30, 1999 increased 6.8%
to $174.9 million from $163.8 million for the three months ended June 30,
1998. For the six months ended June 30, 1999, total revenues increased 7.8%
to $348.0 million from $322.9 million for the six months ended June 30, 1998.
These increases were due primarily to increased membership in most of the
major product lines, general premium and rate increases and acquisitions of
specialty businesses since July of 1998.

      HEALTH SERVICES REVENUES -- HMO health services revenues for the three
months ended June 30, 1999 increased 7.7% to $138.0 million from $128.1
million for the three months ended June 30, 1998. Average insured HMO medical
premium per member for the three months ended June 30, 1999 increased 5.4%
from the same period in the prior year. The average number of insured HMO
medical members for the three months ended June 30, 1999 increased 2.3% to
296,878 from 290,335 for the three months ended June 30, 1998.

      HMO health services revenues for the six months ended June 30, 1999
increased 7.9% to $274.9 million from $254.7 million for the six months ended
June 30, 1998. Average insured HMO medical premium per member for the six
months ended June 30, 1999 increased 4.8% from the same period in the prior
year. The average number of insured HMO medical members for the six months
ended June 30, 1999 increased 3.0% to 297,245 from 288,614 for the six months
ended June 30, 1998.

      Health services revenues for specialty managed care products and
services for the three months ended June 30, 1999 increased 12.5% to $37.9
million from $33.7 million for the three months ended June 30, 1998. Health
services revenues for specialty managed care products and services for the
six months ended June 30, 1999 increased 12.7% to $74.6 million from $66.2
million for the six months ended June 30, 1998. These increases were due
primarily to an increase in covered lives, premium rate increases on
insurance products and additional revenue of $3.6 million for the six months
ended June 30, 1999 from recent acquisitions. The Company acquired Intercare
Network, Inc. ("Intercare") and Ladd Enterprises, Inc. ("Ladd") during the
second half of 1998, and Allegro, Ltd. ("Allegro"), a case management
company, and the managed care assets of HCX, Inc. ("HCX") and Comprehensive
Collection Services ("CCS") in the second quarter of 1999. The

                                       11
<PAGE>

increase for the six month period was partially offset by the Company's exit
from the vision business in the first quarter of 1998. Premium revenues for
the vision business were $0.6 million in the first quarter of 1998.

      NET INVESTMENT RESULTS -- Investment results include investment income
and realized gains on investments. Investment results for the three months
ended June 30, 1999 decreased 48.3% to $3.1 million from $6.0 million for the
three months ended June 30, 1998. Average annual investment yields, excluding
net realized gains, were 5.5% for both the three months ended June 30, 1999
and 1998. Investment results for the six months ended June 30, 1999 decreased
35.0% to $6.5 million from $10.0 million for the six months ended June 30,
1998. Average annual investment yields, excluding net realized gains, were
5.4% for the six months ended June 30, 1999 and 5.7% for the six months ended
June 30, 1998. The lower investment yields during 1999 are primarily the
result of an increase in the percentage of lower yielding municipal and
international bonds to the total bond portfolio.

      Average invested assets for the three months ended June 30, 1999
decreased 6.8% to $168.9 million from $181.2 million for the three months
ended June 30, 1998. Average invested assets for the six months ended June
30, 1999 decreased 2.0% to $177.2 million from $180.9 million for the six
months ended June 30, 1998. The decrease in the average invested assets
during 1999 is the result of cash requirements necessary to fund operating
losses, advances to providers and a reduction in medical and other benefits
payable.

      Investment gains are realized in the normal investment process in
response to market opportunities. Realized gains for the three months ended
June 30, 1999 were $0.8 million, compared to $3.6 million for the three
months ended June 30, 1998. Realized gains for the six months ended June 30,
1999 were $1.8 million, compared to $5.0 million for the six months ended
June 30, 1998.

EXPENSE RATIOS

      LOSS RATIO -- The consolidated loss ratio represents the ratio of
medical and other benefits to premium revenue on a consolidated basis, and is
therefore a blended ratio for medical, life, dental, disability and other
product lines. The consolidated loss ratio was 95.1% for the three months
ended June 30, 1999, compared with 84.8% for the three months ended June 30,
1998. The consolidated loss ratio was 90.9% for the six months ended June 30,
1999, compared with 85.0% for the six months ended June 30, 1998. The 1999
consolidated loss ratios were influenced by increases in the component loss
ratios for each of the Company's primary product lines, as discussed below.

      The medical loss ratio for HMO products for the three months ended June
30, 1999 was 98.8%, compared with 88.3% for the three months ended June 30,
1998. The medical loss ratio for HMO products for the six months ended June
30, 1999 was 94.1%, compared with 88.4% for the six months ended June 30,
1998. The increase in both periods ending June 30, 1999 is primarily the
result of adverse reserve development in the amount of $11.8 million
related to 1998 and prior. Excluding the adverse reserve development, the
loss ratio for the three and six months ended June 30, 1999 would have been
90.2% and 89.8%, respectively. Compcare had an increased claim backlog as a
result of processing issues following a system conversion. The level of paid
claims for Compcare increased significantly during the second quarter of
1999, as Compcare reduced its claim backlog to preconversion levels.
Increased claim costs affected periods both prior to and subsequent to the
system conversion in August 1998. It appears that a significant portion of
the unfavorable 1998 claims impact was attributable to a reduction in the
identification and processing of claim recoveries. Claim recoveries were also
impacted by system implementation issues; however, efforts are being undertaken
in 1999 to maximize potential claim recoveries. The remaining increase was due
in part to increased claims on out-of-area health services provided to
Compcare and Valley members during 1999. This out-of-area component had
premium and incurred claims of $4.3 million and $7.1 million, respectively,
for the first six months of June 1999, compared to $4.7 million and $4.4
million for the same period in 1998, respectively.

                                       12
<PAGE>

      The loss ratio for the risk products within specialty managed care
products and services for the three months ended June 30, 1999 was 77.7%,
compared with 69.4% for the three months ended June 30, 1998. The loss ratio
for the risk products within specialty managed care products and services for
the six months ended June 30, 1999 was 75.9%, compared with 70.3% for the six
months ended June 30, 1998. The loss ratios principally relate to the life,
disability, workers' compensation and dental product lines of business. These
products represent relatively small blocks of business, and as a result, the
loss ratio can exhibit significant volatility due to varying levels of claim
frequency and severity. Generally, the anticipated aggregate loss ratio for
specialty risk products should range between 70% and 75%. The higher loss
ratios in 1999 are attributable to an increase in the life and disability
claims, along with lower premium and rate increases in 1999 given the
competitive marketplace conditions for disability and workers' compensation
products. In addition, United Heartland, Inc. workers' compensation block of
business had achieved better than expected results during 1998, while the
1999 results represent an increased loss ratio that is more in line with
industry and targeted results.

      SELLING, GENERAL, AND ADMINISTRATIVE EXPENSE RATIO -- The selling,
general and administrative ("SGA") expense ratio includes commissions,
administrative expenses, and premium taxes and other assessments. The SGA
expense ratio for HMO products for the three months ended June 30, 1999 was
10.5%, compared with 9.8% for the three months ended June 30, 1998. The SGA
expense ratio for HMO products for the six months ended June 30, 1999 was
10.4%, compared with 9.3% for the six months ended June 30, 1998. The
majority of the increase in the SGA expense ratio relates to costs incurred
to reduce Compcare's claim backlog, which was attributed to the system
conversion as part of the Company's implementation of its Year 2000 readiness
program and to increase customer service demands. Any remaining incremental
costs associated with the upgraded computer system are expected to decline
during the remainder of the year.

      SGA expense ratio related to the risk products within specialty managed
care products and services for the three months ended June 30, 1999 was
26.8%, compared with 27.0% for the three months ended June 30, 1998. SGA
expense ratio related to the risk products within specialty managed care
products and services for the six months ended June 30, 1999 was 25.1%,
compared with 25.7% for the six months ended June 30, 1998. This decrease was
primarily due to an expense credit of approximately $0.2 million during the
first six months of 1999, related to the Company's participation in a
reinsurance pool for the State of Wisconsin group life insurance program.
Such expense credits or offsetting expense charges may continue throughout
1999. The Company does not expect such credits to continue beyond 1999.

      The operating expense ratio related to the service products within
specialty managed care products and services for the three months ended June
30, 1999 was 89.6%, compared with 92.1% for the three months ended June 30,
1998. The operating expense ratio related to the service products within
specialty managed care products and services for the six months ended June
30, 1999 was 89.3%, compared with 91.6% for the six months ended June 30,
1998. The improvements in both periods in 1999 are due to several factors.
The receipt of additional profit sharing from Virginia Surety Company has
increased revenue in the Company's workers' compensation block of business
during 1999, thereby lowering the ratio of expense to revenue. The
acquisitions of Ladd and Intercare, which have historically had lower than
average operating expense ratios, during the second half of 1998 and the
integration of the acquired audit services division of HCX into Meridian
Resource Corporation during the second quarter of 1999 also contributed
favorably to the reduction in the overall operating expense ratio.

The Company recorded one-time charges of approximately $2.8 million for
various transaction and reorganization costs in the second quarter of 1999.
These charges consist primarily of expenses associated with the proposed debt
for equity swap transaction with BCBSUW (which was discontinued by BCBSUW in
favor of market purchases), an unfavorable appellate court judgment in a
dissenter's lawsuit relating to the 1994 acquisition of Unity, costs
associated with the startup of a new regional office and the combination of
various specialty managed care service businesses into a single operating
unit.

                                       13
<PAGE>

OTHER EXPENSES

      Profit (loss) sharing on joint ventures was $(0.2) million for the
three months ended June 30, 1999 compared with $0.3 million for the three
months ended June 30, 1998. Profit (loss) sharing on joint ventures was
$(0.3) million for the six months ended June 30, 1999, compared with $1.4
million for the six months ended June 30, 1998. These balances are related to
the Unity and Valley provider arrangements and reflect the relative
profitability of these entities.

      Amortization of goodwill and other intangibles for the three months
ended June 30, 1999 was $0.2 million, compared with $0.1 million for the
three months ended June 30, 1998. Amortization of goodwill and other
intangibles for the six months ended June 30, 1999 was $0.4 million, compared
with $0.2 million for the six months ended June 30, 1998. The increase is due
to goodwill arising from the acquisitions of Intercare and Ladd during the
second half of 1998, and the acquisitions of Allegro, HCX and CCS in the
second quarter of 1999.

      Interest expense in 1999 was related primarily to the $70 million note
obligation to BCBSUW which was assumed on September 11, 1998 in conjunction
with the Spin off.

NET INCOME FROM OPERATIONS

      Net income (loss) from operations for the three months ended June 30,
1999 decreased to $(8.0) million from $5.7 million for the three months ended
June 30, 1998. Net income (loss) from operations for the six months ended
June 30, 1999 decreased to $(5.3) million from $10.4 million for the six
months ended June 30, 1998.

      The Company's effective tax rate was 40.8% for the three months ended
June 30, 1999, compared with 39.8% for the three months ended June 30, 1998.
The Company's effective tax rate was 43.0% for the six months ended June 30,
1999, compared with 38.5% for the six months ended June 30, 1998. This rate
fluctuates based upon the relative profitability of the Company's two product
lines and the differing effective tax rate for each of those product lines.
The effective tax rate by product line ranges from 33% to 44%. In addition to
the impact from the mix of earnings, favorable adjustments relating to prior
periods totaling approximately $0.2 million were recorded during the first
quarter of 1999.

SUMMARY OF OPERATING RESULTS AND STATISTICS

       Operating results and statistics for the two primary product groups are
presented below for the periods indicated.

<TABLE>
<CAPTION>
                                                                                 June 30,
                                                                       ------------------------------
                                                                           1999             1998
                                                                       --------------  --------------
<S>                                                                    <C>             <C>
Members at end of period:

HMO MEMBERS BY BUSINESS UNIT:
    Compcare                                                               174,898         172,825
    Valley                                                                  42,225          40,203
    Unity                                                                   87,099          84,880
                                                                       --------------  --------------
         Total  HMO members                                                304,222         297,908
                                                                       --------------  --------------
                                                                       --------------  --------------
HMO MEMBERS BY PRODUCT TYPE:
    Commercial                                                             183,191         185,544
    Point of Service                                                        74,528          65,551
    Medicaid                                                                39,885          41,029
                                                                       --------------  --------------
         Total  insured members                                            297,604         292,124
     Self-insured members                                                    6,618           5,784
                                                                       --------------  --------------
                Total HMO members                                          304,222         297,908
                                                                       --------------  --------------
                                                                       --------------  --------------
</TABLE>

                                       14
<PAGE>

<TABLE>
<CAPTION>
                                                                                  June 30,
                                                                       ------------------------------
                                                                           1999             1998
                                                                       --------------  --------------
<S>                                                                    <C>             <C>
SPECIALTY MANAGED CARE PRODUCTS AND SERVICES:
    UWG Life/AD&D                                                          158,933         152,045
    Dental - HMO                                                           175,500         168,044
    UWG Dental                                                              13,368          12,094
    Disability                                                             114,024          99,457
    Behavioral Health                                                      978,781         913,479
    Workers' Compensation                                                   54,115          53,509
                                                                       --------------  --------------
         Total Specialty managed care
           products and services members                                 1,494,721       1,398,628
                                                                       --------------  --------------
                                                                       --------------  --------------
</TABLE>

<TABLE>
<CAPTION>
                                                            Three Months Ended         Six Months Ended
                                                                 June 30,                  June 30,
                                                          ----------------------    ----------------------
                                                             1999        1998          1999        1998
                                                          ---------- -----------    ---------- -----------
<S>                                                       <C>        <C>            <C>        <C>
Health services revenues (as a percentage of the total):
    HMO products                                             80.3%      81.2%          80.5%       81.4%
    Specialty managed care products and services
      Service Products                                        8.4        6.5            8.0         6.7
      Risk Products                                          13.7       14.9           13.9        14.5
    Intercompany eliminations                                (2.4)      (2.6)          (2.4)       (2.6)
                                                          ---------- -----------    ---------- -----------
          Total                                             100.0%     100.0%         100.0%      100.0%
                                                          ---------- -----------    ---------- -----------
                                                          ---------- -----------    ---------- -----------

Operating statistics:
      HMO products:
          Medical loss ratio (1)                             98.8%      88.3%          94.1%       88.4%
           Selling, general, & administrative
               expense ratio (2)                             10.5        9.8           10.4         9.3

           Combined loss and expense ratio                  109.3       98.1          104.5        97.7

      Specialty managed care products and services:
           Service products:
              Operating expense ratio*                       89.6%      92.1%          89.3%       91.6%
           Risk products:
              Loss ratio (1)                                 77.7       69.4           75.9        70.3
              Selling, general, & administrative
                   expense ratio (2)                         26.8       27.0           25.1        25.7
              Combined loss and expense ratio               104.5       96.4          101.0        96.0


Consolidated:
      Loss ratio (1)                                         95.1%      84.8%          90.9%       85.0%
      Net income (loss) margin (3)                           (4.6)       3.5           (1.5)        3.2

</TABLE>

(1)      Medical and other benefits as a percentage of premium revenue.

(2)      Selling, general and administrative expenses as a percentage of
         premium revenue.

(3)      Net income (loss) as a percentage of total revenues.

* This business does not have insurance related risk associated with it.

                                       15
<PAGE>

      The Company's revenues are derived primarily from premiums, while
medical benefits constitute the majority of expenses. Profitability is
directly affected by many factors including, among others, premium rate
adequacy, estimates of medical benefits, health care utilization, effective
administration of benefit payments, operating efficiency, investment returns
and federal and state laws and regulations.

LIQUIDITY AND CAPITAL RESOURCES

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

      The Company has generated positive cash flow from operations in prior
years. However, for the six months ended June 30, 1999, net cash was used in
operating activities in the amount of $31.4 million, compared with net cash
provided by operating activities of $4.1 million for the six months ended
June 30, 1998. In addition to the net loss from operations, the decrease in
cash flows from operations in 1999 was due primarily to the significant
reductions in medical and other benefits payable. Due to periodic cash flow
requirements of certain subsidiaries, the Company made borrowings under its
bank line of credit ranging up to $14.8 million during the first six months
of 1999 and $10.0 million during the first six months of 1998 to meet
short-term cash needs. The outstanding balance on the line of credit at June
30, 1999 was $6.7 million compared with no outstanding balance at December
31, 1998.

      The Company's investment portfolio consists primarily of investment
grade bonds and Government securities, and has a limited exposure to equity
securities. At June 30, 1999, $127.4 million or 81.4% of the Company's total
investment portfolio was invested in bonds compared with $132.8 million or
79.9% at December 31, 1998. The bond portfolio had an average quality rating
by Moody's Investor Service of A1 and Aa3 at June 30, 1999 and December 31,
1998, respectively. The majority of the bond portfolio was classified as
available for sale. The market value of the total investment portfolio, which
includes stocks and bonds, was less than amortized cost by $1.6 million at
June 30, 1999 and greater than amortized cost by $1.9 million at December 31,
1998. The Company has no investments in mortgage loans, non-publicly traded
securities (except for principal-only strips of U. S. Government securities),
real estate held for investment or financial derivatives.

      From time to time, capital contributions are made to the subsidiaries
to assist them in maintaining appropriate levels of capital and surplus for
regulatory and rating purposes. Insurance subsidiaries are required to
maintain certain levels of statutory capital and surplus. In Wisconsin, where
a large percentage of the Company's premium is written, these levels are
based upon the amount and type of premiums written and are calculated
separately for each subsidiary. As of the balance sheet dates presented,
statutory capital and surplus for each of these insurance subsidiaries
exceeded required levels.

      In conjunction with the Spin off, the Company assumed a $70 million
note obligation to BCBSUW that matures on October 30, 1999. The assumption of
debt was effective September 11, 1998. The Company expects to extend the
maturity of the note obligation to at least October 30, 2000.

      In addition to internally generated funds and periodic borrowings on
its bank line of credit, the Company believes that additional financing to
facilitate long-term growth could be obtained through equity offerings, debt
offerings, financings from BCBSUW or bank borrowings, as market conditions
may permit or dictate.

                                       16
<PAGE>

YEAR 2000 ISSUES

GENERAL DESCRIPTION OF THE YEAR 2000 ISSUE AND THE NATURE AND EFFECTS OF THE
YEAR 2000 ON INFORMATION TECHNOLOGY (IT) AND NON-IT SYSTEMS

      The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have time-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities.

       The Company has identified required modifications or replacements of
its software and certain hardware so that those systems will properly utilize
dates beyond December 31, 1999. The Company presently believes that with
these modifications or replacements of existing software and certain
hardware, the Year 2000 Issue can be mitigated and will not pose significant
operational problems. However, if such modifications and conversions are not
made or are not completed timely, the Year 2000 Issue could have a material
impact on the operations of the Company.

       The Company's plan to resolve the Year 2000 Issue involves the
following four phases: assessment, remediation, testing, and implementation.
To date, the Company has fully completed its assessment of all systems that
could be significantly affected by the Year 2000 Issue. The completed
assessment indicated that most of the Company's significant information
technology systems could be affected, particularly the general ledger,
billing and processing of medical claims. That assessment also indicated that
software and hardware (embedded chips) used in building operations and office
equipment (hereafter referred to as non-IT systems) are at risk. The Company
does not believe that the Year 2000 Issue presents a material exposure as it
relates to the Company's non-IT systems. In addition, the Company has
inquired and gathered information about the Year 2000 readiness status of its
significant suppliers and vendors and continues to monitor their readiness.

STATUS OF PROGRESS IN BECOMING YEAR 2000 COMPLIANT, INCLUDING TIMETABLE FOR
COMPLETION OF EACH REMAINING PHASE

       As of June 30, 1999, all of the Company's subsidiaries except United
Wisconsin Group ("UWG") are complete with the remediation phase for its
information technology exposures. Software for all systems have been
reprogrammed or replaced and the subsidiaries have completed all testing and
implementation phases as they relate to Year 2000 Issues.

       UWG is approximately 50% complete in the remediation, testing and
implementation phases of its administrative, claims and billing systems. At
the completion of the remaining remediation phase, UWG will then complete the
testing and implementation phases. UWG expects to complete the remediation,
testing and implementation by November 30, 1999.

       The remediation, testing and implementation phases of a majority of
the non-IT systems are complete and ready for immediate use. The remediation,
testing and implementation for the security systems at two locations are in
process and are expected to be completed by August 31, 1999.

NATURE AND LEVEL OF IMPORTANCE OF THIRD PARTIES AND THEIR EXPOSURE TO THE
YEAR 2000

       The Company outsources and relies extensively on third party systems
to process selected payroll, membership and claims processing functions,
among others. The Company has worked with third party vendors to ensure that
their systems are Year 2000 ready. Third party systems have been upgraded and
tested and are Year 2000 ready. UWG, which includes the Company's wholly
owned subsidiaries of United Wisconsin Insurance Company and United Heartland
Life Insurance Company, continues to work to resolve the Year 2000 Issue by
November 30, 1999 for its administrative, claims and billing systems. Based
on

                                       17
<PAGE>

discussions with external consultants and vendors, the Company is of the
understanding that all vendor systems utilized, including UWG, will be Year
2000 ready.

       The Company has initiated formal communications with its systems
processing vendors, government agencies and all large customers and providers
using electronic interfaces to determine the extent to which the Company's
interface systems are vulnerable to the failure of third parties to remediate
Year 2000 Issues. The Company is not aware of any significant interface
issues.

       The Company has surveyed its significant suppliers and subcontractors
(external agents) that do not share information systems with the Company. To
date, the Company is not aware of any external agent with a Year 2000 Issue
that would materially impact the Company's results of operations, liquidity
or capital resources. However, the Company has no means of ensuring that
external agents will be Year 2000 ready. The inability of external agents to
complete their Year 2000 resolution process in a timely fashion could
materially impact the Company. The effect of non-compliance by external
agents is not determinable.

COST OF THE YEAR 2000 PROJECT

      The Company has utilized both internal and external resources to
assess, remediate, test and implement the software and non-IT systems for the
Year 2000 modifications. The total estimated direct costs of the Year 2000
project increased during the past quarter as a result of additional
consulting costs deemed necessary to ensure Year 2000 readiness for the
administrative, claims and billing systems of UWG. The estimate was increased
to $3.1 million and is being funded through operating cash flows. To date,
the Company has incurred $1.8 million of identifiable costs related to all
phases of the Year 2000 project. Remaining costs to be incurred to complete
the Year 2000 project are estimated to approximate $1.3 million.

      The Company has capitalized $2.6 million related to other functionality
enhancing system upgrades or new systems that also provide Year 2000
readiness. A number of other modifications to current systems are covered by
existing maintenance agreements and by normal upgrades and do not present
incremental additional expense.

      BCBSUW leases the claims, membership and general ledger software
programs, and subleases the use of these systems to the Company under a
service agreement. BCBSUW capitalized $16.5 million of implementation and
system enhancement costs that were incurred to replace these systems,
primarily as a result of a service agreement expiration and for improved
functionality. These replacements also included Year 2000 readiness but were
not the result of acceleration due to Year 2000 Issues. Approximately 24% of
the amortized costs were allocated to the Company.

      Costs related to maintenance of existing computer hardware and software
are expensed as incurred. Purchases of new hardware or software in
replacement of non-compliant hardware or software and reprogramming costs are
being capitalized in accordance with the Company's standard accounting
practices.

RISKS ASSOCIATED WITH YEAR 2000

      Company management believes it has an effective program in place to
resolve the Year 2000 Issue in a timely manner. As noted above, the Company
has not yet completed all necessary phases of the Year 2000 program. In the
event that the Company is unable to complete the remaining phases, the
Company would selectively be unable to bill and collect premiums, adjudicate
medical and other claims, manage the utilization of medical services or
perform actuarial determinations. In addition, disruptions in the economy
generally resulting from Year 2000 issues could also materially adversely
affect the Company. The Company could be subject to litigation on a loss of
business in the event it failed to complete certain of the remaining
remediation and implementation steps. The amount of any potential liability
and lost revenue cannot be reasonably estimated at this time. No provision
for any such liability or lost revenue has been recorded.


                                       18
<PAGE>

CONTINGENCY PLANS

      The Company is developing contingency plans for certain critical
applications and is working on such plans with internal staff, external
consultants and major data center vendors. These contingency plans are being
developed in the event the system conversions and their functionality or
their readiness for Year 2000 are not completed on a timely basis. These
contingency plans involve, among other actions, manual workarounds, reducing
claim inventories prior to December 31, 1999, and adjusting staffing
strategies.

FORWARD LOOKING STATEMENTS

      This report contains certain forward looking statements with respect to
the financial condition, results of operation and business of the Company.
Such forward looking statements are subject to inherent risks and
uncertainties that may cause actual results or events to differ materially
from those contemplated by such forward looking statements. Forward-looking
statements may include, but are not limited to, projections of revenues,
income or losses, capital expenditures, plans for future operations,
financing needs or plans, compliance with financial covenants in loan
agreements, plans relating to products or services of the Company,
assessments of materiality, predictions of future events, the ability to
obtain additional financing, the Company's ability to meet obligations as
they become due, as well as assumptions relating to the foregoing. In
addition, when used in this discussion, the words "anticipates," "believes,"
"estimates," "expects," "intends," "plans" and similar expressions are
intended to identify forward-looking statements. Factors that may cause
actual results to differ materially from those contemplated by such forward
looking statements include, among others, rising health care costs, economic
and business conditions and competition in the managed care industry,
development of claims reserves, developments in health care reform and other
regulatory issues.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      The information called for by this item is provided under the caption
`Liquidity and Capital Resources' under Item 2 - Management's Discussion and
Analysis of Financial Condition and Results of Operations.

      Because of the Company's investment policies, the primary market risks
associated with the Company's 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 the Company's bond portfolio; however,
because the Company considers it unlikely that the Company would need to
choose to substantially liquidate its portfolio, the Company believes that
such an increase in interest rates would not have a material impact on future
earnings or cash flows. In addition, the Company is 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 portfolios is to support the ongoing
operations of the Company's business units. The Company's philosophy is to
actively manage assets to maximize total return over a multiple-year time
horizon, subject to appropriate levels of risk. The Company manages 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.

                                       19
<PAGE>

      The Company uses a sensitivity model to assess the inherent rate risk
of its fixed income investments. The model includes all fixed income
securities held as of June 30, 1999 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 the Company's
modeled financial assets resulting from a hypothetical instantaneous 100
basis point increase in the U.S. Treasury yield curve is estimated at $4.5
million as of June 30, 1999 and $3.9 million as of December 31, 1998.








                                       20
<PAGE>

PART II.  OTHER INFORMATION

                         UNITED WISCONSIN SERVICES, INC.

ITEM 1.    LEGAL PROCEEDINGS

         Following the merger in 1994 between the Company and HMO-Wisconsin,
Inc. ("HMOW"), certain minority shareholders of HMOW filed a demand for
payment under the dissenter's rights statute. HMOW brought a special
proceeding in Sauk County Circuit Court to determine the fair value of the
shares. The court accepted HMOW's valuation, and further applied a minority
discount to the amount allocable to the dissenting shareholders. A dissenting
shareholder filed an appeal, HMO-W INCORPORATED V. SSM HEALTH CARE SYSTEM AND
NEILLSVILLE CLINIC, S.C., No. 98-2834 in the Wisconsin Court of Appeals,
District IV. On June 17, 1999, the Court of Appeals upheld the trial court's
determination of fair value, but reversed the application of the discount.
The Company believes the application of a minority discount is appropriate,
and filed a petition for review of the Appellate Court's decision with the
Wisconsin Supreme Court on July 16, 1999. The value of the minority discount
is approximately $600,000.

ITEM 2.    CHANGES IN SECURITIES

           None

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

           None

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

         The Annual Meeting of Shareholders of the Company was held on May
26, 1999, at which the following matters were voted upon:

<TABLE>
<CAPTION>
                                                                                      Broker
                                           For          Against         Abstain       Non-Votes
                                       ------------    --------        ---------     -----------
<S>                                    <C>             <C>             <C>           <C>
Nominees for Director for Class I
Directors, Three-Year Term
Expiring 2002

         Michael P. Dunham              16,619,242       19,741            --            --
         James L. Forbes                16,619,192       19,791            --            --
         William C. Rupp, M.D.          16,619,242       19,741            --            --
</TABLE>

The term of office of the following other Directors continued after the
meeting: Richard A. Abdoo, William R. Johnson, Eugene A. Menden, Thomas R.
Hefty, James A. Hickman, and Carol N. Skornicka.

ITEM 5.    OTHER INFORMATION

           None


                                      21
<PAGE>

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

           (a)   Exhibits

                 10.1      United Wisconsin Services, Inc. Stock Appreciation
                           Rights Plan (As amended effective May 26, 1999).

                 10.2      Joint Venture and Shareholders Agreement by and
                           between Health Care Service Corporation ("HCSC"),
                           United Heartland, Inc., United Wisconsin Insurance
                           Company ("UWIC") and UWS dated May 3, 1999.

                 10.3      Stock Purchase Agreement by and between UWS and HCSC
                           dated June 4, 1999, and Addendum to Stock Purchase
                           Agreement by and between UWS, UWIC and HCSC dated
                           June 18, 1999.

           (b)   Reports on Form 8-K

                 None



                                      22
<PAGE>

                                    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.

DATE:   8/11/99


                                     UNITED WISCONSIN SERVICES, INC.




                                                 /S/ GAIL HANSON
                                     ------------------------------------------
                                                    Gail Hanson
                                     Vice President and Chief Financial Officer
                                          (Principal Financial Officer and
                                              Chief Accounting Officer)



                                       23