<PAGE>

==============================================================================

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

                                      FORM 10-K

                       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                           OF THE SECURITIES EXCHANGE ACT OF 1934

                        FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

                              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)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (414) 226-6900
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

             TITLE OF EACH CLASS                NAME OF EACH EXCHANGE
                                                 ON WHICH REGISTERED
             -------------------                ---------------------
          Common Stock, no par value            New York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None

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

     Indicate by check mark if disclosure of delinquent filers pursuant to 
Item 405 of Registration S-K is not contained herein, and will not be 
contained, to the best of registrant's knowledge, in definitive proxy or 
information statements incorporated by reference in Part III of this Form 
10-K or any amendment to this Form 10-K. |X|

     As of February 28, 1999, there were issued and outstanding 16,812,118 
shares of Common Stock; the aggregate market value of the shares of such 
stock held by non-affiliates of the registrant was $117,684,828 as of the 
same date, assuming solely for purposes of this calculation that all 
directors and executive officers of the Registrant are "affiliates." This 
determination of affiliate status is not necessarily a conclusive 
determination for other purposes.

                  DOCUMENTS INCORPORATED BY REFERENCE
       Portions of United Wisconsin Services, Inc. Proxy Statement dated
                      April 15, 1999 (Part III)

==============================================================================


<PAGE>

                       UNITED WISCONSIN SERVICES, INC.
                                   INDEX TO
                          ANNUAL REPORT ON FORM 10-K
                     For the Year Ended December 31, 1998


                                                                       PAGE
                                                                       ----
PART I

Item 1   Business.......................................................  3
Item 2   Properties..................................................... 16
Item 3   Legal Proceedings.............................................. 17
Item 4   Submission of Matters to a Vote of Security Holders............ 17
Item 4a  Executive Officers of the Registrant........................... 17

PART II

Item 5   Market for Registrant's Common Equity.......................... 19
Item 6   Selected Consolidated Financial Data........................... 19
Item 7   Management's Discussion and Analysis of Financial Condition
           and Results of Operations.................................... 21
Item 7a  Quantitative and Qualitative Disclosures about Market Risk..... 29
Item 8   Financial Statements and Supplementary Data.................... 30
Item 9   Changes in and Disagreements with Accountants on
           Accounting and Financial Disclosure.......................... 62

PART III

Item 10  Directors and Executive Officers of the Registrant............. 62
Item 11  Executive Compensation......................................... 62
Item 12  Security Ownership of Certain Beneficial Owners
           and Management............................................... 62
Item 13  Certain Relationships and Related Transactions................. 62

PART IV

Item 14  Exhibits, Financial Statement Schedules, and Reports
           on Form 8-K.................................................. 63
         Schedule II - Condensed Financial Information of Registrant.... 64
         Schedule IV - Reinsurance...................................... 67
         Schedule V - Valuation and Qualifying Accounts................. 68
Signatures.............................................................. 69
Index to Exhibits....................................................... 70

                                       2

<PAGE>


                                  PART I

ITEM 1. BUSINESS

GENERAL

     United Wisconsin Services, Inc. ("the Company" or "UWS") is a Wisconsin
corporation organized in May of 1998 for the purpose of owning and operating
the managed care companies and specialty business of the Company's
predecessor American Medical Security Group, Inc. ("AMSG") (formerly United
Wisconsin Services, Inc.). On May 27, 1998, the Board of Directors of AMSG
approved a formal plan to contribute the managed care companies and specialty
business and spin off UWS to its shareholders. The new corporation originally
was named Newco/UWS, Inc., and subsequently renamed United Wisconsin
Services, Inc. The spin off resulted in the distribution on September 25,
1998 of one share of common stock of UWS for each share of AMSG common stock
held as of September 11, 1998 ("Record Date"). AMSG received a private letter
ruling from the Internal Revenue Service that the spin off is tax free to
AMSG, UWS and their shareholders.

     The Company's principal executive offices are located at 401 West 
Michigan Street, Milwaukee, Wisconsin 53203 and its telephone number at that 
address is (414) 226-6900. As used herein, the terms "the Company" or "UWS" 
include United Wisconsin Services, Inc. and its subsidiaries. This Annual 
Report on Form 10-K contains both historical and forward looking information. 
The forward looking statements may be significantly impacted by risks and 
uncertainties and are made pursuant to the safe harbor provisions of the 
Private Securities Litigation Reform Act of 1995. There can be no assurance 
that the Company can duplicate its past performance or that expected future 
results will be achieved. Readers are cautioned that a number of factors, 
which are described herein, could adversely affect the Company's ability to 
achieve these results, including the effects of health care reform, the 
continuation and renewal of the Company's provider arrangements, and the 
effects of other general business conditions, including but not limited to, 
competition, medical cost trends, changes in reserve estimates, terms of 
provider contracts, premium rate changes, government regulation, capital 
requirements, resolution of Year 2000 issues, administrative costs, general 
economic conditions and the retention of key employees.

     The Company is a leading provider of managed health care services and 
employee benefit products sold primarily in Wisconsin, but also serves 
markets in 38 other states. The products and services offered by the Company 
comprise a broad range of group medical and related benefit products, which 
provide employers with cost effective solutions to their employee benefits 
needs. Managed health care services are delivered through health maintenance 
organization ("HMO") and point-of-service ("POS") products, as well as other 
related products that encourage or require the use of contracting providers. 
HMO and POS products help control health care costs by various means, 
including utilization controls such as pre-admission approval for hospital 
inpatient services, pre-authorization of outpatient surgical procedures, and 
capitated or discounted fee arrangements. The Company also offers various 
specialty products and services including prepaid dental care, group life and 
disability, workers' compensation products, managed care consulting, 
electronic claim transmission services, pharmaceutical management, managed 
behavioral health services and receivables management.

     Compcare Health Services Insurance Corporation ("Compcare"), a wholly 
owned subsidiary of the Company, was organized in 1971 and operates primarily 
in Southeastern Wisconsin. Compcare is Wisconsin's oldest and second largest 
HMO in terms of enrollment and premium revenues. Valley Health Plan, Inc. 
("Valley"), an HMO in Northwestern Wisconsin, was acquired by the Company in 
1992. Its major provider is Midelfort Clinic Ltd. ("Midelfort"). Unity Health 
Plans Insurance Corporation ("Unity"), an HMO serving Southwestern and 
Central Wisconsin, was formed by the combination of HMO of Wisconsin 
Insurance Corporation ("HMOW") and the business of U-Care HMO, Inc. 
("U-Care"). HMOW and U-Care were purchased by the Company effective October 1,
1994. Community Physicians' Network, Inc. ("CPN") and the University of 
Wisconsin-Madison Medical Center, constitute the provider networks for Unity.

                                       3

<PAGE>

     The Company's HMO products are sold primarily by a salaried sales force 
to employers and other groups including Medicaid-eligible individuals 
throughout Wisconsin. Specialty products and services are sold through a 
variety of distribution channels to employer groups and providers in 
Wisconsin and throughout the United States.

     Blue Cross & Blue Shield United of Wisconsin ("BCBSUW"), holds 
approximately 37.8% of the outstanding common stock of UWS as of December 31, 
1998 and is the Company's largest shareholder.

THE COMPANY'S STRATEGY

     The Company believes current market conditions in health care favor 
companies that provide quality health care products and services, while 
ensuring meaningful cost containment for the buyer. The Company also believes 
there are significant niches offering opportunities for companies that are 
responsive to consumer demand for affordable health care. The Company is a 
managed care leader in Wisconsin due to the quality and extent of its 
provider network, the number of members, the breadth of its managed care 
product offerings and the pricing of those products. The Company also 
believes there are opportunities to develop or enhance specialty managed care 
products and services which will leverage the Company's expertise in the 
health care market. To take advantage of market opportunities, the Company 
has developed the following business strategy:

     - EMPHASIZE COST-EFFECTIVE ACCESS TO QUALITY HEALTH CARE OPTIONS.
       The Company believes that rising health care costs continue to
       cause buyers to seek cost-effective quality health care options
       for employees. The Company plans to focus on this demand through
       its HMO and specialty managed care products by offering a full
       range of products coupled with state-of-the-art managed care
       techniques and competitive administrative costs. The Company
       markets its "United 24" product in selected Wisconsin counties
       which combines health, disability and workers' compensation
       coverage into a single lower premium product.

     - PURSUE ACQUISITIONS AND DEVELOP STRATEGIC ALLIANCES. The Company
       intends to continue to pursue strategic acquisitions and
       alliances, including agreements with providers that it believes
       will complement or enhance its existing products and/or markets.
       Since 1996, the Company has expanded its HMO operations through
       two new start-up HMO's in the northern half of Wisconsin in a
       partnership arrangement with two major providers. The Company
       also recently completed the acquisitions of Intercare Network,
       Inc. ("Intercare") and Ladd Enterprises, Inc. ("Ladd"). Further,
       the Company believes that additional strategic alliances will
       enable the Company to provide additional products and services
       in its existing markets.

     - EXPAND GEOGRAPHICALLY. The Company intends to continue to expand
       its activities outside of its traditional areas of operation both
       inside and outside of Wisconsin. Compcare has continued to
       increase its market share in southeastern Wisconsin by expanding
       its provider networks in counties surrounding Milwaukee. The
       Company is executing its plan to expand Heartland Dental Plan,
       Inc. ("Heartland Dental"), its dental HMO product, to selected
       market territories in a number of states in the upper Midwest.
       The Company continues to expand its life and disability products
       through a brokerage sales effort in the upper Midwest. The
       workers' compensation product is being actively marketed in
       Iowa and Illinois, and the Company seeks additional opportunities
       to expand the workers' compensation business through acquisitions
       or strategic joint ventures. In addition, the Company may acquire
       other managed care companies or related lines of business in order
       to enter new markets both inside and outside of Wisconsin.

     - LEVERAGE BCBSUW RELATIONSHIP. When BCBSUW increases its ownership of
       the Company to approximately 51%, Compcare intends to license and
       use the Blue Cross and Blue Shield service marks with its products.
       The Company believes this licensing and use will give Compcare a
       marketing and sales advantage over its other managed care competitors
       in its markets. In addition, as a result of its affiliation with
       BCBSUW, including through the Service Agreements, the Company has
       access to BCBSUW's extensive database of health care claims
       information. The Company

                                       4
<PAGE>

       believes this database provides it with a competitive advantage since
       it is able to utilize the database to design, underwrite, price and
       administer its products more effectively. Given a stronger relationship
       with BCBSUW, the individual specialty businesses can expand their
       markets for specialty products and services to other blue cross and
       blue shield plans nationwide. The Company currently has business
       contracts with other blue cross and blue shield plans such as Empire
       Blue Cross, Blue Cross & Blue Shield of Arizona and Blue Cross &
       Blue Shield of Kansas.

HMO PRODUCTS

    PRODUCTS

    Compcare offers a variety of HMO and POS products throughout Wisconsin. 
POS products have become the coverage of choice for a number of employers as 
they provide a complete replacement for programs that include a preferred 
provider organization ("PPO") plan or both traditional indemnity and HMO 
coverages. Compcare offers its members a broad network of providers, which 
include all three of the major integrated health care systems in Southeastern 
Wisconsin.

     Valley offers the following plans: (i) the Group Plan, a comprehensive 
HMO plan; (ii) the Partner Plan, a traditional HMO plan which incorporates 
co-payments; (iii) POS products, which combines a traditional HMO plan and an 
out-of-network benefit with deductible and coinsurance; (iv) a Medicare 
Supplement product, which is designed to close the gap between health care 
costs incurred and government programs' allowed payments; (v) a small group 
product, combining managed care with deductibles and co-payments; and (vi) an 
HMO Medicaid plan, which is a comprehensive HMO plan for Medicaid recipients.

     Unity offers a comprehensive group plan, which incorporates some 
co-payments and deductibles, and a modified comprehensive group plan which 
incorporates co-payments and deductibles as well as coinsurance on certain 
benefits such as hospitalization and specialty care. Unity also offers an 
individual plan, including an in-area conversion plan, and a Medicare 
Supplement plan and markets POS plans with a wide variety of benefits.

     The POS plans provide significant incentives for its members to utilize 
the plans' managed care benefits and provide reduced benefits and increased 
deductibles and co-payments when services are rendered by providers outside 
of the POS network. In order to receive the higher level of benefits 
available within the network, a member must follow referral and prior 
authorization requirements by receiving care from a primary care physician 
within the network or be referred to a specialist by the primary care 
physician. These incentives lower the overall premium for the group, even 
though the POS premiums tend to be slightly higher than comparable 
traditional HMO products. POS plans provide a greater level of health care 
cost control than a traditional HMO or an indemnity plan. POS plans are sold 
generally as a complete replacement for an employer's HMO and indemnity 
offerings.

MARKETING AND CUSTOMERS

     Marketing HMO products generally is a two-step process. Presentations 
are made first to employers. Once selected by an employer, the Company then 
directly solicits members from the employee base. During periodic "open 
enrollments," when employees are permitted to change health care programs, 
the Company uses advertising and work site presentations to attract new 
members. Virtually all of the HMO employer group contracts are renewable 
annually.

     Significant factors in HMO selection by employers and employees include 
the composition of provider networks, quality of services, price, choice and 
scope of benefits and market presence. To the extent permitted by OCI and the 
federal government, the Company can offer an employer a wide spectrum of 
benefit options, including federally qualified and non-federally qualified 
products. To address rising health care costs, some employers now consider a 
variety of health care options to encourage employees to use the most 
cost-effective form of health care services. These options, which include HMO 
and POS plans, may either be self-funded or provided by third parties.

                                       5

<PAGE>

     As of December 31, 1998, HMO membership consisted of the following (in
numbers of individuals):

<TABLE>
<CAPTION>

                                 HMO        POS       MEDICAID       TOTAL
                                 ----------------------------------------
                                   COMMERCIAL
                                   ----------
<S>                            <C>        <C>          <C>          <C>
Compcare....................... 104,367    38,969       31,701       175,037
Valley.........................  24,732    12,675        3,875        41,282
Unity..........................  67,161    15,974        4,789        87,924
                                -------    ------       ------       -------
                                196,260    67,618       40,365       304,243
                                -------    ------       ------       -------
                                -------    ------       ------       -------
</TABLE>

     Trends in membership over the last several years have shown that there 
is strong growth in the Company's POS and Medicaid products, with slower 
growth in HMO membership.

     Compcare's operations in the six counties included in the Southeastern 
Wisconsin region comprise approximately 86% of its total membership. The 
remainder of Compcare's membership is spread throughout Wisconsin. Valley 
operates in a 15 county area in Western Wisconsin, and Unity operates in a 28 
county area in Southwestern and Central Wisconsin. During 1996, the Company 
entered into two strategic partnerships to offer HMO products in Northern 
Wisconsin. Compcare Northwest is a partnership with the Duluth Clinic to 
bring managed care operations to the underserved rural market. Northwoods 
Health Plans, LLC is a joint venture formed with Howard Young Health Care, 
Inc., a leading provider of health care services in North Central Wisconsin. 
The Company believes that expansion efforts should contribute to increased 
enrollment by attracting new employer groups and by increasing penetration in 
existing employer groups. Effective July 1, 1999 the State of Wisconsin will 
implement BadgerCare, which offers affordable health care coverage to 
uninsured families with income below 185% of the federal poverty level. 
Coverage will be provided through the existing Medicaid network which 
utilizes HMO's throughout the State. The Company's HMO's will participate in 
providing health care coverage to BadgerCare participants.

     The following table identifies the top ten group contracts with the 
highest HMO earned premium for 1998:

<TABLE>
<CAPTION>

                                                       PERCENTAGE OF
                                                       EARNED PREMIUMS
                                                           IN 1998
                                                       ----------------
<S>                                                       <C>
State of Wisconsin....................................     12.3%
Medicaid..............................................     11.0
Federal Employee Health Benefits Program..............      4.1
Milwaukee County......................................      3.4
General Motors Corporation............................      2.9
Briggs and Stratton Corporation.......................      2.8
Milwaukee Public Schools..............................      2.5
Construction Worker Health Fund.......................      2.0
City of Milwaukee.....................................      2.0
Northwestern Mutual Life Insurance Company............      1.4
                                                        -------
     Subtotal.........................................     44.4
Other employer groups (2,847 in number)                    55.6
                                                        -------
                                                          100.0%
                                                        -------
</TABLE>

     The HMOs have significant enrollment among federal, state and municipal 
government employees, as well as employees represented by collective 
bargaining units. The Company believes that health care will continue to be 
an important negotiating issue with organized labor groups and the reputation 
of the Company's HMOs are advantageous to its future marketing efforts.


                                       6


<PAGE>

     Through one of the Service Agreements, the Company utilizes BCBSUW's 
salaried sales force that as of December 31, 1998, consisted of 15 account 
representatives and customer relations personnel, 32 account executives, two 
agency managers, five agency consultants, and five sales directors, to market 
HMO products. The Company directly employs a sales staff of eight account 
executives, one sales director, one agency manager and two agency consultants 
who market products for Unity as well as BCBSUW.

     PROVIDERS

     Compcare, Valley and Unity contract with physicians and hospitals to 
provide medical services to their members. Members designate one physician in 
the network as their primary care provider and are required to seek 
non-emergency care from this physician.

     Compcare has an extensive provider network in Southeastern Wisconsin, 
which included 3,610 physicians as of December 31, 1998. Compcare is the only 
HMO that contracts with all eight of the largest multi-specialty clinics in 
Milwaukee for the provision of health care services to its members. This 
network is augmented by individual physicians; hospitals and independent 
physician associations ("IPAs") affiliated with Milwaukee's largest 
hospitals. Providers outside of Milwaukee consist of multi-specialty clinics 
and hospitals. Ancillary services are provided under capitated arrangements 
through sub-networks including chiropractic, mental health, oral surgery, 
home care, durable medical equipment and vision. No single provider 
represents a material relationship in Compcare's provider network. Compcare's 
contracts with providers renew annually. Compcare considers its relationships 
with its provider networks to be good and has been able to renew its provider 
contracts on acceptable terms.

     Approximately 54.6% of Valley's medical and other benefits are provided 
under an arrangement with Midelfort and its affiliate, Luther Hospital, which 
the Company believes is the leading medical services provider in Eau Claire, 
Wisconsin. Arrangements with three smaller area clinics and five other 
hospitals provide a majority of the other Valley medical and other benefits. 
As of December 31, 1998, Valley's provider network consisted of 355 
physicians. Approximately 79% of Valley's physician services are provided 
under the Midelfort arrangement. Valley has contracts with six hospitals (one 
of which is affiliated with Midelfort) which have provided a majority of 
Valley's hospital services. The relationship with Midelfort is generated by 
the Valley provider arrangement, which is renewable by the parties through 
December 31, 2002. Valley's contracts with its other providers renew 
annually. The Company considers its relationships with Midelfort and its 
other providers for Valley to be good and has been able to renew provider 
contracts on acceptable terms.

     Unity contracts with CPN, an IPA and University Health Care ("UHC"), an 
affiliate of the University of Wisconsin Hospital and Clinics, which together 
provide the majority of physician services for Unity's membership throughout 
its 28 county service area. The contracts with CPN and UHC are renewable 
through October 1, 2004. CPN and UHC collectively contract with approximately 
570 primary care providers and 2,470 specialists and ancillary health care 
providers. In addition, Unity contracts directly with approximately 50 acute 
care and specialty care hospitals. CPN and UHC have renewed their provider 
contracts for 1999.

     Compcare, Valley and Unity manage the cost of health care provided to 
their members through the method of payment and risk-sharing programs with 
physician groups and hospitals and with their utilization management 
programs. The method of payment consists of a mixture of capitation, fee 
schedules and discounted fee-for-service arrangements. Capitation allows the 
payment of a fixed amount per member per month to providers, regardless of 
services provided, which stabilizes medical and dental costs. Capitation 
encourages providers to avoid unnecessary utilization of hospital, physician 
and ancillary health care services. For the year ended December 31, 1998, 
approximately 45.6%, 22.1% and 94.7% of Compcare's, Valley's and Unity's 
medical benefits, respectively, were provided under capitated arrangements.

     For certain medical providers, compensation for services is calculated 
on a discounted fee-for-service basis. Under this arrangement, the Company 
will reimburse physician groups for services rendered based upon negotiated 
fee schedules or usual and customary charges less an agreed upon discount. 
Hospitals may be reimbursed at a set per diem rate for each inpatient day, on 
a flat rate per procedure basis, or on a discounted

                                       7


<PAGE>

charge basis. In fee-for-service arrangements, risks associated with 
utilization are retained by Compcare and Valley. However, such arrangements 
provide Compcare and Valley with greater pricing flexibility and 
opportunities to benefit by application of underwriting on a group specific 
or individual basis. Furthermore, fee schedule-based compensation allows 
Compcare and Valley to better target improvement in loss ratios through 
product development and benefit modification. Such changes are more difficult 
in a capitated system since capitation levels must be renegotiated before any 
effective changes can be made to benefits or products.

     One capitated physician group, two hospital systems and one mental 
health facility in Compcare's provider network elect to participate in 
stop-loss arrangements with the Company. For example, one integrated hospital 
system elected a stop-loss arrangement in which the inpatient, outpatient and 
professional service costs incurred for any eligible member cannot exceed 
$75,000 in a given contract year. Any cumulative costs in excess of $75,000 
per year are paid to the provider in addition to the capitation payments 
previously paid. These arrangements limit the facility's or group's claim 
liability to a fixed amount per member per year. Claim costs in excess of 
stop-loss limits are reimbursed by Compcare to the participating providers 
and represent approximately 0.1% of the total capitation payments in 1998.

     OPERATIONS OF PROVIDER ARRANGEMENTS

      Valley has a provider arrangement with Midelfort. The current term of 
the provider arrangement is through January 1, 2000, with an option for an 
additional three-year renewal term or renewal terms of one year each. During 
the initial five-year term of the provider arrangement, after-tax profits 
were shared equally with Midelfort. Effective January 1, 1997, 50% of pre-tax 
profits are shared with Midelfort. Profit sharing with Midelfort equaled $1.2 
million during 1998. Midelfort has an option to repurchase all the capital 
stock of Valley on December 31, 1999 for Valley's net equity plus $400,000. 
If Midelfort exercises its repurchase option, the Company would have no 
ongoing interest in Valley.

     Unity has provider agreements with Community Health Systems, LLC ("CHS") 
and UHC that provide for profit sharing. Under these agreements, 50% of the 
pre-tax profits are shared, with CHS receiving 30% and UHC receiving 20%. The 
combined profit sharing payments to CHS and UHC equaled $2.1 million in 1998. 
CHS and UHC have options to repurchase the businesses originally sold to the 
Company including the increased membership related to their respective 
provider networks on November 1, 1999 or November 1, 2004. CHS has the right 
to repurchase the former HMOW business related to the rural provider networks 
and the Unity legal entity for the net assets of Unity related to the 
business being repurchased. If CHS exercises this repurchase option, the 
Company would need to transfer the remaining Unity business to one of its 
other managed care companies. UHC has the option to repurchase the former 
U-Care business related to the University of Wisconsin provider network 
exercisable on November 1, 1999 for the value of the net assets of Unity 
related to the business being repurchased plus $500,000. Exercise of the 
repurchase option ends the agreement with respect to that party. If both 
repurchase options are exercised the Company would have no ongoing interest 
in Unity.

     COST CONTAINMENT

     The majority of medical management and cost containment services for 
Compcare are provided by the Company's wholly owned subsidiary Meridian 
Managed Care, Inc. Services for Valley and Unity are coordinated by medical 
directors in conjunction with the medical staffs of their providers.

     MANAGEMENT INFORMATION SERVICES

     Each of the Company's HMOs utilizes information systems developed and/or 
customized specifically to meet the needs of the HMO. The information systems 
support marketing, sales, underwriting, contract administration, billing, 
financial and other administrative functions as well as provider capitation 
and claims administration, provider management, quality management and 
utilization review.

                                       8


<PAGE>

     The Company continually evaluates, upgrades and enhances the information 
systems that support its operations. Certain information system functions 
utilized by Compcare and Valley are outsourced to a third party.

SPECIALTY MANAGED CARE PRODUCTS AND SERVICES

     In the last few years, the Company has focused on growing the specialty 
products and services it offers. Such products and services include prepaid 
dental care, life and disability insurance, workers' compensation and managed 
behavioral health benefits, managed care consulting, electronic claims 
processing, case management, pharmaceutical and receivables management and 
other medical benefits. Such specialty products are sold through a variety of 
methods, including brokers, agents and an in-house sales force.

     DENTAL

     At year end 1997, a separate corporate entity, Heartland Dental, was 
established to manage the Company's dental HMO operations (formerly known as 
Dentacare). Heartland Dental was established as a separate entity to 
facilitate growth of prepaid dental business outside of Wisconsin. Heartland 
Dental performed its initial filing for licensure in Michigan and Ohio at the 
end of 1998. Prepaid dental services were provided to 169,700 members as of 
December 31, 1998, which makes Heartland Dental the largest dental HMO in 
Wisconsin. Premium revenues attributable to Heartland Dental were $29.1 
million for the year ended December 31, 1998. Heartland Dental contracts with 
group dental practices on a capitated basis throughout Wisconsin and Northern 
Illinois. Members receive services through their selected dental center. In 
addition, Heartland Dental offers POS and out-of-area products. The Heartland 
Dental provider network had 282 dental providers as of December 31, 1998. The 
Company considers its relationship with its dental provider network to be 
good and has been able to renew its dental provider contracts on acceptable 
terms. Heartland Dental competes with other regional and national managed 
care dental plans, indemnity dental insurance, self funded dental plans and 
direct reimbursement dental programs.

     Heartland Dental offers ten different products with varying benefit 
options, most of which cover all preventive and diagnostic services. Other 
services are offered at various levels of coverage. All products cover 
pre-existing conditions and the full range of dental services, including 
orthodontics.

     LIFE AND DISABILITY

     The Company offers group term life and accidental death and 
dismemberment ("AD&D") coverages as well as dependent life and accelerated 
death benefits. Short and long-term disability products have been designed to 
provide income replacement for an employee who becomes disabled through a 
non-work related situation. The Company's Rapid Pay plan is a unique 
short-term disability product by which claimants receive benefits on a timely 
basis with minimal up-front paperwork. As of December 31, 1998, the Company 
had a total of 273,500 life and disability certificates. Premium revenue 
related to life and disability products was $40.2 million and $34.0 million 
for the years ended December 31, 1998 and 1997, respectively. Certain life 
and disability products are underwritten by United Wisconsin Life Insurance 
Company ("UWLIC"), a wholly owned subsidiary of AMSG, and ceded to United 
Heartland Life Insurance Company ("UHLIC"), which is licensed in Ohio and 
Wisconsin. UWLIC is licensed to do business in 38 states and the District of 
Columbia. United Wisconsin Insurance Company ("UWIC"), which sells disability 
products, is licensed in 35 states and the District of Columbia. The Company 
competes with national providers of group life and disability coverage.

     An insurance company's rating is an important factor in establishing its 
competitive position. In 1998, UWIC, UWLIC and UHLIC were assigned ratings of 
"A-" (Excellent) by A.M. Best Company, Inc. ("Best"). The "A-" rating is the 
fourth highest rating given to insurance companies.

                                       9


<PAGE>

     MANAGED CARE WORKERS' COMPENSATION

     Through United Heartland, Inc. ("United Heartland"), the Company applies 
managed care techniques to the workers' compensation market in Wisconsin. The 
workers' compensation coverage sold through United Heartland is underwritten 
by UWIC in those states where UWIC is licensed to provide such coverage. A 
reinsurer underwrites risk for coverage in those states where UWIC is not 
licensed to provide workers' compensation coverage. Premium revenue 
attributable to United Heartland approximated $21.5 million during 1998. 
During 1998, the Company retained 60% of the workers' compensation risk and 
ceded the other 40% to a reinsurer. The workers' compensation market, both 
nationally and in the state of Wisconsin, is extremely competitive. 
Competition has primarily come from the large, national multi-line property 
and casualty insurance companies.

     The Company believes the key elements to success in the workers' 
compensation insurance business are service to employers and control of 
workers' compensation costs through comprehensive loss control and claims 
management procedures. As part of its underwriting process, United Heartland 
performs a loss control review of each prospective insured prior to making a 
commitment to provide coverage. It also examines the employer's commitment 
toward developing or improving light duty/return to work programs, safety 
awareness programs, supervisor training in accident investigation and 
enforcement of safety in the workplace. United Heartland also reviews the 
financial resources of the employers to verify an ability to follow through 
on any commitments made that may require a capital expenditure.

     United Heartland utilizes medical management resources to assist in the 
adjustment of its claims, which include: (i) access to BCBSUW's usual and 
customary charges database; (ii) the PPO network established by the Company 
for United Heartland clients; and (iii) access to the hospital bill audit and 
medical staff of the Company as needed in claims handling. The Company 
believes this managed care capability, combined with a commitment to 
communicating with employers, employees and medical providers, assists United 
Heartland in monitoring the major cost factors of workers' compensation 
claims. Cost savings have been demonstrated as United Heartland's customers 
experienced a 16% drop in the cost of their workers' compensation claims over 
the seven-year period ended December 31, 1998.

     MANAGED CARE CONSULTING

     Through Meridian Resource Corporation ("Meridian"), the Company 
specializes in providing consulting and technical services to insurance 
companies, employers, providers, government agencies, coalitions and other 
organizations to help them make decisions regarding health care benefits and 
more effective health care delivery. Consulting services include health care 
data analysis, hospital cost indexing and analysis, feasibility studies and 
economic analysis. Technical services include hospital bill audit, data 
analysis and reporting, claims audit and subrogation recovery services. 
Meridian also has established a niche in collecting salvage and subrogation 
recoveries for self-insured groups and other health insurers. The Company 
competes against other stand-alone companies that provide similar cost 
reduction strategies and other large insurance companies that have these 
functions. Revenues from managed care consulting services totaled $13.2 
million for the year ended December 31, 1998.

     The Company's combined medical management functions are conducted 
through Meridian Managed Care, Inc. ("MMC"). MMC primarily serves the 
population of Compcare and BCBSUW but also markets its programs to 
non-affiliated organizations. MMC controls costs by promoting quality and 
efficiency. Central to its effectiveness is promoting and developing 
partnerships with providers.

     MMC's utilization management program provides comprehensive, 
custom-designed strategies that protect its members and control costs by 
ensuring cost-effective, quality care. MMC's traditional utilization 
management program offers inpatient prior authorization, admission review, 
continued stay review, discharge planning, case management, patient 
education, appropriateness review and outpatient procedure review.

     Intercare is a catastrophic case management company that provides 
services to reinsurance companies, 50 to 60 third party administrators, 
indemnity insurers and employer groups nationwide. Intercare fully

                                       10


<PAGE>

understands the intricacies of the self funded marketplace and provides 
medical management and support to those groups. Support services include 
catastrophic case management, hospital admission reviews, a special 
investigation unit and a nurse review program for underwriters. The Company 
acquired Intercare in August 1998. Revenues of Intercare totaled $1.4 million 
for the year ended December 31, 1998.

     ELECTRONIC CLAIM SUBMISSION

     United Wisconsin Proservices, Inc. ("Proservices") provides software and 
claim submission services and has created the largest provider/insurer 
network for such services in Wisconsin, extending to over 200 hospitals and 
clinics in Wisconsin and over 500 home health agencies nationwide. 
Proservices electronically transmits more than seven million medical claims 
annually for such clients as Medicare, Medicaid, private insurers, third 
party administrators and re-pricers. Proservices competes with other hospital 
software vendors and national suppliers of electronic claims processing.

     PHARMACEUTICAL MANAGEMENT

     Pharmacy management services promote appropriate and cost-effective 
pharmaceutical utilization through formulary development, pharmacy network 
management, pharmacy and therapeutic committees, and concurrent and 
retrospective drug review. Central to the program is the pharmacy benefit 
management company. The Right Rx, which performs rebate management for 
Compcare, BCBSUW and non-affiliated clients, representing approximately 0.6 
million lives.

     MANAGED BEHAVIORAL HEALTH

     CNR Health, Inc. ("CNR") is a managed care organization that provides 
cost-effective behavioral health care management solutions to a variety of 
customers. CNR's primary products include behavioral health management, 
provider networks, employee assistance programs, medical management, 
disability management, behavioral health claims administration and behavioral 
health management software. Additionally, through YW Works, a partnership 
formed with two local organizations, it manages the Milwaukee County Regional 
contract of the Wisconsin Works ("W-2") program. W-2 is a new program that 
replaced Aid to Families with Dependent Children with programs to prepare 
individuals for the job market and help them find and keep those jobs.

     CNR customers include insurance companies, self-funded employers, third 
party administrators, Medicaid and other governmental entities. Through its 
various programs, CNR manages approximately 992,200 lives as of December 31, 
1998 and earned revenues for the year ended December 31, 1998 of $23.0 
million.

     RECEIVABLES MANAGEMENT

     Ladd is a health care receivables management firm based in Michigan and 
serves five mid-western states. Ladd provides collections and receivables 
management services to hospitals in Michigan and other commercial clients in 
Michigan, Ohio, Illinois, Indiana and Wisconsin. Receivables management 
services provided within the health care industry represents 95% of 1998 
total revenues of $3.8 million. The Company acquired Ladd in December 1998.

COMPETITION

     The managed care industry is highly competitive. During the past few 
years, the managed care industry in Wisconsin and the upper Midwest has 
experienced consolidation. The Company believes the principal competitive 
features affecting its ability to retain and increase its managed care 
membership include the price of benefit plans offered, the composition of 
provider networks, quality of service, responsiveness to user demands, 
financial stability, comprehensiveness of coverage, diversity of product 
offerings and market presence and reputation. Although the Company is a 
leading provider of managed care services in Wisconsin, the Company may 
experience increased competition in the future. The Company competes with 
national competitors for its

                                       11


<PAGE>

HMO products including Humana, Inc. and United HealthCare Corp. The Unity HMO 
competes with Dean Health Plan, Inc. in the Madison area and surrounding 
counties. Many of the Company's competitors are larger, have considerably 
greater financial resources and distribution capabilities and offer more 
diversified types of insurance coverage than the Company.

REINSURANCE

     The Company manages the risk it retains through the use of reinsurance. 
The Company maintains in force both "quota share" and "excess of loss" 
reinsurance treaties. Quota share reinsurance is a contractual arrangement 
whereby the reinsurer assumes an agreed percentage of certain risks insured 
by the ceding insurer and shares premium revenue and losses proportionately. 
The Company's quota share reinsurance treaties allocate the total amount of 
business subject to the treaties between the Company and the respective 
parties to the treaties. Through quota share reinsurance, UHLIC assumes 100% 
of certain life coverages underwritten by UWLIC. UWIC cedes to BCBSUW 100% of 
certain medical coverages. Approximately 40% of the Company's workers' 
compensation business is ceded to an independent non-affiliated reinsurer. 
Excess of loss reinsurance is used to cap the amount of loss retained by the 
Company on individual claims or a series of claims. Excess of loss 
reinsurance is utilized by the Company's HMOs to limit their exposure to 
inpatient hospital claims or, in the case of Compcare, to organ transplants. 
On the life and disability business, the Company limits its retention per 
claim to $75,000. For workers' compensation claims, the Company retains the 
first $250,000 of a loss, which it shares with its quota share reinsurer, and 
cedes losses between $250,000 and $10,000,000 on an individual excess of loss 
basis to third party reinsurers. Except for affiliates of the Company, all 
reinsurers with which the Company contracts are rated "A-" (Excellent) or 
better by Best.

SERVICE AGREEMENTS

     The Company and several of its subsidiaries purchase services from, or 
provide services to, BCBSUW pursuant to written agreements (the "Service 
Agreements"). Services covered by these agreements include marketing, 
information systems, legal, investment, actuarial, accounting, underwriting 
and other administrative and management services. Fees under the Service 
Agreements are calculated on a cost basis. Costs directly attributable to a 
particular company are paid by such company. Costs that are not specific to 
any particular company are allocated based on utilization and allocation 
methods agreed to by the parties to the agreements. If the recipient can 
obtain any of the services under more favorable terms by performing the 
services itself or by procuring them from a third party, it is not obligated 
to renew the Service Agreement for those services if the provider is 
unwilling to substantially match such terms. The Service Agreements 
automatically renew annually unless otherwise terminated. In addition, under 
Wisconsin law, the OCI reviews the Service Agreements to ensure that the 
agreements are reasonable and fair to the interests of the insurance 
companies that are parties to the agreements. For the year ended December 31, 
1998, the Company paid approximately $9.0 million for such services, and 
received approximately $14.8 million from BCBSUW for the provision of such 
services.

     The Company may provide certain services to AMSG pursuant to a written 
agreement (the "AMSG Service Agreement"). Services that AMSG may utilize 
pursuant to the AMSG Service Agreement include investment management, 
investment accounting, risk management, accounting and financial audit and 
corporate communications. Fees under the AMSG Service Agreement for 
investment management and investment accounting will be based on a percentage 
of the portfolio plus a flat rate for each company whose investments are 
being handled by the Company. Fees for risk management will be based on a 
percentage of the annual premiums for risk management insurance. Fees for 
accounting and financial audit and corporate communications will be based on 
an hourly rate. The AMSG Service Agreement will terminate on December 31, 
1999 unless terminated earlier upon appropriate notice. The AMSG Service 
Agreement was submitted to OCI for its review and lack of disapproval.

                                       12


<PAGE>

INVESTMENTS

     The Company attempts to minimize its business risk through conservative 
investment policies. Investment guidelines set quality, concentration and 
return parameters. The Company's investment guidelines permit investments in 
various types of liquid assets, including U.S. Treasury obligations, 
securities of various Federal agencies and commercial paper, and other assets 
including corporate debt securities, municipal securities, asset-backed 
securities, mortgage-backed securities, equity securities and mutual funds. 
Up to 10% of the Company's fixed income portfolio (at the time of purchase) 
may be invested in issues rated BB by Standard & Poor's Corporation or an 
equivalent rating from another nationally recognized securities rating 
organization. The remainder of the individual fixed income issues must carry 
an investment grade rating at the time of purchase, and the ongoing average 
portfolio rating must be "A-" or better, based on ratings of Standard & 
Poor's Corporation or another nationally recognized securities rating 
organization. The Company invests in securities authorized by applicable 
state laws and regulations and follows investment policies designed to 
maximize yield, preserve principal and provide liquidity. The Company's 
portfolio contains no investments in mortgage loans or non-publicly traded 
securities, except for investments in affiliates. However, at December 31, 
1998, $31.1 million of the Company's investment portfolios were invested in 
investment grade government agency mortgage-backed securities.

     With the exception of short-term investments and securities on deposit 
with various state regulators, investment responsibilities have been 
delegated to external investment managers. Such investment responsibilities, 
however, must be carried out within the investment parameters established by 
the Company, which may be amended from time to time.

     Securities which may be sold prior to maturity to support the Company's 
investment strategies, such as in response to changes in interest rates, the 
yield curve concentration or sector concentration, are classified as 
available for sale and are stated at market value with unrealized gains and 
losses reported as a component of shareholders' equity. Securities for which 
the Company has both the positive intent and ability to hold to maturity are 
recorded at amortized cost. Bonds, which are held to meet deposit 
requirements of the various states, are classified as held to maturity. All 
other bonds are classified as available for sale.

     The table below reflects investment results for the years indicated:

<TABLE>
<CAPTION>
                                                    YEARS ENDED DECEMBER 31,
                                                   ---------------------------
                                                       1996     1997     1998
                                                   ---------------------------
                                                       (DOLLARS IN THOUSANDS)
<S>                                               <C>        <C>       <C>
Average invested assets(1).......................  $180,679   $179,505  $185,249
Net investment income(2).........................    10,659     10,317    10,240
Average yield....................................      5.90%      5.75%     5.53%
Net realized gains...............................     8,381     11,921     9,123
Net unrealized gains on stocks & bonds...........     6,272      4,795     1,895
------------------------
</TABLE>

(1)  Average of aggregate investment amounts at the beginning and end of each 
     period.

(2)  Amounts are calculated net of investment expenses, but prior to 
     adjustment for other interest income and expense.

REGULATION

     GENERAL. Government regulation of employee benefit plans, including 
health care coverage, health plans and the Company's specialty managed care 
products, is a changing area of law that varies from jurisdiction to 
jurisdiction and generally gives responsible administrative agencies broad 
discretion. The Company believes that it is in compliance in all material 
respects with the various federal and state regulations applicable to its 
current operations. To maintain such compliance, it may be necessary for the 
Company or a subsidiary to make

                                       13


<PAGE>

changes from time to time in its services, products, structure or operations. 
Additional government regulation or future interpretation of existing 
regulations could increase the cost of the Company's compliance or otherwise 
affect the Company's operations, products, profitability or business 
prospects.

     The Company is unable to predict what additional government regulations, 
if any, affecting its business may be enacted in the future or how existing 
or future regulations might be interpreted. A number of jurisdictions have 
enacted small group insurance and rating reforms which generally limit the 
ability of insurers and health plans to use risk selection as a method of 
controlling costs for small group business. These laws may generally limit or 
eliminate use of pre-existing condition exclusions, experience ratings and 
industry class ratings, and limit the amount of rate increases from year to 
year. Under these laws, cost control through provider contracting and 
managing care may become more important, and the Company believes its 
experience in these areas will allow it to compete effectively.

     Federal legislation has significantly expanded regulation of group 
health plans and health care coverage. The new laws place restrictions on the 
use of pre-existing conditions and eligibility restrictions based upon health 
status and prohibit cancellation of coverage due to claims experience or 
health status. Federal regulations also prohibit insurance companies from 
declining coverage to small employers. Additional federal laws, which took 
effect in 1998, include prohibitions against separate, lower, dollar maximums 
for mental health benefits and requirements relating to minimum coverage for 
maternity inpatient hospitalization. The Company does not anticipate that 
these laws will affect its comparable profitability or business prospects 
because all insurance companies across the country are subject to the same 
requirements. Furthermore, many requirements of the federal legislation are 
similar to small group reforms that have been in place for many years. The 
Company will be able to utilize and expand upon the cost control measures 
initiated as a result of small group legislative reform.

     Increasingly, States are considering various health care reform measures 
which, if passed, may limit the ability of the Company and its health plans 
to control which providers are part of their networks and hinder their 
ability to manage utilization and cost effectively. "Patient Protection" 
laws, which became effective in Wisconsin in late 1998, established a prudent 
layperson standard for coverage of emergency room care and provided extended 
access to providers who are no longer part of the plan's network. A number of 
other States are considering similar legislation. While this could affect the 
Company's operations in those States, comparable profitability and business 
prospects should not be impacted because competing insurance companies would 
be subject to the same legislation.

     HMOS. Wisconsin and the other states in which the Company offers HMO 
products have enacted statutes regulating the activities of those health 
plans. Most states require periodic financial reports from HMOs licensed to 
operate in their states and impose minimum capital or reserve requirements. 
In addition, certain of the Company's subsidiaries are required by state 
regulatory agencies to maintain restricted cash reserves represented by 
interest-bearing instruments which are held by trustees or state regulatory 
agencies to ensure that adequate financial resources are maintained or to act 
as a fund for insolvencies of other HMOs in the State.

     As a federally qualified HMO, Compcare must file periodic reports with, 
and is subject to periodic review by, the Department of Health and Human 
Services, the Health Care Financing Administration and the Office of Prepaid 
Health Care. The Company's other HMOs are subject only to state regulation 
because they are not federally qualified HMOs.

     The Company's HMOs which have Medicaid contracts are subject to both 
federal and state regulation regarding services to be provided to Medicaid 
enrollees, payment for those services and other aspects of the Medicaid 
program. Medicaid has in force and/or has proposed regulations relating to 
fraud and abuse, physician incentive plans and provider referrals which may 
affect the Company's operations.

     Several of the Company's health plans have contracts with the Federal 
Employees Health Benefit Plan ("FEHBP"). These contracts are subject to 
extensive regulation, including complex rules relating to the premiums 
charged. FEHBP has the authority to retroactively audit the rates charged and 
may seek premium refunds and

                                       14


<PAGE>

other sanctions against health plans participating in the program. The 
Company's health plans, which have contracted with FEHBP, are subject to such 
audits and may be requested to make such refunds.

     INSURANCE REGULATION. The Company's insurance subsidiaries are subject 
to regulation by the Department of Insurance in each state in which the 
entity is licensed. Regulatory authorities exercise extensive supervisory 
power over insurance companies relating to the licensing of insurance 
companies; the amount of reserves which must be maintained; the approval of 
forms and insurance policies used; the nature of, and limitation on, an 
insurance company's investments; periodic examination of the operations of 
insurance companies; the form and content of annual statements and other 
reports required to be filed on the financial condition of insurance 
companies; and the establishment of capital requirements for insurance 
companies. The Company's insurance company subsidiaries are required to file 
periodic statutory financial statements in each jurisdiction in which they 
are licensed. Additionally, such companies are examined periodically by the 
insurance departments of the jurisdiction in which they are licensed to do 
business.

     The National Association of Insurance Commissioners ("NAIC") adopted the 
Risk-Based Capital ("RBC") for Life and/or Health Insurers Model Act ("RBC 
Model Act"), effective December 31, 1993, to evaluate the adequacy of 
statutory capital and surplus in relation to investment and insurance risks 
associated with: (i) asset quality; (ii) mortality and morbidity; (iii) asset 
and liability matching; and (iv) other business factors. The RBC Model Act 
formula is used by the States to monitor trends in statutory capital and 
surplus for the purpose of initiating regulatory action. The NAIC adopted 
similar RBC requirements for property and casualty insurance companies 
effective December 31, 1994, and for health organizations, including HMOs, 
effective December 31, 1998. The Company has calculated the risk-based 
capital for its life, property and casualty, and HMO subsidiaries as of 
December 31, 1998 using the applicable RBC formula. These calculations 
produced risk-based capital levels that exceed the levels at which the RBC 
formulas recommend intervention by regulatory authorities.

     Under Wisconsin law, insurance companies must provide OCI with advance 
notice of any dividend that is more than 15% larger than any dividend for the 
corresponding period of the previous year. In addition, OCI may disapprove 
any "extraordinary" dividend, defined as any dividend which, together with 
other dividends paid by an insurance company in the prior twelve months, 
exceeds the lesser of: (i) 10% of statutory capital and surplus as of the 
preceding December 31; (ii) with respect to a life insurer, net income less 
realized gains for the calendar year preceding the date of the dividend; or 
(iii) with respect to a non-life insurer, the greater of (ii) above or the 
aggregate net income less realized gains for the three calendar years 
preceding the date of the dividend less distributions made within the first 
two of those three years.

     Based upon the financial results of the Company's combined insurance 
subsidiaries for the year ended December 31, 1998, $7.7 million is available 
for 1999 dividend payments to their parent without regulatory approval.

     INSURANCE HOLDING COMPANY REGULATIONS. The Company is a holding company 
that conducts all of its business through combined entities and is subject to 
insurance holding company laws and regulations. Under Wisconsin law, 
acquisition of control of the Company, and thereby indirect control of its 
insurance subsidiaries, requires the prior approval of OCI. "Control" is 
defined as the direct or indirect power to direct or cause the direction of 
the management and policies of a person. Any purchaser of 10% or more of the 
outstanding voting stock of a corporation is presumed to have acquired 
control of the corporation and its subsidiaries unless OCI, upon application, 
determines otherwise.

     Each of the Company's combined insurance entities is subject to 
regulation under state insurance holding company regulations. Such insurance 
holding company laws and regulations generally require registration with that 
state's department of insurance and the filing of certain reports describing 
capital structure, ownership, financial condition, certain intercompany 
transactions and general business operations. Various notice and reporting 
requirements generally apply to transactions between companies within an 
insurance holding company system, depending on the size and nature of the 
transactions. Certain state insurance holding company laws and regulations 
require prior regulatory approval or, in certain circumstances, prior notice 
of, certain material

                                       15
<PAGE>

intercompany transfers of assets as well as certain transactions between the 
regulated companies, their parent holding companies and affiliates, and 
acquisitions.

     UTILIZATION REVIEW REGULATIONS. A number of states have enacted laws 
and/or adopted regulations governing the provision of utilization review 
activities. Generally, these laws and regulations require compliance with 
specific standards for the delivery of services, confidentiality, staffing, 
and policies and procedures of private review entities, including the 
credentials required of personnel. Some of these laws and regulations may 
affect certain operations of the Company's business units.

     A few jurisdictions have enacted laws which hold managed care 
organizations liable for damages resulting from wrongful denial of care or 
payment for care. The Company provides utilization review services through 
CNR in at least one state that has passed such legislation. The liability law 
encompasses entities that do not provide insurance coverage, but merely 
provide utilization review services. CNR has developed risk management 
procedures and believes that it will be able to minimize potential liability 
for coverage decisions.

     ERISA. The provision of goods and services to or through certain types 
of employee health benefit plans is subject to ERISA. ERISA is a complex set 
of laws and regulations that are subject to periodic interpretation by the 
federal courts and the United States Department of Labor. ERISA places 
certain controls on how the Company's business units may do business with 
employers covered by ERISA, particularly employers that maintain self-funded 
plans. The Department of Labor is engaged in an ongoing ERISA enforcement 
program, which may result in additional constraints on how ERISA-governed 
benefit plans conduct their activities. There have been continued legislative 
attempts to limit ERISA's preemptive effect on state laws. If such 
limitations were to be enacted, they might increase the Company's liability 
exposure under state law-based suits relating to employee health benefits 
offered by the Company's health plans and specialty businesses and may permit 
greater state regulation of other aspects of those businesses' operations.

EMPLOYEES

     As of December 31, 1998, the Company had 1,236 full-time and 53 
part-time employees, of whom 218 were managerial and supervisory personnel. 
Of these employees, 55 were represented by a union. In addition, the Company 
leases the services of 49 people who manage and operate one of its 
subsidiaries. The Company considers its relations with its employees to be 
good.

TRADEMARKS

     "Compcare" is a federally registered service mark of the Company. The 
Company has filed for and maintains various other trademarks and trade names 
at the federal level and in the State of Wisconsin. Although the Company 
considers its registered service marks, trademarks and trade names important 
in the operation, of its business, the business of the Company is not 
dependent on any individual service mark, trademark or trade name.

ITEM 2. PROPERTIES

     The Company occupies common facilities with BCBSUW and is charged a 
proportionate share of the cost of such facilities under the Service 
Agreements. The Company's corporate headquarters are located in Milwaukee, 
Wisconsin in a 235,000 square foot building leased by BCBSUW. The Company 
also utilizes space in a Milwaukee regional office leased by BCBSUW, which 
has approximately 217,000 square feet of office and warehouse space. In 
addition, the Company's business is sold and serviced in five other Wisconsin 
regional offices leased by BCBSUW. Unity owns a 40,000 square foot facility 
in Sauk City, Wisconsin. Intercare and Ladd both lease facilities including 
9,900 square feet in Hartford, Wisconsin and 10,000 combined square feet at 
two locations in Michigan, respectively.

                                       16


<PAGE>

ITEM 3. LEGAL PROCEEDINGS

     The Company is currently, and is from time to time, subject to claims 
and suits arising in the ordinary course of its business. Although the 
results of litigation proceedings cannot be predicted with certainty, the 
Company believes that the ultimate resolution of these proceedings will not 
have a material adverse effect on its financial condition or results of 
operations.

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

     No matters were submitted to a vote of security holders during the 
fourth quarter of 1998.

ITEM 4a. EXECUTIVE OFFICERS OF THE REGISTRANT

     The name, age, title and business backgrounds of each of the executive 
officers are set forth below. The individuals named below previously were 
officers of AMSG and various of its subsidiaries prior to the spin off, and 
had resigned from all positions held at AMSG or its remaining subsidiaries as 
of the Effective Date of the Distribution. Individuals with comparable 
positions as listed below were elected to serve the new company, UWS, 
commensurate with the spin off. The business address of each of the executive 
officers is 401 West Michigan Street, Milwaukee, Wisconsin 53203.

     As of March 11, 1999, the executive officers of the Company are as 
follows:

<TABLE>
<CAPTION>

          NAME         AGE                         TITLE
          ----         ---                         -----
<S>                   <C>     <C>
 Thomas R. Hefty       51      Chairman of the Board, President,
                                  Chief Executive Officer and
                                  Director
 Stephen E. Bablitch   45      Vice President, General Counsel and Secretary
 Devon W. Barrix       56      Vice President
 Mark H. Granoff       52      Vice President and President of UWIC and UHLIC
 Gail L. Hanson        43      Vice President and Treasurer
 C. Edward Mordy       55      Vice President and Chief Financial Officer
 Herbert B. Olson      43      Vice President and Chief Actuary
 Emil E. Pfenninger    47      Vice President and President of United Heartland
 Penny J. Siewert      42      Vice President of Regional Services
 Mary I. Traver        48      Vice President
</TABLE>

     Officers are elected to serve, subject to the discretion of the Board of 
Directors, until their successors are appointed. There are no family 
relationships among any of the directors and/or executive officers of the 
Company.

     THOMAS R. HEFTY is the Chairman of the Board, President and Chief 
Executive Officer of the Company. Mr. Hefty was elected President of UWS in 
1986 and Chairman of the Board and Chief Executive Officer of UWS in 1991. 
Since 1987, he has served in various capacities with the Company's 
subsidiaries. Mr. Hefty has been Chairman of the Board and a director of 
BCBSUW since 1988, having joined BCBSUW in 1982 and later serving as 
President. From 1979 to 1982, Mr. Hefty was Deputy Insurance Commissioner for 
OCI.

     STEPHEN E. BABLITCH is Vice President, General Counsel and Secretary of 
the Company. Mr. Bablitch joined UWS in 1996 as General Counsel, Vice 
President and Secretary. He has been General Counsel, Vice President and 
Secretary of BCBSUW since 1996 as well. He has also served in various 
capacities with the Company's subsidiaries since 1996. Prior to joining UWS 
and BCBSUW, Mr. Bablitch was an attorney with Dewitt, Ross and Stevens, 
Madison, Wisconsin from 1991 to 1996.

                                       17


<PAGE>

     DEVON W. BARRIX is Vice President of the Company. He was elected a Vice 
President of UWS in 1994 following the Company's acquisition of Unity and its 
parent, HMO-W. Mr. Barrix was the Chief Executive Officer of Unity (f/k/a HMO 
of Wisconsin Insurance Corporation) from 1985 to 1994 and was the President 
of Unity from 1994 to 1996.

     MARK H. GRANOFF is Vice President of the Company. Mr. Granoff was 
elected a Vice President of UWS in 1991 and was elected President of UWIC in 
1991 and UHLIC in 1996. He has served in various capacities with some of 
UWS's other subsidiaries since 1991. Mr. Granoff has been a Vice President of 
BCBSUW since 1990. Prior to joining BCBSUW, from 1988 to 1990, Mr. Granoff 
served as Employee Benefits Marketing Vice President for Business Men's 
Assurance Company of America, an insurance company.

     GAIL L. HANSON is Vice President and Treasurer of the Company. Ms. 
Hanson was Treasurer of UWS since 1987 and was elected a Vice President in 
1996. She has served in various capacities with UWS's subsidiaries since 
1984. Ms. Hanson was elected Vice President and Treasurer of BCBSUW in 1996 
and had been Assistant Vice President and Treasurer since 1987, having joined 
BCBSUW in 1984 as the Controller of UWIC.

     C. EDWARD MORDY is Chief Financial Officer of the Company. Mr. Mordy was 
elected Vice President in 1987 and was elected Chief Financial Officer of UWS 
in 1991. He has served in various capacities with UWS's subsidiaries since 
1987. Mr. Mordy has been a Vice President and Corporate Controller of BCBSUW 
since 1986.

     HERBERT B. OLSON is Vice President and Chief Actuary of the Company, 
overseeing the actuarial department. Mr. Olson was elected Vice President and 
Chief Actuary in December of 1998. Mr. Olson was Vice President and Managed 
Care Actuary of John Alden Life Insurance Company from 1996 to 1998 and has 
over 21 years experience in the life and health insurance industry.

     EMIL E. PFENNINGER is Vice President of the Company. Mr. Pfenninger was 
elected a Vice President of UWS in 1995 and President of United Heartland in 
1990. Mr. Pfenninger was the Underwriting Manager with CNA Insurance 
Companies from 1987 to 1990.

     PENNY J. SIEWERT is Vice President of Regional Services of the Company. 
Ms. Siewert was elected Vice President of Regional Services of UWS in 1995. 
Ms. Siewert joined BCBSUW in 1977 and has served in various capacities. Ms. 
Siewert was elected Vice President of Operations for BCBSUW in 1990, Vice 
President of Special Markets for BCBSUW in 1992, and Vice President of 
Regional Services for BCBSUW in 1995.

     MARY I. TRAVER is Vice President of the Company. Ms. Traver was elected 
Vice President of UWS in 1988. Ms. Traver was Vice President and General 
Counsel of UWS from 1988 to 1996 and Secretary from 1992 to 1996. She has 
served in various capacities with some of UWS's subsidiaries since 1987. Ms. 
Traver was General Counsel of BCBSUW from 1988 to 1996, Secretary of BCBSUW 
from 1992 to 1996, and a Vice President of BCBSUW since 1988. She assumed the 
position of Regional Vice President for the Southeastern region of BCBSUW in 
1997.

                                       18


<PAGE>

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY.

     The Common Stock is traded on the New York Stock Exchange ("NYSE") under 
the symbol "UWZ". The following table sets forth the per share high and low 
sale prices for the Common Stock as reported on the NYSE for the periods 
indicated and the cash dividends paid per share for those periods.

<TABLE>
<CAPTION>

                                           HIGH        LOW       CASH DIVIDENDS PAID
                                           ----        ---       -------------------
<S>                                        <C>        <C>            <C>
YEAR ENDED DECEMBER 31, 1998:
   First Quarter                              N/A       N/A            N/A
   Second Quarter                             N/A       N/A            N/A
   Third Quarter from September 28, 1998    $7.19     $5.81              -
   Fourth Quarter                           $9.31     $4.81          $0.05
</TABLE>

     An annual dividend of $0.05 per share was paid on December 30, 1998 to 
shareholders of record at the close of business on December 23, 1998.

     As of March 8, 1999, there were 262 shareholders of record of Common 
Stock. Based on information obtained from the Company's Transfer Agent and 
from participants in security position listings and otherwise, the Company 
has reason to believe there are more than 2,900 beneficial owners of shares 
of Common Stock.

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

         The following selected financial data present consolidated financial 
information with respect to the Company. The balance sheet data as of 
December 31, 1998, 1997, and 1996 and the statement of income data for each 
of the four years in the period ended December 31, 1998, have been derived 
from the audited consolidated financial statements and notes thereto of the 
Company. The balance sheet data as of December 31, 1995, and 1994 and the 
statement of income data for the year ended December 31, 1994 have been 
derived from unaudited financial statements which, in the opinion of the 
Company's management, include all adjustments necessary to present the 
financial position and results of operations at and for the years presented. 
The consolidated financial statements of the Company do not necessarily 
reflect the results of operations or financial position that would have 
resulted had the Company been a separate, independent company and are not 
necessarily indicative of the results to be expected for any future fiscal 
year. The following data should be read in conjunction with the Company's 
consolidated financial statements, the related notes thereto, and 
"Management's Discussion and Analysis of Financial Condition and Results of 
Operations".




                                       19
<PAGE>

<TABLE>
<CAPTION>
                                                         AS OF AND FOR THE YEARS ENDED DECEMBER 31,
                                                   1994(3)     1995(3)      1996       1997       1998
                                                  ----------------------------------------------------
<S>                                               <C>         <C>         <C>        <C>         <C>
                                                         (IN THOUSANDS, EXCEPT OPERATING STATISTICS)
STATEMENT OF INCOME DATA:                         (UNAUDITED)
                                                  -----------
Revenues:
   Health Services Revenues:
    Premium revenue..............................  $355,025    $466,929   $493,092   $560,825    $608,917
    Other revenue................................    15,997      24,222     27,632     26,046      29,728
  Investment results.............................    12,050       9,665     19,040     22,238      18,976
                                                  -------------------------------------------------------
       Total revenues............................   383,072     500,816    539,764    609,109     657,621

Expenses:
   Medical and other benefits....................   306,056     416,167    425,258    485,198     519,636
   Selling, general and administrative
      expenses...................................    58,026      72,576     83,839     94,496     103,517
   Interest expenses with affiliate..............         -           -          -          -       1,411
   Profit sharing on provider arrangements.......     1,516       2,734      2,868      3,380       2,762
   Amortization of goodwill and other
       intangibles...............................       195         678        841        818         450
                                                  -------------------------------------------------------
       Total expenses............................   365,793     492,155    512,806    583,892     627,776
                                                  -------------------------------------------------------
   Income before income tax expense..............    17,279       8,661     26,958     25,217      29,845
   Income tax expense............................     5,072       3,277     10,617      9,433      11,767
                                                  -------------------------------------------------------
Net income.......................................  $ 12,207     $ 5,384   $ 16,341   $ 15,784    $ 18,078
                                                  -------------------------------------------------------
                                                  -------------------------------------------------------
Pro forma net income (2).........................                         $ 15,974   $ 12,722    $ 15,863
                                                                          -------------------------------
                                                                          -------------------------------
OPERATING STATISTICS:
   Medical loss ratio............................     86.2%       89.1%      86.2%      86.5%       85.3%
   Selling, general and administrative expense
       ratio (1).................................     15.6%       14.8%      16.1%      16.1%       16.2%

BALANCE SHEET DATA:                                     (UNAUDITED)
                                                        -----------
   Cash and investments..........................   $154,201    $178,926   $182,431   $176,579    $192,558
   Total assets..................................    216,954     261,523    269,478    266,256     298,208
   Note payable to affiliate.....................          -           -          -          -      70,000
   Total shareholders' equity....................    101,465     120,277    123,882    123,616      64,459
   Pro forma note payable to affiliate (2).......                            70,000     70,000
   Pro forma total shareholders' equity (2)........                          53,882     53,616
</TABLE>

(1)      Ratios are based on health service revenues and selling, general and
         administrative expenses.

(2)      Reflects pro forma adjustments for interest expense on assumed debt.
         See note 1 (Pro forma Earnings Per Common Share) in the accompanying
         Consolidated Financial Statements.

 (3)     Commencing October 1, 1994, the Company's results of operations include
         the results of operations of Unity. For the years ended December 31,
         1994 and 1995, Unity accounted for $23,994,000 and $100,342,000 of the
         Company's total premium revenue and $112,000 and $1,062,000 of the
         Company's net income, respectively.

                                       20


<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
         RESULTS OF OPERATIONS

OVERVIEW

         United Wisconsin Services, Inc. (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.

         On May 27, 1998, the Board of Directors of American Medical Security 
Group, Inc. ("AMSG") (formerly United Wisconsin Services, Inc.) approved a 
formal plan to spin off its managed care companies and specialty business to 
its shareholders. The new corporation originally was named Newco/UWS, Inc. 
and was subsequently renamed United Wisconsin Services, Inc. The spin off 
resulted in the distribution on September 25, 1998 ("Spin off date") of one 
share of common stock of the Company for each share of AMSG common stock held 
as of September 11, 1998. AMSG received a private letter ruling from the 
Internal Revenue Service that the spin off is tax free to AMSG, the Company 
and their shareholders.

<TABLE>
<CAPTION>
SUMMARY OF OPERATING RESULTS AND STATISTICS
-------------------------------------------
                                                                          AT DECEMBER 31,
                                                               1998         1997          1996
                                                            ---------------------------------------
 <S>                                                        <C>             <C>           <C>
 Membership at end of period:
   HMO products:
      Compcare...........................................       175,037       173,241      149,636
      Valley.............................................        41,282        37,906       33,434
      Unity..............................................        87,924        85,117       79,147
                                                            ---------------------------------------
         Total HMO products membership...................       304,243       296,264      262,217
                                                            ---------------------------------------
                                                            ---------------------------------------

   Specialty managed care products and services:
      Life/AD&D..........................................       160,619       129,406      116,390
      Dental HMO.........................................       169,709       169,823      169,063
      Behavioral health..................................       992,216       863,538      826,153
      Workers' compensation..............................        53,025        54,928       53,574
      Disability and other...............................       125,357        97,727       81,462
                                                            ---------------------------------------
         Total specialty managed care products and
             services membership.........................     1,500,926     1,315,422    1,246,642
                                                            ---------------------------------------
                                                            ---------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                                       YEARS ENDED DECEMBER 31,
                                                                  1998          1997         1996
                                                               -----------------------------------
   <S>                                                           <C>            <C>          <C>
   Premium revenue (as a percentage of the total):
      HMO products.......................................         85.2 %        85.7 %       85.4 %
      Specialty managed care products and services.......         15.3 %        14.7 %       15.0 %
      Intercompany eliminations..........................         (0.5)%        (0.4)%       (0.4)%
                                                               -----------------------------------
                                                               -----------------------------------
         Total                                                   100.0%        100.0%       100.0%
                                                               -----------------------------------
                                                               -----------------------------------
</TABLE>

                                       21


<PAGE>

<TABLE>
<CAPTION>
                                                                      YEARS ENDED DECEMBER 31,
                                                                   1998         1997        1996
                                                               -----------------------------------
 <S>                                                              <C>          <C>         <C>
 Operating Statistics:
   HMO Products:
      Medical loss ratio (1)..........................            88.8%        90.1%       89.8%
      Selling, general and administrative expense 
         ratio (2)....................................             9.6%         9.3%        9.3%
   Specialty managed care products and services:
      Loss ratio (1)..................................            70.9%        70.6%       69.8%
   Consolidated:
      Loss ratio (1)..................................            85.3%        86.5%       86.2%
      Net income margin (3)...........................             2.7%         2.6%        3.0%
</TABLE>
-----------

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

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

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

         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.

RESULTS OF OPERATIONS

         All financial data in the Results of Operations section are gross 
numbers and, therefore, are not net of intercompany eliminations. For this 
reason, some of the financial data does not precisely match the data in the 
financial tables.

1998 COMPARED WITH 1997 AND 1997 COMPARED WITH 1996

TOTAL REVENUES

         Total revenues in 1998 increased 8.0% to $657.6 million from $609.1 
million in 1997. Total revenues in 1997 increased 12.8% from $539.8 million 
in 1996. These increases were due primarily to membership and rate increases.

         PREMIUM REVENUE-HMO premium revenue in 1998 increased 8.2% to $518.7 
million from $479.2 million in 1997. HMO premium revenue in 1997 increased 
13.8% from $421.2 million in 1996. The increases in both years are primarily 
due to increases in average HMO premium revenue per member and increases in 
the average number of HMO medical members. Average HMO medical premium per 
member in 1998 increased 4.3% from 1997 and increased 3.0% in 1997 from 1996, 
due to premium increases, partially offset by benefit reductions. The average 
number of HMO medical members in 1998 increased 3.5% to 297,737 from 287,534 
in 1997. The average number of HMO medical members in 1997 increased 10.8% 
from 259,507 in 1996. This increase in 1997 was due in part to the 
elimination of a key provider from the network of one of Compcare's 
competitors, resulting in a shift of members to Compcare.

         Premium revenue for specialty managed care products and services in 
1998 increased 11.5% to $93.4 million from $83.8 million in 1997. This 
increase was due primarily to an increase of $8.4 million in 


                                       22

<PAGE>

the life and disability products and $1.4 million in dental premiums. Premium 
revenue in 1997 increased 13.6% from $73.8 million in 1996. The increase was 
due primarily to an increase of $2.7 million in disability premiums, an 
increase of $2.7 million in dental premiums and an increase of $1.9 million 
in workers' compensation premiums. The increases in life and disability 
premiums were driven by membership increases of 24.1% and 11.2% in 1998 and 
1997, respectively. The increase in workers' compensation premiums in 1997 
was due primarily to a change in the reinsurance agreement related to this 
business. In 1998 and 1997, the Company ceded 40% of the workers' 
compensation premiums written by United Heartland to a third-party reinsurer 
while the percentage ceded to the outside reinsurer was 50% in 1996.

         OTHER REVENUE- Other revenue from specialty managed care products 
and services in 1998 increased 10.5% to $44.2 million from $40.0 million in 
1997. This increase was due primarily to an increase in managed behavioral 
health and managed care consulting. In addition, the acquisitions of 
Intercare and Ladd during 1998 provided $0.6 million and $0.4 million of 
additional revenue, respectively. Other revenue in 1997 increased 1.3% from 
$39.5 million in 1996. Included in other revenue in 1996 is a $1.5 million 
gain on the sale of the vision line of business which is non-recurring. After 
adjusting for the gain on the sale of the vision line of business, other 
revenue increased by 5.2% from 1996 to 1997. These increases are primarily 
attributable to growth in managed behavioral health, electronic claim 
transmission services and managed care consulting services.

         INVESTMENT RESULTS-Investment results include investment income and 
realized gains on the sale of investments. Investment results in 1998 
decreased 14.4% to $19.0 million from $22.2 million in 1997. Investment 
results in 1997 increased 16.8% from $19.0 million in 1996. Average annual 
investment yields, excluding net realized gains, were 5.53%, 5.75% and 5.90% 
for 1998, 1997 and 1996, respectively. Average invested assets in 1998 
increased 3.2% to $185.2 million from $179.5 million in 1997. Average 
invested assets in 1997 decreased 0.1% from $180.7 million in 1996. Changes 
in levels of average invested assets relate to ongoing operations, including 
collection of receivables and timing of claim payments. Investment results in 
1997 also included $1.8 million of mutual fund distributions which were 
recorded as investment income in December 1997. Net realized investment gains 
decreased to $9.1 million in 1998 from $11.9 million in 1997. Net realized 
investment gains in 1997 increased from $8.4 million in 1996. Investment 
gains are realized in the normal investment process in response to market 
opportunities. In addition, a portion of the gains realized during the second 
half of 1997 were achieved as part of a portfolio restructuring to reduce the 
overall level of equity investments.

EXPENSE RATIOS

         LOSS RATIO-The consolidated loss ratio represents the ratio of 
medical and other benefits to premium revenue for the Company on a 
consolidated basis, and is therefore a blended ratio for medical, life, 
dental, disability and other product lines. The consolidated loss ratio was 
85.3% in 1998 compared with 86.5% in 1997 and 86.2% in 1996. The consolidated 
loss ratio is influenced by the component loss ratio for each of the 
Company's two primary product lines, as discussed below.

         The medical loss ratio for HMO products for 1998 was 88.8%, compared 
with 90.1% for 1997 and 89.8% for 1996. The decrease in the medical loss 
ratio in 1998 for HMO products is due primarily to provider recontracting 
with a continuing shift toward capitation in the southeastern Wisconsin HMO 
market. For 1998, approximately 54.9% of the medical benefits were provided 
under capitated arrangements, compared to 47.5% and 48.4% during 1997 and 
1996, respectively. The lower loss ratio in 1998 is also attributable to 
higher premium rate increases and a favorable development in the reserves as 
of December 31, 1997. The increase in the medical loss ratio in 1997 is 
attributable to the competitive market conditions in southeastern Wisconsin 
where pricing pressures, coupled with increased utilization, had an adverse 
impact on Compcare's loss ratio.

         The loss ratio for the risk products within specialty managed care 
products and services in 1998 was 70.9%, compared with 70.6% in 1997 and 
69.8% in 1996. The loss ratios principally relate to the life, disability, 
workers' compensation and dental product lines of business. These products 
represent relatively 

                                       23


<PAGE>

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 the four products should 
range between 70% and 75%. The 1998 and 1997 loss ratios were impacted by a 
higher level of life and disability claims in comparison to a more favorable 
level of life and disability claims in 1996.

         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 in 1998 was 9.6%, compared with 9.3% in 1997 
and 9.3% in 1996. During 1998, Compcare incurred higher costs as a result of 
a major system conversion and related training costs. A new claims 
administrative system was necessary to replace the previous system for which 
the service agreement expired, provide improved functionality and resolve the 
Year 2000 Issue.

         SGA expenses related to specialty managed care products and services 
increased 9.7% in 1998 to $63.1 million from $57.5 million in 1997. SGA 
expenses related to specialty managed care products and services increased 
10.8% in 1997 from $51.9 million in 1996. Increases in SGA expenses correlate 
to premium and other revenue increases which were 8.8% in 1998 compared with 
1997 and 12.7% in 1997 compared with 1996. In addition, the mix of business 
shifted over these yearly periods, as a result of greater growth in ancillary 
lines of business that have higher SGA expense ratios.

OTHER EXPENSES

         Profit sharing on provider arrangements was $2.8 million in 1998, 
compared with $3.4 million in 1997 and $2.9 million in 1996, net of 
intercompany eliminations. Included in this caption is expense related to the 
Unity and Valley provider arrangements and income from the workers' 
compensation agreements. Profit sharing expenses related to the Unity and 
Valley provider arrangements were $3.2 million, $4.0 million and $3.0 million 
in 1998, 1997 and 1996, respectively. Income from the workers' compensation 
agreements was $0.4 million, $0.6 million and $0.1 million in 1998, 1997 and 
1996, respectively.

         Interest expense of $1.4  million was incurred in 1998 as a result 
of the assumption of $70 million in debt owed to BCBSUW as of September 11, 
1998.

         Amortization of goodwill and other intangibles was $0.5 million for 
1998 compared with $0.8 for 1997 and 1996. The reduction in 1998 is due to 
full amortization of certain intangibles.

NET INCOME

         Consolidated net income in 1998 increased 14.5% to $18.1 million 
from $15.8 million in 1997. Consolidated net income in 1997 decreased 3.1% 
from $16.3 million in 1996.

         The Company's effective tax rate was 39.4% in 1998, compared with 
37.4% in 1997 and 39.4% in 1996. The Company's effective tax rate fluctuates 
based upon the relative profitability of the Company's two product lines and 
the differing effective tax rates for each of those product lines.

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.

         On an historical basis, the Company has generated positive cash flow 
from operations. For 1998, net cash provided by operating activities amounted 
to $21.9 million, compared with $1.6 million for 1997. The increase in cash 
flows from operations in 1998 compared to 1997 was due primarily to an 
increase in

                                       24


<PAGE>

operating income and an increase in medical and other benefits payable and 
premium advances. Due to periodic cash flow requirements of certain 
subsidiaries, the Company made borrowings under its bank line of credit 
ranging up to $10.0 million during 1998 and $8.0 million during 1997 to meet 
short-term cash needs. No balance was outstanding at December 31, 1998, 1997 
or 1996.

         The Company's investment portfolio consists primarily of investment 
grade bonds, Government securities and has a limited exposure to equity 
securities. At December 31, 1998, $133.1 million or 80.0% of the Company's 
total investment portfolio was invested in bonds compared with $127.9 million 
or 80.1% at December 31, 1997. The bond portfolio had an average quality 
rating by Moody's Investor Service of Aa3 at December 31, 1998 and 1997. 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, exceeded amortized cost by $1.9 million and $4.8 million at December 31,
1998 and 1997, respectively. Unrealized holding gains and losses on bonds 
classified as available for sale are included as a component of shareholders' 
equity, net of applicable deferred taxes. The Company has no investments in 
mortgage loans, no non-publicly traded securities, 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.

         The amount of dividends which may be paid to the Company from 
insurance subsidiaries are limited by state regulation. In the past, the 
insurance subsidiaries have been allowed, with prior notification to the OCI, 
to pay dividends in excess of the ordinary dividend levels prescribed by 
regulation.

         In conjunction with the distribution of assets pursuant to the spin 
off, UWS assumed a $70 million note obligation to BCBSUW. The assumption of 
debt was effective September 11, 1998. The obligation and related debt 
service costs of $1.4 million, for the period subsequent to September 11, 
1998, have been reflected in the accompanying consolidated financial 
statements. The Company recognizes that its debt to equity ratio is high, 
primarily as a result of its assumption of the $70.0 million loan from 
BCBSUW. However, the Company believes that this ratio should improve to the 
extent that BCBSUW purchases new shares of UWS common stock to increase its 
ownership from 37.8% to approximately 51%. The purchase price for the shares 
of common stock which are purchased directly from the Company will be paid 
through either the cancellation of a corresponding portion or all of the 
$70.0 million debt obligation or in cash. BCBSUW also may purchase some of 
the shares of common stock in the open market.

         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.

         The Company is party to certain provider arrangements in conjunction 
with Unity and Valley as further described below.

         Effective January 1, 1992, the Company acquired all of the 
outstanding capital stock of Valley for cash approximating $2,800,000, 
representing the net assets of Valley plus $400,000 as negotiated by the 
Company. Valley, a health maintenance organization located in Eau Claire, 
Wisconsin, was purchased from Midelfort, which continues to be Valley's 
primary health care provider. Under the terms of the purchase and sale 
agreement, Midelfort retained an option to repurchase all of the capital 
stock of Valley, at a price determined by the formula used in computing the 
purchase price paid by the Company, at any time until December 31, 1996. The 
option to repurchase was subsequently amended to permit repurchase at 
December 31, 1999. The acquisition was accounted for under the purchase 
method of accounting.

                                       25


<PAGE>

         Effective  October 1,  1994, the Company acquired all of the 
outstanding common stock of HMO-W, Inc.  for cash  approximating  $7,482,000  
representing  the  net  assets  of  HMO-W, Inc.  as  negotiated  by the  
Company. HMO-W, Inc. owned all of the outstanding common stock of HMOW.

         Effective October 1, 1994, the Company acquired all of the assets of 
U-Care and certain assets from an affiliate of U-Care for cash approximating 
$3,772,000, representing net assets plus $500,000 as negotiated by the 
Company.

         Pursuant to the HMO-W, Inc. and U-Care purchase agreements, options 
to repurchase the net assets of HMO-W, Inc. and U-Care were issued to the 
respective primary provider groups, at prices determined by the formula used 
in computing the purchase prices paid by the Company, effective on November 1,
1999 or 2004. The U-Care and HMO-W, Inc. acquisitions were accounted for 
under the purchase method of accounting. The accompanying consolidated 
financial statements include the results of operations of U-Care and HMOW 
which have been merged to form Unity.

         Total revenues subject to repurchase options, pursuant to the 
various acquisition agreements, totaled $207,014,000, $186,318,000, 
$169,341,000 for 1998, 1997 and 1996, respectively. Profit sharing expense 
related to these provider arrangements is calculated based on the 
profitability of the HMO subsidiary and totaled $3,171,000, $3,960,000, 
$3,002,000 in 1998, 1997 and 1996, respectively. Total net income subject to 
repurchase options, pursuant to the various acquisition agreements, totaled 
2,358,000 $2,395,000, $2,629,000 for 1998, 1997 and 1996, respectively. Total 
assets and total net assets subject to repurchase options were $44,798,000 
and $21,362,000, respectively, at December 31, 1998 and $49,802,000 and 
$20,632,000, respectively, at December 31, 1997.

         Should the buy back options be exercised, the Company would receive 
an amount equal to the premium over net assets but would lose rights to the 
future profits on the HMO. The cash received by the Company pursuant to the 
exercise of the buy back option could be redeployed to support additional 
premium writings, acquire other businesses or be invested to earn a portfolio 
return. Due to these alternative uses of capital, the potential buy back 
arrangements do not represent material claims against the Company's liquidity 
and capital resources.

INFLATION

         Health care costs have been rising and are expected to continue to 
rise at a rate that exceeds the consumer price index. The Company's 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 its operations. In addition, the Company 
utilizes its ability to apply appropriate underwriting criteria in selecting 
groups and individuals and in controlling the utilization of health care 
services. However, there can be no assurance that the Company's efforts will 
fully offset the impact of inflation or that premium revenue increases will 
equal or exceed increasing health care costs.

RECENT ACCOUNTING PRONOUNCEMENTS

         Refer to Note 1 in the accompanying Consolidated Financial 
Statements for Statement of Financial Accounting Standards (SFAS) recently 
adopted by the Company. These include SFAS 130, "Reporting Comprehensive 
Income", SFAS 131, "Disclosures about Segments of an Enterprise and Related 
Information", and SFAS 132, "Employers' Disclosures about Pensions and Other 
Postretirement Benefits".

                                       26


<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 also referred to as non-IT systems) also 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 December 31, 1998, the Company is approximately 77% complete 
with the remediation phase for its information technology exposures. Once 
software is reprogrammed or replaced for a system, the Company will begin 
testing and implementation. These phases are expected to run concurrently for 
different systems. For all systems where the Company has completed the 
remediation phase, the Company has also completed the testing and 
implementation phases. For those systems where remediation is still underway, 
the Company expects to complete remediation, testing and implementation by 
September 30, 1999.

         The remediation phase of non-IT systems is nearly complete. Testing 
of remediated non-IT systems is approximately 65% complete. Once testing is 
complete, the non-IT systems are expected to be ready for immediate use. The 
Company expects to complete its remediation efforts, testing and 
implementation of affected non-IT systems by April 30, 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 is in the process of working with third party 
vendors to ensure that their systems are Year 2000 ready. Several third party 
systems are currently not Year 2000 ready. Compcare utilizes a membership 
system that is expected to complete its upgrades and testing by March 31, 
1999. UWG is expected to be Year 2000 ready by September 30, 1999 for its 
administrative, claims and billing systems. Based on discussions with these 
key vendors, the Company is of the understanding that the vendor systems 
utilized are or will be Year 2000 ready.

                                       27


<PAGE>

         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 
reprogram or replace, test and implement the software and non-IT systems for 
the Year 2000 modifications. The total direct costs of the Year 2000 project 
is estimated at $1.5 million and is being funded through operating cash 
flows. To date, the Company has incurred $0.9 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 $0.6 
million. In addition, the Company has capitalized $2.7 million related to 
other functionality enhancing system upgrades which also provide Year 2000 
readiness. A number of other repairs 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 the 
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 are 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.

CONTINGENCY PLANS

         The Company is developing contingency plans for certain critical 
applications and is working on such plans with major data center vendors. 
These contingency plans are being developed in the event the system 
conversions and their functionality or the readiness of 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.

                                       28


<PAGE>

ITEM 7a.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Of the $192.6 million of cash and investments held by the Company at 
December 31, 1998, approximately $26.4 million were cash and cash equivalents 
and $7.7 million were securities that were being held to maturity. The 
remaining $158.5 million available for sale securities is comprised of $33.4 
million equities and $125.1 million of principally US domestic fixed income 
securities with an average quality of Aa3. The Company also has access to an 
adjustable-rate line-of-credit and has an adjustable-rate loan with its 
majority shareholder. The total borrowings as of December 31, 1998 were $70.0 
million.

         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 or 
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 assets classes and segments within various 
asset classes, and using performance measurement and reporting.

         The Company uses a sensitivity model to assess the interest rate 
risk of its fixed income investments. The model includes all fixed income 
securities held as of December 31, 1998 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 $3.9 
million as of December 31, 1998.


                                       29
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.


                                                                     Form 10-K
                                                                    Page Number
                                                                    -----------
Report of Independent Auditors ..........................................31

Consolidated Financial Statements

Consolidated Balance Sheets..............................................32
Consolidated Statements of Income........................................34
Consolidated Statements of Changes in Shareholders' Equity and
     Comprehensive Income............................................... 35
Consolidated Statements of Cash Flows....................................36
Notes to Consolidated Financial Statements...............................37







                                       30

<PAGE>

                          Report of Independent Auditors

Board of Directors
United Wisconsin Services, Inc.

We have audited the accompanying consolidated balance sheets of United 
Wisconsin Services, Inc. (the Company) as of December 31, 1998 and 1997, and 
the related statements of income, changes in shareholders' equity and 
comprehensive income and cash flows for each of the three years in the period 
ended December 31, 1998. Our audits also include the financial statement 
schedules listed in the Index at Item 14(a). These financial statements and 
schedules are the responsibility of the Company's management. Our 
responsibility is to express an opinion on these financial statements and 
schedules based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company as of
December 31, 1998 and 1997, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles. Also, in 
our opinion, the related financial statement schedules, when considered in 
relation to the basic financial statements taken as a whole, present fairly 
in all material respects the information set forth herein.


Milwaukee, Wisconsin                                        ERNST & YOUNG, LLP
February 12, 1999


                                       31


<PAGE>

                          United Wisconsin Services, Inc.

                             Consolidated Balance Sheets

<TABLE>
<CAPTION>

                                                                                  DECEMBER 31,
                                                                             1998              1997
                                                                       ------------------------------------
                                                                                 (IN THOUSANDS)
<S>                                                                    <C>                <C>
ASSETS
Current assets:
   Cash and cash equivalents                                                $  26,385        $  17,033
   Investments - available for sale                                           158,463          151,653
   Other receivables                                                           65,464           54,066
   Prepaid and other current assets                                             6,778            7,304
                                                                       ------------------------------------
Total current assets                                                          257,090          230,056

Investments - held to maturity                                                  7,710            7,893
Property and equipment, net                                                     8,963            6,978
Goodwill and other intangibles, net                                             7,751            5,005
Other noncurrent assets                                                        16,694           16,324
                                                                       ------------------------------------
Total assets                                                                 $298,208         $266,256
                                                                       ------------------------------------
                                                                       ------------------------------------
</TABLE>

                                       32




<PAGE>

<TABLE>
<CAPTION>

                                                                                  DECEMBER 31,
                                                                             1998              1997
                                                                       ------------------------------------
                                                                                 (IN THOUSANDS)
<S>                                                                     <C>                 <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Medical and other benefits payable                                       $  70,659        $  60,724
   Advance premiums                                                            30,584           24,060
   Note payable to affiliates                                                  70,000                -
   Due to affiliates - other                                                    7,513            3,867
   Payables and accrued expenses                                               19,129           20,926
   Other current liabilities                                                   10,527            7,745
                                                                       ------------------------------------
Total current liabilities                                                     208,412          117,322

Other noncurrent liabilities                                                   25,337           25,318
                                                                       ------------------------------------
Total liabilities                                                             233,749          142,640


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, 16,812,081 shares issued and 
     outstanding at December 31, 1998)                                         13,378                -
   Retained earnings                                                           50,088                -
   Investments by and advances from AMSG                                            -          120,405
   Unrealized gains on investments, net of taxes                                  993            3,211
                                                                       ------------------------------------
Total shareholders' equity                                                     64,459          123,616
                                                                       ------------------------------------
Total liabilities and shareholders' equity                                   $298,208         $266,256
                                                                       ====================================
</TABLE>


SEE ACCOMPANYING NOTES.

                                       33


<PAGE>


                                         United Wisconsin Services, Inc.

                                        Consolidated Statements of Income
<TABLE>
<CAPTION>

                                                                       YEAR ENDED DECEMBER 31,
                                                               1998               1997              1996
                                                     ----------------------------------------------------------
<S>                                                  <C>                   <C>                  <C>
                                                                            (IN THOUSANDS)
Revenues:
   Health services revenues:
     Premium revenue                                         $608,917           $560,825           $493,092
     Other revenue                                             29,728             26,046             27,632
   Investment results                                          18,976             22,238             19,040
                                                     ----------------------------------------------------------
Total revenues                                                657,621            609,109            539,764

Expenses:
   Medical and other benefits                                 519,636            485,198            425,258
   Selling, general and administrative expenses               103,517             94,496             83,839
   Profit sharing on provider arrangements                      2,762              3,380              2,868
   Interest expense with affiliate                              1,411                  -                  -
   Amortization of goodwill and other intangibles                 450                818                841
                                                     ----------------------------------------------------------
Total expenses                                                627,776            583,892            512,806
                                                     ----------------------------------------------------------

Income before income tax expense                               29,845             25,217             26,958
Income tax expense                                             11,767              9,433             10,617
                                                     ----------------------------------------------------------
Net income                                                   $ 18,078           $ 15,784           $ 16,341
                                                     ----------------------------------------------------------
                                                     ----------------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES.

                                       34


<PAGE>

<TABLE>
<CAPTION>


                                         United Wisconsin Services, Inc.

             Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income

                                                                                                        Accumulated
                                                                                                           Other 
                                                          Common                        Investments by  Comprehensive    Total
                                                          Shares      Common  Retained   and Advances    Income, net  Shareholders'
                                                        Outstanding   Stock   Earnings    from AMSG       of taxes      Equity
                                                      -----------------------------------------------------------------------------
<S>                                                   <C>            <C>     <C>       <C>              <C>           <C>
                                                                              (IN THOUSANDS, EXCEPT SHARE DATA)          
Balance at December 31, 1995                              -          $   -     $    -       $116,766        $ 3,511      $120,277
 Comprehensive income:
  Net income                                              -              -          -         16,341                       16,341
  Change in unrealized gains (losses) on investments                                                            448           448
                                                                                                                         ----------
    Comprehensive income                                                                                                   16,789
                                                                                                                         ----------
 Change in investment by and advances from AMSG            -              -          -       (13,184)                     (13,184)
                                                       ------------- --------------------------------------------------------------
Balance at December 31, 1996                               -              -          -       119,923          3,959       123,882
 Comprehensive income:
  Net income                                               -              -          -        15,784                       15,784
  Change in unrealized gains (losses) on investments                                                           (748)         (748)
                                                                                                                         ----------
    Comprehensive income                                                                                                   15,036
                                                                                                                         ----------
 Change in investment by and advances from AMSG            -              -          -       (15,302)                     (15,302)
                                                       ------------- --------------------------------------------------------------
Balance at December 31, 1997                               -              -          -       120,405          3,211       123,616
 Comprehensive income:
  Net income                                               -              -      3,572        14,506                       18,078
  Change in unrealized gains (losses) on investments                                                         (2,218)       (2,218)
                                                                                                                          ---------
      Comprehensive income                                                                                                 15,860
                                                                                                                          ---------
 Cash dividends paid on common stock                       -              -       (839)            -                         (839)
 Change in investment by and advances from AMSG            -              -          -       (76,133)                     (76,133)
 Distribution of equity to the Company from AMSG           -         11,423     47,355       (58,778)                           -
 Issuances of common stock, no par value, in 
   connection with the spin off                        16,573,202        -          -             -                             -
 Issuances of common stock, no par value, related to
   acquisition and dividend reinvestment plan             238,879     1,955         -             -                         1,955
                                                      ------------- ---------------------------------------------------------------
Balance at December 31, 1998                           16,812,081   $13,378    $50,088      $     -         $   993     $  64,459
                                                      ------------- ---------------------------------------------------------------
                                                      ------------- ---------------------------------------------------------------
</TABLE>

SEE ACCOMPANYING NOTES

                                       35
<PAGE>


                                         United Wisconsin Services, Inc.

                                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>

                                                                          YEAR ENDED DECEMBER 31,
                                                                1998              1997             1996
                                                          -----------------------------------------------------
                                                                             (IN THOUSANDS)
<S>                                                            <C>             <C>               <C>
OPERATING ACTIVITIES
Net income                                                      $  18,078       $   15,784       $    16,341
Adjustments to reconcile net income to net cash
   provided by operating activities:
     Depreciation and amortization                                  3,199            1,964             2,341
     Realized investment gains                                     (9,123)         (11,921)           (8,381)
     Deferred income tax benefit                                      839           (1,023)             (901)
     Changes in other operating accounts net
       of acquisitions in 1998:
         Other receivables                                         (3,495)          (5,246)            2,802
         Due from clinics and providers                            (6,784)            (338)                -
         Medical and other benefits payable                         8,392            6,501             1,415
         Advance premiums                                           6,524           (1,983)            4,062
         Due to/from affiliates                                     3,392            7,782           (10,327)
         Other, net                                                   831           (9,901)             (532)
                                                          -----------------------------------------------------
Net cash provided by operating activities                          21,853            1,619             6,820

INVESTING ACTIVITIES
Acquisition of subsidiaries (net of cash and cash
   equivalents acquired of $549,000)                               (1,181)               -                 -
Purchases of available for sale investments                      (241,661)        (452,906)         (413,648)
Proceeds from sale of available for sale investments              233,974          433,012           364,321
Proceeds from maturity of available for sale investments            6,500           34,252            43,031
Purchases of held to maturity investments                            (313)          (2,894)           (2,573)
Proceeds from maturity of held to maturity investments                405            3,567             2,171
Proceeds from sale of property and equipment                            3              112             2,861
Additions to property and equipment                                (3,572)          (1,356)           (1,564)
Purchase of minority interest in subsidiary                             -           (2,218)                -
                                                          -----------------------------------------------------
Net cash provided by (used in) investing activities                (5,845)          11,569            (5,401)

FINANCING ACTIVITIES
Cash dividends paid                                                  (839)               -                 -
Issuances of common stock                                             316                -                 -
Decrease in investments by and advances from AMSG                  (6,133)         (15,302)          (15,352)
                                                          -----------------------------------------------------
Net cash used in financing activities                              (6,656)         (15,302)          (15,352)
                                                          -----------------------------------------------------

Cash and cash equivalents:
   Increase (decrease) during year                                  9,352           (2,114)          (13,933)
   Balance at beginning of year                                    17,033           19,147            33,080
                                                          -----------------------------------------------------
   Balance at end of year                                       $  26,385       $   17,033        $   19,147
                                                          -----------------------------------------------------
                                                          -----------------------------------------------------
</TABLE>

See accompanying notes.

                                       36


<PAGE>


                                United Wisconsin Services, Inc.

                   Notes to Consolidated Financial Statements (continuted)


1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

United Wisconsin Services, Inc. ("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, sold primarily in Wisconsin, 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 and receivables 
management, sold throughout the United States.

On May 27, 1998, the Board of Directors of American Medical Security Group, 
Inc. ("AMSG") (formerly United Wisconsin Services, Inc.) approved a formal 
plan to spin off its managed care companies and specialty business to its 
shareholders. The spin off involved the creation of a new corporation 
originally named Newco/UWS, Inc., subsequently renamed United Wisconsin 
Services, Inc. ("UWS"). The spin off resulted in the distribution of one 
share of common stock of UWS on September 25, 1998 ("Spin off date") for each 
share of AMSG common stock held as of September 11, 1998. AMSG received a 
private letter ruling from the Internal Revenue Service that the spin off is 
tax free to AMSG, UWS and their shareholders. A further description of the 
spin off and certain transactions with AMSG is included in Notes 1, 6, 7 and 
10.

The Company is affiliated with Blue Cross & Blue Shield United of Wisconsin 
("BCBSUW") through certain common officers and directors. At December 31, 
1998, BCBSUW owns approximately 38% of the Company's common stock.

BASIS OF PRESENTATION

The accompanying consolidated financial statements have been prepared in 
accordance with generally accepted accounting principles ("GAAP"). The 
preparation of financial statements in conformity with GAAP requires 
management to make estimates and assumptions that affect the amounts reported 
in the consolidated financial statements and accompanying notes. Actual 
results could differ from those estimates.

The consolidated financial statements present the Company's financial 
position, operations and cash flows as if the Company had been an 
independent, public company for all years presented. The Company consolidates 
majority owned subsidiaries that are

                                       37


<PAGE>

                         United Wisconsin Services, Inc.

                Notes to Consolidated Financial Statements (continued)



1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

controlled by the Company. All material intercompany transactions have been 
eliminated. For those subsidiaries for which repurchase options exist (see 
Note 2), the Company consolidates those subsidiaries when control is deemed 
to be other than temporary. Management believes that control of Unity Health 
Plans Insurance Corporation ("Unity") and Valley Health Plan, Inc. ("Valley") 
is not temporary as exercise of the repurchase options is not probable. Any 
repurchase would not provide a substantial economic benefit to the option 
holders and would require regulatory approval pursuant to change of control 
regulations.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include operating cash and short-term investments 
with original maturities of three months or less. These amounts are recorded 
at cost, which approximates market.

INVESTMENTS

Investments are classified as either held to maturity or available for sale. 
Investments which the Company has the intent and ability to hold to maturity 
are designated as held to maturity and are stated at amortized cost. All 
other investments are classified as available for sale and are stated at fair 
value based on quoted market prices, with unrealized gains and losses 
excluded from earnings and reported in accumulated other comprehensive 
income, net of income tax effects. Realized gains and losses from the sale of 
available for sale debt securities and equity securities are based on the 
first-in, first-out basis.

OTHER RECEIVABLES

Receivables are stated at net realizable value, net of allowances of $727,000 
and $394,000 at December 31, 1998 and 1997, respectively, based upon 
historical collection trends and management's judgment of the ultimate 
collectibility. In late December 1998, Compcare Health Services Insurance 
Corporation ("Compcare") provided $13,421,000 of interest bearing notes to 
certain contracted health care providers primarily due in full on April 1, 
1999. The Company retained the ability to offset claim payments to these 
health care providers after April 1, 1999 and has included the advances in 
other receivables on the consolidated balance sheet.

                                       38


<PAGE>

                                United Wisconsin Services, Inc.

                       Notes to Consolidated Financial Statements (continued)


1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Depreciation and amortization 
are provided using the straight-line method over the estimated useful lives, 
which are 20 to 30 years for land improvements, 10 to 40 years for buildings 
and building improvements, 3 to 5 years for computer equipment and software 
and 3 to 10 years for furniture and other equipment.

GOODWILL AND OTHER INTANGIBLES

Goodwill represents the excess of cost over the fair market value of net 
assets acquired. Goodwill and other intangible assets are being amortized on 
a straight-line basis over a period of 15 years or less. Accumulated 
amortization was $1,947,000 and $1,347,000 at December 31, 1998 and 1997, 
respectively.

The Company periodically evaluates whether events and circumstances have 
occurred which may affect the estimated useful life or the recoverability of 
the remaining balance of its intangibles. At December 31, 1998, the Company's 
management believed that no material impairment of goodwill or other 
intangible assets existed.

REVENUE RECOGNITION

Health services premiums and managed behavioral health fees are recognized as 
revenue in the period in which enrollees are entitled to care. Managed care 
consulting revenues are generally recognized when services are rendered.

MEDICAL AND OTHER BENEFITS

Medical and other benefits expense consists principally of capitation 
expenses, health and disability claims and life insurance benefits. In 
addition to actual paid claims and capitation, these expenses include the 
change in estimates of reported and unreported claims and accrued capitation 
fees and adjustments, which are unpaid as of the balance sheet date. The 
estimates of reported and unreported claims and accrued capitation fees and 
adjustments, which are unpaid as of the balance sheet date, are based on 
historical payment patterns using actuarial techniques. Processing costs are 
accrued as operating expenses based on an estimate of the costs necessary to 
process these claims.

                                       39


<PAGE>

                       United Wisconsin Services, Inc.

           Notes to Consolidated Financial Statements (continuted)


1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The Company's year-end claim liabilities are substantially satisfied through
claim payments in the subsequent year. Any adjustments to prior period estimates
are reflected in the current period. Capitation represents fixed per member per
month payments to participating physicians, other medical specialists and
hospital systems, as compensation for providing comprehensive health or dental
care services. In addition, certain subsidiaries have risk-sharing, stop-loss,
and bonus arrangements with certain providers. Accruals relating to these
arrangements are developed based on historical payment patterns using actuarial
techniques. The noncurrent portion of medical and other benefits payable
pertaining to long-term disability, workers' compensation and certain life
insurance products is $19,375,000 and $20,918,000 at December 31, 1998 and 1997,
respectively. The noncurrent portion of long-term disability, worker's
compensation and certain life insurance products is estimated using actuarial
techniques based on historical patterns. Amounts estimated to be paid more than
one year from the balance sheet date are considered noncurrent.

REINSURANCE

Certain premiums and benefits are assumed from and ceded to other insurance
companies under various reinsurance agreements. The ceded reinsurance agreements
provide the Company with increased capacity to write larger risks and maintain
its exposure to loss within its capital resources. The ceding company is
contingently liable on reinsurance ceded in the event that the reinsurers do not
meet their contractual obligations. Premiums ceded totaled $45,755,000,
$49,522,000 and $46,549,000 in 1998, 1997 and 1996, respectively. Ceded benefits
totaled $35,038,000, $42,003,000 and $32,073,000 in 1998, 1997 and 1996,
respectively. Premiums assumed totaled $28,682,000, $33,514,000 and $32,642,000
in 1998, 1997 and 1996, respectively. Assumed benefits totaled $22,694,000,
$28,213,000 and $21,722,000 in 1998, 1997 and 1996, respectively.

INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial statement
purposes and the amounts used for income tax purposes.

                                       40


<PAGE>

                                United Wisconsin Services, Inc.

                       Notes to Consolidated Financial Statements (continued)


1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

PRO FORMA EARNINGS PER COMMON SHARE (UNAUDITED)

Historical earnings per share ("EPS") has been omitted since the Company was 
not a separate entity with a capital structure of its own throughout any of 
the years presented.

Pro forma net income per common and common equivalent share is calculated as 
if the spin off had occurred at the beginning of fiscal year 1996, and is 
adjusted in 1998, 1997 and 1996 for additional interest expense, net of 
related income tax. Pro forma EPS are based on the pro forma weighted average 
number of shares of outstanding Company common stock and dilutive common 
equivalent shares from stock options, giving effect to the distribution of 
one share of Company stock for each share of AMSG common stock. Pro forma 
dilutive common equivalent shares from stock options are stated at the 
historical AMSG dilutive common equivalent share level.

The following table sets forth the pro forma computation of basic and diluted 
EPS:

<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31,
                                                        ------------------------------------------------------
                                                            1998             1997                1996
                                                        -------------  -----------------  --------------------
                                                            (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S>                                                          <C>                <C>                 <C>
Net income as reported                                        $18,078            $15,784             $16,341
Pro forma adjustment - interest expense, net of tax             2,215              3,062                 367
                                                        --------------  -----------------  ------------------
Pro forma net income                                          $15,863            $12,722             $15,974
                                                        --------------  -----------------  ------------------
                                                        --------------  -----------------  ------------------
Pro forma basic weighted average common shares             16,560,382         16,423,270          12,892,431

Pro forma dilutive weighted average common shares (1)      16,563,165         16,423,270          12,892,431

EPS on net income as reported - basic and diluted (2)           $1.09              $0.96               $1.27
                                                                -----              -----               -----
                                                                -----              -----               -----
EPS on pro forma net income - basic and diluted (3)             $0.96              $0.77               $1.24
                                                                -----              -----               -----
                                                                -----              -----               -----
</TABLE>

(1)   Pro forma calculations for dilutive securities for the period January 1,
      1996 thru September 25, 1998, assume that the price of the stock and the
      strike price of the options is the same for the periods prior to the Spin
      off date.

                                       41

<PAGE>

                                United Wisconsin Services, Inc.

                       Notes to Consolidated Financial Statements (continued)


1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(2)  EPS on net income as reported are computed by dividing net income as
     reported, by the pro forma weighted average number of common shares
     outstanding. There is no dilutive effect on securities for the period
     prior to the Spin off date (1).

(3)  EPS on pro forma net income are computed by dividing pro forma net income
     by the pro forma weighted average number of common shares outstanding.
     There is no dilutive effect on securities for the period prior to the
     Spin off date (1).

COMPREHENSIVE INCOME

As of January 1, 1998, the Company adopted Statement of Financial Accounting 
Standards ("SFAS") 130, "Reporting Comprehensive Income". SFAS 130 
establishes new rules for the reporting and display of comprehensive income 
and its components; however, the adoption of this statement had no impact on 
the Company's net income or shareholders' equity. SFAS 130 requires 
unrealized gains or losses, net of taxes, on the Company's available for sale 
securities, which prior to adoption were reported separately in shareholders' 
equity, to be included in other comprehensive income.

SEGMENT REPORTING

At December 31, 1998, the Company adopted SFAS 131, "Disclosures about 
Segments of an Enterprise and Related Information". SFAS 131 establishes new 
rules for identification and disclosure of segment information.

PENSION PLAN REPORTING

At December 31, 1998, the Company adopted SFAS 132, "Employers' Disclosures 
about Pensions and Other Postretirement Benefits". SFAS 132 establishes new 
rules for the disclosure of pension plan information.

RECLASSIFICATIONS

Certain  reclassifications  have been made to the consolidated  financial  
statements for 1997 and 1996 to conform with the 1998 presentation.

                                       42


<PAGE>

                                United Wisconsin Services, Inc.

                       Notes to Consolidated Financial Statements (continued)


2. PROVIDER ARRANGEMENTS

The Company is party to certain provider arrangements in conjunction with 
Unity and Valley, wholly owned HMO subsidiaries included in the Company's 
consolidated financial statements, which include profit-sharing payments to 
certain providers and repurchase provisions.

Under the terms of the Valley purchase and sale agreement, as amended, the 
seller retained an option to repurchase all of the capital stock of Valley as 
of December 31, 1999, at a price equal to Valley's net assets plus $400,000.

Pursuant to the Unity related purchase agreements, options to repurchase the 
net assets of the acquired companies were issued to the sellers effective as 
of November 1, 1999 or 2004. One seller has the option to repurchase a 
portion of Unity's business at a price equal to the net assets of such 
business plus $500,000. The other seller has the option to repurchase the 
remainder of the Unity business at a price equal to the net assets of such 
business.

Total revenues subject to repurchase options, pursuant to the various 
acquisition agreements, totaled $207,014,000, $186,318,000 and $169,341,000 
for 1998, 1997 and 1996, respectively. Profit sharing expense related to 
these provider arrangements is calculated based on the profitability of the 
HMO subsidiary and totaled $3,171,000, $3,960,000 and $3,002,000 in 1998, 
1997 and 1996, respectively. Total net income subject to repurchase options, 
pursuant to the various acquisition agreements, totaled $2,358,000, 
$2,395,000 and $2,629,000 for 1998, 1997 and 1996, respectively. Total assets 
and total net assets subject to repurchase options were $44,798,000 and 
$21,362,000, respectively, at December 31, 1998 and $49,802,000 and 
$20,632,000, respectively, at December 31, 1997.





                                       43
<PAGE>

                                United Wisconsin Services, Inc.

                       Notes to Consolidated Financial Statements (continued)



3. INVESTMENTS

<TABLE>
<CAPTION>

Investment results comprise the following:                                  YEAR ENDED DECEMBER 31,
                                                                     1998           1997           1996
                                                                 -------------- -------------- --------------
                                                                               (IN THOUSANDS)
<S>                                                                <C>            <C>             <C>
Interest on bonds                                                   $  8,223       $  9,075        $10,097
Dividends on equity securities                                           916          1,103            636
Realized gains                                                        12,518         15,317         13,463
Realized losses                                                       (3,395)        (3,396)        (5,082)
Interest on cash equivalents and other investment income               1,609            473            922
                                                                 -------------- -------------- --------------
Gross investment results                                              19,871         22,572         20,036
Investment expenses                                                     (508)          (424)          (467)
Other interest income (expense)                                         (387)            90           (529)
                                                                 -------------- -------------- --------------
                                                                     $18,976        $22,238        $19,040
                                                                 -------------- -------------- --------------
                                                                 -------------- -------------- --------------
</TABLE>

Proceeds from sales of stocks during 1998 was $73,156,000. Proceeds from 
sales of bonds classified as available for sale during 1998, excluding 
maturities, was $160,818,000.

Unrealized gains (losses) are computed as the difference between estimated 
fair value and amortized cost for debt securities classified as available for 
sale or cost for equity securities. A summary of the net increase (decrease) 
in unrealized gains, less deferred income taxes, which is included in 
accumulated other comprehensive income, is as follows:

<TABLE>
<CAPTION>
                                                                   YEAR ENDED DECEMBER 31,
                                                             1998           1997           1996
                                                         -------------- -------------- --------------
                                                                       (IN THOUSANDS)
<S>                                                         <C>            <C>            <C>
Debt securities                                              $(1,248)       $ 1,582        $(2,884)
Equity securities                                             (1,837)        (3,134)         3,542
Provision for deferred income tax (benefit)                      867            804           (210)
                                                        -------------- -------------- --------------
                                                             $(2,218)      $   (748)       $   448
                                                        -------------- -------------- --------------
                                                        -------------- -------------- --------------
</TABLE>

                                       44


<PAGE>

                                United Wisconsin Services, Inc.

                       Notes to Consolidated Financial Statements (continued)


3. INVESTMENTS (CONTINUED)

The amortized cost and estimated fair values of investments are as follows:

<TABLE>
<CAPTION>
                                                                 Gross           Gross
                                               Amortized       Unrealized      Unrealized      Estimated
                                                 Cost            Gains           Losses        Fair Value
                                            ---------------- --------------- --------------- ---------------
<S>                                           <C>              <C>             <C>             <C>
At December 31, 1998:                                                (IN THOUSANDS)
   Available for sale:
     U.S. Treasury securities                  $  10,858        $       4       $     (50)      $  10,812
     State and municipal securities                1,301               59               -           1,360
     Foreign government securities                 6,457              135            (111)          6,481
     Corporate debt securities                    74,748            1,294            (689)         75,353
     Government agency mortgage-backed
       securities                                 30,961              150             (36)         31,075
     Equity securities                            32,527            2,149          (1,294)         33,382
                                            ---------------- --------------- --------------- ---------------
                                                 156,852            3,791          (2,180)        158,463
   Held to maturity:
     U.S. Treasury securities                      7,710              284               -           7,994
                                            ---------------- --------------- --------------- ---------------
                                                $164,562           $4,075         $(2,180)       $166,457
                                            ---------------- --------------- --------------- ---------------
                                            ---------------- --------------- --------------- ---------------


At December 31, 1997:
   Available for sale:
     U.S. Treasury securities                  $  30,618         $   330       $      (2)      $  30,946
     State and municipal securities                2,487              67               -           2,554
     Foreign government securities                 7,337             113            (111)          7,339
     Corporate debt securities                    56,017           1,314             (59)         57,272
     Government agency mortgage-backed
       securities                                 21,466             376             (25)         21,817
     Equity securities                            29,033           3,716          (1,024)         31,725
                                            --------------- --------------- --------------- ---------------
                                                 146,958           5,916          (1,221)        151,653
   Held to maturity:
     U.S. Treasury securities                      7,893             109              (9)          7,993
                                            --------------- --------------- --------------- ---------------
                                                $154,851          $6,025         $(1,230)       $159,646
                                            --------------- --------------- --------------- ---------------
                                            --------------- --------------- --------------- ---------------
</TABLE>

                                       45


<PAGE>

                                United Wisconsin Services, Inc.

                       Notes to Consolidated Financial Statements (continued)

3. INVESTMENTS (CONTINUED)

The amortized cost and estimated fair values of debt securities at December 31,
1998, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations.


<TABLE>
<CAPTION>
                                                    Amortized         Estimated
                                                      Cost           Fair Value
                                               ----------------- ----------------
                                                          (IN THOUSANDS)
<S>                                                 <C>               <C>
Available for sale:
   Due in one year or less                         $    1,565        $    1,566
   Due after one through five years                    36,219            36,662
   Due after five through ten years                    42,674            42,942
   Due after ten years                                 12,906            12,836
                                                 ------------      ------------
                                                       93,364            94,006
   Government agency mortgage-backed securities        30,961            31,075
                                                 ------------      ------------
                                                   $  124,325        $  125,081
                                                 ------------      ------------

Held to maturity:
   Due in one year or less                         $        -        $        -
   Due after one through five years                     7,710             7,994
                                                 ------------      ------------
                                                   $    7,710        $    7,994
                                                 ------------      ------------
                                                 ------------      ------------
</TABLE>

At December 31, 1998, the insurance subsidiaries had debt securities and cash 
equivalents on deposit with various state insurance departments with carrying 
values of approximately $7,627,000, which are included in investments held to 
maturity on the balance sheet.

4. PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and are summarized as follows:

<TABLE>
<CAPTION>
                                                           DECEMBER 31,
                                                      1998            1997
                                               ----------------- ----------------
                                                          (IN THOUSANDS)
<S>                                                <C>               <C>
   Land and land improvements                       $    398           $   394
   Building and building improvements                  3,766             3,611
   Computer equipment and software                     9,953             6,259
   Furniture and other equipment                       4,365             4,484
                                                --------------- ---------------
                                                      18,482            14,748
   Less accumulated depreciation                      (9,519)           (7,770)
                                                --------------- ---------------
                                                    $  8,963          $  6,978
                                                --------------- ---------------
                                                --------------- ---------------
</TABLE>


                                       46



<PAGE>

                                United Wisconsin Services, Inc.

                       Notes to Consolidated Financial Statements (continued)


5. DEBT

As of December 31, 1998, the Company and several subsidiaries participate 
with BCBSUW in a bank line of credit, which permits aggregate borrowings up 
to $10,000,000 for UWS and its subsidiaries. Prior to this date the line of 
credit permitted aggregate borrowings up to $30,000,000. Periodic borrowings 
have been made on these lines of credit. There was no balance outstanding at 
December 31, 1998 and 1997.

6. RELATED-PARTY TRANSACTIONS

As of September 11, 1998, the Company assumed a $70,000,000 note obligation 
to BCBSUW in connection with the spin off (see note 1). The Company pledged 
the common stock of certain subsidiaries as collateral for the note 
obligation. Interest is payable quarterly at a rate equal to the London 
Interbank Offered Rate plus 1.25%, adjusted quarterly. The principal balance 
is due on October 30, 1999 and is classified as note payable to affiliates in 
the consolidated balance sheet. Interest expense and interest paid for the 
period from September 12, 1998 thru December 31, 1998 totaled $1,411,000.

The Company provides marketing, underwriting, actuarial and certain 
administrative services for BCBSUW. In addition, BCBSUW provides health 
insurance to the employees of the Company and provides office space to the 
Company. These activities are reimbursed at amounts approximating cost, which 
resulted in allocations to the Company of $14,757,000, $14,564,000 and 
$13,315,000 in 1998, 1997 and 1996, respectively, and allocations to BCBSUW 
of $8,964,000, $9,278,000 and $7,474,000 in 1998, 1997 and 1996, 
respectively. These amounts are included in selling, general and 
administrative expenses.

Certain subsidiaries of the Company provide health, life and other insurance 
benefits to the employees of BCBSUW. Premium revenue received from BCBSUW 
totaled $4,547,000, $4,537,000 and $4,370,000 in 1998, 1997 and 1996, 
respectively.

The Company has an agreement with United Wisconsin Life Insurance Company 
("UWLIC"), a subsidiary of AMSG, whereby United Wisconsin Insurance Company 
("UWIC") underwrites certain small group health care and life, dental, drug 
and disability products in Minnesota as UWLIC products have not yet been 
approved for sale in Minnesota. The Company ceded to UWLIC 100% of the 
premium revenue of these products sold in Minnesota. The ceded premium 
revenue approximated $26,875,000, $27,014,000 and $24,739,000 in 1998, 1997 
and 1996, respectively.

                                       47


<PAGE>

                                United Wisconsin Services, Inc.

                       Notes to Consolidated Financial Statements (continued)


6.       RELATED-PARTY TRANSACTIONS (CONTINUED)

The Company has an agreement with UWLIC whereby UWLIC underwrites certain 
life and disability products on behalf of United Heartland Life Insurance 
Company ("UHLIC"). The Company also had agreements with UWLIC, through 
September 30, 1998, whereby UWLIC underwrote certain health care, dental and 
pharmaceutical products on behalf of Compcare, Heartland Dental Plan, Inc., 
and CNR Health, Inc. The Company assumes 100% of the premium revenues on 
these products from UWLIC. The assumed premium revenue approximated 
$23,295,000, $36,177,000 and $30,573,000 in 1998, 1997 and 1996, respectively.

Management believes the above stated related-party activity was entered into 
on a reasonable basis and includes all costs of doing business.

Prior to the spin off, the Company's operations have been financed through 
its operating cash flows and investments by and advances from AMSG.

Amounts due from/to affiliates are related primarily to operating expenses 
and reinsurance arrangements. The amounts due from/to affiliates are 
generally settled on a monthly basis for operating expenses and are settled 
in accordance with industry practice for reinsurance agreements. The amounts 
due from/to affiliates are typically less than $10,000,000 at any point in 
time during the fiscal year, excluding the $70,000,000 note obligation due to 
BCBSUW.

7. INCOME TAXES

Income tax expense has been calculated as if the Company filed separate 
federal income tax returns. Prior to the spin off, the Company has been 
included in the consolidated federal income tax return filed by AMSG, except 
as noted below. UHLIC has filed separate federal income tax returns due to 
specific provisions of the Internal Revenue Code of 1986, as amended, related 
to consolidation of life insurance entities. The entities included in these 
consolidated financial statements file separate state franchise, income and 
premium tax returns as applicable.

                                       48



<PAGE>

                                United Wisconsin Services, Inc.

                       Notes to Consolidated Financial Statements (continued)


7. INCOME TAXES (CONTINUED)

The Company had a net federal income tax payable of $1,650,000, included in 
other current liabilities, and a net federal income tax receivable of 
$436,000, included in other current assets, at December 31, 1998 and 1997, 
respectively. Federal and state income tax payments, net of refunds, totaled 
$2,327,000, $3,243,000 and $1,545,000 in 1998, 1997 and 1996, respectively.

The components of income tax expense (benefit) are as follows:

<TABLE>
<CAPTION>

                                         YEAR ENDED DECEMBER 31,
                                   1998           1997           1996
                             -------------- -------------- --------------
                                             (IN THOUSANDS)
<S>                             <C>            <C>           <C>
Current:
   Federal                       $  8,994       $ 8,870       $  9,642
   State                            1,934         1,586          1,876
                            -------------- -------------- --------------
                                   10,928        10,456         11,518
Deferred:
   Federal                            737          (651)          (222)
   State                              102          (372)          (679)
                            -------------- -------------- --------------
                                      839        (1,023)          (901)
                            -------------- -------------- --------------
                                  $11,767       $ 9,433        $10,617
                            -------------- -------------- --------------
                            -------------- -------------- --------------
</TABLE>

The differences between taxes computed at the federal statutory rate and 
recorded income taxes are as follows:

<TABLE>
<CAPTION>
                                             YEAR ENDED DECEMBER 31,
                                         1998           1997           1996
                                      --------------------------------------
                                                  (IN THOUSANDS)
<S>                                      <C>          <C>            <C>
Tax at federal statutory rate             $10,446      $ 8,826        $  9,435
Goodwill amortization                         136          154             254
Tax-exempt interest and dividends
   received deduction                        (141)        (230)           (246)
State income and franchise taxes, net
  of federal benefit                        1,161          827             820
Other, net                                    165         (144)            354
                                      -------------------------------------------
                                          $11,767      $ 9,433        $ 10,617
                                      -------------------------------------------
                                      -------------------------------------------
</TABLE>

                                       49

<PAGE>


                                United Wisconsin Services, Inc.

                       Notes to Consolidated Financial Statements (continued)


7. INCOME TAXES (CONTINUED)


The components of deferred income tax expense (benefit) are as follows:

<TABLE>
<CAPTION>
                                                  YEAR ENDED DECEMBER 31,
                                           1998           1997           1996
                                     -------------- -------------- --------------
                                                    (IN THOUSANDS)
<S>                                   <C>            <C>              <C>
Reserve discounting                     $ 161          $     -       $(1,050)
Employee benefits                        (698)               -           434
Depreciation and amortization             272           (1,299)           81
Net operating loss carryforwards          414                -          (482)
Prepaid expenses                          683                -             -
Other, net                                  7              276           116
                                     -------------- -------------- --------------
                                        $ 839          $(1,023)      $  (901)
                                     -------------- -------------- --------------
                                     -------------- -------------- --------------
</TABLE>


Significant components of the Company's federal and state deferred tax 
liabilities and assets are as follows:


<TABLE>
<CAPTION>
                                       DECEMBER 31, 1998            DECEMBER 31, 1997
                                ---------------------------- ----------------------------
                                    Federal        State         Federal        State
                                -------------- ------------- -------------- -------------
<S>                               <C>             <C>           <C>            <C>
                                                      (IN THOUSANDS)
Deferred tax liabilities:
   Depreciation                    $   (944)      $   (203)      $  (721)      $   (512)
   Claims-based receivables          (1,864)          (303)       (1,331)          (945)
   Pension accrual                   (2,350)          (449)       (2,158)        (1,532)
   Unrealized gains on investments     (516)          (104)       (1,367)          (970)
   Prepaid expenses                  (1,077)          (119)            -              -
   Other, net                          (268)           (36)         (825)          (586)
                                -------------- ------------- -------------- -------------
                                     (7,019)        (1,214)       (6,402)        (4,545)
Deferred tax assets:
   Postretirement benefits other
      than pensions                   1,465            311         1,387          1,138
   Advance premium discounting        1,303            265         1,080            886
   Deferred compensation              2,063            421         1,387          1,138
   Medical and other benefits
      payable discounting             1,004            117         1,142            937
   Business loss carryforwards          127            241           509              -
   Other, net                           564            148           435            774
                                -------------- ------------- -------------- -------------
                                      6,526          1,503         5,940          4,873
                                -------------- ------------- -------------- -------------
Net deferred tax assets
      (liabilities)                $   (493)       $   289       $  (462)     $     328
                                -------------- ------------- -------------- -------------
                                -------------- ------------- -------------- -------------
</TABLE>

                                       50


<PAGE>


                                United Wisconsin Services, Inc.

                       Notes to Consolidated Financial Statements (continued)


7. INCOME TAXES (CONTINUED)

The federal deferred benefit arising from the deductibility of state deferred 
tax is included as a component of other federal deferred taxes. The net 
deferred tax assets and liabilities are included in other current or other 
noncurrent assets and liabilities, as applicable.

8. CONTINGENCIES

The Company is involved in various legal actions occurring in the normal 
course of its business. In the opinion of management, adequate provision has 
been made for losses which 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.

9. SHAREHOLDERS' EQUITY

STATUTORY FINANCIAL INFORMATION

Insurance companies are subject to regulation by the Office of the 
Commissioner of Insurance of the State of Wisconsin and certain other state 
insurance regulators. These regulations require, among other matters, the 
filing of financial statements prepared in accordance with statutory 
accounting practices prescribed or permitted for insurance companies. The 
statutory surplus of insurance subsidiaries at December 31, 1998 and 1997 
aggregated $106,069,000 and $95,211,000, respectively. The statutory net 
income of insurance subsidiaries aggregated $15,893,000, $17,380,000 and 
$24,159,000 in 1998, 1997 and 1996, respectively.

State insurance regulations also require the maintenance of a minimum 
compulsory surplus based on a percentage of premiums written. In addition, 
the Company's insurance subsidiaries are subject to risk-based capital 
("RBC") requirements promulgated by the National Association of Insurance 
Commissioners. The RBC requirements establish minimum levels of capital and 
surplus based upon the insurer's operations. At December 31, 1998, the 
Company's insurance subsidiaries were in compliance with these capital 
surplus requirements.



                                       51
<PAGE>

                     United Wisconsin Services, Inc.

        Notes to Consolidated Financial Statements (continued)


9. SHAREHOLDERS' EQUITY (CONTINUED)

RESTRICTIONS ON DIVIDENDS FROM SUBSIDIARIES

Dividends paid by insurance subsidiaries are limited by state insurance 
regulations. The insurance regulator in the state of domicile may disapprove 
any dividend which, together with other dividends paid by an insurance 
company in the prior twelve months, exceeds the regulatory maximum as 
computed for the insurance company based on its statutory surplus and net 
income.

Based upon the financial statements of the insurance subsidiaries included in 
these consolidated financial statements as of December 31, 1998, as filed 
with the insurance regulators, the aggregate amount available for dividends 
in 1999 without regulatory approval is $7,700,000.

10. EMPLOYEE BENEFIT PLANS

PENSION BENEFITS

The Company and certain of its subsidiaries participate with BCBSUW in two 
multiple employer defined benefit pension plans. The plans provide retirement 
benefits to covered employees based primarily on compensation and years of 
service. Since the plans are overfunded, no contributions were made in 1998, 
1997 or 1996.

Prior to December 31, 1998, separate salaried and hourly pension plans 
existed. These plans were merged into a single plan in an effort to reduce 
administrative expenses and streamline communication with plan participants. 
The merger had no material effect on pension assets, liabilities or funding 
levels.

Effective January 1, 1997, the Company amended the salaried pension plan and 
the hourly pension plan with respect to non-union participants, which include 
expansion of the lump-sum payment provisions and changes in the methods and 
formulae used for the calculation of benefit accruals.

Prior to January 1, 1997, the salaried pension plan provided for benefit 
payments based on compensation, years of service, year of birth and date of 
retirement and the hourly pension plan provided for benefit payments of 
stated amounts based on number of hours worked and years of credited service.

                                       52


<PAGE>


10. EMPLOYEE BENEFIT PLANS (CONTINUED)

The following table summarizes the change in the pension plan's benefit 
obligation:

<TABLE>
<CAPTION>
                                                                     YEAR ENDED
                                                                    DECEMBER 31,
                                                                1998          1997
                                                             -----------------------
                                                                   (IN THOUSANDS)
<S>                                                            <C>           <C>
Benefit obligation at beginning of year                        $17,568       $15,781
   Service cost                                                  1,849         1,335
   Interest cost                                                 1,362         1,259
   Actuarial (gains) losses                                      1,662          (104)
   Company transfers                                               270             -
   Benefits paid                                                (1,835)         (703)
                                                             -----------------------
Benefit obligation at end of year                              $20,876        17,568
                                                             -----------------------
                                                             -----------------------
</TABLE>

The pension plans' assets are comprised primarily of debt, equity and other 
marketable securities. 

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                                1998          1997
                                                             -----------------------
                                                                 (IN THOUSANDS)
<S>                                                            <C>           <C>
Fair value of plan assets at beginning of year                 $36,082       $29,310
   Actual return on plan assets                                   (529)        7,475
   Company transfers                                               270             -
   Benefits paid                                                (1,835)         (703)
                                                             -----------------------
Fair value of plan assets at end of year                       $33,988       $36,082
                                                             -----------------------
                                                             -----------------------
</TABLE>

                                      53


<PAGE>


10. EMPLOYEE BENEFIT PLANS (CONTINUED)

The following table provides a reconciliation of the funded status of the 
pension plan to the prepaid pension costs: 
<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                                1998          1997
                                                             -----------------------
                                                                 (IN THOUSANDS)
<S>                                                           <C>           <C>
Funded status of plan at end of year                          $13,112        $18,514
   Unrecognized net transition asset                             (777)        (1,051)
   Unrecognized prior service cost                             (5,456)        (6,146)
   Unrecognized net gain                                         (169)        (5,151)
                                                             -----------------------
Prepaid pension cost at end of year                           $ 6,710        $ 6,166
                                                             -----------------------
                                                             -----------------------
</TABLE>

Weighted-average assumptions used as of September 30, 1998 and 1997, the 
measurement date, in developing the projected benefit obligation are as 
follows:
<TABLE>
<CAPTION>
                                                                1998          1997
                                                             -----------------------
<S>                                                           <C>           <C>
Discount rate                                                  7.00%            8.00%
Expected return on plan assets                                 9.00             9.00
Rate of compensation increase                                  4.75             4.75
</TABLE>

The unrecognized net asset is being amortized over the remaining estimated 
service lives of participating employees at January 1, 1986: 15.4 years for 
salaried employees and 16.9 years for hourly employees.

The components of the pension credit, which is included in selling, general 
and administrative expenses, are as follows: 
<TABLE>
<CAPTION>
                                                                     YEAR ENDED
                                                                    DECEMBER 31,
                                                                1998          1997
                                                             -----------------------
                                                                 (IN THOUSANDS)
<S>                                                           <C>           <C>
Service cost                                                  $ 1,849       $ 1,335
Interest cost                                                   1,362         1,260
Expected return on plan assets                                 (2,791)       (2,553)
Net amortization of transition asset                             (274)         (274)
Amortization of prior service cost                               (690)         (690)
                                                             -----------------------
Pension credit                                                $  (544)       $ (922)
                                                             -----------------------
                                                             -----------------------
</TABLE>

                                       54




<PAGE>

                     United Wisconsin Services, Inc.

        Notes to Consolidated Financial Statements (continued)

10. EMPLOYEE BENEFIT PLANS (CONTINUED)

After giving effect to all administrative expense allocations between the 
Company and BCBSUW, the pension credit was $622,000, $945,000 and $1,288,000 
in 1998, 1997 and 1996, respectively.

DEFINED CONTRIBUTION AND BONUS PLANS

The Company and certain of its subsidiaries participate in defined 
contribution plans whereby the employer contributes a percentage of 
participants' qualifying compensation up to certain limits, as defined by the 
plans. The Company and certain of its subsidiaries also participates with 
BCBSUW in various other profit sharing and bonus programs. Expenses related 
to all of these plans, after giving effect to all administrative expense 
allocations between the Company and BCBSUW, totaled $2,475,000, $2,042,000 
and $2,932,000 in 1998, 1997 and 1996, respectively.

STOCK-BASED COMPENSATION PLANS

As of December 31, 1998, the Company has a stock-based compensation plan 
covering employees and directors that allows for granting of options for up 
to 4,625,000 shares of common stock as incentive or nonqualified stock 
options ("NQSOs").

At the Spin off date, certain of the options to purchase AMSG common stock 
held by the Company's employees were converted to Company stock options. AMSG 
options totaling 2,232,334 were converted into an equal amount of Company and 
AMSG options, including 1,000,000 options related to an acquisition. The 
options were converted at exercise prices that maintained the amount of 
unrealized stock appreciation that existed immediately prior to the Spin off 
date. The vesting dates and expiration periods of the options were not 
affected by the conversion.

In 1992, certain executive officers of AMSG were awarded stock appreciation 
rights ("SARs") in AMSG. At the Spin off date, 67,500 AMSG SARs were 
converted into SARs of the Company to provide equivalent value.

                                       55


<PAGE>

                     United Wisconsin Services, Inc.

        Notes to Consolidated Financial Statements (continued)

10. EMPLOYEE BENEFIT PLANS (CONTINUED)

The Company follows Accounting Principles Board Opinion No. 25 under which no 
compensation expense is recorded when the exercise price of the Company's 
employee stock options equals the market price of the underlying stock on the 
date of grant. The Company's pro forma information, as if the options granted 
subsequent to the Spin off date had been expensed in accordance with SFAS 
123, "Accounting for Stock-Based Compensation", is as follows:

<TABLE>
<CAPTION>
                                             YEAR ENDED DECEMBER 31, 1998
                                             ----------------------------
                                         (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                    <C>
Pro forma net income                                   $ 18,021
Pro forma earnings per common share:
    Basic                                              $   1.09
    Diluted                                            $   1.09
</TABLE>

In determining compensation cost pursuant to SFAS 123, the fair value for the 
options granted subsequent to the Spin off date were estimated at the date of 
grant using the Black-Scholes option pricing model with the following 
weighted average assumptions for 1998: risk-free interest rate of 4.62%; 
dividend yield of 0.70%; volatility factor of the expected market price of 
the Company's common stock of 0.45; and a weighted average expected life of 
the options of 6.00 years. As calculated using the Black-Scholes model, the 
weighted average, grant-date fair value of options granted in which the 
exercise price equaled the market price on the date of the grant was $3.34 
per share for 1998.

                                       56


<PAGE>


                     United Wisconsin Services, Inc.

        Notes to Consolidated Financial Statements (continued)

10. EMPLOYEE BENEFIT PLANS (CONTINUED)

Stock option activity for all plans is as follows:
<TABLE>
<CAPTION>
                                                                                 YEAR ENDED
                                                                              DECEMBER 31, 1998
                                                                             -------------------
<S>                                                                           <C>
TOTAL NUMBER OF NQSOS
Outstanding at beginning of year                                                           -
Conversion of AMSG options                                                         2,232,334
Granted                                                                              456,700
Exercised                                                                                  -
Forfeited                                                                                  -
                                                                             -------------------
Outstanding at end of year                                                         2,689,034
                                                                             -------------------
                                                                             -------------------
Exercisable at end of year                                                         1,640,637
Available for grant at end of year                                                 1,935,966

WEIGHTED AVERAGE EXERCISE PRICE OF NQSOS
Outstanding at beginning of year                                                     -
Conversion of AMSG options - range of excercise prices                         $9.61 - 16.81
Granted - Exercise price equals market price on grant date                          $7.19
Exercised                                                                            -
Forfeited                                                                            -
Outstanding at end of year                                                         $11.58
Exercisable at end of year                                                         $11.61


NQSOS BY EXERCISE PRICE RANGE
Exercise price                                                                     $7.19
Weighted average exercise price                                                    $7.19
Weighted average remaining contractual life                                        11.75
Outstanding at end of year                                                       456,700
Exercisable at end of year                                                           -
Weighted average exercise price of options exercisable at end of year                -

Exercise price                                                                 $9.61 - 12.85
Weighted average exercise price                                                    $11.25
Weighted average remaining contractual life                                          8.95
Outstanding at end of year                                                      1,166,437
Exercisable at end of year                                                        613,002
Weighted average exercise price of options exercisable at end of year              $11.36
</TABLE>

                                       57


<PAGE>

                     United Wisconsin Services, Inc.

        Notes to Consolidated Financial Statements (continued)

10. EMPLOYEE BENEFIT PLANS (CONTINUED)
<TABLE>
<CAPTION>
                                                                                 YEAR ENDED
                                                                              DECEMBER 31, 1998
                                                                             -------------------
<S>                                                                            <C>
Exercise price                                                                      $13.53
Weighted average exercise price                                                     $13.53
Weighted average remaining contractual life                                           2.93
Outstanding and exercisable at end of year (1)                                   1,000,000
Weighted average exercise price of options exercisable at end of year               $13.53


Exercise price                                                                 $14.94 - $16.81
Weighted average exercise price                                                     $15.66
Weighted average remaining contractual life                                           9.58
Outstanding at end of year                                                          65,897
Exercisable at end of year                                                          27,635
Weighted average exercise price of options exercisable at end of year               $15.56
</TABLE>

(1)      Options were issued in 1996 at 125% of market value as consideration 
         for an acquisition.

The Black-Scholes option valuation model was developed for use in estimating 
the fair value of traded options which have no vesting restrictions and are 
fully transferable. In addition, option valuation models require the input of 
highly subjective assumptions including the expected stock price volatility. 
Since the Company's employee stock options have characteristics significantly 
different from those of traded options, and because changes in the subjective 
input assumptions can materially affect the fair value estimates, in 
management's opinion, the existing models do not necessarily provide a 
reliable single measure of the fair value of its employee stock options.

                                       58


<PAGE>

                     United Wisconsin Services, Inc.

        Notes to Consolidated Financial Statements (continued)

11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Selected quarterly financial data for the years ended December 31, 1998 and 1997
are as follows:
<TABLE>
<CAPTION>
                                                               Quarter
                                         ---------------------------------------------------
                                            First       Second        Third         Fourth        Total
                                         --------------------------------------------------------------
                                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                        <C>          <C>          <C>           <C>           <C>
1998
Total revenues                              $159,158     $163,782     $165,093      $169,588      $657,621
Income before income tax expense               7,459        9,471        6,604         6,311        29,845
Net income                                     4,716        5,699        4,091         3,572        18,078
Earnings per common share (1):
    Basic                                       -            -            -             0.22          -
    Diluted                                     -            -            -             0.21          -

1997
Total revenues                              $146,993     $150,790     $154,479      $156,847      $609,109
Income before income tax expense               6,607        6,141        6,091         6,378        25,217
Net income                                     3,998        3,889        3,859         4,038        15,784
</TABLE>

(1)      Earnings  per share data has not been  provided  for  periods  prior 
         to the fourth  quarter of 1998 since the Company was not an 
         independent, public entity prior to the Spin off date.

12. SEGMENT REPORTING

The Company has two reportable business segments: 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, and receivables management sold throughout the 
United States.

"Other Operations" includes operations not directly related to the business 
segments, unallocated corporate items (i.e. corporate interest expense on 
corporate debt, amortization of goodwill and intangibles and unallocated 
overhead expenses) and intercompany eliminations. The Company evaluates 
segment performance based on profit or loss from operations before income 
taxes. Management has determined that it is impractical to prepare segment 
information for the year ended December 31, 1996. The accounting policies of 
the reportable segments are the same as those described in the summary of 
significant accounting policies.

                                       59


<PAGE>

                     United Wisconsin Services, Inc.

        Notes to Consolidated Financial Statements (continued)

12. SEGMENT REPORTING (CONTINUED)

Financial data by segment as of and for the years ended December 31, 1998 and
1997 is as follows:
<TABLE>
<CAPTION>
                                                                                     1998             1997
                                                                                  -------------------------
                                                                                         (In thousands)
<S>                                                                                 <C>           <C>
Health services revenue:
    HMO products                                                                     $518,700      $479,182
    Specialty managed care products and services                                      137,652       123,859
    Other operations                                                                  (17,707)      (16,170)
                                                                                  -------------------------
        Total consolidated                                                           $638,645      $586,871
                                                                                  -------------------------
                                                                                  -------------------------
Investment results:
    HMO products                                                                     $  9,182      $  6,889
    Specialty managed care products and services                                        9,516        17,309
    Other operations                                                                      278        (1,960)
                                                                                  -------------------------
        Total consolidated                                                           $ 18,976      $ 22,238
                                                                                  -------------------------
                                                                                  -------------------------
Income (loss) before income tax expense:
    HMO products                                                                     $ 15,145      $  6,355
    Specialty managed care products and services                                       17,693        23,257
    Other operations                                                                   (2,993)       (4,395)
                                                                                  -------------------------
        Total consolidated                                                           $ 29,845      $ 25,217
                                                                                  -------------------------
                                                                                  -------------------------
Total assets:
    HMO products                                                                     $138,272      $118,595
    Specialty managed care products and services                                      151,845       144,520
    Other operations                                                                    8,091         3,141
                                                                                  -------------------------
        Total consolidated                                                           $298,208      $266,256
                                                                                  -------------------------
                                                                                  -------------------------
Health services revenue from transactions with other operating segments:
     HMO products                                                                    $  1,853      $  1,726
     Specialty managed care products and services                                      15,488        14,417
</TABLE>

                                       60


<PAGE>


                     United Wisconsin Services, Inc.

        Notes to Consolidated Financial Statements (continued)

13. SUBSEQUENT EVENT

On February 9, 1999, the Company announced that it had begun negotiations 
with BCBSUW for the purchase by BCBSUW of approximately 2,750,000 shares of 
the Company's common stock to be issued in a privately negotiated 
transaction. This purchase is part of the previously disclosed plan for 
BCBSUW to increase its ownership in the Company to allow Compcare to use the 
Blue Cross and Blue Shield brand on its products.



                                       61
<PAGE>

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
         FINANCIAL DISCLOSURE.

         None.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         Information required by this item with respect to directors is 
included under the heading "Election of Directors" in the Company's 
definitive Proxy Statement, to be dated April 26, 1999 relating to the 1999 
Annual Meeting of Shareholders currently scheduled for May 26, 1999, (the 
"1999 Proxy Statement") which will be filed with the Commission separately 
pursuant to Rule 14a-6 under the 1934 Act and in accordance with General 
Instruction G(3) to Form 10-K, not later than 120 days after the end of the 
Company's fiscal year, and which section is hereby incorporated by reference. 
Information with respect to executive officers of the Company appears at the 
end of Part I, Pages [17 through 18] of this Annual Report on Form 10-K.

ITEM 11.  EXECUTIVE COMPENSATION.

         Information required by this item is included under the heading 
"Executive Compensation" in the 1999 Proxy Statement, which section is hereby 
incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         Information required by this item is included under the heading 
"Security Ownership of Certain Beneficial Owners and Management" in the 1999 
Proxy Statement, which section is hereby incorporated by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         Information required by this item is included under the heading 
"Certain Transactions" in the 1999 Proxy Statement, which section is hereby 
incorporated by reference.

                                       62


<PAGE>


                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)      1 and 2.  FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

<TABLE>
<CAPTION>
                                                                                                 PAGE(S) IN
                                                                                                  FORM 10-K
                                                                                                   REPORT
                                                                                                   ------
       <S>                                                                                       <C>
       The following consolidated financial statements of United Wisconsin Services, Inc. and
          subsidiaries are included in Item 8:

       Report of Independent Auditors .............................................................    31
       Consolidated Balance Sheets at December 31, 1998 and 1997 ..................................    32
       Consolidated Statements of Income for the years ended December 31, 1998, 1997 and 1996          34
       Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income for
          the years ended December 31, 1998, 1997 and 1996 ........................................    35
       Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and
          1996.....................................................................................    36
       Notes to Consolidated Financial Statements  ................................................    37

       The following financial statement schedules of United Wisconsin Services, Inc. and
       subsidiaries are included in Item 14(d):

          Schedule II - Condensed Financial Information of Registrant..............................    64
          Schedule IV - Reinsurance................................................................    67
          Schedule V - Valuation and Qualifying Accounts...........................................    68
</TABLE>

All other schedules for which provision is made in applicable accounting 
regulations of the Securities and Exchange Commission are not required under 
the related instructions or are inapplicable, and therefore have been omitted.

3.  EXHIBITS

Reference is made to the separate Exhibit Index contained on Pages 70 through 
72 hereof.

(b)   REPORTS ON FORM 8-K

      No reports on Form 8-K were filed during the fourth quarter of 1998.

(c)   EXHIBITS

Reference is made to the separate Exhibit Index contained on Pages 70 through 
72 hereof.

(d)   FINANCIAL STATEMENT SCHEDULES

Reference is made to the financial statement schedules contained on Pages 64 
through 68 hereof.

                                       63


<PAGE>


                                                                  SCHEDULE II
                        UNITED WISCONSIN SERVICES, INC.
                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                       
     Condensed balance sheets of United Wisconsin Services, Inc. (the 
"Company") (parent company only) as of December 31, 1998 and 1997, and the 
condensed statements of income and cash flows for the years ended December 
31, 1998, 1997 and 1996 are as follows:

                               BALANCE SHEETS
                                   ASSETS

<TABLE>
<CAPTION>

                                                          DECEMBER 31,
                                                     ---------------------
                                                       1998         1997
                                                     --------     --------
                                                         (IN THOUSANDS)
<S>                                                  <C>          <C>
Cash and cash equivalents                            $  1,000     $  3,669
Investments                                                 -        5,789
Investment in and advances to affiliates              128,820      112,564
Accounts receivable                                     3,158          482
Other assets                                            9,433        7,261
                                                     --------     --------
     Total assets                                    $142,411     $129,765
                                                     --------     --------
                                                     --------     --------

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
  Due to affiliates                                  $ 68,362     $    537
  Payables, accrued expenses and other liabilities      9,590        5,612
                                                     --------     --------
    Total liabilities                                  77,952        6,149

Shareholders' equity:
  Investments by and advances from AMSG                     -      120,405
  Common stock                                         13,378            -
  Retained earnings                                    50,088            -
  Unrealized gains on investments                         993        3,211
                                                     --------     --------
    Total shareholders' equity                         64,459      123,616
                                                     --------     --------
      Total liabilities and shareholders' equity     $142,411     $129,765
                                                     --------     --------
                                                     --------     --------
</TABLE>
                                       64


<PAGE>

<TABLE>
<CAPTION>

                                                                         SCHEDULE II

                           UNITED WISCONSIN SERVICES, INC.
                      CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                 STATEMENTS OF INCOME

                                                      YEARS ENDED DECEMBER 31,
                                                 --------------------------------------
                                                  1998            1997            1996
                                                 --------------------------------------
                                                           (IN THOUSANDS)
<S>                                             <C>             <C>         <C>
Revenues:
   Dividends from consolidated subsidiaries      $  5,046        $ 20,676       $     -
   Investment income                                  313             885         1,397
   Other revenue (expense)                              4             (94)          (52)
                                                 --------        --------        -------
      Total revenues                                5,363          21,467         1,345

Expenses:
   Administrative expenses                          1,298           1,467         1,138
   Amortization of goodwill and other intangibles     600             398           818
   Interest expense with affiliate                  1,411               -             -
                                                 --------        --------       -------
      Total expenses                                3,309           1,865         1,956
                                                 --------        --------       -------
   Income before income tax benefit and equity
     in the undistributed net income (loss)
     of subsidiaries                                2,054          19,602          (611)

   Income tax benefit                                (961)           (402)         (241)
                                                 --------        --------       -------

   Income before equity in the undistributed
     net income (loss) of subsidiaries              3,015          20,004          (370)

   Equity in the undistributed net income
     (loss) of subsidiaries                        15,063          (4,220)       16,711
                                                 --------        --------       -------
   Net income                                   $  18,078       $  15,784      $ 16,341
                                                 --------        --------       -------
                                                 --------        --------       -------
</TABLE>


                                       65


<PAGE>

<TABLE>
<CAPTION>

                                                                                 SCHEDULE II

                           UNITED WISCONSIN SERVICES, INC.
                    CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                               STATEMENTS OF CASH FLOWS

                                                       YEARS ENDED DECEMBER 31,
                                                ------------------------------------------
                                                  1998             1997             1996
                                                --------          ------           -------
                                                           (IN THOUSANDS)
<S>                                             <C>             <C>              <C>
Operating activities:
   Net income                                   $ 18,078         $  15,784        $ 16,341
   Adjustments to reconcile net income to
      net cash provided by (used in)
      operating activities: 
         Equity in the undistributed net
           (income) loss of subsidiaries         (15,063)            4,220         (16,711)
         Depreciation and amortization               503               668             429
         Deferred income tax benefit                  56            (1,023)          1,104
         Changes in other operating accounts:
           Due to affiliates                      (2,175)            3,950            (473)
           Payables and accrued expenses            (165)           (3,086)            731 
           Other - net                              (545)           (1,774)           (495)
                                                 -------           -------          -------

           Net cash provided by operating 
             activities                              689            18,739             926

Investing activities:
   Acquisitions of subsidiaries                   (1,405)           (2,213)              -
   Purchases of available for sale investments    (1,866)          (36,283)         (8,903)
   Proceeds from sale of available
     for sale investments                          4,893            13,557          13,953
   Proceeds from maturity of available
     for sale investments                          2,775            26,735             146
   Additions to property and equipment              (281)                -               - 
   Investment in and advances to
     consolidated affiliates                        (818)           (2,500)           (108)
                                                 -------           -------          -------
           Net cash provided by (used in)
             investing activities                  3,298              (704)          5,088

Financing activities:                                                                 
   Investments by and advances from AMSG          (6,133)          (15,302)        (13,184)
   Cash dividends paid                              (839)                -               - 
   Issuances of common stock and options             316                 -               - 
                                                 -------           -------         -------
           Net cash used in financing activities  (6,656)          (15,302)        (13,184)
                                                 -------           -------         -------
Cash and cash equivalents:                                                              
   Increase (decrease) during year                (2,669)            2,733          (7,170)
   Balance at beginning of year                    3,669               936           8,106
                                                 -------           -------         -------
   Balance at end of year                       $  1,000          $  3,669        $    936
                                                 -------           -------         -------
                                                 -------           -------         -------
</TABLE>


                                       66


<PAGE>

<TABLE>
<CAPTION>

                                                                                          SCHEDULE IV

                                 UNITED WISCONSIN SERVICES, INC.

                                          REINSURANCE

                                                                                            Percentage
                                                Ceded to       Assumed                       of amount
                                     Gross        other       from other                    assumed to
                                     amount     companies     companies      Net amount         net
                                     ------     ---------     ----------     ----------     ----------
                                                            (In thousands)
<S>                                 <C>         <C>           <C>           <C>             <C>
Year ended December 31, 1996:
   Life insurance in force          $       0   $  977,000     $ 9,112,000    $  8,135,000    112.0%
                                    ---------    ----------    -----------    ------------    ------
                                    ---------    ----------    -----------    ------------    ------
   Premiums:
     Health and disability          $ 506,999   $   44,595     $    14,418    $    476,822      3.0%
     Life                                   0        1,954          18,224          16,270    112.0%
                                    ---------    ----------    -----------    ------------    
       Total premiums               $ 506,999   $   46,549     $    32,642    $    493,092      6.6%
                                    ---------    ----------    -----------    ------------    ------
                                    ---------    ----------    -----------    ------------    ------


Year ended December 31, 1997:
   Life insurance in force          $       0   $1,124,895     $ 9,130,121    $  8,005,226    114.1%
                                    ---------    ----------    -----------    ------------    ------
                                    ---------    ----------    -----------    ------------    ------
   Premiums:                                                                                    
     Health and disability          $ 576,833   $   46,992     $    12,153    $    541,994      2.2%
     Life                                   0        2,530          21,361          18,831    113.4%
                                    ---------    ----------    -----------    ------------
      Total premiums                $ 576,833   $   49,522     $    33,514    $    560,825      6.0%
                                    ---------    ----------    -----------    ------------    ------
                                    ---------    ----------    -----------    ------------    ------


Year ended December 31, 1998:
   Life insurance in force          $       0   $1,538,283     $11,517,565    $  9,979,282    115.4%
                                    ---------    ----------    -----------    ------------    ------
                                    ---------    ----------    -----------    ------------    ------

   Premiums:
     Health and disability          $ 625,990   $   43,402     $     5,047    $    587,635      0.9%
     Life                                   0        2,353          23,635          21,282    111.1%
                                    ---------    ----------    -----------    ------------    
       Total premiums               $ 625,990   $   45,755     $    28,682    $    608,917      4.7%
                                    ---------    ----------    -----------    ------------    ------
                                    ---------    ----------    -----------    ------------    ------
</TABLE>
                                                          67


<PAGE>

<TABLE>
<CAPTION>

                                                                                      SCHEDULE V

                              UNITED WISCONSIN SERVICES, INC.

                              VALUATION AND QUALIFYING ACCOUNTS

                                                          Net
                                                        charges
                                          Balance      (credits)     Write-offs       Balance
                                         beginning      to net        against         end of
                                         of period      income       allowance        period
                                         ---------     ---------     -----------     --------
                                                            (IN THOUSANDS)
<S>                                      <C>             <C>            <C>               <C>

Year ended December 31, 1996:
   Allowance for possible losses on:
     Premium receivables                  $   260      $    (28)      $      -       $   232 
     Other                                     14            50            (12)           52 
                                          -------      ---------     ----------     --------
       Total allowance                    $   274      $     22       $    (12)      $   284 
                                          -------      ---------     ----------     --------
                                          -------      ---------     ----------     --------

Year ended December 31, 1997:                                                        
   Allowance for possible losses on:
     Premium receivables                  $   232      $     77       $      -       $   309
     Other                                     52            (5)            38            85
                                          -------      ---------      ---------      --------
       Total allowance                    $   284      $     72       $     38       $   394
                                          -------      ---------      ---------      --------
                                          -------      ---------      ---------      --------

Year ended December 31, 1998:
   Allowance for possible losses on:
     Premium receivables                  $   309      $    391       $      -       $   700
     Other                                     85           (58)             -            27
                                          -------      ---------      ---------      --------
       Total allowance                    $   394      $    333       $      -       $   727
                                          -------      ---------      ---------      --------
                                          -------      ---------      ---------      --------
</TABLE>


                                       68


<PAGE>

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

                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) 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.

                                          UNITED WISCONSIN SERVICES, INC.

                                           By: /s/ Thomas R. Hefty
                                               -----------------------------
                                                Thomas R. Hefty, President and
                                                Chief Executive Officer

                                           Date:     March 26, 1999

      Pursuant to the requirements of the Securities Act of 1934, this report 
has been signed below by the following persons on behalf of the Registrant 
and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

      SIGNATURE                                   TITLE                                        DATE
<S>                                         <C>                                          <C>
/s/ Thomas R. Hefty                         Chairman, President and Chief Executive      March 26, 1999
----------------------------------------    Officer  (Principal  Executive Officer) and
Thomas R. Hefty                             Director

/s/ C. Edward Mordy                         Vice President and Chief Financial Officer   March 26, 1999
----------------------------------------    (Principal    Financial   and    Accounting
C. Edward Mordy                             Officer)

/s/Richard A. Abdoo                         Director                                     March 26, 1999
----------------------------------------
Richard A. Abdoo

/s/Michael D. Dunham                        Director                                     March 26, 1999
----------------------------------------
Michael D. Dunham

/s/James L. Forbes                          Director                                     March 26, 1999
----------------------------------------
James L. Forbes

/s/James C. Hickman                         Director                                     March 26, 1999
----------------------------------------
James C. Hickman

/s/William R. Johnson                       Director                                     March 26, 1999
----------------------------------------
William R. Johnson

/s/Eugene A. Menden                         Director                                     March 26, 1999
----------------------------------------
Eugene A. Menden

/s/William C. Rupp                          Director                                     March 26, 1999
----------------------------------------
William C. Rupp

/s/Carol N. Skornicka                       Director                                     March 26, 1999
----------------------------------------
Carol N. Skornicka
</TABLE>


                                       69


<PAGE>
                               INDEX TO EXHIBITS
 
<TABLE>
<CAPTION>
 EXHIBIT
   NO.      DESCRIPTION
---------   ------------------------------------------------------------
<C>         <S>
  2.1       Form of Distribution and Indemnity Agreement (as
            amended).(1)

  3.1       Articles of Incorporation of Registrant.(1)

  3.2       By-Laws of Registrant.(1)

  4.1       Specimen Common Stock Certificate.(1)

  4.2       Registrant's United Wisconsin Services, Inc.'s Dividend
            Reinvestment and Direct Stock Purchase Plan: Terms and
            Conditions.(3)

 10.1       Form of Employee Benefits Agreement (as amended).(1)

 10.2       Form of Tax Allocation Agreement (as amended).(1)

 10.3       Settlement Agreement by and between United Wisconsin
            Services, Inc. ("UWS"), on behalf of itself and on behalf
            of Registrant, Wallace J. Hilliard and Ronald A. Weyers,
            dated April 1, 1998.(1)

 10.4       Consolidated Federal Income Tax Allocation Agreement among
            Blue Cross & Blue Shield United of Wisconsin ("BCBSUW"),
            United Wisconsin Insurance Company ("UWIC"), UWS, United
            Wisconsin Proservices, Inc. ("UWPS"), Leasing Unlimited,
            Inc., United Wisconsin Life Insurance Company ("UWLIC"),
            Compcare Health Services Insurance Corporation
            ("COMPCARE"), ProHealth, Inc. and Take Control, Inc., as
            amended by Amendments dated August 6, 1993 and May 9,
            1994, respectively.(1)

 10.5       Comprehensive Tax Allocation Agreement dated July 1, 1994
            among BCBSUW, UWS and various subsidiaries thereof.(1)

 10.6       Federal Income Tax Allocation Agreement among BCBSUW, UWS,
            UWIC, UWLIC, UWPS, Compcare, Take Control, Inc., Meridian
            Resource Corporation ("MRC"), Valley Health Plan, Inc.
            ("VALLEY") and United Wisconsin Capital Corporation
            ("UWCC") for the period commencing January 1, 1993, as
            amended.(1)

 10.7       Consolidated Federal Income Tax Allocation Agreement among
            UWS, UWIC, Compcare, Meridian Managed Care, Inc. ("MMC"),
            MRC, Valley, UWCC, Your Health Plan, Inc. ("YHP"), HMO of
            Wisconsin Insurance Corporation ("HMOW"), HMO-W, Inc. and
            Hometown Insurance Services, Inc. ("HTWN") commencing
            October 1, 1994.(1)

 10.8       Consolidated Federal Income Tax Allocation Agreement among
            UWS, UWIC, UWPS, Compcare, MMC, MRC, Valley, UWCC, YHP,
            HMOW, HMO-W, Inc., HTWN, United Heartland, Inc. ("UHI")
            and Meridian Marketing Services, Inc. ("MMS") commencing
            January 1, 1995.(1)

 10.9       Consolidated Federal Income Tax Allocation Agreement among
            UWS, UWIC, UWPS, Compcare, MMC, MRC, Valley, AMS HMO
            Holdings, Inc. (f/k/a UWCC), Unity Health Plans Insurance
            Corporation ("UNITY") (f/k/a HMOW), HMO-W, Inc., HTWN, UHI
            and MMS for the period commencing January 1, 1996, and
            American Medical Security Holdings, Inc., American Medical
            Security, Inc., American Medical Insurance Company,
            Continental Plan Services, Inc., Nurse Healthline, Inc.,
            Accountable Health Plans, Inc., AMS Provider Partnerships,
            Inc., Unity HMO of Illinois, Inc., American Medical
            Security Insurance Company of Ohio and American Medical
            Security Insurance Company of Georgia for the period
            commencing December 3, 1996.(1)

 10.10      Federal Income Tax Allocation Agreement among UWS, UNITY, HTWN, 
            HMO-W, INC., VALLEY, COMPCARE, UWIC, MMS, UHI, UWPS, MRC, MMC, 
            CNR HEALTH, INC. ("CNR"), Intercare Network, Inc. ("INI"), 
            Heartland Dental Plan, Inc. ("HDP") and Heartland Dental Plan of
            Michigan, Inc. ("HDPM") dated September 25, 1998.

 10.11      Amended and Restated Joint Venture Agreement by and among
            BCBSUW, UWS (assigned to the Registrant), Valley and
            Midelfort Clinic, Ltd., effective January 1, 1997.(1)

 10.12      Intercompany Service Agreement between BCBSUW, UWS (assigned
            to the Registrant) and UWIC, effective January 1, 1998.(1)
</TABLE>

                                       70


<PAGE>

<TABLE>
<CAPTION>
 EXHIBIT
   NO.      DESCRIPTION
---------   ------------------------------------------------------------
<C>         <S>
 10.13      Intercompany Service Agreement among BCBSUW, UWS (assigned
            to the Registrant) and UWIC, effective January 1, 1998.(1)

 10.14      Intercompany Service Agreement among BCBSUW, UWS (assigned
            to the Registrant) and UHI, effective January 1, 1998.(1)

 10.15      Intercompany Service Agreement among BCBSUW, UWS (assigned
            to the Registrant) and MMC, effective January 1, 1998.(1)

 10.16      Intercompany Service Agreement among BCBSUW, UWS (assigned
            to the Registrant), MMC and Compcare on behalf of its
            Pharmacy Services department, effective January 1,
            1998.(1)

 10.17      Intercompany Service Agreement among BCBSUW, UWS (assigned
            to the Registrant), MMC and Compcare on behalf of its
            RxCel department, effective January 1, 1998.(1)

 10.18      Intercompany Service Agreement among BCBSUW, UWS (assigned
            to the Registrant), MMC and Compcare, effective January 1,
            1998.(1)

 10.19      Intercompany Service Agreement among BCBSUW, UWS (assigned
            to the Registrant) and MRC on behalf of its Investigation
            and Recovery Services department, effective January 1,
            1998.(1)

 10.20      Intercompany Service Agreement among BCBSUW, UWS (assigned
            to the Registrant) and MRC on behalf of its Consulting
            Services department, effective January 1, 1998.(1)

 10.21      Intercompany Service Agreement among BCBSUW, UWS (assigned
            to the Registrant) and MRC on behalf of its Audit Services
            department, effective January 1, 1998.(1)

 10.22      Intercompany Service Agreement among BCBSUW, UWS (assigned
            to the Registrant) and UWPS, effective January 1, 1998.(1)

 10.23      Service Agreement between BCBSUW and Valley, effective
            January 1, 1993.(1)

 10.24      Service Agreement between UWS (assigned to the Registrant)
            and Community Health Systems, LLC, dated November 1,
            1994.(1)

 10.25      Form of Service Agreement between United Wisconsin Services,
            Inc. (f/k/a Newco/UWS, Inc.) and American Medical Security
            Group, Inc. (f/k/a United Wisconsin Services, Inc.).(1)

 10.26      Amended and Restated Joint Venture Agreement among BCBSUW,
            UWS (assigned to the Registrant), University Health Care,
            Inc. ("UHC" ), U-Care HMO, Inc. ("U-CARE") and Health
            Professionals, Inc. ("HPI") dated October 31, 1994.(1)

 10.27      Agreement of Merger and Joint Venture by and among UWS
            (assigned to the Registrant), UWS Acquisition Corporation,
            BCBSUW, HMO-W, Inc. and HMOW dated October 11, 1994.(1)

 10.28      Service Agreement between UWS (assigned to the Registrant)
            and HPI dated November 1, 1994.(1)

 10.29      License Agreement between UWS (assigned to the Registrant)
            and U-Care dated November 1, 1994.(1)

 10.30      Joint Venture Agreement among UWS (assigned to the
            Registrant), BCBSUW, Compcare and Northwoods Health Care,
            LLC dated July 1, 1996, as amended October 24, 1996.(1)

 10.31      Information System Service Agreement among Blue Cross Blue
            Shield of South Carolina and Blue Cross & Blue Shield
            United of Wisconsin dated August 23, 1996, as amended
            January 1, 1997.(1)

 10.32      Form of Trademark Assignment Agreement by and among UWS, the
            Registrant and UWLIC.(1)

 10.33      Registrant's Equity Incentive Plan as revised.(2)
</TABLE>

                                       71


<PAGE>
<TABLE>
<CAPTION>
 EXHIBIT
   NO.      DESCRIPTION
---------   ------------------------------------------------------------
<C>         <S>
 10.34      1998 Management Incentive Plan.(1)

 10.35      Registrant's Deferred Compensation Plan for Directors.(1)

 10.36      Registrant/BCBSUW 401(k) Plan.(1)

 10.37      Registrant/BCBSUW Union Employees 401(k) Plan.(1)

 10.38      Unity Health Plans Insurance Corp. 1998 Profit Sharing
            Plan.(1)

 10.39      Registrant's and BCBSUW's 1998 Profit Sharing Plan.(1)

 10.40      Registrant Voluntary Deferred Compensation Plan.(1)

 10.41      Registrant Deferred Compensation Trust.(1)

 10.42      Registrant/BCBSUW Hourly Pension Plan.(1)

 10.43      Registrant/BCBSUW Salaried Pension Plan.(1)

 10.44      Registrant/BCBSUW Supplemental Executive Retirement Plan.(1)

 10.45      Registrant Stock Appreciation Rights Plan.(1)

 10.46      Note and Pledge Agreement dated October 30, 1996, between
            BCBSUW and United Wisconsin Services, Inc. (assumed by and
            assigned to the Registrant).(1)

 10.47      Administrative Services Agreement between UWSI and HMO of
            Wisconsin Insurance Corporation, effective November 1,
            1994.(1)

 10.48      Amendment to Employee Benefits Agreement between Registrant
            and American Medical Security Group, Inc. effective
            September 21, 1998.(2)

 11         Statement regarding computation of per share earnings. (See
            Note 2 of Notes to Combined Financial Statements).(1)

 21         Subsidiaries of the Registrant.

 23.1       Consent of Ernst & Young LLP.

 27         Financial Data Schedule.
</TABLE>
 
------------------------
 
(1) Incorporated by reference to Registrant's Registration Statement on Form 10
    declared effective September 11, 1998.
 
(2) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
    the period ended September 30, 1998.

(3) Incorporated by reference to Registrant's Registration Statement on Form 
    S-1 declared effective November 25, 1998.


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