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

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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, 1999
Commission file number 1-14177UNITED 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(Address of principal executive offices) |  | 53203-2896(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 29, 2000, there were issued and outstanding 16,939,682 shares of Common Stock. The aggregate market value of the shares of such stock held by
non-affiliates of the registrant was $98,461,902 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 REFERENCEPortions of United Wisconsin Services, Inc. Proxy Statement dated on or about
April 26, 2000 (Part III)

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UNITED WISCONSIN SERVICES, INC.
INDEX TO
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 1999

|                  |  |                                                                                       |  | Page
|----------------- |  | ------------------------------------------------------------------------------------- |  | ----
|PART I            |  |                                                                                      
|Item 1            |  | Business                                                                              |  | 3   
|Item 2            |  | Properties                                                                            |  | 17  
|Item 3            |  | Legal Proceedings                                                                     |  | 17  
|Item 4            |  | Submission of Matters to a Vote of Security Holders                                   |  | 17  
|Item 4a           |  | Executive Officers of the Registrant                                                  |  | 18  
|PART II           |  |                                                                                      
|Item 5            |  | Market for Registrant's Common Equity                                                 |  | 20  
|Item 6            |  | Selected Consolidated Financial Data                                                  |  | 20  
|Item 7            |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 22  
|Item 7a           |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 27  
|Item 8            |  | Financial Statements and Supplementary Data                                           |  | 28  
|Item 9            |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 53  
|PART III          |  |                                                                                      
|Item 10           |  | Directors and Executive Officers of the Registrant                                    |  | 53  
|Item 11           |  | Executive Compensation                                                                |  | 53  
|Item 12           |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 53  
|Item 13           |  | Certain Relationships and Related Transactions                                        |  | 53  
|PART IV           |  |                                                                                      
|Item 14           |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                      |  | 54  
|                  |  | Schedule IICondensed Financial Information of Registrant                             |  | 55  
|                  |  | Schedule IVReinsurance                                                               |  | 58  
|                  |  | Schedule VValuation and Qualifying Accounts                                          |  | 59  
|Signatures        |  | 60                                                                                   
|Index to Exhibits |  | i                                                                                    

2



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 was 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 was 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, 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, life, disability and other products, managed care workers' compensation, consulting and cost containment, health care electronic data interchange,
pharmaceutical management, managed care consulting 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., Mayo Health Systems ("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 Foundation constitute the provider networks for Unity.

3



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"), directly holds approximately 46% of the outstanding common stock of UWS as of December 31, 1999 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:



4





In
addition to the strategic initiatives outlined above, during 2000, the Company will expand its internet marketing capabilities, and, effective June 1, 2000, will expand on
an existing clinical services contract with WellPoint Pharmacy Management to include pharmacy claims processing services for approximately 192,000 member lives.

The
Company has also notified the state of Wisconsin of its intent to terminate the contracts for participation by its HMO's in the BadgerCare segment of the Medicaid program (on
which the Company has incurred recent losses) effective April 1, 2000, if rate increases are insufficient.

HMO 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 cover all or part of health care costs incurred and the government program's allowed payments; (v) a small group product, combining managed care with
deductibles and
co-payments; (vi) an HMO Medicaid plan, which is a comprehensive HMO plan for Medicaid recipients; and (vii) BadgerCare, which is a comprehensive HMO for uninsured families
on Medicaid with income below specified federal poverty levels.

Unity
markets comprehensive managed care products to employer groups and individuals in 29 counties in Central and Southwestern Wisconsin. Unity's product offerings include HMO, POS,
and third party administrator ("TPA") services. The HMO product includes a variety of benefit coverage options with multiple copay and deductible options tailored to meet customer needs. Coverage
primarily requires the use of providers within the network. The POS product offers flexible insurance options with three levels of benefit coverage available. Options to access health care services
can vary from HMO to traditional indemnity coverage. TPA services sold under the brand name TPA Plus offer employers self-funded benefit plan administration. In addition to traditional
administrative services, options are

5



available
to select network and medical management services, which lower costs through the use of participating providers.

The
POS plans provide significant incentives for members to utilize the plans' managed care benefits and provide reduced benefits and increased deductibles and co-payments
when providers outside of the POS network render services. 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 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 the Office of the Commissioner of Insurance of the State of Wisconsin ("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.

As
of December 31, 1999, HMO insured membership consisted of the following (in numbers of individuals):

|         |  | HMO     |  | POS    |  | Medicaid |  | Total  
|-------- |  | ------- |  | ------ |  | -------- |  | -------
|
|Compcare |  | 101,527 |  | 47,781 |  | 35,154   |  | 184,462
|Valley   |  | 25,733  |  | 12,191 |  | 4,890    |  | 42,814 
|Unity    |  | 58,777  |  | 18,660 |  | 5,748    |  | 83,185 
|         |  |         |  |        |  |          |  |        
|         |  | 186,037 |  | 78,632 |  | 45,792   |  | 310,461
|         |  |         |  |        |  |          |  |        

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 29 county area in Southwestern and Central Wisconsin. In addition, the Company has 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 will contribute to increased enrollment by attracting new employer groups and by increasing penetration with existing employer groups.

6



The
following table identifies the top ten group contracts with the highest HMO earned premium for 1999:

|                                         |  | Percentage of
Earned Premiums
In 1999 |  
|---------------------------------------- |  | ------------------------------------- | -
|State of Wisconsin                       |  | 11.2                                  | %
|Medicaid                                 |  | 8.8                                   |  
|Federal Employee Health Benefits Program |  | 3.7                                   |  
|Milwaukee County                         |  | 2.9                                   |  
|Briggs and Stratton Corporation          |  | 2.3                                   |  
|Milwaukee Public Schools                 |  | 2.1                                   |  
|Construction Worker Health Fund          |  | 1.9                                   |  
|CSM Alliance                             |  | 1.4                                   |  
|Employees Retirement System              |  | 1.4                                   |  
|Catholic Archdiocese                     |  | 1.2                                   |  
|                                         |  |                                       |  
|Subtotal                                 |  | 36.9                                  |  
|Other employer groups (2,644 in number)  |  | 63.1                                  |  
|                                         |  |                                       |  
|                                         |  | 100.0                                 | %
|                                         |  |                                       |  

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. For
information regarding segment information for the Company, see Note 12, "Segment Reporting", on page 51 of this annual report on Form 10K.

Pursuant
to a service agreement, the Company utilizes BCBSUW's salaried sales force that as of December 31, 1999, consisted of 30 account executives, one agency manager, seven
agency consultants, and four sales directors, to market HMO products. The Company directly employs a sales staff of five account executives, one sales director, one agency manager and one agency
consultant who market products for Unity as well as BCBSUW.



Compcare, Valley and Unity contract with physicians and hospitals to provide medical services to their members. Compcare has an extensive provider network in
Southeastern Wisconsin, which included 4,486 physicians as of December 31, 1999. 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
53.4% of Valley's medical and other benefits are provided under an arrangement with Midelfort and its affiliate, Luther Hospital, which the Company believes are the
leading medical services providers in Eau Claire, Wisconsin. Arrangements with three smaller area clinics and five other hospitals provide a majority of the other medical and other benefits for
Valley. As of December 31, 1999, Valley's provider network consisted of 363 physicians. Approximately 79% of Valley's physician services are

7



provided
under the Midelfort arrangement. The relationship with Midelfort is generated by the Valley provider arrangement, which extends 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 Community Physicians' Network, Inc. ("CPN"), an IPA, and University Health Care, Inc. ("UHC"). UHC is a non-profit
tax-exempt corporation which contracts on behalf of the University of Wisconsin Hospital and Clinics, the University of Wisconsin Medical Foundation and the University of Wisconsin School
of Medicine. CPN and UHC provide the majority of physician services for Unity's membership throughout its 29 county service area. Unity has contracts with CPN and UHC through October 1, 2004.
CPN and UHC collectively contract with approximately 647 primary care providers and 2,409 specialists and ancillary health care providers. In addition, Unity contracts directly with approximately 53
acute care and specialty care hospitals.

Compcare,
Valley and Unity manage the cost of health care provided to members through the method of payment and risk-sharing programs with physician groups and hospitals
and through their respective utilization management programs. The method of payment consists of a combination 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 the level 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, 1999, approximately 39.6%, 20.7% and 92.6% 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 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 the 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.

As
of December 31, 1999, two capitated physician group participants in Compcare's provider network elected to participate in stop-loss arrangements with the
Company. Any cumulative costs in excess of $5,000 and $15,000 per participant 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 1999.



Valley has a provider arrangement with Midelfort. The current term of the provider arrangement is through December 31, 2002, with options for additional
renewal terms of one year each. During the initial five-year term of the provider arrangement, after-tax profits or losses were shared equally with Midlefort. Losses shared
with Midelfort equaled $0.5 million during 1999. Midelfort has an option to repurchase all the capital stock of Valley on December 31, 2002 for Valley's net equity plus $400,000. If
Midelfort exercises its repurchase option, the Company would have no ongoing interest in Valley.

Prior
to January 1, 2000, Unity had provider agreements with Community Health Systems, LLC ("CHS") and UHC that provided for profit-sharing. These agreements were renegotiated
in 1999 with an

8



effective
date of January 1, 2000. Under the original agreements, 50% of the pre-tax profits were shared, with CHS receiving 30% and UHC receiving 20%. The combined profit-sharing
payments from CHS and UHC equaled $1.9 million in 1999. CHS and UHC had options to repurchase the businesses originally sold to the Company on November 1, 1999. Under the renegotiated
agreements, the repurchase options can be exercised on November 1, 2004.

Under
the renegotiated agreements, which are effective on January 1, 2000, profit-sharing payments were eliminated with the exception of payments due to UHC for the years 2001
through 2004. During each year, UHC is eligible to receive a portion of the pre-tax income as an annual performance bonus, however the payments for the four-year period are
limited to $650,000. The renegotiated agreements are in effect for five years beginning January 1, 2000 and automatically renew for an additional five years unless either CHS or UHC exercise
their purchase option or there is a termination of the agreement for cause.

CHS
and UHC have options to repurchase the business originally sold to the Company including the increased membership relative to their respective provider networks on
December 31, 2004. CHS has the option to repurchase its proportionate share of Unity for the current net worth of the business being repurchased. UHC has the option to purchase its share of
Unity for $500,000 plus the proportionate share of the net worth of Unity attributable to the UHC business less any unpaid amount of the maximum performance bonus ($650,000). 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.



The majority of medical management and cost containment services for Compcare are provided by the Company's wholly-owned subsidiary, Innovative Resource
Group, Inc. ("IRG"). Cost containment for Valley and Unity is coordinated by medical directors in conjunction with the medical staffs of their providers.



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.

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 third parties.

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, disability and other products, managed care workers' compensation, consulting and cost containment, health care electronic data interchange, pharmaceutical management, managed care
consulting, 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. For
additional information on the Company's specialty managed care products, see Note 12, "Segment Reporting", on page 51 of this annual report on Form 10K.



In 1997, a separate corporate entity, Heartland Dental Plan, Inc. ("Heartland Dental"), was established to manage the Company's dental HMO operations
(formerly known as Dentacare). Prepaid dental services were provided to 181,200 members as of December 31, 1999, which makes Heartland Dental the

9



largest
dental HMO in Wisconsin. Premium revenues attributable to Heartland Dental were $31.2 million for the year ended December 31, 1999.

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 291 dental providers as of December 31, 1999. 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 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.



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, 1999,
the Company had a total of 288,200 life and disability certificates. Insured premium revenue related to life and disability products was $52.7 million for the year ended December 31,
1999. 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"), a wholly-owned subsidiary of the Company which is licensed in Ohio and Wisconsin.
UWLIC is licensed to do business in 39 states and the District of Columbia. United Wisconsin Insurance Company ("UWIC"), a wholly-owned subsidiary of the Company 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 1999, 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.



Through United Heartland, Inc. ("United Heartland"), a wholly-owned subsidiary of the Company, 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 assumes risk for coverage in those states where UWIC is not licensed to provide workers' compensation coverage. Health services revenue attributable to United Heartland approximated
$19.2 million during 1999. During 1999, the Company retained 70% of the workers' compensation risk and ceded the other 30% 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.

10



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 an average claim cost that was 40% lower than the industry average in Wisconsin
for the year ended December 31, 1999.

United
Heartland has formed a joint venture with HCSC to manage and sell workers'compensation business through a new managing general agency, United Heartland Illinois, which began
operation in October 1999. The joint venture will capitalize on United Heartland's expertise in applying managed care techniques to workers' compensation business.



Through Meridian Resource Corporation ("Meridian"), the Company specializes in providing consulting and cost containment 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. Cost containment services include
hospital bill audit, data analysis and reporting, claims audit subrogation recovery, collection and fraud investigation and recovery services. The Company competes against other stand-alone companies
that provide similar cost reduction strategies and other large insurance companies that provide these services. Revenues from managed care consulting services totaled $9.6 million for the year
ended December 31, 1999.



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 300 home health agencies nationwide. Proservices electronically transmits more than eight 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.



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 pharmacy benefit management. The pharmacy services division within Innovative
Resource Group, Inc. ("IRG") manages the pharmacy benefits for Compcare and BCBSUW, which approximates 0.5 million lives.



Effective June 1999, HCX managed care contributed assets to Meridian Managed Care, Inc. ("MMC"). Effective August 1999, MMC subsequently contributed common
stock to CNR Health, Inc. ("CNR"). Effective August 1999, Allegro, Ltd. and Intercare Network, Inc. merged into CNR, which subsequently changed its name to IRG. In addition, Right RX (a division of
Compcare) and Meridian Resource Consulting (a division of Meridian) are conducting business and operating in conjunction with IRG.

Joining
the strengths and resources of these care management companies allows IRG to provide clients with a broad array of coordinated care management services. The primary products
include medical

11



utilization
management and large case management, disease management, employees assistance programs, behavioral health management, integrated behavioral health and employee assistance programs,
behavioral health networks and claims administration, disability and workers compensation case management, telephonic nurse assisted triage lines, prenatal education programs and health care
consulting and data analysis. IRG's customers include self-funded employer groups, insurance companies, reinsurance companies, third party administrators and governmental agencies.

The
aggregation of these entities has enabled the Company to consolidate operating facilities, merge management information system resources and improve profitability.



Comprehensive Receivables Group, Inc. ("CRG"), formerly known as Ladd Enterprises, Inc., is a health care receivables management firm based in
Michigan and serves healthcare providers in the Midwest and Southeast and insurance providers on a national level. CRG provides collections and receivables
management services to hospitals and other commercial clients. Receivables management services provided within the health care industry represents 95% of CRG's 1999 total revenues of
$4.1 million.

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, 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 HMO products including Humana, Inc. and United Health Group Incorporated. 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. In addition, UWIC cedes to BCBSUW 100% of certain medical coverages. Approximately 30% of the Company's
workers' compensation business during 1999 was ceded to an independent non-affiliated reinsurer. Excess of loss reinsurance is used to limit 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. The Company limits its retention per claim to $75,000 on its life and disability business. 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 $40,000,000 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.

12



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 outlined in the Service 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, 1999, the Company paid approximately $11.7 million for such services,
and received approximately $12.0 million from BCBSUW for the provision of such services.

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, Yankee securities, equity securities and mutual funds. The minimum
average rating of the fixed income portfolio 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, 1999, $29.3 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.

13



The
table below reflects investment results for the years indicated:

|                                                |  | Years ended December 31, |        
|----------------------------------------------- |  | ------------------------ | -------
|
|
|Average invested assets(1)                      |  | $                        | 161,872
|Net investment income(2)                        |  |                          | 9,413  
|Average yield                                   |  |                          | 5.82   
|Net realized gains                              |  |                          | 2,145  
|Net unrealized gains (losses) on stocks & bonds |  |                          | (4,982 

---

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 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.

Federal
legislation has significantly expanded regulation of group health plans and health care coverage. The 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.

HIPAA.The federal Health Insurance Portability and Accountability Act of 1996 ("HIPAA") contained provisions requiring
mandatory standardization of certain communications between health plans, electronic clearinghouses and providers who submit certain health information electronically. HIPAA requires health plans to
use specific data content standards, mandates the use of specific identifiers

14



(e.g.,
national provider identifiers and national employer identifiers) and requires specific security requirements. Final regulations on these requirements and privacy of health care information
standards are expected from the Department of Health and Human Services ("DHHS") in 2000. Health plans must be in compliance within two years of publication of the final rules. The Company is tracking
the development of the final regulations and working with various national trade organizations to provide comments to DHHS on the impact of the rules and to develop implementation plans.

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 Office of Prepaid Health Care at the Health Care Financing
Administration.

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 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 intends to make capital contributions on an ongoing basis to satisfy all promulgated capital and surplus requirements, as needed.

15



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, 1999, $1.3 million is available for 2000 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 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 IRG 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. IRG 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 charged with enforcement of
ERISA and may develop new regulations which result in additional constraints on ERISA-governed benefit plans. 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

16



specialty
businesses and may permit greater state regulation of other aspects of those businesses' operations.

Employees

As of December 31, 1999, the Company employed 1,256 full-time and 79 part-time employees, of whom 253 were managerial and
supervisory personnel. Of these employees, 28 were represented by a union. In addition, the Company leases the services of 63 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 service marks 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 utilized space in a Milwaukee regional office leased by
BCBSUW, which has approximately 217,000 square feet of office and warehouse space. However, this lease expired on December 31, 1999. Consequently, during 1999, the Company transitioned certain
operations to 45,000 square feet of leased office space located in New Berlin, Wisconsin, approximately 12,000 square feet located in Platteville, Wisconsin, and 32,000 combined square feet at two
locations in Waukesha, Wisconsin. 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. IRG and CRG both lease facilities including 9,900 square feet in Hartford, Wisconsin and 12,500 combined square feet at three locations in Michigan, respectively.

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 1999.

17



ITEM 4a.  Executive Officers of the Registrant

The name, age, title and business backgrounds of each of the executive officers are set forth below. Certain 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
spin-off distribution. Certain 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 1, 2000, the executive officers of the Company are as follows:

|Name                 |  | Age |  | Title                                                                 
|-------------------- |  | --- |  | ----------------------------------------------------------------------
|Thomas R. Hefty      |  | 52  |  | Chairman of the Board, President, Chief Executive Officer and Director
|Stephen E. Bablitch  |  | 46  |  | Vice President, General Counsel and Secretary                         
|Devon W. Barrix      |  | 57  |  | Vice President                                                        
|Michael E. Bernstein |  | 39  |  | Senior Vice President                                                 
|Frank M. Cino        |  | 43  |  | Vice President and Controller                                         
|Gail L. Hanson       |  | 44  |  | Vice President, Chief Financial Officer and Treasurer                 
|James E. Hartert     |  | 45  |  | Vice President; and President of IRG                                  
|Catherine S. Harvey  |  | 37  |  | Senior Vice President                                                 
|Thomas E. Liechty    |  | 48  |  | Vice President; and President of UWIC and UHLIC                       
|Herbert B. Olson     |  | 44  |  | Vice President and Chief Actuary                                      
|Emil E. Pfenninger   |  | 48  |  | Vice President; and President of United Heartland                     
|Penny J. Siewert     |  | 42  |  | Vice President of Regional Services                                   
|Mary I. Traver       |  | 49  |  | Vice President; and President of Compcare                             

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. Heftyis 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. Bablitchis 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.

Devon W. Barrixis 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.

Michael E. Bernsteinis Senior Vice President of the Company. Mr. Bernstein was elected a Senior Vice President in February of
2000. Mr. Bernstein was elected Senior Vice President of BCBSUW in March of 2000. Prior to joining UWS and BCBSUW, Mr. Bernstein served as executive vice president for the University of
Wisconsin Medical Foundation in Madison, Wisconsin from 1998 through 1999. From 1996 to 1998, Mr. Bernstein was senior vice president at University Health Care, Inc.

18



Frank M. Cinois Vice President and Controller of the Company. Mr. Cino was elected a Vice President in December of 1999.
Mr. Cino was elected Vice President of BCBSUW in December 1999. Prior to joining UWS and BCBSUW, Mr. Cino was employed with Ernst & Young, LLP, New York in various
positions from 1985 to 1999, most recently as senior manager of health care industry services.

Gail L. Hansonis Vice President, Chief Financial Officer and Treasurer of the Company. Ms. Hanson was named Chief Financial
Officer of the Company effective August 2, 1999 to fill a vacancy created by the retirement of the previous CFO. Ms. Hanson has been 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.

James E. Hartert, M.D.is Vice President of the Company. Dr. Hartert was elected a Vice President in May of
1999. He was elected President of IRG in July of 1999. He has also served in various capacities with the Company's subsidiaries since 1996. Dr. Hartert was elected Vice President of BCBSUW in
March of 1999. Prior to joining UWS and BCBSUW, Dr. Hartert was employed by Humana Health Care Plans as Chief Medical Officer for the Kentucky market from 1994 to 1996.

Catherine S. Harveyis Senior Vice President of the Company. Ms. Harvey was elected a Senior Vice President in February of 2000.
Ms. Harvey was elected Senior Vice President of BCBSUW in March of 2000. Prior to joining UWS and BCBSUW, Ms. Harvey was vice president of health services operations/ delivery systems
management at United HealthCare in Minneapolis, Minnesota from 1997 to 1999. From 1995 to 1996, Ms. Harvey was employed with Towers Perrin Integrated Healthsystems Consulting in Minneapolis,
Minnesota as a senior consultant.

Thomas E. Liechtyis Vice President of the Company. Mr. Liechty was elected a Vice President in August of 1999. He was elected
President of UWIC and UHLIC in July of 1999. Mr. Liechty was previously Regional Vice President for the Northeastern Region of BCBSUW from 1988 to 1999.

Herbert B. Olsonis 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. Pfenningeris 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. Siewertis 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, Vice President of Regional Services for BCBSUW in 1995 and Senior Vice President for BCBSUW in 1999.

Mary I. Traveris 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 was elected President of Compcare in February of 1999.

19



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.

|                              |  | High |      | Low |   | Cash
Dividends
Paid
|----------------------------- |  | ---- | ---- | --- | - | -------------------
|Year Ended December 31, 1999: |  |      |      |     |   |                    
|First Quarter                 |  | $    | 9.06 |     | $ | 5.75               
|Second Quarter                |  | $    | 8.94 |     | $ | 5.63               
|Third Quarter                 |  | $    | 9.38 |     | $ | 5.50               
|Fourth Quarter                |  | $    | 5.81 |     | $ | 4.00               

|                                      |  | High |      | Low |   | Cash
Dividends
Paid
|------------------------------------- |  | ---- | ---- | --- | - | -------------------
|Year Ended December 31, 1998:         |  |      |      |     |   |                    
|First Quarter                         |  |      | N/A  |     |   | N/A                
|Second Quarter                        |  |      | N/A  |     |   | N/A                
|Third Quarter from September 28, 1998 |  | $    | 7.19 |     | $ | 5.81               
|Fourth Quarter                        |  | $    | 9.31 |     | $ | 4.81               

An
annual dividend of $0.05 per share was paid on December 29, 1999 to shareholders of record at the close of business on December 22, 1999.

As
of February 11, 2000, there were 252 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 presents consolidated financial information with respect to the Company. The balance sheet data as of December 31,
1999, 1998 and 1997 and the statement of income data for each of the four years in the period ended December 31, 1999, have been derived from the audited consolidated financial statements and
notes thereto of the Company. The balance sheet data as of December 31, 1995 has 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

20



financial
statements, the related notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations".

|                                                      |  | As of and for the year ended December 31, |        
|----------------------------------------------------- |  | ----------------------------------------- | -------
|
|
|Statement of Income Data:                             |  |                                           |        
|Revenues:                                             |  |                                           |        
|Health Services Revenues:                             |  |                                           |        
|Premium revenue                                       |  | $                                         | 651,567
|Other revenue                                         |  |                                           | 41,586 
|Investment results                                    |  |                                           | 11,371 
|                                                      |  |                                           |        
|Total revenues                                        |  |                                           | 704,524
|Expenses:                                             |  |                                           |        
|Medical and other benefits                            |  |                                           | 621,916
|Selling, general and administrative                   |  |                                           | 127,404
|Interest                                              |  |                                           | 5,293  
|Profit (loss) sharing on provider arrangements        |  |                                           | (4,096 
|Amortization of goodwill and other Intangibles        |  |                                           | 796    
|                                                      |  |                                           |        
|Total expenses                                        |  |                                           | 751,313
|                                                      |  |                                           |        
|Income (loss) before income tax                       |  |                                           | (46,789
|Income tax expense (benefit)                          |  |                                           | (17,785
|                                                      |  |                                           |        
|Net income (loss)                                     |  | $                                         | (29,004
|                                                      |  |                                           |        
|Pro forma net income (1)                              |  |                                           |        
|                                                      |  |                                           |        
|Operating Statistics:                                 |  |                                           |        
|Medical loss ratio (2)                                |  |                                           | 95.5   
|Selling, general and administrative expense ratio (3) |  |                                           | 18.4   
|Net income margin (4)                                 |  |                                           | N/A    
|Balance Sheet Data:                                   |  |                                           |        
|Cash and investments                                  |  | $                                         | 146,128
|Total assets                                          |  |                                           | 297,154
|Note payable to affiliate                             |  |                                           | 70,000 
|Total shareholders' equity                            |  |                                           | 31,032 
|Pro forma note payable to affiliate (1)               |  |                                           |        
|Pro forma total shareholders' equity (1)              |  |                                           |        

---

21





ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

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

The
Company is a leading provider of managed health care services and employee benefit products. The Company's two primary product lines are (i) Health Maintenance Organization
("HMO") products sold primarily in Wisconsin, 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.

Summary of Operating Results and Statistics

|                                                           |  | At December 31,
|---------------------------------------------------------- |  | ---------------
|
|Members at end of period:                                  |  |                
|HMO members by business unit:                              |  |                
|Compcare                                                   |  | 184,462        
|Valley                                                     |  | 42,814         
|Unity                                                      |  | 89,773         
|                                                           |  |                
|Total HMO products members                                 |  | 317,049        
|                                                           |  |                
|Specialty managed care products and services:              |  |                
|Life/AD&D                                                  |  | 166,197        
|Dental HMO                                                 |  | 181,236        
|Behavioral health                                          |  | 1,023,722      
|Workers' compensation                                      |  | 57,358         
|Disability and other                                       |  | 136,070        
|                                                           |  |                
|Total specialty managed care products and services members |  | 1,564,583      
|                                                           |  |                

|                                                        |  | Year ended December 31, |   
|------------------------------------------------------- |  | ----------------------- | --
|
|Health services revenue (as a percentage of the total): |  |                         |   
|HMO products                                            |  | 80.0                    | % 
|Specialty managed care products and services:           |  |                         |   
|Service products                                        |  | 8.1                     | % 
|Risk products                                           |  | 14.3                    | % 
|Intercompany eliminations                               |  | (2.4                    | )%
|                                                        |  |                         |   
|Total                                                   |  | 100.0                   | % 
|                                                        |  |                         |   

22



|                                                      |  | Year ended December 31, |  
|----------------------------------------------------- |  | ----------------------- | -
|
|Operating Statistics:                                 |  |                         |  
|HMO Products:                                         |  |                         |  
|Medical loss ratio (1)                                |  | 99.8                    | %
|Selling, general and administrative expense ratio (2) |  | 10.4                    | %
|Specialty managed care products and services:         |  |                         |  
|Service products:                                     |  |                         |  
|Operating expense ratio (3)                           |  | 91.1                    | %
|Risk products:                                        |  |                         |  
|Loss ratio (1)                                        |  | 75.2                    | %
|Selling, general and administrative expense ratio (2) |  | 25.1                    | %

---

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.

1999 Compared with 1998 and 1998 Compared with 1997

Total Revenues

Total revenues in 1999 increased 7.1% to $704.5 million from $657.6 million in 1998. Total revenues in 1998 increased 8.0% from
$609.1 million in 1997. These increases were due primarily to increased membership in most of the major product lines, general premium and rate increases and acquisitions of specialty
businesses since July of 1998.

Health Services RevenueHMO health services revenue in 1999 increased 6.9% to $554.7 million from
$518.7 million in 1998. HMO health services revenue in 1998 increased 8.2% from $479.2 million in 1997. 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 1999 increased 4.7% from 1998 and increased 4.3% in 1998 from 1997, as a result
of premium increases. The average number of HMO medical members in 1999 increased 2.8% to 306,007 from 297,737 in 1998. The average number of HMO medical members in 1998 increased 3.5% from 287,534 in
1997. This increase in 1998 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.

Health
services revenue for specialty managed care products and services in 1999 increased 12.6% to $155.1 million from $137.7 million in 1998. This was the result of a
decrease in the percentage of ceded reinsurance, along with increases in covered lives, premium rates on insurance products and additional revenue of $4.5 million from recent acquisitions.
During the third quarter of 1999, the Company formed Innovative Resources Group, Inc. ("IRG"), which is comprised of three of the Company's recent acquisitions and two existing specialty
managed care subsidiaries. IRG provides medical and behavioral

23



health
management services, case management, employee assistance programs, and workers' compensation case management and pharmacy management services. Health services revenue in 1998 increased 11.1%
from $123.9 million in 1997. The increase was due to an increase of $8.4 million relative to life and disability products, an increase of $1.4 million in dental premiums and an
increase in managed behavioral health and managed care consulting. The increases in life and disability premiums were driven by membership increases of 24.1% in 1998. In addition, acquisitions during
1998 provided $1.0 million of additional revenue.

Net Investment ResultsInvestment results include investment income and realized gains on the sale of investments.
Investment results in 1999 decreased 40.0% to $11.4 million from $19.0 million in 1998. Investment results in 1998 increased 14.4% from $22.2 million in 1997. Average annual
investment yields, excluding net realized gains, were 5.8%, 5.5% and 5.8% for 1999, 1998 and 1997, respectively. The decrease in investment results during 1999 is the result of fewer invested assets.
Fewer invested assets resulted from the Company liquidating a portion of the bond portfolio (which were primarily in unrealized loss positions) to generate cash to fund operations.

Average
invested assets in 1999 decreased 12.6% to $161.9 million from $185.2 million in 1998. The decrease in average invested assets during 1999 is a result of cash
requirements necessary to fund operating losses and increased cash payments relative to medical and other benefits payable. Average invested assets in 1998 increased 3.2% from $179.5 million in
1997. Changes in levels of average invested during 1998 assets relate to ongoing operations, including collection of receivables and timing of claim payments.

Investment
gains are realized in the normal investment process in response to market opportunities. Realized gains decreased to $2.1 million in 1999 from $9.1 million in
1998. Realized gains in 1998 decreased from $11.9 million in 1997.

Expense Ratios

Loss RatioThe consolidated loss ratio represents the ratio of medical and other benefits to
premium revenue on a consolidated basis, and is therefore a blended ratio for medical, life, dental, disability and other product lines. The consolidated loss ratio was 95.5% in 1999 compared with
85.3% in 1998 and 86.5% in 1997. The 1999 consolidated loss ratio is influenced by the component loss ratios for each of the Company's two primary product lines, as discussed below.

The
medical loss ratio for HMO products for 1999 was 99.8%, compared with 88.8% for 1998 and 90.1% for 1997. The increase in the medical loss ratio in 1999 for HMO products is
primarily the result of $15.6 million in prior year adverse reserve development, along with $16.1 million in current year adverse reserve development and $0.9 million of premium
deficiency reserve for anticipated future losses related to the Medicaid business. Although the claims inventory remains stable following the Company's conversion to a Year 2000 compliant computer
system, actuarial data indicate an increase in the lag between the time some HMO services were provided and the date the claims for those services were submitted by providers for payment. The increase
in claim reserves is intended to cover the higher level of outstanding claims. 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
loss ratio for the risk products within specialty managed care products and services in 1999 was 75.2%, compared with 70.9% in 1998 and 71.5% in 1997. The loss ratios principally
relate to the life, disability, workers' compensation and dental product lines of business. These products represent relatively small blocks of business, and as a result, the loss ratio can exhibit
significant volatility due to varying levels of claim frequency and severity. Generally, the anticipated aggregate loss ratio for specialty risk products should range between 70% and 75%. The higher
loss ratios in 1999 are attributable to an increase in the life and disability claims, along with lower premium and rate increases in 1999 given the competitive marketplace conditions for disability
and workers' compensation products. In addition, United Heartland, Inc. workers' compensation block of business had achieved better than expected results during 1998,

24



while
the 1999 results represent an increased loss ratio that is more in line with industry and targeted results.

Selling, General and Administrative Expense RatioThe selling, general and administrative ("SGA") expense ratio includes
commissions, administrative expenses, and premium taxes and other assessments. The SGA expense ratio for HMO products in 1999 was 10.4%, compared with 9.6% in 1998 and 9.3% in 1997.  
The majority of the increase in the SGA expense ratio related to costs incurred to reduce Compcare's claim backlog and process claim adjustments, which were attributed to the system conversion as part
of the Company's implementation of its Year 2000 readiness program and to increased customer service demands.

SGA
expense ratio related to the risk products within specialty managed care products and services in 1999 was 25.1%, compared with 24.8% in 1998 and 23.3% in 1997. Increases in SGA
expenses correlate to premium and other revenue increases which were 5.9% in 1999 compared with 1998 and 11.7% in 1998 compared with 1997. In addition, the Company incurred higher Year 2000 readiness
expenses during 1999. The mix of business shifted between 1998 and 1997, as a result of greater growth in ancillary lines of business that have higher SGA expense ratios.

The
operating expense ratio related to the service products within specialty managed care products and services in 1999 was 91.1% compared with 90.9% in 1998 and 95.7% in 1997. The
deterioration in 1999 compared to 1998 is mainly attributable to an increase in the allowance for doubtful accounts. The improvement in 1998 compared to 1997 is due to successful product pricing
strategies within the Behavioral Health line of business.

Other Expenses

Profit (loss) sharing on provider arrangements was $(4.1) million in 1999, compared with $2.8 million in 1998 and $3.4 million in 1997, 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 (loss) sharing
expenses related to the Unity and Valley provider arrangements are calculated based on the profitability of the HMO, which amounted to $(2.4) million, $3.2 million and $4.0 million in
1999, 1998 and 1997, respectively.

Included
in other operations in 1999 is $5.3 million of interest expense compared to $1.4 million in 1998. The Company assumed a $70 million debt owed to BCBSUW
as of September 11, 1998. Interest expense related to the $70 million debt was $4.8 million and $1.4 million in 1999 and 1998, respectively. The Company also participates
with BCBSUW in a bank line-of-credit, which permits aggregate borrowings up to $30 million. Interest expense related to the bank line-of-credit was $0.5 million and $0.1 million
in 1999 and 1998, respectively.

Amortization
of goodwill and other intangibles was $0.8 million for 1999 compared with $0.5 million for 1998 and $0.8 million for 1997. The increase in 1999 is
due to goodwill arising from recent acquisitions. The reduction in 1998 is due to full amortization of certain intangibles.

Net Income

Consolidated net income (loss) in 1999 decreased to $(29.0) million from $18.1 million in 1998. Consolidated net income in 1998 increased 14.5% from
$15.8 million in 1997. The decrease in 1999 resulted mainly from $16.1 million in current year reserve development and $15.6 million in prior year reserve development and an
increase of $12.6 million in the allowance for doubtful accounts. In addition to these charges, 1999 included $2.8 million of charges for various transactions and reorganization costs.
The charges are included in other operations.

The
Company's effective tax rate was 38.0% in 1999, compared with 39.4% in 1998 and 37.4% in 1997. The Company's effective tax rate fluctuates based upon the relative profitability of
the Company's two

25



reportable
business segments and the differing effective tax rates for each subsidiary within those reportable segments. The effective tax rates range from 32% to 46%.

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. However, in 1999, net cash used in operating activities amounted to $45.2 million,
compared with net cash provided
by operating activities of $21.9 million for 1998. In addition to the net loss from operations, the decrease in cash flows from operations in 1999 was due primarily to increased cash payments
relative to medical and other benefits payable and an increase in current prepaid tax receivable. Due to periodic cash flow requirements of certain subsidiaries, the Company made borrowings under its
bank line-of-credit ranging up to $20.2 million during 1999 and $10.0 million during 1998 to meet short-term cash needs. The outstanding balance was
$11.6 million at December 31, 1999, while no balance was outstanding at December 31, 1998.

The
Company's investment portfolio consists primarily of investment grade bonds and Government securities and has a limited exposure to equity securities. At December 31, 1999,
$105.0 million or 80.9% of the Company's total investment portfolio was invested in bonds compared with $133.1 million or 80.0% at December 31, 1998. The bond portfolio had an
average quality rating by Moody's Investor Service of Aa3 at December 31, 1999 and 1998. The majority of the bond portfolio was classified as available-for-sale. The
market value of the total investment portfolio, which includes stocks and bonds, was less than amortized cost by $4.98 million at December 31, 1999 and exceeded amortized cost by
$1.9 million at December 31, 1998. 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 (except for principal-only strips of U.S.
Government securities), real estate held for investment or financial derivatives.

From
time to time, capital contributions are made to the subsidiaries to assist them in maintaining appropriate levels of capital and surplus for regulatory and rating purposes.
Insurance subsidiaries are required to maintain certain levels of statutory capital and surplus under the National Association of Insurance Commissioners ("NAIC") and the State of Wisconsin
requirements. 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. The Company intends to make capital contributions on an ongoing basis to satisfy all promulgated capital and surplus requirements, as needed.

The
amount of dividends, which may be paid to the Company from insurance subsidiaries, is 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
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 a 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.

26



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, 2002,
at a price equal to Valley's net assets plus $400,000.

Pursuant
to the terms of the Unity purchase agreements, as amended, the sellers retained options to repurchase the net assets of the acquired companies as of December 31, 2004.
One seller has the option to repurchase a portion of Unity's business for $500,000 plus the proportionate share of the net worth of such business less any unpaid amount of the maximum annual
performance bonuses. The maximum
annual performance bonuses are limited to $650,000 in total. 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 $220,235,000, $207,014,000 and $186,318,000 for 1999, 1998 and 1997,
respectively. Profit (loss) sharing expenses related to these provider arrangements is calculated based on the profitability of the HMO subsidiary and totaled $(2,366,000), $3,171,000 and $3,960,000
in 1999, 1998 and 1997, respectively. Total net income (loss) subject to repurchase options, pursuant to the various acquisition agreements, totaled $(1,071,000), $2,358,000 and $2,395,000 for 1999,
1998 and 1997, respectively. Total assets and total net assets subject to repurchase options were $39,409,000 and $16,970,000, respectively, at December 31, 1999 and $44,798,000 and
$21,362,000, respectively, at December 31, 1998.

Should
the buy back options be exercised, the Company 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.

Impact of Year 2000

In prior years, the Company discussed the nature and progress of its plans to become Year 2000 ready. In late 1999, the Company completed its remediation and
testing of systems. As a result of those planning and implementation efforts, the Company experienced no significant disruptions in mission critical information technology and
non-information technology systems and believes those systems successfully responded to the Year 2000 date change. The Company expensed approximately $3.6 million during 1999 in
connection with remediating its systems. The Company is not aware of any material problems resulting from Year 2000 issues, either with its products, its internal systems, or the products and services
of third parties. The Company will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000
matters that may arise are addressed promptly.

ITEM 7a. Quantitative and Qualitative Disclosures about Market Risk

Of the $146.1 million of cash and investments held by the Company at December 31, 1999, approximately $16.3 million were cash and cash
equivalents and $9.1 million were securities that were

27



being
held-to-maturity. The remaining $120.7 million representing available-for-sale securities is comprised of $15.7 million in equities
and $105.0 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, 1999 were $81.6 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 asset 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,
1999 and incorporates assumptions regarding the impact of changing interest rates on expected cash flows for certain financial assets with prepayment features, such as callable bonds and
mortgage-backed securities. The reduction in the fair value of the Company's modeled financial assets resulting from a hypothetical instantaneous 100 basis point increase in the U.S. Treasury yield
curve is estimated at $4.8 million as of December 31, 1999.

ITEM 8. Financial Statements and Supplementary Data.

|                                                                                              |  | Form 10-K
Page Number
|--------------------------------------------------------------------------------------------- |  | ---------------------
|Report of Independent Auditors                                                                |  | 29                   
|Consolidated Financial Statements                                                             |  |                      
|Consolidated Balance Sheets                                                                   |  | 30                   
|Consolidated Statements of Operations                                                         |  | 31                   
|Consolidated Statements of Changes in Shareholders' Equity and
Comprehensive Income (Deficit) |  | 32                   
|Consolidated Statements of Cash Flows                                                         |  | 33                   
|Notes to Consolidated Financial Statements                                                    |  | 34                   

28



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, 1999 and 1998, and the related
statements of operations, changes in shareholders' equity and comprehensive income (deficit) and cash flows for each of the three years in the period ended December 31, 1999. Our audits also
included 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 auditing standards generally accepted in the United States. 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, 1999
and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. 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
February 11, 2000 |  | ERNST & YOUNG, LLP
|-------------------------------------- |  | ------------------

29



United Wisconsin Services, Inc.

Consolidated Balance Sheets

|                                                                                                                                                                                |  | December 31,
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------
|
|
|Assets                                                                                                                                                                          |  |             
|Current assets:                                                                                                                                                                 |  |             
|Cash and cash equivalents                                                                                                                                                       |  | $           
|Investmentsavailable-for-sale, at fair value                                                                                                                                   |  |             
|Premium receivables                                                                                                                                                             |  |             
|Due from clinics and providers                                                                                                                                                  |  |             
|Other receivables                                                                                                                                                               |  |             
|Prepaid expenses and other current assets                                                                                                                                       |  |             
|                                                                                                                                                                                |  |             
|Total current assets                                                                                                                                                            |  |             
|Investmentsheld-to-maturity, at amortized cost                                                                                                                                 |  |             
|Property and equipment, net                                                                                                                                                     |  |             
|Goodwill and other intangibles, net                                                                                                                                             |  |             
|Other noncurrent assets                                                                                                                                                         |  |             
|                                                                                                                                                                                |  |             
|Total assets                                                                                                                                                                    |  | $           
|                                                                                                                                                                                |  |             
|Liabilities and shareholders' equity                                                                                                                                            |  |             
|Current liabilities:                                                                                                                                                            |  |             
|Medical and other benefits payable                                                                                                                                              |  | $           
|Advance premiums                                                                                                                                                                |  |             
|Note payable to affiliates                                                                                                                                                      |  |             
|Due to affiliatesother                                                                                                                                                         |  |             
|Payables and accrued expenses                                                                                                                                                   |  |             
|Other current liabilities                                                                                                                                                       |  |             
|                                                                                                                                                                                |  |             
|Total current liabilities                                                                                                                                                       |  |             
|Noncurrent liabilities:                                                                                                                                                         |  |             
|Note payable to affiliates                                                                                                                                                      |  |             
|Medical and other benefits payable                                                                                                                                              |  |             
|Other noncurrent liabilities                                                                                                                                                    |  |             
|                                                                                                                                                                                |  |             
|Total noncurrent liabilities                                                                                                                                                    |  |             
|                                                                                                                                                                                |  |             
|Total liabilities                                                                                                                                                               |  |             
|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, 16,939,682 and 16,812,081 shares issued and outstanding at December 31, 1999 and 1998, respectively) |  |             
|Retained earnings                                                                                                                                                               |  |             
|Accumulated other comprehensive income (deficit)                                                                                                                                |  |             
|                                                                                                                                                                                |  |             
|Total shareholders' equity                                                                                                                                                      |  |             
|                                                                                                                                                                                |  |             
|Total liabilities and shareholders' equity                                                                                                                                      |  | $           
|                                                                                                                                                                                |  |             

See accompanying notes.

30



United Wisconsin Services, Inc.

Consolidated Statement of Operations

|                                               |  | Year ended December 31,
|---------------------------------------------- |  | -----------------------
|
|
|Revenues:                                      |  |                        
|Health services revenues:                      |  |                        
|Premium revenue                                |  | $                      
|Other revenue                                  |  |                        
|Investment results                             |  |                        
|                                               |  |                        
|Total revenues                                 |  |                        
|Expenses:                                      |  |                        
|Medical and other benefits                     |  |                        
|Selling, general and administrative            |  |                        
|Profit (loss) sharing on provider arrangements |  |                        
|Interest                                       |  |                        
|Amortization of goodwill and other intangibles |  |                        
|                                               |  |                        
|Total expenses                                 |  |                        
|                                               |  |                        
|Income (loss) before income tax                |  |                        
|Income tax expense (benefit)                   |  |                        
|                                               |  |                        
|Net income (loss)                              |  | $                      
|                                               |  |                        

See accompanying notes.

31



United Wisconsin Services, Inc.

Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income (Deficit)

|                                                                                              |  | Common Shares
Outstanding |  | Common
Stock |        | Retained
Earnings |   | Investments by
and Advances
from AMSG |   | Accumulated Other
Comprehensive
Income (Deficit),
net of taxes |         | Total
Shareholders'
Equity |  
|--------------------------------------------------------------------------------------------- |  | ------------------------- |  | ------------ | ------ | ----------------- | - | ------------------------------------- | - | -------------------------------------------------------------- | ------- | -------------------------- | -
|
|Balance at December 31, 1996                                                                  |  |                          |  | $            |       |                   | $ |                                      |   | $                                                              | 119,923 |                            | $
|Comprehensive income:                                                                         |  |                           |  |              |        |                   |   |                                       |   |                                                                |         |                            |  
|Net income                                                                                    |  |                          |  |              |       |                   |   |                                      |   |                                                                | 15,784  |                            |  
|Change in unrealized gains/losses on investments                                              |  |                          |  |              |       |                   |   |                                      |   |                                                                |        |                            |  
|                                                                                              |  |                           |  |              |        |                   |   |                                       |   |                                                                |         |                            |  
|Comprehensive income                                                                          |  |                           |  |              |        |                   |   |                                       |   |                                                                |         |                            |  
|                                                                                              |  |                           |  |              |        |                   |   |                                       |   |                                                                |         |                            |  
|Change in investment by and advances
from AMSG                                                |  |                          |  |              |       |                   |   |                                      |   |                                                                | (15,302 | )                          |  
|                                                                                              |  |                           |  |              |        |                   |   |                                       |   |                                                                |         |                            |  
|Balance at December 31, 1997                                                                  |  |                          |  |              |       |                   |   |                                      |   |                                                                | 120,405 |                            |  
|Comprehensive income:                                                                         |  |                           |  |              |        |                   |   |                                       |   |                                                                |         |                            |  
|Net income                                                                                    |  |                          |  |              |       |                   |   | 3,572                                 |   |                                                                | 14,506  |                            |  
|Change in unrealized gains/losses
on investments                                              |  |                          |  |              |       |                   |   |                                      |   |                                                                |        |                            |  
|                                                                                              |  |                           |  |              |        |                   |   |                                       |   |                                                                |         |                            |  
|Comprehensive income                                                                          |  |                           |  |              |        |                   |   |                                       |   |                                                                |         |                            |  
|                                                                                              |  |                           |  |              |        |                   |   |                                       |   |                                                                |         |                            |  
|Cash dividends paid on common stock                                                           |  |                          |  |              |       |                   |   | (839                                  | ) |                                                                |        |                            |  
|Change in investment by and advances from AMSG                                                |  |                          |  |              |       |                   |   |                                      |   |                                                                | (76,133 | )                          |  
|Distribution of equity to the Company from AMSG                                               |  |                          |  |              | 11,423 |                   |   | 47,355                                |   |                                                                | (58,778 | )                          |  
|Issuance of common stock, no par value, in connection with the Spin-off                       |  | 16,573,202                |  |              |       |                   |   |                                      |   |                                                                |        |                            |  
|Issuance of common stock, no par value, related to acquisition and dividend reinvestment plan |  | 238,879                   |  |              | 1,955  |                   |   |                                      |   |                                                                |        |                            |  
|                                                                                              |  |                           |  |              |        |                   |   |                                       |   |                                                                |         |                            |  
|Balance at December 31, 1998                                                                  |  | 16,812,081                |  |              | 13,378 |                   |   | 50,088                                |   |                                                                |        |                            |  
|Comprehensive loss:                                                                           |  |                           |  |              |        |                   |   |                                       |   |                                                                |         |                            |  
|Net loss                                                                                      |  |                          |  |              |       |                   |   | (29,004                               | ) |                                                                |        |                            |  
|Change in unrealized gains/losses
on investments                                              |  |                          |  |              |       |                   |   |                                      |   |                                                                |        |                            |  
|                                                                                              |  |                           |  |              |        |                   |   |                                       |   |                                                                |         |                            |  
|Comprehensive loss                                                                            |  |                           |  |              |        |                   |   |                                       |   |                                                                |         |                            |  
|                                                                                              |  |                           |  |              |        |                   |   |                                       |   |                                                                |         |                            |  
|Cash dividends paid on common stock                                                           |  |                          |  |              |       |                   |   | (842                                  | ) |                                                                |        |                            |  
|Issuance of common stock, no par value, related to acquisition and dividend reinvestment plan |  | 127,601                   |  |              | 674    |                   |   |                                      |   |                                                                |        |                            |  
|                                                                                              |  |                           |  |              |        |                   |   |                                       |   |                                                                |         |                            |  
|Balance at December 31, 1999                                                                  |  | 16,939,682                |  | $            | 14,052 |                   | $ | 20,242                                |   | $                                                              |        |                            | $
|                                                                                              |  |                           |  |              |        |                   |   |                                       |   |                                                                |         |                            |  

See accompanying notes.

32



United Wisconsin Services, Inc.

Consolidated Statements of Cash Flows

|                                                                                                   |  | Year ended December 31, |         
|-------------------------------------------------------------------------------------------------- |  | ----------------------- | --------
|
|
|Operating activities                                                                               |  |                         |         
|Net income (loss)                                                                                  |  | $                       | (29,004 
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |  |                         |         
|Depreciation and amortization                                                                      |  |                         | 3,585   
|Realized investment gains                                                                          |  |                         | (2,145  
|Deferred income tax (benefit) liability                                                            |  |                         | (12,383 
|Changes in other operating accounts net of acquisitions in 1999 and in 1998:                       |  |                         |         
|Other receivables                                                                                  |  |                         | (7,046  
|Due from clinics and providers                                                                     |  |                         | 458     
|Medical and other benefits payable                                                                 |  |                         | 8,308   
|Advance premiums                                                                                   |  |                         | 5,664   
|Due to/from affiliates                                                                             |  |                         | 4,516   
|Prepaid taxescurrent                                                                              |  |                         | (9,395  
|Other, net                                                                                         |  |                         | (7,796  
|                                                                                                   |  |                         |         
|Net cash provided by (used in) operating activities                                                |  |                         | (45,238 
|Investing activities                                                                               |  |                         |         
|Acquisition of subsidiaries (net of cash and cash equivalents acquired of $253,000 and $549,000)   |  |                         | (3,605  
|Purchases of available-for-sale investments                                                        |  |                         | (119,594
|Proceeds from sale of available-for-sale investments                                               |  |                         | 143,761 
|Proceeds from maturity of available-for-sale investments                                           |  |                         | 8,650   
|Purchases of held-to-maturity investments                                                          |  |                         | (1,460  
|Proceeds from maturity of held-to-maturity investments                                             |  |                         |        
|Additions to property and equipment, net                                                           |  |                         | (3,140  
|Purchase of minority interest in subsidiary                                                        |  |                         |        
|                                                                                                   |  |                         |         
|Net cash provided by (used in) investing activities                                                |  |                         | 24,612  
|Financing activities                                                                               |  |                         |         
|Cash dividends paid                                                                                |  |                         | (842    
|Issuance of common stock                                                                           |  |                         | 394     
|Proceeds from line of credit                                                                       |  |                         | 11,550  
|Decrease in investments by and advances from AMSG                                                  |  |                         |        
|Repayment of debt                                                                                  |  |                         | (607    
|                                                                                                   |  |                         |         
|Net cash provided by (used in) financing activities                                                |  |                         | 10,495  
|                                                                                                   |  |                         |         
|Cash and cash equivalents:                                                                         |  |                         |         
|Increase (decrease) during year                                                                    |  |                         | (10,131 
|Balance at beginning of year                                                                       |  |                         | 26,385  
|                                                                                                   |  |                         |         
|Balance at end of year                                                                             |  | $                       | 16,254  
|                                                                                                   |  |                         |         

See accompanying notes.

33



United Wisconsin Services, Inc.

Notes to Consolidated Financial Statements

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, case management 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. In addition, on August 17, 1999,
BCBSUW completed its purchase of 1.4 million shares of the Company's common stock in the open market in connection with a previously disclosed plan for BCBSUW to increase its ownership in the
Company. The ownership by BCBSUW, in combination with the ownership by the Company's 401(K) and pension plans enables Compcare Health Services Insurance Corporation, a wholly-owned subsidiary of the
Company, to use the Blue Cross and Blue Shield brand on its products. At December 31, 1999, BCBSUW owned approximately 46% of the Company's common stock.

Basis of Presentation

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 controlled by the Company. All intercompany transactions have been eliminated. The Company consolidates
subsidiaries for which repurchase options exist (see Note 2) 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 because 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 fair value.

34



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 as a component of
accumulated other comprehensive income (deficit), net of income tax effects. Realized gains and losses from the sale of available-for-sale debt and equity securities are
calculated using the first-in, first-out basis.

Premium Receivables

Premium receivables are stated at net realizable value, net of allowances for uncollectible amounts of $2,858,000 and $719,000 at December 31, 1999 and
1998, respectively, based upon historical collection trends and management's judgment of the ultimate collectibility.

Due from Clinics and Providers

Amounts due from clinics and providers are stated at net realizable value, net of an allowance for uncollectible amount of $7,015,000 at December 31,
1999 based upon management's judgment of the ultimate collectibility. In late December 1998, Compcare Health Services Insurance Corporation ("Compcare") issued interest-bearing notes to certain
contracted health care providers. Notes outstanding to providers at December 31, 1999 and 1998 were $1,009,000 and $13,421,000, respectively, and are included in due from clinics and providers
on the accompanying consolidated balance sheets.

Other Receivables

Other receivables are stated at net realizable value, net of allowances for uncollectible amounts of $3,498,000 and $27,000 at December 31, 1999 and
1998, respectively, based upon historical collection trends and management's judgment of the ultimate collectibility.

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 of the related assets, which range from 3 to 5 years for computer equipment and software, 3 to 10 years for furniture and other equipment, 20 to 30 years for land
improvements and 10 to 40 years for buildings and building improvements.

Goodwill and Other Intangibles

Goodwill represents the excess of cost over the fair 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 $2,951,000 and $2,006,000 at December 31, 1999 and 1998, 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, 1999, the Company's management believed that no material impairment of goodwill or other intangible assets existed.

35



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. Case management and receivables management revenues are recognized when cash is received.

Medical and Other Benefits

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

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 payments on a per member per month basis 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. Estimated settlements relating to these arrangements
are developed based on historical payment patterns using standard actuarial techniques. The portion of medical and other benefits payable pertaining to long-term disability, workers'
compensation and certain life insurance products which is estimated to be paid more than one year from the balance sheet date are classified as noncurrent liabilities on the accompanying balance
sheets.

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.

Amounts
assumed from and ceded to other insurance companies are summarized as follows:

|                           |  | 1999 |        | 1998 |   | 1997  
|-------------------------- |  | ---- | ------ | ---- | - | ------
|
|Reinsurance assumed:       |  |      |        |      |   |       
|Insurance premiums         |  | $    | 28,895 |      | $ | 28,682
|Medical and other benefits |  |      | 21,576 |      |   | 22,694
|Reinsurance ceded:         |  |      |        |      |   |       
|Insurance premiums         |  | $    | 29,905 |      | $ | 45,755
|Medical and other benefits |  |      | 25,507 |      |   | 35,038

36



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.

Pro Forma Earnings Per Common Share (Unaudited)

Historical earnings per share ("EPS") has been omitted for 1998 and 1997, since the Company was not a separate entity with its own capital structure.

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 1997, and is adjusted in 1998 and
1997 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:

|                                                      |  | Year ended December 31,
|----------------------------------------------------- |  | -----------------------
|
|
|Net income as reported                                |  | $                      
|Pro forma adjustmentinterest expense, net of tax     |  |                        
|                                                      |  |                        
|Pro forma net income                                  |  | $                      
|                                                      |  |                        
|Pro forma basic weighted average common shares        |  |                        
|Pro forma dilutive weighted average common shares (1) |  |                        
|EPS on net income as reportedbasic and diluted (2)   |  | $                      
|                                                      |  |                        
|EPS on pro forma net incomebasic and diluted (3)     |  | $                      
|                                                      |  |                        

---

37





Use of Estimates

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States
("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.

Reclassifications

Certain reclassifications have been made to the consolidated financial statements for 1998 and 1997 to conform with the 1999 presentation.

2. Provider Arrangements

The Company is a 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, 2002,
at a price equal to Valley's net assets plus $400,000.

Pursuant
to the terms of the Unity purchase agreements, as amended, the sellers retained options to repurchase the net assets of the acquired companies as of December 31, 2004.
One seller has the option to repurchase a portion of Unity's business for $500,000 plus the proportionate share of the net worth of such business less any unpaid amount of the maximum annual
performance bonuses. The maximum annual performance bonuses are limited to $650,000 in total. 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 $220,235,000, $207,014,000 and $186,318,000 for 1999, 1998 and 1997,
respectively. Profit (loss) sharing expenses related to these provider arrangements is calculated based on the profitability of the HMO subsidiary and totaled $(2,366,000), $3,171,000 and $3,960,000
in 1999, 1998 and 1997, respectively. Total net income (loss) subject to repurchase options, pursuant to the various acquisition agreements, totaled $(1,071,000), $2,358,000 and $2,395,000 for 1999,
1998 and 1997, respectively. Total assets and total net assets subject to repurchase options were $39,409,000 and $16,970,000, respectively, at December 31, 1999 and $44,798,000 and
$21,362,000, respectively, at December 31, 1998.

38



3. Investments

Investment results comprise the following:

|                                                         |  | Year ended December 31, |       
|-------------------------------------------------------- |  | ----------------------- | ------
|
|
|Interest on bonds                                        |  | $                       | 8,058 
|Dividends on equity securities                           |  |                         | 867   
|Realized gains                                           |  |                         | 6,509 
|Realized losses                                          |  |                         | (4,364
|Interest on cash equivalents and other investment income |  |                         | 1,033 
|                                                         |  |                         |       
|Gross investment results                                 |  |                         | 12,103
|Investment expenses                                      |  |                         | (545  
|Other interest income (expense)                          |  |                         | (187  
|                                                         |  |                         |       
|                                                         |  | $                       | 11,371
|                                                         |  |                         |       

Proceeds
from sales of stocks during 1999, 1998 and 1997 were $65,031,000, $73,156,000 and $89,681,000. Proceeds from sales of bonds classified as
available-for-sale during 1999, 1998 and 1997, excluding maturities, were $78,730,000, $160,818,000 and $343,331,000.

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 change in unrealized gains/losses, less deferred income taxes, which is included in accumulated other comprehensive income (deficit), is as follows:

|                                            |  | Year ended December 31, |       
|------------------------------------------- |  | ----------------------- | ------
|
|
|Debt securities                             |  | $                       | (6,068
|Equity securities                           |  |                         | (452  
|Provision for deferred income tax (benefit) |  |                         | 2,265 
|                                            |  |                         |       
|                                            |  | $                       | (4,255
|                                            |  |                         |       

39



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

|                                             |  | Amortized
Cost |         | Gross
Unrealized
Gains |   | Gross
Unrealized
Losses |  | Estimated Fair
Value
|-------------------------------------------- |  | -------------- | ------- | ---------------------- | - | ----------------------- |  | --------------------
|
|At December 31, 1999:                        |  |                |         |                        |   |                         |  |                     
|Available-for-sale:                          |  |                |         |                        |   |                         |  |                     
|U.S. Treasury securities                     |  | $              | 13,119  |                        | $ |                        |  | $                   
|State and municipal securities               |  |                | 9,174   |                        |   |                        |  |                     
|Foreign government securities                |  |                | 4,900   |                        |   | 2                       |  |                     
|Corporate debt securities                    |  |                | 52,796  |                        |   | 13                      |  |                     
|Government agency mortgage-backed securities |  |                | 30,320  |                        |   | 23                      |  |                     
|Equity securities                            |  |                | 15,321  |                        |   | 1,444                   |  |                     
|                                             |  |                |         |                        |   |                         |  |                     
|                                             |  |                | 125,630 |                        |   | 1,482                   |  |                     
|Held-to-maturity:                            |  |                |         |                        |   |                         |  |                     
|U.S. Treasury securities                     |  |                | 9,153   |                        |   | 6                       |  |                     
|                                             |  |                |         |                        |   |                         |  |                     
|                                             |  | $              | 134,783 |                        | $ | 1,488                   |  | $                   
|                                             |  |                |         |                        |   |                         |  |                     
|At December 31, 1998:                        |  |                |         |                        |   |                         |  |                     
|Available-for-sale:                          |  |                |         |                        |   |                         |  |                     
|U.S. Treasury securities                     |  | $              | 10,858  |                        | $ | 4                       |  | $                   
|State and municipal securities               |  |                | 1,301   |                        |   | 59                      |  |                     
|Foreign government securities                |  |                | 6,457   |                        |   | 135                     |  |                     
|Corporate debt securities                    |  |                | 74,748  |                        |   | 1,294                   |  |                     
|Government agency mortgage-backed securities |  |                | 30,961  |                        |   | 150                     |  |                     
|Equity securities                            |  |                | 32,527  |                        |   | 2,149                   |  |                     
|                                             |  |                |         |                        |   |                         |  |                     
|                                             |  |                | 156,852 |                        |   | 3,791                   |  |                     
|Held-to-maturity:                            |  |                |         |                        |   |                         |  |                     
|U.S. Treasury securities                     |  |                | 7,710   |                        |   | 284                     |  |                     
|                                             |  |                |         |                        |   |                         |  |                     
|                                             |  | $              | 164,562 |                        | $ | 4,075                   |  | $                   
|                                             |  |                |         |                        |   |                         |  |                     

40



The
amortized cost and estimated fair values of debt securities at December 31, 1999, by contractual maturity, are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations.

|                                             |  | Amortized
Cost |         | Estimated
Fair Value
|-------------------------------------------- |  | -------------- | ------- | --------------------
|
|Available-for-sale:                          |  |                |         |                     
|Due in one year or less                      |  | $              | 1,264   |                     
|Due after one through five years             |  |                | 32,642  |                     
|Due after five through ten years             |  |                | 35,482  |                     
|Due after ten years                          |  |                | 10,601  |                     
|                                             |  |                |         |                     
|                                             |  |                | 79,989  |                     
|Government agency mortgage-backed securities |  |                | 30,320  |                     
|                                             |  |                |         |                     
|                                             |  | $              | 110,309 |                     
|                                             |  |                |         |                     
|Held-to-maturity:                            |  |                |         |                     
|Due in one year or less                      |  | $              | 2,328   |                     
|Due after one through five years             |  |                | 6,825   |                     
|                                             |  |                |         |                     
|                                             |  | $              | 9,153   |                     
|                                             |  |                |         |                     

At
December 31, 1999, the insurance subsidiaries had debt securities and cash equivalents on deposit with various state insurance departments with carrying values of
approximately $9,071,000, 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:

|                                   |  | December 31, |        
|---------------------------------- |  | ------------ | -------
|
|
|Land and land improvements         |  | $            | 398    
|Building and building improvements |  |              | 3,961  
|Computer equipment and software    |  |              | 10,866 
|Furniture and other equipment      |  |              | 5,307  
|                                   |  |              |        
|                                   |  |              | 20,532 
|Less accumulated depreciation      |  |              | (10,594
|                                   |  |              |        
|                                   |  | $            | 9,938  
|                                   |  |              |        

Depreciation
expense totaled $2,221,000 and $2,242,000 in 1999 and 1998, respectively.

5. Debt

The Company participates with BCBSUW in a bank line of credit, which permits aggregate borrowings up to $30,000,000. Periodic borrowings have been made on
these lines of credit. The Company's

41



outstanding
line of credit balance was $11,550,000 at December 31, 1999. The interest expense on the line of credit was $441,300, $53,300 and $102,300 in 1999, 1998 and 1997, respectively.

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, 7.33% as of December 31, 1999. On October 13, 1999, the maturity date of the principal balance was extended from October 30, 1999 to April 30, 2001; and
therefore, it is classified as noncurrent in the 1999 consolidated balance sheet. Interest expense and interest paid totaled $4,804,000 and $1,411,000 in 1999 and 1998, respectively.

The
Company provides marketing, underwriting, actuarial and certain administrative services to 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 $11,959,000, $14,757,000 and $14,564,000 in
1999, 1998 and 1997, respectively, and allocations to BCBSUW of $11,659,000, $8,964,000 and $9,278,000 in 1999, 1998 and 1997, 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 $4,921,000, $4,547,000
and $4,537,000 in 1999, 1998 and 1997, 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 $15,562,000, $26,875,000 and $27,014,000 in 1999, 1998 and 1997, respectively.

The
Company has an agreement with UWLIC whereby UWLIC underwrites certain life and disability products on behalf of United Heartland Life Insurance Company ("UHLIC"), a wholly-owned
subsidiary. 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 Innovative Resource Group, Inc., all wholly-owned subsidiaries. The Company assumes 100% of the premium revenues on these products from UWLIC. The
assumed premium revenue approximated $18,182,000, $23,295,000 and $27,213,000 in 1999, 1998 and 1997, respectively.

Prior
to the Spin-off, the Company's operations were financed through its operating cash flows and investments by and advances from AMSG.

Due
to affiliatesother relates 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.

Management
believes all related-party activity has been entered into on a reasonable basis and includes all costs of doing business.

42



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 was 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.

The
Company had a net federal income tax receivable of $7,621,000 included in other current assets on the accompanying balance sheet and a net federal income tax payable of $1,650,000
included in other current liabilities on the accompanying balance sheet at December 31, 1999 and 1998, respectively. Federal and state income tax payments, net of refunds, totaled $3,486,000,
$2,327,000 and $3,243,000 in 1999, 1998 and 1997, respectively. UWS and its affiliates have a federal net operating loss ("NOL") carryforward of $13,900,000 which expires in the year
2019. UWS and its affiliates have state net operating loss carryforwards totaling $46,355,000 which expire in the years 2011 through 2014.

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

|          |  | Year ended December 31, |        
|--------- |  | ----------------------- | -------
|
|
|Current:  |  |                         |        
|Federal   |  | $                       | (6,207 
|State     |  |                         | 721    
|          |  |                         |        
|          |  |                         | (5,486 
|Deferred: |  |                         |        
|Federal   |  |                         | (8,657 
|State     |  |                         | (3,642 
|          |  |                         |        
|          |  |                         | (12,299
|          |  |                         |        
|          |  | $                       | (17,785
|          |  |                         |        

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

|                                                         |  | Year ended December 31, |        
|-------------------------------------------------------- |  | ----------------------- | -------
|
|
|Tax at federal statutory rate                            |  | $                       | (16,301
|Goodwill amortization                                    |  |                         | 301    
|Tax-exempt interest and dividends received deduction     |  |                         | (143   
|State income and franchise taxes, net of federal benefit |  |                         | (1,454 
|Other, net                                               |  |                         | (188   
|                                                         |  |                         |        
|                                                         |  | $                       | (17,785
|                                                         |  |                         |        

43



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

|                                 |  | Year ended December 31, |        
|-------------------------------- |  | ----------------------- | -------
|
|
|Reserve discounting              |  | $                       | (546   
|Employee benefits                |  |                         | 515    
|Depreciation and amortization    |  |                         | 120    
|Net operating loss carryforwards |  |                         | (6,754 
|Prepaid expenses                 |  |                         | (493   
|Reserve Allowance                |  |                         | (5,510 
|Other, net                       |  |                         | 369    
|                                 |  |                         |        
|                                 |  | $                       | (12,299
|                                 |  |                         |        

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

|                                               |  | December 31, 1999 |        | December 31, 1998 |  
|---------------------------------------------- |  | ----------------- | ------ | ----------------- | -
|
|
|Deferred tax liabilities:                      |  |                   |        |                   |  
|Depreciation                                   |  | $                 | (545   | )                 | $
|Claims-based receivables                       |  |                   | (1,416 | )                 |  
|Pension accrual                                |  |                   | (2,201 | )                 |  
|Unrealized gains on investments                |  |                   |       |                   |  
|Prepaid expenses                               |  |                   | (1,559 | )                 |  
|Federal effect of state taxes                  |  |                   | (1,374 | )                 |  
|Other, net                                     |  |                   | (102   | )                 |  
|                                               |  |                   |        |                   |  
|                                               |  |                   | (7,197 | )                 |  
|Deferred tax assets:                           |  |                   |        |                   |  
|Postretirement benefits other than Pensions    |  |                   | 1,552  |                   |  
|Advance premium discounting                    |  |                   | 1,499  |                   |  
|Deferred compensation                          |  |                   | 1,414  |                   |  
|Medical and other benefits payable discounting |  |                   | 1,364  |                   |  
|Unrealized losses on investments               |  |                   | 1,710  |                   |  
|Business loss carryforwards                    |  |                   | 4,872  |                   |  
|Bad debt reserve allowance                     |  |                   | 4,647  |                   |  
|Other, net                                     |  |                   | 657    |                   |  
|Valuation allowance                            |  |                   | (290   | )                 |  
|                                               |  |                   |        |                   |  
|                                               |  |                   | 17,425 |                   |  
|                                               |  |                   |        |                   |  
|Net deferred tax assets (liabilities)          |  | $                 | 10,228 |                   | $
|                                               |  |                   |        |                   |  

44



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, 1999 and 1998 aggregated $76,958,000 and $106,369,000, respectively. The statutory net income (loss) of insurance
subsidiaries aggregated $(25,512,000), $15,884,000 and $17,380,000 in 1999, 1998 and 1997, 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. The Company intends to make capital contributions on an ongoing basis to satisfy all promulgated capital and surplus requirements, as needed.

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, 1999, as filed with the insurance
regulators, the aggregate amount available for dividends in 2000 without regulatory approval is $1,318,000.

10. Employee Benefit Plans

Pension and Postretirement Benefits

The Company and certain of its subsidiaries participate with BCBSUW in a multiple employer defined benefit pension plan (the Plan). The Plan provides
retirement benefits to covered employees based primarily on compensation and years of service. Since the Plan is overfunded, no contributions were made in 1999, 1998 or 1997.

45



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.

The
Company has postretirement benefit plans to provide certain medical, dental, and vision benefits and life insurance for certain groups of retired employees. Such plans were
amended in 1997 to limit the Company's financial contribution in future periods. No benefits will be provided for individuals hired after the effective dates of these amendments.

The
following table summarizes the change in the pension and postretirement benefit obligations as of December 31, 1999 and 1998:

|                                                    |  | Pension |        | Postretirement |  
|--------------------------------------------------- |  | ------- | ------ | -------------- | -
|
|
|Accumulated benefit obligation at beginning of year |  | $       | 20,876 |                | $
|Service cost                                        |  |         | 1,765  |                |  
|Interest cost                                       |  |         | 1,342  |                |  
|Plan amendments                                     |  |         |       |                |  
|Actuarial (gains) losses                            |  |         | (1,579 | )              |  
|Company transfers                                   |  |         | (890   | )              |  
|Benefits paid                                       |  |         | (1,137 | )              |  
|                                                    |  |         |        |                |  
|Accumulated benefit obligation at
end of year       |  | $       | 20,377 |                | $
|                                                    |  |         |        |                |  

The
pension and postretirement plans' assets are comprised primarily of debt, equity and other marketable securities, including 700,000 shares of UWS stock with a fair value of
$2,975,000 at December 31, 1999. The plan did not own any UWS stock at December 31, 1998. The following table summarizes the change in the pension and postretirement plan assets as of
December 31, 1999 and 1998:

|                                               |  | Pension |        | Postretirement |  
|---------------------------------------------- |  | ------- | ------ | -------------- | -
|
|
|Fair value of plan assets at beginning of year |  | $       | 33,988 |                | $
|Employer contributions                         |  |         |       |                |  
|Actual return on plan assets                   |  |         | 5,371  |                |  
|Company transfers                              |  |         | (890   | )              |  
|Benefits paid                                  |  |         | (1,137 | )              |  
|                                               |  |         |        |                |  
|Fair value of plan assets at end of year       |  | $       | 37,332 |                | $
|                                               |  |         |        |                |  

46



The
following table provides a reconciliation of the funded status of the plans to the prepaid pension and (accrued) postretirement costs at December 31, 1999 and 1998:

|                                     |  | Pension |        | Postretirement |  
|------------------------------------ |  | ------- | ------ | -------------- | -
|
|
|Funded status of plan at end of year |  | $       | 16,955 |                | $
|Unrecognized net transition asset    |  |         | (531   | )              |  
|Unrecognized prior service cost      |  |         | (4,766 | )              |  
|Unrecognized net (gain)              |  |         | (4,207 | )              |  
|                                     |  |         |        |                |  
|Prepaid (accrued) at end of year     |  | $       | 7,451  |                | $
|                                     |  |         |        |                |  

Weighted-average
assumptions used as of September 30, 1999, the measurement date, in developing the projected benefit obligations are as follows:

|                                       |  | Pension |   | Postretirement |  
|-------------------------------------- |  | ------- | - | -------------- | -
|
|
|Discount rate                          |  | 7.00    | % | 7.00           | %
|Rate of compensation increase          |  | 4.75    |   | 4.75           |  
|Healthcare cost trend rate             |  | N/A     |   | N/A            |  
|Expected rate of return on plan assets |  | 9.00    |   | 9.00           |  

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
effect of a 1% increase in the medical trend rate would be a $93,000 increase in the benefit obligation as of September 30, 1999.

The
components of the pension credit and postretirement benefit cost, which are included in selling, general and administrative expenses, for the years ended December 31, 1999
and 1998 are as follows:

|                                                                 |  | Pension |        | Postretirement |  
|---------------------------------------------------------------- |  | ------- | ------ | -------------- | -
|
|
|Service cost                                                     |  | $       | 1,765  |                | $
|Interest cost                                                    |  |         | 1,342  |                |  
|Expected return on plan assets                                   |  |         | (2,919 | )              |  
|Net amortization of transition asset                             |  |         | (245   | )              |  
|Amortization of prior service cost                               |  |         | (690   | )              |  
|Amortization of unrecognized (gain) loss                         |  |         | 7      |                |  
|Postretirement benefit cost                                      |  |         | N/A    |                |  
|                                                                 |  |         |        |                |  
|Pension (credit) and accumulated benefit obligation for the year |  | $       | (740   | )              | $
|                                                                 |  |         |        |                |  

After
giving effect to all administrative expense allocations between the Company and BCBSUW, the pension credit was $1,127,000, $622,000 and $945,000 in 1999, 1998 and 1997,
respectively.

47



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 $1,356,000, $2,475,000 and $2,042,000 in 1999, 1998 and 1997,
respectively.

Stock-Based Compensation Plans

The Company has a stock-based compensation plan covering employees and directors that allows for option grants of up to 4,500,000 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.

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:

|                                     |  | Year ended
December 31,
|------------------------------------ |  | -----------------------
|
|
|Pro forma net income (loss)          |  | $                      
|Pro forma earnings per common share: |  |                        
|Basic                                |  | $                      
|Diluted                              |  | $                      

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 1999: risk-free interest rate of 5.33%; dividend yield of .57%; volatility factor of the
expected market price of the Company's common stock of .45; and a weighted average expected life of the options of 6 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 $4.27 per share for 1999.

48



Stock
option activity for all plans is as follows:

|                                                                      |  | Year ended December 31,
|--------------------------------------------------------------------- |  | -----------------------
|
|Total number of NQSOs                                                 |  |                        
|Outstanding at beginning of year                                      |  | 2,689,034              
|Conversion of AMSG options                                            |  |                       
|Granted                                                               |  | 475,700                
|Exercised                                                             |  |                       
|Forfeited                                                             |  | (459,047               
|                                                                      |  |                        
|Outstanding at end of year                                            |  | 2,705,687              
|                                                                      |  |                        
|Exercisable at end of year                                            |  | 1,877,109              
|Available for grant at end of year                                    |  | 1,794,313              
|Weighted average exercise price of NQSOs                              |  |                        
|Outstanding at beginning of year                                      |  | $11.58                 
|Conversion of AMSG optionsrange of exercise prices                   |  |                       
|GrantedExercise price equals market price on grant date              |  | $8.85                  
|Exercised                                                             |  |                       
|Forfeited                                                             |  | $10.61                 
|Outstanding at end of year                                            |  | $11.21                 
|Exercisable at end of year                                            |  | $12.17                 
|NQSOs by exercise price range                                         |  |                        
|Exercise price                                                        |  | $7.19                  
|Weighted average exercise price                                       |  | $7.19                  
|Weighted average remaining contractual life                           |  | 10.75                  
|Outstanding at end of year                                            |  | 400,900                
|Exercisable at end of year                                            |  | 128,725                
|Weighted average exercise price of options exercisable at end of year |  | $7.19                  
|Exercise price                                                        |  | $8.50$9.19            
|Weighted average exercise price                                       |  | $8.85                  
|Weighted average remaining contractual life                           |  | 11.31                  
|Outstanding at end of year                                            |  | 375,700                
|Exercisable at end of year                                            |  | 49,200                 
|Weighted average exercise price of options exercisable at end of year |  | $8.50                  

49



|                                                                      |  | Year ended December 31,
|--------------------------------------------------------------------- |  | -----------------------
|
|NQSOs by exercise price range (continued)Exercise price               |  | $9.61$13.42           
|Weighted average exercise price                                       |  | $11.25                 
|Weighted average remaining contractual life                           |  | 7.95                   
|Outstanding at end of year                                            |  | 887,591                
|Exercisable at end of year                                            |  | 683,993                
|Weighted average exercise price of options exercisable at end of year |  | $11.25                 
|Exercise price                                                        |  | $13.53                 
|Weighted average exercise price                                       |  | $13.53                 
|Weighted average remaining contractual life                           |  | 1.93                   
|Outstanding and exercisable at end of year                            |  | 1,000,000              
|Weighted average exercise price of options exercisable at end of year |  | $13.53                 
|Exercise price                                                        |  | $14.04$16.81          
|Weighted average exercise price                                       |  | $15.44                 
|Weighted average remaining contractual life                           |  | 8.58                   
|Outstanding at end of year                                            |  | 41,496                 
|Exercisable at end of year                                            |  | 25,191                 
|Weighted average exercise price of options exercisable at end of year |  | $15.58                 

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.

50



11. Quarterly Financial Information (Unaudited)

Selected quarterly financial data for the years ended December 31, 1999, 1998 and 1997 are as follows:

|                                  |  | Quarter |         |  |  
|--------------------------------- |  | ------- | ------- |  | -
|
|
|1999                              |  |         |         |  |  
|Total revenues                    |  | $       | 173,009 |  | $
|Income (loss) before income tax   |  |         | 4,158   |  |  
|Net income (loss)                 |  |         | 2,672   |  |  
|Earnings (loss) per common share: |  |         |         |  |  
|Basic                             |  |         | $0.16   |  |  
|Diluted                           |  |         | $0.16   |  |  
|1998                              |  |         |         |  |  
|Total revenues                    |  | $       | 159,158 |  | $
|Income before income tax          |  |         | 7,459   |  |  
|Net income                        |  |         | 4,716   |  |  
|Earnings per common share (1):    |  |         |         |  |  
|Basic                             |  |         |        |  |  
|Diluted                           |  |         |        |  |  
|1997                              |  |         |         |  |  
|Total revenues                    |  | $       | 146,993 |  | $
|Income before income tax          |  |         | 6,607   |  |  
|Net income                        |  |         | 3,998   |  |  

---

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, case management and
receivables management, sold throughout the United States.

"Other
Operations" includes operations not directly related to the business segments, unallocated corporate items (i.e. 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. The
accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies.

51



Financial
data by segment as of December 31, 1999 and 1998 and for the year ended December 31, 1999, 1998 and 1997 is as follows:

|                                                                         |  | 1999 |         | 1998 |   | 1997    |  
|------------------------------------------------------------------------ |  | ---- | ------- | ---- | - | ------- | -
|
|Health services revenue:                                                 |  |      |         |      |   |         |  
|HMO products                                                             |  | $    | 554,659 |      | $ | 518,700 |  
|Specialty managed care products and services                             |  |      | 155,132 |      |   | 137,652 |  
|Other operations                                                         |  |      | (16,638 | )    |   | (17,707 | )
|                                                                         |  |      |         |      |   |         |  
|Total consolidated                                                       |  | $    | 693,153 |      | $ | 638,645 |  
|                                                                         |  |      |         |      |   |         |  
|Investment results:                                                      |  |      |         |      |   |         |  
|HMO products                                                             |  | $    | 4,565   |      | $ | 9,182   |  
|Specialty managed care products and services                             |  |      | 6,700   |      |   | 9,516   |  
|Other operations                                                         |  |      | 106     |      |   | 278     |  
|                                                                         |  |      |         |      |   |         |  
|Total consolidated                                                       |  | $    | 11,371  |      | $ | 18,976  |  
|                                                                         |  |      |         |      |   |         |  
|Income (loss) before income tax:                                         |  |      |         |      |   |         |  
|HMO products                                                             |  | $    | (48,033 | )    | $ | 15,145  |  
|Specialty managed care products and services                             |  |      | 10,748  |      |   | 17,693  |  
|Other operations                                                         |  |      | (9,504  | )    |   | (2,993  | )
|                                                                         |  |      |         |      |   |         |  
|Total consolidated                                                       |  | $    | (46,789 | )    | $ | 29,845  |  
|                                                                         |  |      |         |      |   |         |  
|Total assets:                                                            |  |      |         |      |   |         |  
|HMO products                                                             |  | $    | 115,448 |      | $ | 138,272 |  
|Specialty managed care products and services                             |  |      | 168,993 |      |   | 151,845 |  
|Other operations                                                         |  |      | 12,713  |      |   | 8,091   |  
|                                                                         |  |      |         |      |   |         |  
|Total consolidated                                                       |  | $    | 297,154 |      | $ | 298,208 |  
|                                                                         |  |      |         |      |   |         |  
|Health services revenue from transactions with other operating segments: |  |      |         |      |   |         |  
|HMO products                                                             |  | $    | 1,960   |      | $ | 1,853   |  
|Specialty managed care products and services                             |  | $    | 14,456  |      | $ | 15,488  |  

52



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 on or about April 26, 2000 relating to the 2000 Annual Meeting of Shareholders currently scheduled for May 31, 2000, (the "2000 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
[18 through 19] 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 2000 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 2000 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 2000 Proxy Statement, which section is hereby incorporated by
reference.

53



PART IV

ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.



|                                                                                                                                         |  | Page(s) in
Form 10-K
Report
|---------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------
|The following consolidated financial statements of United Wisconsin Services, Inc. and subsidiaries are included in Item 8:             
|Report of Independent Auditors                                                                                                           |  | 29                         
|Consolidated Balance Sheets at December 31, 1999 and 1998                                                                                |  | 30                         
|Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997                                               |  | 31                         
|Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income for the years ended December 31, 1999, 1998 and 1997 |  | 32                         
|Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997                                               |  | 33                         
|Notes to Consolidated Financial Statements                                                                                               |  | 34                         
|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.                                                                               |  | 55                         
|Schedule IVReinsurance.                                                                                                                 |  | 58                         
|Schedule VValuation and Qualifying Accounts.                                                                                            |  | 59                         

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 i through iv hereof.

(b)Reports on Form 8-K



(c) Exhibits



(d)Financial Statement Schedules



54



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, 1999 and 1998, and the
condensed statements of income and cash flows for the years ended December 31, 1999, 1998, and 1997 are as follows:

BALANCE SHEETS

|                                                 |  | December 31,
|------------------------------------------------ |  | ------------
|
|
|ASSETS                                          
|Cash and cash equivalents                        |  | $           
|Investment in and advances to affiliates         |  |             
|Accounts receivable                              |  |             
|Other assets                                     |  |             
|                                                 |  |             
|Total assets                                     |  | $           
|                                                 |  |             
|LIABILITIES AND SHAREHOLDERS' EQUITY            
|Liabilities:                                     |  |             
|Due to affiliates                                |  | $           
|Debt                                             |  |             
|Payables, accrued expenses and other liabilities |  |             
|                                                 |  |             
|Total liabilities                                |  |             
|Shareholders' equity:                            |  |             
|Common stock                                     |  |             
|Retained earnings                                |  |             
|Unrealized gains (losses) on investments         |  |             
|                                                 |  |             
|Total shareholders' equity                       |  |             
|                                                 |  |             
|Total liabilities and shareholders' equity       |  | $           
|                                                 |  |             

55



SCHEDULE II

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

|                                                                                                   |  | Years ended December 31, |        
|-------------------------------------------------------------------------------------------------- |  | ------------------------ | -------
|
|
|Revenues:                                                                                          |  |                          |        
|Dividends from consolidated subsidiaries                                                           |  | $                        | 10,400 
|Investment income                                                                                  |  |                          | 113    
|Other revenue (expense)                                                                            |  |                          |       
|                                                                                                   |  |                          |        
|Total revenues                                                                                     |  |                          | 10,513 
|Expenses:                                                                                          |  |                          |        
|Administrative expenses                                                                            |  |                          | 4,089  
|Amortization of goodwill and other intangibles                                                     |  |                          | 637    
|Interest expense                                                                                   |  |                          | 4,862  
|                                                                                                   |  |                          |        
|Total expenses                                                                                     |  |                          | 9,588  
|                                                                                                   |  |                          |        
|Income before income tax benefit and equity in the undistributed net income (loss) of subsidiaries |  |                          | 925    
|Income tax benefit                                                                                 |  |                          | (2,617 
|                                                                                                   |  |                          |        
|Income before equity in the undistributed net income (loss) of subsidiaries                        |  |                          | 3,542  
|Equity in the undistributed net income (loss) of subsidiaries                                      |  |                          | (32,546
|                                                                                                   |  |                          |        
|Net income (loss)                                                                                  |  | $                        | (29,004
|                                                                                                   |  |                          |        

56



SCHEDULE II

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

|                                                                                            |  | Years ended December 31, |        
|------------------------------------------------------------------------------------------- |  | ------------------------ | -------
|
|
|Operating activities:                                                                       |  |                          |        
|Net income (loss)                                                                           |  | $                        | (29,004
|Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |                          |        
|Equity in the undistributed net (income) loss of subsidiaries                               |  |                          | 32,546 
|Depreciation and amortization                                                               |  |                          | 626    
|Deferred income tax benefit                                                                 |  |                          | (1,157 
|Changes in other operating accounts:                                                        |  |                          |        
|Due to (from) affiliates                                                                    |  |                          | 4,445  
|Payables and accrued expenses                                                               |  |                          | (837   
|Prepaid taxes current                                                                       |  |                          | (9,649 
|Othernet                                                                                   |  |                          | 1,993  
|                                                                                            |  |                          |        
|Net cash provided by (used in) operating activities                                         |  |                          | (1,037 
|Investing activities:                                                                       |  |                          |        
|Acquisitions of subsidiaries                                                                |  |                          | (210   
|Purchases of available for sale investments                                                 |  |                          |       
|Proceeds from sale of available for sale investments                                        |  |                          |       
|Proceeds from maturity of available for sale investments                                    |  |                          |       
|Additions to property and equipment                                                         |  |                          | (309   
|Investment in and advances to consolidated affiliates                                       |  |                          | (8,703 
|                                                                                            |  |                          |        
|Net cash provided by (used in) investing activities                                         |  |                          | (9,222 
|Financing activities:                                                                       |  |                          |        
|Investments by and advances from AMSG                                                       |  |                          |       
|Cash dividends paid                                                                         |  |                          | (842   
|Issuances of common stock and options                                                       |  |                          | 394    
|Proceeds from line of credit                                                                |  |                          | 9,710  
|                                                                                            |  |                          |        
|Net cash provided by (used in) financing activities                                         |  |                          | 9,262  
|                                                                                            |  |                          |        
|Cash and cash equivalents:                                                                  |  |                          |        
|Increase (decrease) during year                                                             |  |                          | (997   
|Balance at beginning of year                                                                |  |                          | 1,000  
|                                                                                            |  |                          |        
|Balance at end of year                                                                      |  | $                        | 3      
|                                                                                            |  |                          |        

57



SCHEDULE IV

UNITED WISCONSIN SERVICES, INC.

REINSURANCE

|                              |  | Gross
amount |         | Ceded to
other
companies |   | Assumed
from other
companies |  | Net amount |            | Percentage
of amount
assumed
to net |  
|----------------------------- |  | ------------ | ------- | ------------------------ | - | ---------------------------- |  | ---------- | ---------- | ----------------------------------- | -
|
|Year ended December 31, 1996: |  |              |         |                          |   |                              |  |            |            |                                     |  
|Life insurance in force       |  | $            | 0       |                          | $ | 977,000                      |  | $          | 9,112,000  |                                     | $
|                              |  |              |         |                          |   |                              |  |            |            |                                     |  
|Premiums:                     |  |              |         |                          |   |                              |  |            |            |                                     |  
|Health and disability         |  | $            | 506,999 |                          | $ | 44,595                       |  | $          | 14,418     |                                     | $
|Life                          |  |              | 0       |                          |   | 1,954                        |  |            | 18,224     |                                     |  
|                              |  |              |         |                          |   |                              |  |            |            |                                     |  
|Total premiums                |  | $            | 506,999 |                          | $ | 46,549                       |  | $          | 32,642     |                                     | $
|                              |  |              |         |                          |   |                              |  |            |            |                                     |  
|Year ended December 31, 1997: |  |              |         |                          |   |                              |  |            |            |                                     |  
|Life insurance in force       |  | $            | 0       |                          | $ | 1,124,895                    |  | $          | 9,130,121  |                                     | $
|                              |  |              |         |                          |   |                              |  |            |            |                                     |  
|Premiums:                     |  |              |         |                          |   |                              |  |            |            |                                     |  
|Health and disability         |  | $            | 576,833 |                          | $ | 46,992                       |  | $          | 12,153     |                                     | $
|Life                          |  |              | 0       |                          |   | 2,530                        |  |            | 21,361     |                                     |  
|                              |  |              |         |                          |   |                              |  |            |            |                                     |  
|Total premiums                |  | $            | 576,833 |                          | $ | 49,522                       |  | $          | 33,514     |                                     | $
|                              |  |              |         |                          |   |                              |  |            |            |                                     |  
|Year ended December 31, 1998: |  |              |         |                          |   |                              |  |            |            |                                     |  
|Life insurance in force       |  | $            | 0       |                          | $ | 1,538,283                    |  | $          | 11,517,565 |                                     | $
|                              |  |              |         |                          |   |                              |  |            |            |                                     |  
|Premiums:                     |  |              |         |                          |   |                              |  |            |            |                                     |  
|Health and disability         |  | $            | 625,990 |                          | $ | 43,402                       |  | $          | 5,047      |                                     | $
|Life                          |  |              | 0       |                          |   | 2,353                        |  |            | 23,635     |                                     |  
|                              |  |              |         |                          |   |                              |  |            |            |                                     |  
|Total premiums                |  | $            | 625,990 |                          | $ | 45,755                       |  | $          | 28,682     |                                     | $
|                              |  |              |         |                          |   |                              |  |            |            |                                     |  
|Year ended December 31, 1999: |  |              |         |                          |   |                              |  |            |            |                                     |  
|Life insurance in force       |  | $            | 0       |                          | $ | 2,288,075                    |  | $          | 12,623,194 |                                     | $
|                              |  |              |         |                          |   |                              |  |            |            |                                     |  
|Premiums:                     |  |              |         |                          |   |                              |  |            |            |                                     |  
|Health and disability         |  | $            | 652,577 |                          | $ | 27,530                       |  | $          | 579        |                                     | $
|Life                          |  |              | 0       |                          |   | 2,375                        |  |            | 28,316     |                                     |  
|                              |  |              |         |                          |   |                              |  |            |            |                                     |  
|Total premiums                |  | $            | 652,577 |                          | $ | 29,905                       |  | $          | 28,895     |                                     | $
|                              |  |              |         |                          |   |                              |  |            |            |                                     |  

58



SCHEDULE V

UNITED WISCONSIN SERVICES, INC.

VALUATION AND QUALIFYING ACCOUNTS

|                                  |  | Balance
beginning
of period |     | Net
charges
(credits)
to net
income |   | Write-offs
against
allowance |   | Balance
end of
period
|--------------------------------- |  | --------------------------- | --- | ----------------------------------- | - | ---------------------------- | - | ---------------------
|
|Year ended December 31, 1997:     |  |                             |     |                                     |   |                              |   |                      
|Allowance for possible losses on: |  |                             |     |                                     |   |                              |   |                      
|Premium receivables               |  | $                           | 232 |                                     | $ | 77                           |   | $                    
|Other                             |  |                             | 52  |                                     |   | (5                           | ) |                      
|                                  |  |                             |     |                                     |   |                              |   |                      
|Total allowance                   |  | $                           | 284 |                                     | $ | 72                           |   | $                    
|                                  |  |                             |     |                                     |   |                              |   |                      
|Year ended December 31, 1998:     |  |                             |     |                                     |   |                              |   |                      
|Allowance for possible losses on: |  |                             |     |                                     |   |                              |   |                      
|Premium receivables               |  | $                           | 309 |                                     | $ | 391                          |   | $                    
|Other                             |  |                             | 85  |                                     |   | (58                          | ) |                      
|                                  |  |                             |     |                                     |   |                              |   |                      
|Total allowance                   |  | $                           | 394 |                                     | $ | 333                          |   | $                    
|                                  |  |                             |     |                                     |   |                              |   |                      
|Year ended December 31, 1999:     |  |                             |     |                                     |   |                              |   |                      
|Allowance for possible losses on: |  |                             |     |                                     |   |                              |   |                      
|Premium receivables               |  | $                           | 700 |                                     | $ | 1,831                        |   | $                    
|Other                             |  |                             | 27  |                                     |   | 6,768                        |   |                      
|                                  |  |                             |     |                                     |   |                              |   |                      
|Total allowance                   |  | $                           | 727 |                                     | $ | 8,599                        |   | $                    
|                                  |  |                             |     |                                     |   |                              |   |                      

59



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:                            

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.

|Signature                               |  | Title                                                                                                 |  | Date          
|--------------------------------------- |  | ----------------------------------------------------------------------------------------------------- |  | --------------
|/s/THOMAS R. HEFTYThomas R. Hefty       |  | Chairman, President and Chief Executive Officer (Principal Executive Officer) and Director            |  | March 10, 2000
|/s/GAIL L. HANSONGail L. Hanson         |  | Vice President and Chief Financial Officer (Principal Financial Officer and Chief Accounting Officer) |  | March 10, 2000
|/s/RICHARD A. ABDOORichard A. Abdoo     |  | Director                                                                                              |  | March 10, 2000
|/s/MICHAEL D. DUNHAMMichael D. Dunham   |  | Director                                                                                              |  | March 10, 2000
|/s/JAMES L. FORBESJames L. Forbes       |  | Director                                                                                              |  | March 10, 2000
|/s/JAMES C. HICKMANJames C. Hickman     |  | Director                                                                                              |  | March 10, 2000
|/s/WILLIAM R. JOHNSONWilliam R. Johnson |  | Director                                                                                              |  | March 10, 2000
|/s/EUGENE A. MENDENEugene A. Menden     |  | Director                                                                                              |  | March 10, 2000
|/s/WILLIAM C. RUPPWilliam C. Rupp       |  | Director                                                                                              |  | March 10, 2000
|/s/CAROL N. SKORNICKACarol N. Skornicka |  | Director                                                                                              |  | March 10, 2000

60



UNITED WISCONSIN SERVICES, INC.
INDEX TO EXHIBITS

|Exhibit
Number |  | Document Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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)
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

i



|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. (4)
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.11 |  | Amended and Restated Joint Venture Agreement by and among BCBSUW, UWS, (assigned to 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)                                                                                                                                                                                         
|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 |  | Second Amended and Restated Joint Venture Agreement by and among UNITY, BCBSUW, UWS, University Health Care, Inc., University Community Clinics, Inc. (f/k/a Health Professionals, Inc.) and Health Professionals of Wisconsin, Inc., dated September 30,
1999 (As amended October 29, 1999).(5)                
|      |  |                                                                                                                                                                                                                                                                                                                 

ii



|10.27 |  | Amended and Restated Joint Venture Agreement by and among Unity, BCBSUW, UWS and Community Health Systems, LLC, dated October 25, 1999.                                                   
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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)                                                                                                                                         
|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 the Company 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.                                                                                                                                                             
|      |  |                                                                                                                                                                                           

iii



|27 |  | Financial Data Schedule.
|-- |  | ------------------------

---

iv