SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

                    For Quarterly Period Ended June 30, 2001

                          Commission File Number 1-8538


                             ASCENT ASSURANCE, INC.
             (Exact name of Registrant as specified in its Charter)

DELAWARE                                                              73-1165000
(State of Incorporation)                    (I.R.S. Employer Identification No.)

110 West Seventh Street, Suite 300, Fort Worth, Texas                      76102
(Address of Principal Executive Offices)                              (Zip Code)

                                  817-878-3300
       -------------------------------------------------------------------
              (Registrant's Telephone Number, including Area Code)

                                       N/A
 -------------------------------------------------------------------------------
   (Former Name, Address and Former Fiscal Year, if changed since Last Report)

Indicate,  by check  mark  whether  the  Registrant:  (1) has filed all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                                    YES X    NO

Indicate, by check mark whether the Registrant has filed all reports required to
be filed by  Section  12,  13 or 15(d) of the  Securities  Exchange  Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court.

                                    YES X    NO

Common Stock - Par Value $.01    6,500,000 Shares Outstanding at August 14, 2001



<PAGE>


                             ASCENT ASSURANCE, INC.
                               INDEX TO FORM 10-Q




<TABLE>


PART 1 - FINANCIAL INFORMATION                                                 Page No.
<S>  <C>                                                                       <C>
Item 1 - Financial Statements

Ascent Assurance, Inc. Condensed Consolidated Balance Sheets at
     June 30, 2001 and December 31, 2000                                           2

Ascent Assurance, Inc. Condensed Consolidated Statements of Operations
     for the Three and Six Months Ended June 30, 2001 and 2000                     3

Ascent Assurance, Inc. Condensed Consolidated Statements of
     Comprehensive Income for the Three and Six Months Ended June 30,
     2001 and 2000                                                                 4

Ascent Assurance, Inc. Condensed Consolidated Statements of Cash Flows
     for the Three and Six Months Ended June 30, 2001 and 2000                     5

Ascent Assurance, Inc. Consolidated Statement of Changes in Stockholders'
     Equity for the Six Months Ended June 30, 2001                                 6

Notes to Condensed Consolidated Financial Statements                               7

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

General                                                                           11

Operating Results                                                                 13

Financial Condition                                                               15

Liquidity, Capital Resources and Statutory Capital and Surplus                    18



PART II - OTHER INFORMATION

Item 4 - Submission of Matters to a Vote of Security Holders                      21

Item 6 - Exhibits and Reports on Form 8-K                                         22
</TABLE>


<PAGE>

                             ASCENT ASSURANCE, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>

                                                                                June 30,           December 31,
                                                                                  2001                 2000
                                                                               (Unaudited)           (Audited)
                                                                              -------------       --------------
                                                                            (in thousands, except per share data)
<S>   <C><C><C>                                                               <C>                <C>
Assets
Investments:
      Fixed Maturities:
         Available-for-sale, at market value (amortized cost $100,845 and
            $104,081)                                                         $  99,375          $  100,590
      Equity securities, at market (cost $1,365)                                  1,275               1,335
      Other investments                                                             435                 398
      Short-term investments                                                     12,539               7,254
                                                                              ----------         -----------
            Total Investments                                                   113,624             109,577

Cash                                                                                942               2,658
Accrued investment income                                                         1,848               1,965
Receivables from agents, net of allowance for doubtful accounts of
      $4,292 and $3,711                                                           8,354               8,737
Deferred policy acquisition costs                                                26,938              24,711
Property and equipment, net of accumulated depreciation of $3,577
      and $2,683                                                                  5,959               6,375
Other assets                                                                      7,369               6,455
                                                                              ----------         -----------
            Total Assets                                                      $ 165,034          $  160,478
                                                                              ==========         ===========

Liabilities, Preferred Stock and Stockholders' Equity
Liabilities:
      Policy liabilities and accruals:
         Future policy benefits                                               $  62,888          $   61,306
         Claim reserves                                                          36,356              42,778
                                                                              ----------         -----------
            Total Policy Liabilities and Accruals                                99,244             104,084

Accounts payable and other liabilities                                           13,588              15,667
Notes payable                                                                    20,079               8,947
                                                                              ----------         -----------
            Total Liabilities                                                   132,911             128,698
                                                                              ----------         -----------

Redeemable Convertible Preferred Stock                                           29,124              27,705
                                                                              ----------         -----------

Stockholders' Equity:
      Common stock ($.01 par value, 30,000,000 shares authorized;
         6,500,000 shares issued)                                                    65                  65
      Capital in excess of par value                                             27,817              27,620
      Accumulated other comprehensive income, net of tax                         (1,560)             (2,324)
      Retained deficit                                                          (23,323)            (21,286)
                                                                              ----------         -----------
            Total Stockholders' Equity                                            2,999               4,075
                                                                              ----------         -----------

            Total Liabilities, Redeemable Convertible Preferred Stock
            And Stockholders' Equity                                          $ 165,034          $  160,478
                                                                              ==========         ===========
</TABLE>

        See the Notes to the Condensed Consolidated Financial Statements.

<PAGE>

                             ASCENT ASSURANCE, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>


                                                     Three Months Ended               Six Months Ended
                                                         June 30,                         June 30,
                                                  2001              2000            2001             2000
                                               ------------     ------------     ------------     -----------
<S>   <C><C>                                   <C>              <C>              <C>              <C>
                                                           (in thousands, except per share data)
Revenues:
      Premiums:
         First-year                            $  8,543         $  7,230         $ 16,368         $ 13,939
         Renewal                                 23,398           21,998           47,547           44,294
                                               -----------      -----------      -----------      -----------
         Total premiums                          31,941           29,228           63,915           58,233

      Net investment income                       2,294            2,266            4,616            4,344
      Fee, service and other income               5,362            5,294           10,971           10,190
      Net realized gain (loss) on investments        52             (254)              94             (237)
                                               -----------      -----------      -----------      -----------
         Total revenue                           39,649           36,534           79,596           72,530
                                               -----------      -----------      -----------      -----------


Benefits, claims and expenses:
      Benefits and claims                        24,558           22,962           49,375           46,644
      Increase in deferred acquisition costs     (1,110)          (2,229)          (2,227)          (3,938)
      Commissions                                 5,538            5,851           11,501           12,290
      General and administrative expenses         9,651            9,203           19,753           16,770
      Taxes, licenses and fees                    1,290            1,513            2,353            2,704
      Interest expense on notes payable             486              152              656              236
                                               -----------      -----------      -----------      -----------
         Total expenses                          40,413           37,452           81,411           74,706

Loss before income taxes                           (764)            (918)          (1,815)          (2,176)
Federal income tax benefit                            -              312                -              740
                                               -----------      -----------      -----------      -----------

         Net loss                              $   (764)        $   (606)        $ (1,815)        $ (1,436)

Preferred stock dividends                           710              651            1,420            1,302
                                               -----------      -----------      -----------      -----------
Loss applicable to common stockholders         $ (1,474)        $ (1,257)        $ (3,235)        $ (2,738)
                                               ===========      ===========      ===========      ===========

Basic and diluted loss per common share        $   (.23)        $   (.19)        $   (.50)        $   (.42)
                                               ===========      ===========      ===========      ===========

Weighted average shares outstanding:
      Basic                                       6,500            6,500            6,500            6,500
                                               ===========      ===========      ===========      ===========
      Diluted                                     6,500            6,500            6,500            6,500
                                               ===========      ===========      ===========      ===========

</TABLE>

        See the Notes to the Condensed Consolidated Financial Statements.

<PAGE>

                             ASCENT ASSURANCE, INC.
            CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                   (Unaudited)
<TABLE>


                                                           Three Months Ended                   Six Months Ended
                                                                June 30,                            June 30,
                                                        2001               2000             2001               2000
                                                     -----------       ------------      ------------      ------------
<S>   <C><C>                                         <C>               <C>               <C>               <C>
                                                                             (in thousands)

Net loss                                             $   (764)         $   (606)         $ (1,815)         $ (1,436)
Other comprehensive (loss) income:
      Unrealized holding (loss) gain arising during
         period, net of tax                              (452)             (841)              858              (677)
      Reclassification adjustment of (gain) loss
         on sales of investments included in
         net income, net of tax                           (52)              168               (94)              157
                                                     -----------       -----------       -----------       -----------

Comprehensive loss                                   $ (1,268)         $ (1,279)         $ (1,051)         $ (1,956)
                                                     ===========       ===========       ===========       ===========

</TABLE>

        See the Notes to the Condensed Consolidated Financial Statements.

<PAGE>


                             ASCENT ASSURANCE, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>


                                                            Three Months Ended                  Six Months Ended
                                                                 June 30,                           June 30,
                                                         2001             2000              2001              2000
                                                     -----------       -----------       -----------       -----------
<S>   <C><C>                                         <C>               <C>               <C>               <C>
                                                                              (in thousands)
Cash Flow From Operating Activities:

Net loss                                             $   (764)         $   (606)         $ (1,815)         $ (1,436)
      Adjustments to reconcile net income to cash
      provided by (used for) operating activities
         (Increase) decrease in accrued investment
            income                                       (180)             (138)              117                 7
         Increase in deferred acquisition costs        (1,110)           (2,229)           (2,227)           (3,938)
         (Increase) decrease in receivables from
            agents                                        (16)           (1,138)              383              (765)
         (Increase) decrease in other assets             (402)              187              (914)             (829)
         (Decrease) increase in policy liabilities
            and accruals                               (2,999)            7,193            (4,840)            9,978
         (Decrease) increase in accounts payable
            and other liabilities                      (2,147)            3,540            (2,079)              903
         Increase in deferred income taxes, net             -              (665)                -              (949)
         Other, net                                     1,964               449             1,899             2,001
                                                     -----------       -----------       -----------       -----------
      Net Cash (Used For) Provided By Operating
         Activities                                    (5,654)            6,593            (9,476)            4,972
                                                     -----------       -----------       -----------       -----------

Cash Flow From Investing Activities:

      Purchases of fixed maturity investments          (8,014)           (6,025)          (12,998)           (9,006)
      Sales of fixed maturity investments               4,367             2,808            13,408             3,714
      Maturities and calls of fixed maturity
         investments                                      265             1,125             2,644             1,998
      Net increase in short-term and
         other investments                             (4,943)           (6,952)           (5,322)           (3,911)
      Property and equipment purchased                    (66)             (285)             (480)             (820)
                                                     -----------       -----------       -----------       -----------
      Net Cash Used For Investing Activities           (8,391)           (9,329)           (2,748)           (8,025)
                                                     -----------       -----------       -----------       -----------

Cash Flow From Financing Activities:

      Issuance of notes payable                        11,305             1,146            11,305             1,888
      Repayment of notes payable                         (239)             (140)             (450)             (280)
      Deferred debt costs                                (347)                -              (347)                -
                                                     -----------       -----------       -----------       -----------
      Net Cash Provided By Financing Activities        10,719             1,006            10,508             1,608
                                                     -----------       -----------       -----------       -----------

      Decrease In Cash During Period                   (3,326)           (1,730)           (1,716)           (1,445)
      Cash At Beginning Of Period                       4,268             5,395             2,658             5,110
                                                     -----------       -----------       -----------       -----------
      Cash At End Of Period                          $    942          $  3,665          $    942          $  3,665
                                                     ===========       ===========       ===========       ===========
</TABLE>

        See the Notes to the Condensed Consolidated Financial Statements.

<PAGE>

                             ASCENT ASSURANCE, INC.
            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                   (Unaudited)
                        (in thousands, except share data)


<TABLE>


                                                                                                      Accumulated
                                                                        Capital          Other         Retained           Total
                                                    Common Stock       in Excess     Comprehensive     (Deficit)       Stockholders'
                                                 Shares    Amount    of Par Value        Loss          Earnings           Equity
<S>   <C>                                     <C>          <C>       <C>             <C>              <C>              <C>
Balance at December 31, 2000                  6,500,000    $ 65      $  27,620       $ (2,324)        $ (21,286)       $  4,075

      Net loss                                                                                           (1,815)         (1,815)
      Preferred Stock dividend                                                                           (1,420)         (1,420)
      Other comprehensive gain, net of tax                                                764             1,198           1,962
      Amortization of unearned compensation                                197                                              197
                                              ----------   ------    ------------    ---------------  ----------       ---------
Balance at June 30, 2001                      6,500,000    $ 65      $  27,817       $ (1,560)        $ (23,323)       $  2,999
                                              ==========   ======    ============    ===============  ==========       =========

</TABLE>




        See the Notes to the Condensed Consolidated Financial Statements.
<PAGE>

                             ASCENT ASSURANCE, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


NOTE 1 - DESCRIPTION OF BUSINESS

Ascent Assurance,  Inc. ("Ascent"),  a Delaware company incorporated in 1982, is
an insurance holding company engaged in the development, marketing, underwriting
and  administration  of  medical  expense  and  supplemental   health  insurance
products, primarily to self-employed individuals and small business owners.

The  Company's  revenues  result  primarily  from  premiums  and  fees  from the
insurance  products sold by its wholly owned  subsidiaries  National  Foundation
Life  Insurance  Company  ("NFL"),  Freedom  Life  Insurance  Company of America
("FLICA"),  National Financial Insurance Company ("NFIC") and American Insurance
Company of Texas ("AICT",  and together with NFL, NFIC and FLICA,  collectively,
the "Insurance  Subsidiaries")  and marketed by  NationalCare  Marketing,  Inc.
("NCM"), also a wholly owned subsidiary.  To a lesser extent the Company derives
revenue from (i)  telemarketing  services,  (ii)  printing  services,  and (iii)
renewal commissions for prior year sales of unaffiliated insurance products.

NOTE 2 - ACCOUNTING PRINCIPLES

Basis  of  Presentation.   The  accompanying  unaudited  condensed  consolidated
financial  statements of the Company have been  prepared in accordance  with the
instructions  to Form 10-Q and Rule 10-01 of  Regulation  S-X and do not include
all of the information and footnotes required by accounting principles generally
accepted  in the United  States  ("GAAP")  for  complete  financial  statements.
Financial  statements  prepared  in  accordance  with  GAAP  require  the use of
management estimates. In the opinion of management,  all adjustments (consisting
of normal recurring accruals)  considered necessary for a fair presentation have
been included. Certain reclassifications have been made to 2000 amounts in order
to  conform  to  the  2001  financial  statement  presentation.   The  financial
statements  should  be read  in  conjunction  with  the  consolidated  financial
statements  and notes thereto  included in the  Company's  Annual Report on Form
10-K for the year ended December 31, 2000.

Future Policy Benefits.  Liabilities for future policy benefits not yet incurred
are computed  primarily using the net level premium method  including  actuarial
assumptions  as  to  investment  yield,   mortality,   morbidity,   withdrawals,
persistency  and  other  assumptions  which  were  appropriate  at the  time the
policies were issued.  Assumptions used are based on the Company's experience as
adjusted to provide for possible adverse deviation.  Generally,  these actuarial
assumptions are fixed and, absent material adverse benefit  experience,  are not
adjusted.

Claim  Reserves.  Claim reserves  represent the estimated  liabilities on claims
reported plus claims  incurred but not yet  reported.  The process of estimating
claim  reserves  involves  the active  participation  of  experienced  actuarial
consultants with input from the underwriting,  claims, and finance  departments.
The  inherent  uncertainty  in  estimating  claim  reserves  is  increased  when
significant  changes  occur.  Examples of such changes  include:  (1) changes in
economic  conditions;  (2)  changes  in state or federal  laws and  regulations,
particularly  insurance reform measures;  (3) changes in production  sources for
existing lines of business;  (4) writings of significant  blocks of new business
and (5)  significant  changes  in claims  payment  patterns.  As a result of the
implementation of a new claims  administration system in May 2000, the Company's
claims  payment  pattern  has  accelerated,  which  resulted  in  a  significant
reduction in pending claims  inventory at June 30, 2001 from historical  levels.
This significant  change in the claims payment pattern has greatly increased the
inherent  uncertainty in estimating  claim reserves.  Because claim reserves are
estimates,  management  monitors  reserve  adequacy  over time,  evaluating  new
information as it becomes  available and adjusting  claim reserves as necessary.
Such adjustments are reflected in current operations.

Federal  Income Taxes.  The Company  records income taxes based on the asset and
liability  approach,  which requires the recognition of deferred tax liabilities
and assets for the expected  future tax  consequence  of  temporary  differences
between the carrying  amounts and the tax basis of assets and  liabilities.  The
tax effect of future  taxable  temporary  differences  (liabilities)  and future
deductible temporary differences (assets) are separately calculated and recorded
when such  differences  arise.  A valuation  allowance,  reducing any recognized
deferred tax asset,  must be recorded if it is determined that it is more likely
than not that such deferred tax asset will not be realized.

As of June 30, 2001,  the Company has reported  cumulative  pre-tax losses since
March 31,  1999,  the date it emerged from  Chapter 11  bankruptcy  proceedings.
Realization of the Company's  deferred tax asset is dependent upon the return of
the Company's  operations to  profitability.  Pre-tax losses during 2000 and the
first  six  months of 2001  were  principally  attributable  to  adverse  claims
experience  for certain major medical  products.  Management  believes that such
product losses can be  significantly  reduced  through  aggressive rate increase
management.  However,  projections  of future  profitability  are  significantly
discounted when evaluating the  recoverability of deferred tax assets and do not
overcome the negative evidence of cumulative losses under GAAP. Accordingly, the
Company has  increased  its  deferred  tax asset  valuation  allowance  to fully
reserve all net deferred tax assets as of June 30, 2001.

Earnings  Per Share.  Under GAAP there are two  measures of earnings  per share:
"basic earnings per share" and "diluted earnings per share".  Basic earnings per
share is computed by dividing  income  applicable to common  shareholders by the
weighted average number of common shares outstanding during the period.  Diluted
earnings  per  share  reflects  the  potential  dilution  that  could  occur  if
securities or other contracts to issue common stock were converted or exercised.
Diluted weighted shares exclude all convertible securities for loss periods.

The following table reflects the calculation of basic and diluted EPS:
<TABLE>


                                                  Three Months Ended              Six Months Ended
                                                      June 30,                        June 30,
                                               2001            2000             2001           2000
                                           -----------      -----------     -----------     -----------
<S>   <C>                                  <C>              <C>             <C>             <C>
                                                  (amounts in thousands, except per share amounts)
Net loss                                   $   (764)        $   (606)       $ (1,815)       $ (1,436)
Preferred Stock dividends                      (710)            (651)         (1,420)         (1,302)
                                           -----------      -----------     -----------     -----------
Loss applicable to common shareholders     $ (1,474)        $ (1,257)       $ (3,235)       $ (2,738)
                                           ===========      ===========     ===========     ===========
Weighted average shares outstanding:
      Basic                                   6,500            6,500           6,500           6,500
      Diluted                                 6,500            6,500           6,500           6,500
Basic and diluted loss per share           $   (.23)        $   (.19)       $   (.50)       $   (.42)
                                           ===========      ===========     ===========     ===========
</TABLE>


NOTE 3 - FINANCING OBTAINED IN APRIL 2001

During the first quarter of 2001, the Company  determined that continued adverse
claims  experience  for  the  Group  Preferred  Provider  Organization  ("GPPO")
product,  the principal  product  marketed by the Company from 1998 through June
2000,  would require Ascent to make capital  contributions to FLICA in excess of
those  originally  planned.  Ascent  obtained  debt  financing  (see  below) and
contributed  an additional $11 million to FLICA in April 2001 to enable FLICA to
comply with minimum  statutory capital and surplus  requirements  promulgated by
the  states  of  Texas  and  Florida.  To the  extent  that the  adverse  claims
experience  for the old GPPO product  exceeds  management's  current  estimates,
Ascent would be required to make additional  capital  contributions  to FLICA in
excess of those  currently  projected for 2001.  Additional  financing  would be
required by Ascent in order to make any such "excess"  contributions.  While the
Company has implemented  rate increases on the GPPO product that should begin to
reduce losses in 2001,  there can be no assurance  that such rate increases will
be sufficient.

In April 2001,  Ascent  received  debt  financing  for the $11  million  capital
contribution  described  above from a loan made by Credit  Suisse  First  Boston
Management  Corporation,  which is an affiliate of Special Situations  Holdings,
Inc. -- Westbridge (Ascent's largest stockholder). The credit agreement relating
to that loan provided Ascent with total loan  commitments of $11 million (all of
which has been  drawn).  The loan bears  interest at a rate of 12% per annum and
matures in April 2004.  Absent any  acceleration  following an event of default,
the Company may elect to pay interest in kind by issuance of  additional  notes.
During the secound quarter 2001,  Ascent issued $277,000 in additional notes for
payment of interest in kind. The credit agreement  relating to the loan provides
for a facility  fee of $1.5  million  which is payable  upon  maturity or upon a
change in control, as defined.  Ascent's obligations are secured,  pursuant to a
guarantee and security agreement and pledge agreements,  by substantially all of
the assets of Ascent and its  subsidiaries  (excluding the capital stock and the
assets  of AICT,  FLICA,  NFL,  NFIC,  NCM,  Ascent  Funding,  Inc.  and  Ascent
Management,  Inc., some or all of which is pledged as collateral to LaSalle Bank
NA ("LaSalle") for receivables  financing).  Ascent's  subsidiaries  (other than
those listed above) have also guaranteed  Ascent's  obligations under the credit
agreement and the loan. In connection with the $11 million loan,  LaSalle waived
certain events of default and amended various  agreements related to receivables
financing provided by LaSalle. Debt covenants under the credit agreement related
to the new $11 million loan are substantially similar to those under the LaSalle
receivables financing arrangements.

NOTE 4 - PREFERRED STOCK

Dividends  on the  Company's  preferred  stock are  payable  in cash or  through
issuance of additional  shares of preferred stock, at the Company's  option.  On
June 30, 2001, preferred stock dividends accrued in the first six months of 2001
were paid through the  issuance of 1,419  shares of  preferred  stock and a $881
distribution of cash.

NOTE 5 - COMMITMENTS AND CONTINGENCIES

In the normal  course of its  business  operations,  the  Company is involved in
various  claims  and  other  business  related  disputes.   In  the  opinion  of
management, the Company is not a party to any pending litigation the disposition
of which  would  have a  material  adverse  effect  on the  Company's  business,
financial position or its results of operations.

NOTE 6 - IMPLEMENTATION OF NEW ACCOUNTING PRONOUNCEMENTS

In 1998, the National  Association of Insurance  Commissioners  ("NAIC") adopted
the Codification of Statutory Accounting Principles guidance, which replaced the
Accounting  Practices and Procedures  manual as the NAIC's  primary  guidance on
statutory  accounting.  The  Codification  provides  guidance  for  areas  where
statutory accounting has been silent and changes current statutory accounting in
certain  areas.  The  Insurance  Department  of the  State  of  Domicile  of the
Company's Insurance  Subsidiaries has adopted the Codification effective January
1, 2001.  Codification  guidance did not materially  impact statutory surplus of
the Company's Insurance Subsidiaries.

In  June,  1998  the  FASB  issued  SFAS No.  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities" ("SFAS 133"). This statement (as amended by
SFAS No. 137,  "Accounting for Derivative  Instruments  and Hedging  Activities,
Deferral of the  Effective  Date of SFAS No. 133, an amendment of SFAS No. 133")
is effective for fiscal years beginning  after June 15, 2000. The  pronouncement
established  accounting  and  reporting  standards for  derivative  instruments,
including  certain  derivative  instruments  embedded in other contracts and for
hedging activities. As the Company has not participated in derivative or hedging
activities, the Company's financial statements are not affected by SFAS 133.

In March 2000,  the FASB  issued FASB  Interpretation  No. 44,  "Accounting  for
Certain  Transactions  Involving Stock  Compensation - an  interpretation of APB
Opinion No. 25" ("FIN 44").  The Company  adopted FIN 44 on a prospective  basis
effective July 1, 2000. The adoption of FIN 44 did not have a material impact on
the Company's results of operations, liquidity or financial position.

<PAGE>

                             ASCENT ASSURANCE, INC.
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


GENERAL

The following discussion provides management's assessment of financial condition
at June 30, 2001 as compared to December 31, 2000 and results of operations  for
the three and six months ended June 30, 2001 as compared to the comparable  2000
periods for the Company.  This discussion  updates the "Management's  Discussion
and Analysis of Financial  Condition and Results of Operations" in the Company's
2000 Report on Form 10-K and should be read in conjunction therewith.

Business  Overview.  The Company's  revenues result  primarily from premiums and
fees from the insurance products sold by its wholly owned subsidiaries  National
Foundation Life Insurance  Company  ("NFL"),  Freedom Life Insurance  Company of
America ("FLICA"),  National  Financial  Insurance Company ("NFIC") and American
Insurance  Company of Texas  ("AICT",  and  together  with NFL,  NFIC and FLICA,
collectively,  the  "Insurance  Subsidiaries")  and  marketed  by  NationalCare
Marketing,  Inc. ("NCM"), also a wholly owned subsidiary. To a lesser extent the
Company derives revenue from (i) telemarketing services, (ii) printing services,
and (iii) renewal  commissions  for prior year sales of  unaffiliated  insurance
products.

The  Company's  operations  are  comprised of one  segment,  Accident and Health
insurance.  The principal products currently marketed by NCM and underwritten by
the Insurance  Subsidiaries are medical expense  reimbursement  policies.  These
products are designed with flexibility as to benefits, deductibles,  coinsurance
and premium payments, which can be adapted to meet regional sales or competitive
needs, as well as those of the individual  policyholders.  The principal product
groups currently  underwritten by the Insurance  Subsidiaries are  comprehensive
major  medical   products,   hospital/surgical   major   medical   products  and
supplemental specified disease products:

o    Comprehensive  major medical  products are generally  designed to reimburse
     insureds for eligible expenses incurred for hospital confinement,  surgical
     expenses,   physician  services,   outpatient  services  and  the  cost  of
     medicines.

o    Hospital/surgical major medical products are similar to comprehensive major
     medical  products  except that  benefits  are limited to  hospital/surgical
     services   (services  such  as  routine  well  care  physician  visits  and
     prescription drugs are excluded) and deductibles and coinsurance provisions
     are generally higher.

o    Supplemental  specified  disease  products include  indemnity  policies for
     hospital  confinement  and  convalescent  care for  treatment  of specified
     diseases and "event  specific"  policies,  which provide fixed  benefits or
     lump sum payments  upon  diagnosis of certain  types of internal  cancer or
     other catastrophic diseases.

Prior to 1998, the Insurance  Subsidiaries also underwrote  Medicare  Supplement
products  designed to provide  reimbursement for certain expenses not covered by
the Medicare program. The Insurance Subsidiaries continue to receive premiums on
Medicare Supplement policies sold prior to that date.

Forward-Looking Statements.  Statements contained in this analysis and elsewhere
in  this   document   that  are  not  based  on   historical   information   are
forward-looking statements and are based on management's projections,  estimates
and  assumptions.  Management  cautions  readers  regarding its  forward-looking
statements.  The Private  Securities  Litigation  Reform Act of 1995  provides a
"safe harbor" for forward-looking  statements.  Various statements  contained in
the  Management's  Discussion and Analysis of Results of Operation and Financial
Condition, are forward-looking statements.  These forward-looking statements are
based on the intent,  belief or current  expectations of the Company and members
of its senior  management team. While the Company believes that its expectations
are based on  reasonable  assumptions  within the bounds of its knowledge of its
business and  operations,  prospective  investors  are  cautioned  that any such
forward-looking statements are not guarantees of future performance, and involve
risks and  uncertainties,  and that actual  results may differ  materially  from
those contemplated by such forward-looking  statements.  Important factors known
to management  that could cause actual results to differ  materially  from those
contemplated by the forward-looking  statements in this Report include,  but are
not limited to:

o    further  adverse  claims  experience  in  excess  of  management's  current
     expectations or other events adversely  impacting the Company's  liquidity
     position,

o    actions that may be taken by insurance regulatory authorities,

o    adverse  developments  in the timing or results  of the  Company's  current
     strategic  business plan to return operations to profitability by improving
     claims experience and reducing overhead expenses,

o    the loss of key personnel,

o    and the  effect of  changing  economic  and market  conditions,  especially
     medical expense inflation and health care reform initiatives.

Subsequent  written or oral  statements  attributable  to the Company or persons
acting on its behalf are expressly qualified in their entirety by the cautionary
statements in this Report and those in the Company's  reports  previously  filed
with the SEC.  Copies of these filings may be obtained by contacting the Company
or the SEC.

OPERATING RESULTS

Results of operations for Ascent are reported for the three and six months ended
June 30, 2001 and 2000. (In thousands except insurance operating ratios.)
<TABLE>


                                                        Three Months Ended            Six Months Ended
                                                             June 30,                      June 30,
                                                     2001              2000        2001              2000
                                                  -----------       ----------- -----------       -----------
<S>   <C>                                         <C>               <C>         <C>               <C>
Premiums                                          $ 31,941          $ 29,228    $ 63,915          $ 58,233
Other                                                  970               810       1,872             1,495
                                                  -----------       ----------- -----------       -----------
Total insurance operating revenue                   32,911            30,038      65,787            59,728
                                                  -----------       ----------- -----------       -----------

Benefits and claims                                 24,558            22,962      49,375            46,644
Commissions                                          4,690             4,283       9,551             8,858
Increase in deferred acquisition costs              (1,110)           (2,231)     (2,227)           (3,938)
General and administrative expense                   6,714             7,149      13,905            13,025
Taxes, licenses and fees                             1,138             1,508       2,043             2,460
                                                  -----------       ----------- -----------       -----------

Total insurance operating expenses                  35,990            33,671      72,647            67,049

                                                  -----------       ----------- -----------       -----------
      Insurance Operating Results                   (3,079)           (3,633)     (6,860)           (7,321)
                                                  -----------       ----------- -----------       -----------

Fee and service income                               4,392             4,484       9,099             8,695
Fee and service expenses                            (3,937)           (3,629)     (8,108)           (7,421)
                                                  -----------       ----------- -----------       -----------

      Fee and Service Results                          455               855         991             1,274
                                                  -----------       ----------- -----------       -----------

Net investment income                                2,294             2,266       4,616             4,344
Net realized gain (loss) on investments                 52              (254)         94              (237)
Interest expense on notes payable                     (486)             (152)       (656)             (236)
                                                  -----------       ----------- -----------       -----------

      Loss Before Income Taxes                        (764)             (918)     (1,815)           (2,176)

Income tax benefit                                       -               312           -               740
                                                  -----------       ----------- -----------       -----------

      Net Loss                                    $   (764)         $   (606)   $ (1,815)         $ (1,436)
                                                  ===========       =========== ===========       ===========

Insurance operating ratios*
      Benefits and claims                            76.9%             78.6%       77.3%             80.1%
      Commissions                                    14.7%             14.7%       14.9%             15.2%
      Increase in deferred acquisition costs         -3.5%             -7.6%       -3.5%             -6.8%
      General and administrative expenses            20.4%             23.8%       21.1%             21.8%
      Taxes, licenses and fees                        3.6%              5.2%        3.2%              4.2%

</TABLE>


*Ratios are calculated as a percent of premium with the exception of the general
and  administrative  expense  ratio  which is  calculated  as a percent of total
insurance operating revenue.

<PAGE>

Overview.  For the second quarter of 2001, the loss before income taxes was $0.8
million,  compared  to a loss  before  income  taxes  of  $0.9  million  for the
corresponding  2000 period.  For the first six months of 2001,  the pre-tax loss
was $1.8 million,  compared to a pre-tax loss of $2.2 million for the six months
ended June 30, 2000.

Pre-tax operating losses for both 2001 and 2000 were attributable to losses from
the Group Preferred Provider  Organization ("GPPO") product, the principal major
medical product  marketed by FLICA from 1998 to July 2000.  Losses from the GPPO
product were principally driven by higher than expected claims frequency.  While
the Company has implemented rate increases on the GPPO product that should begin
to reduce losses in mid-2001, there can be no assurance that such rate increases
will be  sufficient.  Due to losses from the GPPO  product,  FLICA has  required
significant capital  contributions  during 2000 and the first six months of 2001
to comply with statutory  capital and surplus  requirements.  Continued  adverse
claims  experience  for the GPPO  product  in  excess  of  management's  current
expectations  would have a material  adverse  impact on FLICA's  ability to meet
minimum statutory capital and surplus requirements and maintain its new business
production at current levels (see  "Liquidity,  Capital  Resources and Statutory
Capital and Surplus").

Since July 2000, the Company has been successfully marketing a new major medical
policy in all  significant  marketing  regions.  The new major medical policy is
designed to produce a  substantially  lower benefits and claims to premium ratio
than the old GPPO product.  At June 30, 2001,  annualized  premiums in force for
the new major  medical  policy were $23.4 million as compared to $8.7 million at
December 31, 2000.

The  following  narratives  discuss the  principal  components  of the operating
results.

Premiums.  Premium  revenue,  in  thousands,  for each major product line is set
forth below:
<TABLE>


                                      Three Months Ended         Six Months Ended
                                          June 30,                   June 30,
                                     2001          2000         2001          2000
                                  -----------   -----------  -----------   -----------
<S>   <C><C>                      <C>           <C>          <C>           <C>
Major medical:
      First-year                  $  8,036      $  6,629     $ 15,376      $ 12,847
      Renewal                       11,895         8,514       23,983        17,308
                                  -----------   -----------  -----------   -----------
         Subtotal                   19,931        15,143       39,359        30,155
                                  -----------   -----------  -----------   -----------

Supplemental specified disease:
      First-year                       326           352          584           726
      Renewal                        5,882         6,468       12,043        13,294
                                  -----------   -----------  -----------   -----------
         Subtotal                    6,208         6,820       12,627        14,020
                                  -----------   -----------  -----------   -----------

Medicare supplement:
      First-year                         -             -            -             -
      Renewal                        5,159         6,574       10,592        13,074
                                  -----------   -----------  -----------   -----------
         Subtotal                    5,159         6,574       10,592        13,074
                                  -----------   -----------  -----------   -----------

Other                                  643           691        1,337           984
                                  -----------   -----------  -----------   -----------
Consolidated Premium Revenue      $ 31,941      $ 29,228     $ 63,915      $ 58,233
                                  ===========   ===========  ===========   ===========
</TABLE>

Total  premiums  increased by $2.7 million,  or 9.3%,  for the second quarter of
2001 and $5.7  million,  or 9.8%,  for the six months of 2001 as compared to the
corresponding  2000  periods as new  business  production  exceeded the expected
decline in renewal premiums from older, closed blocks of business. Premiums from
the GPPO major medical  product,  for which  marketing was  discontinued in July
2000,  were $10.1  million and $20.3  million for the three and six months ended
June 30,  2001,  compared to $7.7 million and $15.2  million for the  comparable
2000 periods. The Company is principally marketing major medical products.

Benefits and Claims.  Benefits and claims are comprised of (1) claims paid,  (2)
changes in the claim reserves for claims incurred (whether or not reported), and
(3) changes in future policy benefit reserves.  The ratio of benefits and claims
to  premiums  decreased  for the second  quarter of 2001  compared to the second
quarter of 2000 due primarily to improved experience for supplemental  products.
Incurred benefit and claims  experience for the GPPO major medical product,  for
which  marketing was  discontinued in July 2000, was  significantly  higher than
pricing assumptions for both the second quarter of 2001 and 2000. Adverse claims
experience  for the old GPPO  product  has been  primarily  due to  higher  than
expected claims frequency. Additional adverse claims experience for the old GPPO
product in excess of  management's  current  expectations  could have a material
adverse impact on FLICA's ability to meet minimum  statutory capital and surplus
requirements  (See  "Liquidity,  Capital,  Resources and  Statutory  Capital and
Surplus").

General and Administrative  Expense. For the second quarter of 2001, general and
administrative  expenses  decreased  over  the  comparable  2000  period  by 3.4
percentage  points which improved  insurance  operating results by approximately
$1.1 million. The decrease was due principally to expenses in the second quarter
of 2000 related to the implementation of the Company's new policy administration
and claims data processing systems.

Interest  Expense.  Interest  expense  increased  $0.3 million and $0.4 million,
respectively,  for the three and six months ended June 30, 2001  compared to the
comparable 2000 periods due to the $11 million debt financing from Credit Suisse
First Boston Management  Corporation in April, 2001.  Interest paid in the three
and six  months  ended  June  30,  2001  was  $0.5  million  and  $0.7  million,
respectively,  and includes $0.3 million of deferred  financing costs, which are
amortized over the life of the loan.

FINANCIAL CONDITION

Investments.  The  following  table  summarizes  the  Company's  fixed  maturity
securities, excluding short-term investments and certificates of deposit. All of
the Company's fixed maturity securities are classified as available-for-sale and
are carried at estimated  market value.  Estimated  market value  represents the
closing  sales  prices  of  marketable  securities.   Investments  in  the  debt
securities of corporations are principally in publicly traded bonds.

<TABLE>
                                                June 30, 2001                 December 31, 2000
Fixed Maturity Securities                   Market Value      %            Market Value        %
----------------------------------------- --------------    ------        -------------     ------
                                          (in thousands)                          (in thousands)
<S>  <C><C>                               <C>            <C>              <C>             <C>
U.S. Government and governmental
     agencies and authorities (except
     mortgage-backed)                     $ 10,614          10.7          $  10,462          10.4
Finance                                     22,736          22.9             23,445          23.3
Public utilities                             7,324           7.4              6,787           6.7
Mortgage-backed                             12,351          12.4             13,302          13.2
States, municipalities and political
     subdivisions                            1,984           2.0              1,982           2.0
All other corporate bonds                   44,366          44.6             44,612          44.4
                                          ---------      --------         ----------      --------
        Total fixed maturity securities   $ 99,375         100.0          $ 100,590         100.0
                                          =========      ========         ==========      ========
</TABLE>

The following  table  indicates by rating the composition of the Company's fixed
maturity securities portfolio, excluding short-term investments and certificates
of  deposit.  Ratings  are the lower of those  assigned by Standard & Poor's and
Moody's, when available,  and are shown in the table using the Standard & Poor's
rating scale.  Unrated  securities are assigned  ratings based on the applicable
NAIC's  designation or the rating assigned to comparable debt outstanding of the
same issuer.  NAIC 1 fixed maturity  securities have been classified as "A" (and
above) and NAIC 2 fixed maturity securities have been classified as "BBB".

<TABLE>

Composition of Fixed Maturity                         June 30, 2001              December 31, 2000
Securities by Rating                             Market Value       %         Market Value        %
----------------------------------------------- --------------  --------     --------------     ------
                                                (in thousands)               (in thousands)
<S>  <C><C>                                     <C>            <C>           <C>             <C>
Ratings
Investment grade:
     U.S. Government and agencies               $ 21,438          21.6       $  22,754          22.6
     AAA                                           3,610           3.6           2,885           2.9
     AA                                            7,404           7.5           8,305           8.3
     A                                            37,280          37.5          38,552          38.3
     BBB                                          28,677          28.8          27,168          27.0
Non-Investment grade:
     BB                                                -           -               674           0.7
     B and below                                     966           1.0             252           0.2
                                                ---------      --------      ----------      --------
        Total fixed maturity securities         $ 99,375         100.0       $ 100,590         100.0
                                                =========      ========      ==========      ========
</TABLE>

The scheduled contractual maturities of the Company's fixed maturity securities,
excluding  short-term  investments and certificates of deposit, at June 30, 2001
and  December  31, 2000 are shown in the table below.  Expected  maturities  may
differ from contractual  maturities because borrowers may have the right to call
or prepay obligations with or without penalties.

<TABLE>
<PAGE>

Composition of Fixed Maturity                         June 30, 2001          December 31, 2000
Securities by Maturity                           Market Value      %     Market Value        %
----------------------------------------------- -------------- -------- --------------     -------
                                                (in thousands)                   (in thousands)
<S>     <C>                                     <C>            <C>        <C>             <C>

Scheduled Maturity

Due in one year or less                         $  7,814          7.9     $   7,073          7.0
Due after one year through five years             26,070         26.2        28,877         28.7
Due after five years through ten years            29,066         29.3        26,327         26.2
Due after ten years                               24,074         24.2        25,011         24.9
Mortgage-backed and asset-backed securities       12,351         12.4        13,302         13.2
                                                ---------      -------    ----------      -------
        Total fixed maturity securities         $ 99,375        100.0     $ 100,590        100.0
                                                =========      =======    ==========      =======
</TABLE>


Claim  Reserves.  Claim  reserves  are  established  by the  Company for benefit
payments which have already been incurred by the policyholder but which have not
been paid by the Company.  Claim reserves totaled $36.4 million at June 30, 2001
as compared to $42.8  million at December  31, 2000.  The process of  estimating
claim  reserves  involves  the active  participation  of  experienced  actuarial
consultants with input from the underwriting,  claims, and finance  departments.
The  inherent  uncertainty  in  estimating  claim  reserves  is  increased  when
significant  changes  occur.  Examples of such changes  include:  (1) changes in
economic  conditions;  (2)  changes  in state or federal  laws and  regulations,
particularly  insurance reform measures;  (3) changes in production  sources for
existing lines of business;  (4) writings of significant  blocks of new business
and (5)  significant  changes  in claims  payment  patterns.  As a result of the
implementation of a new claims  administration system in May 2000, the Company's
claims  payment  pattern  has  accelerated,  which  resulted  in  a  significant
reduction in pending claims  inventory at June 30, 2001 from historical  levels.
This significant  change in the claims payment pattern has greatly increased the
inherent  uncertainty in estimating  claim reserves.  Because claim reserves are
estimates,  management  monitors  reserve  adequacy  over time,  evaluating  new
information as it becomes  available and adjusting  claim reserves as necessary.
Such adjustments are reflected in current operations.

Management   considers  many  factors  when  setting  reserves  including:   (1)
historical trends; (2) current legal  interpretations of coverage and liability;
(3) loss  payments  and pending  levels of unpaid  claims;  and (4) product mix.
Based on these  considerations,  management believes that adequate provision has
been made for the  Company's  claim  reserves.  Actual  claims paid may deviate,
perhaps substantially, from such reserves.

Future Policy Benefit  Reserves.  Future policy benefit reserves are established
by the Company for benefit  payments  that have not been  incurred but which are
estimated to be incurred in the future.  Future policy benefit  reserves totaled
$62.9  million at June 30,  2001 as compared  to $61.3  million at December  31,
2000.  Future policy benefit reserves are calculated  according to the net level
premium  reserve  method and are equal to the  discounted  present  value of the
Company's  expected future  policyholder  benefits minus the discounted  present
value of its expected  future net premiums.  These present value  determinations
are based upon assumed fixed investment yields, the age of the insured(s) at the
time of policy issuance,  expected morbidity and persistency rates, and expected
future  policyholder  benefits.  Except for  purposes of  reporting to insurance
regulatory  authorities  and for tax filing,  the Company's  claim  reserves and
policy benefit reserves are determined in accordance with GAAP.

In determining the morbidity, persistency rate, claim cost and other assumptions
used in determining the Company's  future policy benefit  reserves,  the Company
relies  primarily  upon its own benefit  payment  history  and upon  information
developed in  conjunction  with  actuarial  consultants  and industry  data. The
Company's  persistency  rates  have a  direct  impact  upon its  policy  benefit
reserves because the determinations for this reserve are, in part, a function of
the number of policies in force and expected to remain in force to maturity.  If
persistency is higher or lower than expected,  future policyholder benefits will
also be  higher  or lower  because  of the  different  than  expected  number of
policies  in  force,  and the  policy  benefit  reserves  will be  increased  or
decreased accordingly.

The Company's  policy benefit reserve  requirements are also  interrelated  with
product  pricing and  profitability.  The Company  must price its  products at a
level sufficient to fund its policyholders benefits and still remain profitable.
Because the  Company's  claim and  policyholder  benefits  represent  the single
largest category of its operating expenses, inaccuracies in the assumptions used
to estimate  the amount of such  benefits  can result in the Company  failing to
price its products appropriately and to generate sufficient premiums to fund the
payment thereof. The increases in claim ratios experienced by the Company during
2000 and into  2001 were  indicative  of  inadequate  pricing  in the  Company's
principal major medical product marketed through June 2000.

In accordance  with GAAP,  the  Company's  actuarial  assumptions  are generally
fixed, and absent materially adverse benefit experience,  they are not generally
adjusted. The Company monitors the adequacy of its policy benefit reserves on an
ongoing  basis  by   periodically   analyzing  the  accuracy  of  its  actuarial
assumptions.  The adequacy of the Company's  policy benefit reserves may also be
impacted by the development of new medicines and treatment  procedures which may
alter the incidence  rates of illness and the treatment  methods for illness and
accident  (such  as  out-patient   versus   in-patient  care)  or  prolong  life
expectancy. Changes in coverage provided by major medical insurers or government
plans may also affect the  adequacy of the  Company's  reserves if, for example,
such  developments had the effect of increasing or decreasing the incidence rate
and per claim  costs of  occurrences  against  which  the  Company  insures.  An
increase in either the incidence rate or the per claim costs of such occurrences
could result in the Company  needing to post  additional  reserves,  which could
have a material adverse effect upon its business, financial condition or results
of operations.


LIQUIDITY, CAPITAL RESOURCES AND STATUTORY CAPITAL AND SURPLUS

Ascent.   Ascent's  principal  assets  consist  of  the  capital  stock  of  its
subsidiaries  and invested  assets.  Accordingly,  Ascent's sources of funds are
primarily  comprised of dividends and advances from non-insurance  subsidiaries.
The  Company's  principal  uses of cash  are for  capital  contributions  to its
Insurance  Subsidiaries  and general and  administrative  expenses.  The Company
funded  capital  contributions  to its Insurance  Subsidiaries  of $16.6 million
during the six months  ended June 30, 2001 as  compared to $2.8  million for the
corresponding  prior year period. As of June 30, 2001, Ascent held approximately
$1.5 million in unrestricted cash and invested assets.

During the first quarter 2001, the Company  determined  that  continued  adverse
claims  experience for the old GPPO product would require Ascent to make capital
contributions  to FLICA in excess of those originally  planned.  Ascent obtained
financing  (see below) and  contributed  an  additional  $11 million to FLICA in
April 2001 to enable FLICA to comply with minimum  statutory capital and surplus
requirements  promulgated  by the states of Texas and  Florida.  If the  adverse
claims  experience  for  the  old  GPPO  product  exceeds  management's  current
estimates,  Ascent would be required to make additional capital contributions to
FLICA in excess of those  currently  projected  for 2001.  Additional  financing
would be required by Ascent in order to make any such "excess" contributions. As
a result,  continued adverse claims experience for the old GPPO product or other
products  written by the Insurance  Subsidiaries  could have a material  adverse
effect on  Ascent's  liquidity  and  capital  resources  and,  due to  potential
restrictions on the ability of FLICA to underwrite new policies,  its results of
operations.

Ascent  received  debt  financing  for  the  $11  million  capital  contribution
described  above  from a loan  made by Credit  Suisse  First  Boston  Management
Corporation,  which is an  affiliate  of Special  Situations  Holdings,  Inc. --
Westbridge (Ascent's largest stockholder). The credit agreement relating to that
loan provided  Ascent with total loan  commitments  of $11 million (all of which
has been drawn).  The loan bears interest at a rate of 12% per annum and matures
in April,  2004.  Absent any  acceleration  following  an event of default,  the
Company  may elect to pay  interest in kind by  issuance  of  additional  notes.
During the second quarter of 2001,  Ascent issued  $277,000 in additional  notes
for  payment of  interest  in kind.  The credit  agreement  relating to the loan
provides for a facility fee of $1.5  million  which is payable upon  maturity or
upon a change in control, as defined. Ascent's obligations are secured, pursuant
to a guarantee and security  agreement and pledge  agreements,  by substantially
all of the assets of Ascent and its  subsidiaries  (excluding  the capital stock
and the assets of AICT,  FLICA,  NFL, NFIC, NCM, Ascent Funding  Corporation and
Ascent  Management,  Inc.,  some or all of which is  pledged as  collateral  for
receivables financing described below).  Ascent's subsidiaries (other than those
listed  above)  have also  guaranteed  Ascent's  obligations  under  the  credit
agreement and the loan.  Continued  adverse  claims  experience for the old GPPO
product could result in events of default under the credit agreement and related
agreements.

Dividends on Ascent's Redeemable Convertible Preferred Stock ("Preferred Stock")
may be paid in cash or by issuance of additional  shares of Preferred  Stock, at
the Company's option. On June 30, 2001, preferred stock dividends accrued in the
first six  months of 2001 were paid  through  the  issuance  of 1,419  shares of
preferred stock and a $881 distribution of cash.

Insurance   Subsidiaries.   The  primary  sources  of  cash  for  the  Insurance
Subsidiaries  are  premiums,   sales  and  maturities  of  invested  assets  and
investment  income  while the  primary  uses of cash are  benefits  and  claims,
commissions,  general and administrative expenses, and taxes, licenses and fees.
Cash contributions of $16.6 million were funded during the six months ended June
30,  2001,  by Ascent to its  Insurance  Subsidiaries  to  maintain  capital and
surplus (see "Ascent"  discussion above). The Company's  Insurance  Subsidiaries
recorded combined  statutory losses of $11.8 million for the first six months of
2001 and $17.0  million for the twelve  months  ended  December  31,  2000.  The
statutory  losses  resulted from 1) higher than expected claims and benefits for
the old GPPO  major  medical  product  (see  "Operating  Results")  and 2) costs
associated with increased new business  production  which must be expensed under
statutory accounting (for GAAP, such costs are deferred and amortized as related
premiums are recorded).

Dividends  paid by the Company's  Insurance  Subsidiaries  are determined by and
subject to the  regulations of the insurance laws and practices of the insurance
department of the state of domicile.  The Insurance  Subsidiaries  are precluded
from  paying  dividends  during  2001  without  the prior  approval of the Texas
Insurance Commissioner as the Companies' earned surplus is negative.

Inflation will affect claim costs on the Company's Medicare supplement and major
medical  products.  Costs  associated  with a  hospital  stay  and  the  amounts
reimbursed by the Medicare  program are each  determined,  in part, based on the
rate of inflation.  If hospital and other  medical costs that are  reimbursed by
the Medicare program increase,  claim costs on the Medicare  supplement products
will  increase.  Similarly,  as the hospital and other medical  costs  increase,
claim costs on the major medical products will increase. The Company attempts to
limit its exposure to  inflation by  incorporating  certain  limitations  on the
maximum  benefits which may be paid under its policies and by filing for premium
rate increases as necessary.

Consolidated.  The  Company's  consolidated  net cash  (used  for)  provided  by
operations  totaled  $(5.6)  million and $6.6 million for the second  quarter of
2001 and 2000,  respectively.  The increase in cash outflow from  operations for
2001 was  primarily  attributable  to an  increase  in the cash  basis  ratio of
benefits and claims to premiums.  Net cash used for investing activities for the
second  quarter of 2001 and 2000  totaled  $(8.4)  million  and $(9.3)  million,
respectively.  Cash used for investing activities was primarily for the purchase
of fixed maturity and short term investments.

Net cash provided by financing activities totaled $10.7 million and $1.0 million
for the second  quarter  of 2001 and 2000,  respectively.  Financing  activities
during the second quarter of 2001 include $11 million loan proceeds for the debt
financing,  $0.3  million  payment of deferred  debt costs,  $0.1 million in net
borrowings  related to the  Company's  Receivables  Financing  Program  (defined
below)  and $0.1  million  in  repayments  related  to the term  loan  facility.
Financing  activities for the corresponding period in 2000 included $1.1 million
of borrowings  related to the Company's  Receivables  Financing Program and $0.1
million of repayments under the term loan facility.

In the ordinary course of business, the Company advances commissions on policies
written by its general agencies and their agents.  The Company is reimbursed for
these advances from the  commissions  earned over the respective  policy's life.
The Company finances the majority of its obligations to make commission advances
through Ascent Funding Inc.,  ("AFI"),  an indirect  wholly owned  subsidiary of
Ascent. AFI has entered into a Credit Agreement (the "LaSalle Credit Agreement")
with LaSalle Bank, N.A. ("LaSalle").  The LaSalle Credit Agreement,  as amended,
provides AFI with a $7.5 million revolving loan facility,  the proceeds of which
are used to purchase  agent advance  receivables  from  affiliates.  At June 30,
2001,  approximately  $6.3  million was  outstanding  under the  LaSalle  Credit
Agreement.  The LaSalle Credit Agreement expires June 5, 2002, at which time the
outstanding  principal and interest will be due and payable.  Under the terms of
the  LaSalle  Credit  Agreement,  agent  advances  made within six months of the
expiration  date (after  December 5, 2001) are not eligible for  financing.  The
Company is currently seeking to extend the LaSalle Credit Agreement.  Failure of
the Company to obtain an extension of the LaSalle  Credit  Agreement by December
2001 could have a material  adverse  effect on  Ascent's  liquidity  and capital
resources and ability to fund projected  capital  contributions to its Insurance
Subsidiaries . Failure by Ascent to fund projected capital  contributions to its
Insurance  Subsidiaries could have a material adverse effect on Ascent's results
of operations.

AFI's  obligations  under the LaSalle Credit Agreement are secured by liens upon
substantially all of AFI's assets.  The Company has guaranteed AFI's obligations
under the  LaSalle  Credit  Agreement,  and has  pledged  all of the  issued and
outstanding  shares  of the  capital  stock  of  AFI,  NFL,  FLICA  and  NFIC as
collateral for that guaranty (the "Guaranty Agreement").  As of August 13, 2001,
there were no events of default under the LaSalle Credit or Guaranty Agreements.
However,  additional adverse claims experience in excess of management's current
expectations  for the old GPPO major  medical  product could result in events of
default under the Guaranty  Agreement,  Credit  Agreement and term loan facility
discussed below.

In July 1999, Ascent  Management,  Inc. ("AMI") entered into a $3.3 million term
loan  facility  with  LaSalle,  proceeds  of  which  were  used to  fund  system
replacement  costs.  The term loan facility is secured by  substantially  all of
AMI's assets and the Guaranty Agreement.  Under the terms of the loan, principal
is payable in 60 equal monthly installments  beginning January 31, 2000. At June
30,  2001,  approximately  $2.5  million  was  outstanding  under  the term loan
facility.















<PAGE>

                             ASCENT ASSURANCE, INC.

                                     PART II

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

On May 8, 2001, Ascent Assurance,  Inc. held its annual meeting of shareholders.
At the meeting, the shareholders elected three directors of the Company.

The shareholders elected Patrick J. Mitchell,  James K. Steen and Paul E. Suckow
to serve on the  Company's  Board of Directors for a three year term expiring in
2004. The following table reflects the votes cast at the annual meeting:

                                          For                       Withheld
                                      ------------               -------------
       Patrick J. Mitchell              3,306,491                       55
       James K. Steen                   3,306,491                       55
       Paul E. Suckow                   3,306,491                       55

                    Total Votes Cast    3,306,546

Directors whose terms continued and the years in which their term expires are as
follows:

                    Director                    Term Expiration
               -----------------------     ---------------------------
               John H. Gutfreund                      2002
               Michael A. Kramer                      2002
               Richard H. Hershman                    2003
               Robert A. Peiser                       2003



<PAGE>

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

The following  exhibits are filed herewith.  Exhibits  incorporated by reference
are indicated in the parentheses following the description.


3.1       Second  Amended  and  Restated  Certificate  of  Incorporation  of the
          Company  filed with the  Secretary  of State of  Delaware on March 24,
          1999  (incorporated  by reference to Exhibit 3.1 to the Company's Form
          8-A filed on March 25, 1999).

3.2       Amended and Restated By-Laws of the Company, effective as of March 24,
          1999  (incorporated  by reference to Exhibit 3.2 to the Company's Form
          8-A filed on March 25, 1999).

3.3       Amendment to the By-Laws of the Company, effective as of April 5, 2000
          (incorporated  by reference to Exhibit 3.3 to the Company's  Quarterly
          Report on Form 10-Q for the quarter ended June 30, 2000).

4.1       Form of Common Stock Certificate (incorporated by reference to Exhibit
          4.1 to the Company's Form 8-A filed on March 25, 1999).

4.2       Form of Warrant Certificate, included in the Form of Warrant Agreement
          (incorporated  by reference to Exhibit 4.2 to the  Company's  Form 8-A
          filed on March 25, 1999).

4.3       Form of Warrant  Agreement  dated as of March 24,  1999,  between  the
          Company and LaSalle  National Bank, as warrant agent  (incorporated by
          reference to Exhibit 4.3 to the Company's  Form 8-A filed on March 25,
          1999).

4.4       Form of  Preferred  Stock  Certificate  (incorporated  by reference to
          Exhibit 4.4 to the  Company's  Annual Report on Form 10-K for the year
          ended December 31, 1998).

10.1      First  Amendment  to  Guaranty  Agreement  dated as of March 24,  1999
          between  Westbridge  Capital Corp.  in favor of LaSalle  National Bank
          (incorporated  by reference to Exhibit 10.12 to the  Company's  Annual
          Report on Form 10-K for the year ended December 31, 1998).

10.2      Registration  Rights  Agreement dated as of March 24, 1999 between the
          Company   and  Special   Situations   Holdings,   Inc.  -   Westbridge
          (incorporated  by reference to Exhibit 10.13 to the  Company's  Annual
          Report on Form 10-K for the year ended December 31, 1998).

10.3      1999 Stock  Option  Plan dated as of March 24, 1999  (incorporated  by
          reference to the Company's  Schedule 14A filed with the  Commission on
          April 30, 1999).

10.4      Installment   Note  Agreement  dated  July  20,  1999  between  Ascent
          Management,  Inc. and LaSalle Bank National Association  (incorporated
          by reference to Exhibit 10.4 to the Company's Quarterly Report on Form
          10-Q for the quarter ended September 30, 1999).

10.5      Second  Amendment  to Credit  Agreement  dated August 12, 1999 between
          Ascent   Funding,   Inc.   and  LaSalle  Bank   National   Association
          (incorporated by reference to Exhibit 10.5 to the Company's  Quarterly
          Report on Form 10-Q for the quarter ended September 30, 1999).

10.6      Second  Amendment  to Guaranty  Agreement  dated July 20, 1999 between
          Ascent   Assurance,   Inc.  and  LaSalle  Bank  National   Association
          (incorporated by reference to Exhibit 10.6 to the Company's  Quarterly
          Report on Form 10-Q for the quarter ended September 30, 1999).

10.7      Third  Amendment  to Guaranty  Agreement  dated April 17, 2000 between
          Ascent   Assurance,   Inc.  and  LaSalle  Bank  National   Association
          (incorporated by reference to Exhibit 10.7 to the Company's  Quarterly
          Report on Form 10-Q for the quarter ended June 30, 2000).

10.8      Extension of Employment Agreement,  dated as of September 15, 1998, by
          and among the Company,  Westbridge Management Corp. and Mr. Patrick J.
          Mitchell  (incorporated  by reference to Exhibit 10.8 to the Company's
          Quarterly Report on Form 10-Q for the quarter ended June 30, 2000).

10.9      Extension of Employment Agreement,  dated as of September 15, 1998, by
          and among the Company,  Westbridge Management Corp. and Mr. Patrick H.
          O'Neill  (incorporated  by reference to Exhibit 10.9 to the  Company's
          Quarterly Report on Form 10-Q for the quarter ended June 30, 2000).

10.10     Fourth  Amendment to Guaranty  Agreement dated August 10, 2000 between
          Ascent   Assurance,   Inc.  and  LaSalle  Bank  National   Association
          (incorporated by reference to Exhibit 10.10 to the Company's Quarterly
          Report on Form 10-Q for the quarter ended September 30, 2000).

10.11     First Amendment to Pledge Agreement, dated as of November 30, 2000, by
          and among Ascent Assurance, Inc. and LaSalle Bank National Association
          (incorporated  by reference to Exhibit 10.22 to the  Company's  Annual
          Report on Form 10-K for the year ended December 31, 2000).

10.12     Fifth Amendment to Guaranty Agreement,  dated as of November 30, 2000,
          by  and  among  Ascent  Assurance,  Inc.  and  LaSalle  Bank  National
          Association  (incorporated  by  reference  to  Exhibit  10.23  to  the
          Company's  Annual Report on Form 10-K for the year ended  December 31,
          2000).

10.13     Third Amendment to Credit Agreement, dated as of November 30, 2000, by
          and among Ascent Funding,  Inc. and LaSalle Bank National  Association
          (incorporated  by reference to Exhibit 10.24 to the  Company's  Annual
          Report on Form 10-K for the year ended December 31, 2000).

10.14     First Amendment to Security Agreement,  dated as of November 30, 2000,
          by and  among  Ascent  Management,  Inc.  and  LaSalle  Bank  National
          Association  (incorporated  by  reference  to  Exhibit  10.25  to  the
          Company's  Annual Report on Form 10-K for the year ended  December 31,
          2000).

10.15     Credit Agreement dated April 17, 2001 between Ascent  Assurance,  Inc.
          and Credit Suisse First Boston Management Corporation (incorporated by
          reference  to Exhibit 10.1 to the  Company's  Form 8-K filed April 25,
          2001).

10.16     Guaranty and Security  Agreement dated April 17, 2001 among Foundation
          Financial Services, Inc.,  NationalCare  Marketing,  Inc., LifeStyles
          Marketing  Group,  Inc.,  Precision  Dialing  Service,   Inc.,  Senior
          Benefits,  L.L.C., and Westbridge  Printing Services,  Inc. and Credit
          Suisse First Boston management Corporation  (incorporated by reference
          to Exhibit 10.2 to the Company's Form 8-K filed April 25, 2001).

10.17     Pledge Agreement dated April 17, 2001 between Ascent  Assurance,  Inc.
          and Credit Suisse First Boston Management Corporation (incorporated by
          reference  to Exhibit 10.3 to the  Company's  Form 8-K filed April 25,
          2001).

10.18     Sixth Amendment to Guaranty  Agreement and Waiver dated April 17, 2001
          between Ascent  Assurance  Inc. and LaSalle Bank National  Association
          (incorporated  by reference to Exhibit 10.4 to the Company's  Form 8-K
          filed April 25, 2001).

10.19     Fourth  Amendment  to Credit  Agreement  dated April 17, 2001  between
          Ascent   Funding,   Inc.   and  LaSalle  Bank   National   Association
          (incorporated  by reference to Exhibit 10.5 to the Company's  Form 8-K
          filed April 25, 2001).

(b)      Reports on Form 8-K

The  Registrant  filed a Report on Form 8-K dated  April 25, 2001 in response to
Item 5, Other  Events,  to report the $11  million  debt  financing  with Credit
Suisse First Boston Management Corporation.



<PAGE>


                                                                       Form 10-Q



Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.



                                           ASCENT ASSURANCE, INC.




                                            /s/ Cynthia B. Koenig
                                           Cynthia B. Koenig
                                           Senior Vice President,
                                           Chief Financial Officer and Treasurer
                                           (Principal Financial and
                                           Accounting Officer)
















Dated at Fort Worth, Texas
August 14, 2001