EXHIBIT 10.3


                           OPTION SURRENDER AGREEMENT


     THIS OPTION SURRENDER AGREEMENT  ("Agreement") is executed this 30th day of
March, 1999, by and among AMERICAN MEDICAL SECURITY HOLDINGS,  INC., a Wisconsin
corporation  ("Company"),  AMERICAN  MEDICAL SECURITY GROUP,  INC.  ("AMSG") and
WALLACE J. HILLIARD, an individual ("Employee").

                                    RECITALS

     WHEREAS,  Employee  is a  party  to  that  certain  Equity  Incentive  Plan
Nonqualified  Stock Option  Award  Agreement  with AMSG f/k/a  United  Wisconsin
Services, Inc. dated December 3, 1996, (the "Option Agreement"), a copy of which
is attached hereto as EXHIBIT A; and

     WHEREAS,  subsequent to the date of the Option  Agreement,  AMSG effected a
spin-off  (the  "Spin-off")  of  its  managed  care  business  to a  new  formed
corporation, Newco/UWS, Inc. n/k/a United Wisconsin Services, Inc. ("New UWSI");

     WHEREAS,  the Spin-off  resulted in Employee having stock options with AMSG
for 530,000  shares of AMSG stock (the "AMZ Stock  Options"),  and stock options
with New UWSI for  530,000  shares of New UWSI stock (the "UWZ Stock  Options");
and

     WHEREAS,  Company and Employee are parties to that certain  Employment  and
Noncompetition  Agreement  dated  December  3,  1996,  by and  between  AMSH and
Employee (the  "Employment  Agreement"),  a copy of which is attached  hereto as
EXHIBIT B; and

     WHEREAS,  Company  has,  at  all  times  since  December  3,  1996,  been a
subsidiary of AMSG; and

     WHEREAS,  Employee  desires to surrender  the AMZ Stock Options in exchange
for an extended term of employment under the Employment Agreement; and

     WHEREAS,  the  Company  desires to accept  such  surrender  and extend such
employment.

     NOW,  THEREFORE,  in consideration of the foregoing premises and the mutual
agreements  and  covenants  contained  herein,  and for other good and  valuable
consideration,  the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows.

1.        SURRENDER OF THE OPTIONS.  Employee  hereby  surrenders  the AMZ Stock
          Options to AMSG which  consist of 530,000  options to purchase  common
          stock of AMSG  pursuant  to the  Option  Agreement,  as  amended  as a
          consequence of the Spin-off.  Employee further  acknowledges  that the
          AMZ Stock Options  represent all of the options to purchase  shares of
          AMSG held by Employee and that this surrender of the AMZ Stock Options
          fully waives Employee's rights in and to the AMZ Stock Options and all
          rights derived therefrom or appertaining thereto,  including,  but not
          limited to, any and all vested rights.  Notwithstanding the foregoing,
          the  surrender  hereunder  of the AMZ  Stock  Options  shall in no way
          affect  employee's  rights under the UWZ Stock  Options;  it being the
          understanding  of the parties  that  whatever  rights the Employee has
          under the UWZ Stock Options shall remain in full force and effect.

2.        AMENDMENT OF THE EMPLOYMENT AGREEMENT.  In consideration of Employee's
          surrender  of the  Options,  the  Company  hereby  extends  Employee's
          employment  with the  Company  in  accordance  with the  Amendment  to
          Employment and Noncompetition Agreement in the form attached hereto as
          EXHIBIT C.

3.        NOTICES.  Any notice  required  to be given  pursuant to the terms and
          provisions  hereof,  unless otherwise  indicated  herein,  shall be in
          writing and shall be  hand-delivered or sent by certified mail, return
          receipt requested, postage prepaid as follows:

          If to the Company:

                  American Medical Security Holdings, Inc.
                  3100 AMS Blvd.
                  Green Bay, WI  54313
                  Attn: General Counsel

          If to American Medical Security Group, Inc.:

                  American Medical Security Group, Inc.
                  3100 AMS Blvd.
                  Green Bay, WI  54313
                  Attn: General Counsel

          If to Employee:

                  Wallace J. Hilliard
                  Hilliard Limited Partnership
                  840 Willard Drive
                  Green Bay, WI  54313

          Notices  shall be deemed  given when mailed to the  address  indicated
          above,  or to such other  address as either  party may indicate to the
          other by written notice as herein requested.

4.        ENTIRE AGREEMENT. This Agreement contains the entire understanding and
          the full and complete  agreement of the parties,  and  supersedes  and
          replaces any prior  understandings and agreements between the parties,
          with respect to the subject matter hereof.

5.        AMENDMENT.  This  Agreement may not be altered,  amended,  assigned or
          modified except in writing, signed by all of the parties hereto.

6.        ASSIGNABILITY.  This  Agreement  and the  rights  and duties set forth
          herein may not be assigned by the Employee or the Company, in whole or
          in part.  This Agreement  shall be binding on and inure to the benefit
          of   each   party   and   each   party's   respective   heirs,   legal
          representatives, successors and permitted assigns.

7.        SEVERABILITY.  If any court of competent jurisdiction  determines that
          any provision of this Agreement is invalid or unenforceable, then such
          invalidity  or  unenforceability  shall  have no  effect  on the other
          provisions hereof,  which shall remain valid,  binding and enforceable
          and in full  force  and  effect,  and such  invalid  or  unenforceable
          provision  shall be  construed  in a manner so as to give the  maximum
          valid and  enforceable  effect to the intent of the parties  expressed
          therein.

8.        WAIVER  OF  BREACH.  The  waiver  by any  party of the  breach  of any
          provision  of this  Agreement  shall not operate or be  construed as a
          waiver of any subsequent breach by any other party.

9.        HEADINGS. Headings included in this Agreement are for convenience only
          and are not  intended  to limit or expand  the  rights of the  parties
          hereto.

10.       GOVERNING  LAW. This Agreement  shall be construed in accordance  with
          the laws of the State of Wisconsin  without regard to conflicts of law
          provisions.

     IN WITNESS  WHEREOF,  the parties have executed this  Agreement on the date
first set forth above.

                             AMERICAN MEDICAL SECURITY HOLDINGS, INC.


                             By:        /S/ TIMOTHY J. MOORE
                                 -----------------------------------------------
                                        Sr. Vice President of Corporate Affairs,
                             Its:       Secretary & General Counsel
                                 -----------------------------------------------



                             AMERICAN MEDICAL SECURITY GROUP, INC.


                             By:        /S/ TIMOTHY J. MOORE
                                 -----------------------------------------------
                                        Sr. Vice President of Corporate Affairs,
                             Its:       Secretary & General Counsel
                                 -----------------------------------------------



                             EMPLOYEE

                                        /S/ WALLACE J. HILLIARD
                             ---------------------------------------------------
                             Wallace J. Hilliard