SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C.   20549
                                     Form 10-K

   (Mark One)
   [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
   Act of 1934  [Fee Required]
   For the fiscal year ended December 31, 1995

   [ ] Transition report pursuant to section 13 or 15(d) of the Securities
   Exchange Act of 1934 [No Fee Required]
   For the transition period from                       to                  

   Commission file number 1-10522

                         PIONEER FINANCIAL SERVICES, INC.
              (Exact name of registrant as specified in its charter)

                    Delaware                            36-2479273
        (State or other jurisdiction of              (I.R.S. Employer
         incorporation or organization)             Identification No.)

   1750 East Golf Road, Schaumburg, Illinois               60173
    (Address of principal executive offices)            (Zip Code)

       Registrant's telephone number, including area code (847) 995-0400

       Securities registered pursuant to Section 12(b) of the Act:
                                                   Name on Each Exchange
              Title of Each Class                   on Which Registered
         Common Stock, $1.00 par value          New York Stock Exchange and
                                                  Midwest Stock Exchange
         $2.125 Cumulative Convertible
          Exchangeable Preferred Stock            New York Stock Exchange

     8% Convertible Subordinated Debentures       New York Stock Exchange

       Securities registered pursuant to Section 12 (g) of the Act:  None

        Indicate by a 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     

        While it is difficult to determine the number of shares owned by non-
   affiliates (within the meaning of the term under the applicable regulations
   of the Securities and Exchange Commission), the registrant estimates that the
   aggregate market value of the registrant's common stock held by non-
   affiliates on March 7, 1996 (based upon an estimate that  85% of the shares
   are so owned by non-affiliates and upon the closing price of the common stock
   on the New York Stock Exchange) was $136,912,779.

        The number of shares of the registrant's common stock, $1.00 par value
   per share, outstanding as of March 7, 1996 was 10,112,062.

                        DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the registrant's definitive proxy statement for the annual
   meeting of stockholders to be held May 23, 1996 to be filed pursuant to
   Regulation 14A are incorporated by reference into Part III of this Form 10-K.

        Indicate by check mark if disclosure of delinquent filers pursuant to
   Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
   herein, and will not be contained, to the best of the registrant's knowledge,
   in definitive proxy or information statements incorporated by reference in
   Part III of this Form 10-K or any amendment to this Form 10-K.  [  ]

   ITEM 1.  BUSINESS

         Pioneer Financial Services, Inc. (the Company) underwrites and markets
   health insurance, life insurance and annuities and provides medical
   utilization management services throughout the United States.  In the nine
   years since it became public, the Company's total revenue has grown from
   $75.2 million in 1986 to $800.1 million in 1995; total assets have increased
   from $165.0 million at December 31, 1986 to over $1.5 billion at December 31,
   1995; and stockholders' equity has increased from $33.5 million at December
   31, 1986 to $144.6 million at December 31, 1995.  The Company sells its
   products and services through four marketing divisions:  Senior Health and
   Life Division, Group Medical Division, Life Insurance Division and Medical
   Utilization Management Division.

   OPERATIONS

         Senior Health and Life Division.  The Senior Health and Life Division
   markets a wide range of specialty health insurance and life insurance and
   annuities for individuals age 65 and older.  Products which are underwritten
   by this division include Medicare supplement, long-term care, home health
   care and specialty health.  In addition, this division markets cash burial
   life policies and annuities which are underwritten by the Company's Life
   Insurance Division.  The Company's Medicare supplement policies provide
   coverage for many of the expenses which the federal Medicare program does not
   fully cover and its long-term care and home health care policies provide
   coverage, within various prescribed benefit limits, for nursing home and in-
   home care.  During 1995, the number of senior health insurance policies
   issued by the Company increased 21% over 1994, to over 48,000 policies. 
   Additionally, the number of senior life insurance policies issued by the
   Company increased 137% in 1995 compared to 1994, to over 35,000 policies.

         The Company is the fourth largest issuer of individual Medicare
   supplement insurance in the nation, excluding Blue Cross and Blue Shield-
   related entities, based on direct premiums earned.  The Company sells
   products designed for senior citizens through a distribution network which
   has grown from approximately 15,000 agents at the end of 1994 to nearly
   22,000 agents at the end of 1995.  This growth was primarily the result of
   the formation, in mid-1995, of Markman International, a 50/50 joint venture
   with Markman Company, which, prior to the joint venture, had established
   itself as a leading independent marketer of long-term care policies.  Markman
   International serves as the national marketing and distribution arm of the
   Senior Health and Life Division.  Future revenue growth in this division is
   expected to be generated in part from the increased number of agents and
   increased sales of Medicare supplement, long-term care and home health care
   policies.

         Group Medical Division.  The Group Medical Division underwrites and
   markets small group and individual hospital and medical policies, primarily
   to self-employed individuals and small business owners.  In 1995,
   approximately 82% of this division's business was sold through a sales force
   of approximately 1,700 career agents and the remaining 18% was sold through a
   brokerage system of 6,000 independent agents.  This division uses the
   services provided by the Medical Utilization Management Division,
   unaffiliated preferred provider organizations ("PPOs") and other managed care
   operations to help control claims costs.  In 1995, approximately 70% of
   hospital stays covered by policies issued by the Group Medical Division used
   PPO facilities, an increase from 32% in 1993 and 54% in 1994.  The Group
   Medical Division's use of managed care services, provided by both the Medical
   Utilization Management Division and unaffiliated companies, resulted in
   approximately $69.0 million in claims savings for the Company in 1995, with
   most of these savings being passed on to customers in the form of more
   competitive premium rates.  

         Life Insurance Division.  The Life Insurance Division underwrites and
   markets traditional life (term and whole life), universal life, and interest
   sensitive life insurance and annuities targeted primarily to the middle
   income market.  The Life Insurance Division sells its products through a
   nationwide network of brokerage general agents ("BGAs") and managing general
   agents ("MGAs") who in turn contract with multiple brokers and general
   agents.  This division grew significantly when the Company acquired
   Connecticut National Life Insurance Company ("CNL") in January 1995.  This
   division also underwrites, issues and administers the life insurance products
   marketed by the Senior Health and Life Division.  

         Medical Utilization Management Division.  The Medical Utilization
   Management Division provides health care coordination services to assist in
   the management of medical costs for insurance companies, government agencies,
   self insured businesses, unions, health maintenance organizations ("HMOs")
   and third-party administrators as well as for the Group Medical Division. 
   Such services include precertification of inpatient and outpatient medical
   care, case management, and the development and management of provider
   networks.  During 1995, approximately 81% of this division's revenues were
   derived from services provided to unaffiliated organizations.

         Investment Portfolio.  The Company has maintained and intends to
   continue to maintain a diversified portfolio of medium-term investment-grade
   fixed income securities.  As of December 31, 1995, 83% of the Company's
   invested assets were fixed income securities and the weighted average quality
   of the fixed income portfolio was "AA."

   STRATEGY

         Senior Health and Life Division.  The Company believes it has an
   opportunity to expand its position as a leading provider of health and life
   insurance products to the growing senior market.  According to the U.S.
   Census Bureau, the age 65 and over population group is estimated to grow by
   more than 13% to 35 million by the year 2000 and to over 53 million by 2020. 
   Currently only 10% of persons age 65 and over own long-term care insurance,
   while approximately 43% of such individuals are expected to require the use
   of nursing care at least once in their lives.  The number of long-term care
   policies sold industry-wide has increased at a rate of approximately 27% per
   year since 1987, to a total of approximately 3.4 million long-term care
   policies sold through December 31, 1994.  As such, the Company believes the
   demand for long-term care and home health care insurance will increase at a
   rate greater than the growth rate of the senior population.  The Company
   believes the growth of this senior health insurance market could be enhanced
   if future government regulation continues to move toward more personal
   financial responsibility, with less reliance on government payments, possibly
   in the form of additional reductions in Medicare benefits and/or the
   establishment of tax deductibility for long-term care insurance premiums.

         The Company intends to expand its position in the growing senior
   market by increasing the number of agents who sell its senior products, and
   by increasing the number of products agents sell to each customer through
   cross-selling.  Through Markman International, the Company has increased its
   agent force by nearly 45% since the end of 1994 and expects further increases
   in 1996.  In 1995, approximately 2.5% of the Senior Health and Life
   Division's Medicare supplement policyholders owned one of the Company's long-
   term care or home health care policies.  Through increased training of its
   agents as to the full range of products offered by the Company and the
   development of pre-approved (already underwritten for issue) add-on products
   that can easily be coupled with certain existing products, the Company
   intends to increase its cross-selling efforts and thereby increase the number
   of its products owned by each customer.  Additionally, the Company believes
   that the market for senior managed care products will grow as health care
   expenditures continue to grow.  Currently, approximately 10% of Medicare
   beneficiaries in the nation participate in HMOs.  There are many states with
   very low penetration of managed care in the senior market, including states
   with a high concentration of Medicare beneficiaries.  The Company intends to
   take advantage of this opportunity by utilizing its position in the senior
   market and its managed care capability to market managed care products to
   senior citizens.

         Group Medical Division.  The Group Medical Division intends to focus
   its efforts on increasing administrative efficiency and claims-cost
   containment on its existing block of business through, among other things,
   increased use of the Medical Utilization Management Division's services,
   continued development of medical provider networks and continued migration of
   its fee-for-service indemnity health insurance customers to managed care
   products.  As the regulatory environment changes, the Company will evaluate
   growth opportunities in this market.

         Life Insurance Division.  The Life Insurance Division's strategy is to
   expand its distribution channels and products and to continue to lower its
   administrative unit costs.  The acquisition of CNL in 1995 has given the
   Company the opportunity to initiate new distribution strategies, including
   consumer-direct sales over the Internet.  Also, at year-end 1995, the Company
   entered into an agreement with a national marketing organization to market a
   new term life insurance product with an income benefit rider.  With 25,000
   agents nationwide, this marketing organization gives the Company the
   potential to increase significantly the sales of the Life Insurance Division.

         Medical Utilization Management Division.  The Medical Utilization
   Management Division intends to grow through cross-selling additional managed
   care services to existing clients.  In addition, this division is currently
   developing and intends to manage PPOs, exclusive provider organizations
   ("EPOs") and HMOs in selected market areas.

         Acquisitions.  The Company believes that current trends in the life
   and health insurance industry will provide opportunities for continued
   acquisitions and consolidations.  The Company further believes that its
   ability to integrate acquisitions into its existing operations and its
   flexibility in developing and marketing new products should enable it to
   capitalize on these opportunities.


         The Company was organized in Delaware in 1982 as a successor to an
   Illinois holding company formed in 1957.  The executive offices of the
   Company are located at 1750 East Golf Road, Schaumburg, Illinois 60173 and
   its telephone number is (847) 995-0400.

   PRODUCTS AND SERVICES

        The Company markets and underwrites health insurance, life insurance and
   annuities and provides medical utilization management services throughout the
   United States.  The Company sells products and provides its services through
   four marketing divisions:  Senior Health and Life Division, Group Medical
   Division, Life Insurance Division and Medical Utilization Management
   Division.  The Company's distribution systems for its products have increased
   from approximately 12,000 agents in 1986 to nearly 45,000 agents at the end
   of 1995.

   Senior Health and Life Division

        The products marketed by the Senior Health and Life Division include
   Medicare supplement, long-term care, home health care, various specialty
   health coverages, life insurance and annuities.  This division markets these
   products to individuals age 65 and older and underwrites and issues all such
   products except the life insurance and annuity products which are
   underwritten and issued by the Life Insurance Division.

        The following table sets forth the earned premiums, losses and loss
   adjustment expenses incurred and loss ratios for the Company's senior health
   products.  Senior health premiums have been impacted by federally mandated
   standardized Medicare supplement policies.  This standardization began in
   1992 and included fixed benefits and reductions in agent commissions,
   especially in the case of replacement of an existing Medicare supplement
   policy.  During this same period, the Company altered its marketing emphasis,
   reducing the number of products available for sale in selected states until
   new products were developed and priced.  The combination of these changes had
   the effect of decreasing new sales revenue for these policies.

   <TABLE>
   <CAPTION>

                                                                            Year Ended December 31,                   

                                                1995               1994              1993               1992              1991 
                                                                               (dollars in thousands)

    <S>                             <C>                 <C>               <C>                <C>              <C>
    Earned premiums (1)             $ 217,382           $ 225,604         $ 243,482          $ 264,697        $ 298,653
    Benefits (1)                      143,226             137,853           154,561            176,149          200,446
    Loss ratio                            66%                 61%               63%                67%              67%

     ___________________

   (1)  In the Company's statement of consolidated operations, earned premiums
        represent premiums written, adjusted for reinsurance; the changes in
        unearned premiums are reflected in benefits, together with losses and
        loss adjustment expenses.  Losses and loss adjustment expenses include
        losses incurred on insurance policies and the expenses of settling
        insurance claims, including legal and other related fees and expenses.

   </TABLE>

        In the Senior Health and Life Division, the Company may adjust health
   insurance premium rates by class, policy form and state in which the policy
   is issued, subject to applicable regulation, in order to maintain anticipated
   loss ratios.  Since premium rate increases can increase policy lapses,
   conservation and customer service activities are emphasized.  The Senior
   Health and Life Division follows a proactive approach involving strict
   scrutiny of all health premium rates on a monthly basis, including
   comparisons of pricing structure to actual claims experience by product line
   and state.  This ongoing analysis provides the lead time necessary for the 
   orderly adjustment of premiums.

        Medicare Supplement.  Since the inception of the federal Medicare
   program in 1966, the Company has offered policies designed to supplement
   Medicare benefits and is now the fourth largest issuer of individual Medicare
   supplement insurance in the nation, excluding Blue Cross and Blue Shield-
   related entities, based on direct premiums earned.  Medicare supplement
   policies provide coverage for many of the medical expenses which the Medicare
   program does not cover, such as deductible and coinsurance costs and
   specified losses which exceed the Federal program's maximum benefits.


        In 1991, the NAIC defined ten model Medicare supplement policies.  In
   states which have adopted the NAIC model, only those ten policies can be
   sold.  In most states, the Company markets eight of the ten model
   policies  those which the Company believes are most applicable to its target
   market.  All states have adopted either the NAIC model or similar legislation
   which specifically defines policy models.  Sales of the Company's Medicare
   supplement products increased 20% in 1995 on an annualized premium basis.

        The federal government began a test program in 1992, allowing 15
   specified states to participate in a "Medicare Select" program.  Medicare
   Select policies combine the cost advantages of a preferred provider
   organization with a Medicare supplement policy to provide a reduced premium
   cost for policyholders.  Utilization of specified hospitals, which waive
   certain deductibles covered by the Medicare supplement policy, allows the
   Company to reduce the premium charged.  In 1995,  the federal government
   expanded the Medicare Select program to all states. Although the market for
   this product is just developing, the Company sells Medicare Select policies
   in a number of states and has plans to expand sales nationally. 

        Long-Term Care and Home Health Care.  The Senior Health and Life
   Division also offers long-term care and home health care products designed
   principally for senior citizens.  Long-term care policies generally provide
   specified per day benefits for nursing home confinements, within prescribed
   limits.  Home health care policies provide specified per day benefits for
   required health services received in the home and comprehensive coverages
   which provide benefits for all levels of nursing home care, home health care
   and adult day care.  In 1995, the Company developed and introduced a new
   series of "Independent Choice" long-term care and home health care plans
   which provide greater flexibility of benefit use and include care
   coordination features to help lower benefit costs.  In 1995, new annualized
   sales of the Company's long-term care and home health care products increased
   by 288% from $3.4 million to $13.2 million.  The Company's strategy is to
   cross-sell these products to customers who have already purchased the
   Company's Medicare supplement product.

        The Company believes that the market for long-term care and home health
   care could increase if the federal government were to enact proposed tax
   legislation to provide tax deductibility for long-term care insurance
   premiums.  While these changes have been proposed, the Company cannot predict
   if or when they will be enacted.  See "--Health Care Reform".

        Specialty Health and Other.  The Senior Health and Life Division offers
   various specialty health products which typically are sold in conjunction
   with the Company's principal health products.  These policies include
   hospital indemnity, private duty nursing and cancer plans.  Additionally, the
   Company intends to develop and market managed care organizations for seniors
   as the demand for such products expands.  The Company believes that the
   market for senior managed care products will grow as health care costs
   continue to grow.  Currently approximately 10% of Medicare beneficiaries in
   the nation participate in HMOs.  There are many states with very low
   penetration of managed care in the senior market, including states with a
   high concentration of Medicare beneficiaries.  The Company intends to take
   advantage of this opportunity by utilizing its strong position in the senior
   market and its managed care capability to market managed care products to
   senior citizens.

        Life Insurance and Annuities.  The Senior Health and Life Division
   markets life insurance and annuities which are issued by the Life Insurance
   Division to individuals age 65 and over.  In 1994, the Company began selling
   smaller face-amount whole life insurance policies specifically designed to
   cover final expenses for senior citizens, including funeral expenses and
   other expenses that otherwise would be paid by the insured's family.  During
   1995, sales of these products increased 120% on an annualized premium basis
   to $16.8 million from $7.6 million.  As part of its cross-selling strategy,
   the Company automatically offers a pre-approved (already underwritten for
   issue) cash burial life insurance policy with all Medicare supplement
   policies issued to customers age 66-79.  The Company also offers annuity
   products specifically designed for seniors.  These products provide an
   attractive investment alternative to seniors, offering higher interest rates
   than bank savings accounts and certificates of deposit and the ability to
   receive monthly payouts during retirement years.

        Marketing.  The Senior Health and Life Division markets its products and
   services primarily to individuals age 65 and older through a distribution
   system which, in 1995, grew from approximately 15,000 agents to nearly 22,000
   agents, primarily as a result of the formation in mid-1995 of Markman
   International, a 50/50 joint venture with Markman Company, which, prior to
   the joint venture, had established itself as a leading independent marketer
   of long-term care policies.  Markman International is the national marketing
   and distribution arm of the Senior Health and Life Division.  The Company
   intends to increase further the number of agents used by the Senior Health
   and Life Division in 1996 and to enhance the Company's cross-selling
   capabilities through increased agent training and packaging of products.  The
   agents receive extensive product and marketing information from the Company. 
   They also have access, through the Company, to lists of prospective customers
   turning age 65 in their respective geographic areas and to a direct-mail
   lead-generation system.  By providing its agents with training, sales
   materials, lead-generation programs and a full range of health and life
   insurance products designed for senior citizens, the Company intends to
   increase both sales to new customers and cross-sales to existing
   policyholders.  The agents receive commissions on each sale based on the type
   of product sold.

   Group Medical Division

        The Group Medical Division underwrites and markets small group and
   individual hospital and medical products, including major hospital and
   specialty health insurance policies, individually underwritten and issued. 
   For 1993, 1994 and 1995, this division produced health insurance premium
   revenue of approximately $354.4 million, $435.9 million, and $404.9 million,
   respectively.  This division also derives marketing commission revenue and
   other fee income through marketing insurance and other products of
   unaffiliated companies and associations with whom the Company has a marketing
   relationship.  This division's products and services are targeted primarily
   to self-employed individuals and small business owners.  The insureds in this
   division also become prospects for the Senior Health and Life Division --
   when they reach age 65, the Company automatically provides for conversion to
   a Medicare supplement policy.
        Pre-tax income increased in this division in 1995, as the Company
   continued to make improvements in its management of the division's block of
   business through close monitoring of claims costs, increased use of medical
   provider networks and case management and the implementation of premium rate
   adjustments as necessary.

        The following table sets forth the earned premiums, losses and loss
   adjustment expenses incurred and loss ratios for the Group Medical Division's
   products.  The Company's loss ratios have varied over the years reflecting
   changes in medical claim costs and the frequency of benefit utilization by
   its insureds.  

   <TABLE>
   <CAPTION>

                                                                            Year Ended December 31,                   

                                                1995               1994              1993               1992              1991 
                                                                               (dollars in thousands)

    <S>                                     <C>                   <C>               <C>                 <C>               <C>
    Earned premiums (1)                     $ 414,160             $ 443,599         $ 375,275           $ 302,881         $ 294,431
    Benefits (1)                              261,336               279,419           251,955             200,781           176,222
    Loss ratio                                    63%                   63%               67%                 66%               60%

    ___________________

     (1)  In the Company's statement of consolidated operations, earned premiums
        represent premiums written, adjusted for reinsurance; the changes in
        unearned premiums are reflected in benefits, together with losses and
        loss adjustment expenses.  Losses and loss adjustment expenses include
        losses incurred on insurance policies and the expenses of settling
        insurance claims, including legal and other related fees and expenses.

   </TABLE>

        As in the Senior Health and Life Division, the Company may, in the Group
   Medical Division, adjust health insurance premium rates by class, policy form
   and state in which the policy is issued, subject to applicable regulation, in
   order to maintain anticipated loss ratios.  Since premium rate adjustments
   can have the tendency to increase policy lapses, conservation and customer
   service activities are emphasized.  As with the Senior Health and Life
   Division, the Group Medical Division follows a proactive approach involving
   strict scrutiny of health premium rates on a monthly basis.  The matching of
   pricing structure with actual claims experience varies by product line and
   state.  This ongoing analysis provides the lead time necessary for the
   orderly adjustment of premiums.

        The Group Medical Division intends to focus its efforts on increasing
   administrative efficiency and claims-cost containment on its existing block
   of business through, among other things, increased use of the Medical
   Utilization Management Division's services, continued development of medical
   provider networks and continued migration of its fee-for-service indemnity
   health insurance customers to managed care products.  As the regulatory
   environment changes, the Company will evaluate growth opportunities in this
   market.

        Major Hospital.  The Company offers major hospital insurance plans on an
   individual basis and on a group trust (multiple employer trust) and
   association basis and has issued master policies for such plans to several
   trusts and associations.  These plans are designed to cover in-hospital
   expenses for self-employed individuals, small business owners, employees and
   their families.  Hospital, surgical and other medical expenses are covered on
   an expense incurred basis with certain benefit limits after a prescribed
   deductible.  The Company provides products with alternatives such as
   increased deductibles and different benefit structures designed to enable
   policyholders to maintain insurance protection without increased premium
   rates.  In 1994, the Company introduced "ChoicePlus," a product which
   combines HMO-type wellness features within a specific provider network along
   with in-network and out-of-network indemnity benefits.

        In December 1991, the NAIC adopted the Small Employers Availability Act
   (the "SEA Act").  The SEA Act affects the rating and underwriting methodology
   that can be applied to insurance coverage sold to small employers, generally
   categorized as those employing 25 people or less.  In response to the SEA
   Act, the Company has modified and continues to modify its new products for
   sale in those states that have adopted or are adopting the SEA Act or other
   health care reforms.

        Other.  The Group Medical Division also derives revenue through sales of
   products of unaffiliated insurance companies and other associations with whom
   the Company has a marketing relationship.  These products include medical
   insurance for medium-sized groups (50 or more), employer self-funded plans,
   flexible premium universal life insurance, disability income protection and
   annuities.  The Group Medical Division also markets HMO products in areas
   where these products have a significant competitive advantage over
   traditional indemnity insurance products.  The HMO products are sold in
   selected states through marketing relationships with regional HMOs.  In
   addition to commission revenue, sales of these HMOs provide the sales force
   with opportunities to cross-sell the Company's other products.  This division
   also markets membership benefit packages to various national associations. 
   These packages include discounts on dental services, hotels/motels, airfares,
   prescription drugs, vision and hearing aid equipment and other services.

        Marketing.  The Group Medical Division markets its products and services
   primarily to self-employed individuals and small business owners.  In 1995,
   approximately 84% of this division's products was sold through a sales force
   of approximately 1700 career agents, and the remaining 16% was sold through a
   brokerage system of 6,000 independent agents.  These agents receive leads
   through the Company's telemarketing subsidiary and compensation in the form
   of commissions.

        The Company's acquisition of Continental Marketing Corporation in
   connection with the 1993 acquisition of CLAC added an efficient broker-to-
   broker telemarketing distribution system to the Group Medical Division.  This
   system utilizes experienced sales representatives who contact brokers by
   phone to promote the Company's products and provide the brokers with sales
   and marketing assistance.  The brokers are compensated for their sales
   through commissions; the telemarketing representatives receive salaries from
   the Company and bonuses based on meeting certain sales objectives.

   Life Insurance Division

        The Life Insurance Division's products include traditional life (term
   and whole life), universal life and interest sensitive insurance and
   annuities.  Substantially all of the Company's life insurance policies are
   individually underwritten and issued.  This division's products and services
   are targeted primarily to the middle income market.  In addition, this
   division underwrites, issues and administers the life insurance and annuity
   products marketed by the Senior Health and Life Division.  This division grew
   significantly when the Company acquired CNL in January 1995.
        The following table sets forth the breakdown of premiums collected
   (including receipts not related to policy charges) among traditional life
   policies, interest sensitive and universal life policies and annuities for
   the years shown:

   <TABLE>
   <CAPTION>
                                                                               Year Ended December 31,                   

                                     1995               1994              1993               1992              1991 
                                                                               (dollars in thousands)

    <S>                               <C>              <C>              <C>              <C>              <C>
    Traditional                       $  44,276        $  32,238        $  26,353        $  20,300        $  17,968
    Interest Sensitive and
      Universal Life Policies            21,215           17,590           16,300           18,399           20,676
    Annuities                            19,639           22,807           10,004            6,212           13,479
    Total                             $  85,130        $  72,635        $  52,657        $  44,911        $  52,123

    </TABLE>

     For the fiscal year 1993, premiums collected from the Company's life
   insurance products were approximately 24% first year and 76% renewal, the
   fiscal year 1994 premiums were approximately 28% first year and 72% renewal,
   and for 1995 premiums collected were approximately 32% first year and  68%
   renewal.

        The Company's gross life insurance in force was as follows at the dates
   shown:

   <TABLE>
   <CAPTION>

                                                                Year Ended December 31,                   

                                                1995               1994              1993               1992              1991 
                                                                               (dollars in millions)

    <S>                               <C>              <C>              <C>              <C>             <C>
    Traditional                       $  14,863        $  10,803        $  10,320        $   8,757        $   7,507
    Interest Sensitive and
      Universal Life Policies             2,880            1,779            1,503            1,582            1,634
    Total                             $  17,743        $  12,582        $  11,823        $  10,339        $   9,141

    </TABLE>

         Traditional Life.  The largest portion of the Life Insurance Division's
   business is in term life insurance.  The Company specializes in face amounts
   of $100,000 to $500,000, sold to middle income families.  Marketed under the
   name "Super Saver Term," this series features low cost 5-, 10- and 15-year
   term life insurance products.

        For a number of years, the Company has offered individually underwritten
   insurance on lives of persons who, to varying degrees, do not meet the
   requirements of standard insurability.  Higher premiums are charged for these
   "impaired" or "substandard" lives, and, where the amount of insurance is
   large or the risk is significant, a portion of the risk is reinsured. 
   Approximately 10% of the Company's in-force life insurance could be
   categorized as "impaired risk."

        Interest Sensitive Life and Universal Life.  The Company's interest
   sensitive and universal life insurance products provide life insurance with
   rates of return which are adjusted in relation to prevailing interest rates. 
   The policies permit the Company to change the rate of interest credited to
   the policy from time to time.  Universal life insurance products credit
   current interest rates to cash value accumulations, permit adjustments in
   benefits and premiums at the policyholder's option, and deduct mortality and
   expense charges monthly.  Under other interest sensitive policies, premiums
   are flexible, allowing the policyholders to vary the frequency and amount of
   premium payments, but typically death benefit changes are not made by the
   policyholders.  Some universal life products offer lower premiums for non-
   smokers in good health.  For both universal life and other interest sensitive
   policies, surrender charges, if any, are deducted from the policyholder's
   account value at the time of surrender.  No surrender charges are deducted if
   death benefits are paid or if the policy remains in-force for a specified
   period.

        The Company's "Interest Sensitive Series" includes whole life policies
   ideally suited for the impaired risk market.  This product series provides
   permanent protection with a fixed, guaranteed level premium and an interest
   rate persistency bonus.  The "Financial Lifestyle II" is a highly flexible
   back-load universal life policy providing low-cost protection with tax-
   deferred cash accumulation.

        Annuities.  The Company offers single and flexible premium deferred
   annuities.  An annuity contract generally involves the accumulation of
   premiums at a compound interest rate until the maturity date, at which time
   the policyholder can choose one of the various payment options.  Options
   include periodic payments during the annuitant's lifetime or the lifetime of
   the annuitant and spouse, with or without a guaranteed minimum period;
   periodic payments for a fixed period regardless of the survival of the
   annuitant; or lump sum cash payment of the accumulated value.  The Company's
   annuities typically provide for the crediting of interest at rates set from
   time to time by the Company.

        Marketing.  The Life Insurance Division markets its products primarily
   to individuals in middle income levels through a nationwide network of
   approximately 100 BGAs and MGAs who in turn contract with approximately
   15,000 brokers and general agents.  In addition, at the end of 1995, the
   Company signed a marketing agreement with a national marketing company with
   approximately 25,000 agents to distribute a new term insurance product with
   an income benefit rider.  The Company's BGAs, MGAs and agents receive
   compensation through sales commissions.

   Medical Utilization Management Division

        The Medical Utilization Management Division provides a number of health
   care coordination services to assist in the management of medical costs for
   insurance companies, government agencies, self-insured businesses, unions,
   HMOs and third party administrators, as well as the Company's Group Medical
   Division.  The services provided by this division include precertification of
   inpatient and outpatient medical care, case management, high-risk maternity
   review, long-term care case management and the development and management of
   HMOs and PPOs.  These services are designed to provide negotiated medical
   provider rates along with close review of utilization in order to impact
   positively total medical costs without adversely affecting the quality of
   care.

        The July 1995 purchase of ACMG, an Ohio-based healthcare management
   company, increased revenues by $5.2 million in 1995 and provided the Company
   with the capacity and expertise to develop and manage PPOs, HMOs and EPOs. 
   During 1996, the Company currently expects to have a limited number of HMOs
   and EPOs operational in selected states where the Company has significant
   concentrations of policyholders and the market for managed care is
   undeveloped, although no assurance to that effect can be given.  These HMOs
   and EPOs will be marketed by the Company's Group Medical Division as part of
   the Company's strategy to migrate its fee-for-service indemnity insurance
   customers to managed care products.  In addition, the Company will use a
   similar strategy to develop PPOs and HMOs (Medicare Risk Contracts) for the
   Senior Health and Life Division.

        This division has also provided significant claims expense savings for
   the Group Medical Division, realizing claims savings for the Company of over
   $22.0 million in 1995 through programs such as utilization review and case
   management.  These savings were primarily passed on to customers in the form
   of more competitive premium rates which the Company believes generally has
   the effect of increasing customer retention.

        Revenues for this division increased 64% to $17.1 million in 1995,
   compared to $10.4 million in 1994, due to increased sales and the July 1995
   acquisition of ACMG.

        Marketing.  This division markets its services to insurance companies,
   self-insured employers, unions, third-party administrators, HMOs and PPOs. 
   Utilization management professionals conduct direct selling activities and
   respond to requests for proposals from insurance companies, large employers
   and consulting companies.

   PREMIUM DISTRIBUTION

        The Company's insurance subsidiaries collectively are licensed to sell
   insurance in 49 states and the District of Columbia.  The importance to the
   Company of particular states may vary over time as the composition of its
   agency network changes.  The geographic distribution of collected premiums
   (before reinsurance) of the Company's subsidiaries in 1995 was as follows:

   <TABLE>
   <CAPTION>

                                TOTAL          PERCENT
                                  (dollars in thousands)

            <S>             <C>               <C>
            Texas           $  71,127         9.4% 
            Florida            67,149         8.9  
            California         51,935         6.9  
            Illinois           51,615         6.8  
            North Carolina     33,617         4.5  
            New Jersey         24,802         3.3  
            Ohio               24,072         3.2  
            Georgia            23,911         3.2  
            Pennsylvania       23,782         3.1  
            Mississippi        23,670         3.1  
            Other (1)         359,427        47.6  
                      Total  $755,107       100.0% 

   (1)  Includes 39 other states, the District of Columbia, and certain U.S.
        territories and foreign countries, each of which accounts for less than
        3% of collected premiums.

   </TABLE>

   UNDERWRITING
     A major portion of the Company's insurance coverages are individually
   underwritten to assure that policies are issued by the Company's insurance
   subsidiaries based upon the underwriting standards and practices established
   by the Company.  Applications for insurance are reviewed to determine if any
   additional information is required to make an underwriting decision, which
   depends on the amount of insurance applied for and the applicant's age and
   medical history.  Such additional information may include medical
   examinations, statements from doctors who have treated the applicant in the
   past and, where indicated, special medical tests.  If deemed necessary, the
   Company uses investigative services to supplement and substantiate
   information.  For certain coverages, the Company may verify information with
   the applicant by telephone.  After reviewing the information collected, the
   Company either issues the policy as applied for, issues the policy with an
   extra premium charge due to unfavorable factors, issues the policy excluding
   benefits for certain conditions for a period of time or rejects the
   application.  For certain of its coverages, the Company has adopted
   simplified policy issue procedures in which the applicant submits a simple
   application for coverage typically containing only a few health related
   questions instead of a complete medical history.  

     In common with other life and health insurance companies, the Company may
   be exposed to the risk of claims based on AIDS.  The Company's AIDS claims to
   date have been insignificant.  Because of its emphasis on policies written
   for the senior citizen market and its underwriting procedures and selection
   processes, the Company believes its risk of AIDS claims is less than the risk
   to the industry in general.

   REINSURANCE

     The Company's insurance subsidiaries reinsure portions of the coverages
   provided by their insurance products with other insurance companies on both
   an excess of loss and co-insurance basis.  Co-insurance generally transfers a
   fixed percentage of the Company's risk on specified coverages to the
   reinsurer.  Excess of loss insurance generally transfers the Company's risk
   on coverages above a specified retained amount.  Under its excess of loss
   reinsurance agreements, the maximum risk retained by the Company on one
   individual in the case of life insurance and accident and health insurance is
   $250,000.

     Reinsurance agreements are intended to limit an insurer's maximum loss on
   the specified coverages.  The ceding of reinsurance does not discharge the
   primary liability of the original insurer to the insured, but it is the
   practice of insurers (subject to certain limitations of state insurance
   statutes) to account for risks which have been reinsured with other approved
   companies, to the extent of the reinsurance, as though they are not risks for
   which the original insurer is liable.  See Note 7 of Notes to Consolidated
   Financial Statements.

     The Company has occasionally used assumption reinsurance to acquire blocks
   of business from other insurers.  In addition, the Company has from time to
   time entered into agreements to assume certain insurance business from
   companies for which it is marketing insurance products.  The Company intends
   to continue these programs if they assist in expanding product lines and
   marketing territories and contribute to profitability.

   ACQUISITIONS

     The Company believes that current trends in the life and health insurance
   industry will provide opportunities for continued acquisitions and
   consolidations.  Larger companies are reducing administrative costs by
   divesting divisions and blocks of life and health insurance business which do
   not fit their overall strategies and are focusing on two or three core
   product lines to improve efficiency and gain competitive advantage. 
   Additionally, smaller, less efficient companies with less capital at their
   disposal are experiencing increasing difficulty in remaining competitive;
   regulatory requirements add significant costs which may not be able to be
   absorbed by smaller companies; capital requirements have increased due to the
   imposition of risk-based capital ratios by regulatory agencies; state
   healthcare reform programs are squeezing health insurance profit margins; the
   costs of necessary information processing systems have increased; and smaller
   companies cannot access capital markets to finance additional growth.

   The following table summarizes the recent significant acquisitions made by
   the Company:

   ACQUISITIONS          DATE OF          TYPE OF BUSINESS
                         ACQUISITION
   Continental Life &    August 1993      Small group medical
   Accident Company                       insurance; became part
   ("CLAC")                               of the Group Medical
                                          Division. 

   Healthcare Review     August 1993      Health care management
   Corporation ("HRC")                    company; became part of
                                          the Medical Utilization
                                          Management Division.

   Connecticut National  January 1995     Interest sensitive and
   Life Insurance                         universal life
   Company ("CNL")                        insurance; became part
                                          of the Life Insurance
                                          Division.
   Western Fidelity      July 1995        Major medical products;
   Insurance Company                      became part of the Group
   (block of business)                    Medical Division.

   ACMG, Inc. ("ACMG")   July 1995        Health care management
                                          company; became part of
                                          the Medical Utilization
                                          Management Division.
   Universal Fidelity    pending          Medicare supplement
   Life Insurance                         carrier; to become part
   Company ("UFLIC")                      of the Senior Health and
                                          Life Division.

     In August 1993, the Company acquired, and added to the Group Medical
   Division, CLAC, a small group medical insurer.  In 1994 and 1995, the
   administration of this subsidiary was consolidated with the Company's other
   health insurance operations.  In addition to CLAC, this acquisition included
   the purchase of Continental Marketing Corporation which added an efficient
   broker-to-broker telemarketing distribution system to the Group Medical
   Division.

     In August 1993, the Company also acquired, and added to the Medical
   Utilization Management Division, HRC, a health care management company
   headquartered in Louisville, Kentucky.  HRC's largest client is the Kentucky
   Medicaid program.  In addition to adding to the revenue and client base of
   the Medical Utilization Management Division, HRC's Louisville facility has
   become the division's headquarters. 

     In January 1995, the Company acquired, and added to the Life Insurance
   Division, CNL, a $350 million asset company, which had issued primarily
   interest sensitive and universal life insurance products.  This acquisition
   increased the distribution system of the Life Insurance Division.

     In July 1995, the Company acquired, and consolidated into the Group
   Medical Division's administrative facility in Dallas, Western Fidelity
   Insurance Company's $42 million block of major medical policies.  The Company
   was able to integrate substantially all of this business into its operations
   within one month.

     In July 1995, the Company also acquired, and added to the Medical
   Utilization Management Division, ACMG, an Ohio-based health care management
   company.  This acquisition is expected to increase the annual revenue of the
   Medical Utilization Management Division and to enhance the Company's capacity
   to establish HMOs and EPOs.  See "-- Products and Services."  

     In the first quarter of 1996, the Company expects to acquire Universal
   Fidelity, a company which markets and underwrites primarily Medicare
   supplement products to senior citizens in Oklahoma and Texas.  Universal
   Fidelity generated approximately $33 million in premium revenue in 1995 (on a
   statutory basis). The approximately 30,000 Universal Fidelity Medicare
   supplement policyholders also provide potential for increased profitability
   through cross-selling of long-term care, home health care and other products.

   INVESTMENTS

          The Company's investment policy is to balance its portfolio between
   long-term and short-term investments so as to achieve investment returns
   consistent with preservation of capital and maintenance of liquidity adequate
   to meet payment of policy benefits and claims.  Current policy is to invest
   primarily in fixed income securities of the U.S. government and its agencies
   and authorities, and in fixed income corporate securities with investment
   grade ratings of Baa3 and/or BBB- or better.  At December 31, 1995, less than
   1.3% of the Company's total investment portfolio and less than 1.2% of its
   statutory admitted assets were below investment grade or unrated.  The
   Company has a policy to invest no more than 4% of its statutory admitted
   assets in fixed income securities below investment grade or unrated.  At
   December 31, 1995, the Company had invested assets of $1,042.6 million,
   compared to $723.8 million at December 31, 1994.  The Company manages all of
   its investments internally with resource and evaluation assistance provided
   by independent investment consultants.  

          The following table provides information on the Company's investments
   as of the dates indicated:

   <TABLE>
   <CAPTION>
                                               DECEMBER 31,
                                          (DOLLARS IN THOUSANDS)
                                                1995             1994 
                                                                  
   TYPE OF INVESTMENT:               Amount   Percent   Amount  Percent
   <S>                              <C>         <C>   <C>       <C>  
   Fixed maturities to be held to
   maturity:
     U.S. Treasury . . . . . . . .  $26,897      3%  $  8,891   1%
     States and political
     subdivisions  . . . . . . . .    4,669      1      8,888   1 
     Foreign governments . . . . .       -       -      2,992   1 
     Corporate securities  . . . .   51,608      5    147,419  20 
     Mortgage-backed securities  .  162,867     15    210,460  29 
       Total fixed maturities held  246,041     24    378,650  52 
   to maturity. .

   Fixed maturities available for
   sale:
     U.S. Treasury . . . . . . . .   34,084      3     21,852   3 
     States and political            26,976      3     25,819   4 
     subdivisions  . . . . . . . .
     Foreign governments . . . . .    3,018      *      3,465   1 
     Corporate securities  . . . .  313,501     30     89,401  12 
     Mortgage-backed securities  .  245,087     23     78,211  11 
       Total fixed maturities       622,666     59    218,748  31 
   available for sale  . . . . . .

          Total fixed maturities .  868,707     83    597,398  83 

   Equity securities . . . . . . .   15,570      1     15,440   2 
   Real estate . . . . . . . . . .   18,250      2     16,959   2 
   Mortgage loans  . . . . . . . .    9,253      1      1,806   * 
   Policy loans  . . . . . . . . .   79,122      8     23,082   3 
   Short-term investments  . . . .   51,690      5     69,152   10

               Total Investments .$1,042,592   100%  $723,837 100%

   ______________________

   *   less than one percent

   </TABLE>

         The following table provides information on the credit quality and
   average lives of the Company's fixed maturity portfolio as of December 31,
   1995.

   <TABLE>
   <CAPTION>

                                        FIXED MATURITY PORTFOLIO
                                           (dollars in thousands)

                                     Carrying
                                       Value      Percent
   Credit Quality - S&P (or equivalent) rating:

    <S>                              <C>            <C>
    AAA                              $ 411,128      48%  
    AA+, AA, AA-                        67,408       8   
    A+, A, A-                          262,837      30   
    BBB+, BBB, BBB-                    113,815      13   
    Below investment grade              12,719       1   
    In default                             800       *   
        Total                        $ 868,707     100%  

    Average Lives

    One year or less                 $  58,048       7%  
    Over one year through five years   301,657      35   
    Over five years through ten years  437,209      50   
    Over ten years                      71,793       8   
        Total                        $ 868,707     100%  
   *    Less than one percent.

   </TABLE>

        Fixed Maturity Investments.  With the adoption of risk-based capital
   rules and consumer concerns over insurance company solvency and financial
   stability, the asset quality of insurance companies' investment portfolios
   has become of greater concern to policyholders and has come under closer
   scrutiny by insurance regulators and investors.  The investment objectives of
   the Company are to maximize investment yield without sacrificing high
   investment quality and matched liquidity.

        Investments in below-investment grade fixed maturity securities
   generally have greater risks (and potentially greater returns) than other
   corporate fixed maturity investments.  Risk of loss upon default by the
   issuer is significantly greater for these securities because they are often
   unsecured and are often subordinated to other creditors of the issuer, and
   because these issuers usually have high levels of indebtedness and are more
   sensitive to adverse economic conditions, such as recession or increasing
   interest rates, than are investment grade issuers.  Also, the market for
   below-investment grade securities is less liquid and not as actively traded
   as the market for investment grade securities.

        The Company continually evaluates the creditworthiness of each issuer of
   securities held in its portfolio.  When the fair value of an individual
   security declines materially, or when the Company's ongoing evaluation
   indicates that it may be likely that the Company will be unable to realize
   the carrying value of its investment, a determination is made as to the
   extent to which such declines are attributable to changing market
   expectations regarding general interest rates and inflation and other
   factors, such as a perceived increase in the credit risk of the issuer, a
   general decrease in a particular industry sector or an overall economic
   decline.  If the decline in value is other than temporary, and the carrying
   amount of the investment is reduced to its fair value based principally on
   available market prices, the amount of the reduction is reported as a
   realized loss on investments and the net fair value becomes the new cost
   basis of the investment.  In addition, the Company reverses any accrued
   interest income previously recorded for the investment and records future
   interest income only when cash is received.

        Yields recognized in future periods on such investments may be less than
   yields recognized on other investments and will be less than the yield
   expected when the fixed maturity security was originally purchased.  The
   effect on net income from declines in interest income and portfolio yield
   from impaired securities in future periods will depend on many factors,
   including, for life insurance business, the level of interest rates credited
   to policyholder account balances.  In as much as interest rates credited to
   the Company's policyholders are typically only guaranteed for one year, the
   Company does not expect any material adverse effect on net income in future
   periods from declines in yields from impaired securities.

        Mortgage-Related Securities.  At December 31, 1995, the Company had
   $408.0 million (or 47% of its fixed maturities portfolio) in mortgage-related
   securities compared to $288.7 million at December 31, 1994 (or 48% of its
   fixed maturities portfolio).  The mortgage-related securities are invested
   primarily in U.S. government agency and non-agency pass-through certificates
   and various components of U.S. government agency and non-agency
   collateralized mortgage obligations ("CMOs").  CMOs are bonds that are
   collateralized by U.S. government agency or non-agency whole loan mortgages
   and mortgage pass-through securities.  The yield characteristics of mortgage-
   related securities differ from those of traditional fixed income securities. 
   The major differences typically include more frequent interest and principal
   payments, usually monthly, and the possibility that prepayments of principal
   may be made at any time. Prepayment rates are influenced by changes in
   current interest rates and a variety of economic, geographic, social and
   other factors and cannot be predicted with certainty.  The yields to maturity
   of the mortgage-related securities will be affected by the actual rate of
   payment (including prepayments) of principal of the underlying mortgage
   loans.  In general, prepayments on the underlying mortgage loans, and
   subsequently the mortgage-related securities backed by these loans, increases
   when the level of prevailing interest rates declines significantly below the
   interest rates on such loans.  When declines in interest rates occur, the
   proceeds from the prepayment of such securities may be reinvested at lower
   rates than the Company was earning on such securities.  

        The Company's mortgage-related securities portfolio is well diversified
   as to collateral, maturity, duration and other characteristics.  The majority
   of the mortgage-related securities portfolio has the guarantee or backing of
   agencies of the United States government.  Generally, the mortgage-related
   securities consist of pools of single-family, residential mortgages.  At
   December 31, 1995, the Company's mortgage-related securities portfolio
   included $136.9 million of CMOs and pass-through certificates issued by non-
   government agencies (34.0% of total mortgage-backed securities) compared to
   $83.9 million at December 31, 1994 (29.0% of total mortgage-backed
   securities).  The majority of these holdings are senior securities in the CMO
   structures which are collateralized by first mortgage liens on single family
   residences and which have investment grade ratings of Baa3 and/or BBB- or
   higher.  The creditworthiness of these securities is based solely on the
   underlying mortgage loan collateral and credit enhancements in the form of
   senior/subordinated structures, letters of credit, mortgage insurance or
   surety bonds.  The underlying mortgage loan collateral principally consists
   of whole loan mortgages that exceed the maximum imposed by both the Federal
   National Mortgage Association and the Federal Home Loan Mortgage Corporation.
   Therefore, the collateral tends to be concentrated in states with the
   greatest number of higher priced single family residences, including
   California, New York, New Jersey, Maryland, Virginia and Illinois.

        At December 31, 1995, the Company held $10.3 million carrying value of
   inverse floater and interest-only tranches of CMOs.  These derivative
   securities were acquired to protect the Company in the event of adverse
   interest rate fluctuations.  The yields and fair values of these securities
   are generally more sensitive to changes in interest rates and prepayments
   than other mortgage-related securities.

        The following table summarizes the components of the Company's mortgage-
   related securities portfolio at December 31, 1994, and December 31, 1995:

   <TABLE>
   <CAPTION>
                                                              AT DECEMBER 31, 1995           AT DECEMBER 31, 1994
                                                             CARRYING         FAIR         CARRYING          FAIR
                                                              VALUE          VALUE           VALUE          VALUE
                                                                                 (IN THOUSANDS)
      <S>                                                  <C>           <C>             <C>             <C>
      Inverse floaters and interest-only 
        CMO tranches  . . . . . . . . . . . . . . . . .    $    10,258   $      10,258   $      14,961   $      8,940
      Other CMOs:
        U.S. government agency  . . . . . . . . . . . .        207,637         211,507         148,366        137,138
        Non-agency  . . . . . . . . . . . . . . . . . .         73,784          73,793          29,299         27,404
              Total other CMOs  . . . . . . . . . . . .        281,421         285,300         177,665        164,542
      U.S. government agency pass-through . . . . . . .         53,136          53,664          41,444         39,414
      Non-agency pass-through . . . . . . . . . . . . .         63,139          63,139          54,601         50,555
                Total mortgage-backed securities. . . .    $   407,954   $     412,361   $     288,671   $    263,451

    </TABLE>

   POLICY LIABILITIES

        The Company records reserves for future policy benefits to meet future
   obligations under outstanding policies.  These reserves are amounts which are
   calculated to be sufficient to meet policy and contract obligations as they
   mature.  The amount of reserves for insurance policies is calculated using
   assumptions for interest, mortality and morbidity, expenses and withdrawals. 
   Reserves are established at the time the policy is issued and adjusted
   periodically based on reported and unreported claims or other information. 
   See Note 2 of Notes to Consolidated Financial Statements.

   COMPETITION

        The insurance business is highly competitive and includes a large number
   of insurance companies, many of which have substantially greater financial
   resources and larger and more experienced staffs than the Company.  The
   Company competes with other insurers to attract and retain the allegiance of
   its independent agents and marketing organizations who at this time are
   responsible for most of the Company's premiums.  Methods of competition
   include the Company's ability to offer competitive products and to service
   these programs efficiently.  Other competitive factors applicable to the
   Company's business include policy benefits, service to policyholders and
   premium rates.

   HEALTH CARE REFORM

        Many proposals have been introduced in Congress and various state
   legislatures to reform the present health care system.  Most of these
   proposals are specifically directed at the small group health care market, a
   significant portion of the Company's health business.  At present, most
   health care reform, other than that related to the Medicare program, is
   taking place at the state level.  A number of states have passed or are
   considering legislation that would limit the differentials in rates that
   insurers could charge between new business and renewal business with respect
   to similar demographic groups.  State legislation also has been adopted or is
   being considered that would make health insurance available to all small
   groups by requiring coverage of all employees and their dependents, by
   limiting the applicability of pre-existing conditions exclusions, by
   requiring insurers to offer a basic plan exempt from certain mandated
   benefits as well as a standard plan and by establishing a mechanism to spread
   the risk of high risk employees to all small group insurers.

        At the federal level, the current focus of healthcare reform is related
   to the federal Medicare program and efforts to control expenditures.  From
   time to time there are significant federal legislative developments with
   respect to long-term care and Medicare coverage.  The Federal Omnibus Budget
   Reconciliation Act of 1990 ("COBRA '90") required that Medicare supplement
   policies provide for guaranteed renewability and waivers of pre-existing
   condition coverage limitations under certain circumstances.  In addition, the
   NAIC has recently adopted model long-term care policy language providing
   nonforfeiture benefits and has proposed a rate stabilization standard for
   long-term care policies. Among the proposals currently pending in the U.S.
   Congress are the implementation of certain minimum consumer protection
   standards for inclusion in all long-term care policies, including guaranteed
   renewability, protection against inflation and limitations on waiting periods
   for pre-existing conditions.  These proposals would also prohibit "high
   pressure" sales tactics in connection with long-term care insurance and would
   guarantee consumers access to information regarding insurers, including lapse
   and replacement rates for policies and the percentage of claims denied. 
   Other pending legislation would permit premiums paid for long-term care
   insurance to be treated as tax-deductible medical expenses, with the amount
   of the deduction increasing with the age of the taxpayer.  The Company cannot
   predict with certainty the effect any such proposals, if adopted, or
   legislative developments could have on its business and operations.  It is
   likely that health care reform at the federal and state levels will require
   the Company to make significant changes to the way it conducts its health
   insurance business.  See "Risk Factors -- Insurance Regulation."  The Company
   has already initiated activity to prepare for expected legislation.  For
   example, the Company has begun to establish HMOs for Medicare managed care
   programs which are expected to be included in federal Medicare reform
   programs.

   GOVERNMENT REGULATION

        The Company and its insurance subsidiaries are subject to extensive
   governmental regulation and supervision in each of the jurisdictions in which
   it or its subsidiaries conduct business.  Such regulation vests in
   governmental agencies broad regulatory, supervisory and administrative power
   with respect to the Company's business, including premium rate levels,
   premium rate increases, policy forms, minimum loss ratios, dividend payments,
   claims settlement, licensing of insurers and their agents, capital adequacy,
   transfer of control, the amount and type of investments the Company may have,
   reserve requirement, solvency standards, trade practices and periodic
   examinations.  Such regulations are primarily intended to protect
   policyholders and not investors.  The Company's accident and health coverages
   generally are subject to rate regulation by state insurance departments which
   in certain cases require that certain minimum loss ratios be maintained.

        The states in which the Company is licensed have the authority to change
   the minimum mandated statutory loss ratios to which the Company is subject,
   the manner in which these ratios are computed and the manner in which
   compliance with these ratios is measured and enforced.  Loss ratios are
   commonly defined as incurred claims and increases in policy reserves divided
   by earned premiums.  Most states in which the Company writes insurance have
   adopted the loss ratios recommended by the NAIC.  The Company is unable to
   predict the impact of (i) any changes in the mandatory statutory loss ratios
   for individual or group policies to which the Company may become subject,
   (ii) any changes in the minimum loss ratios for individual, group or Medicare
   supplement policies, or (iii) any change in the manner in which these
   minimums are computed or enforced in the future.  The Company has not been
   informed by any state that it does not meet mandated minimum ratios, and the
   Company believes that it is in compliance with all such minimum ratios.  In
   the event the Company is not in compliance with minimum statutory loss ratios
   mandated by regulatory authorities with respect to certain policies, the
   Company may be required to reduce or refund premiums, which could have a
   material adverse effect upon the Company.  

        Certain states also have insurance holding company laws which require
   registration and periodic reporting by insurance companies controlled by
   other corporations licensed to transact business within their respective
   jurisdictions.  The Company's insurance subsidiaries are subject to such laws
   and are registered as controlled insurers in those jurisdictions in which
   such registration is required.  Such laws vary from state to state but
   typically require periodic disclosure concerning the corporation which
   controls the registered insurers and all subsidiaries of such corporation,
   and prior notice to, or approval by, the state insurance department of
   intercorporate transfers of assets and other transactions (including payments
   of dividends in excess of specified amounts by the insurance subsidiary)
   within the holding company system.

   EMPLOYEES

        As of December 31, 1995, the Company employed approximately 1,830
   persons on a full-time basis.  The Company considers its employee relations
   to be good.


                             MANAGEMENT AND DIRECTORS

        The executive officers and directors of the Company are as follows:

   Peter W. Nauert . . . . . .   52     Chairman, Chief Executive Officer and
                                        Director
   Charles R. Scheper  . . . .   43     President   Life Insurance Operations
                                        and Director
   Thomas J. Brophy  . . . . .   60     President   Health Insurance Operations
                                        and Director
   Ernest T. Giambra, Jr.  . .   48     Executive Vice President and Chief
                                        Marketing Officer
   William B. Van Vleet  . . .   71     Director and General Counsel Emeritus
   Anthony J. Pino . . . . . .   48     Executive Vice President
   Philip J. Fiskow  . . . . .   39     Senior Vice President and Chief
                                        Investment Officer
   David I. Vickers  . . . . .   34     Vice President, Treasurer and Chief
                                        Financial Officer
   Mark S. Fischer.  . . . .     39     Vice President
   Michael A. Cavataio . . . .   52     Director and Vice Chairman 
   Richard R. Haldeman . . . .   53     Director
   R. Richard Bastian, III . .   49     Director
   Karl Heinz Klaeser  . . . .   64     Director
   Michael K. Keefe  . . . . .   51     Director
   Robert F. Nauert  . . . . .   71     Director
   Carl A. Hulbert . . . . . .   72     Director

        All executive officers are elected annually and serve at the pleasure of
   the Board of Directors.  Certain of the executive officers have employment
   agreements with the Company.  The Company's Board of Directors is divided
   into three classes, each of which serves for a three year term.

        Peter W. Nauert has been Chief Executive Officer and a director of the
   Company since its incorporation in 1982.  He was President of the Company
   from 1982 to 1988 and 1991 to 1995, and became Chairman of the Company in
   1988.  Since 1968, Mr. Nauert has been employed in an executive capacity by
   one or more of the Company's insurance subsidiaries.   

        Charles R. Scheper was elected President--Life Insurance Operations of
   the Company in March 1995.  He was Vice President of the Company from 1991 to
   March 1995 and was Chief Financial Officer from May 1993 to December 1993. 
   In March 1992, he was elected Executive Vice President.  Since February 1992,
   he has been President and Vice Chairman of the Board of Manhattan National
   Life, a subsidiary of the Company.  Prior to the Company's acquisition of
   Manhattan National Life, Mr. Scheper was Manhattan National Life's Senior
   Vice President and Chief Financial Officer, a position which he held from May
   1987 until the acquisition.  Prior to joining Manhattan National Life, Mr.
   Scheper was with Union Central Life Insurance Company from 1979, having
   served as Vice President and Controller since 1985.

        Thomas J. Brophy was elected President--Health Insurance Operations of
   the Company in March 1995.  He was Senior Vice President since joining the
   Company in November 1993.  Prior to joining the Company, Mr. Brophy was
   President and Chief Operating Officer of Southwestern Life Insurance Company
   from June 1990 to September 1993.  Mr. Brophy also held senior executive
   positions with various I.C.H. Corporation (now known as Southwestern Life
   Corp.) subsidiaries from March 1974 to his joining the Company in November
   1993.

        Ernest T. Giambra, Jr. was elected Executive Vice President of the
   Company in May 1994.  Prior to joining the Company as Chief Marketing Officer
   in June 1993, Mr. Giambra had been with Bankers Life Holding Corporation
   since 1969 where he had served as Vice President of Sales since 1988.  

        William B. Van Vleet has been Executive Vice President of the Company
   since 1986 and a director of the Company since 1982.  He was General Counsel
   of the Company from 1982 to 1988.  In June 1991, he was again elected General
   Counsel and served until his retirement from that position in 1995.  He now
   serves as the Company's General Counsel Emeritus.  Mr. Van Vleet had served
   Pioneer Life Insurance Company, a subsidiary of the Company, from 1948 until
   1995 as General Counsel and a director.  Mr. Van Vleet also serves as a
   director of other subsidiaries of the Company.

        Anthony J. Pino was elected Executive Vice President of the Company in
   May 1993.  He was Senior Vice President of the Company from March 1992 to May
   1993 and was President of National Group Life Insurance Company, a subsidiary
   of the Company, from July 1991 to June 1992.  Mr. Pino has served as
   President  of  National Health Services, a subsidiary of the Company, since
   1992.  Prior to joining the Company, Mr. Pino was Chief Operating Manager of
   American Postal Workers' Union Health Plan, a position which he held from
   October 1982.

        Philip J. Fiskow has been Senior Vice President since May 1993 and the
   Chief Investment Officer since joining the Company in 1991.  He was Vice
   President of the Company from June 1991 until May 1993.  He is also an
   officer of other subsidiaries of the Company.  Mr. Fiskow was with Asset
   Allocation and Management Company as an Investment Advisory Portfolio Manager
   from January 1989 to June 1991.  From May 1987 to December 1988 he was an
   Investment Advisor with Van Kampen Merritt and a Portfolio Manager with Aon
   Corporation from May 1981 to May 1987.

        David I. Vickers has been with the Company since June 1992 and has been
   a Vice President of the Company since December 1992, Treasurer since May 1993
   and Chief Financial Officer since January 1994.  He is also an officer and
   director of several subsidiaries of the Company.  Prior to joining the
   Company, he was with the public accounting firm of Ernst & Young LLP since
   1983 where he was a Senior Manager in the Insurance Division. 

        Mark S. Fischer has been a Vice President of the Company since December
   1994 and has been a Vice President of one of the Company's subsidiaries since
   May 1993.  Prior to joining the Company, he had been a consultant to the
   Company and was with the public accounting firm of Ernst & Young LLP from May
   1978 to October 1992 where he was a Senior Manager in the Insurance Division.

        Michael A. Cavataio has been a director of the Company since 1986 and
   Vice Chairman since December 1995.  Mr. Cavataio is a real estate developer
   in Northern Illinois and Southern Wisconsin.  His business experience also
   includes 25 years as an owner and manager of a regional clothing store chain.
   He has also been a member of the board of directors of Today's Bank East
   since 1987.

        Richard R. Haldeman has been a director of the Company since 1986 and
   was Secretary from 1988 to June 1990.  Mr. Haldeman has been a partner of
   Haldeman & Associates, a law firm, since June 1990.  He was a partner of
   Williams & McCarthy, P.C., a law firm, from 1975 to May 1990.

        R. Richard Bastian, III has been a director of the Company since
   December 1994.  Mr. Bastian is a management consultant, specializing in
   strategic planning and organizational development.  Mr. Bastian's career
   includes over 28 years in the financial services industry, most recently as
   President and Chief Executive Officer of Heritage Bank & Trust of Racine,
   Wisconsin.  Prior to Heritage, he served as Chairman, President and Chief
   Executive Officer of Bank One, Rockford and its predecessor, First Community
   Bancorp, an $800 million multi bank holding company.  He has also held
   management positions at banks in Tulsa and Philadelphia where his banking
   career began in 1966.

        Karl Heinz Klaeser has been a director of the Company since 1986.  Mr.
   Klaeser has also been a director of LSW Holding Corporation and Insurance
   Investors Life Insurance Company and the Chairman of the Board of Life
   Insurance Company of the Southwest since 1989 and a director of Personal
   Assurance Company PLC (United Kingdom) since 1991.

        Michael K. Keefe has been a director of the Company since March 1994. 
   Mr. Keefe has been Chief Executive Officer and Chairman of the Board of Keefe
   Real Estate, Inc., a family owned real estate brokerage operation since 1982.
   Mr. Keefe has also been Chairman of the Board of Southern Wisconsin
   Bankshares, Inc. since 1988.

        Robert F. Nauert has been a director of the Company since November 1991.
   Mr. Nauert is also a director and officer of various subsidiaries of the
   Company.  Mr. Nauert is the brother of Peter W. Nauert.

        Carl A. Hulbert was elected director of the Company in March 1995.  Mr.
   Hulbert is a management consultant, specializing in the insurance industry. 
   Mr. Hulbert is a past Insurance Commissioner of the state of Utah.  He has
   also been a director for numerous insurance companies during his 49 year
   business career.


   ITEM 2.  PROPERTIES

        The principal executive offices of the Company are located in
   Schaumburg, Illinois in a building purchased by the Company in January 1994. 
   The Company, through a subsidiary, owns three buildings in Rockford, Illinois
   and, through another subsidiary, also owns a building in the Dallas, Texas
   metropolitan area which currently serves as the main administrative office
   for the Group Medical Division.  The Company leases the offices of its other
   regional service centers.  The executive and administrative offices of
   Manhattan National Life are located in Cincinnati, Ohio, in leased space. 
   The headquarters of the Company's Medical Utilization Management Division are
   located in Louisville, Kentucky in leased space.  The Company believes these
   facilities will adequately serve its needs for the foreseeable future and
   could accommodate expansion of the Company's business.  


   ITEM 3.  LEGAL PROCEEDINGS

        The Company and its subsidiaries are named as defendants in various
   legal actions, some claiming significant damages, arising primarily from
   claims under insurance policies, disputes with agents, and other matters. 
   The Company's management and its legal counsel are of the opinion that the
   disposition of these actions will not have a material adverse effect on the
   Company's financial position.

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

        NONE



                                      PART II



   ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
   MATTERS

        The Common Stock is traded on the NYSE and the Chicago Stock Exchange
   under the symbol "PFS."  The following table sets forth for the fiscal
   periods indicated the high and low last reported sale prices per share of the
   Common Stock, as reported by the NYSE and the dividends paid per share of the
   Common Stock.

   <TABLE>
   <CAPTION>

                                                                                 High       Low      Dividend
     1994
             <S>                                                              <C>        <C>       <C>
             First Quarter   . . . . . . . . . . . . . . . . . . . . . . . .  $  14 3/4  $  11 1/8 $      .0375
             Second Quarter  . . . . . . . . . . . . . . . . . . . . . . . .     12         10            .0375
             Third Quarter   . . . . . . . . . . . . . . . . . . . . . . . .     10 1/2      8 3/4        .0375
             Fourth Quarter  . . . . . . . . . . . . . . . . . . . . . . . .     10          8 3/4        .0375

     1995
             First Quarter   . . . . . . . . . . . . . . . . . . . . . . . .     11 1/4      8 7/8         .045
             Second Quarter  . . . . . . . . . . . . . . . . . . . . . . . .     15 1/2     10 3/4         .045
             Third Quarter   . . . . . . . . . . . . . . . . . . . . . . . .     15 3/8     13 1/8         .045
             Fourth Quarter  . . . . . . . . . . . . . . . . . . . . . . . .     18 1/2     13 7/8         .045

    </TABLE>

        As of January 29, 1996, there were approximately 635 holders of record
   of the Common Stock.

        On February 28, 1996 the Company's Board of Directors announced a
   quarterly common stock dividend of 5.5 cents per share with an expectation of
   a total of 22 cents per share to be paid for 1996.

        All  cumulative dividends on the $2.125 Preferred Stock have been paid
   by the Company when due.  The ability of the Company to pay dividends will
   depend primarily on the receipt of cash dividends and other cash payments
   from its subsidiaries.  The Company's insurance subsidiaries are subject to
   state laws and regulations which limit their ability to pay dividends or make
   other payments to the Company.  Certain of the Company's credit agreements
   also limit its ability to pay dividends.  Furthermore, the Company's
   Certificate of Incorporation prohibits the Company from paying dividends on
   the Common Stock if the Company is not current in its dividend payments on
   the Preferred Stock.  See "Management's Discussion and Analysis of Results of
   Operations and Financial Condition -- Liquidity and Capital Resources."


   ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA
        The following selected consolidated financial data for the five years
   ended December 31, 1995, are derived from the consolidated financial
   statements of the Company.  The data should be read in conjunction with the
   consolidated financial statements, related notes, and other financial
   information included herein.

   <TABLE>
   <CAPTION>

                                                                (In thousands except per share amounts)
                                                                            Year Ended December 31,                   

                                                1995               1994              1993               1992              1991 

    <S>                                       <C>                  <C>                <C>                <C>              <C>
    Operating Data:

    Accident and health
      premiums                                $ 625,951             $ 659,180         $ 601,684          $ 559,894        $ 593,236
    Life and annuity premiums
      and policy charges                         61,092                44,929            39,282             35,219           33,321
    Net investment income                        70,975                42,786            40,242             43,555           47,974
    Other income and realized
      investment gains/losses                    42,066                27,260            17,920             17,305           34,207
        Total revenues                          800,084               774,155           699,128            655,973          708,738

    Accident and health benefits                398,971               407,249           397,963            368,046          376,820
    Life and annuity benefits                    76,846                42,947            39,419             47,622           46,128
        Total benefits                          475,817               450,196           437,382            415,668          422,948
        Total benefits and 
          expenses                              768,362               748,133           680,364            681,409          695,418

    Income (loss) before
      income taxes                               31,722                26,022           18,764             (25,436)          13,320

    Net income (loss)                            20,968                17,149           12,145             (16,959)          8,872

    Preferred stock dividends                     1,805                1,904             2,021               2,039           2,039

    Income (loss) applicable to
      common stockholders                      $ 19,163             $ 15,245          $ 10,124           $(18,998)        $  6,833

    Net income (loss) per
      common share
        Primary                                  $ 2.44               $ 2.36            $ 1.51            $(2.85)           $ 1.02
        Fully Diluted                              1.85                 1.58              1.26             (2.85)             1.02

    Dividends declared per
      common share                                  .18                  .15                 -                  -                - 

    Average common and common
      equivalent share
      outstanding
        Primary                                   7,839               6,459             6,724              6,660             6,699
        Fully Diluted                            12,608              12,734            10,731              8,195             8,234


   </TABLE>

   <TABLE>
   <CAPTION>
                                                                (In thousands except per share amounts)
                                                                            December 31,                   

                                                1995               1994              1993               1992              1991 

    <S>                              <C>                <C>              <C>              <C>             <C>
    Balance Sheet Data:

    Total investments                $1,042,592         $723,837         $674,206         $568,349        $528,725
    Deferred policy
      acquisition costs                 219,874          225,618          260,432          269,674         313,453
    Total assets                      1,558,921        1,075,700        1,108,271          978,689         969,190
    Policy liabilities                1,214,465          868,608          903,105          805,696         776,571
    Short-term notes
      payable                            13,534           20,093            5,575           12,931           6,371
    Long-term notes
      payable                            21,504            2,520            1,125           25,170          21,600
    Subordinated Debentures               9,695           57,427           57,477               -               - 
    Redeemable Preferred
      Stock                              21,222           21,682           23,675           23,990          23,990
    Stockholders' equity                144,574           68,328           68,872           62,732          75,470
    Stockholders' equity per
      common share                      $ 14.35          $ 11.55          $ 10.86          $  9.21         $ 11.39


     </TABLE>

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

   RESULTS OF OPERATIONS

   Fiscal Year 1995 Compared to Fiscal Year 1994

        Overview

        The information set forth below is based on the Company's major product
   lines.  

   <TABLE>
   <CAPTION>
                                       1995    1994
   Revenues                           (IN THOUSANDS)

   <S>                               <C>       <C>
   Group Medical (1) . . . . . . . . $430,885  $457,633
   Senior Health and Life (2)  . . .  236,556   235,031
   Life Insurance  . . . . . . . . .  115,545    71,075
   Medical Utilization Management  .                 
                                       17,098    10,416
        TOTAL  . . . . . . . . . . . $800,084  $774,155

   Pre-tax operating Income (loss)
   (3)

   Group Medical (1) . . . . . . . . $ 20,344  $ 12,065 
   Senior Health and Life(2) . . . .   11,604    12,469
   Life Insurance  . . . . . . . . .    7,669     8,695
   Medical Utilization Management  .      739     2,026
   Total pre-tax operating income
   before corporate expense
     and interest  . . . . . . . . .   40,356    32,255
   Corporate expense and interest  .  (7,467)    (8,851)               
        TOTAL  . . . . . . . . . . . $32,889    $26,404

   (1)  Excludes revenues from life insurance products marketed by the Group
        Medical Division but issued by the Life Insurance Division.  For
        purposes of the discussion set forth herein, the Company has included
        the revenue and pre-tax income generated from the sale of a policy in
        the results of operation of the division which issued the policy.

   (2)  Excludes revenues from life insurance products marketed by the Senior
        Health and Life Division but issued by the Life Insurance Division.  For
        purposes of the discussion set forth herein, the Company has included
        the revenue and pre-tax income generated from the sale of a policy in
        the results of operation of the division which issued the policy.

   (3)  Represents the Company's income before taxes excluding the effects of
        realized investment gains and losses.  The 1995 amount also excludes
        approximately $5.2 million in payments to converting bondholders and
        other expenses relating to the conversion of the 8% Debentures.

   </TABLE>

   Group Medical Division

        Revenue.  Total revenue in the Group Medical Division decreased $26.7
   million, or 6%, from $457.6 million to $430.9 million.  The decrease was
   primarily due to a reduction of premium revenue on the Company's major
   medical products of $26.9 million, or 6%, from $431.8 million to $404.9
   million.  A major portion of the decrease in major medical premium revenue
   was due to the Company's decision to market unaffiliated companies' HMO
   products in states such as California, where competitive pressures and state
   reforms made it difficult to underwrite the Company's indemnity products on a
   profitable basis.  In connection with the Company's decision to cease selling
   new products in these states, the Company's career agency force submitted
   $31.8 million of annualized HMO premiums to unaffiliated companies during
   1995.  While these premiums are not received by the Company, the Company
   receives marketing commission overrides from the unaffiliated companies for
   this production.  The remaining decrease in major medical premium revenue was
   due to lower average premiums on new issues due to the increased use of
   managed care products.

        Net investment income decreased $2.7 million, or 25%, from $10.4 million
   to $7.7 million, due to a reduction in invested assets caused by the decrease
   in major medical in-force business and the general decline in interest rates.
   Total realized investment losses decreased $0.6 million or 48% from $1.2
   million to $0.6 million.

        Other income increased $1.9 million, or 12%, from $16.6 million to $18.5
   million, due to marketing commission overrides received from the sale of HMO
   products of unaffiliated companies.

        Benefits.  The following table sets forth the earned premium, benefits,
   and loss ratios for products issued by the Group Medical Division:
                          (DOLLARS IN
                          THOUSANDS) 
                        1995      1994   
   Earned premium (1)  $414,160  $443,599
   Benefits (1)  . .    261,336   279,419
   Loss ratio  . . .      63.1%     63.0%

   (1)  In the Company's statement of consolidated operations, earned premiums
        represent premiums written, adjusted for reinsurance; the changes in
        unearned premiums are reflected in accident and health benefits.

        The Company has historically held reserve margins in its accident and
   health claims reserve to provide for potential adverse deviation.  The
   Company reduced reserve margins in the major medical claims reserves in 1994
   by approximately $10.4 million.  Excluding the reduction in claim reserve
   margins, the 1994 major medical loss ratio was 65.3%.  Improvement in the
   loss ratio in 1995 was due to continued increases in PPO penetration and
   higher claim costs in 1994.

        Insurance and General Expenses.  Insurance and general expenses
   increased $2.6 million, or 2%, from $116.9 million to $119.5 million.  The
   expense ratio increased in 1995 due to system development costs,
   consolidation of claim operations, and the 6% drop in premium.  

        The amortization of DAC decreased $24.3 million, or 39%, from $62.3
   million to $38.0 million.  The decrease was due to a $16.7 million write-off
   of DAC in 1994, the lower 1995 new business levels, and the decline in first-
   year commission rates. 

   Senior Health and Life Division

        Revenue.  Total revenue in the Senior Health and Life Division remained
   relatively constant.  Senior health premium decreased $6.3 million, or 3%,
   from $227.3 million to $221.0 million.  While the total new Medicare
   supplement business and new long-term care business increased, these
   increases were offset by a decrease in the total senior health premium due to
   lapses from the current in-force block of business and the fact that a
   greater percentage of the in-force block of business consisted of
   standardized Medicare supplement products on which the average premium per
   policy was lower due to benefit and agent compensation changes.

        Net investment income increased $3.2 million, or 58%, from $5.6 million
   to $8.8 million, primarily due to a 10-basis point improvement in yields and
   increased invested assets.  The total realized gains increased $4.2 million
   from $0.9 million to $5.1 million.

        Benefits.  The following table sets forth the earned premium, benefits,
   and loss ratios for senior health products:

                          (DOLLARS IN
                           THOUSANDS)
                        1995      1994   
   Earned premium (1)  $217,302  $225,604
   Benefits (1)  . .    143,226   137,853
   Loss ratio  . . .      65.9%     61.1%

   (1)  In the Company's statement of consolidated operations, earned premiums
        represent premiums written, adjusted for reinsurance; the changes in
        unearned premiums are reflected in accident and health benefits.

        The loss ratio on the Senior Health and Life Division's major products,
   Medicare supplement policies, was higher during the first two quarters of
   1995 due to increased utilization on the standardized Medicare supplement
   products.  The Medicare supplement loss ratio decreased to 61.5% in the
   fourth quarter of 1995.

        Insurance and General Expenses.  The expense ratio remained relatively
   unchanged.  The decline in administrative expense levels was offset by an
   increase in marketing expenses associated with new marketing initiatives. 
   See "Business -- Products and Services."

        The amortization of DAC decreased $8.2 million, or 28%, from $29.8
   million to $21.6 million.  The decreased level of amortization was due to a
   decline in the level of first-year costs deferred due to lower agent
   compensation levels and improved persistency on the in-force Medicare
   supplement business.

   Life Insurance Division

        Revenue.  Total revenue in the Life Insurance Division increased $44.4
   million, or 63%, from $71.1 million to $115.5 million.  The increase was due
   primarily to the acquisition of CNL in the first quarter of 1995 which added
   $5.8 million in premium and $23.2 million in investment income.  The
   remaining increase was due to increased sales of the senior life insurance
   product marketed in conjunction with Medicare supplement and long-term care
   policies.

        Net investment income increased $27.5 million, or 103%, from $26.9
   million to $54.4 million.  This increase was primarily due to the acquisition
   of CNL.

        Benefits.  Total life and annuity policy benefits increased $33.9
   million, or 79%, from $42.9 million to $76.8 million.  Approximately $24.4
   million of this increase was due to the acquisition of CNL and the remaining
   amount was due to increased senior life insurance in-force.  The senior life
   mortality experience exceeded that which was developed in pricing and the
   Company has initiated rate increases and modification to underwriting
   procedures to improve profitability.  The mortality experience on the
   remaining block of business was less than projected.

        Insurance and General Expenses.  Insurance and general expenses
   increased $10.4 million, or 90%, from $11.6 million to $22 million.  The
   increase in general expenses and commissions was primarily due to the
   increase in the in-force block of business, legal fees associated with
   reinsurance litigation which was settled in 1995, and the acquisition of CNL.
   The unit cost of administration per policy in-force remained relatively
   constant in 1995.

        The amortization of DAC remained relatively unchanged, with the increase
   in senior life amortization offsetting a decrease in the amortization on the
   traditional term life block of business.


   Medical Utilization Management Division

        Total revenue increased $6.7 million, or 64%, from $10.4 million to
   $17.1 million.  The increase in revenues was primarily due to expanded sales
   and the acquisition of ACMG, Inc. in the third quarter of 1995.

        Pre-tax income decreased $1.3 million, or 65%, from $2.0 to $0.7
   million.  The decrease in profitability was due to expenses related to the
   development of preferred provider organizations and health maintenance
   organizations in selected states.  The division expects continued pressure on
   earnings during 1996 as it continues development of these managed care
   programs.  The Company has targeted its managed care development efforts in
   geographic locations where it already has strong concentrations of
   policyholders and sales agents.

   Corporate Expenses

        Corporate expenses decreased $1.4 million, or 16%, from $8.9 million to
   $7.5 million (excluding the $5.2 million paid to holders of the Company's 8%
   Debentures and other expenses in connection with the conversion of the 8%
   Debentures, in the third quarter of 1995).  Interest expense decreased $0.3
   million, or 5%, from $4.9 million to $4.6 million, primarily due to the
   utilization of a portion of the Company's Credit Facility beginning in the
   fourth quarter of 1994 and continuing through the second quarter of 1995,
   offset by a decrease in interest expense due to the conversion of the
   Company's 8% Debentures.  The general corporate overhead was down
   approximately $1.1 million due to improved operating efficiencies.


   Consolidated Financial Condition and Results of Operations

   Fiscal Year 1995 Compared to Fiscal Year 1994

        Net income.  The Company's consolidated net income increased $3.9
   million, or 22%, from $17.1 million to $21.0 million.  This increase was due
   primarily to improved profitability in the Group Medical Division as a result
   of improved loss ratios and a lower level of DAC amortization.


        Premiums and policy charges.  Total premiums and policy charges
   decreased $17.1 million, or 2%, from $704.1 million to $687.0 million.  This
   decrease was due to the decrease in accident and health premiums of $33.2
   million, or 5%, which was due primarily to a decrease in premiums from major
   medical products of $26.9 million, or 6%.  The decrease in premiums was
   primarily due to lower average premiums per policy sold, which resulted from
   the Company initiating sales of new managed care products.  Total health
   insurance premiums attributable to Medicare supplement and long-term care
   products remained relatively constant.  Life insurance premiums increased
   $16.2 million, or 36%, primarily due to the acquisition of CNL and new
   business sales.

        Net investment income.  Net investment income increased $28.2 million,
   or 66%, from $42.8 million to $71.0 million and annualized investment yields
   increased from 6.3% to 7.0%.  These increases were primarily due to the
   acquisition of CNL.

        Other revenue.  Other income and realized investment gains and losses
   increased $14.8 million, or 54%, from $27.3 million to $42.1 million.  The
   increase in other income was due to increased sales to unaffiliated clients
   by the Medical Utilization Management Division and the acquisition of ACMG,
   Inc. in July 1995.  The remaining other income generated by the Company's
   non-insurance subsidiaries remained relatively unchanged.

        Benefits.  Total benefits increased $25.6 million, or 6%, from $450.2
   million to $475.8 million.  Accident and health benefits, which include the
   change in unearned premiums, decreased $8.2 million, or 2%, from $407.2
   million to $399.0 million.  Life and annuity benefits increased $33.9
   million, or 79%.  This increase was due to the acquisition of CNL and
   increased senior life insurance in-force.

        Insurance and general expenses.  Insurance and general expenses (which
   includes non-deferred commission compensation to agents) increased $25.6
   million, or 13%, from $192.8 million to $218.4 million.  Expenses for the
   Medical Utilization Management Division increased due to the increase in
   sales and the acquisition of ACMG.  Expenses in the insurance divisions
   increased due to the development of new marketing and sales incentive
   programs, system development costs, and the acquisition of CNL.  Corporate
   expenses increased $4.0 million due to $5.2 million in payments made to
   converting bondholders and other expenses relating to the August 1995
   conversion of the Company's 8% Debentures.

        Amortization of DAC.  Amortization of DAC decreased $30.9 million, or
   31%, from $100.1 million to $69.2 million.  The decrease was primarily due to
   an adjustment in 1994 to the DAC asset related to certain group and
   individual medical business, a lower level of group major medical new
   business and improved persistency on Medicare supplement business.

        Income tax rate.  The effective federal income tax rate was 34% due to
   the increased investment in tax-exempt securities included in the Company's
   portfolio.

        Other.  Investments, premiums and other receivables, amounts on deposit
   and due from reinsurers, accrued investment income and other assets increased
   principally due to the acquisition of CNL.  The decrease in short-term notes
   payable and the increase in long-term notes payable resulted from the
   conversion of the Company's line of credit agreement at December 31, 1994 to
   a term loan during the first quarter of 1995.  General expenses and other
   liabilities, and amounts due to reinsurers increased due primarily to the
   acquisition of CNL.  The remaining balance sheet amounts remained relatively
   consistent with the amounts at December 31, 1994.

   Fiscal Year 1994 Compared to Fiscal Year 1993

        Net income.  The Company's net income increased $5.0 million, or 41%,
   from $12.1 million to $17.1 million.  The increase was due to profits from
   Continental Life & Accident Company ("CLAC"), improved health loss ratios in
   the Senior Health and Life Division, expense reductions and improved spreads
   in the Life Insurance Division, and increased revenue and margins in the
   Medical Utilization Management Division.  Total revenues increased $75.0
   million, or 11%.  The increase in revenue was primarily due to the increase
   in premiums and policy charges of $63.1 million.

        Premiums and policy charges.  Accident and health insurance premiums
   increased $57.5 million, or 10%.  Premiums from major hospital plans
   increased $81.5 million, primarily due to the acquisition of CLAC completed
   in August 1993.  Total premiums attributable to the remaining mix of Medicare
   supplement and long-term care products decreased $24.0 million, or 10%.

        Net investment income.  Net investment income increased $2.5 million, or
   6%.  Annualized investment yields decreased from 6.8% to 6.3%.  The decrease
   in the investment yield was principally due to the shortening of the
   Company's average duration and the increased emphasis on tax-exempt
   securities included in the Company's portfolio.

        Other revenue.  Other income and realized investment gains and losses
   increased $9.3 million, or 52%.  The increase in other income was due to the
   acquisitions of HRC and CLAC in August 1993.  In addition, the Company
   realized increased sales to unaffiliated customers by the Medical Utilization
   Management Division and by its marketing subsidiaries.  Realized investment
   losses decreased $0.9 million, or 69%, from $1.3 million to $0.4 million. 
   The remaining other income generated by the Company's other non-insurance
   subsidiaries remained relatively unchanged.

        Benefits.  Total benefits increased $12.8 million, or 3%.  Life and
   annuity benefits increased $3.5 million, or 9%, due to higher mortality on a
   closed block of universal life and an increase in in-force business. 
   Accident and health benefits, which include the change in unearned premiums,
   increased $9.3 million, or 2%.  The increase was due primarily to the
   increased amount of  collected premiums.  The accident and health loss ratios
   decreased to 62% from 66%.  The improved loss ratios were due primarily to a
   reduction in the group medical claim reserve margins.

        In 1994 and 1993, managed health care efforts resulted in estimated net
   pre-tax savings to the Company's Group Medical Division of $67.0 million and
   $41.0 million, respectively.  These savings were primarily used to lower the
   amount of premium increases for policyholders, which the Company believes
   generally has the effect of decreasing lapse rates of these policies.  The
   principal efforts and their approximate relative contributions to these
   estimated savings were as follows:
                                                1994   1993

   PPO networks  . . . . . . . . . . . . . .     40%    49%
   Precertification  . . . . . . . . . . . .     10      5 
   Large case management . . . . . . . . . .     22     32 
   Usual and customary, rebundling, and          28     14 
   prompt pay discounts  . . . . . . . . . .

                                                100%   100%
        The Company expects to continue to emphasize medical utilization
   management procedures to control claim costs.  Although the Company cannot
   accurately determine the amount of savings which may be realized from such
   efforts in the future, the Company believes that it will be increasingly
   difficult to maintain this level of growth in cost savings due to the
   efficiencies that have already been achieved.

        Insurance and general expenses.  General expenses as a percent of
   premiums decreased due to the continued emphasis on cost reduction in the
   Senior Health and Life Division, the Group Medical Division and the Life
   Insurance Division.  However, insurance and general expenses (which includes
   non-deferred commission compensation to agents) increased $30.0 million, or
   18%.  The increase was primarily caused by the increase in premium and policy
   charges and the acquisitions of HRC and CLAC.

        Interest expense.  Interest expense increased due to the issuance of the
   8% Debentures in July 1993 and the increase in other notes payable in 1994.

        Amortization of DAC.  Amortization of DAC increased $23.2 million, or
   30%.  The increase was due primarily to a write-down in the DAC asset on
   certain group and individual medical business issued in recent years.  Future
   losses were projected on these blocks of business due primarily to mandated
   state healthcare reforms.  The Company continues to monitor the profitability
   of its business.  Increased lapses or unprofitability on the business could
   result in an increase in the amortization rate of DAC, which would adversely
   impact future earnings.

        Income tax rate.  The effective tax rate of the Company decreased to
   approximately 34% from 35%.  The decrease was due to the increased investment
   in tax-exempt securities included in the Company's portfolio.

        Other.  The Company acquired the building containing its corporate
   headquarters in Schaumburg, Illinois, in January 1994 resulting in the
   increase in investment real estate.  Cash decreased due to increased
   investment in short-term investments.  Reinsurance receivables decreased due
   to the timing of payments due from reinsurers.  DAC decreased as a result of
   a write-down in the asset for certain medical business and the decrease in
   new business issued in 1994.  General expenses and other liabilities
   decreased due to the timing of payments for federal income taxes and amounts
   due to reinsurers.  Notes payable increased due to the utilization of the
   line of credit by the Company.

   DEFERRED POLICY ACQUISITION COSTS

        Under generally accepted accounting principles, a DAC asset is
   established to match properly the costs of writing new business against the
   expected future revenues or gross profits from the policies.  The costs which
   are capitalized and amortized consist of first-year commissions in excess of
   renewal commissions and certain home office expenses related to selling,
   policy issue, and underwriting.

        The deferred acquisition costs for accident and health policies and
   traditional life policies are amortized over future premium revenues of the
   business to which the costs are related.  The rate of amortization depends on
   the expected pattern of future premium revenues for the block of policies. 
   The scheduled amortization for a block of policies is established when the
   policies are issued.  However, the actual amortization of DAC will reflect
   the actual persistency and profitability of the business.  For example, if
   actual policy terminations are higher than expected or if future losses are
   anticipated, DAC could be amortized more rapidly than originally scheduled or
   written-off, which would reduce earnings in the applicable period.

   EFFECT OF INFLATION

        In pricing its insurance products, the Company gives effect to
   anticipated levels of inflation; however, the Company believes that the high
   rate of medical cost inflation during recent years has had an adverse impact
   on its major hospital accident and health claims experience.  The Company
   continues to implement rate increases, as permitted by state regulations, in
   response to this experience.

   LIQUIDITY AND CAPITAL RESOURCES

        The Company's consolidated liquidity requirements are created and met
   primarily by operations of its subsidiaries.  The insurance subsidiaries'
   primary sources of cash are premiums, investment income, and investment sales
   and maturities.  The insurance subsidiaries' primary uses of cash are
   operating costs, policy acquisition costs, payments to policyholders and
   investment purchases.  In addition, liquidity requirements of the holding
   company are created by the dividend requirements of the $2.125 Preferred
   Stock, Common Stock dividends, interest payments on the 8% Debentures and
   other debt service requirements.  These liquidity requirements of the holding
   company have historically been met through dividends from the non-insurance
   subsidiaries which receive payments primarily from fees charged for
   administrative and marketing services provided to the Company's insurance
   subsidiaries and other unaffiliated companies.  Dividends from the insurance
   subsidiaries could be required in the future to meet such liquidity
   requirements.

        The ability of the insurance subsidiaries to pay dividends and make
   other payments to the Company is subject to state insurance department
   regulations which generally permit dividends and other payments to be paid
   for any twelve month period in amounts equal to the greater of (i) net gain
   from operations in the case of a life insurance company or net income in the
   case of all other insurance companies for the preceding calendar year or (ii)
   10% of surplus as of the preceding December 31st.  Any dividends in excess of
   these levels require the prior approval of the Director or Commissioner of
   the applicable state insurance department.  The amount of dividends that the
   Company's insurance subsidiaries could pay in 1996 without prior approval is
   approximately $3.7 million. 

        Notwithstanding the foregoing, if insurance regulators otherwise
   determine that payment of a dividend or any other payment to an affiliate
   would be detrimental to an insurance subsidiary's policyholders or creditors
   because of the financial condition of the insurance subsidiary or otherwise,
   the regulators may block dividends or other payments to affiliates that would
   otherwise be permitted without prior approval.

        The Company's insurance subsidiaries require capital to fund acquisition
   costs incurred in the initial year of policy issuance and to maintain
   adequate surplus levels for regulatory purposes.  These capital requirements
   have been met principally from internally generated funds, including premiums
   and investment income, and capital contributions from the holding company. 

        The Company has offered commission advances to certain of its agents and
   marketing organizations which consist primarily of annualization of first
   year commissions.  This means that when the first year premium is paid in
   installments, the Company will advance a percentage of the commissions that
   the agent would otherwise receive over the course of the first policy year. 
   The Company, through a subsidiary, has entered into agreements with an
   unaffiliated corporation to provide financing for a portion of its agent
   commission advance program through the sale of agent receivables.  Proceeds
   from such sales for 1995 and 1994 were $20.9 million and $24.4 million,
   respectively.  The termination date of the current program is December 31,
   1997, subject to extension or termination as provided therein.  The Company
   has retained approximately $13.8 million of agent advances at December 31,
   1995.

        In July 1993 the Company issued $57.5 million of its 8% Debentures.  Net
   proceeds from the offering totaled approximately $54.0 million.  The 8%
   Debentures are convertible into the Company's Common Stock at any time prior
   to maturity, unless previously redeemed, at a conversion price of $11.75 per
   share.  In August 1995, the Company accepted the conversion of $46.9 million
   of the outstanding 8% Debentures.  The effect of the conversion was an
   increase in stockholders' equity of $45.3 million and a charge to income of
   $3.5 million, net of taxes, for payments to converting bondholders and other
   expenses relating to the conversion.

        In August 1993, a non-insurance subsidiary of the Company borrowed $1.5
   million from a commercial bank to finance the acquisition of HRC.  Interest
   on the unsecured note is payable quarterly at the lending bank's prime rate
   of interest.  The note requires principal repayments of $0.08 million per
   quarter plus interest through July 31, 1998.

        In December 1994, a non-insurance subsidiary of the Company borrowed
   $0.4 million from a commercial bank to finance the purchase of certain
   equipment.  The note, which is secured by the equipment purchased, bears
   interest at the lending bank's prime rate of interest and is payable
   quarterly, with principal payments of $0.02 million, through December 1,
   1999.

        In January 1995, an insurance subsidiary of the Company issued a note in
   the amount of $1.7 million as a portion of the acquisition price of CNL.  The
   principal balance of the note may be reduced by the amount of capital losses
   incurred by the Company on mortgage loan and real estate holdings of CNL. 
   Interest is payable on the note at the average earnings rate of these
   investments, currently eight percent. 

        Under the March 1995 Term Loan, the Company borrowed $15.0 million from
   a group of banks to repay amounts borrowed under the Company's Credit
   Facility in conjunction with the acquisition of CNL.  Interest on the March
   1995 Term Loan is payable quarterly, currently at five percent.  The note,
   which is unsecured, requires principal payments of $0.5 million plus interest
   per quarter with a final payment on December 31, 1999.

        In June 1995, a non-insurance subsidiary of the Company borrowed $1.2
   million from a commercial bank in order to fund HMO development.  Interest on
   this secured facility is payable monthly at a fixed rate of 8.8%, with
   principal due at maturity.  This facility matures in June, 1996.

        In June 1995 a non-insurance subsidiary of the Company entered into a
   $1.0 million line of credit arrangement with a commercial bank in order to
   finance the subsidiary's working capital needs.  Interest on this secured
   facility is payable monthly at the lending bank's prime rate of interest. 
   This facility matures in June 1996.

        Under the August 1995 Term Loan, the Company borrowed $11.1 million from
   a group of banks to repay amounts borrowed under the Company's Credit
   Facility to, among other things, fund payments to converting bondholders and
   other expenses relating to the conversion of the 8% Debentures.  Interest on
   the August 1995 Term Loan is at the prime rate of the lending bank.  The
   unsecured note requires principal repayments of $0.9 million plus interest
   per quarter through August 31, 1998.

        In September 1995, a non-insurance subsidiary of the Company borrowed
   $3.3 million from a finance company to finance the purchase of certain
   equipment.  The note, which is secured by the equipment purchased, bears
   interest at a fixed rate of 7.81% and has principal and interest payments of
   $0.04 million payable monthly through August 2005.

        The Company's Credit Facility provides a line of credit arrangement for
   short-term borrowings with three banks amounting to $17.0 million through
   April 1996, of which $3.5 million was used at December 31, 1995.  In January
   1996, the amount available under the Credit Facility was increased to $27.0
   million.  The line of credit arrangement can be terminated, in accordance
   with the agreement, at the Company's option.  The Company expects that the
   Credit Facility will be extended at its maturity.

        The Company's debt agreements include provisions requiring maintenance
   of minimum working capital and risk based capital and limiting the Company's
   ability to incur additional indebtedness.  The Company's debt agreements also
   restrict the amount of retained earnings which is available for dividends and
   require the maintenance of certain minimum insurance company ratings at the
   Company's subsidiaries.

        In March, June, September and December 1995, the Company's Board of
   Directors announced a quarterly Common Stock dividend of $.045 per share, for
   a total of 18 centers per share in 1995.

        In February, 1996 the Board of Directors announced a quarterly stock
   dividend of $.055 per share to be paid in April, 1996.

        Management believes that the diversity of the Company's investment
   portfolio and the liquidity attributable to the large concentration of
   investments in highly liquid United States government agency securities
   provide sufficient liquidity to meet foreseeable cash requirements.  See
   "Business-Investments."  Because the Company's insurance subsidiaries
   experience strong positive cash flows, including monthly cash flows from
   mortgage-backed securities, the Company does not expect its insurance
   subsidiaries to be forced to sell the held to maturity investments prior to
   their maturities and realize material losses or gains.  Although the Company
   has the ability and intent to hold those securities to maturity, there could
   occur infrequent and unusual conditions under which it would sell certain of
   these securities.  Those conditions would include a significant deterioration
   of the issuer's creditworthiness, significant changes in tax law affecting
   the taxation of securities, a significant business acquisition or
   disposition, and changes in regulatory capital requirements or permissible
   investments.

        Life insurance and annuity liabilities are generally long-term in nature
   although subject to earlier surrender as a result of the policyholder's
   ability to withdraw funds or surrender the policy, subject to surrender and
   withdrawal penalties.  The Company believes its policyholder liabilities
   should be backed by an investment portfolio that generates predictable
   investment returns.  The Company seeks to limit exposure to risks associated
   with interest rate fluctuations by concentrating its invested assets
   principally in high quality, readily marketable debt securities of
   intermediate duration and by attempting to balance the duration of its
   invested assets with the estimated duration of benefit payments arising from
   contract liabilities.  See "Business-Investments."

        The Company has entered into an agreement to purchase all of the
   outstanding stock of Universal Fidelity for a total purchase price of
   approximately $26.0 million.  Closing on the acquisition is subject to the
   approval of Universal Fidelity's shareholders and to regulatory approval. 
   The transaction is expected to close in the first quarter of 1996.  Universal
   Fidelity's business is primarily senior health insurance, including Medicare
   supplement, long-term care and other supplemental insurance.


   RECENTLY ISSUED ACCOUNTING STANDARDS

        For a discussion of a new long-lived assets accounting standard, and a
   new stock-based employee compensation accounting standard and the impact of
   these standards on the financial statements of the Company, see Note 2 of
   Notes to Consolidated Financial Statements.


   ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        Consolidated Financial Statements are included in Part IV, Item 14 of
   this report.


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

                   Not applicable.


                                     PART III


   ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

          The section of the definitive proxy statement to be filed with the
   Securities and Exchange Commission and mailed to stockholders in connection
   with the Company's 1996 annual meeting of stockholders entitled "Election of
   Directors" is incorporated herein by this reference.

          For information on executive officers of the registrant, reference is
   made to the item entitled "Executive Officers of the Registrant" in Part I of
   this report.


   ITEM 11.  EXECUTIVE COMPENSATION

          The section of the definitive proxy statement to be filed with the
   Securities and Exchange Commission and mailed to stockholders in connection
   with the Company's 1996 annual meeting of stockholders entitled "Executive
   Compensation" is incorporated herein by this reference.


   ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

          The section of the definitive proxy statement to be filed with the
   Securities and Exchange Commission and mailed to stockholders in connection
   with the Company's 1996 annual meeting of stockholders entitled "Principal
   Holders of Securities" is incorporated herein by this reference.


   ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          The section of the definitive proxy statement to be filed with the
   Securities and Exchange Commission and mailed to stockholders in connection
   with the Company's 1996 annual meeting of stockholders entitled "Certain
   Transactions" is incorporated herein by this reference.


                                      PART IV


   ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
             FORM 8-K 
           
   (a)    Documents filed as a part of this report:

          PIONEER FINANCIAL SERVICES, INC.

   1.     Financial Statements 

          Report of Independent Auditors   . . . . . . . . . . .  F-1
          Consolidated Financial Statements  . . . . . . . . . .  
          Statements of Consolidated Income. . . . . . . . . . .  F-2
          Consolidated Balance Sheets  . . . . . . . . . . . . .  F-3
          Statements of Consolidated Stockholders' Equity. . . .  F-5
          Statements of Consolidated Cash Flows  . . . . . . . .  F-7
          Notes to Consolidated Financial Statements . . . . . .  F-8


   2.     Financial Statement Schedules

            Schedule I - Consolidated Summary of Investments -
            Other Than Investments in Related Parties . . . . . . F-35

            Schedule II - Condensed Financial Information of
            Registrant - Condensed Balance Sheets     . . . . . . F-36

            Schedule II - Condensed Financial Information of
            Registrant - Condensed Statements of Income. . . . .  F-37

            Schedule II - Condensed Financial Information of
            Registrant - Condensed Statements of 
            Cash Flows. . . . . . . . . . . . . . . . . . . . . . F-38

            Schedule II - Note to Condensed Financial Statements  F-39
            Schedule III - Supplementary Insurance Information. . F-40
            Schedule IV - Reinsurance . . . . . . . . . . . . . . F-41

            Schedule V - Valuation and Qualifying Accounts . . .  F-42

   All other schedules are omitted because they are not applicable, or not
   required, or because the required information is included in the financial
   statements or notes thereto.

    3.   Exhibits

         See Exhibit Index below.


    (b)  Reports on Form 8-K

         The Company filed no reports on Form 8-K during
         the fourth quarter of 1995.


    (c)  Index to Exhibits


   Exhibit                                           Sequentially
   Number                                            Description of
   Document                                          Numbered Page

   3  (a) Certificate of Incorporation
         of the Company (filed as Exhibit 3(a)
         to the Company's Registration Statement
         on Form S-1 [No. 33-7759] and incorporated
         herein by reference)

   3  (b) Amended Bylaws of the Company (filed as
         Exhibit 3(b) to Amendment No. 1 to the
         Company's Registration Statement
         on Form S-1 [No. 33-30017] and incorporated
         herein by reference)

   4  (a) Certificate of Designations with respect
         to the Company's $2.125 Cumulative 
         Convertible Exchangeable Preferred Stock
         ("Preferred Stock") (filed as Exhibit 4(a)
         to Post-Effective Amendment No. 1 to the
         Company's Registration Statement on Form S-1
         [No. 33-30017] and incorporated herein by
         reference)

   4  (b) Proposed form of Indenture with respect
         to the Company's 8 1/2% Convertible 
         Subordinated Debentures due 2014 into which 
         the Preferred Stock is exchangeable (filed
         as Exhibit 4(b) to Post-Effective Amendment
         No. 1 to the Company's Registration Statement
         on Form S-1 [No. 33-30017] and incorporated
         herein by reference)

   4  (c) Rights Agreement dated as of December 12,
         1990 between the Company and First Chicago 
         Trust Company of New York as Rights 
         Agent (including exhibits thereto)
         (filed as Exhibit 1 to the Company's 
         registration statement on Form 8-A
         dated December 14, 1990 and incorporated
         herein by reference)

   10 (a) Form of contract with independent agents 
         (filed as Exhibit 10(f) to the Company's
         Registration Statement on Form S-1 
         [No. 33-7759] and incorporated herein by
         reference)

  *10 (b) Nonqualified Stock Option Plan (filed as 
         Exhibit 10(g) to the Company's Registration
         Statement on Form S-1 [No. 33-7759] and 
         incorporated herein by reference)

  *10 (c) Amendment to the Nonqualified Stock Option 
         Plan of the Company (filed as Exhibit 10(d)
         to the Company's Registration Statement on
         Form S-8 [No. 33-26455] and incorporated
         herein by reference)

  *10 (d) Amendment to the Nonqualified Stock Option 
         Plan of the Company (filed as Exhibit 10(c)
         to the Company's Registration Statement on
         Form S-1 [No. 33-17011] and incorporated
         herein by reference)

  *10 (e) Amendment to the Nonqualified Stock Option
         Plan of the Company (filed as Exhibit 10(e)
         to the Company's registration statement on
         Form S-8 [No. 33-37305] and incorporated 
         herein by reference)

  *10 (f) Employment Agreement dated as of September 1,
         1995 by and between the Company and 
         Peter W. Nauert (filed herewith)

   10 (g) Administrative Service Agreement dated 
         December 23, 1991, by and between 
         Administrative Service Corporation and 
         Pioneer Life Insurance Company of Illinois 
         (filed as Exhibit 10(v) to the Company's 
         Annual Report on Form 10-K [No. 0-14977] 
         and incorporated herein by reference)

   10 (h) Administrative Service Agreement dated 
         December 23, 1991, by and between 
         Administrative Service Corporation and 
         National Group Life (filed as Exhibit 10(w) 
         to the Company's Annual Report on Form 10-K 
         [No. 0-14977] and incorporated herein 
         by reference)

  *10 (i) Employment Agreement dated as of September 1, 
         1995 by and between the Company and 
         Thomas J. Brophy (filed herewith) 

  *10 (j) Amendment to Employment Agreement dated as of
         September 1, 1995 by and between the Company
         and Charles R. Scheper (filed herewith) 

  *10 (k) Employment Agreement dated as of January 1, 
         1996 by and between the Company and 
         Anthony J. Pino (filed herewith) 

   10 (l) Stock Purchase Agreement dated November 21,
         1994 among the Company, United Life 
         Holdings, Inc. and GRENEL Financial 
         Corporation (filed as Exhibit 2(a) to the 
         Company's Current Report on Form 8-K, 
         dated January 31, 1995 and incorporated 
         herein by reference)

   10 (m) Third Amended and Restated Receivables 
         Purchase Agreement dated as of November 1,
         1995 by and between Design Benefit Plans,
         Inc. (formerly National Group Marketing
         Corporation) and National Funding 
         Corporation (filed herewith)

   10 (n) Consent and Agreement dated as of October
         1, 1994 among Design Benefit Plans, Inc., 
         Pioneer Financial Services, Inc., American
         National Bank and Trust Company of Chicago,
         and National Funding Corporation (filed 
         as exhibit 10(q) to the Company's Annual
         Report on Form 10-K [No. 1-10522] and
         incorporated herein by reference)

   10 (o) Pioneer Financial Services, Inc.
         Employee Stock Purchase Plan
         (filed herewith)

   10 (p) Pioneer Financial Services, Inc.
         Directors Compensation Deferral
         Plan (filed herewith)

   10 (q) Credit Agreement dated as of 
         March 22, 1995 by and among the
         Company and American National Bank
         and Trust Company of Chicago, Firstar
         Bank Milwaukee, N.A. and Bank One,
         Rockford N.A. (filed as Exhibit 10(a) 
         to the Company's Form 10-Q for the
         quarterly period ended March 31, 1995
         and incorporated herein by reference)

   10 (r) Amended and Restated Credit Agreement
         dated as of March 22, 1995, by and among
         American National Bank and Trust Company
         of Chicago as Agent and American National
         Bank and Trust Company of Chicago, Firstar
         Bank Milwaukee, N.A. and Bank One,
         Rockford, N.A. (filed as Exhibit 10(b)
         to the Company's Form 10-Q for the quarterly 
         period ended March 31, 1995 and incorporated
         herein by reference)

   10 (s) Employment Agreement between the Company and
         Ernest T. Giambra (filed as Exhibit 10(r) to 
         Amendment No. 4 to the Company's Registration
         Statement on Form S-2 (File No. 33-62760) and 
         incorporated herein by reference)

   10 (t) Pioneer Financial Services, Inc. Executive
         Deferred Compensation Program (filed herewith)

   11     Statement of Computation of per share net income
         (filed herewith)                             

   21     List of subsidiaries (filed herewith)       

   23     Consent of Ernst & Young LLP
          (filed herewith)                            

   27     Exhibit of financial data                   

   *  Indicates management employment contracts or compensatory plans or
      arrangements.


                          Report of Independent Auditors

   Board of Directors
   Pioneer Financial Services, Inc.

   We have audited the accompanying consolidated balance sheets of Pioneer
   Financial Services, Inc. and subsidiaries as of December 31, 1995 and 1994,
   and the related  statements of consolidated income, stockholders' equity, and
   cash flows for each of the three years in the period ended December 31, 1995.
   Our audits also included the financial statement schedules listed in the
   Index at Item 14(a).  These financial statements and schedules are the
   responsibility of the Company's management.  Our responsibility is to express
   an opinion on these financial statements and schedules based on our audits.

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

   In our opinion, the financial statements referred to above present fairly, in
   all material respects, the consolidated financial position of Pioneer
   Financial Services, Inc. and subsidiaries at December 31, 1995 and 1994, and
   the consolidated results of their operations and their cash flows for each of
   the three years in the period ended December 31, 1995, in conformity with
   generally accepted accounting principles.  Also, in our opinion, the related
   financial statement schedules, when considered in relation to the
   consolidated financial statements taken as a whole, present fairly in all
   material respects the information set forth therein.

   As discussed in Note 3 to the consolidated financial statements, in 1994, the
   Company changed its method of accounting for investments in debt and equity
   securities.

                                                          /s/ Ernst & Young LLP

                                                             ERNST & YOUNG LLP
   Chicago, Illinois
   March 8, 1996

   <TABLE>
   <CAPTION>
                 Pioneer Financial Services, Inc. and Subsidiaries
                         Statements of Consolidated Income
                     (In Thousands, Except Per Share Amounts)

                                     YEAR ENDED DECEMBER 31

                                  1995      1994      1993
   <S>                         <C>       <C>       <C>
   REVENUES
   Premiums and policy charges (Note 7):
    Accident and health       $ 625,951 $ 659,180 $ 601,684 
    Life and annuity             61,092    44,929    39,282 
                                687,043   704,109   640,966 
   Net investment income (Note 5)70,975    42,786    40,242 
   Other income and realized investment
    gains and losses (Note 5)    42,066    27,260    17,920 
                                800,084   774,155   699,128 
   BENEFITS AND EXPENSES
   Benefits:                                      
    Accident and health         398,971   407,249   397,963 
    Life and annuity             76,846    42,947    39,419 
                                475,817   450,196   437,382 
   Insurance and general 
     expenses                   218,388   192,810   162,831 
   Interest expense (Notes 10 
     and 13)                      4,958     5,054     3,276 
   Amortization of deferred 
    policy acquisition 
    costs (Note 11)              69,199   100,073    76,875 
                                768,362   748,133   680,364 
   Income before income taxes    31,722    26,022    18,764 
   Income taxes (benefit) (Note 6):
    Current                       7,407     6,570    10,858 
    Deferred                      3,347     2,303    (4,239)
                                 10,754     8,873     6,619 
   Net income                    20,968    17,149    12,145 

   Preferred stock dividends 
    (Note 14)                     1,805    1,904      2,021 
   Income applicable to common 
    stockholders              $  19,163 $ 15,245  $  10,124 

   Net income per common share:
    Primary                    $   2.44 $   2.36  $    1.51 
    Fully diluted                  1.85      1.58      1.26 

   Dividends declared per 
     common share                   .18       .15        -  

   Average common and common equivalent
    shares outstanding:               
    Primary                       7,839     6,459     6,724 
    Fully diluted                12,608    12,734    10,731 

   See notes to consolidated financial statements.

   </TABLE>

                 Pioneer Financial Services, Inc. and Subsidiaries
                            Consolidated Balance Sheets
                (In Thousands, Except Share and Per Share Amounts)

   <TABLE>
   <CAPTION>
                                             DECEMBER 31
                                             1995    1994
   <S>                                      <C>      <C>
   ASSETS

   Investments (Notes 5 and 20):
    Securities available-for-sale:
      Fixed maturities, at fair value      $622,666 $218,748
      Equity securities, at fair value       15,570   15,440
    Fixed maturities held-to-maturity             
     at amortized cost                      246,041  378,650
    Real estate - at cost, less accumulated              
     depreciation                            18,250   16,959
    Mortgage loans   at unpaid balance        9,253    1,806
    Policy loans   at unpaid balance         79,122   23,082
    Short-term investments   at cost,                   
     which approximates fair value           51,690   69,152
   Total investments                      1,042,592  723,837



   Cash                                      20,274    8,612
   Premiums and other receivables, less allowance
    for doubtful accounts (Notes 8 and 19)   23,429   20,102
   Reinsurance receivables and amounts             
     on deposit with reinsurers (Note 7)    184,719   41,426
   Accrued investment income                 13,307    8,873
   Deferred policy acquisition costs 
     (Note 11)                              219,874  225,618
   Land, building, and equipment   
    at cost, less            
    accumulated depreciation (Note 19)       26,433   20,314
   Deferred federal income taxes (Note 6)       -      7,262
   Other                                     28,293   19,656
                                         $1,558,921 $1,075,700


   LIABILITIES, REDEEMABLE PREFERRED STOCK, 
         AND STOCKHOLDERS' EQUITY
   Policy liabilities:         
    Future policy benefits:
     Life                                 $591,093 $246,953 
     Annuity                               216,431  210,132 
     Accident and health                   153,603  163,477 
    Unearned premiums                       71,150   76,266 
    Policy and contract claims (Note 9)    166,111  155,373 
    Other                                   16,077   16,407 
                                         1,214,465  868,608 
   General liabilities:
    General expenses and other liabilities  48,580   31,793 
    Amounts due to reinsurers (Note 7)      82,954    5,249 
    Deferred federal income tax (Note 6)     2,393       -  
    Short-term notes payable (Notes 10, 
      22 and 23)                            13,534   20,093 
    Long-term notes payable (Notes 10,
      20, 22 and 23)                        21,504    2,520 

   Convertible subordinated debentures 
    (Notes 13 and 20)                        9,695   57,427 
   Total liabilities                     1,393,125  985,690 

   Commitments and contingencies (Notes 6 to 12 and 17)

   Redeemable Preferred Stock, no par value (Note 14):
    $2.125 cumulative convertible exchangeable preferred 
     stock:
       Authorized: 5,000,000 shares
       Issued and outstanding: 
           (1995 - 848,900 shares;
           1994 - 867,300 shares)            21,222   21,682 

   Stockholders' equity (Notes 6 and 12 to 16):
    Common Stock, $1 par value:
     Authorized: 20,000,000 shares
     Issued, including shares in treasury
       (1995 -11,207,591; 1994 - 6,996,157) 11,208    6,996 
    Additional paid-in capital              72,198   29,299 
    Unrealized appreciation (depreciation)              
       of available-for-sale securities 
       (Notes 3 and 5)                       4,518   (7,193)
    Retained earnings                       66,870   48,960 
    Treasury stock at cost (1995 - 
       1,132,300 shares;
       1994 - 1,078,400 shares)           (10,220)  (9,734)
   Total stockholders' equity              144,574  68,328 
                                        $1,558,921 $1,075,700 

   See notes to consolidated financial statements.

   </TABLE>

                 Pioneer Financial Services, Inc. and Subsidiaries
                  Statements of Consolidated Stockholders' Equity
                (In Thousands, Except Share and Per Share Amounts)


   <TABLE>
   <CAPTION>


                                                                 Unrealized                                       Total
                                                   Additional   Appreciation                                      Stock-
                                      Common         Paid-In   (Depreciation)    Retained        Treasury       holders
                                       Stock        Capital    of Securities     Earnings          Stock        Equity


    <S>                               <C>         <C>           <C>            <C>           <C>                 <C>
    Balance at January 1, 1993         $6,820     $28,399       $ 3,044        $24,521       $      (52)         $62,732 
    1993 transactions: 
    Net income                             -            -             -          12,145                -          12,145 
    Cash dividends - Preferred 
     Stock ($2.125 per share)              -            -             -          (2,021)               -          (2,021)
    Stock options exercised 
     (72,000 shares)                        72        379             -               -                -             451 
    Appreciation of equity
     securities                            -            -            241              -                -             241 
    Purchase of treasury stock
     (546,200 shares)                      -            -             -               -           (4,720)         (4,720)
    Issuance of shares pursuant
     to Agent Stock Purchase
     Plan (8,057 shares)                    8          36             -               -                -              44 
    Balance at December 31, 1993        6,900      28,814          3,285          34,645          (4,772)         68,872 
      


    1994 transactions:
    Net income                             -            -              -         17,149                -          17,149 
    Cash dividends - Preferred
     Stock ($2.125 per share)              -            -              -         (1,904)               -          (1,904)
    Cash dividends - Common
     Stock ($.15 per share)                -            -              -           (930)              -             (930)
    Stock options exercised
     (85,500 shares)                        86        409              -              -                -             495 
    Conversion of convertible
     subordinated debentures
     (4,255 shares)                        4           46              -              -                -              50 
    Cummulative effect of change
     in accounting principle (Note 3)      -            -         3,605               -                -           3,605 
    Depreciation of available-
     for-sale securities                   -            -       (14,083)              -                -         (14,083)
    Purchase of treasury stock
     (521,600 shares)                      -            -             -               -            (4,962)        (4,962)
    Issuance of shares pursuant to
     Agent Stock Purchase Plan
     (6,332 shares)                        6             30              -                 -             -             36 
                                                                                                                         
    Balance at December 31, 1994       $6,996     $29,299       $(7,193)         $48,960          $(9,734)       $68,328 


    See notes to consolidated financial statements.

    </TABLE>


                            Pioneer Financial Services, Inc. and Subsidiaries
                   Statements of Consolidated Stockholders' Equity (Continued)
                          (In Thousands, Except Share and Per Share Amounts)
    <TABLE>
    <CAPTION>

                           
                                                                 Unrealized                                       Total
                                                   Additional   Appreciation                                      Stock-
                                      Common         Paid-In   (Depreciation)    Retained        Treasury       holders
                                       Stock        Capital    of Securities     Earnings          Stock        Equity


    <S>                                    <C>         <C>              <C>          <C>               <C>                <C>
    Balance at December 31, 1994           6,996       29,299           (7,193)      48,960            (9,734)            68,328
    1995 transactions:
    Net income                                 -            -            -           20,968                 -              20,968
    Cash dividends - Preferred
     Stock ($2.125 per share)                  -            -            -           (1,805)                -             (1,805)
    Cash dividends - Common
     Stock ($.18 per share)                    -            -            -           (1,253)                -             (1,253)
    Stock options exercised
     (147,000 shares)                         147       1,373            -                -                 -               1,520
    Conversion of convertible
     subordinated debentures
     (4,062,418 shares)                     4,063      41,517            -                -                  -             45,580
    Appreciation of available-
     for-sale securities                      -             -       11,711                -                  -             11,711
    Purchase of treasury stock
     (53,900 shares)                          -             -            -                -              (486)               (486)
    Issuance of shares pursuant to
     Agent Stock Purchase Plan
     (2,016 shares)                           2             9            -                -                  -                11

    Balance at December 31, 1995         $11,208      $72,198        $4,518              $66,870          $(10,220)       $144,574


    See notes to consolidated financial statements.

    </TABLE>



                 Pioneer Financial Services, Inc. and Subsidiaries
                       Statements of Consolidated Cash Flows
                                  (In Thousands)

   <TABLE>
   <CAPTION>
                                                 YEAR ENDED DECEMBER 31
                                                  1995      1994      1993
   <S>                                          <C>        <C>        <C>
   OPERATING ACTIVITIES
   Net income                                   $    20,968 $  17,149 $  12,145 
   Adjustments to reconcile net income to 
   net cash provided by operating activities:
      Decrease (increase) in premiums receivable     (2,321)    4,981    (3,912)
      Increase (decrease) in policy liabilities     (30,922)  (34,498)   31,132 
      Deferral of policy acquisition costs          (65,036)  (65,258)  (67,633)
      Amortization of deferred policy 
        acquisition costs (Note 11)                  69,199   100,073    76,875 
      Deferred income tax expense (benefit)           3,347     2,303    (4,239)
      Change in other assets and liabilities         17,154    21,392   (13,423)
      Depreciation, amortization, and accretion       7,541      (102)    9,795 
      Realized losses (gains) (Note 5)               (3,993)      383     1,336 
   Net cash provided by operating activities         15,937    46,423    42,076 

   INVESTING ACTIVITIES
   Securities available-for-sale:          
     Purchases - fixed maturities                  (247,746) (110,416) (120,228)
     Sales - fixed maturities                       189,882    99,865    51,780 
     Maturities - fixed maturities                   19,099    44,116    18,836 
     Purchases - equity securities                  (14,854)   (4,609)   (5,532)
     Sales - equity securities                       18,585     2,558    14,845 
   Securities held-to-maturity:
     Purchases                                      (13,369)  (84,010) (256,579)
     Sales                                            4,710     9,427   126,072 
     Maturities                                      28,865    21,472   102,538 
   Purchase of investment real estate                (1,903)  (17,442)        - 
   Net decrease (increase) in other investments      15,593   (21,499)   26,038 
   Net purchases of property and equipment           (6,650)   (2,957)   (3,956)
   Purchase of subsidiaries (Note 4)                 (8,314)        -    (9,685)
   Net cash used by investing activities            (16,102)  (63,495)  (55,871)

   FINANCING ACTIVITIES
   Net proceeds from issuance of convertible
    subordinated debentures (Note 13)                     -         -    54,055
   Increase in notes payable                          14,219    21,225        - 
   Repayment of notes payable                         (1,794)   (5,362) (31,401)
   Proceeds from sale of agent receivables 
     (Note 8)                                         20,851    24,393   25,376 
   Transfer of collections on previously sold agent 
          receivables (Note 8)                       (18,978)  (28,743) (22,981)
   Dividends paid - preferred                         (1,805)   (1,904)  (2,021)
   Dividends paid - common                            (1,253)     (930)      - 
   Stock options exercised                             1,520       495      451 
   Purchase of treasury stock                           (486)   (4,963)  (4,720)
   Retirement of preferred stock                        (460)   (1,993)    (315)
   Other                                                  13        87       44 
   Net cash provided by financing activities          11,827     2,305    18,488 
   Increase (decrease) in cash                        11,662   (14,767)    4,693 
   Cash at beginning of year                           8,612    23,379    18,686 
   Cash at end of year                              $ 20,274 $   8,612  $ 23,379 


   See notes to consolidated financial statements.

   </TABLE>

                 Pioneer Financial Services, Inc. and Subsidiaries

                    Notes to Consolidated Financial Statements


   1.  NATURE OF OPERATIONS

   Pioneer Financial Services, Inc. (PFS) through its subsidiaries markets and
   underwrites life insurance and annuities, health insurance, and provides
   medical utilization management services in selected niche markets throughout
   the United States.  PFS bases its operations on four core businesses:  Life
   Insurance, Senior Health, Group Medical, and Medical Utilization Management.

   Life insurance products include traditional life (term and whole life),
   universal life, and interest sensitive life insurance and annuities sold
   primarily to the middle income market.  Senior health products include
   Medicare supplement, long-term care, home health care and specialty health
   for individuals age sixty-five and older.  Group medical business consists of
   small group and individual hospital and medical policies marketed primarily
   to self-employed individuals and small business owners.  Medical utilization
   management services provided to underwriters, self insured businesses,
   provider organizations, and others include pre-certification of in-patient
   and out-patient medical care, case management, and development and management
   of provider networks.  Approximately 40% of PFS' premiums are written in six
   states. 

   2.  ACCOUNTING POLICIES

   PRINCIPLES OF CONSOLIDATION

   The accompanying consolidated financial statements have been prepared in
   conformity with generally accepted accounting principles (GAAP) and include
   the accounts and operations, after intercompany eliminations, of PFS and its
   subsidiaries.

   USE OF ESTIMATES

   The preparation of the financial statements in conformity with GAAP requires
   management to make estimates and assumptions that affect the amounts reported
   in the financial statements and accompanying notes.  Actual results could
   differ from those estimates, and such differences may be material to the
   financial statements.

   INVESTMENTS

   Investments in fixed maturities include bonds and mortgage-backed securities
   with contractual maturities greater than one year.  Fixed maturities
   classified as "available for sale" are carried at fair value and fixed
   maturities classified as "held to maturity" are carried at amortized cost.

   Although PFS has the ability and intent to hold held-to-maturity securities
   to maturity, there could occur infrequent and unusual conditions under which
   it would sell certain of those securities.  Those conditions would include
   unforeseen changes in asset quality, significant changes in tax law affecting
   the taxation of securities, a significant business acquisition or
   disposition, and changes in regulatory capital requirements or permissable
   investments.

   Changes in fair values of available-for-sale securities, after adjustments
   including deferred policy acquisition costs ("DAC"), if any, and deferred
   income taxes, are reported as unrealized appreciation or depreciation
   directly in stockholders' equity and, accordingly, have no effect on net
   income.  DAC offsets to the unrealized appreciation or depreciation represent
   valuation adjustments or reinstatements of DAC that would have been required
   as a charge or credit to operations had such unrealized amounts been
   realized.

   The amortized cost of fixed maturity investments is adjusted for amortization
   of premiums and accretion of discounts.  That amortization or accretion is
   included in net investment income.

   For the mortgage-backed portion of the fixed maturity securities portfolio,
   PFS recognizes income using a constant effective yield based on anticipated
   prepayments and the estimated economic life of the securities.  When actual
   prepayments differ significantly from anticipated prepayments, the effective
   yield is recalculated to reflect actual payments to date and anticipated
   future payments.  The net investment in the security is adjusted to the
   amount that would have existed had the new effective yield been applied since
   the acquisition of the security.  That adjustment is included in net
   investment income.
   On December 1, 1995, as a result of recently issued guidance from the
   Financial Accounting Standards Board ("FASB"), PFS transferred held-to-
   maturity fixed maturities with an amortized cost of $222,482,000 to
   available-for-sale, and also transferred $110,152,000 of available-for-sale
   fixed maturities to held-to-maturity.  These transfers resulted in a
   $8,290,000 decrease to unrealized appreciation of securities.

   For equity securities, changes in unrealized appreciation or temporary
   depreciation, after deferred income tax effects, are reported directly in
   stockholders' equity.

   Realized gains and losses on the sale of investments, and declines in value
   considered to be other-than-temporary, are recognized in operations on the
   specific identification basis.

   Short term investments have maturities of three months or less and are
   carried at cost which approximates fair value.

   REVENUES

   Revenues for interest-sensitive life insurance and annuities consist of
   charges assessed against  policy account values.  For accident and health and
   other life insurance, premiums are recognized as revenue when due.  Accident
   and health group association dues and fees, included in other revenues, are
   recognized as revenue when received.

   FUTURE POLICY BENEFITS

   The liabilities for future policy benefits related to the annuity and
   interest-sensitive life insurance policies are calculated based on
   accumulated fund values.  As of December 31, 1995, interest credited during
   the contract accumulation period ranged from 2.5% to 11.25%.  Investment
   spreads and mortality gains are recognized as profits when realized, based on
   the difference between actual experience and amounts credited or charged to
   policies.

   The liabilities for future policy benefits on other life insurance and
   accident and health insurance policies have been computed by a net level
   method based on estimated future investment yield, mortality or morbidity,
   and withdrawals, including provisions for adverse deviation.  Interest rate
   assumptions range from 2.5% to 9.25% depending on the year of issue.  The
   provisions for future policy benefits and the deferral and amortization of
   policy acquisition costs are intended to result in benefits and expenses
   being associated with premiums proportionately over the policy periods.

   UNEARNED PREMIUMS

   Unearned premiums are calculated using the monthly pro-rata basis.

   DEFERRED POLICY ACQUISITION COSTS

   Costs that vary with, and are primarily related to, the production of new
   business are deferred.  Such costs are primarily related to accident and
   health business and principally include the excess of new business
   commissions over renewal commissions and underwriting and sales expenses.

   For annuities and interest-sensitive life insurance policies, deferred costs
   are amortized generally in proportion to expected gross profits arising from
   the difference between investment and mortality experience and amounts
   credited or charged to policies.  That amortization is adjusted
   retrospectively when estimates of current or future gross profits (including
   the impact of realized investment gains and losses) to be realized from a
   group of products are revised.  For other life and accident and health
   policies, costs are amortized over the premium-paying period of the policies,
   using the same mortality or morbidity, interest, and withdrawal assumptions
   that are used in calculating the liabilities for future policy benefits.

   The unamortized cost of purchased insurance in force is included in DAC
   ($26,681,000 and $21,291,000 at December 31, 1995 and 1994, respectively). 
   Amortization of these amounts is in relation to the present value of
   estimated gross profits over the estimated remaining life of the related
   insurance in force.

   POLICY AND CONTRACT CLAIMS

   The liabilities for policy and contract claims, principally accident and
   health, are determined using case-basis evaluations and statistical analyses
   based on past experience and represent estimates of the ultimate net cost of
   incurred claims and the related claim adjustment expenses.  Although
   considerable variability is inherent in such estimates, management believes
   that these liabilities are adequate.  The estimates are continually reviewed
   and adjusted as necessary; such adjustments are included in current
   operations.
   PFS maintains an additional provision for adverse deviation in its accident
   and health claim liability estimates.

   REINSURANCE

   Reinsurance premiums, commissions, expense reimbursements, and receivables
   related to reinsured business are accounted for on bases consistent with
   those used in accounting for the original policies issued and the terms of
   the reinsurance contracts.  Premiums reinsured to other companies have been
   reported as reductions of premium revenues.  Amounts recoverable for
   reinsurance related to future policy benefits, unearned premium reserves, and
   claim liabilities have been reported as reinsurance receivables; expense
   allowances received in connection with reinsurance have been accounted for as
   a reduction of the related DAC and are deferred and amortized accordingly.

   FEDERAL INCOME TAXES

   Federal income tax provisions are based on income or loss reported for
   financial statement purposes and tax laws and rates in effect for the years
   presented.  Deferred income taxes have been provided for the effects of
   temporary differences between financial reporting and tax bases of assets and
   liabilities and are measured using enacted tax rates.  A valuation allowance
   for deferred tax assets is provided where it is more likely than not that a
   portion of the asset will not be realized.

   DEPRECIATION

   Building, equipment and investment real estate are recorded at cost and are
   depreciated using principally the straight-line method.

   NET INCOME PER COMMON SHARE

   Primary net income per share of Common Stock is determined by dividing net
   income less dividends on Preferred Stock, by the weighted-average number of
   Common Stock and Common Stock equivalents (dilutive stock options)
   outstanding. Where the effect of Common Stock equivalents on net income per
   share would be antidilutive, they are excluded from the average shares
   outstanding.  Fully diluted net income per share is computed as if the
   Preferred Stock and Convertible Subordinated Debentures had been converted to
   Common Stock.  

   COST IN EXCESS OF NET ASSETS OF COMPANIES ACQUIRED

   The cost in excess of net assets of companies acquired (goodwill) ($5,017,000
   and     $5,317,000 at December 31, 1995 and 1994, respectively) is included
   in other assets and is being amortized principally on a straight-line basis
   over periods from five to forty years.  Goodwill is periodically evaluated
   for impairment based principally on projected undiscounted net cash flows of
   the acquired companies.

   TREASURY STOCK

   The board of directors has authorized PFS to buy back shares of its own
   common and preferred stock on the open market from time to time.  During
   1995, 1994 and 1993 PFS repurchased 53,900, 521,600 and 546,200 shares,
   respectively, of their common stock.  During 1995, 1994 and 1993, PFS
   repurchased 18,400, 78,900 and 13,400 shares of their preferred stock. 
   Treasury stock is accounted for using the cost method.

   CASH FLOW INFORMATION

   Cash includes cash on hand and demand deposits.

   IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

   In March 1995, the FASB issued Statement No. 121, "Accounting for the
   Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of",
   which requires impairment losses to be recorded on long-lived assets used in
   operations when indicators of impairment are present and the undiscounted
   cash flows estimated to be generated by those assets are less than the
   assets' carrying amount.  Statement 121 also addresses the accounting for
   long-lived assets that are expected to be disposed of.  PFS will adopt
   Statement 121 in the first quarter of 1996 and, based on current
   circumstances, does not believe the effect of adoption of the new standard
   will be material.

   In October 1995, the FASB issued Statement No. 123, "Accounting for Stock-
   Based Compensation," which the Company must adopt in 1996.  This statement
   establishes accounting and reporting standards for stock-based employee
   compensation plans.  The statement defines a fair value method of accounting
   which would result in 
   an income statement charge, or to continue using the current accounting
   method for such compensation plans.  If PFS elects to continue using the
   current treatment, the pro-forma results of the new provisions must be
   disclosed in the financial statements.  PFS is in the process of reviewing
   this statement.

   RECLASSIFICATIONS

   Certain amounts in the 1993 and 1994 financial statements have been
   reclassified to conform to the 1995 presentation.

   3.  CHANGES IN ACCOUNTING PRINCIPLES

   In 1995 PFS adopted FASB Statements 114 and 118 which relate to accounting by
   creditors for impairment of mortgage loans.  Implementation of these
   statements did not have an effect on PFS' financial statements.

   FASB Statement 115, "Accounting for Certain Investments in Debt and Equity
   Securities" was adopted by PFS as of January 1, 1994.  Under Statement 115,
   securities are classified as available-for-sale, held-to-maturity, or
   trading.  PFS classified a portion of its fixed maturity securities portfolio
   as available-for-sale with the remainder classified as held-to-maturity. 
   Securities classified as available-for-sale are carried at fair value and
   unrealized gains and losses on such securities are reported as a separate
   component of stockholders' equity.  Securities classified as held-to-maturity
   are carried at cost, adjusted for amortization of premium or discount.

   With the classification of a portion of the portfolio as available-for-sale,
   the January 1, 1994, balance of stockholders' equity was increased by
   $3,605,000 (net of adjustments to deferred income taxes) to reflect the net
   unrealized gains on fixed maturity securities classified as available-for-
   sale that were previously carried at amortized cost.  The adoption of
   Statement 115 had no effect on net income or PFS' accounting policy for
   equity securities. 

   4.  BUSINESS COMBINATIONS

   On January 31, 1995, Pioneer acquired for cash of $24,000,000 (purchase price
   $23,700,000 and $300,000 of additional costs), the outstanding common shares
   of Connecticut National Life Insurance Company (CNL).

   The acquisition was accounted for by the purchase method and, accordingly,
   the purchase price was allocated to assets and liabilities acquired based on
   estimates of their fair values.

                                                                             
   (IN THOUSANDS)
   Assets Acquired
        Cash                                    $ 16,371 
        Investments                              274,263 
        Value of insurance in force                1,570 
        Receivables and amounts on deposit 
          with reinsurers                         87,213 
        Other assets                               6,904 

   Liabilities Assumed
        Policy liabilities                      (354,307)
        Other liabilities                         (8,014)

   Total purchase price                         $ 24,000 

   The value of insurance inforce will be amortized over the estimated remaining
   life of the insurance inforce.

   The following unaudited pro-forma consolidated results of operations have
   been prepared as if the acquisition had been made as of January 1, 1994:

                                                     YEAR ENDED
                                                DECEMBER 31, 1994
                                            (IN THOUSANDS, EXCEPT PER  
                                                  SHARE AMOUNTS)

        Revenues                                 $809,500
        Net income                                 18,700
        Net income per share
          Primary                                    2.60
          Fully-diluted                              1.70

   The foregoing pro-forma information is not necessarily indicative of either
   the results of operations that would have occurred had the acquisition  been
   effective on January 1, 1994, or of future results of operations of the
   consolidated companies.

   In July 1995, PFS purchased ACMG, Inc., a managed care company, principally
   for cash of $1,584,000.  The total assets acquired at the purchase date were
   approximately $2,600,000.

   In August 1993, PFS purchased 80% of the outstanding common stock of
   Continental Life & Accident Company and 100% of the outstanding common stock
   of Continental Marketing Corporation for $7,100,000 in cash.  The total
   assets acquired at the purchase date were approximately $80,000,000.

   Also in August 1993, PFS purchased Healthcare Review Corporation, a managed
   care company, for $1,566,000 in cash.  The total assets acquired at the
   purchase date were approximately $2,000,000.

   Revenues included in PFS' 1993 consolidated statement of income relating to
   these acquired entities were $25,671,000.  The operations of the entities did
   not have a material effect on PFS' 1993 net income.

   5.  INVESTMENTS

   Realized investment gains (losses), including provisions for other-than-
   temporary impairments on investments held, and the change in unrealized
   appreciation (depreciation) on fixed maturities, equity securities, and other
   investments during the years shown are summarized as follows:

   <TABLE>
   <CAPTION>

                            FIXED     EQUITY
                         MATURITIES SECURITIES  OTHER    TOTAL
                                (IN THOUSANDS)
     <S>                 <C>        <C>         <C>      <C>
     1995
     REALIZED            $  (301)   $  4,605    $ (311)  $ 3,993 
     UNREALIZED           86,406        (719)        -    85,687 
                         $86,105    $   3,886   $ (311)  $ 89,680 

     1994
     Realized            $  (94)    $     211   $ (500)  $  (383)
     Unrealized         (58,705)       (2,098)       -   (60,803)
                     $  (58,799)    $  (1,887)  $ (500) $(61,186)

     1993
     Realized        $   (1,638)    $     293   $   9   $ (1,336)
     Unrealized           3,864           442       -      4,306 
                    $     2,226     $     735   $    9  $  2,970 

   </TABLE>

   The cost of equity securities was $13,332,571 at December 31, 1995, and
   $12,484,000 at December 31, 1994.  At December 31, 1995, gross unrealized
   appreciation on equity securities was $2,781,000 and gross unrealized
   depreciation was $544,000.  At December 31, 1994, gross unrealized
   appreciation on equity securities was $3,514,000 and gross unrealized
   depreciation was $558,000.

   In 1995, sales of two held-to-maturity securities with an amortized cost of
   $5,490,000 resulted due to a significant deterioration in creditworthiness. 
   Sales of these securities resulted in a realized loss of $780,000.  Sales of
   two held-to-maturity securities in 1994 with an amortized cost of $9,803,000
   resulted after discussions with an insurance rating agency regarding specific
   investments of PFS' insurance subsidiaries and evidence of a significant
   deterioration in credit worthiness.  Sales of these securities, all of which
   were owned at January 1, 1994, resulted in a realized loss of $376,000.

   A comparison of amortized cost to fair value of fixed maturity investments by
   category is as follows:  


    <TABLE>
    <CAPTION>

                                                                   GROSS          GROSS
                                                   AMORTIZED     UNREALIZED     UNREALIZED      FAIR
                                                     COST          GAINS          LOSSES        VALUE
                                                                      (IN THOUSANDS)

    <S>                                             <C>           <C>         <C>            <C>
    At December 31, 1995:
    HELD TO MATURITY
    U.S. Treasury                                    $26,897       $   319     $     (44)     $ 27,172 
    States and political subdivisions                  4,669           227             -         4,896 
    Corporate securities                              51,608         1,797           (19)       53,386 
    Mortgage-backed securities                       162,867         4,599          (192)      167,274 
                                                    $246,041        $6,942      $   (255)     $252,728 
    AVAILABLE FOR SALE
    U.S. Treasury                                   $ 31,781      $  2,303     $       -      $ 34,084 
    States and political subdivisions                 26,260           716             -        26,976 
    Foreign governments                                3,072             -           (54)        3,018 
    Corporate securities                             294,950        19,523          (972)      313,501 
    Mortgage-backed securities                       241,015         7,824        (3,752)      245,087 
                                                    $597,078       $30,366      $ (4,778)     $622,666 
    At December 31, 1994:
    HELD TO MATURITY                
    U.S. Treasury                                    $  8,891      $     25     $   (840)      $  8,076
    States and political subdivisions                   8,888             -         (810)         8,078
    Foreign governments                                 2,992             -         (197)         2,795
    Corporate securities                              147,419            90      (13,158)       134,351
    Mortgage-backed securities                        210,460           558      (25,778)       185,240
                                                     $378,650       $   673     $(40,783)      $338,540
    AVAILABLE FOR SALE
    U.S. Treasury                                    $ 23,207      $      2     $ (1,357)      $ 21,852
    State and political subdivisions                   26,579             -         (760)        25,819
    Foreign governments                                 4,024             -         (559)         3,465
    Corporate securities                               95,939             -       (6,538)        89,401
    Mortgage-backed securities                         83,020            37       (4,846)        78,211
                                                     $232,769      $     39     $(14,060)      $218,748

    </TABLE>

   The carrying amount of PFS' available for sale fixed maturity investments can
   increase or decrease significantly in the near term as a result of changes in
   market interest rates.


   Unrealized appreciation on available-for-sale securities at December 31, 1995
   of $4,518,000 included gross appreciation of $27,150,000 less unrealized
   appreciation of $17,397,000 on investments in escrow trust accounts pursuant
   to agreements with certain reinsurers (See Note 7) and net of deferred taxes
   and DAC adjustments of $5,235,000.  At December 31, 1994, unrealized
   depreciation of available-for-sale securities consisted of gross depreciation
   of $11,066,000 net of deferred tax assets of $3,873,000.

   The amortized cost and fair value of fixed maturities at December 31, 1995,
   by contractual maturity, are shown below.  Expected maturities will differ
   from contractual maturities because borrowers may have the right to call or
   prepay obligations with or without prepayment penalties.

                                        AMORTIZED  FAIR
                                           COST    VALUE
        HELD TO MATURITY:                 (IN THOUSANDS)
        Due in 1996                  $   6,691 $  6,784 
        Due 1997-2001                   73,794   75,903 
        Due 2002-2006                    2,225    2,217 
        Due after 2006                     464      550 
        Mortgage-backed securities     162,867  167,274 
                                      $246,041 $252,728 
        AVAILABLE FOR SALE:
        Due in 1996                  $   7,639 $  7,732 
        Due 1997-2001                  114,199  119,818 
        Due 2002-2006                  152,423  159,179 
        Due after 2006                  81,802   90,850 
        Mortgage-backed securities     241,015  245,087 
                                      $597,078 $622,666 

   Proceeds from sales of investments (principally fixed maturities) during
   1995, 1994, and 1993 were $213,177,000, $111,850,000 and $192,697,000,
   respectively.  Gross gains of $1,537,000, $1,448,000 and $10,834,000 and
   gross losses of $1,838,000, $1,542,000 and $12,472,000 were realized on fixed
   maturity sales in 1995, 1994, and 1993, respectively.  Gross gains of
   $4,762,000, $217,000 and $315,000 and gross losses of $157,000, $6,000 and
   $22,000 were realized on sales of equity securities in 1995, 1994, and 1993,
   respectively.

   Major categories of net investment income are summarized as follows:

                                  1995     1994    1993
                                      (IN THOUSANDS)
   Fixed maturities            $61,076 $40,172 $34,529 
   Short-term investments        3,623   1,549   2,691 
   Other                         9,550   4,189   4,069 
   Total investment income      74,249  45,910  41,289 
   Investment expenses          (3,274) (3,124) (1,047)
   Net investment income       $70,975 $42,786 $40,242 

   At December 31, 1995, securities with a carrying value of $104,294,000 were
   on deposit with various government authorities to meet regulatory
   requirements and securities with a carrying value of $201,898,000 are held in
   escrow trust accounts pursuant to reinsurance agreements.  (See Note 7.)

   At December 31, 1995, the amortized cost of fixed maturity investments in any
   one entity, other than the U.S. government or a U.S. government agency or
   authority, which exceeded 10% of PFS' consolidated stockholders' equity were
   as follows:

         GE Capital Mortgage Services, Inc.  $29,072,000
         Prudential Home                      14,763,000

   Investment real estate (net of accumulated depreciation of $1,095,000 in 1995
   and $483,000 in 1994) consists principally of land and a building used, in
   part, as PFS' corporate headquarters.
   At December 31, 1995, PFS held unrated or less-than-investment-grade
   securities with a carrying value of $13,519,000.  Those holdings amounted to
   less than 1.3% of PFS' total investments at December 31, 1995.

   At December 31, 1995, fixed maturities with a carrying value of $10,472,000
   had been non-income producing for the preceding 12-month period.

   6.  FEDERAL INCOME TAXES

   Deferred income taxes reflect the net tax effects of temporary differences
   between the carrying amounts of assets and liabilities for financial
   reporting purposes and the amounts used for income tax purposes.  Significant
   components of PFS' deferred tax liabilities and assets are as follows:

   <TABLE>
   <CAPTION>

                                                                  DECEMBER 31
                                                                1995         1994
                                                                (IN THOUSANDS)
         <S>                                                   <C>           <C>
         DEFERRED TAX LIABILITIES
         Deferred policy acquisition costs                     $66,458       $72,306
         Net unrealized appreciation on
           available-for-sale securities                         2,625             - 
         Other                                                   9,075         1,537 
         Total deferred tax liabilities                         78,158        73,843 
     
         DEFERRED TAX ASSETS
         Policy liabilities                                     70,550        69,101 
         Financial reinsurance                                      -          3,788 
         Loss carryforwards                                      9,940         2,000 
         Net unrealized depreciation on
           available-for-sale securities                             -         3,873 
         Other                                                  11,775         6,213 
         Total deferred tax assets                              92,265        84,975 
         Valuation allowance for          
           deferred tax assets                                 (16,500)       (3,870)

         Deferred tax assets net of 
           valuation allowance                                  75,765        81,105 

         Net deferred tax (liability) asset                 $   (2,393)     $  7,262 


   </TABLE>

   The nature of PFS' deferred tax assets and liabilities are such that the
   reversal pattern for these temporary differences should generally result in
   realization of PFS' deferred tax assets.  PFS establishes a valuation
   allowance for any portion of the deferred tax asset that management believes
   may not be realized.  In 1995 the valuation allowance increased $12,630,000
   principally due to the acquisition of Connecticut National Life Insurance
   Company (See Note 4).  There was no change in the valuation allowance in 1994
   and in 1993 the valuation allowance increased $1,221,000.

   PFS' effective federal income tax rate varied from the statutory federal
   income tax rate as follows:

   <TABLE>
   <CAPTION>
                                                  1995                 1994                  1993
                                             AMOUNT   %         AMOUNT     %           AMOUNT      %
                                                              (DOLLARS IN THOUSANDS)

    <S>                                 <C>         <C>       <C>         <C>       <C>         <C>
    Statutory federal income tax rate 
      applied to income
      before income taxes                $11,103     35.0%     $ 9,108     35.0%      $ 6,567     35.0%
    Nontaxable investment income            (473)    (1.5)        (384)    (1.5)         (112)      (.6)
    Nondeductible goodwill 
      amortization                            60       .2          109       .4           319      1.7 
    Other                                     64       .2           40       .2          (155)     (.8)
    Income taxes and 
      effective rate                     $10,754     33.9%     $ 8,873     34.1%      $ 6,619     35.3%

    </TABLE>

   Taxes paid amounted to $8,257,000, $9,731,000, and $5,735,000 for 1995, 1994,
   and 1993, respectively.

   Under pre-1984 life insurance company income tax laws, a portion of a life
   insurance company's "gain from operations" was not subjected to current
   income taxation but was accumulated, for tax purposes, in a memorandum
   account designated as the "policyholders' surplus account."  The balance in
   this account at December 31, 1995 for PFS' life insurance subsidiaries was
   $10,000,000.  Should the policyholders' surplus accounts of PFS' life
   insurance subsidiaries exceed their respective maximums, or should
   distributions in  excess of their tax-basis shareholders' surplus account be
   made by the life insurance subsidiaries, such excess or distribution would be
   subject to federal income taxes at rates then in effect.  Deferred taxes of
   $3,500,000 have not been provided on amounts included in the policyholders'
   surplus accounts, since PFS contemplates no such taxable events in the
   foreseeable future.

   As of December 31, 1995, PFS' life insurance subsidiaries had combined tax-
   basis shareholders' surplus accounts of $63,700,000.  Distributions up to
   that amount would result in no income tax liability.

   Certain of PFS' life insurance subsidiaries have tax basis operations loss
   carryforwards of $28,400,000 expiring in years 2003 through 2008.

   7.  REINSURANCE

   PFS' insurance subsidiaries reinsure risks with other companies to permit the
   recovery of a portion of the direct losses.  These reinsured risks are
   treated as though, to the extent of the reinsurance, they are risks for which
   the subsidiaries are not liable.  PFS remains liable to the extent that the
   reinsuring companies do not meet their obligations under these reinsurance
   treaties.

   PFS' premiums were reduced for reinsurance premiums by $66,193,000,
   $37,273,000, and $40,592,000 in 1995, 1994, and 1993, respectively.  Under
   various reinsurance arrangements, PFS' premiums were increased by
   $13,474,000, $16,928,000, and $19,338,000 in 1995, 1994, and 1993,
   respectively.  PFS' policy benefits have been reduced for reinsurance
   recoveries of $33,739,000 in 1995, $23,319,000 in 1994, and $21,871,000 in
   1993.  At December 31, 1995, approximately 29% of PFS' reinsurance
   receivables and amounts on deposit with reinsurers were due from Lincoln
   National Life Insurance Company, 23% from Employers Reinsurance Corporation,
   and 15% from Reassurance Company of Hannover.
   Prior to the acquisition by PFS in January 1995, CNL had entered into certain
   reinsurance arrangements.  PFS retains the assets and related policy
   liabilities associated with the reinsured business.  In accordance with the
   reinsurance contracts, PFS does not participate in the realized gains and
   losses on the assets held in escrow under these agreements.  Accordingly, PFS
   has established an amount due to reinsurers at December 31, 1995 and a
   corresponding reduction in unrealized appreciation on available-for-sale
   securities for investments held in escrow trust accounts pursuant to these
   agreements.

   8.  SALE OF AGENT RECEIVABLES

   In 1995, 1994, and 1993 a subsidiary of PFS sold agent receivables to an
   unaffiliated company for proceeds of $20,851,000, $24,393,000, and
   $25,376,000, respectively.  The outstanding balances of such agent
   receivables sold that remained uncollected at December 31, 1995 and 1994 were
   $11,360,000 and $7,937,000, respectively.  PFS remains subject to a maximum
   credit exposure under this agreement amounting to 10% of agent receivables at
   December 31, 1995. 

   9.  RECONCILIATION OF LIABILITY FOR POLICY AND CONTRACT CLAIMS

   The following table provides a reconciliation of the beginning and ending
   policy and contract claim liability balances reported in PFS' balance sheets:

    <TABLE>
    <CAPTION>
                                                                       1995         1994         1993
                                                                                 (IN THOUSANDS)

    <S>                                                             <C>           <C>            <C>
    Policy and contract claim
      liability at beginning of year                                $155,373      $189,389       $148,141 

    Incurred claims related to:
             Current year                                            469,881       482,449        431,357 
             Prior years                                             (26,282)      (36,655)       (20,750)
             Total claims incurred                                    443,599      445,794        410,607 

    Deduct claims paid related to:
             Current year                                            322,210       350,210        260,702 
             Prior years                                             110,651       129,600        108,657 
             Total claims paid                                       432,861       479,810        369,359 

    Policy and contract claim
      liability at end of year                                       $166,111     $155,373       $189,389 

    </TABLE>

   Claim reserves are estimates of amounts needed to pay reported and unreported
   claims based on facts and circumstances known at the time the reserves are
   established.  Reserves are based on historical claims information, industry
   statistics and other factors.  The establishment of appropriate reserves is
   an inherently uncertain process, and there can be no assurance that the
   ultimate liability will not exceed recorded claim reserves.  PFS holds
   margins in its accident and health claim reserves to provide for potential
   adverse deviation.  Claim reserves estimates are continually reviewed and
   adjusted as necessary. 

   10.  NOTES PAYABLE
   Short-term notes payable included $3,500,000 at December 31, 1995, drawn
   under a line of credit arrangement.  The borrowings are due in 1996 and bear
   interest at prime and payable quarterly (See Note 22).  The remaining balance
   under the line of credit is due in April 1996 .

   At December 31, 1995 PFS had a loan of $13,393,000 which replaced the line of
   credit utilized at December 31, 1994.  The portion of the loan due in 1996 of
   $2,143,000 was included in short-term notes payable and the remainder was
   included in long-term notes payable.  Interest on the note is payable
   quarterly currently at 5%.  The note requires principal repayments of
   $535,000 per quarter with a final payment on December 31, 1999.  The Company
   holds certificates of deposit at the bank in an amount equal to the
   outstanding principal balance.

   At December 31, 1995, PFS had an unsecured loan of $10,175,000.  The portion
   of the loan due in 1996 of $3,700,000 was included in short-term notes
   payable and the balance was included in long-term notes payable.  The note
   bears interest currently at prime and is payable quarterly with the final
   payment due August 1998.

   At December 31, 1995, a PFS subsidiary had an unsecured loan of $825,000. 
   The portion of the loan due in 1996 of $300,000 is included in short-term
   notes payable.  The remainder of the note is included in long-term notes
   payable.  The note bears interest at prime and is payable quarterly with the
   final payment due July 1998.

   At December 31, 1995, a PFS subsidiary had two loans totaling $3,565,000. 
   The portion of the loans due in 1996 of $311,000 are included in short-term
   notes payable.  The remainder of the notes are included in long-term notes
   payable.  The notes bear interest at prime and are payable quarterly with the
   final payment due December 1999.  PFS has guaranteed payment of the notes.

   At December 31, 1995, PFS had $720,000 of short-term debt liability for which
   a PFS agency subsidiary's future renewal commissions were pledged as
   collateral.

   At December 31, 1995 a PFS subsidiary had a short term note payable in the
   amount of $1,660,000 as a portion of the acquisition price of CNL.  The
   principal balance of the note may be reduced by the former parent of CNL for
   capital losses incurred on mortgage loan and real estate holdings.  Interest
   is payable at the average earnings rate of the investments, currently 8%.

   At December 31, 1995 a PFS subsidiary had a loan of $1,200,000.  The loan
   bears interest at 8.8% and is due in July 1996.  

   The weighted average interest rate on short-term notes payable at year end
   was 8.4%,  7.7% and 5.0% in 1995, 1994 and 1993, respectively.

   Interest paid amounted to $6,629,000, $4,950,000, and $1,023,000 for 1995,
   1994, and 1993, respectively.

   11.  ACCIDENT AND HEALTH BUSINESS

   In making the determination that policy liabilities, future premiums, and
   anticipated investment income will be adequate to provide for future claims
   and expenses (including the amortization of deferred policy acquisition
   costs), PFS has made assumptions with regard to each of these items. 
   Although there is significant variability inherent in these estimates,
   management believes that these assumptions are reasonable.

   The amortization of deferred policy acquisition costs is generally based on
   the expected pattern of future revenues or gross profits and on the expected
   persistency of the policies.  PFS monitors the profitability and persistency
   of its policies on a monthly basis.  In reviewing the recoverability of
   deferred policy acquisition costs related to medical insurance products, PFS
   has made assumptions relative to future rate increases, medical claim trends,
   lapse rates, expenses and investment income.  Increased lapses or revised
   estimates of profitability anticipating future losses could result in an
   increase in the amortization rate or a write-off of deferred policy
   acquisition costs, which would adversely impact results of operations and
   financial condition.

   Pursuant to a 1994 actuarial study, PFS revised certain of these assumptions
   to reflect present and anticipated future experience.  This study resulted in
   increased amortization of deferred policy acquisition costs in 1994 of
   $16,700,000.

   12.  STATUTORY-BASIS FINANCIAL INFORMATION

   The following tables compare combined net income and stockholders' equity for
   PFS' insurance subsidiaries determined on the basis as prescribed or
   permitted by regulatory authorities (statutory basis) with consolidated net
   income and stockholders' equity reported in accordance with GAAP.  Statutory
   basis accounting emphasizes solvency rather than matching revenues and
   expenses during an accounting period.  The significant differences between
   statutory basis accounting and GAAP are as follows:

     Deferred Policy Acquisition Costs.  Costs of acquiring new policies are
     expensed when incurred on a statutory basis rather than capitalized and
     amortized over the term of the related polices in the GAAP financial
     statements.

     Policy Liabilities.  Certain policy liabilities are calculated based on
     statutorily required methods and assumptions on a statutory basis rather
     than on estimated expected experience or, for annuity and interest-
     sensitive life insurance, actual account balances for GAAP.

     Financial Reinsurance.  The effects of certain financial reinsurance
     transactions are included in the statutory basis financial statements but
     are eliminated from the GAAP financial statements.

     Deferred Federal Income Taxes.  Deferred federal income taxes are not
     provided on a statutory basis for differences between financial statement
     and tax return amounts.

     Surplus Notes.  Surplus notes are reported in capital and surplus on a
     statutory basis rather than as liabilities in the GAAP financial
     statements.

     Non-insurance Companies' Equity.  Contributions by PFS to the capital and
     surplus of its insurance subsidiaries increases the stockholders' equity
     of those insurance subsidiaries on a statutory basis but does not effect
     the consolidated stockholders' equity on a GAAP basis.

     Unrealized Appreciation/Depreciation On Fixed Maturities Available-For-
     Sale.  Fixed maturity securities classified as available-for-sale are
     carried principally at amortized cost on a statutory basis rather than at
     fair value with unrealized gains and losses on such securities reported as
     a separate component of stockholders' equity in the GAAP financial
     statements.

   <TABLE>
   <CAPTION>


                                                                              
                                                              1995       1994       1993
                                                                           (IN THOUSANDS)

    <S>                                                     <C>         <C>         <C>      
    Combined net income on a statutory basis                $ 9,576     $ 6,986     $  10,155 

    Adjustments for:
         Deferred policy acquisition costs                  (12,579)     (34,814)      (12,842)
         Policy liabilities                                  18,413       26,544       (18,494)
         Financial reinsurance                               12,748       17,544        34,017 
         Deferred federal income taxes                       (3,347)      (2,303)        4,239 
         Non-insurance companies, eliminations, 
           and other adjustments                             (3,843)       3,192        (4,930)

    Consolidated net income in accordance
         with GAAP                                        $  20,968     $ 17,149     $  12,145 


                                                                     DECEMBER 31
                                                                    1995       1994
                                                                    (IN THOUSANDS)

    Combined stockholders' equity on a statutory basis           $ 115,423     $ 124,284 

    Adjustments for:
         Deferred policy acquisition costs                         219,874       225,618 
         Policy liabilities                                       (156,141)     (180,422)
         Financial reinsurance                                          -        (12,748)
         Deferred federal income taxes                              (2,393)        7,262 
         Non-admitted assets                                        15,354        10,813 
         Surplus notes                                                                  (4,756)       (4,436)
         Unrealized appreciation (depreciation) on                         
             available-for-sale fixed maturities                    25,588       (14,021)
         Other                                                     (18,710)      (12,296)

    Combined insurance subsidiaries stockholders'
         equity on a GAAP basis                                    194,239       144,054 

    Non-insurance companies equity, eliminations
         and other adjustments                                     (49,665)      (75,726)

    Consolidated stockholders' equity in        
         accordance with GAAP                                     $144,574     $  68,328 

    </TABLE>

     Dividends from PFS' insurance subsidiaries unassigned surplus are limited
   principally to the greater of the prior-year statutory-basis net gain from
   operations or 10% of statutory-basis surplus.  The total amount of dividends
   that could be paid in 1996 without regulatory approval is $3,711,000.  At
   December 31, 1995, PFS' retained earnings was $61,231,000 in excess of the
   combined statutory-basis unassigned surplus of the insurance subsidiaries.

   PFS is required to maintain adequate amounts of statutory-basis capital and
   surplus to satisfy regulatory requirements and provide capacity for
   production of new business.  Acquisition costs relating to the production of
   new business result in a reduction of statutory-basis net income and capital
   and surplus.   

   13.  CONVERTIBLE SUBORDINATED DEBENTURES

   In July 1993 PFS issued $57,477,000 of 8% convertible subordinated debentures
   due in 2000.  Interest on the debentures is payable in January and July of
   each year.  Net proceeds from the offering totaled approximately $54,000,000
   and were used, in part, to repay long-term notes payable.  The debentures are
   convertible into PFS' Common Stock at any time prior to maturity, unless
   previously redeemed, at a conversion price of $11.75 per share.

   In August 1995, the Company accepted the conversion of $46,900,000 of the
   outstanding 8% convertible subordinated debentures.  The effect of the
   conversion was an increase in stockholders' equity of $45,300,000 and a
   charge to income of $3,500,000, net of taxes.  Had the conversion occurred at
   the beginning of the year, primary earnings per share would have decreased to
   $2.02.

   The debentures are redeemable by PFS under certain conditions after July
   1996.

   At December 31, 1995, 825,106 shares of PFS' Common Stock were reserved for
   conversion of the outstanding convertible subordinated debentures.

   14.  REDEEMABLE PREFERRED STOCK

   In 1989, PFS issued 1,000,000 shares of $2.125 Cumulative Convertible
   Exchangeable Preferred Stock.  The proceeds of the public offering were
   $23,337,000 after reduction for expenses of $1,663,000, which expenses were
   charged to additional paid-in capital.  The Preferred Stock is carried on
   PFS' balance sheet at the redemption and liquidation value of $25 per share. 
   Each share of Preferred Stock is convertible by the holders at any time into
   1.6 shares of PFS Common Stock.  Annual cumulative dividends of $2.125 per
   share are payable quarterly.  The preferred stock is nonvoting unless
   dividends are in arrears.  At December 31, 1995, 1,358,240 shares of PFS'
   Common Stock were reserved for conversion of the outstanding preferred stock.
   The Preferred Stock is redeemable at the option of the holders upon certain
   acquisitions or other business combinations involving PFS Common Stock.

   The Preferred Stock is redeemable by PFS at redemption prices of $25.85 per
   share in 1995, declining to $25 in 1999.  The Preferred Stock is exchangeable
   in whole at PFS' option on any dividend payment date for PFS' 8 1/2%
   Convertible Subordinated Debentures due in 2014 at the rate of $25 principal
   amount of Subordinated Debentures for each share of Preferred Stock.

   15.  SHAREHOLDER RIGHTS AGREEMENT

   In 1990, PFS distributed one preferred share purchase right for each
   outstanding share of Common Stock.  The rights are intended to cause
   substantial dilution to a person or group that attempts to acquire PFS on
   terms not approved by PFS' directors.  The rights expire in 2000 or PFS may
   redeem the rights prior to exercise for $.01 per right. 

   The rights are not exercisable unless a person or group acquires, or offers
   to acquire, 20% or more of PFS' Common Stock under certain circumstances. 
   The rights, when exercisable, entitle the holder to purchase one-tenth of a
   share of a new series of PFS Series A Junior Preferred Stock at a purchase
   price of $45.  Such preferred shares, of which 2,000,000 are authorized,
   would be voting and would be entitled to distributions that are ten times the
   distributions to common shareholders.  Subsequent to exercise of the rights,
   in the event of certain business combinations involving PFS, a holder of
   rights would have the right to receive PFS Common Stock with a value of two
   times the exercise price of the rights.

   16.  STOCK OPTIONS AND RIGHTS

   PFS has a nonqualified stock option plan and certain stock incentive programs
   principally for directors and key employees of PFS and its subsidiaries. 
   PFS' Board of Directors grants the options and specifies the conditions of
   the options.  The number of shares of common stock available for benefits
   under the plan is equal to 15% of the average fully diluted shares
   outstanding for the prior fiscal year.  Options expire ten years after grant.
   Information with respect to these options is as follows:

   <TABLE>
   <CAPTION>

                                                 1995                               1994       

                                        NUMBER                            NUMBER
                                          OF            EXERCISE            OF            EXERCISE
                                        SHARES            PRICE           SHARES            PRICE
    <S>                            <C>             <C>                 <C>            <C> 
    Options outstanding at 
      beginning of year              1,045,571      $5.50 - $12.00       733,250        $5.50 -$12.00
    Granted                          1,019,364       9.00 -  22.25       480,321         8.88 - 11.38
    Exercised                         (147,000)      5.50 -  12.00       (85,500)        5.50 - 11.00
    Canceled/repurchased               (25,000)              10.75       (82,500)        5.50 - 12.00
    Options outstanding        
      at end of year                 1,892,935      $5.50 - $22.25     1,045,571         $5.50-$12.00

    Options exercisable        
      at end of year                   692,566                           561,250 

    Unoptioned shares  
      available for
      granting of options            1,996,662                         1,535,201 

     </TABLE>

   17.  COMMITMENTS AND CONTINGENCIES

   PFS and its subsidiaries are named as defendants in various legal actions,
   some claiming significant damages, arising primarily from claims under
   insurance policies, disputes with agents, and other matters.  PFS' management
   and its legal counsel are of the opinion that the disposition of these
   actions will not have a material adverse effect on PFS' financial position.

   PFS leases various office facilities furniture and equipment and computer
   equipment under noncancelable operating leases.  Rent expense was $7,140,000,
   $4,530,000, and $4,516,000 in 1995, 1994, and 1993, respectively.  Minimum
   future rental commitments in connection with noncancelable operating leases
   are as follows:

              1996           $ 3,944,000
              1997             5,039,000
              1998             1,508,000
              1999               970,000
              2000               527,000

   PFS has entered into employment agreements with certain officers. 
   PFS' insurance subsidiaries are subject to extensive governmental regulation
   and supervision at both federal and state levels.  Such regulation includes
   premium rate levels, premium rate increases, policy forms, minimum loss
   ratios, dividend payments, claims settlement, licensing of insurers and their
   agents, capital adequacy transfer of control, and amount and type of
   investments.  Additionally, there are numerous health care reform proposals
   and regulatory initiatives under consideration which if enacted could have
   significant impact on PFS' revenues and results of operations.

   The number of insurance companies that are under regulatory supervision has
   increased, which is expected to result in an increase in assessments by state
   guaranty funds to cover losses to policyholders of insolvent or rehabilitated
   companies.  Those mandatory assessments may be partially recovered through a
   reduction in future premium taxes in some states.  For all assessment
   notifications received, PFS has accrued for those assessments net of
   estimated future premium tax reductions.

   18.  BENEFIT PLANS

   PFS has a defined-contribution employee benefit plan that covers
   substantially all home office employees who have attained age 21 and
   completed one year of service.  Plan participants may contribute from 1% to
   10% of their total compensation subject to an annual maximum.  The plan also
   provides for PFS to match participants' contributions up to $1,000 per year
   and 50% of participants, contributions above $1,000 up to the annual Internal
   Revenue Service limit ($9,240 in 1995).  PFS makes employer contributions to
   the plan in cash or in PFS Common Stock at the discretion of PFS' Board of
   Directors.  At December 31, 1995, the Plan's assets included PFS Common Stock
   of $7,561,912, at fair value.  PFS' contributions charged to operations were
   $1,564,804 in 1995, $1,365,000 in 1994, and $1,073,000 in 1993.

   A PFS subsidiary, which owns insurance and agency companies, had a stock
   purchase plan that allowed certain eligible agents to purchase common stock
   in the subsidiary at the subsidiary's per share book value.  The plan was
   terminated in November 1992.  In accordance with the plan's provisions,
   agents became fully vested.  Eligible agents were given the option to
   participate in a new agent stock purchase plan.  This new plan allows agents
   to purchase PFS Common Stock.  Stock purchases are limited to a specific
   percentage of the agent's commission as determined by PFS but in no event to
   be less than 3%.  Under the plan the agents are also credited with additional
   shares of PFS Common Stock as determined by PFS.  In 1995, 1994 and 1993,
   2,016 shares, 6,332 shares and 8,057 shares, respectively, of PFS Common
   Stock were issued under this plan.  

   19.  ALLOWANCES AND ACCUMULATED DEPRECIATION 

   Allowances for doubtful accounts related to other receivables amounted to
   $1,548,000 at December 31, 1995, and $895,000 at December 31, 1994.

   Accumulated depreciation related to building and equipment amounted to
   $23,370,000 at December 31, 1995, and $19,325,000 at December 31, 1994.

   20.  FAIR VALUE INFORMATION 

   The following methods and assumptions were used by PFS in estimating its fair
   values for financial instruments:

        Cash, short-term investments, short-term notes payable, and accrued
        investment income:  The carrying amounts reported in the balance sheets
        for these instruments approximate their fair values.
        Investment securities:  Fair values for fixed maturity securities
        (including redeemable preferred stocks) are based on quoted market
        prices, where available.  For fixed maturity securities not actively
        traded, fair values are estimated using values obtained from independent
        pricing services, or, in the case of private placements, are estimated
        by discounting expected future cash flows using a current market rate
        applicable to the yield quality, and maturity of the investments.  The
        fair values for equity securities are based on quoted market prices.

        Mortgage loans and policy loans:  The carrying amount of PFS' mortgage
        loans approximates their fair values.  The fair values for policy loans
        are estimated using capitalization of earnings methods, using interest
        rates currently being offered for similar loans to borrowers with
        similar credit ratings.  

        Investment contracts:  Fair values for PFS' liabilities under
        investment-type insurance contracts are based on current cash surrender
        values.

        Fair values for PFS' insurance policies other than investment contracts
        are not required to be disclosed.  However, the fair values of
        liabilities under all insurance policies are taken into consideration in
        PFS' overall management of interest rate risk, which minimizes exposure
        to changing interest rates through the matching of investment maturities
        with amounts due under insurance policies.

        Long-term notes payable:  The fair value of PFS' long-term notes payable
        approximates the carrying value.

        Convertible subordinated debentures:  The fair value of PFS' convertible
        subordinated debentures is based on quoted market prices.

   The fair values of certain financial instruments along with their
   corresponding carrying values of December 31, 1995 and 1994 are as follows:

   <TABLE>
   <CAPTION>
                                               1995                          1994

                                        FAIR         CARRYING        FAIR      CARRYING
                                       VALUE         VALUE          VALUE       VALUE
                                                         (IN THOUSANDS)
    Financial Assets

      <S>                              <C>            <C>              <C>
      Fixed Maturities:
        Available-or-sale               $622,666       $622,666         $218,748      $218,748
        Held-to-maturity                 252,728        246,041          338,540       378,650
      Equity securities                   15,570         15,570           15,440        15,440
      Mortgage loans                       9,253          9,253            1,806         1,806
      Policy loans                        78,230         79,122           22,025        23,082

    Financial Liabilities

      Investment contracts               205,160        214,573          194,072       203,654
      Long-term notes payable             21,504         21,504            2,520         2,520
      Subordinated debentures             14,833          9,695           54,843        57,427

     </TABLE>

   During 1994, PFS began using exchange-traded treasury futures contracts as
   part of its overall interest rate risk management strategy for a portion of
   its life and annuity business.  The initial margin deposit paid for the
   futures represents their cost basis which is adjusted to fair value in the
   financial statements.  Realized and unrealized gains and losses, which were
   immaterial in 1995 and 1994, are recognized as an adjustment to the carrying
   amount of the asset being hedged.  PFS had no futures contracts outstanding
   at December 31, 1995.

   21.  SEGMENT INFORMATION

   PFS has four business segments:  Group Medical, Senior Health, Life
   Insurance, and Medical Utilization Management.  The segments are based on
   PFS' main Divisions.   Allocations of investment income and certain general
   expenses are based on various assumptions and estimates, and reported
   operating results by segment would change if different methods were applied. 
   Assets are not individually identifiable by segment and have been allocated
   based on the amount of policy liabilities by segment and by other formulas. 
   Depreciation expense and capital expenditures are not considered material. 
   Realized investment gains and losses are allocated to the appropriate
   segment.  General corporate expenses are not allocated to the individual
   segments.  Revenues, income or loss before income taxes, and identifiable
   assets by business segment are as follows:

   <TABLE>
   <CAPTION>
                                                      1995            1994              1993
                                                                 (IN THOUSANDS)
    <S>                                            <C>              <C>              <C>      
    REVENUES
    Group Medical:                                                                            
       Unaffiliated                                $ 430,885        $ 457,633        $ 379,742
       Inter-segment                                  21,541           35,373           30,439
    Senior Health                                    236,556          235,031          247,100
    Life Insurance                                   115,545           71,075           67,780
    Medical Utilization Management:
       Unaffiliated                                   17,098           10,416            4,506
       Inter-segment                                   4,007            4,927            4,358
                                                     825,632          814,455          733,925
    Eliminations                                      25,548           40,300           34,797
    Total                                          $ 800,084        $ 774,155        $ 699,128

    INCOME (LOSS) BEFORE INCOME TAXES
    Group Medical                                 $  19,729        $  10,889         $  6,528 
    Senior Health                                    16,753           13,420           12,255 
    Life Insurance                                    7,128            8,537            7,623 
    Medical Utilization Management                      739            2,026           (1,211)
    Corporate expenses                              (12,627)          (8,850)          (6,431)
    Total                                         $  31,722        $  26,022        $  18,764 

    IDENTIFIABLE ASSETS AT YEAR-END
    Group Medical                                  $ 245,439        $ 245,763        $ 287,713
    Senior Health                                    337,789          291,703          301,700
    Life Insurance                                   966,095          533,070          514,154
    Medical Utilization Management                     9,598            5,164            4,704
    Total                                         $1,558,921       $1,075,700       $1,108,271

     </TABLE>

   22.  CREDIT ARRANGEMENTS

   PFS has a line of credit arrangement for short-term borrowings with three
   banks amounting to $17,000,000 through April 1996, of which $3,500,000 was
   used at December 31, 1995.  The line of credit arrangement can be terminated,
   in accordance with the agreement, at PFS' option.

   23.  SUBSEQUENT EVENTS

   PFS signed a letter of intent to purchase Universal Fidelity Life Insurance
   Company (Universal) for approximately $26,000,000 in March 1996.  For 1995
   Universal has statutory-basis premium revenue of approximately $33,000,000,
   assets of $40,000,000, and statutory basis capital and surplus of
   approximately $18,000,000.

   On February 21, 1996 PFS filed a Registration Statement with the Securities
   and Exchange Commission for the issuance of $65,000,000 of convertible
   subordinated notes due 2003 plus up to $9,750,000 which may be used for over-
   allotments.  PFS intends to use the net proceeds from the offering to call
   its outstanding redeemable preferred stock and repay outstanding bank debt. 
   Any remaining proceeds will be contributed to the capital and surplus of the
   insurance subsidiaries.

   24.  QUARTERLY FINANCIAL DATA (UNAUDITED)

   A summary of unaudited quarterly results of operations for 1995 and 1994 is
   as follows (in thousands, except per share amounts):

   <TABLE>
   <CAPTION>

    1995
                                   1ST             2ND             3RD              4TH
    <S>                         <C>              <C>             <C>               <C>
    Premiums and
     policy 
     charges                     $169,575          $162,706        $174,678          $180,084 

    Net investment
     income and
     other                         24,444            27,546          27,065            33,986 

    Net income                      4,955             5,360           3,316             7,337 

    Net income
     per share:
       Primary                         .73               .78             .32               .60
       Fully diluted                   .47               .48             .30               .59


    1994

                                    1st              2nd             3rd             4th

    Premiums and
     policy 
     charges                      $172,898          $176,803        $176,190         $178,219 

    Net investment
     income and
     other                          18,367            16,926          17,674           17,079 

    Net income                       4,500             4,403           3,321            4,926 
    Net income
     per share:
       Primary                         .60              .59              .44              .73 
       Fully diluted                   .40              .40              .32              .46 


     </TABLE>
                                    SCHEDULE I

                 PIONEER FINANCIAL SERVICES, INC. AND SUBSIDIARIES

            CONSOLIDATED SUMMARY OF INVESTMENTS--OTHER THAN INVESTMENTS
                                IN RELATED PARTIES

                                 December 31, 1995
   <TABLE>
   <CAPTION>
                                                                                                 Amount
                                                                                              Shown in the
                                                                                              Consolidated
                                                    Amortized              Fair                  Balance
    Type of Investment                                 Cost                Value                 Sheet    
                                                                      (in thousands)
    <S>                                                <C>                  <C>                    <C>     
    Fixed maturities to be held
     to maturity:
       U.S. Treasury                                    $ 26,897            $ 27,172               $ 26,897
       States and political
         subdivisions                                      4,669               4,896                  4,669
       Corporate securities                               51,608              53,386                 51,608
       Mortgage-backed securities                        162,867             167,274                162,867
         TOTAL FIXED MATURITIES
          TO BE HELD TO MATURITY                         246,041             252,728                246,041

    Fixed maturities available 
     for sale:
       U.S. Treasury                                      31 781            $ 34,084                 34,084
       States and political
         subdivisions                                     26,260              26,976                 26,976
       Foreign governments                                 3,072               3,018                  3,018
       Corporate securities                              294,950             313,501                313,501
       Mortgage-backed securities                        241,015             245,087                245,087
         TOTAL FIXED MATURITIES
          AVAILABLE FOR SALE                             597,078             622,666                622,666

    Equity securities:
       Common stocks:
          Banks, trusts, and 
          insurance companies                              9,959              12,551                 12,551
       Nonredeemable preferred
          stocks                                           3,374               3,019                  3,019

        TOTAL EQUITY SECURITIES                           13,333            $ 15,570                 15,570

    Real estate                                           18,250                                     18,250
    Mortgage loans on real estate                          9,253                                      9,253
    Policy loans                                          79,122                                     79,122
    Short-term investments                                51,690                                     51,690

        TOTAL INVESTMENTS                             $1,014,767                                 $1,042,592
    </TABLE>

                                    SCHEDULE II

                 PIONEER FINANCIAL SERVICES, INC. (Parent Company)
                   CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                             CONDENSED BALANCE SHEETS
                (In thousands, except share and per share amounts)
   <TABLE>
   <CAPTION>
                                                                                                  December 31
                                                                                         1995                  1994  
    <S>                                                                                   <C>                  <C>
    ASSETS
    Investments in subsidiaries*                                                             $158,212           $122,310 
    Cash                                                                                           58                157 
    Note receivable from United Group Holdings (UGH)*                                          40,941             38,704 
    Other notes receivable from subsidiaries*                                                   4,000              3,517 
    Due from affiliates*                                                                          674                132 
    Prepaid expenses                                                                              871                592 
    Deferred debenture offering expenses                                                          442              3,214 
    Other assets                                                                                4,202              2,014 
                                                                                             $209,400           $170,640 

    LIABILITIES, REDEEMABLE PREFERRED STOCK, AND STOCKHOLDERS' EQUITY
    Liabilities:
       General expenses and other liabilities                                                $  5,827           $  3,481 
       Dividends payable                                                                        1,014                772 
       Short-term notes payable                                                                 9,343             18,950 
       Long-term notes payable                                                                 17,725                  - 
       Convertible subordinated debentures                                                      9,695             57,427 
                                                                                               43,604             80,630 
    Redeemable Preferred Stock, no par value:
       $2.125 cumulative convertible exchangeable
       preferred stock
          Authorized:  5,000,000 shares
            Issued and outstanding: (1995-848,900 shares;                                      21,222             21,682 
            1994-867,300 shares)

    Stockholders' equity:
       Common Stock, $1 par value:
          Authorized: 20,000,000 shares
          Issued, including shares in treasury 
            (1995 - 11,207,591; 1994 - 6,996,157)                                              11,208              6,996 
       Additional paid-in capital                                                              72,198             29,299 
       Unrealized appreciation (depreciation)
          of available for sale securities                                                      4,518             (7,193)
       Retained earnings                                                                       66,870             48,960 
       Less treasury stock at cost (1995 - 1,132,300)
        1994 - 1,078,400)                                                                     (10,220)            (9,734)
    Total stockholders' equity                                                                144,574             68,328 
                                                                                             $209,400           $170,640 

   See note to condensed financial statements.


   *Eliminated in consolidation.

   </TABLE>

                                    SCHEDULE II
                 PIONEER FINANCIAL SERVICES, INC. (Parent Company)

             CONDENSED FINANCIAL INFORMATION OF REGISTRANT--Continued

                          CONDENSED STATEMENTS OF INCOME
                                  (In thousands)

   <TABLE>
   <CAPTION>

                                                                                           Year Ended December 31
                                                                            1995                    1994                  1993 

    <S>                                                                    <C>                      <C>                 <C>      
    Revenues:
       Interest income from subsidiaries*                                  $  2,948                 $ 2,972             $  1,090 
       Other investment income                                                   29                     109                   62 
       Dividends from consolidated
          subsidiaries*                                                       4,540                  10,225               10,345 
                                                                              7,517                  13,306               11,497 

    Expenses:
       Operating and administrative
          expenses                                                            8,020                   5,672                4,702 
       Interest expense                                                       4,645                   4,894                3,204 
                                                                             12,665                  10,566                7,906 

            Income (loss) before equity in
            undistributed net income
            of subsidiaries                                                  (5,148)                  2,740                3,591 

    Equity in undistributed net
       income of subsidiaries*                                               26,116                  14,409                8,554 

            Net income                                                       20,968                  17,149               12,145 

    Preferred stock dividends                                                 1,805                   1,904                2,021 

    Income  applicable to 
       common stockholders                                                 $ 19,163                $ 15,245             $ 10,124 




   See note to condensed financial statements.

   *Eliminated in consolidation.

   </TABLE>

                                    SCHEDULE II

                 PIONEER FINANCIAL SERVICES, INC. (Parent Company)

             CONDENSED FINANCIAL INFORMATION OF REGISTRANT--Continued

                        CONDENSED STATEMENTS OF CASH FLOWS
                                  (In thousands)

   <TABLE>
   <CAPTION>
                                                                                           Year Ended December 31
                                                                                1995                1994                1993  

    <S>                                                                         <C>                 <C>                 <C>      
    OPERATING ACTIVITIES
       Net income                                                               $ 20,968            $ 17,149            $ 12,145 
       Adjustments to reconcile net
          income to net cash provided (used)
          by operating activities:
            Change in other assets and
               liabilities                                                         3,728               1,095               1,678 
            Equity in undistributed net
               income of subsidiaries*                                           (26,116)            (14,409)             (8,554)

            NET CASH PROVIDED (USED)
            BY OPERATING ACTIVITIES                                               (1,420)              3,835               5,269 

    INVESTING ACTIVITIES
       Additional investment in
        consolidated subsidiaries*                                                (1,605)            (10,758)            (15,219)

    FINANCING ACTIVITIES
       Decrease in notes receivable 
          from PLIC                                                                   -                   -               29,128 
       Increase in notes receivable from UGH                                      (2,238)             (1,209)            (37,495)
       Net proceeds from issuance of
        convertible subordinated debentures                                           -                   -               54,055 
       Increase in notes payable                                                   9,343              18,950                  -  
       Repayment of notes payable                                                 (1,225)                (50)            (31,600)
       Decrease (increase) in other notes 
          receivable from subsidiaries*                                             (483)             (3,114)              3,591 
       Stock options exercised                                                     1,520                 495                 451 
       Dividends paid-preferred                                                   (1,805)             (1,904)             (2,021)
       Dividends paid-common                                                      (1,253)               (930)                 -  
       Purchase of treasury stock                                                   (486)             (4,963)             (4,720)
       Retirement of preferred stock                                                (460)             (1,993)               (315)
       Other                                                                          13                  87                  44 

            NET CASH PROVIDED BY
             FINANCING ACTIVITIES                                                  2,926               5,369              11,118 

    INCREASE (DECREASE) IN CASH                                                      (99)             (1,554)              1,168 

    CASH AT BEGINNING OF YEAR                                                        157               1,711                 543 

    CASH AT END OF YEAR                                                         $     58            $    157             $ 1,711 

   See note to condensed financial statements.

   *Eliminated in consolidation.

   </TABLE>
                                    SCHEDULE II

                 PIONEER FINANCIAL SERVICES, INC. (Parent Company)

                      NOTE TO CONDENSED FINANCIAL STATEMENTS


   The accompanying condensed financial statements should be read in conjunction
   with the consolidated financial statements and notes thereto of Pioneer
   Financial Services, Inc.

   At December 31, 1995 and 1994, the notes receivable from United Group
   Holdings of Delaware (UGH) represents the purchase of National Group Life
   Insurance Company from the parent company.  The note bears interest at the
   rate of 8% and matures on December 31, 1998.


                                   SCHEDULE III

                 PIONEER FINANCIAL SERVICES, INC. AND SUBSIDIARIES

                        SUPPLEMENTARY INSURANCE INFORMATION
                                  (In thousands)

   <TABLE>
   <CAPTION>
                                                    December 31 

                          Deferred     Future Policy
                           Policy      Benefits and
                         Acquisition    Policy and     Unearned  Other Policy
    Segment                 Costs     Contract Claims  Premiums   Liabilities 

   <S>                    <C>            <C>           <C>          <C>    
   1995:
   Group Medical          $ 62,255       $127,205      $ 15,932    $  3,122

   Senior Health            88,790        181,616        55,218       3,355

   Life Insurance           68,829        818,417             -       9,600

   Medical Utilization 
    Management                   -              -             -           -
                          $219,874     $1,127,238      $ 71,150    $ 16,077

   1994:
   Group Medical          $ 68,608       $121,098      $ 16,176    $  4,343

   Senior Health            95,191        191,800        60,090       4,461

   Life Insurance           61,819        463,037             -       7,603

   Medical Utilization
    Management                   -              -             -           -
                          $225,618       $775,935      $ 76,266    $ 16,407

   1993:
   Group Medical          $ 92,153       $126,684      $ 15,844    $  3,862

   Senior Health           111,708        215,232        72,101       4,204

   Life Insurance           56,571        458,207             -       6,971

   Medical Utilization
    Management                   -              -             -           -
                          $260,432       $800,123      $ 87,945    $ 15,037

   </TABLE>

                             SCHEDULE III (continued)
                 PIONEER FINANCIAL SERVICES, INC. AND SUBSIDIARIES

                        SUPPLEMENTARY INSURANCE INFORMATION
                                  (In thousands)

   <TABLE>
   <CAPTION>
                                                  Amortization
                                   Net                 of
                      Premiums  Investment          Deferred
                        and     Income and           Policy             Other
                       Policy Realized Gains       Acquisition Other  Operating
   Segment            Charges   and Losses* Benefits  Costs    Income Expenses*

   <S>               <C>        <C>        <C>      <C>      <C>      <C>     
   1995:

   Group Medical     $404,911   $  7,107   $253,444 $ 38,03 $ 18,867  $119,680

   Senior Health      221,040     13,959    145,527   21,601   1,557    52,675

   Life Insurance      61,092     53,902     76,846    9,566     551    22,005

   Medical Utilization
     Management             -          -          -        -  17,098    16,359

   Corporate Expenses       -          -          -        -       -    12,627
                     $687,043   $ 74,968   $475,817 $ 69,199$ 38,073  $223,346

   1994:

   Group Medical     $431,831   $  9,184   $267,450 $ 62,281$ 16,618  $117,013

   Senior Health      227,349      6,516    139,799   29,807   1,166    52,005

   Life Insurance      44,929     26,700     42,947    7,985    (554)   11,606

   Medical Utilization 
     Management             -          3          -        -  10,413     8,390

   Corporate Expenses       -          -          -        -       -     8,850
                     $704,109   $ 42,403   $450,196 $100,073$ 27,643  $197,864

   1993:

   Group Medical     $357,784   $  8,033   $246,117 $ 36,189$ 13,925  $ 90,908

   Senior Health      243,900      2,393    151,846   30,132     800    52,860

   Life Insurance      39,282     28,478     39,419   10,554      27    10,191

   Medical Utilization 
     Management             -          2          -        -   4,504     5,717

   Corporate Expenses       -          -          -        -      -      6,431
                     $640,966   $ 38,906   $437,382 $ 76,875$ 19,256  $166,107


   *Allocations of net investment income and other operating expenses are based
   on a number of assumptions and estimates and results would change if
   different methods were applied.  Interest expense has been included with
   other operating expenses.  Realized investment gains and losses were
   allocated to the appropriate segment.

   </TABLE>

                                    SCHEDULE IV

                 PIONEER FINANCIAL SERVICES, INC. AND SUBSIDIARIES

                                    REINSURANCE
                                  (In thousands)
   <TABLE>
   <CAPTION>
                                                                                           Assumed          Percentage
                                                                    Ceded to                from            of Amount
                                                    Gross              Other               Other               Net         Assumed
                                                   Amount            Companies            Companies          Amount         to net

    <S>                                           <C>                <C>                  <C>              <C>                 <C>
    Year Ended December 31, 1995:
       Life insurance in force*                  $17,742,813         $  7,466,875        $       -         $10,275,938          - 

       Premiums and Policy Charges:

       Group Medical                             $   404,600          $     7,484        $    7,795         $  404,911        1.9%
       Senior Health                                 228,388                9,682             2,334            221,040        1.1 
       Life Insurance                                106,774               49,027             3,345             61,092        5.5 
       Medical Utilization 
         Management                                        -                    -                 -                  -            
                                                 $   739,762          $    66,193        $   13,474         $  687,043


    Year Ended December 31, 1994:
       Life insurance in force*                  $12,581,797          $ 3,801,387        $       -          $8,780,410          - 

       Premiums and Policy Charges:

       Group Medical                             $   435,166          $    19,121        $   15,786         $  431,831        3.6%
       Senior Health                                 227,349                    -                 -            227,349          - 
       Life Insurance                                 61,939               18,152             1,142             44,929        2.5 
       Medical Utilization
       Management                                          -                    -                 -                  -
                                                 $   724,454          $    37,273        $   16,928         $  704,109


    Year Ended December 31, 1993:
       Life insurance in force*                  $11,823,127          $ 3,859,945        $       -          $7,963,182          - 

       Premiums and Policy Charges:

       Group Medical                             $   362,888          $    24,154        $   19,050         $  357,784        5.3%
       Senior Health                                 243,899                    -                 -            243,899          - 
       Life Insurance                                 55,433               16,438               288             39,283         .7 
       Medical Utilization
         Management                                        -                    -                 -                  -
                                                 $   662,220          $    40,592        $   19,338         $  640,966



    *At end of year
   </TABLE>

                                    SCHEDULE V

                 PIONEER FINANCIAL SERVICES, INC. AND SUBSIDIARIES

                         VALUATION AND QUALIFYING ACCOUNTS

                                  (In thousands)

   <TABLE>
   <CAPTION>
                                                         Deductions-
                                                          Doubtful
                                                          Accounts
                                                           Written
                                  Balance at  Additions- off During  Balance
                                   Beginning  Charged to  the Year    at End
                                   of Year     Expense   /Disposals  of Year 
   Description

   <S>                              <C>        <C>        <C>       <C>     
   Year Ended December 31, 1995:
    Allowance for doubtful accounts $   895    $ 1,452    $   799   $  1,548
    Accumulated depreciation on
      building and equipment         19,325      5,172      1,127     23,370

   Year Ended December 31, 1994:
    Allowance for doubtful accounts   1,271      2,425      2,801        895
    Accumulated depreciation on
      building and equipment         16,891      5,532      3,098     19,325

   Year Ended December 31, 1993:
    Allowance for doubtful accounts   1,504      1,171      1,404      1,271
    Accumulated depreciation on
      building and equipment         11,646      5,515        270     16,891

   </TABLE>

   Pursuant to the requirements of Section 13 or 15(d) of the Securities
   Exchange Act of 1934, the registrant has duly caused this report to be signed
   on its behalf by the undersigned, thereunto duly authorized.


                                          PIONEER FINANCIAL SERVICES, INC.

                                          BY:  /S/  Peter W. Nauert

                                          Peter W. Nauert, Chairman/Chief
                                          Executive Officer


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

   Date:   March 8, 1996

   /S/  Peter W. Nauert                   /S/  Michael A. Cavataio
   Peter W. Nauert, Chairman,             Michael A. Cavataio
   Chief Executive Officer, and           Director and Vice Chairman
   Director


   /S/  William B. Van Vleet              /S/  R. Richard Bastian, III
   William B. Van Vleet, Director         R. Richard Bastian, III
                                          Director


   /S/  David I. Vickers                  /S/  Karl-Heinz Klaeser
   David I. Vickers, Treasurer            Karl-Heinz Klaeser
   and Chief Financial Officer            Director


   /S/  Robert F. Nauert                  /S/  Richard R. Haldeman
   Robert F. Nauert                       Richard R. Haldeman
   Director                               Director


   /S/  Charles R. Scheper                /S/  Michael K. Keefe  
   Charles R. Scheper                     Michael K. Keefe  
   President - Life Division              Director
   and Director


   /S/  Thomas J. Brophy                  /S/  Carl A. Hulbert
   Thomas J. Brophy                       Carl A. Hulbert
   President - Health Division            Director
   and Director