<PAGE>

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

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                    FORM 10-Q

(MARK ONE)
  [X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005

                                       OR

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

                     FOR THE TRANSITION PERIOD FROM        TO

                           COMMISSION FILE NO. 0-11321
                      ------------------------------------

                       UNIVERSAL AMERICAN FINANCIAL CORP.
             (Exact name of registrant as specified in its charter)

           NEW YORK                                       11-2580136
(State or other jurisdiction of                (IRS Employer Identification No.)
incorporation or organization)

   SIX INTERNATIONAL DRIVE, SUITE 190
           RYE BROOK, NEW YORK                              10573
(Address of principal executive offices)                  (Zip code)

                                 (914) 934-5200
              (Registrant's telephone number, including area code)
              ----------------------------------------------------

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

      Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]

      The number of shares of the registrant's common stock, par value $0.01 per
share, outstanding as of April 30, 2005 was 55,735,038.

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

<PAGE>

                       UNIVERSAL AMERICAN FINANCIAL CORP.
                                    FORM 10-Q

                                    CONTENTS

<TABLE>
<CAPTION>
                                                                                                  Page No.
<S>                                                                                               <C>
PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements (unaudited)

         Consolidated Balance Sheets                                                                 4
         Consolidated Statements of Operations - Three Months                                        5
         Consolidated Statements of Stockholders' Equity and Comprehensive Income                    6
         Consolidated Statements of Cash Flows                                                       7
         Notes to Consolidated Financial Statements                                                  8

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations      19

Item 3.  Quantitative and Qualitative Disclosure of Market Risk                                     37

Item 4.  Controls and Procedures                                                                    39


PART II - OTHER INFORMATION

Item 1.  Legal Proceedings                                                                          40

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds                                40

Item 3.  Defaults Upon Senior Securities                                                            40

Item 4.  Submission of Matters to a Vote of Security Holders                                        40

Item 5.  Other Information                                                                          40

Item 6.  Exhibits                                                                                   40

Signatures                                                                                          42
</TABLE>

                                       2

<PAGE>

      As used in this Quarterly Report on Form 10-Q, "Universal American," "we,"
"our," and "us" refer to Universal American Financial Corp. and its
subsidiaries, except where the context otherwise requires or as otherwise
indicated.

                 DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS

      Portions of the information in this Quarterly Report on Form 10-Q and
certain oral statements made from time to time by representatives of the Company
may be considered "forward-looking statements" within the meaning of Section 21E
of the Securities Exchange Act of 1934, as amended, and the Private Securities
Litigation Reform Act of 1995. The Company intends such forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements contained in Section 21E of the Exchange Act and the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements relate
to, without limitation, the Company's future economic performance, plans and
objectives for future operations and projections of revenue and other financial
items. Forward-looking statements can be identified by the use of words such as
"prospects," "outlook," "believes," "estimates," "intends," "may," "will,"
"should," "anticipates," "expects" or "plans," or the negative or other
variation of these or similar words, or by discussion of trends and conditions,
strategy or risks and uncertainties. Forward-looking statements are inherently
subject to risks, trends and uncertainties, many of which are beyond the
Company's ability to control or predict with accuracy and some of which the
Company might not even anticipate. Although the Company believes that the
expectations reflected in such forward-looking statements are based upon
reasonable assumptions at the time made, it can give no assurance that its
expectations will be achieved. Future events and actual results, financial and
otherwise, may differ materially from the results discussed in the
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements.

      Important factors that may cause actual results to differ materially from
forward-looking statements include, but are not limited to, the risks and
uncertainties set forth in this report in Item 2 "Management's Discussion and
Analysis of Financial Condition and Results of Operations", as well as those
other risks detailed in our filings with the SEC, including our Annual Reports
on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
The Company assumes no obligation to update and supplement any forward-looking
statements that may become untrue because of subsequent events, whether as a
result of new information, future events or otherwise.

                                       3

<PAGE>

                          PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED).

                       UNIVERSAL AMERICAN FINANCIAL CORP.
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                     March 31,           December 31,
                                                                                       2005                  2004
                                                                                   ------------          ------------
                                                                                    (Unaudited)
                                                                                             (In thousands)
<S>                                                                                <C>                   <C>
ASSETS

Investments (Notes 2 and 6):
  Fixed maturities available for sale, at fair value
    (amortized cost: 2005, $1,170,374; 2004, $1,109,678)                           $  1,214,601          $  1,170,822
  Equity securities, at fair value (cost: 2005, $748; 2004, $749)                           755                   755
  Policy loans                                                                           24,208                24,318
  Other invested assets                                                                   1,196                 1,187
                                                                                   ------------          ------------
    Total investments                                                                 1,240,760             1,197,082

Cash and cash equivalents                                                               141,546               181,257
Accrued investment income                                                                13,603                13,151
Deferred policy acquisition costs                                                       227,516               208,281
Amounts due from reinsurers                                                             213,924               212,501
Due and unpaid premiums                                                                   7,914                 6,474
Present value of future profits and other amortizing intangible assets                   59,126                60,804
Goodwill and other indefinite lived intangible assets (Note 4)                           75,180                75,180
Income taxes receivable                                                                     586                   865
Other assets                                                                             67,353                61,493
                                                                                   ------------          ------------
    Total assets                                                                   $  2,047,508          $  2,017,088
                                                                                   ============          ============

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
Policyholder account balances                                                      $    487,214          $    478,373
Reserves for future policy benefits                                                     762,086               762,563
Policy and contract claims - life                                                        12,742                10,802
Policy and contract claims - health                                                     100,383                91,288
Loan payable (Note 9)                                                                    99,750               101,063
Other long term debt (Note 10)                                                           75,000                75,000
Amounts due to reinsurers                                                                 4,934                 6,023
Deferred income tax liability                                                             6,861                 5,206
Other liabilities                                                                        66,656                67,349
                                                                                   ------------          ------------
    Total liabilities                                                                 1,615,626             1,597,667
                                                                                   ------------          ------------

STOCKHOLDERS' EQUITY (Note 8)
Common stock (Authorized: 100 million shares, issued:
  2005, 55.8 million shares; 2004, 55.3 million shares)                                     558                   553
Additional paid-in capital                                                              176,650               172,525
Accumulated other comprehensive income                                                   32,670                40,983
Retained earnings                                                                       222,401               206,329
Less:  Treasury stock (2005, 0.1 million shares; 2004, 0.1 million shares)                 (397)                 (969)
                                                                                   ------------          ------------
    Total stockholders' equity                                                          431,882               419,421
                                                                                   ------------          ------------
    Total liabilities and stockholders' equity                                     $  2,047,508          $  2,017,088
                                                                                   ============          ============
</TABLE>

            See notes to unaudited consolidated financial statements.

                                       4

<PAGE>

             UNIVERSAL AMERICAN FINANCIAL CORP. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,                                             2005                       2004
--------------------------------------------------                   -------------             --------------
                                                                     (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                                  <C>                       <C>
Revenues:
   Direct premiums and policyholder fees earned                      $     253,344             $     190,306
   Reinsurance premiums assumed                                              9,069                     9,533
   Reinsurance premiums ceded                                              (60,145)                  (63,987)
                                                                     -------------             -------------
         Net premiums and policyholder fees earned                         202,268                   135,852

   Net investment income                                                    16,681                    16,078
   Realized gains on investments                                             1,073                     3,591
   Fee and other income                                                      4,180                     3,135
                                                                     -------------             -------------
         Total revenues                                                    224,202                   158,656
                                                                     -------------             -------------

Benefits, claims and expenses:
   Net change in future policy benefits                                      5,781                     8,135
   Net claims and other benefits                                           137,656                    86,471
   Interest credited to policyholders                                        4,545                     4,220
   Net increase in deferred acquisition costs                              (15,687)                  (16,321)
   Amortization of present value of future profits                           1,678                       923
   Commissions                                                              38,195                    35,083
   Commission and expense allowances on reinsurance                        (14,408)                  (12,349)
   Interest expense                                                          2,511                     1,523
   Other operating costs and expenses                                       39,274                    29,786
                                                                     -------------             -------------
         Total benefits, claims and expenses                               199,545                   137,471
                                                                     -------------             -------------

Income before taxes                                                         24,657                    21,185
Income tax expense                                                           8,585                     7,309
                                                                     -------------             -------------
Net income                                                           $      16,072             $      13,876
                                                                     -------------             -------------

Earnings per common share:
   Basic                                                             $        0.29             $        0.26
                                                                     =============             =============
   Diluted                                                           $        0.28             $        0.25
                                                                     =============             =============
</TABLE>

            See notes to unaudited consolidated financial statements.

                                       5
<PAGE>

                       UNIVERSAL AMERICAN FINANCIAL CORP.
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                            AND COMPREHENSIVE INCOME
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                               ACCUMULATED
                                                 ADDITIONAL       OTHER
                                     COMMON       PAID-IN     COMPREHENSIVE     RETAINED      TREASURY
   THREE MONTHS ENDED MARCH 31,       STOCK       CAPITAL     INCOME (LOSS)     EARNINGS       STOCK        TOTAL
   ----------------------------     ---------   -----------  --------------    -----------   ---------   ------------
                                                                     (In thousands)
<S>                                 <C>         <C>          <C>               <C>           <C>         <C>
            2004
Balance, January 1, 2004            $     541   $   164,355  $       39,774    $   142,458   $  (1,390)  $    345,738

Net income                                  -             -               -         13,876           -         13,876
Other comprehensive income
   (Note 7)                                 -             -           9,490              -           -          9,490

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

Comprehensive income                                                                                           23,366
                                                                                                         ------------

Issuance of common stock (Note 8)           3         1,348               -              -           -          1,351
Stock-based compensation                    -            14               -              -           -             14
Loans to officers                           -            25               -              -           -             25
Treasury shares purchased, at
   cost (Note 8)                            -             -               -              -        (248)          (248)
Treasury shares reissued (Note 8)           -            13               -              -          38             51
                                    ---------   -----------  --------------    -----------   ---------   ------------

Balance, March 31, 2004             $     544   $   165,755  $       49,264    $   156,334   $  (1,600)  $    370,297
                                    =========   ===========  ==============    ===========   =========   ============
            2005
Balance, January 1, 2005            $     553   $   172,525  $       40,983    $   206,329   $    (969)  $    419,421

Net income                                  -             -               -         16,072           -         16,072
Other comprehensive loss
   (Note 7)                                 -             -          (8,313)             -           -         (8,313)
                                                                                                         ------------

Comprehensive income                                                                                            7,759
                                                                                                         ------------
Issuance of common stock (Note 8)           5         3,156               -              -           -          3,161
Stock-based compensation                    -           356               -              -           -            356
Loans to officers                                        20               -              -           -             20
Treasury shares purchased, at
   cost (Note 8)                            -             -               -              -         (11)           (11)
Treasury shares reissued (Note 8)           -           593               -              -         583          1,176
                                    ---------   -----------  --------------    -----------   ---------   ------------

Balance, March 31, 2005             $     558   $   176,650  $       32,670    $   222,401   $    (397)  $    431,882
                                    =========   ===========  ==============    ===========   =========   ============
</TABLE>

            See notes to unaudited consolidated financial statements.

                                        6

<PAGE>

               UNIVERSAL AMERICAN FINANCIAL CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,                                                            2005             2004
----------------------------                                                         -----------     -----------
                                                                                           (In thousands)
<S>                                                                                  <C>             <C>
Cash flows from operating activities:
Net income                                                                           $    16,072     $    13,876
Adjustments to reconcile net income to net cash provided by operating activities,
  net of balances acquired (see Note 3 - Business Combinations):
  Deferred income taxes                                                                    6,128           6,213
  Change in reserves for future policy benefits                                              540           7,749
  Change in policy and contract claims                                                    11,035          (2,902)
  Change in deferred policy acquisition costs                                            (15,687)        (16,321)
  Amortization of present value of future profits and other intangibles                    1,678             923
  Net accretion of bond discount                                                            (988)           (862)
  Amortization of capitalized loan origination fees                                          960             123
  Change in policy loans                                                                     110             111
  Change in accrued investment income                                                       (451)            759
  Change in reinsurance balances                                                          (2,260)         (3,101)
  Realized gains on investments                                                           (1,073)         (3,591)
  Change in income taxes payable                                                           1,287         (11,489)
  Other, net                                                                              (5,983)         (3,468)
                                                                                     -----------     -----------
Net cash provided (used) by operating activities                                          11,368         (11,980)
                                                                                     -----------     -----------

Cash flows from investing activities:
  Proceeds from sale or redemption of fixed maturities                                    86,694         109,723
  Cost of fixed maturities purchased                                                    (146,420)       (139,078)
  Other investing activities                                                                (902)         (2,160)
                                                                                     -----------     -----------
Net cash used by investing activities                                                    (60,628)        (31,515)
                                                                                     -----------     -----------

Cash flows from financing activities:
  Net proceeds from issuance of common stock                                               2,173           1,376
  Cost of treasury stock purchases                                                           (11)           (248)
  Change in policyholder account balances                                                  8,842          23,790
  Change in reinsurance on policyholder account balances                                    (142)            (92)
  Principal repayment on loan payable                                                     (1,313)         (1,766)
                                                                                     -----------     -----------
Net cash provided by financing activities                                                  9,549          23,060
                                                                                     -----------     -----------

Net decrease in cash and cash equivalents                                                (39,711)        (20,435)

Cash and cash equivalents at beginning of period                                         181,257         116,524
                                                                                     -----------     -----------
Cash and cash equivalents at end of period                                           $   141,546     $    96,089
                                                                                     ===========     ===========
Supplemental cash flow information:
  Cash paid during the period for interest                                           $     2,506     $     1,529
                                                                                     ===========     ===========
  Cash paid during the period for income taxes                                       $     1,207     $    13,035
                                                                                     ===========     ===========
</TABLE>

            See notes to unaudited consolidated financial statements.

                                        7
<PAGE>

               UNIVERSAL AMERICAN FINANCIAL CORP. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.    BASIS OF PRESENTATION

      Basis of Presentation

      Universal American Financial Corp. (the "Company" or "Universal American")
is a specialty health and life insurance holding company with an emphasis on
providing a broad array of health insurance and managed care products and
services to the growing senior population. Collectively, the insurance company
subsidiaries are licensed to sell life and accident & health insurance and
annuities in all fifty states, the District of Columbia, Puerto Rico and all the
provinces of Canada. The principal insurance products currently sold by the
Company are Medicare Supplement and Select, fixed benefit accident and sickness
disability insurance, senior life insurance and fixed annuities. The Company
distributes these products through an independent general agency system and a
career agency system. The career agents focus on sales for Pennsylvania Life,
Pyramid Life and Penncorp Life (Canada) while the independent general agents
sell for American Pioneer, American Progressive, Constitution and Union Bankers.
Heritage operates Medicare Advantage plans in Houston and Beaumont Texas, and
our Medicare Advantage private fee-for-service plan in the northeastern portion
of the United States. CHCS, the Company's administrative services company, acts
as a service provider for both affiliated and unaffiliated insurance companies
for senior market insurance and non-insurance programs.

      The interim financial information herein is unaudited, but in the opinion
of management, includes all adjustments (consisting of normal, recurring
adjustments) necessary to present fairly the financial position and results of
operations for such periods. The results of operations for the three months
ended March 31, 2005 and 2004 are not necessarily indicative of the results to
be expected for the full year. The accompanying consolidated financial
statements and notes should be read in conjunction with the Company's Annual
Report on Form 10-K for the year ended December 31, 2004.

      Certain reclassifications have been made to prior year's financial
statements to conform to current period classifications.

      Consolidation

      The consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States ("GAAP") and
consolidate the accounts of Universal American Financial Corp. ("Universal
American") and its subsidiaries (collectively the "Company"), American
Progressive Life & Health Insurance Company of New York ("American
Progressive"), American Pioneer Life Insurance Company ("American Pioneer"),
American Exchange Life Insurance Company ("American Exchange"), SelectCare of
Oklahoma, Inc. (formerly Eagle Life Insurance Company), Pennsylvania Life
Insurance Company ("Pennsylvania Life"), Peninsular Life Insurance Company
("Peninsular"), Union Bankers Insurance Company ("Union Bankers"), Constitution
Life Insurance Company ("Constitution"), Marquette National Life Insurance
Company ("Marquette"), Penncorp Life Insurance Company, a Canadian company
("Penncorp Life (Canada)"), The Pyramid Life Insurance Company ("Pyramid Life"),
Heritage Health Systems, Inc., including SelectCare of Texas, L.L.C.
(collectively "Heritage") and CHCS Services, Inc. ("CHCS"). Heritage was
acquired on May 28, 2004. Operating results for Heritage prior to the date of
its acquisition are not included in Universal American's consolidated results of
operations. All material intercompany transactions and balances between
Universal American and its subsidiaries have been eliminated.

                                       8

<PAGE>

      Use of Estimates

      The preparation of our financial statements in conformity with GAAP
requires us to make estimates and assumptions that affect the amounts of assets
and liabilities and disclosures of assets and liabilities reported by us at the
date of the financial statements and the revenues and expenses reported during
the reporting period. As additional information becomes available or actual
amounts become determinable, the recorded estimates may be revised and reflected
in operating results. Actual results could differ from those estimates. In our
judgment, the accounts involving estimates and assumptions that are most
critical to the preparation of our financial statements are future policy
benefits and claim liabilities, deferred policy acquisition costs, goodwill,
present value of future profits and other intangibles, the valuation of certain
investments and income taxes. There have been no changes in our critical
accounting policies during the current year.

      Significant Accounting Policies

      For a description of significant accounting policies, see Note 2 - -
Summary of Significant Accounting Policies in the notes to the Consolidated
Financial Statements included in the Company's Annual Report on Form 10-K.

2.    RECENT AND PENDING ACCOUNTING PRONOUNCEMENTS

      Adoption of New Accounting Standards

      The Company has various stock-based incentive plans for its employees,
non-employee directors and its agents. Detailed information for activity in the
Company's stock plans can be found in Note 9 - - Stock-Based Compensation, to
consolidated financial statements in the Company's Annual Report of Form 10-K.
As permitted by SFAS 123, the Company measured its stock-based compensation for
employees and directors using the intrinsic value approach under APB 25.
Accordingly, the Company did not recognize compensation expense upon the
issuance of its stock options because the option terms were fixed and the
exercise price equaled the market price of the underlying common stock on the
grant date. The Company complied with the provisions of SFAS 123 by providing
pro forma disclosures of net income and related per share data giving
consideration to the fair value method provisions of SFAS 123. The Company uses
a modified Black-Scholes option pricing model to estimate fair value. For
purposes of pro forma disclosures, the estimated fair value of the options is
amortized to expense over the options' vesting period. The following table
illustrates the effect on net income and earnings per share if the fair value
based method had been applied during each period presented.

<TABLE>
<CAPTION>
                                                Three months ended March 31,
                                                   2005             2004
                                                ----------       ----------
                                                      (In thousands)
<S>                                             <C>              <C>
Reported net income                             $   16,072       $   13,876
Add back: Stock-based compensation
  expense included in reported net income,
  net of tax                                           281               14
Less: Stock based compensation expense
  determined under fair value based
  method for all awards, net of tax                   (614)            (204)
                                                ----------       ----------
Pro forma net income                            $   15,739       $   13,686
                                                ==========       ==========

Net income per share:
  Basic, as reported                            $     0.29       $     0.26
  Basic, pro forma                              $     0.28       $     0.25

  Diluted, as reported                          $     0.28       $     0.25
  Diluted, pro forma                            $     0.27       $     0.24
</TABLE>

      Pro forma compensation expense reflected for prior periods is not
indicative of future compensation expense that would be recorded by the Company
if it were to adopt the fair value based recognition provisions of SFAS 123 for
stock based compensation for its employees and directors. Future expense may
vary based upon factors such as the number of awards granted by the Company and
the then-current fair market value of such awards.

                                       9

<PAGE>

      Pending Accounting Standards

      In December 2004, the FASB issued SFAS No. 123 (revised 2004),
"Share-Based Payment" ("SFAS 123R"), which replaces SFAS 123 and supersedes APB
Opinion No. 25, "Accounting for Stock Issued to Employees". SFAS 123R requires
all companies to recognize compensation costs for share-based payments to
employees based on the grant-date fair value of the award for financial
statements for annual periods beginning after June 15, 2005. The pro forma
disclosures previously permitted under SFAS 123 will no longer be an alternative
to financial statement recognition.

      As permitted by SFAS 123, the Company currently accounts for share-based
payments to employees using Opinion 25's intrinsic value method and, as such,
generally recognizes no compensation cost for employee stock options.
Accordingly, the adoption of SFAS 123(R)'s fair value method will have a
significant impact on our result of operations, although it will have no impact
on our overall financial position. The impact of adoption of SFAS 123(R) cannot
be predicted at this time because it will depend on levels of share-based
payments granted in the future. However, had we adopted SFAS 123(R) in prior
periods, the impact of that standard would have approximated the impact of SFAS
123 as described in the above disclosure of pro forma net income and earnings
per share. SFAS 123(R) also requires the benefits of tax deductions in excess of
recognized compensation cost to be reported as a financing cash flow, rather
than as an operating cash flow as required under current literature. This
requirement will reduce net operating cash flows and increase net financing cash
flows in periods after adoption. While the company cannot estimate what those
amounts will be in the future (because they depend on, among other things, when
employees exercise stock options), the amount of operating cash flows recognized
in prior periods for such excess tax deductions were $1.0 million for the three
months ended March 31, 2005. There were no operating cash flows recognized for
such excess tax deductions for the three months ended March 31, 2004.

3.    BUSINESS COMBINATIONS

      Acquisition of Heritage Health Systems, Inc.

      On May 28, 2004, the Company acquired 100% of the outstanding common stock
of Heritage, a privately owned managed care company that operates Medicare
Advantage plans in Houston and Beaumont Texas, for $98 million in cash plus
transaction costs of $1.6 million. Heritage generates its revenues and profits
from three sources. First, Heritage owns an interest in SelectCare of Texas,
L.L.C. ("SelectCare"), a health plan that offers health insurance coverage to
Medicare beneficiaries under a contract with CMS. Next, Heritage operates three
separate Management Service Organizations ("MSO's") that manage the business of
SelectCare and two affiliated Independent Physician Associations ("IPA's").
Last, Heritage participates in the net results derived by these IPA's. The
acquisition was financed with $66.5 million of net proceeds derived from the
amendment of the Company's credit facility (See Note 14 -- Loan Payable) and
$33.1 million of cash on hand. As of the date of acquisition, Heritage had
approximately 16,000 Medicare members and annualized revenues of approximately
$140 million. Operating results generated by Heritage prior to May 28, 2004, the
date of acquisition, are not included in the Company's consolidated financial
statements.

      On the acquisition date, the fair value of net tangible assets of Heritage
amounted to $23.2 million. The excess of the purchase price over the fair value
of net tangible assets acquired was $76.4 million. As of May 28, 2004, the
Company performed the initial allocation of the excess to identifiable
intangible assets. Based on this initial allocation, approximately $14.6 million
was assigned to amortizing intangible assets, including $12.1 million (net of
deferred income taxes of $6.5 million), which was assigned to the value of the
membership in force and determined to have a weighted average life of 6 years
and $2.2 million (net of deferred taxes of $1.2 million), which was assigned to
the value of the IPA's, and determined to have a weighted average lives of
between 6 and 13 years. Approximately $4.7 million was allocated to
non-amortizing intangible assets, including $4.0 million assigned to the value
of trademarks and $0.7 million assigned to the value of Heritage's licenses.
Each of these items was determined to have indefinite lives. The balance of
$57.1 million was assigned to goodwill.

                                      10

<PAGE>

      The consolidated pro forma results of operations, assuming that Heritage
was purchased on January 1, 2004 are as follows:

<TABLE>
<CAPTION>
                                   THREE MONTHS ENDED
                                       MARCH 31,
                                --------------------------
                                    2005           2004
                                ----------      ----------
                                  (In thousands, except
                                    per share amounts)
<S>                             <C>             <C>
Total revenue                   $  224,202      $  193,209
Income before taxes             $   24,657      $   24,343
Net income                      $   16,072      $   15,928

Earnings per common share:
    Basic                       $     0.29      $     0.29
    Diluted                     $     0.28      $     0.28
</TABLE>

      The pro forma results of operations reflect management's best estimate
based upon currently available information. The pro forma adjustments are
applied to the historical financial statements of Universal American and
Heritage to account for the acquisition of Heritage under the purchase method of
accounting. In accordance with SFAS No. 141, "Business Combinations", the total
purchase cost was allocated to the assets and liabilities of Heritage based on
their relative fair values. These allocations are subject to valuations as of
the date of the acquisition based upon appraisals and other information at that
time. Management has provided its best estimate of the fair values of assets and
liabilities for the purpose of this pro forma information. The pro forma
information presented above is for disclosure purposes only and is not
necessarily indicative of the results of operations that would have occurred if
the acquisition had been consummated on the dates assumed, nor is the pro forma
information intended to be indicative of Universal American's future results of
operations.

4.    INTANGIBLE ASSETS

      The following table shows the Company's acquired intangible assets that
continue to be subject to amortization and accumulated amortization expense.

<TABLE>
<CAPTION>
                                             March 31, 2005                December 31, 2004
                                       --------------------------      --------------------------
                                         Value        Accumulated       Value        Accumulated
                                       Assigned      Amortization      Assigned      Amortization
                                       --------      ------------      --------      ------------
                                                          (In thousands)
<S>                                    <C>           <C>               <C>           <C>
Senior Health Insurance:
  Present value of future
      profits ("PVFP")                 $ 18,472      $      4,154      $ 18,472      $      3,628
  Distribution Channel                   22,055             1,470        22,055             1,287
Life Insurance/Annuity -- PVFP            4,127             1,401         4,127             1,308
Senior Managed Care -- Medicare
  Advantage:
  PVFP                                   18,554             2,323        18,554             1,667
  Value of IPA's                          3,459               334         3,459               234
Senior Administrative Services
  PVFP                                    7,672             7,087         7,672             7,035
  Value of future override fees           1,796               240         1,796               172
                                       --------      ------------      --------      ------------
     Total                             $ 76,135      $     17,009      $ 76,135      $     15,331
                                       ========      ============      ========      ============
</TABLE>

      The following table shows the changes in the present value of future
profits and other amortizing intangible assets.

<TABLE>
<CAPTION>
                                     For the three months ended
                                             March 31,
                                     --------------------------
                                       2005             2004
                                     ---------       ----------
                                           (In thousands)
<S>                                  <C>             <C>
Balance, beginning of year           $  60,804       $   44,047
  Additions from acquisitions                               (24)
  Amortization, net of interest         (1,678)            (923)
                                     ---------       ----------
Balance, end of year                 $  59,126       $   43,100
                                     =========       ==========
</TABLE>

                                      11

<PAGE>

Estimated future net amortization expense (in thousands) is as follows:

<TABLE>
<C>                              <C>
2005 (remainder of year)        $  4,711
2006                               5,929
2007                               5,559
2008                               5,127
2009                               4,012
Thereafter                        33,788
                                --------
                                $ 59,126
                                ========
</TABLE>

      The carrying amounts of goodwill and intangible assets with indefinite
lives are shown below.

<TABLE>
<CAPTION>
                                              March 31,    December 31,
                                                2005           2004
                                              --------     ------------
                                                    (In thousands)
<S>                                           <C>          <C>
Senior Market Health Insurance                $  8,760     $      8,760
Senior Managed Care -- Medicare Advantage       62,063           62,063
Senior Administrative Services                   4,357            4,357
                                              --------     ------------
   Total                                      $ 75,180     $     75,180
                                              ========     ============
</TABLE>

5.    EARNINGS PER SHARE

      The reconciliation of the numerators and the denominators for the
computation of basic and diluted EPS is as follows:

<TABLE>
<CAPTION>
                                               For the three months ended March 31, 2005
                                               ------------------------------------------
                                                Income          Shares          Per Share
                                              (Numerator)    (Denominator)       Amount
                                              -----------    -------------      ---------
                                              (In thousands, per share amounts in dollars)
<S>                                            <C>            <C>               <C>
Weighted average common stock outstanding                       55,495
Less: Weighted average treasury shares                            (100)
                                                                ------

Basic earnings per share                       $  16,072        55,395          $    0.29
                                               =========        ======          =========

Effect of dilutive Securities                                    1,999
                                                                ------

Diluted EPS                                    $  16,072        57,394          $    0.28
                                               =========        ======          =========
</TABLE>

<TABLE>
<CAPTION>
                                               For the three months ended March 31, 2004
                                               ------------------------------------------
                                                Income          Shares          Per Share
                                              (Numerator)    (Denominator)        Amount
                                              -----------    -------------      ---------
                                              (In thousands, per share amounts in dollars)
<S>                                            <C>            <C>               <C>
Weighted average common stock outstanding                       54,269
Less: Weighted average treasury shares                            (207)
                                                                ------

Basic earnings per share                       $  13,876        54,062          $    0.26
                                               =========        ======          =========

Effect of dilutive Securities                                    2,086
                                                                ------

Diluted EPS                                    $  13,876        56,148          $    0.25
                                               =========        ======          =========
</TABLE>

                                       12
<PAGE>

6.    INVESTMENTS

      Fixed maturity securities are classified as investments available for sale
and are carried at fair value, with the unrealized gain or loss, net of tax and
other adjustments (deferred policy acquisition costs), included in accumulated
other comprehensive income.

      The amortized cost and fair value of fixed maturities are as follows:

<TABLE>
<CAPTION>
                                                                 March 31, 2005
                                      --------------------------------------------------------------------
                                                            Gross             Gross
                                        Amortized        Unrealized         Unrealized            Fair
Classification                            Cost              Gains             Losses              Value
--------------                        ------------      ------------       ------------       ------------
                                                                 (In thousands)
<S>                                   <C>               <C>                <C>                <C>
U.S. Treasury securities and
  obligations of U.S. government      $     98,723      $        406       $       (947)      $     98,182
Corporate debt securities                  498,949            19,926             (3,976)           514,899
Foreign debt securities (1)                214,536            26,552                (61)           241,027
Mortgage and asset-
  backed securities                        358,166             4,144             (1,817)           360,493
                                      ------------      ------------       ------------       ------------
                                      $  1,170,374      $     51,028       $     (6,801)      $  1,214,601
                                      ============      ============       ============       ============
</TABLE>

<TABLE>
<CAPTION>
                                                                 December 31, 2004
                                      --------------------------------------------------------------------
                                                            Gross             Gross
                                        Amortized        Unrealized         Unrealized            Fair
Classification                            Cost              Gains             Losses              Value
--------------                        ------------      ------------       ------------       ------------
                                                                 (In thousands)
<S>                                   <C>               <C>                <C>                <C>
U.S. Treasury securities and
  obligations of U.S. government      $     87,552      $        718       $       (327)      $     87,943
Corporate debt securities                  486,142            27,467             (1,830)           511,779
Foreign debt securities (1)                209,583            28,797                (33)           238,347
Mortgage and asset-
  backed securities                        326,401             6,879               (527)           332,753
                                      ------------      ------------       ------------       ------------
                                      $  1,109,678      $     63,861       $     (2,717)      $  1,170,822
                                      ============      ============       ============       ============
</TABLE>

(1) Primarily Canadian dollar denominated bonds owned by our Canadian insurance
subsidiary.

      The amortized cost and fair value of fixed maturities by contractual
maturity at March 31, 2005 are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
                                             AMORTIZED          FAIR
                                               COST             VALUE
                                            -----------      -----------
                                                   (In thousands)
<S>                                         <C>              <C>
Due in 1 year or less                       $    31,265      $    31,338
Due after 1 year through 5 years                202,637          209,830
Due after 5 years through 10 years              342,525          355,804
Due after 10 years                              238,909          260,253
Mortgage - and asset-backed securities          355,038          357,376
                                            -----------      -----------
                                            $ 1,170,374      $ 1,214,601
                                            ===========      ===========
</TABLE>

      The Company did not write down the value of any fixed maturity securities
during the three months ended March 31, 2005 or 2004.

                                       13
<PAGE>

7.    COMPREHENSIVE INCOME

      The components of other comprehensive income and the related tax effects
for each component are as follows:

<TABLE>
<CAPTION>
                                                         2005                                       2004
                                         ------------------------------------      -------------------------------------
                                         GROSS OF                     NET OF       GROSS OF
    THREE MONTHS ENDED MARCH  31,          TAX        TAX EFFECT       TAX           TAX        TAX EFFECT    NET OF TAX
    -----------------------------        --------     ----------     --------      --------     ----------    ----------
                                                                         (In thousands)
<S>                                      <C>          <C>            <C>           <C>          <C>           <C>
Net unrealized gain (loss) arising
   during the year (net of deferred
   acquisition cost adjustment)          $(12,146)     $ (4,251)     $ (7,895)     $ 19,020      $  6,657      $ 12,363
Less: Reclassification adjustment
   for gains included in net income        (1,073)         (376)         (697)       (3,591)       (1,257)       (2,334)
                                         --------      --------      --------      --------      --------      --------
Net unrealized gains (losses)             (13,219)       (4,627)       (8,592)       15,429         5,400        10,029

Cash flow hedge                               657           230           427          (269)          (94)         (175)
Currency translation adjustments             (227)          (79)         (148)         (560)         (196)         (364)
                                         --------      --------      --------      --------      --------      --------

Other comprehensive income (loss)        $(12,789)     $ (4,476)     $ (8,313)     $ 14,600      $  5,110      $  9,490
                                         ========      ========      ========      ========      ========      ========
</TABLE>

8.    STOCKHOLDERS' EQUITY

      Preferred Stock

      The Company has 2.0 million authorized shares of preferred stock with no
such shares issued or outstanding at March 31, 2005 or December 31, 2004.

      Common Stock

      The par value of common stock is $.01 per share with 100 million shares
authorized for issuance. Changes in the number of shares of common stock issued
were as follows:

<TABLE>
<CAPTION>
      THREE MONTHS ENDED MARCH 31,                  2005            2004
      ----------------------------               ----------      ----------
<S>                                              <C>             <C>
Common stock issued, beginning of year           55,326,092      54,111,923
Stock options exercised                             378,317         300,121
Agent stock award                                    60,002               -
Stock purchases pursuant to agents' stock
   purchase and deferred compensation plans           1,100           4,498
                                                 ----------      ----------
Common stock issued, end of period               55,765,511      54,416,542
                                                 ==========      ==========
</TABLE>

      Treasury Stock

      The Board of Directors has approved a plan for the Company to repurchase
up to 1.5 million shares of the Company's commons stock in the open market. The
primary purpose of the plan is to fund employee stock bonuses.

<TABLE>
<CAPTION>
                                                        2005                                      2004
                                        ------------------------------------      ------------------------------------
                                                                    WEIGHTED                                  WEIGHTED
                                                                    AVERAGE                                   AVERAGE
                                                                    COST PER                                  COST PER
FOR THE THREE MONTHS ENDED MARCH 31,    SHARES         AMOUNT        SHARE        SHARES         AMOUNT        SHARE
------------------------------------    -------    --------------   --------      -------    --------------   --------
                                                   (In thousands)                            (In thousands)
<S>                                     <C>        <C>              <C>           <C>        <C>              <C>
Treasury stock beginning of year        124,941       $    969       $ 7.75       192,863       $  1,390       $ 7.21
Shares repurchased                          750             11        15.11        24,161            248        10.26
Shares distributed in the form of
employee bonuses                        (74,771)          (583)       15.72        (5,219)           (38)        9.71
                                        -------       --------                    -------       --------
Treasury stock, end of period            50,920       $    397       $ 7.81       211,805       $  1,600       $ 7.55
                                        =======       ========                    =======       ========
</TABLE>

      Through March 31, 2005, the Company had repurchased 791,869 shares at an
aggregate cost of $4.4 million. As of March 31, 2005, 708,131 shares remained
available for repurchase under the program. Additional repurchases may be made
from time to time at prevailing prices, subject to restrictions on volume and
timing.

                                       14
<PAGE>

      Accumulated Other Comprehensive Income

      The components of accumulated other comprehensive income are as follows:

<TABLE>
<CAPTION>
                                                 March 31,      December 31,
                                                   2005             2004
                                                 ---------      ------------
<S>                                              <C>            <C>
Net unrealized appreciation
  on investments                                 $  44,234       $  61,150
Deferred acquisition cost adjustment                (4,079)         (7,776)
Foreign currency translation gains (losses)          8,618           8,845
Fair value of cash flow swap                         1,489             832
Deferred tax on the above                          (17,592)        (22,068)
                                                 ---------       ---------
     Accumulated other comprehensive income      $  32,670       $  40,983
                                                 =========       =========
</TABLE>

9.    LOAN PAYABLE

      Credit Facility, as Amended in May 2004

      In connection with the acquisition of Heritage on May 28, 2004 (see Note 3
- Business Combinations), the Company amended the Credit Agreement by increasing
the facility to $120 million from $80 million (the "Amended Credit Agreement"),
including an increase in the term loan portion to $105 million from $36.4
million (the balance outstanding at May 28, 2004) and maintaining the $15
million revolving loan facility. None of the revolving loan facility has been
drawn as of March 31, 2005. Under the Amended Credit Agreement, the spread over
LIBOR was reduced to 225 basis points. Effective April 1, 2005, the interest
rate on the term loan is 5.1%. Principal repayments are scheduled at $5.3
million per year over a five-year period with a final payment of $80.1 million
due upon maturity on March 31, 2009.

      The Company made regularly scheduled principal payments of $1.3 million
and paid $1.2 million in interest in connection with its credit facilities
during the three months ended March 31, 2005. During the three months ended
March 31, 2004, the Company made regularly scheduled principal payments of $1.8
million and paid $0.4 million in interest in connection with its credit
facilities.

      The following table shows the schedule of principal payments (in
thousands) remaining on the Amended Credit Agreement, with the final payment in
March 2009:

<TABLE>
<S>                                        <C>
2005(remainder of year)                    $   3,937
2006                                           5,250
2007                                           5,250
2008                                           5,250
2009                                          80,063
                                           ---------
                                           $  99,750
                                           =========
</TABLE>

10.   OTHER LONG TERM DEBT

      The Company has formed statutory business trusts, which exist for the
exclusive purpose of issuing trust preferred securities representing undivided
beneficial interests in the assets of the trust, investing the gross proceeds of
the trust preferred securities in junior subordinated deferrable interest
debentures of the Company and engaging in only those activities necessary or
incidental thereto. In accordance with the adoption of FIN 46R, the Company has
deconsolidated the trusts. Separate subsidiary trusts of the Company (the
"Trusts") have issued a combined $75.0 million in thirty year trust preferred
securities that mature in 2032 and 2033.

      The Company paid $1.3 million in interest in connection with the Junior
Subordinated Debt during the three months ended March 31, 2005 and paid $1.1
million during the three months ended March 31, 2004.

                                       15
<PAGE>

11.   DERIVATIVE INSTRUMENTS - CASH FLOW HEDGE

      Effective September 4, 2003, the Company entered into a swap agreement
whereby it pays a fixed rate of 6.7% on a $15.0 million notional amount relating
to the December 2002 trust preferred securities issuance, in exchange for a
floating rate of LIBOR plus 400 basis points, capped at 12.5%. The swap contract
expires in December 2007. Effective April 29, 2004, the Company entered into a
second swap agreement whereby it pays a fixed rate of 6.98% on a $20.0 million
notional amount relating to the October 2003 trust preferred securities
issuance, in exchange for a floating rate of LIBOR plus 395 basis points, capped
at 12.45%. The swap contract expires in October 2008. The swaps are designated
and qualify as cash flow hedges, and changes in their fair value are recorded in
accumulated other comprehensive income. The combined fair value of the swaps was
$1.5 million at March 31, 2005 and $0.8 million at December 31, 2004 and is
included in other assets.

12.   STATUTORY FINANCIAL DATA

      The insurance subsidiaries are required to maintain minimum amounts of
statutory capital and surplus as required by regulatory authorities. However,
substantially more than such minimum amounts are needed to meet statutory and
administrative requirements of adequate capital and surplus to support the
current level of our insurance subsidiaries' operations. Each of the life
insurance subsidiaries' statutory capital and surplus exceeds its respective
minimum statutory requirement at levels we believe are sufficient to support
their current levels of operation. Additionally, the National Association of
Insurance Commissioners ("NAIC") imposes regulatory risk-based capital ("RBC")
requirements on life insurance enterprises. At March 31, 2005, all of our life
insurance subsidiaries maintained ratios of total adjusted capital to RBC in
excess of the "authorized control level". The combined statutory capital and
surplus, including asset valuation reserve, of the U.S. life insurance
subsidiaries totaled $135.7 million at March 31, 2005 and $127.9 million at
December 31, 2004.

      SelectCare is also required to maintain minimum amounts of capital and
surplus, as required by regulatory authorities and is also subject to RBC
requirements. At March 31, 2005, SelectCare's statutory capital and surplus
exceeds its minimum requirement and its RBC is in excess of the "authorized
control level". The statutory capital and surplus for SelectCare was $12.1
million at March 31, 2005 and $9.6 million at December 31, 2004.

      Penncorp Life (Canada) reports to Canadian regulatory authorities based
upon Canadian statutory accounting principles that vary in some respects from
U.S. statutory accounting principles. Penncorp Life (Canada)'s net assets based
upon Canadian statutory accounting principles were C$59.3 million (US$49.0
million) as of March 31, 2005 and were C$57.4 million (US$47.8 million) as of
December 31, 2004. Penncorp Life (Canada) maintained a Minimum Continuing
Capital and Surplus Requirement Ratio ("MCCSR") in excess of the minimum
requirement at March 31, 2005.

13.   BUSINESS SEGMENT INFORMATION

      The Company's principal business segments are based on product and
include: Senior Market Health Insurance, Senior Managed Care - Medicare
Advantage, Specialty Health Insurance, Life Insurance/Annuities and Senior
Administrative Services. The Company also reports the activities of our holding
company in a separate segment. Prior to our Annual Report of Form 10-K for the
year ended December 31, 2004, the Company reported its segments based on
distribution channel. The Company's former Senior Market Brokerage and Career
Agency segments have been replaced with the three new segments: Senior Market
Health Insurance, Life Insurance/Annuity and Specialty Health Insurance. The
Senior Managed Care - Medicare Advantage and Administrative Services segments
will be unchanged. Management believes that this new segmentation will provide
even greater clarity to the results of the Company. Reclassifications have been
made to conform prior year amounts to the current year presentation. A
description of these segments follows:

SENIOR MARKET HEALTH INSURANCE -- This segment consists primarily of our
Medicare Supplement business and other senior market health products distributed
through our career agency sales force and through our network of independent
general agencies.

                                       16
<PAGE>

SENIOR MANAGED CARE - MEDICARE ADVANTAGE - The Senior Managed Care - Medicare
Advantage segment includes the operations of Heritage and our other initiatives
in managed care for seniors. Heritage operates Medicare Advantage plans in
Houston and Beaumont Texas, and our Medicare Advantage private fee-for-service
plans in New York and Pennsylvania. Heritage's Medicare Advantage plans are sold
by our career agency sales force and directly by employee representatives. Our
Medicare Advantage private fee-for-service plans are sold by independent agents.

SPECIALTY HEALTH INSURANCE -- The Specialty Health Insurance segment includes
specialty health insurance products, primarily fixed benefit accident and
sickness disability insurance sold to the middle income self-employed market in
the United States and Canada. This segment also includes certain products that
we no longer sell such as long term care and major medical. This segment's
products are distributed primarily by our career agents.

LIFE INSURANCE AND ANNUITY -- This segment includes all of the life insurance
and annuity business sold in the United States. This segment's products include
senior, traditional and universal life insurance and fixed annuities and are
distributed through both independent general agents and our career agency
distribution systems.

SENIOR ADMINISTRATIVE SERVICES -- Our senior administrative services subsidiary
acts as a third party administrator and service provider of senior market
insurance products and geriatric care management for both affiliated and
unaffiliated insurance companies. The services provided include policy
underwriting and issuance, telephone and face-to-face verification, policyholder
services, claims adjudication, case management, care assessment and referral to
health care facilities.

CORPORATE -- This segment reflects the activities of Universal American,
including debt service, certain senior executive compensation, and compliance
with requirements resulting from our status as a public company.

      Intersegment revenues and expenses are reported on a gross basis in each
of the operating segments but eliminated in the consolidated results. These
intersegment revenues and expenses affect the amounts reported on the individual
financial statement line items, but are eliminated in consolidation and do not
change income before taxes. The significant items eliminated include
intersegment revenue and expense relating to services performed by the Senior
Administrative Services segment for our other segments and interest on notes
payable or receivable between the Corporate segment and the other operating
segments.

      Financial data by segment, including a reconciliation of segment revenues
and segment income (loss) before income taxes to total revenue and net income in
accordance with generally accepted accounting principles is as follows:

<TABLE>
<CAPTION>
For the three months ended March 31,              2005                       2004
                                          --------------------       -------------------
                                          Segment     Segment        Segment     Segment
                                          Revenue      Income        Revenue      Income
                                          --------    --------       --------    -------
                                                          (In thousands)
<S>                                       <C>         <C>            <C>         <C>
Senior Market Health Insurance            $ 99,231    $  6,830       $ 88,325    $ 7,943
Senior Managed Care - Medicare Advantage    53,277       7,041              -          -
Specialty Health Insurance                  44,114       5,574         44,546      5,738
Life Insurance and Annuity                  22,833       4,040         19,493      3,244
Senior Administrative Services              14,908       3,615         13,972      3,154
Corporate                                       51      (3,516)            36     (2,485)
Intersegment revenues                      (11,268)          -        (11,067)         -
Adjustments to segment amounts:
   Net realized gains (losses)(1)            1,073       1,073          3,591      3,591
   Premium revenue adjustment(2)               (17)          -           (240)         -
                                          --------    --------       --------    -------
Total                                     $224,202    $ 24,657       $158,656    $21,185
                                          ========    ========       ========    =======
</TABLE>

(1)   We evaluate the results of operations of our segments based on income
      before realized gains and losses and income taxes. Management believes
      that realized gains and losses are not indicative of overall operating
      trends.

(2)   We evaluate the results of our insurance segments based on incurred
      premium net of the change in unearned premium. The change in unearned
      premium is reported as part of the net increase in future policy benefits
      in the consolidated statements of operations. Management believes that
      including the change in unearned premium in revenue provides more
      indicative trends for the purpose of evaluating loss ratios.

                                       17
<PAGE>

      Identifiable assets by segment are as follows:

<TABLE>
<CAPTION>
                                      March 31,           December 31,
                                        2005                  2004
                                    ------------          ------------
                                              (In thousands)
<S>                                 <C>                   <C>
Senior Market Health Insurance      $    392,317          $    385,487
Senior Managed Care - Medicare
   Advantage                             151,937               136,349
Specialty Health Insurance               734,591               732,680
Life Insurance and Annuity               732,905               723,343
Senior Administrative Services            18,986                19,401
Corporate                                618,489               608,722
Intersegment assets(1)                  (601,717)             (588,894)
                                    ------------          ------------
Total Assets                        $  2,047,508          $  2,017,088
                                    ============          ============
</TABLE>

(1)   Intersegment assets include the elimination of the parent holding
      company's investment in its subsidiaries as well as the elimination of
      other intercompany balances.

15.   FOREIGN OPERATIONS

      A portion of the Company's operations is conducted in Canada through
Penncorp Life (Canada). These assets and liabilities are located in Canada where
the insurance risks are written. Revenues, excluding capital gains and losses,
of the Company by geographic distribution by country are as follows:

<TABLE>
<CAPTION>
                   For the three months ended
                            March 31,
                       2005          2004
                   -----------  --------------
                                (In thousands)
<S>                <C>          <C>
 United States     $   204,674  $      137,645
 Canada                 18,455          17,302
                   -----------  --------------
   Total           $   223,129  $      154,947
                   ===========  ==============
</TABLE>

      Total assets and liabilities of Penncorp Life (Canada), located entirely
in Canada, are as follows:

<TABLE>
<CAPTION>
                March 31,    December 31,
                   2005          2004
               -----------   ------------
                    (In thousands)
<S>            <C>           <C>
Assets         $   239,550   $    233,741
               ===========   ============
Liabilities    $   191,545   $    188,125
               ===========   ============
</TABLE>

                                       18
<PAGE>

ITEM  2.- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS.

RESULTS OF OPERATIONS

INTRODUCTION

      The following discussion and analysis presents a review of the Company as
of March 31, 2005, and its results of operations for the three months ended
March 31, 2005. This Management's Discussion and Analysis of Financial Condition
and Results of Operation should be read in conjunction with the consolidated
financial statements as well as the Management's Discussion and Analysis of
Financial Condition and Results of Operation included in the Company's 2004
Annual Report on Form 10-K.

OVERVIEW

      Our principal business segments are based on product and include: Senior
Market Health Insurance, Senior Managed Care - Medicare Advantage, Specialty
Health Insurance, Life Insurance/Annuities and Senior Administrative Services.
We also report the activities of our holding company in a separate segment.
Previously, we reported our segments based on distribution channel. Our former
Senior Market Brokerage and Career Agency segments have been replaced with the
three new segments: Senior Market Health Insurance, Life Insurance/Annuity and
Specialty Health Insurance. Our Senior Managed Care - Medicare Advantage and
Senior Administrative Services segments are unchanged. We believe that this
new segmentation will provide even greater clarity to our results.
Reclassifications have been made to conform prior year amounts to the current
year presentation. See Note 13 - Business Segment Information in our
consolidated financial statements included in this Form 10-Q for a description
of our segments.

CRITICAL ACCOUNTING POLICIES

      Our consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States ("GAAP"). The
preparation of our financial statements in conformity with GAAP requires us to
make estimates and assumptions that affect the amounts of assets and liabilities
and disclosures of assets and liabilities reported by us at the date of the
financial statements and the revenues and expenses reported during the reporting
period. As additional information becomes available or actual amounts become
determinable, the recorded estimates may be revised and reflected in operating
results. Actual results could differ from those estimates. Accounts that, in our
judgment, are most critical to the preparation of our financial statements
include policy liabilities and accruals, deferred policy acquisition costs,
intangible assets, valuation of certain investments and deferred income taxes.
There have been no changes in our critical accounting policies during the
current quarter.

   POLICY RELATED LIABILITIES

      We calculate and maintain reserves for the estimated future payment of
claims to our policyholders using the same actuarial assumptions that we use in
the pricing of our products. For our accident and health insurance business, we
establish an active life reserve for expected future policy benefits, plus a
liability for due and unpaid claims, claims in the course of settlement and
incurred but not reported claims. Many factors can affect these reserves and
liabilities, such as economic and social conditions, inflation, hospital and
pharmaceutical costs, changes in doctrines of legal liability and extra
contractual damage awards. Therefore, the reserves and liabilities we establish
are based on extensive estimates, assumptions and prior years' statistics. When
we acquire other insurance companies or blocks of insurance, our assessment of
the adequacy of acquired policy liabilities is subject to similar estimates and
assumptions. Establishing reserves involves inherent uncertainties, and it is
possible that actual claims could materially exceed our reserves and have a
material adverse effect on our results of operations and financial condition.
Our net income depends significantly upon the extent to which our actual claims
experience is consistent with the assumptions we used in setting our reserves
and pricing our policies. If our assumptions with respect to future claims are
incorrect, and our reserves are

                                       19
<PAGE>

insufficient  to cover our actual losses and  expenses,  we would be required to
increase  our  liabilities  resulting  in reduced  net income and  shareholders'
equity.

      DEFERRED POLICY ACQUISITION COSTS

            The  cost  of  acquiring   new   business,   principally   non-level
commissions and agency production, underwriting, policy issuance, and associated
costs,  all of which vary with,  and are primarily  related to the production of
new and renewal business, are deferred. For interest-sensitive  life and annuity
products, these costs are amortized in relation to the present value of expected
gross profits on the policies arising principally from investment, mortality and
expense  margins in accordance  with SFAS No. 97,  "Accounting  and Reporting by
Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains
and Losses from the Sale of  Investments".  For other life and health  products,
these  costs are  amortized  in  proportion  to premium  revenue  using the same
assumptions  used in estimating the  liabilities  for future policy  benefits in
accordance   with  SFAS  No.  60,   "Accounting   and   Reporting  by  Insurance
Enterprises."

            The  determination of expected gross profits for  interest-sensitive
products is an inherently uncertain process that relies on assumptions including
projected  interest  rates,  the  persistency of the policies  issued as well as
anticipated  benefits,  commissions and expenses. It is possible that the actual
profits from the business may vary materially  from the assumptions  used in the
determination and amortization of deferred  acquisition  costs.  Deferred policy
acquisition  costs are  written  off to the extent  that it is  determined  that
future  policy  premiums and  investment  income or gross  profits  would not be
adequate to cover related losses and expenses.

      PRESENT VALUE OF FUTURE PROFITS AND OTHER INTANGIBLES

            Business  combinations  accounted  for as a  purchase  result in the
allocation  of the purchase  consideration  to the fair values of the assets and
liabilities   acquired,   including  the  present   value  of  future   profits,
establishing  such fair values as the new accounting basis. The present value of
future  profits  is  based  on an  estimate  of the  cash  flows of the in force
business acquired,  discounted to reflect the present value of those cash flows.
The discount rate  selected  depends upon the general  market  conditions at the
time of the  acquisition  and the  inherent  risk in the  transaction.  Purchase
consideration in excess of the fair value of net assets acquired,  including the
present value of future profits and other identified intangibles, for a specific
acquisition, is allocated to goodwill. Allocation of purchase price is performed
in the period in which the  purchase  is  consummated.  Adjustments,  if any, in
subsequent  periods relate to resolution of  pre-acquisition  contingencies  and
refinements  made to estimates of fair value in connection  with the preliminary
allocation.

            Amortization  of present  value of future  profits is based upon the
pattern of the  projected  cash flows of the in-force  business  acquired,  over
weighted  average  lives  ranging  from six to  forty  years.  Other  identified
intangibles are amortized over their estimated lives.

            On a periodic basis,  management reviews the unamortized balances of
present value of future profits,  goodwill and other  identified  intangibles to
determine  whether events or  circumstances  indicate the carrying value of such
assets  is not  recoverable,  in  which  case  an  impairment  charge  would  be
recognized.  Management  believes that no impairments of present value of future
profits, goodwill or other identified intangibles existed as of March 31, 2005.

      INVESTMENT VALUATION

            Fair value of investments is based upon quoted market prices,  where
available,  or on values obtained from independent pricing services. For certain
mortgage and asset-backed  securities,  the determination of fair value is based
primarily  upon the  amount  and  timing of  expected  future  cash flows of the
security.  Estimates  of these  cash  flows  are  based  upon  current  economic
conditions, past credit loss experience and other circumstances.

                                       20

<PAGE>
            We regularly evaluate the amortized cost of our investments compared
to the fair value of those investments. Impairments of securities generally are
recognized when a decline in fair value below the amortized cost basis is
considered to be other-than-temporary. Generally, we consider a decline in fair
value to be other-than-temporary when the fair value of an individual security
is below amortized cost for an extended period and we do not believe that
recovery in fair value is probable. Impairment losses for certain mortgage and
asset-backed securities are recognized when an adverse change in the amount or
timing of estimated cash flows occurs, unless the adverse change is solely a
result of changes in estimated market interest rates and we intend to hold the
security until maturity. The cost basis for securities determined to be impaired
are reduced to their fair value, with the excess of the cost basis over the fair
value recognized as a realized investment loss.

      INCOME TAXES

            We use the liability method to account for deferred income taxes.
Under the liability method, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date of a change
in tax rates.

            We establish valuation allowances on our deferred tax assets for
amounts that we determine will not be recoverable based upon our analysis of
projected taxable income and our ability to implement prudent and feasible tax
planning strategies. Increases in these valuation allowances are recognized as
deferred tax expense. Subsequent determinations that portions of the valuation
allowances are no longer necessary are reflected as deferred tax benefits. To
the extent that valuation allowances were established in conjunction with
acquisitions, changes in those allowances are first applied to increasing or
decreasing the goodwill (but not below zero) or other intangibles related to the
acquisition and then applied as an increase or decrease in income tax expense.

SIGNIFICANT TRANSACTIONS AND INITIATIVES

      MEDICARE PART D

            On March 23, 2005, we announced that we established a strategic
alliance with PharmaCare Management Services, Inc. ("PharmaCare"), a wholly
owned subsidiary of CVS Corporation, to offer Medicare Part D Prescription Drug
Benefit Plans ("PDPs"). Universal American's insurance subsidiaries have filed
applications with the Centers for Medicare and Medicaid Services ("CMS") to
become a PDP sponsor in all 34 CMS regions. PharmaCare, a leading pharmacy
benefit manager, will provide comprehensive pharmacy benefit management services
to the Universal American companies for this program, and the PDP sponsor will
cede premium to an affiliate of PharmaCare. The products will be sold by the
Universal American field force which consists of approximately 2,000 career
agents who work through the Universal American Senior Solutions(R) program, as
well as approximately 29,000 independent agents who specialize in the sale of
Medicare supplement products. As part of the strategic alliance, CVS will assist
in marketing the products through its 5,400 CVS/pharmacy stores, subject to the
CMS guidelines. We believe that this program has the potential to have
meaningful impact on our business. We estimate that during the remainder of
2005, we will expense between $4.0 million and $5.0 million of incremental out
of pocket costs relating to product development, systems development and
upgrades and marketing costs, before we receive any revenues from the program
starting in 2006.

            There are significant risks associated with our participation in the
Medicare Part D program. These include the following:

            -    Although CMS has released regulations on Part D, some important
                 requirements related to the implementation of the Part D
                 prescription drug benefit have not yet been released by the
                 federal government. This will create challenges for planning
                 and implementation of our Part D program, and there is no
                 assurance that Congress or CMS will not alter the program in a
                 manner that will be detrimental to us.

                                       21
<PAGE>


            -     We will incur  significant  expenditures of time and resources
                  in developing  this  program,  and we may need to divert human
                  resources from other areas of the Company. Although we believe
                  that we have the capability to meet our staffing needs, it is
                  possible that the  fulfillment of our  administrative  duties
                  in other areas may suffer.

            -     A PDP must submit  bids to CMS for  approval in each region in
                  which it intends to become a sponsor. While we will submit all
                  required  bids, we cannot assure you that all of our bids will
                  be accepted by CMS.

            -     We are  making  actuarial  assumptions  about  utilization  of
                  benefits in our PDP.  Since PDPs are a newly created  program,
                  there is no  historical  basis for these  assumptions,  and we
                  cannot  assure  you that  these  assumptions  will prove to be
                  correct  and  that   premiums  will  be  sufficient  to  cover
                  benefits.

            -     We cannot  assure you that the market  will accept and acquire
                  insurance from our PDPs, and therefore our  anticipated  sales
                  under,   and  revenues   derived  from,  the  program  may  be
                  significantly less than our current expectations.

      ACQUISITION OF HERITAGE HEALTH SYSTEMS, INC.

            On May 28, 2004,  we acquired  Heritage,  a privately  owned managed
care  company that  operates  Medicare  Advantage  plans in Houston and Beaumont
Texas,  for $98  million in cash plus  transaction  costs of $1.6  million.  The
acquisition  was financed  with $66.5  million of net proceeds  derived from the
amendment of our credit  facility and $33.1  million of cash on hand.  As of the
date of acquisition,  Heritage had  approximately  16,000  Medicare  members and
annualized  revenues of approximately $140 million.  Operating results generated
by  Heritage  prior  to  the  date  of  acquisition  are  not  included  in  our
consolidated financial statements.

RESULTS OF OPERATIONS -- CONSOLIDATED OVERVIEW

            The following  table  reflects  income from each of our segments (1)
and contains a reconciliation to reported net income:

<TABLE>
<CAPTION>
                                                                  FOR THE THREE MONTHS ENDED
                                                                          MARCH 31,
                                                                  --------------------------
                                                                    2005             2004
                                                                  ---------       ----------
                                                                        (IN THOUSANDS)
<S>                                                               <C>             <C>
Senior Market Health Insurance (1)...........................     $   6,830       $    7,943
Senior Managed Care - Medicare Advantage (1).................         7,041                -
Specialty Health Insurance (1)...............................         5,574            5,738
Life Insurance and Annuities (1).............................         4,040            3,244
Senior Administrative Services (1)...........................         3,615            3,154
Corporate (1)................................................        (3,516)          (2,485)
Realized gains...............................................         1,073            3,591
                                                                  ---------       ----------
Income before income taxes (1)...............................        24,657           21,185

Income taxes, excluding capital gains........................         8,209            6,052
Income taxes on capital gains................................           376            1,257
                                                                  ---------       ----------
   Total income taxes........................................         8,585            7,309
                                                                  ---------       ----------
      Net income.............................................     $  16,072       $   13,876
                                                                  =========       ==========
Per Share Data (Diluted):
      Net income.............................................     $    0.28       $     0.25
                                                                  =========       ==========
</TABLE>

---------------------------
(1)   We evaluate  the results of  operations  of our  segments  based on income
      before realized gains and income taxes.  Management believes that realized
      gains and losses are not  indicative  of overall  operating  trends.  This
      differs from generally accepted accounting principles,  which includes the
      effect of realized gains in the determination of net income.  The schedule
      above  reconciles  our  segment  income to net income in  accordance  with
      generally accepted accounting principles.

                                       22
<PAGE>

      Three months ended March 31, 2005 and 2004

            Net income  for the first  quarter  of 2005  increased  16% to $16.1
million,  or $0.28 per diluted share,  compared to $13.9  million,  or $0.25 per
diluted share in 2004. During the first quarter of 2005, we recognized  realized
gains,  net of tax, of $0.7  million,  or $0.01 per diluted  share,  compared to
realized gains, net of tax, of $2.3 million, or $0.04 per diluted share in 2004.
The realized  gains in the first quarter of 2004 were generated at Penncorp Life
(Canada)  as a  result  of the  sale of  investments  to fund  the  dividend  of
approximately  $19.6 million paid to the parent company during the first quarter
of 2004 and the tax payments  made during the first  quarter of 2004 relating to
2003 taxable income.  See "Liquidity and Capital  Resources -- -- Obligations of
the Parent  Company to  Affiliates"  for  additional  information  regarding the
dividend. Our overall effective tax rate was 34.8% for the first quarter of 2005
and 34.5% for the first quarter of 2004.

            Our Senior Market Health Insurance  segment generated segment income
of $6.8 million during the first quarter of 2005, a 14% decline compared to $7.9
million in 2004,  primarily  as a result of higher  claim costs in our  Medicare
supplement lines.

            Our Senior  Managed  Care -  Medicare  Advantage  segment  generated
segment  income of $7.0 million  during the first quarter of 2005.  This segment
includes the results of Heritage and our other  initiatives in Medicare  managed
care, including our Medicare Advantage private  fee-for-service plans, since our
acquisition or inception during the second quarter of 2004.

            Our Specialty Health Insurance  segment  generated segment income of
$5.6  million for the first  quarter of 2005,  compared to $5.7  million for the
first  quarter  of 2004,  primarily  as a  result  of the  strengthening  of the
Canadian dollar, offset by higher claim costs.

            Results for our Life  Insurance  and Annuities  segment  improved by
$0.8  million,  or 25%, to $4.0 million  compared to the first  quarter of 2004,
primarily as a result of an increase in business and lower claim costs.

            Our Senior  Administrative  Services segment income improved by $0.5
million,  or 15%,  compared to the first quarter of 2004.  This  improvement was
primarily a result of the growth in premiums managed.

            The loss from our Corporate  segment  increased by $1.0 million,  or
42%,  compared to the first three months of 2004. The increase was due to higher
interest  cost as a result of an increase in the amount of the debt  outstanding
during the year,  relating to the amendment of our credit facility in connection
with our  acquisition  of  Heritage,  and an  increase in the  weighted  average
interest rates, as compared to the first quarter of 2004.

                                       23
<PAGE>

SEGMENT RESULTS -- SENIOR MARKET HEALTH INSURANCE

<TABLE>
<CAPTION>
                                                            FOR THE THREE MONTHS ENDED
                                                                     MARCH 31,
                                                           -----------------------------
                                                              2005               2004
                                                           ---------           ---------
                                                                   (IN THOUSANDS)
<S>                                                        <C>                 <C>
PREMIUMS :

   Direct and assumed ................................     $ 148,454           $ 145,029
   Ceded .............................................       (50,592)            (57,778)
                                                           ---------           ---------
      Net premiums ...................................        97,862              87,251
Net investment income ................................         1,215               1,025
Other income..........................................           154                  49
                                                           ---------           ---------
      Total revenue ..................................        99,231              88,325
                                                           ---------           ---------

Policyholder benefits ................................        71,269              62,300
Change in deferred acquisition costs .................        (8,618)             (8,684)
Amortization of intangible assets ....................           540                 554
Commissions and general expenses, net of
   allowances.........................................        29,210              26,212
                                                           ---------           ---------
      Total benefits, claims and other deductions.....        92,401              80,382
                                                           ---------           ---------

Segment income........................................     $   6,830           $   7,943
                                                           =========           =========
</TABLE>

      Three months ended March 31, 2005 and 2004

            Our Senior Market Health Insurance segment generated segment income
of $6.8 million during the first quarter of 2005, a 14% decline compared to $7.9
million in 2004, primarily as a result of higher claim costs in our Medicare
supplement lines.

            REVENUES. Net premiums for the Senior Market Health Insurance
segment increased by $10.6 million, or 12%, compared to the first quarter of
2004, due to rate increases, new sales and increased retention of the Medicare
supplement business.

            Net investment income increased by approximately $0.2 million, or
19%, compared to the first quarter of 2004, due primarily to growth in invested
assets as a result of growth of our business in force.

            BENEFITS, CLAIMS AND EXPENSES. Policyholder benefits incurred
increased by $9.0 million, or 14%, compared to the first quarter of 2004, as a
result of the increase in net premiums and an increase in loss ratios. Overall
loss ratios for the segment increased 140 basis points to 72.8% for the first
quarter of 2005 compared to 71.4% for the first quarter of 2004. The change in
deferred acquisition costs was $8.6 million for the first quarter of 2005,
consistent with the change in the first quarter of 2004. The amortization of
intangibles relates to intangibles recorded from the acquisition of Pyramid
Life.

            Commissions and general expenses increased by $3.0 million, or 11%,
compared to the first quarter of 2004, consistent with the increase in premiums.
The following table details the components of commission and other operating
expenses:

<TABLE>
<CAPTION>
                                                                                  2005                  2004
                                                                              ------------          ------------
                                                                                        (IN THOUSANDS)
<S>                                                                           <C>                   <C>
Commissions...........................................................        $     20,812          $     21,288
Other operating costs.................................................              18,477                17,953
Reinsurance allowances................................................             (10,079)              (13,029)
                                                                              ------------          ------------
Commissions and general expenses, net of allowances...................        $     29,210          $     26,212
                                                                              ============          ============
</TABLE>

            The ratio of commissions to gross premiums decreased to 14.0% for
the first quarter of 2005, from 14.7% for the first quarter of 2004, as a result
of lower commission rates associated with the continued growth of our in force
renewal premium, including the effects of better persistency and rate increases.
Other operating costs as a percentage of gross premiums was 12.4% for the first
quarter of 2005, consistent with the first quarter of 2004. Commission and
expense allowances received from reinsurers as a percentage of the premiums
ceded also decreased to 19.9% for the first quarter of 2005 from 22.6% for the
first quarter of 2004, primarily due to the reduction in new business ceded and
the effects of normal lower commission allowances on our aging base of ceded
renewal business.

                                       24
<PAGE>

SEGMENT RESULTS -- SENIOR MANAGED CARE - MEDICARE ADVANTAGE

<TABLE>
<CAPTION>
                                                           FOR THE THREE MONTHS ENDED
                                                                   MARCH 31,
                                                           --------------------------
                                                             2005             2004
                                                           -------          ---------
                                                                (IN THOUSANDS)
<S>                                                        <C>              <C>
Net premiums.........................................      $52,837          $     --
Net investment and other income......................          440                --
                                                           -------          --------
   Total revenue.....................................       53,277                --
                                                           -------          --------

Medical expenses.....................................       37,504                --
Amortization of intangible assets....................          756                --
Commissions and general expenses.....................        7,976                --
                                                           -------          --------
   Total benefits, claims and other deductions ......       46,236                --
                                                           -------          --------

Segment income.......................................      $ 7,041          $     --
                                                           =======          ========

Depreciation, amortization and interest .............          490                --
                                                           -------          --------
Earnings before interest, taxes, depreciation and
   amortization ("EBITDA") (1).......................      $ 7,531          $     --
                                                           =======          ========
</TABLE>

----------
(1)         In addition to segment income, we also evaluate the results of our
      Medicare Advantage segment based on earnings before interest, taxes,
      depreciation and amortization ("EBITDA"). EBITDA is a common alternative
      measure of performance used by investors, financial analysts and rating
      agencies. It is also a measure that is included in the fixed charge ratio
      required by the covenants for our outstanding bank debt. Accordingly,
      these groups use EBITDA, along with other measures, to estimate the value
      of a company and evaluate the Company's ability to meet its debt service
      requirements. While we consider EBITDA to be an important measure of
      comparative operating performance, it should not be construed as an
      alternative to segment income or cash flows from operating activities (as
      determined in accordance with generally accepted accounting principles).

            Our Senior Managed Care - Medicare Advantage segment includes the
operations of Heritage and our other initiatives in Medicare managed care,
including our Medicare Advantage private fee-for-service plans. Heritage
generates its revenues and profits from three sources. First, Heritage owns an
interest in SelectCare, a health plan that offers coverage to Medicare
beneficiaries under a contract with CMS. Next, Heritage operates three separate
Management Service Organizations ("MSO's") that manage the business of
SelectCare and two affiliated Independent Physician Associations ("IPA's").
Lastly, Heritage participates in the profits derived from these IPA's.

            Starting in June 2004, American Progressive, an insurance subsidiary
of Universal American, began enrolling members in its private fee-for-service
product, a Medicare Advantage program that allows its member to have more
flexibility in the delivery of their health care services than other Medicare
Advantage plans. In addition to premium received from CMS, American Progressive
receives modest premium payments from the members.

            The components of the revenues and results within the segment are as
follows:

<TABLE>
<CAPTION>
                                                                                     FOR THE THREE MONTHS ENDED
                                                                                           MARCH 31, 2005
                                                                                    -----------------------------
                                                                                    REVENUES       SEGMENT INCOME
                                                                                    --------       --------------
                                                                                          (IN THOUSANDS)
<S>                                                                                 <C>            <C>
Health Plan.................................................................        $  49,667         $   2,632
Affiliated IPA's............................................................           28,765             2,718
MSO's and Corporate.........................................................            7,690             1,684
Private Fee-for Service.....................................................            3,357                 7
Eliminations................................................................          (36,202)               --
                                                                                    ---------         ---------
      Total.................................................................        $  53,277         $   7,041
                                                                                    =========         =========

</TABLE>

            Intrasegment revenues are reported on a gross basis in each of the
above components of the Medicare Advantage segment. These intrasegment revenues
are eliminated in the consolidation for the segment totals. The eliminations
include premiums received by the IPA's from the Health Plan amounting to $28.7
million and management fees received by the MSO's from the Health Plan and the
IPA's amounting to $7.5 million for the seven months since its acquisition.

                                       25
<PAGE>

            Heritage operates a health plan through SelectCare, a provider
sponsored organization ("PSO"). SelectCare is a Medicare Advantage coordinated
care plan operating in Beaumont and Houston, Texas, which had 16,100 members as
of May 28, 2004 (the date of acquisition) and receives its premiums primarily
from CMS. SelectCare makes capitated risk payments to four IPA's or medical
groups in the Houston and Beaumont regions, two of which are affiliated IPA's.
In addition, SelectCare retains the risk for certain other types of care,
primarily out of area emergency and transplants. As of March 31, 2005,
SelectCare had approximately 20,350 members enrolled. During the first quarter
of 2005, SelectCare had revenues of $49.7 million and reported a medical loss
ratio of 81.4%.

            Heritage participates in the profits from the two affiliated IPA's
that receive capitated payments from SelectCare. As of March 31, 2005, the
affiliated IPA's managed the care for approximately 14,300 SelectCare members.
During the first quarter of 2005, the IPA's earned $2.7 million on $28.8 million
in revenues received from SelectCare.

            Heritage owns three MSO's that provide comprehensive management
services to SelectCare and its affiliated IPA's as part of long-term management
agreements. Services provided include strategic planning, provider network
services, marketing, finance and accounting, enrollment, claims processing,
information systems, utilization review, credentialing and quality management.
For the three months ended March 31, 2005, these MSO's earned $1.7 million of
income on $7.7 million of fees collected.

            As of March 31, 2005, American Progressive had 2,051 members
enrolled in its private fee-for-service plans. During the first quarter of 2005,
American Progressive collected $3.4 million of premium from CMS and the members,
and reported a medical loss ratio of 75.0%.

SEGMENT RESULTS -- SPECIALTY HEALTH INSURANCE

<TABLE>
<CAPTION>
                                                           FOR THE THREE MONTHS ENDED
                                                                    MARCH 31,
                                                           --------------------------
                                                             2005               2004
                                                           --------           --------
                                                                 (IN THOUSANDS)
<S>                                                        <C>                <C>
PREMIUMS :

   Direct and assumed..................................    $ 43,109           $ 43,786
   Ceded...............................................      (5,683)            (6,152)
                                                           --------           --------
      Net premiums.....................................      37,426             37,634
Net investment income..................................       6,389              6,779
Other income...........................................         299                133
                                                           --------           --------
      Total revenue....................................      44,114             44,546
                                                           --------           --------

Policyholder benefits..................................      25,382             24,895
Change in deferred acquisition costs...................      (1,969)            (1,502)
Commissions and general expenses, net of
   allowances..........................................      15,127             15,415
                                                           --------           --------
      Total benefits, claims and other deductions......      38,540             38,808
                                                           --------           --------
Segment income.........................................    $  5,574           $  5,738
                                                           ========           ========
</TABLE>

      Three months ended March 31, 2005 and 2004

            Our Specialty Health Insurance segment generated segment income of
$5.6 million for the first quarter of 2005, compared to $5.7 million for the
first quarter of 2004, primarily as a result of the strengthening of the
Canadian dollar, offset by higher claim costs. The operations of Penncorp Life
(Canada), which are included in our Specialty Health segment results, are
transacted using the Canadian dollar as the functional currency. The Canadian
dollar strengthened relative to the U.S. dollar in 2005. The average conversion
rate increased 8%, to C$0.8157 per U.S.$1.00 for the first quarter of 2005, from
C$0.7583 per U.S.$1.00 for the first quarter of 2004. This strengthening added
approximately $0.2 million of pre-tax income to the Specialty Health segment
results compared to the first quarter of 2004. See discussion below under the
heading "Quantitative and Qualitative Disclosures about Market Risk" for
additional information.

                                       26
<PAGE>

            REVENUES. Net premiums for the Specialty Health Insurance segment
decreased by $0.2 million, or less than 1%, compared to the first quarter of
2004. Canadian business accounted for approximately 43% of the net premiums of
this segment for the first quarter of 2005 and 40% of the net premiums for the
first quarter of 2004. The stronger Canadian dollar generated an increase in
premiums of approximately $1.2 million, which was offset by a reduction in long
term care premium as a result of our decision to discontinue marketing that
product, beginning in late 2003.

            Net investment income decreased by approximately $0.4 million, or
6%, compared to the first quarter of 2004. The decrease is due primarily to
lower yields during the first quarter of 2005.

            BENEFITS, CLAIMS AND EXPENSES. Policyholder benefits incurred
increased by $0.5 million, or 2%, compared to the first quarter of 2004,
primarily as a result of higher loss ratios. Overall loss ratios for the segment
increased to 67.8% during the first quarter of 2005 compared to 66.1% in the
first quarter of 2004.

            The increase in deferred acquisition costs was $0.5 million more in
the first quarter 2005 than the increase in the first quarter of 2004.

            Commissions and general expenses decreased by $0.3 million, or less
than 1%, in the first quarter of 2005 compared to 2004, consistent with the
decrease in net premium.

SEGMENT RESULTS -- LIFE INSURANCE AND ANNUITIES

<TABLE>
<CAPTION>
                                                           FOR THE THREE MONTHS ENDED
                                                                    MARCH 31,
                                                           ---------------------------
                                                             2005               2004
                                                           --------           --------
                                                                  (IN THOUSANDS)
<S>                                                        <C>                <C>
PREMIUMS :
   Direct and assumed.................................     $ 17,978           $ 13,535
   Ceded..............................................       (3,838)            (2,327)
                                                           --------           --------
      Net premiums....................................       14,140             11,208
Net investment income.................................        8,689              8,223
Other income..........................................            4                 62
                                                           --------           --------
      Total revenue...................................       22,833             19,493
                                                           --------           --------

Policyholder benefits.................................        8,988              7,567
Interest credited to policyholders....................        4,545              4,220
Change in deferred acquisition costs..................       (5,100)            (6,135)
Amortization of intangible assets.....................          259                260
Commissions and general expenses, net of
   allowances.........................................       10,101             10,337
                                                           --------           --------
      Total benefits, claims and other deductions.....       18,793             16,249
                                                           --------           --------

Segment income........................................     $  4,040           $  3,244
                                                           ========           ========
</TABLE>

     Three months ended March 31, 2005 and 2004

            Results for our Life Insurance and Annuities segment improved by
$0.8 million, or 25%, to $4.0 million compared to the first quarter of 2004,
primarily as a result of an increase in business and lower claim costs.

            REVENUES. Net premiums for the segment increased by $2.9 million, or
26%, compared to the first quarter of 2004. Approximately $2.5 million of the
increase relates to the net business produced by the former Guarantee Reserve
field force. The balance relates to increased sales of our senior life product
and an increase in policy fees on our interest sensitive life and annuity
business as a result of the growth in the level of deposits for those products.
Ceded premiums increased by approximately $1.5 million as a result of the
Guarantee Reserve business. Prior to receiving approval to write the business
through the insurance subsidiaries of Universal American during the first
quarter of 2004, 50% of the Guarantee Reserve business was assumed from Swiss
Re. As we received the regulatory approvals, we wrote the business through our
insurance subsidiaries and ceded 50% to Swiss Re.

                                       27
<PAGE>

            Our agents sold $15.5 million of fixed annuities during the first
quarter of 2005 and $26.6 million during the first quarter of 2004. Annuity
deposits are not considered premiums for reporting in accordance with generally
accepted accounting principles. The reduction in annuity sales was the result of
lower interest crediting rates on policy account balances and a decrease in
minimum guaranteed crediting rates on our policies as compared to the crediting
rates in 2004.

            Net investment income increased by approximately $0.5 million, or
6%, compared to the first quarter of 2004, as a result of the increase in
policyholder account balances as a result of the additional deposits received as
noted above, offset by a decline in yields on the portfolio.

            BENEFITS, CLAIMS AND EXPENSES. Policyholder benefits incurred
increased by $1.4 million, or 19%, compared to the first quarter of 2004.
Policyholder benefits increased by approximately $1.9 million as a result of the
increase in business, offset by more favorable mortality. Interest credited
increased by $0.3 million, due to the increase in policyholder account balances
as a result of continued annuity sales, offset by a reduction in credited rates.
The increase in deferred acquisition costs was approximately $1.0 million less
during the first quarter of 2005, as compared to the increase in 2004. This is
directly related to the decline in annuity business produced during the quarter.
The amortization of intangible assets relates to the present value of the future
profits of the life business acquired with Pyramid Life. Commissions and general
expenses decreased by $0.2 million, or 2%, compared to the first quarter of
2004.

SEGMENT RESULTS -- SENIOR ADMINISTRATIVE SERVICES

<TABLE>
<CAPTION>
                                                                       FOR THE THREE MONTHS ENDED
                                                                                MARCH 31,
                                                                       --------------------------
                                                                          2005            2004
                                                                       --------          -------
                                                                             (IN THOUSANDS)
<S>                                                                    <C>               <C>
Affiliated Fee Revenue
   Medicare supplement.............................................     $ 7,966          $ 7,203
   Long term care..................................................         596              693
   Life insurance..................................................         844            1,054
   Other...........................................................         797              591
                                                                        -------          -------
      Total Affiliated Revenue.....................................      10,203            9,541
                                                                        -------          -------

Unaffiliated Fee Revenue
   Medicare supplement.............................................       2,034            2,342
   Long term care..................................................       2,023            1,403
   Non-insurance products..........................................         384              399
   Other...........................................................         264              287
                                                                        -------          -------
      Total Unaffiliated Revenue ..................................       4,705            4,431
                                                                        -------          -------
      Total revenue................................................      14,908           13,972
                                                                        -------          -------

Amortization of present value of future profits ...................         119              104
General expenses...................................................      11,174           10,714
                                                                        -------          -------
      Total expenses...............................................      11,293           10,818
                                                                        -------          -------

      Segment income...............................................     $ 3,615          $ 3,154
                                                                        =======          =======

Depreciation, amortization and interest ...........................         532              535
                                                                        -------          -------
Earnings before interest, taxes, depreciation and amortization
   ("EBITDA")(1)...................................................     $ 4,147          $ 3,689
                                                                        =======          =======
</TABLE>

----------
(1)         In addition to segment income, we also evaluate the results of our
      Senior Administrative Services segment based on earnings before interest,
      taxes, depreciation and amortization ("EBITDA"). EBITDA is a common
      alternative measure of performance used by investors, financial analysts
      and rating agencies. It is also a measure that is included in the fixed
      charge ratio required by the covenants for our outstanding bank debt.
      Accordingly, these groups use EBITDA, along with other measures, to
      estimate the value of a company and evaluate the Company's ability to meet
      its debt service requirements. While we consider EBITDA to be an important
      measure of comparative operating performance, it should not be construed
      as an alternative to segment income or cash flows from operating
      activities (as determined in accordance with generally accepted accounting
      principles).

            Included in unaffiliated revenue are fees received to administer
certain business of our insurance subsidiaries that is 100% reinsured to an
unaffiliated reinsurer, which amounted to $1.1 million for the three months
ended March 31, 2005, and $1.5 million for the three months ended March 31,
2004. These fees, together with the affiliated revenue, were eliminated in
consolidation.

                                       28
<PAGE>

      Three months ended March 31, 2005 and 2004

            Our Senior Administrative Services segment income improved by $0.5
million, or 15%, compared to the first quarter of 2004. This improvement was
primarily a result of the growth in premiums managed. EBITDA for this segment
also increased $0.5 million, or 12%, compared to the first quarter of 2004.

            Service fee revenue increased by $0.9 million, or 7%, compared to
the first quarter of 2004. Affiliated service fee revenue increased by $0.7
million compared to the first quarter of 2004 as a result of the increase in
Medicare supplement/select business in force at our insurance subsidiaries.
Unaffiliated service fee revenue increased by approximately $0.3 million
compared to the first quarter of 2004. An increase of $0.6 million, or 44% for
services for long term care products was offset, in part, by a decline in fees
for Medicare supplement. General expenses for the segment increased by $0.5
million, or 4%, due primarily to the increase in business.

SEGMENT RESULTS -- CORPORATE

            The following table presents the primary components comprising the
loss from the segment:

<TABLE>
<CAPTION>
                                                         FOR THE THREE MONTHS
                                                            ENDED MARCH 31,
                                                         --------------------
                                                           2005         2004
                                                         -------       ------
                                                            (IN THOUSANDS)
<S>                                                      <C>           <C>
Interest.............................................    $ 2,511       $1,523
Amortization of capitalized loan origination fees....        217          123
Stock-based compensation expense.....................          2           23
Other parent company expenses, net...................        786          816
                                                         -------       ------
      Segment loss...................................    $ 3,516       $2,485
                                                         =======       ======
</TABLE>

      Three months ended March 31, 2005 and 2004

            The loss from our Corporate segment increased by $1.0 million, or
42%, compared to the first three months of 2004. The increase was due to higher
interest cost as a result of an increase in the amount of the debt outstanding
during the year, relating to the amendment of our credit facility in connection
with our acquisition of Heritage, and an increase in the weighted average
interest rates, as compared to the same period of 2004. Our combined outstanding
debt was $174.8 million at March 31, 2005 compared to $111.4 million at March
31, 2004. The weighted average interest rate on our loan payable increased to
4.8% in 2005 from 4.2% in 2004. The weighted average interest rate on our other
long term debt also increased to 6.9% for 2005 from 6.0% for 2004. See
"Liquidity and Capital Resources" for additional information regarding our loan
payable and other long term debt.

LIQUIDITY AND CAPITAL RESOURCES

            Our capital is used primarily to support the retained risks and
growth of our insurance company subsidiaries and health plan and to support our
parent company as an insurance holding company. In addition, we use capital to
fund our growth through acquisitions of other companies, blocks of insurance or
administrative service business.

            We require cash at our parent company to meet our obligations under
our credit facility and our outstanding debenture held by our subsidiary,
Pennsylvania Life. In January 2002, our parent company issued a debenture to
Pennsylvania Life in conjunction with the transfer of the business of
Pennsylvania Life's Canadian Branch to Penncorp Life (Canada). The outstanding
balance on the debenture was $3.4 million at March 31, 2005. We anticipate
funding the repayment of the debenture from dividends of Penncorp Life (Canada).
We also require cash to pay the operating expenses necessary to function as a
holding company (applicable insurance department regulations require us to bear
our own expenses), and to meet the costs of being a public company.

                                       29
<PAGE>

            We believe that our current cash position, the availability of our
$15.0 million revolving credit facility, the expected cash flows of our
administrative service company and management service organizations (acquired in
the acquisition of Heritage) and the surplus note interest payments from
American Exchange (as explained below) can support our parent company
obligations for the foreseeable future. However, there can be no assurance as to
our actual future cash flows or to the continued availability of dividends from
our insurance company subsidiaries.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

            Credit Facility, as Amended in May 2004

            In connection with the acquisition of Pyramid Life, the Company
obtained an $80 million credit facility (the "Credit Agreement") on March 31,
2003 to repay the then existing loan and provide funds for the acquisition of
Pyramid Life. The Credit Agreement consisted of a $65 million term loan which
was drawn to fund the acquisition and a $15 million revolving loan facility. The
Credit Agreement initially called for interest at the London Interbank Offering
Rate ("LIBOR") for one, two or three months, at the option of the Company, plus
300 basis points. Effective March 31, 2004, the spread over LIBOR was reduced to
275 basis points in accordance with the terms of the Credit Agreement. Principal
repayments were scheduled over a five-year period with a final maturity date of
March 31, 2008. The Company incurred loan origination fees of approximately $2.1
million, which were capitalized and are being amortized on a straight-line basis
over the life of the Credit Agreement.

            In connection with the acquisition of Heritage on May 28, 2004 (see
Note 3 - Business Combinations), the Company amended the Credit Agreement by
increasing the facility to $120 million from $80 million (the "Amended Credit
Agreement"), including an increase in the term loan portion to $105 million from
$36.4 million (the balance outstanding at May 28, 2004) and maintaining the $15
million revolving loan facility. None of the revolving loan facility has been
drawn as of March 31, 2005. Under the Amended Credit Agreement, the spread over
LIBOR was reduced to 225 basis points. Effective April 1, 2005, the interest
rate on the term loan is 5.1%. Principal repayments are scheduled at $5.3
million per year over a five-year period with a final payment of $80.1 million
due upon maturity on March 31, 2009. The Company incurred additional loan
origination fees of approximately $2.1 million, which were capitalized and are
being amortized on a straight-line basis over the life of the Amended Credit
Agreement along with the continued amortization of the origination fees incurred
in connection with the Credit Agreement. The Company pays an annual commitment
fee of 50 basis points on the unutilized revolving loan facility. The
obligations of the Company under the Amended Credit Facility are guaranteed by
WorldNet Services Corp., CHCS Services Inc., CHCS Inc., Quincy Coverage
Corporation, Universal American Financial Services, Inc., Heritage, HHS-HPN
Network, Inc., Heritage Health Systems of Texas, Inc., PSO Management of Texas,
LLC, HHS Texas Management, Inc. and HHS Texas Management LP (collectively the
"Guarantors") and secured by substantially all of the assets of each of the
Guarantors. In addition, as security for the performance by the Company of its
obligations under the Amended Credit Facility, the Company, WorldNet Services
Corp., CHCS Services Inc., Heritage and HHS Texas Management, Inc. have each
pledged and assigned substantially all of their respective securities (but not
more than 65% of the issued and outstanding shares of voting stock of any
foreign subsidiary), all of their respective limited liability company and
partnership interests, all of their respective rights, title and interest under
any service or management contract entered into between or among any of their
respective subsidiaries and all proceeds of any and all of the foregoing.

            The Amended Credit Facility requires the Company and its
subsidiaries to meet certain financial tests, including a minimum fixed charge
coverage ratio, a minimum risk based capital test and a minimum consolidated net
worth test. The Amended Credit Facility also contains covenants, which among
other things, limit the incurrence of additional indebtedness, dividends,
capital expenditures, transactions with affiliates, asset sales, acquisitions,
mergers, prepayments of other indebtedness, liens and encumbrances and other
matters customarily restricted in such agreements.

            The Amended Credit Facility contains customary events of default,
including, among other things, payment defaults, breach of representations and
warranties, covenant defaults, cross-acceleration, cross-defaults to certain
other indebtedness, certain events of bankruptcy and insolvency and judgment
defaults.

                                       30
<PAGE>

            The Company made regularly scheduled principal payments of $1.3
million and paid $1.2 million in interest in connection with its credit
facilities during the three months ended March 31, 2005. During the three months
ended March 31, 2004, the Company made regularly scheduled principal payments of
$1.8 million and paid $0.4 million in interest in connection with its credit
facilities.

            The following table shows the schedule of principal payments (in
thousands) remaining on the Amended Credit Agreement, with the final payment in
March 2009:

<TABLE>
<C>                                 <C>
2005 (remainder of year)            $  3,937
2006                                   5,250
2007                                   5,250
2008                                   5,250
2009                                  80,063
                                    --------
                                    $ 99,750
                                    ========
</TABLE>

      Other Long Term Debt

            The Company has formed statutory business trusts, which exist for
the exclusive purpose of issuing trust preferred securities representing
undivided beneficial interests in the assets of the trust, investing the gross
proceeds of the trust preferred securities in junior subordinated deferrable
interest debentures of the Company (the "Junior Subordinated Debt") and engaging
in only those activities necessary or incidental thereto. In accordance with the
adoption of FIN 46R, the Company has deconsolidated the trusts.

            Separate subsidiary trusts of the Company (the "Trusts") have issued
a combined $75.0 million in thirty year trust preferred securities (the "Capital
Securities") as detailed in the following table:

<TABLE>
<CAPTION>
                    Amount                            Spread         Rate as of
Maturity Date       Issued            Term          Over LIBOR     March 31, 2005
-------------   --------------   --------------   --------------   --------------
                (In thousands)                    (Basis points)
<S>             <C>              <C>              <C>              <C>
December 2032      $ 15,000      Fixed/Floating       400(1)            6.7%
March 2033           10,000      Floating             400               6.7%
May 2033             15,000      Floating             420               7.1%
May 2033             15,000      Fixed/Floating       410(2)            7.4%
October 2033         20,000      Fixed/Floating       395(3)            7.0%
                   --------
                   $ 75,000
                   ========

</TABLE>

(1)   Effective September 2003, the Company entered into a swap agreement
      whereby it will pay a fixed rate of 6.7% in exchange for a floating rate
      of LIBOR plus 400 basis points. The swap contract expires in December
      2007.

(2)   The rate on this issue is fixed at 7.4% for the first five years, after
      which it is converted to a floating rate equal to LIBOR plus 410 basis
      points.

(3)   Effective April 29, 2004, the Company entered into a swap agreement
      whereby it will pay a fixed rate of 6.98% in exchange for a floating rate
      of LIBOR plus 395 basis points. The swap contract expires in October 2008.

            The Trusts have the right to call the Capital Securities at par
after five years from the date of issuance (which ranged from December 2002 to
October 2003). The proceeds from the sale of the Capital Securities, together
with proceeds from the sale by the Trusts of their common securities to the
Company, were invested in thirty-year floating rate Junior Subordinated Debt of
the Company. From the proceeds of the trust preferred securities, $26.0 million
was used to pay down debt during 2003. The balance of the proceeds has been
used, in part to fund acquisitions, to provide capital to the Company's
insurance subsidiaries to support growth and to be held for general corporate
purposes.

                                       31
<PAGE>

            The Capital Securities represent an undivided beneficial interest in
the Trusts' assets, which consist solely of the Junior Subordinated Debt.
Holders of the Capital Securities have no voting rights. The Company owns all of
the common securities of the Trusts. Holders of both the Capital Securities and
the Junior Subordinated Debt are entitled to receive cumulative cash
distributions accruing from the date of issuance, and payable quarterly in
arrears at a floating rate equal to the three-month LIBOR plus a spread. The
floating rate resets quarterly and is limited to a maximum of 12.5% during the
first sixty months. Due to the variable interest rate for these securities, the
Company would be subject to higher interest costs if short-term interest rates
rise. The Capital Securities are subject to mandatory redemption upon repayment
of the Junior Subordinated Debt at maturity or upon earlier redemption. The
Junior Subordinated Debt is unsecured and ranks junior and subordinate in right
of payment to all present and future senior debt of the Company and is
effectively subordinated to all existing and future obligations of the Company's
subsidiaries. The Company has the right to redeem the Junior Subordinated Debt
after five years from the date of issuance.

            The Company has the right at any time, and from time to time, to
defer payments of interest on the Junior Subordinated Debt for a period not
exceeding 20 consecutive quarters up to each debenture's maturity date. During
any such period, interest will continue to accrue and the Company may not
declare or pay any cash dividends or distributions on, or purchase, the
Company's common stock nor make any principal, interest or premium payments on
or repurchase any debt securities that rank equally with or junior to the Junior
Subordinated Debt. The Company has the right at any time to dissolve the Trusts
and cause the Junior Subordinated Debt to be distributed to the holders of the
Capital Securities. The Company has guaranteed, on a subordinated basis, all of
the Trusts' obligations under the Capital Securities including payment of the
redemption price and any accumulated and unpaid distributions to the extent of
available funds and upon dissolution, winding up or liquidation but only to the
extent the Trusts have funds available to make such payments.

            The Company paid $1.3 million in interest in connection with the
Junior Subordinated Debt during the three months ended March 31, 2005 and paid
$1.1 million during the three months ended March 31, 2004.

      Lease Obligations

            We are obligated under certain lease arrangements for our executive
and administrative offices in New York, Florida, Indiana, Tennessee, Texas, and
Ontario, Canada. Annual minimum rental commitments, subject to escalation, under
non-cancelable operating leases (in thousands) are as follows:

<TABLE>
<C>                               <C>
2005 (remainder of year)......    $   1,895
2006..........................        2,605
2007..........................        2,588
2008..........................        2,328
2009 and thereafter...........        9,236
                                  ---------
      Totals..................    $  18,652
                                  =========
</TABLE>

            In addition to the above, Pennsylvania Life and Penncorp Life
(Canada) are the named lessees on 71 properties occupied by Career Agents for
use as field offices. The Career Agents reimburse Pennsylvania Life and Penncorp
Life (Canada) the actual rent for these field offices. The total annual rent
paid by the Company and reimbursed by the Career Agents for these field offices
during 2004 was approximately $1.1 million.

                                       32
<PAGE>

      Shelf Registration

            On November 3, 2004, we filed a universal shelf registration
statement on Form S-3 with the U.S. Securities and Exchange Commission ("SEC"),
pursuant to which we may issue common stock, warrants and debt securities from
time to time, up to an aggregate offering of $140 million. The registration
statement also covers five million shares of common stock that may be offered
for sale by Capital Z Financial Services Fund II, L.P ("Capital Z"), our largest
shareholder. In the event that Capital Z sells all of the five million shares,
Capital Z would still own 20.3 million shares or approximately 37% of our
outstanding common stock, before giving effect to any issuance of shares by us
pursuant to the shelf registration. The shelf registration statement was
declared effective in December, 2004.

            The shelf registration statement enables us to raise funds from the
offering of any individual security covered by the shelf registration statement,
as well as any combination thereof, through one or more methods of distribution,
subject to market conditions and our capital needs. The terms of any offering
pursuant to this shelf will be established at the time of the offering. We plan
to use the proceeds from any future offering under the registration statement
for general corporate purposes, including, but not limited to, working capital,
capital expenditures, investments in subsidiaries, acquisitions and refinancing
of debt. A more detailed description of the use of proceeds will be included in
any specific offering of securities in the prospectus supplement relating to the
offering.

      Obligations of the Parent Company to Affiliates

            In January 2002, our parent company issued an $18.5 million, 8.5%
debenture to Pennsylvania Life in connection with the transfer of the business
of Pennsylvania Life's Canadian Branch to Penncorp Life (Canada). The debenture
is scheduled to be repaid in full during 2005. As of March 31, 2005, the
outstanding balance was $3.4 million. Our parent holding company paid $0.1
million in interest on these debentures during the three months ended March 31,
2005 and $0.1 million during the three months ended March 31, 2004. The interest
on these debentures is eliminated in consolidation. Dividends from Penncorp Life
(Canada) funded the interest and principal paid on the debenture to date and it
is anticipated that they will fund all future payments made on this debenture.

      Sources of Liquidity to the Parent Company

            We anticipate funding the obligations of the parent company and the
capital required to grow our business from the four distinct and uncorrelated
sources of cash flow within the organization as follows:

            -     the expected cash flows of our senior administrative services
                  company,

            -     the expected cash flows of our senior managed care company
                  (acquired in the acquisition of Heritage),

            -     dividend payments received from Penncorp Life (Canada), and

            -     surplus note principal and interest payments from American
                  Exchange.

            In addition, we maintain a large cash position and have access to
our unutilized $15.0 million revolving credit facility. However, there can be no
assurance as to our actual future cash flows or to the continued availability of
dividends from our insurance company subsidiaries.

Senior Administrative Services Company. Liquidity for our senior administrative
services subsidiary is measured by its ability to pay operating expenses and pay
dividends to our parent company. The primary source of liquidity is fees
collected from clients. We believe that the sources of cash for our senior
administrative services company exceed scheduled uses of cash and results in
amounts available to dividend to our parent holding company. We measure the
ability of the senior administrative services company to pay dividends based on
its earnings before interest, taxes, depreciation and amortization ("EBITDA").
EBITDA for our Senior Administrative Services segment was $4.1 million for the
three months ended March 31, 2005, and was $3.7 million for the three months
ended March 31, 2004.

                                       33
<PAGE>

Senior Managed Care Company. Liquidity for our managed care company is measured
by its ability to pay operating expenses and pay dividends to our parent
company. The primary source of liquidity is management fees for administration
of SelectCare and services provided to the IPA's. Dividend payments by
SelectCare to Heritage are subject to the approval of the insurance regulatory
authorities of the state of Texas, SelectCare's state of domicile. SelectCare is
not able to pay dividends during 2005 without prior approval. We believe that
the sources of cash to our managed care holding company exceed scheduled uses of
cash which will result in funds available to dividend to our parent holding
company. We measure the ability of the senior managed care holding company to
pay dividends based on its EBITDA. EBITDA for our senior managed care holding
company was $7.5 million for the three months ended March 31, 2005.

Penncorp Life (Canada) Dividends. Penncorp Life (Canada) is a Canadian insurance
company. Canadian law provides that a life insurer may pay a dividend after such
dividend declaration has been approved by its board of directors and upon at
least 10 days prior notification to the Superintendent of Financial
Institutions. Such a dividend is limited to retained net income (based on
Canadian GAAP) for the preceding two years, plus net income earned for the
current year. In considering approval of a dividend, the board of directors must
consider whether the payment of such dividend would be in contravention of the
Insurance Companies Act of Canada. No dividends were paid during the three
months ended March 31, 2005. During the first quarter of 2004, Penncorp Life
(Canada) paid dividends of C$26.7 million (approximately US$20.0 million) to
Universal American, relating to 2003 net income. The amount of the dividend was
larger than normal due to a benefit received by Penncorp Life (Canada) from an
actuarial experience study that allowed Penncorp Life (Canada) to reduce its
policy benefit reserves at December 31, 2003 on a Canadian GAAP basis. The
actuarial experience study did not have an impact on Penncorp Life (Canada)'s
policy benefit reserves on a U.S. GAAP basis. During the remainder of 2004,
Penncorp Life (Canada) paid dividends totaling C$7.2 million (US$5.6 million)
relating to net income for 2004. We anticipate that Penncorp Life (Canada) will
be able to pay dividends equal to its net income earned during 2005, less $2.5
million.

Insurance Subsidiaries -- Surplus Note, Dividends and Capital Contributions.
Cash generated by our insurance company subsidiaries will be made available to
our holding company, principally through periodic payments of principal and
interest on the surplus note owed to our holding company by our subsidiary,
American Exchange. As of March 31, 2005, the principal amount of the surplus
note was $45.3 million. The note bears interest to our parent holding company at
LIBOR plus 325 basis points. We anticipate that the surplus note will be
primarily serviced by dividends from Pennsylvania Life, a wholly owned
subsidiary of American Exchange, and by tax-sharing payments among the insurance
companies that are wholly owned by American Exchange and file a consolidated
Federal income tax return. American Exchange made principal payments totaling
$3.2 million during the three months ended March 31, 2005 and $1.6 million
during the three months ended March 31, 2004. American Exchange paid interest on
the surplus note of $0.4 million during the three months ended March 31, 2005
and $0.7 million during the three months ended March 31, 2004.

      Our parent holding company made capital contributions to American Exchange
amounting to $3.4 million during 2005. American Exchange made capital
contributions of $2.0 million to Union Bankers, $0.8 million to Constitution and
$0.5 million to American Pioneer during the three months ended March 31, 2005.

      Our parent holding company made capital contributions to American Exchange
amounting to $17.8 million during 2004. In March 2004, Pennsylvania Life
declared and paid a dividend in the amount of $10.6 million to American
Exchange. American Exchange made capital contributions of $5.0 million to Union
Bankers and $4.0 million to American Progressive during the three months ended
March 31, 2004.

                                       34
<PAGE>

      Dividend payments by our U.S. insurance companies to our holding company
or to intermediate subsidiaries are limited by, or subject to the approval of
the insurance regulatory authorities of each insurance company's state of
domicile. Such dividend requirements and approval processes vary significantly
from state to state. Pennsylvania Life is able to pay ordinary dividends of up
to $6.3 million to American Exchange during 2005, without prior approval.
Pyramid Life is able to pay ordinary dividends of up to $2.5 million to
Pennsylvania Life (its direct parent) with prior notice to the Kansas Insurance
Department and Marquette would be able to pay ordinary dividends of up to $0.3
million to Constitution (its direct parent) without the prior approval from the
Texas Insurance Department during 2005. American Exchange, American Pioneer,
American Progressive, Constitution and Union Bankers had negative earned surplus
at December 31, 2004 and are not able to pay dividends in 2005 without special
approval.

      Insurance Subsidiaries - Liquidity

      Liquidity for our insurance company subsidiaries is measured by their
ability to pay scheduled contractual benefits, pay operating expenses, fund
investment commitments, and pay dividends to their parent company. The principal
sources of cash for our insurance operations include scheduled and unscheduled
principal and interest payments on investments, premium payments, annuity
deposits, and the sale or maturity of investments. Both the sources and uses of
cash are reasonably predictable and we believe that these sources of cash for
our insurance company subsidiaries exceed scheduled uses of cash.

      Liquidity is also affected by unscheduled benefit payments including
benefits under accident and health insurance policies, death benefits and
interest-sensitive policy surrenders and withdrawals.

      Our accident and health insurance policies generally provide for
fixed-benefit amounts and, in the case of Medicare supplement policies, for
supplemental payments to Medicare provider rates. Some of these benefits are
subject to medical-cost inflation and we have the capability to file for premium
rate increases to mitigate rising medical costs. Our health insurance business
is widely dispersed in the United States and Canada, which mitigates the risk of
unexpected increases in claim payments due to epidemics and events of a
catastrophic nature. These accident and health polices are not
interest-sensitive and therefore are not subject to unexpected policyholder
redemptions due to investment yield changes.

      Some of our life insurance and annuity policies are interest-sensitive in
nature. The amount of surrenders and withdrawals is affected by a variety of
factors such as credited interest rates for similar products, general economic
conditions and events in the industry that affect policyholders' confidence.
Although the contractual terms of substantially all of our in force life
insurance policies and annuities give the holders the right to surrender the
policies and annuities, we impose penalties for early surrenders. As of March
31, 2005 we held reserves that exceeded the underlying cash surrender values of
our net retained in force life insurance and annuities by $34.6 million. Our
insurance subsidiaries, in our view, have not experienced any material changes
in surrender and withdrawal activity in recent years.

      Changes in interest rates may affect the incidence of policy surrenders
and withdrawals. In addition to the potential impact on liquidity, unanticipated
surrenders and withdrawals in a changed interest rate environment could
adversely affect earnings if we were required to sell investments at reduced
values in order to meet liquidity demands. We manage our asset and liability
portfolios in order to minimize the adverse earnings impact of changing market
rates. We have segregated a portion of our investment portfolio in order to
match liabilities that are sensitive to interest rate movements with fixed
income securities containing similar characteristics to the related liabilities,
most notably the expected duration and required interest spread. We believe that
this asset/liability management process adequately covers the expected payment
of benefits related to these liabilities.

      As of March 31, 2005, our insurance company subsidiaries held cash and
cash equivalents totaling $139.1 million, as well as fixed maturity securities
that could readily be converted to cash with carrying values (and fair values)
of $1.2 billion.

                                       35
<PAGE>

      The net yields on our cash and invested assets decreased to 4.8% for the
three months ended March 31, 2005, from 4.9% for the three months ended March
31, 2004. A portion of these securities are held to support the liabilities for
policyholder account balances, which liabilities are subject to periodic
adjustments to their credited interest rates. The credited interest rates of the
interest-sensitive policyholder account balances are determined by us based upon
factors such as portfolio rates of return and prevailing market rates and
typically follow the pattern of yields on the assets supporting these
liabilities.

      Our insurance subsidiaries are required to maintain minimum amounts of
statutory capital and surplus as required by regulatory authorities. However,
substantially more than such minimum amounts are needed to meet statutory and
administrative requirements of adequate capital and surplus to support the
current level of our insurance subsidiaries' operations. Each of the life
insurance subsidiaries' statutory capital and surplus exceeds its respective
minimum statutory requirement at levels we believe are sufficient to support
their current levels of operation. Additionally, the National Association of
Insurance Commissioners ("NAIC") imposes regulatory risk-based capital ("RBC")
requirements on life insurance enterprises. At March 31, 2005, all of our life
insurance subsidiaries maintained ratios of total adjusted capital to RBC in
excess of the "authorized control level". The combined statutory capital and
surplus, including asset valuation reserve, of the U.S. life insurance
subsidiaries totaled $135.7 million at March 31, 2005 and $127.9 million at
December 31, 2004. Statutory net income for the three months ended March 31,
2005 was $0.1 million, which included after-tax net realized gains of $0.1
million, and for the three months ended March 31, 2004 was $2.8 million, which
included after-tax net realized gains of $0.1 million.

      SelectCare is also required to maintain minimum amounts of capital and
surplus, as required by regulatory authorities and is also subject to RBC
requirements. At March 31, 2005, SelectCare's statutory capital and surplus
exceeds its minimum requirement and its RBC is in excess of the "authorized
control level". The statutory capital and surplus for SelectCare was $12.1
million at March 31, 2005 and $9.6 million at December 31, 2004. Statutory net
income for the three months ended March 31, 2005 was $2.6 million and for the
three months ended March 31, 2004 was $1.1 million.

      Penncorp Life (Canada) reports to Canadian regulatory authorities based
upon Canadian statutory accounting principles that vary in some respects from
U.S. statutory accounting principles. Penncorp Life (Canada)'s net assets based
upon Canadian statutory accounting principles were C$59.3 million (US$49.0
million) as of March 31, 2005 and were C$57.4 million (US$47.8 million) as of
December 31, 2004. Net income based on Canadian generally accepted accounting
principles was C$1.9 million (US$1.6 million) for the three months ended March
31, 2005, and C$2.0 million (US$1.5 million) for the three months ended March
31, 2004. Penncorp Life (Canada) maintained a Minimum Continuing Capital and
Surplus Requirement Ratio ("MCCSR") in excess of the minimum requirement at
March 31, 2005.

      Investments

      Our investment policy is to balance the portfolio duration to achieve
investment returns consistent with the preservation of capital and maintenance
of liquidity adequate to meet payment of policy benefits and claims. We invest
in assets permitted under the insurance laws of the various states in which we
operate. Such laws generally prescribe the nature, quality of and limitations on
various types of investments that may be made. We do not currently have
investments in partnerships, special purpose entities, real estate, commodity
contracts, or other derivative securities. We currently engage the services of
three investment advisors under the direction of the management of our insurance
company subsidiaries and in accordance with guidelines adopted by the Investment
Committees of their respective boards of directors. Conning Asset Management
Company manages the portfolio of all of our United States subsidiaries, except
for the portfolio of Pyramid Life, and certain floating rate portfolios, which
are managed by Hyperion Capital. MFC Global Investment Management manages our
Canadian portfolio. We invest primarily in fixed maturity securities of the U.S.
Government and its agencies and in corporate fixed maturity securities with
investment grade ratings of "BBB-" (Standard & Poor's Corporation), "Baa3"
(Moody's Investor Service) or higher. Our current policy is not to invest in
derivative programs or other hybrid securities, except for GNMA's, FNMA's and
investment grade corporate collateralized mortgage obligations.

                                       36
<PAGE>

      As of March 31, 2005, 99.7% of our fixed maturity investments had
investment grade ratings from Standard & Poor's Corporation or Moody's Investor
Service. There were no non-income producing fixed maturities as of March 31,
2005. We did not write down the value of any fixed maturity securities during
the three months ended March 31, 2005 or 2004.

EFFECTS OF RECENTLY ISSUED AND PENDING ACCOUNTING PRONOUNCEMENTS

      There was no material impact on our consolidated financial condition or
results of operations as a result of our adoption of recently issued accounting
pronouncements. We do not anticipate any material impact from the future
adoption of the pending accounting pronouncements, other than the adoption of
Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based
Payment" ("SFAS 123R"). SFAS 123R requires all companies to recognize
compensation costs for share-based payments to employees based on the grant-date
fair value of the award for financial statements for annual periods beginning
after June 15, 2005. Refer to Consolidated Financial Statements (Unaudited) Note
2 - Recent and Pending Accounting Pronouncements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

      In general, market risk relates to changes in the value of financial
instruments that arise from adverse movements in interest rates, equity prices
and foreign exchange rates. We are exposed principally to changes in interest
rates that affect the market prices of our fixed income securities as well as
the cost of our variable rate debt. Additionally, we are exposed to changes in
the Canadian dollar that affects the translation of the financial position and
the results of operations of our Canadian subsidiary from Canadian dollars to
U.S. dollars.

      Investment Interest Rate Sensitivity

      Our profitability could be affected if we were required to liquidate fixed
income securities during periods of rising and/or volatile interest rates.
However, we attempt to mitigate our exposure to adverse interest rate movements
through a combination of active portfolio management and by staggering the
maturities of our fixed income investments to assure sufficient liquidity to
meet our obligations and to address reinvestment risk considerations. Our
insurance liabilities generally arise over relatively long periods of time,
which typically permits ample time to prepare for their settlement.

      Certain classes of mortgage-backed securities are subject to significant
prepayment risk due to the fact that in periods of declining interest rates,
individuals may refinance higher rate mortgages to take advantage of the lower
rates then available. We monitor and adjust our investment portfolio mix to
mitigate this risk.

      We regularly conduct various analyses to gauge the financial impact of
changes in interest rate on our financial condition. The ranges selected in
these analyses reflect our assessment as being reasonably possible over the
succeeding twelve-month period. The magnitude of changes modeled in the
accompanying analyses should not be construed as a prediction of future economic
events, but rather, be treated as a simple illustration of the potential impact
of such events on our financial results.

      The sensitivity analysis of interest rate risk assumes an instantaneous
shift in a parallel fashion across the yield curve, with scenarios of interest
rates increasing and decreasing 100 and 200 basis points from their levels as of
March 31, 2005, and with all other variables held constant. A 100 basis point
increase in market interest rates would result in a pre-tax decrease in the
market value of our fixed income investments of $76.7 million and a 200 basis
point increase in market interest rates would result in $148.4 million decrease.
Similarly, a 100 basis point decrease in market interest rates would result in a
pre-tax increase in the market value of our fixed income investments of $79.5
million and a 200 basis point decrease in market interest rates would result in
a $166.1 million increase.

                                       37
<PAGE>

      Debt

      We pay interest on our term loan and a portion of our trust preferred
securities based on the London Inter Bank Offering Rate ("LIBOR") for one, two
or three months. Due to the variable interest rate, the Company would be subject
to higher interest costs if short-term interest rates rise. We have attempted to
mitigate our exposure to adverse interest rate movements by fixing the rate on
$15.0 million of the trust preferred securities for a five year period through
the contractual terms of the security at inception and an additional $35.0
million through the use of interest rate swaps.

      We regularly conduct various analyses to gauge the financial impact of
changes in interest rate on our financial condition. The ranges selected in
these analyses reflect our assessment as being reasonably possible over the
succeeding twelve-month period. The magnitude of changes modeled in the
accompanying analyses should not be construed as a prediction of future economic
events, but rather, be treated as a simple illustration of the potential impact
of such events on our financial results.

      The sensitivity analysis of interest rate risk assumes scenarios increases
or decreases in LIBOR of 100 and 200 basis points from their levels as of March
31, 2005, and with all other variables held constant. The following table
summarizes the impact of changes in LIBOR:

<TABLE>
<CAPTION>
                                                          Effect of Change in LIBOR on Pre-tax Income
                                                           for the three months ended March 31, 2005
                             Weighted      Weighted    -----------------------------------------------
                              Average      Average     200 Basis    100 Basis    100 Basis   200 Basis
    Description of           Interest      Balance       Point        Point        Point       Point
  Floating Rate Debt           Rate      Outstanding    Decrease     Decrease    Increase    Increase
  ------------------         --------    -----------   ---------    ---------    ---------   ---------
                                                                  (in millions)
<S>                          <C>         <C>           <C>          <C>          <C>         <C>
Loan Payable                     4.81%   $     101.1   $     0.5    $     0.3    $    (0.3)  $    (0.5)
Other long term debt             6.73%   $      25.0         0.1          0.1         (0.1)       (0.1)
                                                       ---------    ---------    ---------   ---------
                Total                                  $     0.6    $     0.4    $    (0.4)  $    (0.6)
                                                       =========    =========    =========   =========
</TABLE>

      As noted above, we have fixed the interest rate on $50 million of our $175
million of total debt outstanding, leaving $125 million of the debt exposed to
rising interest rates. As of March 31, 2005 we had approximately $142 million of
cash and cash equivalents and $60 million in short duration floating rate
investment securities. We anticipate that the net investment income on this $202
million will be positively impacted by rising interest rates and will mitigate
the negative impact of rising interest rates on our debt.

      Currency Exchange Rate Sensitivity

      Portions of our operations are transacted using the Canadian dollar as the
functional currency. As of and for the three months ended March 31, 2005,
approximately 12% of our assets, 8% of our revenues, excluding realized gains,
and 11% of our income before realized gains and taxes were derived from our
Canadian operations. As of and for the three months ended March 31, 2004,
approximately 11% of our assets, 11% of our revenues, excluding realized gains,
and 14% of our income before realized gains and taxes were derived from our
Canadian operations. Accordingly, our earnings and shareholder's equity are
affected by fluctuations in the value of the U.S. dollar as compared to the
Canadian dollar. Although this risk is somewhat mitigated by the fact that both
the assets and liabilities for our foreign operations are denominated in
Canadian dollars, we are still subject to translation gains and losses.

      We periodically conduct various analyses to gauge the financial impact of
changes in the foreign currency exchange rate on our financial condition. The
ranges selected in these analyses reflect our assessment of what is reasonably
possible over the succeeding twelve-month period.

      A 10% strengthening of the U.S. dollar relative to the Canadian dollar, as
compared to the actual average exchange rate for the three months ended March
31, 2005, would have resulted in a decrease in our income before realized gains
and taxes of approximately $0.2 million for the three months ended March 31,
2005 and a decrease in our shareholders' equity of approximately $4.1 million at
March 31, 2005. A 10% weakening of the U.S. dollar relative to the Canadian
dollar would have resulted in an

                                       38

<PAGE>

increase in our income before realized gains and taxes of approximately $0.3
million for the three months ended March 31, 2005 and an increase in
shareholders' equity of approximately $5.0 million at March 31, 2005. Our
sensitivity analysis of the effects of changes in foreign currency exchange
rates does not factor in any potential change in sales levels, local prices or
any other variables.

      The magnitude of changes reflected in the above analysis regarding
interest rates and foreign currency exchange rates should, in no manner, be
construed as a prediction of future economic events, but rather as a simple
illustration of the potential impact of such events on our financial results.

ITEM 4.  CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

      Our management evaluated, with the participation of our principal
executive and principal financial officers, the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), as of the end
of the period covered by this report. Based on their evaluation, our principal
executive and principal financial officers concluded that our disclosure
controls and procedures are effective to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the Securities and Exchange
Commission.

Change in Internal Control Over Financial Reporting

      There has been no material change in our internal control over financial
reporting (as defined in Rules 13a - 15(f) and 15d - 15(f) under the Exchange
Act) that occurred during the quarter ended March 31, 2005 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.

Inherent Limitations on Effectiveness of Controls

      Our management, including our Chief Executive Officer and Chief Financial
Officer, does not expect that our disclosure controls and procedures or our
internal controls over financial reporting will prevent or detect all error and
all fraud. A control system, no matter how well designed and operated, can
provide only reasonable, not absolute, assurance that the objectives of the
control system are met. The design of a control system must reflect the fact
that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Further, because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance
that misstatements due to error or fraud will not occur or that all control
issues and instances of fraud, if any, within Universal American have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur because of simple
error or mistake. Controls can also be circumvented by the individual acts of
some persons or by collusion of two or more people. The design of any system of
controls is based in part on certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions. Projections of any
evaluation of controls effectiveness to future periods are subject to risks.
Over time, controls may become inadequate because of changes in conditions or
deterioration in the degree of compliance with policies or procedures.

                                       39

<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

      The Company has litigation in the ordinary course of business, including
claims for medical, disability and life insurance benefits, and in some cases,
seeking punitive damages. Management and counsel believe that after reserves and
liability insurance recoveries, none of these will have a material adverse
effect on the Company.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

ISSUER PURCHASES OF EQUITY SECURITIES

<TABLE>
<CAPTION>
                                                                     Total Number of     Maximum Number
                                                                    Shares Purchased     of Shares That
                                                        Average        as Part of          May Yet Be
                                         Total Number    Price          Publicly        Purchased Under
                                           of Shares    Paid Per     Announced Plans      the Plans or
              Period                     Purchased (1)   Share         or Programs          Programs
              ------                     ------------   --------    ----------------    ---------------
<S>                                      <C>            <C>         <C>                 <C>
January 1, 2005 - January 31, 2005...         470       $  14.59           470               708,411
February 1, 2005 - February 28,                45       $  15.33            45               708,366
2005 ................................
March 1, 2005 - March 31, 2005.......         235       $  16.12           235               708,131
                                              ---                          ---
   Total.............................         750                          750
                                              ===                          ===
</TABLE>

(1) All shares were purchased in private transactions.

      During 2000, our Board of Directors approved a plan for us to repurchase
up to 0.5 million shares of our common stock in the open market. The primary
purpose of the plan is to fund employee stock bonuses. Our Board approved an
amendment to the plan to increase the total shares authorized for repurchase to
1.0 million in March 2002 and during December 2003 approved a second amendment
to increase the shares authorized for repurchase to 1.5 million. Additional
repurchases may be made from time to time at prevailing prices, subject to
restrictions on volume and timing.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

                  None

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

                  None

ITEM 5.  OTHER INFORMATION.

                  None

ITEM 6.  EXHIBITS.

<TABLE>
<S>   <C>
2.1   Agreement and Plan of Merger, dated as of March 9, 2004, among
      Universal American Financial Corp., HHS Acquisition Corp., Heritage
      Health Systems, Inc. and Carlyle Venture Partners, L.P., as the
      stockholder representative, incorporated by reference to Form 8-K
      dated March 9, 2004.

3.1   Restated Certificate of Incorporation of Universal American
      Financial Corp. incorporated by reference to Exhibit 3.1 to the
      registrant's Amendment No. 2 to the Registration Statement (No.
      333-62036) on Form S-3 filed on July 11, 2001.

3.2   Amendment No. 1 to the Restated Certificate of Incorporation of
      Universal American Financial Corp., incorporated by reference to
      Exhibit 3 to Form 10-Q (File No. 0-11321) for the quarter ended June
      30, 2004, filed with the SEC on August 9, 2004.
</TABLE>

                                       40

<PAGE>

<TABLE>
<S>   <C>
3.3   Amended and Restated By-Laws of Universal American Financial Corp.,
      incorporated by reference to Exhibit A to Form 8-K (File No.
      0-11321) dated August 13, 1999.

4.1   Form of Indenture dated as of December 2004 between Universal
      American Financial Corp. and U.S. Bank National Association, as
      Trustee, incorporated by reference to Exhibit 4.01 to Amendment No.
      1 to the Company's Registration Statement on Form S-3 (File No.
      333-120190) filed with the Securities and Exchange Commission on
      December 10, 2004.

4.2   Form of Indenture dated as of December 2004 between Universal
      American Financial Corp. and U.S. Bank National Association, as
      Trustee, incorporated by reference to Exhibit 4.02 to Amendment No.
      1 to the Company's Registration Statement on Form S-3 (File No.
      333-120190) filed with the Securities and Exchange Commission on
      December 10, 2004.

4.3   Shareholders Agreement dated July 30, 1999, among the Company,
      Capital Z Financial Services Fund II, L.P., UAFC, L.P., AAM Capital
      Partners, L.P., Chase Equity Associates, L.P., Richard A. Barasch
      and others, incorporated by reference to Exhibit A of Form 8-K dated
      August 13, 1999.

4.4   Registration Rights Agreement, dated July 30, 1999, among the
      Company, Capital Z Financial Services Fund II, L.P., Wand/Universal
      American Investments L.P.I., Wand/Universal American Investments
      L.P. II, Chase Equity Associates, L.P., Richard A. Barasch and
      others, incorporated by reference to Exhibit A to Form 8-K dated
      August 13, 1999.

*11.1 Computation of Per Share Earnings
      Data required by Statement of Financial Accounting Standards No.
      128, Earnings Per Share, is provided in Note 4 to the Consolidated
      Financial Statements in this report.

*31.1 Certification of Chief Executive Officer as required by Rule
      13a-14(a) of the Securities Exchange Act of 1934 and Section 302 of
      the Sarbanes-Oxley Act of 2002.

*31.2 Certification of Chief Financial Officer as required by Rule
      13a-14(a) of the Securities Exchange Act of 1934 and Section 302 of
      the Sarbanes-Oxley Act of 2002.

*32.1 Certification of the Chief Executive Officer and Chief Financial
      Officer, as required by Rule 13a-14(b) of the Securities Exchange
      Act of 1934 and 18 U.S.C. Section 1350, s adopted pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002.
</TABLE>

-----------------
* Filed or furnished herewith.

                                       41
<PAGE>

SIGNATURE

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

                                             UNIVERSAL AMERICAN FINANCIAL CORP.


Date:  May 10, 2005                           By:  /s/ Robert A. Waegelein
                                                  -----------------------
                                                  Robert A. Waegelein
                                                  Executive Vice President and
                                                  Chief Financial Officer

                                       42