<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549



                                 FORM 10-Q/A



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

                     FOR THE PERIOD ENDED SEPTEMBER 30, 2000
                            COMMISSION FILE #0-11321



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


                       NEW YORK                         11-2580136
             ----------------------------    -------------------------------
                (State of Incorporation)        (I.R.S. Employer I.E. No.)


             Six International Drive, Suite 190, Rye Brook, NY 10573
             --------------------------------------------------------
               (Address of principal executive offices) (Zip Code)


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


       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 and (2) has been subject to such filing
requirements for the past 90 days.

                            Yes      X               No
                               ------------            ---------

       The number of shares outstanding of the Registrant's Common Stock as of
October 31, 2000 was 46,821,024.



<PAGE>   2
                       UNIVERSAL AMERICAN FINANCIAL CORP.
                                    FORM 10-Q

                                    CONTENTS




<TABLE>
<CAPTION>
                                                                                                                     Page No.


<S>                                                                                                                   <C>
PART I - FINANCIAL INFORMATION


           Consolidated Balance Sheets at September 30, 2000 and December 31, 1999                                        3

           Consolidated Statements of Operations for the nine months ended September 30, 2000                             4
           and September 30, 1999

           Consolidated Statements of Operations for the three months ended September 30, 2000                            5
           and September 30, 1999

           Consolidated Statements of Cash Flows for the nine months ended September 30, 2000                             6
           and September 30, 1999

           Notes to Consolidated Financial Statements                                                                  7-16

           Management's Discussion and Analysis of Financial Condition and Results of Operations                      17-33


PART II - OTHER INFORMATION                                                                                              34

           Signature                                                                                                     34
</TABLE>



                                       2
<PAGE>   3
               UNIVERSAL AMERICAN FINANCIAL CORP. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
ASSETS                                                                               September 30, 2000          Dec. 31, 1999
                                                                                    ----------------------   ----------------------
Investments:                                                                             (unaudited)
<S>                                                                                 <C>                      <C>
  Fixed maturities available for sale, at fair value
    (amortized cost: 2000, $744,664; 1999, $734,466)                                            $ 734,242                $ 717,560
  Equity securities, at fair value (cost: 2000, $5,235; 1999, $5,120)                               4,937                    4,838
  Policy loans                                                                                     25,363                   25,640
  Other invested assets                                                                             2,094                    2,763
  Mortgage loans                                                                                    2,413                    2,743
                                                                                    ----------------------   ----------------------
    Total investments                                                                             769,049                  753,544

Cash and cash equivalents                                                                          38,385                   58,753
Accrued investment income                                                                          10,845                   11,506
Deferred policy acquisition costs                                                                  47,520                   34,943
Amounts due from reinsurers                                                                       214,007                  196,960
Due and unpaid premiums                                                                             3,986                    3,578
Deferred income tax asset                                                                          62,954                   70,968
Goodwill                                                                                            9,578                    4,201
Present value of future profits                                                                     6,631                    1,226
Other assets                                                                                       24,484                   17,742
                                                                                    ----------------------   ----------------------
    Total assets                                                                                1,187,439                1,153,421
                                                                                    ======================   ======================

LIABILITIES  AND STOCKHOLDERS' EQUITY

LIABILITIES
Policyholder account balances                                                                     229,962                  238,665
Reserves for future policy benefits                                                               577,033                  560,777
Policy and contract claims - life                                                                   6,760                    5,644
Policy and contract claims - health                                                                78,604                   72,261
Loan payable                                                                                       71,500                   70,000
Amounts due to reinsurers                                                                           2,261                       85
Restructuring accrual                                                                               5,358                    9,980
Negative goodwill                                                                                   2,001                    9,622
Other liabilities                                                                                  56,236                   52,422
                                                                                    ----------------------   ----------------------
    Total liabilities                                                                           1,029,715                1,019,456
                                                                                    ----------------------   ----------------------




STOCKHOLDERS' EQUITY
Common stock (Authorized, 80,000, issued and outstanding: 2000, 46,832,
  1999, 45,914)                                                                                       468                      459
Additional paid-in capital                                                                        128,329                  122,924
Accumulated other comprehensive income                                                             (5,242)                  (6,887)
Retained earnings                                                                                  34,169                   17,469
                                                                                    ----------------------   ----------------------
    Total stockholders' equity                                                                    157,724                  133,965
                                                                                    ----------------------   ----------------------
    Total liabilities and stockholders' equity                                                $ 1,187,439              $ 1,153,421
                                                                                    ======================   ======================
</TABLE>

           See notes to unaudited consolidated financial statements.


                                       3
<PAGE>   4



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




<TABLE>
<CAPTION>
                                                                                           NINE MONTHS ENDED SEPTEMBER 30,
                                                                                           2000                     1999
                                                                                    -------------------    -----------------------
  Revenues:                                                                          (in thousands, per share amounts in dollars)
<S>                                                                                     <C>                          <C>
     Gross premium and policyholder fees earned                                         $   334,315                  $   147,737
     Reinsurance premiums assumed                                                             2,210                        1,524
     Reinsurance premiums ceded                                                            (170,277)                     (87,235)
                                                                                    -------------------    -----------------------
           Net premium and policyholder fees earned                                         166,248                       62,026

     Net investment income                                                                   42,693                       15,103
     Net realized gains/(losses) on investments                                                 144                           18
     Fee income                                                                               4,982                        1,604
                                                                                    -------------------    -----------------------
            Total revenues                                                                  214,067                       78,751
                                                                                    -------------------    -----------------------

  Benefits, claims and expenses:
     Increase in future policy benefits                                                       2,423                        1,192
     Claims and other benefits                                                              113,895                       40,115
     Interest credited to policyholders                                                       7,596                        5,846
     Increase in deferred acquisition costs                                                 (13,013)                      (2,592)
     Amortization of present value of future profits                                          2,305                          131
     Amortization of goodwill/negative goodwill                                                (254)                        (217)
     Commissions                                                                             60,041                       26,283
     Interest expense                                                                         5,262                        1,265
     Other operating costs and expenses                                                      58,427                       24,061
     Commission and expense allowances on reinsurance ceded                                 (48,531)                     (24,659)
                                                                                    -------------------    -----------------------
            Total benefits, claims and other deductions                                     188,151                       71,425
                                                                                    -------------------    -----------------------

  Operating income before taxes                                                              25,916                        7,326
  Federal and foreign income tax expense                                                      9,216                        2,681
                                                                                    -------------------    -----------------------
  Net income                                                                                 16,700                        4,645
  Redemption accrual on Series C and Series D Preferred Stock                                    --                          179
                                                                                    -------------------    -----------------------
  Net income applicable to common shareholders                                         $     16,700                     $  4,466
                                                                                    ===================    =======================

  Earnings per common share:

    Basic                                                                                $     0.36                     $   0.27
                                                                                    ===================    =======================

    Diluted                                                                              $     0.35                     $   0.22
                                                                                    ===================    =======================
</TABLE>



            See notes to unaudited consolidated financial statements



                                       4
<PAGE>   5

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




<TABLE>
<CAPTION>
                                                                                          THREE MONTHS ENDED SEPTEMBER 30,
                                                                                           2000                     1999
                                                                                    -------------------    -----------------------
  Revenues:                                                                          (in thousands, per share amounts in dollars)
<S>                                                                                     <C>                           <C>
     Gross premium and policyholder fees earned                                         $   113,126                   $   80,921
     Reinsurance premiums assumed                                                               812                          544
     Reinsurance premiums ceded                                                             (58,311)                     (41,186)
                                                                                    -------------------    -----------------------
           Net premium and policyholder fees earned                                          55,627                       40,279

     Net investment income                                                                   13,977                        9,433
     Net realized gains/(losses) on investments                                                  (5)                          33
     Fee income                                                                               1,870                          443
                                                                                    -------------------    -----------------------
            Total revenues                                                                   71,469                       50,188
                                                                                    -------------------    -----------------------

  Benefits, claims and expenses:
     Increase in future policy benefits                                                       1,193                          349
     Claims and other benefits                                                               38,759                       25,637
     Interest credited to policyholders                                                       2,505                        2,184
     Increase in deferred acquisition costs                                                  (4,986)                      (1,172)
     Amortization of present value of future profits                                            790                           44
     Amortization of goodwill/negative goodwill                                                  93                         (293)
     Commissions                                                                             19,685                       12,870
     Interest expense                                                                         1,861                        1,265
     Other operating costs and expenses                                                      19,623                       13,173
     Commission and expense allowances on reinsurance ceded                                 (16,320)                      (9,055)
                                                                                    -------------------    -----------------------
            Total benefits, claims and other deductions                                      63,203                       45,002
                                                                                    -------------------    -----------------------

  Operating income before taxes                                                               8,266                        5,186
  Federal and foreign income tax expense                                                      2,853                        1,953
                                                                                    -------------------    -----------------------
  Net income                                                                            $     5,413                  $     3,233
                                                                                    ===================    =======================

  Earnings per common share:

    Basic                                                                               $      0.12                  $      0.10
                                                                                    ===================    =======================
    Diluted                                                                             $      0.12                  $      0.09
                                                                                    ===================    =======================
</TABLE>



            See notes to unaudited consolidated financial statements



                                       5
<PAGE>   6

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


<TABLE>
<CAPTION>
                                                                                           NINE MONTHS ENDED SEPTEMBER 30,
                                                                                           2000                     1999
                                                                                     ------------------     ---------------------
                                                                                                   (In thousands)
<S>                                                                                       <C>                     <C>
Cash flows from operating activities:
Net income                                                                                $     16,700            $     4,645
Adjustments to reconcile net income to net cash used by operating activities:
  Deferred income taxes                                                                          5,755                  1,059
  Change in reserves for future policy benefits                                                  4,936                  4,424
  Change in policy and contract claims                                                           7,459                    679
  Change in deferred policy acquisition costs                                                  (12,558)                (2,592)
  Change in deferred revenue                                                                       (24)                   (40)
  Amortization of present value of future profits                                                2,305                    131
  Amortization of goodwill/negative goodwill                                                      (254)                  (216)
  Change in policy loans                                                                           277                    147
  Change in accrued investment income                                                              204                    574
  Change in reinsurance balances                                                               (12,505)                (4,360)
  Change in due and unpaid premium                                                                (408)                  (477)
  Realized (gains)/losses on investments                                                          (144)                   (18)
  Change in income taxes payable                                                                   653                  8,517
  Other, net                                                                                    (3,787)                (7,143)
                                                                                     ------------------     ---------------------
Net cash provided by operating activities                                                        8,609                  5,330
                                                                                     ------------------     ---------------------

Cash flows from investing activities:
  Proceeds from sale of fixed maturities available for sale                                     65,342                 12,270
  Proceeds from redemption of fixed maturities available for sale                                9,447                 14,675
  Cost of fixed maturities purchased available for sale                                        (88,688)               (72,385)
  Change in amounts held in trust by reinsurer                                                  (1,140)                  (910)
  Proceeds from sale of equity securities                                                          138                    374
  Cost of equity securities purchased                                                             (408)                  (144)
  Change in other invested assets                                                                  999                  2,588
  Change in amounts due to/(from) broker                                                           (30)                 7,604
  Purchase of business, net of cash held                                                        (6,365)                (5,348)
                                                                                     ------------------     ---------------------
Net cash used in investing activities                                                          (20,705)               (41,276)
                                                                                     ------------------     ---------------------

Cash flows from financing activities:
  Prepaid acquisition costs
  Net proceeds from issuance of common stock                                                       157                 89,600
  Net proceeds from issuance of Series D Preferred Stock                                             0                  1,750
  Increase (decrease) in policyholder account balances                                          (8,703)                 1,877
  Change in reinsurance balances related to policyholder account balances                       (1,226)                (1,063)
  Increase in loan payable                                                                       1,500                 70,000
  Principal payment on notes payable                                                                 0                 (4,750)
                                                                                     ------------------     ---------------------
Net cash provided by/(used in) financing activities                                             (8,272)               157,414
                                                                                     ------------------     ---------------------

Net increase (decrease) in cash and cash equivalents                                           (20,368)               121,468

Cash and cash equivalents at beginning of period                                                58,753                 17,093
                                                                                     ------------------     ---------------------
Cash and cash equivalents at end of period                                                  $   38,385              $ 138,561
                                                                                     ==================     =====================

Supplemental cash flow information:
  Cash paid during the period for interest                                                  $    5,262              $   1,265
                                                                                     ==================     =====================
  Cash paid during the period for income taxes                                              $      125              $      25
                                                                                     ==================     =====================
</TABLE>

            See notes to unaudited consolidated financial statements


                                       6
<PAGE>   7
               UNIVERSAL AMERICAN FINANCIAL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.         BASIS OF PRESENTATION

           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 nine months ended
September 30, 2000 are not necessarily indicative of the results to be expected
for the full year. The consolidated financial statements should be read in
conjunction with the Form 10-K for the year ended December 31, 1999. Certain
reclassifications have been made to prior year's financial statements to conform
with current period classifications.

           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" or the "Parent Company") 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") and
WorldNet Services Corp. ("WorldNet"). On July 30, 1999, Universal acquired all
of the outstanding shares of common stock of certain direct and indirect
subsidiaries of PennCorp Financial Group ("PFG"), including the following six
insurance companies (the "Penn Union Companies"): 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") and PennCorp Life Insurance Company, a Canadian company ("PennCorp
Canada"). On January 6, 2000, Universal acquired American Insurance
Administration Group ("AIAG"). On August 31, 2000, Universal acquired Capitated
Healthcare Services, Inc. ("CHCS").

           Universal is a life and accident and health insurance holding company
whose principal insurance subsidiaries noted above traditionally, through a
general agency system, marketed and underwrote products aimed at the senior
market, including Medicare supplement, long-term care, home health care, life
insurance and annuities. With the acquisition of the Penn Union Companies, the
Company has expanded its issuance of fixed benefit accident and health insurance
products. The acquisition expanded the Company's general agency system and
generated a new distribution system consisting of career agents. The career
agent distribution system operates through a network of regional managers that
operate branch offices throughout the United States and Canada. These career
agents focus only on sales for Pennsylvania Life and PennCorp Canada. Universal,
through its acquisitions of AIAG and CHCS in 2000, has expanded its insurance
services segment to include independent third party administrative service
contracts.

2.         BUSINESS COMBINATION

           Penn Union Acquisition

           On July 30, 1999, Universal acquired all of the outstanding shares of
common stock of the Penn Union Companies and other related assets.

           The purchase price of $130.5 million in cash was financed with $92.8
million of proceeds generated from the sale of 29.5 million shares of common
stock and from the term loan portion of an $80 million credit facility entered
into on July 30, 1999 consisting of a $70 million term loan and a $10 million
revolving loan facility. The proceeds of the financing in excess of the $130.5
million purchase price were used to pay transaction costs of the acquisition and
the financing, to retire an existing Universal bank loan, to contribute to the
surplus of Pennsylvania Life and for working capital.


                                       7
<PAGE>   8

           The acquisition of the Penn Union Companies was accounted for using
the purchase method and, accordingly, the operating results generated by the
acquired companies after July 30, 1999 are included in Universal's consolidated
financial statements. In addition to the purchase price, the Company incurred
costs totaling $18.3 million including a restructuring accrual of $10.4 million
and $3.8 million in stock compensation expense related to shares purchased by
agents and certain members of management at prices discounted from the market.
At the time of closing, the fair value of net assets of the acquired companies
amounted to $151.7 million resulting in a negative goodwill amount of $2.9
million, which will be amortized on a straight line basis over a ten year
period. During the third quarter of 2000, the Company finalized its purchase
accounting adjustments for the PennUnion acquisition. The final adjustments
related primarily to certain policy reserves and contingencies with regard to
the true-up of the purchase price settlement with the seller. As a result of
these adjustments, the business equity acquired and corresponding negative
goodwill was reduced by $7.1 million from the amount reported as of
December 31, 1999.

           The consolidated pro forma results of operations for the nine months
ended September 30, 1999, as if the companies described above had been purchased
on January 1, 1999, are as follows:

<TABLE>
<CAPTION>
                                                                           Nine Months Ended September
                                                                                    30, 1999
                                                                          -----------------------------
                                                                                 (In thousands)
<S>                                                                                 <C>
       Total revenue                                                                $205,420
       Operating income before taxes                                                $ 23,539
       Net income                                                                   $ 13,585

       Earnings per common share:
           Basic                                                                     $  0.34
           Diluted                                                                   $  0.30
</TABLE>


           In January 2000, the Company announced that it had approved a plan to
consolidate the Raleigh location acquired with the Penn Union Companies into its
locations in Toronto, Canada, Pensacola, Florida, and Orlando, Florida in order
to improve operating efficiencies and capabilities. The plan to consolidate this
location was being formulated at the date of acquisition. Accordingly, the
Company recorded a $10.4 million restructuring liability in its accounting for
the Penn Union acquisition.

           This liability was accounted for under EITF No. 95-3, "Recognition of
Liabilities in Connection with a Purchase Business Combination" ("EITF 95-3").
The liability consisted of employee separation costs ($3.2 million), employee
relocation costs ($2.6 million), and other relocation and exit costs and during
the nine months ended September 30, 2000, the Company paid $5.1 million in
restructuring charges. The Company expects the consolidation to be completed in
early 2001.


           Acquisition of American Insurance Administration Group ("AIAG")

           In January 2000, Universal acquired all of the outstanding shares of
AIAG, a privately held third party administrator located in Clearwater, Florida,
for $2.875 million in cash, 809,860 shares of Universal common stock and certain
contingent future cash payments. AIAG is the third party administrator of
approximately $123 million of senior supplemental health insurance,
approximately $97 million of which is administered for Union Bankers and
Constitution. Total revenue for the nine months ended September 30, 2000 totaled
$7.6 million of which $5.6 million related to Union Bankers and Constitution and
was eliminated in the accompanying consolidated financial statements.


           Acquisition of CHCS, Inc. ("CHCS")

           In August 2000, Universal acquired all of the outstanding shares of
CHCS, a privately held third party administrator located in Weston, Florida, for
$3.3 million in cash, 64,820 shares on Universal common stock and future cash
payments totaling $1.0 million over 18 months. CHCS is the third party
administrator of long term care and home health care insurance products for over
21 unaffiliated insurance companies. For the two months ended September 30,
2000, CHCS received administrative fees of $870 thousand on contracts with
expected annual fees of $5.2 million.

3.         COMPREHENSIVE INCOME

           The components of comprehensive income, net of related tax, for the
nine-month periods ended September 30, 2000 and 1999 are as follows:


                                       8
<PAGE>   9
<TABLE>
<CAPTION>
                                                                                FOR THE NINE MONTHS
                                                                                ENDED SEPTEMBER 30,
                                                                    --------------------------------------------
                                                                           2000                     1999
                                                                    -------------------      -------------------
                                                                                  (In thousands)
<S>                                                                 <C>                 <C>
           Net income                                                          $16,700             $4,646
                                                                    -------------------      -------------------
           Other comprehensive income:
              Unrealized gain/(loss) on securities                               3,943            (2,428)
              Foreign currency translation adjustment                          (2,298)             1,054
                                                                    -------------------      -------------------
           Other comprehensive income/(loss)                                     1,645            (1,374)
                                                                    -------------------      -------------------
           Comprehensive income/(loss)                                        $ 18,345             $3,272
                                                                    ===================      ===================
 </TABLE>

           The components of comprehensive income, net of related tax, for the
           three-month periods ended September 30, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                                                               FOR THE THREE MONTHS
                                                                                ENDED SEPTEMBER 30,
                                                                    --------------------------------------------
                                                                           2000                     1999
                                                                    -------------------      -------------------
                                                                                  (In thousands)
<S>                                                                           <C>                  <C>
           Net income                                                         $5,413               $3,233
                                                                    -------------------      -------------------
           Other comprehensive income:
              Unrealized gain/(loss) on securities                               4,365               (413)
              Foreign currency translation adjustment                          (1,004)              1,054
                                                                    -------------------      -------------------
           Other comprehensive income/(loss)                                     3,361                641
                                                                    -------------------      -------------------
           Comprehensive income/(loss)                                        $8,774               $3,874
                                                                    ===================      ===================
</TABLE>


4.         EARNINGS PER SHARE

           Per share amounts for net income from operations are shown in the
income statement using i) an earnings per common share basic calculation and ii)
an earnings per common share-assuming dilution calculation. A reconciliation of
the numerators and the denominators of the basic and diluted EPS for the nine
months ended September 30, 2000 and 1999 is as follows:







                                       9
<PAGE>   10












<TABLE>
<CAPTION>
                                                                           FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
                                                                  ---------------------------------------------------------------
                                                                       Income                  Shares               Per Share
                                                                     (Numerator)            (Denominator)             Amount
                                                                  ------------------     --------------------     ---------------
                                                                           (In thousands, per share amounts in dollars)

<S>                                                                      <C>                    <C>                       <C>
Basic EPS
Net income applicable to common shareholders                             $ 16,700                 46,739                  $ 0.36

Effect of Dilutive Securities
Incentive stock options                                                                            1,044
Director stock options                                                                               112
Agents and others stock options                                                                      642
Treasury stock assumed from proceeds of
  options and warrants                                                                            (1,407)
                                                                  ------------------     --------------------

Diluted EPS
Net income applicable to common
  shareholders plus assumed conversions                                  $ 16,700                 47,130                  $ 0.35
                                                                  ==================     ====================     ===============
</TABLE>


<TABLE>
<CAPTION>
                                                                           FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
                                                                  ---------------------------------------------------------------
                                                                       Income                  Shares               Per Share
                                                                     (Numerator)            (Denominator)             Amount
                                                                  ------------------     --------------------     ---------------
                                                                           (In thousands, per share amounts in dollars)
<S>                                                                        <C>                <C>                 <C>
Net income                                                                 $4,645
Less: Redemption accrual on Series C Preferred
  Stock                                                                      (179)
                                                                  ------------------

Basic EPS
Net income applicable to common shareholders                                4,466                   16,581                $ 0.27
                                                                                                                  ===============

Effect of Dilutive Securities
Series B Preferred Stock                                                                             1,383
Series C Preferred Stock                                                      180                      725
Series D Preferred Stock                                                                               992
Non-registered warrants                                                                              2,016
Registered warrants                                                                                    641
Incentive stock options                                                                              1,408
Director stock options                                                                                  51
Agents and others stock options                                                                        263
Treasury stock assumed from proceeds of
  options and warrants                                                                              (2,419)
                                                                  ------------------     --------------------

Diluted EPS
Net income applicable to common
  shareholders plus assumed conversions                                    $4,646                   21,641                $ 0.22
                                                                  ==================     ====================     ===============
</TABLE>

           A reconciliation of the numerators and the denominators of the basic
and diluted EPS for the three months ended September 30, 2000 and 1999 is as
follows:




                                       10
<PAGE>   11
<TABLE>
<CAPTION>
                                                                            FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
                                                                    ---------------------------------------------------------------
                                                                         Income                  Shares               Per Share
                                                                       (Numerator)            (Denominator)             Amount
                                                                    ------------------     --------------------     ---------------
                                                                             (In thousands, per share amounts in dollars)

<S>                                                                         <C>                   <C>                       <C>
Basic EPS
Net income applicable to common shareholders                                $ 5,413                 46,793                  $ 0.12

Effect of Dilutive Securities
Incentive stock options                                                                              1,208
Director stock options                                                                                 124
Agents and others stock options                                                                        804
Treasury stock assumed from proceeds of
  options and warrants                                                                              (1,766)
                                                                    ------------------     --------------------

Diluted EPS
Net income applicable to common
  shareholders plus assumed conversions                                     $ 5,413                 47,163                  $ 0.12
                                                                    ==================     ====================     ===============
</TABLE>


<TABLE>
<CAPTION>
                                                                            FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
                                                                    ---------------------------------------------------------------
                                                                         Income                  Shares               Per Share
                                                                       (Numerator)            (Denominator)             Amount
                                                                    ------------------     --------------------     ---------------
                                                                             (In thousands, per share amounts in dollars)
<S>                                                                         <C>                     <C>                  <C>
Basic EPS
Net income applicable to common shareholders                                $ 3,233                   32,066                $ 0.10
                                                                                                                    ===============

Effect of Dilutive Securities
Series B Preferred Stock                                                                                 593
Series C Preferred Stock                                                                                   -
Series D Preferred Stock                                                                                 463
Non-registered warrants                                                                                2,016
Registered warrants                                                                                      621
Incentive stock options                                                                                2,639
Director stock options                                                                                    51
Agents and others stock options                                                                          263
Treasury stock assumed from proceeds of
  options and warrants                                                                                (2,701)
                                                                    ------------------     --------------------

Diluted EPS
Net income applicable to common
  shareholders plus assumed conversions                                     $ 3,233                   36,011                $ 0.09
                                                                    ==================     ====================     ===============
</TABLE>


5.         INVESTMENTS

           As of September 30, 2000 and December 31, 1999, 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.




                                       11
<PAGE>   12



<TABLE>
<CAPTION>
                                                                              SEPTEMBER 30, 2000
                                              -----------------------------------------------------------------------------------
                                                                             Gross               Gross
                                                   Amortized              Unrealized           Unrealized            Fair
Classification                                         Cost                  Gains               Losses              Value
----------------------------------------      -----------------------  ------------------  ------------------- ------------------
(In thousands)
<S>                                                   <C>                  <C>                   <C>               <C>
US Treasury securities
  and obligations of
  US government                                       $ 35,472             $    169              $(   143)         $ 35,498
Corporate debt securities                              447,399                2,155                (7,877)          441,677
Mortgage-backed securities                             261,793                  814                (5,540)          257,067
                                                      --------             --------              --------          --------
                                                      $744,664             $  3,138              $(13,560)         $734,242
                                                      ========             ========              ========          ========
</TABLE>


<TABLE>
<CAPTION>
                                                                              DECEMBER 31, 1999
                                              -----------------------------------------------------------------------------------
                                                                             Gross               Gross
                                                    Amortized             Unrealized           Unrealized            Fair
Classification                                         Cost                  Gains               Losses              Value
----------------------------------------      -----------------------  ------------------  ------------------- ------------------
(In thousands)
<S>                                                       <C>                    <C>               <C>                <C>
US Treasury securities
  and obligations of
  US government                                           $   63,968             $    10           $    (587)           $ 63,391
Corporate debt securities                                    446,630                 420             (10,693)            436,357
Mortgage-backed securities                                   223,868                 190              (6,246)            217,812
                                              -----------------------  ------------------  ------------------- ------------------
                                                          $  734,466             $   620           $ (17,526)           $717,560
                                              =======================  ==================  =================== ==================
</TABLE>

           The amortized cost and fair value of fixed maturities at September
30, 2000 by contractual maturity 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                                        $  27,601                 $  27,442
           Due after 1 year through 5 years                               160,139                   159,398
           Due after 5 years through 10 years                             215,788                   211,712
           Due after 10 years                                              76,844                    76,150
           Mortgage-backed securities                                     264,292                   259,540
                                                                ---------------------     ---------------------
                                                                        $ 744,664                 $ 734,242
                                                                =====================     =====================
</TABLE>

6.         STOCKHOLDERS' EQUITY

           Common Stock

           The par value of common stock is $.01 per share with 80,000,000
shares authorized for issuance. The shares issued and outstanding at September
30, 2000 and December 31, 1999 were 46,831,543 and 45,914,327, respectively.

                                       12
<PAGE>   13
Changes in the number of shares of common stock outstanding were as follows:


<TABLE>
<CAPTION>
<S>                                                                                              <C>
           Balance at December 31, 1999                                                          45,914,327
           Stock issued for purchase of AIAG                                                        809,860
           Stock issued for purchase of CHCS                                                         64,820
           Stock options exercised                                                                    8,000
           Stock purchases pursuant to Agents' Stock Purchase Plan                                   11,750
           Stock issued under employee/agent benefit plans                                           22,786
                                                                                           -----------------
           Balance at September 30, 2000                                                         46,831,543
                                                                                           =================
</TABLE>


7.         IMPACT OF THE YEAR 2000

           The Year 2000 issue relates to whether computer systems will properly
recognize date-sensitive information in years subsequent to 1999. Prior to 2000,
the Company underwent a corporate-wide program to address the Year 2000 issue,
as it relates to its own computer systems, as well as to instances in which
computer systems of third parties may have a significant impact on the Company's
operations, such as suppliers, business partners, customers, facilities and
telecommunications. In addressing the Year 2000 issue, the Company did not incur
any significant expenses other than the allocation of internal resources to test
and monitor this issue. The Company has not experienced any significant
disruptions of business operations related to the Year 2000 issue to date and
believes that the risk of such disruption in the future is low, although no
assurance can be given in this regard. It is possible that Year 2000 problems
that are not currently apparent may arise in the future. Accordingly, the
Company will continue to monitor its systems for the Year 2000 issue.


8.         STATUTORY CAPITAL AND SURPLUS REQUIREMENTS

           American Progressive, American Pioneer, American Exchange,
Constitution Life, Marquette, Peninsular Life, PennCorp Canada, Pennsylvania
Life and Union Bankers (collectively, the "Insurance Subsidiaries") are required
to maintain minimum amounts of capital and surplus as determined by statutory
accounting. Each of the Insurance Subsidiaries' statutory capital and surplus
exceeds its respective minimum requirement. 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 the
Insurance Subsidiaries' operations. At September 30, 2000 and December 31, 1999
the statutory capital and surplus, including asset valuation reserve, of the
U.S. insurance subsidiaries totaled $89.9 and $89.2 million, respectively.

           Beginning in 1993, the National Association of Insurance
Commissioners ("NAIC") imposed regulatory risk-based capital ("RBC")
requirements on life insurance enterprises. At December 31, 1999 all of the
Insurance Subsidiaries maintained ratios of total adjusted capital to RBC in
excess of the Authorized Control Level.

           PennCorp Canada and Pennsylvania Life's Canadian branch reports to
Canadian regulatory authorities based upon Canadian statutory accounting
principles that vary in some respects from U.S. statutory accounting principles.
Canadian net assets based upon Canadian statutory accounting principles were
$63.3 and $63.9 million as of September 30, 2000 and December 31, 1999,
respectively. PennCorp Canada maintained a Minimum Continuing Capital and
Surplus Requirement Ratio ("MCCSR") in excess of the minimum requirement and
Pennsylvania Life's Canadian branch maintained a Test of Adequacy of Assets in
Canada and Margin Ratio ("TAAM") in excess of the minimum requirement at
September 30, 2000 and 1999.



                                       13
<PAGE>   14

9.         BUSINESS SEGMENT INFORMATION

           During the third quarter of 1999 and with the acquisition of the Penn
Union companies, Universal changed its segment structure. Under the new
structure, the insurance businesses are reviewed by management of the Company
along distribution lines, and decisions regarding the operation of the Company
are made accordingly. In addition, due to the vast difference in the nature of
the operations from the insurance businesses, management reviews and evaluates
the results of the Insurance Services and Corporate Segment separately.

           Under the new segment structure, the Company considers itself to have
four distinct business segments: Career Sales, Senior Market Brokerage, Special
Markets and Insurance Services and Corporate Segment. Products distributed
through the Career Sales segment are sold through a network of regional managers
who operate branch offices throughout the U.S. and Canada. The career agents
focus only on sales for Pennsylvania Life and PennCorp Canada and sell primarily
fixed benefit accident and health insurance. Total revenue and operating income
before taxes generated by Canadian operations through PennCorp Canada and
Pennsylvania Life's Canadian branch totaled $42.8 million and $9.2 million,
respectively, for the nine month period ended September 30, 2000. The career
agents began to offer Universal's senior market products discussed below in
2000. Business in the Senior Market Brokerage Segment is sold through a
traditional general agency system which focuses on the sale of various senior
market products including Medicare supplement, home health care, nursing home
and hospital indemnity products. Agents in this segment do not sell exclusively
for the Company. The Special Markets segment consists of blocks of business that
were acquired through the acquisitions of various companies or are not currently
produced through the career or Senior Market brokerage agency distribution
channels as well as some specialty life insurance and accident and health
products. The information previously reported under "Life Insurance Segment" and
"Other Accident and Health Insurance Segment" has been combined under the
Special Markets Segment. The Insurance Services and Corporate Segment consists
mainly of the Parent Company including eliminations, WorldNet, AIAG and CHCS
operations. Prior year segment information has been restated to conform with the
current segment structure.

           Financial data by segment as of and for the nine months ended
September 30, 2000 and 1999 is as follows:

<TABLE>
<CAPTION>
                                                                                September 30, 2000
                                               -------------------------------------------------------------------------------------
                                                                                  (In thousands)
                                                                                                     Insurance
                                                   Career         Senior Market       Special       Services and
                                                   Sales            Brokerage         Markets        Corporate           Total
                                               ----------------  ----------------  -------------- ----------------- ----------------
<S>                                            <C>                  <C>              <C>                 <C>          <C>
Net premiums and policyholder fees earned           $  99,844            32,098           34,306               -           166,248
Net investment income                                  23,631               969           18,747            (654)           42,693
Realized gains                                              -               136                8               -               144
Fee and other income                                      417                 -              259           4,306             4,982
                                               ----------------  ----------------  -------------- ----------------- ----------------
   Total revenue                                      123,892            33,203           53,320           3,652           214,067
                                               ----------------  ----------------  -------------- ----------------- ----------------

Policyholder benefits                                  64,285            25,523           34,106               -           123,914
Increase in deferred acquisition costs                 (9,789)           (2,947)            (277)              -           (13,013)
Commissions and general expenses                       47,529             6,557           15,385           7,779            77,250
                                               ----------------  ----------------  -------------- ----------------- ----------------
   Total benefits, claims and other deductions        102,025            29,133           49,214           7,779           188,151
                                               ----------------  ----------------  -------------- ----------------- ----------------

Operating income before taxes                          21,867             4,070            4,106          (4,127)           25,916
                                               ================  ================  ============== =================  ===============

ASSETS
Cash and investments                                  451,064            20,828          329,221           6,321           807,434
Deferred policy acquisition costs                      12,614            14,519           20,387               -            47,520
</TABLE>


                                       14
<PAGE>   15
<TABLE>
<S>                                               <C>                 <C>            <C>              <C>             <C>
Accrued investment income                               5,699               215            4,931               -            10,845
Goodwill                                                    -             3,568              517           5,493             9,578
Present value of future profits                             -               727              321           5,583             6,631
Due and unpaid premiums                                 2,866               292              828               -             3,986
Reinsurance recoverable                                 5,325           125,513           83,169               -           214,007
Deferred income tax asset                                   -                 -                -          63,484            63,484
Other assets                                            4,616             2,569            4,204          13,095            24,484

                                               ----------------  ----------------  -------------- ----------------- ----------------
   Total assets                                    $  482,184         $ 168,231        $ 443,578       $  93,976       $ 1,187,969
                                               ================  ================  ============== ================= ================
</TABLE>

<TABLE>
<CAPTION>
                                                                                September 30, 1999
                                               -------------------------------------------------------------------------------------
                                                                                                     Insurance
                                                   Career         Senior Market       Special       Services and
                                                   Sales            Brokerage         Markets        Corporate           Total
                                               ----------------  ----------------  -------------- ----------------- ----------------
<S>                                            <C>               <C>              <C>                 <C>           <C>
Net premiums and policyholder fees earned              21,664            21,383           18,980               -            62,027
Net investment income                                   4,565               546           10,022             (30)           15,103
Realized gains                                             18                 -               29             (30)               17
Fee and other income                                      (59)                -              (93)          1,756             1,604
                                               ----------------  ----------------  -------------- ----------------- ----------------
   Total revenue                                       26,188            21,929           28,938           1,696            78,751

Policyholder benefits                                  12,594            15,939           18,620               -            47,153
Increase in deferred acquisition costs                   (406)           (2,454)             268               -            (2,592)
Commissions and general expenses                       10,180             6,471            6,885           3,328            26,864
                                               ----------------  ----------------  -------------- ----------------- ----------------
   Total benefits, claims and other deductions         22,368            19,956           25,773           3,328            71,425

Operating income before taxes                           3,820             1,973            3,165          (1,632)            7,326
                                               ================  ================  ============== ================= ================

ASSETS
Cash and investments                                  443,681             9,871          357,920           7,897           819,369
Deferred policy acquisition costs                         407             9,693           20,243               -            30,343
Accrued investment income                               4,447               223            5,926               -            10,596
Goodwill                                                    -             3,703              536               -             4,239
Present value of future profits                             -               963              476               -             1,439
Due and unpaid premiums                                 3,544               436            1,106               -             5,086
Reinsurance recoverable                                 4,890            35,922          153,115               -           193,927
Deferred income tax asset                                   -                 -                -          63,092            63,092
Other assets                                           11,776                 -            2,586           6,878            21,240
                                               ----------------  ----------------  -------------- ----------------- ----------------
   Total assets                                     $ 468,745          $ 60,811        $ 541,908        $ 77,867       $ 1,149,331
                                               ================  ================  ============== ================= ================
</TABLE>

           Financial data by segment for the three months ended September 30,
2000 and 1999 is as follows:

<TABLE>
<CAPTION>
                                                                                September 30, 2000
                                               -------------------------------------------------------------------------------------
                                                                                  (In thousands)
                                                                                                     Insurance
                                                   Career         Senior Market       Special       Services and
                                                   Sales            Brokerage         Markets        Corporate           Total
                                               ----------------  ----------------  -------------- ----------------- ----------------
<S>                                            <C>               <C>              <C>                 <C>           <C>
Net premiums and policyholder fees earned              33,660            11,346           10,621               -            55,627
Net investment income                                   7,928               416            6,381            (748)            13,977
Realized gains                                            (80)              132              (55)              -                (3)
Fee and other income                                      144                 -               32           1,694             1,870
                                               ----------------  ----------------  -------------- ----------------- ----------------
   Total revenue                                       41,652            11,894           16,979             946            71,469

Policyholder benefits                                  22,696             9,349           10,412               -            42,457
Increase in deferred acquisition costs                 (3,565)           (1,320)            (101)              -            (4,986)
Commissions and general expenses                       15,693             2,031            5,128           2,882            25,732
                                               ----------------  ----------------  -------------- ----------------- ----------------
   Total benefits, claims and other deductions         34,824            10,060           15,439           2,882            63,203

Operating income before taxes                           6,828             1,834            1,540          (1,936)            8,266
                                               ================  ================  ============== ================= ================
</TABLE>



                                       15
<PAGE>   16
<TABLE>
<CAPTION>
                                                                                September 30, 1999
                                               -------------------------------------------------------------------------------------
                                                                                                     Insurance
                                                   Career         Senior Market       Special       Services and
                                                   Sales            Brokerage         Markets        Corporate           Total
                                               ----------------  ----------------  -------------- ----------------- ----------------
<S>                                            <C>                <C>             <C>                <C>            <C>
Net premiums and policyholder fees earned              21,665             7,969           10,645               -            40,279
Net investment income                                   4,565               147            4,785             (64)            9,433
Realized gains                                             18                 2               43             (30)               33
Fee and other income                                      (59)                -             (116)            618               443
                                               ----------------  ----------------  -------------- ----------------- ----------------
   Total revenue                                       26,189             8,118           15,357             524            50,188

Policyholder benefits                                  12,595             5,976            9,599               -            28,170
Increase in deferred acquisition costs                   (406)             (824)              58               -            (1,172)
Commissions and general expenses                       10,180             2,068            3,161           2,595            18,004
                                               ----------------  ----------------  -------------- ----------------- ----------------
   Total benefits, claims and other deductions         22,369             7,220           12,818           2,595            45,002

Operating income before taxes                           3,820               898            2,539          (2,071)            5,186
                                               ================  ================  ============== ================= ================
</TABLE>




                                       16
<PAGE>   17
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

           The Company cautions readers regarding certain forward-looking
statements contained in the following discussion and elsewhere in this report
and in any other oral or written statements, either made by, or on behalf of the
Company, whether or not in future filings with the Securities and Exchange
Commission ("SEC"). Forward-looking statements are statements not based on
historical information. They relate to future operations, strategies, financial
results or other developments. In particular, statements using verbs such as
"expect," "anticipate," "believe" or similar words generally involve
forward-looking statements. Forward-looking statements include statements that
represent the Company's products, investment spreads or yields, or the earnings
or profitability of the Company's activities.

           Forward-looking statements are based upon estimates and assumptions
that are subject to significant business, economic and competitive
uncertainties, many of which are beyond the Company's control and are subject to
change. These uncertainties can affect actual results and could cause actual
results to differ materially from those expressed in any forward-looking
statements made by, or on behalf of the Company. Whether or not actual results
differ materially from forward-looking statements may depend on numerous
foreseeable and unforeseeable events or developments, some of which may be
national in scope, such as general economic conditions and interest rates. Some
of these events may be related to the insurance industry generally, such as
pricing competition, regulatory developments and industry consolidation. Others
may relate to Universal specifically, such as credit, volatility and other risks
associated with the Company's investment portfolio, and other factors. Universal
disclaims any obligation to update forward-looking information.

           The following analysis of the consolidated results of operations and
financial condition of the Company should be read in conjunction with the
Consolidated Financial Statements and related consolidated footnotes included
elsewhere.

           The Company owns nine insurance companies (collectively, the
"Insurance Subsidiaries"): 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"), Constitution Life Insurance Company ("Constitution Life"), Marquette
National Life Insurance Company ("Marquette"), Peninsular Life Insurance Company
("Peninsular Life"), Pennsylvania Life Insurance Company ("Pennsylvania Life"),
PennCorp Life Insurance Company ("PennCorp Canada") and Union Bankers Insurance
Company ("Union Bankers"). Six of these companies, Pennsylvania Life, PennCorp
Canada, Peninsular, Union Bankers, Constitution and Marquette, as well as
certain other related assets, were acquired on July 30, 1999. In addition to the
Insurance Subsidiaries, Universal owns three third party administrators:
American Insurance Administration Group, Inc. ("AIAG"), which was purchased
January 6, 2000, Capitated Health Care Services, Inc., ("CHCS"), which was
purchased August 31, 2000 and WorldNet Services Corp. ("WorldNet") that process
the Company's brokerage senior market policies, as well as business for
unaffiliated insurance companies.

           In January 2000, the Company announced that it had approved a plan to
consolidate the Raleigh location acquired on July 30, 1999 into its locations in
Toronto (Canada), Pensacola (Florida), and Orlando (Florida) in order to improve
operating efficiencies and capabilities. The plan to consolidate this location
was being formulated at the date of acquisition. Accordingly, the Company
recorded a $10.4 million restructuring liability in its accounting for the
acquisition.

           This liability was accounted for under EITF No. 95-3, "Recognition of
Liabilities in Connection with a Purchase Business Combination" ("EITF 95-3").
The liability consisted of employee separation costs ($3.2 million), employee
relocation costs ($2.6 million), and other relocation and exit costs. During the
nine months ended September 30, 2000, the Company paid $5.1 million in
restructuring charges.



                                       17
<PAGE>   18

           Subsequent to the acquisition of the Penn Union Companies, the
Company redefined its operating segments with primary emphasis on its
distribution channels. Currently, the Company manages its business through four
operating segments, Senior Market Brokerage, Career Sales, Special Markets and
Insurance Services and Corporate.

SENIOR MARKET BROKERAGE - This distribution channel consists of a general agency
system and insurance brokerage system that focus on the sale of products in the
senior market segment, including Medicare Supplement, Medicare Select and
Long-term Care.

CAREER SALES - The Career Sales segment is comprised of a career agency
field force, which distributes fixed benefit accident and sickness, life
insurance and supplemental senior health insurance in the United States and
Canada. The Career Agents are under exclusive contract with Pennsylvania Life
and PennCorp Canada.

SPECIAL MARKETS - Through its own operating history and through prior
acquisitions, Universal has accumulated various lines of business that it
manages in its Special Markets segments. These products include annuities,
interest-sensitive and group life insurance, individual medical and other
accident and health insurance.

INSURANCE SERVICES AND CORPORATE - This segment is primarily made up of the
insurance administrative service companies that process certain business for the
Insurance Subsidiaries, as well as unaffiliated insurers. It also includes the
corporate operations of the holding company, including interest on debt and
eliminations.

           Prior to the Penn Union Transaction, the Company reported its results
through four segments, with primary emphasis on major product lines. These
segments were Senior Market Accident and Health Insurance, Other Accident and
Health Insurance, Life Insurance and Non-insurance Business.

           The new Senior Market Brokerage Segment includes substantially all of
the former Senior Market Accident and Health Insurance Segment business.

           The Career Sales segment includes only business which is new to the
Company as a result of the acquisition of Pennsylvania Life and PennCorp Canada.

           The Special Markets segment includes a combination of existing
Universal business from the Other Accident and Health and Life Insurance
segments, as well as new business resulting from the acquisition of the
Peninsular, Marquette, Union Bankers and Constitution.

           The Insurance Services and Corporate Segment includes all businesses
previously included in the Non-insurance Business Segment. Results of operations
for the nine months ended September 30, 2000 include the results of AIAG and
CHCS (from their respective dates of purchase).

RESULTS OF OPERATIONS

           Nine Months Ended September, 2000 and 1999

           Consolidated net income after federal income taxes increased by $12.2
million to $16.7 million ($0.35 per diluted share) in 2000, compared to $4.5
million ($0.22) in 1999. Operating income before income tax increased by $18.6
million to $25.9 million in 2000 compared to $7.3 million in 1999.

           The Senior Market Brokerage segment operating results increased by
$2.1 million in addition to the $18.0 million increase from the Career Sales
segment. The Special Markets segment improved its results by $0.9 million. These
increases were offset by a reduction of $2.5 million in the results from the
Insurance Service and Corporate segment. Discussion of the details by segment
follows.



                                       18
<PAGE>   19

           SENIOR MARKET BROKERAGE SEGMENT

           The Senior Market Brokerage Segment focuses on the sale of senior
market products through a network of independent agents. The results of
operations for the nine months ended September 30, 2000 and 1999 include the
results of the sales of products such as Medicare Supplement, Medicare Select
and Long Term Care products through this distribution channel.

           REVENUES. Total revenues for the Senior Market Brokerage Segment
increased approximately $11.3 million to approximately $33.2 million for the
nine months ended September 30, 2000, compared to total revenues of
approximately $21.9 million in the prior year. This increase results from the
increase in internally generated production and not from the acquisition of the
Penn Union Companies.

           Gross premium and policyholder fees earned and reinsurance assumed

           In the nine months ended September 30, 2000, the Senior Market
Brokerage Segment gross premium and policyholder fees earned (including
reinsurance assumed) amounted to $177.5 million, an $87.6 million increase over
the $89.9 million amount in 1999. The gross earned premiums on the Company's
senior market products increased as follows:

<TABLE>
<CAPTION>
                                                               PREMIUM INCREASE/                  2000 TOTAL
DESCRIPTION                                                        (DECREASE)                   PREMIUM EARNED
-----------------------------------------------------      ---------------------------     -------------------------
                                                                 (in millions)                  (in millions)
<S>                                                        <C>                             <C>
Medicare Supplement/Select                                                    $  34.8                        $ 68.2
Freedom Care                                                                      2.3                           6.5
Hospital Indemnity, Home Health Care and Nursing
Home                                                                              0.6                           4.0
First National business acquired                                                 (1.4)                         32.0
Union Bankers Medicare Supplement                                                37.8                          50.2
Constitution Medicare Supplement                                                 12.8                          15.4
Other                                                                             0.7                           1.2
                                                           ---------------------------     -------------------------
Totals                                                                        $  87.6                      $  177.5
                                                           ===========================     =========================
</TABLE>

           The Medicare Supplement insurance issued by Union Bankers and
Constitution is 100% reinsured with an unaffiliated reinsurer.

           Reinsurance premiums ceded

           While the Company was able to increase its gross premium revenue from
its core products, it continues to reinsure a portion of these risks to
unaffiliated reinsurers. Reinsurance premiums ceded for the nine months ended
September 30, 2000 for the Senior Market Brokerage Segment amounted to $145.4
million, a $76.9 million increase from the 1999 amount of $68.5 million. Details
of the changes in reinsurance premiums ceded are as follows:



                                       19
<PAGE>   20

<TABLE>
<CAPTION>
                                                                        CEDED PREMIUM                       2000 TOTAL
DESCRIPTION                                                         INCREASE/ (DECREASE)                  PREMIUM CEDED
-----------------------------------------------------            ----------------------------         -----------------------
                                                                        (in millions)                     (in millions)
<S>                                                              <C>                            <C>
Business acquired:
      First National                                                                   $(0.5)                          $25.2
      Dallas General                                                                    (1.0)                            5.2
Medicare Supplement                                                                     26.1                            44.5
Union Bankers Medicare Supplement                                                       37.8                            50.2
Constitution Medicare Supplement                                                        12.8                            15.4
Freedom Care                                                                             1.1                             2.4
Hospital Indemnity, Home Health Care and Nursing                                         0.6
Home                                                                                                                     2.1
Other lines                                                                              0.0                             0.4
                                                                 ----------------------------         -----------------------
Totals                                                                                 $76.9                          $145.4
                                                                 ============================         =======================
</TABLE>

           Investment related revenue

           Net investment income of the Senior Market Brokerage Segment
increased $0.5 million to $1.0 million for the nine months ended September 30,
2000, compared to 1999.

           BENEFITS, CLAIMS AND OTHER DEDUCTIONS. Total benefits, claims and
other deductions in the Senior Market Brokerage Segment increased approximately
$9.2 million to $29.1 million for the nine months ended September 30, 2000,
compared to $19.9 million for the nine months ended September 30, 1999.

           Claims and other benefits increased $8.6 million to $22.6 million for
the nine months ended September 30, 2000 compared to $14.0 million in the prior
year. The change in reserves for the nine months ended September 30, 2000
amounted to an increase of $2.9 million compared to an increase of $1.9 million
in 1999 generating a variance of $1.0 million. These increases in claims and
change in reserves are primarily the result of the $10.7 million increase in net
premiums earned for the nine months ended September 30, 2000 discussed above.

           The change in deferred acquisition costs for the nine months ended
September 30, 2000 reflected net capitalization of $2.9 million for the nine
months ended September 30, 2000 compared to $2.5 million in the prior year.

           Commissions in the Senior Market Brokerage Segment increased $15.8
million in the nine months ended September 30, 2000 to $28.8 million, compared
to $13.0 million in 1999. This increase is the direct result of the $87.6
million increase in gross premium discussed above. Commissions and expense
allowances on reinsurance ceded increased $23.9 million in the nine months ended
September 30, 2000 to $40.7 million, compared to $16.8 million in 1999. This
increase is the direct result of the $76.9 million increase in reinsurance
premium ceded discussed above.

           Other operating costs and expenses increased $8.2 million in the
nine months ended September 30, 2000 to $18.4 million, compared to $10.2 million
in 1999 due in part to the increase in expenses incurred in generating new
business as well as the increase in premium taxes associated with the growth in
new business in this segment.

                                       20
<PAGE>   21



           CAREER SALES SEGMENT

           The Career Sales Segment was acquired in the Penn Union Acquisition
and comprises the operations of Pennsylvania Life Insurance Company
("Pennsylvania Life") and PennCorp Life Insurance Company of Canada ("PennCorp
Canada"). The Career Agents market life and health insurance products focusing
primarily on fixed benefit accident and sickness products. Penn Corp Canada
operates exclusively in Canada, while Pennsylvania Life operates in both the
U.S. ("Pennsylvania Life U.S.") and Canada. The results for 1999 reflect only
the activity from the date of purchase

           REVENUES. Total net revenues for the Career Sales segment amounted to
$123.9 million, an increase of $97.7 over the same period of the prior year.
Pennsylvania Life U.S. generated $81.1 million and Canadian operations generated
$42.8 million. Gross premium totaled $102.7 million, $66.2 million derived from
Pennsylvania Life U.S. and $36.5 million derived from the Canadian operations.
The Company reinsures a portion of these premiums to outside parties. Total
ceded premiums for the nine months ended September 30, 2000 were $0.6 million at
the Canadian operations and $2.2 million at Pennsylvania Life U.S. Investment
income of $23.6 million increased by $19.0 million over the same period of the
prior year.

           BENEFITS, CLAIMS AND OTHER DEDUCTIONS. Total benefits, claims and
other deductions in the Career Sales Segment totaled $102.0 million for the nine
months ended September 30, 2000, compared to $22.4 million for the prior year.

           Claims and other benefits amounted to $64.3 million for the nine
months ended September 30, 2000. Of this amount, $43.6 million related to claims
incurred at Pennsylvania Life U.S. and $11.6 million related to the Canadian
operations. The change in reserves for the nine months ended September 30, 2000
amounted to $9.1 million, including increases in reserves of the Canadian
operations of $8.0 million.

           Deferred acquisition costs capitalized net of amortization increased
$9.4 million for the nine months ended September 30, 2000 compared to $0.4
million in the prior year. Net acquisition costs capitalized at Pennsylvania
Life U.S. totaled $6.5 million. Canadian costs capitalized, net of amortization
amounted to $3.1 million.

           Commissions in the Career Sales Segment for the nine months ended
September 30, 2000 amounted to $24.6 million, of which $16.7 million related to
Pennsylvania Life U.S. Commissions. Expense allowances on reinsurance ceded
totaled $0.6 million in the nine months ended September 30, 2000. Other
operating costs and expenses totaled $23.5 million for the nine months ended
September 30, 2000, including $13.9 million relating to the U.S. operations and
$9.6 million relating to the Canadian operations.

           SPECIAL MARKETS SEGMENT

           The Special Markets Segment consists of blocks of business that were
acquired through the acquisitions of various companies or are not currently
produced through the career or brokerage agency distribution systems as well as
some specialty life and accidental insurance products. The results of operations
for the nine months ended September 30, 2000 and 1999 include the results of the
sales of such products.

           REVENUES. Total revenues for the Special Markets Segment increased
approximately $24.3 million to approximately $53.3 million for the nine months
ended September 30, 2000, compared to total revenues of approximately $29.0
million in the prior year.



                                       21
<PAGE>   22

       Gross premium and policyholder fees earned and reinsurance assumed

           In the nine months ended September 30, 2000, the Special Markets
Segment gross premium and policyholder fees earned (including reinsurance
assumed) amounted to $55.4 million, a $18.4 million increase over the $37.0
million amount in 1999. The gross earned premiums on the Company's special
market products increased as follows:

<TABLE>
<CAPTION>
                                                                                                  2000 TOTAL
DESCRIPTION                                                     PREMIUM INCREASE                PREMIUM EARNED
-----------------------------------------------------      ---------------------------     -------------------------
Acquired Businesses:                                             (in millions)                  (in millions)
<S>                                                        <C>                           <C>
   Constitution                                                               $   1.0                       $   1.8
   Union Bankers                                                                 14.2                          19.5
International Medical                                                             0.3                           4.3
Major Medical                                                                     0.2                           9.8
Life and annuity products                                                         0.0                          11.3
Other Health Products                                                             2.7                           8.7
                                                           ---------------------------     -------------------------
Totals                                                                        $  18.4                       $  55.4
                                                           ===========================     =========================
</TABLE>

           Reinsurance premiums ceded

           While the Company was able to increase its gross premium revenue from
its core products, it continues to reinsure a portion of these risks to
unaffiliated reinsurers. Reinsurance premiums ceded for the nine months ended
September 30, 2000 for the Special Markets Segment amounted to $21.1 million, a
$3.0 million increase from the 1999 amount of $18.1 million. Details of the
changes in reinsurance premiums ceded is as follows:

<TABLE>
<CAPTION>
                                                                  CEDED PREMIUM                     2000 TOTAL
DESCRIPTION                                                    INCREASE /(DECREASE)               PREMIUM CEDED
-----------------------------------------------------      -----------------------------     -------------------------
                                                                  (in millions)                   (in millions)
<S>                                                                             <C>                           <C>
Business acquired
      Constitution                                                              $0.4                          $0.7
      Union Bankers                                                              0.3                           0.4
Life and annuity products                                                       (0.4)                          5.2
Major Medical                                                                    0.2                           6.1
International Medical                                                            0.5                           4.2
Other lines                                                                      2.0                           4.5
                                                           -----------------------------     -------------------------
Totals                                                                          $ 3.0                       $ 21.1
                                                           =============================     =========================
</TABLE>

           Investment related revenue

           Net investment income of the Special Markets Segment increased $8.7
million to $18.7 million for the nine months ended September 30, 2000, compared
to $10.0 million in 1999. This increase is attributable to the increase in
invested assets in this segment during 2000 compared to 1999 as a result of the
Penn Union Transaction.



                                       22
<PAGE>   23

           BENEFITS, CLAIMS AND OTHER DEDUCTIONS. Total benefits, claims and
other deductions in the Special Markets Segment increased approximately $23.4
million to $49.2 million for the nine months ended September 30, 2000, compared
to $25.8 million for the nine months ended September 30, 1999.

           Claims and other benefits increased $25.7 million to $39.0 million
for the nine months ended September 30, 2000 compared to $13.3 million in 1999.
This increase is primarily attributable to the Penn Union Transaction. The
change in reserves for the nine months ended September 30, 2000 amounted to a
decrease of $4.9 million compared to an increase of $5.3 million in 1999
generating a variance of $10.2 million.

           The change in deferred acquisition costs represented net
capitalization of $0.3 million in 2000 compared to net amortization of $0.3
million in 1999.

           Commissions in the Special Markets Segment decreased $0.5 million in
the nine months ended September 30, 2000 to $8.0 million, compared to $8.5
million in 1999. Commissions and expense allowances on reinsurance ceded was
$7.3 million for the nine months ended September 30, 2000 compared to $8.0
million for the nine months ended September 30, 1999, a decrease of $0.7
million.

           Other operating costs and expenses increased $8.3 million in the nine
months ended September 30, 2000 to $14.7 million, compared to $6.4 million in
1999. This increase is due mainly to expenses related to the newly acquired Penn
Union lines of business. This increase is offset by a decrease in the cost of
generating new business as some of the lines of business in this segment run
off.

           INSURANCE SERVICES AND CORPORATE

           The Insurance Services and Corporate Segment consists of WorldNet,
PFI, Inc ("PFI")(an internal servicing company acquired in July, 1999), the
Parent Company (including eliminations), AIAG which was acquired in January,
2000, CHCS which was acquired in August 2000, as well as a minority interest in
Security Health.

           Fees and other income increased $2.6 million. This increase was
primarily due to revenue generated by the addition of AIAG and CHCS as well as
full nine months of PFI compared to two months in 1999. General expenses
increased $4.5 million from $3.3 million in 1999 to $7.8 million in 2000. This
increase is primarily due to an increase in interest expense of $4.0 million
related to the loan with Chase Manhattan to finance the purchase of the Penn
Union Companies. Included in the compensation expense of the parent company is
approximately $0.6 million related to the issue of stock options and bonuses to
employees and agents.





                                       23
<PAGE>   24
RESULTS OF OPERATIONS

           Three Months Ended September 30, 2000 and 1999

           Consolidated net income after federal income taxes increased by $2.2
million to $5.4 million ($0.12 per diluted share) in 2000, compared to $3.2
million ($0.10) in 1999. Operating income before income tax increased by $3.1
million to $8.3 million in 2000 compared to $5.2 million in 1999.

           The Senior Market Brokerage segment increased by $0.9 million to $1.8
million in 2000. The Career Sales segment increased its results by $3.0 million
to $6.8 million in 2000. These increases are offset by a reduction of $1.0
million in the Special Markets segment. Results for the Non-insurance segment
were consistent with the prior year. Discussion of the details by segment
follows.

           SENIOR MARKET BROKERAGE SEGMENT

           The Senior Market Brokerage Segment focuses on the sale of senior
market products through a network of independent agents. The results of
operations for the three months ended September 30, 2000 and 1999 include the
results of the sales of products such as Medicare Supplement, Medicare Select
and Long Term Care products through this distribution channel.

           REVENUES. Total revenues for the Senior Market Brokerage Segment
increased approximately $3.8 million to approximately $11.9 million for the
three months ended September 30, 2000, compared to total revenues of
approximately $8.1 million in the prior year. This increase results from the
increase in internally generated production and not from the acquisition of the
Penn Union Companies.

           Gross premium and policyholder fees earned and reinsurance assumed

           In the three months ended September 30, 2000, the Senior Market
Brokerage Segment gross premium and policyholder fees earned (including
reinsurance assumed) amounted to $61.3 million, an $18.7 million increase over
the $42.6 million in 1999. The gross earned premiums on the Company's senior
market products increased as follows:

<TABLE>
<CAPTION>
                                                               PREMIUM INCREASE/                  2000 TOTAL
DESCRIPTION                                                        (DECREASE)                   PREMIUM EARNED
-----------------------------------------------------      ---------------------------     -------------------------
                                                                 (in millions)                  (in millions)
<S>                                                        <C>                             <C>
Medicare Supplement/Select                                                    $  13.1                       $  24.8
Freedom Care                                                                      0.8                           2.2
Hospital Indemnity, Home Health Care and Nursing
Home                                                                              0.8                           2.0
First National business acquired                                                 (2.6)                          8.6
Union Bankers Medicare Supplement                                                 3.8                          16.2
Constitution Medicare Supplement                                                  3.1                           5.7
Other                                                                            (0.3)                           .4
                                                           ---------------------------     -------------------------
Totals                                                                        $  18.7                       $  61.3
                                                           ===========================     =========================
</TABLE>

           The Medicare Supplement insurance issued by Union Bankers and
Constitution is 100% reinsured with an unaffiliated reinsurer.

           Reinsurance premiums ceded

           While the Company was able to increase its gross premium revenue from
its core products, it continues to reinsure a portion of these risks to
unaffiliated reinsurers. Reinsurance premiums ceded for the three months ended




                                       24
<PAGE>   25
September 30, 2000 for the Senior Market Brokerage Segment amounted to $49.9
million, a $15.3 million increase from the 1999 amount of $34.6 million. Details
of the changes in reinsurance premiums ceded are as follows:


<TABLE>
<CAPTION>
                                                                        CEDED PREMIUM                        2000 TOTAL
DESCRIPTION                                                          INCREASE /(DECREASE)                  PREMIUM CEDED
-----------------------------------------------------            -----------------------------         -----------------------
                                                                        (in millions)                      (in millions)
<S>                                                              <C>                                    <C>
Business acquired:
      First National                                                                 $(2.0)                             $10.0
      Dallas General                                                                  (0.4)                               1.6
Medicare Supplement                                                                    9.9                               16.2
Union Bankers Medicare Supplement                                                      3.8                               16.2
Constitution Medicare Supplement                                                       3.1                                5.7
Freedom Care                                                                           0.5                                1.0
Hospital Indemnity, Home Health Care and Nursing
Home                                                                                   0.2                                1.1
Other lines                                                                            0.2                                0.2
                                                                 -----------------------------         -----------------------
Totals                                                                               $15.3                              $49.9
                                                                 =============================         =======================
</TABLE>

           Investment related revenue

           Net investment income of the Senior Market Brokerage Segment
increased $0.3 million to $0.4 million for the three months ended September 30,
2000, compared to 1999. Realized gains on investments increased slightly from
the prior year.

           BENEFITS, CLAIMS AND OTHER DEDUCTIONS. Total benefits, claims and
other deductions in the Senior Market Brokerage Segment increased approximately
$2.9 million to $10.1 million for the three months ended September 30, 2000,
compared to $7.2 million for the three months ended September 30, 1999.

           Claims and other benefits increased $3.6 million to $9.0 million for
the three months ended September 30, 2000 compared to $5.4 million in the prior
year. The change in reserves for the three months ended September 30, 2000
amounted to an increase of $0.3 million compared to an increase of $0.5 million
in 1999. These increases in claims and change in reserves are the result of the
$3.4 million increase in net premiums earned for the three months ended
September 30, 2000 discussed above.

           The change in deferred acquisition costs reflected net capitalization
of $1.3 million, for the three months ended September 30, 2000, an increase of
$0.4 over the prior year.

           Commissions in the Senior Market Brokerage Segment increased $4.8
million in the three months ended September 30, 2000 to $9.6 million, compared
to $4.8 million in 1999. This increase is the direct result of the $18.7 million
increase in gross premium discussed above. Commissions and expense allowances on
reinsurance ceded increased $7.7 million in the three months ended September 30,
2000 to $14.1 million, compared to $6.4 million in 1999. This increase is the
direct result of the $15.3 million increase in reinsurance premium ceded
discussed above.

           Other operating costs and expenses increased $2.8 million in the
three months ended September 30, 2000 to $6.5 million, compared to $3.7 million
in 1999 due in part to the increase in expenses incurred in generating new
business as well as the increase in premium taxes associated with the growth in
new business in this segment.



                                       25
<PAGE>   26

           CAREER SALES SEGMENT

           The Career Sales Segment was acquired in the Penn Union Acquisition
and comprises the operations of Pennsylvania Life Insurance Company
("Pennsylvania Life") and PennCorp Life Insurance Company of Canada ("PennCorp
Canada"). The Career Agents market life and health insurance products focusing
primarily on fixed benefit accident and sickness products. Penn Corp Canada
operates exclusively in Canada, while Pennsylvania Life operates in both the
U.S. ("Pennsylvania Life U.S.") and Canada.

           REVENUES. Total net revenues for the Career Sales segment amounted to
$41.7 million, an increase of $15.5 over the prior year. Pennsylvania Life U.S.
operations generated $27.3 million and Canadian operations generated $14.4
million. Gross premium totaled $34.6 million. $22.2 million was derived from
U.S. operations and $12.4 million derived from Canadian operations. The Company
reinsures a portion of these premiums to outside parties. Total ceded premiums
for the three months ended September 30, 2000 were $1.0. Investment income of
$7.9 million increased by $3.4 million over the prior year due to an increase in
invested assets for the segment.

           BENEFITS, CLAIMS AND OTHER DEDUCTIONS. Total benefits, claims and
other deductions in the Career Sales Segment totaled $34.8 million for the three
months ended September 30, 2000 compared to $22.4 million in the prior year.

           Claims and other benefits amounted to $17.5 million for the three
months ended September 30, 2000. Of this amount, $13.9 million related to claims
incurred at Pennsylvania Life U.S. and $3.6 million related to the Canadian
operations. The reserve increase for the three months ended September 30, 2000
amounted to $5.2 million, including an increase in reserves of the Canadian
operations of $2.8 million.

           The change in deferred acquisition costs reflected net capitalization
of $3.6 million for the three months ended September 30, 2000, compared to $0.4
in the prior year. Net acquisition costs capitalized at Pennsylvania Life U.S.
totaled $2.4 million. Canadian costs capitalized, net of amortization amounted
to $1.2 million.

           Commissions in the Career Sales Segment for the three months ended
September 30, 2000 amounted to $8.3 million, of which $5.5 million related to
Pennsylvania Life U.S. commissions. Expense allowances on reinsurance ceded
totaled $0.2 million in the three months ended September 30, 2000. Other
operating costs and expenses totaled $7.5 million for the three months ended
September 30, 2000 including $4.7 million relating to the U.S operations and
$2.8 million relating to the Canadian operations.

           SPECIAL MARKETS SEGMENT

           The Special Markets Segment consists of blocks of business that were
acquired through the acquisitions of various companies or are not currently
produced through the career or brokerage agency distribution systems as well as
some specialty life and accidental insurance products. The results of operations
for the three months ended September 30, 2000 and 1999 include the results of
the sales of such products.

           REVENUES. Total revenues for the Special Markets Segment increased
approximately $1.6 million to approximately $17.0 million for the three months
ended September 30, 2000, compared to total revenues of approximately $15.4
million in the prior year.

           Gross premium and policyholder fees earned and reinsurance assumed

           In the three months ended September 30, 2000, the Special Markets
Segment gross premium and policyholder fees earned (including reinsurance
assumed) amounted to $17.0 million, a $0.4 million increase over the $16.6
million in 1999. The gross earned premiums on the Company's special market
products increased as follows:


                                     26
<PAGE>   27
<TABLE>
<CAPTION>
                                                                                                   2000 TOTAL
 DESCRIPTION                                                     PREMIUM INCREASE                PREMIUM EARNED
 -----------------------------------------------------      ---------------------------     -------------------------
 Acquired Businesses:                                             (in millions)                  (in millions)
<S>                                                                           <C>                           <C>
    Constitution                                                                $ (0.3)                     $   0.5
    Union Bankers                                                                  0.8                          6.1
 International Medical                                                             0.3                          1.6
 Major Medical                                                                    (0.2)                         3.3
 Life and annuity products                                                        (0.7)                         3.1
 Other Health Products                                                             0.5                          2.4
                                                            ---------------------------     -------------------------
 Totals                                                                         $  0.4                       $ 17.0
                                                            ===========================     =========================
</TABLE>

           Reinsurance premiums ceded

           The Company continues to reinsure a portion of these risks to
unaffiliated reinsurers. Reinsurance premiums ceded for the three months ended
September 30, 2000 for the Special Markets Segment amounted to $6.4 million, a
$0.4 million increase from the 1999 amount of $6.0 million. Details of the
changes in reinsurance premiums ceded is as follows:



<TABLE>
<CAPTION>
                                                                   CEDED PREMIUM                    2000 TOTAL
DESCRIPTION                                                    INCREASE/ (DECREASE)                PREMIUM CEDED
-----------------------------------------------------      ------------------------------    --------------------------
                                                                   (in millions)                   (in millions)
Business acquired
<S>                                                                             <C>                           <C>
      Constitution                                                              $   (0.8)                     $   (0.5)
      Union Bankers                                                                  0.0                           0.1
Life and annuity products                                                            0.0                           1.6
Major Medical                                                                        0.2                           2.0
International Medical                                                                0.4                           1.6
Other lines                                                                          0.6                           1.6
                                                           ------------------------------    --------------------------
Totals                                                                           $   0.4                       $   6.4
                                                           ==============================    ==========================
</TABLE>

           Investment related revenue

           Net investment income of the Special Markets Segment increased $1.6
million to $6.4 million for the three months ended September 30, 2000, compared
to $4.8 million in 1999. This increase is attributable to the increase in
invested assets outstanding in this segment during 2000 compared to 1999 as a
result of the Penn Union Transaction.

           BENEFITS, CLAIMS AND OTHER DEDUCTIONS. Total benefits, claims and
other deductions in the Special Markets Segment increased approximately $2.6
million to $15.4 million for the three months ended September 30, 2000, compared
to $12.8 million for the three months ended September 30, 1999.

           Claims and other benefits increased $6.3 million to $13.8 million for
the three months ended September 30, 2000 compared to $7.5 million in 1999. The
change in reserves for the three months ended September 30, 2000 amounted to a
decrease of $3.4 million compared to an increase of $2.1 million in 1999
generating a variance of $5.5 million.



                                       27
<PAGE>   28
           The change in deferred acquisition costs reflected net capitalization
of $0.1 million for the three months ended September 30, 2000 compared to net
amortization of $0.1 million for the same period of the prior year.

           Commissions in the Special Markets Segment decreased $1.2 million in
the three months ended September 30, 2000 to $2.1 million, compared to $3.3
million in 1999. Commissions and expense allowances on reinsurance ceded
decreased $0.7 million in the three months ended September 30, 2000 to $2.1
million, compared to $2.8 million in 1999.

           Other operating costs and expenses increased $2.4 million in the
three months ended September 30, 2000 to $5.1 million, compared to $2.7 million
in 1999. This increase is due mainly to expenses related to the newly acquired
Penn Union lines of business. This increase is offset by a decrease in the cost
of generating new business as some of the lines of business in this segment run
off.

           INSURANCE SERVICES AND CORPORATE

           The Insurance Services and Corporate Segment consists of WorldNet,
PFI, Inc ("PFI") (an internal servicing company acquired in July, 1999), the
Parent Company (including eliminations), AIAG which was acquired in January,
2000, CHCS which was acquired in August, 2000, as well as a minority interest in
Security Health.

           Fees and other income increased $1.1 million due primarily to the
addition of AIAG and CHCS. General expenses increased $0.3 million from $2.6
million in 1999 to $2.9 million in 1999. This increase is primarily due to an
increase in interest expense related to the loan with Chase Manhattan to finance
the purchase of the Penn Union Companies. Included in the compensation expense
of the parent company is approximately $0.2 million related to the issue of
stock options and bonuses to employees and agents.

LIQUIDITY AND CAPITAL RESOURCES

           The Company's need for capital is primarily to maintain or increase
the surplus of its Insurance Subsidiaries and to support the Company as an
insurance holding company, including the maintenance of its status as a public
company. In addition, the Company requires capital to fund its anticipated
growth through acquisitions of other companies and blocks of insurance business.

           The Company

           The Company requires cash to pay the operating expenses necessary to
function as an insurance holding company (which under applicable Insurance
Department regulations must bear its own expenses), and to meet the cost
involved in being a publicly owned company. In addition, it requires cash to
meet Universal's obligations under the loan agreement discussed below, the
debentures outstanding with American Progressive and to fund the planned
reorganization of the Company being performed in connection with the acquisition
of the Penn Union Companies.

           Management believes that the current cash position, the availability
of the revolving loan facility, the expected cash flows of the non-insurance

                                       28
<PAGE>   29
companies (including AIAG), the surplus note interest payments from American
Exchange and the availability of dividends from its Insurance Subsidiaries can
support the obligations of Universal noted above for the foreseeable future.
However, there can be no assurance as to the expected future cash flows or to
the availability of dividends from the Insurance Subsidiaries.

           Loan Agreements

           As of September 30, 2000 and December 31, 1999, the Company had an
$80 million credit facility consisting of a $70 million term loan and a $10
million revolving loan facility. The term loan calls for interest at the London
Interbank Offering Rate ("LIBOR") plus 350 basis points (currently 10.13%) with
principal repayment over a seven-year period and a final maturity date of July
31, 2006. To fund the CHCS acquisition in August 2000, the Company drew down
$3.0 million of the revolving loan facility, which amount currently incurs
interest at 10.13%, and pays a commitment fee of 50 basis points on the
unutilized facility, currently $7.0 million. For the nine months ended September
30, 2000, the Company paid $5.3 million in interest and fees in connection with
the credit facility. The Company paid $1.5 million in principal on July 31, 2000
and $1.9 million in principal on October 31, 2000.

           In connection with an agreement entered into 1996 whereby American
Pioneer became a direct subsidiary of Universal, rather than an indirect
subsidiary owned through American Progressive, Universal has $7.9 million in
debentures outstanding to its subsidiary, American Progressive. The debentures
pay interest quarterly at 8.50% and are due between September 2002 and May 2003.
During the nine months ended September 30, 2000 the Company paid $0.5 million in
interest on these debentures to American Progressive, which was eliminated in
consolidation.

           Acquisition of American Insurance Administration Group ("AIAG")

           In January 2000, Universal acquired all of the outstanding shares of
AIAG, a privately held third party administrator located in Clearwater, Florida,
for $2.875 million in cash, 809,860 shares on Universal common stock and certain
contingent future cash payments. AIAG is the third party administrator of
approximately $123 million of senior supplemental health insurance,
approximately $97 million of which is administered for Union Bankers. For the
nine months ended September 30, 2000, AIAG, Inc. received administrative fees of
$7.6 million of which $5.6 million related to Union Bankers and was eliminated
in the consolidated financial statements of the Company.

           Acquisition of CHCS, Inc. ("CHCS")

           In August 2000, Universal acquired all of the outstanding shares of
CHCS, a privately held third party administrator located in Weston, Florida, for
$3.3 million in cash, 64,820 shares on Universal common stock and future cash
payments totaling $1.0 million over 18 months. CHCS is the third party
administrator of long term care and home health care insurance products for over
21 unaffiliated insurance companies. For the two months ended September 30,
2000, CHCS received administrative fees of $870 thousand on contracts with
expected annual fees of $5.2 million.

            Insurance Subsidiaries

           The Insurance Subsidiaries are required to maintain minimum amounts
of capital and surplus as determined by statutory accounting. Each of the
Insurance Subsidiaries' statutory capital and surplus exceeds its respective
minimum requirement. At September 30, 2000 and December 31, 1999 the statutory
capital and surplus, including asset valuation reserves, of the U.S. Insurance
Subsidiaries totaled $89.9 million and $89.2 million, respectively.

           Beginning in 1993, the National Association of Insurance
Commissioners ("NAIC") imposed regulatory risk-based capital ("RBC")


                                     29

<PAGE>   30
requirements on life insurance enterprises. At September 30, 2000 all of the
Insurance Subsidiaries maintained ratios of total adjusted capital to RBC in
excess of the Authorized Control Level.

           PennCorp Canada and Pennsylvania Life's Canadian branch report to
Canadian regulatory authorities based upon Canadian statutory accounting
principles that vary in some respects from U.S. statutory accounting principles.
Canadian net assets based upon Canadian statutory accounting principles were
$63.3 million and $63.9 million as of September 30, 2000 and December 31, 1999,
respectively. PennCorp Canada maintained a Minimum Continuing Capital and
Surplus Requirement Ratio ("MCCSR") in excess of the minimum requirement and
Pennsylvania Life's Canadian branch maintained a Test of Adequacy of Assets in
Canada and Margin Ratio ("TAAM") in excess of the minimum requirement at
September 30, 2000.

           Cash generated by the Insurance Subsidiaries will be made available
to Universal, the ultimate parent, principally through periodic payments of
principal and interest on surplus debentures. Currently, the surplus notes
between Universal and American Exchange total $70 million and it is anticipated
that it 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 which are wholly owned by American Exchange and file a
consolidated Federal income tax return. During 2000, $4.8 million of taxes have
been paid to American Exchange pursuant to the tax-sharing agreement.

           Dividend payments by insurance companies 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. The maximum amount of dividends which
can be paid to American Exchange from Pennsylvania Life without the prior
approval of the Pennsylvania Department of Insurance is restricted to the
greater of 10% of Pennsylvania Life's surplus as regards to policyholders as of
the preceding December 31 or the net gain from operations during the preceding
year, but such dividends can be paid only out of unassigned surplus. As part of
its approval of the Penn Union Acquisition, the Pennsylvania Insurance
Department approved a quasi reorganization of Pennsylvania Life's surplus in
which its previously negative unassigned surplus was reset to zero. Thus, future
earnings of the company would be available for dividends without prior approval,
subject to the restrictions noted above. As of September 30, 2000, $4.9 million
of dividends were be paid by the insurance subsidiaries of American Exchange to
American Exchange.

           Liquidity for the life Insurance Subsidiaries is measured by their
ability to pay scheduled contractual benefits, pay operating expenses, and fund
investment commitments. Sources of liquidity include scheduled and unscheduled
principal and interest payments on investments, premium payments and deposits
and the sale of liquid investments. These sources of liquidity for the Insurance
Subsidiaries significantly exceed scheduled uses.

           Liquidity is also affected by unscheduled benefit payments including
death benefits, benefits under accident & health policies and interest-sensitive
policy surrenders and withdrawals. 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 the Company's in force life insurance policies and annuities give the holders
the right to surrender the policies and annuities, the Company imposes penalties
for early surrenders. At September 30, 2000 the Company held reserves that
exceeded the underlying cash surrender values of its in force life insurance and
annuities by more than $25.1 million. The insurance companies, in management's
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


                                     30
<PAGE>   31
could adversely affect earnings if the Company were required to sell
investments at reduced values in order to meet liquidity demands. The Company
manages the asset and liability portfolios in order to minimize the adverse
earnings impact of changing market rates. The Company seeks to invest in assets
that have duration and interest rate characteristics similar to the liabilities
that they support.

           At September 30, 2000, the Insurance Subsidiaries held cash and cash
equivalents totaling $38.4 million, as well as fixed maturity and equity
securities that could readily be converted to cash with carrying values (and
fair values) of $734.2 million. The fair values of these liquid holdings totaled
more than $772.6 million.

INVESTMENTS

           The Company's investment policy is to balance the portfolio between
long-term and short-term investments so as to continue to achieve investment
returns consistent with the preservation of capital and maintenance of liquidity
adequate to meet payment of policy benefits and claims. The Company invests in
assets permitted under the insurance laws of the various states in which it
operates. Such laws generally prescribe the nature, quality of and limitations
on various types of investments that may be made. The Company currently engages
the services of two investment advisors, Conning Asset Management and Asset
Allocation and Management Company, to manage the Company's U.S. fixed maturity
portfolio, and Elliot and Page, a Canadian investment advisor to manage the
Canadian portfolio, under the direction of the management of the Insurance
Subsidiaries and in accordance with guidelines adopted by their respective
Boards of Directors. The Company's 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. It invests primarily in
fixed maturity securities of the U.S. Government and its agencies and in
corporate fixed maturity securities with investment grade ratings of "Baa3"
(Moody's), "BBB-" (Standard & Poor's) or higher. However, the Company does own
some investments that are rated "BB" or below (together 1.4% and 1.1% of total
fixed maturities as of September 30, 2000 and December 31, 1999, respectively).
As of September 30, 2000 all of the Company's securities were current in the
payment of principal and interest other than one bond with a carrying value of
$214 thousand.

FEDERAL AND FOREIGN INCOME TAXATION OF THE COMPANY

           The provision for federal and foreign income taxes was $9.2 million
during the nine months ended September 2000 compared to $2.7 million for the
same period in 1999. These provisions resulted in effective tax rates of 35.6%
and 36.6%, respectively. The excess of the effective tax rate over the 35%
statutory rate relates primarily to the acquisition of the Penn Union companies
since certain business of the acquired companies is subject to income tax in
Canada at a corporate tax rate of approximately 42%.

           At September 30, 2000 and December 31, 1999, the Company has
established valuation allowances of $11.3 million and $11.3 million,
respectively, with respect to net operating loss carryforwards. The Company
determines a valuation allowance based upon an analysis of projected taxable
income and through its ability to implement prudent and feasible tax planning
strategies. The tax planning strategies include the expense reductions
anticipated from the Company's recent reorganization and from the income
generated by its administration companies WorldNet, CHCS and AIAG. Management
believes it is more likely than not that the Company will realize the recorded
net deferred tax assets.

IMPACT OF YEAR 2000

           The Year 2000 issue relates to whether computer systems will properly
recognize date-sensitive information in years subsequent to 1999. Prior to 2000,
the Company underwent a corporate-wide program to address the Year 2000 issue,
as it relates to its own computer systems, as well as to instances in which
computer systems of third parties may have a significant impact on the



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Company's operations, such as suppliers, business partners, customers,
facilities and telecommunications. In addressing the Year 2000 issue, the
Company did not incur any significant expenses other than the allocation of
internal resources to test and monitor this issue. The Company has not
experienced any significant disruptions of business operations related to the
Year 2000 issue to date and believes that the risk of such disruption in the
future is low, although no assurance can be given in this regard. It is possible
that Year 2000 problems that are not currently apparent may arise in the future.
Accordingly, the Company will continue to monitor its systems for the Year 2000
issue.

EFFECTS OF ACCOUNTING PRONOUNCEMENTS

           In September 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities," which is required to be
adopted in years beginning after September 15, 2000. The adoption of the new
statement did not have a significant impact on earnings or the financial
position of the Company.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

           Market risk relates, broadly, to changes in the value of financial
instruments that arise from adverse movements in interest rates, equity prices
and foreign exchange rates. The Company is exposed principally to changes in
interest rates that affect the market prices of its fixed income securities.

Interest Rate Risk

           The Company could experience economic losses if it was required to
liquidate fixed income securities during periods of rising and/or volatile
interest rates. However, the Company attempts to mitigate its exposure to
adverse interest rate movements through a combination of active portfolio
management and by staggering the maturities of its fixed income investments to
assure sufficient liquidity to meet its obligations and to address reinvestment
risk considerations. The Company's insurance liabilities are generally long
tailed in nature, which generally permits ample time to prepare for their
settlement. To date, the Company has not utilized various financial risk
management tools on its investment securities, such as interest rate swaps,
forwards, futures and options to modify its exposure to changes in interest
rates. However, the Company may consider them in the future.

           The Company is aware that 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. The Company
monitors investment portfolio mix to mitigate this risk.

Sensitivity Analysis

           The Company regularly conducts various analyses to gauge the
financial impact of changes in interest rates on it financial condition. The
ranges selected in these analyses reflect management's assessment as being
reasonably possible over the succeeding twelve-month period. The magnitude of
changes modeled in the accompanying analyses should, in no manner, 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 the Company's 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 at September 30, 2000, and with all other variables held constant. A 100
and 200 basis point increase in market interest rates would result in a pre-tax
decrease in the market value of the Company's fixed income investments of $46.4
million and $80.5 million, respectively. Similarly, a 100 and 200 basis point


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decrease in market interest rates would result in a pre-tax increase in the
market value of the Company's fixed income investments of $32.3 million and
$70.6 million, respectively.

           Foreign Currency Sensitivity

           Portions of Universal's operations are transacted utilizing the
Canadian dollar as the functional currency. Approximately 14%, 20% and 36% of
Universal's assets, revenues and operating income before taxes, as of and for
the nine months ended September 30, 2000 respectively, are derived from the
Canadian operations. Accordingly, Universal's earnings and business 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 Universal's foreign operations are denominated in
Canadian dollars, Universal is still subject to translation losses.

           Universal periodically conducts various analyses to gauge the
financial impact of changes in the foreign currency exchange rate on their
financial condition. The ranges selected in these analyses reflect management's
assessment as being reasonably possible over the succeeding twelve-month period.
The magnitude of changes modeled in the following analysis 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 Universal's financial
results.

           At September 30, 2000, a 10% strengthening of the U.S. dollar
relative to the Canadian dollar would result in a decrease to the operating
income before taxes of approximately $0.8 million and a decrease in equity of
$5.7 million. Universal's sensitivity analysis of the effects of changes in
foreign currency exchange rates does not factor in any potential change in sales
levels or local prices.






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                           PART II - OTHER INFORMATION

NONE

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



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.

                                        By:  /S/ Robert A. Waegelein
                                             -----------------------
                                             Robert A. Waegelein
                                             Senior Vice President
                                             Chief Financial Officer

Date:  November 14, 2000

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