<PAGE>

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


                                    FORM 10-Q


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

                       FOR THE PERIOD ENDED MARCH 31, 2002
                            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
May 4, 2002 was 52,983,203.


<PAGE>

                       UNIVERSAL AMERICAN FINANCIAL CORP.
                                    FORM 10-Q

                                    CONTENTS

<TABLE>
<CAPTION>

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

         Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001                                   3

         Consolidated Statements of Operations for the three months ended March 31, 2002                          4
         and March 31, 2001

         Consolidated Statements of Cash Flows for the three months ended March 31, 2002                          5
         and March 31, 2001

         Notes to Consolidated Financial Statements                                                            6-12

         Management's Discussion and Analysis of Financial Condition and Results of Operations                13-25

PART II - OTHER INFORMATION

         Signature                                                                                               25
</TABLE>



                                       2
<PAGE>

               UNIVERSAL AMERICAN FINANCIAL CORP. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>



                                                                            MARCH 31, 2002    DECEMBER 31, 2001
                                                                            --------------    -----------------
                                                                             (Unaudited)
<S>                                                                          <C>                 <C>
ASSETS
Investments:
  Fixed maturities available for sale, at fair value
    (amortized cost: 2002, $801,947; 2001, $786,844)                         $   799,558         $   799,218
  Equity securities, at fair value (cost: 2002, $4,962; 2001, $4,339)              4,794               4,199
  Policy loans                                                                    24,011              24,043
  Other invested assets                                                            3,630               3,773
                                                                             -----------         -----------
    Total investments                                                            831,993             831,233

Cash and cash equivalents                                                         30,559              47,990
Accrued investment income                                                         12,245              12,663
Deferred policy acquisition costs                                                 73,176              66,025
Amounts due from reinsurers                                                      221,862             212,532
Due and unpaid premiums                                                            3,468               3,385
Deferred income tax asset                                                         60,544              59,952
Present value of future profits and goodwill                                      11,499              11,921
Other assets                                                                      29,809              24,515
                                                                             -----------         -----------
    Total assets                                                               1,275,155           1,270,216
                                                                             ===========         ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
Policyholder account balances                                                    239,289             236,742
Reserves for future policy benefits                                              597,407             591,453
Policy and contract claims - life                                                  7,358               6,282
Policy and contract claims - health                                               84,035              79,596
Loan payable                                                                      58,850              61,475
Amounts due to reinsurers                                                          5,236               6,680
Other liabilities                                                                 52,613              57,218
                                                                             -----------         -----------
    Total liabilities                                                          1,044,788           1,039,446
                                                                             -----------         -----------

STOCKHOLDERS' EQUITY

Common stock (Authorized: 80 million shares, issued and outstanding:
  2002, 53.0 million shares; 2001, 52.8 million shares)                              530                 528
Additional paid-in capital                                                       156,605             155,746
Accumulated other comprehensive income                                            (3,201)              5,603
Retained earnings                                                                 76,777              69,279
Less:  Treasury Stock (2002, 0.1 million shares; 2001,
  0.1 million shares)                                                               (344)               (386)
                                                                             -----------         -----------
    Total stockholders' equity                                                   230,367             230,770
                                                                             -----------         -----------
       Total liabilities and stockholders' equity                            $ 1,275,155         $ 1,270,216
                                                                             ===========         ===========
</TABLE>


           See notes to unaudited consolidated financial statements.



                                       3
<PAGE>

               UNIVERSAL AMERICAN FINANCIAL CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  (IN THOUSANDS, PER SHARE AMOUNTS IN DOLLARS)

<TABLE>
<CAPTION>

                                                                        THREE MONTHS ENDED MARCH 31,
                                                                        ----------------------------
                                                                            2002             2001
                                                                        -----------       ----------
                                                                                 (unaudited)
<S>                                                                      <C>               <C>
  Revenues:
     Gross premiums and policyholder fees earned                         $ 147,436         $ 126,213
     Reinsurance premiums assumed                                              938               822
     Reinsurance premiums ceded                                            (83,462)          (69,442)
                                                                         ---------         ---------
           Net premiums and policyholder fees earned                        64,912            57,593

     Net investment income                                                  14,327            14,457
     Net realized gains on investments                                         143             2,090
     Fee and other income                                                    2,784             2,531
                                                                         ---------         ---------
           Total revenues                                                  82,166            76,671
                                                                         ---------         ---------

  Benefits, claims and expenses:
     Increase in future policy benefits                                      2,570             3,763
     Claims and other benefits                                              42,646            39,038
     Interest credited to policyholders                                      2,607             2,512
     Net increase in deferred acquisition costs                             (5,932)           (4,328)
     Amortization of present value of future profits and goodwill              422               724
     Commissions                                                            28,557            24,268
     Commission and expense allowances on reinsurance ceded                (24,737)          (21,402)
     Interest expense                                                          806             1,618
     Other operating costs and expenses                                     23,602            19,557
                                                                         ---------         ---------
           Total benefits, claims and other expenses                       70,541            65,750
                                                                         ---------         ---------

  Income before taxes                                                       11,625            10,921
  Federal income tax expense                                                 4,127             3,885
                                                                         ---------         ---------
  Net income                                                             $   7,498         $   7,036
                                                                         =========         =========

  Earnings per common share:
    Basic                                                                $    0.14         $    0.15
                                                                         =========         =========
    Diluted                                                              $    0.14         $    0.15
                                                                         =========         =========
</TABLE>

            See notes to unaudited consolidated financial statements



                                       4
<PAGE>


               UNIVERSAL AMERICAN FINANCIAL CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>


                                                                                         THREE MONTHS ENDED MARCH 31,
                                                                                         ----------------------------
                                                                                           2002               2001
                                                                                         ---------         ----------
                                                                                                 (unaudited)
<S>                                                                                      <C>               <C>
Cash flows from operating activities:
Net income                                                                               $   7,498         $   7,036
Adjustments to reconcile net income to net cash provided by operating activities:
  Deferred income taxes                                                                      3,565             2,800
  Change in reserves for future policy benefits                                              5,954            12,899
  Change in policy and contract claims                                                       5,515             4,565
  Change in deferred policy acquisition costs                                               (5,932)           (4,328)
  Amortization of present value of future profits and goodwill                                 422               724
  Change in policy loans                                                                        32               417
  Change in accrued investment income                                                          417               649
  Change in reinsurance balances                                                           (10,543)          (11,203)
  Realized gains on investments                                                               (143)           (2,090)
  Change in restructuring liability                                                             --            (2,421)
  Change in income taxes payable                                                            (2,401)           (1,124)
  Other, net                                                                                (6,575)           (5,492)
                                                                                         ---------         ---------
Net cash (used) provided by operating activities                                            (2,191)            2,432
                                                                                         ---------         ---------

Cash flows from investing activities:
  Proceeds from sale or redemption of fixed maturities available for sale                  138,228           110,063
  Cost of fixed maturities purchased available for sale                                   (152,361)         (109,735)
  Change in amounts held in trust by reinsurer                                                (939)             (610)
  Proceeds from sale of equity securities                                                    2,658                 5
  Cost of equity securities purchased                                                       (3,277)              (11)
  Change in mortgage loans                                                                      91              (578)
  Change is due from / to broker                                                               132            (6,800)
  Change in other invested assets                                                               52               684
  Cost of equipment purchased                                                                 (530)               --
                                                                                         ---------         ---------
Net cash used by investing activities                                                      (15,946)           (6,982)
                                                                                         ---------         ---------

Cash flows from financing activities:
  Net proceeds from issuance of common stock                                                   620                89
  Cost of treasury stock purchases                                                            (544)             (453)
  Change in policyholder account balances                                                    2,547            (1,312)
  Change in reinsurance balances on policyholder account balances                              708                38
  Principal repayment on loan payable                                                       (2,625)           (1,850)
                                                                                         ---------         ---------
Net cash provided (used) by financing activities                                               706            (3,488)
                                                                                         ---------         ---------

Net decrease in cash and cash equivalents                                                  (17,431)           (8,038)

Cash and cash equivalents at beginning of period                                            47,990            40,250
                                                                                         ---------         ---------
Cash and cash equivalents at end of period                                               $  30,559         $  32,212
                                                                                         =========         =========

Supplemental cash flow information:
  Cash paid during the period for interest                                               $     273         $     703
                                                                                         =========         =========
  Cash paid during the period for income taxes                                           $   2,963         $   1,810
                                                                                         =========         =========
</TABLE>

            See notes to unaudited consolidated financial statements



                                       5
<PAGE>

               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 three months
ended March 31, 2002 and 2001 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, 2001.
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
American" 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"),
Pennsylvania Life Insurance Company ("Pennsylvania Life"), Peninsular Life
Insurance Company ("Peninsular"), Union Bankers Insurance Company ("Union
Bankers"), Constitution Life Insurance Company ("Constitution"), Marquette
National Life Insurance Company ("Marquette"), PennCorp Life Insurance Company,
a Canadian company ("PennCorp Life (Canada)"), and CHCS Services, Inc.

         The Company offers life and accident and health insurance designed for
the senior market and self-employed market in all fifty states, the District of
Columbia and all the provinces of Canada. It also provides administrative
services to other insurers by servicing their senior market products. The
Company's principal insurance products are Medicare supplement, fixed benefit
accident and sickness disability insurance, long term care, home health care,
senior life insurance and annuities. The Company distributes these products
through an independent general agency system and a career agency system. The
career agents focus only on sales for Pennsylvania Life and PennCorp Life
(Canada) while the independent general agents sell for American Pioneer,
American Progressive and Constitution.

2.       COMPREHENSIVE INCOME

         The components of comprehensive income, net of related tax, for the
three months ended March 31, 2002 and 2001 are as follows:

<TABLE>
<CAPTION>

                                                THREE MONTHS ENDED MARCH 31,
                                               -----------------------------
                                                 2002                2001
                                               -------             --------
                                                     (In thousands)

<S>                                            <C>                 <C>
         Net income                            $ 7,498             $ 7,036
         Other comprehensive income             (8,804)              2,017
                                               -------             -------
         Comprehensive income                  $(1,306)            $ 9,053
                                               =======             =======
</TABLE>



                                       6
<PAGE>

         The components of other comprehensive income and the related tax
effects for each component for the three months ended March 31, 2002 and 2001
are as follows:

<TABLE>
<CAPTION>

                                         THREE MONTHS ENDED MARCH 31, 2002                   THREE MONTHS ENDED MARCH 31, 2001
                                      ------------------------------------------         ------------------------------------------
                                       Before            Tax             Net of          Before             Tax            Net of
                                        Tax             Expense           Tax              Tax            Expense            Tax
                                       Amount          (Benefit)         Amount           Amount         (Benefit)          Amount
                                      --------         ---------        --------         --------        ---------         --------
                                                                          (In thousands)
<S>                                   <C>              <C>              <C>              <C>              <C>              <C>
Net unrealized (loss) gain
arising during the year (net
of deferred acquisition costs)        $(13,729)        $ (4,805)        $ (8,924)        $  8,682         $  3,039         $  5,643
Less:
Reclassification adjustment
 for gains included in net
 income                                   (143)             (50)             (93)          (2,090)            (732)          (1,358)
                                      --------         --------         --------         --------         --------         --------
Net unrealized (losses) gains          (13,586)          (4,755)          (8,831)           6,592            2,307            4,285
Currency translation
 adjustments                                52               25               27           (3,111)            (843)          (2,268)
                                      --------         --------         --------         --------         --------         --------
Other comprehensive (loss)
income                                $(13,534)        $ (4,730)        $ (8,804)        $  3,481         $  1,464         $  2,017
                                      ========         ========         ========         ========         ========         ========
</TABLE>

3.       EARNINGS PER SHARE

         The reconciliation of the numerators and the denominators of the basic
and diluted EPS for the three months ended March 31, 2002 and 2001 is as
follows:
<TABLE>
<CAPTION>
                                                                   THREE MONTHS ENDED MARCH 31, 2002
                                                           ---------------------------------------------------
                                                             Income             Shares          Per Share
                                                          (Numerator)       (Denominator)         Amount
                                                         --------------- ----------------- -----------------
                                                              (In thousands, per share amounts in dollars)

<S>                                                        <C>                  <C>                <C>
Weighted average common stock outstanding                                         52,892
Less: Weighted average treasury shares                                              (122)
                                                                                --------

Basic EPS:
Net income applicable to common shareholders               $  7,498               52,770            $0.14
                                                           ========                                 =====

Effect of Dilutive Securities
Incentive stock options                                                            3,895
Director stock options                                                               190
Agents and others stock options                                                    1,047
Treasury stock assumed from proceeds of options                                   (3,797)
                                                                                --------

Diluted EPS:
Net income applicable to common
  shareholders plus assumed conversions                    $  7,498               54,105            $0.14
                                                           ========             ========            =====
</TABLE>



                                       7
<PAGE>
<TABLE>
<CAPTION>


                                                                   THREE MONTHS ENDED MARCH 31, 2001
                                                           ---------------------------------------------------
                                                               Income           Shares          Per Share
                                                            (Numerator)     (Denominator)         Amount
                                                           --------------- ----------------- -----------------
                                                              (In thousands, per share amounts in dollars)

<S>                                                        <C>                  <C>                <C>
Weighted average common stock outstanding                                         46,845
Less:  weighted average treasury shares                                              (97)
                                                                                --------
Basic EPS:
Net income applicable to common shareholders               $  7,036               46,748            $0.15
                                                           ========                                 =====
Effect of Dilutive Securities
Incentive stock options                                                            1,502
Director stock options                                                                88
Agents and others stock options                                                      796
Treasury stock assumed from proceeds of options                                   (2,020)
                                                                                --------

Diluted EPS:
Net income applicable to common
  shareholders plus assumed conversions                    $  7,036               47,114            $0.15
                                                           ========             ========            =====
</TABLE>

4.       INVESTMENTS

         As of March 31, 2002 and December 31, 2001, 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.
<TABLE>
<CAPTION>

                                                                           MARCH 31, 2002
                                               ---------------------------------------------------------------------
                                                                    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             $  37,749          $     849           $    (203)          $  38,395
Corporate debt securities                        153,108                631              (3,361)            150,378
Foreign debt securities (1)                      391,471              5,577              (7,319)            389,729
Mortgage- and asset-backed securities            219,619              3,836              (2,399)            221,056
                                               ---------          ---------           ---------           ---------
                                               $ 801,947          $  10,893           $ (13,282)          $ 799,558
                                               =========          =========           =========           =========
</TABLE>
<TABLE>
<CAPTION>

                                                                             DECEMBER 31, 2001
                                               ---------------------------------------------------------------------
                                                                    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             $  35,719          $   1,262           $     (11)          $  36,970
Corporate debt securities                        357,431              8,990              (1,805)            364,616
Foreign debt securities (1)                      157,077              2,225              (1,640)            157,662
Mortgage- and asset-backed securities            236,617              5,700              (2,347)            239,970
                                               ---------          ---------           ---------           ---------
                                               $ 786,844          $  18,177           $  (5,803)          $ 799,218
                                               =========          =========           =========           =========
</TABLE>
------------

(1)      Primarily Canadian denominated bonds supporting our Canadian Insurance
         reserves.



                                       8
<PAGE>

         The amortized cost and fair value of fixed maturities at March 31, 2002
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                            $ 24,669            $ 25,387
         Due after 1 year through 5 years                  118,111             119,221
         Due after 5 years through 10 years                273,207             271,125
         Due after 10 years                                166,341             162,769
         Mortgage- and asset-backed securities             219,619             221,056
                                                          --------            --------
                                                          $801,947            $799,558
                                                          ========            ========
</TABLE>

         During the three months ended March 31, 2002, the Company wrote down
the value of certain fixed maturity securities by $1.6 million (0.2% of
investments). During the three months ended March 31, 2001, the Company wrote
down the value of certain fixed maturity securities by $1.2 million (0.2% of
investments). These write downs represent management's estimate of other than
temporary declines in value and were included in net realized gains on
investments in our consolidated statement of operations.

5.       STOCKHOLDERS' EQUITY

         Common Stock

         The par value of common stock is $.01 per share with 80,000,000 shares
authorized for issuance. Changes in the number of shares of common stock
outstanding, from December 31, 2001 through March 31, 2002, were as follows:
<TABLE>
<CAPTION>

<S>                                                                         <C>
         Common stock outstanding at December 31, 2001                      52,799,899
         Stock options exercised                                               147,579
         Stock purchases pursuant to Agents' Stock Purchase Plan                19,450
                                                                            ----------
         Common stock outstanding at March 31, 2002                         52,966,928
                                                                            ==========
</TABLE>

         Treasury Stock

         During 2001, the Board of Directors approved a plan to repurchase up to
0.5 million shares of Company stock in the open market. In March 2002, the Board
of Directors approved an amendment of the plan to increase the amount of shares
available for repurchase from 0.5 million to 1.0 million shares. The purpose of
the plan is to fund employee stock bonuses. During the three months ended March
31, 2002, the Company acquired 82,965 shares on the open market for a cost of
$0.5 million at a weighted average market price of $6.56 per share. The Company
distributed 103,216 shares in the form of officer and employee bonuses at a
weighted average market price of $6.45 per share, at the date of distribution.

6.       STATUTORY CAPITAL AND SURPLUS REQUIREMENTS

         American Progressive, American Pioneer, American Exchange,
Constitution, Marquette, Peninsular, PennCorp Life (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 March 31, 2002 the statutory capital and
surplus, including asset valuation reserve, of the U.S. insurance subsidiaries
totaled $99.9 million.



                                       9
<PAGE>

         Beginning in 1993, the National Association of Insurance Commissioners
("NAIC") imposed regulatory risk-based capital ("RBC") requirements on life
insurance enterprises. At March 31, 2002 all of the Insurance Subsidiaries
maintained ratios of total adjusted capital to RBC in excess of the Authorized
Control Level.

         PennCorp Life (Canada) reports to Canadian regulatory authorities based
upon Canadian statutory accounting principles that vary in some respects from
U.S. statutory accounting principles. Canadian net assets based upon Canadian
statutory accounting principles were $36.3 million as of March 31, 2002.
PennCorp Life (Canada) maintained a Minimum Continuing Capital and Surplus
Requirement Ratio ("MCCSR") in excess of the minimum requirement at March 31,
2002.

7.       EFFECTS OF ACCOUNTING PRONOUNCEMENTS

         In June, 2001, The Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets", effective for fiscal years beginning after December 15,
2001. Under the new rules, goodwill, and intangible assets deemed to have
indefinite lives, will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statement. Other intangible assets will
continue to be amortized over their useful lives.

         The Company applied the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
non-amortization provisions of the Statement resulted in an increase in net
income of $0.1 million (less than $0.01 per diluted share) for the three months
ended March 31, 2002. The Company performed the first of the required impairment
tests of goodwill and indefinite lived intangible assets as of January 1, 2002
and has determined that, based on these tests, goodwill and indefinite lived
intangibles were not impaired.

8.       BUSINESS SEGMENT INFORMATION

The Company offers life and health insurance designed for the senior market and
the self-employed market in all 50 states, the District of Columbia and all of
the provinces of Canada. The Company also provides administrative services to
other issuers by servicing their senior market products. Our principal insurance
products are Medicare supplemental health insurance, fixed benefit accident and
sickness disability insurance, long term care insurance, senior life insurance,
annuities and other individual life insurance. Our principal business segments
are: Career Agency, Senior Market Brokerage and Administrative Services. The
Company also reports the corporate activities of our holding company in a
separate segment. During 2002 we modified the way we report segment information
by combining our previously defined Senior Market Brokerage and Special Markets
segments into one segment, Senior Market Brokerage. Our decision to combine the
two segments was based on the significant reduction in the insurance in force in
the Special Markets segment as a result of our exit from the major medical line
of business. Reclassifications have been made to conform prior year amounts to
the current year presentation. A description of these segments follows:

         CAREER AGENCY - The Career Agency segment is comprised of the
         operations of Pennsylvania Life and PennCorp Life (Canada), both of
         which we acquired in 1999. PennCorp Life (Canada) operates exclusively
         in Canada, while Pennsylvania Life operates in the United States. The
         Career Agency segment includes the operations of a career agency field
         force, which distributes fixed benefit accident and sickness disability
         insurance, life insurance and supplemental senior health insurance in
         the United States and Canada. The career agents are under exclusive
         contract with either Pennsylvania Life or PennCorp Life (Canada).

         SENIOR MARKET BROKERAGE - This segment includes the operations of
         general agency and insurance brokerage distribution systems that focus
         on the sale of insurance products to the senior market, including
         Medicare Supplement/Select, long term care, senior life insurance and
         annuities. In 2002, we combined our Special Markets segment with our
         Senior Market Brokerage segment.


                                       10
<PAGE>


         ADMINISTRATIVE SERVICES - The Company acts as a third party
         administrator and service provider for both affiliated and unaffiliated
         insurance companies, primarily with respect to various senior market
         products and a growing portion of non-insurance products. The services
         that we perform include policy underwriting, telephone verification,
         policyholder services, claims adjudication, clinical case management,
         care assessment and referral to health care facilities.

         CORPORATE - This segment reflects the corporate activities of our
         holding company, including the payment of interest on our debt and our
         public company administrative expenses.

         Intersegment revenues and expenses are reported on a gross basis in
         each of the operating segments but eliminated in the consolidated
         results. These eliminations affect the amounts reported on the
         individual financial statement line items, but do not change operating
         income before taxes. The significant items eliminated include
         intersegment revenue and expense relating to services performed by the
         administrative services segment for the Career Agency and Senior Market
         Brokerage segments and interest on notes issued by the Corporate
         segment to the other operating segments.

         Financial results by segment for the three months ended March 31, 2002
         and 2001 is as follows:

<TABLE>
<CAPTION>
                                                      March 31, 2002                   March 31, 2001
                                              -----------------------------     ----------------------------
                                                              Income (Loss)                    Income (Loss)
                                                                 Before                          Before
                                               Revenue        Income Taxes      Revenue        Income Taxes
                                              ---------      --------------     --------       -------------
                                                                         (In thousands)
         <S>                                  <C>              <C>              <C>             <C>
         Career agency                        $ 39,764         $  7,207         $ 40,535         $  7,366
         Senior market brokerage                39,676            4,155           31,890            2,401
         Administrative services                 9,696            1,876            8,046            1,510
                                              --------         --------         --------         --------
            Subtotal                            89,136           13,238           80,471           11,277
         Corporate                                 219           (1,756)              27           (2,446)
         Intersegment revenues                  (7,332)              --           (5,917)              --
                                              --------         --------         --------         --------
           Segment total                        82,023           11,482           74,581            8,831
         Adjustments to segment total:
            Net realized gains                     143              143            2,090            2,090
                                              --------         --------         --------         --------
                                              $ 82,166         $ 11,625         $ 76,671         $ 10,921
                                              ========         ========         ========         ========
</TABLE>

         Identifiable assets by segment as of March 31, 2002 and December 31,
         2001 are as follows:

<TABLE>
<CAPTION>
                                       March 31, 2002     December 31, 2001
                                       --------------     -----------------
                                                (In thousands)
         <S>                            <C>                 <C>
         Career agency                  $   609,799         $   605,758
         Senior market brokerage            656,037             663,069
         Administrative services             32,701              30,930
                                        -----------         -----------
           Subtotal                       1,298,537           1,299,757
         Corporate                          316,356             313,709
         Intersegment assets (1)           (339,738)           (343,250)
                                        -----------         -----------
                                        $ 1,275,155         $ 1,270,216
                                        ===========         ===========
</TABLE>

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



                                       11
<PAGE>



9.       FOREIGN OPERATIONS

         A portion of the Company's career agency segment is conducted in Canada
through Penn Corp Life (Canada). The assets and liabilities of the Canadian
business are located in Canada where the insurance risks are written. Revenues,
excluding capital gains, of the career agency segment by geographic area for the
three months ended March 31, 2002 and 2001, are as follows:

<TABLE>
<CAPTION>
                                     March 31, 2002     March 31, 2001
                                     --------------     --------------
                                             (In thousands)

         <S>                            <C>               <C>
         Revenues
           United States                $26,022            $26,098
           Canada                        13,742             14,437
                                        -------            -------
             Total                      $39,764            $40,535
                                        =======            =======
</TABLE>



                                       12
<PAGE>


                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS

         We caution 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 our
products, investment spreads or yields, or the earnings or profitability of our
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 our 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
us, or on our behalf. 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 us specifically,
such as credit, volatility and other risks associated with our investment
portfolio, and other factors. We disclaim any obligation to update
forward-looking information.

INTRODUCTION

         The following analysis of our consolidated results of operations and
financial condition should be read in conjunction with the consolidated
financial statements and related consolidated footnotes included elsewhere.

         We own 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"), Marquette National Life
Insurance Company ("Marquette"), Peninsular Life Insurance Company
("Peninsular"), Pennsylvania Life Insurance Company ("Pennsylvania Life"),
PennCorp Life Insurance Company of Canada ("PennCorp Life (Canada)") and Union
Bankers Insurance Company ("Union Bankers"). In addition to the Insurance
Subsidiaries, we own a third party administrator, CHCS Services, Inc. that
processes our senior market policies, as well as business for unaffiliated
insurance companies.

OVERVIEW

We offer life and health insurance designed for the senior market and the
self-employed market in all 50 states, the District of Columbia and all of the
provinces of Canada. We also provide administrative services to other insurers
by servicing their senior market products. Our principal insurance products are
Medicare Supplement/Select health insurance, fixed benefit accident and sickness
disability insurance, long term care insurance, senior life insurance, annuities
and other individual life insurance. Our principal business segments are: Career
Agency, Senior Market Brokerage and Administrative Services. We also report the
corporate activities of our holding company in a separate segment. During 2002
we modified the way we report segment information by combining our previously
defined Senior Market Brokerage and Special Markets segments into one segment,
Senior Market Brokerage. Our decision to combine the two segments was based on
the significant reduction in the insurance in force in the Special Markets
segment as a result of our exit from the Major Medical line of business.
Reclassifications have been made to conform prior year amounts to the current
year presentation. A description of these segments follows:



                                       13
<PAGE>


         CAREER AGENCY - The Career Agency segment is comprised of the
         operations of Pennsylvania Life and PennCorp Life (Canada). PennCorp
         Life (Canada) operates exclusively in Canada, while Pennsylvania Life
         operates in the United States. The Career Agency segment includes the
         operations of a career agency field force, which distributes fixed
         benefit accident and sickness disability insurance, life insurance and
         supplemental senior health insurance in the United States and Canada.
         The career agents are under exclusive contract with either Pennsylvania
         Life or PennCorp Life (Canada).

         SENIOR MARKET BROKERAGE - This segment includes the operations of
         general agency and insurance brokerage distribution systems that focus
         on the sale of insurance products to the senior market, including
         Medicare Supplement/Select, long term care, senior life insurance and
         annuities. In 2002, we combined our Special Markets segment with our
         Senior Market Brokerage segment.

         ADMINISTRATIVE SERVICES - We act as a third party administrator and
         service provider for both affiliated and unaffiliated insurance
         companies, primarily with respect to various senior market products and
         a growing portion of non-insurance products. The services that we
         perform include policy underwriting, telephone verification,
         policyholder services, claims adjudication, clinical case management,
         care assessment and referral to health care facilities.

         CORPORATE - This segment reflects the corporate activities of our
         holding company, including the payment of interest on our debt and our
         public company administrative expenses.

         Intersegment revenues and expenses are reported on a gross basis in
         each of the operating segments. These eliminations affect the amounts
         reported on the individual financial statement line items, but do not
         change operating income before taxes. The significant items eliminated
         include intersegment revenue and expense relating to services performed
         by the Administrative Services segment for the Career Agency and Senior
         Market Brokerage segments and interest on notes issued by the Corporate
         segment to the other operating segments.

CRITICAL ACCOUNTING POLICIES

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



                                       14
<PAGE>



RESULTS OF OPERATIONS - CONSOLIDATED OVERVIEW

         The following table presents operating income by segment along with a
reconciliation to net income:


<TABLE>
<CAPTION>
                                                                        For the quarters ended March 31,
                                                                        --------------------------------
                                                                             2002              2001
                                                                        -----------         ------------
                                                                        (In thousands, per share amounts
                                                                                   in dollars)

<S>                                                                        <C>              <C>
Career agency                                                              $  7,207         $  7,366
Senior market brokerage                                                       4,155            2,401
Administrative services                                                       1,876            1,510
                                                                           --------         --------
  Segment operating income                                                   13,238           11,277

Corporate                                                                    (1,756)          (2,446)
                                                                           --------         --------

Operating income before realized gains and federal income taxes (1)          11,482            8,831

Federal income taxes on operating items                                      (4,077)          (3,154)
                                                                           --------         --------

  Net operating Income (1)                                                    7,405            5,677
  Realized gains (losses) net of tax                                             93            1,359
                                                                           --------         --------

Net Income                                                                 $  7,498         $  7,036
                                                                           ========         ========

Per share data (diluted):
  Net operating income (1)                                                 $   0.14         $   0.12
  Realized gains (losses) net of tax                                           --               0.03
                                                                           --------         --------

Net Income                                                                 $   0.14         $   0.15
                                                                           ========         ========

</TABLE>

-----------------
(1)      We evaluate the results of operations of our segments based on
         operating income by segment. Operating income excludes realized gains.
         This differs from generally accepted accounting principles, which
         includes the effect of realized gains in the determination of net
         income. The schedule above reconciles our operating income to net
         income in accordance with generally accepted accounting principles.

Quarters Ended March 31, 2002 and 2001

         Consolidated net income after federal income taxes increased by $0.5
million to $7.5 million ($0.14 per share diluted) in the first quarter of 2002,
compared to $7.0 million ($0.15 per share diluted) in 2001. Operating income
before realized gains and federal income taxes increased by $2.7 million to
$11.5 million in 2002 compared to $8.8 million in 2001.

         Operating income from the Career Agency segment was relatively flat
compared to the first quarter of 2001.

         Operating results for the Senior Market Brokerage segment improved by
73% or $1.8 million, compared to the first quarter of 2001. This improvement is
the result of continued internally generated growth of business in the segment,
primarily in the Medicare supplement/select and long term care lines.

         Operating income for the Administrative Services segment improved by
$0.4 million or 24%, compared to the first quarter of 2001. This improvement is
primarily a result of the increase in Medicare premiums being serviced by our
administrative services company and the reduction in the amortization of the
present value of future profits.



                                       15
<PAGE>


         The operating loss from the Corporate segment decreased by $0.7
million, or 28%, compared to the first quarter of 2001, primarily due to a
decrease in the interest cost relating to our outstanding debt.

         The effective tax rate on operating income for the first quarter of
2002 was 35.5% compared to 35.7% in 2001.


SEGMENT RESULTS - CAREER AGENCY

<TABLE>
<CAPTION>
                                                                                    For the quarters ended March 31,
                                                                                    --------------------------------
                                                                                       2002                  2001
                                                                                    -----------           ----------
                                                                                             (In thousands)

<S>                                                                                   <C>                <C>
Net premiums and policyholder fees:
  Life and annuity                                                                     $  3,745           $  3,657
  Accident and health                                                                    27,795             28,695
                                                                                       --------           --------
  Net premiums                                                                           31,540             32,352
Net investment income                                                                     8,144              8,050
Other income                                                                                 80                133
                                                                                       --------           --------
  Total revenue                                                                          39,764             40,535
                                                                                       --------           --------

Policyholder benefits                                                                    20,183             21,395
Interest credited to policyholders                                                          636                388
Change in deferred acquisition costs                                                     (3,227)            (3,125)
Amortization of present value of future profits and goodwill                               --                    7
Commissions and general expenses, net of allowances                                      14,965             14,504
                                                                                       --------           --------
  Total benefits, claims and other deductions                                            32,557             33,169
                                                                                       --------           --------

  Segment operating income                                                             $  7,207           $  7,366
                                                                                       ========           ========
</TABLE>

Quarters ended March 31, 2002 and 2001

         Operating income from the Career Agency segment was relatively flat,
decreasing by $0.2 million or 2%, compared to the first quarter of 2001.

         REVENUES. Net premiums for the quarter fell by approximately 3% for the
segment compared to the first quarter of 2001. In the US, the decrease is due to
a change in the mix of business, which includes a greater amount of long term
care which is reinsured at 50%. Revenues from our Canadian operations were flat
compared to the first quarter of 2001. Canadian premiums accounted for
approximately 38% of the net premiums of this segment for the first quarter of
2002 and 37% of the net premiums for the first quarter of 2001.

         Net investment income increased by approximately $0.1 million, or 1%,
compared to the first quarter of 2001. The increase is due to an increase in the
segment's invested assets due to primarily to earnings of the segment, offset by
a decrease in overall investment yields.

         BENEFITS, CLAIMS AND OTHER DEDUCTIONS. Policyholder benefits, including
the change in reserves, decreased by approximately 6% compared to the first
quarter of 2001. The decrease was due primarily to a reduction in the overall
loss ratios for the segment from 66% in the first quarter of 2001 to 64% in the
first quarter of 2002.

         Interest credited increased by $0.3 million, due to the increase in
annuity balances, offset by a decrease in the credited rate.

         The increase in deferred acquisition costs was approximately $0.2
million more in the first quarter of 2002, compared to the increase in the first
quarter of 2001.

         Commissions and other operating expenses, net of allowances, increased
by approximately $0.5 million, or 3%, in the first quarter of 2002 compared to
2001.



                                       16
<PAGE>

SEGMENT RESULTS - SENIOR MARKET BROKERAGE

<TABLE>
<CAPTION>
                                                                        For the quarters ended March 31,
                                                                        --------------------------------
                                                                           2002                2001
                                                                        --------             -------
                                                                              (In thousands)
<S>                                                                    <C>                  <C>
Net premiums and policyholder fees:
  Life and annuity                                                      $  4,602             $  4,368
  Accident and health                                                     28,770               20,873
                                                                        --------             --------
  Net premiums                                                            33,372               25,241
Net investment income                                                      6,127                6,576
Other income                                                                 177                   73
                                                                        --------             --------
  Total revenue                                                           39,676               31,890
                                                                        --------             --------

Policyholder benefits                                                     25,034               21,406
Interest credited to policyholders                                         1,971                2,123
Change in deferred acquisition costs                                      (2,705)              (1,203)
Amortization of present value of future profits and goodwill                  43                  150
Commissions and general expenses, net of allowances                       11,178                7,013
                                                                        --------             --------
  Total benefits, claims and other deductions                             35,521               29,489
                                                                        --------             --------

  Segment operating income                                              $  4,155             $  2,401
                                                                        ========             ========
</TABLE>

         The table below details the gross premiums and policyholder fees before
reinsurance for the major product lines in the Senior Market Brokerage segment
and the corresponding average amount of premium retained. We reinsure a
substantial portion of all of our Senior Market Brokerage products to
unaffiliated third party reinsurers under various quota share agreements.
Medicare Supplement/Select written premium is reinsured under quota share
reinsurance agreements ranging between 50% and 75% based upon the geographic
distribution. We have also acquired various blocks of Medicare Supplement
premium, which we reinsure under quota share reinsurance agreements ranging from
50% to 100%. Under our reinsurance agreements, we reinsure the claims incurred
and commissions on a pro rata basis and receive additional expense allowances
for policy issue, administration and premium taxes.

<TABLE>
<CAPTION>
                                                              For the quarters ended March 31,
                                                 --------------------------------- -----------------------------
                                                           2002                              2001
                                                 --------------------------------- -----------------------------
                                                                       (In thousands)
                                                   Gross                 Net             Gross             Net
                                                 Premiums             Retained          Premiums        Retained
                                                 --------             --------          --------        --------
     <S>                                         <C>                   <C>              <C>               <C>
     Medicare Supplement acquired                $ 39,440                 7%            $ 38,518             6%
     Medicare Supplement/Select Written            59,027                34%              35,014            30%
     Other senior supplemental health               6,087                60%               5,886            61%
     Other health                                   4,549                39%               8,368            53%
     Senior life insurance                          2,277                67%               1,936            68%
     Other life                                     4,026                74%               3,986            77%
                                                 --------                               --------
     Total gross premiums                        $115,406                29%            $ 93,708            27%
                                                 ========                               ========
</TABLE>

Quarters ended March 31, 2002 and 2001

         Operating results for the Senior Market Brokerage segment improved by
73% or $1.8 million, compared to the first quarter of 2001. This improvement is
the result of continued internally generated growth of business in the segment,
primarily in the Medicare Supplement/Select and long term care lines combined
with improvement in overall loss ratios for the segment.



                                       17
<PAGE>


         REVENUES. Gross premium written for the Senior Market portfolio
products have increased $21.7 million, or 23% over the first quarter of 2001, as
a result of continued strong sales of our Senior Market products. New production
of our Senior Market products amounted to $35.8 million in the current quarter
compared to $33.9 million in the same period of the prior year. The increase in
gross premium written relates primarily to the increase in Medicare Supplement
business written by the insurance subsidiaries of $24.0 million or 69%, compared
to the first quarter of 2001. Medicare Supplement written premium grew as a
result of the increase in number of general agents under contract, the expansion
of sales into more states in the northeast and the dis-enrollment of
policyholders from various Health Maintenance Organizations ("HMO's"). In
addition, premiums increased due to normal rate increases implemented by the
Company, offset by expected lapses. This increase is offset, in part, by a
decrease of $3.8 million in other health premiums, primarily major medical, as a
result of our decision to exit this line of business.

         Net premiums for the first quarter of 2002 increased by approximately
$8.1 million, or 32%, compared to 2001. The net premiums did not increase in
line with the gross premiums due to the change in the mix of annualized premium
in force. The amount of premium retained increased from 27% in 2001 to 29% in
2002 due to the increase in Medicare Supplement/Select premiums written, which
we retain 30% on average.

         Net investment income decreased by $0.5 million compared to the first
quarter of 2001. This is due to decrease in investment yields.

         BENEFITS, CLAIMS AND OTHER DEDUCTIONS. Policyholder benefits, including
the change in reserves, increased by approximately $3.6 million, or 17%,
compared to the first quarter of 2001 due to primarily to higher annualized
premium in force. This increase relates primarily to the increase in the
Medicare supplement business in this segment.

         Interest credited to policyholders decreased by approximately $0.2
million compared to the first quarter of 2001, primarily as a result of a
decrease in the credited rate in 2002.

         The increase in deferred acquisition costs was approximately $1.5
million more in the first quarter of 2002, compared to the increase in the first
quarter of 2001. The increase in deferred acquisition costs relates to the
increase in premiums issued during 2002 compared to 2001.

         Commissions and other operating expenses increased by approximately
$4.2 million or 59% in the first quarter of 2002 compared to 2001. The following
table details the components of commission and other operating expenses:


<TABLE>
<CAPTION>
                                                                     For the quarters ended March 31,
                                                                     --------------------------------
                                                                         2002                2001
                                                                     ----------         -------------
                                                                             (In thousands)
<S>                                                                    <C>              <C>
Commissions                                                            $ 20,225           $ 15,964
Other operating costs                                                    15,052             11,979
Reinsurance allowances                                                  (24,099)           (20,931)
                                                                       --------           --------
Commissions and general expenses, net of allowances                    $ 11,178           $  7,012
                                                                       ========           ========
</TABLE>

         The ratio of commissions to gross premiums increased to 17.5% during
the first quarter of 2002, from 17.0% in 2001 as a result of the increase in new
business written. Other operating costs as a percentage of gross premiums
increased slightly to 13.0% during the first quarter of 2002 from 12.8% in 2001.
Commission and expense allowances received from reinsurers as a percentage of
the premiums ceded decreased to 29.4% during the first quarter of 2002 compared
to 30.6% in 2001.




                                       18
<PAGE>


SEGMENT RESULTS - ADMINISTRATIVE SERVICES

<TABLE>
<CAPTION>
                                                                                     For the quarters ended March 31,
                                                                                     --------------------------------
                                                                                       2002                     2001
                                                                                      ------                   ------
                                                                                               (In thousands)
<S>                                                                                   <C>                       <C>
Service fee and other income                                                          $9,567                    $7,980
Net investment income                                                                    129                        66
                                                                                      ------                    ------
  Total revenue                                                                        9,696                     8,046
                                                                                      ------                    ------

Amortization of present value of future profits and goodwill                             379                       567
General expenses                                                                       7,441                     5,969
                                                                                      ------                    ------
  Total expenses                                                                       7,820                     6,536
                                                                                      ------                    ------

  Segment operating income                                                             1,876                     1,510
Depreciation, amortization and interest                                                  689                       754
                                                                                      ------                    ------
Earnings before interest, taxes, depreciation and amortization (1)                    $2,565                    $2,264
                                                                                      ======                    ======
</TABLE>
-----------------
(1)      For our Administrative Services segment, we evaluate results based on
         earnings before interest, taxes, depreciation and amortization, which
         is not in accordance with generally accepted accounting principles.

Quarters ended March 31, 2002 and 2001

         Operating income for the Administrative Services segment improved by
$0.4 million or 24% over the first quarter of 2001, primarily as the result of
the increase in Medicare Supplement premiums being serviced by our
administrative services company and the reduction in the amortization of the
present value of future profits ("PVFP"). Earnings before interest, taxes,
depreciation and amortization ("EBITDA") for this segment increased $0.3 million
or 13% to $2.6 million, compared to the first quarter of 2001.

         The table below details service fee revenue earned by our
Administrative Services segment for the three months ended March 31, 2002 and
2001:

<TABLE>
<CAPTION>
                                                            For the quarters ended March 31,
                                                            --------------------------------
                                                             2002                      2001
                                                            ------                    ------
                                                                    (In thousands)
<S>                                                         <C>                       <C>
Affiliated Fee Revenue
         Medicare supplement                                $4,133                    $2,961
         Long term care                                        521                       381
         Nurse Navigator(TM)                                   375                         6
         Other health insurance                                 22                       176
         Life insurance                                         95                       104
                                                            ------                    ------
         Total Affiliated Fee Revenue                        5,146                     3,628
                                                            ------                    ------
Unaffiliated Fee Revenue
         Medicare supplement                                 2,342                     2,401
         Long term care                                      1,613                     1,539
         Other health insurance                                128                       139
         Non-insurance assistance                              338                       273
                                                            ------                    ------
         Total Unaffiliated Fee Revenue                      4,421                     4,352
                                                            ------                    ------
Total Administrative Service Fee Revenue                    $9,567                    $7,980
                                                            ======                    ======
</TABLE>

         Administrative Services fee revenue increased by $1.6 million, or 20%,
as compared to the first quarter of 2001. Fees earned on affiliated Medicare
Supplement policies increased $1.2 million compared to the first quarter of
2001. In 2002, approximately 46% of the $9.6 million of fees earned were from
non-affiliated companies compared to 55% of the $8.0 million in 2001.


                                       19
<PAGE>


         General expenses for the segment increased by $1.5 million, or 25%, due
primarily to the increase in business, as discussed above.

         The amortization of PVFP and goodwill relates primarily to the
acquisition of American Insurance Administration Group, Inc. ("AIAG").
Approximately $7.7 million of PVFP was established when AIAG was acquired in
January, 2000. It is being amortized in proportion to the expected profits from
the contracts in force on the date of acquisition. A large portion of the
contracts had a remaining term of three years at the date of acquisition;
accordingly, the amortization is heavily weighted to those periods. During the
first quarter of 2002, approximately $0.4 million was amortized compared to $0.6
million in 2001. As of March 31, 2002, $2.4 million or 31%, of the original
amount remains unamortized.


SEGMENT RESULTS - CORPORATE


<TABLE>
<CAPTION>
                                                                     For the quarters ended March 31,
                                                                     --------------------------------
                                                                      2002                      2001
                                                                     ------                    ------
                                                                             (In thousands)
<S>                                                                  <C>                       <C>
Interest cost on outstanding debt                                    $  806                    $1,618
Amortization of capitalized loan origination fees                       132                       132
Stock-based compensation expense                                        160                       250
Other parent company expenses, net                                      658                       446
                                                                     ------                    ------
  Segment operating loss                                             $1,756                    $2,446
                                                                     ======                    ======
</TABLE>

Quarters ended March 31, 2002 and 2001


         The net loss from the Corporate segment decreased by approximately 28%,
or $0.7 million compared to the first quarter of 2001, due primarily to a
reduction in interest cost. The decrease in the interest cost is due to a
combination of a reduction in the weighted average interest rate and lower
average outstanding balance as a result of principal repayments, compared to
2001. (See "Liquidity and Capital Resources" for additional information
regarding our credit facility). This is offset by an increase in parent company
expenses as a result of the growth of the company.

Eliminations

         The results by segment discussed above do not reflect the elimination
of intersegment revenues. However, the consolidated results include the
elimination of the revenues and expenses associated with services performed by
the Administrative Services segment for affiliates of $7.1 million and $5.7
million, respectively for 2002 and 2001 and the elimination of interest income
and expense of $0.1 million and $0.2 million, respectively for 2002 and 2001 on
bonds issued by the Corporate segment to an affiliate.

LIQUIDITY AND CAPITAL RESOURCES

         We use capital primarily to maintain or increase the surplus of our
insurance company subsidiaries and to support our parent company as an insurance
holding company. In addition, we require capital to fund our anticipated growth
through acquisitions of other companies or blocks of insurance or administration
business.

         We require cash at our parent company to meet our obligations under our
credit facility and our outstanding debentures held by our subsidiary, American
Progressive. We also require cash to pay the operating expenses necessary to
function as an insurance holding company (applicable insurance department
regulations require us to bear our own expenses), and to meet the costs involved
in being a public company.



                                       20
<PAGE>


         We believe that our current cash position, the availability of the
revolving credit facility, the expected cash flows of our administrative service
company and the surplus note interest payments from American Exchange can
support our parent company obligations for the foreseeable future. However,
there can be no assurance as to our actual future cash flows or to the continued
availability of dividends from our insurance company subsidiaries.

         Contractual Obligations and Commercial Commitments

         Our $80 million credit facility consists of a $70 million term loan and
a $10 million revolving loan facility. The loans call for interest at LIBOR for
one, two, three or six months plus 350 basis points (5.42% beginning April 30,
2002). Principal repayments are due on a quarterly basis over a seven-year
period that commenced on July 31, 2000. The final maturity date of the facility
is July 31, 2006. We pay a commitment fee of 50 basis points on the unutilized
portion of the revolving facility. The term loan is secured by a first priority
security interest in 100% of the outstanding common stock of American Exchange,
American Progressive, and WorldNet Services and 65% of the outstanding under
common stock of UAFC (Canada) Inc. (the parent of PennCorp Life (Canada)) and a
subordinate interest in 100% of the outstanding common stock of American
Pioneer. As of March 31, 2002, $55.9 million was outstanding under the term loan
and $3.0 million was outstanding under the revolving loan facility. We incurred
the revolving indebtedness in connection with our acquisition of CHCS in August
2000. During the quarter ended March 31, 2002, we paid $0.3 million in interest
and repaid $2.6 million in principal on the term loan. Additionally, during
April 2002, we made a regularly scheduled repayment that further reduced the
term loan to $53.2 million. During the quarter ended March 31, 2001, we paid
$0.6 million in interest and repaid $1.9 million in principal on the term loan.

The following table shows the schedule of remaining principal payments, as of
May 1, 2002, on the Company's outstanding term loan, with the final payment in
July 2006:


<TABLE>
<CAPTION>
                                  Principal
                                  Repayment
                                -------------
                               (In thousands)
                 <S>            <C>
                 2002            $   5,450
                 2003               11,525
                 2004               12,400
                 2005               13,275
                 2006               10,575
                                 ---------
               Total             $  53,225
                                 =========
</TABLE>

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

<TABLE>
<CAPTION>
                                               (In thousands)
                                               --------------
                <S>                             <C>
                2002                             $  1,737
                2003                                1,516
                2004                                1,435
                2005                                  947
                2006 and thereafter                 5,686
                                                 --------
                Totals                           $ 11,321
                                                 ========
</TABLE>

         Other than the lease obligations noted above, we do not have any
contractual or other commitments involving off-balance sheet arrangements.




                                       21
<PAGE>

         Administrative Service Company

         Liquidity for our administrative service company is measured by its
ability to pay operating expenses. The primary source of liquidity is fees
collected from clients. We believe that the sources of cash for our
administrative service company exceed scheduled uses of cash and results in
amounts available to dividend to our parent holding company. We measure the
ability of the administrative service company to pay dividends based on its
earnings before interest, taxes, depreciation and amortization ("EBITDA"). For
the year ended December 31, 2001, EBITDA for our administrative services segment
was $9.7 million.

         Insurance Subsidiary - Surplus Note

         Cash generated by our insurance company subsidiaries will be made
available to our holding company, principally through periodic payments of
principal and interest on surplus notes. As of March 31, 2002, the principal
amount of surplus notes owed to our holding company from our American Exchange
subsidiary totaled $70 million. The notes pay interest to our parent holding
company at LIBOR plus 375 basis points. We anticipate that the surplus notes
will be primarily serviced by dividends from Pennsylvania Life, a wholly owned
subsidiary of American Exchange, and by tax-sharing payments among the insurance
companies that are wholly owned by American Exchange and file a consolidated
Federal income tax return. American Exchange made no interest or principal
payments on the surplus notes to our parent holding company during the three
months ended March 31, 2002.

         Insurance Subsidiaries

         Our insurance subsidiaries are required to maintain minimum amounts of
capital and surplus as determined by statutory accounting practices. As of March
31, 2002, each insurance company subsidiary's statutory capital and surplus
exceeded its respective minimum requirement. However, substantially more than
these minimum amounts are needed to meet statutory and administrative
requirements of adequate capital and surplus to support the current level of our
insurance subsidiaries' operations. As of March 31, 2002 the statutory capital
and surplus, including asset valuation reserves, of our U.S. domiciled insurance
subsidiaries totaled $99.9 million.

         The National Association of Insurance Commissioners has developed, and
state insurance regulators have adopted, risk-based capital requirements on life
insurance enterprises. As of March 31, 2002 all of our insurance company
subsidiaries maintained ratios of total adjusted capital to risk-based capital
in excess of the minimum trigger point for regulatory action.

         PennCorp Life (Canada) is subject to Canadian capital requirements and
reports results 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 $36.3 million as of March 31, 2002. PennCorp Life (Canada)
maintained a minimum continuing capital and surplus requirement ratio in excess
of the minimum requirement as of March 31, 2002.

         Dividend payments by our insurance companies to our parent holding
company or to intermediate subsidiaries are limited by, or subject to the
approval of the insurance regulatory authorities of each insurance company's
state of domicile. Such dividend requirements and approval processes vary
significantly from state to state. The maximum amount of dividends which can be
paid to American Exchange from Pennsylvania Life (to assist in the service of
the surplus note held by American Exchange) without the prior approval of the
Pennsylvania Department of Insurance is restricted to the greater of 10% of the
Pennsylvania Life's surplus as regards 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. Thus, future earnings of
Pennsylvania Life would be available for dividends without prior approval,
subject to the restrictions noted above. Based upon the current dividend
regulations of the respective states, Pennsylvania Life would be able to pay
ordinary dividends of up to $8.4 million and Constitution Life would be able to
pay ordinary dividends of approximately $1.7 million to American Exchange (their
direct parent) without the prior approval from their respective insurance
departments in 2002. Additionally, in 2002, Peninsular Life would be able to pay
ordinary dividends of up to $0.7 million to


                                       22
<PAGE>

American Pioneer without approval from the Florida Department. We do not expect
that our remaining subsidiaries will be able to pay ordinary dividends in 2002.

         Liquidity for our insurance company 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. We believe that these sources of cash for
our insurance company subsidiaries exceed scheduled uses of cash.

         Liquidity is also affected by unscheduled benefit payments including
death benefits, benefits under accident and health insurance 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 our in force life insurance policies and annuities give
the holders the right to surrender the policies and annuities, we impose
penalties for early surrenders. As of March 31, 2002 we held reserves that
exceeded the underlying cash surrender values of our inforce life insurance and
annuities by $17.9 million. Our insurance company subsidiaries, in our view,
have not experienced any material changes in surrender and withdrawal activity
in recent years.

         Changes in interest rates may affect the incidence of policy surrenders
and withdrawals. In addition to the potential impact on liquidity, unanticipated
surrenders and withdrawals in a changed interest rate environment could
adversely affect earnings if we were required to sell investments at reduced
values in order to meet liquidity demands. We manage our asset and liability
portfolios in order to minimize the adverse earnings impact of changing market
rates. We seek to invest in assets that have duration and interest rate
characteristics similar to the liabilities that they support.

         The net yields on our cash and invested assets decreased slightly from
6.76% in 2001 to 6.56% in 2002. A significant portion of these securities are
held to support the liabilities for policyholder account balances, which
liabilities are subject to periodic adjustments to their credited interest
rates. The credited interest rates of the interest-sensitive policyholder
account balances are determined by us based upon factors such as portfolio rates
of return and prevailing market rates and typically follow the pattern of yields
on the assets supporting these liabilities.

         As of March 31, 2002, our insurance company subsidiaries held cash and
cash equivalents totaling $28.7 million, as well as fixed maturity securities
that could readily be converted to cash with carrying values (and fair values)
of $805.2 million. The fair values of these holdings totaled more than $833.9
million as of March 31, 2002.

         INVESTMENTS

         Our investment policy is to balance the portfolio duration to achieve
investment returns consistent with the preservation of capital and maintenance
of liquidity adequate to meet payment of policy benefits and claims. We invest
in assets permitted under the insurance laws of the various states in which we
operate. However, we do not invest in partnerships, special purpose entities,
real estate, commodity contracts, or other derivative securities. Such laws
generally prescribe the nature, quality of and limitations on various types of
investments that may be made. We currently engage the services of two investment
advisors under the direction of the management of our insurance company
subsidiaries and in accordance with guidelines adopted by the Investment
Committees of their respective boards of directors. Conning Asset Management
Company manages our fixed maturity portfolio in the United States and Elliot &
Page, Limited manages our Canadian fixed maturity portfolio. Our 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. We
invest primarily in fixed maturity securities of the U.S. Government and its
agencies and in corporate fixed maturity securities with investment grade
ratings of "Baa3" (Moody's Investor Service), "BBB-" (Standard & Poor's
Corporation) or higher. As of March 31, 2002, 99.2% of our fixed maturity
investments had investment grade ratings from Moody's Investors Service or
Standard & Poor's Corporation. However, we do own some investments that are
rated "BB+" or below by Standard & Poor's (together 0.8% of total fixed
maturities as of March 31, 2002). There were no non-income producing fixed
maturities as of March 31, 2002. We wrote down the value of certain fixed

                                       23
<PAGE>


maturity securities by $1.6 million during the three months ended March 31,
2002, and by $1.2 million during the three months ended March 31, 2001. In each
case, these write-downs represent our estimate of other than temporary declines
in value and were included in net realized gains (losses) on investments in our
consolidated statements of operations.

EFFECTS OF ACCOUNTING PRONOUNCEMENTS

         In June, 2001, The Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets", effective for fiscal years beginning after December 15,
2001. Under the new rules, goodwill, and intangible assets deemed to have
indefinite lives, will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statement. Other intangible assets will
continue to be amortized over their useful lives.

         The Company applied the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
non-amortization provisions of the Statement resulted in an increase in net
income of $0.1 million (less than $0.01 per diluted share) for the three months
ended March 31, 2002. The Company performed the first of the required impairment
tests of goodwill and indefinite lived intangible assets as of January 1, 2002
and has determined that, based on these tests, goodwill and indefinite lived
intangibles were not impaired.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         In general, market risk relates to changes in the value of financial
instruments that arise from adverse movements in interest rates, equity prices
and foreign exchange rates. We are exposed principally to changes in interest
rates that affect the market prices of our fixed income securities.

Interest Rate Sensitivity

         Our profitability could be affected if we were required to liquidate
fixed income securities during periods of rising and/or volatile interest rates.
However, we attempt to mitigate our exposure to adverse interest rate movements
through a combination of active portfolio management and by staggering the
maturities of our fixed income investments to assure sufficient liquidity to
meet our obligations and to address reinvestment risk considerations. Our
insurance liabilities generally arise over relatively long periods of time,
which typically permits ample time to prepare for their settlement. To date, we
have not used various financial risk management tools on our investment
securities, such as interest rate swaps, forwards, futures and options to modify
our exposure to changes in interest rates. However, we may consider using them
in the future.

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

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

         The sensitivity analysis of interest rate risk assumes an instantaneous
shift in a parallel fashion across the yield curve, with scenarios of interest
rates increasing and decreasing 100 and 200 basis points from their levels as of
March 31, 2002, and with all other variables held constant. A 100 basis point
increase in market interest rates would result in a pre-tax decrease in the
market value of our fixed income investments of $51.9 million and a 200 basis
point increase would result in a $97.8 million decrease. Similarly, a 100 basis
point decrease in market interest rates would result in a pre-tax increase in
the market value of our fixed income investments of $49.5 million and a 200
basis point decrease would result in a $104.5 million increase.



                                       24
<PAGE>

Currency Exchange Rate Sensitivity

         Portions of our operations are transacted using the Canadian dollar as
the functional currency. As of and for the three months ended March 31, 2002,
approximately 11% of our assets, 18% of our revenues and 30% of our operating
income before taxes were derived from our Canadian operations. As of and for the
three months ended March 31, 2001, approximately 13% of our assets, 19% of our
revenues and 25% of our operating income before taxes were derived from our
Canadian operations. Accordingly, our earnings and shareholders' equity are
affected by fluctuations in the value of the U.S. dollar as compared to the
Canadian dollar. Although this risk is somewhat mitigated by the fact that both
the assets and liabilities for our foreign operations are denominated in
Canadian dollars, we are still subject to translation losses.

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

         A 10% strengthening of the U.S. dollar relative to the Canadian dollar
would result in a decrease in our operating income before taxes for the three
months ended March 31, 2002 of approximately $0.3 million and a decrease in
shareholders' equity as of March 31, 2002 of approximately $2.0 million. Our
sensitivity analysis of the effects of changes in currency exchange rates does
not factor in any potential change in sales levels, local prices or any other
variable.

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


                           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
                                             Executive Vice President
                                             Chief Financial Officer

Date:  May 15, 2002


                                       25