<PAGE>


                                                                      Exhibit 13

                                        TRIGON HEALTHCARE, INC. AND SUBSIDIARIES
                                                 QUARTERLY FINANCIAL INFORMATION

<TABLE>
<CAPTION>


Quarters ended                                              March 31    June 30   September 30  December 31
-----------------------------------------------------------------------------------------------------------
                                                               (in thousands, except per share data)
<S>                                                        <C>          <C>       <C>           <C>
2001
Total revenues                                              $728,163    722,706       732,996      791,102
Income before income taxes and minority interest              48,770     39,716        23,614       63,638
Net income                                                    32,400     26,469        15,761       41,430
Earnings per share
     Basic net income                                           0.87       0.73          0.44         1.16
     Diluted net income                                         0.84       0.71          0.43         1.13
-----------------------------------------------------------------------------------------------------------
2000
Total revenues                                              $629,162    645,239       666,479      670,715
Income before income taxes and minority interest              42,725     39,584        52,885       30,560
Net income                                                    28,218     28,764        33,998       21,029
Earnings per share
     Basic net income                                           0.74       0.77          0.91         0.56
     Diluted net income                                         0.73       0.75          0.88         0.54
------------------------------------------------------------------------------------------------------------
OTHER DATA
2001
Operating income(1)                                         $ 31,481     33,003        37,964       37,068
Diluted net income per share excluding net
   realized gains (losses)(2)                                   0.95       1.00          1.08         1.06

2000
Operating income(1)                                         $ 16,825     22,981        30,006       25,761
Diluted net income per share excluding net
     realized gains (losses)(2)(3)                              0.70       0.87          0.92         0.86
------------------------------------------------------------------------------------------------------------
</TABLE>


(1) Operating income is calculated as the sum of premium and fee revenues and
    other revenues less the sum of medical and other benefit costs and selling,
    general and administrative expenses. It differs from income before income
    taxes and minority interest because it excludes both income and net realized
    gains or losses from investment securities and interest expense on debt.
    Operating income is intended to be used as a measure of operating
    performance of the Company's health care business and does not capture the
    Company's performance of its investment portfolio and the interest incurred
    on debt. The Company's definition of operating income may not be comparable
    to similarly titled measures reported by other companies and should not be
    construed as a substitute for, or a better indicator of, pretax
    profitability than income before income taxes and minority interest, which
    is determined in accordance with GAAP.

(2) Net income per share excluding net realized gains (losses) is defined as net
    income excluding the after-tax impact of net realized gains (losses) on
    investment securities divided by the weighted average shares outstanding.
    Investors use these calculations as a measure of profitability excluding the
    variability of net realized gains or losses on investment securities. The
    Company's definition of this non-GAAP measure may not be comparable to
    similarly titled measures used by other companies and should not be
    construed as a substitute for, or a better indicator of, company performance
    than net income per share, which is determined in accordance with GAAP.

(3) The June 30, 2000 amount includes the favorable tax benefit of $2.7 million,
    or $0.07 per common diluted share, realized on the sale of a subsidiary.
    Excluding this tax benefit, net income per share excluding net realized
    gains (losses) for the period would have been $0.80. (See note 17 to the
    consolidated financial statements.)

                              Trigon Healthcare, Inc. 2001 Annual Report page 17

<PAGE>

TRIGON HEALTHCARE, INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

<TABLE>
<CAPTION>


Years ended December 31,                           2001         2000       1999       1998       1997
----------------------------------------------------------------------------------------------------------
                                                    (in thousands, except per share and ratio data)
<S> <C>
STATEMENT OF
OPERATIONS DATA
Revenues
   Premium and fee revenues                       $ 2,905,945  2,500,528  2,247,036  2,049,346  1,909,349
   Investment income, net realized gains
     (losses) and other revenues                       69,022    111,067     99,392    187,006    153,123
----------------------------------------------------------------------------------------------------------
Total revenues                                    $ 2,974,967  2,611,595  2,346,428  2,236,352  2,062,472
==========================================================================================================
Net income                                        $   116,060    112,009     20,463    123,572     95,053
==========================================================================================================
Earnings per share(1)
   Basic net income                               $      3.20       2.98       0.50       2.92       1.87
   Diluted net income                             $      3.11       2.90       0.49       2.88       1.86
Pro forma earnings per share(2)
   Basic and diluted pro forma
     net income                                   $        --         --         --         --       2.23
----------------------------------------------------------------------------------------------------------
December 31,                                       2001         2000       1999       1998       1997
----------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Cash and investments                              $ 1,838,524  1,781,652  1,741,045  1,590,022  1,370,868
Total assets                                      $ 2,582,464  2,448,492  2,314,115  2,174,225  1,928,820
Total borrowings(3)                               $   299,660    275,448    248,039     89,339     90,147
Total liabilities                                 $ 1,562,044  1,433,630  1,377,158  1,103,001    970,083
Total shareholders' equity                        $ 1,020,420  1,014,862    936,957  1,071,224    958,737
==========================================================================================================
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

Years ended December 31,                                 2001         2000        1999        1998    1997
----------------------------------------------------------------------------------------------------------
                                                        (in thousands, except per share and ratio data)
<S> <C>
OTHER DATA
Commercial medical cost ratio(4)                             81.2%    80.6%       82.6%(6)    82.5%    83.5%
Selling, general and administrative
   expense ratio(4)                                          12.0%    12.7%       15.0%(6)    12.8%    12.4%
Operating income (loss)(5)                               $139,516   95,573     (35,297)(6)  31,556   21,248
Operating margin ratio(5)                                     4.8%     3.8%       (1.6)%(6)    1.5%     1.1%
Diluted net income per share
   excluding net realized gains (losses)(7)              $   4.09     3.35(8)     0.84(8)      1.71      --
Diluted pro forma net income per
   share excluding net realized gains(7)                 $     --       --          --           --    1.40
-----------------------------------------------------------------------------------------------------------
</TABLE>

(1) Reflects net income and net income per share for the period after February
    5, 1997, the effective date of the Demutualization and Initial Public
    Offering (IPO). For 1997, net income after Demutualization and IPO was $79
    million.
(2) Pro forma per share data for 1997 gives effect to the Demutualization and
    IPO as if they had taken place on January 1, 1996 using the assumptions in
    the Company's pro forma presentation in its Form S-1 filed in connection
    with its IPO with the Securities and Exchange Commission in 1997.
(3) The amounts reported for 2000 and 2001 include the current and noncurrent
    portions of the commercial paper liability while the amounts reported for
    1997 to 1999 represent the noncurrent liability for a revolving credit
    facility repaid during 2000 with the issuance of the commercial paper. (See
    note 11 to the consolidated financial statements.)
(4) The commercial medical cost ratio is calculated as a percentage of
    commercial premiums. The selling, general and administrative expense ratio
    is calculated as a percentage of total revenues excluding amounts
    attributable to claims under self-funded arrangements, investment income
    and net realized gains (losses).
(5) Operating income is calculated as the sum of premium and fee revenues and
    other revenues less the sum of medical and other benefit costs and selling,
    general and administrative expenses. It differs from income before income
    taxes and minority interest because it excludes both income and net realized
    gains or losses from investment securities and interest expense on debt.
    Operating income is intended to be used as a measure of operating
    performance of the Company's health care business and does not capture the
    Company's performance of its investment portfolio and the interest incurred
    on debt. The operating margin ratio is calculated by dividing operating
    income by the sum of premium and fee revenues and other revenues. The
    Company's definition of operating income and the resulting operating margin
    ratio may not be comparable to similarly titled measures reported by other
    companies and should not be construed as a substitute for, or a better
    indicator of, pretax profitability than income before income taxes and
    minority interest, which is determined in accordance with GAAP.
(6) Operating income and the selected ratios for 1999 include the pretax charge
    of $79.9 million related to a subsidiary's exit of the health insurance
    market. (See note 17 to the consolidated financial statements.) Excluding
    this item, operating income and the selected ratios for 1999 would have been
    perating income, $44.6 million; commercial medical cost ratio, 81.4%;
    selling, general and administrative expense ratio, 13.2%; and operating
    margin ratio, 2.0%.
(7) Net income per share excluding net realized gains or losses is defined as
    net income excluding the after-tax impact of net realized gains or losses on
    investment securities divided by the weighted average shares outstanding.
    Pro forma net income excluding net realized gains per share is calculated as
    pro forma net income per share excluding the pro forma after-tax amounts for
    net realized gains divided by pro forma weighted average shares outstanding.
    Investors use these calculations as a measure of profitability excluding the
    variability of net realized gains or losses on investment securities. The
    Company's definition of this non-GAAP measure may not be comparable to
    similarly titled measures used by other companies and should not be
    construed as a substitute for, or a better indicator of, company performance
    than net income per share, which is determined in accordance with GAAP.
(8) The 1999 amount includes the after-tax charge of $51.9 million, or a loss of
    $1.25 per common diluted share, related to a subsidiary's exit of the health
    insurance market. Excluding this charge, diluted net income per share
    excluding realized losses for 1999 would have been $2.09. The 2000 amount
    includes the favorable tax benefit of $2.7 million, or $0.07 per common
    diluted share, realized on the sale of a subsidiary. Excluding this tax
    benefit, net income per share excluding realized losses for 2000 would have
    been $3.28. (See note 17 to the consolidated financial statements.)

                              Trigon Healthcare, Inc. 2001 Annual Report page 19

<PAGE>

TRIGON HEALTHCARE, INC. AND SUBSIDIARIES

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

GENERAL

Substantially all of the revenues of Trigon Healthcare, Inc. and subsidiaries
(collectively, Trigon or the Company) are generated from premiums and fees
received for health care services provided to its members and from investment
income. Trigon's expenses are primarily related to health care services provided
which consist of payments to physicians, hospitals and other providers. A
portion of medical cost expenses for each period consists of an actuarial
estimate of claims incurred but not reported to the Company during the period.
The Company uses paid claims and completion factors based on historical payment
patterns to establish this actuarial estimate. The Company's results of
operations depend in large part on its ability to accurately predict and
effectively manage health care costs. The economic factors related to health
care costs have a direct impact on the risks associated with the Company's
business. The potential negative effect of escalating health care costs as well
as any changes in the Company's ability to negotiate favorable rates with its
providers may produce risks to the Company's market growth due to its impact on
the affordability of health care insurance. Health care costs and other economic
factors contributing to the number of the uninsured may create the potential for
increased government regulation and its inherent costs. The economic conditions
specific to Virginia may have an adverse impact on the Company due to the
concentration of the Company's business in Virginia. Management continually
monitors these risks and their expected impact on the Company's business.

     The Company divides its business into four reportable segments: health
insurance, government programs, investments and all other. Its health insurance
segment offers several network products, including health maintenance
organizations (HMO), preferred provider organizations (PPO) and traditional
indemnity products with access to the Company's participating provider network
(PAR) as well as Medicare supplement plans. Within the Company's health
insurance network product offerings, employer groups may choose various funding
options ranging from fully-insured to partially or fully self-funded financial
arrangements. While self-funded customers participate in Trigon's networks, the
customers bear all or portions of the claims risk.

     The government programs segment includes the Federal Employee Program
(FEP). Through its participation in the national contract between the Blue Cross
and Blue Shield Association and the U.S. Office of Personnel Management (OPM),
the Company provides health benefits to federal employees in Virginia. FEP
revenues represent the reimbursement by OPM of medical costs incurred including
the actual cost of administering the program, as well as a performance-based
share of the national program's overall profit. The Company discontinued its
role as a claims processing intermediary for the federal government with the
Medicare Part A program in Virginia and West Virginia, effective August 31,
1999. Additionally, the Company discontinued its role as the primary provider of
computer processing capabilities for Medicare Part A claims processing to
certain other Blue Cross and Blue Shield plans during November 1999. As fiscal
intermediary for Medicare, the Company allocated operating expenses to this line
of business to determine reimbursement due for services rendered in accordance
with the contracts in force. Medicare claims processed under this arrangement
were not included in the consolidated statements of operations and the
reimbursement of allocated operating expenses was recorded as a reduction of the
Company's selling, general and administrative expenses.

     All of the investment portfolios of the consolidated subsidiaries are
managed and evaluated collectively within the investment segment. The Company's
other health-related business, including disease management programs, benefits
administration, health promotion and similar products, is reflected in an "all
other" category.

<PAGE>

ENROLLMENT

The following table sets forth the Company's enrollment data by network:

As of December 31,                 2001         2000         1999
Health Insurance
   Commercial
     HMO                         301,231      272,546      274,184
     PPO                         540,362      488,645      378,406
     PAR                         119,569      134,166      151,673
     Medicaid/Medicare
        HMO(1)                    61,777       58,021       51,404
     Medicare supplement         116,754      119,535      119,050
-------------------------------------------------------------------
   Total commercial            1,139,693    1,072,913      974,717
Self-funded                      776,486      721,361      677,545
-------------------------------------------------------------------
Total health insurance         1,916,179    1,794,274    1,652,262
Government
   Federal Employee
     Program (PPO)               221,757      221,056      216,089
-------------------------------------------------------------------
Total                          2,137,936    2,015,330    1,868,351
===================================================================

(1) The Company exited from the Medicare HMO market effective January 1,
    2000; 1999 reflected 2,230 members.

PREMIUM AND PREMIUM EQUIVALENTS BY NETWORK

The following table sets forth the Company's premium and premium equivalents by
network (in thousands):

Years ended December 31,                  2001           2000         1999
---------------------------------------------------------------------------
Health Insurance
   Commercial
     HMO                              $   488,565      435,789      397,715
     PPO                                1,003,279      793,778      550,407
     PAR                                  265,290      274,806      284,587
     Medicaid/Medicare
        HMO                               141,860      120,147      104,604
     Medicare supplement                  267,179      247,013      229,824
---------------------------------------------------------------------------
   Total commercial
     excluding Mid-South                2,166,173    1,871,533    1,567,137
---------------------------------------------------------------------------
Self-funded                             1,629,506    1,392,998    1,216,427
---------------------------------------------------------------------------
Total health insurance
   excluding Mid-South                  3,795,679    3,264,531    2,783,564
Government
   Federal Employee
     Program (PPO)                        529,491      464,303      448,676
---------------------------------------------------------------------------
Total excluding Mid-South               4,325,170    3,728,834    3,232,240
Mid-South, commercial                          --           --       97,124
---------------------------------------------------------------------------
Total                                 $ 4,325,170    3,728,834    3,329,364
===========================================================================

OPERATING INCOME

The following table sets forth the components of the Company's operating income
and reconciliation to income before income taxes and minority interest (in
thousands):

Years ended December 31,           2001             2000         1999
------------------------------------------------------------------------
Premium and
   fee revenues                $2,905,945         2,500,528    2,247,036
Other revenues                     20,105            23,637       24,218
------------------------------------------------------------------------
   Total operating
     revenues                   2,926,050         2,524,165    2,271,254
------------------------------------------------------------------------
Medical and other
   benefit costs                2,263,791         1,951,783    1,804,362
Selling, general and
   administrative
   expenses                       522,743           476,809      502,189
------------------------------------------------------------------------
   Total operating
     expenses                   2,786,534         2,428,592    2,306,551
------------------------------------------------------------------------
Operating income (loss)(1)     $  139,516            95,573      (35,297)
Investment income                 105,247           114,453       97,131
Net realized losses               (56,330)          (27,023)     (21,957)
Interest expense                  (12,695)          (17,249)      (8,359)
------------------------------------------------------------------------
Income before
   income taxes and
   minority interest           $  175,738           165,754       31,518
========================================================================

(1) Operating income for 1999 includes the pretax charge of $79.9 million
    related to a subsidiary's exit of the health insurance market. (See note 17
    to the consolidated financial statements.) Excluding this item, operating
    income for 1999 would have been $44.6 million.

     Operating income is calculated as the sum of premium and fee revenues and
other revenues less the sum of medical and other benefit costs and selling,
general and administrative expenses. It differs from income before income taxes
and minority interest because it excludes both income and net realized gains or
losses from investment securities and interest expense on debt. Operating income
is intended to be used as a measure of operating performance of the Company's
health care business and does not capture the Company's performance of its
investment portfolio and the interest incurred on debt. The Company's definition
of operating income may not be comparable to similarly titled measures reported
by other companies and should not be construed as a substitute for, or a better
indicator of, pretax profitability than income before income taxes and minority
interest, which is determined in accordance with GAAP.

                             Trigon Healthcare, Inc. 2001 Annual Report page 21

<PAGE>

TRIGON HEALTHCARE, INC. AND SUBSIDIARIES

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

(Continued)

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Premium and fee revenues increased 16.2% to $2.91 billion in 2001 from $2.50
billion in 2000. The $405.4 million increase is due to a combination of
enrollment growth and rate increases in the Company's health insurance segment's
HMO and PPO networks, offset by expected declines in the segment's PAR network
enrollment. Commercial revenue increased 15.7% to $2.2 billion in 2001 from $1.9
billion in 2000, driven by a 6.2% increase in members and rate increases.
Premium revenues on a per member per month basis for the Company's commercial
business increased 8.7% to $163.40 in 2001 from $150.39 in 2000. Self-funded
margins increased $45.6 million or 27.7%. The improvement is a result of 7.6%
higher enrollment, a 16.8% increase in margin per member per month and the
elimination of a $3.0 million allowance established in 2000 to cover possible
claims run-out for a self-funded group that previously declared bankruptcy.
During the first quarter of 2001, the group pre-funded this amount making the
allowance no longer necessary. The government segment's FEP revenues increased
14.0% to $529.5 million in 2001 from $464.3 million in 2000 due to increased
medical costs to be reimbursed by OPM.

     Total enrollment increased to 2,137,936 as of December 31, 2001 from
2,015,330 as of December 31, 2000. The increase of 122,606 was a result of a
121,905 increase in the Company's health insurance segment and a 701 increase in
the government segment. The health insurance enrollment increase was the result
of a 66,780 increase in commercial enrollment, a 6.2% increase, and a 55,125
increase in self-funded enrollment, a 7.6% increase. Enrollment in the HMO
network, which accounts for 31.9% of the total commercial enrollment, increased
by 9.8% over the prior year. Enrollment in the PPO network as of December 31,
2001 increased 10.6% over December 31, 2000 and accounts for 47.4% of the
Company's commercial enrollment. Growth in PPO was offset by an expected decline
of 10.9% in the Company's PAR network as members continue to migrate into more
tightly managed networks. The PAR network enrollment represents 10.5% of the
Company's commercial enrollment.

     Investment income decreased 8.0% to $105.2 million in 2001 from $114.5
million in 2000. The decline is due to continued purchases under the stock
repurchase program affecting the amount available for investment and the impact
of declining interest rates. Net realized losses increased to $56.3 million in
2001 from $27.0 million in 2000. The net realized losses for 2001 consist of
$59.8 million of net realized losses on investments and a $3.5 million gain on
the sale of Trigon Administrators, Inc. The increase in realized losses was
primarily from equity-indexed investment losses reflecting the impact of various
market factors, the repositioning of the underperforming medium-quality bond
portion of the portfolio during the second quarter of 2001 and normal portfolio
turnover during a period of declining prices for equities. In March 2001, the
Company sold Trigon Administrators, Inc. and its Property and Casualty Division,
which provides workers' compensation, liability and short-term disability
services.

     Medical costs increased 16.0% to $2.26 billion in 2001 from $1.95 billion
in 2000. The $312.0 million increase is a result of growth in the health
insurance segment's commercial enrollment, continued increased medical costs and
an increase in the government segment's FEP medical costs reimbursed by OPM. The
medical cost per member per month for the Company's commercial business
increased 9.5% to $132.61 in 2001 from $121.14 in 2000. Outpatient facility,
pharmacy and an increase in acute inpatient surgeries were the primary drivers
of the 9.5% medical cost trend as compared to a 7.2% trend in 2000. When
combined with the premium per member per month trend of 8.7%, the medical cost
ratio on commercial business increased to 81.2% in 2001 from 80.6% in 2000.
Through constant monitoring of medical cost trends, the Company has taken
appropriate pricing and cost control actions to maintain a medical cost ratio
near the mid-point of its long stated target range of 80% to 82%. In addition to
pricing actions, the Company took the following actions. First, it continues its
efforts to negotiate with providers for the best unit cost with reasonable
inflationary adjustments. Secondly, the Company has undertaken a number of
initiatives to mitigate increasing pharmacy trends. "Prescribing Value" is a
quarterly prescription education report sent to top prescribing physicians. The
Company launched its "Generics First" program in late 2001 which provides free
generic samples to physicians with the intent of making it more likely that
brand drugs will be replaced with an appropriate generic. The Company is also
helping physicians by monitoring patient drug therapies on a whole case basis
looking for possible problems such as adverse interactions and suboptimal
therapy. Based on preliminary analysis, the Company believes these programs are
helping to attenuate both utilization and unit cost trends. Finally, steps were

<PAGE>

taken mid-year to increase the patient-pay on certain procedures. The Company
will continue to develop and bring to market product initiatives designed to
make a meaningful impact on utilization-driven medical inflation. This should be
especially effective when combined with ongoing physician collaboration
initiatives where the goal is to engage both the member and the physician in the
medical cost dialogue.

     SG&A expenses increased $45.9 million to $522.7 million in 2001 from $476.8
million in 2000. This increase is attributed to the incremental commissions and
operating costs resulting from the enrollment increase and continuing
investments in technology. Administrative expenses for 2001 also included a $3.2
million write-off in the first quarter of previously capitalized software
related to the Company's e-distribution initiative. The SG&A ratio decreased to
12.0% in 2001 from 12.7% in 2000. The reduced SG&A ratio demonstrates the
leveraging impact of revenue growth. Increased revenue growth has allowed the
Company to cover inflation and volume growth, as well as make investments in the
business to gain operational improvements and efficiencies while simultaneously
improving the SG&A ratio.

     Interest expense in 2001 was $12.7 million compared to $17.2 million in
2000. The decrease in interest expense is due to declining interest rates on
short-term borrowings in 2001 that more than offset the impact resulting from an
increase in the average amount of commercial paper outstanding during the year.

     Income before income taxes and minority interest increased $9.9 million to
$175.7 million in 2001 from $165.8 million in 2000. The increase is a result of
a $43.9 million increase in operating income, lower interest expense of $4.5
million, and the $3.5 million realized gain on sale of Trigon Administrators,
Inc., offset by an increase in net realized losses on investment securities of
$32.8 million and decreased investment income of $9.2 million.

     The effective tax rate on income before income taxes and minority interest
for 2001 and 2000 was 33.1% and 30.2%, respectively. The effective tax rate for
2000 includes a $2.7 million tax benefit realized during the second quarter of
2000 related to the sale of the Company's subsidiary, Mid-South Insurance
Company (Mid-South). Excluding this tax benefit, the effective tax rate for 2000
was 31.9%. The effective tax rates for 2001 and 2000, excluding the $2.7 million
tax benefit in 2000, differ from the statutory tax rate of 35% primarily due to
the Company's investments in tax-exempt municipal bonds that reduce the
effective tax rate by the effect of the tax-exempt investment income earned.


Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

Premium and fee revenues increased 11.3% to $2.50 billion in 2000 from $2.25
billion in 1999. The $253.4 million increase is due to a combination of
enrollment growth and rate increases in the Company's health insurance segment's
HMO and PPO networks, offset by expected declines in the segment's PAR network
enrollment and the third quarter 1999 Mid-South market exit. Commercial revenue
from the Virginia HMO, PPO and PAR networks increased 19.4% to $1.87 billion in
2000 from $1.57 billion in 1999, driven by a 10.1% increase in members. The
Mid-South market exit resulted in a $97.1 million decrease in commercial
revenue. Overall, premium revenues on a per member per month basis for the
Company's commercial business increased 8.2% to $150.39 in 2000 from $138.94 in
1999. Self-funded margins increased $30.6 million or 22.8% due to a 17.5%
increase in margin per member per month. The government segment's FEP revenues
increased 3.5% to $464.3 million from $448.7 million in 1999. The increase is
due to increased medical costs to be reimbursed by OPM and a 2.3% increase in
enrollment.

     Total enrollment increased to 2,015,330 as of December 31, 2000 from
1,868,351 as of December 31, 1999. The increase of 146,979 was a result of a
142,012 increase in the Company's health insurance segment and a 4,967 increase
in the government segment. The health insurance enrollment increase was the
result of a 98,196 increase in commercial enrollment, a 10.1% increase, and a
43,816 increase in self-funded enrollment, a 6.5% increase. Enrollment in the
HMO network increased by 1.5% over the prior year, reflecting the Company's
decision to not rebid the underperforming HMO contract with the Commonwealth of
Virginia involving 23,000 members, and accounts for 30.8% of the total
commercial enrollment. Enrollment in the PPO network as of December 31, 2000
increased 29.1% over December 31, 1999 and accounts for 45.5% of the Company's
commercial enrollment. Growth in PPO was offset by an expected decline of 11.5%
in the Company's PAR network as members migrate into more tightly managed
networks. The PAR network enrollment represents 12.5% of the Company's
commercial enrollment.

                              Trigon Healthcare, Inc. 2001 Annual Report page 23

<PAGE>

TRIGON HEALTHCARE, INC. AND SUBSIDIARIES

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

(Continued)

     Investment income increased 17.8% to $114.5 million in 2000 from $97.1
million in 1999. Net realized losses increased to $27.0 million in 2000 from
$22.0 million in 1999. The increase in investment income is due to growth in
investment assets caused by positive operating cash flows, favorable total
return on investments and from the investment of the increase in long-term debt.
The net realized losses reflect the Company's shift in allocation from medium
quality to investment grade bonds and are also due to normal portfolio turnover
during a period of declining prices for equities and medium quality bonds.

     Medical costs increased 8.2% to $1.95 billion in 2000 from $1.80 billion in
1999. The $147.4 million increase is a result of growth in the Virginia health
insurance segment's commercial enrollment offset by Mid-South's market exit in
the third quarter of 1999, expected levels of medical cost inflation and an
increase in the government segment's FEP medical costs reimbursed by OPM. The
medical cost per member per month for the Company's commercial business,
excluding the Mid-South exit charge of $20.6 million, increased 7.2% to $121.14
in 2000 from $113.06 in 1999. Combined with an 8.2% increase in commercial
premium revenues per member per month, the medical cost ratio on commercial
business, excluding the 1999 Mid-South charge, decreased to 80.6% in 2000 from
81.4% in 1999. As a result of medical cost management initiatives, cost and
utilization trends have been maintained at levels consistent with current
pricing and margin objectives. The implementation of the "three-tier" drug
benefit co-pay program continues to provide benefits as the pharmacy cost trend
has been maintained at a single digit increase of 9.4% for the twelve months
ended December 31, 2000. Inpatient days continue to trend downward while being
offset by increased outpatient utilization producing anticipated overall medical
cost trends that are incorporated within the pricing and rate setting policies.
The Company continues to take an active role in leveraging its advanced
information tools and extensive health data bank. Working collaboratively with
providers through data sharing programs, joint activities lead to more proactive
case management. For instance, the Company has programs to reduce practice
variation where commonly accepted methods are available to improve health and
lower cost.

     SG&A expenses decreased to $476.8 million in 2000 from $502.2 million in
1999. This decrease is attributed to the Mid-South exit charge of $59.3 million
in the third quarter of 1999. Excluding this exit charge, SG&A increased 7.7% or
$33.9 million in 2000 compared to 1999. This increase is attributed to the
incremental commissions and operations costs resulting from the enrollment
increase and investments in technology. The SG&A ratio, excluding the 1999
Mid-South charge, decreased to 12.7% in 2000 from 13.2% in 1999. The decrease in
the SG&A ratio, due to the increased enrollment and revenue, provides the
opportunity to leverage the increased revenue with investments including
e-commerce technology, systems infrastructure and customer service enhancements.
These investments will contribute operational improvements and efficiencies.

     Interest expense in 2000 was $17.2 million compared to $8.4 million in
1999. The increase is primarily the result of a net increase in long-term debt
of approximately $160 million beginning in the third quarter of 1999 and the
issuance of an additional $30 million of commercial paper in the third quarter
of 2000.

     Income before income taxes and minority interest increased $134.3 million
to $165.8 million in 2000 from $31.5 million in 1999. The increase is a result
of higher investment income of $17.3 million and a $130.9 million increase in
operating income, offset by higher interest expense of $8.8 million and
increased net realized losses of $5.1 million. Operating income increased due to
growth in the health insurance segment and the $79.9 million Mid-South exit
charge incurred in the third quarter of 1999.

     The effective tax rate on income before income taxes and minority interest
for 2000 and 1999, excluding the 1999 Mid-South exit charge, was 30.2% and
32.6%, respectively. The effective tax rate differs from the statutory tax rate
of 35% primarily due to the Company's investments in tax-exempt municipal bonds
that reduce the effective tax rate by the effect of the tax-exempt investment
income earned and a $2.7 million tax benefit realized during the second quarter
of 2000 related to the sale of Mid-South.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of cash are premiums and fees received and
investment income. The primary uses of cash include health care benefit
expenses, brokers' and agents' commissions, administrative expenses, income
taxes and repayment of debt. The Company generally receives premium revenues in
advance of anticipated claims for related health care services.

     The Company's investment policies are designed to provide liquidity to meet
anticipated payment obligations


<PAGE>

and preserve capital. The Company fundamentally believes that concentrations of
investments in any one asset class are unwise due to constantly changing
interest rates as well as market and economic conditions. Accordingly, the
Company maintains a diversified investment portfolio consisting both of fixed
income and equity securities, with the objective of producing a consistently
growing income stream and maximizing risk-adjusted total return. The fixed
income portfolio includes government and corporate securities, both domestic and
international, with an average quality rating of "A1" as of December 31, 2001.
The portfolio had an average contractual maturity of 7.2 years as of December
31, 2001. A portion of the fixed income portfolio is designated as a short-term
fixed income portfolio and is intended to cover near-term cash flow needs and to
serve as a buffer for unanticipated business needs. The equity portfolios
contain readily marketable securities ranging from small growth to
well-established Fortune 500 companies. The international portfolio is
diversified by industry, country and currency-related exposure. As of December
31, 2001, the Company's equity exposure, comprised of direct equity as well as
equity-indexed investments, was 12.8% of the total portfolio, as compared to 14%
as of December 31, 2000.

     In November 2001, the Company entered into new revolving credit facilities
with a syndicate of lenders, replacing the existing revolving credit facility
expiring in February 2002. The new credit facilities consist of a $100 million
364-day revolving credit facility and a $200 million 5-year revolving credit
facility. These credit facilities may be used for general corporate purposes and
are currently being used to back the commercial paper discussed below. The terms
of the credit facilities provide for various borrowing options and rates and
require the Company to pay facility and administrative fees on a quarterly
basis. The credit facilities contain certain financial covenants and
restrictions including minimum net worth requirements and debt to consolidated
net worth ratio limitations. The Company was in compliance with all such
covenants as of December 31, 2001. There were no amounts borrowed under the
former or current credit facilities during 2001. Use of the credit facilities to
back the commercial paper reduces the amounts available for borrowing under
these facilities.

     In March 2000, the Company commenced a private placement commercial paper
program providing for the issuance of up to $300 million in aggregate maturity
value of commercial paper notes. The Company issued an additional $24 million in
commercial paper during 2001 to bring the total outstanding as of December 31,
2001 to $299.7 million with an average maturity of 20 days. The commercial paper
is currently backed by the revolving credit facilities discussed above. The
Company has the intent to maintain commercial paper borrowings of at least this
amount for more than one year. For financial reporting purposes, the commercial
paper has been classified as a combination of current and noncurrent liabilities
in the accompanying consolidated statements of financial condition based on the
terms of the revolving credit facilities backing these notes.

     The Company continued its second stock repurchase program during 2001. The
Company purchased and retired 1,752,830 shares of its common stock at a cost of
$95.5 million during 2001, bringing the total shares purchased and retired under
both stock repurchase programs to 6,513,828 shares at a cost of approximately
$249.3 million. As of December 31, 2001, the Company may repurchase an
additional 1.5 million shares under the second stock repurchase program.

     Cash provided by operating activities for the years ended December 31, 2001
and 2000 was $244.0 million and $109.8 million, respectively. The increase in
cash provided by operations in 2001 was driven by strong operating income, a
reduction in federal income taxes paid and cash flows associated with the
run-out of Mid-South claims liabilities occurring in 2000.

     Net cash used in investing activities increased to $151.8 million for the
year ended December 31, 2001 from $99.3 million for 2000. This increase is
primarily due to an increase in investment securities purchases from cash
generated by operating cash flows, along with capital expenditures for
investments in e-commerce technology, systems infrastructure and customer
service enhancements and commencement of the headquarters building project
described below.

     Cash used in financing activities increased to $80.5 million for 2001 from
$6.7 million for 2000. The increase is primarily due to the increase in
repurchases under the stock repurchase program, offset by the additional
commercial paper issued.


                             Trigon Healthcare, Inc. 2001 Annual Report page 25

<PAGE>


TRIGON HEALTHCARE, INC. AND SUBSIDIARIES

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

(Continued)


The following chart summarizes the Company's contractual obligations as of
December 31, 2001 (in thousands):

<TABLE>
<CAPTION>

                                                          Payments Due By Period
-----------------------------------------------------------------------------------------------
                                                   Less than                             After
                                        Total       1 year      1-3 years   4-5 years   5 years
-----------------------------------------------------------------------------------------------
<S> <C>
Commercial paper obligation(1)        $299,660      299,660           --          --         --
Operating leases                        52,031       12,682       21,268       9,246      8,835
-----------------------------------------------------------------------------------------------
Total contractual obligations         $351,691      312,342       21,268       9,246      8,835
===============================================================================================
</TABLE>

(1) The commercial paper has as average maturity as of December 31, 2001 of
    20 days. By definition, the commercial paper is due within 1 year. However,
    as previously disclosed, the Company has the intent to maintain commercial
    paper borrowings of at least this amount for more than one year.

     Other commercial commitments for the Company as of December 31, 2001
include debt guarantees for a joint venture affiliate totaling $4.7 million with
the majority of the guarantees expiring within five years.

     The Company believes that cash flow generated by operations and its cash
and investment balances will be sufficient to fund continuing operations,
capital expenditures and debt repayment costs for the foreseeable future. The
nature of the Company's operations is such that cash receipts are principally
premium revenues typically received up to three months prior to the expected
cash payment for related health care services.

     The Company's operations are not capital intensive. The Company announced
in April 2001 a four-year, $84 million building project to expand its
headquarters in Richmond, Virginia. The expansion plan includes construction of
a four-story, 308,000-square-foot building to house the operations center and
major renovation to the existing headquarters building. Construction for the new
building began in 2001, with completion scheduled for mid-2003. Renovations will
begin once the new building is completed with a scheduled completion date in
2005. The project will be funded using internal cash and investments. There are
currently no other commitments for major capital expenditures to support
existing business.

     To the extent that the Company determines to pay dividends in the future,
the principal source of funds to pay dividends to shareholders would be
dividends received by the Company from its subsidiaries. The Company is a
holding company and insurance laws and regulations can restrict the payment of
dividends by health care insurance companies, such as Trigon Insurance Company,
in a holding company structure.

REGULATORY AND OTHER DEVELOPMENTS

The Company's business is subject to a changing legal, legislative and
regulatory environment. Some of the more significant current issues that may
affect the Company's business include:

        o  efforts to expand tort liability of health plans;

        o  initiatives to increase health care regulation;

        o  proposed class action lawsuits targeting the health care industry's
           efforts to deliver quality care at affordable costs; and

        o  proposed physician antitrust waivers.

     Current initiatives to increase health care regulation at the federal level
include legislative proposals for a "patients' bill of rights." Such legislation
was passed by the Senate in June 2001 (S. 1052) and would expand tort liability
for health plans and change the practices for deciding medical necessity. In
early August 2001, similar legislation was passed by the House (H.R. 2563) with
efforts to resolve differences between the two bills continuing. Other
initiatives include legislative proposals to substitute minimal federal
standards for state regulation of Association Health Plans, to expand
prohibitions against using genetic information and to expand the mandate for
mental health parity. Given the general uncertainty of the political process, it
is not possible to determine what, if any, legislation will ultimately be
enacted or what the effect on the Company of any such legislation would be.

     Several major companies in the health care industry have had proposed class
action lawsuits filed against them by a coalition of plaintiffs' attorneys.
Given that no such lawsuits are currently pending against the Company and given
the general uncertainties of predicting the outcome of litigation, it is not
possible to determine at this time what the ultimate effect, if any, on the
Company of any such litigation would be.

     The Department of Labor issued its final regulation specifying new
requirements for claims and appeal procedures for ERISA regulated group health
and disability plans during 2000. The regulation is applicable only to ERISA
regulated plans, whether they are fully-insured or self-insured. While the
requirements were to be effective

<PAGE>

for claims filed on or after January 1, 2002, the effective date has been
delayed until plan years beginning after July 2002. The Company does not believe
that the regulation will have a material adverse impact on its consolidated
financial condition or results of operations.

     In 2000, the Department of Health and Human Services (HHS) issued two
significant sets of final regulations resulting from the Health Insurance
Portability and Accountability Act of 1996 (HIPAA)--one dealing with
standardization of electronic transactions and the other dealing with privacy of
individually identifiable health information. The final regulation governing
security standards for the maintenance and transmission of health information
(first proposed in 1998) is expected during 2002. The original compliance date
for the regulation on standard transactions was October 2002, but the President
signed legislation in late 2001 providing the opportunity for covered entities
to apply for a one year extension. The Company plans to file for that extension.
While the compliance date for the privacy regulation is currently April 2003, a
revised regulation is expected to be issued in 2002. A new Virginia law
governing disclosure of privacy practices was effective July 1, 2001. That law
was enacted pursuant to federal requirements established by the
Gramm-Leach-Bliley Act.

     The Company has assessed the impact of the HIPAA regulation on standard
transactions on the Company's practices and operations and does not believe that
it will have a material adverse impact on operations. Given that the HIPAA
security regulation has not been finalized and that further changes to the
privacy regulation are expected, the Company has not yet fully determined what
the effect of these HIPAA regulations may be on the Company. However, compliance
with the currently issued regulations would require significant systems
enhancements, training and administrative efforts.

     At the state level, the Virginia General Assembly, in its 2002 Session, did
not pass legislation that would substantially increase health care costs,
restrict choice or drive up the number of uninsured Virginians. At this time,
the health care legislation that did pass is not expected to have a material
effect on the Company's consolidated financial condition or results of
operations.

NEW ACCOUNTING PRONOUNCEMENTS

In July 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001. Statement 141 also specifies the criteria that
intangible assets acquired in a purchase method business combination must meet
to be recognized and reported apart from goodwill. Statement 142 addresses the
accounting and financial reporting for goodwill and other intangible assets upon
acquisition and in the periods following acquisition. Under Statement 142,
goodwill and intangible assets determined to have indefinite useful lives will
not be amortized but will be tested at least annually for impairment. Intangible
assets that have definite useful lives will be amortized over their useful lives
to their estimated residual values. In connection with the transitional goodwill
impairment evaluation, Statement 142 will require the Company to perform an
assessment of whether there is an indication that goodwill is impaired as of the
date of adoption. Any transitional impairment loss will be recognized as the
cumulative effect of a change in accounting principle in the Company's
consolidated statements of operations.

     The Company adopted the provisions of Statement 141 during 2001 and will
adopt Statement 142 effective January 1, 2002. As of the date of adoption of
Statement 142, the Company has unamortized goodwill in the amount of $13.7
million that will be subject to the transitional impairment provisions of
Statement 142. In addition, adoption will eliminate approximately $1.6 million
in annual goodwill amortization beginning in 2002 from the consolidated
statements of operations. The Company expects no transitional impairment loss
upon adoption.

FORWARD-LOOKING INFORMATION

This item, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, including,
among other things, statements concerning financial condition, results of
operations and business of the Company and its subsidiaries. Such
forward-looking statements are subject to inherent risks and uncertainties, many
of which are beyond the control of the Company, that may cause actual results to
differ materially from those contemplated by such forward-looking statements.
Factors that may cause actual results to differ materially from those
contemplated by such forward-looking statements include, but are not limited to,
rising health care costs, business conditions and competition in the managed
care industry, government action and other regulatory issues.

                             Trigon Healthcare, Inc. 2001 Annual Report page 27

<PAGE>

TRIGON HEALTHCARE, INC. AND SUBSIDIARIES

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a result of its investing and borrowing activities, the Company is exposed to
financial market risks, specifically those resulting from changes in interest
rates, foreign currency exchange rates and marketable equity security prices.
All of the potential changes noted below are based upon sensitivity analyses
performed on the Company's investment holdings as of December 31, 2001. Actual
results may vary materially.

     All of the Company's investments are categorized as available-for-sale. The
majority of these are fixed income securities. Market risk is addressed by
actively managing the duration and diversification of the portfolio. The Company
analyzes the impact on the portfolio's fair value considering a 100 basis point
change in interest rates over the next twelve-month period. To the extent that
any of the assumptions used are invalid, incorrect estimates could result. The
analysis requires certain assumptions be made about the future. This analysis
includes the assumption that the 100 basis point change occurs evenly throughout
the twelve-month period. The analysis also assumes investment income earned is
reinvested into the portfolio thus mitigating the effects of change in fair
value from an increase in interest rates or enhancing the effects of change in
fair value from a decrease in interest rates over the twelve-month period.
Moreover, the analysis is performed at the individual portfolio level, with only
the sum of these amounts presented herein.

     Using the Company's model, a hypothetical 100 basis point increase in
interest rates would result in an approximate $44.3 million increase in fair
value, whereas a corresponding 100 basis point decrease in interest rates would
result in an approximate $187.9 million increase in fair value.

     The Company's equity portfolio is comprised of domestic and international
direct equity investments as well as domestic equity-indexed investments. An
immediate 10% decrease in each equity investment's value, arising from a
combination of market and foreign exchange movement, would result in a fair
value decrease of $23.4 million. Correspondingly, an immediate 10% increase in
each equity investment's value, attributable to the same two factors, would
result in a fair value increase of $23.4 million. The majority of the $80.0
million international equity portfolio is non-U.S. dollar denominated.

     Interest rates on the Company's commercial paper change frequently as the
notes mature and are reset at the current market rate. This reduces the impact
of changing interest rates on the fair value of the commercial paper to a
negligible amount.

MARKET PRICES OF COMMON STOCK AND DIVIDEND DATA

The Class A common stock, par value $0.01 per share, is traded on the New York
Stock Exchange under the symbol TGH. The reported high and low closing prices by
quarter during 2001 and 2000 were as follows:

2001                     High      Low
---------------------------------------
First quarter         $ 73.63     48.10
Second quarter          64.85     49.93
Third quarter           69.72     58.17
Fourth quarter          69.52     61.39
=======================================

2000                     High      Low
---------------------------------------
First quarter         $ 35.75     27.50
Second quarter          54.94     34.13
Third quarter           59.69     47.56
Fourth quarter          79.69     55.81
=======================================

     As of February 20, 2002, there were 73,583 shareholders of record of the
Company's Class A common stock.

     The Company has never paid dividends on its common stock and anticipates
that all earnings in the foreseeable future will be retained to finance the
continuing development of its business. The payment of any future dividends will
be at the discretion of the Company's Board of Directors and will depend upon
the Company's earnings, financial condition, capital requirements, the revolving
credit agreement restrictions on dividends and such other factors as the
Company's Board of Directors deems relevant.

     To the extent that the Company determines to pay dividends in the future,
the principal source of funds to pay dividends to shareholders would be
dividends received by the Company from its subsidiaries. The Company is a
holding company and insurance laws and regulations can restrict the payment of
dividends by health care insurance companies, such as Trigon Insurance Company,
in a holding company structure.

<PAGE>

                                        TRIGON HEALTHCARE, INC. AND SUBSIDIARIES

                                                     CONSOLIDATED BALANCE SHEETS

                                                      December 31, 2001 and 2000

<TABLE>
<CAPTION>


(in thousands, except per share data)                              2001          2000
---------------------------------------------------------------------------------------
<S> <C>
ASSETS
Current Assets
   Cash                                                        $    17,995        6,345
   Investment securities, at estimated fair value (note 3)       1,820,529    1,775,307
   Premiums and other receivables (note 4)                         560,310      499,921
   Deferred income taxes (note 10)                                   8,473        3,525
   Other                                                            13,735       14,676
---------------------------------------------------------------------------------------
Total current assets                                             2,421,042    2,299,774
---------------------------------------------------------------------------------------
Property and equipment, net (note 5)                                87,723       69,757
Deferred income taxes (note 10)                                     42,194       48,207
Goodwill, net                                                       13,670       15,303
Restricted investments, at estimated fair value (note 3)             7,251        7,331
Other assets                                                        10,584        8,120
---------------------------------------------------------------------------------------
Total assets                                                   $ 2,582,464    2,448,492
=======================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
     Medical and other benefits payable (note 6)               $   635,452      563,398
     Unearned premiums                                             149,347      130,502
     Accounts payable and accrued expenses                          85,992       85,993
     Other liabilities (note 8)                                    260,681      246,069
     Commercial paper (note 11)                                     99,660           --
---------------------------------------------------------------------------------------
Total current liabilities                                        1,231,132    1,025,962
---------------------------------------------------------------------------------------
Obligations for employee benefits, noncurrent (note 12)             43,141       47,136
Medical and other benefits payable, noncurrent (note 6)             74,304       72,108
Commercial paper, noncurrent (note 11)                             200,000      275,448
Minority interest                                                   13,467       12,976
---------------------------------------------------------------------------------------
Total liabilities                                                1,562,044    1,433,630
---------------------------------------------------------------------------------------
Shareholders' Equity
     Common stock, $0.01 par; shares issued and outstanding:
        35,786, 2001; 37,539, 2000 (note 13)                           358          375
     Capital in excess of par (note 13)                            784,514      802,584
     Retained earnings (note 13)                                   234,364      205,045
     Unearned compensation--restricted stock (note 13)              (1,817)      (2,234)
     Accumulated other comprehensive income (note 15)                3,001        9,092
---------------------------------------------------------------------------------------
Total shareholders' equity                                       1,020,420    1,014,862
Commitments and contingencies (notes 7 and 19)
---------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                     $ 2,582,464    2,448,492
=======================================================================================
</TABLE>


See accompanying notes to consolidated financial statements.

                              Trigon Healthcare, Inc. 2001 Annual Report page 29

<PAGE>

TRIGON HEALTHCARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Years ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>


(in thousands, except per share data)                                2001           2000          1999
---------------------------------------------------------------------------------------------------------
<S> <C>
REVENUES
   Premium and fee revenues
     Commercial                                                   $ 2,166,173     1,871,533     1,664,261
     Federal Employee Program                                         529,491       464,303       448,676
     Amounts attributable to self-funded arrangements               1,629,506     1,392,998     1,216,427
     Less: amounts attributable to claims under
        self-funded arrangements                                   (1,419,225)   (1,228,306)   (1,082,328)
---------------------------------------------------------------------------------------------------------
                                                                    2,905,945     2,500,528     2,247,036
   Investment income (note 3)                                         105,247       114,453        97,131
   Net realized losses (note 3)                                       (56,330)      (27,023)      (21,957)
   Other revenues (note 9)                                             20,105        23,637        24,218
---------------------------------------------------------------------------------------------------------
Total revenues                                                      2,974,967     2,611,595     2,346,428
---------------------------------------------------------------------------------------------------------
EXPENSES
   Medical and other benefit costs (notes 6 and 17)
     Commercial                                                     1,758,010     1,507,553     1,374,843
     Federal Employee Program                                         505,781       444,230       429,519
---------------------------------------------------------------------------------------------------------
                                                                    2,263,791     1,951,783     1,804,362
   Selling, general and administrative expenses
     (notes 12 and 17)                                                522,743       476,809       502,189
   Interest expense (note 11)                                          12,695        17,249         8,359
---------------------------------------------------------------------------------------------------------
Total expenses                                                      2,799,229     2,445,841     2,314,910
---------------------------------------------------------------------------------------------------------
Income before income taxes and minority interest                      175,738       165,754        31,518
Income tax expense (note 10)                                           58,196        50,088         8,345
---------------------------------------------------------------------------------------------------------
Income before minority interest                                       117,542       115,666        23,173
Minority interest                                                       1,482         3,657         2,710
---------------------------------------------------------------------------------------------------------
Net income                                                        $   116,060       112,009        20,463
=========================================================================================================
Earnings per share (note 14)
   Basic net income                                               $      3.20          2.98          0.50
=========================================================================================================
   Diluted net income                                             $      3.11          2.90          0.49
=========================================================================================================
</TABLE>


See accompanying notes to consolidated financial statements.

<PAGE>

                                        TRIGON HEALTHCARE, INC. AND SUBSIDIARIES

                                           CONSOLIDATED STATEMENTS OF CHANGES IN
                                   SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME

                                    Years ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>


                                                                                               Accumulated
                                                          Capital                                  Other         Total
                                                Common   in Excess  Retained    Unearned      Comprehensive  Shareholders'
(in thousands)                                  Stock      of Par   Earnings   Compensation       Income        Equity
--------------------------------------------------------------------------------------------------------------------------
<S> <C>
BALANCE AS OF JANUARY 1, 1999                    $423     839,187    202,554           --           29,060     1,071,224
Net income                                         --          --     20,463           --               --        20,463
Change in minimum pension liability, net of
  income taxes (notes 12 and 15)                   --          --         --           --              834           834
Net unrealized losses on investment securities,
  net of income taxes (notes 3 and 15)             --          --         --           --          (20,806)      (20,806)
                                                                                                                 --------
Comprehensive income                                                                                                 491
Repurchase and retirement of common stock (note   (41)    (20,500)  (110,121)          --               --      (130,662)
  13)
Purchase and reissuance of common stock under
  stock option and other employee benefit plans,
  including tax benefits and net of amortization   --        (767)        --       (1,926)              --        (2,693)
Change in common stock held by consolidated
  grantor trusts (note 13)                         --      (1,403)        --           --               --        (1,403)
--------------------------------------------------------------------------------------------------------------------------
BALANCE AS OF DECEMBER 31, 1999                   382     816,517    112,896       (1,926)           9,088       936,957
Net income                                         --          --    112,009           --               --       112,009
Change in minimum pension liability, net of
  income taxes (notes 12 and 15)                   --          --         --           --              293           293
Net unrealized losses on investment securities,
  net of income taxes (notes 3 and 15)             --          --         --           --             (289)         (289)
                                                                                                               ----------
Comprehensive income                                                                                             112,013
Repurchase and retirement of common stock (note    (7)     (3,305)   (19,860)          --               --       (23,172)
  13)
Purchase and reissuance of common stock under
  stock option and other employee benefit plans,
  including tax benefits and net of amortization   --     (14,002)        --         (308)              --       (14,310)
Change in common stock held by consolidated
  grantor trusts (note 13)                         --       3,374         --           --               --         3,374
--------------------------------------------------------------------------------------------------------------------------
BALANCE AS OF DECEMBER 31, 2000                   375     802,584    205,045       (2,234)           9,092     1,014,862
Net income                                         --          --    116,060           --               --       116,060
Change in minimum pension liability, net of
  income taxes (notes 12 and 15)                   --          --         --           --               22            22
Net unrealized losses on investment securities,
  net of income taxes (notes 3 and 15)             --          --         --           --           (6,113)       (6,113)
                                                                                                               ---------
Comprehensive income                                                                                             109,969
Repurchase and retirement of common stock (note   (17)     (8,764)   (86,741)          --               --       (95,522)
  13)
Purchase and reissuance of common stock under
  stock option and other employee benefit plans,
  including tax benefits and net of amortization   --      (8,858)        --          417               --        (8,441)
Change in common stock held by consolidated
  grantor trusts (note 13)                         --        (448)        --           --               --          (448)
--------------------------------------------------------------------------------------------------------------------------
BALANCE AS OF DECEMBER 31, 2001                  $358     784,514    234,364       (1,817)           3,001     1,020,420
==========================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.

                              Trigon Healthcare, Inc. 2001 Annual Report page 31

<PAGE>

TRIGON HEALTHCARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>


(in thousands)                                                                2001        2000        1999
------------------------------------------------------------------------------------------------------------
<S> <C>
Cash flows from operating activities
Net income                                                               $   116,060     112,009      20,463
Adjustments to reconcile net income to net cash provided
   by operating activities
     Depreciation and amortization                                            23,419      15,282      18,655
     Write-off of subsidiary goodwill and other intangibles (note 17)             --          --      55,927
     Amortization of unearned compensation                                     1,842       2,681       1,031
     Accretion of discounts and amortization of premiums, net                 (2,054)    (15,959)    (13,267)
     Change in allowance for doubtful accounts receivable                     (2,345)       (685)      2,839
     Increase in premiums and other receivables                              (90,893)    (69,224)    (22,238)
     (Increase) decrease in other assets                                         670       1,449      (9,208)
     Increase in medical and other benefits payable                           74,250      41,224      66,382
     Increase in unearned premiums                                            18,845      10,644      20,826
     Increase (decrease) in accounts payable and accrued expenses                 (1)      4,094      13,896
     Increase (decrease) in other liabilities                                 52,407     (46,075)     30,807
     Change in deferred income taxes                                           4,678      25,267     (17,784)
     Increase in minority interest                                               491       3,657       2,710
     Decrease in obligations for employee benefits                            (9,962)     (1,701)     (4,450)
     Loss on disposal of property and equipment and other assets                 262          84         277
     Realized investment losses, net                                          56,330      27,023      21,957
------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                    243,999     109,770     188,823
------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
     Proceeds from sale of property and equipment and other assets               250         339         342
     Capital expenditures                                                    (42,208)    (35,501)    (17,827)
     Cash paid for the purchase of minority interest                              --      (2,660)         --
     Cash transferred with the sale of subsidiary, net of cash received           --     (15,337)         --
     Investment securities purchased                                      (5,069,888) (4,844,862) (4,293,560)
     Proceeds from investment securities sold                              3,809,125   4,061,899   3,347,933
     Maturities of fixed income securities                                 1,150,914     736,870     749,828
------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                       (151,807)    (99,252)   (213,284)
------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
     Proceeds from long-term debt                                                 --          --     160,000
     Payments on long-term debt                                                   --    (248,039)         --
     Change in commercial paper notes                                         24,212     275,448          --
     Purchase and reissuance of common stock under
        employee benefit and stock option plans                              (10,594)    (17,666)     (3,694)
     Common stock (purchased) distributed by consolidated
        grantor trusts                                                          (448)      3,374      (1,403)
     Purchase and retirement of common stock                                 (95,522)    (23,172)   (130,662)
     Change in outstanding checks in excess of bank balance                    1,810       3,352      (4,750)
------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities                          (80,542)     (6,703)     19,491
------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash                                                   11,650       3,815      (4,970)
Cash--beginning of year                                                        6,345       2,530       7,500
------------------------------------------------------------------------------------------------------------
Cash--end of year                                                        $    17,995       6,345       2,530
============================================================================================================
Cash paid during the year for
   Interest                                                              $    14,814      22,224      12,847
   Income taxes                                                               20,858      69,947      25,855
============================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

                                        TRIGON HEALTHCARE, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                December 31, 2001, 2000 and 1999

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Trigon Healthcare, Inc., a stock holding company, through its subsidiaries is
the largest managed health care company in Virginia. (Trigon Healthcare, Inc.
and subsidiaries are herein collectively referred to as the Company.) The
Company serves 2.1 million members primarily through a comprehensive spectrum of
managed care products provided through three network systems with a range of
utilization and cost containment controls. The Company provides health insurance
for multi-state employer groups, large and small businesses in Virginia,
individuals, Medicare and Medicaid beneficiaries and federal employees. The
Company's portfolio of benefit designs is purposely diverse to allow members and
group administrators to choose the degree of management and premium structure
that is right for them. Larger employer groups may choose various funding
options ranging from fully-insured to partially or fully self-funded financial
arrangements. While self-funded customers participate in Trigon's networks, the
customers bear all or portions of the claims risk. Certain of the Company's
subsidiaries have the exclusive right to use the Blue Cross and Blue Shield
service marks and trademarks in their service areas. The Company also owns and
operates subsidiaries in the areas of wellness and disease management and
similar products.

     Trigon Healthcare, Inc. owns 100% of Trigon Insurance Company,
HealthKeepers, Inc., Priority, Inc., Trigon Health and Life Insurance Company,
Trigon Services, Inc., Consolidated Holdings Corporation, Health Management
Corporation and Monticello Service Agency, Inc. Additionally, Trigon Healthcare,
Inc. owns 51% of Peninsula Health Care, Inc. Trigon Insurance Company
participates in a national contract between the Blue Cross and Blue Shield
Association and the U.S. Office of Personnel Management to provide benefits to
Federal employees within Virginia through the Federal Employee Program (FEP).

     The significant accounting policies and practices followed by the Company
are as follows:

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America. The Company follows Statement of Financial Accounting Standards (SFAS)
No. 60, Accounting and Reporting by Insurance Enterprises, as it relates to its
insurance business and the AICPA Auditing and Accounting Guide, Health Care
Organizations, as it relates to its HMO business. The preparation of financial
statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Management continually reviews its estimates and assumptions, including those
related to claims expense and claims liabilities, income taxes and litigation.
Actual results could differ from those estimates.

     The consolidated financial statements include the accounts of Trigon
Healthcare, Inc. and its majority-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
Investments in other companies in which less than a majority interest is held
and where the Company has significant influence over the operating and
financial policies of the investee are accounted for under the equity method.

Risks and Uncertainties

The Company's profitability depends in large part on accurately predicting
and effectively managing health care costs. The Company continually reviews its
premium and benefit structure to reflect its underlying claims experience and
revised actuarial data; however, several factors could adversely affect the
medical cost ratios. Certain of these factors, which include changes in
health care practices, inflation, new technologies, major epidemics, natural
disasters

                              Trigon Healthcare, Inc. 2001 Annual Report page 33

<PAGE>

TRIGON HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2001, 2000 and 1999 (Continued)

and malpractice litigation, are beyond any health plan's control and could
adversely affect the Company's ability to accurately predict and effectively
control health care costs. Costs in excess of those anticipated could have a
material adverse effect on the Company's results of operations.

     In addition, the managed care industry is highly competitive in both
Virginia and in other states in the Southeastern and Mid-Atlantic regions where
the Company principally intends to expand. There is no assurance that such
competition will not exert strong pressures on the Company's profitability, its
ability to increase enrollment or its ability to successfully attain its
expansion plans. The Company's growth may be affected by any changes in its
ability to negotiate favorable rates with providers. Also, there can be no
assurance that regulatory initiatives will not be undertaken at the state or
federal level to reform the health care industry in order to reduce the
escalation in health care costs or to make health care more accessible. Such
action could adversely affect the Company's profitability.

Investment Securities

Investment securities are accounted for in accordance with SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities. All investment
securities are considered available-for-sale and are recorded at estimated fair
value, based on quoted market prices. The net unrealized gain or loss on
investment securities, net of deferred income taxes, is included in accumulated
other comprehensive income in shareholders' equity. A decline in the fair value
of any investment security below cost, that is deemed other than temporary, is
recorded as a realized loss resulting in a new cost basis for the security.
Costs of investments sold are determined on the first in, first out basis.

     The Company adopted SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, as amended by SFAS Nos. 137 and 138, effective January 1,
2001. The Company enters into foreign currency forward contracts (forward
contracts) to minimize exposure to fluctuations in foreign currency exchange
rates. Company policy only permits utilization of these instruments in its
foreign denominated bond and equity portfolios. The counterparties to these
transactions are major financial institutions. The Company may incur a loss with
respect to these transactions to the extent that the counterparty fails to
perform under a contract and exchange rates have changed unfavorably for the
counterparty since the inception of the contract. The Company anticipates that
the counterparties will be able to fully satisfy their obligations under the
agreements. The forward contracts involve the exchange of one currency for
another at a future date and typically have maturities of one year or less. The
forward contracts do not qualify for hedge accounting under SFAS No. 133, as
amended. Accordingly, upon adoption, the forward contracts were recorded at fair
value with changes in fair value recorded as realized gains or losses in the
consolidated statements of operations. The fair value of forward contracts held
by the Company as of January 1, 2001 was not material.

     The Company also enters into financial futures contracts for portfolio
strategies such as minimizing interest rate risk and managing portfolio
duration. The notional amount of the futures contracts is limited to that of the
market value of the underlying portfolios. Should this limitation be exceeded,
futures contracts are immediately terminated in order to comply with this
restriction. Initial margins in the form of securities are maintained with the
counterparties for these transactions. Changes in fair value of financial
futures, determined and settled with the counterparties on a daily basis, are
recorded as realized gains or losses in the consolidated statements of
operations. Terminations of contracts are accounted for in the same manner. The
adoption of SFAS No. 133, as amended, did not change the accounting for these
contracts.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed using the straight-line
method over the estimated useful lives of the assets, which are 40 years for
buildings and 3 to 10 years for furniture and equipment. Leasehold improvements
are amortized using the straight-line method over the shorter of the lease term

<PAGE>

or estimated useful life of the asset. Any gain or loss realized upon retirement
or disposal is reflected in selling, general and administrative expenses.

     The Company is capitalizing interest during the active construction period
of its headquarters expansion project. The project is being funded using
internal cash and investments. Capitalized interest is added to the cost of the
underlying assets and will be amortized over the useful lives of the assets.

     Certain costs related to the development or purchase of internal-use
software are capitalized and amortized over the estimated useful life of the
software in accordance with AICPA Statement of Position 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use.

Goodwill

Costs in excess of fair value of net tangible and identified intangible assets
of businesses acquired are amortized using the straight-line method over periods
from 15 to 25 years. Recoverability is reviewed annually or sooner if events or
changes in circumstances indicate that the carrying amount may exceed fair
value. Recoverability is then determined by comparing the undiscounted net cash
flows of the assets to which the goodwill applies to the net book value
including goodwill of those assets.

     Amortization was $1.6 million, $1.2 million, and $5.9 million for the years
ended December 31, 2001, 2000 and 1999, respectively. Accumulated amortization
as of December 31, 2001 and 2000 was $9.6 million and $9.0 million,
respectively. During 2001, $1.0 million of accumulated amortization related to
previously fully amortized goodwill was removed. In connection with the purchase
of Priority, Inc.'s minority interest in September 2000 (note 17), goodwill
increased $2.2 million. Goodwill and other intangibles related to Mid-South
Insurance Company (Mid-South), in the amount of $42.6 million were written-off
during 1999 (note 17).

     The Company will adopt SFAS No. 142, Goodwill and Intangible Assets,
effective January 1, 2002. Under Statement 142, goodwill determined to have
indefinite useful lives will not be amortized but will be tested at least
annually for impairment. As of the date of adoption, the Company has unamortized
goodwill in the amount of $13.7 million that will be subject to the transitional
impairment provisions of Statement 142. In addition, adoption will eliminate
approximately $1.6 million in annual goodwill amortization beginning in 2002
from the consolidated statements of operations. The Company expects no
transitional impairment loss upon adoption.

Medical and Other Benefits Payable

The Company establishes liabilities for claims in process of review and claims
incurred but not reported. These liabilities are based on historical payment
patterns using actuarial techniques. In addition, processing costs are accrued
as operating expenses based on an estimate of the costs necessary to process
these claims. The methods for making these estimates and for establishing the
resulting liabilities are continually reviewed and updated, and any adjustments
resulting therefrom are reflected in current operations. While the ultimate
amount of claims and the related expenses paid are dependent on future
developments, management is of the opinion that the liabilities for claims and
claims processing costs are adequate to cover such claims and expenses.

Revenues

All of the Company's individual and certain of the Company's group contracts
provide for the individual or the group to be fully insured. Premiums for these
contracts are billed in advance of the respective coverage periods and are
initially recorded as premiums receivable and as unearned income. Unearned
premiums are recognized as earned in the period of coverage.

     Certain other groups have contracts that provide for the group to be at
risk for all or a portion of their claims experience. Most of these self-funded
groups purchase aggregate and/or specific stop-loss coverage. In exchange for a
premium, the group's aggregate liability or the group's liability on any one
episode of care is capped for the year. The Company charges self-funded groups
administrative fees which are based on the number of members in a group or the
group's claims experience. Under the Company's self-funded arrangements, amounts
due are recognized based on incurred claims plus administrative and other fees
and any

                              Trigon Healthcare, Inc. 2001 Annual Report page 35

<PAGE>

TRIGON HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2001, 2000 and 1999 (Continued)

stop-loss premiums. In addition, accounts for certain self-funded groups are
charged or credited with interest expense or income as provided by the groups'
contracts.

Postretirement/Postemployment Benefits

Pension costs are accrued in accordance with SFAS No. 87, Employers' Accounting
for Pensions, and are funded based on the minimum contribution requirements of
the Employee Retirement Income Security Act of 1974. The actuarial cost method
used is the projected unit credit method.

     The Company provides certain health and life insurance benefits to retired
employees. These benefits are accrued in accordance with SFAS No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions.

     The Company also provides certain disability related postemployment
benefits. These benefits are accrued in accordance with SFAS No. 112, Employers'
Accounting for Postemployment Benefits. The Company accrues the benefits when it
becomes probable that such benefits will be paid and when sufficient information
exists to make reasonable estimates of the amounts to be paid.

Stock-Based Compensation

The Company applies Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations in accounting for its
stock-based compensation plans. Accordingly, no compensation expense has been
recognized for the stock options granted and employee stock purchases. The
Company has adopted the disclosure-only provisions of SFAS No. 123, Accounting
for Stock-Based Compensation.

Income Taxes

Income taxes are accounted for in accordance with SFAS No. 109, Accounting for
Income Taxes. Deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

Earnings Per Share

The Company calculates and presents earnings per share in accordance with SFAS
No. 128, Earnings per Share. Basic earnings per share excludes dilution and is
computed by dividing income available to common shareholders by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution that could occur if all stock options and
nonvested restricted stock awards were exercised and converted into common
stock.

Reclassifications

Certain prior year amounts have been reclassified to conform with the current
year presentation.

NOTE 2. AGENCY CONTRACTS

As fiscal intermediary for Medicare through August 31, 1999, the Company
allocated operating expenses to this line of business to determine reimbursement
due for services rendered in accordance with the contracts in force. Claims
processed under this arrangement were not included in the accompanying
consolidated statements of operations and the reimbursement of allocated
operating expenses was recorded as a reduction of the Company's selling, general
and administrative expenses.

     The Company discontinued its role as a claims processing intermediary for
the federal government with the Medicare Part A program in Virginia and West
Virginia, in August 1999. The Company also discontinued its role as the primary
provider of computer processing capabilities for Medicare Part A claims
processing to certain other Blue Cross and Blue Shield plans after November
1999.

     Claims processed for Medicare and the related reimbursed operating
expenses, which are subject to audit, for the year ended December 31, 1999 were
$2.1 billion and $18.3 million, respectively. There were no amounts for the
years ended December 31, 2001 and 2000.

<PAGE>

NOTE 3. INVESTMENT SECURITIES

The amortized cost, gross unrealized gains and losses, and estimated fair value
of investment securities as of December 31 were as follows (in thousands):

<TABLE>
<CAPTION>

                                                                                   Gross         Gross          Estimated
                                                                   Amortized     Unrealized     Unrealized        Fair
2001                                                                  Cost         Gains         Losses          Value
--------------------------------------------------------------------------------------------------------------------------
<S> <C>
Fixed maturities
   Domestic
     U.S. Treasury securities and obligations of U.S. government
     agencies                                                       $  273,325         742          1,482        272,585
     Mortgage-backed obligations of U.S. government agencies           264,954       1,899          2,130        264,723
     States and political subdivision securities                       252,017       5,044          2,077        254,984
     Other mortgage-backed and asset-backed securities                 153,434       2,393            270        155,557
     Corporate bonds                                                   640,280      13,361          4,772        648,869
   Foreign
     Debt securities issued by foreign governments                       4,621          90             --          4,711
     Corporate bonds                                                    57,561       1,115          2,645         56,031
--------------------------------------------------------------------------------------------------------------------------
Total fixed maturities                                               1,646,192      24,644         13,376      1,657,460
--------------------------------------------------------------------------------------------------------------------------
Equities
   Domestic                                                             12,294       1,246          2,658         10,882
   Foreign                                                              69,091       5,482         10,720         63,853
--------------------------------------------------------------------------------------------------------------------------
Total equities                                                          81,385       6,728         13,378         74,735
--------------------------------------------------------------------------------------------------------------------------
Short-term investments
   Domestic                                                             82,418          --             --         82,418
   Foreign                                                              11,959          --             23         11,936
--------------------------------------------------------------------------------------------------------------------------
Total short-term investments                                            94,377          --             23         94,354
--------------------------------------------------------------------------------------------------------------------------
Derivative instruments                                                   1,231          --             --          1,231
--------------------------------------------------------------------------------------------------------------------------
Total                                                               $1,823,185      31,372         26,777      1,827,780
==========================================================================================================================
Unrestricted                                                        $1,816,433      30,873         26,777      1,820,529
Restricted                                                               6,752         499             --          7,251
--------------------------------------------------------------------------------------------------------------------------
Total                                                               $1,823,185      31,372         26,777      1,827,780
==========================================================================================================================
</TABLE>


                              Trigon Healthcare, Inc. 2001 Annual Report page 37

<PAGE>

TRIGON HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMETNS

December 31, 2001, 2000 and 1999 (Continued)

<TABLE>
<CAPTION>

                                                                                  Gross           Gross          Estimated
                                                                   Amortized    Unrealized      Unrealized         Fair
2000                                                                  Cost        Gains           Losses          Value
---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Fixed maturities
   Domestic
     U.S. Treasury securities and obligations of U.S. government
     agencies                                                       $  342,715      3,817               36        346,496
     Mortgage-backed obligations of U.S. government agencies           134,263      3,125               95        137,293
     States and political subdivision securities                       269,914     10,022              617        279,319
     Other mortgage-backed and asset-backed securities                  94,347      1,358              613         95,092
     Corporate bonds                                                   534,244      9,327           17,668        525,903
   Foreign
     Debt securities issued by foreign governments                       9,011        473               --          9,484
     Corporate bonds                                                    45,555        289              983         44,861
---------------------------------------------------------------------------------------------------------------------------
Total fixed maturities                                               1,430,049     28,411           20,012      1,438,448
---------------------------------------------------------------------------------------------------------------------------
Equities
   Domestic                                                             16,156      1,243            1,133         16,266
   Foreign                                                              70,865     16,535           11,779         75,621
---------------------------------------------------------------------------------------------------------------------------
Total equities                                                          87,021     17,778           12,912         91,887
---------------------------------------------------------------------------------------------------------------------------
Short-term investments
   Domestic                                                            239,187         --               --        239,187
   Foreign                                                              12,360         --                4         12,356
---------------------------------------------------------------------------------------------------------------------------
Total short-term investments                                           251,547         --                4        251,543
---------------------------------------------------------------------------------------------------------------------------
Derivative instruments                                                      --        760               --            760
---------------------------------------------------------------------------------------------------------------------------
Total                                                               $1,768,617     46,949           32,928      1,782,638
===========================================================================================================================
Unrestricted                                                        $1,761,606     46,629           32,928      1,775,307
Restricted                                                               7,011        320               --          7,331
---------------------------------------------------------------------------------------------------------------------------
Total                                                               $1,768,617     46,949           32,928      1,782,638
===========================================================================================================================
</TABLE>


     Short-term investments consist principally of investments with maturity
dates of one year or less at the time of purchase, including, money market
investments, commercial paper and other fixed maturities.

     The Company enters into foreign currency derivative instruments to minimize
exposure to fluctuations in foreign currency exchange rates. As of December 31,
2001, the Company had forward contracts outstanding with a net fair value of
$1.2 million to purchase approximately $8.1 million in foreign currencies and to
sell approximately $6.9 million in foreign currencies (primarily the Euro and
Japanese Yen).

     The Company also enters into financial futures contracts for portfolio
strategies such as minimizing interest rate risk and managing portfolio
duration. The notional amount of the futures contracts, $197.8 million as of
December 31, 2001, is limited to that of the market value of the underlying
portfolios.

<PAGE>

      The amortized cost and estimated fair value of fixed income securities as
of December 31, by contractual maturity, were as follows (in thousands):

                                           Amortized      Estimated
2001                                          Cost        Fair Value
--------------------------------------------------------------------
Due in one year or less                   $   22,342         22,695
Due after one year through
   five years                                461,474        463,584
Due after five years through
   ten years                                 480,941        483,891
Due after ten years                          263,047        267,010
Mortgage-backed, asset-backed
   and other securities                      418,388        420,280
--------------------------------------------------------------------
Total                                     $1,646,192      1,657,460
====================================================================


                                           Amortized      Estimated
2000                                         Cost         Fair Value
--------------------------------------------------------------------
Due in one year or less                   $   52,644         54,868
Due after one year through
   five years                                463,324        465,957
Due after five years through
   ten years                                 421,484        414,949
Due after ten years                          263,987        270,289
Mortgage-backed, asset-backed
   and other securities                      228,610        232,385
--------------------------------------------------------------------
Total                                     $1,430,049      1,438,448
====================================================================

     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.

     Included in investment securities as of December 31, 2001 are $7.3 million,
at estimated fair value, of securities held by various states to meet security
deposit requirements related to Trigon Insurance Company, the HMO subsidiaries
and Trigon Health and Life Insurance Company.

     The components of investment income for the years ended December 31 were as
follows (in thousands):

                                        2001        2000       1999
--------------------------------------------------------------------
Interest on fixed
   maturities securities               $100,326    113,613    95,957
Interest on short-term
   investments                            9,229      8,544     6,703
Dividends                                 1,684      1,994     2,884
--------------------------------------------------------------------
                                        111,239    124,151   105,544
Investment expenses                       5,314      6,604     5,758
Group interest credits                      678      3,094     2,655
--------------------------------------------------------------------
Investment income                      $105,247    114,453    97,131
====================================================================

     Gross realized gains and losses for the years ended December 31 were as
follows (in thousands):

                                        2001         2000        1999
----------------------------------------------------------------------
Gross realized gains
   Fixed income securities            $ 46,024      34,194      14,527
   Equity securities                     3,589      43,963      13,401
   Derivative instruments              264,528      33,916      64,456
   Other                                 3,534          --          --
----------------------------------------------------------------------
Total gross realized gains             317,675     112,073      92,384
----------------------------------------------------------------------
Gross realized losses
   Fixed income securities              70,855      74,236      45,740
   Equity securities                    10,356      17,784       7,448
   Derivative instruments              292,794      47,076      61,153
----------------------------------------------------------------------
Total gross realized losses            374,005     139,096     114,341
----------------------------------------------------------------------
Net realized losses                   $(56,330)    (27,023)    (21,957)
======================================================================

     Included in other gross realized gains is the amount realized on the sale
of a subsidiary in March 2001 (note 17).

     Proceeds from the sale of investment securities were $3.8 billion, $4.1
billion and $3.3 billion during 2001, 2000 and 1999, respectively.



                              Trigon Healthcare, Inc. 2001 Annual Report page 39

<PAGE>

TRIGON HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2001, 2000 and 1999 (Continued)

     Unrealized gains (losses) are computed as the difference between estimated
fair value and amortized cost for fixed income securities or cost for equity
securities. A summary of the change in unrealized gains (losses), net of income
taxes, for the years ended December 31 is as follows (in thousands):

                                                2001        2000        1999
------------------------------------------------------------------------------
Fixed maturities securities                   $  2,850     55,725     (79,561)
Equity securities                              (11,516)   (57,131)     47,742
Derivative instruments                            (760)       961        (189)
Provision for income taxes                       3,313        156      11,202
------------------------------------------------------------------------------
Total                                         $ (6,113)      (289)    (20,806)
==============================================================================

NOTE 4. PREMIUMS AND OTHER RECEIVABLES

Premiums and other receivables as of December 31 were as follows (in thousands):

                                                     2001       2000
---------------------------------------------------------------------
Premiums                                           $105,550    77,664
Self-funded group receivables                       221,363   194,308
Federal Employee Program                            197,954   161,385
Investment income receivable                         25,743    22,725
Receivable on investment securities sold                207    33,900
Other                                                 9,493     9,939
---------------------------------------------------------------------
Total                                              $560,310   499,921
=====================================================================

NOTE 5. PROPERTY AND EQUIPMENT

Property and equipment as of December 31 were as follows (in thousands):

                                                   2001      2000
------------------------------------------------------------------
Land and improvements                           $  7,227     5,874
Buildings and improvements                        40,512    39,843
Furniture and equipment                           85,120    83,982
Computer software                                 45,184    35,188
Construction in progress                           5,367        --
------------------------------------------------------------------
                                                 183,410   164,887
Less accumulated depreciation
   and amortization                               95,687    95,130
------------------------------------------------------------------
Total                                           $ 87,723    69,757
==================================================================

     During 2001, the Company began a four-year building project to expand its
headquarters. Interest capitalized and included in construction in progress
during 2001 was less than $0.1 million.

NOTE 6. MEDICAL AND OTHER BENEFITS PAYABLE

The components of medical and other benefits payable as of December 31 were as
follows (in thousands):

                                   2001              2000         1999
-------------------------------------------------------------------------
Net medical and other
   benefits payable at
   beginning of year          $  420,955            417,688      371,312
Incurred related to
   Current year                2,283,983          1,973,500    1,821,681
   Prior years                   (20,192)           (21,717)     (17,319)
-------------------------------------------------------------------------
Total incurred                 2,263,791          1,951,783    1,804,362
-------------------------------------------------------------------------
Paid related to
   Current year                1,939,775          1,696,295    1,517,098
   Prior years                   282,720            252,221      240,888
-------------------------------------------------------------------------
Total paid                     2,222,495          1,948,516    1,757,986
-------------------------------------------------------------------------
Net medical and other
   benefits payable
   at end of year                462,251            420,955      417,688
Liability for
   self-funded claims            214,081            192,515      169,361
Liability for claims
   processing costs               21,181             21,553       17,886
Amounts due
   to providers                   12,243                483        5,114
------------------------------------------------------------------------
Total                         $  709,756            635,506      610,049
========================================================================

     The Company uses paid claims and completion factors based on historical
payment patterns to estimate incurred claims. Changes in payment patterns and
claims trends can result in increases or decreases to prior years' claims
estimates. Negative amounts reported for incurred claims related to prior years
resulted from claims being settled for less than originally estimated.

<PAGE>

NOTE 7. COMMITMENTS & CONTINGENCIES

Leases

The Company has operating leases covering office space, computer hardware and
software and business equipment expiring at various dates through 2011. Original
non-cancelable leases may contain escalation clauses, along with options that
permit renewals for additional periods and, in some cases, purchase of the
property.

     The following is a schedule of future minimum rental payments required
under operating leases that have initial or remaining noncancelable lease terms
in excess of one year as of December 31, 2001 (in thousands):

Years ending December 31,
--------------------------------------------------
2002                                       $12,682
2003                                        13,082
2004                                         8,186
2005                                         5,407
2006                                         3,839
2007 and later years                         8,835
--------------------------------------------------
Total                                      $52,031
==================================================

     Rental expense for all operating leases for the years ended December 31,
2001, 2000 and 1999 was $17.3 million, $16.3 million and $17.1 million,
respectively.

Guarantees

Trigon Insurance Company guarantees certain liabilities of Primary Care First,
L.L.C., an unconsolidated joint venture affiliate, related to term loans and
equity and working capital lines of credit. The maximum amount of the loan
guarantees is $6.1 million plus accrued interest. As of December 31, 2001 and
2000, the total outstanding loan amounts subject to the guarantees was $4.7
million and $5.1 million, respectively.

NOTE 8. OTHER LIABILITIES

Other liabilities as of December 31 were as follows (in thousands):

                                                2001                2000
-------------------------------------------------------------------------
Unearned premium reserve--
   Federal Employee Program                   $130,787            105,974
Outstanding checks in excess
   of bank balance                              41,603             39,793
Self-funded group deposits                      13,169             14,474
Current income taxes payable                    27,637                354
Payable for investment securities sold           3,939             38,637
Other                                           43,546             46,837
-------------------------------------------------------------------------
Total                                         $260,681            246,069
=========================================================================

     The FEP unearned premium reserve represents the Company's share of the FEP
premium stabilization reserve. These funds are actually held by the Blue Cross
and Blue Shield Association on behalf of each Blue Cross and Blue Shield Plan
participating in the Federal Employee Program. A receivable in the same amount
is recorded in premiums and other receivables.

NOTE 9. OTHER REVENUES

     Other revenues include those revenues earned by non-core subsidiaries. A
summary by type of revenue for the years ended December 31 is as follows (in
thousands):

                               2001       2000     1999
--------------------------------------------------------
Employee benefits
   administration            $ 1,231      2,336    3,769
Workers' compensation
   administration              2,455      9,682    9,319
Health management
   services                   11,036      6,645    6,227
Other                          5,383      4,974    4,903
--------------------------------------------------------
Total                        $20,105     23,637   24,218
--------------------------------------------------------

NOTE 10. INCOME TAXES

Income tax expense (benefit) attributable to income before income taxes and
minority interest, substantially all of which is federal, for the years ended
December 31 consists of (in thousands):

                2001         2000       1999
---------------------------------------------
Current       $54,533      24,761      26,129
Deferred        3,663      25,327     (17,784)
---------------------------------------------
Total         $58,196      50,088       8,345
---------------------------------------------

     The differences between the statutory federal income tax rate and the
actual tax rate applied to income before income taxes and minority interest for
the years ended December 31 were as follows:

                                          2001     2000     1999
-----------------------------------------------------------------
Statutory federal income
   tax rate                              35.0%    35.0       35.0
Tax exempt investment income             (2.9)    (2.5)     (13.7)
Non-deductible amortization               0.3      0.3        3.4
Tax adjustment on sale
   of subsidiary                           --     (1.5)        --
Other, net                                0.7     (1.1)       1.8
-----------------------------------------------------------------
Effective tax rate                       33.1%    30.2       26.5
-----------------------------------------------------------------

                              Trigon Healthcare, Inc. 2001 Annual Report page 41

<PAGE>

TRIGON HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2001, 2000 and 1999 (Continued)

     The components of the deferred tax assets and deferred tax liabilities as
of December 31 were as follows (in thousands):

                                                     2001     2000
------------------------------------------------------------------
Deferred tax assets
   Employee benefit plans                          $17,851  17,458
   Insurance reserves                               34,435  33,914
   Property and equipment                               --   4,656
   Other                                             2,313   1,257
------------------------------------------------------------------
Gross deferred tax assets                           54,599  57,285
------------------------------------------------------------------
Deferred tax liabilities
   Investment securities                             1,594   4,907
   Property and equipment                            1,700      --
   Other                                               638     646
------------------------------------------------------------------
Gross deferred tax liabilities                       3,932   5,553
------------------------------------------------------------------
Net deferred tax asset                             $50,667  51,732
==================================================================

     Deferred taxes as of December 31 are presented on the accompanying
consolidated balance sheets as follows (in thousands):

                                                 2001        2000
------------------------------------------------------------------
Deferred tax assets--current                  $ 8,473        3,525
Deferred tax assets--noncurrent                42,194       48,207
------------------------------------------------------------------
Net deferred tax asset                        $50,667       51,732
==================================================================

     Based on the level of historical taxable income and projections for future
taxable income over the periods in which the deferred tax assets are deductible,
management believes it is more likely than not the Company will realize the
benefits of these deferred tax assets.

     In conjunction with the Demutualization in 1997, the Company was required
to make a payment of $175 million to the Commonwealth of Virginia (Commonwealth
Payment) which was expensed and paid in prior years. The Company claimed the
$175 million Commonwealth Payment as a deduction. The Internal Revenue Service
denied this deduction during the course of its audit of the Company. The Company
continued to pursue the deduction and in April 2001 received a Technical Advice
Memorandum from the National Office of the IRS that supports the Company's
position that the payment constitutes a normal business expense, and therefore
should be deductible. The Company will recognize the financial statement impact
of the deduction if and when it receives final approval by the IRS after review
by the Congressional Joint Committee on Taxation. If successful, the Company
expects to recover approximately $35 million in cash refunds and $26 million in
income tax credit carryovers plus after-tax interest currently estimated to be
$8 million. In addition, the Company has filed a lawsuit claiming deductions for
losses incurred on the termination of certain customer and provider contracts.
See note 19.

     Regarding both of these matters, favorable resolution of these claims is
subject to various uncertainties, including whether the deductions will be
allowed at all and, in the case of the claim for losses on the termination of
customer and provider contracts, the amount of the deductions, if any, that will
be allowed. While the Company believes that its claims have merit, it cannot
predict the ultimate outcome of the claims. The Company has not recognized the
impact of these claims, if any, in the consolidated financial statements.

NOTE 11. BORROWINGS

Commercial paper as of December 31 is summarized as follows (in thousands):

                    2001         2000
--------------------------------------
Current          $ 99,660           --
Noncurrent        200,000      275,448
--------------------------------------
Total            $299,660      275,448
======================================

     In November 2001, Trigon Healthcare, Inc. entered into new revolving credit
facilities with a syndicate of lenders, replacing the existing revolving credit
facility expiring in February 2002. The new credit facilities consist of a $100
million 364-day revolving credit facility and a $200 million 5-year revolving
credit facility. These credit facilities may be used for general corporate
purposes and are currently being used to back the commercial paper discussed
below. The terms of the credit facilities provide for various borrowing options
and rates and require the Company to pay facility and administrative fees on a
quarterly basis. The credit facilities contain certain financial covenants and
restrictions including minimum net worth requirements and debt to consolidated
net worth

<PAGE>

ratio limitations. The Company was in compliance with all such covenants as of
December 31, 2001. There were no amounts borrowed under the former or current
credit facilities during 2001. In conjunction with the issuance of commercial
paper notes during the first quarter of 2000, the Company repaid the $245
million outstanding on the former revolving credit agreement. The weighted
average interest rate for the period the former revolving credit agreement was
outstanding during the years ended December 31, 2000 and 1999 was 6.21% and
5.44%, respectively. Use of the credit facilities to back the commercial paper
reduces the amounts available for borrowing under these facilities.

     In March 2000, Trigon Healthcare, Inc. commenced a private placement
commercial paper program providing for the issuance of up to $300 million in
aggregate maturity value of commercial paper notes. The notes are issued at par
less a discount representing an interest factor. Under the program, they may
also be issued at par as interest bearing notes. The notes may be issued with
varying maturities up to a maximum of one year from issuance. As of December 31,
2001, outstanding notes under the commercial paper program totaled approximately
$299.7 million with an average maturity of 20 days. As of December 31, 2000,
outstanding notes totaled approximately $275.4 million with an average maturity
of 14 days. The weighted average discount yield on the outstanding commercial
paper notes as of December 31, 2001 and December 31, 2000 was 2.19% and 6.83%,
respectively. The commercial paper is currently backed by the revolving credit
facilities. The Company has the intent to maintain commercial paper borrowings
of at least this amount for more than one year. For financial reporting
purposes, the commercial paper has been classified as a combination of current
and noncurrent liabilities in the accompanying consolidated statements of
financial condition based on the terms of the revolving credit facilities
backing these notes.

     Peninsula Health Care, Inc. has a line of credit agreement with its
minority shareholder for purposes of maintaining regulatory minimum net worth
requirements. There were no amounts outstanding under this line of credit as of
December 31, 2001 and 2000.

NOTE 12. EMPLOYEE BENEFIT PLANS

The Company has a noncontributory defined benefit pension plan which is
qualified under IRC 401(a). The plan is funded through the Blue Cross National
Retirement Trust (the Trust), a collective investment trust for the retirement
programs of its participating employers. Assets in the Trust are primarily
domestic and international equity securities, domestic bonds, real estate funds
and short-term investments. The Company also has a nonqualified supplemental
executive retirement plan (SERP) which provides for pension benefits in excess
of qualified plan limits imposed by IRC limits and restrictions on participation
by highly compensated employees. The plan serves to restore the combined pension
amount to original benefit levels. The plan is unfunded, however, the Company
has established a grantor trust to fund future obligations under the plan. The
grantor trust is consolidated with the Company for financial reporting purposes.

     In addition to providing pension benefits, the Company provides certain
health and life insurance benefits for retired employees and for active
employees who had at least 20 years of service and were between the ages of 40
and 45 with age plus years of service equal to 55 or more as of January 1, 1998.
This postretirement benefit plan is also funded through the Trust.

                              Trigon Healthcare, Inc. 2001 Annual Report page 43

<PAGE>

TRIGON HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2001, 2000 and 1999 (Continued)

     The following tables provide a reconciliation of the changes in the plans'
benefit obligations and fair value of assets for the years ended December 31 and
a statement of the funded status as of December 31 (in thousands):

<TABLE>
<CAPTION>

                                                                     Pension Benefits        Postretirement Benefits
                                                                     -----------------       -----------------------
                                                                     2001         2000             2001      2000
--------------------------------------------------------------------------------------------------------------------
<S> <C>
Reconciliation of benefit obligation
   Obligation as of January 1                                      $130,912      122,613           40,798    28,722
   Service cost                                                       8,842        7,571            1,515     1,385
   Interest cost                                                      9,684        9,152            3,449     2,761
   Participant contributions                                             --           --               --        91
   Benefit payments                                                  (7,423)     (15,195)          (1,602)   (1,112)
   Actuarial loss                                                     5,507        6,771            7,948     8,951
--------------------------------------------------------------------------------------------------------------------
Obligation as of December 31                                        147,522      130,912           52,108    40,798
--------------------------------------------------------------------------------------------------------------------
Reconciliation of fair value of plan assets
   Fair value of plan assets as of January 1                        136,412      150,871           18,847    18,372
   Actual return on plan assets                                      (7,896)      (7,063)          (1,046)    1,496
   Employer contributions                                            17,500           --               --        --
   Participant contributions                                             --           --               --        91
   Benefit payments                                                  (7,393)      (7,396)          (1,602)   (1,112)
--------------------------------------------------------------------------------------------------------------------
Fair value of plan assets as of December 31                         138,623      136,412           16,199    18,847
--------------------------------------------------------------------------------------------------------------------
Funded status
   Funded status as of December 31                                   (8,899)       5,500          (35,909)  (21,951)
   Unrecognized transition asset                                        (97)        (167)              --        --
   Unrecognized reduction in prior service cost                      (7,104)      (7,712)          (6,252)   (8,017)
   Unrecognized (gain) loss                                          12,507      (13,374)          12,574     2,262
--------------------------------------------------------------------------------------------------------------------
Net amount recognized                                              $(3,593)      (15,753)         (29,587)  (27,706)
====================================================================================================================
</TABLE>

     The following table provides the amounts recognized in the consolidated
balance sheets as of December 3 (in thousands):
<TABLE>
<CAPTION>


                                                                     Pension Benefits  Postretirement Benefits
                                                                     ----------------  -----------------------
                                                                       2001    2000        2001      2000
--------------------------------------------------------------------------------------------------------------
<S> <C>
Prepaid benefit cost (included in other assets)                     $ 2,455       --          --        --
Accrued benefit liability (included in obligations for
employee benefits, noncurrent)                                       (6,048) (16,535)    (29,587)  (27,706)
Intangible asset (included in other assets)                              --      748          --        --
Minimum pension liability (included in accumulated other
   comprehensive income)                                                 --       34          --        --
----------------------------------------------------------------------------------------------------------------
Net amount recognized                                               $(3,593) (15,753)    (29,587)  (27,706)
================================================================================================================
</TABLE>


<PAGE>

      The pension plans with benefit obligations in excess of plan assets,
principally the unfunded nonqualified SERP, had projected benefit obligations of
$147.5 million and $7.4 million as of December 31, 2001 and 2000, respectively.
The accumulated benefit obligations related to these plans were $143.1 million
and $5.9 million, while the fair value of assets was $138.6 million and $0 as of
December 31, 2001 and 2000, respectively. Both the qualified pension plan and
nonqualified SERP plan were included in this disclosure for 2001.

      The following table provides the components of net periodic expense for
the plans for the years ended December 31 (in thousands):

<TABLE>
<CAPTION>

                                                      Pension Benefits           Postretirement Benefits
                                                      ----------------           -----------------------
                                                   2001       2000     1999      2001      2000     1999
--------------------------------------------------------------------------------------------------------
<S> <C>
Service cost                                  $   8,842      7,571     7,842    1,514     1,385    1,412
Interest cost                                     9,684      9,152     8,725    3,449     2,761    2,200
Expected return on plan assets                  (12,374)   (11,851)  (11,224)  (1,624)   (1,753)  (1,553)
Amortization of transition asset                    (70)       (70)      (70)      --        --       --
Amortization of prior service cost                 (608)      (547)     (547)  (1,765)   (1,765)  (1,387)
Amortization of net (gain) loss                    (104)      (312)      157      307        --       --
Settlement expense                                   --      1,550        --       --        --       --
--------------------------------------------------------------------------------------------------------
Total                                         $   5,370      5,493     4,883    1,881       628      672
========================================================================================================
</TABLE>


     The gross amount included within other comprehensive income arising from a
decrease in the minimum pension liability was $0.03 million, $0.4 million and
$1.3 million for the years ended December 31, 2001, 2000 and 1999, respectively.

     The prior service costs of the pension plans are amortized on a
straight-line basis over the average remaining service period of the active plan
participants. The prior service costs of the postretirement benefit plan are
amortized on a straight-line basis over the average remaining years of service
to full eligibility for benefits of the active plan participants. Gains and
losses for the qualified pension plan and the postretirement benefit plan are
amortized on a straight-line basis over the average remaining service period of
active participants using the minimum basis outlined under SFAS No. 87 and SFAS
No. 106, respectively. Gains and losses for the nonqualified SERP are amortized
on a straight-line basis over the average remaining service period of active
participants based on the entire unrecognized net gain or loss without applying
the applicable corridor that is based on 10% of the greater of the projected
benefit obligation or the market-related value of plan assets.

     The weighted average assumptions used in the measurement of the Company's
benefit obligations as of December 31 were as follows:

<TABLE>
<CAPTION>


                                          Pension Benefits          Postretirement Benefits
                                          ----------------          -----------------------
                                         2001           2000          2001        2000
-------------------------------------------------------------------------------------------
<S> <C>
Discount rate                            7.25%          7.50%         7.25%        7.50%
Expected return on plan assets            9.0            9.0           9.0          9.0
Rate of compensation increases     3.0 to 6.5     3.0 to 6.5    3.0 to 6.5          4.5
===========================================================================================
</TABLE>

                             Trigon Healthcare, Inc. 2001 Annual Report page 45

<PAGE>


TRIGON HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2001, 2000 and 1999 (Continued)

     For measurement purposes, a 7% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 2001 and subsequent years.

     Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one percent change in assumed
health care cost trend rates would have the following effects (in thousands):

                                                   1% Increase     1% Decrease
------------------------------------------------------------------------------
Aggregate of service and interest
   cost components of net periodic
   postretirement health care
   benefit cost                                      $  839           (669)
------------------------------------------------------------------------------
Health care component of the
   accumulated postretirement
   benefit obligation                                $8,374         (6,738)
------------------------------------------------------------------------------

     The Company also has the Employees' Thrift Plan of Trigon Insurance Company
(Thrift Plan) under which substantially all employees who have completed three
months of service may elect to save up to 16% of their annual earnings on a
pretax basis, subject to certain limits, in the plan. Participants have the
option of investing in a variety of domestic and international investment funds
as well as the stock of Trigon Healthcare, Inc. The Company contributes an
amount equal to 50% of the participant's contributions limited to a total of 3%
of the employee's compensation. These Company contributions are invested in the
investment options using the same allocations selected by the participants for
their contributions. Participants are eligible after three months of service and
are fully vested in the Company's contributions after three years of service.
The Company may make discretionary profit sharing contributions to participants
through the Trigon Healthcare, Inc. stock investment option. The Company made
discretionary contributions of $2.8 million, $3.4 million and $0.8 million
during 2001, 2000 and 1999, respectively, for contributions made in the previous
year. For the years ended December 31, 2001, 2000 and 1999, the Company's
matching contribution to the Thrift Plan was $4.3 million, $4.0 million and $3.6
million, respectively.

NOTE 13. CAPITAL STOCK

The Company has authorized 300 million shares of Class A Common Stock, par value
$0.01 per share (Common Stock). Common Stock shares are entitled to one vote per
share.

     The Company has also authorized 300 million shares of Class B non-voting
Common Stock, par value $0.01 per share (Non-Voting Common Stock). No shares of
Non-Voting Common Stock were issued and outstanding as of December 31, 2001 and
2000. The Non-Voting Common Stock has been authorized in connection with certain
ownership and transfer restrictions included in the Company's amended and
restated articles of incorporation. Non-Voting Common Stock shares are not
entitled to vote on any matter except as otherwise required by law.

     The Company is authorized to issue up to 50 million shares of preferred
stock, no par value per share, in one or more series and to provide the
designations, preferences, limitations and rights of each series.

Shareholder Rights Plan

The Company has a Shareholder Rights Plan (Rights Plan). Under the Rights Plan,
the Board of Directors authorized three million preferred shares, the Series A
Junior Participating Preferred Shares, and declared a dividend of one preferred
share purchase right (Right) on each outstanding share of Trigon Class A Common
Stock. Each Right entitles shareholders to purchase one one-hundredth of a
Series A Junior Participating Preferred Share at an exercise price of $100,
subject to adjustment. Subject to certain exceptions, the Right will be
exercisable only if a person or group acquires 10% or more of the Company's
Common Stock or announces a tender offer for 10% or more of the Company's
outstanding Common Stock. Each holder of a Right (other than those held by the
acquiring person) will then be entitled to purchase, at the Right's then current
exercise price, a number of shares of Trigon Common Stock having a market value
of twice the Right's exercise price. If

<PAGE>

the Company is acquired in a merger or other business combination transaction
which has not been approved by the Board of Directors, each Right will entitle
its holder to purchase, at the Right's then current exercise price, a number of
shares of the acquiring company's Common Stock having a market value of twice
the Right's exercise price.

     The date of record for the dividend distribution was July 29, 1997. The
Rights will expire in 2007 and are redeemable by action of the Board of
Directors at a price of $.001 per Right at any time prior to becoming
exercisable.

Common Stock Held by Grantor Trusts

The Company has several grantor trusts which were established to fund future
obligations under certain compensation and benefit plans. These grantor trusts
are consolidated for financial reporting purposes with the Company. The grantor
trusts may purchase shares of the Company's Common Stock in the open market. The
purchase price of the shares purchased and held by the grantor trusts is shown
as a reduction to capital in excess of par in the consolidated balance sheets.

Stock Option Plans, Restricted Stock Awards and Stock Purchase Plan

The 1997 Stock Incentive Plan (Incentive Plan) provides for the granting of
stock options, restricted stock awards, performance stock awards, stock
appreciation rights and cash performance awards to employees. The Company has
reserved 6.3 million shares of its common stock for issuance under the Incentive
Plan. Awards are granted by the Human Resources Compensation and Employee
Benefits Committee of the Board of Directors. Options vest and expire over terms
as set by the committee at the time of grant. In accordance with the Incentive
Plan, options to purchase shares at an amount equal to the fair market value of
the stock at the date of grant were granted to eligible employees during 2001,
2000 and 1999. These options generally vest on a pro-rata basis over three
years, with certain grants vesting at the end of one or three years depending on
an employee's years of service, and in all cases expire 10 years from date of
grant.

     The 1997 Non-Employee Directors Stock Incentive Plan (Non-Employee Plan)
provides for granting to newly-elected non-employee directors nonqualified stock
options to purchase 10,000 shares of common stock on the date of the first
annual meeting of shareholders at which the director is elected. In addition,
each eligible director will automatically be granted options to purchase 5,000
shares of common stock as of the date of each subsequent annual meeting of
shareholders. All options are granted at the fair market value on the date of
grant and become exercisable on a pro-rata basis over a three-year period. All
options expire 10 years from the date of grant. The Company has reserved 550,000
shares of its common stock for issuance under the Non-Employee Plan.

     A summary of the stock option activity for the years ended December 31 is
as follows:

                                                     Weighted
                                                     Average
                                       Number of     Exercise
                                       Options        Price
---------------------------------------------------------------
Balance at January 1, 1999             2,961,025     $23.79
   Granted                               509,430      35.80
   Exercised                            (140,854)     23.72
   Forfeited                             (82,077)     27.11
--------------------------------------------------------------
Balance at December 31, 1999           3,247,524      25.59
   Granted                               559,800      36.49
   Exercised                            (758,123)     24.10
   Forfeited                             (73,863)     26.85
--------------------------------------------------------------
Balance at December 31, 2000           2,975,338      27.99
   Granted                               588,500      70.27
   Exercised                            (368,651)     26.37
   Forfeited                             (10,568)     48.63
--------------------------------------------------------------
Balance at December 31, 2001           3,184,619     $35.92
==============================================================
Options exercisable at:
   December 31, 2001                   2,201,894     $27.84
   December 31, 2000                   1,987,254      24.75
   December 31, 1999                   1,590,510      23.42
==============================================================

                             Trigon Healthcare, Inc. 2001 Annual Report page 47

<PAGE>

TRIGON HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2001, 2000 and 1999 (Continued)

     The following table summarizes information about stock options outstanding
and exercisable as of December 31, 2001:

<TABLE>
<CAPTION>


                                        Options Outstanding                    Options Exercisable
                        --------------------------------------------------   ----------------------
                                        Weighted
                                         Average            Weighted                     Weighted
                                        Remaining           Average                      Average
Range of                Number         Contractual          Exercise        Number       Exercise
Exercise Prices       Outstanding         Life               Price        Exercisable      Price
---------------------------------------------------------------------------------------------------
<S> <C>
$18.13-25.50          1,574,187         5.7 years           $ 23.49       1,574,187       $23.49
$27.75-38.63          1,016,932         7.6 years           $ 35.23         553,285       $34.46
$53.13-73.63            593,500         9.0 years           $ 70.08          74,422       $70.78
---------------------------------------------------------------------------------------------------
</TABLE>

     During 2001 and 2000, the Board of Directors granted 24,052 and 87,681
shares, respectively, of the Company's common stock as restricted stock awards
in accordance with the provisions of the Incentive Plan. The shares vest on a
pro-rata basis over three years. The recipients of the restricted stock awards
generally may not dispose or otherwise transfer the restricted stock until
vested. For grants of restricted stock, unearned compensation equivalent to the
fair market value of the shares at the date of grant is recorded as a separate
component of shareholders' equity and subsequently amortized to compensation
expense over the vesting period. Amortization was $1.8 million and $2.6 million
for the years ended December 31, 2001 and 2000, respectively.

     As of December 31, 2001, a total of 1,994,620 shares were available for
future grants under the Incentive Plan and Non-Employee Plan.

     The 1997 Employee Stock Purchase Plan (Stock Purchase Plan) provides
employees of the Company an opportunity to purchase the Company's common stock
through payroll deductions. The Company has reserved one million shares of its
common stock for issuance under the Stock Purchase Plan. Shares needed to
satisfy the needs of the Stock Purchase Plan may be newly issued by the Company
or acquired by purchase at the expense of the Company on the open market or in
private transactions. Annually, eligible employees may purchase up to $25,000 in
fair value based on the grant date price of the Company's common stock at 85% of
the lower of the fair value on the first or last trading day of each calendar
quarter. Employee purchases under the Stock Purchase Plan were $1.8 million,
$1.7 million and $1.6 million for the years ended December 31, 2001, 2000 and
1999, respectively. Pursuant to the Stock Purchase Plan, shares of the Company's
stock were purchased on the open market and issued to employees totaling 40,099,
64,387 and 60,735 during 2001, 2000 and 1999, respectively. In addition, 7,282
shares were pending purchase as of December 31, 2001. As of December 31, 2001,
there were 737,656 shares of common stock available for issuance under the Stock
Purchase Plan.

     The pro forma information regarding net income and earnings per share as
required by SFAS No. 123 has been determined as if the Company had accounted for
its stock-based compensation under the fair value method of that Statement. The
fair value for the stock options was estimated at the date of grant using a
Black-Scholes option-pricing model with the following weighted average
assumptions for the years ended December 31:

                                     2001      2000       1999
---------------------------------------------------------------
Risk-free interest rate              4.16%      4.88%     6.78%
Volatility factor                   38.27%     38.67%    42.36%
Dividend yield                         --         --        --
Weighted average
   expected life                  5 years    5 years   5 years
---------------------------------------------------------------

<PAGE>


     The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock option grants have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock option grants.

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

     For purposes of pro forma disclosures, compensation expense is increased
for the estimated fair value of the options amortized over the options' vesting
periods and for the difference between the market price of the stock and the
discounted purchase price of the shares on the purchase date for the employee
stock purchases. The Company's pro forma information is as follows (in
thousands, except per share data and weighted average fair value):

<TABLE>
<CAPTION>

                                                                 2001               2000                 1999
                                                         -----------------------------------------------------------
                                                             As         Pro       As       Pro        As        Pro
                                                          Reported     Forma    Reported  Forma    Reported    Forma
--------------------------------------------------------------------------------------------------------------------
<S> <C>
Net income                                               $116,060      108,478  112,009  105,175   20,463    12,486
Earnings per share
   Basic net income                                      $   3.20         2.99     2.98     2.80     0.50      0.31
   Diluted net income                                    $   3.11         2.90     2.90     2.72     0.49      0.30
Weighted average fair value of options granted
   during the year                                       $     --        27.99       --    15.22       --     16.87
Weighted average fair value of employee stock
   purchases during the year                             $     --        12.37       --    15.39       --      6.30
Weighted average fair value of restricted stock
   awards granted during year                            $     --        58.23       --    34.10       --     32.88
--------------------------------------------------------------------------------------------------------------------
</TABLE>


Stock Repurchase Program

The Company completed its first stock repurchase program in February 2000
whereby ten percent of the Company's common stock was repurchased. Also in
February 2000, the Company commenced a second stock repurchase program for the
repurchase of up to ten percent in additional shares. Under both repurchase
programs, the purchases may be made from time to time at prevailing prices in
the open market, by block purchase or in private transactions and may be
discontinued at any time. The repurchases are subject to restrictions relating
to volume, price, timing and debt covenant requirements. During 2001, the
Company purchased and retired 1,752,830 shares of its common stock at a cost of
$95.5 million, bringing the total shares purchased and retired to 6,513,828
shares at a cost of approximately $249.3 million. The excess of the cost of the
acquired shares over par value is charged on a pro rata basis to capital in
excess of par and retained earnings. As of December 31, 2001, the Company may
repurchase an additional 1.5 million shares under the second stock repurchase
program.

                              Trigon Healthcare, Inc. 2001 Annual Report page 49

<PAGE>

TRIGON HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2001, 2000 and 1999 (Continued)

NOTE 14. NET INCOME AND NET INCOME PER SHARE

The following table sets forth the computation of basic and diluted earnings per
share for the years ended December 31 (in thousands, except per share data):

<TABLE>
<CAPTION>

                                                                                     2001      2000    1999
------------------------------------------------------------------------------------------------------------
<S> <C>
Numerator for basic and diluted earnings per share--net income                     $116,060  112,009  20,463
------------------------------------------------------------------------------------------------------------
Denominator
   Denominator for basic earnings per share--weighted average shares                 36,242   37,615  40,826
   Effect of dilutive securities--employee and director stock options and
     nonvested restricted stock awards                                                1,130    1,066     594
------------------------------------------------------------------------------------------------------------
Denominator for diluted earnings per share                                           37,372   38,681  41,420
============================================================================================================
Basic net income per share                                                         $   3.20     2.98    0.50
============================================================================================================
Diluted net income per share                                                       $   3.11     2.90    0.49
============================================================================================================
</TABLE>


NOTE 15. COMPREHENSIVE INCOME

The reclassification entries under SFAS No. 130, Reporting Comprehensive
Income, for the years ended December 31 were as follows (in thousands):

<TABLE>
<CAPTION>


                                                                              2001          2000      1999
-----------------------------------------------------------------------------------------------------------
<S> <C>
Net unrealized losses on investment securities, net of income
taxes
   Net unrealized holding losses arising during the year, net
     of income tax benefit of $14,372, $5,008 and $ 20,043                  $(26,652)    (9,300)    (37,225)
   Less: reclassification adjustment for net losses included
     in net income, net of income tax benefit of $11,059, $4,852 and $8,841   20,539      9,011      16,419
-----------------------------------------------------------------------------------------------------------
Net unrealized losses on investment securities, net of income taxes         $ (6,113)      (289)    (20,806)
===========================================================================================================
</TABLE>


The components of accumulated other comprehensive income as of December 31 were
as follows (in thousands):

<TABLE>
<CAPTION>


                                                                                        2001    2000    1999
--------------------------------------------------------------------------------------------------------------
<S> <C>
Net unrealized gain on investment securities, net of income taxes of $1,594,
   $4,907 and $5,063                                                                  $3,001    9,114   9,403
Minimum pension liability, net of income taxes of $12 in 2000 and $169 in 1999            --      (22)   (315)
--------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income                                                $3,001    9,092   9,088
==============================================================================================================
</TABLE>


<PAGE>

NOTE 16. STATUTORY FINANCIAL INFORMATION

Trigon Insurance Company and certain other subsidiaries are required to file
financial statements with, and are subject to audit by, the Commonwealth of
Virginia, Bureau of Insurance (Bureau of Insurance). Such financial statements
are prepared in accordance with statutory accounting practices prescribed or
permitted by the Bureau of Insurance which differ from accounting principles
generally accepted in the United States of America under which the accompanying
consolidated financial statements have been prepared. Effective January 1, 2001,
the Bureau of Insurance adopted in its entirety, as a component of prescribed or
permitted practices by the Commonwealth of Virginia, the National Association of
Insurance Commissioners' (NAIC) Accounting Practices and Procedures
manual--version effective January 1, 2001, (Codification). Codification was
developed by the NAIC in an effort to develop a single uniform and comprehensive
basis of statutory accounting. Codification was approved with a provision
allowing for prescribed or permitted accounting practices to be determined by
each states' insurance commissioner. Accordingly, such discretion will continue
to allow prescribed or permitted accounting practices that may differ from state
to state. The Company has determined that the combined statutory capital and
surplus as of January 1, 2001 of all subsidiaries subject to Codification
increased approximately $38 million as a result of the implementation of
Codification.

     Significant differences between accounting principles generally accepted in
the United States of America and statutory accounting practices prescribed or
permitted by the Bureau of Insurance include: (i) certain investment valuation
reserves and certain claim reserves recognized under statutory accounting, (ii)
certain assets (primarily furniture and equipment, leasehold improvements,
employee benefit plan assets) not recognized under statutory accounting, and
(iii) certain assets recognized using a different method (primarily deferred tax
assets and certain miscellaneous receivables) under statutory accounting. While
the Bureau of Insurance has the authority to permit insurers to deviate from
prescribed statutory accounting practices, none of the Company's subsidiaries
subject to regulatory oversight by the Bureau of Insurance have received, nor
requested, approval to adopt any such deviations.

     Statutory surplus and net income for Trigon Insurance Company were (in
thousands):

Statutory surplus as of:
   December 31, 2001 (unaudited)                                   $465,559
   December 31, 2000                                                490,000

Statutory net income for the years ended:
   December 31, 2001 (unaudited)                                   $ 77,603
   December 31, 2000                                                 88,509
   December 31, 1999                                                 93,301

     Trigon Insurance Company is required by the Bureau of Insurance to maintain
statutory capital and surplus of at least $4.0 million.

     Under the Code of Virginia, an insurance company may pay a dividend without
prior approval of the Bureau of Insurance to the extent that such dividend
together with other dividends or distributions within the preceding 12 months
does not exceed the lesser of: (i) 10% of the insurer's statutory surplus as of
the immediately preceding December 31, or (ii) the net statutory gain from
operations (excluding realized gains on investments) for the 12-month period
ended the immediately preceding December 31. During 2001, 2000 and 1999, Trigon
Insurance Company paid cash dividends to its parent of $125.0 million, $125.0
million and $48.9 million, respectively. The 2001 and 2000 cash dividends
required and received prior approval from the Bureau of Insurance.

     The Commonwealth of Virginia adopted the National Association of Insurance
Commissioners (NAIC) Risk-Based Capital Act in 1995. Under this Act, a company's
risk-based capital (RBC) is calculated by applying certain factors to various
asset, premium and reserve items. If a company's calculated RBC falls below
certain thresholds, regulatory intervention or oversight is required. The RBC
level as calculated in accordance with the NAIC's RBC instructions for all
subsidiaries subject to the Act exceeded all RBC thresholds as of December 31,
2001.

NOTE 17. SUBSIDIARIES

Sale of Trigon Administrators, Inc.

In March 2001, the Company sold Trigon Administrators, Inc. and its Property and
Casualty Division, which provides

                              Trigon Healthcare, Inc. 2001 Annual Report page 51

<PAGE>

TRIGON HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2001, 2000 and 1999 (Continued)

workers' compensation, liability and short-term disability services, and
recognized a gain of $3.5 million on the sale. The gain is included as a
component of net realized losses in the accompanying consolidated statements of
operations.

Purchase of Minority Interest of Priority, Inc.

On September 29, 2000, Priority purchased and retired the 20% of its outstanding
shares held by the minority shareholder in accordance with the provisions of the
Shareholders Agreement for Priority between the Company and the minority
shareholder. The purchase price for the minority interest was approximately $2.7
million. The acquisition was accounted for as a purchase and goodwill arising
from the purchase amounted to $2.2 million. In conjunction with the purchase and
retirement of the 20% outstanding common stock, Priority also repaid and retired
all outstanding debt and accrued interest held by the minority shareholder.

Mid-South Exit of Health Insurance Market

On October 5, 1999, the Company announced that Mid-South Insurance Company, a
subsidiary headquartered in Fayetteville, North Carolina, intended to exit the
health insurance market with a targeted effective date of April 30, 2000 for
group business and with targeted or actual effective dates for the exit of
individual business to vary depending upon the regulations of each affected
state. The announcement followed the development and Board of Directors approval
of a comprehensive exit plan in September 1999. After taking a number of steps
to improve the performance of Mid-South and assessing various alternatives, it
was concluded that Mid-South could not bring its financial performance up to
expectations within a reasonable time frame. The exit would permit the Company
to intensify its focus on its successful business in Virginia and pursue more
substantial opportunities for growth in the surrounding regions.

     The announcement in October resulted in a nonre-curring pretax charge to
operations during the third quarter of 1999 of $79.9 million or $51.9 million
net of tax. The charge included costs associated with the write-off of goodwill,
other intangibles and deferred acquisition costs determined not to be
recoverable of $55.9 million, a $20.6 million increase to claim reserves for
anticipated future claims, bringing total claims reserves to $31.3 million, and
maintenance costs in excess of the related premiums and certain other costs
associated with the exit of $3.4 million. The Company recognized the charge for
goodwill, other intangibles and deferred acquisition costs and certain other
costs associated with the exit in selling, general and administrative expenses
and recognized the charge to increase the claim reserves in medical and other
benefit costs in the accompanying statements of operations. Through December 31,
2001, the Company made payments of $22.6 million against the claim reserves and
$1.5 million against the accrual of certain other exit costs, including payments
during 2001 of $9.7 million against the claim reserves. No other adjustments
have been made to these accruals. The remaining accrual is expected to be
sufficient to satisfy any potential payments related to the 1999 exit.

     Cancellation notices were sent on the group business and the exit of this
business was completed by April 30, 2000. The Company pursued options other than
cancellation of the individual business and on June 1, 2000 all of the issued
and outstanding shares of Mid-South were sold to another carrier. The purchase
price approximated net book value. The Company retained responsibility for
certain medical claims and other exit costs incurred prior to the sale on June
1, 2000. The stock purchase agreement also included a purchase price adjustment
provision tied to the financial performance of the Mid-South individual business
for the period from June 1, 2000 through December 31, 2002. The remaining
accrual is expected to be sufficient to satisfy any potential payments under
this provision of the stock purchase agreement.

NOTE 18. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS AND
CONCENTRATIONS OF CREDIT RISK

The carrying amounts of cash, premiums and other receivables, other current
assets, medical and other benefits payable, unearned premiums, accounts payable
and accrued expenses, commercial paper and other current liabilities approximate
fair value because of the short-term nature of these instruments. The fair
values of investment securities are estimated based on quoted market prices.

<PAGE>

     Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of investment securities and
premiums receivable. All of the investment securities are managed within
established guidelines which limit the amounts which may be invested with one
issuer. The Company primarily conducts business within the Commonwealth of
Virginia; therefore, premiums receivable are concentrated with companies and
individuals within Virginia.

NOTE 19. LEGAL AND REGULATORY PROCEEDINGS

On June 9, 2000, the Company's subsidiary, Trigon Insurance Company, filed a
lawsuit against the federal government for the recovery of federal income tax
overpayments for the years 1989 through 1995. The case was tried in November
2001, and closing arguments will be made to the court in March 2002. If
successful, the Company expects to recover approximately $33 million in cash
refunds plus after-tax interest of about $18 million and to receive tax refunds
for the years 1996 through 2000 of about $26 million. In addition, if the
Company is successful it could receive substantial additional tax deductions
that could lower federal income tax liability for years after 1995.

     The lawsuit, filed in the United States District Court for the Eastern
District of Virginia, relates to the initial valuation and deductibility of the
Company's assets when, along with other Blue Cross or Blue Shield organizations,
it became subject to federal income taxation in 1987. As part of this change in
tax status, Congress provided that if a Blue Cross or Blue Shield organization
disposed of an asset that it had acquired while tax-exempt, its taxable gain or
loss would be computed by reference to the asset's fair market value at the time
the organization became subject to tax. The Company is seeking deductions for
losses incurred on the termination of certain customer and provider contracts
that were held by it on January 1, 1987, based on the fair market value of the
contracts on that date.

     The Internal Revenue Service asserts that the Company is not entitled to
deduct losses incurred on the termination of these contracts. The resolution of
the Company's refund claim is subject to uncertainties, including whether the
court will allow the deductions and, if so, the amount of the deductions that
will be allowed. While the Company believes that its claim is meritorious, it
cannot predict the ultimate outcome of the claim.

     If the Company wins this lawsuit and has previously collected refunds for
the Demutualization payment deduction discussed in note 10, a portion of the tax
recoveries for the years after 1995 would most likely be realized in the form of
income tax credit carryovers rather than cash. Regarding both of these matters,
favorable resolution of these claims is subject to various uncertainties,
including whether the deductions will be allowed at all and, in the case of the
claim for losses on the termination of customer and provider contracts, the
amount of the deductions, if any, that will be allowed. While the Company
believes that its claims have merit, it cannot predict the ultimate outcome of
the claims. The Company has not recognized the impact of these claims, if any,
in the consolidated financial statements.

     The Company and certain of its subsidiaries are involved in various other
legal actions occurring in the normal course of their business. While the
ultimate outcome of such litigation cannot be predicted with certainty, in the
opinion of Company management, after consultation with counsel responsible for
such litigation, the outcome of those actions is not expected to have a material
adverse effect on the financial condition or results of operations of the
Company.

NOTE 20. SEGMENT INFORMATION

The Company has four reportable segments: health insurance, government programs,
investments and all other. Its health insurance segment offers several network
products, including HMO, PPO and PAR as well as medicare supplement plans. The
government programs segment includes the FEP and, through August 1999, claims
processing for Medicare (note 2). Through its participation in

                              Trigon Healthcare, Inc. 2001 Annual Report page 53

<PAGE>

TRIGON HEALTHCARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2001, 2000 and 1999 (Continued)

the FEP, the Company provides health benefits to federal employees in Virginia.
The FEP is the Company's largest customer, representing 17.8%, 17.8%, and 19.1%
of total consolidated revenues during 2001, 2000 and 1999, respectively. All of
the investment portfolios of the consolidated subsidiaries are managed and
evaluated collectively within the investment segment. The Company's other
health-related business, including disease management programs, benefits
administration, health promotion and similar products, is reflected in an "all
other" category.

     The reportable segments follow the Company's method of internal reporting
by products and services.

     The financial results of the Company's segments are presented consistent
with the accounting policies described in note 1. The Company evaluates the
performance of its segments and allocates resources based on income before
income taxes and minority interest, except for the investments segment which is
evaluated using investment income and net realized gains and losses.
Intersegment sales and expense transfers are recorded at cost.

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

The following table presents information by reportable segment for the years
ended December 31 (in thousands):

<TABLE>
<CAPTION>

                                                             Health   Government                  All
                                                           Insurance    Programs  Investments    Other    Total
-----------------------------------------------------------------------------------------------------------------
<S> <C>
2001
   Revenues from external customers                       $ 2,376,454   529,491         --      16,779  2,922,724
   Investment income and net realized losses                       --        --     48,917          --     48,917
   Intersegment revenues                                       15,129        --         --       9,170     24,299
   Depreciation and amortization expense                       21,860       223         27       2,584     24,694
   Income before income taxes and minority interest           178,866     6,160     48,917       4,253    238,196
2000
   Revenues from external customers                       $ 2,036,225   464,303         --      21,339  2,521,867
   Investment income and net realized losses                       --        --     87,430          --     87,430
   Intersegment revenues                                       12,987        --         --       7,925     20,912
   Depreciation and amortization expense                       14,125        22         23       1,828     15,998
   Income before income taxes and minority interest           127,161     1,015     87,430       4,251    219,857
1999
   Revenues from external customers                       $ 1,798,956   448,676         --      21,657  2,269,289
   Investment income and net realized losses                       --        --     75,174          --     75,174
   Intersegment revenues                                       11,885        --         --       6,546     18,431
   Depreciation and amortization expense                       17,667       261         19       1,681     19,628
   Income (loss) before income taxes and minority interest     (4,441)   (1,731)    75,174       1,791     70,793
=================================================================================================================
</TABLE>

     Asset information by reportable segment has not been disclosed as it is not
prepared internally by the Company. However, depreciation and amortization
expense for property and equipment purchased is charged to the reportable
segment responsible for the purchase.

<PAGE>

     A reconciliation of reportable segment total revenues, income before income
taxes and minority interest and depreciation and amortization expense to the
corresponding amounts included in the consolidated statements of operations for
the years ended December 31 is as follows (in thousands):

<TABLE>
<CAPTION>


                                                   2001          2000        1999
------------------------------------------------------------------------------------
<S> <C>
Revenues
   Reportable segments
     External revenues                            $2,922,724   2,521,867   2,269,289
     Investment revenues                              48,917      87,430      75,174
     Intersegment revenues                            24,299      20,912      18,431
   Other corporate revenues                            3,326       2,298       1,965
   Elimination of intersegment revenues              (24,299)    (20,912)    (18,431)
------------------------------------------------------------------------------------
Total revenues                                    $2,974,967   2,611,595   2,346,428
====================================================================================
Profit or Loss
   Reportable segments                            $  238,196     219,857      70,793
   Corporate expenses not allocated to segments      (49,763)    (36,854)    (30,916)
   Unallocated amounts:
     Interest expense                                (12,695)    (17,249)     (8,359)
------------------------------------------------------------------------------------
Income before income taxes and minority interest  $  175,738     165,754      31,518
====================================================================================
Depreciation and amortization expense
   Reportable segments                            $   24,694      15,998      19,628
   Not allocated to segments                          (1,274)       (716)       (973)
------------------------------------------------------------------------------------
Total depreciation and amortization expense       $   23,420      15,282      18,655
====================================================================================
</TABLE>


                             Trigon Healthcare, Inc. 2001 Annual Report page 55

<PAGE>

TRIGON HEALTHCARE, INC. AND SUBSIDIARIES

INDEPENDENT AUDITORS' REPORT


The Board of Directors Trigon Healthcare, Inc.:

     We have audited the accompanying consolidated balance sheets of Trigon
Healthcare, Inc. and subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of operations, changes in shareholders' equity
and comprehensive income and cash flows for each of the years in the three-year
period ended December 31, 2001. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Trigon
Healthcare, Inc. and subsidiaries as of December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.

/s/ KPMG

Richmond, Virginia
February 6, 2002


MANAGEMENT REPORT

     The management of Trigon Healthcare, Inc. has prepared the consolidated
financial statements and other data included in this annual report and has
primary responsibility for the integrity and objectivity of the financial
information. The consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America and include some amounts that are based on management's best estimates
and judgment.

     The Company maintains a system of internal controls designed to provide
reasonable assurance that financial records are reliable for use in preparing
financial statements and that assets are safeguarded. Management believes that
this system is effective and adequate to accomplish the above described
objectives.

     The Audit Committee of the Board of Directors, which is composed solely of
directors who are neither officers nor employees of the Company, is responsible
for monitoring the Company's system of internal controls and financial reporting
process. The committee meets periodically with management, the internal auditors
and the independent auditors to review their activities and responsibilities.
Both the internal auditors and the independent auditors have full and free
access to meet with the Audit Committee without the presence of management.


/s/ Thomas G. Snead, Jr.

Thomas G. Snead, Jr.
Chairman and Chief Executive Officer


/s/ Thomas R. Byrd

Thomas R. Byrd
Senior Vice President and Chief Financial Officer

<PAGE>

OFFICERS

Thomas G. Snead, Jr.

Chairman and Chief Executive Officer

Elected 2000 Chairman of the Board; Elected President and Chief Executive
Officer 1999; elected President and Chief Operating Officer in 1997; appointed
Senior Vice President and Chief Financial Officer 1990; joined Trigon in 1985;
prior, KPMG LLP; BS, Accounting, Virginia Commonwealth University

John W. Coyle

President and Chief Operating Officer

Joined Trigon in 2001; prior, Head, Business Operations and Head, International
Business, Aetna Inc.; BS, George Washington University

William P. Bracciodieta, M.D.

Senior Vice President and Chief Medical Officer

Joined Trigon in 1998; prior, Vice President and Chief Medical Director of
Medical Affairs for the South Florida Market, Humana, Inc.; M.B.A., Pacific
Western University

John J. Brighton

Senior Vice President and Chief Information Officer

Joined Trigon in 2002; prior, Chief Information Officer, Aetna, Inc.; BS,
Business Administration, Seton Hall University; M.B.A., Financial Management,
St. John's University

Thomas R. Byrd

Senior Vice President and Chief Financial Officer

Elected current position 1997; previously Vice President, Financial Planning and
Analysis; Vice President and Controller; Director, Financial Analysis; joined
Trigon in 1991; prior KPMG LLP; BS, Business, Virginia Polytechnic Institute

James W. Copley, Jr.

Senior Vice President and Chief Investment Officer

Previously, Coordinator, Director and Vice President, Funds Management;
President, Consolidated Investment Corporation; joined Trigon in 1975; M.B.A.,
University of Richmond; Chartered Financial Analyst

Kathy Ashby Merry

Senior Vice President, Service Operations

Previously, Assistant to the Chief Operating Officer, Government and
Individual Business Unit; Quality Programs Director; Vice President and General
Manager, Individual Markets; joined Trigon in 1991; prior, Executive Director,
Blue Ridge Regional Health Care Coalition; BS, Consumer Studies, University of
Kentucky

Ronald M. Nash

Senior Vice President, Corporate Services

Previously, Vice President, Corporate Services and Vice President,
Personnel and Administrative Services; joined Trigon in 1971; BS, Psychology,
University of Virginia


Paul F. Nezi

Senior Vice President, Market Growth

Previously, Senior Vice President, Virginia Group Business; Senior Vice
President, Marketing and Sales; Senior Vice President, Marketing and
Underwriting; joined Trigon in 1996; prior, ChoiceCare Executive Vice President
and Chief Marketing Officer; Vice President of Marketing and Sales, Lexis-Nexis;
Marketing and Sales, IBM and Xerox; M.B.A., Corporate Finance, Wharton Graduate
School, University of Pennsylvania

Timothy P. Nolan

Senior Vice President, Corporate Development

Joined Trigon in 1996; prior, McKinsey & Company; venture capital and investment
banking; M.B.A., Harvard University, Graduate School of Business Administration

Thomas A. Payne

Senior Vice President, Corporate Audit

Previously, Director and Vice President, Corporate Audit; joined Trigon in 1976;
M.B.A., University of Richmond

Peter L. Perkins

Senior Vice President and Chief Actuary

Previously, Director and Chief Actuary; joined Trigon in 1983; Fellow, Society
of Actuaries; BS, Actuarial Science, University of Illinois

David P. Wade

Senior Vice President, Marketing

Previously, Senior Vice President, Government and Individual Business; Senior
Vice President, Trigon HMOs; joined Trigon in 1991; prior, KPMG LLP; M.B.A.,
University of Virginia; BS, Physics, Carnegie-Mellon University

J. Christopher Wiltshire

Senior Vice President, General Counsel and Corporate Secretary

Joined Trigon in 1996; prior, partner, McGuire, Woods, Battle & Boothe LLP;
J.D., University of Virginia

                              Trigon Healthcare, Inc. 2001 Annual Report page 57

<PAGE>

BOARD OF DIRECTORS

(Age on December 31, 2001) Year elected to Board

Thomas G. Snead, Jr.
(48) 1999
Chairman and Chief Executive Officer, Trigon Healthcare, Inc. Richmond

Lenox D. Baker, Jr., M.D.
(60) 1985
Mid-Atlantic Cardiothoracic Surgeons, Ltd.
Norfolk

A. Hugh Ewing, III
(58) 2000
President, Ewing Monroe Bemiss & Co.
Richmond

Robert M. Freeman
(60) 1993
Retired Chairman of the Board and Chief Executive Officer, Signet Banking Corp.
Richmond

William R. Harvey, Ph.D.
(60) 1992
President, Hampton University
Hampton

Gary A. Jobson
(51) 1987
President, Maritime Productions, Inc.
Annapolis


Joseph S. Mallory
(64) 2000
Retired Senior Vice President, Booz . Allen & Hamilton, Inc.
New York

Donald B. Nolan, M.D.
(61) 1983
Roanoke Neurological Center
Roanoke

William N. Powell
(57) 1980
President, Salem Tools, Inc.
Salem

John Sherman, Jr.
(56) 2000
President, Chief Executive Officer, Scott & Stringfellow, Inc.
Richmond

R. Gordon Smith, Esq.
(63) 1995
Partner, McGuireWoods LLP
Richmond

Jackie M. Ward
(63) 1993
President and Chief Executive Officer, Intec Telecom Systems
Atlanta