##### Table of Contents



UNITED STATES
 SECURITIES AND EXCHANGE
    COMMISSION
 WASHINGTON, D.C. 20549
  Form 10-K
  ANNUAL REPORT PURSUANT TO
    SECTION 13 OR 15(d)
 OF THE SECURITIES EXCHANGE ACT
    OF 1934
  For the
    fiscal year ended December 31, 2005
    Commission
    file number 0-8483  CERES GROUP, INC.
 (Exact name of registrant as
    specified in its charter)
  Delaware(State
    or other jurisdiction of
    incorporation or organization)

34-1017531(I.R.S.
    Employer Identification No.)17800 Royalton Road, Cleveland,
    Ohio(Address
    of principal executive offices)

44136(Zip
    Code)   (440) 572-2400  (Registrants
    telephone number, including area code)
  Securities
    Registered Pursuant to Section 12(b) of the Act:
    None
  Securities
    Registered Pursuant to Section 12(g) of the Act:
  Common
    Stock, par value $0.001 per share  (Title
    of class)
   YES
    o  NO
    x
   YES
    o  NO
    x
   YES
    x  NO
    o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
 Large accelerated filer
    o  Accelerated filer
    x  Non-accelerated filer
    o
  Rule 12b-2
 YES
    o  NO
    x
        DOCUMENTS
    INCORPORATED BY REFERENCE:
  Form 10-K.
   Form 10-K, Form 10-K




---



##### 



CERES
    GROUP, INC.
    INDEX TO
    ANNUAL REPORT ON
    FORM 10-K
    For the Year Ended December 31, 2005
  PagePART IItem 1


Business


1Item 1A


Risk Factors


15Item 1B


Unresolved Staff
    Comments


19Item 2


Properties


20Item 3


Legal
    Proceedings


20Item 4


Submission of
    Matters to a Vote of Security Holders


20PART IIItem 5


Market for
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities


21Item 6


Selected Financial
    Data


23Item 7


Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


25Item 7A


Quantitative and
    Qualitative Disclosures about Market Risk


43Item 8


Financial
    Statements and Supplementary Data


44Schedule II  Condensed
    Financial Information of Registrant  Ceres
    Group, Inc. (Parent Only)


87Schedule III  Supplemental
    Insurance Information


90Schedule
    IV  Reinsurance


91Item 9


Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


92Item 9A


Controls and
    Procedures


92Item 9B


Other
    Information


92PART IIIItem 10


Directors and
    Executive Officers of the Registrant


93Item 11


Executive
    Compensation


93Item 12


Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


94Item 13


Certain
    Relationships and Related Transactions


95Item 14


Principal
    Accountant Fees and Services


95PART IVItem 15


Exhibits and
    Financial Statement Schedules


95Signatures


99Exhibit 23.1 Consent KPMGExhibit 31.1 Certification 302-CEOExhibit 31.2 Certification 302-CFOExhibit 32 Certifications 906-CEO and CFO




---



##### Table of Contents



PART I  ITEM 1.
    BUSINESS  Overview
                    
    grow our historically profitable and predictable Senior segment;
    focus on the profitability of our Medical segment; and
    promote electronic distribution for increased efficiency and
    agent productivity.     1




---



##### Table of Contents



Our Core
    Businesses
  Senior health, life and annuity
    products.
  Catastrophic and comprehensive major medical
    insurance.
    Business
    Strategy
    Increasing senior market focus.
  Focusing on profitability in the major medical
    market.
 2




---



##### Table of Contents




    target marketing with select distributors in select states with
    the greatest potential for profitability;
    selective products that shift some of the control over routine,
    discretionary healthcare costs to the consumer;
    rate adjustments;
    cancellation of unprofitable blocks of business in certain
    states;
    proactive medical cost management; and
    lowered administrative and sales expenses.        Promoting electronic distribution.
      Products
    and Services
    Major medical.
  out-of-pocket
 3




---



##### Table of Contents



Short-term major medical.
  Small group products.
  Life and annuity.
  Senior health insurance products.
  Senior life insurance and
    annuities.
  Medical cost management.
    
    shifting to the consumer a greater portion of risk with higher
    deductible plans and lower premiums;
    focusing our business with national and regional PPOs with
    superior pricing and management of costs;
    use of a Centers of Excellence network providing our
    insureds access to transplant and other necessary high-risk
    procedures at approximately 114 renowned medical institutions
    that have the staff, experience and volume of patients to
    produce higher recovery rates while offering discounted costs;
    multiple benefit level pharmacy coverage to promote use of lower
    cost drugs when possible;
    screening techniques to identify and move high-cost and
    high-risk insureds as early as possible into case management
    programs to enhance treatment programs and lower the long-term
    total medical expenses;
    a program to detect fraud and abuse by medical providers,
    policyholders or agents; 4




---



##### Table of Contents




    medical protocol use to avoid claims for unnecessary procedures;
    claims cost negotiation for long-term care expenses;
    product design geared to encourage use of PPOs; and
    enhanced communication to insureds on the features and benefits
    of these programs, emphasizing how they can reduce their total
    healthcare costs.    24-hour
  Marketing
    and Sales
    Distribution Channels.
    1.
    Senior Brokerage. These agents target Americans
    age 55 and over with a comprehensive product line. These
    agents may represent multiple insurance carriers.2.
    Senior Marketing Organizations. This channel is comprised
    of independent marketing organizations that market our senior
    products. These agents may represent multiple insurance carriers.3.
    Senior Career. This channel was developed in mid-2005 to
    focus exclusively on marketing senior products of our Provident
    American Life and Continental General subsidiaries. These agents
    give us a right of first refusal on our senior
    products. At December 31, 2005, we had appointed 23
    regional sales managers and approximately 256 agents. Our goal
    is to have a total of 50 regional sales managers and 1,000
    agents by year-end 2006.4.
    Medical Marketing Organizations. This channel is
    comprised of well-established marketing organizations that
    primarily market health insurance and supplemental health
    insurance. Some of this business is sold through electronic
    platforms. These agents may represent multiple insurance
    carriers.5.
    Medical Brokerage. Our brokerage agents concentrate on
    sales to individuals, families, associations, and small business
    owners. The product portfolio includes catastrophic medical
    coverage, individual medical plans, small group medical plans,
    HSA-qualified plans, basic medical coverage, short-term major
    medical, life insurance and annuities. These agents may
    represent multiple insurance carriers.6.
    Electronic Distribution. QQLink is our fully
    transactional online platform for Continental Generals
    major medical products. QQLink, founded in late 2000, combines a
    traditional agent distribution system with direct online sales
    of insurance. Consumers are able to review and receive premium
    quotes and apply for insurance online. QQLink is 99% owned by
    Ceres with the remaining 1% owned by three of our agents.  Marketing Support.
 5




---



##### Table of Contents




    competitive products and commission structures;
    advanced commissions on select products for agents who qualify;
    ongoing product development;
    special incentive awards to new agents;
    training seminars to introduce new products and sales material
    for our agents; and
    consistent agent communication and quality sales materials.  Customer
    Base
    December 31,
    2005


December 31,
    2004Indemnity


PPO


Indemnity


PPOMajor Medical


5,377



54,703



7,919



58,805Senior and Supplemental Products


129,661







126,404



Total Health


135,038



54,703



134,323



58,805Life and Annuity Products


49,658







51,358



184,696



54,703



185,681



58,805    6




---



##### Table of Contents



December 31, 2005


December 31, 2004(dollars in
    thousands)


(dollars in
    thousands)Percent







PercentState

Amount


of Total


State

Amount


of TotalOhio

$
79,425



15.0
%

Ohio

$
76,699



14.1
%Florida


40,734



7.7


Florida


42,750



7.9Pennsylvania


38,347



7.2


Pennsylvania


40,433



7.4Texas


34,912



6.6


Texas


32,397



6.0Indiana


33,220



6.3


Indiana


31,071



5.7Illinois


24,097



4.5


Georgia


21,598



4.0Virginia


20,087



3.8


Kansas


21,338



3.9Kansas


20,082



3.8


Nebraska


20,747



3.8Nebraska


20,040



3.8


Illinois


20,724



3.8Michigan


19,956



3.8


Virginia


19,700



3.6Other


199,553



37.5


Other


216,538



39.8Total

$
530,453



100.0
%

Total

$
543,995



100.0
%   Pricing
    and Underwriting
         7




---



##### Table of Contents



Claims
    
    claims processing and other administrative services for the
    Chambers and Provident American Lifes HealthEdge business
    (until September 30, 2006);
    claims processing for the run-off business of Provident American
    Life and United Benefit Life;
    prescription drug claims; and
    claims processing for our dental business.      Systems
        Investments
    available-for-sale
 8




---



##### Table of Contents



available-for-sale
  Amortized


Gross Unrealized


EstimatedCost


Gains


Losses


Fair Value(dollars in thousands)Fixed maturities
    available-for-saleU.S. Treasury securities

$
16,638


$
82


$
(309
)

$
16,411Non-government agencies and
    authorities


47,569



271



(563
)


47,277State and political subdivisions


3,973



1



(107
)


3,867Corporate bonds


195,116



4,538



(1,845
)


197,809Mortgage- and asset-backed
    securities


183,340



1,478



(2,645
)


182,173Total fixed maturities
    available-for-sale


446,636



6,370



(5,469
)


447,537Equity securities
    available-for-sale


28,204



124



(862
)


27,466Total
    available-for-sale

$
474,840


$
6,494


$
(6,331
)

$
475,003     Reserves
      
    healthcare cost trends;
    the incidence of incurred claims;
    the extent to which all claims have been reported; and
    internal claims processing changes.     9




---



##### Table of Contents



Reinsurance
  General.
    Existing Arrangements.
     10




---



##### Table of Contents



Competition
      Ratings
   11




---



##### Table of Contents



Government
    Regulation
    Insurance Regulation.
     12




---



##### Table of Contents




    The Company Action Level is triggered if a
    companys total adjusted capital is less than 200%, but
    greater than or equal to 150% of its RBC. At the Company
    Action Level, a company must submit a comprehensive plan
    to the regulatory authority that discusses proposed corrective
    actions to improve its capital position. A company whose total
    adjusted capital is between 250% and 200% of its RBC is subject
    to a trend test. The trend test calculates the greater of any
    decrease in the margin (i.e., the amount in dollars by which a
    companys adjusted capital exceeds its RBC) between the
    current year and the prior year and between the current year and
    the average of the past three years, and assumes that the
    decrease could occur again in the coming year. If a similar
    decrease in margin in the coming year would result in a RBC
    ratio of less than 190%, then Company Action Level
    regulatory action would be triggered.
    The Regulatory Action Level is triggered if a
    companys total adjusted capital is less than 150%, but
    greater than or equal to 100% of its RBC. At the
    Regulatory Action Level, the regulatory authority
    will perform a special examination of the company and issue an
    order specifying corrective actions that must be followed.
    The Authorized Control Level is triggered if a
    companys total adjusted capital is less than 100%, but
    greater than or equal to 70% of its RBC, at which level the
    regulatory authority may take any action it deems necessary,
    including placing the company under regulatory control.
    The Mandatory Control Level is triggered if a
    companys total adjusted capital is less than 70% of its
    RBC, at which level the regulatory authority is mandated to
    place the company under its control.          Healthcare Regulation and
    Reform.
 13




---



##### Table of Contents



fee-for-service
       14




---



##### Table of Contents



E-Commerce
    Regulation.
  Legislative Developments.
    Employees
    Available
    Information
  (440) 572-2400.
  Form 10-K, Form 10-Q, Form 8-K http://www.ceresgp.com
  http://www.ceresgp.com
  (440) 572-2400
  ITEM 1A.
    RISK
    FACTORS    Failure
    to accurately predict health care costs when pricing our
    products and establishing our liabilities for future policy
    benefits and claim liabilities could have a significant impact
    on our business and results of operations.
   15




---



##### Table of Contents



We may
    lose business to competitors offering products similar to ours
    at lower prices.
    Our
    profitability depends in large part on our ability to accurately
    predict and effectively manage rising health care costs, and
    accurately predict loss ratios, persistency, and the performance
    of and improvements in our business, as well as implement
    necessary increases in premium rates.
      Changes
    in government regulation may affect our profitability, increase
    our costs of compliance or cause us to discontinue marketing
    certain products or marketing in certain states.
   16




---



##### Table of Contents



We are
    subject to a variety of legal actions relating to our business
    operations, including claims related to the denial of benefits,
    which may result in financial losses or harm our
    reputation.
    Changes
    in the relationship with the associations that make available
    our health insurance products to their members
    and/or
    changes in laws and regulations governing association
    group insurance could have a material adverse effect on
    our business, financial condition and results of
    operations.
      and/or and/or
  Our
    profitability may be adversely affected if we are unable to
    maintain our current preferred provider organization (PPO)
    arrangements and to enter into other appropriate
    arrangements.
    Our
    success depends on our ability to develop, market, distribute
    and administer profitable and competitive products and services
    in a timely, cost-effective manner.
   17




---



##### Table of Contents



A failure
    of our information systems to provide timely and accurate
    information could adversely affect our business and results of
    operations.
    Failure
    by our reinsurers to timely and fully meet their obligations
    under our reinsurance agreements could have an adverse effect on
    our profitability and financial conditions.
    Our
    insurance subsidiaries are subject to risk-based or statutory
    capital requirements. Our failure to meet these standards could
    subject us to regulatory actions.
    A decline
    in our financial agency ratings could adversely affect our
    operations.
    Our
    investment portfolio involves risks, including risks inherent
    with ownership of bonds and risks associated with rising
    interest rates.
    other-than-temporary
 18




---



##### Table of Contents



and/or
  Applicable
    laws restrict the acquisition of more than 10% of our
    outstanding voting securities.
    Our
    Company faces additional risks, such as:
  
    changing regulations of corporate governance and public
    disclosure that has increased both our costs and the risk of
    non-compliance, including Section 404 of the Sarbanes-Oxley
    Act of 2002;
    our dependence on senior management and key personnel;
    our ability to continue to meet the terms of our debt
    obligations under our credit agreement, as amended, which
    contains a number of significant financial and other covenants;
    the adequacy of funds, including fee income, received from our
    non-regulated subsidiaries, and the restrictions on our
    insurance subsidiaries ability to pay dividends to Ceres,
    to meet our debt obligations;
    the performance of others on whom we rely for administrative and
    operations services;
    changes in accounting and reporting practices;
    payments to state assessment funds;
    changes in tax laws; and
    our ability to fully collect all agent advances.    Forward-Looking
    Statements
     19




---



##### Table of Contents



ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS    ITEM 2.
    PROPERTIES  Owned
    Properties (office space)
  Location

Segment

Square FootageOmaha, Nebraska

Major medical

61,400 square feetMission, Kansas

Senior

45,000 square feet   Leased
    Properties (office space)
  Location

Segment

Square FootageStrongsville, Ohio

Corporate headquarters and
    Major
    medical

121,625 square feetDallas, Texas

Sales office (1)

4,365 square feet     (1)
    
    The lease on the Dallas sales office expired on January 31,
    2006.  ITEM 3.
    LEGAL
    PROCEEDINGS      ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   20




---



##### Table of Contents



PART II  ITEM 5.
    MARKET
    FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
    AND ISSUER PURCHASES OF EQUITY SECURITIES  a) Market Information.
  High


Low2005First Quarter

$
5.50


$
4.69Second Quarter


6.25



5.27Third Quarter


6.50



5.47Fourth Quarter


5.81



4.752004First Quarter

$
7.32


$
5.64Second Quarter


7.37



5.80Third Quarter


6.10



5.24Fourth Quarter


5.89



4.50   (b) Holders.
  (c) Dividends.
   21




---



##### Table of Contents



(d) Issuer Purchases of Equity
    Securities.
  Issuer Purchases of Equity
    Securities(c) TotalNumber ofSharesPurchased


(d) Approximateas Part of


Dollar Value of(a) Total





Publicly


Shares that mayNumber of


(b) Average


Announced


yet be PurchasedShares


Price Paid


Plan or


Under the PlanPeriod

Repurchased


Per Share


Program


or Program (1)October
    1  October 31


45,938


$
5.97



45,938


$
November
    1  November 30





$







$
December
    1  December 31





$







$
Total


45,938


$
5.97



45,938     (1)
    
    On May 4, 2005, our Board of Directors authorized the
    repurchase of up to $10 million of our outstanding common
    stock in the open market or in private transactions. During the
    fourth quarter of 2005, we completed the authorized
    $10 million stock repurchase program and repurchased
    45,938 shares in open market transactions at an average
    price per share of $5.97. 22




---



##### Table of Contents



ITEM 6.
    SELECTED
    FINANCIAL DATA    For the Years Ended
    December 31,2005


2004


2003


2002


2001(dollars in thousands,
    except per share amounts)Premiums (net of reinsurance)

$
427,852


$
430,222


$
478,326


$
540,136


$
555,522Net investment income


26,908



25,415



25,090



24,258



25,287Net realized gains


702



1,224



1,891



2,262



2,265Fee and other income


17,076



19,463



28,875



33,548



41,113Total revenues

$
472,538


$
476,324


$
534,182


$
600,204


$
624,187Income (loss) from continuing
    operations

$
15,047


$
19,117


$
19,365


$
2,117


$
(5,529
)Discontinued operations(1)Income from operations of Pyramid
    Life (less tax expense of $3,223, $3,877 and $4,513,
    respectively)










5,732



7,109



7,861Loss on sale of Pyramid Life (less
    tax benefit of $79 and $683, respectively)










(2,149
)


(11,627
)


Income (loss) from discontinued
    operations










3,583



(4,518
)


7,861Net income (loss)


15,047



19,117



22,948



(2,401
)


2,332Gain on repurchase of the
    convertible voting preferred stock, net of dividends


















2,827Net income (loss) attributable
    to common stockholders

$
15,047


$
19,117


$
22,948


$
(2,401
)

$
5,159Basic net income (loss) per
    share:Continuing operations

$
0.44


$
0.55


$
0.56


$
0.06


$
(0.15
)Discontinued operations(1)










0.11



(0.13
)


0.44Net income (loss)

$
0.44


$
0.55


$
0.67


$
(0.07
)

$
0.29Diluted net income (loss) per
    share(2):Continuing operations

$
0.44


$
0.55


$
0.56


$
0.06


$
(0.15
)Discontinued operations(1)










0.11



(0.13
)


0.44Net income (loss)

$
0.44


$
0.55


$
0.67


$
(0.07
)

$
0.29   23




---



##### Table of Contents



December 31,2005


2004


2003


2002


2001(dollars in thousands,
    except per share amounts)Investments

$
488,906


$
494,951


$
484,280


$
397,103


$
385,915Reinsurance receivable


131,227



130,345



143,397



170,075



217,360Assets of Pyramid Life(1)














157,774



151,168Total assets


771,003



765,993



773,914



887,481



947,666Total policy liabilities and
    benefits accrued


508,023



489,829



504,493



512,003



566,608Debt


7,313



10,750



13,000



25,003



31,000Liabilities of Pyramid Life(1)














102,457



93,757Retained earnings


78,542



63,495



44,378



21,430



23,831Stockholders equity(3)


203,373



204,818



185,139



167,524



156,575Equity per share:After accumulated other
    comprehensive income(4)


6.12



5.93



5.38



4.89



4.62Before accumulated other
    comprehensive income(4)


6.12



5.72



5.17



4.51



4.61     (1)
    
    Effective March 31, 2003, Continental General sold its
    subsidiary, Pyramid Life Insurance Company, to Pennsylvania Life
    Insurance Company, a subsidiary of Universal American Financial
    Corp., for approximately $57.5 million in cash. See
    Note D. Discontinued Operations to our audited consolidated
    financial statements for further information.(2)
    
    The exercise of options and warrants is not assumed when a loss
    from operations is reported and the result would be antidilutive.(3)
    
    In 2001, we received net proceeds of $46.5 million from a
    public offering of 16.1 million shares of our common stock,
    at $3.20 per share.(4)
    
    Accumulated other comprehensive income relates
    primarily to the net unrealized gain (loss) on
    available-for-sale
    securities. 24




---



##### Table of Contents



ITEM 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL
    CONDITION AND RESULTS OF OPERATIONS    Overview
        Critical
    Accounting Policies
    Liabilities for Other Policy Claims and Benefits
    Payable.
  Major Medical, Medicare Supplement & Other
    Health.
   25




---



##### Table of Contents



Long-Term Care Disabled Life
    Reserves. actual-to-expected
    
    Claims in the Course of Settlement    
    Case Reserves    
    IBNR   26




---



##### Table of Contents



Adequacy of Liability for Other Policy Claims and Benefits
    Payable. higher-than-expected
    December 31,2005


2004


2003(dollars in
    thousands)Gross balance at beginning of year

$
102,703


$
129,237


$
147,938Less: Reserves ceded


22,076



25,878



28,622Adjusted net beginning balance


80,627



103,359



119,316Paid claims and claims adjustments
    expenses, net of reinsurance, forCurrent year


255,780



254,385



269,874Prior years


60,272



71,023



91,655Total paid


316,052



325,408



361,529Incurred claims and claims
    adjustment expenses, net of reinsurance, forCurrent year


315,965



322,272



358,567Prior years


(439
)


(19,596
)


(12,995
)Total incurred


315,526



302,676



345,572Net reserve balance at end of year


80,101



80,627



103,359Plus: Reserves ceded at end of year


25,643



22,076



25,878Gross balance at end of year

$
105,744


$
102,703


$
129,237         December 31,2005


2004


2003(dollars in
    thousands)Medical

$
3,066


$
14,199


$
10,114Senior and Other


(2,627
)


5,397



2,881Total

$
439


$
19,596


$
12,995      27




---



##### Table of Contents



Future Policy Benefits, Losses and
    Claims.
    Deferred Acquisition Costs.
      Other
    Accounting Policies and Insurance Business Factors
    Goodwill and Other Intangible
    Assets.
 28




---



##### Table of Contents



Goodwill
    and Other Intangible Assets
  Long-lived Assets.
  Premium revenue recognition.
  Value of business acquired.
    The number of years a policy has been in
    effect.
  Lapsation and persistency.
 29




---



##### Table of Contents



External factors also contribute to policy renewal or
    lapsation.
    Reinsurance.
  Liabilities for Litigation.
  case-by-case
    Insurance.
 30




---



##### Table of Contents



Results
    of Operations
    
    Medical  includes catastrophic and comprehensive
    major medical plans;
    Senior and Other  includes Medicare supplement,
    long-term care, dental, life insurance and annuities; and
    Corporate and Other  includes primarily interest
    income, interest expense, and corporate expenses of the holding
    company.    Discontinued Operations. Accounting for the Impairment or Disposal of Long-Lived
    Assets,
  Overview and Outlook for 2006.
     31




---



##### Table of Contents



2005 Compared to 2004
  Increase(Decrease) fromPrevious Year2005


2004


Dollars


%(dollars in thousands,except per share
    amounts)Premiums, netMedical

$
221,030


$
247,002


$
(25,972
)


(10.5
)%Senior and other


206,822



183,220



23,602



12.9Total premiums, net


427,852



430,222



(2,370
)


(0.6
)Net investment income


26,908



25,415



1,493



5.9Net realized gains


702



1,224



(522
)


(42.6
)Fee and other income


17,076



19,463



(2,387
)


(12.3
)472,538



476,324



(3,786
)


(0.8
)Benefits, claims, losses and
    settlement expensesMedical


162,248



176,143



(13,895
)


(7.9
)Senior and other


162,735



138,490



24,245



17.5Total benefits, claims, losses and
    settlement expenses


324,983



314,633



10,350



3.3Selling, general and
    administrative expenses


131,624



134,563



(2,939
)


(2.2
)Net (deferral) amortization and
    change in acquisition costs and value of business acquired


(5,174
)


4,571



(9,745
)


(213.2
)Interest expense and financing
    costs


706



684



22



3.2452,139



454,451



(2,312
)


(0.5
)Income before federal income taxes


20,399



21,873



(1,474
)


(6.7
)Federal income tax expense


5,352



2,756



2,596



94.2Net income

$
15,047


$
19,117


$
(4,070
)


(21.3
)Net income per shareBasic

$
0.44


$
0.55


$
(0.11
)


(20.0
)Diluted


0.44



0.55



(0.11
)


(20.0
)Medical loss ratio


73.4
%


71.3
%






Senior loss ratio


78.7
%


75.6
%






Overall loss ratio


76.0
%


73.1
%






Selling, general and
    administrative expense ratio


30.8
%


31.3
%






  32




---



##### Table of Contents



Net
    Premiums (net of reinsurance ceded)
    Medical
      Senior
    and Other
        Other
    Revenues
  available-for-sale
  available-for-sale
    Benefits,
    Claims, Losses and Settlement Expenses
   33




---



##### Table of Contents



Medical
    Senior
    and Other
    Other
    Expenses and Net Income
    
    a decrease in salaries and benefits of approximately
    $1.0 million due to a reduced workforce;
    a decrease in consulting expenses of approximately
    $1.0 million related to bringing our Cleveland data
    processing and programming back in-house from a third party
    vendor in the first half of 2004;
    a decrease in legal fees;
    a decrease in actuarial consulting fees due to the appointment
    of a chief actuary in 2005; and
    a decrease in fees charged by third party administrators for
    claims processing and other administrative services due to a
    decline in medical business in force.     34




---



##### Table of Contents



higher-than-expected
         35




---



##### Table of Contents



2004
    Compared to 2003
  Increase(Decrease) fromPrevious Year2004


2003


Dollars


%(dollars in thousands,except per share
    amounts)Premiums, netMedical

$
247,002


$
305,441


$
(58,439
)


(19.1
)%Senior and other


183,220



172,885



10,335



6.0Total premiums, net


430,222



478,326



(48,104
)


(10.1
)Net investment income


25,415



25,090



325



1.3Net realized gains


1,224



1,891



(667
)


(35.3
)Fee and other income


19,463



28,875



(9,412
)


(32.6
)476,324



534,182



(57,858
)


(10.8
)Benefits, claims, losses and
    settlement expensesMedical


176,143



226,249



(50,106
)


(22.1
)Senior and other


138,490



127,491



10,999



8.6Total benefits, claims, losses and
    settlement expenses


314,633



353,740



(39,107
)


(11.1
)Selling, general and
    administrative expenses


134,563



146,857



(12,294
)


(8.4
)Net amortization and change in
    acquisition costs and value of business acquired


4,571



5,953



(1,382
)


(23.2
)Interest expense and financing
    costs


684



1,620



(936
)


(57.8
)454,451



508,170



(53,719
)


(10.6
)Income from continuing operations
    before federal income taxes


21,873



26,012



(4,139
)


(15.9
)Federal income tax expense


2,756



6,647



(3,891
)


(58.5
)Income from continuing
    operations


19,117



19,365



(248
)


(1.3
)Discontinued operations:


Income from operations of Pyramid
    Life, net of tax






5,732



(5,732
)


(100.0
)Loss on sale of Pyramid Life, net
    of tax






(2,149
)


2,149



100.0Income from discontinued
    operations






3,583



(3,583
)


(100.0
)Net income

$
19,117


$
22,948


$
(3,831
)


(16.7
)Net income per shareBasic

$
0.55


$
0.67


$
(0.12
)


(17.9
)Diluted


0.55



0.67



(0.12
)


(17.9
)Medical loss ratio


71.3
%


74.1
%






Senior loss ratio


75.6
%


73.7
%






Overall loss ratio


73.1
%


74.0
%






Selling, general and
    administrative expense ratio


31.3
%


30.7
%






  36




---



##### Table of Contents



Net
    Premiums (net of reinsurance ceded)
    Medical
      Senior
    and Other
    Other
    Revenues
  available-for-sale
      Benefits,
    Claims, Losses and Settlement Expenses
    Medical
   37




---



##### Table of Contents



Senior
    and Other
    Other
    Expenses and Net Income
           38




---



##### Table of Contents



Liquidity
    and Capital Resources
    
    2004 included a significant reduction in our major medical claim
    reserves due to our declining block of major medical business in
    force and the decline in our claim inventory; and
    an increase in 2005 operating cash flows of approximately
    $22.8 million due to the liquidation of the trading
    investment portfolios in September 2005. The trading portfolios
    were purchased in the fourth quarter of 2004 which resulted in a
    decrease in 2004 operating cash flows of approximately
    $22.7 million.    available-for-sale
  available-for-sale
      Credit Agreement.
 39




---



##### Table of Contents




    Acknowledged that CIT Group had assigned to National City all of
    its rights, and National City had assumed all of the obligations
    of CIT Group, under the credit agreement and the term
    loan B;
    Changed the term loan B maturity date to March 1, 2008
    from June 1, 2008;
    Revised the amortization of term loan B so that term
    loan B has quarterly payments of $687,500 (previously
    $375,000) from June 2005 through March 2006, $375,000 from June
    2006 through December 2006, $562,500 from March 2007 through
    December 2007, and $1,250,000 in March 2008;
    Modified the Minimum Consolidated Fixed Charge Coverage
    Ratio to 1.50 to 1.00 from 1.15 to 1.00; and
    Permitted the $10 million stock repurchase program
    (announced on May 4, 2005).        Off-Balance Sheet Arrangements.
  Contractual Obligations.
  Payments Due by YearLess than








After 5Contractual
    Obligations

Total


1 year


1-3 years


4-5 years


years(dollars in
    thousands)Long-term debt

$
7,313


$
3,313


$
4,000


$



$
Long-term debt interest(1)


735



482



253







Operating leases


22,824



2,713



4,634



3,958



11,519Unfunded/callable investment
    commitments(2)


11,986



11,986











Deposit and investment contracts(3)


237,928



22,100



37,361



33,977



144,490Other policy claims and benefits
    payable(4)


105,744



74,095



18,242



6,742



6,665Total contractual obligations

$
386,530


$
114,689


$
64,490


$
44,677


$
162,674     (1)
    
    The interest associated with our variable-rate term loans is
    based upon interest rates in effect at December 31, 2005.
    The contractual amounts to be paid on variable-rate obligations
    are affected by changes in market interest rates. Future changes
    in market interest rates could materially affect the contractual
    amounts to be paid. 40




---



##### Table of Contents



(2)
    
    Represents estimated timing for fulfilling unfunded and callable
    capital commitments for investments in a limited partnership and
    two commercial mortgage loan trusts. Outstanding commitments are
    included in payments due in less than one year since the timing
    of funding these commitments cannot be reasonably estimated.(3)
    
    Estimated payments required under interest sensitive life and
    annuity contracts. The actual payments could vary based on
    changes in assumed crediting rates, persistency, and mortality
    levels.(4)
    
    Includes claims and benefits payable on our major medical,
    Medicare supplement, long-term care and other health care
    products.  Fund I-2002,
           41




---



##### Table of Contents



Net
    Operating Loss Carryforward
      Financial
    Information about Industry Segments from Continuing
    Operations
    Year Ended
    December 31,2005


2004


2003(dollars in
    thousands)MedicalRevenuesNet premiums

$
221,030


$
247,002


$
305,441Net investment income


3,571



4,268



5,598Net realized gains


193



88



550Other income


14,862



16,851



21,680239,656



268,209



333,269ExpensesBenefits and claims


162,248



176,143



226,249Other operating expenses


73,333



86,888



98,186235,581



263,031



324,435Segment profit before federal
    income taxes

$
4,075


$
5,178


$
8,834Senior and OtherRevenuesNet premiums

$
206,822


$
183,220


$
172,885Net investment income


23,215



21,143



19,487Net realized gains


56



688



905Other income


2,214



2,612



7,188232,307



207,663



200,465 42




---



##### Table of Contents



Year Ended
    December 31,2005


2004


2003(dollars in
    thousands)ExpensesBenefits and claims


162,735



138,490



127,491Other operating expenses


51,721



50,689



53,058214,456



189,179



180,549Segment profit before federal
    income taxes

$
17,851


$
18,484


$
19,916Corporate and OtherRevenuesNet investment income

$
122


$
4


$
5Net realized gains


453



448



436Other income










7575



452



448ExpensesInterest expense and financing
    costs


706



684



1,620Other operating expenses


1,396



1,557



1,5662,102



2,241



3,186Segment loss before federal income
    taxes

$
(1,527
)

$
(1,789
)

$
(2,738
)Income from continuing
    operations before federal income taxes

$
20,399


$
21,873


$
26,012     2005


2004


2004MedicalIndividual

$
154,718


$
177,859


$
227,699Group


66,312



69,143



77,742Total medical premiums,
    net

$
221,030


$
247,002


$
305,441Senior and OtherMedicare supplement

$
158,190


$
134,753


$
124,700Long-term care


23,583



22,520



22,505Life and annuity


16,118



15,842



14,131Dental


5,071



6,168



7,299Other


3,860



3,937



4,250Total senior and other
    premiums, net

$
206,822


$
183,220


$
172,885Total premiums, net

$
427,852


$
430,222


$
478,326   ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   43




---



##### Table of Contents



ITEM 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA  CERES
    GROUP, INC. AND SUBSIDIARIES
    INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
    FINANCIAL STATEMENT SCHEDULES
  PageReports of
    Independent Registered Public Accounting
    Firm  KPMG LLP


45Consolidated Financial
    StatementsConsolidated
    Balance Sheets as of December 31, 2005 and 2004


47Consolidated
    Statements of Operations for the years ended December 31,
    2005, 2004 and 2003


48Consolidated
    Statements of Stockholders Equity for the years ended
    December 31, 2005, 2004 and 2003


49Consolidated
    Statements of Cash Flows for the years ended December 31,
    2005, 2004 and 2003


50Notes to
    Consolidated Financial Statements for the years ended
    December 31, 2005, 2004 and 2003


51Financial Statement
    SchedulesSchedule II  Condensed
    Financial Information of Registrant  Ceres
    Group, Inc. (Parent Only)


87Schedule III  Supplemental
    Insurance Information


90Schedule IV  Reinsurance


91  44




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm           Internal
    Control  Integrated Framework
      45




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
     Form 10-K , Internal
    Control  Integrated Framework
        Internal Control  Integrated
    Framework Internal Control  Integrated
    Framework
  .
      46




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS 
    December 31, 2005 and 2004(dollars in thousands)
    2005


2004ASSETSInvestmentsFixed maturities
    available-for-sale,
    at fair value

$
447,537


$
456,075Fixed maturities trading, at fair
    value






18,531Equity securities
    available-for-sale,
    at fair value


27,466



7,658Equity securities trading, at fair
    value






4,938Limited partnership


4,640



4,166Policy and mortgage loans


9,263



3,583Total
    investments  Note B


488,906



494,951Cash and cash equivalents (of which
    $6,070 and $6,967 is restricted, respectively)  
    Note B


26,764



22,635Accrued investment income


5,340



5,389Premiums receivable


4,388



4,096Reinsurance
    receivable  Note K


131,227



130,345Property and equipment,
    net  Note C


4,708



5,277Deferred acquisition
    costs  Note F


73,955



67,074Value of business
    acquired  Note G


11,126



10,952Goodwill  
    Note H


10,657



10,657Licenses  
    Note H


3,440



3,440Other assets


10,492



11,177Total assets

$
771,003


$
765,993LIABILITIES AND
    STOCKHOLDERS EQUITYPolicy liabilities and benefits
    accruedFuture policy benefits, losses and
    claimsLife

$
16,402


$
12,899Deposit and investment contracts


237,928



236,127Accident and health


112,242



103,161Total future policy benefits,
    losses and claims


366,572



352,187Unearned premiums


35,707



34,939Other policy claims and benefits
    payable  Note J


105,744



102,703Total policy liabilities and
    benefits accrued


508,023



489,829Deferred reinsurance
    gain  Note K


5,451



6,562Other policyholders funds


14,970



19,016Debt  Note M


7,313



10,750Deferred federal income taxes
    payable  Note I


3,524



7,071Other liabilities


28,349



27,947Total liabilities


567,630



561,175Contingencies and
    commitments  Notes E and LStockholders equityNon-voting preferred stock,
    $0.001 par value, 1,900,000 shares authorized, none
    issued  Note P






Convertible voting preferred stock,
    $0.001 par value, at stated value, 100,000 shares
    authorized, none issued  Note P






Common stock, $0.001 par
    value, 50,000,000 shares authorized, 34,929,181 and
    34,522,979 shares issued, respectively; 33,225,478 and
    34,522,979 shares outstanding, respectively


35



35Additional paid-in capital


134,735



134,090Retained earnings


78,542



63,495Accumulated other comprehensive
    income


80



7,198Treasury stock, at cost, 1,703,703
    and 0 shares, respectively  Note N


(10,019
)


Total stockholders
    equity


203,373



204,818Total liabilities and
    stockholders equity

$
771,003


$
765,993    47




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS 
    For the Years Ended December 31, 2005, 2004 and 2003(dollars in thousands, except per share
    amounts)
    2005


2004


2003REVENUESPremiums,
    net  Note KMedical

$
221,030


$
247,002


$
305,441Senior and other


206,822



183,220



172,885Total premiums, net


427,852



430,222



478,326Net investment
    income  Note B


26,908



25,415



25,090Net realized gains


702



1,224



1,891Fee and other income


17,076



19,463



28,875472,538



476,324



534,182BENEFITS, LOSSES AND
    EXPENSESBenefits, claims, losses and
    settlement expenses  Note KMedical


162,248



176,143



226,249Senior and other


162,735



138,490



127,491Total benefits, claims, losses and
    settlement expenses


324,983



314,633



353,740Selling, general and administrative
    expenses  Note K


131,624



134,563



146,857Net (deferral) amortization and
    change in acquisition costs and value of business
    acquired  Notes F and G


(5,174
)


4,571



5,953Interest expense and financing costs


706



684



1,620452,139



454,451



508,170Income from continuing operations
    before federal income taxes


20,399



21,873



26,012Federal income tax
    expense  Note I


5,352



2,756



6,647Income from continuing
    operations


15,047



19,117



19,365Discontinued
    operations   Note DIncome from operations of Pyramid
    Life (less tax expense of $3,223)










5,732Loss on sale of Pyramid Life (less
    tax benefit of $79)










(2,149
)Income from discontinued
    operations










3,583Net income

$
15,047


$
19,117


$
22,948Basic net income per
    share Note S:Continuing operations

$
0.44


$
0.55


$
0.56Discontinued operations










0.11Net income

$
0.44


$
0.55


$
0.67Diluted net income per
    share Note S:Continuing operations

$
0.44


$
0.55


$
0.56Discontinued operations










0.11Net income

$
0.44


$
0.55


$
0.67Weighted average shares
    outstanding Note S:Basic


34,114,114



34,466,865



34,311,152Diluted


34,303,223



34,903,944



34,347,180    48




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS
    EQUITY 
    For the Years Ended December 31, 2005, 2004 and 2003(dollars in thousands, except share amounts)
    2005


2004


2003Common StockBalance at beginning of year

$
35


$
34


$
34Issuance of common stock:Employee/agent benefit and stock
    purchase plans






1



Balance at end of year

$
35


$
35


$
34Additional Paid-in
    CapitalBalance at beginning of year

$
134,090


$
133,549


$
133,052Issuance of stock:Employee/agent benefit and stock
    purchase plans


569



541



497Warrants and options exercised


76







Balance at end of year

$
134,735


$
134,090


$
133,549Retained EarningsBalance at beginning of year

$
63,495


$
44,378


$
21,430Net income


15,047



19,117



22,948Balance at end of year

$
78,542


$
63,495


$
44,378Accumulated Other Comprehensive
    IncomeBalance at beginning of year

$
7,198


$
7,178


$
13,008Unrealized gain (loss) on
    securities, net of tax expense (benefit) of $(3,833), $9 and
    $(1,124), respectively


(7,118
)


20



(2,086
)Realized gains due to the sale of
    Pyramid Life, net of tax expense of $2,016










(3,744
)Balance at end of year

$
80


$
7,198


$
7,178Treasury StockBalance at beginning of year

$



$



$
Treasury stock purchased, at cost


(10,019
)






Balance at end of year

$
(10,019
)

$



$
Total Stockholders
    Equity

$
203,373


$
204,818


$
185,139Number of Shares of Common
    StockBalance at beginning of year


34,522,979



34,391,398



34,232,610Issuance of stock:Employee/agent benefit and stock
    purchase plans


101,036



69,650



158,788Warrants and options exercised


305,166



61,931



Balance at end of year


34,929,181



34,522,979



34,391,398Number of Shares of Treasury
    StockBalance at beginning of year










Treasury stock purchased


1,703,703







Balance at end of year


1,703,703







    49




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF CASH FLOWS
  For the Years Ended December 31, 2005, 2004 and 2003
 (dollars in thousands)
    2005


2004


2003(Revised*)Operating activitiesNet income

$
15,047


$
19,117


$
22,948Adjustments to reconcile net income
    to net cash provided by (used in) operating activities:Net income from discontinued
    operations










(3,583
)Depreciation and amortization


2,779



3,584



3,582Net realized gains


(702
)


(1,224
)


(1,891
)Net change in fixed maturities
    trading


18,366



(17,929
)


Net change in equity securities
    trading


4,447



(4,739
)


Equity in limited partnership
    earnings


(493
)






Deferred federal income taxes


284



(2,512
)


(995
)Impairment of intangible asset,
    licenses










146Changes in assets and liabilities:Accrued investment income


49



269



(422
)Reinsurance and premiums receivable


(1,174
)


13,399



27,045Deferred acquisition costs


(5,941
)


2,358



4,009Value of business acquired


767



2,213



1,944Federal income taxes
    payable/recoverable


2,650



(4,636
)


3,114Other assets


(1,965
)


(18
)


125Future policy benefits, claims and
    funds payable


5,860



(21,265
)


(17,590
)Unearned premium


768



946



(2,687
)Deferred reinsurance gain


(1,111
)


(2,894
)


(1,581
)Other liabilities


863



(2,086
)


(3,185
)Net cash provided by (used in)
    operating activities of continuing operations


40,494



(15,417
)


30,979Net cash provided by operating
    activities of discontinued operations










1,396Net cash provided by (used in)
    operating activities


40,494



(15,417
)


32,375Investing activitiesNet purchases of furniture and
    equipment


(457
)


(937
)


(671
)Purchase of fixed maturities
    available-for-sale


(87,115
)


(87,091
)


(240,470
)Purchase of equity securities
    available-for-sale


(20,990
)


(7,214
)


Investment in limited partnership


(341
)


(4,308
)


Cash distributions from limited
    partnership


360



142



(Increase) decrease in mortgage and
    policy loans, net


(5,680
)


602



(290
)Proceeds from sales of fixed
    maturities
    available-for-sale


36,358



34,397



51,392Proceeds from calls and maturities
    of fixed maturities
    available-for-sale


46,791



73,925



100,603Proceeds from sale of discontinued
    operations, net of cash disposed










52,279Net cash (used in) provided by
    investing activities of continuing operations


(31,074
)


9,516



(37,157
)Net cash provided by investing
    activities of discontinued operations










3,607Net cash (used in) provided by
    investing activities


(31,074
)


9,516



(33,550
)Financing activitiesIncrease in annuity account balances


25,368



24,390



17,018Decrease in annuity account balances


(17,848
)


(20,540
)


(19,062
)Increase in debt borrowings










13,000Principal payments on debt


(3,437
)


(2,250
)


(25,003
)Proceeds from issuance of common
    stock


645



542



497Purchases of treasury stock


(10,019
)






Net cash (used in) provided by
    financing activities of continuing operations


(5,291
)


2,142



(13,550
)Net cash provided by financing
    activities of discontinued operations










2,590Net cash (used in) provided by
    financing activities


(5,291
)


2,142



(10,960
)Net increase (decrease) in
    cash


4,129



(3,759
)


(12,135
)Cash and cash equivalents at
    beginning of year  continuing operations


22,635



26,394



32,118Cash and cash equivalents at
    beginning of year  discontinued operations










6,411Cash and cash equivalents at end
    of year

$
26,764


$
22,635


$
26,394Supplemental disclosures of cash
    flow informationCash paid during the year for
    interest

$
651


$
592


$
931Cash paid during the year for
    federal income taxes


2,418



9,904



5,162   *
    
    For further information, see
    Note D. Discontinued Operations to our audited consolidated
    financial statements.   50




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  December 31, 2005, 2004 and 2003
    A.
    Summary
    of Business and Significant Accounting Policies  Summary
    of Business
        Significant
    Accounting Policies
  Principles
    of Consolidation
      Business
    Combinations
  Business Combinations ,
  Clarification of Paragraph 61(b) of FASB
    Statement No. 141 and Paragraph 49(b) of FASB
    No. 142,
 51




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  December 31, 2005, 2004 and 2003
     Goodwill and Other Intangible Assets
  Goodwill
    and Other Intangible Assets
    Goodwill and Other Intangible Assets.
  Use of
    Estimates
    Cash
    and Cash Equivalents
    Investments
  held-to-maturity, available-for-sale Held-to-maturity Available-for-sale
     52




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  December 31, 2005, 2004 and 2003
     other-than-temporary,
    Other-Than-Temporary
    Declines in Fair Value
  other-than-temporary. other-than-temporary
  
    the nature of the investment and cause of the impairment;
    our ability and intent to retain the investment for a period of
    time to allow for a recovery in value;
    the duration and extent to which the fair value has been less
    than cost; and
    the financial condition and prospects of the issuer.  Deferred
    Acquisition Costs (DAC)
    Value
    of Business Acquired (VOBA)
   53




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  December 31, 2005, 2004 and 2003
        Shadow
    DAC/VOBA
  available-for-sale available-for-sale,
  Property
    and Equipment
    Future
    Policy Benefits, Losses and Claims
   54




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  December 31, 2005, 2004 and 2003
       Other
    Policy Claims and Benefits Payable
        Other
    Policyholders Funds
    Insurance
    Related Assessments
  No. 97-3, Accounting by Insurance and Other Enterprises for
    Insurance-Related Assessments,
  Comprehensive
    Income
  available-for-sale Reporting Comprehensive Income.
  Premium
    Revenue
   55




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  December 31, 2005, 2004 and 2003
      Fee
    and Other Income
    Deferred
    Reinsurance Gain
    Federal
    Income Taxes
  Accounting
    for Income Taxes .
  Stock-Based
    Compensation
  Accounting for Stock Issued to Employees
 56




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  December 31, 2005, 2004 and 2003
     fair-value-based Accounting for Stock-Based
    Compensation
  Year Ended
    December 31,2005


2004


2003(dollars in thousands,except per share
    amounts)Net income, as reported

$
15,047


$
19,117


$
22,948Total stock-based employee
    compensation expense determined under fair value based method
    for all awards, net of tax


(71
)


(39
)


811
(1)Pro forma net income

$
14,976


$
19,078


$
23,759Earnings per shareBasic-as reported

$
0.44


$
0.55


$
0.67Basic-pro forma

$
0.44


$
0.55


$
0.69Diluted-as reported

$
0.44


$
0.55


$
0.67Diluted-pro forma

$
0.44


$
0.55


$
0.69     (1)
    
    For the year ended December 31, 2003, there was a positive
    pro forma impact on net income and basic and diluted earnings
    per share due to the forfeiture of options resulting from
    employee terminations.  New
    Accounting Pronouncements
  Accounting for Certain Hybrid Financial
    Instruments Accounting for Derivative Instruments
    and Hedging Activities Accounting for Transfers and
    Servicing of Financial Assets and Extinguishments of Liabilities Application of Statement 133 to Beneficial
    Interests in Securitized Financial Assets.
  No. FAS 115-1 FAS 124-1, Other-Than-Temporary other-than-temporary, other-than-temporary other-than-temporary Accounting for Certain Investments in
    Debt and Equity Securities
 57




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  December 31, 2005, 2004 and 2003
      Accounting
    by Insurance Enterprises for Deferred Acquisition Costs in
    Connection with Modifications or Exchanges of Insurance
    Contracts (SOP 05-1). SOP 05-1 Accounting and Reporting by
    Insurance Enterprises for Certain Long-Duration Contracts and
    for Realized Gains and Losses from the Sale of Investments SOP 05-1 SOP 05-1 SOP 05-1 SOP 05-1 SOP 05-1
  Accounting Changes and Error Corrections Accounting Changes Reporting Accounting Changes in Interim
    Financial Statements.
  Share-Based Payment Statement of Cash Flows,
  SOP 03-1, Accounting and Reporting by Insurance Enterprises for Certain
    Nontraditional Long-Duration Contracts and for Separate Accounts (SOP 03-1). SOP 03-1 SOP 03-1 SOP 03-1
 58




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  December 31, 2005, 2004 and 2003
    SOP 03-1 SOP 03-1 SOP 03-1
  Net
    Income per Share
    Reclassification
    B.
    Cash and
    Investments  available-for-sale
  Amortized


Gross Unrealized


EstimatedCost


Gains


Losses


Fair Value(dollars in
    thousands)Fixed maturities
    available-for-saleU.S. Treasury securities

$
16,638


$
82


$
(309
)

$
16,411Non-government agencies and
    authorities


47,569



271



(563
)


47,277State and political subdivisions


3,973



1



(107
)


3,867Corporate bonds


195,116



4,538



(1,845
)


197,809Mortgage- and asset-backed
    securities


183,340



1,478



(2,645
)


182,173Total fixed maturities
    available-for-sale


446,636



6,370



(5,469
)


447,537Equity securities
    available-for-sale


28,204



124



(862
)


27,466Total
    available-for-sale

$
474,840


$
6,494


$
(6,331
)

$
475,003  59




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  December 31, 2005, 2004 and 2003
     available-for-sale
  Amortized


Gross Unrealized


EstimatedCost


Gains


Losses


Fair Value(dollars in
    thousands)Fixed maturities
    available-for-saleU.S. Treasury securities

$
17,849


$
138


$
(196
)

$
17,791Non-government agencies and
    authorities


47,615



615



(125
)


48,105State and political subdivisions


4,999



25



(93
)


4,931Corporate bonds


187,721



9,134



(682
)


196,173Mortgage- and asset-backed
    securities


185,339



4,232



(496
)


189,075Total fixed maturities
    available-for-sale


443,523



14,144



(1,592
)


456,075Equity securities
    available-for-sale


7,214



444







7,658Total
    available-for-sale

$
450,737


$
14,588


$
(1,592
)

$
463,733     available-for-sale
  Amortized


EstimatedCost


Fair Value(dollars in
    thousands)Fixed maturities
    available-for-saleDue in one year or less

$
14,574


$
14,629Due after one year through five
    years


74,146



74,351Due after five years through ten
    years


110,358



110,852Due after ten years


64,218



65,532Mortgage- and asset-backed
    securities


183,340



182,173Total fixed maturities
    available-for-sale


446,636



447,537Equity securities
    available-for-sale


28,204



27,466Total
    available-for-sale

$
474,840


$
475,003    60




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  December 31, 2005, 2004 and 2003
     available-for-sale
  Year Ended
    December 31,2005


2004


2003(dollars in
    thousands)Proceeds

$
36,358


$
34,397


$
51,392Gross realized gains


1,139



337



2,031Gross realized losses


383



448



768     Year Ended
    December 31,2005


2004


2003(dollars in
    thousands)Fixed maturities

$
23,602


$
25,062


$
24,695Dividends on equity securities


2,429



255



Limited partnership


493



93



Mortgage loans


72







Policy loans


231



277



286Cash equivalents


846



334



481Other


19



20



259Investment income


27,692



26,041



25,721Investment expenses


(784
)


(626
)


(631
)Net investment income

$
26,908


$
25,415


$
25,090       Fund I-2002,
   61




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  December 31, 2005, 2004 and 2003
        available-for-sale less-than-investment available-for-sale
  available-for-sale
  Less Than 12 Months


12 Months or Longer


TotalEstimated


Unrealized


Estimated


Unrealized


Estimated


UnrealizedFair Value


Losses


Fair Value


Losses


Fair Value


Losses(dollars in
    thousands)Fixed maturities
    available-for-saleU.S. Treasury securities

$
7,346


$
(106
)

$
5,298


$
(203
)

$
12,644


$
(309
)Non-government agencies and
    authorities


24,775



(333
)


7,324



(230
)


32,099



(563
)State and political subdivisions


3,867



(107
)










3,867



(107
)Corporate bonds


58,509



(1,063
)


14,794



(782
)


73,303



(1,845
)Mortgage- and asset-backed
    securities


96,754



(1,813
)


26,744



(832
)


123,498



(2,645
)Total fixed maturities
    available-for-sale

$
191,251


$
(3,422
)

$
54,160


$
(2,047
)

$
245,411


$
(5,469
)Equity securities
    available-for-sale


20,128



(862
)










20,128



(862
)Total
    available-for-sale

$
211,379


$
(4,284
)

$
54,160


$
(2,047
)

$
265,539


$
(6,331
)  62




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  December 31, 2005, 2004 and 2003
     available-for-sale
  Less Than 12 Months


12 Months or Longer


TotalEstimated


Unrealized


Estimated


Unrealized


Estimated


UnrealizedFair Value


Losses


Fair Value


Losses


Fair Value


Losses(dollars in
    thousands)Fixed maturities
    available-for-saleU.S. Treasury securities

$
6,204


$
(42
)

$
4,858


$
(154
)

$
11,062


$
(196
)Non-government agencies and
    authorities


17,743



(125
)










17,743



(125
)State and political subdivisions










3,880



(93
)


3,880



(93
)Corporate bonds


20,287



(170
)


6,963



(512
)


27,250



(682
)Mortgage- and asset-backed
    securities


51,832



(389
)


2,729



(107
)


54,561



(496
)Total fixed maturities
    available-for-sale

$
96,066


$
(726
)

$
18,430


$
(866
)

$
114,496


$
(1,592
)   Accounting for Certain Investments in
    Debt and Equity Securities. Available-for-sale held-to-maturity, available-for-sale,
  other-than-temporary, other-than-temporary
 63




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  December 31, 2005, 2004 and 2003
     C.
    Property
    and Equipment    December 31,2005


2004(dollars in
    thousands)Home office buildings

$
4,164


$
4,161Land


978



978Furniture and fixtures


2,400



2,262Information technology equipment


1,269



1,059Other property and equipment


3,931



3,82512,742



12,285Accumulated depreciation


(8,034
)


(7,008
)Total

$
4,708


$
5,277     D.
    Discontinued
    Operations   64




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  December 31, 2005, 2004 and 2003
       Statements
    of Operations
  YearEndedDecember 31,2003(dollars inthousands)RevenuesPremiums, net

$
27,964Net investment income


1,568Net realized gains


5,96535,497Benefits, Losses and
    ExpensesBenefits, claims, losses and
    settlement expenses


20,285Selling, general and
    administrative expenses


8,702Net deferral and change in
    acquisition costs and value of business acquired


(2,445
)26,542Income from operations before
    federal income taxes


8,955Federal income tax expense


3,223Income from
    operations


5,732Loss on sale of Pyramid Life


(2,228
)Federal income tax benefit


(79
)Loss on sale of Pyramid Life,
    net


(2,149
)Income from discontinued
    operations

$
3,583     E.
    Leases   65




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  December 31, 2005, 2004 and 2003
        ClevelandHeadquarters


All Other


Total(dollars in
    thousands)2006

$
1,893


$
820


$
2,7132007


1,960



501



2,4612008


1,958



215



2,1732009


1,956



29



1,9852010


1,953



20



1,973Thereafter


11,519







11,519Total future minimum rent payments

$
21,239


$
1,585


$
22,824   F.
    Deferred
    Acquisition Costs    Year Ended
    December 31,2005


2004


2003(dollars in
    thousands)Balance at beginning of year

$
67,074


$
69,609


$
74,891Current years costs deferred


18,867



14,971



14,37385,941



84,580



89,264Amortization for the year


(12,926
)


(17,327
)


(18,383
)Adjustment for the change in net
    unrealized gains and losses on
    available-for-sale
    securities


940



(179
)


(1,272
)Balance at end of year

$
73,955


$
67,074


$
69,609  66




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  December 31, 2005, 2004 and 2003
     G.
    Value of
    Business Acquired    Year Ended
    December 31,2005


2004


2003(dollars in
    thousands)Balance at beginning of year

$
10,952


$
13,034


$
16,084Amortization


(47
)


(1,006
)


(862
)Adjustments to expense reserve


(720
)


(1,207
)


(1,082
)Adjustment for the change in net
    unrealized gains and losses on
    available-for-sale
    securities


941



131



(1,106
)Balance at end of year

$
11,126


$
10,952


$
13,034     Amortization2006

$
2,2142007


1,9522008


1,6632009


1,3062010


1,128   H.
    Goodwill
    and Other Intangible Assets     67




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  December 31, 2005, 2004 and 2003
     I.
    Federal
    Income Taxes      Year Ended
    December 31,2005


2004


2003(dollars in
    thousands)Current

$
5,068


$
5,268


$
7,642Deferred


284



(2,512
)


(995
)Total

$
5,352


$
2,756


$
6,647     Year Ended
    December 31,2005


2004


2003(dollars in
    thousands)Statements of
    OperationsContinuing operations

$
5,352


$
2,756


$
6,647Discontinued operations










3,144Total income tax expense included
    in the consolidated statements of operations


5,352



2,756



9,791Statements of
    Stockholders EquityExpense (benefit) related to the
    change in unrealized gain or loss on securities


(3,833
)


9



(1,124
)Expense on realized gains due to
    the sale of Pyramid Life










2,016Total income tax expense included
    in the consolidated statements of stockholders equity


(3,833
)


9



892Total income tax expense included
    in the consolidated financial statements

$
1,519


$
2,765


$
10,683  68




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  December 31, 2005, 2004 and 2003
       Year Ended
    December 31,2005


2004


2003(dollars in
    thousands)Expected tax expense at 35%

$
7,140


$
7,656


$
9,112Tax exempt interest










(30
)Reduction in valuation allowance






(4,950
)


(2,691
)Reduction in contingency reserve


(1,830
)






Meals and entertainment


18



41



140Non deductible expenses


24



8



91Other






1



25$
5,352


$
2,756


$
6,647     December 31,2005


2004(dollars in
    thousands)Deferred tax liabilitiesValue of business acquired

$
4,347


$
4,530Deferred acquisition costs


2,659



5,175Unrealized gain adjustment


43



4,156Deferred and uncollected premium


1,004



967Other


3,167



3,87111,220



18,699Deferred tax assetsReinsurance transactions


1,908



2,633Deferred gain on Cleveland
    headquarters


1,852



2,013Reserves


2,375



1,396Net operating loss carryfoward


556



4,755Advance premium


72



15Other


933



8167,696



11,628Net deferred tax liabilities

$
3,524


$
7,071    69




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  December 31, 2005, 2004 and 2003
                70




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  December 31, 2005, 2004 and 2003
     J.
    Liability
    for Other Policy Claims and Benefits Payable    December 31,2005


2004


2003(dollars in
    thousands)Gross balance at beginning of year

$
102,703


$
129,237


$
147,938Less: Reserves ceded


22,076



25,878



28,622Adjusted net beginning balance


80,627



103,359



119,316Paid claims and claims adjustments
    expenses, net of reinsurance, forCurrent year


255,780



254,385



269,874Prior years


60,272



71,023



91,655Total paid


316,052



325,408



361,529Incurred claims and claims
    adjustment expenses, net of reinsurance, forCurrent year


315,965



322,272



358,567Prior years


(439
)


(19,596
)


(12,995
)Total incurred


315,526



302,676



345,572Net reserve balance at end of year


80,101



80,627



103,359Plus: Reserves ceded at end of year


25,643



22,076



25,878Gross balance at end of year

$
105,744


$
102,703


$
129,237       K.
    Reinsurance
    Arrangements  Central
    Reserve Life Insurance Company
   71




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  December 31, 2005, 2004 and 2003
        Continental
    General Insurance Company
      Provident
    American Life & Health Insurance Company
       72




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  December 31, 2005, 2004 and 2003
     United
    Benefit Life Insurance Company
        Other
      Year Ended
    December 31,2005


2004


2003(dollars in
    thousands)Premiums, netDirect

$
495,298


$
508,445


$
570,542Assumed


960



988



851Ceded


(68,406
)


(79,211
)


(93,067
)Total premiums, net

$
427,852


$
430,222


$
478,326Benefits, claims, losses and
    settlement expenses, netBenefits, claims, losses, and
    settlement expenses

$
384,084


$
368,383


$
416,506Reinsurance recoveries


(59,101
)


(53,750
)


(62,766
)Total benefits, claims, losses and
    settlement expenses

$
324,983


$
314,633


$
353,740 73




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  December 31, 2005, 2004 and 2003
    Year Ended
    December 31,2005


2004


2003(dollars in
    thousands)Selling, general, and
    administrative expensesCommissions

$
70,119


$
68,073


$
72,502Salaries and benefits


30,749



31,755



34,443Taxes, licenses, and fees


14,073



13,152



17,198California litigation settlements






3,050



Other operating expenses


30,041



35,113



42,638Reinsurance allowances


(13,358
)


(16,580
)


(19,924
)Total selling, general and
    administrative expenses

$
131,624


$
134,563


$
146,857     L.
    Contingencies
    and Commitments       74




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  December 31, 2005, 2004 and 2003
      M.
    Debt  December 31,2005


2004(dollars in
    thousands)Bank credit facility

$
7,313


$
10,750       
    Acknowledged that CIT Group had assigned to National City all of
    its rights, and National City had assumed all of the obligations
    of CIT Group, under the credit agreement and the term
    loan B;
    Changed the term loan B maturity date to March 1, 2008
    from June 1, 2008;
    Revised the amortization of term loan B so that term
    loan B has quarterly payments of $687,500 (previously
    $375,000) from June 2005 through March 2006, $375,000 from June
    2006 through December 2006, $562,500 from March 2007 through
    December 2007, and $1,250,000 in March 2008;
    Modified the Minimum Consolidated Fixed Charge Coverage
    Ratio to 1.50 to 1.00 from 1.15 to 1.00; and
    Permitted the $10 million stock repurchase program
    (announced on May 4, 2005).       75




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  December 31, 2005, 2004 and 2003
     N.
    Treasury
    Stock        O.
    Stock
    Plans  Stock
    Option Plans
         76




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  December 31, 2005, 2004 and 2003
       Year Ended
    December 31,2005


2004


2003Weighted





Weighted





WeightedAverage





Average





AverageExercise





Exercise





ExerciseOptions


Price


Options


Price


Options


PriceOutstanding at beginning of year


1,987,748


$
6.22



1,810,267


$
6.29



2,663,334


$
7.02Options granted, with exercise
    prices:Greater than fair value at grant
    date










180,000



6.27



100,000



1.95Equal to fair value at grant date










116,457



6.11



107,500



3.13Less than fair value at grant date


















5,000



4.10Exercised


(20,000
)


3.80















Forfeited


(84,775
)


6.38



(118,976
)


7.29



(1,065,567
)


7.37Outstanding at end of year


1,882,973



6.24



1,987,748



6.22



1,810,267



6.29Exercisable at end of year


1,645,473



6.33



1,506,498



6.76



1,440,267



6.89Shares available for future grants


1,650,887







1,607,962     Options Outstanding


Options ExercisableRange of

Number Outstanding


Weighted Average


Number Exercisable


Weighted AverageExercise Price

December 31,
    2005


Exercise Price


December 31,
    2005


Exercise Price$1.95 to $3.99


280,000


$
2.94



230,000


$
2.87$4.00 to $4.99


45,000



4.45



45,000



4.45$5.00 to $5.99


185,163



5.79



185,163



5.79$6.00 to $6.99


821,500



6.34



634,000



6.38$7.00 to $7.99


120,310



7.21



120,310



7.21$8.00 to $9.50


431,000



8.30



431,000



8.301,882,973



6.24



1,645,473



6.33   Warrants
   77




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  December 31, 2005, 2004 and 2003
     Stock
    Purchase Plan
    Agent
    Stock Purchase Plan
    Stock
    Awards
    Stock-Based
    Compensation
  Accounting for
    Stock-Based Compensation,
   78




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  December 31, 2005, 2004 and 2003
       Year Ended
    December 31,2005


2004


2003Risk-free rate of return


4.36
%


3.61
%


3.22
%Dividend yield


0
%


0
%


0
%Volatility factor


0.412



0.439



0.465Expected life of award


5 years



5 years



5 years     P.
    Preferred
    Shares      Q.
    Statutory
    Financial Information      Statutory Net Gain (Loss)


Statutory Capital and
    SurplusYear ended
    December 31,


December 31,2005


2004


2003


2005


2004(dollars in
    thousands)Consolidated insurance
    subsidiaries(1)

$
8,540


$
10,556


$
45,823


$
93,984


$
107,286     (1)
    
    The consolidated statutory net gain for the year ended
    December 31, 2003 includes $31.0 million from the sale
    of Pyramid Life and $0.7 million in statutory earnings from
    Pyramid Life through March 31, 2003. On March 31,
    2003, we sold Pyramid Life to Pennsylvania Life Insurance
    Company, a subsidiary of Universal American Financial Corp. See
    Note D. Discontinued Operations for further information. 79




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  December 31, 2005, 2004 and 2003
         R.
    Comprehensive
    Income    Year Ended
    December 31,2005


2004


2003(dollars in
    thousands)Net income

$
15,047


$
19,117


$
22,948Other comprehensive income, net of
    tax:Unrealized (loss) gain on
    securities, net of tax (benefit) expense of $(4,166), $18 and
    $220, respectively


(7,738
)


35



410Reclassification adjustments for
    net losses (gains) included in net income, net of tax (expense)
    benefit of $(325), $8 and $(512), respectively


(603
)


16



(950
)Unrealized gain (loss) adjustment
    to deferred acquisition costs and value of business acquired,
    net of tax expense (benefit) of $658, $(17) and $(832)


1,223



(31
)


(1,546
)Realized gains due to the sale of
    Pyramid Life, net of tax expense of $2,016










(3,744
)Comprehensive income

$
7,929


$
19,137


$
17,118   S.
    Computation
    of Net Income Per Common Share  Earnings per
    Share.
 80




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  December 31, 2005, 2004 and 2003
       Year Ended
    December 31,2005


2004


2003Weighted average shares:Basic


34,114,114



34,466,865



34,311,152Incremental shares from assumed
    exercise of stock options and warrants


189,109



437,079



36,028Diluted


34,303,223



34,903,944



34,347,180   T.
    Employee
    Benefit Plan          U.
    Operating
    Segments  Disclosures about Segments
    of an Enterprise and Related Information,
 81




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  December 31, 2005, 2004 and 2003
       Year Ended
    December 31,2005


2004


2003(dollars in
    thousands)MedicalRevenuesNet premiums

$
221,030


$
247,002


$
305,441Net investment income


3,571



4,268



5,598Net realized gains


193



88



550Other income


14,862



16,851



21,680239,656



268,209



333,269ExpensesBenefits and claims


162,248



176,143



226,249Other operating expenses


73,333



86,888



98,186235,581



263,031



324,435Segment profit before federal
    income taxes

$
4,075


$
5,178


$
8,834Senior and OtherRevenuesNet premiums

$
206,822


$
183,220


$
172,885Net investment income


23,215



21,143



19,487Net realized gains


56



688



905Other income


2,214



2,612



7,188232,307



207,663



200,465ExpensesBenefits and claims


162,735



138,490



127,491Other operating expenses


51,721



50,689



53,058214,456



189,179



180,549Segment profit before federal
    income taxes

$
17,851


$
18,484


$
19,916 82




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  December 31, 2005, 2004 and 2003
    Year Ended
    December 31,2005


2004


2003(dollars in
    thousands)Corporate and OtherRevenuesNet investment income

$
122


$
4


$
5Net realized gains


453



448



436Other income










7575



452



448ExpensesInterest expense and financing
    costs


706



684



1,620Other operating expenses


1,396



1,557



1,5662,102



2,241



3,186Segment loss before federal income
    taxes

$
(1,527
)

$
(1,789
)

$
(2,738
)Income from continuing
    operations before federal income taxes

$
20,399


$
21,873


$
26,012     2005


2004


2003MedicalIndividual

$
154,718


$
177,859


$
227,699Group


66,312



69,143



77,742Total medical premiums,
    net

$
221,030


$
247,002


$
305,441Senior and OtherMedicare supplement

$
158,190


$
134,753


$
124,700Long-term care


23,583



22,520



22,505Life and annuity


16,118



15,842



14,131Dental


5,071



6,168



7,299Other


3,860



3,937



4,250Total senior and other
    premiums, net

$
206,822


$
183,220


$
172,885Total premiums, net

$
427,852


$
430,222


$
478,326  83




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  December 31, 2005, 2004 and 2003
     V.
    Fair
    Values of Financial Instruments        Investment securities
  Cash and cash equivalents, accrued investment income,
    premiums receivable, mortgage loans and policy
    notes
  Annuity contracts
  Other policyholders funds
  Debt
 84




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  December 31, 2005, 2004 and 2003
       December 31,2005


2004Carrying


Estimated


Carrying


EstimatedAmount


Fair Value


Amount


Fair Value(dollars in
    thousands)AssetsInvestmentsFixed maturities
    available-for-sale

$
447,537


$
447,537


$
456,075


$
456,075Fixed maturities trading










18,531



18,531Equity securities
    available-for-sale


27,466



27,466



7,658



7,658Equity securities trading










4,938



4,938Policy and mortgage loans


9,263



9,263



3,583



3,583Cash and cash equivalents


26,764



26,764



22,635



22,635Premiums receivable


4,388



4,388



4,096



4,096Accrued investment income


5,340



5,340



5,389



5,389LiabilitiesAnnuity reserves


159,607



157,912



157,255



155,191Other policyholders funds


14,970



14,970



19,016



19,016Debt


7,313



7,313



10,750



10,750   W.
    Concentrations
    of Credit Risk       85




---



##### Table of Contents



CERES
    GROUP, INC. AND SUBSIDIARIES
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  Continued
  December 31, 2005, 2004 and 2003
     X.
    Quarterly
    Results of Operations  (Unaudited)    First


Second


Third


Fourth(dollars in thousands,except per share
    amounts)2005Revenues

$
116,467


$
117,605


$
117,379


$
121,087Benefits, claims, losses and
    settlement expenses


77,406



78,383



80,669



88,525Selling, general and
    administrative and other expenses


32,512



31,809



33,292



34,011Net income


4,849



4,672



3,430



2,096Net income per share:Basic


0.14



0.14



0.10



0.06Diluted


0.14



0.13



0.10



0.062004Revenues

$
120,417


$
119,041


$
117,527


$
119,339Benefits, claims, losses and
    settlement expenses


76,564



77,443



78,962



81,664Selling, general and
    administrative and other expenses


33,611



32,963



34,528



33,461Net income


6,174



4,892



5,410



2,641Net income per share:Basic


0.18



0.14



0.16



0.08Diluted


0.18



0.14



0.16



0.08  86




---



##### Table of Contents



Schedule II
  CERES
    GROUP, INC. AND SUBSIDIARIES
 Condensed Financial Information of Registrant
 Ceres Group, Inc. (Parent Only)
 Balance Sheets
 December 31, 2005 and 2004
 (dollars in thousands)
    2005


2004AssetsInvestment in subsidiaries(1)

$
213,183


$
220,703Cash and cash equivalents


7,254



183Due from non-regulated
    subsidiaries(1)


7,544



5,945Other assets


3,244



4,427Total assets

$
231,225


$
231,258Liabilities and
    Stockholders EquityLiabilitiesDebt

$
7,313


$
10,750Due to non-regulated
    subsidiaries(1)


14,779



9,247Other liabilities


5,760



6,443Total liabilities


27,852



26,440Stockholders
    equityNon-voting preferred stock






Convertible voting preferred stock






Common stock


35



35Additional paid-in capital


134,735



134,090Retained earnings


78,542



63,495Accumulated other comprehensive
    income


80



7,198Treasury stock


(10,019
)


Total stockholders equity


203,373



204,818Total liabilities and
    stockholders equity

$
231,225


$
231,258     (1)
    
    Eliminated in consolidation.   87




---



##### Table of Contents



Schedule II
    (continued)
  CERES
    GROUP, INC. AND SUBSIDIARIES
 Condensed Financial Information of Registrant
 Ceres Group, Inc. (Parent Only)
 Statements of Operations
 For the Years Ended December 31, 2005, 2004 and 2003
 (dollars in thousands)
    2005


2004


2003RevenuesDividend
    income  regulated subsidiaries(1)

$
17,001


$



$
Dividend
    income  non-regulated subsidiaries(1)


4,125



4,100



5,200Rental income(2)


1,845



1,804



1,751Net realized gains


453



448



436Net investment income


122



4



5Fee and other income










723,546



6,356



7,399ExpensesSelling, general and
    administrative expenses


3,947



4,045



5,082Income before income tax benefit
    and equity in undistributed income of subsidiaries


19,599



2,311



2,317Income tax benefit


(533
)


(619
)


(1,008
)Income before equity in
    undistributed income of subsidiaries


20,132



2,930



3,325Equity in undistributed income of
    subsidiaries(3)


(5,085
)


16,187



19,623Net income

$
15,047


$
19,117


$
22,948     (1)
    
    Represents dividend income from subsidiaries, which is
    eliminated in consolidation.(2)
    
    Eliminated in consolidation.(3)
    
    Includes the parent companys equity of regulated and
    non-regulated subsidiaries, which is eliminated in consolidation.   88




---



##### Table of Contents



Schedule
    II (continued)
  CERES
    GROUP, INC. AND SUBSIDIARIES
    Condensed Financial Information of Registrant
    Ceres Group, Inc. (Parent Only)
    Statements of Cash Flows
    For the Years Ended December 31, 2005, 2004 and 2003(dollars in thousands)
    2005


2004


2003Operating activitiesNet income

$
15,047


$
19,117


$
22,948Adjustments to reconcile net
    income to cash provided by (used in) operating activities:Equity in undistributed income of
    subsidiaries(1)


5,085



(16,187
)


(19,623
)Depreciation and amortization


25







272Net realized gains


(453
)


(448
)


(436
)Decrease in other assets


1,579



3,537



1,701Increase (decrease) in other
    liabilities


(257
)


156



(668
)Increase in net advances to/from
    non-regulated subsidiaries(1)


(1,113
)


(5,764
)


(418
)Net cash provided by operating
    activities


19,913



411



3,776Investing activitiesPurchases of fixed maturities
    available-for-sale
    from regulated subsidiaries(1)


(6,192
)






Proceeds from sales of fixed
    maturities
    available-for-sale


6,161







Capital contributions to
    non-regulated subsidiaries(1)










(928
)Special distribution from
    Continental General from the sale of Pyramid Life Insurance
    Company(1)










10,000Net cash provided by (used) in
    investing activities


(31
)






9,072Financing activitiesIncrease in debt borrowings










13,000Principal payments on debt


(3,437
)


(2,250
)


(25,003
)Proceeds from issuance of common
    stock


645



542



497Purchase of treasury stock


(10,019
)






Net cash used in financing
    activities


(12,811
)


(1,708
)


(11,506
)Net increase (decrease) in
    cash


7,071



(1,297
)


1,342Cash and cash equivalents at
    beginning of year


183



1,480



138Cash and cash equivalents at
    end of year

$
7,254


$
183


$
1,480     (1)
    
    Eliminated in consolidation.   89




---



##### Table of Contents



Schedule III  CERES
    GROUP, INC. AND SUBSIDIARIES
    SUPPLEMENTAL INSURANCE INFORMATION(dollars in thousands)
    Net (Deferral)AmortizationBenefits,


and Change inFuture Policy





Other Policy








Claims,


AcquisitionDeferred


Benefits,





Claims and





Net


Losses and


Costs and Value


OtherAcquisition


Losses and


Unearned


Benefits


Premium


Investment


Settlement


of Business


OperatingCosts


Claims


Premiums


Payable


Revenue


Income


Expenses


Acquired


ExpensesYear ended December 31,
    2005Medical

$
26,506


$
4,111


$
5,702


$
36,588


$
221,030


$
3,571


$
162,248


$
3,150


$
70,183Senior and Other


47,449



362,461



30,005



69,156



206,822



23,215



162,735



(8,324
)


60,045Corporate and Other






















122











2,102Total

$
73,955


$
366,572


$
35,707


$
105,744


$
427,852


$
26,908


$
324,983


$
(5,174
)

$
132,330Year ended December 31,
    2004Medical

$
29,583


$
4,756


$
6,701


$
44,041


$
247,002


$
4,268


$
176,143


$
7,841


$
79,047Senior and Other


37,491



347,431



28,238



58,662



183,220



21,143



138,490



(3,270
)


53,959Corporate and Other






















4











2,241Total

$
67,074


$
352,187


$
34,939


$
102,703


$
430,222


$
25,415


$
314,633


$
4,571


$
135,247Year ended December 31,
    2003Medical

$
37,293


$
7,605


$
7,940


$
68,276


$
305,441


$
5,598


$
226,249


$
4,751


$
93,435Senior and Other


32,316



333,658



26,053



60,961



172,885



19,487



127,491



1,202



51,856Corporate and Other






















5











3,186Total

$
69,609


$
341,263


$
33,993


$
129,237


$
478,326


$
25,090


$
353,740


$
5,953


$
148,477    90




---



##### Table of Contents



Schedule IV  CERES
    GROUP, INC. AND SUBSIDIARIES
    REINSURANCE(dollars in thousands)
    PercentageofCeded to


Assumed





AmountGross


Other


From Other


Net


Assumed toAmount


Companies


Companies


Amount


NetYear ended December 31,
    2005Life insurance in force

$
2,994,314


$
927,287


$
60,428


$
2,127,455



2.8
%PremiumsLife insurance

$
20,092


$
5,082


$
960


$
15,970



6.0
%Accident and health insurance


475,206



63,324







411,882



N/M$
495,298


$
68,406


$
960


$
427,852



0.2
%Year ended December 31,
    2004Life insurance in force

$
2,830,222


$
1,253,979


$
69,255


$
1,645,498



4.2
%PremiumsLife insurance

$
20,874


$
6,254


$
988


$
15,608



6.3
%Accident and health insurance


487,571



72,957







414,614



N/M$
508,445


$
79,211


$
988


$
430,222



0.2
%Year ended December 31,
    2003Life insurance in force

$
3,002,439


$
1,390,950


$
74,510


$
1,685,999



4.4
%PremiumsLife insurance

$
23,679


$
6,726


$
851


$
17,804



4.8
%Accident and health insurance


546,863



86,341







460,522



N/M$
570,542


$
93,067


$
851


$
478,326



0.2
%        91




---



##### Table of Contents



ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE    ITEM 9A.
    CONTROLS
    AND PROCEDURES  Evaluation of disclosure controls and
    procedures. Rules 13a-15(e) 15d-15(e))
  Managements Report on Internal Control over Financial
    Reporting. Rules 13a-15(f) 15d-15(f)).
    Changes in internal control.
  ITEM 9B.
    OTHER
    INFORMATION   92




---



##### Table of Contents



PART III  ITEM 10.
    DIRECTORS
    AND EXECUTIVE OFFICERS OF THE REGISTRANT    Section 16(a)
    Beneficial Ownership Reporting Compliance
    ITEM 11.
    EXECUTIVE
    COMPENSATION   93




---



##### Table of Contents



ITEM 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS  Equity
    Compensation Plan Information
    Number of Shares of





Number of Shares ofOur Common Stock to


Weighted-Average


Our Common Stockbe Issued Upon


Exercise Price of


Remaining Available forExercise of


Outstanding


Future Issuance UnderPlan Name

Outstanding Options


Options


Each Plan/Award1998 Key Employee Share Incentive
    Plan


1,204,267
shares

$
5.64



1,650,887
shares*Total


1,204,267
shares






1,650,887
shares     *
    
    The plan was amended on May 19, 2004 to increase the number
    of shares reserved for issuance under the plan by an additional
    1,000,000 shares to a total of 3,000,000 shares and
    allow for the grant of stock and restricted stock awards to
    officers, non-employee directors, consultants and advisors. In
    2005 and 2004, 41,850 and 82,996 shares, respectively, of
    stock and restricted stock awards were granted under this plan
    to officers and non-employee directors.    Number of Shares of




Number of Shares ofOur Common Stock to


Weighted-Average

Our Common Stockbe Issued Upon


Exercise Price of

Remaining Available forExercise of


Outstanding

Future Issuance UnderPlan Name

Outstanding Options


Options

Each Plan/Award1998 Employee Stock Option Plan


285,000
shares


$8.01



-0-
shares*1999 Special Agents Stock
    Option Plan


78,706
shares


5.94



-0-
shares*Employment Agreement for Val Rajic
    (8/10/99)


75,000
shares


6.50



-0-
sharesEmployment Agreement for Charles
    E. Miller, Jr. (10/1/98)


100,000
shares


6.50



-0-
sharesRetainer Agreement for 
    Billy B. Hill, Jr. (7/3/98)


125,000
shares


7.50



-0-
sharesAndrew A. Boemi


15,000
shares


8.25



-0-
sharesTotal


678,706
shares






-0-
shares     *
    
    The plan was terminated by our Board of Directors and no future
    grants will be made. The outstanding grants under the plan were
    not affected by the termination.  Form 10-K.
   94




---



##### Table of Contents



ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS    ITEM 14.
    PRINCIPAL
    ACCOUNTANT FEES AND SERVICES   PART IV  ITEM 15.
    EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES                             95




---



##### Table of Contents



INCORPORATED BYREFERENCE TOREGISTRATION OR

FORM OR



EXHIBITEXHIBITS

FILE NUMBER

REPORT

DATE

NUMBERPlan of acquisition,
    reorganization, arrangement, liquidation, or succession.Amended and Restated Stock
    Purchase Agreement, dated March 30, 1998, by and among
    Strategic Partners, Insurance Partners, L.P., Insurance Partners
    Offshore (Bermuda), L.P., and Central Reserve.


0-8483



10-K



Mar. 1998



2.2Merger Agreement and Plan of
    Reorganization dated December 8, 1998 between Central
    Reserve Life Corporation and Ceres Group, Inc.


0-8483



8-K



Dec. 1998



2.1Stock Purchase Agreement dated as
    of November 4, 1998 between The Western & Southern
    Life Insurance Company and Ceres Group, Inc.


0-8483



8-K



Feb. 1999



2.2Purchase Agreement, dated
    December 20, 2002, by and among Continental General
    Insurance Company, Ceres Group, Inc., Pennsylvania Life
    Insurance Company, and Universal American Financial Corp.


0-8483



8-K



Dec. 2002



2.4Articles of Incorporation and
    By-lawsCertificate of Incorporation of
    Ceres Group, Inc. as filed with Secretary of Delaware on
    October 22, 1998.


0-8483



8-K



Dec. 1998



3.1Certificate of Amendment of the
    Certificate of Incorporation of Ceres Group, Inc. dated
    July 25, 2000.


0-8483



8-K



Aug. 2000



3.1Amended and Restated Bylaws of
    Ceres Group, Inc.


0-8483



8-K



May 2004



3.2Instruments defining the rights of
    security holders, including indenturesAmended and Restated Registration
    Rights Agreement dated as of July 25, 2000 between Ceres
    Group, Inc. (as
    successor-in-interest
    to Central Reserve Life Corporation) and the persons and
    entities set forth on the signature pages attached thereto.


0-8483



8-K



Aug. 2000



4.1Form of Stockholders Agreement
    between QQLink.com, Inc., Ceres Group, Inc. and the persons and
    entities listed on the signature pages thereto.


0-8483



S-1



Apr. 2001



4.5 96




---



##### Table of Contents



INCORPORATED BYREFERENCE TOREGISTRATION OR

FORM OR



EXHIBITEXHIBITS

FILE NUMBER

REPORT

DATE

NUMBERMaterial ContractsReinsurance Agreement between
    Central Reserve Life Insurance Company and Hannover Life
    Reassurance Company of America (f/k/a Reassurance Company of
    Hannover).


0-8483



10-K



Mar. 1998



10.10Reinsurance Agreement dated
    February 1, 1999, between Continental General Life
    Insurance Company and Hannover Life Reassurance Company of
    America (f/k/a Reassurance Company of Hannover).


0-8483



10-K



Mar. 1999



10.21Ceres Group, Inc. 1998 Key
    Employee Share Incentive Plan.


0-8483



S-1



Apr. 2001



10.26Ceres Group, Inc. 1998 Employee
    Stock Option Plan.


0-8483



S-1



Apr. 2001



10.27Ceres Group, Inc. 1999 Special
    Agents Stock Option Plan.


0-8483



S-1



Apr. 2001



10.28Ceres Group, Inc. 2000 Employee
    Stock Purchase Plan.


0-8483



S-8



Apr. 2001



4.1Ceres Group, Inc. 2000 Agent Stock
    Purchase Plan.


0-8483



S-8



Apr. 2001



4.2Lease Agreement, dated as of
    July 31, 2001, between Royalton Investors, LLC and Big T
    Investments, LLC and Ceres Group, Inc.


0-8483



10-Q



Aug. 2001



10.37Transition Agreement, dated as of
    April 15, 2002, between Ceres Group, Inc. and Peter W.
    Nauert.


0-8483



10-Q



May 2002



10.38Employment Agreement, dated as of
    July 9, 2002, between Ceres Group, Inc. and Thomas J.
    Kilian.


0-8483



10-Q



Aug. 2002



10.39Employment Agreement, effective as
    of December 17, 2002 between Ceres Group, Inc. and David I.
    Vickers.


0-8483



10-K



Mar. 2003



10.40Employment Agreement, effective as
    of August 18, 2003 between Ceres Group, Inc. and Bradley A.
    Wolfram.


0-8483



10-Q



Nov. 2003



10.42Credit and Security Agreement,
    dated as of December 23, 2003, among Ceres Group, Inc., as
    Borrower, the subsidiaries of the Borrower which are signatories
    thereto, as Subsidiary Guarantors, and National City Bank, The
    CIT Group/Equipment Financing, Inc., as Lenders and National
    City Bank, as Agent.


0-8483



8-K



Jan. 2004



10.43 97




---



##### Table of Contents



INCORPORATED BYREFERENCE TOREGISTRATION OR

FORM OR



EXHIBITEXHIBITS

FILE NUMBER

REPORT

DATE

NUMBERForm of Pledge and Security
    Agreement, dated as of December 23, 2003, between each of
    Ceres Group, Inc., Ceres Administrators, LLC, Ceres Health Care,
    Inc., Continental General Corporation, and Western Reserve
    Administrative Services, Inc., and National City Bank as Agent.


0-8483



8-K



Jan. 2004



10.44Term Loan A Note, dated
    December 23, 2003.


0-8483



8-K



Jan. 2004



10.45Term Loan B Note, dated
    December 23, 2003.


0-8483



8-K



Jan. 2004



10.46Employment Agreement, effective as
    of July 1, 2004, between Ceres Group, Inc. and Ernest T.
    Giambra, Jr.


0-8483



10-Q



Aug. 2004



10.47Employment Agreement, effective as
    of March 28, 2005, between Ceres Group, Inc. and Mark E.
    Billingsley.


0-8483



8-K



Mar. 2005



10.48First Amendment to Credit and
    Security Agreement, dated as of May 2, 2005.


0-8483



8-K



May 2005



10.49Stock Purchase Agreement by and
    between, Ceres Group, Inc., International Managed Care, LLC and
    International Managed Care (Bermuda), L.P.


0-8483



8-K



Sept. 2005



10.50Code of Conduct and Ethics, dated
    March 10, 2004.


0-8483



10-K



Mar. 2004



14.1Subsidiaries of the registrant.Subsidiaries.


0-8483



10-K



Mar. 2003



21.1Consents of expert and counselConsent of KPMG LLP.


*











23.1CEO certification pursuant to
    Section 302 of Sarbanes-Oxley Act of 2002.


*











31.1CFO certification pursuant to
    Section 302 of Sarbanes-Oxley Act of 2002.


*











31.2Certification pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.


*











32      98




---



##### Table of Contents



SIGNATURES  Pursuant to the requirements of Section 13 or 15(d) of
    the Securities Exchange Act of 1934, the Company has duly caused
    this report to be signed on its behalf by the undersigned,
    thereunto duly authorized.
  CERES GROUP, INC.Date: March 16, 2006

By:

/s/  Thomas
    J. KilianThomas
    J. Kilian, President and Chief Executive Officer   Pursuant to the requirements of the Securities Exchange Act
    of 1934, this report has been signed below by the following
    persons on behalf of the Company and in the capacities and on
    the dates indicated.
  Date



Signature and
    CapacityMarch 16, 2006

By:

/s/  Thomas
    J. KilianThomas
    J. Kilian,
    President, Chief Executive Officer and Director
    (Principal Executive Officer)March 16, 2006

By:

/s/  David
    I. VickersDavid
    I. Vickers, Executive Vice President,
    Chief Financial Officer and Treasurer
    (Principal Financial and Accounting Officer)March 16, 2006

By:

/s/  Roland
    C. BakerRoland
    C. Baker, DirectorMarch 16, 2006

By:

/s/  Michael
    A. CavataioMichael
    A. Cavataio, DirectorMarch 16, 2006

By:

/s/  Bradley
    E. CooperBradley
    E. Cooper, DirectorMarch 16, 2006

By:

/s/  Susan
    F. CabreraSusan
    F. Cabrera, DirectorMarch 16, 2006

By:

/s/  Lynn
    C. MillerLynn
    C. Miller, DirectorMarch 16, 2006

By:

/s/  James
    J. RitchieJames
    J. Ritchie, DirectorMarch 16, 2006

By:

/s/  William
    J. RuhWilliam
    J. Ruh, Chairman of the BoardMarch 16, 2006

By:

/s/  Robert
    A. SpassRobert
    A. Spass, Director  99




---



##### Table of Contents



EXHIBIT INDEX
 INCORPORATED BYREFERENCE TOREGISTRATION OR
    
    
    FORM OR
    
    
    
    
    
    
    EXHIBITEXHIBITS
    
    FILE NUMBER
    
    
    REPORT
    
    
    DATE
    
    
    NUMBERPlan of acquisition, reorganization,
arrangement, liquidation, or
succession.Amended and Restated Stock Purchase Agreement,
dated March 30, 1998, by and among Strategic
Partners, Insurance Partners, L.P., Insurance
Partners Offshore (Bermuda), L.P., and Central
Reserve.
    
    
    0-8483
    
    
    
    10-K
    
    
    Mar. 1998
    
    
    2.2Merger Agreement and Plan of Reorganization dated
December 8, 1998 between Central Reserve Life
Corporation and Ceres Group, Inc.
    
    
    0-8483
    
    
    
    8-K
    
    
    Dec. 1998
    
    
    2.1Stock Purchase Agreement dated as
of November 4, 1998 between The Western
& Southern Life Insurance Company
and Ceres Group, Inc.
    
    
    0-8483
    
    
    
    8-K
    
    
    Feb. 1999
    
    
    2.2Purchase Agreement, dated December 20,
2002, by and among Continental General
Insurance Company, Ceres Group, Inc.,
Pennsylvania Life Insurance Company,
and Universal American Financial Corp.
    
    
    0-8483
    
    
    
    8-K
    
    
    Dec. 2002
    
    
    2.4Articles of Incorporation and By-lawsCertificate of Incorporation of
Ceres Group, Inc. as filed with Secretary
of Delaware on October 22, 1998.
    
    
    0-8483
    
    
    
    8-K
    
    
    Dec. 1998
    
    
    3.1Certificate of Amendment of the
Certificate of Incorporation of
Ceres Group, Inc. dated July 25, 2000.
    
    
    0-8483
    
    
    
    8-K
    
    
    Aug. 2000
    
    
    3.1Amended and Restated Bylaws of Ceres Group, Inc.
    
    
    0-8483
    
    
    
    8-K
    
    
    May 2004
    
    
    3.2




---



##### Table of Contents



INCORPORATED BYREFERENCE TOREGISTRATION OR
    
    
    FORM OR
    
    
    
    
    
    
    EXHIBITEXHIBITS
    
    FILE NUMBER
    
    
    REPORT
    
    
    DATE
    
    
    NUMBERInstruments defining the rights of security
holders, including indenturesAmended and Restated Registration Rights
Agreement dated as of July 25, 2000
between Ceres Group, Inc. (as
successor-in-interest to Central Reserve
Life Corporation) and the persons and
entities set forth on the signature
pages attached thereto.
    
    
    0-8483
    
    
    
    8-K
    
    
    Aug. 2000
    
    
    4.1Form of Stockholders Agreement between
QQLink.com, Inc., Ceres Group, Inc.
and the persons and entities listed on
the signature pages thereto.
    
    
    0-8483
    
    
    
    S-1
    
    
    Apr. 2001
    
    
    4.5Material ContractsReinsurance Agreement between
Central Reserve Life Insurance Company
and Hannover Life Reassurance Company
of America (f/k/a Reassurance Company
of Hannover).
    
    
    0-8483
    
    
    
    10-K
    
    
    Mar. 1998
    
    
    10.10Reinsurance Agreement dated February 1, 1999,
between Continental General Life Insurance Company
and Hannover Life Reassurance Company of
America (f/k/a Reassurance Company
of Hannover).
    
    
    0-8483
    
    
    
    10-K
    
    
    Mar. 1999
    
    
    10.21Ceres Group, Inc. 1998 Key
Employee Share Incentive Plan.
    
    
    0-8483
    
    
    
    S-1
    
    
    Apr. 2001
    
    
    10.26Ceres Group, Inc. 1998 Employee Stock Option Plan.
    
    
    0-8483
    
    
    
    S-1
    
    
    Apr. 2001
    
    
    10.27Ceres Group, Inc. 1999 Special
Agents Stock Option Plan.
    
    
    0-8483
    
    
    
    S-1
    
    
    Apr. 2001
    
    
    10.28Ceres Group, Inc. 2000 Employee
Stock Purchase Plan.
    
    
    0-8483
    
    
    
    S-8
    
    
    Apr. 2001
    
    
    4.1Ceres Group, Inc. 2000 Agent Stock Purchase Plan.
    
    
    0-8483
    
    
    
    S-8
    
    
    Apr. 2001
    
    
    4.2




---



##### Table of Contents



INCORPORATED BYREFERENCE TOREGISTRATION OR
    
    
    FORM OR
    
    
    
    
    
    
    EXHIBITEXHIBITS
    
    FILE NUMBER
    
    
    REPORT
    
    
    DATE
    
    
    NUMBERLease Agreement, dated as of
July 31, 2001, between Royalton
Investors, LLC and Big T
Investments, LLC and Ceres
Group, Inc.
    
    
    0-8483
    
    
    
    10-Q
    
    
    Aug. 2001
    
    
    10.37Transition Agreement, dated as of April 15,
2002, between Ceres Group, Inc. and Peter W.
Nauert.
    
    
    0-8483
    
    
    
    10-Q
    
    
    May 2002
    
    
    10.38Employment Agreement, dated as of July 9, 2002,
between Ceres Group, Inc. and Thomas J. Kilian.
    
    
    0-8483
    
    
    
    10-Q
    
    
    Aug. 2002
    
    
    10.39Employment Agreement, effective as of December
17, 2002 between Ceres Group, Inc. and David I.
Vickers.
    
    
    0-8483
    
    
    
    10-K
    
    
    Mar. 2003
    
    
    10.40Employment Agreement, effective
as of August 18, 2003 between
Ceres Group, Inc. and Bradley A.
Wolfram.
    
    
    0-8483
    
    
    
    10-Q
    
    
    Nov. 2003
    
    
    10.42Credit and Security Agreement,
dated as of December 23, 2003,
among Ceres Group, Inc., as
Borrower, the subsidiaries of the
Borrower which are signatories
thereto, as Subsidiary Guarantors,
and National City Bank, The CIT
Group/Equipment Financing, Inc.,
as Lenders and National City
Bank, as Agent.
    
    
    0-8483
    
    
    
    8-K
    
    
    Jan. 2004
    
    
    10.43Form of Pledge and Security
Agreement, dated as of
December 23, 2003, between each
of Ceres Group, Inc., Ceres
Administrators, LLC, Ceres
Health Care, Inc., Continental
General Corporation, and
Western Reserve Administrative
Services, Inc., and National City
Bank as Agent.
    
    
    0-8483
    
    
    
    8-K
    
    
    Jan. 2004
    
    
    10.44Term Loan A Note, dated December 23, 2003.
    
    
    0-8483
    
    
    
    8-K
    
    
    Jan. 2004
    
    
    10.45Term Loan B Note, dated December 23, 2003.
    
    
    0-8483
    
    
    
    8-K
    
    
    Jan. 2004
    
    
    10.46




---



##### Table of Contents



INCORPORATED BYREFERENCE TOREGISTRATION OR
    
    
    FORM OR
    
    
    
    
    
    
    EXHIBITEXHIBITS
    
    FILE NUMBER
    
    
    REPORT
    
    
    DATE
    
    
    NUMBEREmployment Agreement, effective as
of July 1, 2004, between Ceres
Group, Inc. and Ernest T.
Giambra, Jr.
    
    
    0-8483
    
    
    
    10-Q
    
    
    Aug. 2004
    
    
    10.47Employment Agreement effective as
of March 28, 2005, between Ceres Group, Inc. and
Mark E. Billingsley
    
    
    0-8483
    
    
    
    8-K
    
    
    Mar. 2005
    
    
    10.48First Amendment to Credit and Security
Agreement, dated as of May 2, 2005
    
    
    0-8483
    
    
    
    8-K
    
    
    May 2005
    
    
    10.49Stock Purchase Agreement, by and
between, Ceres Group, Inc., International Managed Care, LLC and International
Managed Care (Bermuda), L.P.
    
    
    0-8483
    
    
    
    8-K
    
    
    Sept. 2005
    
    
    10.50Code of Conduct and Ethics, dated
March 10, 2004.
    
    
    0-8483
    
    
    
    10-K
    
    
    Mar. 2004
    
    
    14.1Subsidiaries of the registrant.
Subsidiaries.
    
    
    0-8483
    
    
    
    10-K
    
    
    Mar. 2003
    
    
    21.1Consents of expert and counsel.
Consent of KPMG LLP.
    
    
    *
    
    
    
    
    
    
    
    
    
    
    
    23.1CEO certification pursuant to
Section 302 of Sarbanes-Oxley
Act of 2002.
    
    
    *
    
    
    
    
    
    
    
    
    
    
    
    31.1CFO certification pursuant to
Section 302 of Sarbanes-Oxley
Act of 2002.
    
    
    *
    
    
    
    
    
    
    
    
    
    
    
    31.2Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
    
    
    *
    
    
    
    
    
    
    
    
    
    
    
    32
 
 *
    
    Filed herewith.